Opinion
No. X08-CV03-0196141S
September 22, 2009
Memorandum of Decision on Motions for Summary Judgment
This is a class action brought in by the four named plaintiffs on behalf of a class of some 1,500 Connecticut auto body shops against The Hartford Fire Insurance Company (the "Hartford"). The approved designated plaintiff class is all "Connecticut Licensed Auto Body Repair Shops, or licensed individuals, that have performed physical auto body repairs paid for directly or indirectly, partially or in full, by [The] Hartford as the result of auto mobile insurance policies issued by [The] Hartford." Artie's Auto Body, Inc., et al. v. The Hartford Fire Insurance Company [this case], 287 Conn. 208, 212 (2008). The plaintiffs, who seek money damages and injunctive relief, allege that the Hartford engaged in a pattern of unfair and deceptive acts and practices in violation of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq., ("CUTPA") and were unjustly enriched as a result of those practices. In summary, the plaintiffs allege that the Hartford through the use of incentives such as reduced deductibles or guarantees of repairs for the life of the vehicle has wrongfully steered its insureds and other insurance claimants to auto body repair shops favored by the Hartford (Direct Repair Providers or "DRPs") and part of the Hartford's Customer Repair Service Program (CRSP). It is also alleged that the Hartford through the use of positive and negative employee incentives has prevailed upon its own independent appraisers to establish an artificially low standard of hourly labor rates for auto body repair work in Connecticut to the damage and detriment of non-CRSP repair shops such as the plaintiffs. The first claim has been referred by the parties as the "steering claim" or the "shop selection claim"; the second as the "labor rate claim." Class action status has been granted by this court, affirmed on appeal. Artie's supra. This court recently ordered the creation of a subclass for purposes of the steering claim as it relates to both CUTPA counts and the unjust enrichment count consisting of all members of the class who were at any time during the class period (January 1, 2000 to date) a DRP shop of the Hartford but are not presently a DRP shop of the Hartford.
Now before the court are motions for summary judgment filed by both parties. The Hartford has moved for summary judgment on both the steering or shop selection claim and the labor rate claim (No. 266). The plaintiffs have moved for partial summary judgment on liability only on the labor rate claim (No. 273). This memorandum of decision will be the court's decision on both motions.
Both the steering claim and the labor rate claim are alleged in Count I as unfair practices under CUTPA, and in Count II as deceptive practices under CUTPA and in Count III as elements of the claim of unjust enrichment. But there is no authority for granting summary judgment for a defendant on just one "claim" of a count. See Electrical Contractors, Inc. v. City of Hartford, Docket No. CV04-0831259S (March 17, 2006, Scholl, J.), (A plaintiff need only prevail on one of multiple allegations of liability in a count, but a defendant, to be entitled to judgment on a count, must prevail on all allegations of liability made against him in that count; consequently there is no procedure under Connecticut law for granting summary judgment for a defendant on only some of the allegations contained in a count.) Consequently, failure to show entitlement to summary judgment on either claim of a count will be sufficient ground to deny summary judgment on that count, since granting of summary judgment solely on the other claim would be impermissible.
Standard of Decision
Summary judgment shall be rendered forthwith if the pleadings, affidavits and other proof submitted show that there is no genuine as to any material fact and that the moving party is entitled to judgment as a matter of law. Practice Book [§ 17-49] Alvarez v. New Haven Register, Inc., 249 Conn. 709, 714 (1999); Sherwood v. Danbury Hospital, 252 Conn. 193, 201 (2000). The moving party bears the burden of proving the absence of a dispute as to any material fact which, under applicable principles of substantive law, entitle him to judgment as a matter of law; and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. Rivera v. Double A Transportation, Inc., 248 Conn. 21, 24 (1999). "To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact." Witt v. St. Vincent's Medical Center, 252 Conn. 363, 373 n. 7 (2000).
In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party. The test is whether a party would be entitled to a directed verdict on the same facts. Sherwood v. Danbury Hospital, supra, at 201; Serrano v. Burns, 248 Conn. 419, 424 (1999). In Connecticut a directed verdict may be rendered only if, on the evidence viewed in the light most favorably to the nonmovant, the trier of fact could not reasonably reach any other conclusion than that embodied in the verdict as directed. United Oil Company v. Urban Redevelopment Commission, 158 Conn. 364, 380 (1969); Vuono v. Eldred, 155 Conn. 704, 705 (1967).
