LLC v. 555 LLC (2015)

MEMORANDUM OF DECISION ON MOTION (# 235) TO STRIKE COUNTS 1 AND 3 OF COUNTERCLAIM

The plaintiffs Ponemah Mills I, LLC, and Ponemah Mills II, LLC (“counterclaim defendants”), moved on November 11, 2014, to strike counts one and three of the counterclaim of defendants 555 South Mill, LLC, 575 South Mill, LLC, and O'Neill Group, Inc. (“counterclaimants”).  The counterclaimants filed an opposing brief and the counterclaim defendants filed a reply brief.   The motion was argued on January 1, 2015.

The counterclaim defendants move to strike count one of the counterclaim, for fraud, on two grounds.   First, they claim count one is barred by the economic loss doctrine.   Second, they claim count one fails to allege all the elements of fraud.   The counterclaim defendants move to strike count three only on the ground that it is barred by the economic loss doctrine.

A motion to strike contests the legal sufficiency of the allegations of a complaint—here, the counterclaim—to state a claim upon which relief can be granted.  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).   In ruling on a motion to strike, the court takes the facts to be those alleged, construed in favor of the legal sufficiency of the pleading.   See Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252–53, 990 A.2d 206 (2010) (complaint is construed broadly;  necessarily implied allegations are accepted as true).   On the other hand, allegations of opinion and legal conclusion are not deemed true.   See Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997).   The interpretation of pleadings is a question of law for the court.   Boone v. William W. Backus Hospital, 272 Conn. 551, 559, 864 A.2d 1 (2005).

Count one of the counterclaim has several questionable allegations, such as alleging that the counterclaim defendant Ponemah Mills I, LLC, entered into leases with tenants of the subject premises on the day of Ponemah Mills I's sale of 555 South Mill Street to the counterclaimants.   But the economic loss doctrine is not one of count one's present issues.  Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559 (1995), applies to tort claims that are independent of the counterclaimants' contract claim.  Ulbrich v. Groth, 310 Conn. 375, 404 (2013).   The economic loss doctrine does not bar fraudulent inducement claims.  Ulbrich v. Groth, supra, 310 Conn. 406.   Because fraud in the inducement of a contract by definition occurs prior to the formation of the contract, such fraud never constitutes a breach of the contract.  Id., quoting Budgetel Inns, Inc. v. Micros Systems, Inc., 8 F.Sup.2d 1137, 1147 (E.D.Wis.1998).   The gravamen of count one appears to be fraud in the inducement of the contracts on which the counterclaim defendants are suing the counterclaimants for foreclosure—particularly promises with the present intention not to perform those promises.  (That count two of the counterclaim is entitled “Fraudulent Inducement” does not mean that count one is superfluous because count two alleges a different area, or topic, of fraud.)   If the counterclaimants are able sufficiently to plead the elements of fraud in the inducement, the economic loss doctrine is no bar to such a claim.

However, the court has to say “appears to be fraud in the inducement” because the counterclaim defendants are correct that count two fails to allege facts showing all the elements of fraud.   See Sturm v. Harb Development, LLC, 298 Conn. 124, 142 (2010) (elements of fraud).   All that is alleged is that the counterclaim defendants “were fraudulent in that they induced the Defendants to purchase the property and with intent attempted to take the properties back by controlling the payment of rent through the relatives of the members of the Plaintiffs.”  (The allegation at paragraph 49 that the “lenders ․ have defrauded the Borrowers” is a conclusion of law adding nothing of fact.)

Count three of the counterclaim alleges negligent misrepresentations, active and by omission, concerning the environmental condition of the properties at 555 Norwich Avenue and 575–599 Norwich Avenue.   Though count three is weak regarding specifics, the only basis for the present motion as to it is the claimed bar of the economic loss doctrine.   Grounds not specified in a motion to strike may not be considered.  Gazo v. Stamford, 255 Conn. 245, 259, 765 A.2d 505 (2001).

A remedy for breach of contract and a remedy for negligent misrepresentation may be independent of each other.  Ulbrich v. Groth, supra, 310 Conn. 406.   The proper question is whether the pleader could win on his negligence claim and lose on his breach of contract claim.  Id., 310 Conn. 405.   The misrepresentations loosely alleged in count three (but not challenged on that ground) are alleged, in essence, to have been to induce the making of contracts, and therefore to precede the contracts.   See Ulbrich v. Groth, supra, 310 Conn. 406.   Because there is no other basis for finding count three depends on the contractual relationship into which the parties entered, Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126 (1998), does not apply.   See Ulbrich v. Groth, supra, 310 Conn. 404.   A plaintiff in a contractual relationship with a defendant can bring a claim for negligent misrepresentation alleged to have induced the plaintiff to enter into the contract.  Ulbrich v. Groth, supra, 310 Conn. 406.

The counterclaim defendants claim the counterclaimants are sophisticated and, therefore, should be held to their agreements including a provision of an agreement, paragraph (f) of “the 2008 P & S Agreement,” which provides as follows:

No Liability for Speculative Profits.  [Counterclaim defendants] shall not be liable to [counterclaimants] for any prospective or speculative profits, or special, indirect or consequential damages, whether based upon contract, tort or negligence or in any other manner arising from the transactions contemplated by this Agreement.

First, apart from the fact that the counterclaimants are not people but limited liability companies, whose inherent sophistication is hardly a matter of judicial notice, the court cannot find the counterclaimants sophisticated because to do so would be to go beyond the facts alleged.   See Zirinsky v. Zirinsky, 87 Conn.App. 257, 268 n.9, 865 A.2d 488, cert. denied, 273 Conn. 916, 871 A.2d 372 (2005).   Second, the court cannot find that “paragraph (f)” bars count three because to do so would be to interpret the agreement—a matter for the jury when there is any ambiguity—without the necessary context.   Most fundamentally, the court cannot find, and is skeptical as a matter of fact and of public policy of ever being able to find, that the counterclaimants contracted away their right to sue for fraud in the inducement of the contract claimed to bar their fraud claim.   Count three is not barred by the economic loss doctrine.

For the foregoing reasons, the counterclaim defendants' motion to strike is granted as to count one of the counterclaim and denied as to count three.

Cole–Chu, J.

Cole–Chu, Leeland J., J.