Opinion
No. X02 CV03-0184253S
November 10, 2004
MEMORANDUM OF DECISION RE MOTION TO STRIKE OF BRIGGS DEFENDANTS — #118, #126 O'BRIEN DEFENDANTS — #120 LENARD ENG., INC. — #119, 119.50
Brief Factual Background
This action arises out of the design and installation of certain water treatment and storage facilities on the premises of the Crystal Lake Condominium Association ("Crystal Lake"). ADL Concrete Construction Company ("ADL") — not a party to this action — was the contractor for the project. The plaintiff was the surety of ADL and, as such, provided performance and labor and material bonds for the project. Lenard Engineering, Inc. ("Lenard") was the designer of the project and acted as engineer for the project. Pursuant to a contract between Crystal Lake and ADL, ADL was to install a water pump station and storage facility on Crystal Lake's property for an agreed price and Crystal Lake was to make periodic payments to ADL after invoices were approved by Lenard. Attorney Carol W. Briggs of the law firm of Carol Briggs Associates, P.C. ("Briggs defendants") was counsel to Crystal Lake. John J. O'Brien, Esquire of the law firm of Moller, Peck O'Brien, LLC ("O'Brien defendants") was counsel to ADL. All of the defendants have filed Motions to Strike; all have waived oral argument and have consented to adjudication of the motions on the papers.
Before release of this decision, the Briggs defendants withdrew both their "Motion to Strike" file dated July 6, 2004, and their "Supplemental Motion to Strike" file dated July 26, 2004, the latter of which was untimely filed.
Applicable Law
A motion to strike tests the legal sufficiency of the allegations of a complaint to state a claim upon which relief can be granted. Vacco v. Microsoft Corp., 260 Conn. 59, 65 (2002); Practice Book Section 10-39. The trial court's role is to examine the complaint, construed in favor of the pleader, to determine whether a legally sufficient cause of action has been pled. Suffield Development Associates Ltd. Partnership v. National Loan Investors, L.P., 260 Conn. 766, 772 (2002). Specifically, the court must "assume the truth of both the specific factual allegations and any facts fairly provable thereunder" and "read the allegations broadly, rather than narrowly." Craig v. Driscoll, 262 Conn. 312, 321 (2003). The requirement of favorable construction does not extend, however, to legal opinions or conclusions stated in the complaint but only to factual allegations and the facts "necessarily implied and fairly provable under the allegations." Forbes v. Ballaro, 31 Conn.App. 235, 239 (1993). The motion is to be tested by the allegations of the pleading, which allegations cannot be enlarged by the assumption of any facts not therein alleged. Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 549-50 (1980). The motion is properly granted if the complaint alleges mere conclusions of law unsupported by the facts alleged. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 720 (2002); Donar v. King Associates, Inc., 67 Conn.App. 346, 349 (2001).
The O'Brien Defendants
These defendants' motion is premised on a single legal ground: Counts Five and Six (the only counts addressed to them) should be stricken for failure to state a claim because, in this legal malpractice claim, the plaintiff has failed to state an attorney-client relationship existed between them and the plaintiff surety and thus no duty was owed. Some additional facts are here necessary. Payments to ADL under the contract were to be made periodically and based on invoices ADL submitted only after Lenard approved the work referenced in those invoices. It is asserted ADL defaulted on the Project on or about September 20, 2000, by its failure to timely complete the work. Count One, Paragraph 11. Not until May 22, 2001, did Crystal Lake, through Attorney Briggs as its counsel, notify the plaintiff of ADL's default. Count One, Paragraph 12. Attached to that letter of notification was a "Subcontractor Summary" which reflected a contract balance of $97,375.62 and unpaid supplier and subcontractor claims in the amount of $138,149.45 — for a shortfall of $40,773.83. Count One, Paragraph 13. The letter also indicated that "ADL can not complete the work for the contract balance." Count One, Paragraph 14. The Briggs and O'Brien defendants entered into an escrow agreement under the terms of which Attorney O'Brien would hold the fourth payment ("Draw Four") to ADL until the O'Brien defendants had received original lien waivers from two ADL subcontractors and had forwarded them to the Briggs defendants. Count Three, Paragraph 19. In April of 2001, Crystal Lake paid Draw Four by giving the check for payment to the Briggs defendants who sent it on to the O'Brien defendants. Count Thee, Paragraphs 17 and 18. It is asserted the Draw Four funds were released without the defendants' having received either copies or originals of the lien waivers reflecting receipt of payment by the subcontractors. Count Three, Paragraph 20. The Draw Four payment was in the amount of $17,290.
