Opinion
CV156058868S
06-14-2016
Lucille Morowitz v. Charles Mantell et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTION TO STRIKE (#116)
Robin L. Wilson, J.
The plaintiff, Lucille Morowitz, (plaintiff) commenced this action against the defendants, Charles Mantell, Weiner, Mantell & Fornes, PC (WMF) and Mullaney Management & Trust, LLC (MMT) by way of writ, summons and complaint. The plaintiff filed a revised complaint on March 22, 2016, which is the operative complaint and alleges the following. The defendant, Charles Mantell is an attorney admitted to practice law in the state of Connecticut and is employed by the law firm of WMF, located at 59 Elm Street, Suite 2, New Haven, Connecticut. The defendant MMT is a limited liability company organized and existing under the laws of the State of Connecticut, with a business address of 1177 High Ridge Road, Stamford, Connecticut.
Prior to November 15, 2012, the plaintiff employed Mantell as her estate planning attorney and Mantell was the plaintiff's attorney on November 15, 2012. Prior to November 15, 2012, Mantell and Morowitz had a special relationship, as attorney and client, and Mantell owed a fiduciary duty to plaintiff. On or about November 15, 2012, Mantell contacted the plaintiff and told her that " an important person" was in his office, who had an investment opportunity available, and would only be able to meet on this " one day only." On or about November 15, 2012, Mantell also told plaintiff that the minimum investment in this investment opportunity was $500,000 but through his intercession, Morowitz could invest with only $100,000. On or about November 15, 2012, Mantell also told Morowitz that this investment was safe and appropriate, given her age (86 years old). On or about November 15, 2012, Mantell also told Morowitz that he had been investing with this " important person" and he had made " lots of money" and Mantell told Morowitz that she would " make lots of money too" if she took advantage of this one-day-only special opportunity.
Relying on Mantell's representations, Morowitz transferred money between accounts so that she could make the investment as Mantell had recommended. After transferring the money between accounts, Morowitz traveled to Mantel's office at WMF and met with Michael Mullaney, an employee of MMT. Mantel introduced Mullaney to Morowitz as the son of an owner of the gold mine in Canada, the " important person." Mantell advised Morowitz to invest with Mullaney and MMT and she did so invest on or about November 15, 2012. Plaintiff alleges that Mantell abandoned his position as her attorney and fiduciary and became a de facto salesman for MMT. Instead of being a safe investment for an 86-year-old woman like the plaintiff, the actual investment was in " penny stocks" in gold and other minerals, all of which were highly speculative and trading on a venture exchange. Ultimately, the investments in funds recommended by Mantell and MMT lost value and were sold before the value reached zero. The investment declined from $100,000 to approximately $50,000 when the investments were sold. The plaintiff's complaint sets forth eleven counts. Count one sounds in negligence and is against Mantell and WMF; count two is breach of fiduciary duty against Mantell and WMF; count three is a violation of the Connecticut Uniform Securities Act (CUSA) General Statutes § 36b-2 et seq. against Mantel and WMF; count four is a violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. against Mantel and WMF; count five is negligent misrepresentation against Mantel and WMF; count six is intentional misrepresentation against Mantell and WMF; count seven is negligence against MMT; count eight is securities fraud per § 36b-2, et seq., including 36b-29 against MMT; count nine is CUTPA against MMT; count ten is negligent misrepresentation against MMT and count eleven is intentional misrepresentation against MMT. The plaintiff claims that as a result of the defendants' conduct she has suffered losses and damages.
The defendant, MMT has moved to strike count nine of the revised complaint on grounds that CUTPA does not apply to allegations that are based on the purchase and sale of securities. The defendant filed a memorandum in support of its motion. The plaintiff did not file an opposition to the motion. The motion was scheduled on this court's May 31, 2016 individual calendar as take papers.
DISCUSSION
" 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." (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 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." (Internal quotation marks omitted.) Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006). " The court must construe the facts in the complaint most favorably to the plaintiff." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). " [I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Batte-Holmgren v. Commissioner of Public Health, 281 Conn. 277, 294, 914 A.2d 996 (2007).
The basis for the defendant's argument that the plaintiff cannot maintain her CUTPA claim is that as a matter of law claims relating to deceptive practices in the sale and purchase of securities are governed by CUSA and claims based on the same conduct cannot be brought under CUTPA. The defendant relies on the seminal case of Russell v. Dean Witter Reynolds, Inc., 200 Conn. 172, 180, 510 A.2d 972 (1986), which held that " CUTPA does not apply to deceptive practices in the purchase and sale of securities, " for this proposition.
