Opinion
CV126028814.
12-21-2012
TEAL ASSOCIATES, LLC v. Jeffrey S. ALFIN et al.
UNPUBLISHED OPINION
MILLER, J.
In its revised complaint dated June 12, 2012, the plaintiff alleges the following facts. On May 22, 2008, plaintiff invested $500,000 into PageFad, LLC (PageFad) based on representations by the defendants that PageFad was changing its business model in ways which would increase its revenues to $10,000 per day and that it would get a " cash buy-out" within four to six months at a buy-out price of twenty-five to thirty-five million dollars or more. In reliance on these representations, plaintiff made a $250,000 loan in 2009 which was repaid, and then advanced another $250,000 as a loan on April 9, 2010. Plaintiff claims it is owed $212,000 of that amount.
On July 20, 2012, the defendants filed a motion to strike as to counts two and three of the plaintiff's revised complaint and a memorandum in support thereof. Count two sounds in negligent representation, and count three alleges that defendants' negligent representations violated the Connecticut Uniform Securities Act and the Federal Securities and Exchange Act.
" [N]egligent misrepresentation requires the plaintiff to establish (1) that the defendant made a misrepresentation of fact (2) that the defendant knew or should have known was false, and (3) that the plaintiff reasonably relied on the misrepresentation, and (4) suffered pecuniary harm as a result." (Internal quotation marks omitted.) Coppola Construction Co. v. Hoffman Enterprises Ltd. Partnership, 134 Conn.App. 203, 208 cert. granted, 304 Conn. 923 (2012). " Liability for negligent misrepresentation may be placed on an individual when there has been a failure to disclose known facts and, in addition thereto, a request or an occasion or a circumstance which imposes a duty to speak ... Such a duty is imposed on a party insofar as he voluntarily makes disclosure. A party who assumes to speak must make full and fair disclosure as to the matters about which he assumes to speak." (Internal quotation marks omitted.) Johnnycake Mountain Associates v. Ochs, 104 Conn.App. 194, 206 (2007), cert. denied, 286 Conn. 906 (2008).
Statements of judgment concerning future events or statements conditioned on future events (" conditional statements") can be negligent misrepresentations under Connecticut law, because Connecticut generally allows them or because they are acceptable within the confines of the Restatement (Second) of Torts § 552. In Glazer v. Dress Barn, Inc., 274 Conn. 33, 74-5 n. 32, (2005), the court stated that for fraud and intentional misrepresentation, Connecticut follows the general principle that the misrepresentation must relate to an existing or past fact, and a promise based on a future act is allowable only when coupled with a present intent not to fulfill the promise. Id., 74 n. 32. The Glazer court also noted that many other jurisdictions do not allow negligent misrepresentation claims based on conditional statements. Id. Nevertheless, the Court stated that it " need not determine exactly how to characterize" the statements at issue in the action, given that the court previously had held that an " estimate based on a professional judgment" could be a source of negligent misrepresentation, citing Updike, Kelly & Spellacy, P.C. v. Beckett, 269 Conn. 613, 643-44 (2004). Id., 75 n. 32.
The court's holding in Updike, Kelly & Spellacy, P.C. was premised on Restatement (Second) of Torts § 552, which specifically relates to negligent misrepresentation. Section 552(1) states in relevant part: " One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information." 2 Restatement (Second), Torts § 552(1) (1977). The court held that a law firm's estimate of its future attorneys fees, which later grossly exceeded the estimate, qualified as a negligent misrepresentation.
In Glazer, supra, the Court held that a company's statements that it was working to close a deal quickly was a negligent misrepresentation when the deal eventually fell through and was at all times conditioned on the completion of due diligence. Glazer v.. Dress Barn, Inc., supra, 274 Conn. 76. In D'Ulisse-Cupo v. Board of Directors of Notre Dame High School, 202 Conn. 206, 218 (1987), the defendant school's representations that a teacher would be rehired for the following year was an actionable claim for negligent misrepresentation when the decision was at all times contingent upon school enrollment levels for that subsequent year. Significantly, the court reached this conclusion even though the school's statements were not promises that the teacher would be hired: " For purposes of a cause of action for negligent misrepresentation, however, the plaintiff need not prove that the representations made by the defendants were promissory. It is sufficient to allege that the representations contained false information." Id., 218.
In this case, the defendants' alleged affirmative misrepresentations are found in paragraphs eleven though fourteen of counts two and three: (1) Page Fad had a financial backer; (2) " the sky [was] the limit" for the company; (3) the company was changing its model to increase ad revenues; (4) the company would be rolling out five new applications; (4) there was an offer in hand to purchase the company; (5) the company could increase its revenues to $10,000 per day within a month; (6) the company would be bought out within six months for " almost $25-$35 million or more"; and (7) the company would be sold for a huge profit by the end of 2008. The plaintiff alleges that all of these statements were false, and the defendants should have known they were false.
Two of the alleged misrepresentations were not conditioned on future events; these were the alleged claim that defendants had a financial backer and that they already had an offer to buy the company. These allegations are sufficient to support a cause of action for negligent misrepresentation, regardless of the defendants' other alleged statements of their future plans and profitability.
The remaining allegations are valid, negligent misrepresentation claims. The defendants, in a transaction in which they had a pecuniary interest, allegedly supplied the plaintiff with false information to guide his business transaction. The defendants allegedly wanted the plaintiff to invest, and gave it information to encourage it to do so.
The Motion to Strike is therefore denied. It is so ordered.