Opinion
No. 2015-cv-488
09-23-2016
Michael Coutu v. State of New Hampshire and New Hampshire Bureau of Securities Regulation
ORDER
Plaintiff, Michael Coutu ("Coutu"), has brought an action against the Defendants alleging breach of an agreement pursuant to which he would provide services to the State of New Hampshire and the New Hampshire Department of Securities Regulation. The original Complaint, filed on September 8, 2015, alleged only breach of contract. Plaintiff amended his Complaint to add claims for violation of the New Hampshire Consumer Protection Act ("CPA") and the Whistleblower Protection Act, RSA 275-E (Whistleblower Claim). Defendants moved to dismiss those claims, Counts II and III of the Amended Complaint. For the reasons stated in this Order, the Motion is GRANTED.
I
A trial court may grant a motion to dismiss only if "it determines, after considering the evidence and construing all inferences therefrom most favorably to the non-moving party, that no rational juror could conclude that the non-moving party is entitled to any relief." Dillman v. N.H. College, 150 N.H. 431, 434 (2003). If the plaintiff has not made allegations in the complaint that are "reasonably susceptible of a construction that would permit recovery," the moving party is entitled to dismissal of the claims against them. See Hobin v. Coldwell Banker Residential Affiliates, Inc., 144 N.H. 626, 628 (2000). The threshold inquiry involves testing the facts alleged in the pleadings against the applicable law. See Williams v. O'Brien, 140 N.H. 595, 598 (1995). In rendering such a determination, the Court "assume[s] the truth of all well-pleaded facts alleged by the plaintiff and construe[s] all inferences 'in the light most favorable to the plaintiff.'" Bohan v. Ritzo, 141 N.H. 210, 212 (1996). The Court may also consider "documents attached to the pleadings, . . . documents the authenticity of which are not disputed by the parties, . . . official public records, . . . or documents referred to in the complaint." Beane v. Dana S. Beane & Co., 160 N.H. 708, 711 (2010) (citation and internal quotation omitted). Dismissal is appropriate if the facts pled "do not constitute a basis for legal relief." Id. The Court "need not accept allegations . . . that are merely conclusions of law.'" Id.
Plaintiff's Amended Complaint alleges that "in September 2014, the Defendants entered into an agreement with Mr. Coutu pursuant to which Mr. Coutu would provide services to the State of New Hampshire and the New Hampshire Bureau of Securities Regulation ("BSR") by acting as a liaison between the BSR and certain pooled risk management programs to monitor the pooled risk management programs' compliance with and implementation of orders entered in legal proceedings between the BSR and the aforementioned pooled risk management programs." (Amended Compl. ¶ 1.) The contract provided that Coutu would be paid no more than $180,000 and be reimbursed for mileage at the State's current rate. (Id. at ¶ 17.) It also provided that Coutu was to "submit invoices to the State of New Hampshire in equal monthly installments of $15,000 which invoice shall be paid by the State on or about the 18 of each month commencing September 18, 2014 through and including August 18, 2015." (Id.) Coutu alleges that from the execution of the agreement until its termination on May 28, 2015, he fulfilled his obligations under the agreement. (Id. at ¶ 20.) On or about April 17, 2015, Coutu submitted an invoice to Defendants for $16,485.76 for services rendered and expenses incurred pursuant to his obligations under the agreement. (Id. at ¶ 21.) That invoice remains unpaid. (Id.) On or about May 15, 2015, Coutu submitted an invoice to the Defendants for $6660.50 for the services rendered by him between April 19, 2015 and May 15, 2015 and requested payment of the April 17, 2015 invoice. (Id. at ¶ 24.) That invoice also remains unpaid. (Id. at ¶ 25.) Coutu terminated the agreement on or about May 28, 2015. "In his termination letter, Mr. Coutu advised the BSR of the State of New Hampshire's obligation to pay him $23,156.26 for services rendered prior to termination." (Id. at ¶ 26.) Defendants have continued to refuse to pay Coutu's invoices. (Id. at ¶ 27.)
