Opinion
No. HHD X04 CV-08-4038927 S
August 18, 2010
MEMORANDUM OF DECISION ON MOTION TO DISMISS (#138)
The court heard oral argument concerning the defendant The McGraw-Hill Companies, Inc.'s (movant or SP) motion to dismiss for improper venue on July 15, 2010. The movant contends that the plaintiff State of Connecticut (State)'s decision to bring this action in Connecticut runs afoul of the mandatory exclusive forum provision of the agreements which provide the basis for the State's claim and that the exclusive forums for any dispute arising out of the agreements are the state and federal courts of New York. The State filed an objection and the movant filed a reply. After considering the parties' written submissions and oral arguments, the court issues this memorandum of decision.
I. Background
In paragraph 1 of its complaint, the State alleges that "[t]his lawsuit seeks redress for Standard Poor's (`SP') unfair, deceptive and illegal business practice of systematically and intentionally giving lower credit ratings to bonds issued by states, municipalities, and other public entities as compared to corporate and other forms of debt with similar or even worse rates of default." Further, in paragraph 5, the State alleges that the State and many Connecticut cities, towns and other public entities "hire and pay SP to provide a fair and honest opinion, that, according to SP's own contracts, reflects SP's `opinion of the [public bond issuer's] overall financial capacity to pay its financial obligations as they come due . . .' and a `current opinion of the likelihood that the [public bond issuer] will make payments of principal and interest on a timely basis . . .' Public bond issuers are entitled under the terms of their contracts with SP to exactly that service. By intentionally underrating public bonds, SP breached its contractual obligations and made material and intentional misrepresentations to the State of Connecticut and each of the Connecticut cities, towns, school districts, and other public entities that hired SP to provide a credit rating." The State also alleges that, from 1998 to 2008, SP provided over 196 ratings to at least 39 Connecticut cities and towns. See complaint, ¶ 13.
The State asserts that, despite knowing that public bonds default far less often than corporate or structured security bonds with the same or better credit ratings, SP has continued to represent that its ratings scale is consistent across asset classes, and, therefore, that a AAA or AA corporate bond has less chance of nonpayment than an A rated public bond. The State alleges that SP knows that this representation is false. See complaint, ¶¶ 3, 27-28, 40-60.
The State alleges that it brings this action in its sovereign enforcement capacity pursuant to General Statutes § 42-110m(a) of the Connecticut Unfair Trade Practices Act (CUTPA), which provides, in relevant part, "[w]henever the commissioner [of consumer protection] has reason to believe that any person has been engaged or is engaged in an alleged violation of any provision of this chapter said commissioner may . . . request the Attorney General to apply in the name of the state of Connecticut to the Superior Court for an order temporarily or permanently restraining and enjoining the continuance of such act or acts or for an order directing restitution . . . or both . . . The court may award the relief applied for or so much as it may deem proper including reasonable attorneys fees, accounting and such other relief as may be granted in equity." Among the relief sought by the State is a finding that SP engaged in unfair and deceptive acts and practices within Connecticut in violation of CUTPA; an injunction; an accounting; civil penalties; restitution; disgorgement of revenues, profits and gains; and attorneys fees.
SP contends that dismissal is warranted due to an unambiguous and mandatory exclusive forum provision which is contained in the standard SP Terms and Conditions which were agreed to by the State and other Connecticut public entities, in the same agreements that provide the basis for the State's claim. At page 2 thereof, the Terms and Conditions state that "[t]his Agreement . . . shall be governed by the internal laws of the State of New York. The parties agree that the state and federal courts of New York shall be the exclusive forums for any dispute arising out of this Agreement and the parties hereby consent to the personal jurisdiction of such courts." At page 1, the Terms and Conditions state, "Standard Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard Poor's public finance rating constitutes agreement to comply in all respects with the terms and conditions contained herein . . ." It is undisputed that Connecticut public issuers paid for and used SP's ratings.
Additional facts are discussed below.
II. Standard of Review
"The standard of review for a court's decision on a motion to dismiss is well settled. A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction . . . When a . . . court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light . . . In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader . . . The motion to dismiss . . . admits all facts which are well pleaded, invokes the existing record and must be decided upon that alone." (Internal quotation marks omitted.) Gold v. Rowland, 296 Conn. 186, 200-01, 994 A.2d 106 (2010).
"A motion to dismiss raises the question of whether a jurisdictional flaw is apparent on the record or by way of supporting affidavits." Russell v. Yale University, 54 Conn.App. 573, 577, 737 A.2d 941 (1999). "[The motion to dismiss] shall always be filed with a supporting memorandum of law, and where appropriate, with supporting affidavits as to facts not apparent on the record." Practice Book § 10-31(a).
