Opinion
No. CV09-5012683S
October 14, 2011
MEMORANDUM OF DECISION
I BACKGROUND
The Heritage Village Master Association (HVMA) filed motion number 123, dated May 20, 2011, to strike counts four and eight of the plaintiffs' second amended complaint. The transaction underlying the allegations in this complaint involves the purchase of a condominium unit by the plaintiffs, William J. Bergin and Claudia J. Bergin, from the former owner of the condominium unit, Laraine Holmes (Holmes), who along with her husband, William B. Holmes, Jr., are the other named defendants in this case. Count four alleges that HVMA breached its contract with Holmes, and that the plaintiffs were intended third-party beneficiaries of this contract. Count eight further alleges that HVMA violated Connecticut Unfair Trade Practices Act (CUTPA). For reasons set forth below, the motion to strike count four is granted, in part, and the motion to strike count eight is denied.
The condominium unit purchased by the plaintiffs is located at the Heritage Village complex in Southbury, Connecticut. The plaintiffs allege that Holmes is a licensed home improvement contractor who purchased the condominium in early 2008 for the sole purpose of refurbishing the unit and reselling it for profit. The plaintiffs also allege that at the time Holmes purchased the unit, she entered into an "Upgrading Heritage Village Units/Registered Preferred Contractors Agreement" (Upgrade Contract) with HVMA, thereby participating in the alleged "Total Upgrade" and/or "Flipper Program." The plaintiffs allege that, pursuant to the Upgrade Contract, Holmes was not required to pay the customary $1,200 condominium purchaser fee, but did agree to "renovate the Condominium including a totally new interior renovation of kitchen, baths, floors, lights appliances and heating system."
In October of 2008, Holmes sold the unit to the plaintiffs pursuant to a written agreement (Real Estate Contract) for $256,000. After moving into the unit, the plaintiffs claim that many of the renovations allegedly contemplated in the Upgrade Contract between Holmes and HVMA were defective or improperly installed. The plaintiffs also assert that Holmes did not apply for variances and building permits and, consequently, the town of Southbury or the HVMA did not inspect the renovation work. The defective renovations included the unit's heat pump, heating duct system, ground fault interrupters (GFIs) and electrical outlets. The plaintiffs also claim that Holmes failed to safely handle asbestos in the ceiling paint and other areas during the renovation work, and that such inadequate handling created a dangerous situation. Finally, the plaintiffs allege that Holmes improperly installed radiant heat beneath a bathroom tile floor in violation of HVMA bylaws, and failed to replace the unit's washer and dryer.
The plaintiffs' eight-count complaint asserts breach of contract claims against Holmes as well as fraud and CUTPA claims against Holmes and her husband. See second amended complaint, counts one, two, three, five, seven. The plaintiffs also assert breach of contract and negligence claims against HVMA in counts four and six of the complaint.
II DISCUSSION A. Motion to Strike
Practice Book § 10-39 provides in relevant part: "(a) Whenever any party wishes to contest (1) the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, or of any one or more counts thereof, to state a claim upon which relief can be granted . . . that party may do so by filing a motion to strike the contested pleading or part thereof."
"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). When deciding a motion to strike the court must "take the facts to be those alleged in the complaint . . . [and] construe the complaint in the manner most favorable to sustaining its legal sufficiency . . . Thus [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied . . . Moreover . . . [w]hat is necessarily implied [in an allegation] need not be expressly alleged . . . 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 . . . Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically." (Internal quotation marks omitted.) Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252-53, 990 A.2d 206 (2010). Furthermore, "[w]here the legal grounds for . . . a motion [to strike] are dependent upon underlying facts not alleged in the plaintiff's pleadings, the defendant must await the evidence which may be adduced at trial, and the motion should be denied." (Internal quotation marks omitted.) Commissioner of Labor v. C.J. M. Services, Inc., 268 Conn. 283, 293, 842 A.2d 1124 (2004).
B. Third-Party Beneficiary Claim
The plaintiffs' allegations in count four are the subject, in part, of HVMA's motion to strike. Count four is labeled as a breach of contract claim; however, the plaintiffs were not signatories to the Upgrade Contract between Holmes and HVMA. They therefore claim to be intended third-party beneficiaries of that contract.
