Channing Real Estate, LLC v. Gates

• Decision Date: 04 July 2017
• Docket Number: SC 19575
• Court: Connecticut Supreme Court
• Parties: CHANNING REAL ESTATE, LLC v. Brian GATES

326 Conn. 123

161 A.3d 1227

CHANNING REAL ESTATE, LLC

v.Brian GATES

SC 19575

Supreme Court of Connecticut.

Argued November 16, 2016

Officially released July 4, 2017

Linda L. Morkan, with whom was Stuart D. Rosen, for the appellant (plaintiff).

Frank J. Liberty, for the appellee (defendant).

Palmer, Eveleigh, McDonald, Espinosa, Robinson and Vertefeuille, Js.

ESPINOSA, J.

The plaintiff, Channing Real Estate, LLC, appeals from the judgment of the Appellate Court, which reversed the judgment of the trial court in favor of the defendant, Brian Gates, on both the plaintiff's complaint seeking recovery on six promissory notes (notes) and on the defendant's counterclaim alleging a violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42–110a et seq.Channing Real Estate, LLC v. Gates , 159 Conn.App. 59, 83, 122 A.3d 677 (2015). The plaintiff, which prevailed in the Appellate Court, challenges only the scope of the court's remand order, claiming that it improperly ordered a new trial rather than restricting the proceedings on remand to a hearing in damages. The plaintiff contends that a new trial is unnecessary because the Appellate Court's proper application of the parol evidence rule resolved the issue of liability on the notes in favor of the plaintiff as a matter of law and because the defendant lacks standing to raise a CUTPA claim.¹ The defendant argues that the Appellate Court correctly concluded that a new trial is necessary to allow him to pursue valid special defenses and counterclaims. We conclude that a new trial is unnecessary, and, accordingly, reverse in part the judgment of the Appellate Court.

The trial court found the following relevant facts. The plaintiff is a limited liability company organized under New York law, with Douglas Chan as principal. The defendant was a co-owner and member of Front Street Commons, LLC (Front Street Commons), a limited liability company organized under Connecticut law that owned commercial real estate in Putnam.

On six different occasions between January, 2008, and February, 2009, the defendant executed a promissory note in exchange for funds that the plaintiff provided to him. The total principal amount of the six notes was $281,272.74. The defendant has made no payments on any of the notes.

With the exception of the principal amounts and maturity dates, the terms of each of the six notes were identical. In each note, the defendant promised to pay the corresponding principal amount to the defendant with annual interest at the rate of 14 percent. If the notes were not paid by the maturity dates, their terms called for the payment of interest either at 16 percent annually or the highest rate permitted under New York law, whichever was higher. Each note set forth the address to which the defendant was to send his payments and in what form those payments were to be made. The terms of each note also stated that the defendant promised to pay all reasonable collection costs, including attorney's fees. Finally, each note included the following clause precluding oral modification of the contract: "This [n]ote may not be changed, modified or discharged, nor any provision waived, orally, but only in writing, signed by the party against whom enforcement of any such change, modification, discharge or waiver is sought."

On December 15, 2009, the plaintiff demanded payment of all six notes and, after the defendant failed to make any payments, brought this action for breach of contract, seeking to collect principal, interest, costs, and fees as provided in the notes. The defendant alleged four special defenses and filed a three count counterclaim, all of which related to the parties' failed negotiations pertaining to a proposed real estate transaction through which the plaintiff would have acquired an interest in the commercial real estate owned by Front Street Commons. The defendant asserted special defenses of fraud in the inducement, unjust enrichment, innocent or negligent misrepresentation, and promissory estoppel. The defendant's counterclaim alleged fraud, negligent misrepresentation, and a violation of CUTPA, and sought, inter alia, damages for lost rents in connection with the failed real estate transaction.

The plaintiff filed a pretrial motion in limine claiming that the parol evidence rule barred the trial court from considering any extrinsic evidence that varied the terms of the notes because the notes are written, integrated, and the terms stated therein are unambiguous. The extrinsic evidence the plaintiff sought to exclude related to the defendant's claim that the notes were not promises to repay loans but were issued in connection with the proposed real estate transaction between the parties. Specifically, the defendant claimed that, rather than loans, the funds that the plaintiff had paid to him were interim payments made in exchange for an interest in the commercial real estate owned by Front Street Commons. The sole purpose of the notes, according to the defendant, was to protect the plaintiff's investment in the event that the defendant backed out of the proposed transaction or the commercial property was destroyed.

