Opinion
No. X01-CV05-4009529S
August 27, 2008
MEMORANDUM OF DECISION RE LEGAL STANDARD AND UNDERLYING FINDINGS OF FACT
The plaintiff Charter Oak Lending Group, d/b/a is a mortgage-brokerage/lending company with its principal place of business in Fairfield county. The individual defendants were "employees" of said plaintiff working as "mortgage originators" engaged in placing borrowers with suitable mortgage lenders. CTX Mortgage Co. was a mortgage-brokerage company doing business in Connecticut.
Practice Book § 15-8 provides in relevant part: "If, on the trial of any issue of fact in a civil action tried to the court, the plaintiff has produced any evidence and rested his or her cause, the defendant may move for judgment of dismissal, and the judicial authority may grant such motion, if in its opinion the plaintiff has failed to make out a prima facie case . . ." "A prima facie case . . . is one sufficient to raise an issue to go to the trier of fact . . . In order to establish a prima facie case, the proponent must submit evidence which, if credited, is sufficient to establish the fact or facts which it is adduced to prove . . ." Winn v. Posades, 281 Conn. 50, 54-55, 913 A.2d 407 (2007).
"In determining whether to grant such a motion at the conclusion of the plaintiff's direct case or at the end of all the evidence, the court must decide whether the plaintiff put forth sufficient evidence that, if believed, would establish a prima facie case, not whether the trier of fact believes it." Gambardella v. Apple Health Center, Inc., 86 Conn. 842, 846, 863 A.2d 735 (2004) (emphasis in original). At this stage, as long as there is some evidence to support every element of a claim in a particular count, the court will have to deny the P.B. § 15-8 motions of the defendants. Estate of Haskos v. Jung, Superior Court, judicial district of New Haven, Docket No. CV 01 0448262 (July 28, 2006, Pittman, J.); Sullivan v. Thorndike, 104 Conn.App. 297, 299 et seq. (2007).
An analysis of each cause of action will follow and be correlated to the respective counts in the plaintiff's amended complaint of October 19, 2005.
As a collateral issue, this court relies on the case of Bramwell v. Dept. of Correction, 82 Conn.App. 483, 485 (2004), and Connecticut General Statutes § 51-183B as determining the time frames for deciding the pending § 15-8 motions and any subsequent memoranda relating to the case in chief and final judgment in this matter.
The court makes certain findings that were either admitted expressly or impliedly by the parties as given facts relating to these claims. The court finds that the individual defendants in the above action are independent contractors and did not have any written employment contracts with the plaintiff nor any expressed or implied contractual obligations that have any statutory protection. The individual defendants in effect are employees "at will" who can be terminated at any time and can leave said employment of their own free accord without limitation or restriction. The court further finds based on the more credible evidence that there does not exist any written agreements or verbal understandings concerning confidentiality or secrecy between the named defendants and the plaintiff involving any particular aspect of Charter Oak's operations, data resources systems, programs, training or financial matters. The court finds further that there are no non-compete agreements or restrictions that were entered into between the individual defendants and the plaintiff at the time of their initial employment or subsequently. The court further finds that there is no legal stricture on such individual defendants from leaving the employment of Charter Oak and engaging in employment with a competitor in the same marketplace or any similar business rival that an individual defendant felt was in his/her best interests without regard to time and/or location.
ANALYSIS OF PLAINTIFF'S CAUSES OF ACTION I. MISAPPROPRIATION OF TRADE SECRETS
The plaintiff has alleged that certain customer list(s) and/or contacts constitute a trade secret as that term is defined by Connecticut General Statutes § 35-51. The specific facts and findings of this case do not allow the plaintiff to label everything concerning its business as a mortgage broker and/or lender that an "employee" may learn about or come in contact with concerning the business and its operations to become a "trade secret." Elm City Cheese Co. v. Federico, 251 Conn. 59, 105 (1999). As indicated in the earlier finding of facts, each of the said "employees" of Charter Oak was considered an independent contractor, for both tax and functional purposes. Although "employees" in a generic sense, the individual defendants had the right to acquire whatever skills and experience such an "employee"/agent could gain with Charter Oak or any other company and would be allowed to assimilate and use at subsequent employments those skills and anything else they may have learned at their present place of employment except so-called "trade secrets."
