Opinion
No. CV 04 0411302
December 8, 2004
MEMORANDUM OF DECISION RE (#101) DEFENDANTS' MOTION TO DISMISS
On April 12, 2004, the plaintiff, Old Republic National Title Insurance Company (Old Republic), filed a complaint against the defendants, Stanley B. Garrell and Stanley B. Garrell, LLC (Garrell), in the above-captioned matter sounding in breach of fiduciary trust, negligence and breach of contract.
The claims arise from a real estate transaction in which Nancy and William Kezer (the Kezers) were the buyers of a certain piece of real estate from Roger Stolpen (Stolpen). At the closing, the Kezers were represented by William McCullough (McCullough), an attorney and agent of Old Republic, and Stolpen was represented by the defendant Stanley B. Garrell, who was acting as agent, servant and/or employee of the defendant Stanley B. Garrell, LLC.
The complaint alleges that on August 16, 2002, McCullough delivered to Garrell a title search which listed as an encumbrance on the property, among others, a second mortgage to Fleet Bank in the amount of $50,000.
Old Republic further alleges that Garrell "proceeded to obtain payoff information for the mortgages in question in preparation for a closing."
At the closing of the property, on September 13, 2002, Old Republic alleges that McCullough delivered the closing funds to Garrell and Garrell undertook to pay from the closing proceeds the costs of closing, all encumbrances including the Fleet Bank mortgage, and the balance to Stolpen. It is further alleged, however, that Garrell failed to pay the Fleet Bank mortgage from the closing proceeds.
In count one Old Republic alleges that Garrell breached the duty of fiduciary care owed to McCullough and the Kezers by his failure to pay the Fleet Bank mortgage. In count two it alleges that the failure of Garrell to pay the Fleet Bank mortgage "was the result of [Garrell's] negligence in his breach of the standard of care required of a reasonably prudent attorney," and in count three that Garrell breached the agreement to pay the Fleet Bank mortgage by his failure to pay it. As a result, the Fleet Bank mortgage survived the closing and, pursuant to the title insurance policy issued by Old Republic to the Kezers, Old Republic paid Fleet Bank the sum of $54,684.95. Old Republic is bringing this action against Garrell as subrogee of the Kezers.
On May 6, 2004, Garrell filed a motion to dismiss Old Republic's complaint for lack of subject matter jurisdiction on the ground that Old Republic does not have standing to sue. As required by Practice Book § 10-31, Garrell has filed a memorandum of law in support of its motion to dismiss. On May 14, 2004, Old Republic filed a motion for extension of time in which to respond to Garrell's motion to dismiss (which was granted on June 2, 2004) and filed an amended complaint as of right on May 14, 2004. On June 10, 2004, Old Republic filed a memorandum in opposition to the motion to dismiss.
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court." (Internal quotation marks omitted.) Blumenthal v. Barnes, 261 Conn. 434, 442, 804 A.2d 152 (2002). "A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Dyous v. Psychiatric Security Review Board, 264 Conn. 766, 773, 826 A.2d 138 (2003). "A motion to dismiss shall be used to assert lack of jurisdiction over the subject matter . . ." (Internal quotation marks omitted.) Kizis v. Morse Diesel International, Inc., 260 Conn. 46, 51, 794 A.2d 498 (2002). "The issue of standing implicates subject matter jurisdiction and is therefore a basis for granting a motion to dismiss." St. George v. Gordon, 264 Conn. 538, 544, 825 A.2d 90 (2003). "If a party is found to lack standing, the court is without subject matter jurisdiction to determine the cause." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 485, 815 A.2d 1188 (2003).
Garrell moves to dismiss the complaint for lack of subject matter jurisdiction. In support of his motion, Garrell argues that Old Republic has not pleaded a cause of action under the theory of equitable subrogation and has failed to allege that the Kezers have granted it their rights to bring this action. As a result, Garrell contends that Old Republic does not have standing to assert the rights of the Kezers. In opposition, Old Republic argues that all that is necessary is that Old Republic plead a cause of action which exists in the Kezers against Garrell, and that Garrell is incorrect in asserting that Old Republic needs to allege that the Kezers have granted their rights to bring this action.