The principal issue on appeal in Russell [was] " whether CUTPA applie[d] to the purchase and sale of securities. The plaintiff, William A. Russell, brought suit against the defendants, James J. Reid and Dean Witter Reynolds, Inc., to recover for losses he sustained as a result of a securities transaction that the defendants had arranged. The plaintiff alleged that the defendants had broken their contract with the plaintiff, made fraudulent misrepresentations, handled the plaintiff's account negligently, and violated both the Connecticut Uniform Securities Act (CUSA); General Statutes § § 36-470 through 36-502 [now 36b-2 through 36b-33]; and the Connecticut Unfair Trade Practices Act (CUTPA). General Statutes § § 42-110a through 42-110q. A jury found for the plaintiff on all but the fraud count and the court held the defendants liable to the plaintiff for compensatory damages, attorneys fees, and punitive damages. The defendants appeal[ed] from this judgment . . .
" The Connecticut statute that expressly governs the purchase and sale of securities is CUSA, which in General Statutes § 36-498 [now 36b-29] provides a private remedy for a buyer who has suffered injury because of allegedly deceptive sales practices by someone who offers or sells a security. That statute affords the defrauded buyer the right to recover restitutionary damages, interest and attorneys fees. We have not previously had occasion to consider whether an aggrieved buyer of securities may also invoke the provisions of CUTPA to afford him additional remedies, principally in the form of punitive damages. General Statutes § 42-110g . . .
Sec. 36b-29. (Formerly Sec. 36b-498.) Buyer's remedies.
(a) Any person who: (1) Offers or sells a security in violation of subsection (a) of section 36b-6, 36b-16 or subsection (b) of section 36b-24 or of any regulation or order under section 36b-22 which requires the affirmative approval of sales literature before it is used, or of any condition imposed under subsection (d) of section 36b-18 or subsection (g) or (h) of section 36b-19; or (2) offers or sells or materially assists any person who offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, who knew or in the exercise of reasonable care should have known of the untruth or omission, the buyer not knowing of the untruth or omission, and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable to the person buying the security, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at eight per cent per year from the date of payment, costs and reasonable attorneys fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security. (b)(1) Any person who violates subsection (a) of section 36b-5 and (2) any investment adviser who violates subsection (b) or (c) of section 36b-5, the registration requirement in subsection (c) of section 36b-6, or subsection (b) of section 36b-24, shall be liable to the recipient of investment advisory services for any consideration paid by the recipient for those services and any loss resulting from the investment advisory services provided, less any profits earned by the recipient through transactions effected as a result of the advice rendered, plus interest at the rate of eight per cent per year from the date of payment of the consideration, costs and reasonable attorneys fees. (c) Every person who directly or indirectly controls a person liable under subsections (a) and (b) of this section, every partner, officer or director of such a person, every person occupying a similar status or performing similar functions, every employee of such a person who materially aids in the act or transaction constituting the violation and every broker-dealer or agent who materially aids in the act or transaction constituting the violation are also liable jointly and severally with and to the same extent as such person, unless the person who is so liable sustains the burden of proof that he did not know, and in exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There shall be contribution as in cases of contract among the several persons so liable. (d) Any tender specified in this section may be made at any time before entry of judgment. (e) Every cause of action under sections 36b-2 to 36b-34, inclusive, survives the death of any person who might have been a plaintiff or defendant. (f) No person may bring an action under this section more than two years after the date of the contract of sale or of the contract for investment advisory services, except that with respect to actions arising out of intentional misrepresentation or fraud in the purchase or sale of securities, no person may bring an action more than two years from the date when the misrepresentation or fraud is discovered or in the exercise of reasonable care should have been discovered, except that no such action may be brought more than five years from the date of such misrepresentation or fraud. (g) No person may bring an action under subsection (a) of this section: (1) If the buyer received a written offer, before suit and at a time when he owned the security, to refund the consideration paid together with interest at six per cent per year from the date of payment, less the amount of any income received on the security, and he failed to accept the offer within thirty days of its receipt, or (2) if the buyer received such an offer before bringing a cause of action and at a time when he did not own the security, unless he rejected the offer in writing within thirty days of its receipt. (h) No person who has made or engaged in the performance of any contract in violation of any provision of sections 36b-2 to 36b-34, inclusive, or any regulation or order thereunder, or who has acquired any purported right under any such contract with knowledge of the facts by reason of which its making or performance was in violation, may base any cause of action on the contract. (i) Any condition, stipulation or provision binding any person acquiring any security or receiving investment advice to waive compliance with any provision of sections 36b-2 to 36b-34, inclusive, or any regulation or order thereunder is void. (j) The rights and remedies provided by sections 36b-2 to 36b-34, inclusive, are in addition to any other rights or remedies that may exist at law or in equity.
