Opinion
No. CV09 502 40 42 S
December 18, 2009
MEMORANDUM OF DECISION
The plaintiff, Lester Construction, filed a three-count complaint against the defendant, People's United Bank, on March 24, 2009. In its amended complaint, the plaintiff alleges the following facts. The plaintiff performed construction work for Dayton Home Construction and Renovation, LLC (Dayton), prior to June 19, 2008. In the three months prior to that date, Dayton issued six checks with a total value of $38,500 payable to the plaintiff in compensation for the plaintiff's work. Dayton delivered these checks to Chris Ruchala at Ruchala's direction, even though Ruchala was not employed by, nor had any affiliation with, the plaintiff. Rather, Dayton mistakenly believed that Ruchala worked for or was authorized to act on behalf of the plaintiff. Ruchala, or persons acting on his behalf, endorsed the checks made out to the plaintiff and presented them to the defendant, which cashed them. The plaintiff alleges the defendant's actions damaged it in the amount of $38,500, and seeks compensatory damages. The defendant filed a motion to strike all three counts of the plaintiff's complaint. The plaintiff has filed an objection to the motions.
The first count alleges a breach of duty under General Statutes § 42a-3-420. The second count alleges negligence. The third count alleges a violation of CUTPA.
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "A motion to strike challenges the legal sufficiency of a pleading . . . and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted.) American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 971 A.2d 17 (2009). "[F]or the purpose of a motion to strike, the moving party admits all facts well pleaded." RK Constructors, Inc., v. Fusco Corp., 231 Conn. 381, 383 n. 2, 650 A.2d 153 (1994). In ruling on a motion to strike, "[t]he role of the trial court [is] to examine the [complaint], construed in favor of the [plaintiff], to determine whether the [plaintiff has] stated a legally sufficient cause of action." (Internal quotation marks omitted.) Dodd v. Middlesex Mutual Assurance Co., 242 Conn. 375, 378, 698 A.2d 859 (1997). "If facts provable in the complaint would support a cause of action, the motion to strike must be denied." Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188.
Statutory Claim
The first count of the plaintiff's amended complaint alleges that the defendant is liable to the plaintiff pursuant to General Statutes § 42a-3-420, which governs conversion of instruments. In response, the defendant contends that, under § 42a-3-420, a payee may not bring an action in conversion where the payee has not received delivery of the instrument. Because the plaintiff admits that it never received delivery of the checks, the defendant argues, the plaintiff's claim is barred by the plain language of § 42a-3-420. The plaintiff argues that the defendant's delivery of the checks to Ruchala suffices to show delivery to the plaintiff because the defendant was under the belief that Ruchala was an agent for the plaintiff, and delivery to the agent of a payee is equivalent to delivery to the payee under § 42a-3-420.
General Statutes § 42a-3-420 provides in relevant part: "(a) The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (i) the issuer or acceptor of the instrument or (ii) a payee or endorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee." (Emphasis added.) "The payee receives delivery when the check comes into the payee's possession . . . Delivery to an agent is delivery to the payee." General Statutes § 42a-3-420 (Comment 1).
"The existence of an agency relationship is a question of fact." (Internal quotation marks omitted.) National Publishing Co. v. Hartford Fire Ins. Co., 287 Conn. 664, 677, 949 A.2d 1203 (2008). Three elements must be satisfied to show the existence of an agency relationship: "(1) a manifestation by the principal that the agent will act for him; (2) acceptance by the agent of the undertaking; and (3) an understanding between the parties that the principal will be in control of the undertaking." Id., 678.
In the present case, the plaintiff does not allege that it received the checks directly. Rather, it contends that, for purposes of delivery, Ruchala served as the plaintiff's agent. In its amended complaint, however, the plaintiff alleges that "Ruchala, and all other such person(s) were not employed by, performed no work for or on behalf of and have no affiliation with [the plaintiff]." Furthermore, the plaintiff alleges that "without the knowledge, permission or authority of [the plaintiff], Dayton delivered the Checks to [Ruchala] or other person(s) at the direction of Ruchala." Therefore, according to the plaintiff's own allegations, the plaintiff did not intend that Ruchala would act for it, Ruchala did not accept any undertaking and there was no understanding between the parties of any kind. Indeed, the plaintiff expressly disaffirms any authority over Ruchala. It is impossible to draw the conclusion from the allegations in the amended complaint, even construed in the manner most favorable to the plaintiff, that Ruchala acted as an agent for the plaintiff.