Discussion A. Defendant's Motion for Summary Judgment
The Hartford has moved for summary judgment on the CUTPA counts (Counts I and II) on the grounds that: (1) CUTPA's regulatory exemption, set forth at Conn. Gen. Stat. § 42-110c(a)(1) precludes the plaintiffs' CUTPA claims; (2) the class members who are not part of Hartford's direct repair program lack standing to assert claims under CUTPA; (3) with respect to plaintiffs' shop selection claims, the plaintiffs' CUTPA statutory construction and the relief they seek would violate the free speech protections that are guaranteed in the Connecticut and federal constitutions; (4) although only the "Substantial Injury Test" prong of the "Cigarette Rule" should be used to determine whether the claimed practices are "unfair", the plaintiffs are unable to meet their burden to satisfy the "Substantial Injury Test" or the "Cigarette Rule," (5) the record is devoid of any evidence that Hartford engaged in deceptive conduct as to its insureds or claimants; and (6) the class's claims based on the Connecticut Unfair Insurance Practices Act are meritless. The defendant has also moved for summary judgment on Count III (unjust enrichment) and Count IV (injunctive relief).
The first ground (CUTPA exemption for regulated conduct) was withdrawn at oral argument, and the court has already ruled on the second ground by holding that the class members have standing to raise CUTPA claims under the facts alleged. (Memorandum of Decision on Defendant's Claim of Lack of Standing, July 9, 2009.) The other grounds of the motion are addressed herein.
Freedom of Speech
This claim of defense goes to the steering or shop selection allegations of Counts I and II, where the plaintiffs allege that the Hartford has engaged in an unfair trade practice under CUTPA contrary to the public policy of Connecticut by "steering" its insured policy holders to specific auto body repair shops when there is damage to their vehicles by violating the prohibition of the so-called "anti-steering statute", Conn. Gen. Stat. § 38a-354 which provides, "(a) No automobile physical damage appraiser shall require that appraisals or repairs should or should not be made in a specified facility or repair shop or shops. (b) No insurance company doing business in this state, or agent or adjuster for such company shall require any insured to use a specific person for the provision of automobile physical damage repairs . . ." There is nothing in the record to indicate that the Hartford outright "requires" its insureds to use its DRP shops by refusing to pay for repairs unless they are performed at one of its DRP shops, but there is extensive evidence that the Hartford, through its Customer Care Team Specialists and others uses considerable persuasion on its insureds, starting with the very first call to report an accident, to have the repairs done at a Hartford DRP shop. That evidence will be discussed subsequently in conjunction with other grounds of the defendant's motion, but, for present purposes it must be noted the plaintiff argues that the defendant's persuasion tactics violate at least the "penumbra" of the statute and that the degree of control exercised amounts to a "de facto requirement" to use the DRP shops. The Hartford vigorously denies that there was any "requirement," but, focusing on the First Amendment issue, claims that in any event its persuasion tactics, being in the form of communications between the Customer Care Team Specialists and other Hartford employees and the Hartford's insured customers is commercial speech protected by the First Amendment of the U.S. Constitution and Article First, §§ 4, 5 and 14 of the Connecticut Constitution. As said in Defendant's memorandum in support of this motion at p. 28 ". . . [i]f the court were to construe CUTPA in the manner that the plaintiff's propose, and grant the relief they seek, that construction and relief would violate the free speech provisions of the federal and state constitutions."
"The First Amendment protects commercial speech from unwarranted government regulation." Metromedia, Inc. v. San Diego, 453 U.S, 490, 561, 101 S.Ct. 2882, 69 E.Ed.2d 800 (1981). "The protection available for particular commercial expression turns on the nature both of the expression and of the governmental interest served by its regulation." Id. 563. It has long been recognized, however, that "[t]he constitution . . . accords a lesser protection to commercial speech than to other constitutionally guaranteed expression." Central Hudson Gas v. Public Service Commission, 447 U.S. 557-562-63, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980). The Supreme Court in Central Hudson Gas has adopted a four-part test for determining the validity of government restrictions on commercial speech as distinguished from more fully protected speech:
Commercial speech that is neither unlawful nor misleading may be regulated by a government only if (1) the government asserts a substantial interest in support of its regulation; (2) the government demonstrates that the restriction on commercial speech directly and materially advances that interest; and (3) the regulation is "narrowly drawn" and not more excessive than necessary to serve the substantial government interest. Id. at 564-65.
