Opinion
No. X10-UWY-CV-08-5010671S
November 2, 2009
MEMORANDUM OF DECISION RE MOTION TO STRIKE (#147)
Introduction
This lawsuit alleges various causes of action by Ashforth Properties Construction, Inc. d/b/a A.P. Construction Company ("AP") against the Defendants, Bank of Scotland and TD Banknorth, NA, ("TD Bank"), arising out of services AP and its subcontractors provided in the development of a property which was financed and then later foreclosed by the Defendants.
The Defendants have moved that thirty-three counts of the forty-four count amended complaint be stricken.
"A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court . . . We take the facts to be those alleged in the [pleading] that has been stricken and we construe the [pleading] in the manner most favorable to sustaining its legal sufficiency." (Internal quotation marks and citations omitted.) Himmelstein v. Town of Windsor, 116 Conn.App. 28, 33 (2009).
Second through Fourteenth Counts
In the Second through the Fourteenth Counts of the Amended Complaint, the Plaintiff brings an action on a bond against the Defendants as the assignee of the claims of thirteen other entities which furnished labor and materials in the construction of the improvements to the property. The Defendants move to strike these counts claiming that they are already included in AP's claim on the bond and therefore they seek duplicative recovery. The Plaintiff responds that the Defendants' argument is one based on the merits of the claims, that is, the ultimate liability of the Defendants rather than the legal sufficiency of the pleading, and is therefore not a proper basis on which to strike the counts. The court agrees.
In determining a motion to strike the court is limited to the facts alleged in the complaint. Here, the Plaintiff alleges that it furnished labor, materials, appliances, equipment, supervision and services in the construction of the improvements to the site under a direct agreement with the owner and that it is owed $5,793,298 plus interest, costs, and attorneys fees under the contract. In the counts sought to be stricken, the Plaintiff alleges that it is the assignee of certain claims of its subcontractors who furnished labor and materials in the construction and who have not been fully paid. Although the complaint alleges that the parties have stipulated that the mechanic's lien bond in favor of the Plaintiff would also cover any amount a court determines to have been secured by any mechanic's lien in favor of a subcontractor, who assigns its claim to the Plaintiff, there is no allegation in the complaint that any subcontractor's claim is included in the Plaintiff's claim or that, if it is, it is for the same amount as claimed by the subcontractor as unpaid for its work. Absent such allegations the court cannot conclude that the claims are duplicative.
Therefore the motion to strike the Second through the Fourteenth Counts is denied.
Twenty-Third Count
The Defendants move to strike the Twenty-Third Count which alleges that by funding requisitions after the developer of the property, Southport Village Partners, LLC, ("Southport") defaulted under its mortgage with TD Bank, TD Bank voluntarily assumed the contract between AP and Southport and assumed the obligation to pay AP for work completed. The Defendants claim that this Count must be stricken because there is no allegation that TD Bank and AP had any contractual relationship with one another or that TD Bank assumed any obligation under the construction contract between Southport and AP.
In its complaint AP alleges that: "By funding requisitions after December 2006, Banknorth voluntarily assumed the Contract between AP and Southport and assumed the obligation to pay AP for work completed" and "[b]y voluntarily making direct payment to AP for Requisition Number 23 after defaulting Southport, Banknorth voluntarily assumed the Contract and the obligation to pay AP for all work completed." (First Amended Complaint, Twenty-Third Count, paragraphs 26, 27.) The "Contract" is the direct agreement AP had with Southport regarding the construction of improvements to the property described in the complaint.
The only case which the Plaintiff cites in support of its legal theory that TD Bank "assumed" the contract between AP and Southport is Bantam Supply Co, Inc. v. Friedman, Superior Court, Judicial District of Litchfield, Docket No. CV 90-0052156 (Doherty, J., Dec. 3, 1991). There the court held the defendant liable for the cost of oil delivered to her home under an agreement entered into by her husband, who subsequently left the home. The court held that: "The defendant knew of the customer account, was aware of the deliveries, benefited, together with her minor son, from the deliveries and even sought to have the deliveries continued beyond the last one made in February 1988. By her knowledge and her conduct she has evidenced her obligation under the contract." The facts alleged here are not similar to those found by the court in Bantam Supply. Here there is no allegation that TD Bank benefited from AP's work or requested that AP continue to work on the project after Southport's default on the mortgage.
