LLP v. David T. Ryan (2011)

RULING OF MOTION TO STRIKE # 112

The plaintiff, Robinson & Cole, LLP, filed the seven-count complaint in this action on May 13, 2011.   On August 1, 2011, the defendant filed a motion to strike counts four and five of the complaint.   In count four, the plaintiff alleges the following facts.   The plaintiff is a limited liability partnership whose lawyers engage in the practice of law.   The defendant, David T. Ryan, was an equity partner in the plaintiff's firm until December 31, 2009.   On December 31, 2009, the parties entered into an employment agreement whereby the defendant would practice law as an employee of the plaintiff, effective January 1, 2010 through December 31, 2010.   Under the agreement, the defendant promised over the course of 2010 to transition his practice, and the matters in which he was engaged, to other attorneys in the plaintiff's firm.   Contrary to this agreement, the defendant engaged in deliberate and intentional efforts to take existing clients away from the plaintiff for his personal pecuniary benefit.

Specifically, it is alleged that the defendant engaged in unilateral discussions with several of the plaintiff's clients regarding his departure from the firm and seeking to have their matters transferred to himself.   In two of these matters, the defendant reviewed drafts of letters from certain clients discharging the plaintiff in favor of the defendant.   In addition, the defendant engaged in efforts to prevent some of the plaintiff's existing clients from sending new matters to the plaintiff and, instead, directed them to him.   The defendant deprived the plaintiff of the opportunity to be compensated for work that he performed because he failed to record the time he spent on certain client matters.   Furthermore, the defendant engaged in self-dealing conduct by using the plaintiff's property and confidential information for his own personal pecuniary benefit.   As the plaintiff's employee, the defendant owed the plaintiff a duty of loyalty.   By his conduct, the defendant breached his duty of loyalty to the plaintiff, and the plaintiff suffered damages as a result.

In count five, in addition to the allegations set forth above, the plaintiff alleges that the defendant engaged in unfair and deceptive conduct in violation of General Statutes § 42–110a et seq., which is the Connecticut Unfair Trade Practices Act (CUTPA), and, as a result, the plaintiff suffered ascertainable loss.¹

“Whenever any party wishes to contest ․ the legal sufficiency of the allegations of any complaint ․ or of any one or more counts thereof, to state a claim upon which relief can be granted ․ that party may do so by filing a motion to strike the contested pleading or part thereof.”  Practice Book § 10–39(a).  “In ruling on a motion to strike, the court is limited to the facts alleged in the complaint.   The court must construe the facts in the complaint most favorably to the plaintiff ․ If facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Internal quotation marks omitted.)  Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997).

I

COUNT FOUR:  DUTY OF LOYALTY

The defendant argues that count four of the complaint should be stricken because Connecticut's appellate courts have not explicitly recognized a breach of the duty of loyalty as a separate cause of action from breach of fiduciary duty.²  The plaintiff counters that both Connecticut law and the Restatement (Second) of Agency recognize a duty of loyalty that is separate and distinct from an action for breach of fiduciary duty.

It is unclear whether Connecticut appellate courts have explicitly recognized a cause of action for a breach of the duty of loyalty in the context of an employment relationship that is separate and distinct from the breach of fiduciary duty.   In News America Marketing In–Store, Inc. v. Marquis, 86 Conn.App. 527, 535, 862 A.2d 837 (2004), aff'd, 276 Conn. 310, 885 A.2d 758 (2005), the Appellate Court stated that “[a] party may recover for breach of loyalty in tort.”   In addition, several judges of the Superior Court have recognized a breach of the duty of loyalty that is separate from the breach of fiduciary duty since the News America Marketing In–Store, Inc. decision.   See Marinos v. Poirot, Superior Court, judicial district of Hartford, Docket No. CV 09 5029718 (February 10, 2011, Peck, J.) (granting summary judgment in favor of defendant with regard to breach of duty of loyalty because plaintiff did not submit evidence of specific, quantifiable harm as result of alleged breach);  Miller Foods, Inc. v. Schubert–Loughran, Superior Court, judicial district of Hartford, Docket No. CV 02 0815760 (May 20, 2009, Tanzer, J.) (considering separately claims of breach of duty of loyalty and breach of fiduciary duty).

In News America Marketing In–Store, Inc., Superior Court, judicial district of Stamford–Norwalk, Docket No. CV 00 0177440 (October 22, 2003, Rogers, J.), the plaintiff employer brought an action against a former employee and his current employer alleging, inter alia, that they breached a fiduciary duty by allegedly using confidential information to compete with the plaintiff.   The trial court discussed the duty of loyalty within the context of the action for a breach of fiduciary duty.   When addressing the breach of fiduciary duty claim, the trial court reasoned that an employee, as an agent of the employer, was a fiduciary within the scope of his agency.   The employer (principal) trusted that the employee (agent) would exercise good faith, loyalty and honesty toward the principal.   The trial court found, however, the plaintiff did not present any evidence that the defendant used confidential information to compete with the plaintiff prior to his resignation.   Although the plaintiff submitted evidence that the defendant solicited one of the plaintiff's employees for employment with the defendant's future employer, because the employee did not leave her employment with the plaintiff, there was no actual injury to the plaintiff.   The court held that because there was no actual loss to the plaintiff, the defendant had not breached a fiduciary duty.  Id.

