Business Litigation: 2015 in Review
| Citation | Vol. 90 Pg. 93 |
| Pages | 93 |
| Publication year | 2021 |
William J. O'Sullivan [*]
In 2015, Connecticut's appellate courts decided a number of noteworthy cases in the realms of business torts, foreclosure, contract, and construction law. Those courts also decided cases that addressed liability, remedies and defenses pertinent to business cases. Following is a summary of those leading cases.
I. Business Torts
In landmark Investment Group, LLC v. Calco Construction and Development Company,[1] a tortious interference and unfair trade practice case, the Supreme Court reversed the trial court's judgment for the defendant notwithstanding a jury verdict of $4 million for the plaintiff.
The plaintiff (Landmark) was a party to a purchase and sale agreement with Chung Family Realty Partnership, LLC (Chung, LLC) pertaining to a parcel of land in Plainville. Those parties had a falling out, and on October 27, 2006 (repudiation date), Chung, LLC sent a letter to Landmark purporting to terminate their contract.[2]Landmark then sued Chung, LLC seeking to enforce the agreement (Chung litigation). meanwhile, the defendant John Senese, through his company Calco Construction and Development Company (Calco), entered into a backup agreement with Chung, LLC for the purchase of the property. Senese played additional angles as well, purchasing the existing mortgages on the parcel, and funding Chung, LLC's legal fees in connection with the Chung litigation.[3]
Landmark prevailed in the Chung litigation, obtaining an order, affirmed by the Appellate Court, of specific performance directing Chung, LLC to convey the property to Landmark.[4] But Landmark was unable to capitalize on its victory, because the town had meanwhile commenced foreclosure of tax liens on the property, which eventually went to auction. The high bidder was a company formed by Senese.[5]
Landmark sued Senese and Calco, asserting claims of tortious interference and unfair trade practice. Landmark sought a prejudgment remedy, but following a three-day hearing, the trial court denied its application, finding "no evidence that Senese enticed or manipulated Chung, LLC, into terminating its agreement with the plaintiff" or that "Senese and/or Calco made any misrepresentations or committed any other tort in the course of conduct which ultimately injured [the plaintiff]."[6] The plaintiff appealed, but the Appellate Court, deferring to the trial court's findings of credibility and weighing of the evidence, affirmed the judgment below.[7]
Undeterred, Landmark soldiered on, and proceeded to trial by jury. The jury found for the plaintiff on both claims of tortious interference and unfair trade practice, awarded damages of $4 million, and made a finding that the defendants had acted with reckless indifference to Landmark's rights, justifying punitive damages in an amount to be determined by the court.[8] But the trial judge, who had issued the earlier ruling denying Landmark's application for PJR, granted the defendants' motion for judgment notwithstanding the verdict, characterizing the defendants' conduct as "nothing more than aggressive business practices."[9]
On appeal, Landmark argued that the trial court erred in holding that, for purposes of the tortious interference claim, the jury could consider only conduct of the defendants that predated the repudiation date, the trial court's logic being that "conduct after the breach could not have induced Chung, LLC to breach the contract."[10] The Supreme Court agreed with Landmark. "[T]he mere fact that a contract is breached does not necessarily mean that the contractual relationship between two parties has terminated. … As is relevant in this case, even a total repudiation of a contract may not terminate contractual relations when the non-breaching party elects to insist on specific performance of the agreement, and specific performance is so ordered."[11]Thus, all of the defendant's conduct before and after the repudiation date, continuing until judicial confirmation of the tax foreclosure sale of the subject property, could and should have been considered by the jury.