"The law has recognized two types of subrogation: conventional; and legal or equitable. Conventional subrogation can take effect only by agreement and has been said to be synonymous with assignment. It occurs where one having no interest or any relation to the matter pays the debt of another, and by agreement is entitled to the rights and securities of the creditor so paid . . . By contrast, [t]he right of [legal or equitable] subrogation is not a matter of contract; it does not arise from any contractual relationship between the parties, but takes place as a matter of equity, with or without an agreement to that effect . . . The object of [legal or equitable] subrogation is the prevention of injustice. It is designed to promote and to accomplish justice, and it is the mode which equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, should pay it . . . As now applied, the doctrine of [legal or] equitable subrogation is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter." (Citation omitted; internal quotation marks omitted.) Wasko v. Manella, 269 Conn. 527, 532-33, 849 A.2d 777 (2004).
"[I]nsurers that are obligated by a preexisting contract to pay the losses of an insured proceed in a subsequent action against the responsible party under the theory of equitable subrogation, and not conventional subrogation . . . This is because the insurer, as well as the insured, has a preexisting financial interest in the outcome of the litigation." (Citations omitted; emphasis in original.) Id., 533. Thus, Old Republic is "proceeding under the theory of legal or equitable subrogation, because it [is] stepping into the shoes of the [Kezers] in order to recover the payments that it made, and thus to prevent the unjust enrichment of the party whose debt it paid." (Internal quotation marks omitted.) Id., 548.
An examination of the complaint reveals that Old Republic has reiterated the point that it is bringing this action "as subrogee" of the Kezers, from which it is reasonable to infer that the theory under which it is proceeding is equitable subrogation. In addition, in paragraph three of the complaint Old Republic states that McCullough, as agent of Old Republic, issued a title insurance policy to the Kezers. "[I]n an equitable subrogation matter, [t]he insurer [is] not acting as a mere volunteer; rather, it [is] obligated by a preexisting contract of insurance to pay the losses of its insured. Upon such payment, the insurer [becomes] subrogated to any rights that its insured might have . . . against the party who [has] caused the loss. The tortfeasor, who [is] the party primarily liable for the losses sustained by the insured, [benefitted] by the insurer's payment of a debt truly owed by the tortfeasor. [The court sees] no logical reason to permit a tortfeasor to be unjustly enriched by virtue of having its debt paid by the insurance company of a party who had the foresight to obtain insurance coverage, and thus to escape all liability for its wrongdoing, simply because the insurance company [is] not permitted to participate in a suit against the tortfeasor in order to recover the money that it [has] paid to its insured but which [is] properly payable by the tortfeasor." (Internal quotation marks omitted.) Id.
Garrell further argues that the complaint must be dismissed because Old Republic has failed to allege that the Kezers have granted it their rights to bring this action. "Equitable subrogation involves an insurer . . ., obligated by a preexisting contract of insurance to pay the losses of its insured. Upon such payment, the insurer [becomes] subrogated to any rights that its insured might have . . . against the party who [has] caused the loss . . . Thus, [the] plaintiff does not need an assignment from the insured in order to bring this action, but rather can bring the action independently, as subrogee of the insured . . ." (Citation omitted; internal quotation marks omitted.) Fidelity Deposit Co. of Maryland v. Bradley, Superior Court, judicial district of Hartford/New Britain at Hartford, Docket No. CV 940544726 (December 22, 1997, Mulcahy, J.). Furthermore, the title insurance policy issued to the Kezers by Old Republic contains a subrogation clause which states that Old Republic "shall be subrogated to and entitled to all rights and remedies which the [Kezers] would have had against any person or property in respect to the claim had this policy not been issued." Since it is not necessary for Old Republic to allege that the Kezers have granted their rights to bring this cause of action, the court finds that Old Republic has alleged a cause of action under the theory of equitable subrogation.
Garrell also argues that the motion to dismiss should be granted because Old Republic has no standing to bring a "direct" cause of action against Garrell inasmuch as it has not pleaded that it was an identifiable third-party beneficiary to the actions of Garrell. In response, Old Republic argues that Garrell must assume that an action under the theory of equitable subrogation is an "indirect" cause of action, "that [Garrell's] distinctions between `direct' and `indirect' are, in fact, illusory, and that [Old Republic] does have a cause of action against [Garrell]."
