By William J. O'Sullivan [1]
In 2022, Connecticut's appellate courts decided numerous cases of interest to business litigators. The following is a summary of the year's most noteworthy decisions.
I. Contracts
A. Government COVID restrictions did not excuse performance of restaurant lease under doctrines of impossibility and frustration of purpose.
In AGIC Sono Partners, LLC v. Downtown Soho, LLC, [2] the Connecticut Supreme Court weighed in, for the first time, on the impact of COVID-19 public-safety orders on the enforceability of a restaurant lease. The defendant restaurant asserted that, because of certain of those orders, the legal doctrines of impossibility and frustration of purpose relieved it of its payment obligations. Relying in significant part on the language of the lease, the court concluded otherwise.
The defendant operated a fine-dining restaurant, called Blackstones Bistro, in Norwalk. The defendant's lease called for it to use the leased premises "for the operation of a restaurant and bar selling food, beverages, and related accessories, together with uses incidental thereto, and for no other purpose.... [3]
Following the issuance of pandemic-related operational and crowd-density orders, the restaurant closed completely between March 11 and May 27, 2020. Although takeout and delivery service were not forbidden either by the government orders or by the lease, the restaurant was unable to conduct such operations profitably, and brought in no income during that timeframe. The restaurant then obtained a permit for outdoor dining, and eventually for limited indoor dining, but operated at a loss. The restaurant made no rental payments after March of 2020, received an eviction notice, and vacated the premises by September 11, 2020.[4]
In November of that year, the landlord re-let the property to another restaurant, called Sono Boil. The new lease had a ten-year term commencing in January of 2021, at rents lower than those that had been charged to the defendant. The landlord then sued the defendant restaurant, as well as its principal, who had signed a guaranty, for damages.
Following a brief courtside trial, the trial court entered judgment for the plaintiff. The court rejected the defendants' defenses of impossibility and frustration of purpose. The court's damages award included unpaid rent, use and occupancy through December of 2020, up to the point that the plaintiff s lease with its replacement tenant took effect.
The trial court credited the plaintiff for mitigating its damages by lining up a new tenant so quickly, but noted an absence of evidence about the lease negotiations, or about the possibility that the landlord could have obtained a better deal. Accordingly, the court did not award damages based on the lower rents to be paid by the replacement tenant.
On appeal, the defendants argued that the trial court had erred in rejecting their special defense of impossibility. The Supreme Court disagreed, noting that the impossibility doctrine applies only in extremely rare cases. "[O]nly in the most exceptional circumstances have courts concluded that a duty is discharged because additional financial burdens make performance less practical than initially contemplated."[5] Here, "as the trial court found, even under the most restrictive executive orders, use of the premises for restaurant purposes was not rendered factually impossible insofar as restaurants were permitted to provide curbside or takeout service, and the lease agreement did not prohibit curbside or takeout service."[6] The government restrictions "raised the cost of performance for the defendants in a manner that rendered it perhaps highly burdensome, but not factually impossible."[7]
Furthermore, to sustain a defense of impossibility, "the event [on] which the obligor relies to excuse his performance cannot be an event that the parties foresaw at the time of the contract. ...If an event is foreseeable, a party who makes an unqualified promise to perform necessarily assumes an obligation to perform, even if the occurrence of the event makes performance impracticable."[8]
Here, "the language of the lease agreement suggests that events of the magnitude of the CO VID-19 pandemic were not entirely unforeseeable."[9] For one thing, the lease lacked a force majeure clause - a provision that, had it been included, typically would "relieve a party from its contractual duties when its performance has been prevented by a force beyond its control or when the purpose of the contract has been frustrated."[10]
But more importantly, the lease's section 4(d) "squarely tasks the defendants with the obligation of complying with all governmental 'laws, orders and regulations ...."[11] That section provided, in relevant part, that the defendants, at their "expense, shall comply with all laws, orders and regulations of [f|ederal, [s]tate and municipal authorities and with any direction of any public officer or officers, pursuant to [l]aw, which shall impose any violation, order or duty upon [l]andlord or [t]enant with respect to the use or occupancy thereof by [t]enant..."[12] Accordingly, the trial court had acted properly in rejecting the defendants' special defense of impossibility.
