Source One Financial Corp. v. Road Ready Used Cars, Inc. (2014)

MEMORANDUM OF DECISION RE MOTION TO DISMISS (Motion # 104.00)

I. INTRODUCTION AND SUMMARY OF FACTS

The Plaintiff Source One Financial Corp. (Source One) commenced this action for replevin against the defendant Road Ready Used Cars, Inc. (Road Ready).   In its complaint, Source One alleges that on or about October 17, 2011, Christopher Laboy purchased a BMW car from Lopez Motors, LLC which he financed through Source One. The terms of the Retail Installment credit Agreement between Laboy and Lopez Motors, LLC provided for one hundred and three (103) weekly payments commencing on October 24, 2011 and granted Lopez Motors, LLC a security interest in the vehicle.   Upon assignment on or about the above contract date, Source One succeeded to Lopez Motors, LLC's security interest in the subject vehicle.   In December 2012, Laboy entered into an agreement for the purchase of another motor vehicle from the defendant Road Ready.   As part of this purchase Laboy traded the BMW purporting to transfer ownership of the vehicle to Road Ready.   Road Ready accepted transfer of ownership and custody of the BMW with knowledge of Source One's security interest.   Since December 2012, the contract has been in default, neither Laboy nor any other party having made the required payments.   Pursuant to Connecticut General Statute 52–515 et seq., Source One seeks replevin of the subject BMW.

The present issue concerns whether the defendant, Road Ready Used Cars, Inc., may assert counterclaims against the plaintiff, Source One Financial Corp., for breaches of the implied warranty of merchantability and the Magnusson–Moss Warranty Act where the defendant is a used car dealer that obtained the vehicle in question from a consumer, Christopher Laboy (Laboy), who traded it in toward the purchase of another vehicle.   As noted above, the plaintiff is a lender who financed Laboy's purchase of the vehicle and who is seeking to enforce its security interest against the defendant.   The defendant, in response, has asserted various counterclaims arising from the theory that the vehicle is not road worthy and was not worth the price that Laboy paid for it.

On July 23, 2013, the plaintiff filed a motion to dismiss counts nine and ten of the defendant's answer and counterclaim with supporting memorandum on the ground that the defendant lacked standing under the implied warranty of merchantability, General Statutes § 42a–2–314, because Laboy was not a merchant, and under the Magnusson–Moss Warranty Act, 15 U.S.C. § 2301–2312, because the defendant was not a consumer and Laboy was not a supplier.   In response, the defendant filed an objection to the motion to dismiss on October 16, 2013, and the plaintiff filed a reply memorandum on October 28, 2013.   Following argument on the issues at short calendar on December 16, 2013, the court took the matter on the papers.

APPLICABLE LAW

“[A] motion to dismiss ․ properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court.”  (Internal quotation marks omitted.)  Santorso v. Bristol Hospital, 308 Conn. 338, 350, 63 A.3d 940 (2013).  “Pursuant to the rules of practice, a motion to dismiss is the appropriate motion for raising a lack of subject matter jurisdiction.”   St. George v. Gordon, 264 Conn. 538, 545, 825 A.2d 90 (2003).  “[A]lthough related, the court's authority to act pursuant to a statute is different from its subject matter jurisdiction.   The power of the court to hear and determine, which is implicit in jurisdiction, is not to be confused with the way in which that power must be exercised in order to comply with the terms of the statute ․ [T]he distinction between challenges to the trial court's subject matter jurisdiction and challenges to the exercise of its statutory authority is not always clear.”  (Citation omitted;  internal quotation marks omitted.)   In re Jose B., 303 Conn. 569, 573–74, 34 A.3d 975 (2012).  “[T]he failure to allege an essential fact under a particular statute goes to the legal sufficiency of the complaint, not to the subject matter jurisdiction of the trial court.”  Id., 579.  “A court does not truly lack subject matter jurisdiction if it has competence to entertain the action before it ․ Once it is determined that a tribunal has authority or competence to decide the class of cases to which the action belongs, the issue of subject matter jurisdiction is resolved in favor of entertaining the action.”  (Citation omitted, internal quotation marks omitted.)  Amodio v. Amodio, 247 Conn. 724, 728, 724 A.2d 1084 (1999).   Where a motion is more properly a motion to strike rather than a motion to dismiss, a court may treat it as a motion to strike.   See Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 497, 815 A.2d 1188 (2003);  McCutcheon & Burr, Inc. v. Berman, 218 Conn. 512, 527, 590 A.2d 438 (1991).   The plaintiff's motion asserts that the defendant has failed to allege that it is a proper party under General Statutes § 42a–2–314 and the Magnusson–Moss Warranty Act. As it pertains to the failure to allege certain requirements under a statute, this claim is properly a motion to strike rather than a motion to dismiss for lack of subject matter jurisdiction, therefore the court will consider it as such.   Moreover, questions of lack of privity are generally the subject of motions to strike rather than motions to dismiss.

