Opinion
FSTCV166028895S
11-16-2017
Patriot Bank, N.A. fka v. Grayson & Associates, P.C
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE OBJECTIONS TO REQUEST/MOTIONS TO AMEND (#170.00 AND #191.00)
Kenneth B. Povodator, J.
Background
This is one of a number of cases spawned by the financial collapse of Seaboard-related entities and projects, in turn largely attributed/attributable to the claimed misconduct of one of the enterprise's principals, John DiMenna. In addition to a consolidated Bankruptcy proceeding taking place in Delaware, a number of lawsuits have been started in Connecticut, many if not most related to claimed guarantees of loan obligations of Seaboard entities by two other principals, Thomas Kelly and William Merritt. Some of the actions are directed to Mr. Kelly and Mr. Merritt, seeking to enforce the alleged guarantees. Other cases, such as this, are premised on accepting the contentions of Mr. Kelly and Mr. Merritt to the effect that in a number of instances, purported guarantees of Seaboard-related obligations were not signed by Mr. Kelly and Mr. Merritt, nor were they authorized to be signed on their behalf. This lawsuit, as well as some of the others, accepting the lack of legitimacy of the guarantees as claimed by Mr. Kelly and Mr. Merritt, is directed at the attorneys who issued opinion letters attesting to the regularity of the execution of various documents associated with loan transactions, including the guarantees ostensibly signed by Mr. Kelly and Mr. Merritt.
As something of an overlay in this case, the action initially was commenced by the lender who claims to have relied, at least in part, on the validity of the guarantees. The named plaintiff, in addition to commencing this action, also filed a claim against an insurance policy that allegedly covered a loss of this nature. In April of 2017, the substitute plaintiff filed a motion to be substituted as the plaintiff in this proceeding (#138.00). The motion asserted that it had paid the claim under its policy in March of 2017 by way of a settlement, which settlement included the assignment of the claim being asserted in this action to the substitute plaintiff. That motion was granted, and after further pleadings and argument, that order was reaffirmed by the court (#142.01).
On July 10, 2017, the substitute plaintiff filed a request to amend the complaint, seeking to add new claims directed to the existing defendant, and seeking to add a new defendant. The plaintiff essentially simultaneously filed a caseflow request asking for immediate action. Because the plaintiff had chosen to use a " request" as a vehicle for seeking to amend the operative complaint (see, Practice Book § 10-60(a)(3); see, also, Practice Book § 11-2), there was nothing for the court to adjudicate prior to an objection being filed. On July 12, the court issued an order indicating that it could not act upon a request, absent an objection; on July 13, the plaintiff filed a motion seeking to amend the complaint (#160.00). On July 24, 2017, the defendant filed an objection both to the earlier request to amend and the subsequent motion to amend. The court heard argument on the plaintiff's applications and the defendant's objections on August 7 and August 21, 2017. (A motion seeking to cite in the new party was filed on August 11, 2017, after the initial argument.)
Discussion
I. Adding James Kavanagh as a Defendant
A. Procedural
Although not an end to themselves, rules that prescribe pleadings, and the forms and motions utilized to accomplish various tasks, serve a purpose. They often recognize the appropriate division of responsibility and authority, as between parties and the court. In seeking to bring James Kavanagh into the proceedings as a defendant, a number of procedural impediments were created by the plaintiff's choice of pleading mechanisms.
As already indicated, the problems started with the choice of a request rather than a motion, in seeking to amend the complaint. Both are permissible tools with respect to an attempt to amend a complaint, but as reflected by Practice Book § 11-2, the court does not ordinarily intervene in the request-process unless and until there is an objection filed. Indeed, that would appear to be the motivation for creation of a " request" as an alternative to a " motion" --presumptively, action of the court is not required if a request-mechanism is utilized, absent an objection filed by an opposing party.
There is a further problem with both the request initially filed and the motion subsequently filed. Amending a complaint so as to include assertions against a nonparty does not convert that nonparty into a party, by itself. Under Connecticut practice, absent a voluntary appearance (voluntarily submitting to the jurisdiction of the court), a party must be summoned to appear, and in the context of an existing proceeding, that typically requires a court order. A court order, in turn, requires a motion seeking authorization to add the party; see, e.g., Practice Book § 9-22; see, also, General Statutes § 52-102.
Note that the utilization of a request procedure as first was attempted, made it procedurally impossible to obtain a court order authorizing service on the proposed new party. In the context of a motion such as currently before the court, the court may have the ability to enter an appropriate order, notwithstanding the failure to ask for it in the motion (somewhat minimizing the form-over-substance quality of the consequences of the plaintiff's pleading choices).