General Statutes § 42-110g provides:
(a) Any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b, may bring an action in the judicial district in which the plaintiff or defendant resides or has his principal place of business or is doing business, to recover actual damages. Proof of public interest or public injury shall not be required in any action brought under this section. The court may, in its discretion, award punitive damages and may provide such equitable relief as it deems necessary or proper. (b) Persons entitled to bring an action under subsection (a) of this section may, pursuant to rules established by the judges of the Superior Court, bring a class action on behalf of themselves and other persons similarly situated who are residents of this state or injured in this state to recover damages. (c) Upon commencement of any action brought under subsection (a) of this section, the plaintiff shall mail a copy of the complaint to the Attorney General and the Commissioner of Consumer Protection and, upon entry of any judgment or decree in the action, shall mail a copy of such judgment or decree to the Attorney General and the Commissioner of Consumer Protection. (d) In any action brought by a person under this section, the court may award, to the plaintiff, in addition to the relief provided in this section, costs and reasonable attorneys fees based on the work reasonably performed by an attorney and not on the amount of recovery. In a class action in which there is no monetary recovery, but other relief is granted on behalf of a class, the court may award, to the plaintiff, in addition to other relief provided in this section, costs and reasonable attorneys fees. In any action brought under this section, the court may, in its discretion, order, in addition to damages or in lieu of damages, injunctive or other equitable relief. (e) Any final order issued by the Department of Consumer Protection and any permanent injunction, final judgment or final order of the court made under section 42-110d, 42-110m, 42-110o or 42-110p shall be prima facie evidence in an action brought under this section that the respondent or defendant used or employed a method, act or practice prohibited by section 42-110b, provided this section shall not apply to consent orders or judgments entered before any testimony has been taken. (f) An action under this section may not be brought more than three years after the occurrence of a violation of this chapter. (g) In any action brought by a person under this section there shall be a right to a jury trial except with respect to the award of punitive damages under subsection (a) of this section or the award of costs, reasonable attorneys fees and injunctive or other equitable relief under subsection (d) of this section.
" The crucial question is not whether CUSA transactions are exempt from CUTPA but whether CUTPA itself can fairly be interpreted to encompass such transactions in the first instance. We recognize the sweeping nature of the reference in § 42-110b(a) to 'deceptive acts or practices in the conduct of any trade or commerce' (emphasis added) and the breadth of the definition of 'trade' and 'commerce' in § 42-110a(4). This statutory language must, however, be reconciled with the equally unconditional statutory language that, in construing § 42-110b(a), 'the commissioner and the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), as from time to time amended.' General Statutes § 42-110b(b).
General Statutes § 42-110b(a) provides:
(a) 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 § 42-110a(4) provides: " (4) 'Trade' and 'commerce' means the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state."
" This court has repeatedly held, in accordance with this statutory instruction, that Federal Trade Commission (FTC) rulings and cases under the Federal Trade Commission Act (FTC Act) serve as a lodestar for interpretation of the open-ended language of CUTPA. McLaughlin Ford, Inc. v. Ford Motor Co., 192 Conn. 558, 567-68, 473 A.2d 1185 (1984); Conaway v. Prestia, 191 Conn. 484, 492-93, 464 A.2d 847 (1983); Ivey, Barnum & O'Mara v. Indian Harbor Properties, Inc., 190 Conn. 528, 533-34, 461 A.2d 1369 (1983); Heslin v. Connecticut Law Clinic of Trantolo & Trantolo, 190 Conn. 510, 517-18, 461 A.2d 938 (1983); Hinchliffe v. American Motors Corporation, supra . In Heslin v. Connecticut Law Clinic of Trantolo & Trantolo, supra, 518-19, 461 A.2d 938, in determining the applicability of CUTPA to the provision of legal services, we undertook a searching inquiry of the federal cases and of the statements of the FTC before concluding that CUTPA applied to attorneys. In Ivey, Barnum & O'Mara v. Indian Harbor Properties, Inc., supra, 190 Conn. at 534-36, 539-40, 461 A.2d 1369, we looked to the standards developed by the FTC for our determination of what constitutes a cognizable unfair or deceptive practice under CUTPA.
