Opinion
No. CV 08 5024061 S
April 30, 2010
MEMORANDUM OF DECISION ON MOTION TO STRIKE (#125)
In this construction litigation, the plaintiff, Norwalk Marine Contractors, Inc. ("NMC"), moves to strike the third count of the counterclaim filed against it by one of the defendants, Manafort Bros., Inc. ("Manafort"). The third count of Manafort's counterclaim alleges that NMC violated the Connecticut Unfair Trade Practices Act ("CUTPA"), General Statutes § 42-110a et seq., by engaging in certain "immoral, unethical or unscrupulous conduct" regarding its contractual duties to Manafort. The principal issue to be decided by the court is whether NMC's alleged actions and omissions are legally sufficient to sustain a claim for a CUTPA violation. For the reasons set forth below, the motion to strike the third count of the counterclaim is granted.
FACTUAL AND PROCEDURAL HISTORY
This action arises out of various disputes regarding the construction of a new building ("North Tower Building") at St. Francis Hospital in Hartford, Connecticut. Manafort is the general contractor with respect to the construction of the building. Manafort hired NMC as a subcontractor to perform site work and construction of the foundation for the building. As part of its scope of work, Manafort was obligated to drive 278 foundation piles for the building in accordance with the project's plan and specifications.
At some point during the project, NMC installed a significant number of the foundation piles in locations that ultimately were deemed to be incorrect by the project's engineer. NMC claims that the incorrect placement of these foundation piles was caused by certain actions or omissions of Manafort, or alternatively, the Huntington Company, LLC ("Huntington"), which performed the engineering and surveying work on the project, including laying out and staking the locations of the construction piles. As a result, NMC was required to install additional piles, and Manafort has allegedly refused to compensate NMC for this additional work.
NMC brought this action on October 17, 2008, against Manafort and Huntington. In its first amended revised complaint, NMC asserts various contractual claims against Manafort and a malpractice claim against Huntington.
On July 24, 2009, Manafort filed an Answer, Special Defenses and Counterclaims against NMC. In counts one through five of its counterclaim, respectively, Manafort asserts: breach of contract, including the indemnity provision therein; negligence; violations of CUTPA; breach of an oral contract regarding the use of a crane; and unjust enrichment.
Manafort alleges the following facts in its five-count counterclaim. Turner Construction Company ("Turner") was the general contractor on the project to construct a new and separate building at St. Francis Hospital. Turner entered into a written subcontract with Manafort to provide sitework and concrete work on the project.
In turn, Manafort entered into a written subcontract with NMC pursuant to which NMC agreed, among other things, to install foundation piles for the new building. Prior to installing the construction piles, NMC undertook the responsibility to lay out and stake the necessary locations for the foundation piles in a manner consistent with the project's plans and specifications.
According to the factual allegations of the third counterclaim, however, NMC knew or should have known that, before it began its work, NMC and its subcontractor needed to receive certain specifications known as control points or coordinates for the foundation piles from Turner or Manafort. When Manafort received these specifications from Turner, it transmitted the information to NMC. Nevertheless, NMC failed to use these control points in performing its work on the project and therefore many of the piles that it installed were not properly located in compliance with the requirements of the project. Finally, Manafort alleges that NMC breached its responsibility for correcting its work on the project, and has neglected to indemnify Manafort for losses it incurred as a result of NMC's failure to comply with the terms thereof.
On the basis of these facts, Manafort specifically alleges the following in paragraph 20 of its third counterclaim:
"NMC engaged in unfair competition and unfair and deceptive acts in trade or commerce by:
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a) engaging in immoral, unethical conduct and/or unscrupulous practices with respect to commitments, assurances and obligations arising out of or relating to [its contract] including failing to communicate with its sub-subcontractor, Huntington, and falsely blaming [Manafort] for NMC's own failures and neglect to perform its obligations.
b) engaging in immoral, unethical conduct and/or unscrupulous practices by falsely, wrongfully, or carelessly claiming or asserting (i) that the Project is an addition to an existing hospital building; (ii) inaccurate and incorrect information with respect to the receipt and use of control point (coordinates) information for the Project; (iii) that the foundation plan changed; (iv) that industry practice for use of control point and coordinates is based upon existing structures; (v) that Manafort received a revised foundation plan weeks before start of NMC's work and [Manafort] did not provide it to NMC; (vi) that the control points changed; (vii) and other similar comments in an effort to deflect responsibility for NMC's errors and mistakes and for NMC's proceeding without control points and blaming others for the errors;
c) engaging in immoral, unethical conduct and/or unscrupulous practices in violation of oral agreements and understanding with regard to the rental and use of a Crane on the Project site and neglecting and wrongfully refusing to pay Manafort for the use and rental of the Crane; and
d) engaging in immoral, unethical conduct and/or unscrupulous practices by neglecting[,] failing and refusing to indemnify and hold [Manafort] harmless from claims asserted by [others] for back charges, redesign, further engineering expenses and similar expenses incurred by MBI, including attorneys fees and expert witness fees.