The Plaintiff has not cited the court to any case, and the court has found none, in which the payment by a bank, financing a project, to the general contractor on the project, after the owner defaults on the mortgage with the bank, constitutes, without more, an assumption of the obligations under the contract between the owner and the general contractor.
Therefore the motion to strike the Twenty-Third Count is granted.
Twenty-Fourth through Thirty-Seventh Counts
In the Twenty-Fourth through Thirty-Seventh Counts the Plaintiff claims, on its behalf and on behalf of its assignors, that because of TD Bank's concealment of Southport's default TD Bank is equitably stopped from asserting the priority of its mortgage over the Plaintiff's and its assignors' mechanics' liens. AP also claims that, as a result, TD Bank's mortgage is equitably subordinated to AP's and its assignors' mechanics' liens and that they are entitled to the full value of their liens. TD Bank claims that these counts should be stricken because equitable subordination is not a valid cause of action in this action on the bond.
In support of its argument that equitable subordination is a proper cause of action in Connecticut, AP cites Bridgeport People's Savings Bank v. Palai, 115 Conn. 357 (1932). There the Court rejected a claim that certain mechanics' liens for work done on the property prior to the acquiring of title to the property by the person who requested the work, should take priority over a purchase money mortgage. The court stated: "To create an estoppel in pais against these mortgagees which the appellants now contend for, it was necessary to prove some concealment or misrepresentation, some act or declaration upon which they properly relied and by which they were induced to act differently from what they would otherwise have acted . . . This record discloses no facts of that character. It does not appear that these appellants knew or had reason to suppose that Palaia in procuring these materials was acting by the direction or with the knowledge or consent of these mortgagees, and so far as appears, nothing which the latter did or failed to do, induced the appellants to furnish the materials for which they are now claiming prior liens." (Citations omitted.) Id., 364.
Essentially the Plaintiff is claiming that TD Bank, because of its conduct, should be estopped from asserting the priority of its mortgage over the liens asserted by the Plaintiff. "Estoppel in pais" is another name for equitable estoppel. "There are two essential elements to an estoppel — the party must do or say something that is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief, and the other party, influenced thereby, must actually change his position or do some act to his injury which he otherwise would not have done . . . Further, [i]t is the burden of the person claiming the estoppel to show that he exercised due diligence to ascertain the truth and that he not only lacked knowledge of the true state of things but had no convenient means of acquiring that knowledge . . . [T]here must generally be some intended deception in the conduct or declarations of the party to be stopped, or such gross negligence on his part as amounts to constructive fraud, by which another has been misled to his injury . . . The modern estoppel in pais is of equitable origin, though of equal application in courts of law . . . Its office is . . . to show what equity and good conscience require, under the particular circumstances of the case. Estoppel is rooted in the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong . . . Estoppel is to protect the innocent and is based on fair dealing and principles of morality . . ." (Internal quotation marks and citations omitted.) Green v. Connecticut Disposal Service, Inc., 62 Conn.App. 83, 91-2, cert. denied, 256 Conn. 912 (2001).
In its complaint, AP claims that TD Bank purposely and knowingly concealed Southport's financial difficulties, the mortgage acceleration, and Southport's default. AP claims that TD Bank's concealment of Southport's default induced AP to act differently than it otherwise would have. AP claims that had it been aware of Southport's default it would have ceased work but instead it continued performing pursuant to the contract under the reasonable expectation that it would be paid for its work. These allegations support a claim of equitable estoppel.
Therefore the motion to strike the Twenty-Fourth through the Thirty-Seventh Counts is denied.
