Milford Hospital v. Kenneth R. Warren dba (2014)

MEMORANDUM OF DECISION

This is a decision on the defendant's motion to strike, dated October 8, 2013.   On August 8, 2013, the plaintiff, Milford Hospital, filed a six-count complaint sounding in breach of contract, breach of good faith and fair dealing, CUTPA, statutory theft, conversion, and unjust enrichment against the defendant, Kenneth R. Warren, dba, 2010 Marketing.

In his motion to strike, the defendant seeks to strike the third count which alleges violations of the Connecticut Unfair Trade Practices Act, (hereinafter “CUTPA”), C.G.S. § 42–110a et seq., and the corresponding prayers for relief.   The plaintiff filed a timely memorandum in opposition on November 26, 2013, and the matter was argued before the court on February 18, 2014.

In the first count of its complaint sounding in breach of contract, the plaintiff alleges as follows.   The plaintiff, Milford Hospital (“Hospital”), is a Connecticut non-stock corporation with a place of business in Milford, Connecticut.   The defendant, Kenneth R. Warren, resides in Connecticut and operated as a consultant providing public relations and advertising services using the trade name “2010 Marketing.”   In the spring of 1998, the defendant submitted a written proposal to the Hospital to provide public relations and marketing services, which involved the development of a major advertising campaign.   The defendant offered to perform various services in exchange for payment of a $4,800 monthly retainer by the Hospital.   As part of the defendant's offer, he proposed the following arrangement to cover the cost of out-of-pocket expenses associated with the services he provided to the Hospital:  “(c)osts include all basic materials, phone calls and faxes.   Major out-of-pocket costs such as advertising, brochure printing, photography and graphic design will be billed separately.   Each month is payable in advance.”

Thereafter, about April 1998, the parties entered into a contract based on the written proposal providing for payment to the defendant of a monthly retainer for his professional services relating to marketing and public relations (which retainer covered basic expenses for disbursements) and that “out-of-pocket expenses” would be “billed separately.”   The contract required the defendant to bill the Hospital separately for major out-of-pocket expenses incurred in connection with the professional services provided for under the retainer.   The contract did not authorize Defendant to be paid a markup or profit in addition to reimbursement for out-of-pocket expenses.   After the parties commenced their contractual relationship in the spring of 1998, the monthly retainer amount for payment of professional services was increased incrementally, at various times, up to $5,750.

The contractual relationship existed for approximately 13 years and, over the last approximately seven years alone, resulted in payment to the Defendant in excess of $1.1 million.   The majority of the invoices the Defendant submitted to the Hospital included for lump sum amounts represented to be out-of-pocket expenses.   The invoices did not break down, identify or otherwise delineate whether the “out-of-pocket” costs being charged to the Hospital included amounts for anything other than the actual cost of expenses and disbursements.   While the contract was in effect, the Hospital requested that the Defendant provide documentation to verify the amounts reflected for the out-of-pocket expenses included in the Defendant's invoices submitted to the Hospital, however, the defendant failed or refused to provide such documentation.   By refusing to provide the Hospital with documentation to support the amount of out-of-pocket expenses billed to the Hospital, the plaintiff alleges the defendant breached the contract, as well as the duty of good faith that the law implies in every contractual relationship.

Defendant routinely and improperly billed the Hospital for amounts in excess of out-of-pocket costs he incurred.   Instead, the defendant included inflated charges or a hidden “mark-up” for his own profit and gain in the expenses that he represented were nothing more than reimbursement for out-of-pocket costs he incurred in providing professional services to the Hospital.   Defendant routinely and improperly billed and collected from the Hospital for professional services for amounts in excess of the agreed monthly retainer without notice to or acceptance of any additional billing by the Hospital.   Defendant collected such amounts by falsely representing them as out-of-pocket costs when, in fact, the amounts billed included hidden cost and profit for professional services time.   Defendant billed the Hospital in advance for out-of-pocket costs on an estimated basis, but routinely and improperly failed to reimburse the Hospital when advance billed amounts exceeded actual out-of-pocket costs that he paid.

The plaintiff further alleges that the actions of the defendant constituted a breach of contract and a breach of the covenant of good faith and fair dealing implied in their contractual relationship.   In addition, the plaintiff alleges that the defendant's conduct in bilking the Hospital out of thousands of dollars was deceptive, willful, malicious, intentional and in wanton disregard of the Hospital's rights, and involved a long pattern of misconduct.

