Patrick Wood v. LLC (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE (# 123)

The plaintiff, Patrick Wood, originally brought a six-count complaint against Capitol Specialty Insurance, Ltd., Capitol Specialty Insurance, RRG, Indemnity Insurance Corp., and Indemnity Insurance Corp., RRG (“the insurer defendants”), amongst others.   The insurer defendants filed a motion to strike all six counts, which motion was granted by the court by memorandum of decision dated May 9, 2013 (Adams, J.).   On May 13, 2013, the plaintiff filed an amended complaint, and on May 17, 2013, the plaintiff filed a second amended complaint.   Counts four, five and six of the second amended complaint are directed against the insurer defendants, and these defendants filed the instant motion to strike these counts.

The second amended complaint alleges, in pertinent part, that in 2007 the plaintiff was severely injured by the tortious conduct of three patrons of a nightclub known as “The Thirsty Turtle.”   The plaintiff brought suit against the defendants, Club, LLC (“Club”) and Post Road Entertainment d/b/a The Thirsty Turtle.  (“The initial litigation.”)   In 2010, the plaintiff obtained a judgment of $335,734.40 in the initial litigation.   During and prior to the initial litigation, some or all of individual or corporate defendants, as well as their attorneys, conducted themselves in a manner that lead the plaintiff to believe that “The Thirsty Turtle” was owned and/or operated by the defendant Club and, or, Post Road Entertainment.   Prior to the plaintiff's injuries, the insurer defendants issued a policy of insurance to “Club, LLC, The Thirsty Turtle, C/O Post Road Entertainment, 1200 Summer Street, Suite 302, Stamford, CT 06905.”   On February 3, 2011, counsel for the defendants to the initial litigation represented that the defendants are out of business and there are no available assets.   Counsel further represented that the only available insurance policy in the amount of $250,000 is reduced by defense costs.   In the fourth count, the plaintiff further alleges that the court in the initial litigation (Karazin, J.) granted the plaintiff's motion to terminate the automatic appellate stay of execution and ordered the insurer defendants to pay the insurance proceeds into escrow.   The insurer defendants have failed and refused to comply with the court's order.   The fourth count alleges that pursuant to General Statutes § 38a–321, the plaintiff is entitled to claim and pursue subrogation rights against the insurer defendants, and that the insurer defendants have breached its insurance contract with their insured.

The fifth count, seeking to state a claim for breach of the implied covenant of good faith and fair dealing incorporates the allegations of the fourth count and alleges various conduct of the insurer defendants, which was “not prompted by an honest mistake” but was “occasioned by the sinister and interested motive” of the insurer defendants.

The sixth count, which is framed as a breach of fiduciary duty also incorporates the allegations of the fourth count and alleges that the insurer defendants had a duty to act in the interests of their insureds and failed to do so in certain ways, presumably by failing to settle the initial litigation when they had the opportunity to do so.

DISCUSSION

“Whenever any party wishes to contest (1) the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted, or (2) the legal sufficiency of any prayer for relief ․ that party may do so by filing a motion to strike ․” Practice Book § 10–39.  “[The court takes] the facts to be those alleged in the complaint ․ and ․ construe[s] the complaint in the manner most favorable to sustaining its legal sufficiency.”  (Internal quotation marks omitted.)  New London County Mutual Ins. Co. v. Nantes, 303 Conn. 737, 747, 36 A.3d 224 (2012).  “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).  “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).

I

Count Four

In the fourth count, the plaintiff alleges that pursuant to General Statutes § 38a–321, he is subrogated to the rights of the insured defendants in the initial litigation to any right that the insured would have against its own insurance company to insist that the insurer pay the judgment against the insured.

General Statutes § 38a–321, commonly referred to as the direct action statute, provides in relevant part:  “Upon the recovery of a final judgment ․ for loss ․ on account of bodily injury ․ if the defendant in such action was insured against such loss ․ at the time when the right of action arose and if such judgment is not satisfied within thirty days ․ such judgment creditor shall be subrogated to all the rights of the defendant and shall have a right of action against the insurer to the same extent that the defendant in such action could have enforced his claim against such insurer ․” (Emphasis added.)