“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, supra, 262 Conn. 498.  “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);  see also Sturm v. Harb Development, LLC, 298 Conn. 124, 130, 2 A.3d 859 (2010) (motion must be denied where provable facts support a cause of action).  “Moreover [the court notes] that [w]hat is necessarily implied [in an allegation] need not be expressly alleged.”  (Internal quotation marks omitted.)   Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252, 990 A.2d 206 (2010).

As stated earlier, the plaintiff initially argued that the defendant was not covered by the implied warranty of merchantability and the Magnusson–Moss Warranty Act because the defendant is not a consumer and Laboy was not a merchant or supplier.   In response, the defendant asserted multiple theories.   It first stated that a motion to dismiss for lack of subject matter jurisdiction was improper as to only certain counts.   It then stated that as an assignee of title to the vehicle, it stood in Laboy's shoes and could assert any claims that he had.   Next, it contended that it was classically aggrieved in that it has suffered injury.   Finally, it argued that because it cannot resell the car as the car is not road-worthy, it is a purchaser of the vehicle like any other person.   In response, the plaintiff argued that it is proper for the court to dismiss individual counts for lack of subject matter jurisdiction and that the “standing in the shoes” doctrine does not apply to implied warranty claims, which require privity of contract.

As a preliminary matter, the court can readily dispose of the defendant's arguments that single counts cannot be dismissed for lack of subject matter jurisdiction and that it is classically aggrieved, as these arguments relate to subject matter jurisdiction rather than a motion to strike.   The remainder of this memorandum will consider whether the defendant and Laboy are proper parties per the statutes and whether the “standing in the shoes doctrine” applies to the facts of this case.   Finally, the court will examine the applicable law regarding the implied warranty of merchantability and the Magnusson–Moss Warranty Act and whether there is privity of contract.

Warranty of Merchantability under State and Federal Law

General Statutes § 42a–2–314 provides:  “(1) Unless excluded or modified as provided by section 42a–2–316, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.   Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

“(2) Goods to be merchantable must be at least such as (a) pass without objection in the trade under the contract description;  and (b) in the case of fungible goods, are of fair average quality within the description;  and (c) are fit for the ordinary purposes for which such goods are used;  and (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved;  and (e) are adequately contained, packaged, and labeled as the agreement may require;  and (f) conform to the promises or affirmations of fact made on the container or label if any.  “(3) Unless excluded or modified as provided by section 42a–2–316 other implied warranties may arise from course of dealing or usage of trade.”

“General Statutes § 42a–2–314 establishes that a warranty of merchantability from the seller to the buyer is implied in all contracts for the sale of goods.  ‘A breach of this warranty occurs, if at all, at the time of [the] sale ․ or when [the goods] leave the manufacturer's control.’   (Citations omitted.)  Criscuolo v. Mauro Motors, Inc., 58 Conn.App. 537, 546, 754 A.2d 810 (2000).”  (Footnote omitted.)   Kahn v. Volkswagen of America, Inc., Superior Court, judicial district of Stamford–Norwalk, Docket No. CV–07–5004090–S (February 13, 2008, Tobin, J.) (45 Conn. L. Rptr. 31, 35).   “The warranty of merchantability is the broadest and most important warranty in the Uniform Commercial Code. A warranty of merchantability is implied in any sale of goods by a merchant seller ․” (Internal quotation marks omitted.)   Criscuolo v. Mauro Motors, Inc., supra, 58 Conn.App. 545.

The Magnusson–Moss Warranty Act is contained in sections 2301–12 of the United States Code. The following sections are pertinent to the current issue.  “The term ‘implied warranty’ means an implied warranty arising under State law (as modified by sections 2308 and 2304(a) of this title) in connection with the sale by a supplier of a consumer product.”  15 U.S.C. § 2301(7).  “The term ‘supplier’ means any person engaged in the business of making a consumer product directly or indirectly available to consumers.”   15 U.S.C. § 2301(4).  15 U.S.C. § 2304 sets out federal minimum standards for warranties, including implied warranties, while 15 U.S.C. § 2308 prevents suppliers from disclaiming or modifying implied warranties, but neither alters who can enforce an implied warranty under state law.   Therefore, under the Magnusson–Moss Warranty Act, “state law, including privity requirements, governs implied warranties except where explicitly modified by Sections 2308 and 2304(a).”  Abraham v. Volkswagen of America, Inc., 795 F.2d 238, 249 (2d Cir.1986).   The defendants must therefore properly allege a claim under General Statutes § 42a–2–314 in order to assert a claim under the Magnusson–Moss Warranty Act.

