Summary
finding negligent supervision and tortious interference claims were independent of breach of contract claim and thus not barred by the economic loss doctrine
Summary of this case from Batchelar v. Interactive Brokers, LLCOpinion
CV166066292S
08-01-2018
CONNEX CREDIT UNION v. BARBARINO BROS., INC. et al.
UNPUBLISHED OPINION
Wilson, J.
I
STATEMENT OF CASE AND PROCEDURAL HISTORY
On October 27, 2016, the plaintiff, Connex Credit Union, Inc. (Connex), commenced this action by service of process and filed a seven-count complaint against the defendants Barberino Brothers, Inc. and Barberino Brothers Country, LLC, Thomas A. Barberino, Sr., and John W. Mocaldo (collectively Barberino). On November 17, 2017, the plaintiff filed an eleven-count revised complaint. The revised complaint is the operative complaint.
All references to the "revised complaint" are noted as "complaint."
The complaint alleges that Connex is in the business of providing financial services and products to its members, including automobile loans. Barberino is a dealership which sells vehicles to consumers and operates under the trade names, Barberino Nissan and Barberino Mitsubishi. The parties entered into Dealer Retail Agreements (Dealer Agreements) that allowed Barberino to provide financing through Connex to their customers. The terms of the Dealer Agreements required Barberino to, among other things, submit loan applications which described the loan collateral. The collateral in this case was vehicles sold by Barberino to its customers. In 2013 and 2014, Connex discovered that Barberino violated certain provisions in the Dealer Agreements. Connex claims that Barberino encouraged customers, who were also Connex’s borrowers, to breach their retail installment contracts and turn over their keys and vehicles during the term of their loans. These returned vehicles, Connex alleges, were worth less than the outstanding balance of the loans, resulting in substantial losses. Connex claims that Barberino repeatedly advised customers that it would obtain new vehicles and new financing for them.
On June 29, 2015, the parties entered into a Settlement Agreement. Barberino agreed to pay Connex a certain amount, and Connex released Barberino of liability and terminated the Dealer Agreements. Paragraph eight of the Settlement Agreement provided that "[t]he Barberino Dealerships including their employees, agents and representatives shall not directly or indirectly advise, recommend or suggest to any person or entity that they may want to or should turn-in to Connex their automobile that is financed through Connex." Connex claims that Barberino violated this provision, which resulted in more losses. Specifically, Barberino allegedly continued to encourage its customers to turn over their vehicles and also worked with them to sell or lease new vehicle(s). Connex also alleges that Barberino financed with other lenders before its customers returned their old vehicles and defaulted on their loans. Connex claims that it still owns a large portfolio of loans originated by Barberino, even though the settlement terminated the Dealer Agreements.
The complaint asserts the following claims: breach of contract (count one); breach of covenant of good faith and fair dealing (count two); violations of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110g et seq. (CUTPA) (counts three-five); tortious interference (count six); misrepresentation (count seven); negligent misrepresentation (count eight); and negligent supervision (counts nine-eleven).
On January 16, 2018, Barberino filed a motion to strike counts four and five, and counts seven through eleven. On March 5, 2018, Connex filed a memorandum in opposition to Barberino’s motion. Barberino filed a reply memorandum on April 19, 2018. The court heard oral argument on the motion at short calendar on April 23, 2018. At short calendar, the parties agreed to strike counts four, five, ten and eleven in the complaint. Accordingly, the court will address only the remaining counts- misrepresentation (count seven), negligent misrepresentation (count eight) and negligent supervision (count nine).
II
DISCUSSION
A
Legal Standard
"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). "In ruling on a motion to strike, the court is limited to the facts alleged in the complaint. The court must construe the facts in the complaint most favorably to the plaintiff ... If facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Citation omitted; internal quotation marks omitted.) Faulkner v. United Technologies Co., 240 Conn. 576, 580, 693 A.2d 293 (1997).
Barberino argues that Connex’s remaining claims are barred by the economic loss doctrine. The remaining claims, Barberino argues, are premised on the alleged breach(es) of contract, which are purely economic claims. In support of its arguments, Barberino relies on PMI Shares, Inc. v. SIMA International, Inc., Superior Court, judicial district of Litchfield, Docket No. CV-166013981-S, 2017 WL 1484035 (April 3, 2017, Moore, J.). In response, Connex asserts that the economic loss doctrine does not apply because Barberino’s alleged pre-contractual misrepresentations induced it to enter into the Settlement Agreement. In support of this argument, Connex cites to Wang v. Beta Pharmaceutical, Inc., Superior Court, judicial district of New Haven, Docket No. CV-14-6050848S (March 9, 2016, Fischer, J.). Connex also argues that its negligent supervision claim is independent of its breach of contract claim.