MSI and Mechanical Solutions.
No reconciliation of the amount paid under Draw Four and the amount of the shortfall is offered.
The governing complaint is the Revised Complaint of June 29, 2004. Count Five alleges the negligence of the O'Brien defendants in that he or it: a) accepted the Draw Four funds without first obtaining the requisite lien waivers (Paragraph 20); b) released the funds to a party other than MSI and/or Mechanical Solutions (Paragraph 22); c) was obligated to use reasonable care in handling the contract funds (Paragraph 23); and d) failed to use reasonable care in handling contract funds when he or it released Draw Four to a party other than MSI and/or Mechanical Solutions (Paragraph 24). The plaintiff claims harm "in an amount to be determined at trial." (Paragraph 25) Count Six alleges these defendants' negligent handling of the funds impaired Colonial's security, which impairment was reasonably foreseeable (Paragraphs 25 and 26). As with Count Five, Colonial alleges harm "in an amount to be determined at trial (Paragraph 27)." Nowhere in either count does the plaintiff allege it later paid the amount owed MSI and Mechanical Solutions nor do these defendants address that. For the purpose only of this motion to strike, the court concludes as she must the fact of such payment is fairly provable under the allegations of these counts.
The "party" is never there identified.
Astonishingly, plaintiff states, on page 13 of its opposing memorandum, " Because no reasons have been set forth to this Court (sic) as to why the Fifth and Sixth Counts of Colonial's Revised Complaint should be stricken, the O'Brien defendants' motion to strike should be denied (emphasis added)." Four (4) of the seven (7) page memorandum of the defendants focus upon the absence of an attorney-client relationship and, thus, the absence of a legal duty owed the plaintiff. Counsel who wishes to oppose a motion premised on a single legal ground has a duty to formally address that issue in its memorandum. Instead, counsel chooses to argue: a) whether impairment of security is a cause of action recognized in this state; and b) whether a surety has an independent cause of action against a third party for the negligent disbursement of funds where there is no privity. Neither argument addresses the single claim of the defendants. One who opposes a motion to strike has not the privilege of redesigning the movant's argument since not the architect of that argument. Plaintiff correctly states the defendants do not address these issues; that fact alone should have alerted opposing counsel to the need to address the issue that was raised. The plaintiff addresses that issue in a single paragraph. Citing to P.B. § 10-4, the plaintiff asserts, "Because the law can imply from the facts pleaded that the facts alleged create the necessary components of a negligence action, it is not necessary to allege a specific promise or duty by the O'Brien defendants to Colonial." No reason for this court's "implying" a duty owed by an attorney to a non-client. As our Supreme Court has often stated, "Analysis, rather than mere abstract assertion, is required in order to avoid abandoning an issue by failure to brief the issue properly . . . we will not review claims absent law and analysis." (Internal quotation marks omitted.) See e.g., Collins v. Anthem Health Plans, Inc., 266 Conn. 12, 54 (2003).
None of the cases cited on pages 7-10 of the plaintiff's memorandum as supportive of this cause of action establishes the liability of an attorney to a non-client on that basis.
No case cited by the plaintiff on pages 10-13 offers any authority for the proposition a contractor's surety has a valid claim against that contractor's attorney for the negligent handling of contract funds.
That section provides: "It is unnecessary to allege any promise or duty which the law implies from the facts pleaded."