Accordingly, “[t]he three requisites of a cause of action under [the direct action statute] are (1) that the plaintiff has recovered a final judgment;  (2) that the judgment is against a person who was insured by the defendant against liability on it;  and (3) that the judgment remains unsatisfied.”  Skut v. Hartford Accident & Indemnity Co., 142 Conn. 388, 393, 114 A.2d 681 (1955).   “The intention of the [direct action statute] is to give the injured person the same rights under the policy as the assured ․ A party subrogated to the rights of an assured under [the direct action statute] obtains no different or greater rights against the insurer than the insured possesses and is equally subject to any defense the insurer may have against the assured under the policy.”  (Citations omitted;  internal quotation marks omitted.)  Brown v. Employer's Reinsurance Corp., 206 Conn. 668, 672–73, 539 A.2d 138 (1988).   See also Peck v. Public Service Mutual Insurance Company, 114 F.Sup.2d 51 (D.Conn.2000).

Notwithstanding the allegations of wrongdoing contained in the fourth count, many of which would seem to be superfluous to a subrogation claim pursuant to § 38a–321, the following is also alleged therein.   The plaintiff obtained a judgment in the Superior Court.   That judgment was on account of bodily injury.   The defendant in the initial litigation was insured against such loss or damage at the time when the right of action arose.   Such judgment has not been satisfied within thirty days of its rendering.

Nevertheless, an issue that requires discussion is whether the plaintiff has, as a matter of law, obtained a “final judgment,” according to § 38a–321.   The court concludes that such a Superior Court judgment is a “final judgment” for present purposes based on the following reasons.

First, the phrase “final judgment” is used in other legislative contexts, which define a Superior Court judgment as a final judgment.   For instance, General Statutes § 52–263, entitled “Appeals from Superior Court.   Exceptions,” provides that “if either party is aggrieved by the decision of the court ․ upon any question ․ of law arising in [a] trial ․ he may appeal to the court having jurisdiction from the final judgment of the court ․” (Emphasis added.)   Accordingly, in § 52–263 the legislature necessarily defined a Superior Court judgment as a “final judgment” because in that section a “final judgment” is the basis for, and thus precedes, the appeal.   In light of the well settled principle of statutory construction that “[w]e presume that laws are enacted in view of existing relevant statutes ․ because the legislature is presumed to have created a consistent body of law” (internal quotation marks omitted);  Hibner v. Bruening, 78 Conn.App. 456, 458–59 (2003);  the meaning of the term “final judgment” as used in § 52–263 should inform, if not dictate, its meaning under § 38a–321.

Second, courts in other jurisdictions have determined that a trial court judgment subject to an appeal is a final judgment for the purpose of defining a judgment creditor's subrogation rights.   For instance, in Gulf Ins. Co. v. Clarke, 902 S.W.2d 156, 158 (1995), a Texas appellate court considered the issue of “whether a third party can bring suit prior to the exhaustion of all appellate remedies on the underlying judgment.”   Drawing upon “the rule of section 13 of the Restatement (Second) of Judgments ․ that ․ judgments become final once the trial court loses plenary power over the judgment, regardless of whether the judgment is appealed”;  id., 159;  the court concluded that “a judgment is final for the purposes of bringing a third party beneficiary action against an insured's insurance company if the judgment disposes of all issues and parties in the case, the trial court's power to alter the judgment has ended, and execution on the judgment, if appealed, has not been superseded.”  Id., 160.   Importantly, in that case, “[n]o supersedeas bond was posted to suspend execution on the judgment pending the outcome of the appeal.”  Id., 157.   Similarly, in the present case, as alleged, in the initial litigation the automatic appellate stay of execution was terminated by the court (Karazin, J.).

Third, while a legitimate concern exists that an appellate court could enter a ruling vacating the underlying judgment, the court believes there are several ways in which the insurer defendants can protect themselves from having to pay a judgment in the direct action case only to have the judgment in the underlying case vacated on appeal.   For instance, the insurer defendants could request that the matter not proceed to trial until the underlying appellate proceedings conclude.   Taking such a measure could accommodate this court's other primary concern, i.e., the inherent unfairness to the plaintiff if he is made to wait until all appeals have been decided to litigate the issue of coverage (or the amount of coverage) that the defendant insurer provided if, ultimately, there is going to be a contest as to whether the insurer is obligated to pay the plaintiff's judgment against the insured.   In fact, the Texas court acknowledged these very concerns, stating that “if issue and claim preclusion were not effective until all avenues of appeal were exhausted, the victor in the first suit [would have] little incentive to go to trial in a subsequent suit, and the first suit loser [would have] every reason to procrastinate on appeal.”  (Internal quotation marks omitted.)  Id., 159.