B
Economic Loss Doctrine
"The rationale for the [economic loss] doctrine is that, because parties to a contract are free to allocate the risks, insure against potential losses, and adjust the contract price as they [deem] most wise ... courts will not extricate them from their bargain and substitute a common-law tort remedy." (Internal quotation marks omitted.) Ulbrich v. Groth, 310 Conn. 375, 390 n.14, 78 A.3d 76 (2013). "[T]he economic loss doctrine is a judicially created principle which prohibits recovery in tort when the basis for that tort claim arises from a violation of a contract and damages are limited to purely economic losses as opposed to personal injury or property damage." (Internal quotation marks omitted.) Mastrobattisto, Inc. v. Nutmeg Utility Products, Inc., Superior Court, judicial district of New Britain, Docket No. CV-15-6028626-S (February 23, 2016, Wiese, J.) (61 Conn.L.Rptr. 864). "The economic loss doctrine is routinely applied to eliminate tort claims as a result of construction contracts ... Three rationales have been used to eliminate tort liability based on the economic loss doctrine in construction contracts: (1) it maintains the fundamental boundaries of tort and contract law by limiting the economic loss arising in construction projects to the remedies provided by the parties’ contracts; (2) the doctrine is essential to the dynamics of the construction arena. If tort and contract remedies were permitted to overlap, uncertainty and unpredictability in allocating risk would increase and impede future business activity; and (3) the law of tort is primarily concerned with the protection of persons and property from losses resulting from injury while the policy considerations underlying contract law is the protection of expectations bargained for, such as profits." (Citation omitted; internal quotation marks omitted.) Country Squire I, Inc. v. RAW Construction, LLC, Superior Court, judicial district of Middlesex, Docket No. CV-12-6008392-S (July 30, 2013, Aurigemma, J.) (56 Conn.L.Rptr. 591).
Our Supreme Court applied the economic loss doctrine and determined that "commercial losses arising out of the defective performance of contracts for the sale of goods cannot be combined with negligent misrepresentation." Flagg Energy Development Co. v. General Motors Co., 244 Conn. 126, 153, 709 A.2d 1075 (1998), overruled on other grounds by, Ulbrich v. Groth, 310 Conn. 375, 78 A.3d 76 (2013). The court later expanded the doctrine to include breach of contract claims in Ulbrich and held that "the economic loss doctrine bars negligence claims that arise out of and are dependent on breach of contract claims." Ulbrich v. Groth, supra, 410. The test for when the economic loss doctrine applies is whether the plaintiff’s tort claims are "premised on the same alleged conduct ... rely on the same evidence ... [and there is] no [tort] theory under which the [the plaintiff]’ could prevail on [his or her] negligence and negligent misrepresentation claims ..." Id., 405, 78 A.3d 76. In other words, where negligence claims "are depend[ed] upon allegations of fact that are identical to those asserted in ... [breach of contract] claims," the economic loss doctrine precludes such claims. Id., 408, 78 A.3d 76.
There are few recognized exceptions to the economic loss doctrine. The doctrine does not bar plaintiffs "from pursuing a negligence claim solely because they also might have had a breach of contract claim." Id., 403, 78 A.3d 76 citing Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 579, 657 A.2d 212 (1995). If the negligent conduct relied on is independent of a breach of contract claim, the economic loss doctrine does not apply. Id., 405, 78 A.3d 76. "[A] plaintiff that has a contractual relationship with the defendant can bring a negligent misrepresentation claim against the defendant when the defendant’s negligent misrepresentations induced the plaintiff to enter into a contract ... Such a claim would not arise out of the breach of any contractual obligation because it would implicate contract formation." (Citation omitted; internal quotation marks omitted.) Id., 406, 78 A.3d 76.
Application of the economic loss doctrine is based on the facts and circumstances of each case. In Arcadi v. Toth Investments, LLC, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-14-6022841-S (December 22, 2016, Heller, J.), the parties entered into a contract in which the defendant agreed to construct the plaintiffs’ home. The plaintiffs alleged that the defendants failed to repair defective conditions in their home and breached a duty of care to construct their home according to certain specifications described in their contract. The defendants filed a motion to strike and argued that the economic loss doctrine barred the plaintiffs’ negligence claim. The trial court granted the defendant’s motion on the grounds that the plaintiffs’ negligence claim was entirely based on the parties’ contract, and that it was identical to those alleged in the plaintiffs’ breach of contract claim.
