AGW Sono Partners, LLC v. Downtown Soho, LLC

Decision Date10 May 2022
Docket NumberSC 20625
Citation343 Conn. 309,273 A.3d 186
Parties AGW SONO PARTNERS, LLC v. DOWNTOWN SOHO, LLC, et al.
CourtConnecticut Supreme Court

Philip Russell, with whom, on the brief, was Catherine R. Keenan, for the appellants-cross appellees (defendants).

Andrew B. Nevas, Westport, with whom, on the brief, was Travis K. Waller, for the appellee-cross appellant (plaintiff).

Robinson, C. J., and McDonald, D'Auria, Mullins, Kahn, Ecker and Keller, Js.

ROBINSON, C. J.

In the earliest months of the COVID-19 public health emergency, Governor Ned Lamont issued numerous executive orders that closed or severely restricted the operation of various businesses, including bars and restaurants, in order to stem the spread of the virus at that time. This appeal requires us to consider how those executive orders affected the enforceability of a commercial lease agreement for premises in South Norwalk that the defendants, Downtown Soho, LLC (Downtown Soho), and Edin Ahmetaj, leased from the plaintiff, AGW Sono Partners, LLC, for their fine dining restaurant. The defendants appeal, and the plaintiff cross appeals,1 from the judgment of the trial court awarding the plaintiff $200,308.76 in damages for the defendants’ breach of that lease agreement. In their appeal, the defendants claim, inter alia, that the trial court incorrectly concluded that the common-law doctrines of impossibility and frustration of purpose did not relieve them of their obligations under the lease agreement, given the damaging economic effects of the various executive orders on their restaurant's business. In its cross appeal, the plaintiff claims that, in calculating the damages award, the trial court improperly allocated the burden of proof in determining whether the plaintiff had mitigated its damages when it leased the premises to a new tenant at a lesser rent than the defendants had paid. We conclude that the trial court correctly determined that the economic effects of the executive orders did not relieve the defendants of their obligations under the lease agreement but that a new damages hearing is required because the trial court improperly allocated the burden of proof as to mitigation in determining the damages award. Accordingly, we reverse in part the judgment of the trial court.

The record reveals the following facts, as found by the trial court, and procedural history. In December, 2018, TR Sono Partners, LLC (TR Sono), entered into a lease agreement with Downtown Soho, under which Downtown Soho would use and occupy premises located at 99 Washington Street in South Norwalk (premises) for a ten year period beginning on January 1, 2019. Section 4 (a) of the lease agreement provides in relevant part that the defendants "shall use the [p]remises for the operation of a restaurant and bar selling food, beverages, and related accessories, together with uses incidental thereto, and for no other purpose. ..."2 Under the terms of the lease agreement, Downtown Soho was obligated to pay both base monthly and percentage rent,3 along with additional rent to cover its apportioned amounts of the plaintiff's insurance, common area expenses and real estate taxes, commencing on July 1, 2019, and concluding on December 31, 2028. On December 20, 2018, Ahmetaj, who is the managing member of Downtown Soho, executed a guarantee agreement pursuant to which he personally guaranteed all of Downtown Soho's obligations under the lease agreement. In December, 2019, the plaintiff purchased six commercial properties, including the premises, from TR Sono, which assigned all of its rights and obligations under the lease and guarantee agreements for those properties to the plaintiff.

The defendants operated a fine dining restaurant known as Blackstones Bistro (bistro) on the premises. Most of the bistro's business came during dinner service, when an average seating would generate a bill of $100 to $200 per patron, given bar service and dishes priced on average between $35 and $60 each. The upscale bar supported the restaurant side of the business and occupied approximately 40 percent of the premises’ total rental space. Prior to the COVID-19 pandemic, the bar was busy and could accommodate sixty customers by providing more than twenty-eight seats at the bar plus standing room for crowds.

The defendants first defaulted on their payment obligations under the lease agreement in January, 2020, by making only half the required monthly rent payment; they cured that default in February, 2020, by making payment within two weeks of receiving a default notice from the plaintiff. The defendants then defaulted on their February, 2020 obligations, which they cured one week later. Subsequently, Ahmetaj met with Adam Greenbaum, the plaintiff's manager, to discuss the defaults; Ahmetaj informed Greenbaum that the defaults resulted from slower winter business and would cease when business improved during the warmer months, and that he was surprised that the plaintiff, unlike TR Sono, did not accept late payments given the seasonal nature of the restaurant business in the Norwalk area.

