Opinion
No. CV 03-0828039 S
September 23, 2004
MEMORANDUM ORDER RE DEFENDANT'S SECOND MOTION TO STRIKE
Upon considering the oral arguments and briefs of counsel in support of and in opposition to the Second Motion To Strike ("Motion") of defendant A.H. Harris Sons, Inc. ("A.H. Harris"), which was filed on May 5, 2004 to challenge the legal sufficiency of the Fourth, Fifth, Sixth and Eighth Counts of the Second Revised Complaint of plaintiff Santoro, Inc. ("Santoro") dated April 19, 2004 ("Complaint II-R"), the Court hereby concludes, for the following reasons, that said Motion must be GRANTED as to each and every challenged Count.
1. In this case, plaintiff Santoro seeks to recover money damages from defendant A.H. Harris, on several alternative legal theories, for allegedly selling it a defective product — a joint compound used for highway bridge — and overpass-related work known as the "A.H. Harris Poly-Joint System" — for its use in performing pavement maintenance work on projects for the State of Connecticut Department of Transportation ("D.O.T").
2. As pleaded in Complaint II-R, the common core of factual allegations underlying all of Santoro's claims against A.H. Harris are as follows:
Such facts are pleaded identically in the first twenty-two (22) paragraphs of each and every Count of the Second Revised Complaint.
a. In September of 1999, in connection with work it had agreed to perform on DOT Project #15-271 on Route 95 in Bridgeport, Connecticut, Santoro entered into a contract with A.H. Harris, wherein A.H. Harris agreed to supply and Santoro agreed to purchase the A.H. Harris Poly-Joint System. Complaint II-R, Counts I-VIII, ¶¶ 5, 7.
b. A.H. Harris represented and advertised the A.H. Harris Poly-Joint System to be equal or superior to and in. conformance with other asphaltic plug systems on the market. Id., Counts I-VIII, ¶ 8.
c. Beginning in 1999, Santoro began using the A.H. Harris Poly-Joint System on all of its bridge — and overpass-related work. Id., Counts I-VIII, ¶ 9.
d. In September of 2001, Santoro was informed that the A.H. Harris Poly-Joint System was defective, in that it was crumbling, delaminating and pot holing. More specifically, it was told by the DOT that the aggregate used to make the product was too small. Id., Counts I-VIII, ¶¶ 10-11.
e. In the Spring of 2002, A.H. Harris contacted Santoro and the DOT to inform them that it had modified the original A.H. Harris Poly-Joint System ("Original P-J System") with a "corrected aggregate." A.H. Harris represented that the modified A.H. Harris Poly-Joint System ("Modified P-J System") was equal or superior to and in conformance with other asphaltic plug systems on the market Id., Counts I-VIII, ¶¶ 12-13.
f. In April or May of 2002, Santoro was contacted regarding the failure of several asphaltic plug joints which it had installed with the Original P-J System on on-ramps and off-ramps of Interstate 84 while performing work on DOT Project #155-145. Id., Counts I-VIII, ¶ 14. As a result of those product failures, the DOT required Santoro to repair all such failing asphaltic plug joints at its own expense. Id., Counts I-VIII, ¶ 15. Santoro complied with the DOT's order using the Modified P-J System. Id., Counts I-VIII, ¶ 16.
g. In June and July of 2002, there were numerous other failures of both the Original P-J System and the Modified P-J System, where Santoro had used those products to perform bridge-and overpass-related work. Id. Counts I-VIII, ¶ 17. Shortly thereafter, the DOT removed both products from its approved product list, assertedly "because of their obvious defective natures." Id., Counts I-VIII, ¶ 18.
h. Since September of 2001, when the first failure of the Original P-J System came to light, and thereafter, since the Summer of 2002, when the first failure of the Modified P-J System was brought to its attention, Santoro has been required to make and pay for repairs on several completed Projects it had worked on, including Project #15-271 and Project #155-145, where one or the other of those products has failed. Id., Counts I-VIII, ¶¶ 19-21. In light of this experience, Santoro expects that in the future it will be forced to make additional repairs and incur additional expenses due to the anticipated failure of A.H. Harris's defective P-J Systems. Id., Counts I-VIII, ¶ 22.