"Both statutory and Practice Book provisions provide for dismissals on the basis of nonjurisdictional grounds." Rios v. CCMC Corp., 106 Conn.App. 810, 821 n. 8, 943 A.2d 544 (2008).
"A motion to dismiss may . . . raise issues of fact and would, therefore, require a . . . hearing [to determine the facts] . . . [A]ffidavits are insufficient to determine the facts unless, like the summary judgment, they disclose that no genuine issue as to a material fact exists . . . In almost every setting where important decisions turn on questions of fact, due process requires an opportunity to confront and cross-examine adverse witnesses." (Citation omitted; internal quotation marks omitted.) Standard Tallow Corp. v. Jowdy, 190 Conn. 48, 56, 459 A.2d 503 (1983). Here, concerning the motion to dismiss, there are no disputed facts, and neither party requested an evidentiary hearing. An evidentiary hearing was not required.
III. Discussion
SP argues that this dispute falls within the scope of the applicable agreements and that exclusive forum clauses are broadly interpreted and strictly enforced. It asserts that, when they engaged SP to perform the ratings work which is at issue, the Connecticut public entities, including the State, agreed that any disputes arising out of that work would be brought in New York courts only, not in Connecticut. It cites numerous instances in which the complaint references the agreements. SP contends that the exclusive forum provision provides for consistency of forum and law and allows SP to adopt a consistent approach to the ratings process, rather than subjecting itself to differing and sometimes conflicting provisions of fifty states' laws.
In response, the State objects and argues that it has not surrendered its sovereign right to enforce its own laws in its own courts, that forum selection clauses are unenforceable where they contravene a strong public policy of the forum state as expressed in statute, and that the State's claim does not arise from any contracts with SP.
Practice Book Section 10-31(a)(3) provides that "[t]he motion to dismiss shall be used to assert . . . improper venue[.]" "[C]ourts have concluded that forum selection clauses do not oust courts of their jurisdiction, but they have been willing to enforce such contract clauses as long as they were reasonable by declining to exercise jurisdiction over an action in certain circumstances . . . The United States Supreme Court took the lead on this issue in Bremen v. Zapata Off Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), in which the court rejected the traditional view that forum selection clauses are unenforceable as contrary to public policy. The court stated that `[t]he argument that such clauses are improper because they tend to "oust" a court of jurisdiction is hardly more than a vestigial legal fiction.[']" (Citations omitted.) Reiner, Reiner Bendett, P.C. v. The Cadle Co., 278 Conn. 92, 101, 897 A.2d 58 (2006). "The existence of such a clause does not deprive the trial court of personal jurisdiction over the parties, but presents the question whether it is reasonable for the court to exercise its jurisdiction in the particular circumstances of the case." Id., 103. Regarding venue, the Supreme Court also cited Lambert v. Kysar, 983 F.2d 1110, 1118 n. 11 (1st Cir. 1993) ("It is well established that a forum selection clause does not divest a court of jurisdiction or proper venue over a contractual dispute") (emphasis in original). Reiner, Reiner Bendett, P.C. v. The Cadle Co., supra, 278 Conn. 102.
As noted above, the Terms and Conditions also state that the agreement is governed by New York law. The court need not decide whether New York or Connecticut law applies, since, as discussed below, the result is the same under either.
A forum selection clause is presumptively valid and controls "absent a strong showing that it should be set aside." Bremen v. Zapata Off Shore Co., supra, 407 U.S. 15. See Brooke Group v. JCH Syndicate 488, 87 N.Y.2d 530, 534, 663 N.E.2d 635, 640 N.Y.S.2d 479 (1996) (same, applying New York law). "[A]bsent a showing of fraud or overreaching, such forum clauses will be enforced by the courts." (Internal quotation marks omitted.) Reiner, Reiner Bendett, P.C. v. The Cadle Co., supra, 278 Conn. 102, n. 9.
The rules concerning the interpretation of contracts are the same under Connecticut and New York law. Under Connecticut law, "[i]f a contract is unambiguous within its four corners, intent of the parties is a question of law . . . Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms." (Citation omitted; internal quotation marks omitted.) Montoya v. Montoya, 280 Conn. 605, 612, 909 A.2d 947 (2006). See IDT Corp. v. Tyco Group, S.A.R.L., 13 N.Y.3d 209, 214, 918 N.E.2d 913, 890 N.Y.S.2d 401 (2009) (same).