On appeal the Appellate Court did not specifically discuss the breach of fiduciary duty claim,³ but instead addressed whether the trial court improperly concluded that the defendant did not breach his duty of loyalty because the plaintiff had not demonstrated specific harm, which the court held to be a necessary element of a cause of action for breach of the duty of loyalty.  News America Marketing In–Store, Inc. v. Marquis, supra, 86 Conn.App. 534.⁴  “The general principle for the agent's duty of loyalty according to the Restatement is that the agent must act solely for the benefit of the principal in matters connected with the agency.   The general duty of loyalty includes ․ the duty not to compete ․ and the duty not to disclose confidential information.”  (Internal quotation marks omitted.)  Id., 535.⁵  In reviewing the trial court's decision, the Appellate Court found that while the defendant had breached his duty of loyalty to the plaintiff when he solicited his co-worker for employment, the breach did not result in actual, monetary harm to the plaintiff, and therefore, was not actionable.  Id., 535–36.⁶

The court finds that both Connecticut law and sections of the Restatement (Second) of Agency support recognition of a duty of loyalty that is separate and distinct from a fiduciary duty.   In the present case, the plaintiff alleges that the defendant engaged in conduct, such as taking existing clients away from the plaintiff and attempting to prevent existing clients from referring new matters to the plaintiff, in which he was competing with the plaintiff for its clients.   Likewise, the plaintiff alleges the defendant disclosed confidential information relating to the representation of some of the plaintiff's clients as part of his efforts to take existing clients away from the firm for his own benefit.   This alleged conduct could be construed as a breach of the duty of loyalty owed by an employee/agent to an employer/principal, and is therefore legally sufficient to state a claim for breach of the duty of loyalty.   For the foregoing reasons, the motion to strike is denied as to count four of the complaint.

II

COUNT FIVE:  CUTPA

The defendant argues that count five of the complaint is legally insufficient to state a claim for a CUTPA violation because CUTPA does not apply to conduct occurring within an employment relationship.   With respect to count five, the plaintiff argues that CUTPA applies to unfair and deceptive conduct by an employee, and that the defendant's activities alleged in the complaint are legally sufficient to state a cause of action for a CUTPA violation.

The Connecticut Unfair Trade Practices Act, General Statutes § 42–110a et seq., provides that:  “No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”  General Statutes § 42–110b(a).  Section 42–110a(4) defines “trade” and “commerce,” as “the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state.”

The employment relationship between an employer and employee is not considered trade or commerce for the purpose of a CUTPA violation.   The Appellate Court first made this distinction in Quimby v. Kimberly Clark Corp., 28 Conn.App. 660, 670, 613 A.2d 838 (1992), where it found “the employer-employee relationship does not fall within the definition of trade or commerce for the purpose of an action under CUTPA.” ⁷  In Quimby, the plaintiff employee brought an action against the defendant employer seeking compensation for the defendant's alleged wrongful conduct in connection with the plaintiff's workers' compensation claim.   The plaintiff alleged that the defendant's mishandling of her workers' compensation claim constituted a CUTPA violation.   Id. In affirming the trial court's decision to grant the defendant's motion to strike, the Appellate Court agreed that the allegations were insufficient to support a cause of action for a CUTPA violation.  Id. “[A]lthough an employer may engage employees for the purpose of promoting trade or commerce, the actual employment relationship is not itself trade or commerce for the purpose of CUTPA.”  (Internal quotation marks omitted.)  Id.⁸