" Our recent decision in Mead v. Burns, 199 Conn. 651, 509 A.2d 11 (1986), does not signal a departure from this interpretative principle. We there concluded that CUTPA covered deceptive practices in the insurance industry although the FTC does not presently regulate such conduct. In reaching that conclusion, we relied upon federal legislation, the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), which recognizes that federal regulation of insurance by the FTC would be appropriate 'to the extent that such business is not regulated by State Law.' See also United States v. South Eastern Underwriters Ass'n., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). Since federal law has thus authoritatively informed us that insurance is presumptively within the ambit of the FTC, we were led to a similar conclusion about the coverage of CUTPA.
" Application of the FTC lodestar to this case leads us to conclude that CUTPA does not apply to deceptive practices in the purchase and sale of securities. The FTC has never undertaken to adjudicate deceptive conduct in the sale and purchase of securities, presumably because such transactions fall under the comprehensive regulatory umbrella of the Securities and Exchange Commission. See Securities Act of 1933, 15 U.S.C. § 77a et seq.; Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. Despite the breadth of the language of § 5(a)(1) of the FTC Act, which, read literally, would include security transactions, the plaintiff has cited no case in which the FTC or a federal court has applied the FTC Act to a securities transaction and we have found none. Indeed, in an agency statement listing the types of transactions and conduct to which the FTC Act applies, the FTC makes no mention of securities. 3 Trade Reg. Rptr. (CCH) ¶ 9551, pp. 17, 021-22. Consequently, in this case, taking our guidance from the FTC, we must construe CUTPA as not purporting to cover transactions for the purchase and sale of securities.
" [15 U.S.C.] § 45. UNFAIR METHODS OF COMPETITION UNLAWFUL; PREVENTION BY COMMISSION. (A) DECLARATION OF UNLAWFULNESS; POWER TO PROHIBIT UNFAIR PRACTICES S . . . (1) Unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful." Russell v. Dean Witter Reynolds, supra, 200 Conn. 180, n.7.
" This conclusion finds support in the totality of the legislative and administrative patterns regulating deceptive practices in this state. In contradistinction to the statutes governing unfair insurance practices; see Mead v. Burns, supra, 199 Conn. 656-57, 509 A.2d 11; CUSA unequivocally provides a private cause of action for injuries caused by deceptive purchases and sales of securities. General Statutes § 36-498 [now § 36b-29]. Although this uniform statute was not enacted in Connecticut until 1977, four years after the passage of CUTPA in 1973, its predecessors in Connecticut law had established the existence of a private cause of action in Connecticut; General Statutes (Sup.1969) § § 36-338 and 36-346; well before the enactment of CUTPA. Consistently, the commissioner of consumer protection, who bears administrative responsibility for the enforcement of CUTPA, has never sought to enforce CUTPA in the context of a security transaction. The commissioner has promulgated no regulation pertaining to the deceptive sale of securities; Regs., Conn. State Agencies § § 42-110b-1 through 42-110b-28; and, to the best of our knowledge, has obtained not one order or injunction relating thereto. This history demonstrates that, following the lead of the FTC, Connecticut has long separated regulation of the purchase and sale of securities from the regulation of unfair trade practices in other industries.
[General Statutes (Sup. 1969)] Sec. 36-338. prohibited acts.
(a) No person, in connection with the sale, offer to sell, purchase or offer to purchase of any security, directly or indirectly, shall (1) employ any device, scheme or artifice to defraud, (2) make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or (3) engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. (b) No person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, shall (1) employ any device, scheme or artifice to defraud the other person or (2) engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon the other person. (c) Any person who violates any provision of this section shall be fined not more than ten thousand dollars or imprisoned not more than ten years or both." Id., 181, n.8.
[General Statutes (Sup. 1969)] Sec. 36-346. civil liability for sales in violation of law.
(a) Any person who offers or sells a security in violation of section 36-322 or 36-338 is liable to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at six per cent per annum from the date of payment, costs and reasonable attorneys fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security. Damages shall be the amount that would be recoverable upon a tender less the value of the security when the buyer disposed of it, and interest at six per cent per annum from the date of disposition." Id. n.9. The Connecticut Uniform Securities Act (CUSA) as revised to January 1, 2015 is presently codified in § § 36b-2 et seq.
" Furthermore, our conclusion is reenforced by the holdings of courts in other jurisdictions. A similar decision by the Massachusetts Supreme Judicial Court in Cabot Corporation v. Baddour, 394 Mass. 720, 721-22, 477 N.E.2d 399 (1985), is particularly persuasive because the governing statutes in Massachusetts are virtually identical to our own and because that court had previously determined, in Dodd v. Commercial Union Ins. Co., 373 Mass. 72, 79, 365 N.E.2d 802 (1977), as have we, in Mead v. Burns, supra, that the state unfair trade practices act covered unfair insurance practices. The Massachusetts court noted that when Massachusetts had applied its unfair trade practices act to transactions not expressly subject to the FTC, it had done so in areas that had historically been subject to state rather than to federal regulation. It observed that federal law has largely superseded state regulation of securities transactions for the last fifty years or more. Like this court, it observed that state legislative history gave evidence that the private cause of action under the state unfair trade practices act was not intended to supersede the private cause of action provided in the state securities act. Baddour and its reasoning is on all fours with this case.