The trial court denied the plaintiff's motion in limine, concluding that the parol evidence rule did not bar the introduction of extrinsic evidence to vary the terms of the notes. The trial court determined that the parol evidence rule did not apply because it found that the notes were not integrated as a result of the parties' failure to reduce to writing what the court deemed to constitute their full agreement—the proposed real estate transaction. Relying on the extrinsic evidence presented by the defendant, the trial court ruled in his favor on the plaintiff's complaint, and on the third and fourth special defenses alleging negligent misrepresentation and estoppel, as well as the third count of the counterclaim alleging a violationof CUTPA. Lastly, the trial court found for the plaintiff on the defendant's first and second special defenses alleging fraud in the inducement and unjust enrichment, and on the first count of the defendant's counterclaim alleging fraud in the inducement. Although in its memorandum of decision the trial court ruled in favor of the defendant's counterclaim for negligent misrepresentation, it did not award any damages in connection with that claim.² The trial court awarded the defendant $25,575 in attorney's fees on the CUTPA claim.³ See General Statutes § 42–110g (d).

The plaintiff appealed to the Appellate Court claiming, inter alia, that the trial court improperly admitted parol evidence to vary the unambiguous terms of the notes, each of which was a fully integrated agreement. The Appellate Court examined the notes and agreed that they were integrated and that their terms were unambiguous. The court therefore reversed the judgment of the trial court, concluding that the parol evidence rule barred the introduction of extrinsic evidence to vary the terms of the notes. Channing Real Estate, LLC v. Gates , supra, 159 Conn.App. at 81–83, 122 A.3d 677. Unlike the trial court—which examined the notes and the parol evidence rule under Connecticut law—the Appellate Court applied New York law, but observed that "there are no material differences between New York and Connecticut law as applied to the facts of the present case." Id., at 73, 122 A.3d 677.

The Appellate Court remanded the case for a new trial on the basis of its conclusion that the introduction of parol evidence to vary the terms of the notes was "an error that permeate[d] the [trial] court's findings and undermine[d] its entire judgment." Id., at 83, 122 A.3d 677. The court stated that, "[o]n remand, the plaintiff is ... entitled to the opportunity to prove its damages with respect to each of the notes, the existence and written terms of which the defendant does not dispute. The defendant is entitled on remand to allege and prove any of the defenses [he] may have to each of the notes in accordance with the recognized exceptions under New York law to the parol evidence rule.... The only exceptions to the parol evidence rule that the defendant has pleaded as a special defense or counterclaim are mistake,⁴ fraud, and a violation of CUTPA. On remand, the trier of fact should analyze separately each of the defendant's valid defenses under New York law with respect to each of the notes, and each count of the counterclaim alleged by the defendant, at least one of which, the CUTPA count, is subject to Connecticut law, in accordance with this opinion.... To the extent that the negligent misrepresentation and CUTPA counts of the counterclaim can still be pursued by the defendant, it is likely that those claims, on the basis of the alleged place of injury, will be subject to Connecticut law." (Citations omitted; footnote added.) Id., at 82–83, 122 A.3d 677.

The plaintiff filed a motion for reconsideration or clarification, requesting that the court restrict its remand of the case to order only a hearing in damages. The plaintiff also requested that the court address the plaintiff's claims that the defendant lacked standing to pursue a CUTPA claim and that CUTPA did not apply to the parties. The Appellate Court denied the plaintiff's motion. This appeal followed. Additional facts will be set forth as necessary.

I

The plaintiff first contends that although the Appellate Court properly concluded that the application of the parol evidence rule to the facts of the present case required reversal of the judgment of the trial court, it improperly ordered a new trial rather than ordering only a hearing in damages. We agree that the Appellate Court properly held that the parol evidence rule barred the introduction of extrinsic evidence to vary the terms of the notes. Because that conclusion resolved all questions regarding the defendant's liability under the notes, we conclude that the Appellate Court improperly remanded the case for a new trial rather than directing...