The Supreme Court in Larsen Chelsey Realty Co. v. Larsen, 232 Conn. 480, 656 A.2d 1009 (1995), limited the application of the Quimby decision and provided further guidance as to when a CUTPA violation can be found in the context of an employment relationship.   The court explained that “[t]he Appellate Court's decision in Quimby addressed only the applicability of CUTPA to acts occurring within the very limited confines of the employer-employee relationship.   The misconduct revolved entirely around administrative shortcomings and an intracompany workers' compensation dispute.”  Larsen Chelsey Realty Co. v. Larsen, supra, 232 Conn. 493.   In Larsen, the court found that the facts providing the basis for the plaintiff's CUTPA claim involved conduct occurring outside the narrow scope of the employer-employee relationship, and therefore the defendant could be subject to liability for a CUTPA violation.  Id. Specifically, the plaintiff employer, a real estate broker, alleged its former employee (Larsen) accepted a job offer with a competing real estate brokerage firm, solicited brokers from the plaintiff's firm, sent a letter to the plaintiff's clients and business contacts falsely stating that the plaintiff was merging with another real estate brokerage firm, and instructed the New Haven board of realtors that the plaintiff was ceasing operations.⁹  Id., 494.   The court found that “this case presents a fact pattern that involves a potentially viable cause of action under CUTPA because Larsen's allegedly tortious conduct was outside the scope of his employment relationship with the plaintiff.”  Id., 493–94.   As such, it was Larsen's conduct and activities, rather than his relationship with the plaintiff employer, that constituted a basis for his CUTPA liability.  Id., 492.¹⁰

Relying on Larsen, judges of the Superior Court have found that allegations of anti-competitive activities by the employee or former employee fall outside the scope of the employment relationship, and thus can provide the basis for a claim that the employee has violated CUTPA.   For instance, in Sabatasso v. Bruno, Superior Court, judicial district of New Haven at Meriden, Docket No. CV 03 0284486 (March 7, 2005, Tanzer, J.), the trial court denied a motion to strike the plaintiffs' CUTPA claim.   The plaintiffs, salon owners and operators, alleged in their complaint that after the termination of their employment, the defendants, the plaintiffs' former employees, contacted the plaintiffs' customers to solicit business, and solicited employees to leave plaintiffs' employ.   The court, relying on Larsen, found the defendants' alleged conduct fell outside the employer-employee relationship, and was thus subject to CUTPA liability.   See also ITech Consulting Partners, LLC v. Briand, Superior Court, judicial district of Danbury, Docket No. CV 02 0345540 (February 26, 2003, Comerford, J.) (34 Conn. L. Rptr. 184) (denying a motion to strike the plaintiff employer's count alleging a CUTPA violation after finding that allegations that its former employee solicited plaintiff's current and prospective customers and consultants constituted anti-competitive activities that fell outside the scope of an “intra-office employer-employee dispute”).

In the present case, the plaintiff has alleged the defendant engaged in deliberate and intentional efforts to take existing clients away from the plaintiff and to prevent existing clients from referring new matters to the plaintiff for his own personal pecuniary benefit.   The plaintiff alleges the defendant took specific actions, such as reviewing drafts of clients' letters discharging the plaintiff in favor of the defendant and failing to record his time spent working on matters for the plaintiff's clients, that constitute the type of anti-competitive activities referred to in Larsen and subsequent Superior Court decisions.   The conduct alleged by the plaintiff falls outside the scope of the employment relationship and provides a basis for a claim that the defendant has violated CUTPA.   Therefore, the plaintiff has stated a legally sufficient cause of action for a violation of CUTPA and the motion to strike is denied as to count five of the complaint.

CONCLUSION

In conclusion, Connecticut recognizes a cause of action for breach of the duty of loyalty that is separate and distinct from an action for breach of fiduciary duty, and the plaintiff has stated a legally sufficient cause of action for breach of the duty of loyalty.   The plaintiff has also stated a legally sufficient cause of action for a violation of CUTPA.   Therefore, the motion to strike is DENIED as to counts four and five of the complaint.

Domnarski, J.

FOOTNOTES

FN1. In the remaining counts, the plaintiff seeks declaratory judgment that the defendant's breach of the agreement excuses the plaintiff from complying with its obligations thereunder and that the defendant is not entitled to certain fees.   Further, it alleges claims against the defendant for breach of contract and breach of fiduciary duty..  FN1. In the remaining counts, the plaintiff seeks declaratory judgment that the defendant's breach of the agreement excuses the plaintiff from complying with its obligations thereunder and that the defendant is not entitled to certain fees.   Further, it alleges claims against the defendant for breach of contract and breach of fiduciary duty.

FN2. It is noted that in count three, the plaintiff alleges a cause of action against the defendant for breach of fiduciary duty..  FN2. It is noted that in count three, the plaintiff alleges a cause of action against the defendant for breach of fiduciary duty.

FN3. In fact, the Appellate Court stated the action brought by the plaintiff alleged a breach of the duty of loyalty, which, it stated, is “a common-law cause of action, independent of any statute.”  News America Marketing In–Store, Inc. v. Marquis, supra, 86 Conn.App. 534..  FN3. In fact, the Appellate Court stated the action brought by the plaintiff alleged a breach of the duty of loyalty, which, it stated, is “a common-law cause of action, independent of any statute.”  News America Marketing In–Store, Inc. v. Marquis, supra, 86 Conn.App. 534.