Both Counts Five and Six allege negligence. A finding of negligence is predicated on the existence of a duty. See e.g., Catz v. Rubenstein, 201 Conn. 39, 44 (1986). "The existence of the duty is a question of law . . ." Murillo v. Seymour Ambulance Assn., Inc., 264 Conn. 474, 479 (2003). It is generally so that attorneys are not liable to persons other than their clients in the negligent rendering of services. Krawczyk v. Stingle, 208 Conn. 239, 244 (1988). Colonial makes no allegation — nor could it accurately be stated — there was an attorney-client relationship between the surety and these defendants. To extend the long-held general rule of non-liability to non-clients under the circumstances here presented would eviscerate the fundamental principle that the attorney's duty of devotion is to the interest of the client. Courts have consistently demonstrated an unwillingness to weaken the privity rule and this state has so held. In Krawczyk, our Supreme Court concluded the intended beneficiaries of an estate had no malpractice claim against the attorney who allegedly failed to have estate documents timely executed. It reversed the trial court's denial of the defendants' motion for directed verdict and remanded with direction to render judgment for the defendants in accordance with that motion. 208 Conn., at 248. The relationship between an attorney and client is personal and it is for that reason that, as a general rule, the rights and duties resulting from that relationship may not be assigned or delegated without the consent of all parties. ABA Code of Prof Resp., Canon 6; EC6-4; DR6-101(A) (2, 3). The relationship between attorney and client is a confidential relationship characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other. Beverly Hills Concepts, Inc. v. Schatz Schatz, Ribicoff and Kotkin, 247 Conn. 48, 56-57 (1998); see also Giuletti v. Giuletti, 65 Conn.App. 813, 835 (2001), cert. denied 258 Conn. 946 (2001), cert. denied 258 Conn. 947 (2001), cert. denied Vernon Village, Inc. v. Giuletti, et al., 258 Conn. 947 (2001), cert. denied Giuletti v. Vernon Village, Inc., et al., 258 Conn. 947 (2901). In Murillo, supra, this state's Supreme Court enunciated a test for the existence of a legal duty. That test entails:
The defendants have asserted the cause of action stated in Count Five is for "legal malpractice." Page 4 of defendants' memorandum. Though the Revised Complaint nowhere uses that term, the plaintiff never addresses the issue whether a negligence claim against an attorney must necessarily be a claim for legal malpractice nor does the plaintiff anywhere deny this is a claim for legal malpractice.
(1) a determination of whether an ordinary person in the defendant's position, knowing what the defendant knew or should have known, would anticipate that harm, of the general nature of that suffered was likely to result, and (2) a determination, on the basis of a public policy analysis, of whether the defendant's responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case . . . The first part of the test invokes the question of foreseeability, and the second part invokes the question of policy." (Citation and internal quotation marks omitted.) 264 Conn., at 479.
Assuming arguendo these defendants should have foreseen the harm to the plaintiff, a conclusion regarding the existence of a duty owed the plaintiff depends therefore on public policy considerations. The Court in Murillo has said, "Many harms are quite literally foreseeable, yet for pragmatic reasons, no recovery is allowed . . . [D]uty 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 . . ." Id. The Court continued:
We previously have recognized four factors to be considered in determining the extent of a legal duty as a matter of public policy: (1) the normal expectations of the participants in the activity under review; (2) the public policy of encouraging participation in the activity, while weighing the safety of the participants; (3) the avoidance of increased litigation; and (4) the decisions of other jurisdictions. (Citations omitted.) 264 Conn., at 480.
First, it is unlikely the plaintiff, a business entity, was without its own legal counsel to advise it in the conduct of its business and it is therefore unlikely the plaintiff had any reasonable expectation these defendants owed it a legal duty nor is there any assertion these defendants knew the identity of the surety for the Crystal Lake project. Second, the public policy served by the attorney-client relationship is, inter alia, the promotion of the trust, confidence, and confidentiality which characterizes that relationship and extending lawyers' obligations to non-clients seriously threatens the underpinnings of the attorney-client privilege. Third, avoiding increased litigation militates against recognition of a duty of care under the circumstances of this case as this suit demonstrates. With reference to the fourth and final factor, plaintiff cites to no law in support of its position and Connecticut courts have long demonstrated an adversity to weakening the privity rule.
The courts have, under certain circumstances, extended the duty of lawyers to non-clients but none of those circumstances are here raised or apply.
Arguing the validity of impairment of security as a cause of action and the viability of a surety's cause of action against a disburser of contract funds, the plaintiff attempts a broadening of these defendants' duty of care by repeated reference to "construction professionals." The analogy is not apt and the citation to cases from other jurisdictions begs distinction. Attorneys at law are not in any sense "construction professionals" and it misses the mark to compare the practice of law, a uniquely individualistic service occupation, to the building trades or to construction design or architectural applications. The duty upon which rests a finding of liability for this cause of action is fatally absent.
The O'Brien defendants' motion to strike Counts Five and Six is granted.
