185 Conn. App. 534
Conn. App. Ct.2018Background
- In 2006 Seven Oaks Enterprises, L.P. (SOE) sold 516, LLC to Sherri DeVito for $4M: $2.675M cash and a $1.325M promissory note payable to SOE; a management contract (protecting Murray Chodos as co‑manager and compensating him while debt remained) was executed and incorporated into the purchase agreement.
- DeVito later amended 516, LLC’s operating agreement removing Chodos and placed a third‑party mortgage ahead of SOE’s note; she made no payments on the $1.325M note and paid Chodos nothing.
- Plaintiffs SOE and Seven Oaks Management Corporation (SOM, SOE’s general partner) sued in 2010 for breach of the note and breach of the management contract; in 2011 SOE executed an assignment transferring “claims, rights and title to any and all defaulted loans and damages relating to the sale of 516, LLC” to SOM.
- At trial plaintiffs introduced a copy (not the original) of the note; the jury found the note was lost while in SOE’s possession, that SOE assigned the note to SOM, found DeVito breached, and awarded $1.325M in undifferentiated damages.
- On appeal the court addressed whether (1) SOM could enforce the lost note without possessing it when it was lost under Conn. Gen. Stat. § 42a‑3‑309 (UCC article 3), and (2) whether SOM/SOE had standing to enforce the management contract after the assignment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SOM (assignee) could enforce the lost promissory note despite not possessing it when it was lost | SOE had possession when the note was lost and then assigned the enforcement rights to SOM, so SOM may enforce the note | § 42a‑3‑309 requires the person enforcing a lost instrument to have been in possession when loss occurred; SOM was not in possession then and thus cannot enforce | Held for defendant: SOM cannot enforce the note because § 42a‑3‑309 permits enforcement only by the person in possession when loss occurred; SOE’s post‑loss assignment extinguished SOE’s enforcement rights and did not allow SOM to meet § 42a‑3‑309 criteria |
| Effect of SOE’s assignment of the note to SOM | Assignment transferred SOE’s rights (including enforcement) to SOM | Assignment extinguished SOE’s rights but cannot confer enforcement power on SOM for a note that was lost while in SOE’s possession because of § 42a‑3‑309’s possession requirement | Held that SOE’s assignment extinguished SOE’s enforcement rights and did not make SOM a proper enforcer under § 42a‑3‑309; judgment for DeVito on note claims and all SOM claims |
| Whether SOM or SOE had standing to enforce the management contract after assignment | Plaintiffs treated SOM and SOE as joint plaintiffs asserting management‑contract claims | Management contract was executed by Chodos and incorporated into the purchase agreement (to which SOE—but not SOM—was a party); the management contract barred assignment without the manager’s consent, and the assignment lacked DeVito’s consent | Held for plaintiffs in part: SOM was not a party to and could not enforce the management contract; SOE retained the management‑contract claim (assignment did not validly transfer it) and SOE’s claim as to the management contract remains valid |
| Whether the undifferentiated $1.325M damages award required reversal because jury may have relied on the note claim (invalidated on appeal) | Plaintiffs: jury verdict supported by an error‑free path (management contract) and no special interrogatories were used | DeVito: if note claim fails, award cannot stand because damages may have been based solely on the note | Held for plaintiffs as to SOE’s management‑contract claim: because the jury had at least one valid path (SOE’s management‑contract breach) and damages were undifferentiated, the award stands; the court reversed only the note claim and all SOM claims |
Key Cases Cited
- New England Savings Bank v. Bedford Realty Corp., 238 Conn. 745 (Conn. 1996) (holding that pursuit of mortgage foreclosure can render lack of possession of a lost note nonfatal to equitable remedies and discussing interplay of §§ 3‑301 and 3‑309)
- Dennis Joslin Co., LLC v. Robinson Broadcasting Corp., 977 F. Supp. 491 (D.D.C. 1997) (interpreting UCC § 3‑309 to require that the person suing on a lost note have been in possession of it when loss occurred)
- Atlantic Nat'l Trust, LLC v. McNamee, 984 So. 2d 375 (Ala. 2007) (rejecting Dennis Joslin’s reading by supplementing UCC § 3‑309 with common‑law assignment principles so assignee may enforce a lost note)
- Bagley v. Adel Wiggins Group, 327 Conn. 89 (Conn. 2017) (standard of review for directed verdicts and judgment notwithstanding the verdict)