The Amended Complaint fleshes out the reason for the breach of contract Coutu alleges. He asserts that he was required by the express terms of the agreement to "analyze and participate at committee and board meetings of the PLT," referring to the Property and Liability Trust ("PLT"), one of the pooled risk entities. (Id. at ¶ 29.) He alleges that "in the course of meetings with the PLT . . . it became apparent to Coutu that there were actions he recommended to the BSR that would ensure PLT sufficient liquidity to timely pay operating expenses and insured claims and, thereby, avert what would otherwise be a significant risk that it would be rendered bankrupt." (Id. at ¶ 30.) His recommendations would have resulted in what he calls the "resuscitation of PLT as one of the valid options available to BSR." (Id. at ¶ 31.) He alleges that Secretary of State William Gardner, who supervised BSR, had "a personal vendetta against the PLT and was absolutely determined to ensure the PLT would cease writing duly renewed business, regardless of the consequences." (Id.) Coutu alleges:
32. Because Coutu's responsible efforts in accord with his contractual obligations contravened Gardner's personal grudge, Gardner undertook to punish Coutu by both personal attacks and, ultimately, refusal to pay him sums under the Agreement.(Id. at ¶¶ 32-36.)
33. Indeed, it became plainly evident that Gardner was personally angered by Coutu's position that the BSR's failure to consider allowing the PLT to resume underwriting or, alternatively, assuring sufficient liquidity in its runoff, was contrary to its obligation to act in the best interest of the members and its policyholders.
34. While the Defendants have alleged that Coutu breached the Agreement, they continued to accept his services for a period of approximately 5 months during the allegedly "violative" conduct, yet never provided him with a notice of breach required under ¶ 8 of the Agreement.
35. As a result of the Defendant's wrongful conduct, Coutu has not been paid for services rendered, has been personally impugned and has been unnecessarily required to sue for compensation due and owing.
36. Gardner abused his authority, violated his public trust and his oath of office, by conduct that addressed his personal animus towards PLT at the expense of the public.
Based upon these allegations, Coutu asserts two counts in his Amended Complaint in addition to his breach of contract claim. Count II alleges violation of the CPA and asserts in relevant part:
46. By failing to pay Coutu for wages earned based upon the personal animus of a State official, the Defendants have engaged in an unfair method of competition.(Id. at ¶ 46.)
Count III alleges a violation of the Whistleblower Act:
52. By his actions, Coutu sought to avert PLT's bankruptcy and thereby require the BSR to honor its obligations to PLT members and policyholders.(Id. at ¶¶ 52-54.)
53. In good faith, and pursuant to the Agreement and BSR's acknowledgment of Coutu as an insurance and financial expert, Coutu objected to Gardner's refusal to consider steps necessary to allow PLT to resume underwriting or, alternatively, to ensure sufficient liquidity for an orderly runoff, thereby risking significant losses by PLT, its members, policyholders and claimants.
54. As a result of Coutu's good faith efforts to challenge violations of law, he has been subject to reputational attacks, Defendants have failed and refused to pay him sums due and owing and required him to incur fees to collect same.
III
The Court believes that a CPA action may not be maintained based upon the allegations of the Complaint for two reasons. First, the Complaint does not allege a deceptive conduct on the part of the Defendants. Second, the conduct alleged is not within the scope of the CPA.
A
The CPA creates a private right of action for "any person injured by another's use of any method, act or practice declared unlawful under this chapter." RSA 358-A: 10. The CPA provides a nonexhaustive list of conduct that constitutes unfair methods of competition or unfair or deceptive acts or practices. RSA 358-A: 2, I-XVI. Conduct not specifically enumerated may nonetheless be deceptive and violative of the Act.
The New Hampshire CPA is based upon the Federal Trade Commission Act and the statute itself requires that the Court look to the Federal Trade Commission Act for guidance. RSA 358-A:13; State v. Moran, 151 N.H. 450, 452-53 (2004). The Federal Trade Commission determines if actions are unfair or deceptive by inquiring:
(1) Whether the practice, without necessarily having been previously
considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise - whether, 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 (or competitors or other businessmen).Id. at 453 (emphasis supplied).