In claiming third-party beneficiary status, the plaintiffs specifically allege that "[t]he Upgrade Contract intended to benefit any future purchaser of the Condominium (i.e., the Plaintiffs), in addition to the HOLMES and the HVMA. The language of the Upgrade Contract, the use of the Upgrade Contract as a selling point, and the intent of the parties make the Plaintiffs an intended third-party beneficiary." See second amended complaint, count four, paragraph 7. Based upon these assertions, the plaintiffs allege that HVMA breached the Upgrade Contract by failing to monitor and inspect the renovations undertaken by Holmes.
In its motion to strike, HVMA asserts that there is no allegation or inference from the complaint's allegations that HVMA or Holmes knew the identity of the plaintiffs when they entered into the Upgrade Contract. Accordingly, HVMA moves to strike count four because it claims that the plaintiffs have merely alleged that they were "foreseeable" beneficiaries as opposed to "intended" beneficiaries, as required by our case law.
Although traditional contract law required privity of contract, a limited exception to this rule exists for intended beneficiaries of contracts between other parties. "The law regarding the creation of contract rights in third parties in Connecticut is . . . well settled . . . [T]he ultimate test to be applied [in determining whether a person has a right of action as a third party beneficiary] is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party [beneficiary] and . . . that intent is to be determined from the terms of the contract read in the light of the circumstances attending its making, including the motives and purposes of the parties . . . Although . . . it is not in all instances necessary that there be express language in the contract creating a direct obligation to the claimed third party beneficiary . . . the only way a contract could create a direct obligation between a promisor and a third party beneficiary would have to be . . . because the parties to the contract so intended." (Citations omitted; internal quotation marks omitted.) Dow Condon, Inc. v. Brookfield Development Corp., 266 Conn. 572, 580-81, 833 A.2d 908 (2003).
HVMA correctly states that it is insufficient to merely allege that a third-party beneficiary is a foreseeable beneficiary of the obligations of a contract. Indeed, and consistent with contract law, he or she must be intended by the parties to be a beneficiary of the contract. "[F]oreseeability is a tort concept, and the fact that a person is a foreseeable beneficiary of a contract is not sufficient . . . to claim rights as a third party beneficiary. To import the concept of foreseeability into the law governing contracts, which is premised on the concept that mutual obligations entered into voluntarily should be enforced, would significantly reduce contracting parties' ability to control, through the negotiated exchange of promises and consideration, the scope of their contractual duties and obligations." (Internal quotation marks omitted.) Grigerik v. Sharpe, 247 Conn. 293, 317-18, 721 A.2d 526 (1998).
However, HVMA incorrectly concludes that a third-party beneficiary must be known or identifiable at the time of the contract. "It is not required that the third party beneficiary be named or otherwise identified at the time of the contract . . . It is not essential to the creation of a right in an intended beneficiary that he be identified when a contract containing the promise is made." (Citations omitted; internal quotation marks omitted.) Grigerik v. Sharpe, 45 Conn.App. 775, 786, 699 A.2d 189 (1997), rev'd on other grounds, 247 Conn. 293, 721 A.2d 526 (1998). Therefore, a third-party beneficiary who is not a named obligee in a given contract may sue the obligor for breach. Gateway Co. v. DiNoia, 232 Conn. 223, 230-31, 654 A.2d 342 (1995). "[T]he ultimate test to be applied [in determining whether a person has a right of action as a third party beneficiary] is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party [beneficiary] . . ." Wasniewski v. Quick Reilly, Inc., 292 Conn. 98, 109, 971 A.2d 8 (2009) Count four of the second amended complaint states that "[t]he Upgrade Contract intended to benefit any future purchaser of the Condominium (i.e., the Plaintiffs), in addition to the HOLMES and the HVMA." (Emphasis added.) A plain reading of the italicized language above is that any purchaser in the foreseeable future would benefit from the obligations of the contract between Holmes and HVMA. To the extent that any future purchaser may claim these rights in the foreseeable chain of title, the court concludes the benefit of the contract would be indirect. Therefore, in using the term "any future purchaser," the complaint is overly broad.