Fortieth and Forty-Second Counts
The Fortieth Count of the Amended Complaint alleges a claim of negligent misrepresentation against TD Bank. The Plaintiff alleges that TD Bank negligently misrepresented or failed to disclose materials facts regarding Southport's financial difficulties and TD Bank's refusal to advance funds after Requisition Number 23. The Defendants have moved to strike this Count because TD Bank had no duty to disclose Southport's financial status to AP and, in fact, could not have disclosed such information to AP. In its complaint the Plaintiff alleges that: "Banknorth's knowledge that AP would rely on Banknorth's payment of Requisition Number 23 and Banknorth's failure to disclose material facts and that AP would continue to perform work on the Project as a result of Banknorth's failure to disclose Southport's default and the foreseeability of harm which would be caused to AP as a natural and probable consequence of Banknorth's lack of due care in taking such actions, gave rise to a duty of care owing to AP by Banknorth." (First Amended Complaint, Fortieth and Forty-Second Count, paragraph 16.)
The Defendants also claim that this count should be stricken because it fails to allege that a false statement of fact was made. "[F]alsity is an essential element of a negligent misrepresentation claim," and the Plaintiff must allege that the representations made by the Defendant were in fact untrue. Daley v. Aetna Life Casualty Company, 249 Conn. 766, 792-3 (1999). Here the amended complaint alleges that Banknorth "misinformed AP by making false, inaccurate and careless statements and representations." (First Amended Complaint, Fortieth Count, paragraph 17.) This is sufficient to meet the falsity element of a negligent misrepresentation claim.
In the Forty-Second Count the Plaintiff claims negligence as to TD Bank. The Plaintiff alleges that TD Bank owed AP one or more of the following duties: "a. to pay AP for work completed; b. to fulfill its obligations under the terms and conditions of the Mortgage; c. to disclose Southport's financial difficulties and default to AP; and d. to disclose to AP that Banknorth would not fund additional requisitions after Requisition Number 23." (First Amended Complaint, Forty-Second Count, paragraph 20.) The Defendants have moved to strike this Count because TD Bank had no duty to disclose Southport's financial status to AP and, in fact, could not have disclosed such information to AP.
"To prove negligence, a plaintiff must present sufficient evidence of duty, breach of duty, proximate cause and injury." Morris v. Cee Dee, LLC, 90 Conn.App. 403, 417, cert. granted, 275 Conn. 929 (2005).
Thus, in order to maintain an action sounding in negligence, the facts alleged by the Plaintiff must establish that, if proven, the Defendants owed a duty of care to the Plaintiff. The Defendants claim that Connecticut law does not recognize any duty on the part of a construction lender to a contractor hired by the borrower. The Defendants also argue that foreseeability of harm alone does not create a duty of care. The Appellate Court recently stated: "Duty is a legal conclusion about relationships between individuals, made after the fact, and imperative to a negligence cause of action. The nature of the duty, and the specific persons to whom it is owed, are determined by the circumstances surrounding the conduct of the individual . . . Although it has been said that no universal test for [duty] ever has been formulated . . . our threshold inquiry has always been whether the specific harm alleged by the plaintiff was foreseeable to the defendant. The ultimate test of the existence of the duty to use care is found in the foreseeability that harm may result if it is not exercised . . . simple conclusion that the harm to the plaintiff was foreseeable, however, cannot by itself mandate a determination that a legal duty exists. Many harms are quite literally foreseeable, yet for pragmatic reasons, no recovery is allowed . . . A further inquiry must be made, for we recognize that duty is not sacrosanct in itself, but is only an expression of the sum total of those considerations of policy which lead the law to say that the plaintiff is entitled to protection . . . While it may seem that there should be a remedy for every wrong, this is an ideal limited perforce by the realities of this world." (Internal quotation marks and citations omitted.) Pike v. Bugbee, 115 Conn.App. 820, 824-5 (2009). Thus the forseeability of harm alone does not establish a duty.