In light of the fact that there were no contractual or employment contracts between the plaintiff and any of the individual defendants; nor were there any confidentiality agreements signed between the plaintiff and those defendants, nor any covenants not to compete all of which place a certain burden of proof on the plaintiff to establish exactly what is there to protect and especially such an item labeled a "trade secret."
The Trade Secret Act (CUTSA) was designed to protect trade secrets and thereby encourage inventions with the resulting benefit to the public. Trans Am, Inc. v. Zhawred, 190 W.L. 284015*3 (Conn. Superior Court, May 29, 1990) (Mack, J.) [ 1 Conn. L. Rptr. 672]. The statute defines the following: "[d] . . . `trade secret' means information including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer lists that: (1) derives independent economic value actual or potential from not being generally known to, and not being readily accessible or ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
The issue becomes whether mortgage brokers or loan originators, so-called, have a proprietary interest in a customer and/or a referral contact list that they have generated, nurtured and overseen through their own individual efforts, not collectively with any other broker or employee and not specifically aided, abetted or supported in any specific way by the employer, in this case Charter Oak. Although Charter Oak supplies support and a particular program to develop and process loan applications through the agent/broker, the customer itself, based on the more credible evidence, appears to have a sustaining allegiance to the agent/broker/originator, not to the plaintiff support company. Dunsmore Assoc. v. D'Alessio, 2000 WL 409906 (Conn. Superior Court, January 6, 2000) (Levin, J.) [ 26 Conn. L. Rptr. 228; Newinno v. Peregrin Day, Inc., 2004 WL 1098753 (Conn. Superior Court, April 27, 2004) (Stevens, J.). The tests for finding a "trade secret" is illustrated in these two above unreported cases.
The nature of these customer contact lists that were specific to each originator does not support the plaintiff's theory that such lists were exclusively developed by the plaintiff as opposed to the employee/originator, nor that the plaintiff had the specific personal contact with any such customer/client from date of origin to final closeout of any loan documentation and/or final mortgage. The phrase "customer for life" was introduced into evidence to describe how a originator was to view each customer/client. The phrase never received any specific definition by either side, but does not support a finding for a "trade secret." Certain cases detail a number of tests for trying to determine whether something is a "trade secret." Nationwide Mutual Insurance Co. v. Stenger, 695 F.Sup. 688, 691 (D.Conn. 1988); Heritage Benefits Consultant, Inc. v. Cole, 2001 W.L. 237240*7 (Conn. Superior Court, February 23, 2001) (Rogers, J.).
The plaintiff needed to establish that the contact or so-called customer/client lists were something that had some exclusivity relating only to the plaintiff to the exclusion of the individual defendants and based on some credible evidence would not be the result of individual efforts by particular loan originators who worked under the support umbrella of Charter Oak. The advertising, material support and the compilation of relevant data concerning customers and loan processing within the computer system known as "Loan Manager" were all integral, but not uncommon parts of the mortgage brokering industry.
Those operational/support functions were not anything peculiar or unique to the operations of Charter Oak nor for that matter unusual for the defendants in this case. The fact that customer contact lists and referral lists were available on "Loan Manager" without limitation to the defendants and that the status and the progress made on any particular loan were not confidential, undercuts the status of what is a "trade secret." Through various office procedures within Charter Oak such data could be made available to any of its "employees"/agents and conceivably to any other third parties that such "employees"/agents may wish to share that information with. Confidentiality standards were mentioned in the employee handbook, but without any particular articulation or specific training and/or enforcement by Charter Oak for any of the defendants, such standards were inapplicable. The fact that customer surveys were a matter of public display and that each employee/agent was required to prepare a funding report on a bi-weekly basis, which included various levels of data, would militate, along with other evidence adduced at trial, against a finding that the so-called contact/customer lists were "trade secrets" in any regard and therefore, not subject to the said rigors of the Trade Secrets Act, under the subject General Statutes. Therefore, Counts 3, 6, 9, 12, 15, 18, 21, 24, 27, 30, 32 (CTX) pertaining to the misappropriation of trade secrets are dismissed pursuant to Practice Book § 15-8.