"It is well established that [p]arties are bound to the terms of a contract even though it is not signed if their assent is otherwise indicated." (Internal quotation marks omitted.) Ullman, Perlmutter Sklaver v. Byers, 96 Conn.App. 501, 505-06, 900 A.2d 602 (2006). See God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Associates, LLP, 6 N.Y.3d 371, 373, 845 N.E.2d 1265, 812 N.Y.S.2d 435 (2006) (same).
Here, the record before the court shows that the State and other public bond issuers accepted benefits under the agreements, in that the ratings were provided by SP and used by the issuers. "One enjoying rights is estopped from repudiating dependent obligations which he has assumed; parties cannot accept benefits under a contract fairly made and at the same time question its validity . . . [I]n the absence of a statute requiring a signature . . . parties may become bound by the terms of a contract, even though they do not sign it, where their assent is otherwise indicated, such as by the acceptance of benefits under the contract." (Citations omitted; internal quotation marks omitted.) Ullman, Perlmutter Sklaver v. Byers, supra, 96 Conn.App. 506. Similarly, in the arbitration context, the Supreme Court stated, "Indeed, even if a party has not signed the written arbitration clause, it nevertheless may be deemed to have consented to the arbitration because conduct that constitute[s] an acceptance of the benefits of the contract to arbitrate . . . estops them from asserting a claim of lack of authority." (Internal quotation marks omitted.) Alexson v. Foss, 276 Conn. 599, 609, 887 A.2d 872 (2006). See God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Associates, LLP, supra, 6 N.Y.3d 373 (same).
The language of the subject provision, which, as quoted above, provides "that the state and federal courts of New York shall be the exclusive forums for any dispute arising out of this Agreement," is broad. See Fink v. Golenbock, 238 Conn. 183, 196, 680 A.2d 1243 (1996) (" any disputes" arising under employment agreement were subject to arbitration clause; emphasis in original). However, no reference is made to a sovereign enforcement action.
In the context of commercial contracts, the United States Supreme Court has "emphasized that [w]ithout regard to its source, sovereign power, even when unexercised, is an enduring presence that governs all contracts subject to the sovereign's jurisdiction, and will remain intact unless surrendered in unmistakable terms." (Internal quotation marks omitted.) Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 52, 106 S.Ct. 2390, 91 L.E.2d 35 (1986). In Bowen, the court "rejected the proposal to find that a sovereign forever waives the right to exercise one of its sovereign powers unless it expressly reserves the right to exercise that power in the contract, . . . and held instead that unmistakability was needed for waiver, not reservation." (Citations omitted; internal quotation marks omitted.) United States v. Winstar Corp., 518 U.S. 839, 877-78, 116 S.Ct. 2432, 135 L.E.2d 964 (1996) (plurality opinion). "`Sovereign power' as used here must be understood as a power that could otherwise affect the Government's obligation under the contract." Id., 878, n. 22.
Waiver of sovereign power may "not be inferred . . . from silence . . ." (Internal quotation marks omitted.) Id., 877. Rather, it remains "unless it . . . has been specifically surrendered in terms which admit of no other reasonable interpretation." (Internal quotation marks omitted.) Id. "The application of the doctrine thus turns on whether enforcement of the contractual obligation alleged would block the exercise of a sovereign power of the Government." Id., 879.
CL Enterprises, Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 532 U.S. 411, 414, 420, 121 S.Ct. 1589, 149 L.E.2d 623 (2001), cited by SP at oral argument, which concerned a waiver of tribal immunity, is not inconsistent with these principles. While, in the context of tribal immunity, the court noted that a waiver of sovereign immunity need not use the words "sovereign immunity," id., 420-21, it also explicitly stated that "[w]e . . . have no occasion to decide whether parallel principles govern state and tribal waivers of immunity." Id., 421 n. 4.
SP argues that enforcing the exclusive forum provision would not interfere with the State's sovereign rights. "The purpose of CUTPA is to protect the public from unfair practices in the conduct of any trade or commerce . . ." (Internal quotation marks omitted.) Eder Bros., Inc. v. Wine Merchants of Connecticut, Inc., 275 Conn. 363, 380, 880 A.2d 138 (2005). In an analogous context, involving a claim of waiver by the United States of its right to bring a civil RICO action against tobacco companies, predicated on mail and wire fraud, the court found that the facts relied on by the defendants did not mention RICO and had no connection to the "Attorney General's statutory right to enforce that statute, or any other statute." United States v. Philip Morris, Inc., 300 F.Sup.2d 61, 69 (D.D.C. 2004). Accordingly, the facts did not demonstrate the necessary " unmistakable intent" necessary to waive the United States' right to bring a civil RICO action. (Emphasis in original.) Id.
