Opinion
No. CV 04-041 25 47 S
April 15, 2005
MEMORANDUM OF DECISION
Before the court is the defendants' motion to strike the fourth count of the plaintiff's complaint, based on a violation of the Connecticut Unfair Trade Practices Act, on the ground that the defendants' conduct constitutes professional malpractice which is not covered by CUTPA. In the alternative, the defendants claim that the plaintiff's allegations are insufficient to support a legally sufficient CUTPA claim.
The plaintiff is the Friedlander Limited Partnership, a hedge fund acting through its court-appointed receiver. The defendants are Edward B. Cohen, the accountant for the hedge fund and his accounting firm. The complaint alleges that through the fraudulent manipulation of the stock price of a major holding of the fund, the former director of the fund caused it to suffer substantial losses. The complaint alleges that actions of the defendants also contributed to the losses incurred by the fund. The complaint is in four counts: negligent misrepresentation, malpractice, breach of contract and violation of the Connecticut Unfair Trade Practices Act (CUTPA).
General Statutes § 42-110b.
The defendants move to strike count four of the complaint. They have filed a supporting memorandum of law and the plaintiff has filed its memorandum in opposition.
"[A] motion to strike challenges the legal sufficiency of a pleading [to state a claim upon which relief can be granted] and, consequently, requires no factual findings by the trial court . . . 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." (Citations omitted; internal quotation marks omitted.) Commissioner of Labor v. C.J.M. Services, Inc., 268 Conn. 283, 292, 842 A.2d 1124 (2004). The court "must construe the complaint in the manner most favorable to sustaining its legal sufficiency." (Internal quotation marks omitted.) Heim v. California Federal Bank, 78 Conn.App. 351, 359, 828 A.2d 129, cert. denied, 266 Conn. 911, 832 A.2d 70 (2003). "[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Broadnax v. New Haven, 270 Conn. 133, 173, 851 A.2d 1113 (2004). "A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).
The defendants move to strike count four of the complaint on the ground that an action for professional malpractice is insufficient, under established Connecticut law, to support a CUTPA cause of action. The defendants argue that the CUTPA count incorporates the three preceding claims, including professional malpractice. They cite Connecticut authority for the principle that professional malpractice, other than that involving the entrepreneurial or commercial aspects of the profession, do not fall under the purview of CUTPA. Although this principle is commonly accepted, the CUTPA count is not based on professional malpractice. The fourth count expressly incorporates only the allegations of the first count, negligent misrepresentation, and the third count, breach of contract. The second count based on malpractice is not incorporated into the CUTPA count. Thus the defendant's argument is factually inaccurate.
The defendants argue that "the allegations set forth in Count Four of the plaintiff's Complaint are based on a theory of professional malpractice. Indeed, Count Four is comprised solely of a reassertion by reference of the preceding three counts (including Count Two — professional negligence) . . ."
The defendants further argue that if the plaintiff's allegations do fall under CUTPA, the plaintiff failed to sufficiently allege a CUTPA cause of action. The plaintiff, however, argues that negligent misrepresentation, as alleged in count one, serves as a sufficient basis for a CUTPA claim. The plaintiff also asserts that its CUTPA claim properly alleges a breach of contract, as stated in count three, with aggravating circumstances. The negligent misrepresentation, which is independently the basis for a CUTPA violation, also constitutes the aggravating circumstances accompanying the breach of contract claim under CUTPA.
General Statutes § 42-110b(a) provides that "[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of trade or commerce." "[I]n determining whether a practice violates CUTPA, [Connecticut courts] have 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 the statutes, the common-law, or otherwise . . . (2) whether it is immoral, unethical, oppressive or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . 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). Updike, Kelly Spellacy, P.C. v. Beckett, 269 Conn. 613, 655-56, 850 A.2d 145 (2004). "Thus, a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy." (Internal quotation marks omitted). Smithfield Associates, LLC v. Tolland Bank, 86 Conn.App. 14, 28, 860 A.2d 738 (2004), cert. denied 867 A.2d 839 (2005).
"The governing principles [of a claim of negligent misrepresentation] are set forth . . . in § 552 of the Restatement (Second) of Torts (1977): 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 at Bridgeport, Docket No. CV 97 0345046 (February 5, 1998, Skolnick, J.). "CUTPA [however] proscribes a broader range of conduct than did the common-law action for misrepresentation [and a] CUTPA plaintiff need not prove reliance or that the representation became part of the basis of the bargain." (Internal quotation marks omitted.) Prishwalko v. Bob Thomas Ford, Inc., 33 Conn.App. 575, 583, 636 A.2d 1383 (1994). "[K]nowledge of falsity, either constructive or actual, need not be proven to establish a violation of CUTPA." (Internal quotation marks omitted.) Id. 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 "[a]n 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. 546496 (November 22, 2000, Martin, 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).
"[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. CV96 0153343 (January 17, 2002, Mintz, J.). This court has also previously held that allegations of negligent misrepresentation can form the basis of a CUTPA claim. Abrams v. Riding High Dude Ranch, supra, Superior Court, Docket No. CV 97 0345046. In addition, although a simple breach of contract does not amount to a violation of CUTPA "the same facts that establish a breach of contract claim may be sufficient to establish a CUTPA violation. (Emphasis in original; internal quotation marks omitted.) Slitz v. Pyramid Custom Home Corp. Of Connecticut, Superior Court, judicial district of Danbury, Docket No. 323247 (April 4, 1997, Stodolink, J.). "[A] CUTPA cause of action [can] survive a motion to strike on the strength of several allegations of misrepresentation . . . because the plaintiff [has] pleaded more than a simple breach of contract." (Internal quotation marks omitted.) Id.
The court found that allegations of negligent misrepresentation satisfy the requirements of the cigarette rule.
See also Lichstein v. Yankee Coach Trailer Sales, Inc., Superior Court, judicial district of Hartford — New Britain at Hartford, Docket No. CV96 0565882 (July 2, 1997, Lavine, J.) ( 20 Conn. L. Rptr. 21) (CUTPA count can be based on negligence and breach of contract where the underlying conduct involves allegations of affirmative misrepresentations.).
Where a complaint alleges that a defendant made a misrepresentation during the course of the defendant's business practice, with or without the intent to deceive or fraud, and that misrepresentation led a plaintiff to lose money or property, that plaintiff has alleged a cause of action under CUTPA. In the present case, the complaint alleges that the defendants presented the plaintiff with information which the defendants failed to confirm prior to passing the incorrect information on to the plaintiff. Despite the lack of intent to misrepresent the information to the plaintiff the complaint alleges that the defendants' negligent misrepresentations led the plaintiff to suffer monetary losses. Negligent misrepresentation suffices as a basis for a CUTPA claim and as an aggravating factor making a breach of contract action also the basis of a CUTPA claim.
Therefore, the motion to strike the fourth count CUTPA claim is denied.
SKOLNICK, J.