II. CONNECTICUT UNFAIR TRADE PRACTICES ACT
Regarding the plaintiff's claims of violation of the Connecticut Unfair Trade Practices Act (CUTPA), Connecticut has adopted the Federal Trade Commission standards with a three-pronged test to determine if there has been a CUTPA violation. Web Press Serv. Corp. v. New London Motors, Inc., 203 Conn. 342 (1987); Conaway v. Prestia, 191 Conn. 484 (1983). The three factors established under Connecticut law are (1) whether the practice or action offends public policy, (2) whether it's immoral, unethical, oppressive or unscrupulous, and (3) whether it causes substantial injury to consumers, competitors or other businessmen. For purposes of establishing whether a CUTPA violation occurred, the test does look to damages or losses that may have been incurred. However, for 15-8 motion purposes, the court will only determine if the plaintiff has offered sufficient evidence for the fact finder to make a judgment regardless of any resulting damages or the extent thereof.
The plaintiff's complaint is broad reaching and targets both the individual defendants and CTX. Since issues involving public policy relating to business are very broad, the first test is easily met and at least superficially established by some evidence involving the mortgage brokering business and the interaction between agents/employees and principals. Whether that interaction was also unethical and/or unscrupulous at this stage needs to be further tested as to its factual basis by the evidence adduced at trial, but generically the plaintiff has offered some evidence that one or more defendants did engage in conduct that was, at least on its face, unethical and/or perhaps unscrupulous.
The third test cannot be fully addressed at this point as to whether a substantial injury has occurred to consumers, competitors or other businessmen. That test is very open-ended and one that the plaintiff will have to sustain by a fair preponderance of the evidence. It would appear that some financial impact has occurred to the plaintiff. Whether there is any causal linkage to the defendants' conduct and whether that can be measured in any objective fashion remains to be seen, but for purposes of this 15-8 Motion, it appears at this juncture that the plaintiff has established sufficient evidence for a prima facie case concerning its CUTPA claim in those respective Counts (4, 7, 10, 13, 16, 19, 22, 25, 28, 31, 33 (CTX).
III. CONVERSION AND STATUTORY THEFT ALLEGATIONS
The plaintiff has alleged that the defendants engaged in conversion of certain personalty and violated the Statutory Theft statute Connecticut General Statutes § 52-564. The plaintiff's allegations are that each defendant "wrongfully took files, client lists and other such property of the plaintiff with the intent to permanently deprive them of the said property and to appropriate said property for himself/herself and/or CTX." The plaintiff in order to sustain these allegations must establish that the defendants acted with the intent to deprive the plaintiff of its property permanently and that such property did belong rightfully and legally to the plaintiff. Once again, the issue centers on who owns a contact/client list consisting of individuals who have a close business and/or personal relationship with the particular individual defendants handling their respective loan applications. The issue resolves itself if this so-called property does not belong to the plaintiff, and therefore there can be no conversion and therefore, no statutory theft of such property. In effect, the alleged property that the plaintiff is claiming is accessible by both plaintiff and individual defendants and is used for the mutual benefit of both. The fact that the plaintiff had a computerized system for organizing and processing the loan applications and retained such data for future reference does not mean that the plaintiff necessarily had exclusive control over such data sufficient to make a statutory conversion claim by statute or common law. Such computerization through "Loan Manager" is not sufficient to pass the prima facie test for conversion and/or statutory theft.
Based on the cases cited by the plaintiff in its brief, News America Marketing In-Store, Inc., v. Marquis, 86 Conn.App. 527, 544-46 (2004), Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 44-45 (2000), and the standard established thereby, it is the court's finding that the plaintiff has failed to establish a prima facie case concerning those allegations involving conversion and/or statutory theft and therefore the Counts (34 and 35) involving those allegations are dismissed pursuant to Practice Book § 15-8.
