Sugarline Associates v. Alpen Associates, 87-432

• Decision Date: 07 December 1990
• Docket Number: No. 87-432,87-432
• Citation: 586 A.2d 1115,155 Vt. 437
• Court: Vermont Supreme Court
• Parties: SUGARLINE ASSOCIATES v. ALPEN ASSOCIATES.

Page 1115

586 A.2d 1115

155 Vt. 437

SUGARLINE ASSOCIATES v. ALPEN ASSOCIATES.

No. 87-432.

Supreme Court of Vermont.

Dec. 7, 1990.

David Putter of Saxer, Anderson, Wolinsky & Sunshine, Montpelier, for plaintiff-appellant.

James M. Vitt of Paterson & Walke, P.C., Montpelier, for defendant-appellee.

Before ALLEN, C.J., and PECK, GIBSON, DOOLEY and MORSE, JJ.

PECK, Justice.

This case involves the 1985 purchase by plaintiff Sugarline Associates, a limited partnership, of a hotel and land in Waitsfield, Vermont, owned by defendant Alpen Associates, also a limited partnership. Sugarline sued for damages, claiming that Alpen fraudulently failed to disclose information about the site's septic system, and Alpen counterclaimed to collect on a promissory note given to Alpen at the closing. The superior court awarded damages on the constructive fraud claim and set off that sum against the amount owed on the note, with a net award to Alpen. Both parties appealed, raising numerous issues. We find as a matter of law that Alpen's conduct in this transaction did not amount to fraud (constructive or otherwise) and accordingly vacate the damages award. We remand for a determination of what amount, if any, Sugarline owes on the promissory note.

I.

As found by the trial court, the facts essential to the issues on appeal are as follows. Alpen Associates owned and operated a 33-room hotel and restaurant in Waitsfield known as the Alpen Inn. Prior to Alpen's purchase of the property in 1982, the leach field had failed, and the previous owner had applied to the state for a land use permit to install a new leach field. A permit was issued in 1978 approving the construction of a replacement field and containing the following condition:

Only utilization of the replacement field is authorized. Any substantial change to the project involving increased wastewater flows or further repair or reconstruction of the subsurface wastewater disposal system will require prior review and approval by the Agency of Environmental Conservation.

A new leach field was installed and used thereafter. The permit was among the records transferred to Alpen when it assumed ownership of the inn.

After purchasing the property, Alpen initiated a project to construct condominiums alongside the hotel, and to this end began the necessary Act 250 permit process. In November 1982, a hydrogeologist with the Agency of Environmental Conservation, Stephen Goldberg, visited the site and performed soil tests. In a letter to Michael Wurth, a geologist hired by Alpen, Goldberg related details of his findings and recommended further analysis. The letter referred to the 1978 land use permit authorizing use of the replacement field only, and stated that "[t]he new disposal field has a design capacity of 4,500 gallons per day and the old field had a design capacity of 7,500 gallons per day." Goldberg then concluded his letter:

since the proposed condominium development is an expansion of the overall Alpen Inn property operation, a replacement disposal area for the Inn facility must be identified and provided before consideration can be given to the condominium project. The Food and Lodging Section of the Vermont Department of Health has indicated that the Inn is licensed for 130 bed spaces and 150 restaurant seats. This means that a replacement area with a capacity to accommodate 11,000 gallons per day of sewage must be provided. It should be pointed out that the new disposal field for the Inn facility and the old disposal field (if utilized) have a combined design capacity of just over 11,000 gallons per day.

Alpen received a copy of this letter. Alpen's failure to disclose the letter and the 1978 permit (or the information contained therein) in the subsequent negotiations with Sugarline is the basis for the fraud claim.

A week after the letter was sent, Goldberg and Wurth met to discuss plans for increased sewage capacity for the condominium project. A second letter from Goldberg to Wurth, also with a copy to Alpen, dated the day after the meeting, summarizes their agreements on what further tests should be performed. This letter contains the following paragraph: "It is our understanding that the land encompassing the Alpen Inn will be subdivided into a 10 acre parcel. Therefore, the subject of the replacement leach field as raised in our letter of November 22, 1982 is no longer under our jurisdiction."