Here the Plaintiff's claim is essentially that by paying a requisition when the borrower was allegedly in default TD Bank led the Plaintiff to continue to work on the project even though the bank knew that the Plaintiff would likely not be paid. Under this analysis any bank would be liable for any damages to a third party which results when it makes payments on a construction loan when the borrower is arguably in default. But the law is clear that a lender does not, in the absence of bad faith, owe such a duty to a third party. In Connecticut Bank Trust Company v. Carriage Lane Associates, 219 Conn. 772, 773 (1991), "[t]he primary issue . . . [was] whether, in the absence of an express agreement or a showing of bad faith, a senior mortgagee owes a duty to a junior mortgagee to advance the proceeds of a loan to the mortgagor in accordance with the terms of the senior mortgage." There the Court concluded that the construction lender did not owe a duty to a junior encumbrance to monitor its disbursements to the borrower. The Court noted that: "Cases in other jurisdictions have come to the same conclusion. For example, in National Bank of Washington v. Equity Investors, 81 Wash.2d 886, 920, 506 P.2d 20 (1973), the court stated that `[o]utside the contract, the major duty which a construction lender owes to any other party is the duty of good faith; though a loan may be inefficiently managed and with adverse consequences, neither inferior lienors nor absolute guarantors have any recourse against the lender unless it is alleged and proved that the lender acted in bad faith.'" Id., 782. Here there is no allegation that TD Bank acted in bad faith.
AP argues that TD Bank had a duty to notify it of Southport's default because it knew that had AP known of the pending foreclosure it would have stopped work and, by failing to do so, TD Bank has benefitted from AP's improvements to the property for free. This situation is no different than what occurred in Connecticut Bank Trust Company v. Carriage Lane Associates, supra. There the construction lender over advanced funds on its construction loan, which was secured by a first mortgage on the property, to the detriment of the holder of a second purchase money mortgage. In a counterclaim, the holder of the second mortgage alleged that he had relied upon the bank to act in a reasonable manner and to abide by the terms and conditions of its own loan documents and that in violating the terms of its loan it knew or should have known that it would impair the security of the second mortgage. The Court upheld the trial court's granting of summary judgment in favor of the bank on this claim and held that the bank did not have a duty to the second mortgagee to see that funds were distributed in accordance with the loan agreement. The Court cited its previous decision in First Connecticut Small Business Investment Company v. Arba, Inc., 170 Conn. 168 (1976). There the Court held that in the absence of collusion, or an express agreement, a first mortgagee has no duty to see that moneys it advances are employed by the borrower in the manner contemplated by a subordinated purchase money mortgagee. Here the Fortieth and the Forty-Second Counts of the amended complaint are devoid of any claims of collusion or express agreement.
The Plaintiff claims, however, that its allegations can be interpreted as alleging bad faith. The court does not agree. "Bad faith has been defined in our jurisprudence in various ways. Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith means more than mere negligence; it involves a dishonest purpose . . . [B]ad faith may be overt or may consist of inaction, and it may include evasion of the spirit of the bargain . . ." (Internal quotation marks and citation omitted.) Keller v. Beckenstein, 117 Conn.App. 550, 563-4 (2009). The allegations in the amended complaint do not meet this standard. First, no actual facts are alleged as to what TD Bank actually did or said beyond the allegations that it "misrepresented" or "failed to disclose" "Southport's financial difficulties, Southport's default under the Mortgage, Banknorth's refusal to advance funds after Requisition Number 23." (Amended Complaint, Fortieth Count, paragraph 15.) Second, the complaint contains only conclusory allegations regarding the Bank's "failure to disclose material facts" and that the Bank "misinformed AP by making false, inaccurate and careless statements and representations." (Amended Complaint, Fortieth Count, paragraph 17.) In its negligence count, AP alleges only "Banknorth's negligence and carelessness." (Amended Complaint, Forty-Second Count, paragraph 22.) Such allegations are insufficient to constitute "bad faith."
Therefore the motion to strike as to the Fortieth and Forty-Second Counts is granted.
Forty-First Count
The Forty-First Count of the Amended Complaint alleges a claim of intentional/fraudulent misrepresentation against TD Bank based on the allegations of the Fortieth Count. The Plaintiff alleges that the misconduct of TD Bank "was fraudulent and intentional because it knew or, in the exercise of care, should have known that such misrepresentations and omissions were false and misleading." (Amended Complaint, Forty-First Count, paragraph 20.) The Defendants have moved to strike this Count because AP has not alleged any fraudulent misrepresentation on the part of TD Bank.
"The essential elements of a cause of action in [fraudulent misrepresentation] are: (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (3) it was made to induce the other party to act upon it; and (4) the other party did so act upon the false representation to his injury." (Internal quotation marks and citation omitted.) Solano v. Calegari, 108 Conn.App. 731, 741, cert. denied, 291 Conn. 943 (2008).