In cases such as this, in which the conduct alleged does not include one of the specific types of conduct that are set forth in the statute, the Court has adopted the so-called "rascality test," which was first articulated by the Massachusetts courts, in Barrows v. Boles, 141 N.H. 382, 390 (1986), to determine if the conduct falls within the purview of the act. In Barrows, the Court held that an ordinary breach of contract does not present the occasion for remedies under the CPA, and for conduct not specifically enumerated in the statute to violate the Consumer Protection Act, "the offending conduct must obtain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce." Milford Lumber Company v. RCB Realty, 147 N.H. 15, 17 (2001), quoting Barrows v. Boles at 390. The Massachusetts Supreme Judicial Court, which originated the "rascality" test, has stated that it has found use of the phrase to be uninstructive, Massachusetts Employers Association v. Propac Mass, Inc., 648 N.E.2d 435, 438 (Mass. 1995), and the test appears to have been abandoned in Massachusetts. Massachusetts HRI Services, Inc. v. LSZ, Inc., 2016 WL 3088326 (Mass. App. Div. May 6. 2016) *2 n. 5. Nonetheless, in an unbroken line of cases since Barrows, the New Hampshire Supreme Court has continued to follow the so-called "rascality test." See, e.g. Turner v. Shared Towers VA, LLC, 167 N.H. 196, 209 (2014); Axenics v. Turner Construction Co., 164 N.H. 659, 675-76 (2013). To determine which conduct not specifically enumerated in the CPA constitutes a CPA violation, it is therefore helpful to look at the facts of each particular case decided by the New Hampshire Supreme Court. The following principles can be discerned.
The cases decided by the New Hampshire Supreme Court make it clear that in order to state a CPA claim, some sort of dishonest conduct or at least conduct so reckless as to be equivalent to dishonest, must occur. If a CPA claim is made based on false representation in the inducement, the Court has held that the use of the words "deceptive" and "unfair" in the statute ordinarily require a degree of knowledge or intent. In Kelton v. Hollis Ranch, LLC, 155 N.H. 666, 668 (2007), where defendant sold a horse as a gelding, and had no reason to know that in fact the horse had an undescended testicle, the Court held that a CPA violation could not be maintained. A statement which is literally true may violate the CPA if it creates an overall misleading impression. Beer v. Bennett, 160 N.H. 166, 170 (2011). But the existence of a deceptive act does not constitute a CPA violation per se. In Hair Excitement v. L'Oreal USA, 158 N.H. 363, 371 (2009), the Court held that false representations as to both identity and intent of a representative of the defendant who was carrying out a so-called "loyalty test" to determine whether or not the plaintiff was violating antidiversion provisions in the contract did not violate the CPA because the misrepresentations were made in the context of a "rough and tumble business," and the defendant was exercising its rights under the agreement to insure that the plaintiff was not diverting its product. Id.
On the other hand, direct and knowing fraud in the inducement to the contract has been found to result in a CPA violation. For example, in State v. Moran, supra, the Court found that the defendant violated the Act by inducing the plaintiff to give him $2,300 for materials when he in fact never intended to perform the work and made continuous misrepresentations over a period of time about his willingness to do so. Moran, supra at 454. Similarly, in State v. Sideris, 157 N.H. 258, 263-64 (2008), where the plaintiff entered into a contract and took a deposit from the plaintiff with no intention of performing work, and made misrepresentations to avoid refunding money, the Court held a CPA violation occurred. Moreover, reckless conduct may satisfy the requirement of dishonesty; where a defendant did more than simply failed to perform under a contract, but made representations, knowing he lacked sufficient knowledge to substantiate them to induce the plaintiff's purchase, the Court held that a CPA violation could be sustained. Beer, 160 N.H. at 170-71. In such a case, the reckless conduct is essentially the same as dishonest.
