Opinion
NNHCV155035770S
03-04-2016
Anchor Reef Association, Inc. v. Anchor Reef Club at Branford, LLC et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Jon M. Alander, Judge of the Superior Court.
Anchor Reef Club is a planned community created by a declaration dated July 20, 2005. The plaintiff Anchor Reef Association, Inc. (Association) is the association of unit owners at Anchor Reef Club. The plaintiff has filed this action against the defendants Anchor Reef Club at Branford, LLC, (ARCB), the declarant of the common interest community; and the defendants Jason Ziegler, Daniel Kane, Albert T. Nassi and Anthony Ciriello, (Directors) who served as the directors and officers of the Association by appointment of the declarant. The plaintiff alleges that the defendants engaged in various acts of wrongdoing, including developed the common elements of the common interest community in a substandard and defective manner, made misrepresentations in the public offering statement, failed to maintain proper insurance, and failed to properly maintain and repair the common interest community. The defendants ARCB and Directors have filed a motion to strike the seventh and eighth counts of the plaintiff's complaint which assert claims of breach of a statutory duty of good faith and the ninth and tenth counts which allege violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a, et seq.
The law governing the court's consideration of a motion to strike is well established. " The purpose of a motion to strike is to contest the legal sufficiency of the allegations of any complaint to state a claim upon which relief can be granted. In ruling on a motion to strike, the court is limited to the facts alleged in the complaint. The court must construe the facts in the complaint most favorably to the plaintiff." (Citations and internal quotation marks omitted.) Novametrix Medical Systems v. BOC Group, Inc., 224 Conn. 210, 214, 618 A.2d 25 (1992). " It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." Suffield Devel. Assoc. L.P. v. National Loan Inv., 64 Conn.App. 192, 197, 779 A.2d 822 (2001). " The role of the trial court is to examine the complaint, construed in favor of the plaintiffs, to determine whether the pleading party has stated a legally sufficient cause of action." Dodd v. Middlesex Mutual Assurance Company, 242 Conn. 375, 378, 698 A.2d 859 (1997).
I
STATUTORY DUTY OF GOOD FAITH
The defendants assert that the seventh and eighth counts of the plaintiff's complaint which assert claims of breach of the statutory duty of good faith established by General Statutes § 47-211 should be stricken because each count fails to allege facts constituting bad faith. The plaintiff contends that the allegations of the complaint sufficiently allege a violation of § 47-211. I agree with the plaintiff.
" The duty of good faith under General Statutes § 47-211 requires that [e]very contract or duty governed by [Common Interest Ownership Act] imposes an obligation of good faith in its performance or enforcement. The common-law duty of good faith and fair dealing implicit in every contract requires that neither party [will] do anything that will injure the right of the other to receive the benefits of the agreement . . . Essentially it is a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended. To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith." (Internal quotation marks and citations omitted.) Harley v. Indian Spring Land Co., 123 Conn.App. 800, 837, 3 A.3d 992 (2010). To prove a lack of good faith or, conversely, bad faith, a party must show more than bad judgment or negligence or mistake. Elm Street Builders v. Enterprise Park Condominium, 63 Conn.App. 657, 667-68, 778 A.2d 237 (2001). See also Miller v. Guimaraes, 78 Conn.App. 760, 773, 829 A.2d 422 (2003). " Bad faith in general implies both 'actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive.' Black's Law Dictionary (5th Ed. 1979). Bad faith means more than mere negligence; it involves a dishonest purpose." (Citations omitted.) Habetz v. Condon, 224 Conn. 231, 237, 618 A.2d 501 (1992).
In the seventh count of its complaint which asserts a violation of the duty of good faith against ARCB, the plaintiff alleges, inter alia, that ARCB made false or misleading statements regarding the proposed budget and common charges for the planned community. The plaintiff further alleges that ARCB, by failing to amend the public offering statement, " misrepresented the cost of running the Association to potential unit owners and provided a budget that the Declarant knew was insufficient to account for the Association's expenses." Construing the facts of the complaint most favorably for the plaintiff, as I must when deciding a motion to strike, Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117, 889 A.2d 810 (2006), these allegations assert " a design to mislead or deceive another, " Habetz v. Condon, supra, 224 Conn. 237, sufficient to withstand a motion to strike. See also Willow Springs Condo. Association, Inc. v. Seventh BRT Development Corporation, 245 Conn. 1, 46, 717 A.2d 77, (1998) (" Where a defendant has withheld information that it is under a duty to disclose, such an act may constitute an unfair or deceptive practice and, therefore, violate CUTPA").