" The decisions interpreting unfair trade practices in six other states likewise exclude securities transactions from the ambit of their unfair trade practices acts. See Swenson v. Engelstad, 626 F.2d 421, 428 (5th Cir. 1980) (applying Texas law); In re Catanella & E.F. Hutton & Co., Sec. Litigation, 583 F.Supp. 1388, 1443 (E.D.Pa.1984); Taylor v. Bear Stearns & Co., 572 F.Supp. 667, 675 (N.D.Ga.1983); Skinner v. E.F. Hutton & Co., 314 N.C. 267, 333 S.E.2d 236, 241 (1985); State v. Piedmont Funding Corporation, 119 R.I. 695, 700, 382 A.2d 819 (1978); State ex rel. McLeod v. Rhoades, 275 S.C. 104, 106-07, 267 S.E.2d 539 (1980); contra State ex rel. Corbin v. Pickrell, 136 Ariz. 589, 667 P.2d 1304 (1983); Kittilson v. Ford, 23 Wash.App. 402, 595 P.2d 944 (1979), aff'd, 93 Wash.2d 223, 608 P.2d 264 (1980). Although the underlying statutes in these cases contain provisions that concededly distinguish them from CUTPA, the ultimate holdings of the majority of the cases are consistent with the conclusion [that CUTPA does not apply to transactions involving purchase and sale of securities]." Russell v. Dean Witter Reynolds, Inc., supra, 200 Conn. 172, 173-84.
In the years since Russell has been decided, our Supreme Court has reaffirmed its holding that CUTPA does not apply to transactions involving the purchase and sale of securities. See Normand Josef Enterprises, Inc. v. Connecticut National Bank, 230 Conn. 486, 516-17, 646 A.2d 1289; 230 Conn. 486, 646 A.2d 1289 (1994) (in determining that banking industry is governed by the regulatory scope of CUTPA, court reaffirmed its decision in Russell : " The relationship in law and in fact between the Federal Trade Commission and the banking industry therefore demonstrates a substantial amount of regulatory activity that affects the conduct of the banking industry. By contrast, the Federal Trade Commission has never undertaken to define deceptive practices in the sale and purchase of securities . . ." As such, " the existence and scope of a comprehensive regulatory regime under both federal and state law precluded application of CUTPA to securities transactions.")
In Connelly v. Housing Authority of New Haven, 213 Conn. 354, 361-62, 567 A.2d 1212 (1990), in determining that CUTPA does not apply to municipal housing authorities, the court, again reaffirming its decision in Russell, stated: " [i]n Russell v. Dean Witter Reynolds, Inc., supra, we held that CUTPA was not applicable to the sale of securities because such transactions are: (1) explicitly subject to a different and specifically applicable statutory remedy; and (2) they were not among the types of transactions to which the Federal Trade Commission Act (FTC Act) has been applied. Id., 200 Conn. at 175-84, 510 A.2d 972. The transactions of this defendant clearly fall within the rationale of Russell . The defendant is subject to pervasive state regulation pursuant to the provisions of chapter 128 of the General Statutes governing municipal housing projects; § 8-38 et seq.; and to pervasive federal regulation pursuant to the relevant provisions of the United States Housing Act of 1937, 42 U.S.C. § 1437 et seq., and its implementing regulations in title 24 of the Code of Federal Regulations. The state statute and the federal regulations set forth in great detail the municipal landlord's responsibilities and provide carefully balanced procedural and substantive remedies for public housing tenants in a variety of situations. These specific statutory remedies carefully balance the rights and obligations of municipal housing authorities and their tenants, and prescribe specific procedures designed to implement repair or rehabilitation of dwellings. None of these specific statutory provisions makes reference to CUTPA. The carefully crafted equilibrium between the competing interests of municipal housing authorities and public housing tenants embodied in title 8 and the HUD regulations would be upset by holding that a CUTPA remedy, lacking the procedural prerequisites and specifically tailored remedies of either § 8-38 et seq. or the federal regulations applies in addition to those remedies.