As for the tortious nature of the defendants' conduct, the Supreme Court found that the trial court improperly substituted her view of the evidence for that of the jury. "Economic pressure is a common means of inducing persons not to deal with another," the wrongfulness of which is determined by "the circumstances in which it is exerted, the degree of coercion involved, the extent of the harm that it threatens, and the general reasonableness and appropriateness of this pressure as a means of accomplishing the actor's objective."[12] As applied to the case at hand, "[t]he jury reasonably could have found that [the defendants'] conduct constituted extreme economic pressure that went beyond the normal industry practice of competition between rival developers."[13]
Writing separately in concurrence, Justice Zarella opined that Landmark could not and should not have obtained a judgment against the defendants for tortious interference with its purchase contract with Chung, LLC, because all rights under the contract merged into the judgment of specific performance that Landmark had obtained against Chung, LLC. "Any tortious interference claims a plaintiff may have …merge into the specific performance decree because the plaintiff has obtained relief for the breach through specific performance. … [A]ny future remedy concerning the parties' obligations under the decree must come from the court's contempt power or an action on the judgment."[14] But because none of the parties, nor the trial court, ever raised this issue, Justice Zarella was constrained to join the judgment of the majority.
In Artie's Auto Body, Inc. v. Hartford Fire Insurance Company,[15] a class action seeking relief under the Connecticut Unfair Trade Practices Act ("CUTPA"),[16] the Supreme Court reversed the trial court's judgment for the plaintiffs in excess of $34 million.
The plaintiffs, independent auto body repair shops, alleged that The Hartford violated CUTPA by requiring its staff damage appraisers to use hourly labor rates negotiated by the repair shops and The Hartford based on volume work. The plaintiffs alleged that in so doing, The Hartford forced the appraisers to breach a state regulation requiring them to perform their work "without prejudice against, or favoritism toward, any party involved."[17]
The Supreme Court disagreed, "unable to discern why appraisers, when negotiating for the cost of auto repairs on behalf of their employers, would ever owe a duty of impartiality to the auto body repair shops with whom they are negotiating."[18]
In Milford Paintball, LLC v. Wampus Milford Associates, LLC,[19] the Appellate Court affirmed the judgment of the trial court that negligent misrepresentation, if accompanied by sufficient aggravating factors, may support a claim under CUTPA.
The parties entered into a lease by which the defendant would construct an indoor paintball facility to be occupied and operated by the plaintiff. By contract, the landlord's improvements were required to be completed by July 26, 2004. In the parties' communications the plaintiff repeatedly emphasized the importance of having the operation up and running by September, the start of the indoor paintball season, which runs only through April. Throughout the spring and summer, the defendant repeatedly reassured the plaintiff that the work would be completed in time, while making little or no effort to actually perform it.[20]
The trial court found that the defendant's repeated promises to perform the work in a timely manner were a material misrepresentation of fact, and constituted negligent misrepresentation. Furthermore, those misrepresentations were "immoral, unethical, oppressive or unscrupulous practices" and thus also in violation of CUTPA.[21]
The Appellate Court noted that simple negligence ordinarily will not support a CUTPA violation, but that under existing law, the trial court's finding of substantial aggravating factors supported its judgment for the plaintiff under CUTPA.
The decision is noteworthy in that "aggravated" negligent misrepresentation seems to lend itself to the label of recklessness. But the court did not use that nomenclature. This is significant because reckless misrepresentation is considered a species of fraud;[22] and therefore requires proof by clear and convincing evidence. Negligent misrepresentation, aggravated or otherwise, does not. Thus through artful pleading, a plaintiff may be able to get the best of both worlds by framing a misrepresentation claim as negligent, requiring only the fair-preponderance standard of proof, and aggravated, supporting a claim for punitive damages.
II. Foreclosure
The securitization of residential mortgage notes is a relatively new phenomenon, and has vastly complicated the question of who is the holder of a note and who is entitled to enforce it. The result has been a blizzard of cases in recent years on who does and who does not have standing to fore- close a residential mortgage, when the original lender no longer holds the paper.
In U.S. Bank v. Schaefer,[23] the Appellate Court succinctly summarized the principles that govern this issue, distinguishing between the holder of a note and a nonholder who is authorized to enforce it. A holder needs to produce the note and either an endorsement in blank to bearer, or a specific endorsement to the holder. Upon that showing, the burden shifts to the defendant to rebut the presumption that the holder owns the note. In such a case "the burden is on the defending party to provide sufficient proof that the holder of the note is not the owner of the debt, for example, by showing that ownership of the debt had passed to another party…. It is not sufficient to [point] to some documentary lacuna in the chain of...
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