FN4. “One of the elements of a cause of action in tort for a breach of loyalty is actual harm, without which the cause of action is incomplete.”   News America Marketing In–Store, Inc. v. Marquis, supra, 86 Conn.App. 536.   The Appellate Court affirmed the trial court's finding that although the defendant breached his duty of loyalty by soliciting another employee while that employee was still employed by the plaintiff, there was no evidence of monetary harm, and therefore no cause of action for the breach.  Id., 535–36..  FN4. “One of the elements of a cause of action in tort for a breach of loyalty is actual harm, without which the cause of action is incomplete.”   News America Marketing In–Store, Inc. v. Marquis, supra, 86 Conn.App. 536.   The Appellate Court affirmed the trial court's finding that although the defendant breached his duty of loyalty by soliciting another employee while that employee was still employed by the plaintiff, there was no evidence of monetary harm, and therefore no cause of action for the breach.  Id., 535–36.

FN5. See also Restatement (Second), Agency § 393 (1958) (“[A]n agent is subject to a duty not to compete with the principal concerning the subject matter of his agency”)..  FN5. See also Restatement (Second), Agency § 393 (1958) (“[A]n agent is subject to a duty not to compete with the principal concerning the subject matter of his agency”).

FN6. In affirming the Appellate Court's judgment, the Supreme Court did not address the issue in question beyond stating that, as to the certified issue of whether the Appellate Court properly concluded that proof of injury is an essential element of a claim for breach duty of loyalty to an employer, the issue was “resolved properly in the Appellate Court's concise and well reasoned opinion ․ [W]e adopt it as a proper statement of the issues and the applicable law concerning those issues.”  News America Marketing In–Store, Inc. v. Marquis, 276 Conn. 310, 314, 885 A.2d 758 (2005)..  FN6. In affirming the Appellate Court's judgment, the Supreme Court did not address the issue in question beyond stating that, as to the certified issue of whether the Appellate Court properly concluded that proof of injury is an essential element of a claim for breach duty of loyalty to an employer, the issue was “resolved properly in the Appellate Court's concise and well reasoned opinion ․ [W]e adopt it as a proper statement of the issues and the applicable law concerning those issues.”  News America Marketing In–Store, Inc. v. Marquis, 276 Conn. 310, 314, 885 A.2d 758 (2005).

FN7. In its decision, the Appellate Court found persuasive the United States District Court's holding in Banerjee v. Robert, 641 F.Sup. 1093 (D.Conn.1986)..  FN7. In its decision, the Appellate Court found persuasive the United States District Court's holding in Banerjee v. Robert, 641 F.Sup. 1093 (D.Conn.1986).

FN8. The Supreme Court relied on Quimby in United Components, Inc. v. Wdowiak, 239 Conn. 259, 264–65, 684 A.2d 693 (1996), albeit without discussing the issue.   The court simply stated:  “[The plaintiff] argues that the trial court improperly determined that CUTPA was inapplicable to his claim because his claim involved an employer-employee relationship and did not rise to the level of trade or commerce cognizable under CUTPA ․ After scrutinizing the record and the plaintiffs' arguments and briefs, we find ample support for the trial court's determination.   We therefore conclude that the trial court properly found that there was no viable CUTPA claim.”  Id..  FN8. The Supreme Court relied on Quimby in United Components, Inc. v. Wdowiak, 239 Conn. 259, 264–65, 684 A.2d 693 (1996), albeit without discussing the issue.   The court simply stated:  “[The plaintiff] argues that the trial court improperly determined that CUTPA was inapplicable to his claim because his claim involved an employer-employee relationship and did not rise to the level of trade or commerce cognizable under CUTPA ․ After scrutinizing the record and the plaintiffs' arguments and briefs, we find ample support for the trial court's determination.   We therefore conclude that the trial court properly found that there was no viable CUTPA claim.”  Id.

FN9. The plaintiff also named H. Pearce Company, a competitor brokerage company who subsequently hired Larsen, as a defendant in the action.   The conduct of Larsen, however, is most relevant to the examination of CUTPA liability in the employment context..  FN9. The plaintiff also named H. Pearce Company, a competitor brokerage company who subsequently hired Larsen, as a defendant in the action.   The conduct of Larsen, however, is most relevant to the examination of CUTPA liability in the employment context.

FN10. The court concluded that a reasonable jury could have found that Larsen's anticompetitive activities implicated trade or commerce because “[t]hese activities implicated the services of both Larsen and the plaintiff as real estate brokers in the New Haven area and thus implicated trade or commerce under CUTPA.”  Id., 494..  FN10. The court concluded that a reasonable jury could have found that Larsen's anticompetitive activities implicated trade or commerce because “[t]hese activities implicated the services of both Larsen and the plaintiff as real estate brokers in the New Haven area and thus implicated trade or commerce under CUTPA.”  Id., 494.

Domnarski, Edward S., J.