Opinion ID: 542860
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 In May 1972, Prime Motor Inns, Inc., which was Prime's parent company, and Steinegger entered into a contract pursuant to which Steinegger was to convert a partially constructed office building in Stamford, Connecticut, into a motel. Concurrently, Prime agreed to lease from Steinegger the real property on which the building was situated.
3 The 1972 lease agreement (lease) provided for an initial term of 25 years, plus two ten-year extensions. The lease required Prime to pay rent annually, consisting of a base rent 4 equal to the amount of money needed each year to amortize the total amount of the permanent mortgage placed on the demised premises over a period of twenty (20) years ...; in no event shall the annual rent be less than One Hundred Ninety-One Thousand ($191,000) Dollars, 5 plus a percentage of Prime's receipts equal tofifteen (15%) percent of gross receipts received from the rental of lodging facilities in excess of Five Hundred Eighty-Five Thousand ($585,000) Dollars per year (Sixty-Five Hundred ($6,500) Dollars per rental unit) less all applicable use and occupancy taxes. 6 The lease required Prime to submit to Steinegger monthly statements as to its gross receipts from the rental of lodging facilities, and to grant Steinegger access to Prime's books and accounts at reasonable times after notification. Whenever Prime's gross room revenues exceeded $585,000, its monthly statements were to reflect the percentage rental earned for the preceding month. The lease provided that if any question were to arise concerning the accuracy of any statements, it shall be settled as conveniently as possible between the parties, but not so as to unreasonably interrupt the operation of Lessee's business. 7 The lease gave Steinegger, upon the occurrence of an event of default, the right to terminate the lease. It defined default as, inter alia, any failure on the part of the lessee to comply with any term, provision or covenant of the lease and the concomitant failure to cure such noncompliance within ten days of written notice. As discussed in Part II.B. below, the lease also provided that, in certain circumstances, a party in default would pay the other party's attorney's fees. 8 In January 1973, the parties agreed to an amendment to the lease in order to induce the third-party mortgagee to make a loan to Steinegger. Steinegger and Prime agreed that the May 1972 lease would be deemed amended to conform to, and be controlled by, the following provision in the mortgage: 9 Mortgagor will not enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space in the Premises which provides for a rental or other payment for such use, occupancy or utilization based in whole or in part on the income or profits derived by any person from the property leased, used, occupied or utilized, or which would require the payment of any consideration which would not be within the definition of rents from real property as that term is defined in Section 856(d) of the Internal Revenue Code of 1954.... 10
11 A certificate of occupancy for the motel was issued in July 1974, and Prime's rental obligations began on January 1, 1975. Soon thereafter, disputes arose with respect to, inter alia, the amount of rent due under the lease. Prime took the position that the 1973 amendment relieved it of any obligation to pay Steinegger any percentage of its income from room rentals. In May 1976, Prime ceased to pay any rent to Steinegger, though it did make certain payments directly to the mortgagee. In response, Steinegger sent Prime a notice to quit the premises, which is a prerequisite to summary eviction proceedings. 12 Prime promptly brought suit in the district court (Prime I ), seeking an adjudication of its obligations under the lease. It asked, inter alia, that the court reform the lease to provide (a) that Prime was not required to pay Steinegger any rent above the amount Steinegger needed to pay the mortgagee, and (b) that Prime was not required to make any payment of a percentage of its gross receipts from room rentals. Steinegger counterclaimed, charging, inter alia, that Prime had improperly refused to submit monthly statements as to room rental income and to pay to Steinegger the required percentage of that income. Steinegger asked for relief in the form of an accounting of the gross room rentals and payment of the percentage rental due, and an order from the court directing Prime to pay the rentals in arrears. 13 After a bench trial in 1981, the district court, T.F. Gilroy Daly, Judge, ruled that Prime was not entitled to reformation of the lease and was required to pay Steinegger the base amount of rent plus the percentage provided in the lease. The court stated as follows:1. The term of the Lease between the parties is twenty-five years. The rental due the lessor is that amount necessary to amortize the mortgage due [the mortgagee] over a period of twenty years payable each month at the rate of $17,701.96 per month during the first twenty years of the lease term. The rent due from the lessee during the last five years of the term is $15,916.66 per month. 14 2. The lessee shall also pay to the lessor during the original term of the Lease and any extensions thereof fifteen (15%) percent of gross receipts received from the rental of lodging facilities in excess of Five Hundred Eighty-Five Thousand ($585,000) Dollars per year (Sixty-Five Hundred ($6,500) Dollars per rental unit) less all applicable use and occupancy taxes. 15 Memorandum of Decision dated July 31, 1981 (1981 Decision), at 9-10. The court ordered Prime to pay Steinegger the base and percentage rents due pursuant to paragraphs 1 and 2 above plus an amount of interest to be determined by the Court in the event the parties cannot agree. Id. at 10. The Prime I court did not order an accounting. 16 Judgment was entered in August 1981. Though Prime filed a notice of appeal, the matter was then settled.
