Kelly Carlson et al. v. Thomas Allegrini et al. (2011)

MEMORANDUM OF DECISION RE MOTION TO STRIKE # 107 SHORT CALENDAR JULY 11, 2011

The issue before the court is whether to grant the defendant's motion to strike counts five and six alleging negligent misrepresentation and intentional misrepresentation, respectively.

I

FACTS

On January 5, 2011, the plaintiffs, Kelly Carlson, Robert Carlson and Lynn Truglia, filed a complaint alleging, inter alia, that they sustained financial loss due to the negligent or fraudulent preparation of an appraisal by the defendant, Nocera, Dillon & Diorio, LLC.¹ The complaint consists of seven counts, but only counts five and six, alleging negligent and intentional misrepresentation, respectively, are directed at this defendant.   On March 21, 2011, the defendant filed the present motion to strike counts five and six on the grounds that the plaintiffs failed to plead a legally recognizable claim upon which relief may be granted.   The defendant also filed a memorandum of law in support of its motion along with evidentiary support.   On April 27, 2011, the plaintiffs filed a memorandum of law in opposition to the motion to strike along with evidentiary support.   The defendant filed a reply memorandum on July 7, 2011, and the plaintiffs filed a surreply on July 11, 2011.   The matter was heard on the July 11, 2011 short calendar.

II

DISCUSSIONAMotion to Strike Standard

“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).  “[The court takes] the facts to be those alleged in the complaint that has been stricken and we construe the complaint in the manner most favorable to sustaining its legal sufficiency ․ Thus [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied ․ Moreover ․ [w]hat is necessarily implied [in an allegation] need not be expressly alleged ․ It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ․ Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically.”  (Internal quotation marks omitted.)   Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252–53, 990 A.2d 206 (2010).

B

Background

The plaintiffs allege the following relevant facts.   In or about 1997, the plaintiffs' mother, Adeline Carlson, was sold an investment in Metro Mortgage Corporation (“Metro”) by Joseph Antonios and Deborah Michelson.   Thereafter, on or about June 2000, Joseph Antonios convinced Adeline Carlson to transfer her investment from Metro to The Private Mortgage Fund, LLC (“PMF”).  The investment in PMF was in the form of a promissory note from PMF to Adeline Carlson.   In July 2008, Joseph Antonios met with Adeline Carlson to convince her to transfer her promissory note from PMF to a specific commercial property in Waterbury, Connecticut.   The promissory note was assigned to 651 and 659 East Main Street, Waterbury, Connecticut (“the property”).

The property had been taken back from another borrower/owner on October 4, 2007, for failure to pay the mortgage.   The property was transferred in lieu of foreclosure.   The property was, thereafter, transferred to PMF Sandisfield, LLC (“PMF Sandisfield”), a company that Joseph Antonios and PMF used to take back problem properties and “try to get rid of them.”

On August 13, 2009, Adeline Carlson passed away.   Probate was completed on September 3, 2010.   Adeline Carlson left the promissory note/investment to her three heirs, the plaintiffs.   It was the determination of the administrator of the estate, plaintiff Kelly Carlson, that the status of the promissory note was highly risky and in question.   The accounting records of PMF listed the promissory note as a second mortgage on the property.   Joseph Antonios stated that the second mortgage would be executed and filed once the refinancing was complete.   To induce the plaintiffs' cooperation in effecting the refinancing, Joseph Antonios provided the plaintiffs with, inter alia, an appraisal of the property performed by the defendant.   The defendant searched the land and transfer records and ascertained that the property was owned by PMF Sandisfield.   The appraisal, however, failed to explain that the transfer from the previous owner was a transfer in lieu of foreclosure for failure to pay.   As a result of the appraisal, the plaintiffs agreed to extend their promissory note based upon the value and information contained in the appraisal.

C

Analysis1Count 5:  Negligent Misrepresentation

The defendant moves to strike count five alleging negligent misrepresentation arguing that (a) General Statutes § 36a–755(d) provides a statutory bar because no privity exists between the plaintiffs and the defendant with respect to the appraisal;  and (b) the plaintiffs failed to plead facts that establish the defendant owed the plaintiffs a duty of care, and failed to allege any contact, dealings or communications with the defendant.