Nonetheless, the plaintiff contends that because the defendant believed Ruchala to be an agent for the plaintiff, delivery to Ruchala constituted delivery to the plaintiff for purposes of § 42a-3-420. The plaintiff provides no authority in support of this argument. Although Connecticut courts have not directly addressed this issue, courts in other jurisdictions have held that mere intent to deliver an instrument to a party or its agent, when the instrument is actually delivered to a thief, is insufficient to show delivery to the party. See Lund v. Chemical Bank, 760 F.Sup. 51 (S.D.N.Y. 1991) (holding that there was no delivery to a company when the company president received checks due to the company and fraudulently negotiated them for his personal benefit); State v. Barclay's Bank of New York, N.A., 76 N.Y.2d 533, 561 N.Y.S.2d 697, 563 N.E.2d 11 (N.Y. 1990) (also finding no delivery of checks to the state of New York when an accountant fraudulently endorsed client checks payable to the state for his benefit). Similarly, in the present case, the allegation that defendant believed it was delivering the checks to the plaintiff's agent is insufficient to show delivery to the plaintiff.
Because the plaintiff's allegations are legally insufficient to show that the plaintiff received delivery of the checks either directly or through an agent, plaintiff's claim under § 42a-3-420 must fail, as the statute bars actions brought by payees who have not received delivery of the instruments at issue. The defendant's motion to strike the first count of the plaintiff's amended complaint is granted.
Negligence Claim
The plaintiff alleges in the second count of its amended complaint that the defendant damaged the plaintiff though its negligence in opening an account in the name of the plaintiff and by cashing the checks presented to the defendant by Ruchala. The defendant owed the plaintiff a duty of care, the defendant argues, due to the fact that the plaintiff maintained accounts with the defendant at all times relevant to this action. The defendant argues that the appropriate test for a duty of care in the context of negligence involves only the foreseeability of the injury, not a party's status as a bank customer, which is relevant only to statutory claims. Here, the defendant argues, it owed no duty of care to the plaintiff for common-law negligence as it was unforeseeable that a party without a legal interest in the checks could be harmed by the manner in which the checks were negotiated.
"The existence of a duty of care is an essential element of negligence . . . A duty to use care may arise from a contract, from a statute, or from circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from his act or failure to act." (Internal quotation marks omitted.) Ward v. Greene, 267 Conn. 539, 547, 839 A.2d 1259 (2004). Additionally, the test for a duty of case entails "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." Gomes v. Commercial Union Ins. Co., 258 Conn. 603, 616, 783 A.2d 462 (2001). "The issue of whether the defendant owed the plaintiff a duty of care is an appropriate one for a motion to strike because the question embodies a matter of law to be decided by the court." Bennett v. Connecticut Hospice, Inc., 56 Conn.App. 134, 137 (1999).
In support of its claim that it was owed a duty of care by the defendant, the plaintiff relies upon Cammarota v. Cammarota, Superior Court, judicial district of Fairfield, Docket No. CV 06 5002935S (Sept. 6, 2007, Hiller, J.) ( 44 Conn. L. Rptr. 135). In Cammarota, an interest holder in a corporation took delivery of checks made payable to the corporation and to the corporation's director, and opened an account in the name of the corporation at a local bank. Id., 135-36. The interest holder then drew checks on the account. Id., 136. In a suit against the bank, the corporation alleged that the bank owed it a duty of care, and that as a result of the bank's negligence, it had sustained damages. Id. The court held that the bank owed the corporation a duty due to the fact that the corporation alleged that it was a customer of the bank, and found that banks generally owe their customers a duty of care. Id. Furthermore, the court concluded that the losses sustained by the corporation were a foreseeable result of the bank's alleged negligence. Id., 137.
Other Superior Courts have likewise recognized that banks generally owe a duty of care to their customers, regardless of whether a plaintiff asserts common law or statutory claims against a bank. See, e.g., Dicks v. Fairfield First Bank Trust, Superior Court, judicial district of Fairfield, Docket No. CV 92 298564S (June 20, 1994, Ford, J.) (holding that "a bank owes a duty of care to its customers" in the context of a negligence claim); DiChello v. Citytrust Bank Corp., Superior Court, judicial district of New Haven, Docket No. 270965 (February 22, 1991, Healey, S.T.R.) (collecting banks are "held to a standard of ordinary care" in the context of a statutory claim). General Statutes § 42a-4-104(a)(5) defines the term "customer" as "a person having an account with a bank or for whom a bank has agreed to collect items, including a bank that maintains an account at another bank . . ."
Although neither the Cammarota nor Dicks courts fully explained the basis on which they concluded that a bank owes a duty of care to its customers in the context of negligence claims, other jurisdictions have provided additional justification in the course of reaching the same conclusion. "A bank's basic duty of care — to act with reasonable care in its transactions with its customers — arises out of the bank's contract with its customer." (Emphasis added.) Rodriguez v. Bank of the West, 162 Cal.App. 4th 454, 460, 75 Cal.Rptr.3d 543 (Cal.App. 2 Dist., 2008).