Based upon a fair reading of the language of the complaint, the intended beneficiary of the renovated condominium unit was Holmes' buyer, the plaintiffs in this case. Particularly important to the court's conclusion is that Holmes was allegedly known to HVMA to be renovating this unit for resale to a third party. Therefore, as alleged, the Upgrade Contract was for a home improvement contractor to renovate and sell the condominium unit on the open market. The plaintiffs in this case are therefore the intended and direct beneficiaries of the Upgrade Contract.
To the extent that the language of the complaint may be read to include other, future purchasers, they would be merely foreseeable and indirect beneficiaries of the Upgrade Contract. Therefore, to the extent that the language of the complaint includes "any" future purchaser (i.e. from the plaintiffs), it should be stricken.
C. CUTPA
The plaintiffs additionally assert a CUTPA claim against HVMA in count eight of the second amended complaint. The plaintiffs again base their claim on the Upgrade Contract between Holmes and HVMA. The plaintiffs specifically allege that Holmes placed an advertisement through her real estate agent, indicating that the condominium unit had been totally renovated. The plaintiffs also specifically allege that Holmes and HVMA represented to the plaintiffs that the renovation satisfied the building standards of the Upgrade Contract. The plaintiffs also generally allege that "Holmes and HVMA advertised the Upgrade Contract's renovation program to potential buyers and potential contractors as evidence of high quality and newly renovated condominiums that would be inspected to ensure compliance with the Upgrade Contract." See second amended complaint, count 8, paragraph 7. The plaintiffs additionally allege that Holmes and HVMA made representations they knew to be false, or with reckless disregard for the truth, and that the plaintiffs justifiably relied upon those representations.
In particular, the plaintiffs allege that Holmes intentionally failed to obtain HVMA variances and building permits for HVAC, plumbing, electrical and structural work, and that HVMA employees and agents knew, or should have known, that Holmes was violating either the Upgrade Contract with HVMA or their obligation to apply for variances and building permits. The plaintiffs also allege that three days prior to the October 14, 2008 closing date, HVMA presented the plaintiffs with variances that HVMA's officers, agents and administration knew, or should have known, did not satisfy the Upgrade Contract. Because HVMA failed to inspect the condominium, in violation of its obligations under the Upgrade Contract, the plaintiffs allege that HVMA failed to discover the misrepresentations made by Holmes and furthered those misrepresentations.
By HVMA's failure to comply with these obligations of its own renovation program, the plaintiffs claim that HVMA created a practice that offends the public policy of good faith in the performance of contracts, is unscrupulous, deceptive, and causes substantial injury to consumers pursuant to General Statutes § 42-110(a) et seq. In further support of their CUTPA claim, the plaintiffs assert that HVMA's failure to inspect and monitor Holmes' renovation of the condominium constitutes a business practice because HVMA had a pecuniary interest in the sale of the unit. They base this claim on the allegation that the purpose of the "Flipper Program" was to gain modernization of outdated units at no cost to HVMA. See second amended complaint, count eight, paragraph 23.
HVMA counters that it had no commercial relationship with the plaintiffs and that, as a condominium association, it is not involved in trade or commerce, as required to be subject to 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." (Emphasis added.) General Statutes § 42-110b(a). "Trade" and "commerce" is defined by the statute as "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." General Statutes § 42-110a(4).
Our Supreme Court has previously addressed the question of whether the activities of condominium associations fall within the scope of trade or commerce, as defined by CUTPA. In Rafalowski v. Old County Road, Inc., 245 Conn. 504, 714 A.2d 675 (1998), the Supreme Court affirmed the trial court's determination that CUTPA was inapplicable because the allegations of mismanagement by a condominium association did not constitute trade or commerce activities within the statute's meaning, stating that it was "a proper statement of . . . the applicable law on those issues." Id., 508.
