Opinion
No. TTDCV095005036S
January 6, 2010
MEMORANDUM OF DECISION
The defendants, New Alliance Investment, Inc. and David A. Yaffee, move to strike the first and third counts of the amended complaint filed by Jeannine Childree and Jennifer Dearborn as conservatrices for the estate of Donald R. Luster.
The first count alleges that the defendants breached a fiduciary duty owed as financial advisor to Luster with respect to the purchase of an annuity. Luster at the time suffered from Alzheimer's disease, and the purchase of the annuity for Luster was imprudent given his "age, physical and mental condition, his other assets, his projected medical needs, and his living expenses . . ." Furthermore, the defendants derived a financial benefit from the purchase by way of a commission. Finally, it is alleged that the annuity will have to be sold at a "substantial loss" in order to meet Luster's necessary expenses. The third count incorporates these allegations and asserts that such activity constituted an unfair trade practice in violation of the Connecticut Unfair Trade Practices Act (CUTPA).
A motion to strike "admits all the facts well pleaded; it does not admit conclusions or the truth or accuracy of opinions stated in the pleadings." Mingachos v. CBS, Inc., 196 Conn. 91, 108 (1985).
As to the first count, the defendants observe that Luster made the decision to follow the defendants' advice and acquire the annuity. There is no allegation that Luster entrusted the defendants with funds to invest on his behalf at their discretion. The defendants contend that no fiduciary duty arises between a client, who retains the power to determine whether or not to follow the consultant's advice, and the financial counselor. Such a relationship is nondiscretionary in that the client puts in the order which the financial advisor merely executes on the client's behalf. In the discretionary scenario, a fiduciary duty is owed by the financial advisor; while in the nondiscretionary one it is not, beyond completing the transaction in accordance with the client's desire.
The research of the parties and the court discloses no Connecticut appellate law discussing the discretionary/nondiscretionary distinction as to financial advisors and the creation of a fiduciary duty. While it is clear that a financial advisor may, under some circumstances, owe a fiduciary duty to an investor, it is unclear as to which particular circumstances create the fiduciary duty and the extent of that duty, see Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 18 (1999).
The defendants rely upon the law of other jurisdictions to bolster their argument that the allegations of the first count fail to set forth a viable cause of action for breach of fiduciary duty, see e.g. De Kwiatkowski v. Bear, Stearns and Co., Inc., 306 F.3d 1293 (2d Cir. 2002).
Under the De Kwiatkowski, case, supra, however, a fiduciary duty may still arise in the nondiscretionary situation where "transformative special circumstances" exist. Id., 1308. One transformative factor is where the client "has impaired faculties." Id. A fiduciary relationship may be created where the client "is infirm or ignorant of business affairs," even where a nondiscretionary mode of operation exists. Id., 1309.
In order to take advantage of these special circumstances, however, the plaintiffs must plead and prove that the defendants had actual or constructive knowledge of Luster's diminished capacity. In both civil and criminal cases, competency is presumed. McLaughlin v. Smoron, 62 Conn.App. 367, 374 (2001). No lesser standard ought to apply as to business relationships, and the defendants were entitled to assume that Luster possessed the mental acuity to handle his own affairs in the absence of evidence to the contrary.
The first count lacks any factual allegations on this point. While the amended complaint does aver that Luster suffered from Alzheimer's disease at the time of the transaction, there are no allegations the defendants knew or should have known of his infirmity. This omission is fatal to a claim that a fiduciary duty existed.
The plaintiffs make the counter argument that, even though they specifically labeled the first count, using bold, capital letters, "BREACH OF FIDUCIARY DUTY," if the allegations of that count support an alternative cause of action, the motion to strike should be denied. It is correct that counsel's mislabeling of the nature of a cause of action is not determinative if a legitimate cause of action is adequately set forth, see Moulton Bros. v. Lemieux, 74 Conn.App. 357, 361-62 (2002). The plaintiffs propose, as an alternative cause of action, ordinary professional negligence, rather than a breach of fiduciary duty.
However, either legal construction of the first count would require the plaintiffs to plead actual or constructive knowledge by the defendants of Luster's mental deficiency. Therefore, the motion to strike the first count must be granted whatever the theory of liability.
To avoid future confusion as to what claims are being asserted and to provide fair notice of these claims to the defendants, the court orders that, if the plaintiffs mean to raise alternative causes of action for breach of fiduciary duty and/or professional negligence, such claims be set forth in separate counts. Otherwise, the court will regard the first count as a claim for breach of fiduciary duty only.
As to the third count, it is a CUTPA violation based on the same allegations of the first count. It, too, labors under the same deficiency that no allegation of actual or constructive knowledge of Luster's mental difficulties is set forth. Consequently, the third count is also stricken.
The motion to strike is granted as to the first and third counts.