Open Solutions, Inc. v. First Presidio Bank nka Big Bend Banks, N.A. (2012)

MEMORADUM OF DECISION ON MOTION TO STRIKE COUNTERCLAIMS

In this breach of contract action plaintiff, Open Solutions, Inc., seeks to recover annual maintenance fees and other moneys owed for providing data processing and information management services for defendant, First Presidio Bank n/k/a Big Bend Banks, N.A.

On September 16, 2011, the defendant filed a revised answer, special defenses and seven counterclaims claiming breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, breach of the implied warranty of fitness, breach of the implied warranty of merchantability, breach of express warranties and violations of Connecticut's Unfair Trade Practices Act (“CUTPA”).

On October 3, 2011, the plaintiff filed this motion to strike all of the defendant's counterclaims on the ground that they are either barred by the statute of limitations or are legally deficient.

-I-

Counterclaim One:  Breach of Contract

The first counterclaim alleges that the plaintiff breached the Agreement by failing to provide a properly functioning system, maintenance and technical support.   The plaintiff moves to strike portions of this counterclaim on the ground that certain purported damages are barred by the six-year statute of limitations.   The plaintiff claims any of the defendant's claims that accrued before June 28, 2005, are therefore time barred.   Aside from the fact that plaintiff should have filed its objection as a special defense, plaintiff seeks only to strike a portion of the special defense.

The weight of authority in the Superior Court is that only an entire count of a counterclaim or an entire special defense can be subject to a motion to strike, unless the individual paragraph embodies an entire cause of action or defense.   Vanstean–Holland v. Lavigne, Superior Court, judicial district of New London, Docket No. CV 08 5007959 (September 2, 2009, Martin, J.).

Motion to strike the first counterclaim is denied.

-II-

Counterclaim Two:  Breach of Implied Covenant of Good Faith and Fair Dealing

In its second counterclaim, the defendant alleges that the plaintiff breached the implied covenant of good faith and fair dealing by failing to meet its obligations under the Agreement and by failing, in bad faith, to promptly replace the defective operating system it provided.

The plaintiff seeks to strike only portions of the counterclaim, contending that the defendant's claim should be limited to the period between June 28, 2005, and January 2008, and that any claims for damages which accrued before June 28, 2005, should be stricken.   As discussed above, a motion to strike that seeks to strike only portions of a count is improper.

Moreover, the defendant appears to have properly pleaded a cause of action for breach of the covenant of good faith and fair dealing with all three of the essential elements alleged.   See Nationwide Mutual Ins. Co. v. Pasiak, Superior Court, complex litigation docket at Stamford–Norwalk, Docket No. X08 CV 08 4015401 (November 30, 2011, Brazzel–Massaro, J.).

Motion to strike the second counterclaim is denied.

-III-

Counterclaim Three:  Negligent Misrepresentation

In its third counterclaim, the defendant alleges that the plaintiff negligently misrepresented the capabilities of the data processing machines, licensed software, installation, training, maintenance and technical support.   The plaintiff moves to strike this counterclaim on the grounds that the claim is barred by the statute of limitations and is duplicative of the breach of contract counterclaim because the damages are contract-based.

The statute of limitations for a negligent misrepresentation claim may be either two or three years, depending on the circumstances.   See General Statutes §§ 52–577, 52–584.   However, a statute of limitations may be tolled by the continuing course of conduct doctrine.   The continuing course of conduct doctrine states that “[w]hen the wrong sued upon consists of a continuing course of conduct, the statute does not begin to run until that course of conduct is completed.”  Fichera v. Mine Hill Corp., 207 Conn. 204, 208, 541 A.2d 472 (1988).  “To support a finding of a ‘continuing course of conduct’ that may toll the statute of limitations there must be evidence of the breach of a duty that remained in existence after commission of the original wrong related thereto.   That duty must not have terminated prior to commencement of the period allowed for bringing an action for such a wrong.”  Id., 209.

In the present case, the allegations in the counterclaim are insufficient to establish a continuing course of conduct.   The third counterclaim incorporates paragraphs one through eight of the first counterclaim.   There are no allegations of continuing wrongful misrepresentations after those allegedly made which induced the defendant to enter into the Agreement.   Therefore, there are no allegations which would permit a tolling of the statute of limitations based on the continuing course of conduct doctrine.

Ordinarily, a claim that an action is barred by the lapse of the statute of limitations must be pleaded as a special defense, not raised by a motion to strike.

In the present case, however, it is patently clear that all of the facts necessary to the determination of the action's timeliness are apparent on the record.   The counterclaim alleges that the IMAGIC agreement was entered into on May 31, 2002;  that the plaintiff made misrepresentations that were material to the defendant's decision to enter into the Agreement;  that the plaintiff supplied false and incorrect information regarding its products and services to induce the defendant to enter into the Agreement;  that but for the false and incorrect information supplied by the plaintiff, the defendant would not have entered into the Agreement;  and that the defendant justifiably relied on the false and incorrect information supplied by the plaintiff to its detriment.

The material misrepresentations alleged in this case were made on or about May 31, 2002.   Thus, without deciding whether the two- or three-year statute of limitations should apply, the defendant's cause of action for negligent misrepresentation accrued, at the latest, on or about May 31, 2005, and is time-barred.

Motion to strike the third counterclaim is granted.