Rafalowski, however, does not categorically exclude condominium associations from the applicable provisions of CUTPA. The facts of Rafalowski generally involved the disparate application of condominium fees between finished and unfinished commercial units. Upon a review of numerous decisions before and following Rafalowski, most courts appear to have concluded that the activities of condominium associations do not constitute trade or commerce within the meaning of CUTPA. See Birnbaum v. Brantwood Homeowners Assns., Inc., Superior Court, judicial district of New Haven, Docket No. CV 11 6018164 (August 4, 2011, Wilson, J.); Twin Oaks Condominium Assn., Inc. v. Jones, Superior Court, judicial district of Hartford, Docket No. CV 04 4004140 (January 22, 2010, Bentivenga, J.); Cliffside Condominium Assn., Inc. v. Cushman, Superior Court, judicial district of Hartford, Docket No. CV 03 0827483 (October 18, 2006, Hale, J.T.R.), aff'd, 100 Conn.App. 803, 921 A.2d 609 (2007); Huntington Condominium v. Jackson, Superior Court, judicial district of Fairfield, Docket No. CV 01 0384036 (October 10, 2002, Stevens, J.); West Farms Condominium Assn. No. 1, Inc., v. Satell, Superior Court, judicial district of New Britain, Docket No. CV 93 0523203 (May 10, 1995, Berger, J.) ( 14 Conn. L. Rptr. 214); Hunter v. Turner, Superior Court, judicial district of New London, Docket No. CV 521151 (October 22, 1993, Austin, J.) [ 10 Conn. L. Rptr. 273]; Sargis v. Seventy Grove Hill Condominium Assn., Inc., Superior Court, judicial district of New Britain, Docket No. CV 88 0430590 (July 19, 1990, Aronson, J.) [ 2 Conn. L. Rptr. 152]; Glen Oaks Condominium, Inc. v. Glen Oaks Associates, Inc., Superior Court, judicial district of New Britain, Docket No. CV 349747 (March 17, 1989, Thompson, J.) ( 4 C.S.C.R. 378). These cases, however, must be limited to their facts.
"In enacting CUTPA, the legislature intended to create an expansive act which would provide relief to persons suffering `any ascertainable loss' as a result of an unfair or deceptive trade practice. General Statutes § 42-110g(a)." Web Press Services Corp. v. New London Motors, Inc., 203 Conn. 342, 354, 525 A.2d 57 (1987). "[T]he public policy underlying CUTPA is to encourage litigants to act as private attorneys general and to engage in bringing actions that have as their basis unfair or deceptive trade practices." (Internal quotation marks omitted.) Thames River Recycling, Inc. v. Gallo, 50 Conn.App. 767, 794-95, 720 A.2d 242 (1998).
Therefore, some Superior Court decisions have acknowledged that, under some circumstances, the conduct of a condominium association amounts to "trade or commerce." Without adjudicating the question, the court in Depot Square Business Center Condominium Assn., Inc. v. Charbonneau, Superior Court, judicial district of Waterbury, Docket No. CV 04 0184471 (April 12, 2005, Agati, J.), noted that "there is a possible question of whether the actions of a commercial condominium association constitute trade or commerce . . ." Id.
In Walker v. Warner Village Condominium Assn., Superior Court, judicial district of New Haven, Docket No. CV 03 0477670 (June 28, 2006, Devlin, J.), the court declined to strike a CUTPA claim brought by condominium unit owners against the defendants in that case, who included a unit owners' association. The court in Walker concluded that the plaintiffs' allegations went beyond mismanagement to claim that poor maintenance was used as a tactic by the defendant to effectuate a strategy to purchase condominium units that they did not already own. The court found that this activity was entrepreneurial and within the scope of CUTPA. See also Bosco v. Caswell Cove Condominium Assn., Inc., Superior Court, judicial district of New Britain, Docket No. CV 08 5010253 (July 15, 2009, Pittman, J.); Ferraro v. Tamarac Ridge Condominium Assn., Inc., Superior Court, judicial district of Fairfield, Docket No. CV 08 5015500 (June 3, 2009, Bellis, J.) [ 47 Conn. L. Rptr. 670].
In evaluating the claims of the parties in this case, it is important to look to the nature of the activity allegedly engaged in by HVMA in order to determine whether its actions were managerial or entrepreneurial in nature. In the present case, the plaintiffs essentially claim that the defendants engaged in false advertising by misrepresenting that the condominium met the standards and protocols of the Upgrade Contract. Specifically, the plaintiffs allege that Holmes engaged in false advertising with her realtor. However, there is no allegation that HVMA advertised the specific unit sold to the plaintiffs as meeting those standards. Instead, it is alleged that HVMA generally advertised this program to prospective purchasers and contractors for its pecuniary benefit. Importantly, the complaint goes on to allege that, three days before the closing, HVMA presented the plaintiffs with variances it knew or should have known did not satisfy the Upgrade Contract, suggesting either an intentional or negligent misrepresentation. At the time of these alleged misrepresentations, the plaintiffs were members of the buying public and not members of the condominium association.
