Opinion
No. X07-CV04-4001293
January 18, 2006
MEMORANDUM OF DECISION
The defendant, Capital City Economic Development Authority (Authority) moves to strike the second and third counts of the revised complaint filed by the plaintiff, Capital Properties Associates, L.P. The revised complaint contains three counts which claim breach of contract, breach of the covenant of good faith and fair dealing, and a violation of the Connecticut Unfair Trade Practices Act (CUTPA). General Statutes § 42-110a ff.
A motion to strike "admits all the facts well pleaded; it does not admit conclusions or the truth of accuracy of opinions stated in the pleadings." Mingachos v. CBS, Inc., 196 Conn. 91, 108 (1985).
I
The second count of the revised complaint incorporates the allegation of the first count and contends that the conduct stated therein breached the covenant of good faith and fair dealing and substantially deprived the plaintiff of the benefit of the contract it had entered into with the Authority. The Authority argues that these allegations are insufficient to state a cause of action for breach of the covenant of good faith and fair dealing.
Every contract carries with it an implied covenant requiring that each party to the agreement avoid conduct which will thwart the rights of the other parties to receive the reasonably expected benefit of that contract. Barber v. Jacobs, 58 Conn.App. 330, 338 (2000). The covenant is broken by the exercise of bad faith, which is conduct motivated by a dishonest purpose and which exceeds mere negligent behavior. Id.
This covenant "presupposes that the terms and purposes of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term," Celentano v. Oaks Condominium Assoc., 265 Conn. 579, 617 (2003). Disagreement between the parties as to the execution of the terms of the contract, standing alone, is insufficient to establish bad faith. "A party to a contract is entitled to take reasonable positions to protect its interests and to resist efforts that would compromise its legal rights." Elliott v. Staron, 46 Conn.Sup. 38, 48 (1997); aff'd 54 Conn.App. 632 (1999); appeal dismissed, 255 Conn. 18 (2000).
The first count alleges that, pursuant to the state's master plan, an area known as Adriaen's Landing was to be developed, which development would include a mixed-use housing and retail district; that the plaintiff was selected to construct certain private development improvements within the district, in accordance with a proposal submitted by the plaintiff; and that the plaintiff and the Authority, along with the state's Office of Police and Management, entered into a development agreement to achieve this goal. The plaintiff further avers that the Authority, in bad faith, failed to perform its obligations under the contract in a timely fashion regarding the acquisition of certain interests in the land to be developed, failed in its duty to assist in obtaining a tax agreement with the city of Hartford; unilaterally set unreasonable starting dates and deadlines; and unilaterally modified the plans and specifications, all of which diminished or eliminated the plaintiff's ability to benefit from the agreement.
The revised complaint also implies that the Authority engaged in this course of conduct for the purpose of ousting the plaintiff from the project. If proven, these allegations are adequate to set forth a valid cause of action for breach of the covenant of good faith and fair dealing. Therefore, the court denies the motion to strike the second count.
II
The third count asserts a violation of CUTPA based on the allegations recited above as well as arguments that the Authority engaged in a publicity campaign to portray the plaintiff as being the cause of delays and as having defaulted on the contract. In order to analyze this claim appropriately, one must examine the statutory genesis of the Authority and its powers.
In General Statutes § 32-601(a), the legislature stated that the Capital City Economic Development Authority was "a body politic and corporate" and "a public instrumentality and political subdivision of this state." The Authority, however, "shall not be construed to be a department, institution or agency of the state." The legislative description confers upon the Authority a governmental status akin to a municipality, which is also a political subdivision of the state. Willoughly v. New Haven, 254 Conn. 404, 409 (2000).
No court in Connecticut has found a political subdivision of the state liable under CUTPA. In Connelly v. Housing Authority, 213 Conn. 354 (1990), our Supreme Court ruled that "municipal housing authorities are exempt from the operation of CUTPA." Id., 356. In reaching this conclusion, the Supreme Court "assumed arguendo," that the authority in question was engaged in trade or commerce, and that Court instead, based its decision on the statutory CUTPA exemption contained in General Statutes § 42-110c, id., 360-61.
A private cause of action under CUTPA arises only if the alleged unfair or deceptive practices "were the conduct of `trade' or `commerce.'" Jackson v. R.G. Whipple, Inc., 225 Conn. 705, 726 fn 15 (1993). The compensable harm under CUTPA must derive from a "consumer relationship." Id. 725-27. Consequently, not every transaction which might otherwise be called trade or commerce triggers CUTPA. Id.
Most trial courts have held that CUTPA is inapplicable to the actions of a governmental entity, as a matter of law, even if that conduct, performed by a private person, might be considered to have commercial overtones. See e.g. Guilford v. D.P.L. Refuse Service, Superior Court, New Haven, J.D., d.n. CV 95-250575 (May 8, 1996) ( 17 Conn. L. Rptr. 9), Silbert, J; Birmingham Condominium Ass'n. v. Birmingham Developing Co., Superior Court, Fairfield J.D., d.n. CV 92-295513 (November 10, 1994), Ford, J. ( 12 Conn. L. Rptr. 667); Stratford v. Sicilian, Superior Court, Fairfield J.D., d.n. CV 92-296847 (August 5, 1993), Leheny, J. ( 9 Conn. L. Rptr. 507) Although at least one trial court has held that there exists a theoretical possibility that a municipality might incur CUTPA liability, even that court found that the exercise of governmental authority itself is not trade or commerce necessary to invoke CUTPA. Interstate Flagging, Inc. v. Walters, Superior Court, Fairfield J.D., d.n. CV 03-410712 (November 8, 2004), Dewey, J. ( 38 Conn. L. Rptr. 256).
This court concurs with those decisions that have held that CUTPA is inapplicable to governmental action as a matter of law. Performance of a governmental function is, ipso facto, not trade or commerce. Missing is the consumer relationship required by Jackson v. R.G. Whipple, Inc., supra.
This is particularly true with respect to the defendant in this case by virtue of the Authority's statutory mandate. Section 32-601(a) provides that the "exercise by the authority of the power conferred by Section 32-602 shall be deemed and held to be the performance of an essential public and governmental function." (Emphasis added.) Section 32-602 empowers the Authority "to contract and be contracted with" and "to do all acts and things necessary or convenient to carry out the purposes and the powers expressly granted by this section." Thus, the conduct of the Authority surrounding the contractual relationship about which the plaintiff complains is deemed by our legislature to be the work of government and not trade or commerce.
The plaintiff argues that exempting a political subdivision of the State from CUTPA liability gives such an entity a license to commit fraud with impunity. The court rejects this argument. First, an instrumentality of the state is never liable for the wanton, willful, or ultra vires misconduct of its agents or employees. Only if the agent or employee was acting within the scope of employment can the governmental subdivision be liable, and the commission of fraud or slander is always outside the scope of that employment. Second, the aggrieved party can seek compensation from the individual officers or employees responsible as opposed to the body politic.
Therefore, the motion to strike the third count is granted.