The defendant has not alleged that Laboy is “a merchant with respect to goods of that kind ․”;  § 42a–2–314 and under the facts of this case no such conclusion can be reached.   Therefore, there is no implied warranty based on the transfer of the vehicle from Laboy to the defendant.   The defendant claims that insofar as this transfer was an assignment, rather than a sale, the defendant can assert an implied warranty between Laboy and the plaintiff.   The defendant asserts that it does not intend to resell the vehicle, therefore it should stand on the same footing as other buyers.   This argument, however, does not change Laboy's status as a non-merchant.   Moreover, as a sophisticated dealer in used vehicles the defendant is not necessarily entitled to the same protections as a retail consumer.

The court will next consider the defendant's assertion that it stands in Laboy's shoes with respect to the implied warranty because he assigned the title to it, and the plaintiff's assertion that the lack of contractual privity between the defendant and the plaintiff bars an implied warranty action.   As the defendant argues, there are a number of cases stating that an assignee stands in the shoes of an assignor.   See, e.g. Schoonmaker v. Lawrence Brunoli, Inc., 265 Conn. 210, 227–28, 828 A.2d 64, 79–80 (2003) ( [u]nder the hornbook law of assignments “[t]he assignee of a chose in action stands in the shoes of the assignor”);  Reynolds v. Ramos, 188 Conn. 316, 320 n.5, 449 A.2d 182 (1982) (general rule is that “[t]he plaintiff, as assignee of the mortgage, [stands] in the shoes of his assignor, with the same rights” (internal quotation marks omitted));  Fairfield Credit Corporation v. Donnelly, 158 Conn. 543, 548, 264 A.2d 547 (1969) (“[o]rdinarily an assignee of a contract takes it subject to all defenses which might have been asserted against the assignor”).   The above cases which apply the doctrine of standing in the shoes of another involve assignments of a chose in action, a contract, and a mortgage.   The defendant urges the court to apply the doctrine to assignment of title.   It has not, however, provided any case law on point as to this proposed application.

General Statutes § 14–179 provides in pertinent part that “[i]f an owner transfers his interest in a vehicle, other than by the creation of a security interest, he shall, at the time of delivery of the vehicle, execute an assignment and warranty of title to the transferee ․” American Jurisprudence provides that “[i]n the sale of a used vehicle, the operative fact in the transfer of title is the assignment of title rather than the registration of title, and failure to secure registration as required by statute does not void the sale of a vehicle.”  (Footnote omitted.)   7A Am.Jur.2d Automobiles and Highway Traffic § 33 (2014).   Black's Law Dictionary defines assignment as:  “A transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein.   It includes transfers of all kinds of property including negotiable instruments.   The transfer by a party of all of its rights to some kind of property, usually intangible property such as rights in a lease, mortgage, agreement of sale or a partnership.   Tangible property is more often transferred by possession and by instruments conveying title such as a deed or a bill of sale.”   Black's Law Dictionary, Abridged 5th Ed. (1983).  American Jurisprudence states that “An ‘assignment’ is a transfer of property or some other right from one person (the ‘assignor’) to another (the ‘assignee’), which confers a complete and present right in the subject matter to the assignee.   An assignment is a contract between the assignor and the assignee, and is interpreted or construed according to the rules of contract construction.”  (Footnotes omitted.)   6 Am.Jur.2d Assignments § 1 (2014).

The preceding definitions demonstrate that an assignment of title is the standard method of transferring ownership in a vehicle.   Whether that transfer is an outright sale or a trade-in as part of the purchase of a new vehicle, an assignment of title occurs.   In addition, the term assignment can be applied to any permanent passing of ownership, therefore the standing in shoes doctrine is no more applicable to an assignment of title than to any other sale of goods, absent controlling caselaw.   Any requirement of privity of contract between plaintiff and defendant which would normally apply in an implied warranty action is thus applicable.