NMC now moves to strike the third counterclaim on the basis that the facts alleged in the counterclaim are insufficient to establish a violation of CUTPA. The court agrees.
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STANDARD OF REVIEW
"A motion to strike challenges the legal sufficiency of a pleading . . . and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted .) Nazami v. Patrons Mutual Ins. Co., 280 Conn. 619, 624, 910 A.2d 209 (2006). "[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Id., 625. "A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "It is fundamental that in determining the sufficiency of [a pleading] challenged by a defendant's motion to strike, all well-pleaded facts and those facts which are necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006).ANALYSIS
In its motion to strike, NMC argues that these allegations are legally insufficient to sustain a claim for a violation of CUTPA because Manafort does not allege facts that would demonstrate that NMC engaged in aggravating conduct beyond that which constitutes a mere breach of contract action. Manafort counters that its allegations regarding NMC's misrepresentations and actions, taken as a whole, are sufficient to support a claim that NMC violated CUTPA by engaging in conduct that extends beyond a mere breach of contract claim and, therefore, meets the requirements for bringing an action for a violation of CUTPA.
"CUTPA provides that [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce . . . In order to enforce this prohibition, CUTPA provides a private cause of action to [a]ny person who suffers any ascertainable loss of money or property . . . as a result of the use or employment of a [prohibited] method, act or practice . . ." (Citation omitted; internal quotation marks omitted.) Stevenson Lumber Co.-Suffield, Inc. v. Chase Associates, Inc., 284 Conn. 205, 213-14, 932 A.2d 401 (2007).
"It is well settled that in determining whether a practice violates CUTPA [the Connecticut Supreme Court has] 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] . . . 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." (Internal quotation marks omitted.) Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 155, 881 A.2d 937 (2005), cert. denied, 547 U.S. 1111, 126 S.Ct. 1913, 164 L.Ed.2d 664 (2006).
The Appellate Court has issued conflicting decisions on the question of whether a breach of contract alone is sufficient to establish a CUTPA violation. Compare Gebbie v. Cadle Co., 49 Conn.App. 265, 279, 714 A.2d 678 (1988) (failure to perform contract established a CUTPA violation); Lester v. Resort Camplands International, Inc., 27 Conn.App. 59, 71, 605 A.2d 550 (1992) ("[T]he same facts that establish a breach of contract claim may be sufficient to establish a CUTPA violation . . .") with Hudson United Bank v. Cinnamon Ridge Corp., 81 Conn.App. 557, 571, 845 A.2d 417 (2004) ("[N]ot every contractual breach rises to the level of a CUTPA violation"); Paulus v. LaSala, 56 Conn.App. 139, 153, 742 A.2d 379 (1999) ("Even if, as the plaintiffs claim, the defendants breached a contract, such breach is not sufficient to establish a CUTPA violation"), cert. denied, 252 Conn. 928, 746 A.2d 789 (2000); see also Calandro v. Allstate Insurance Co., 63 Conn.App. 602, 617, 778 A.2d 212 (2001) ("Not every misrepresentation constitutes a CUTPA violation . . .").
For this proposition, the Appellate Court in Lester cites to our Supreme Court's decision in Webb Services Corp. v. New London Motors, Inc., 203 Conn. 342, 525 A.2d 57 (1987). The Webb Services decision, however, does not so hold and instead simply remanded the case to the trial court for an articulation of the standard it used in assessing the plaintiff's CUTPA claim. Id. At best, Webb Services stands for the proposition that a plaintiff need not necessarily establish that a misrepresentation was made knowingly to establish a deceptive trade practice under CUTPA.
The Connecticut Supreme Court, without directly holding so, has recently suggested that a simple breach of contract, in the absence of other unlawful conduct, does not establish a CUTPA violation. See Lydall, Inc. v. Ruschmeyer, 282 Conn. 209, 247-48, 919 A.2d 421 (2007). In Lydall, the court stated that "[t]he trial court did not conclude, however, and [the plaintiff] does not claim, that this breach of the employment agreement would be sufficient to establish a CUTPA violation in the absence of a showing that the attempted takeover, in and of itself, was unlawful." Id. The Lydall court then cited with approval the federal district court's opinion in Lawrence v. Richman Group Capital Corp., 358 F.Sup.2d 29, 42 (D.Conn. 2005), which holds that absent substantial aggravating circumstances, a simple breach of contract is insufficient to establish a claim under CUTPA.