The sum of these concerns, which attempts to balance the respective circumstances of all of the parties, is that while the insurer defendants may seek protection from the entry of a judgment in the direct action case prior to the exhaustion of appeals in the underlying case, the court will not strike the plaintiff's § 38a–321 subrogation claim thereby causing the plaintiff undue delay if the appeals in the underlying case are unsuccessful.

The insurer defendant's motion to strike count four is denied.

II

Count Five

In count five, the plaintiff essentially alleges facts that were alleged in the previously stricken (Adams, J.) sixth count of his prior complaint.   Additional allegations are that the insurer defendants' actions were “not prompted by an honest mistake” but “occasioned by the[ir] sinister and interested motive ․”

In Judge Adams' previous memorandum of decision, dated May 9, 2013, the court discussed the “split of authority among Superior Courts as to what factual allegations are sufficient to constitute the element of bad faith” and determined that “[w]hen ․ a plaintiff ․ allege[s] a cause of action for breach of the covenant of good faith and fair dealing [t]he failure to make insurance payments, by itself, does not establish a claim of lack of good faith.”  (Internal quotation marks omitted.)   Wood v. Club, LLC, Superior Court, judicial district of Stamford–Norwalk at Stamford, Docket No. CV–13–6016946 (May 9, 2013, Adams, J.T.R.).   The court determined that the allegations failed to meet this standard and granted the defendants' motion to strike count six, claiming bad faith.

“The law of the case doctrine provides that [w]here a matter has previously been ruled upon interlocutorily, the court in a subsequent proceeding in the case may treat that decision as the law of the case, if it is of the opinion that the issue was correctly decided, in the absence of some new or overriding circumstance.”  (Internal quotation marks omitted.)  General Electric Capital Corp. v. Rizvi, 113 Conn.App. 673, 681, 971 A.2d 41 (2009).

The court finds that the allegations in count five are substantially similar to those that Judge Adams previously ruled upon with respect to count six in the plaintiff's prior complaint.   The “new” allegations are mere conclusions and add no new underlying facts.   Accordingly, Judge Adams' decision is treated as the law of the case with respect to the plaintiff's claim of bad faith and the breach of fair dealing in its current form in count five.

The insurer defendants' motion to strike count five is granted.

III

Count Six

In count six, sounding in breach of fiduciary duty, the plaintiff alleges, in relevant part, that, pursuant to the terms of the insurance contract, the insurer defendant “controlled” the defense in the initial litigation, which placed the insurer defendant “in a position of superior power and knowledge” viz a viz the insureds.   Furthermore, the insurer defendants, despite having had “numerous opportunities to resolve the underlying litigation within the limits of the policy of insurance, thereby eliminating any potential exposure to its insureds,” failed to accept such settlement offers and, in doing so, “placed [its own] financial interests ahead of the interests of their insured in breach of their fiduciary duty to their insureds.”

In their memorandum in support of the motion, the insurer defendants argue that count six consists of the same allegations that Judge Adams previously determined failed to state a cause of action for bad faith, presumably, in counts four and six of the plaintiff's prior complaint.   The insurer defendants insist that, therefore, these allegations cannot properly be reasserted as a claim for breach of fiduciary duty.

At the threshold it should be noted that, with respect to this argument, the breach of fiduciary duty claim should be considered independent of any of Judge Adams' determinations contained in the court's memorandum of decision dated May 9, 2013.   The plaintiff had not yet pleaded his breach of fiduciary duty claim at that stage in the proceedings, and, thus, that claim was not before the court.   Breach of fiduciary duty is a cause of action that is distinct to claims of unfair settlement practices in violation CUIPA/CUTPA or breach of the covenant of good faith and fair dealing that is implied in contract negotiations.