On August 11, 2017, the substitute plaintiff filed an amended pleading related to the proposed amendment, seeking an order of the court authorizing the proposed new defendant to be cited in as a party.
B. Substantive
The plaintiff argues that the court should not engage in an analysis involving the merits of the proposed amendment. The plaintiff further argues that the prospective defendant was on notice of the claims already pending and his own involvement in the events described--he is mentioned by name in the original complaint as an actor in the relevant events (¶ 9). The plaintiff further claims that the request to amend, even if improper in form, was filed in a timely manner for purposes of the statute of limitations--the underlying documents were executed in mid-July of 2014 (July 16-18) and as noted above, the request to amend was filed on July 10, 2017 and the subsequent motion was filed on July 13, 2017.
The plaintiff correctly notes that our Supreme Court has indicated that legal challenges to the sufficiency of a proposed amendment generally are ill-suited for resolution in the context of an objection to a proposed amendment. Rizzuto v. Davidson Ladders, Inc., 280 Conn. 225, 255-57, 905 A.2d 1165 (2006). In Rizzuto, the court specifically was addressing the propriety of addressing legal sufficiency in the context of an objection to an amendment. With some frequency, however, the statute of limitations often is addressed in connection with an objection to such a request/motion, with the issue being whether the claim relates back to an earlier and timely complaint and/or whether a claim is barred by the relevant statute of limitations--effectively, an exception to the principle articulated in Rizzuto . (See, e.g., Briere v. Greater Hartford Orthopedic Group, P.C., 325 Conn. 198, 157 A.3d 70 (2017), discussed below.) The applicability of a statute of limitations is a legal issue and not a factual issue when there is no dispute as to the operative dates and facts relating to dates (Forbes v. Ballaro, 31 Conn.App. 235, 239-41, 624 A.2d 389 (1993)), which appears to be the situation here. The court therefore believes that at least initially, the court should consider timeliness issues, but if it appears to be subject to a disputed factual component, the court would be required to defer the issue until an appropriate later stage of the proceedings.
As stated above, the plaintiff seems to have taken the position that the (proposed) amendment of the complaint, to name a new person as a defendant, would have made that identified person a defendant, or in some fashion cut off the running of the applicable statute(s) of limitation. Aside from the procedural quality of the irregularity, it also has substantive implications for a statute of limitations analysis. While some legal systems may use the date of filing of a complaint in court as the benchmark date for purposes of the statute of limitations, in Connecticut, the operative date is the date of service on the party. (" Legal actions in Connecticut are commenced by service of process" (internal quotation marks and citation, omitted), Pagan v. Gonzalez, 113 Conn.App. 135, 139, 965 A.2d 582, 585 (2009).) Therefore, even if the date of filing of the request to amend were deemed the date of amendment of the complaint, the absence of any actual service of process on the proposed new party (with return of service to court in a timely manner thereafter), the statute of limitations based on mid-July 2014, events has long since expired with respect to any conduct subject to a three-year (or less) statute of limitations.
To the extent that the motion for leave to amend came closer to being procedurally correct (although notably missing any request for authorization to cite in a new party), that motion first appeared on a calendar on July 31, 2017, which again would appear to be after any three-year (or less) statute of limitations would have expired. Thus, even if the court had considered undertaking the questionable curative action of adding references to citing in a new party when the motion first appeared on a calendar (and therefore first came to the court's attention), the time for service on the proposed defendant would have expired. The court further notes that although the initial request to amend the complaint had been accompanied by a caseflow request seeking an expedited adjudication--and the court responded within two days--no similar request for expedited adjudication accompanied the motion.
It appears that other motions appeared on the calendars for July 17 and July 24.
In its objection to the request and motion seeking to amend the complaint, the defendant also noted that the plaintiff had not complied with the provisions of Practice Book § 10-60(a)(3), effective 1/1/17, requiring a moving party to provide a copy of the complaint showing proposed additions and deletions via underlining and brackets/strikethroughs, so as to make all changes readily apparent. (Seemingly unnecessarily, the plaintiff has attached copies of exhibits to each version of the proposed amended complaint, despite the exhibits having been filed as #104.00.)
The plaintiff repeatedly alludes to the fact that the proposed defendant was on notice of the possibility of a claim being asserted against them, substantially before the statute of limitations would have expired. The plaintiff has cited no Connecticut authority, however, that merely being aware of the possibility that a claim might be asserted, is sufficient to toll the running of the statute of limitations. The issue of fair notice of a claim arises in the statute of limitations context with respect to amendments when the issue is relation back, pertaining to an existing party. The concept is that an existing party cannot complain about any unfairness in being asked to defend a claim that is somehow related to the already-pending litigation, when he/she had at least some notice that such a claim might be asserted, or that in any event the " new" claim is based on essentially the same facts as already were in dispute by virtue of the already-pending claims.