In light of this lack of clear guidance by our appellate courts, a split of authority has developed in the Superior Court regarding what is necessary to establish a CUTPA claim with respect to a breach of contract. The majority of courts hold that a breach of contract, even if intentional, does not necessarily amount to a violation of CUTPA unless other substantial aggravating circumstances exist. Compare, for example, Greene v. Orsini, 50 Conn.Sup. 312, 315, 926 A.2d 708 (2007); Raffone v. Home Depot, USA, Inc., Docket No. CV 02 0465471, Superior Court, judicial district of New Haven (June 23, 2003, Harper, J.) [ 34 Conn. L. Rptr. 747]; with Zelencich v. American Yacht Services, Docket No. CV 02 0187145, Superior Court, judicial district of Stamford (July 31, 2006, Jennings, J.).
According to the majority line of cases "[a] simple breach of contract does not offend traditional notions of fairness and, standing alone, does not offend public policy so as to invoke CUTPA. A CUTPA claim lies where the facts alleged support a claim for more than a mere breach of contract . . . That generally is so when the aggravating factors present constitute more than a failure to deliver on a promise." (Citation omitted.) Greene v. Orsini, supra, 50 Conn.Sup. 315.
For the following reasons, the court agrees with and adopts the position that a CUTPA claim that is essentially premised on a claim of a breach of contract must also sufficiently allege "substantial aggravating circumstances" in order to prove "immoral, unethical or unscrupulous conduct" under CUTPA. First, CUTPA liability under the prong of the Cigarette Rule upon which Manafort relies requires proof that a party engaged in "immoral, unethical or unscrupulous conduct." This language plainly imposes a normative and high standard under which a breach of contract, whether it be intentional or non-intentional, does not ordinarily reach except when accompanied by additional wrongful or unlawful conduct. Unlike an ordinary breach of contract claim in which the non-breaching party is generally only entitled to "consequential" or "expectation" damages, a finding of CUTPA liability can result in the imposition of punitive damages, disgorgement of ill-gotten gains and an award of attorneys fees (a departure from the otherwise applicable "American rule"). Courts and commentators have been critical of permitting the imposition of punitive damages for breaches of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. See, e.g., Thyssen, Inc. v. S.S. Fortune Star, 777 F.2d 57 (2d Cir. 1985); 5 A. Corbin, Contracts § 1077, p. 438-39 (1964). Because the existence of these extraordinary remedies in CUTPA is in derogation of the common law, CUTPA liability should only be imposed when there are substantial aggravating factors in addition to the general conduct that constitute the breach of contract.
As a number of courts have recognized, "[e]ven if the breach is deliberate, it is not necessarily blameworthy. The promisor may simply have discovered that his performance is worth more to someone else. If so, efficiency is promoted by allowing him to break his promise, provided he makes good the promisee's actual losses. If he is forced to pay more than that, an efficient breach may be deterred, and the law doesn't want to bring about such a result." Patton v. Mid-Continent Systems, Inc., 841 F.2d 742, 750 (7th Cir. 1988); see also Vines v. Orchard Hills, Inc., 181 Conn. 501, 506, 435 A.2d 1022 (1980) ("The principal purpose of remedies for the breach of contract is to provide compensation for loss . . . and therefore the party injured by the breach of contract is entitled to retain nothing in excess of that sum which compensates him for the loss of that bargain").
The court now turns to the specific allegations of Manafort's third counterclaim to determine whether it has alleged substantial aggravating factors that would be sufficient to establish its claim that NMC violated CUTPA by engaging in "immoral, unethical or unscrupulous conduct." In subparagraph a) of paragraph 20, Manafort alleges that NMC breached its contractual obligations because it (1) failed to communicate adequately with Huntington and (2) falsely blamed Manafort for its breach. The first assertion is obviously inadequate because, even if proven, it would only prove that NMC negligently performed its contractual obligation.
The second assertion in subparagraph a) is also legally insufficient because it seeks to impose CUTPA liability on NMC merely for exercising its rights in this litigation to claim that Manafort breached the contract. Indeed, it would be extraordinary to conclude that a party subjects itself to CUTPA liability for asserting in litigation that the opposing party breached the contract. See McManus v. Sweeney, 78 Conn.App. 327, 331, 827 A.2d 708 (2003) (judicial proceedings privilege extends to any statements made in pleadings or other documents filed in course of judicial proceeding so long as pertinent to the controversy). Manafort itself has asserted this very principle in a case in which it had been sued for vexatious litigation after it previously had instituted a breach of contract action against a customer. See Ancona v. Manafort Bros, Inc., 56 Conn.App. 701, 715, 746 A.2d 184, cert. denied, 252 Conn. 953, 749 A.2d 1202 (2000). In upholding a judgment in Manafort's favor, the Appellate Court adopted the trial court's conclusion that the "filing a single non-sham lawsuit . . . cannot form the basis of a claim under CUTPA." (Internal quotation marks omitted.) Id.
