Aldi, Inc. v. KLT (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE (# 109)

The defendant, KLT Industries, Inc., moves to strike all counts of the plaintiff, ALDI, Inc.'s, complaint on the grounds that Counts One and Two fail to state a claim for which relief can be granted because Article II of the Uniform Commercial Code, as codified in Connecticut General Statutes § 42a–1–101 through 42a–2–725, displaces common-law causes of action such as breach of contract, pled in Count One, and breach of the covenant of good faith and fair dealing as alleged in Count Two. KLT also claims that Count Three, alleging conversion, Count Four, alleging statutory theft, and Count Five, alleging a violation of the Connecticut Unfair Trade Practices Act, fail because the economic loss doctrine precludes recovery for tort claims which arise out of an alleged breach of a written agreement for the sale of goods.

“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.   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 ․ 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 and citations omitted.)  Novametrix Medical Systems, Inc. v. BOC Group, Inc., 224 Conn. 210, 214–5 (1992).

Counts One and Two

In Count One of the complaint ALDI claims that it entered into a written agreement with KLT in which KLT agreed to provide baled cardboard recycling services to ALDI. Pursuant to the agreement, KLT agreed to retrieve baled cardboard from ALDI's facility and to pay ALDI a percentage of the funds KLT received for the materials.   ALDI claims that for a number of months KLT removed baled cardboard from its facility but did not pay ALDI the payments due under the agreement.   In Count Two the plaintiff claims that KLT's refusal to fulfill its obligations under the agreement is a breach of the implied covenant of good faith and fair dealing implicit in the agreement.

KLT argues that the parties' agreement is for a sale of goods as defined in the UCC. General Statutes § 42a–2–105(1) defines “goods” as “all things, including specially manufactured goods, which are movable at the time of identification to the contract for sale ․” General Statutes § 42a–2–106(1) provides that “unless the context otherwise requires ‘contract’ and ‘agreement’ are limited to those relating to the present or future sale of goods.   ‘Contract for sale’ includes both a present sale of goods and a contract to sell goods at a future time.   A ‘sale’ consists in the passing of title from the seller to the buyer for a price ․”

ALDI claims that the contract is one for the provision of services and not the sale of goods and therefore the Uniform Commercial Code does not apply.  “To determine whether a contract including both goods and services is governed by the [UCC], the court must determine whether the dominant factor or ‘essence’ of the transaction is the sale of the materials or the services.”  (Internal quotation marks and citation omitted.)  Western Dermatology Consultants, P.C. v. Vital Works, Inc., 146 Conn.App. 169, 178 (2013).

KLT cites the decision in Huyler Paper Stock Co. v. Information Supplies Corp., 117 N.J.Super. 353 (1971), in support of its claim.   In discussing whether the statute of frauds' provision of the UCC applied to an oral agreement by the defendant to sell all of its paper waste to the plaintiff for a period of time, the court held that it was an inescapable conclusion that the paper waste constitutes “goods” within the meaning of the UCC. The court also concluded that the contract was not to supply services but for the sale of goods.   The court noted that the contract “does contain an element of a service contract, i.e., the collection of the waste by plaintiff, the principal object of the agreement was the sale of the waste by defendant to plaintiff.   No separate charge was made by plaintiff for any service which was rendered, and the collection service was but a necessary incident to the sale and not the essence of the agreement.”  Id., p.360. The contract here is much the same as that discussed in Huyler.   Therefore, KLT claims, this court should conclude that the contract here is also for the sale of goods and not for services.   ALDI argues that the contract is clearly one for the provision of services and not for the sale of goods.   A review of the contract, attached to the complaint, however, does not support that argument.   The agreement states that:  “1) OCC # 11 bales:  KLT will pay ALDI High market price for New England (published monthly on The Yellow Sheet).  2) Stretch wrap bales:  KLT will pay ALDI market price when material available (Current market is $200 per ton) ․ 5) No pick up or transportation charges.”   The standard terms and conditions attached to the contract, and incorporated therein, state that KLT will provide “the following recycling services,” “KLT will pick up Customer's Cardboard and Plastics on a needed basis.”   It is clear from a reading of the contract, despite the use of the words “recycling services” and the reference to the “Location to be Serviced,” that the essence of the contract is the sale of ALDI's “bales” to KLT. Therefore the contract is subject to the UCC.

