Opinion
No. UWY CV 04-0185580S (X02)
September 11, 2006
MEMORANDUM OF DECISION RE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
I. BACKGROUND
Connecticut Resources Recovery Authority (hereinafter referred to as CRRA) is a quasi-public entity established by statute for the purpose of developing a statewide waste-management program. Conn. Gen Stat. Sec. 22a-261 et seq. CRRA collects trash from its member towns and burns the trash to sell the resulting energy. In the years 2000 and 2001, CRRA restructured the energy-purchase agreement it had with Connecticut Light and Power (hereinafter referred to as CLP). The restructuring included a three-way deal involving CRRA, CLP, and a subsidiary of the Enron Corporation, in which Enron received a pre-payment of $220 million. Enron defaulted on its obligations after making eight payments, and filed for bankruptcy.
Following the Enron bankruptcy, the General Assembly enacted legislation providing that "the Attorney General shall have supervision over all legal matters and claims of (CRRA) arising from (the Enron) transaction." Conn. Gen. Stat. Section 22a-268c. After the enactment of this legislation, CRRA and the Attorney General have pursued recovery of the approximately $220 million lost in the Enron transaction. In fact, CRRA has recovered approximately $111 million as a result of a claim made in the Enron bankruptcy. CRRA has also instituted suit against several law firms for alleged malpractice. See CRRA v. Murtha Cullina LLP et al. (D.N. UWY-X02-CV-02-0174569S).
The Town of New Hartford instituted the instant action in December 2003. The court has recently certified the case as a class action for the 70 municipalities that comprise CRRA's Mid-Connecticut Project. The Revised Complaint, dated September 7, 2004, alleges that the net operating costs of the Mid-Connecticut Project have increased as a result of the losses sustained when Enron declared bankruptcy and defaulted on its obligations to CRRA. The towns allege that the payment of $220 million was an illegal loan and that the expenditure of funds was an ultra vires act on the part of CRRA. The towns further allege, inter alia, in paragraphs which are relevant to this motion, that CRRA breached a fiduciary duty which it owed to the municipalities, and that CRRA breached its duty of fair dealing and good faith. These allegations are contained in Part IV., Counts 1, 2 and 3, Sections A, B, and C of the Revised Complaint dated September 7, 2004. The towns further allege that because of the increased operating costs, the municipalities have been required to pay increased tipping fees to CRRA. The towns seek to enjoin CRRA from raising tipping fees. They further seek to have CRRA make restitution of monies they allege to have already paid to CRRA in increased tipping fees as a result of the Enron bankruptcy.
On June 30, 2006, CRRA filed a Motion for Summary Judgment as to the aforesaid Counts 1, 2, and 3 only. CRRA concedes that it may be sued for injunctive relief. However, it argues that the following provision in its contract with the towns bars any suit for damages:
Failure on the part of (CRRA) in any instance or under any circumstances to observe or fully perform any obligation assumed by or imposed upon it by the Contract or by law shall not make (CRRA) liable in damages to (the municipality).
In addition, CRRA claims that 46 of the municipalities have contracts which contain limitation-of-liability clauses that specifically enumerate the list of actions which the municipalities may pursue:
(CRRA) specifically recognizes that (the municipality) is entitled to sue (CRRA) for injunctive relief, mandamus, specific performance or to exercise such other legal or equitable remedies, not herein excluded, to enforce obligations and covenants of (CRRA) under this contract.
The Town of Portland has a different contract than the other municipalities. However, it is argued that its case falls with the class.
Plaintiffs argue that the contract terms do not bar counts 1, 2, and 3 of their lawsuit. They claim that they are not suing for the legal claim of damages. Rather, they argue, they are suing for the equitable claim of restitution which is not barred by the contract. Plaintiffs concede that restitution may be both legal and equitable. However, they argue that, in the circumstances of this case, it is clearly an equitable remedy. Further, they opine that, regarding the 46 municipalities that have contracts with the additional clause, since their claims are not specifically excluded by the contract, they must be allowed to proceed with those claims, pursuant to the contract terms.
The parties appeared before the court on September 6, 2006, and argued the Summary Judgment Motion. The court reserved decision on the matter at that time.
II. LAW
Summary Judgment must be granted if the pleadings, affidavits, and other documentary proof show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Suarez v. Dickmont Plastics Corp., 229 Conn. 99, 105 (1994). "Where there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law." Gateway Co. v. Dinoia, 232 Conn. 223, 229 (1995).