In the recent case of Briere v. Greater Hartford Orthopedic Group, P.C., 325 Conn. 198, 157 A.3d 70 (2017) (cited by the plaintiff), the court emphasized that there should be a transactional focus in connection with a relation back analysis, but again, that is in the context of an existing defendant. There is no suggestion in Briere that the existence of some form of notice, or the mandated use of a transactionally-oriented analysis, somehow overrides the statute of limitations with respect to bringing in a new party.
For some unknown/unexplained reason, the plaintiff routinely if not exclusively cites only the regional reporter with respect to Connecticut appellate decisions.
To the extent that the plaintiff may claim that the required procedure is subject to being delayed if not blocked by the filing of an objection by an existing party, and that therefore there is some level of unfairness in the required procedure (which would require disregard of the failure to attempt to use a proper procedure in the first instance), the court notes that there is a relatively simple and often-used workaround. When faced with the imminent expiration of a statute of limitations, a party can always commence an independent action against the " new party" and then move to have the cases consolidated for purposes of trial.
For all of the procedural and substantive reasons set forth above, and especially the expiration of any possibly-applicable statute of limitations (as identified by the parties) prior to the motion to amend appearing on a calendar, the objection is sustained as to the proposed addition of James Kavanagh as a party.
II. Additional Claims Against Defendant Grayson & Associates, P.C.
By way of its omnibus motion to amend, the plaintiff also seeks to add new claims directed to the existing (and sole) defendant. The plaintiff seeks to add a claim of innocent misrepresentation, and a claim of breach of contract to the extent that the plaintiff's predecessor was an intended third-party beneficiary of a contractual relationship. The defendant has objected, claiming in large measure that these claims also are barred by the statute of limitations.
A. Third-Party Beneficiary
Seemingly in implicit recognition of the cautions stated in Rizzuto relating to avoidance of substantive legal issues in connection with an objection to a proposed amendment, the defendant attempts to characterize the issue as implicating the statute of limitations. Relying upon the claimed applicability of General Statutes § 52-581, the defendant posits the existence of an oral contract that is/was executory in nature, such that the three-year limitation period had expired.
Note that unlike the situation involving the proposed new party, the reference date for an existing party--assuming relation back were not applicable--arguably if not likely would be the date of the proposed amendment; neither party has addressed that narrow but potentially dispositive issue, and in the absence of any analysis, and given the court's determination that relation back does apply and the statute of limitations that has been invoked does not apply, the court notes but declines to address that additional issue.
The defendant correctly recognizes that the statute only applies to purely executory oral contracts, but is in error in the subsequent analysis. The defendant states that " [a]n executory contract is one in which both parties have not yet fully performed." The defendant seemingly misreads the authority it has cited for that proposition.
A contract is executory when neither party has fully performed its contractual obligations and is executed when one party has fully performed its contractual obligations. John H. Kolb & Sons, Inc. v. G& L Excavating, Inc., 76 Conn.App. 599, 610, 821 A.2d 774, 780 (2003).
Notwithstanding the defendant's interpretation, the court stated that the contract ceases to be executory once either party has performed; there is no requirement that both parties have performed to transition from executory to executed.
Further, there is nothing before the court suggesting that either party did not fully perform. Presumably, the defendant was to be paid for issuing the opinion letter, and there is no suggestion that it was not paid. The performance required of the defendant was the issuance of the opinion letter, and that appears to have been fully performed--the quality and consequences of the performance are what are in issue. (This also establishes why, under a transactional approach to relation back, the claim of third-party beneficiary status necessarily relates back to the commencement of this proceeding.) As the court noted earlier, the existence of a true factual issue relating to the statute of limitations would warrant deferral of any determination of applicability of a limitations period, and here there is no representation much less evidence that neither party performed--and the very context of the dispute is that the defendant performed--if defectively. While the court cannot conclusively rule that the statute of limitations does not apply (and that would be beyond the scope of the issue before the court at this time), the defendant certainly has not provided a basis for rejecting the amendment based on timeliness concerns.
Further, the defendant is assuming that whatever contractual relationship that may have existed was oral rather than written--the absence of an allegation of a written contract does not automatically require an inference of an oral agreement. To the contrary, if that were to be an issue, it would seem to be amenable to being cured, along the lines of the ability to cure a defect raised in connection with a motion to strike (thereby returning to the concerns identified in Rizzuto )--and again, it is suggestive of a factual issue that cannot be resolved in the context of an objection to an amendment (assuming that the entire issue has not been rendered moot by the discussion, above, relating to executory contracts).