ALDI cites the decision in Little, Brown & Co. v. American Paper Recycling, 824 D.Sup. 11 (D.Mass.1993), in support of its claim that the contract here is one for services and not for the sale of goods.   But the facts there are clearly distinguishable from those here.   There, Little, Brown had an arrangement with the defendant whereby it would pick up books from Little, Brown for purposes of recycling and after the books were destroyed, the defendant paid Little, Brown ten dollars ($10.00) per ton for the usable weight of each shipment which was determined by weighing the paper after the books had been debound, i.e., once the book covers and bindings had been removed.   The defendant would provide Little, Brown with certified destruction reports after the books were destroyed.   It was undisputed that the defendant paid Little, Brown not for the value of the books as books, or for books with the restriction to recycle, but rather for the usable weight of each shipment after the books were destroyed.   The court concluded that this arrangement was not a contract for the sale of books, but rather a contract for services.   The court held that:  “I reach this conclusion based upon the facts that first, the parties agree that the books were consigned by Little, Brown to APR;  second, APR paid Little, Brown for paper, not books;  third, the contract price for the paper could not be determined until after the services had been rendered, i.e., once the book covers and bindings were removed;  and fourth, APR was contractually required upon request to certify that the services had been performed, i.e., that the books had been destroyed.”  Id., p. 16.   Here the contract between the parties does not provide that ALDI will be paid by KLT after the bales were recycled or what recycling services KLT would provide, other than that it would “pick up Customer's Cardboard and Plastics,” but states that KLT will pay ALDI for the bales.   Even the complaint here alleges that:  “Pursuant to the Agreement, KLT agreed to retrieve baled cardboard from ALDI's South Windsor, Connecticut facility and pay ALDI a percentage of the funds KLT received for the materials based on agreed market prices.”   (Complaint, paragraph 4.) The complaint also alleges that “KLT's failure and refusal to pay ALDI for baled cardboard removed from ALDI's premises during the months of March, April, May, and June 2011 is without justification and has caused ALDI to incur substantial monetary loss.”  (Complaint, paragraph 14.)   Although ALDI claims, in its brief in opposition to the motion to strike, that “KLT is not paying ALDI for the value of the cardboard as cardboard, but rather for the value of useable weight of the cardboard when recycled,” (Objection to Motion to Strike, p. 11), there are no facts alleged either in the complaint or apparent from the contract which support this claim.   Therefore, the motion to strike is granted as to Count One and Two because the claims here are governed by the UCC. “Article 2 [of the UCC] applies to all contracts for the sale of goods ․” (Citations omitted) Bead Chain Manufacturing Company v. Saxton Products, Inc., 183 Conn. 266, 270 (1981).

KLT also claims that the motion to strike should be granted because the complaint does not allege the acceptance element of a cause of action for breach under the UCC. However the complaint alleges that “from in or about October of 2009 through June of 2011, ALDI permitted KLT to remove bale cardboard from its South Windsor facility, with the expectation that KLT would pay ALDI the amount due under the Agreement in full and on a timely basis.”   Although it is a prerequisite to recovery that a seller establish acceptance by the buyer of goods sold and delivered, as well as the failure of the buyer to fulfill his payment obligation, those conclusions can be inferred from the facts alleged.   See, Swift & Company v. Rexton, Inc., 187 Conn. 540, 544 (1982).   Therefore the motion to strike is denied on this basis.

Counts Three, Four and Five

In Count Three of the complaint ALDI claims conversion;  in Count Four statutory theft;  and in Count Five, a violation of the Connecticut Unfair Trade Practices Act. KLT claims that the economic loss doctrine bars the claims set forth in these counts.

Subsequent to the briefing and presentation of oral argument on the motion, the Supreme Court issued its decision in Ulbrich v. Groth, 310 Conn. 375 (2013).   From this court's review of that decision it is clear that the Court has adopted the economic loss doctrine.   The Court stated:  “the economic loss doctrine bars negligence claims that arise out of and are dependent on breach of contract claims that result only in economic loss.”  Id., p. 410.   Therefore ALDI's claims in Counts Three and Four are barred by that doctrine and the motion to strike is granted as to those Counts.

However, the Court in Ulbrich held that “we conclude that the economic loss doctrine does not bar claims arising from a breach of contract, including a breach of a contract for the sale of goods covered by the UCC, when the plaintiff has alleged that the breach was accompanied by intentional, reckless, unethical or unscrupulous conduct ․ To the extent that this court concluded in Flagg Energy Development Corp. v. General Motors Corp., supra, 244 Conn. 126, that the economic loss doctrine barred the plaintiffs' CUTPA claim in that case because the claim was premised entirely on allegations that the defendant negligently had breached the contract, with no claim of aggravating circumstances, we now recognize that there simply is no need to apply the economic loss doctrine to bar such CUTPA claims because CUTPA was not intended to provide a remedy for such claims in the first instance.”  (Footnote and citation omitted.)  Id., p. 412–3.   Therefore the economic loss doctrine does not bar the plaintiff's CUTPA claim and the motion to strike is denied as to that Count.¹

Conclusion

For the foregoing reasons, the Motion to Strike is granted as to Counts One, Two, Three, and Four and denied as to Count Five. However, in light of the fact that the parties have not had an opportunity to address the impact of the Ulbrich decision on their positions on the motion to strike, the court will allow counsel, if they desire, three weeks, until December 13, 2013, to file simultaneous supplemental memoranda of law on its impact.   The court will then consider whether to revise its decision based on its review of the memoranda.

Jane S. Scholl, J.

FOOTNOTES

FN1. KLT did not claim, in its Motion to Strike, that the complaint failed to state a claim under CUTPA..  FN1. KLT did not claim, in its Motion to Strike, that the complaint failed to state a claim under CUTPA.

Scholl, Jane S., J.