Connecticut has adopted and applied the Central Hudson Gas standard in determining whether a challenged regulation impinges on commercial free speech protected by the First Amendment. Burns v. Barrett, 212 Conn. 176, 181-82 (1989).
The defendant cited three cases in support of its position that its right to constitutionally protected free speech would be infringed on the allegations made by the plaintiffs . . . One of them, Allstate Insurance Company v. Serio, No. 97 Civ. 0670 (RCC) No. 97 Civ. 0023 (RCC), 2000 U.S. Dist. LEXIS 6055 (S.D.N.Y. May 5, 2000), rev'd on other grounds, 293 F.3d 95 (2 Cir. 2002) was actually vacated by Judge Casey three years later when the case was remanded to him by the Second Circuit. Allstate Insurance Company v. Serio, [same docket numbers] 2003 WL 214118198 (S.D.N.Y., May 7, 2003) ("Because the Court of Appeals [the New York Court of Appeals in answering questions certified to it by the Second Circuit] ruled that Defendant's actions were not authorized by Section 2610b [New York statute], the issues in this case can be resolved on state law grounds. Following the principle that federal courts should address constitutional issues only as a last resort, this Court declines to address Plaintiff's First Amendment claims . . . Thus, this Court's order, issued May 5, 2000 hereby vacated and plaintiffs' claims are dismissed without prejudice." Id. 7.) The other two cited cases are Allstate Insurance Co. v. South Dakota, 871 F.Sup. 335, 358 (D.S.D., 1994), and Allstate Insurance Co. v. Abbott, No. 3:03-CV-2187-K, 2006 U.S. Dist. LEXIS 9342 (N.D.Tex., March 9, 2006.) In each of those cases the court invalidated on First Amendment Grounds a state statute which prohibited an insurance company from recommending a particular auto body shop or glass repair or replacement shop to an insured because there were less restrictive means of advancing the legitimate interest of the state in protecting consumers and fair competition in the marketplace ( Abbott) and maintaining policyholder choice of glass replacement services ( South Dakota) in the form of the state's anti-steering statute which prohibits the insurer from requiring the use of a particular shop or group of shops. "Consumers already have the protection of Texas' anti-steering law" Abbott, at 92. The holding of these cases is that the statutes prohibiting recommendation of a particular shop or shops fail the "narrowly drawn and not more excessive than necessary to serve the substantial government interest" prong of the Central Hudson Gas test, while anti-steering statutes which prohibit an insurer from requiring the use of a particular shop or shops do not. No case has been cited nor has the court found any case holding an anti-steering statute or any communication thereby proscribed to be violative of the First Amendment. Given that the plaintiff's steering claim under First Amendment challenge in this case is the claim of violation of public policy established by our anti-steering statute, or at least the penumbra of that statute, the First Amendment claim cannot support the granting of summary judgment for the Hartford.
"Inability to Meet the Burden of Showing a CUTPA Violation"
The defendant argues that plaintiff's claims of unfair and deceptive practices in violation of CUTPA fail as a matter of law because, based on the undisputed evidence, the plaintiff class cannot satisfy the standard for CUTPA liability.
CUTPA provides that "[n]o person shall engage in unfair methods of competition and unfair or deceptive practices in the conduct of any trade or commerce." Conn. Gen. Stat. § 42-110b(a). CUTPA is based on § 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45, and the courts of this state are to be guided by interpretations given by the Federal Trade Commission ("FTC") and the federal courts to § 5(a)(1) of the FTC Act. Conn. Gen. Stat. § 42-101b(b). The plaintiffs' Count I alleges unfair trade practices while Count II alleges deceptive trade practices.
The two counts will be considered separately.
