Reserve Realty, LLC v. Windemere Reserve, LLC

• Citation: 229 A.3d 708,335 Conn. 174
• Decision Date: 24 March 2020
• Docket Number: SC 19979, (SC 19982), (SC 19981)
• Court: Supreme Court of Connecticut
• Parties: The RESERVE REALTY, LLC, et al. v. WINDEMERE RESERVE, LLC, et al. The Reserve Realty, LLC, et al. v. BLT Reserve, LLC, et al.

335 Conn. 174

229 A.3d 708

The RESERVE REALTY, LLC, et al.

v.WINDEMERE RESERVE, LLC, et al.

The Reserve Realty, LLC, et al.

v.BLT Reserve, LLC, et al.

SC 19979, (SC 19982), (SC 19981)

Supreme Court of Connecticut.

Argued September 18, 2018

Officially released March 24, 2020^*

Daniel E. Casagrande, with whom was Lisa M. Rivas, for the appellants (plaintiffs).

Christopher Rooney, with whom was Brian A. Daley, for the appellees (named defendant et al.).

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

ROBINSON, C. J.

These certified appeals invite us to revisit State v. Hossan-Maxwell, Inc ., 181 Conn. 655, 662–63, 436 A.2d 284 (1980), in which this court held that real estate "list-back" agreements—tying arrangements that commit the purchaser of a parcel of real property to use the services of a particular broker when leasing or reselling the property¹ —are per se illegal under state antitrust law. Specifically, we must decide whether, in light of recent antitrust scholarship and developments in federal tying law, Hossan-Maxwell, Inc. , should be overruled. We answer that question in the affirmative. Accordingly, we reverse the judgments of the Appellate Court, which, like the trial court, correctly determined that it was required to apply Hossan-Maxwell, Inc. , to the present case.

These appeals arise out of a breach of contract action involving the sale and development of 546 acres of the former Union Carbide Corporation (Union Carbide) corporate campus in Danbury (the Reserve). The primary brokers involved in the transactions were Jeanette Haddad (Haddad), a prominent local real estate agent who died in 2013, and Paul P. Scalzo.² The plaintiffs are Haddad's husband, Theodore Haddad, Sr., as executor of his wife's estate, and The Reserve Realty, LLC (Reserve Realty), a limited liability company organized by Haddad and Scalzo to market and sell the Reserve as it became subdivided. The defendants, BLT Reserve, LLC (BLT), and Windemere Reserve, LLC (Windemere), are limited liability companies, the principals and owners of which include Carl R. Kuehner, Jr., and Paul J. Kuehner, whose family is longtime friends and business associates of the Haddad family. In this action, the plaintiffs sought to recover real estate brokerage fees in connection with the sale and/or lease of units in an apartment complex constructed on the Reserve and leased by BLT, and of commercial office space to be constructed on the Reserve by Windemere. After a trial to the court, judgments were rendered in favor of the defendants. The Appellate Court affirmed, agreeing with the trial court that the defendants' antitrust special defense barred the plaintiffs' claims. Reserve Realty, LLC v. Windemere Reserve, LLC , 174 Conn. App. 130, 132, 165 A.3d 162 (2017).

I

The relevant facts, as found by the trial court or that are undisputed, and complete procedural history are set forth in detail in the opinion of the Appellate Court. See id., at 132–38, 165 A.3d 162. In brief, following its acquisition by the Dow Chemical Company (Dow Chemical) in 1999, Union Carbide made known that it would entertain offers to sell the Reserve to interested buyers. Garland Warren, then a Union Carbide employee, initially was responsible for overseeing the sale of the parcel.

In early 2002, a group of real estate developers, later known as Woodland Group II, LLC (Woodland), engaged the services of Haddad and Scalzo to represent them in negotiations to purchase the Reserve. Woodland appears to have chosen Haddad and Scalzo in part because Warren had since left Dow Chemical and been employed by Scalzo.

As part of the broker-client relationship, Haddad, Scalzo, and Woodland executed an "Exclusive Right to Sell—Listing Agreement" (Woodland agreement). The Woodland agreement gave Haddad and Scalzo the exclusive right to sell and/or lease property in the Reserve. The agreement also contained the following provision: "[Woodland] shall make aware to the new purchaser of any part, or of individual lots, or of land, that this [a]greement shall apply to that new purchaser and [Haddad and Scalzo]."

Woodland succeeded in purchasing the Reserve, and the plaintiffs received a commission for facilitating that sale. Woodland subsequently proposed a master plan for the entire 546 acre parcel, which the Danbury Zoning Commission approved in November, 2002. Woodland then continued to use the services of Haddad and Scalzo to market the property to potential buyers.