Where a party has failed to allege that it is a customer of a defendant bank, and therefore has not shown the existence of this particular contractual relationship, to establish the existence of a duty of care it must "allege [a] contract, statute or circumstances which would give rise to a duty owed by [the bank] which would support an action in negligence." Sheiman v. Lafayette Bank Trust Co., 4 Conn.App. 39, 45, 492 A.2d 219 (1985). Indeed, some courts have held that the fact that an injury was foreseeable, by itself, is insufficient to establish a duty of care on the part of a bank when no such special relationship is alleged by a non-customer plaintiff. See, e.g., Pereira v. United Jersey Bank, 201 B.R. 644, 671 (S.D.N.Y. 1996) (declining to find that a defendant bank owed a duty of care to non-customer plaintiff allegedly victimized in a check-kiting scheme even though the injury was a foreseeable result of the bank's alleged negligence); Rodriguez v. Bank of the West, supra, 162 Cal.App. 4th 466 (holding that, although the harm to a non-customer plaintiff was a foreseeable result of a bank's alleged negligence in depositing checks payable to the plaintiff into the account of a thief, a duty of care could not exist in the absence of a customer relationship with the bank).
Though the defendant claims that Sheiman stands for the proposition that a party's status as customer is relevant only to statutory claims, the Sheiman court expressly found that the plaintiff had not alleged that it was a customer of the defendant bank. Haying reached this conclusion before discussing the plaintiff's negligence claim, the court simply did not have occasion to address the issue of whether the existence of a customer relationship would suffice to establish the duty of care on the part of the bank in the context of a common-law negligence claim, as the plaintiff was not a customer. See Sheiman v. Lafayette Bank Trust Co., 4 Conn.App. 39, 44-45.
In the present case, the plaintiff has straightforwardly alleged that "[a]t all relevant times hereto, [the plaintiff] maintained accounts with [the defendant]." This allegation, construed in the manner most favorable to the plaintiff, is sufficient, under General Statutes § 42a-4-104(a)(5), to demonstrate a customer/bank relationship between the plaintiff and the defendant.
The defendant, however, argues that no duty of care exists because it was unforeseeable that a party with no interest in a check could be injured by the manner in which the check was handled by a bank. Because a payee who has not received a check is not a person entitled to enforce the check under General Statutes § 42a-3-301, the defendant argues that the plaintiff, who never received the checks, never acquired an interest in the checks, and could not be harmed by the defendant's handling of them. Additionally, the defendant states that Ruchala opened the account in the name of "Lester Construction," rather than the plaintiff's full name, "Lester Construction LLC," and argues that it is not foreseeable to a bank that a person with a name similar to that of the new account holder could be injured by the opening of a new account. Finally, the defendant argues that the Cammarota court erred in failing to apply a public policy analysis to the facts of the case as required by appellate authority when determining the existence of a duty of care. Under the facts of the present case, the defendant argues, an application of a public policy analysis weighs against the imposition of a duty of care.
Our Appellate Court has held that "[a]n action based on tort theory is separate and distinct from any claim based on the instrument . . . Therefore . . . lack of standing to sue on [a] check does not dispose of . . . counts alleging negligence . . ." (Citation omitted.) Sheiman v. Lafayette Bank Trust Co., supra, 4 Conn.App. 44. Although Sheiman did recognize that the Uniform Commercial Code (UCC) might displace the common-law of tort "insofar as reliance on the common law would thwart the purposes of the Code;" id.; our Superior Courts have repeatedly held that the UCC does not preempt common law negligence claims in cases involving similar factual circumstances. See Kaye v. T.D. Banknorth, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV 08 5007268S (May 6, 2009, Pavia, J.) ( 47 Conn. L. Rptr. 716, 717) (noting that "the UCC does not displace common-law negligence claims" in a case involving a bank's cashing of wrongfully obtained checks); Cammarota v. Cammarota, supra, 44 Conn. L. Rptr. 137 (also finding that the UCC does not displace common-law negligence claims in a case involving deposit of wrongfully obtained checks); Wachtel, Duklauer Fein v. Sentinel Industrial, Inc., Superior Court, judicial district of Ansonia-Milford, Docket No. 94 0048307 (November 2, 1999, Arnold, J.) (UCC "does not displace common law negligence claims"). Likewise, the fact that § 42a-3-420 bars a payee who has not received a check from having any interest in the check does not deprive that payee of standing to bring a claim in common law negligence so long as that payee can advance colorable allegations of injury.