In the eighth count of its complaint, the plaintiff asserts a violation of the statutory duty of good faith against the Directors. The plaintiff alleges, inter alia, that the Directors failed to fulfill their statutory duties and fiduciary obligations due to " self-interest and conflicts of interest." Specifically, the plaintiff alleges that the Directors had a financial stake in ARCB. The plaintiff further alleges that Ziegler served as President of the Association and as the manager of ARCB. The plaintiff also states that Ziegler, as President of the Association, signed an agreement with Sovereign Asset Management Company, LLC (Sovereign) to manage the Association, when he was also a member of Sovereign. Again, construing the facts of the complaint most favorably for the plaintiff, as I must when deciding a motion to strike, these allegations sufficiently allege conduct prompted by bad faith, that is, by some interested or sinister motive.
II
CUTPA
The plaintiff asserts in the ninth and tenth counts of its complaint violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a, et seq., against ARCB and the Directors, respectively.
ARCB has moved to strike the ninth count on the grounds that (1) its alleged acts involve intra-corporate conduct and not trade or commerce and (2) the plaintiff has failed to allege aggravating unscrupulous conduct. The plaintiff responds, first, that ARCB mischaracterizes the nature of its wrongful acts as alleged in the complaint and, second, the complaint appropriately alleges unfair and deceptive practices prohibited by CUTPA.
ARCB argues that, since the ninth count includes allegations concerning the conduct of individual directors of the Association with regard to the Association, it is fundamentally about internal corporate acts and not trade or commerce. Because CUTPA only applies to acts or practices in the conduct of any trade or commerce, ACRB asserts that the count must be stricken. I am not persuaded.
ARCB misreads the nature of the claims asserted by the plaintiff in the ninth count. While it is certainly true that " purely intracorporate conflicts do not constitute CUTPA violations, " Ostrowski v. Avery, 243 Conn. 355, 379, 703 A.2d 117 (1997), the facts alleged in the ninth count do not involve such a conflict. While the ninth count incorporates allegations from other counts in the complaint which refer to the Directors, the count expressly asserts a CUTPA claim against ACRB, the declarant, and not against the Directors. The count expressly states the conduct of ACRB which the plaintiff asserts violates CUTPA, none of which involves intra-corporate activity.
ARCB also contends that the ninth count fails to allege the aggravating circumstances required for a CUTPA violation. ARCB asserts that the allegations contained in the ninth count assert garden variety claims of breach of implied and express warranties and violations of the Common Interest Ownership Act which by themselves do not rise to the level of a violation of CUTPA.' Citing Ulbrich v. Groth, 310 Conn. 375, 78 A.3d 76 (2013), it contends that the allegations of the ninth count lack the " aggravating unscrupulous conduct" required of a CUTPA violation.
Ulbrich v. Groth, 310 Conn. 375, 78 A.3d 76 (2013), held that a breach of contract which was not unlawful, unethical, unscrupulous, wilful or reckless does not transgress CUTPA.
The Connecticut Unfair Trade Practices Act (CUTPA) states that " no person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes § 42-110b(a). The test for ascertaining whether a practice is unfair or deceptive in the eyes of CUTPA is well established. " It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise--in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other business persons]. Harris v. Bradley Memorial Hospital & Health Center, Inc., 296 Conn. 315, 350, 994 A.2d 153 (2010). Moreover, all three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three . . . Thus a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy. Glazer v. Dress Barn, Inc., supra, 274 Conn. at 82, 873 A.2d 929." (Internal quotation marks omitted.) Harley v. Indian Spring Land Co., 123 Conn.App. 800, 834, 3 A.3d 992 (2010).