Efforts to develop the property foundered, however, when Windemere, which was in the process of developing a neighboring parcel of land, appealed Woodland's zoning approval for the Reserve, effectively blocking development of the land. To resolve the zoning dispute, Woodland agreed to sell one portion of the Reserve (parcel 13) to BLT for residential development (a luxury apartment complex, Abbey Woods, had been built at the time of trial), and another portion (parcel 15) to Windemere for commercial development (which had yet to be built at the time of trial).

Consistent with the requirements of the Woodland agreement, and after several rounds of negotiations with Woodland, the defendants reluctantly agreed to include list-back provisions in their purchase and sale agreements for parcels 13 and 15. Specifically, BLT agreed to enter into a listing agreement with Haddad and Scalzo, pursuant to which the brokers would receive a 3 percent commission on the subsequent sale or lease of parcel 13, either as a whole or as individual units. For its part, Windemere agreed to pay Haddad and Scalzo $1 million for their efforts in leasing the office space that Windemere planned to build on parcel 15. That fee was to be paid in ten annual increments of $100,000, beginning when the first certificate of occupancy was issued.³ After months of additional negotiations, Woodland and the defendants finalized and memorialized those list-back agreements in July, 2003.⁴

Although Haddad and Scalzo made good faith efforts to market parcels 13 and 15, the real estate market softened in the wake of the 2007–2008 financial crisis, and those efforts were unsuccessful. BLT ultimately proceeded to build a luxury apartment complex on its parcel, units of which it marketed through its own on-site leasing agent instead of through the services of Haddad and Scalzo.

The plaintiffs responded by filing the present action, alleging breach of contract and anticipatory breach, and seeking, inter alia, specific performance of the listing agreements. In response, the defendants raised a number of special defenses, three of which were at issue in the plaintiffs' appeal to the Appellate Court. Specifically, the defendants argued that the list-back provisions in their purchase and sale agreements were not enforceable by the plaintiffs because those provisions (1) were illegal tying arrangements, (2) did not satisfy the requirements of General Statutes § 20-325a,⁵ and (3) were personal and specific to Haddad, who died prior to the trial. Reserve Realty, LLC v. Windemere Reserve, LLC , supra, 174 Conn. App. at 138, 165 A.3d 162. Following a bench trial, the trial court ruled for the defendants on all three of these special defenses and rendered judgments accordingly. The Appellate Court affirmed the judgments on the basis of the antitrust defense and, therefore, declined to address the plaintiffs' claims that the trial court reached the incorrect conclusion on the remaining special defenses.⁶ Id.

II

The dispositive question in these appeals is whether we should reconsider our tying jurisprudence and overrule Hossan-Maxwell, Inc . In part II A of this opinion, we set forth certain well established background principles on which we understand the parties to be in agreement. In part II B and C, we address the legal questions that remain the subject of dispute between the parties.

A

The defendants' first special defense alleges that the list-back provisions in the parties' purchase and sale agreements violate the Sherman Act, 15 U.S.C. § 1 et seq., and are, therefore, unenforceable. See Kaiser Steel Corp . v. Mullins , 455 U.S. 72, 76, 102 S. Ct. 851, 70 L. Ed. 2d 833 (1982) (claim that agreement "was void and unenforceable as violative of §§ 1 and 2 of the Sherman Act"); see also Hanks v. Powder Ridge Restaurant Corp ., 276 Conn. 314, 326, 885 A.2d 734 (2005) ("contracts that violate public policy are unenforceable" (internal quotation marks omitted)). The section of the Sherman Act at issue provides in relevant part: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several [s]tates, or with foreign nations, is declared to be illegal. ..." 15 U.S.C. § 1 (2018). Although this provision, on its face, prohibits any contract in restraint of trade, the United States Supreme Court has added a judicial gloss requiring a contractual restraint to be unreasonable before it will be deemed illegal under the Sherman Act.⁷ See, e.g., Board of Trade v. United States , 246 U.S. 231, 238–41, 38 S. Ct. 242, 62 L. Ed. 683 (1918) ; Elida, Inc . v. Harmor Realty Corp ., 177 Conn. 218, 225, 413 A.2d 1226 (1979) ; see also Bridgeport Harbour Place I, LLC v. Ganim , 303 Conn. 205, 214, 32 A.3d 296 (2011) ("an act is deemed anticompetitive under the Sherman Act only when it harms both allocative efficiency and raises the prices of goods above competitive levels or diminishes their quality" (emphasis omitted; internal quotation marks omitted)).

The United States Supreme Court generally has reviewed alleged Sherman Act violations under one of two standards. "If a restraint alleged is among that small class of actions that courts have deemed to have ... predictable and pernicious anticompetitive effect, and ... limited potential for procompetitive benefit, it will be unreasonable per se .... Most antitrust claims, however ... are analyzed under a rule of reason analysis [that] seeks to determine if the alleged...