(a)

General Statutes § 36a–755(d)

The defendant contends that based on General Statutes § 36a–755(d) the superior courts have struck and/or dismissed claims against appraisers where the appraiser contracted with someone other than the person asserting a claim based on information contained in an appraisal report.   According to the defendant, the plaintiffs do not allege that they hired the defendant to perform the appraisal and therefore, because there is no privity between the plaintiffs and the defendant, the claim is barred by General Statutes § 36a–755(d).  In contrast, the plaintiffs contend that General Statutes § 36a–755(d) is not a bar to their claim because it does not relate to appraisals conducted on commercial property.   The plaintiffs argue that the language and intent of the statute clearly limits its application to residential real property.

No Connecticut court has addressed the specific issue of whether General Statutes § 36a–755(d) applies to appraisals on commercial property.

Whether the plaintiffs' claim for negligent misrepresentation is barred by General Statutes § 36a–755(d) is a question of statutory interpretation.   “Issues of statutory construction raise questions of law ․ The process of statutory interpretation involves the determination of the meaning of the statutory language as applied to the facts of the case, including the question of whether the language does so apply ․ When construing a statute [the court's] fundamental objective is to ascertain and give effect to the apparent intent of the legislature ․ In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply ․ In seeking to determine that meaning, General Statutes § 1–2z directs us first to consider the text of the statute itself and its relationship to other statutes.   If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered.”  (Internal quotation marks omitted.)   Middlesex Mutual Assurance Co. v. Komondy, 120 Conn.App. 117, 125, 991 A.2d 587 (2010).

“General Statutes § 36a–755 requires any financial institution that charges a mortgage loan applicant a fee for a real estate appraisal to provide the applicant with a copy of the report under certain conditions.”   Leonard–Anthony Associates, LLC v. Sherman Gardens, LLC, Superior Court, judicial district of New Haven, Docket No. CV 08 5018651 (June 29, 2009, Cronan, J.).  General Statutes § 36a–755(d) provides:  “Any person who prepares such appraisal report shall not be liable to any person with whom the preparer has not contracted to make such appraisal report for opinions or facts stated in or omitted from such appraisal report, unless such statement or omission results from intentional misrepresentation.”   The key language is “such appraisal report.”

General Statutes § 36a–755(b) provides in relevant part:  “Any financial institution which directly or indirectly imposes a fee on any applicant for an appraisal on real property to secure a mortgage loan shall make available to such applicant at no charge a copy of the appraisal report ․” General Statutes § 36a–755(a)(3) defines “mortgage loan” as “a loan to be secured by a mortgage on one, two, three or four family residential real property, including a unit of a condominium.”   Consequently, based on the plain language of the statute, the appraisal report referenced in subsection (d), is an appraisal report on real property for the purpose of securing a mortgage loan, which is a mortgage on residential real property.   The definition of “mortgage loan” limits the protections of subsection (d) to appraisals on residential real property only, and excludes appraisals conducted on commercial property.  “It is a well established principle of statutory interpretation that [the court] cannot accomplish a result that is contrary to the intent of the legislature as expressed in the [statute's] plain language ․ [A] court must construe a statute as written ․ Courts may not by construction supply omissions ․ The intent of the legislature, as this court has repeatedly observed, is to be found not in what the legislature meant to say, but in the meaning of what it did say.”  (Internal quotation marks omitted.)  State v. Rodriguez–Roman, 297 Conn. 66, 80–81, 3 A.3d 783 (2010).

In the present case, the parties do not dispute that the property at issue is commercial, not residential.   Therefore, General Statutes § 36a–755(d) does not apply to the plaintiffs' negligent misrepresentation claim.

(b)

Elements of Negligent Misrepresentation

“The Supreme Court has long recognized liability for negligent misrepresentation.  [It has] held that even an innocent misrepresentation of fact may be actionable if the declarant has the means of knowing, ought to know, or has the duty of knowing the truth ․ The governing principals [of negligent misrepresentation] are set forth in similar terms in § 552 of the Restatement (Second) of Torts (1977):  One who, in the course of his business, profession or employment ․ 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 ․ Traditionally, an action for negligent 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 ․ Since the rule of liability ․ is based upon negligence, the [defendant] is subject to liability if, but only if, he has failed to exercise the care or competence of a reasonable man in obtaining or communicating the information ․ 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 ․ [A] failure to disclose can be deceptive only if, in light of all the circumstances, there is a duty to disclose ․ 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.”  (Citations omitted;  internal quotation marks omitted.)   Mada Realty, LLC v. Quinnipiac Bank and Trust Co., Superior Court, judicial district of New Haven, Docket No. CV 08 5022794 (January 14, 2011, Burke, J.).