IV. BREACH OF FIDUCIARY DUTY
The plaintiff has alleged in various counts of its amended complaint that individual defendants have breached a fiduciary duty by engaging in self-dealing. Such a breach relates back to the trade secret claim which has been dismissed.
To assert a claim for breach of a fiduciary duty, the plaintiff must prove the existence of a fiduciary relationship. See Murphy v. Wakelee, 247 Conn. 396, 400, 721 A.2d 1181 (1998). "[A] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." (Internal quotation marks omitted.) Biller Associates v. Peterken, 269 Conn. 716, 723, 849 A.2d 847 (2004). "[E]quity has carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations . . . Simply classifying a party as a fiduciary inadequately characterizes the nature of the relationship." (Citation omitted; internal quotation marks omitted.) Konover Development Corp. v. Zeller, 228 Conn. 206, 222-23, 635 A.2d 798 (1994); see also Alaimo v. Royer, 188 Conn. 36, 41, 448 A.2d 207 (1982).
"The law will imply [fiduciary responsibilities] only where one party to a relationship is unable to fully protect its interests [or where one party has a high degree of control over the property or subject matter of another] and the unprotected party has placed its trust and confidence in the other." (Internal quotation marks omitted.) Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 41 (2000).
"The Connecticut Supreme Court has specifically refused to define a fiduciary relationship in precise detail and in such a manner as to exclude new situations, choosing to leave the bars down for situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other . . . the Connecticut Supreme Court has also recognized that not all business relationships implicate the duty of a fiduciary." (Citations omitted; internal quotation marks omitted.) New Hartford v. Connecticut Resources Recovery, Superior Court, complex litigation docket at Waterbury, Docket No. UWY CV 04 0185580 (June 19, 2005, Eveleigh, J.). "[U]nder Connecticut law, a fiduciary or confidential relationship is broadly defined as a relationship that is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other. The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him." (Citations omitted; internal quotation marks omitted.) Ahern v. Kappalumakkel, 97 Conn.App. 189, 194, 903 A.2d 266 (2006).
"In the seminal cases in which this court has recognized the existence of a fiduciary relationship, the fiduciary was either in a dominant position, thereby creating a relationship of dependency, or was under a specific duty to act for the benefit of another." Hi-Ho Tower, Inc. v. Com-Tronics, Inc., supra, 255 Conn. 41. In Hi-Ho Tower, Inc., "the Court noted that in cases in which the Court had, as a matter of law, refused to recognize a fiduciary relationship, the parties were either dealing at arm's length, thereby lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence. The court did not find a fiduciary relationship where the parties were business entities that engaged in arm's length transaction, and there was no evidence that the plaintiff was unable to protect its interests . . . The fact that one business person trusts another and relies on [the person] to perform [its obligations] does not rise to the level of a confidential relationship for purposes of establishing a fiduciary duty." Id. Superior skill and knowledge alone do not create a fiduciary duty among parties involved in a business transaction or relationship. Id., 42.
The court finds that the relationship between the plaintiff and the individual defendants was a principal/agent relationship and not fiduciary in nature. Further, the court finds that the plaintiff has failed to introduce sufficient evidence to support its claim of fiduciary breach through self-dealing and therefore those Counts (2, 5, 8, 11, 14, 17, 20, 23, 26, 29) relating to the claim of breach of fiduciary duty as to the individual defendants are hereby dismissed pursuant to Practice Book § 15-8.
V. CIVIL CONSPIRACY
The plaintiffs allege that all of the individual defendants as well as the defendant CTX Mortgage Company engaged in conduct which would lead a reasonable person to believe that they acted in concert and conspired in such a way as to deprive and misappropriate from the plaintiff certain information, property and trade secrets to their own personal or business advantage. This allegation is unique in that a civil conspiracy must be linked in some way to an underlying cause of action.