Lenard
Count One asserts a cause of action in negligence against Lenard in that it "improperly and negligently approved the work done on the Project before each payment, such that Crystal Lake paid for work not yet done, and ultimately creating a shortfall of funds on the Project." Paragraph 16. It further alleges that, as a result of Lenard's improper and negligent approvals, "ADL was overpaid and prematurely paid" (Paragraph 17) and Colonial was harmed "in an amount to be determined at trial, but not less than the contract shortfall of $40,773.83," the amount estimated by the Briggs defendants in the May 22, 2001, notice of default to the plaintiff (Paragraph 18). Lenard has moved to strike this count because: a) it owed the plaintiff no duty; b) the economic loss doctrine bars recovery; and c) Colonial may not have suffered any damages.
"The ultimate test of the duty involved is to be found in the reasonable foreseeability of harm resulting from a failure to exercise the requisite care . . ." Center Court Assoc. Limited Partnership v. Maitland Strauss Behr, No. CV86-252381 LEXIS 1149, at *135 (Super. Ct. May 4, 1994), citing Prosser, Law of Torts (4th Ed.) § 53. The question here thus becomes: would the ordinary design professional knowing what Lenard knew or should have known have anticipated that harm of the general nature of that suffered was likely to result? See Coburn v. Lenox Homes, Inc., 173 Conn. 567, 575-76 (1977). No Connecticut case directly addresses the duty a design professional owes a surety with which it has no contractual relationship under the circumstances here presented. While the plaintiff cites to cases from other jurisdictions and to a superior court case in this state, they are easily distinguishable. The plaintiff points to the factual similarities between the instant case and Peerless Ins. Co. v. Cerny Assoc., 199 F.Sup. 951 (D.Minn. 1961). In Peerless, the plaintiff surety sought damages from the defendant architect, alleging that the architect was negligent in supervising construction and in approving the release of funds. Id. at 954. The facts of the case were that the owner of the project entered into a construction contract and the surety executed a bond to ensure performance. Id. at 952. The contractor was paid upon the advice of the architect, who was to supervise performance. Id. After the contractor defaulted, the surety completed performance under the bond. Id. The surety filed an action against the architect. Id. The court found that the architect was negligent in approving the payment of sums in excess of the amount required to be retained, which in turn caused the surety's damage. Id. at 955. It further found privity of contract between the architect and surety was not necessary to its finding of a duty owed the surety. Id., at 954-55. The court in Peerless, however, was "of the opinion that the evidence supports the conclusion that defendant had actual or constructive notice and knowledge of the surety bond." Id. That notice speaks directly to foreseeability as a predicate for the finding of a duty. "The foreseeability requirement operates as a limitation upon a defendant for the consequences of his negligent act and, so while foreseeability has no relevance to the issue of causation, it does have relevance to the issue of duty." Center Court, supra, at *135-36. Lenard's professional and contractual relationship was with Crystal Lake for whom it designed the project and provided engineering services. The plaintiff was the surety for ADL; the contractor for the project. While it is reasonable to conclude Lenard would have foreseen harm to Crystal Lake from Lenard's (alleged) negligence in overpaying or prematurely paying ADL, this court cannot conclude it was reasonably foreseeable to Lenard that such payments to ADL would harm ADL's surety when such payments would normally have redounded to the benefit of the surety. Nor can this court conclude Lenard would reasonably have foreseen ADL's default. In fact, the complaint is devoid of the allegation the plaintiff surety did in fact pay the claimed contract shortfall of $40,773.83. The court concludes no duty was owed.
While the surety's payment of that amount is, under a broad reading of the complaint, perhaps a fact "necessarily implied and fairly provable" under the allegations therein, the plaintiff's statement to that effect in its memorandum does not cure the apparent vagary of the complaint in failing to so state.