In the present case, the defendant first argues that the plaintiffs failed to allege that the defendant owed them a duty of care.   According to the defendant, the plaintiffs have not alleged privity of contract with the defendant.   Rather, the plaintiffs allege that the defendant was retained by Joseph Antonios, PMF or PMF Sandisfield, and Thomas Allegrini, Michael Allegrini and Toma Properties, LLC. Additionally, the plaintiffs have not alleged that the harm alleged was foreseeable by the defendant.   Specifically, the plaintiffs did not allege that they had any contact with the defendant, that the defendant prepared the appraisal for them, or that the defendant communicated any of the information contained in the appraisal to the plaintiffs.   Rather, the plaintiffs allege only that they were defrauded by the other named defendants in order to get the plaintiffs to extend the timeframe on the promissory note and agree to the refinancing of the property.   The plaintiffs did not allege that the defendant had any role in, or knowledge of, the alleged fraud and did not plead facts that would establish that it was foreseeable that Joseph Antonios would show the appraisal report to the plaintiffs in an attempt to induce them to extend the promissory note and agree to a refinancing of the property.   In contrast, the plaintiffs argue that the duty of care arises by virtue of General Statutes § 20–504, which requires licensed appraisers to follow the Uniform Standards of Professional Appraisal Practice (“USPAP”).²

“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).

In the present case, the plaintiffs allege that the defendant is an appraiser.  General Statutes § 20–504 requires licensed appraisers to follow USPAP.   USPAP requires that an appraiser “identify and consider the intended use and intended users” of the appraisal.³  An “intended user” is defined as “the client and any other party as identified, by name or type, as users of the appraisal ․ by the appraiser on the basis of communication with the client at the time of the assignment.” ⁴  Accordingly, construing the allegation most favorably to the plaintiff and sustaining the legally sufficiency of the complaint, the plaintiffs have sufficiently pleaded a duty of care.

Next, the defendant contends that the plaintiffs failed to plead sufficient facts to support the other elements of negligent misrepresentation.   Specifically, the plaintiffs failed to allege that the defendant communicated a misrepresentation to them or that they had any contact or dealings with the defendant.

“Traditionally, an action for negligent 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.”  Mada Realty, LLC v. Quinnipiac Bank and Trust Co., supra, Superior Court, Docket No. CV 08 5022794.   The plaintiffs' complaint alleges the following relevant facts:  (1) In the appraisal, the defendant did not disclose the transfer from the previous owner as a transfer in lieu of foreclosure;  (2) the defendant knew or should have known this transfer in lieu of foreclosure is substantially similar to foreclosure and is an unusual condition that significantly effects valuation and professionally requires disclosure;  (3) the plaintiffs reasonably relied upon the appraisal and the related misrepresentation;  and (4) the plaintiffs have suffered monetary losses.

The Court finds that the plaintiffs have sufficiently pleaded the elements of negligent misrepresentation by way of omission and therefore the motion to strike count five is denied.

2

Count Six:  Intentional Misrepresentation

“In contrast to a negligent representation, [a] fraudulent representation ․ is one that is knowingly untrue, or made without belief in its truth, or recklessly made and for the purpose of inducing action upon it ․ [A]t common law, fraudulent misrepresentation and intentional misrepresentation are the same tort ․ The essential elements of an action in fraud ․ are:  (1) that a false representation was made as a statement of fact;  (2) that it was untrue and known to be untrue by the party making it;  (3) that it was made to induce the other party to act on it;  and (4) that the latter did so act on it to his injury.”  (Citations omitted;  internal quotation marks omitted.)  Leonard–Anthony Associates, LLC v. Sherman Gardens, LLC, supra, Superior Court, Docket No. CV 08 5018651.

The defendant argues that the plaintiffs failed to allege any communication by the defendant to the plaintiff made to induce the plaintiffs' reliance.   Rather, the plaintiffs only alleged that the other defendants in the case utilized an appraisal report prepared by the defendant in the perpetration of a fraud.   There are no allegations that the defendant had any role in the alleged fraudulent scheme.   The plaintiffs disagree.

The plaintiffs allege the following relevant facts.   The defendant prepared an appraisal for Joseph Antonios, PMF or PMF Sandisfield, and Thomas Allegrini, Michael Allegrini and Toma Properties, LLC for the purpose of refinancing and inducing investors to finance the property.   The defendant has a long-term relationship with Joseph Antonios and PMF or PMF Sandisfield and knew of their general business practices and the manner in which they operated.   The defendant knew that PMF Sandisfield is used by Joseph Antonios and PMF to take back properties and “get rid of them.”   The defendant searched the land records and transfer records and knew or should have known of the transfer.   The defendant did not disclose the transfer from the previous owner as a transfer in lieu of foreclosure for failure to pay.   The defendant knew this transfer in lieu of foreclosure is substantially similar to foreclosure and is an unusual condition that significantly effects valuation and professionally requires disclosure.   The defendant knew and failed to disclose this fact.   The defendant knew that the appraisal would be used by investors to make decisions.   The plaintiffs reasonably relied upon the appraisal and the related misrepresentation and suffered money losses.