" Further, as we noted in Russell v. Dean Witter Reynolds, Inc., supra, at 179-80, 510 A.2d 972, the history of the FTC Act is the lodestar for determining the scope of CUTPA. After a review of cases decided under the FTC Act over its seventy-five year history, and of the standards and statements of the FTC, we were unable to discover any instance in which that act has been applied to any act or practice of a local public agency, including a housing authority. We also failed to discover any instance in which the FTC Act has been applied to any landlord because of the breakdown of heat or hot water delivery systems . . . In FTC v. Colgate-Palmolive Co., 380 U.S. 374, 85 S.Ct. 1035, 13 L.Ed.2d 904 (1965), the United States Supreme Court discussed the history and proper role of the FTC Act, and the issues approximating those pleaded in the present case are conspicuously absent. See Ivey, Barnum & O'Mara v. Indian Harbor Properties, Inc., 190 Conn. 528, 533-36, 539-40, 461 A.2d 1369 (1983). The trial court was correct when it determined that under the rationale, CUTPA did not apply." Connelly v. Housing Authority of New Haven, supra, 213 Conn. 361-64.
The rule enunciated in Russell, has also been followed by Superior Courts. There is one Superior Court case that is directly on point with the present case. In Lockery v. O'Hara, Superior Court, judicial district of New Britain, Docket No. CV-00-0504936-S, (July 1, 2002, Quinn, J.) (32 Conn.L.Rptr. 447, ), the plaintiff brought an action to recover financial losses sustained due to the failure of the investments she made upon the advice of her investment counselor. At issue was whether CUTPA can be applied to allegations of deceptive practices in the purchase and sale of securities. The defendants moved to strike count four of the plaintiff's complaint on the ground that CUTPA did not apply to deceptive practices in the purchase and sale of securities. Id., 448, . The court agreed with the defendants, and in applying the holding in Russell, found that the plaintiff's investments constituted the purchase and sale of securities. Id., 449, . The court, therefore, held that CUTPA does not apply to such sales. Id.
In Romano v. Marvin, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-12-6015938-S (January 27, 2014, Jennings, Jr., J.T.R.) (57 Conn.L.Rptr. 533, ), the defendant argued that count six of the plaintiffs' complaint, alleging a CUTPA violation, should be stricken because CUSA, not CUTPA, applied to deceptive securities practices. The court noted that the holding in Russell established that CUTPA does not apply to deceptive practices of the purchase and sale of securities. Nonetheless, the court distinguished its case from the holding in Russell because " [i]n Russell, the plaintiff brought a cause of action against his stockbroker for over-purchasing certain stock and subsequently misrepresenting to the plaintiff client the fact that he had purchased the extra shares of the stock for the client's account. Clearly the unfair act (unauthorized purchase of shares) and the deceptive act (lying about purchasing the extra shares) in Russell were integral parts of, and directly concerned with, a purchase of securities for a client and were CUSA-related transactions. Here, the unfair and/or deceptive acts alleged in support of plaintiffs' CUTPA claim are the egregious actions and misconduct associated with and arising out of wire transactions of plaintiffs' cash to the defendant for his own personal use. [The] [d]efendant's misappropriations and the wire transfers were not so related to the underlying purchase and issuance of partnership interests that they would remove this claim from the broad scope of CUTPA. And the allegation that defendant continued to draw his $15,000 monthly salary without authority in spite of the termination of his employment agreement is even less related to any securities transaction." Id., 535,, *10.
In Jarozewski v. Gamble, Superior Court, judicial district of Stamford-Norwalk, Docket No. FST-CV095010065S, (July 1, 2013, Genuario, J.), the plaintiff alleged misrepresentations were made during the course of an investment transaction plaintiff made with the defendant. The plaintiff claimed, inter alia, violations of CUSA and CUTPA. The case was tried to the court and the plaintiff conceded that if the transaction involved the offer and sale of a security, CUTPA would not apply. The court found that the transaction involved the offer and sale of an interest in a limited liability company which in fact is an offer and sale of a security under CUSA and that the applicable regulatory scheme was CUSA not CUTPA. Citing Russell, the court held that " CUTPA does not apply to the conduct of the defendants as alleged in the complaint and proven at trial, " and therefore the plaintiff could not prevail on the CUTPA counts alleged in the complaint.