As noted previously, Old Republic has brought this action against Garrell as subrogee of the Kezers. Old Republic has not claimed that it has a cause of action against Garrell as an identifiable third-party beneficiary but rather has claimed that it has a cause of action against Garrell under the theory of equitable subrogation. Whether an action under the theory of equitable subrogation is a "direct" or "indirect" cause of action is not the issue that must be resolved to decide Garrell's motion to dismiss; rather the central issue of Garrell's motion to dismiss is whether Old Republic has standing to bring this cause of action.
"Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless [one] has, in an individual or representative capacity, some real interest in the cause of action . . . Standing focuses on whether the party initiating the action is the proper party to request adjudication of the issues . . . In general, a party does not have standing to raise rights belonging to another." (Citations omitted; internal quotation marks omitted.) The Stamford Hospital v. Vega, 236 Conn. 646, 657, 674 A.2d 821 (1996). The doctrine of equitable subrogation, however, "allows the insurer to stand in the shoes of the insured in order to have standing to sue." Flatau v. Judd Construction, Superior Court, judicial district of Danbury, Docket No. 324739, December 3, 1996, Moraghan, J.).
"[S]ubrogation against third persons causing the loss paid by the insurer to the insured does not rest upon any relation of contract or privity between the insurer and such third persons, but arises out of the contract of insurance and is derived from the insured alone." (Internal quotation marks omitted.) Fidelity Deposit Co. of Maryland v. Bradley, supra. Old Republic is using its own name in this action because "an insurance company, as subrogee of an insured's rights, is a real party in interest and as such may sue in its own name to enforce those rights . . ." (Internal quotation marks omitted.) Id. Old Republic, therefore, may bring this action against Garrell in its own name under the theory of equitable subrogation.
Lastly, Garrell claims that the Kezers lack standing to bring this cause of action against him because attorneys are not liable to persons other than their client, and, therefore, the Kezers cannot transfer that right to Old Republic under the theory of equitable subrogation. Old Republic asserts that the Kezers do have a viable cause of action against Garrell and as the subrogee, it is stepping into the shoes of the Kezers to recover payments it made.
"As a general rule, attorneys are not liable to persons other than their clients for the negligent rendering of services. A number of jurisdictions have recognized an exception to this general rule when the plaintiff can demonstrate that he or she was the intended or foreseeable beneficiary of the attorneys services." Krawczyk v. Stingle, 208 Conn. 239, 244, 543 A.2d 733 (1988). As alleged in the complaint, Garrell undertook to pay from the closing proceeds, among other things, all encumbrances including the Fleet Bank mortgage. Although Garrell was representing Stolpen in the real estate transaction between the Kezers and Stolpen, the Kezers were one of the intended or foreseeable beneficiaries of Garrell's services.
"Determining when attorneys should be held liable to parties with whom they are not in privity is a question of public policy . . . In addressing this issue, courts have looked principally to whether the primary or direct purpose of the transaction was to benefit the third party . . . Additional factors considered have included the foreseeability of harm, the proximity of the injury to the conduct complained of, the policy of preventing future harm and the burden on the legal profession that would result from the imposition of liability . . . Courts have refrained from imposing liability when such liability had the potential of interfering with the ethical obligations owed by an attorney to his or her client." (Citations omitted.) Id., 245-46.
Although the primary or direct purpose of the transaction between the Kezers and Stolpen was not for the sole benefit of the Kezers, but rather for the mutual benefit of both parties, it is important to note that (1) it is foreseeable that Garrell's failure to pay the Fleet Bank mortgage would cause harm to the Kezers, (2) Garrell's failure to pay the Fleet Bank mortgage caused the injury sustained by the Kezers, and (3) by holding that the Kezers do not have standing to bring this cause of action against Garrell could send the message that lawyers are responsible only to their clients no matter what impropriety the lawyer has committed.
The court finds that the Kezers do have standing to bring a cause of action against Garrell and can, therefore, transfer that right to Old Republic under the theory of equitable subrogation.
For the foregoing reasons, the defendants' motion to dismiss is denied.
BY THE COURT
JOSEPH W. DOHERTY, JUDGE