CRRA argues that plaintiffs' claim for restitution must not be allowed because the claim seeks monetary relief. It equates the term "monetary relief" with the term "damages" that is used in the contract. It argues that only this construction gives the terms of the contracts their common, natural, and ordinary meaning; and only this construction gives effect to, and is consistent with, the illustrative list of permissible remedies enumerated in 46 of the contracts. Certainly, under Connecticut law, it is beyond cavil that a contract is construed to accord language its common, natural, and ordinary meaning and usage. Poole v. City of Waterbury, 266 Conn. 68, 88 (2003). Damages, it argues, means monetary relief, according to several legal dictionaries cited. Black's Law Dictionary (6th ed. 1990); Ballentine's Law Dictionary (3d ed. 1969). In addition, it cites Gagne v. Vaccaro, 80 Conn.App. 436 (2003), which held, it argues, that a claim for unjust enrichment was a claim for "damages." Further, according to United Coastal Industries, Inc. v. Clearheart Construction Co., 71 Conn.App. 506, 512 (2002), unjust enrichment is a form of restitution. Therefore, restitution, it argues, must be a claim for damages which is barred by the contract.
CRRA further contends that, pursuant to the principle of ejusdem generis, where general words follow an enumeration of illustrative examples, the general words are to be construed as limited to things of the same general kind or class as those specifically mentioned. 24 Leggett Street Ltd. Partnership v. Beacon Industries, Inc., 239 Conn. 284, 297 (1996). Therefore, it argues, regarding the 46 municipalities which have the additional clause, the phase "other legal or equitable remedies . . . to enforce the obligations and covenants of CRRA" which plaintiffs are permitted to pursue, must be construed as limited to things of the same general kind or class as those specifically mentioned: injunctive relief, mandamus, and specific performance. It argues that since none of the aforementioned principles involve monetary relief, any claim for damages must be barred. As initially presented, the above description summarizes the position of CRRA when it moved for Summary Judgment.
The threshold question for the court is whether the contract provisions cited by CRRA apply to the claims raised by the plaintiffs. The contract provision indicates that CRRA cannot be liable for damages due to any failure on the part of CRRA in any instance or under any circumstances to observe or fully perform any obligation assumed by or imposed upon it by the Contract or by law. Plaintiffs contend that this provision does not apply to tort claims. Defendant argues that the provision applies to all claims. Assuming, arguendo, that the court holds that the provision only applies to contract claims, CRRA claims that summary judgment should be granted as to the breach of fair dealing and good faith count, since that claim arises in contract.
A contract provision seeking to limit a party's liability must be narrowly construed and will not exculpate intentional or bad faith conduct. New England Variety Distributors, Inc. v. Alarm Sec. Protection Co., Inc., 1998 WL 712363 (Conn. Superior Court, 1998) ( 23 Conn. L. Rptr. 85). "A party may contract to limit liability in damages for nonperformance of promises. Liquidated damages clauses are commonly enforced by modern courts. Such a provision is not effective, however, if that party acts fraudulently or in bad faith." Corbin on Contracts, volume 15, section 85.18, pg 471.
The Second Restatement of Contracts provides:
A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy . . . The law of torts imposes standards of conduct for the protection of others against unreasonable risk of harm. One cannot exempt himself from such liability for harm that is caused either intentionally or recklessly.
Restatement (Second) Contracts, Section 195(1) cmt. a (1979).
"The law does not favor contract provisions which relieve a person of his own negligence . . . Such provisions, however, have been upheld under proper circumstances." BD Associates v. Russell, 73 Conn.App. 66, 72 (2002). Such a clause is only valid if it appears "plainly and precisely that the limitation of liability extends to negligence or other fault of the party attempting to shed his ordinary responsibility." Id. at 72. "When applied to contracts to which the parties are sophisticated business entities, the law, reflecting the economic realities, will recognize an agreement to relieve one party from the consequences of his negligence on the strength of a broadly worded clause framed in less precise language than would normally be required, though even then it must evince the unmistakable intent of the parties." Id. at 73.
The Connecticut Supreme Court has observed:
exculpatory provisions undermine the policy considerations governing our tort system. (T)he fundamental policy purposes of the tort compensation system (are) compensation of innocent parties, shifting loss to responsible parties or distributing it among appropriate entities, and deterrence of wrongful conduct . . . It is sometimes said that compensation for losses is the primary function of tort law . . . (but it) is perhaps more accurate to describe the primary function as one of determining when compensation (is) required . . . An equally compelling function of the tort system is the prophylactic factor of preventing future harm . . . The courts are concerned not only with compensation of the victim, but with admonition of the wrongdoer.
Hanks v. Powder Ridge Restaurant Corporation, 276 Conn. 314, 327 (2005).