3. The First Count of Complaint II-R alleges that A.H. Harris's actions in supplying Santoro with defective goods constituted a breach of the parties' express contract. As damages for the alleged breach, Santoro seeks, inter alia, to recover the following types of economic damages: lost profits, loss of business, loss of use of money spent on making required repairs, loss of goodwill, loss of commercial opportunities, and other incidental and consequential damages. Id., Count I, ¶ 24.
4. The Second and Third Counts of Complaint II-R both present claims for damages under the Uniform Commercial Code. In the Second Count, Santoro alleges that by supplying it with defective goods and failing to remedy said defects after notice, A.H. Harris breached the implied warranty of fitness for a particular purpose, in alleged violation of General Statutes § 42a-2-315. The Third Count alleges that by supplying Santoro with defective goods and failing to remedy said defects after notice, A.H. Harris also breached the implied warranty of merchantability, in alleged violation of General Statutes § 42a-2-314. As damages for each alleged breach, Santoro seeks the same kinds of damages as it seeks under its First Count, as specified in Paragraph 3 above. Id., Count II, ¶ 28; Count III, ¶ 29.
5. In the Fourth Count, Santoro alleges that A.H. Harris is liable for nondisclosure or innocent misrepresentation based upon alleged misrepresentations by it as to the quality, durability, fitness and/or merchantability, of its defective P-J Systems, upon which Santoro allegedly relied to its detriment when it agreed by contract to purchase those Systems. In the Fifth Count, plaintiff asserts a claim of negligent misrepresentation on the basis of the foregoing allegations, albeit pleading, in addition, that the misrepresentations in question were made with knowledge of their falsity, allegedly to induce Santoro to purchase its product, in violation of A.H. Harris's duty to exercise reasonable care.
6. The Sixth, Seventh and Eighth Counts of Complaint II-R each incorporate by reference all of the substantive allegations of the first five Counts. The Sixth Count purports to state a claim of breach of the implied covenant of good faith and fair dealing based upon A.H. Harris's alleged "acts and/or omissions in, inter alia, failing to disclose known facts, failing to provide fit and/or merchantable goods, and/or engaging in misrepresentation[.]" Count VI, ¶¶ 52-53. The Seventh Count, which also incorporates by reference the substantive allegations of the Sixth Count, purports to state a claim of common-law indemnification. Finally, the Eighth Count, which also incorporates by reference the substantive allegations of the Sixth and Seventh Counts, purports to state a claim for violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), General Statutes § 42-110a et seq. Neither of the last two claims particularly identifies which allegations incorporated from the plaintiff's other, earlier Counts constitute the essential factual basis of the new and different claims pleaded therein.
7. As the first ground of its present Motion, A.H. Harris asserts that each of the four Counts herein challenged must be stricken because all state claims for damages available only in tort, including punitive damages and attorneys fees claims under CUTPA, solely on the basis of economic losses allegedly resulting from a breach of contract. Such claims, it argues, are barred by the so-called "economic loss rule," which was approved and applied by our Supreme Court, under strikingly similar circumstances, in Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126, 709 A.2d 1075 (1998).
8. In Flagg, notes A.H. Harris, the Supreme Court held that the trial court had properly stricken counts alleging negligent misrepresentation and violation of CUTPA based upon the sale, under a contract, of allegedly defective commercial goods. In reaching that conclusion, the Flagg Court expressly agreed "with the holdings of cases in other jurisdictions that commercial losses arising out of the defective performance of contracts for the sale of goods cannot combine with negligent misrepresentation." Id. at 153. Such "authorities[,]" it continued, "are particularly persuasive in the circumstances of this case, in which the misrepresentation and CUTPA claims depend upon allegations of fact that are identical to those asserted in [the plaintiffs' contract and warranty] claims." Id. at 154. The rationale for this rule, as explained by the Flagg Court, is that
the parties are sophisticated corporations familiar with the type of services rendered, and the consequences . . . likely to result from a failure to perform the contract as promised. The parties were free to allocate the risks, insure against potential losses, and adjust the contract price as they deemed most wise.