In Pursuit Partners, LLC v. UBS AG, Superior Court, judicial district of Stamford, Complex Litigation Docket, Docket No. X05CV084013452S, (July 8, 2009, Blawie, J.), the court, citing Russell, struck the plaintiffs' CUTPA count because the allegations contained therein focused on the alleged misrepresentations and fraudulent omissions of the defendants that induced the plaintiffs to purchase the subject Notes, which are " securities" as defined by CUSA, and CUTPA does not apply to the deceptive practices in the purchase and sale of securities. The court stated that " [t]he Connecticut statute that expressly governs the purchase and sale of securities is CUSA, which . . . provides a private remedy for a buyer who has suffered injury because of allegedly deceptive sales practices by someone who offers or sells a security." Relying on CUSA and on the holding of Russell, the court found that the plaintiffs, a group of investors, sufficiently stated claims against an investment broker in connection with the investors' purchase of notes in collateralized debt obligations (CDOs) and therefore, CUTPA did not apply.
In McCann v. Screnci, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-02-0189344-S (November 26, 2003, D'Andrea, J.T.R.) [36 Conn.L.Rptr. 68, ], the court addressed the issue of whether membership interests in a limited liability company are considered securities and therefore not within the purview of CUTPA. The court stated that in Russell " [t]he court based its holding, in part, on its conclusion that Connecticut has long separated regulation of the purchase and sale of securities from the regulation of unfair trade practices in other industries. [The Connecticut Uniform Securities Act] unequivocally provides a private cause of action for injuries caused by deceptive purchases and sales of securities. Therefore, if membership interests in an LLC are determined to be a security under CUSA, the sale of such interests are not subject to CUTPA." Id. The court then found that since CUSA does not expressly include interests in limited liability corporations in the definition of a security and, that based on the allegations in the complaint, it could not determine whether membership interests in [the LLC] are securities within the purview of CUSA, the complaint was legally sufficient. Thus, the court denied the defendant's motion to strike.
Accordingly, the defendants' motion to strike is denied." P.A. 05-177, enacted after the court's decision in McCann, and which is now § 36b-3(19), added language to include in the definition of " security" an interest in a limited liability company or limited liability partnership. P.A. 05-177 added the following language: " 'Security' includes (A) a certificated and an uncertificated security, and (B) as an 'investment contract, ' an interest in a limited liability company or limited liability partnership . . ." See also, Jarozewski v. Gamble, supra, Superior Court, Docket No. FSTCV095010065S decided July 1, 2013, (court determined offer and sale of an interest in a limited liability company was an offer and sale of a security under CUSA and therefore CUTPA did not apply). McCann v. Screnci was decided in 2003, prior to P.A. 05-177. At the time McCann was decided, the following language was contained in CUSA, General Statutes § 36b-3(17), which defined " security" to include " any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, interests of limited partners in a limited partnership, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease, or, in general, any interest or instrument commonly known as a 'security' . . ." Based on this language, the court in McCann determined that " CUSA does not expressly include interests in limited liability corporations in the definition of security and, based on the allegations in the complaint, this court cannot determine whether membership interests in Fame Enterprises, LLC are securities within the purview of CUSA.
Finally, in Champaigne v. Scarso, Superior Court, judicial district of Fairfield, Docket No. CV-97-0348470-S (August 26, 1999, Nadeau, J.) (25 Conn.L.Rptr. 368, ), the plaintiff alleged that the defendant, her former investment advisor, stole and converted the plaintiff's money by representing to the plaintiff that he was investing the plaintiff's money in a trust. The defendant allegedly issued false account statements regarding the fictitious trust and deposited the plaintiff's checks in his own account. Id., 368, . The defendants, the former financial advisor and his employer, moved to strike the CUTPA counts in the plaintiff's amended complaint on the ground that CUTPA does not apply to deceptive practice in the purchase and sale of securities. Id. The court stated that " CUTPA does not apply to deceptive practices in the purchase and sale of securities . . . Connecticut has long separated regulation of the purchase and sale of securities from the regulation of unfair trade practices in other industries." (Citations omitted.) Id. The court then concluded that because the plaintiff's investment in the trust qualifies as an interest commonly known as a security, CUSA applied to the plaintiff's transaction with the defendant. Id., 369, . Thus, the court granted the defendants' motion to strike the counts in the plaintiff's amended complaint, which alleged violations of CUTPA.