TD Bank argues that the conclusory statements of AP in the complaint are insufficient to state a claim for fraudulent misrepresentation. The court agrees. There are no allegations of facts regarding any false statement made by TD Bank to AP, only conclusory allegations regarding claims that TD Bank made misrepresentations. There are no allegations as to what those misrepresentations are alleged to have been. Nor are there any allegations of fact made sufficient to meet the other criteria of a fraudulent misrepresentation claim.
Therefore the motion to strike the Forty-First Count is granted.
Forty-Third Count
The Forty-Third Count of the Amended Complaint alleges a claim of tortious interference against TD Bank based on the allegations of the Forty-First Count. The Plaintiff alleges that "Banknorth intentionally interfered with [the] business relationship [between Southport and AP] by, among other things, inducing Southport to conceal its default under the Mortgage so that AP would continue to perform under the Contract, which interference was intentional and tortious." (Amended Complaint, Forty-Third Count, paragraph 22.) The Defendants have moved to strike this Count because AP has not alleged any willful or malicious conduct on the part of TD Bank.
"This court has long recognized a cause of action for tortious interference with contract rights or other business relations . . . [We have held, however, that] not every act that disturbs a contract or business expectancy is actionable . . . [F]or a plaintiff successfully to prosecute such an action it must prove that the defendant's conduct was in fact tortious. This element may be satisfied by proof that the defendant was guilty of fraud, misrepresentation, intimidation or molestation . . . or that the defendant acted maliciously . . . [A]n action for intentional interference with business relations . . . requires the plaintiff to plead and prove at least some improper motive or improper means . . . The plaintiff in a tortious interference claim must demonstrate malice on the part of the defendant, not in the sense of ill will, but `intentional interference without justification.' . . . In other words, the employee bears the burden of alleging and proving `lack of justification' on the part of the actor." (Internal quotation marks and citations omitted.) Daley v. Aetna Life Casualty Company, 249 Conn. 766, 805-6 (1999). The factual allegations of the Plaintiff's Forty-Third Count do not meet this test.
Therefore the motion to strike the Forty-Third Count is granted.
Forty-Fourth Count
The Forty-Fourth Count of the Amended Complaint alleges a claim under the Connecticut Unfair Trade Practices Act (CUTPA) against TD Bank based on the allegations of the Forty-Third Count. The Plaintiff also alleges that: "Through its actions and/or omissions, Banknorth engaged in unfair and deceptive acts or trade practices" in a number of ways. (Amended Complaint, Forty-Fourth Count, paragraph 26.) The Defendants have moved to strike this Count because AP has failed to allege a claim under CUTPA.
TD Bank claims that the CUTPA claims are simply based on AP's negligence claim which fail because AP has not established any duty on the part of the bank to AP. Although this court has stricken the negligence claims based on a lack of duty, the CUTPA count also alleges specific actions by the bank which AP claims as unfair. For example, AP alleges that "Banknorth intentionally failed and refused to process payment requisitions and to pay AP for work completed" and "Banknorth induced AP to continue performing under the Contract in hopes that AP would complete the Project to Banknorth's benefit, while all the time intending to accept the benefit of AP's work without paying AP for its work." (Amended Complaint, Forty-Fourth Count, paragraph 26.)
"[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 any trade or commerce. It is well settled that in determining whether a practice violates CUTPA we 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 statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other business persons] . . . 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 . . . 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 . . . In order to enforce this prohibition, CUTPA provides a private cause of action to [a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a [prohibited] method, act or practice . . ." (Internal quotation marks and citations omitted.) Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 18-9 (2008). The allegations of the Forty-Fourth Count do not simply rely on the claim of duty between the parties but upon distinct allegations which could support a CUTPA claim.
Therefore the motion to strike the Forty-Fourth Count is denied.
Conclusion
The Motion to Strike is granted as to the Twenty-Third, Fortieth, Forty-First, Forty-Second and Forty-Third Counts. It is denied as to the Second through Fourteenth, Twenty-Fourth through Thirty-Seventh, and Forty-Fourth Counts.