The land apparently could accommodate a septic field for the condominium development. In May of 1983, Wurth wrote to a geologist at the Department of Water Resources, confirming a meeting at which it was decided that "the project will have 92 bedrooms generating 13,800 gallons of waste water per day. A 10% flow reduction will be generated for the installation of low flow mixture. The septic tank will be sized for 13,800 gallons per day, while the disposal field sizes and flow nets will be based upon the reduced flows of 12,420 gallons per day."

Alpen subsequently abandoned the condominium project, and placed the inn on the market. In the fall of 1984, Andrew Neisner, a general partner of Sugarline Associates, began negotiations with Alpen's general partners, Robert Forenza and Geoffrey Dickes, to purchase the property. The trial court found that Neisner informed Forenza and Dickes "of his intention, upon purchase of the property, to enlarge the hotel." Finding No. 34 states in part:

The plans were described in general terms, and the defendants were told that Mr. Neisner planned to build a luxury "Sheraton Spec" hotel that would have approximately 100 rooms which would sleep 4 persons each. It would also have a restaurant, lounge, health center and conference facilities which could service 250 people. The credible evidence is that the defendants did not tell Mr. Wolf [Neisner's associate] or Mr. Neisner during 1984 that there was 11,000 gallons per day available sewage capacity from the existing systems or that the old leach field and the new leach field could be used together. However, Mr. Neisner was told by Mr. Dickes that defendant had verbal concurrences from the State of Vermont for 13,800 gallons in back of the Inn with a flow reduction of 12,420 gallons per day.

In short, no affirmative misrepresentations were made.

Discussions continued for several months and in May of 1985, Neisner delivered a draft purchase and sales agreement to Alpen's attorney. Section 12 of the draft agreement included the following representations by the seller:

(a) That the present septic system is in good working order and approved for a capacity of _____ gallons. There are no known defects therein.

(b) That Seller has obtained approval for construction of an additional 13,500 gallon capacity septic system pending completion of final design drawings suspended prior to submission. The obtaining of said final approval shall be a contingency upon this agreement.

Alpen expressly refused to enter a figure into the blank in section 12(a). After further discussion, Neisner prepared a second draft agreement with a new section 12(a) as follows:

That the existing septic system is in good working order and is currently approved for the capacity required by the Alpen Inn. There are no known defects therein. Seller warrants that there have been no recent problems with capacity or flow which would jeopardize continued use of the system at its present capacity.

(Emphasis added.) Alpen stated that it could not agree to this provision either.

Negotiations continued. Finding No. 50 relates a discussion at a June 1, 1985 meeting:

Mr. Lorenz (Neisner's attorney) told the defendants that the plaintiff needed between 22,000 and 24,000 gallons per day from a septic system. Mr. Lorenz stated that he asked the defendants whether he could place 9,000 gallons per day, 10,000 gallons per day or 11,000 gallons per day as an amount of the existing septic system. Attorney Lorenz stated that he understood from the discussion that the existing system would have no less than 9,000 gallons per day. The credible evidence is that the defendants told Mr. Lorenz and Mr. Neisner that they did not know what the legal capacity of the existing system was.

The trial court found, however, that Dickes and Forenza did not disclose all that they did know. Finding No. 54 states:

The court finds that during negotiations with Neisner, Forenza and Dickes knew, but did not disclose to Neisner or any other representative of the plaintiff:

(a) That the Alpen Inn had and was only authorized to use one leach field.

(b) That leach field had a design capacity of only 4,500 gallons per day.

(c) That there was no back-up leach field with which that 4,500 gallons per day leach field could be alternated.

(d) That the second "old" leach field had failed in 1978.

The record also tends to show (although the trial court did not make findings on the matter) that, during these negotiations, Dickes and Forenza offered to convey additional information but that Neisner declined the offer. Neisner acknowledged in testimony that it is his general practice to hire engineers to handle the technical aspects of his projects. Forenza testified that during a discussion on an early draft of the purchase and sales agreement, when Sugarline "was trying to have us get this gallonage put in the contract ... I mentioned that there was some representation, that there was something in the files that may determine it.... Mr. Neisner came in and he indicated that his engineers would be checking it out, and to leave it at that, and that was the understanding we had." This exchange was confirmed in testimony by Alpen's real estate broker, Brian Lewis, who was present at the meeting. Dickes also testified generally that "whenever I endeavored to volunteer something, I always felt that it was received somewhat negatively as though ... I couldn't hope to know as much about the development process as what Mr. Neisner knew."

Neisner did not request...