17 In September 1981, Prime entered into an agreement with one Vashu Ramsinghani whereby Prime agreed to assign its leasehold interest in the motel to Ramsinghani. As required by the lease, Prime then sought Steinegger's consent to the assignment. Following the exchange of numerous letters with respect to, inter alia, Ramsinghani's experience and financial condition, Steinegger withheld consent on the ground that it did not have enough information on which to base a decision. In May 1982, Prime and Ramsinghani commenced the present action in Connecticut state court, contending that Steinegger's withholding of its consent was unreasonable and that Steinegger had tortiously interfered with the contract between Prime and Ramsinghani. 18 Steinegger removed the action to the district court. In 1985, following Prime's production of financial information in compliance with a discovery order, Steinegger filed its rent counterclaim, alleging that Prime had been underpaying the percentage rents due under the lease. Steinegger challenged the methodology Prime had used to calculate those percentages, asserting that Prime had improperly excluded rents it received for rooms that were designed to be and were delivered to Prime as guest rooms, but which were treated by Prime as public rooms; that Prime reported only 97% of its total guest room income; and that Prime improperly deducted a portion of the guest room revenues for in-room movies although guests were not charged for those movies. Steinegger sought, inter alia, damages and an accounting. Against this claim, Prime asserted as an affirmative defense, inter alia, that any claim for additional percentage rents was barred by principles of res judicata on the ground that that issue had been litigated in Prime I. 19 In June 1987, relying on the charges asserted in its rent counterclaim, Steinegger served on Prime a notice to quit the premises pursuant to Conn.Gen.Stat. Sec. 47a-23(a), as a precursor to eviction proceedings. Prime refused to vacate, and Steinegger commenced a summary eviction proceeding in state court in July 1987, seeking to terminate the lease and regain immediate possession of the property. That action was removed by Prime to the district court, where it was consolidated with the present action, i.e., the action commenced by Prime in 1982. 20 Eventually, a bench trial was held before Chief Judge Burns, who ruled against Prime on its own claims and on most of Steinegger's counterclaims. In a Memorandum of Decision dated August 21, 1989 (1989 Decision), the court ruled that Steinegger's withholding of consent to the proposed assignment was not unreasonable and did not constitute tortious interference with the contract between Prime and Ramsinghani. The court denied Steinegger's request for attorney's fees expended in defending the claim. 21 As to Steinegger's counterclaim against Prime for underpayment of rent, the court held that the decision in Prime I did not bar litigation of Steinegger's claim that Prime's methods of calculating the percentage portion of the rent due was improper. The court noted that Steinegger could not have challenged Prime's methodology in Prime I because [a]t no time prior to the satisfaction of judgment in Prime I had any payments been made to Steinegger from which he could determine that an actual controversy existed over the computation of the percentage rents. 1989 Decision at 37. Chief Judge Burns also noted that Judge Daly had not ordered an accounting in Prime I and had neither supervised the methodology used in determining the amount to which Steinegger was entitled nor offered the court's assistance in determining the amount due. Thus, she concluded that Prime's accounting methodology had not been adjudicated in Prime I. As to the merits of the rent counterclaim, Chief Judge Burns found that Prime owed Steinegger $161,542.05 in unpaid percentage rents, and she awarded Steinegger attorney's fees expended in the successful prosecution of this counterclaim. She denied Steinegger prejudgment interest on the damages award. 22 The court dismissed Steinegger's claim for summary eviction, stating that, contrary to Steinegger's assertions, there was no basis for finding that Prime's conduct amounted to larceny or fraud, and concluding that the parties had merely disagreed over an accounting mechanism used to police a lease provision. Noting that [t]he lease itself provides that such disagreements are to be resolved as conveniently as possible, without unreasonable interruption of Prime's business operations, the court concluded that requested eviction of Prime was unwarranted. 1989 Decision at 42.