Here, the plaintiff alleges that the defendant bank was negligent in that it failed to follow policies and procedures it had in place to verify that accounts were properly authorized before opening them, among numerous other allegations of negligence and carelessness. On the basis of these allegations, and in light of the fact that the plaintiff has alleged facts that, if proven, would show that it was a customer of the defendant, it can be concluded that an ordinary party in the bank's position could have anticipated that opening an account in the name of a company without performing sufficient verification of identity and subsequently cashing a series of checks could have resulted in the proceeds of the checks going to an entity other than the named payee and thereby causing injury of the general type alleged by the plaintiff.
The defendant's argument that an injury could not have been anticipated under these circumstances due to § 42a-3-420 cannot be reconciled with the language of the statute itself, which is silent on whether § 42a-3-420 displaces common-law negligence claims. Because § 42a-3-420 cannot provide any basis for the defendant to reasonably conclude that a payee not in possession of checks would not have standing to bring a claim under common-law negligence, as opposed to a statutory claim in conversion, it cannot be unforeseeable to the defendant that such an injury could be sufficiently alleged by a plaintiff.
The fact that the account opened by Ruchala was not in the exact name of the plaintiff does nothing to alter this conclusion. The plaintiff has alleged that two of the checks cashed by the defendant were made payable to "Lester Construction LLC," the full name of the plaintiff. In the amended complaint, the plaintiff's allegations of injury and negligence are not limited solely to the opening of an account, but extend to the cashing of the checks and the defendant's allegedly negligent failure to require proper endorsements on the checks. Additionally, one Superior Court declined to strike a negligence claim in a case where stolen checks were deposited in an account opened in the name of the thief. See Kaye v. T.D. Banknorth, supra, 47 Conn. L. Rptr. 716-17. If an injury may be anticipated in cases in which an account is opened in an entirely different name than that of the payee, it is surely no less foreseeable in a case where the account name only differs in small part from that of an existing account of the payee at the same bank, and where the checks themselves bear the full name of the account holder.
The court also cannot agree with the defendant's argument that public policy bars finding that a bank does not owe a duty of care to a customer payee who has not received a check. In the cases cited by the defendant in support of this contention the plaintiffs were not customers of the defendant banks. Indeed, it precisely because the plaintiffs were not customers that the court declined to impose a duty of care on the banks. See Rodriguez v. Bank of the West, supra, 162 Cal.App. 4th 460-61 (holding that a bank did not owe a duty of care to a payee on stolen checks deposited at a bank because payee was not a customer); Cushman Wakefield, Inc. v. Valley National Bancorp, United States District Court, Docket No. 02-6099 (D.N.J., April 11, 2007) (holding that a defendant bank owed no duty of care to non-customer plaintiff); Thompson v. Capital One Bank, 375 F.Sup.2d 681 (N.D.Ill., 2005) (plaintiff was not customer of bank at which stolen checks were deposited, and therefore defendant bank did not owe him a duty of care).
Moreover, at least one court has noted that "the [payor] bank has a duty to make payment only to the payees named in its depositors' checks or to their order. Consequently, the [depository] bank as a general rule has a duty to determine the identity of the payee." (Emphasis added.) New Jersey Steel Corp. v. Warburton, 139 N.J. 536, 546, 655 A.2d 1382 (N.J., 1995). Finally, our Superior Courts have consistently held that in the absence of explicit statutory language or a definitive indication from our Appellate or Supreme Court, plaintiffs are free to bring common-law negligence claims even where the policies embodied in the UCC conflict with the finding of an injury or a duty of care in common-law negligence. See e.g. Kaye v. T.D. Banknorth, supra, 47 Conn. L. Rptr. 716; Van Der Werff v. Shawmut Bank Connecticut, Superior Court, judicial district of Hartford, Docket No. CV 95 055654 (November 20, 1996, Lavine, J.) ( 18 Conn. L. Rptr. 245, 246). As our appellate courts have yet had occasion to pass on the precise question before this court as regarding § 42a-3-420 and whether it preempts the finding of a duty of care in a negligence claim, this court cannot conclude that public policy bars the imposition of such a duty.
Because the plaintiff has made factual allegations sufficient to support the conclusion that it was a customer of the bank, that it suffered an injury, and that the injury should have been anticipated by a ordinary party in the position of the defendant bank, the plaintiff's amended complaint advances allegations legally sufficient to establish that the defendant owed the plaintiff a duty of care. The defendant's motion to strike the second count of the plaintiff's amended complaint is denied.
