Johnson v. Vita Built, LLC

217 Conn.App. 71

287 A.3d 197

Ray C. JOHNSON et al.

v.VITA BUILT, LLC, et al.

AC 45123

Appellate Court of Connecticut.

Argued October 5, 2022

Officially Released December 20, 2022

William N. Wright, Stamford, for the appellants (plaintiffs).

John J. Ribas, with whom, on the brief, was Bruce L. Elstein, Bridgeport, for the appellees (defendants).

Prescott, Seeley and Eveleigh, Js.

PRESCOTT, J.

In this contract action arising out of the redevelopment and sale of residential property in Westport, the plaintiff property owners, Ray C. Johnson and Indre L. Johnson, appeal from the judgment of the trial court granting an application for a prejudgment remedy filed by the defendants, Vita Built, LLC (Vita Built), and Vita Design Group, LLC (Vita Design), after finding probable cause that the defendants will prevail on their breach of contract counterclaim against the plaintiffs.¹ The plaintiffs claim on appeal that the court improperly (1) misconstrued the relevant contract as unambiguously providing that the parties intended to share only in potential profits resulting from the sale of the redeveloped property, despite express contradictory language in the contract indicating that the parties would share in all profits and losses, and (2) relied upon clearly erroneous factual findings in reaching its alternative conclusion that, even if the contract language is ambiguous, the extrinsic evidence presented to the court favored the defendants’ interpretation that the parties did not intend to share in all potential losses.

We agree that the court improperly concluded that the contract unambiguously provided that the parties would share only in net profits and did not reflect an intent to share in all losses resulting from the sale of the property. We also agree with the plaintiffs that the court made clearly erroneous factual findings in support of its alternative conclusion that, even if the contract is ambiguous regarding the parties’ intent, the parol evidence established probable cause that the defendants would prevail on their counterclaim. Accordingly, we reverse the judgment of the court granting the defendants’ application for a prejudgment remedy and remand for a new prejudgment remedy hearing.

The following facts, as found by the court or that are otherwise undisputed in the record, and procedural history are relevant to our resolution of this appeal. The plaintiffs owned residential property located at 281 Compo Road South in Westport.

They acquired the property in 2007 for $2,428,000. By 2016, the plaintiffs had begun to formulate a plan to demolish the existing residence on the property, which, at that time, was valued at approximately $1,840,000, and to construct a new home with the hopes of selling the redeveloped property for a profit. In late 2016, the plaintiffs met with Lucien Vita to discuss their redevelopment plans. Vita was the controlling principal of the two defendant companies: Vita Built, a licensed new home construction and home improvement contractor, and Vita Design, an architectural firm specializing in residential properties. During their ongoing negotiations, the plaintiffs suggested to Vita that the defendants’ involvement in the redevelopment would provide the defendants with positive publicity and marketing opportunities and that the parties should discuss an agreement that reflected those benefits to the defendants.

In September, 2017, although the parties continued to negotiate some of the details of their financial arrangements, they executed a contract for the construction of the new residence. Pursuant to the construction contract, Vita Built agreed to construct the new home and provide related management services for a fee of $197,000, and Vita Design agreed to provide architectural plans and related services for an additional $197,000, for a total of $394,000. Later that month, the defendants, by letter, agreed as a part of the parties’ ongoing discussions to reduce their fees as set forth in the construction contract (fee reduction letter). Specifically, each defendant agreed to reduce its fee by $63,000. As a result, the plaintiffs agreed to pay the defendants a combined total of $268,000. The fee reduction letter further provided that the estimated budget for the project was $2,300,700, which sum included the defendants’ reduced fees.

On February 2, 2019, the parties entered into a separate agreement that was titled "Additional Fee and Profit Sharing Agreement" (2019 agreement). The plaintiff Indre L. Johnson drafted the 2019 agreement using as a template an earlier version of a profit sharing agreement drafted by the defendants’ attorney. The 2019 agreement incorporates by reference both the construction contract and the fee reduction letter. It also includes an integration or merger clause that provides that "[the 2019 agreement] represents the entire agreement and understanding of the [p]arties with respect to the subject matter hereof, absent further agreement."