“A warranty action ․ has a built-in limitation on liability ․ The limitation in a contract action comes with the agreement of the parties and the requirement that consequential damages, such as lost profits, be a foreseeable result of the breach ․ [W]here the loss is purely economic, the limitation derives from the requirements of foreseeability and of privity ․ Permitting recovery for all foreseeable claims for purely economic loss could make a manufacturer liable for vast sums.   It would be difficult for a manufacturer to take into account the expectations of persons downstream who may encounter its product.”  (Citations omitted.)  East River Steamship Corp. v. Transamerican Delaval, 476 U.S. 858, 874, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986).  “Privity of contract is defined as ‘[t]he relationship between the parties to a contract, allowing them to sue each other but preventing a third party from doing so.’   Black's Law Dictionary (9th Ed.2009).”   United Demolition & Reclamation Statewide Restoration Co. v. Altchem Environmental Services, Superior Court, judicial district of New Haven, Docket No. CV–10–6010528–S (December 6, 2011, Young, J.);   see also Loud v. Cimmino, Superior Court, judicial district of New Britain, Docket No. CV–09–5011214–S (February 22, 2010, Swienton, J.) [49 Conn. L. Rptr. 389].

In Garthwait v. Burgio, 153 Conn. 284, 289, 216 A.2d 189 (1965), the Supreme Court stated that there is a distinction between implied warranty enforceable in contract and implied warranty enforceable in tort, and stated that privity was necessary for implied warranty based in contract.   Where “the pleadings sound in contract rather than tort ․ a privity of contract between the parties must be shown.”  Koellmer v. Chrysler Motors Corp., 6 Conn.Cir.Ct. 478, 485, 276 A.2d 807 (1970), cert. denied 160 Conn. 590 (1971), citing Hamon v. Digliani, 148 Conn. 710, 716, 174 A.2d 294 (1961).   As a general rule, ‘in order to sustain an action for breach of express or implied warranty there has to be evidence of a contract between the parties, for without a contract there [can] be no warranty.’  Hamon v. Digliani, [supra, 148 Conn. 712].   Where a product is not sold to a plaintiff, there is no privity of contract.  Garthwait v. Burgio, [supra, 153 Conn. 286].”   Pro Con, Inc. v. Coastal Wall Systems, Inc., Superior Court, judicial district of Ansonia–Milford, Docket No. CV–04–0085523–S (Sept. 13, 2004, Shluger, J.) [37 Conn. L. Rptr. 875].   The General Statutes eliminates the privity requirement for product liability actions in General Statutes § 52–572n(b), but specifically states in General Statutes § 52–572n(c) that “purely commercial loss caused by a product is not harm and may not be recovered by a commercial claimant in a product liability claim.   An action for commercial loss caused by a product may be brought only under, and shall be governed by, Title 42a, the Uniform Commercial Code.” United Technologies Corp., Pratt & Whitney Division v. Saren Engineering, Inc., Superior Court, complex litigation docket at Waterbury, Docket No. X06 CV 02 0173135 (September 25, 2002, McWeeny, J.) (33 Conn. L. Rptr. 127, 128) (holding that privity requirement still applied to an implied warranty claim under § 42a–2–314 and § 42a–2–315 and striking implied warranty claims).

“Despite the trend in other jurisdictions to dispense with the privity requirement in contractual breach of implied warranty actions, Connecticut maintains the requirement except under limited circumstances which are not present in this case.”   Kahn v. Volkswagen of America, Inc., Superior Court, judicial district of Stamford–Norwalk, Docket No. CV–07–5004090–S (February 13, 2008, Tobin, J.) [45 Conn. L. Rptr. 31] (finding that lessee could not bring breach of implied warranty claim because any implied warranty existed between the manufacturer and the dealership-lessor).   In O & G Industries, Inc. v. Lafarge Building Materials, Inc., Superior Court, judicial district of Fairfield, Docket No. CV–06–5002572–S (January 22, 2010, Tyma, J.), a construction company bought limestone from a third party, then attempted to sue the limestone manufacturer;  the court struck implied warranty counts because Connecticut law requires privity for warranty based in contract, rather than in tort.