Fraud in carrying out the provisions of a contract has been held to violate the CPA. In Milford Lumber v. RCB Realty, the Court found a violation of the CPA, because the defendants did not simply fail to pay the plaintiff's invoices, but made intentionally vague representations regarding their relationship with another party to facilitate the use of that other party's account with the plaintiff. Milford Lumber, 147 N.H. at 19. Finally, fraudulent but viable threats during negotiations by a party with superior bargaining power have been found to violate the Act. In Beckstead v. Nadeau, 155 N.H. 615, 619-20 (2007), defendants attempted to deceive the plaintiffs by inflating a legal bill sent to the plaintiff for work done at their law firm and used that inflated bill to bargain with the plaintiff over the size of the bill for work performed by the plaintiff. In Nadeau, the defendant attorneys also presumably owed a fiduciary obligation to their former client, which was plainly violated when the fraudulent inflated bill was sent.
But "an ordinary breach of contract claim... does not violate the CPA." Axenics v. Turner Construction Co., 164 N.H. 659, 675 (2013). In Axenics, the Court held that a general contractor who assisted a subcontractor in assembling documents to persuade an owner that extra contractual charges were justified, did not violate the CPA when it did not inform the subcontractor that it was preparing a rebuttal to the subcontractor's claims, for the use of the owner. Axenics, 164 N.H. at 675. Similarly, in Turner v. Shared Towers VA, LLC, 167 N.H. 196, 209 (2014), the Court held that the defendants did not violate the CPA (1) requiring [plaintiff] to honor his obligations under the loan agreement and promissory note; (2) enforcing their rights under those documents by initiating a collection and foreclosure action upon his default; and (3) rejecting his offer of compromise." The Court stated that "these actions do not, as a matter of law, raise an eyebrow of someone inured to the rough and tumble of the world of commerce." Turner, 167 N.H. at 209 (quotation omitted).
When these principles are applied to the instant case, it is apparent that a cause of action for violation of the CPA cannot be maintained. Coutu does not allege fraud, deceit, or deception. He alleges only that his contract was breached and that the motive for the breach was Secretary Gardner's "personal grudge" against the PLT. (Amended Compl. ¶ 32.) He provides no authority for the proposition that a breach of contract, based on a particular motivation, constitutes a violation of the CPA. Indeed, such a rule would violate the long-standing principle that there is no moral quality to a breach of contract. Frye v. Hubbell, 74 N.H. 358, 374 (1914) ("But the confusion arises from a failure to distinguish between legal and moral obligations. One may be morally bound to do precisely in terms as he agrees; but he is legally bound to do . . . only what he can be compelled by law to do. . . . The law does not prohibit his breach of his contract, but leaves him free to break it if he chooses, giving the other party the remedy of damages.") Moreover, under New Hampshire law, if an agreement invests "one party with a degree of discretion in performance sufficient to deprive another party of a substantial proportion of the agreement's value, the parties' intent to be bound by an enforceable contract raises an implied obligation of good faith to observe reasonable limits in exercising that discretion, consistent with the parties' purpose or purposes in contracting." Centronics Corporation v. Genicom Corporation, 132 N.H. 133, 143 (1989). But the New Hampshire Supreme Court has never suggested that violation of the implied duty of good faith and fair dealing is anything more than a breach of contract. It follows that the motive for the breach is irrelevant to the existence of a cause of action under the CPA.
Coutu does state that "while the inducement to enter the subject contract was not fraudulent, the Defendants' acceptance of further performance without objection, but with the intent not to pay for same, falls clearly within the statutory definition of deceptive." (Pl. Mem. in Supp. of Obj. to Def. Partial Mot. to Dis., 6.) But that is not the claim he pled. It follows that the CPA claim cannot be maintained because there is no allegation of dishonest or equivalent reckless conduct.
B
Moreover, even if a claim of deceptive conduct were properly pled, the CPA claim could not be maintained in the circumstances of this case. The New Hampshire Supreme Court has held that while the CPA statute broadly defines trade and commerce as "the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and shall include any trade or commerce directly or indirectly affecting the people of this state," RSA 358-A:1, II, the "scope of the CPA is narrower than its broad language may suggest, and that it does not encompass isolated sales or contracts that are not undertaken in the ordinary course of a trade or business," Ellis v. Candia Trailers and Snow Equipment, Inc., 164 N.H. 457, 465 (2012). In Hughes v. DiSalvo, 143 N.H. 576, 578 (1999), the Court stated that "to determine whether the Consumer Protection Act applies to a particular transaction, we analyze the activity involved, the nature of the transaction, and the parties to determine whether a transaction is a personal or business transaction," and that "remedies under the Consumer Protection Act are not available where the transaction is strictly private in nature, and is in no way undertaken in the ordinary course of a trade or business." Id. (emphasis supplied).