In contrast, in United States v. Bankers Insurance Co., 245 F.3d 315 (4th Cir. 2001), cited by SP, the court concluded that resort to arbitration would not dilute the United States Attorney General's authority to pursue actions under the False Claims Act, 31 U.S.C. ¶¶ 3729-3733 (FCA). The court stated, "[w]e do not share the trepidation of the Government regarding arbitration of its FCA claim. Arbitration is not binding on the Government, and this arbitration process will not in any way dilute the Attorney General's authority." Id., 324. There, arbitration was "advisory in nature," and final only on approval of the Federal Emergency Management Agency (FEMA). See id., 319, n. 3 (internal quotation marks omitted). Here, no advisory outcome is at issue. Instead, if the exclusive forum provision is enforced, the State would be prohibited from litigating its CUTPA claim in Connecticut.
One of the State of Connecticut's sovereign powers is enumerated in CUTPA, as set forth in General Statutes § 42-110m, quoted above, which provides that the commissioner of consumer protection may request Connecticut's Attorney General to enforce CUTPA in the Superior Court. The court is unpersuaded by SP's argument that one of the State's requests for relief seeks restitution, which is compensatory in nature, and inconsistent with sovereign enforcement. As discussed above, in § 42-110m, the legislature specifically provided that restitution may be ordered by the court in a CUTPA enforcement action brought by the State. See State v. Sunrise Herbal Remedies, Inc., 296 Conn. 556, 561, 573 (2010). Likewise, the fact that §§ 42-110m states that an action "may" be brought in the Superior Court, and therefore contrasts with the mandatory language of the exclusive forum provision, is not dispositive. That the State may enforce CUTPA in Connecticut's Superior Court is not an insignificant power, since the State would not be required to undergo the inconvenience of going to another state in order to enforce CUTPA. Also, that the State has, in other circumstances, voluntarily chosen to pursue a CUTPA claim elsewhere, see F.T.C. v. Mylan Laboratories, Inc., 62 F.Sup.2d 25, 45 (D.D.C. 1999), does not negate the significance of the sovereign power to pursue such a claim in this state.
The exclusive forum provision in the SP agreements does not mention a sovereign enforcement action or CUTPA. It does not mention waiving the statutory authority of the Attorney General to bring a CUTPA enforcement action in Connecticut. As explained above, such waiver may not be inferred. Rather, it must be set forth in unmistakable terms, which are absent here. Thus, enforcement of the contractual obligation in the exclusive forum provision would block the exercise of a sovereign power of the State, by precluding the State from enforcing CUTPA in Connecticut.
Accordingly, the circumstances here differ from those in Pepe v. GNC Franchising, Inc., 46 Conn.Sup. 296, 298-99, 750 A.2d 1167 [ 26 Conn. L. Rptr. 530] (2000), cited by SP. At issue there was a private party's CUTPA claim, not an enforcement action brought by the State under § 42-110m. Similarly unavailing, since they involved commercial agreements between private parties, are Biocapital, LLC v. Biosystem Solutions, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. FST CV 08 5009331 (June 1, 2009, Pavia, J.); AAA Human Capital, LLC v. Stafflogix Corp., Superior Court, judicial district of Hartford at Hartford, Docket No. CV 08 5018576 (October 16, 2008, Aurigemma, J.); Weingrad v. Telepathy, United States District Court, Docket No. 05 Civ. 2024 (MBM) (S.D.N.Y. November 7, 2005), 2005 WL 2990645; Leesure, LLC v. Kennedy Funding, Inc., Superior Court, judicial district of Middlesex at Middletown, Docket No. CV 04 4001206 (May 10, 2005, Silbert, J.); and Connecticut State Medical Society v. Oxford Health Plans (CT), Inc., Superior Court, Complex Litigation Docket at Waterbury, Docket No. X01 CV 01 65664 (December 13, 2001, Hodgson, J.).
Since the State's sovereign power to bring a CUTPA enforcement action in Connecticut Superior Court remains intact, it would be unreasonable to enforce the exclusive forum provision and for the court to decline to exercise its jurisdiction in the particular circumstances of this case. See Reiner, Reiner Bendett, P.C. v. The Cadle Co., supra, 278 Conn. 103; Brooke Group v. JCH Syndicate 488, supra, 87 N.Y.2d 534.
CONCLUSION
Based on the foregoing reasons, the defendant's motion to dismiss is denied. It is so ordered.