The plaintiff's argument privity of contract is not a predicate to maintaining this negligence claim against Lenard is rejected for additional reasons. While the plaintiff makes the broad claim a surety has a cause of action against "other construction professionals," the cases it cites are primarily cases involving either the contractor's assignment of rights to the surety or the surety's assertion of a claim as a subrogation right. In a footnote within its memorandum, plaintiff states, "ADL has assigned its rights to Colonial through the General Indemnity Agreement that ADL signed in order to obtain the bonds." Fn 2, page 2. No such allegation is included in the complaint and asserting the same in a memorandum when the Agreement is neither appended to the complaint nor provided the court is without any effect. Plaintiff correctly asserts it is a generally accepted principle of surety law that a surety is subrogated to the rights of a party to or for whom that surety is later required to pay. Pearlman v. Reliance Ins. Co., 371 U.S. 132, 136-37 (1962). It is also generally accepted that a surety has no greater rights than the party for whom it is obligated to pay. ADL was not harmed by any action of Lenard. It was not only paid Draw Four funds as a result of Lenard's alleged approval of work not done or negligently done but, the plaintiff claims, was both overpaid and prematurely paid. ADL benefitted from any claimed negligence by Lenard; it suffered no loss traceable to Lenard and it can reasonably be assumed ADL welcomed Lenard's largesse. How then does Colonial assert a cause of action ADL could not have asserted against Lenard for lack of any damages? This court concludes it cannot.
This court makes no finding with regard to whether a surety is appropriately considered a "construction professional."
With regard to the economic loss doctrine, which defendant claims bars recovery here, the state's superior courts are split on the subject of the doctrine's continued vitality. While no appellate court in this state has directly addressed whether a contractor or its surety can recover in tort for purely economic damages against a design professional in the absence of contractual privity and in the absence of personal injury or property damage to the contractor, a federal district court concluded privity is not necessary to recover under the economic loss doctrine. Insurance Co. of North America v. Town of Manchester, et al, 17 F.Sup. 2d 81 (D. Conn. 1998). Summary judgment on the economic loss count was denied nevertheless in view of the court's finding of genuine issues of material fact — to include disputed issues regarding "reasonably foreseeable consequences" of the engineering contractor's alleged failure to properly perform its contracted duties. 17 F.Sup. 2d, at 87. The court also noted that, in 1977, the Connecticut Supreme Court held for the first time that a subsequent purchaser of a home could recover in negligence against the contractor for the faulty installation of a septic system in the absence of privity. Id., at 84, citing to Coburn v. Lenox Homes, Inc., 173 Conn, 567, 569 (1977). The Court in Coburn concluded the lynchpin for the finding of a duty was the "foreseeability that harm may result if it is not exercised." Id., at 575.
This judicially created doctrine holds that, in the absence of privity of contract and the absence of injury to person or property, one may not recover for purely economic damages.
This court does not here determine the continuing vitality of the economic loss doctrine in this state but does conclude that, under the circumstances here presented, no duty was owed the surety for reasons both of foreseeability and public policy. Count One does not state a cause of action and it is stricken.
Count Two alleges Lenard's negligence impaired Colonial's security (Paragraphs 20-22), as a result of which the surety was harmed (Paragraph 22). Lenard has moved to strike this count because: a) impairment of security is not a recognized cause of action in Connecticut "under the circumstances set forth in the complaint"; and b) the claim is derivative of Count One's negligence claim. Specifically, Paragraph 16 alleges, "Lenard's improper approval of the work done on the Project was an act of negligence in that it unreasonably authorized certified progress payments." Paragraph 17 asserts, "Lenard's negligence resulted in the premature payment to and overpayment of ADL." Paragraph 21 provides, "It was reasonably foreseeable that the negligent approval of work and the resulting premature payment to and overpayment of ADL would result in the impairment of Colonial's security."
Having already concluded no action in negligence lies as against Lenard, the plaintiff does not state a cause of action for impairment of security because Count Two is derivative of the negligence claim of Count One and the defendant owed no duty of care to the plaintiff. Left open for another day are such questions as whether a cause of action for impairment of security may be maintained in tort for purely economic loss under other circumstances or whether, for example, as plaintiff urges, a surety has priority to undisbursed contract proceeds when the surety becomes subrogated to the rights of the contractor.
The plaintiff cites to Amwest Surety Ins. Co. v. United States of America, No. 3:92CV221(PCD), 1995 U.S. Dist. LEXIS 8201 (D.Conn. 1995), which does not here control since the issue there was the surety's interest in undisbursed contract proceeds; that court, however, cites to Balboa Ins. Co. v. Bank of Boston Conn., 702 F.Sup. 34 (D. Conn. 1988), which concluded the doctrine of equitable subrogation was fully applicable where "a party sought reimbursement for a debt paid under the compulsion of a payment and performance bond." Id., at 36.
The motions to strike of the O'Brien and Lenard defendants are granted in their entirety.
Sheedy, J.