"An attempted exemption from liability for a future intentional tort or crime or for a future willful or grossly negligent act is generally held void." 8 S. Williston, Contracts (4th Ed. 1998) Sec. 19:23, pp. 291-92. It is against public policy to enforce clauses of this nature. As stated in Teleflex Incorporated v. Collins Aikman Products Company, Inc., 961 F.Sup. 368, 371 (D.Conn. 1996):
More pointedly, an exculpatory clause is unenforceable when, in contravention of acceptable notions of morality, the misconduct for which it would grant immunity smacks of intentional wrongdoing. This can be explicit, as when it is fraudulent, malicious or prompted by the sinister intention of one acting in bad faith. Or, when, as in gross negligence, it betokens a reckless indifference to the rights of others, it may be implicit.
The contracts in question exempt CRRA from liability for actions for breach of the contract. There is no mention of any other causes of action. The exculpatory clause permits the municipalities to exercise "such other legal or equitable remedies, not herein excluded to enforce the obligations and covenants of the Authority under this Contract." As noted above, even where there are two sophisticated entities involved in the contract, the contract must evince the unmistakable intent of the parties.
This court must interpret the contract language to bar any actions in contract against CRRA. It also, in accord with a recent decision of the court (see CRRA v. Murtha Cullina et al., supra) holds that the contract provision would bar any simple negligence claims arising out of the contract. Morganti National, Inc. v. Greenwich Hospital Association, 2001 Conn.Super. LEXIS 2837. However, the allegations contained in the three counts in question, involve allegations of illegal activity, ultra vires activity, breach of fiduciary duty, and violation of good faith and fair dealing, i.e. bad faith. Were the court to grant the summary judgment with respect to these three counts, it would countenance the very violations of public policy which both the commentators and the case law have criticized. Indeed, intentional torts, bad faith, and illegal activity, are areas in which the cases suggest that a party cannot exculpate himself or herself, since, to do so, would be a violation of public policy. Thus, this court will neither interpret the contract beyond its clear meaning, nor will it interpret same so to violate public policy.
Defendant argues that plaintiffs cannot prove that an intentional tort was committed in this case. Further, they claim that the contracts do not create a fiduciary relationship. Such issues are a matter for the court to decide after hearing the evidence. There is nothing submitted in the affidavits which would frame these issues for proper summary judgment consideration. The burden is on the moving party in this regard. That burden has not been met.
Defendant raised two additional issues, in its reply memorandum, which will now be addressed by the court.
First, it argues that the economic loss doctrine bars the plaintiffs' recovery. The economic loss doctrine is a judicially created doctrine which bars recovery in tort where the relationship between the parties is contractual and the only losses alleged are economic. Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126, 153-54 (1998). In the Flagg case the court declined to allow a negligent misrepresentation case to co-exist with a case involving commercial losses arising out of the defective performance of contracts for the sale of goods. That case is consistent with the court's holding herein that the contract would bar causes of action in both contract and simple negligence arising out of the contract. It does not affect the court's ruling that intentional torts, bad faith, and illegal acts are not covered in the contract.
Second, defendant raises, in its reply memorandum, the issue of governmental immunity. Since it has been raised, the court must address the issue at this time. It should be noted that, although it is not essential, the issue of governmental immunity has not been raised by way of a special defense to this action. Defendant claims that, pursuant to C.G.S. Section 52-557n, it cannot be liable for the acts or omission of any employee, officer or agent which constitute criminal conduct, fraud, actual malice or willful misconduct. Plaintiffs argue that it is unfair for the issue to be raised in a reply memorandum for the first time, just before the summary judgment argument. Plaintiffs further note that there are several exceptions to the rule of governmental immunity. They claim that the allegations in the complaint fall within the exceptions to the law of governmental immunity. In view of the fact that the plaintiffs have not had sufficient opportunity to brief the issue, and the court has insufficient facts upon which to rule at this time, the court will deny the summary judgment motion without prejudice to the defendant to raise the issue at trial, and to fully brief the matter during the course of the trial. The case is scheduled to commence as a court trial on October 17, 2006. The court requests the parties to discuss the issue of governmental immunity in their trial briefs. In particular, the court is interested in the effect of the existing contract in this case, with respect to both the statute and existing case law on the issue of governmental immunity. In view of the fact that the contract already allows CRRA to be sued for claims of injunctive relief and mandamus, for instance, has CRRA waived any right to claim governmental immunity with respect to the counts filed by the plaintiffs?
III. CONCLUSION
Based upon the foregoing, Defendant's Motion for Summary Judgment is denied.