CUTPA Claim
The third count of the plaintiff's amended complaint alleges that defendant's conduct constituted an unfair or deceptive act or practice, and therefore was violation of CUTPA. The plaintiff contends that an action in negligence can be brought under CUTPA if additional factors are present that aid in satisfying the rules for CUTPA liability established by Connecticut courts, and argues the defendant's cashing of the checks upon presentation is a sufficient additional factor.
The defendant claims that the additional facts alleged by the plaintiff are insufficient to state a claim under CUTPA, as they are indistinguishable from the underlying negligence alleged by the plaintiff. The defendant further argues that the plaintiff has failed to allege any conduct of the type that falls under the ambit of CUTPA.
General Statutes § 42-110b provides in relevant part: "No 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; [and] (3) whether it causes substantial injury to consumers [competitors or other businessmen]." (Internal quotation marks omitted.) Ramirez v. HealthNet of the Northeast, Inc., 285 Conn. 1, 19, 938 A.2d 576 (2008).
There is no clear rule established by Connecticut courts as to whether a party's negligence, alone, can rise to the level of a CUTPA violation. While "proof that a party acted negligently is not sufficient to establish that the party's conduct was immoral, unethical, or unscrupulous;" (Emphasis in original.) Thames River Recycling, Inc. v. Gallo, 50 Conn.App. 767, 784, 720 A.2d 242 (1998); it remains unclear how many of the three cigarette rule factors must be met to support a claim of a CUTPA violation. Our Supreme Court has held that "[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." In the present case, however, the plaintiff has failed to allege facts sufficient to satisfy any of the three prongs of the cigarette rule.
With regard to the first prong of the rule, the plaintiff argues that the defendant's conduct was unfair and offensive to public policy due to it being in violation of General Statutes § 42a-3-420. As shown above, however, § 42a-3-420 is inapplicable to the facts of this case as the plaintiff admits that it never received the checks, and therefore the plaintiff is barred from bringing a claim for conversion under § 42a-3-420. Here, the plain language of § 42a-3-420 shows that it is the policy of this state not to provide a cause of action for statutory conversion to a payee who never receives delivery of the instrument.
The plaintiff also alleges that the defendant "failed to follow the policies and procedures that it had in place to verify that an account was properly authorized before it opened it." This statement, however, only alleges that the defendant violated its own internal policies, rather than particular public policy. There is no allegation that the defendant's failure to follow its own procedures was a violation of any of the sources of public policy identified by our Supreme Court, which include "statutes, administrative decisions, and case law." MedValUSA Health Programs, Inc. v. MemberWorks, Inc., 273 Conn. 634, 657, 872 A.2d 423 (2005). The plaintiff's allegations are therefore insufficient to satisfy the first prong of the cigarette rule.
Additionally, the plaintiff does not make any allegation that the defendant's conduct was immoral, unethical, oppressive or unscrupulous. The plaintiff merely alleges that the defendant was negligent in the opening of an account and the cashing of a series of checks. Under Thames River Recycling, allegations of negligence alone are insufficient to show a violation of the second prong of the cigarette rule. See Thames River Recycling, Inc. v. Gallo, supra, 50 Conn.App. 784. In Saint Bernard School of Montville v. Bank of America, Superior Court, judicial district of New London, Docket No. CV 08 5006676 (May 20, 2009, Martin, J.) the plaintiff alleged that a school employee opened an account at the defendant bank in the name of the school without authorization, into which he deposited forged and fraudulently endorsed checks. In an action against the bank brought under CUTPA, the court held that the plaintiff had "failed to allege sufficient facts . . . [to] satisfy the second prong of the cigarette rule." Likewise, the plaintiff in the present case has failed to allege sufficient facts, beyond allegations of mere negligence, to satisfy the second prong.
Finally, the plaintiff fails to allege that the defendant's conduct causes substantial injury to consumers, competitors or other businessmen. To show a violation of the third prong, the injury caused must be "substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided." Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 592, 657 A.2d 212 (1995). Here, the plaintiff merely alleges that, as a result of the defendant's conduct, "[the plaintiff] has suffered ascertainable loss of money or property." The plaintiff nowhere alleges that the defendant's practice is not outweighed by countervailing benefits and does not allege that the injury could not have been reasonably avoided.
Because the allegations in the third count of the plaintiff's complaint fail to meet any of the three criteria under the cigarette rule, even construing the facts in a manner most favorable to the plaintiff, the plaintiff's third count is legally insufficient to state a claim under CUTPA. The defendant's motion to strike the third count of the plaintiff's complaint is granted.
In summary, this court has granted the motions to strike count one and count three of the plaintiff's complaint. It has denied the motion to strike count two.