The problem with the ninth count of the plaintiff's complaint is that it is a catchall provision into which the plaintiff has deposited the factual allegations of the six other counts asserted against ARCB. As a result, it includes claims such as the defective construction of the common interest community which arguably do not embody the aggravating circumstances required for a CUTPA violation. Cf. Naples v. Keystone Building & Development Corporation, 295 Conn. 214, 228, 990 A.2d 326 (2010) (Poor workmanship in the construction of a new home did not violate CUTPA). Other allegations found in the ninth count do however assert aggravating circumstances which are the necessary predicate for a violation of CUTPA. In the ninth count, the plaintiff alleges that ARCB made false and misleading statements regarding the proposed budget and common charges, grossly understated the amounts needed to properly maintain and operate the common interest community, misrepresented the cost of running the Association to potential unit owners and provided a budget that it knew was insufficient to account for the Association's expenses. While " not every misrepresentation constitutes a CUTPA violation, " Calandro v. Allstate Ins. Co., 63 Conn.App. 602, 617, 778 A.2d 212 (2001), misrepresentations can constitute a deceptive practice which violates the provisions of CUTPA. Centimark Corp v. Village Manor Associates Ltd. Partnership, 113 Conn.App. 509, 524, 967 A.2d 550 (2009). The misrepresentations incorporated into the ninth count, if proven, establish reckless, unscrupulous and deceptive conduct on the part of ARCB sufficient to warrant a finding of a violation of CUTPA. Cf. Tessmann v. Tiger Lee Construction Co., 228 Conn. 42, 54-55, 634 A.2d 870 (1993) (contractor's actions constituted reckless disregard of homeowners rights justifying punitive damage award under CUTPA when it represented that it would perform all work with its own employees, but instead relied completely on subcontractors, and refused to try to fix leaks, claiming they were 'merely condensation'); Centimark Corp. v. Village Manor Associates Ltd. Partnership, 113 Conn.App. 509, 523-24 (upholding finding of CUTPA violation in case arising from faulty roofing work when general contractor represented that work would be done by 'Master Elite' roofing subcontractor, and then failed to inform owner that task would be delegated to another, less qualified subcontractor), cert. denied, 292 Conn. 907, 973 A.2d 103 (2009); and Scrivani v Vallombroso, 99 Conn.App. 645, 649-50, 916 A.2d 827 (trial court properly found CUTPA violations in part on the basis of contractor's false representation of qualifications with respect to installation of siding) cert. denied, 282 Conn. 904, 920 A.2d 309 (2007).
The Directors have moved to strike the tenth count of the plaintiff's complaint on the grounds that the plaintiff has failed to allege that they engaged in the conduct of any trade or commerce. Specifically, the Directors assert that the conduct complained of involves their corporate responsibilities to the corporation which is beyond the reach of CUTPA. The Directors also contend that they may not be held personally liable for actions taken on behalf of the Association.
In the tenth count, the plaintiff alleges that the Directors were appointed to serve as directors and officers of the Association during the period that the declarant had the right to control the Association by appointing members of the Association's executive board. The plaintiff further alleges that the Directors were all participants in and either directly or indirectly had a financial stake in the declarant. The Directors allegedly breached their fiduciary duty of care and loyalty to the Association in various ways, including failing to require the declarant to correct construction defects; failing to require the declarant to undertake adequate maintenance or repair of the premises; failing to require the declarant to properly disclose budget shortfalls; failing to enforce warranty claims against the declarant; and failing to require the declarant to timely turn over funds to the Association. The thrust of the allegations in the tenth count is that the Directors failed to enforce the obligations of ARCB, the declarant, to the Association and its members in order to benefit the ARCB. What is unsaid, but reasonably implied, is that they did so due to their financial stake in ARCB. See Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006) (" It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted").
Addressing the Directors' second argument first, the Directors' contention that they are shielded from liability by the corporate structure of the Association is misplaced. The plaintiff is not some outside person or entity suing the Directors for the wrongful conduct of the Association. It is the Association suing the Directors for allegedly violating their fiduciary duty to the corporation. See Ostrowski v. Avery, supra, 243 Conn. 363.
Ostrowski is also instructive regarding the Directors' contention that the plaintiff's claims involve intracorporate activity outside the bounds of CUTPA. In Ostrowski, minority shareholders sued two individuals, one who was an officer and director of the corporation and another who was an employee, for usurpation of corporate opportunity. After determining that the trial court's judgment in favor of the defendants required reversal, the court addressed certain issues which would arise on remand. One of those issues was whether findings of violations of fiduciary duty constitute unfair and deceptive trade practices within the meaning of CUTPA. Id., 378. The court recognized that a breach of fiduciary duty to a corporation by a director could result in a violation of CUTPA at least with respect to a claim of usurpation of corporate opportunity. Id., 379. The allegations contained in the ninth count of the plaintiff's complaint are analogous to usurpation of corporate opportunity. The plaintiff asserts that the Directors failed to fulfill their obligations to the Association in order to benefit ARCB, an entity in which they had a financial stake. Similar to a claim of usurpation of corporate opportunity, the Directors are being accused of acting against the interests of the corporation to benefit themselves. As alleged, the ninth count asserts a viable claim that the Directors' conduct violated CUTPA. See Fink v. Golenbock, 238 Conn. 183, 214, 680 A.2d 1243 (1996) (It is not the nature of the relationship that is dispositive of the issue of whether CUTPA applies, but the defendant's conduct).
For the reasons stated, the defendants' motion to strike the seventh, eighth, ninth and tenth counts of the plaintiff's complaint is denied.