The court in Sylvan R. Shemitz Designs v. Newark Corporation stated that an implied warranty of merchantability claim should be stricken because ‘[t]he absence of privity of contract is fatal to a claim under Article 2 of the Uniform Commercial Code (UCC).   Shemitz does not allege either a contractual or a buyer-seller relationship with the Manufacturers ․ Article 2, which contains the warranty provisions of the UCC ‘applies to transactions in goods.’   When the parties in question do not have a buyer-seller relationship, Article 2 does not apply.”  Sylvan R. Shemitz Designs, Inc. v. Newark Corporation, Superior Court, judicial district of New Haven, Docket No. CV–05–5001029–S (May 24, 2006, Blue, J.) [41 Conn. L. Rptr. 440], reversed on other grounds in part, remanded in part, 291 Conn. 224, 967 A.2d 1188 (2009).   The Supreme Court did not reach the privity issue in Sylvan R. Shemitz Designs, Inc. v. Newark Corporation;  it concluded “that the trial court improperly granted the defendants' motion to strike the plaintiff's claim of strict liability under the act.   In light of that determination, we also conclude that the exclusivity provision of the act bars the plaintiff's claim of a breach of the implied warranty of merchantability under the UCC.” Sylvan R. Shemitz Designs, Inc. v. Newark Corporation, 291 Conn. 224, 230, 967 A.2d 1188 (2009).   Therefore, “the trial court properly granted the defendants' motion to strike the plaintiff's claim of breach of the implied warranty of merchantability ․ [and the Supreme Court] need not decide whether the trial court correctly concluded that the plaintiff had failed to state a legally cognizable claim of breach of the implied warranty of merchantability for lack of privity.”   Id., 230 n.9.

Several decisions by the United States District Court applying Connecticut law have suggested that there is an exception to the privity requirement.   In Quadrini v. Sikorsky Aircraft Division, 505 F.Sup. 1049, 1049–53 (D.Conn.1981) the federal district court applying Connecticut law stated that generally a breach of warranty action based in contract should be dismissed for lack of privity.   The court, however, held that there is an exception where the plaintiff has no other remedy.  Id. Likewise in Utica Mutual Ins. Co. v. Denwat Corp., 778 F.Sup. 592, 595–96 (D.Conn.1991), a federal district court applying Connecticut law held that it could dispense with the privity requirement for commercial losses where the plaintiff had no other recourse.   The court in United Technologies Corp., Pratt & Whitney Division v. Saren Engineering, Inc., supra, 33 Conn. L. Rptr. 128, stated that Quadrini was distinguishable because it dealt with personal injuries and that Utica was distinguishable “because the plaintiff was the insurer in a subrogation claim for a commercial entity that was in privity with the defendant manufacturer.”   In addition, the court in Hartford Casualty Ins. Co. v. PureTech Waters of America, LLC, Superior Court, judicial district of Hartford, Docket No. CV–11–6021419–S (March 30, 2012, Peck, J.) struck implied warranty counts for lack of privity even though this would leave the plaintiff “without a remedy for its commercial losses.   That result, however, is not grounds for extending the exception to the UCC privity requirement.”   Citing United Technologies Corp., Pratt & Whitney Division v. Saren Engineering, Inc., supra, 33 Conn. L. Rptr. 128.

The exception urged by the district courts does not appear to have made traction in the Connecticut Superior Court, or to have been adopted by a Connecticut appellate court in the twenty years since those cases.   Moreover, it is not apparent that the defendant in the present case lacks for alternative remedies.   The prevailing view among the judges of the Superior Court, based on sound dicta by the Supreme Court, is that a claim based on the implied warranty of merchantability requires privity between the parties.   The defendant has not articulated a legal basis for its suggestion that the assignment of title to an automobile brings it into privity with the original seller of the automobile, nor was the court able to find a basis through its own research.   Indeed, the prevailing view is that there is no privity between a purchaser of a used car and a prior dealer.   In Abraham v. Volkswagen of America, Inc., 795 F.2d 238, 247 (2d Cir.1986), the second circuit upheld the district court's dismissal of “implied warranty claims by owners who purchased used [vehicles] and whose claims are governed by the law of a state that requires privity to enforce an implied warranty.”   The case did not concern Connecticut law, but it demonstrates that under the law of several states purchase of a used vehicle does not put the purchaser in privity with the manufacturer.   See also Koellmer v. Chrysler Motors Corporation, supra, 6 Conn.Cir.Ct. 485–86 (purchaser of vehicle from dealership in privity with dealership, not with manufacturer);  Kahn v. Volkswagen of America, Inc., supra, 45 Conn. L. Rptr. 37 (lessor of vehicle not in privity with manufacturer).

CONCLUSION

Based on the above analysis, the court hereby grants the plaintiff's motion to strike the defendant's counterclaims for breach of the implied warranty of merchantability and the Magnusson–Moss Warranty Act.

SOMMER, J.

Sommer, Mary E., J.