As for frustration of purpose, the court noted that, similar to the impossibility doctrine, this defense applies only under rare circumstances. "[T]he establishment of the defense requires convincing proof of a changed situation so severe that it is not fairly regarded as being within the risks assumed under the contract. ... The doctrine of frustration of purpose is given a narrow construction so as to preserve the certainty of contracts ...."[13] As applied here:
Given the narrowness of the frustration of purpose doctrine, we conclude that the purpose of the lease agreement was not frustrated by the pandemic restrictions imposed by the executive orders, even those that barred indoor dining entirely. The language of the lease agreement was not limited to a certain type of dining and ... did not preclude the takeout and subsequent outdoor dining that the defendants sought to provide. Put differently, the lease terms did not by themselves render the lease agreement valueless in light of the executive orders.[14]
Accordingly, the Supreme Court, held that the trial court had acted properly in rejecting this defense as well.
B. Defaulting commercial tenant had burden of proving inadequacy of landlord's effort to mitigate dam ages.
In a cross-appeal in AGW Sono Partners, LLC, the plaintiff landlord claimed the trial court should have included, as an element of its damages award, "the full difference in value between the defendants' lease agreement and the new lease that the plaintiff entered into with Sono Boil, the replacement tenant."[15] More particularly, the plaintiff argued that the court had "improperly charged it with the burden of presenting evidence relating to its negotiations with Sono Boil to show an inability to mitigate its damages by obtaining the same lease or better terms than it had with the defendants, because the defendants, as the breaching party, bear the burden of proof as to failure of mitigation..."[16]
The Supreme Court agreed with the plaintiff that "when a tenant has breached a lease agreement, that tenant bears the burden of proving that the landlord failed to undertake commercially reasonable efforts to mitigate its damages."[17] Here, the trial court had observed that "no evidence of the negotiations with [Sono Boil] was presented in detail by the plaintiff. The court can only speculate if further negotiations with [Sono Boil] could have resulted in a lease with the same terms the defendants' lease had."[18] From this language, it was apparent that "the trial court improperly cast the burden of proof onto the plaintiff."[19] The Supreme Court reversed this part of the judgment below, and remanded the case for a hearing in damages.
C. Supreme Court finds implied contract right to notice and cure of alleged breach .
The Connecticut Supreme Court's decision in "the Hartford baseball stadium case," Centerplan Construction Company, LLC v. City of Hartford, [[2]] focused on which party - the city, or the developer and builder - "controlled" the project architect during various phases of the design and construction process, and therefore bore responsibility for any mistakes in, and changes to, the stadium's design.
Following various pretrial rulings concerning the interpretation of the relevant contracts, a jury assigned responsibility to the developer and builder, and rendered judgment for the city. The Supreme Court reversed, finding error in certain of those pretrial rulings, and remanded the case for a new trial.
The court's decision turned in large part on an analysis of the contract language, and generally did not rely on novel or noteworthy principles of broader application. But one notable exception can be found in the court's discussion of an issue likely to arise following the remand: whether the builder had been entitled to notice of alleged default, and an opportunity to cure.
The court observed, "[u]nder our common law, when a contract is silent as to notice and cure rights, the right to cure is implied in every contract as a matter of law unless expressly waived."[21] Characterizing this principle as part of "our well established common law,"[22] the court cited a Tennessee Court of Appeals decision and a construction-law treatise as its authority for the proposition. The court added, "[t]hus, under our common law, silence in a contract regarding notice and cure rights does not create ambiguity. Rather, it supports a presumption in favor of common-law notice and cure rights."[23]
The court went on to note that a party claiming a breach may be excused from...