Connecticut Federal District Courts, applying Connecticut law, have also dismissed CUTPA claims in cases involving the purchase and sale of securities. In Slainte Investments Limited Partnership v. Jeffrey, decided last year, plaintiff, a limited partnership brought a diversity action against defendant investor, alleging that the investor fraudulently induced investments through an elaborate " pyramid scheme" in which he diverted investor funds for his personal use. The defendant moved to dismiss, inter alia, count five of the complaint which alleged a CUTPA violation on the basis that said count was inadequately pled on its merits and was therefore subject to dismissal under Rule 12(b)(6). In dismissing count five for failure to state a claim, the court, determined that the plaintiff's investment contracts with the defendant were " securities" and fell within the scope of CUSA. Citing Russell, the court stated: " [t]he principle that CUTPA does not apply to the purchase and sale of securities stems from the Connecticut legislature's intent that CUSA be the sole statutory framework for the regulation of securities. See Russell v. Dean Witter Reynolds, Inc., 200 Conn. 172, 180-83, 510 A.2d 972 (1986)." Slainte Investments Limited Partnership v. Jeffrey, United States District Court, 142 F.Supp.3d 239 (D.Conn. 2015). see also, Seeman v. Arthur Anderson & Co., 896 F.Supp. 250, 256 (D.Conn. 1995) (in securities fraud action, accounting firm moved to dismiss, inter alia, CUTPA claim against it. The court granted the motion to dismiss the CUTPA count; citing Russell, the court held that CUTPA does not apply to cases involving purchase or sale of securities.); Andreo v. Friedlander, Gaines, Cohen, Rosenthal & Rosenberg, 660 F.Supp. 1362, 1374 (D.Conn. 1987) (purchasers of interest in limited partnerships brought action against law firm and others for scheming to defraud them in violation of federal securities law, RICO, state statutes, and common law. The court granted defendants' motion to dismiss the state law CUTPA count citing Russell and holding that " Russell's interpretation of the scope of CUTPA, of course, is binding on this court. Since the plaintiff's claim that the alleged fraudulent conduct involved the sales of securities, Amended Complaint ¶ 4, they do not have a claim under CUTPA.")
In the present case, the plaintiff incorporates the first twenty-three paragraphs of count one into count nine and alleges that " Mantel advised Morowitz to invest with Michael Mullaney and MMT and that the actual investment was in 'penny stocks' in gold and other minerals, all of which were highly speculative and trading on a venture exchange." Pl. Rev. Compl. Count 1, ¶ ¶ 14, 16. The plaintiff further alleges that " Michael Mullaney and Mullaney Trust [knew] or should have known that highly risky and speculative " venture" investments, including investments in gold and other mineral exploration was not a suitable investment for an 86-year-old woman such as Morowitz. Ultimately, the investments in funds recommended by Mantell and Mullaney Trust lost value and were sold before the value had reached zero. The investment declined from $100,000 to approximately $50,000 when the investments were sold." Id., ¶ ¶ 21-23. " Michael Mullaney knew or should have known that the investments proposed by him to Morowitz and later invested into by her at his recommendation were entirely unsuitable for an 86-year-old woman such as Morowitz. Michael Mullaney did not take any steps to determine Morowitz's risk tolerance. Michael Mullaney did not take any steps to determine Morowitz's finances to ascertain whether the risky, speculative strategy proposed was suitable for Morowitz. Michael Mullaney breached the standard of care of investment advisors, a duty he owed to Morowitz. As a result of Michael Mullaney's conduct, Morowitz has suffered damages. Mullaney Trust is responsible for the conduct of its employee and officer, Michael Mullaney. Michael Mullaney's conduct violated the Uniform Securities Act, Conn. Gen. Stat. § 36b-2, including Conn. Gen. Stat. § 36b-29." Id., Count 7, ¶ ¶ 24-29, Count 8, ¶ ¶ 28-30.
Section 36b-29(a)(2) of the CUSA, the applicable section to the present case, provides in relevant part: " (a) Any person who . . . (2) offers or sells or materially assists any person who offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, who knew or in the exercise of reasonable care should have known of the untruth or omission, the buyer not knowing of the untruth or omission, and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable to the person buying the security, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at eight per cent per year from the date of payment, costs and reasonable attorneys fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security."
General Statutes § 36b-3(19) defines " '[s]ecurity' [as] any note, stock, treasury stock, security future . . . 'Security' includes (A) a certificated and an uncertificated security . . . Paragraph 16 of count one alleges that the " actual investment was in 'penny stocks' in gold and other minerals, all of which were highly speculative and trading on a venture stock exchange."
The complaint further alleges that Michael Mullaney and Mullaney Trust knew or should have known that the investments made by the plaintiff were highly speculative and unsuitable for an 86-year-old woman such as the plaintiff and that they failed to take any steps to determine the plaintiff's risk tolerance and failed to take steps to determine the plaintiff's finances to ascertain whether the risky, speculative strategy proposed was suitable for the plaintiff. Clearly, these allegations involve the purchase and sale of securities and/or an investment transaction that fall within the scope of CUSA. As such, in accordance with Russell, the plaintiff's CUTPA count fails as a matter of law.
CONCLUSION
For the foregoing reasons, the defendant's motion to strike count nine and the corresponding claim for punitive damages is granted.