Section 7 of the 2019 agreement is the critical provision at issue in the present appeal. In relevant part, it provides: "Additional Fee and Profits/Losses . In consideration of the additional work and responsibilities associated with finalizing design and construction plans and details for marketing new construction to potential buyers under the Listing Agreement, Owner² has agreed to reinstate the fee reduction agreed to in the Fee Reduction Letter,³ paying Architect and Builder the additional $63,000 in fees each, for a total of $126,000, according to the distribution which will be outlined below, at the time of closing of sale. Owner has also agreed to offer profit sharing should profits exist after distribution according to the allocation outlined below.

"Owner, Architect and Builder will share in all Profits (as hereinafter defined) and all losses associated with the Property as set forth herein. As used in this Agreement, ‘Profits’ shall be deemed the net profits with respect to the Property, calculated as the final sales price of the Property ... less [certain enumerated expenses]⁴ ... the payoff of the reinstated fees of $63,000 each to Architect and Builder (for a total of $126,000); and ... the Owner's basis in the Property of $1,450,000.00. Any remaining funds shall be divided as follows: twenty percent (20%) of the remaining funds shall be disbursed to the Owner, forty percent (40%) of the remaining funds shall be disbursed to the Builder and forty percent (40%) of the remaining funds shall be disbursed to the Architect."⁵ (Emphasis added; footnotes added.) Although the 2019 agreement explicitly provides that the parties would share in "all losses," it contains no language defining the term losses or explaining how losses, if any, would be determined and calculated. It also does not specify how the losses, if any, would be apportioned among the parties.

The new home was completed in the early part of 2019. The plaintiffs, in consultation with the defendants, listed the property for sale at a price of $5,879,000. It sold on August 3, 2019, for $4,900,000, which was nearly one million dollars less than the original listing price. Calculating the "net profit" of the sale in accordance with the terms of the 2019 agreement, which included taking deductions for the $126,000 in additional fees that the plaintiffs had agreed to pay the defendants (reinstated fees) and the plaintiffs’ $1,450,000 basis in the property, the result was a deficit of $563,530. The parties disagreed about what effect this shortfall in anticipated proceeds meant relative to the parties’ financial stakes as expressed in their contracts. The defendants’ position was that the sale had generated sufficient proceeds to satisfy the $126,000 in reinstated fees as agreed to by the plaintiffs and that they had no obligation under the terms of the 2019 agreement to share in any shortfall that prevented a full reimbursement of the plaintiffs’ basis in the property. The plaintiffs took the position that the "net profit" calculation, if made in accordance with the intent of the 2019 agreement, resulted in a negative number or "losses," which the parties had intended to share at the same percentages that they would have shared with respect to net profits.

On December 24, 2019, in anticipation of litigation to resolve the parties’ dispute, the plaintiffs filed with the court an application for a prejudgment remedy, which subsequently was served on the defendants. The application sought to attach $324,824 in assets of the defendants, which is the amount that the plaintiffs calculated that they were owed by the defendants as their share of the net loss from the sale of the property.⁶

The plaintiffs later commenced the present action by service of process on March 13, 2020. In their one count initial complaint, the plaintiffs characterized the 2019 agreement as a "joint venture agreement" in which the parties had agreed to share fully in both profits or losses associated with the redevelopment and sale of the property. The plaintiffs alleged that the defendants had breached the 2019 agreement by refusing to accept responsibility for their share of the net loss of the redevelopment project. According to the plaintiffs, each defendant owed the plaintiffs $162,412.

The defendants filed a joint answer in which they denied the substantive allegations of the complaint and asserted a counterclaim against the plaintiffs for breach of contract. According to the defendants, the parties did not intend by entering into the 2019 agreement that the defendants would be responsible for sharing in any and all losses resulting from the sale of the property. The defendants alleged that the plaintiffs breached the parties’ agreements by "fail[ing] to pay the defendants in accordance with the schedule for the payment as set forth in the [2019 agreement] as intended by the parties," which entitled each defendant to a payment of $63,000 from the sale proceeds, the amount of...