Given all of these considerations, including the transaction-oriented approach articulated in Briere pursuant to which relation back would be applicable, and the directive to avoid substantive legal-sufficiency analyses in connection with objections to amendments, the court must overrule the objection in this regard.
B. Innocent Misrepresentation
With respect to the proposed claim of innocent misrepresentation, the defendant primarily relies upon the claim that the statute of limitations has expired. Given the transaction-focused analysis required by Briere, it seems clear, at least at this stage of the proceedings (objection to proposed amendment), that the transaction was the opinion letter, and an alternate characterization of the misrepresentation that is claimed to have been made would seem to be presumptively part of the same transaction. On that basis, it would seem that the court should overrule the objection.
The court however is faced with something of a conundrum. The defendant argues that additional/different facts would be required to prove a claim of innocent misrepresentation, and to a certain extent that is or might be true. The problem is that the proposed count asserting innocent misrepresentation is virtually identical to the claim of negligent misrepresentation. Of particular concern is the fact that the claim of innocent misrepresentation includes a " knew or should have known" allegation which is essentially identical to the corresponding allegation in the negligent misrepresentation count and which seems to be inherently inconsistent with a theory of innocent misrepresentation. Unless the misrepresentation were perceived to be immaterial (or the defendant were claimed to be unaware that it was material), how could the known (or should have been known) falsity of claimed representations be deemed innocent (as opposed to negligent or worse)? The plaintiff has done little more than relabeling a second negligent misrepresentation count as an innocent misrepresentation count, altering only the conclusory characterization of conduct by deleting/altering explicit references to negligence.
Whatever reluctance the court may be directed by appellate authority to exercise, the court cannot allow this to pass unnoticed and unresolved. Is this a matter for a request to revise, seeking deletion of a repetitive count? Is it a basis for a motion to strike given the inclusion of what appear to be fault-based allegations? Is the court to ignore what amounts to an invitation either to extensive pleading practice now, or extensive arguments later as to what the purported innocent misrepresentation count really means?
If the plaintiff wishes to rely on a claim based on the lack of knowledge on the part of the defendant--both actual and constructive knowledge--then a clearly-articulated (proposed) count would need to be submitted. Simply deleting the word negligent, or substituting the word innocent, without any other changes to the assertions, does not seem to assert a potentially-viable claim of innocent misrepresentation. As discussed, in the cases cited by the parties, innocent misrepresentation has certain qualities suggestive of warranty liability, not negligence (see, e.g., Kramer v. Petisi, 285 Conn. 674, 686 n. 10, 940 A.2d 800, 808 (2008)), and there must be some minimum level of clarity before the court will allow such a claim to be entertained.
Conclusion
The court is satisfied that the expiration of any identified possibly-applicable statute of limitations prior to the earliest that the court could have considered the motion for leave to amend, with respect to the claims directed to Mr. Kavanagh, preclude allowance of the proposed amendment, even without regard to the initial absence of any formal application to cite him in as a defendant. The fact that he may have been aware that his conduct was subject to scrutiny does not excuse the failure to commence an action against him in a timely manner, whether as an added party in this case or in a separate action.
There does not appear to be any plausible basis, in the proposed amended complaint, for suggesting that Mr. Kavanagh, in a personal capacity, was, or was intended to be, a party to the contractual relationship giving rise to the third-party beneficiary claim. The court is relying on the state of the record before it in this regard.
The existing defendant, however, was on sufficient notice that the claims sought to be asserted were within the scope of the transaction giving rise to the initial complaint, sufficient to allow relation back for purposes of a statute of limitations analysis. Can anyone claim, in good faith, that the issuance of an opinion letter (such as the one in issue) was unlikely to have been the product of some contract-like agreement, such that there is an element of surprise to the assertion of a contractual origin?
If the defendant has a good faith basis to assert a statute of limitations defense to the added claim, that is not precluded by virtue of this decision; for purposes of overruling the objection, it is sufficient that there be substantial doubt as to the applicability of the statute of limitations, based on the record before the court.
The mere substitution of " innocent" for " negligent, " without deleting fault-implicating allegations such as knew-or-should-have-known, compels the court to reject the attempt to add the claim of innocent misrepresentation. The court cannot pretend that it does not recognize a cosmetic change to the negligent misrepresentation claim for what it is (and what it is not).
The objection to the request/motion for leave to amend is overruled as to the third-party beneficiary claim directed to the existing defendant, but the objection is sustained in all other respects. Based on the foregoing, the motion to cite in Mr. Kavanagh must be denied.