-IV-

Counterclaims Four and Five:  Breach of the Implied Warranties of Fitness and Merchantability

The fourth counterclaim alleges that the plaintiff breached its warranty that its products and services were fit for the intended purpose, pursuant to General Statutes § 42a–2–315.   The fifth counterclaim alleges that the plaintiff breached its warranty that its products were of merchantable quality, pursuant to General Statutes § 42a–2–314.   The plaintiff moves to strike these counterclaims on the grounds that the Uniform Commercial Code (“UCC”) does not apply because the Agreement between the parties is not a contract for the sale of goods, and even if the UCC did apply, the claims are barred by the four-year statute of limitations.

The Agreement is not part of the pleadings and any reference by the plaintiff to specific terms of the Agreement, not alleged in the pleadings, constitutes an improper speaking motion.   See Mercer v. Cosley, 110 Conn.App. 283, 292 n.7, 955 A.2d 550 (2008).   Moreover, as ruled above, only an entire count of a counterclaim or an entire special defense can be subject to a motion to strike, unless the individual paragraph embodies an entire cause of action or defense.   Since the plaintiff's motion to strike is not directed at the counterclaims in their entirety, but rather to any claims that accrued before June 28, 2007, it is concluded to be improper.   Motion to strike the fourth and fifth counterclaims is denied.

-V-

Counterclaim Six:  Breach of Express Warranties

The defendant alleges that, pursuant to the Agreement, the plaintiff expressly warranted its products to operate properly and to be free from defects, and that the manufacture, construction, design, assembly, installation and/or maintenance of the data processing machines and licensed software products were defective and failed to operate as promised.   The plaintiff moves to strike this counterclaim on the ground that it is barred by the six-year statute of limitations because these claims occurred before June 28, 2005.   The plaintiff also claims that the defendant cannot show, as a matter of law, that the plaintiff breached any express warranties.

As previously noted, the Agreement is not part of the pleadings and any reference by the plaintiff to specific terms of the Agreement, not alleged in the pleadings, is improper.

The motion to strike the sixth counterclaim is denied.

-VI-

Counterclaim Seven:  CUTPA

The defendant alleges that the plaintiff engaged in unfair and deceptive acts and practices in violation of General Statutes § 42–110(b) by supplying false and incorrect information to the defendant to induce it to enter into the Agreement, and by asserting, by way of an October 27, 2010 demand letter, that the defendant was liable for $34,882.59 in unpaid service fees that the plaintiff did not earn.

The plaintiff moves to strike this counterclaim, first, on the ground that the claim is barred by the three-year statute of limitations and secondly because the defendant has not alleged specific facts constituting aggravating factors within the meaning of CUTPA, and thirdly, to the extent that the claim is based on an alleged demand letter, the defendant cannot show that it suffered an ascertainable loss.

The defendant argues that the counterclaim is not barred by the three-year statute of limitations because the tortious conduct alleged in the counterclaim includes conduct that occurred as late as October 27, 2010.   Moreover, the defendant contends that the allegations are legally sufficient, asserting that it alleges far more than a simple breach of contract listing a long-standing course of immoral, unethical, unscrupulous and oppressive conduct by the plaintiff and finally that it has alleged a corresponding ascertainable loss.

As previously noted, ordinarily, a statute of limitations defense must be specially pleaded and may not be raised by a motion to strike.   Nonetheless, an exception exists when a statute gives a right of action which did not exist at common law, and fixes the time within which the right must be enforced.   A CUTPA action is a statutorily created cause of action which “may not be brought more than three years after the occurrence of a violation of this chapter.”   General Statutes § 42–110g(f).  Accordingly, a motion to strike based on statute of limitations may be properly considered in this case.

“Our courts narrowly interpret § 42–110g(f) and hold that the starting point for the running of the statute of limitations is upon the occurrence of the CUTPA violation and not upon its subsequent discovery by the injured party.”   Udolf 631, LLC v. Select Energy Contracting, Inc., Superior Court, judicial district of Hartford, Docket No. CV 09 5032387.   The counterclaim alleges that a CUTPA violation occurred on October 27, 2010, when the plaintiff issued a demand letter to the defendant seeking to recover fees that it did not earn.   The defendant filed an answer, special defenses and counterclaims on June 28, 2011, followed by its revised answer, special defenses and counterclaims on September 16, 2011.   The CUTPA claim is, therefore, not barred by the statute of limitations.   Additionally, the plaintiff's attempt to strike portions of the counterclaim is not appropriate.

In the present case, the counterclaim does allege more than a simple breach of contract.   It alleges that, in 2002, the plaintiff supplied false and incorrect information to induce the defendant to enter into the Agreement;  the plaintiff repeatedly failed or neglected to repair or replace its defective product;  and despite knowing that the defendant ceased using the plaintiff's product in 2008, the plaintiff sent a demand letter in 2010 and filed a lawsuit in 2011 seeking to recover fees for three years of services that it did not render.   These allegations are sufficient substantial aggravating circumstances to support a CUTPA claim.

Moreover, the counterclaim alleges that the defendant has sustained an ascertainable loss of money and property, including the cost of the replacement of the operating system, loss of use, loss of income and the costs of defending this action.   These allegations sufficiently allege that the demand letter and resulting lawsuit are the proximate cause of the defendant's loss in the form of costs of litigation.

Motion to dismiss the seventh counterclaim is denied.

In summary, plaintiff's motion to strike third counterclaim is granted.   Motion to strike all other counterclaims is denied.

Wagner, J.T.R.

Wagner, Jerry, J.T.R.