In determining whether this conduct would otherwise meet the pleading requirements for a CUTPA cause of action, our courts are to 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 USC 45(a)(1)), as from time to time amended." General Statutes § 42-110b(b). Our Supreme Court defined "unfair trade practices" by adopting the "cigarette rule." "We followed this mandate recently, and 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 — 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 [(competitors or other businessmen)].'" McLaughlin Ford, Inc. v. Ford Motor Co., 192 Conn. 558, 567-68, 473 A.2d 1185 (1984). "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.) Hartford Electric Supply Co. v. Allen-Bradley Co., 250 Conn. 334, 368, 736 A.2d 824 (1999).
Connecticut courts have appeared in some cases to be reluctant to clearly determine that a cause of action alleging negligence can form the basis of a CUTPA claim. For example, in Haynes v. Yale-New Haven Hospital, 243 Conn. 17, 699 A.2d 964 (1997), the court chose to uphold the trial court's ruling that negligence was not a valid ground for a CUTPA allegation. "The trial court in the present case, relying on A-G Foods, Inc. v. Pepperidge Farm, Inc., 216 Conn. 200, 217, 579 A.2d 69 (1990), held that negligence could not be a basis for a CUTPA claim. The trial court then determined that the allegations were based solely on negligence and rendered summary judgment. We agree with the trial court that the plaintiff's CUTPA count does not allege a sufficient cause of action, but for different reasons." Id., 33. Haynes does not make a statement about the merit of general CUTPA claims grounded in negligence alone. "Rather than making a broad decision on negligence, the Haynes court concluded that professional negligence, or malpractice, did not fall within CUTPA." Oquendo v. G.V.L., Inc., Superior Court, judicial district of New Haven, Docket No. CV 07 5011963 (April 14, 2008, Thompson, J.).
Connecticut's Supreme Court has "long recognized liability for negligent misrepresentation . . . [E]ven an innocent misrepresentation of fact may be actionable if the declarant has the means of knowing, ought to know, or has the duty of knowing the truth." (Internal quotation marks omitted.) Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 575, 657 A.2d 212 (1995). However, in Williams Ford, the Supreme Court upheld the trial court's decision, which set aside the jury's verdict on the CUTPA counts because no CUTPA violation had been proved. Id., 589-90.
A number of Connecticut courts have, however, found CUTPA claims to be applicable to negligent misrepresentation claims, as indicated in the following cases. "[A] CUTPA claim can be based on a theory of negligent misrepresentation." Communications Systems, Inc. v. Ceruzzi, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 96 0153343 (January 17, 2002, Mintz, J.). CUTPA "does not require proof of intent to deceive, to mislead or to defraud." (Internal quotation marks omitted.) Dreamcatcher Assn. v. Interface Management, Superior Court, judicial district of Waterbury, Docket No. CV 04 0185410 (January 27, 2005, Matasavage, J.) ( 38 Conn. L. Rptr. 599). Because CUTPA does not require an intent to deceive, even "[am allegation of innocent misrepresentation can amount to a CUTPA violation . . . Hendriks Associates v. Old Lyme Marina, Superior Court, judicial district of New London, Docket No. CV 98 546496 (November 22, 2000, Martin, J.). "One who, in the course of his business, profession or employment . . . supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." (Internal quotation marks omitted.) Abrams v. Riding High Dude Ranch, Superior Court, judicial district of Fairfield, Docket No. CV 97 0345046 (February 5, 1998, Skolnick, J.).
In the present case, the court concludes that sufficient facts have been alleged to satisfactorily assert a claim pursuant to CUTPA. HVMA has clearly managed the Upgrade Contract program on behalf of the association. However, the allegations further assert that HVMA engaged in the trade and commerce of advertising renovated condominium units to members of the public for a pecuniary benefit. Although count four has been stricken for overbreath, sufficient facts have also been pleaded to form the basis of the plaintiffs' claim as third-party beneficiaries of a commercial transaction between HVMA and Holmes. Finally, the allegations of the complaint are sufficient to claim HVMA engaged in intentional or negligent misrepresentations, meeting the requirements of the so called "cigarette rule." For these reasons, the motion to strike count four is denied.
SO ORDERED.