“A fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other.   The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him.”  (Citations omitted.)  Dunham v. Dunham, 204 Conn. 303, 322 (1987), overruled on other grounds by, Santopietro v. New Haven, 239 Conn. 207, 213 (1996).

“To successfully allege a breach of fiduciary duty, the plaintiff must allege facts establishing two separate elements:  (1) the existence of a fiduciary duty, and (2) a breach of that duty, specifically, a breach of the duty of loyalty and honesty.   If allegations establishing either element are absent, the claim for breach of fiduciary duty will not survive a motion to strike.”   Seven Bridges Foundation v. Wilson Agency, Inc., Superior Court, judicial district of Stamford–Norwalk at Stamford, Docket No. CV 11 6009707 (March 2, 2012, Tobin, J.) (53 Conn. L. Rptr. 584).   The application of traditional principles of fiduciary duty have not been expressly limited to cases involving only fraud, self-dealing or conflict of interest, though those types of cases are the most common.   See Murphy v. Wakelee, 247 Conn. 396, 400, 721 A.2d 1181 (1998).  “[T]o survive a motion to strike a count framed as a breach of fiduciary duty, a pleader must allege facts which implicate the morality of [the defendant's] conduct.”   J.S.T. Development Corp. v. Vitrano, Superior Court, judicial district of New Britain, Docket No. CV 03 0521186 (June 22, 2004, McWeeny, J.) (37 Conn. L. Rptr. 590).  “Fiduciaries have an obligation to disclose all conflicts of interest to their principals.”   State v. Acordia, Inc., Superior Court, complex litigation docket at Waterbury, Docket No. X10 CV 07 4020455 S (Apr. 19, 2010, Dubay, J.) (49 Conn. L. Rptr. 709) (involving an insurance agent fiduciary).

The allegations of count six do not amount to a legally sufficient breach of fiduciary duty claim.   With respect to the second element that must be pleaded, i.e., a breach of the duty of loyalty and honesty, no dishonesty or disloyalty on the part of the insurer defendants, at least in their interactions with their insureds, is either expressly alleged or can reasonably be inferred.   Count six is devoid of any allegations to suggest that the insureds did not acquiesce in, or otherwise approve of, the insurer defendants' decisions to reject settlement offers.   Essentially, count six alleges that the insurer defendants merely decided to forgo a settlement and opt to proceed to a trial.   See eg.   Carford v. Empire Fire & Marine Insurance Co., judicial district of Fairfield at Bridgeport, CV065001946 (Aug. 12, 2012, Tyma, J.).   Nothing in the alleged facts gives rise to an implication that the insurer defendants acted in a manner that was disloyal or dishonest to their insured.¹

The insurer defendants' motion to strike count six is granted.

CONCLUSION

In summary, the motion to strike is denied with regard to count four, and the motion to strike is granted with regard to counts five and six.

GENUARIO, J.

FOOTNOTES

FN1. While it is axiomatic that jury verdicts can surprise parties and that juries can deliver verdicts substantially above or below the evaluations of parties or arbitrators, thereby creating an element of financial risk in going to trial, the defendant's insurer's rejection of plaintiff's offer of compromise at $30,000, and the arbitrator's decision at $50,849 in and of itself does not evidence bad faith or breach of fiduciary duty.   Indeed the plaintiff's valuation and the arbitrator's decision may well have bolstered a view of the insurer defendants that the likelihood of a verdict in excess of the policy limits was minimal.   In any event, more than rejection of a comparatively small offer of settlement is necessary to state a claim for breach of fiduciary duty and the sixth count is lacking in those essential allegations..  FN1. While it is axiomatic that jury verdicts can surprise parties and that juries can deliver verdicts substantially above or below the evaluations of parties or arbitrators, thereby creating an element of financial risk in going to trial, the defendant's insurer's rejection of plaintiff's offer of compromise at $30,000, and the arbitrator's decision at $50,849 in and of itself does not evidence bad faith or breach of fiduciary duty.   Indeed the plaintiff's valuation and the arbitrator's decision may well have bolstered a view of the insurer defendants that the likelihood of a verdict in excess of the policy limits was minimal.   In any event, more than rejection of a comparatively small offer of settlement is necessary to state a claim for breach of fiduciary duty and the sixth count is lacking in those essential allegations.

Genuario, Robert L., J.