"The Connecticut Supreme Court has stated the elements of a civil action for conspiracy as: (1) a combination between two or more persons, (2) to do a criminal or wrongful act or a lawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the scheme and in furtherance of the object, (4) which act results in damages to the plaintiff. Williams v. Maislen, 116 Conn. 433, CT Page 14109 437, [ 165 A. 455] (1933) . . . Thus, the action is for damages caused by an act in furtherance of a conspiracy not by the conspiracy itself. Cole v. Associated Construction Co., 141 Conn. 49, 54 [103 A.2d 5291] (1954). A claim of civil conspiracy is insufficient unless it is based on some underlying cause of action. Litchfield Asset Management v. Howel, 70 Conn.App. 133, 140, [ 799 A.2d 298,] cert. denied, 261 Conn. 911, 806 A.2d 49 (2002). A cause of action may lie for the damage resulting from the conspiratorial behavior, such as fraud, but not for the conspiracy itself. Id. No damages are awarded based on conspiracy apart from the damages assessable for the resulting cause of action. Id. at 146. Therefore, civil conspiracy ought not be alleged in a separate count independent from the underlying cause of action, such as for assault, fraud, etc. because it is merely a method of committing the underlying cause of action." Noll v. Hartford Roman Catholic, Superior Court, complex litigation docket at Middlesex, Docket No. X04 CV02 4000582 (July 9, 2007, Beach, J.).
The allegations of civil conspiracy of this Count (Count One) will survive only because of the evidence that has been offered under the CUTPA counts and, therefore, the allegations contained in this Count will survive the Practice Book § 15-8 motion
VI. UNAUTHORIZED COMPUTER ACCESS
The plaintiff's final set of allegations relate to unauthorized computer access in that the individual defendants used or misused the plaintiff's computer system known as the "Loan Manager" for their own personal benefit. The court's finding that the evidence concerning "Loan Manager" and its possible uses by both the plaintiff and the defendants were for each party's mutual benefit by both function and access does not obviate the plaintiff's prima facie position. Therefore, the allegations under this particular Count meet the minimum standard of Practice Book § 15-8 based on the following rationale.
"General Statute § 52-570b creates a private cause of action for computer-related offenses, as defined in . . . § 53a-251." S S Tobacco Candy Co., Inc. v. Stop Shop Companies, Inc., 815 F.Sup. 65, 66 (D.Conn., 1992), aff'd, S S Tobacco Candy Co., Inc. v. Stop Shop Companies, Inc., United States Court of Appeals, Docket No. 95-9263(L) (2d Cir., January 3, 1997). Section 52-570b provides in relevant part: "(a) Any aggrieved person who has reason to believe that any other person has been engaged, is engaged or is about to engage in an alleged violation of any provision of section 53a-251 may bring an action against such person and may apply to the Superior Court for: (1) An order temporarily or permanently restraining and enjoining the commencement or continuance of such act or acts; (2) an order directing restitution; or (3) an order directing appointment of a receiver . . .:"
Pursuant to General Statutes § 53a-251(b)(1), "[a] person is guilty of the computer crime of unauthorized access to a computer system when, knowing that he is not authorized to do so, he accesses . . . any computer system without authorization." (Emphasis added). "[Section] 53a-251(b) evinces a well defined public policy disallowing knowingly unauthorized access to computer systems . . ." (Emphasis in original.) Brantley v. New Haven, 100 Conn.App. 853, 861, 920 A.2d 331 (2007). "The statute exempts from the definition of illegal conduct access that is improper, but undertaken with a reasonable belief that it is authorized." Id.
The burden of proof to be applied under §§ 52-570b and 53a-251 is the typical civil standard of preponderance of the evidence. Blue Cross Blue Shield of Conn., Inc. v. DiMartino, (Superior Court, judicial district of New Haven, Docket No. CV 30 06 42 (July 2, 1991, Schaller, J.).
Based on the above tests, the plaintiff has introduced some evidence to the effect that the computer system that the plaintiff required the defendants to use may have been used improperly and possibly in violation of 53a-251. The implication of such a criminal statute upon a civil statutory action needs to be tested by a fair preponderance of evidence standard. In any case, there has been some evidence introduced by the plaintiff in order for this matter to survive the Practice Book § 15-8 challenge and, therefore, the Count (36) stands.