Manafort's allegations in subparagraph b) suffer from the same legal flaws. In subparagraph b), Manafort alleges facts that if proven would certainly demonstrate that NMC breached the contract by installing the foundation piles in the wrong locations and that the reasoning used by NMC in choosing those locations was flawed, mistaken or even negligent. In other words, if Manafort proves these allegation it will have established that NMC breached the contract; no more, no less. Such allegations, however, do not rise to the level of substantial aggravating circumstances. To the extent that NMC is attempting to blame other parties for the incorrect placement of the foundation piles in this litigation, that is certainly its right and does not constitute a substantial aggravating circumstances even if NMC is ultimately unsuccessful in that endeavor.
Finally, the allegations in subparagraph c) and d) are also legally insufficient to adequately plead a CUTPA violation for "immoral, unethical or unscrupulous conduct." Subparagraph c) simply alleges that NMC violated various contractual agreements regarding a crane used on the site and refused to pay for the use of the crane. Similarly, subparagraph d) simply alleges that NMC has breached a contract by failing to honor its contractual duties to indemnify and hold harmless Manafort regarding certain third-party claims. Again, these allegations amount to nothing more than a claim that NMC breached its contract.
Centimark Corp. v. Village Manor Associates Ltd. Partnership, 113 Conn.App. 509, 524, 967 A.2d 550, cert. denied, 292 Conn. 907, 973 A.2d 103 (2009), does not support Manafort's argument regarding the adequacy of its allegations. In Centimark, the Appellate Court affirmed a trial court's finding of CUTPA liability against a roofing contractor who had affirmatively represented in the contract it would be performing the roofing work itself but, in fact, had subcontracted the work to another entity. Centimark, however, is distinguishable. The trial court's imposition of CUTPA liability in Centimark was premised on a conclusion that it was an affirmative misrepresentation and therefore fell within the meaning of a "deceptive act." Here, Manafort brings an "unfairness" claim by alleging that NMC engaged in immoral, unscrupulous, or unethical conduct. The only affirmative misrepresentations that Manafort specifically alleges NMC made in this case all relate to NMC's attempts to assert in this litigation that, given the information it had at the time, it had properly sited the foundation piles or that some other entity is at fault for the incorrect placement of the foundation piles. Thus, unlike in Centimark where prior to performance of the contract the defendant had affirmatively misrepresented who was going to perform the actual work, the only alleged deceptive acts here relate to NMC's lawful attempt to argue that it had not breached the contract.
In Gebbie v. Cadle Co., 49 Conn.App. 265, 279, 714 A.2d 678 (1998), upon which Manafort relies, the Appellate Court affirmed a trial court's imposition of CUTPA liability on an entity simply for refusing to perform its obligation under an agreement that it admitted was binding upon it. In so doing, the Gebbie court does not cite any substantial aggravating factors other than the breach of the contract itself. Gebbie is distinguishable from the present because, unlike Gebbie where contractual liability was flatly conceded by the defendant, NMC in bringing this action has asserted that any breach on its part is excused by Manafort's breach Additionally, and perhaps more significantly, Gebbie appears to conflict with the Supreme Court's subsequent decision in Lydall, Inc. v. Ruschmeyer, 282 Conn. 209, 247-48, 919 A.2d 421 (2007), which appears to require some additional aggravating factors that extend beyond a party's mere unwillingness to meet its contractual obligations.
CONCLUSION
At heart, this action, which includes both NMC's claims against Manafort and Huntington, and Manafort's counterclaims against NMC, is nothing more than a contractual dispute as to which entity ultimately is contractually responsible for incorrect placement of the foundation piles. If Manafort is successful on its contractual claims, it will be entitled to be made whole through the full measure of consequential damages available in any breach of contract action. Although Manafort may be unhappy that NMC denies that it breached the contract and is instead suing Manafort for breach of contract, such actions by NMC do not transform this garden variety breach of contract case into a CUTPA case where punitive damages and other extraordinary remedies not otherwise available could be imposed.
Thus, for all these reasons, the court finds that Manafort has failed to allege a valid claim that NMC violated CUTPA. Therefore, NMC's motion to strike the third count of Manafort's counterclaim is granted.