The Massachusetts Supreme Court, construing MGL ch. 93-A, the Massachusetts Consumer Protection Statute upon which the New Hampshire CPA is based, has held that "contract disputes between an employer and an employee, by contrast, are principally 'private in nature' and do not occur in the ordinary 'conduct of any trade or commerce' as contemplated by the statute." Manning v. Zuckerman, 444 N.E.2d 1262, 1266 (1983); see also Charest v. Fellows and Pres. of Harvard College, 2016 WL 614368 (D. Mass. 2/16/16) * 21; Debnam v. Federal Express Home Delivery, 766 F.3d 93, 95 (1 Cir. 2014). Moreover, a dispute arising out of an employment relationship involving a traditional employee or a consultant is still principally private in nature, and thus not within the ambit of the MGL ch. 93-A. Bolen v. Paragon Plastics, Inc., 754 F. Supp., 221, 227-28 (D. Mass. 1990).
Noting that New Hampshire courts have often relied upon interpretation of the Massachusetts Consumer Protection Act in interpreting RSA 358-A, the United States District Court for the District of New Hampshire held that the New Hampshire CPA does not provide a remedy for disputes arising out of an employment relationship between an employer employee. Donovan v. Digital Equip. Corporation, 883 F. Supp. 775, 786 (D. N.H. 1994). Similarly, the Vermont Consumer Protection Statute has been interpreted to the inapplicable to employer-employee relationships, because such relationships are private in nature. Nashef v. AADCo Medical, Inc., 947 F.Supp.2d 413, 425-26 (D. Vt. 2013).
The Court finds the reasoning of these cases persuasive. Even if the Amended Complaint were not defective, because Coutu's claim arose out of an employer-employee relationship, it is essentially private in nature and not within the ambit of the CPA. Ellis, 164 N.H. at 465. It therefore cannot be maintained.
III
Coutu's whistleblower claim fares no better than his CPA claim. RSA 275-E:2 prohibits an employer from discriminating against an employee regarding compensation because the employee, "in good faith, reports or causes to be reported, verbally or in writing, what the employee has reasonable cause to believe is a violation of any law or rule adopted under the laws of this state, a political subdivision of this state, or the United States." RSA 275-E:2, I(a). The statute does not provide a definition of when a "report" occurs, but the New Hampshire Supreme Court has held that a report occurs when "a reasonable employer would have understood from an employee's complaint that the employee was reciting a violation of law." Appeal of Fred Fuller Oil Co., Inc., 144 N.H. 607, 610-611 (2000).
Plaintiff does not allege that he reported a violation of law. Rather, he alleges that he suggested a course of action that Secretary of State William Gardner, supervisor of the BSR, disliked because Gardner had a "vendetta" against PLT. (Amended Compl. ¶ 31.) He alleges that "by his actions, Coutu sought to avert PLT's bankruptcy and thereby require the BSR to honor its obligations to PLT members and policyholders." (Id. at ¶ 52.) He further alleges that he "objected to Gardner's refusal to consider steps necessary to allow PLT to resume underwriting or, alternatively, to ensure sufficient liquidity for an orderly runoff, thereby risking significant losses by PLT, its members, policyholders and claimants." (Id. at ¶ 53.) Because Defendants did not sufficiently consider these "suggested options," Coutu "objected." (Id.) An "objection" is not a report of a violation of law and Coutu has not outlined any law that was supposedly violated. Under these circumstances, his Whistleblower Act claim cannot be maintained.
It follows that the Defendants' Partial Motion to Dismiss Counts II and III must be GRANTED. 9/23/16
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/