The plaintiffs have pleaded that the purpose of the appraisal was to induce the plaintiffs to agree to refinancing of the property and an extension of the promissory note.   The plaintiffs have also pleaded that because of the defendant's relationship with Joseph Antonios and PMF or PMF Sandisfield, the defendant knew the purpose of the appraisal.  “If any facts provable under the express and implied allegations in the plaintiff's complaint support a cause of action ․ the complaint is not vulnerable to a motion to strike.”  Bouchard v. People's Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991).   Accordingly, the plaintiffs have pleaded sufficient facts, if proven to support a cause of action for intentional misrepresentation.   Therefore, the motion to strike count six is denied.

BY THE COURT,

Roche, J.

FOOTNOTES

FN1. Thomas Allegrini, Michael Allegrini, Toma Properties, LLC, Joseph Antonios and The Private Mortgage Fund, LLC are also named defendants but are not parties to the present motion to strike..  FN1. Thomas Allegrini, Michael Allegrini, Toma Properties, LLC, Joseph Antonios and The Private Mortgage Fund, LLC are also named defendants but are not parties to the present motion to strike.

FN2. In response, the defendant argues that the plaintiffs' reference to USPAP constitutes a speaking objection, which should be disregarded by the court.  “It is well established that a motion to strike must be considered within the confines of the pleadings and not external documents ․ We are limited ․ to a consideration of the facts alleged in the complaint.”   (Internal quotation marks omitted.)  Zirinsky v. Zirinsky, 87 Conn.App. 257, 268 n.9, 865 A.2d 488, cert. denied, 273 Conn. 916, 871 A.2d 372 (2005);  see also Rowe v. Godou, 209 Conn. 273, 278, 550 A.2d 1073 (1988).  “A speaking motion to strike is one improperly importing facts from outside the pleadings.”  Mercer v. Cosley, 110 Conn.App. 283, 292 n.7, 955 A.2d 550 (2008).   The complaint alleges that the defendant is an appraiser.   The plaintiffs were not required to reference in the complaint the standards of professional conduct that an appraiser is obligated, by statute, to comply with in order to counter the defendant's argument that there is no duty of care owed.  General Statutes § 20–504 states in relevant part:  “The Commissioner of Consumer Protection, with advice and assistance from the commission, may adopt such reasonable regulations ․ Such regulations ․ shall require any real estate appraiser to comply with generally accepted standards of professional appraisal practice as described in the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Standards Board of the Appraisal Foundation pursuant to Title XI of FIRREA.”   The court will consider the plaintiffs' argument..  FN2. In response, the defendant argues that the plaintiffs' reference to USPAP constitutes a speaking objection, which should be disregarded by the court.  “It is well established that a motion to strike must be considered within the confines of the pleadings and not external documents ․ We are limited ․ to a consideration of the facts alleged in the complaint.”   (Internal quotation marks omitted.)  Zirinsky v. Zirinsky, 87 Conn.App. 257, 268 n.9, 865 A.2d 488, cert. denied, 273 Conn. 916, 871 A.2d 372 (2005);  see also Rowe v. Godou, 209 Conn. 273, 278, 550 A.2d 1073 (1988).  “A speaking motion to strike is one improperly importing facts from outside the pleadings.”  Mercer v. Cosley, 110 Conn.App. 283, 292 n.7, 955 A.2d 550 (2008).   The complaint alleges that the defendant is an appraiser.   The plaintiffs were not required to reference in the complaint the standards of professional conduct that an appraiser is obligated, by statute, to comply with in order to counter the defendant's argument that there is no duty of care owed.  General Statutes § 20–504 states in relevant part:  “The Commissioner of Consumer Protection, with advice and assistance from the commission, may adopt such reasonable regulations ․ Such regulations ․ shall require any real estate appraiser to comply with generally accepted standards of professional appraisal practice as described in the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Standards Board of the Appraisal Foundation pursuant to Title XI of FIRREA.”   The court will consider the plaintiffs' argument.

FN3. USPAP, Statement on Appraisal Standards No. 9..  FN3. USPAP, Statement on Appraisal Standards No. 9.

FN4. Id..  FN4. Id.

Roche, Vincent E., J.