This court reached a different result in Demattia v. Bank of America, N.A., Superior Court, judicial district of Fairfield, Docket No. CV-14-6041948-S (June 29, 2016, Wilson, J.). There, the defendant allegedly sent several notices of default to the plaintiff even though the plaintiff was current on all payments under a mortgage payment schedule. The defendant filed a motion to strike, among other claims, a claim of negligent infliction of emotional distress on the grounds that the plaintiff’s losses were purely economic and arose out of the alleged breach of contract. This court denied the motion and determined that the economic loss doctrine did not apply. The doctrine, the court stated, does not prohibit "claims for emotional distress damages [which] are not limited to economic loss." Id., citing Hoydic v. B & E Juices, Inc., Superior Court, judicial district of Stamford-Norwalk, Complex Litigation Docket, Docket No. X08-CV-03-4010104-S (February 27, 2008, Jennings, J.).
III
ANALYSIS
The court rejects the arguments advanced by Barberino. The facts in this case are readily distinguishable from PMI because Connex’s claims do not exclusively rely on or arise out of the alleged breach of contract. The parties in PMI entered into a contract where the plaintiff agreed to transfer intellectual property to the defendant in exchange for royalty payments. The defendant also agreed to use its best efforts to increase gross sales. Gross sales were determined from the provision of products and services by licensees using the plaintiff’s intellectual property. The plaintiff alleged, among other things, that the defendant failed to use its best efforts to increase sales, inaccurately reported royalty payments, and made several misrepresentations regarding the collection and distribution of royalty payments. The defendant filed a motion to strike the plaintiff’s negligence and negligent misrepresentation claims on the grounds that the economic loss doctrine applied. The court granted the motion and determined that the plaintiff’s negligence claim was premised on the defendant’s alleged failure to discharge its duties under the contract, and that its misrepresentation claims arose out of "alleged actions taken after the contract was executed." (Emphasis added.)
Unlike PMI , the court in Wang determined that the economic loss doctrine did not apply. There, the parties entered into a partnership agreement in which the defendants allegedly made pre-contractual misrepresentations "pertaining to the partnership agreement." The partnership agreement provided that the plaintiff would provide professional services in exchange for an agreed-upon salary, and he would receive shares in the partnership. The plaintiff alleged that the defendants breached the partnership agreement because he did not receive his salary or his shares, and that the defendants failed to disclose material information regarding the financial condition of the partnership. The defendants filed a motion to strike and argued that the plaintiff’s negligent misrepresentation claim was barred by the economic loss doctrine. The court denied the motion on the grounds that the plaintiff’s complaint sufficiently alleged that the plaintiff entered into the partnership agreement in to order to receive his salary and his shares. These allegations, the court explained, were enough to show that the plaintiff exclusively relied on the defendants pre-contractual misrepresentations before he entered into the partnership agreement.
A
Misrepresentation and Negligent Misrepresentation
As in Wang, the alleged misrepresentations in the present action occurred before the Settlement Agreement. In counts seven and eight, Connex alleges that it relied on Barberino’s pre-contractual misrepresentations before it entered into the settlement. The complaint contains factual allegations which describe the alleged breaches/violations of the Dealer Agreements prior to the execution of the Settlement Agreement. Connex alleges that Barberino agreed it would not, among other things, advise or encourage customers to breach their retail installment contracts and turn over their keys and old vehicles to Connex. These alleged misrepresentations implicate contract formation and show that they induced Connex to enter into the settlement. Accordingly, Connex’s misrepresentation and negligent misrepresentation claims are not barred by the economic loss doctrine.
B
Negligent Supervision
Likewise, the economic loss doctrine does not apply to Connex’s negligent supervision claim. Count nine alleges that Barberino had a duty to supervise its employees to ensure that they complied with the Settlement Agreement. It further alleges that Barberino failed to do so because they continued to advise or encourage customers to turn over their keys and, vehicles during the term of their loans, worked with customers to sell or lease new vehicles, and financed with another lender, before customers returned their old vehicles to Connex and defaulted on their loans. In count six, Connex alleges that Barberino’s actions, through its employees, tortiously interfered with contractual agreements with its borrowers. This tortious interference count, Connex argues, is an independent theory of liability which serves a basis for its negligent supervision claim. The court agrees. The allegations contained in count nine are independent and do not exclusively rely on Connex’s breach of contract claim. Further, Connex has referred to a tort theory on which it could prevail even if a trier of fact ruled against its breach of contract claim. See Ulbrich v. Groth, supra, 405.
IV
CONCLUSION
For the reasons stated above, Barberino’s motion to strike counts seven, eight and nine is denied.