Id. (quoting Princess Cruises, Inc. v. General Electric Corp., 950 F.Sup. 151, 155 (E.D.Va. 1996)).
9. "The present case," contends A.H. Harris,
is factually identical to Flagg. Plaintiff is seeking recovery based on a breach of a purchase order — a contract for the sale of goods — for damages caused by products that allegedly were defective. As the plaintiffs did in Flagg, this plaintiff seeks to ground liability for misrepresentation and a CUTPA violation on the same basis as its breach of contract claim. The Flagg Court made clear, however, that in circumstances such as these, a plaintiff is limited to its contract remedies.
Defendant's Memorandum of Law (5/3/04), pp. 13-14. On that basis, the defendant argues that each challenged Count must be stricken for failure to state a claim upon which relief can be granted.
10. Plaintiff Santoro has responded to the defendant's initial claim by insisting that the true test for determining if a challenged count is even arguably subject to being stricken under the "economic loss rule," as applied in Flagg, is whether the allegations of that count are independent of those on which its breach of contract and breach of warranty claims are based. On that basis, it argues that each Count here challenged by defendant A.H. Harris should survive the present Motion, because each alleges facts extrinsic to those upon which its breach of contract and breach of warranty claims are based. Plaintiff's Objection (5/10/04), p. 6.
The plaintiff argues that in Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 575, 657 A.2d 212 (1995), the economic loss rule was rejected as a basis for preventing a plaintiff from bringing a negligent misrepresentation claim alongside of and on the same factual basis as a breach-of-contract claim. This, however, is not relevant in the present context where the Court is dealing not with a common-law rule but a presumptive statutory preclusion.
11. With due respect to the parties, neither appears to have correctly understood or applied the Supreme Court's controlling opinion in Flagg. Upon close examination, that decision cannot reasonably be read to create a general rule barring all tort claims based in whole or in part upon alleged breaches of contract or alleged breaches of implied warranties of fitness and/or merchantability. Instead, it can only be read to bar such claims in the particular circumstances there at issue, to wit: where both the plaintiff and the defendant are sophisticated commercial parties, and their dispute arises from the defendant's allegedly defective performance under a contract for the sale of goods. The reasons for this limitation, quite simply, is that its origin lies not in the broad common law of torts or contracts, but in the narrower, express provisions of Article 2 of the Uniform Commercial Code, which establishes special rules governing the remedies available for breaches of commercial contracts for the sale of goods.
12. As explained by Chief Justice Peters, who authored the Flagg decision for a unanimous Court, the issue there presented for the Court's decision was as follows:
The defendant filed a motion to strike these two counts "because the plaintiffs are seeking recovery for commercial loss and, as a result, are limited to the remedies provided by the Uniform Commercial Code." The plaintiffs argued, to the contrary, that actions for fraud did not fall within the economic loss rule. Further, they maintained that, even if the economic loss rule would otherwise have barred their tort and unfair practices claims, those claims were validated by savings provisions contained in the Uniform Commercial Code, General Statutes § 42a-1-103 . . . and § 42a-2-721 . . . Finally, they argued that their allegations of fraudulent inducement stated a valid claim under CUTPA.
Id. at 152 (footnotes omitted). The trial court had rejected the plaintiff's arguments and granted the defendant's motion to strike, concluding as follows.
A situation such as this one — involving commercial parties and economic losses suffered as a result of an alleged product failure — is precisely the type of circumstance where such misrepresentation and breach of contract [claims] are incompatible.
Id. at 153.