The defendants defaulted on the lease agreement a third time the next month, and the plaintiff sent them a default notice on March 11, 2020; the defendants did not cure that default. On March 10, 2020, Governor Lamont acted, pursuant to General Statutes §§ 19a-131a and 28-9, and issued a Declaration of Public Health and Civil Preparedness Emergencies (declaration) because of the COVID-19 outbreak4 in the United States and in Connecticut, specifically.5 Pursuant to the declaration, Governor Lamont then issued several executive orders that affected the operation of bars and restaurants. First, on March 16, 2020, Governor Lamont issued Executive Order No 7D,6 which, inter alia, closed bars and restaurants to in person business from that day through April 30, 2020; the subsequent Executive Order No. 7X7 extended that ban through May 20, 2020. Executive Order No. 7PP,8 issued on May 18, 2020, allowed restaurants to offer outdoor dining and on premises alcohol consumption beginning on May 20, 2020, and, on June 16, 2020, Executive Order No. 7ZZ9 allowed restaurants to resume providing indoor dining at 50 percent capacity.10

The bistro was completely closed between March 11 and May 27, 2020. Downtown Soho had no income and could not pay rent during that period of time. Although the lease agreement did not prohibit takeout or delivery dining or restrict the restaurant's operation to dine in business only, Ahmetaj testified that it was not profitable when the bistro attempted to do so. After obtaining a permit from the city of Norwalk, Downtown Soho reopened the bistro for outdoor dining on May 28, 2020. Subsequently, during the summer of 2020, the bistro was open for indoor dining. As the trial court found, the nine foot social distancing requirements imposed at that time by the city of Norwalk11 had a significant effect on the usage of the restaurant space because, "[p]repandemic, [more than] 140 patrons could enjoy the space, [whereas] after the pandemic, about a maximum of twenty-five individuals, including staff, could be inside. At best, operating the business meant operating at a loss." This was compounded by the fact that alcoholic beverage sales remained limited to those customers who had purchased food. See Executive Order No. 7PP; footnote 8 of this opinion.

The defendants did not make any rental payments after March, 2020. During the pandemic, Ahmetaj again spoke with Greenbaum and asked that the plaintiff forgive rent for the months of March, April, and May, 2020, with full payments to begin in June, 2020. The plaintiff declined that offer because the defendants had refused its request to make some partial payment as a show of good faith, particularly when they had been in default under the lease agreement even prior to the pandemic restrictions.12 Subsequently, the plaintiff served a notice to quit, demanding that Downtown Soho vacate the premises on or before June 12, 2020; the plaintiff commenced a separate summary process action shortly thereafter. Downtown Soho vacated the premises by September 11, 2020.

The plaintiff immediately began marketing the space for new tenants. On November 30, 2020, the plaintiff entered into a ten year lease agreement for the premises with a new tenant, Sono Boil, Inc. (Sono Boil). Sono Boil planned to renovate the premises and to operate a full service restaurant there. The rent for Sono Boil's lease was $12,500 per month, including base rent and the additional rent for reimbursement of property taxes and common area expenses, which was less than the defendants had been paying. To entice Sono Boil to sign a lease, the plaintiff provided it with a concession of free rent for the first six months of the lease. The plaintiff did not offer a similar concession or lease terms to the defendants in order to allow them to stay.

The plaintiff brought this action against the defendants seeking money damages. In the first two counts of the three count complaint, the plaintiff alleged that Downtown Soho had breached the lease agreement and been unjustly enriched by occupying the premises without paying for that benefit. In the third count, the plaintiff alleged that Ahmetaj had breached his guarantee obligations. In response, the defendants raised various special defenses, including the doctrines of impossibility of performance and frustration of contract, relying on the purpose of the lease agreement, namely, " ‘the operation of a first class restaurant and bar,’ " and the adverse effects of the various executive orders on the restaurant and hospitality industry. The defendants also claimed that the executive orders rendered the lease agreement illegal as a matter of law.

After a one day trial to the court, at which Ahmetaj and Greenbaum testified, the trial court issued a memorandum of decision, finding that the plaintiff had established its claims...

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