In the third count, the plaintiff re-alleges counts one and two and further alleges that the defendant was at all relevant times engaged in trade and commerce and committed unfair and deceptive trade practices in violation of Conn. Gen.Stat. § 42–110b, by engaging in a pattern and practice of misrepresenting his invoices as true and accurate, applying hidden mark-ups, by failing to true up estimates and by concealing these facts from the Hospital, within the meaning of Conn. Gen.Stat. § 42–110a.   As such, the plaintiff claims the defendant's unlawful conduct caused ascertainable loss to the Hospital.

In his October 8, 2013, motion to strike, the defendant argues that count three of the complaint fails to allege a valid CUTPA claim.   Specifically, he contends that the plaintiff has failed to allege any aggravating factors of egregious conduct to satisfy the cigarette rule for purposes of asserting a cause of action under CUTPA.

Practice Book § 10–39(a) provides in relevant part:  “Whenever any party wishes to contest (1) the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, 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 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, 262 Conn. 480, 498, (2003).  “[F]or the purpose of a motion to strike, the moving party admits all facts well pleaded.”  RK Constructors, Inc. v. Fusco Corp., 231 Conn. 381, 383 n.2, (1994).   Accordingly, “[i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Internal quotation marks omitted.)  Batte–Holmgren v. Commissioner of Public Health, 281 Conn. 277, 294 (2007).   Furthermore, the court must “construe the complaint in the manner most favorable to sustaining its legal sufficiency.”  (Internal quotation marks omitted.)  Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117, (2006).

II.

The defendant claims that count three of the complaint insufficiently alleges a claim under CUTPA.   The defendant claims that the plaintiff's allegations are merely a simple breach of contract claim cast as a CUTPA violation.

In determining whether the conduct as alleged in the complaint would otherwise meet the pleading requirements for a CUTPA cause of action, it “is well settled that in determining whether a practice violates CUTPA, we have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair:  (1)[W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive, or unscrupulous;  (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] ․ All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three ․” (Citations omitted;  internal quotation marks omitted.)  Harris v. Bradley Memorial Hospital and Health Center, 296 Conn. 315, 350 (2010).

“Not every contractual breach rises to the level of a CUTPA violation.”   Hudson United Bank v. Cinnamon Ridge Corp., 81 Conn.App. 557, 571 (2004).   Absent substantial aggravating circumstances a simple breach of contract is insufficient to establish a claim under CUTPA, Lydall, Inc. v. Ruschmeyer, 282 Conn. 209, 247 (2007).   While there are many Superior Court decisions, most holdings of sufficient aggravating circumstances center on misrepresentations made by the party breaching the contract.   See, e.g. Hoydic v. B & E Juices, Docket No. X08CV03–4010104S, Complex Litigation Docket at Stamford (February 27, 2008, Jennings, J.)

In the plaintiff's complaint, the Hospital alleges that the defendant did not break down, identify or otherwise delineate the “out-of-pocket” costs he submitted on his invoices to the hospital, and when requested to provide documentation to verify the amounts charged, the defendant failed or refused to provide such documentation.   Further, the plaintiff alleges a long pattern of misconduct that the defendant routinely and improperly billed the Hospital for amounts in excess of out-of-pocket costs he incurred and included inflated charges or a hidden “mark-up” for his own profit and gain.   In doing so, the defendant routinely and improperly billed and collected from the Hospital for professional services for amounts in excess of the agreed monthly retainer without notice to or acceptance by the Hospital.   Further, the plaintiff alleges the defendant billed the Hospital in advance for out-of-pocket costs on an estimated basis, but routinely and improperly failed to true up or reimburse the Hospital when advance billed amounts exceeded actual out-of-pocket costs that he paid.

The plaintiff's allegations that the defendant routinely inflated out-of-pocket expenses, adding a mark-up of his profit, failing to account for the expenses and failing to reimburse the hospital for over-estimated advanced billing, when taken in combination, are unfair, deceptive and unscrupulous.   As such the complaint alleges an actionable CUTPA claim.

Accordingly, the defendant's motion to strike count three is denied.

Matasavage, J.

Matasavage, Paul, J.