13. On appeal from the foregoing ruling, the plaintiff argued that the economic loss rule, though undoubtedly supported by the Uniform Commercial Code in certain situations, "does not apply to claims for negligent misrepresentation of information provided for the guidance of others or to claims for unfair trade practices." Id. The Court, however, flatly disagreed, noting specifically that:
We agree with the holdings of cases in other jurisdictions that commercial losses arising out of the defective performance of contracts for the sale of goods cannot be combined with negligent misrepresentation. See Duquesne Light Co. v. Westinghouse Electric Corp., 66 F.3d 604, 618 (3d Cir. 1995); Princess Cruises, Inc. v. General Electric Co., 950 F.Sup. 151, 155 (E.D.Va. 1996) ("The parties are sophisticated corporations familiar with the type of services rendered, and the consequences of a mechanical failure likely to result from a failure to perform the contract as promised. The parties were free to allocate the risks, insure against potential losses, and adjust the contract price as they deemed most wise. This Court sees no reason to extricate the parties from their bargain."); see also General Statutes § 52-572n(c); . . . 1 Restatement (Third), Torts, Products Liability (proposed final draft) § 6, p. 303 (1996) . . . These authorities are particularly persuasive in the circumstances of this case, in which the misrepresentation and CUTPA claims depend upon allegations of fact that are identical to those asserted in their claims.
Id. at 153-54 (footnotes omitted).
14. Turning to the particular provisions of the Uniform Commercial Code which it found to bar the misrepresentation and CUTPA claims at issue in the case before it, the Flagg Court took special note of Sections 42a-1-103 and 42a-2-721. "Section 42a-1-103," the Court observed,
At all times relevant to this case, Section 42a-1-103 has provided as follows.
Sec. 42a-1-103. Supplementary general principles of law applicable.
Unless displaced by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.
At all times relevant to this case, Section 42a-2-721 has provided as follows:
Sec. 42a-2-721. Remedies for fraud.
Remedies for material misrepresentation or fraud include all remedies available under this article for nonfraudulent breach.
Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy.
preserves a broad range of common-law actions, including actions for fraud and misrepresentation, unless such actions are "displaced by the particular provisions of this title." One such "particular provision" is § 42a-2-721. Section 42a-2-721 provides that, in some circumstances, a claim for a remedy for material misrepresentation or fraud may be consistent with other claims arising under article 2 of the Uniform Commercial Code. Such consistency may be found in the event of "rescission or a claim for rescission of the contract for sale [or] rejection or return of the goods . . ." General Statutes § 42a-2-721. The official comment to that section emphasizes that, even in such cases, the circumstances may make the remedies inconsistent . . . A.L.I., Uniform Commercial Code, supra, § 42a-2-721, official comment. By implication, the intent of § 42a-2-721 is to make actions for fraud or misrepresentation presumptively inconsistent with postacceptance claims for breach of warranty.
Id. at 154-55 (footnote omitted; emphasis added). So stating, the Court was constrained to conclude that, in the case before it,
the plaintiff's claims for fraud and for unfair trade practices cannot be squeezed into the narrow presumption of consistency contained in § 42a-2-721.
Id. at 155.
15. Applying the logic of the Flagg decision to the instant case, it is apparent that all of Santoro's challenged claims are barred by the same provisions of the Uniform Commercial Code that served to bar, and thus to justify the striking of, the misrepresentation and CUTPA claims at issue in Flagg. Each challenged claim, like the claims stricken in Flagg, is based upon the defective performance of a commercial contract for the sale of goods between commercially sophisticated parties. The claims in question all seek tort damages for alleged misrepresentations by the defendant as to the quality and merchantability of the goods it agreed to supply under the terms of that commercial contract. Hence, even though such claims contain allegations not required to prove an actionable breach of contract or breach of warranty, they are the same kinds of claims that the Flagg Court identified as presumptively inconsistent with the remedies afforded by the Uniform Commercial Code for persons claiming to have been harmed by the defective performance of commercial contracts for the sale of goods. There is simply no principled basis upon which to distinguish such claims from those found to have been properly stricken in Flagg.
16. For the foregoing reasons, the Court hereby concludes that A.H. Harris's present Motion must be GRANTED as to the Fourth, Fifth, Sixth and Eighth Counts of plaintiff's Complaint II-R. In light of this determination, the Court need not reach and decide any of the alternative claims upon which the defendant has moved to strike.
Michael R. Sheldon, J.