Count I: Unfair Trade Practices
In defining an "unfair trade practice" our Supreme Court was guided by a 1964 FTC policy statement related to the requirement of warning labels on cigarette packaging, and adopted the so-called "cigarette rule" which asks:
(1) [w]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statute, the common law, or otherwise — whether, in other words, it is in 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 businessmen] . . . McLaughlin Ford, Inc. v. Ford Motor Company, 192 Conn. 558, 568 (1984).
The defendant points out, however, that the FTC has moved away from the first and second prongs of the "cigarette rule" and now uses the "substantial injury test" which defines an unfair practice as
(1) the practice must cause a substantial injury to consumers, competitors or other businessmen;
(2) the injury must not be outweighed by countervailing benefits to consumers or competition that the practice produces; and,
(3) it must be an injury that consumers themselves could not reasonably have avoided.
Commission Statement of Policy on the Scope of the Consumer Unfairness Jurisdiction (December 17, 1980) reprinted in In Re Int'l Harverster Company, 104 FTC 949, 979 app. (1984). Codified by Congress as § 45(n) of the FTC Act (defining the FTC's power to declare a practice illegal as an unfair trade practice.)
The defendant therefore asks this court to weigh the plaintiffs' CUTPA case exclusively against the FTC "substantial injury test" and not against the three prong "cigarette rule." The court declines to do so. The cigarette rule has consistently been used by the appellate courts and trial courts in Connecticut before and after the 1984 FTC policy statement and the Connecticut legislature has not amended CUTPA to codify that policy statement as did the U.S. Congress. Twice in 2005 the Connecticut Supreme Court acknowledged awareness of the 1984 FTC Policy Statement, and the question presented as to the continued vitality of the "cigarette rule" but continued nonetheless to apply the "cigarette rule." American Car Rental, Inc. v. Commissioner of Consumer Protection, 273 Conn. 296, 305 n. 6 (2005), and Votto v. American Car Rental, Inc., 273 Conn. 478, 484, n. 3. Since 2005 the Supreme and Appellate Courts have continued to cite and apply the cigarette rule as the applicable test of an unfair trade practice under CUTPA, including, most recently, Zulick v. Patrons Mutual Insurance Co., 287 Conn. 367, 378, n. 11 (2008), and Sovereign Bank v. Licata, 116 Conn.App. 483, 493 (2009). Until such time as the appellate courts or the legislature speak to the contrary this court will be bound to apply the "cigarette rule" as the test of an unfair trade practice.
The defendant argues that the plaintiff's have not presented evidence to satisfy the third or "substantial injury" prong of the "cigarette rule" and therefore cannot satisfy the "cigarette rule" "because the former is one of the three essential elements of the latter." (Defendant's Memorandum, p. 30.) This argument is misplaced. It is well established in our CUTPA jurisprudence that, in the application of the "cigarette rule," "[a]ll 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." Jacobs v. Healey Ford-Subaru, Inc., 231 Conn. 707, 725 (1995). In fact, the plaintiff makes no claim under the "substantial injury" prong of the rule but argues that the evidence submitted survives summary judgment under the first two prongs of the rule: practices which offend public policy and practices which are immoral, unethical, oppressive, or unscrupulous. The court has reviewed the extensive evidence submitted by both parties and concludes that there are genuine issues of material fact to be decided by the jury.
The plaintiffs' claim of unfairness on the steering claim is that the Hartford's aggressive practice of attempting on multiple occasions to convince insureds and other automobile damage claimants to have their repairs performed at a Hartford DRP shop violates at least the "penumbra" of the public policy of the anti-steering statute, Conn. Gen. Stat. § 38a-354 (quoted above, at p. 5), and is an immoral, unethical, oppressive, or unscrupulous practice which causes ascertainable loss to the plaintiffs. The plaintiffs' evidence of this practice consists of documents produced in discovery by the Hartford and excerpts of deposition testimony given by employees of the Hartford. Hartford's Customer Care Team Specialists ("CCTs) field calls from insureds and direct them to a DRP closest to the insureds. The CCTs aggressively "sell" the CRSP program by promoting what the Hartford characterizes as the program's "benefits" including $100 off of the insured's deductibles and "lifetime guarantee" of all work. (Supplemental Slossberg Affidavit Ex. 1) (Hartford document entitled "Selling the CRSP Program"). One of the Hartford's focused goals has been to do whatever it can to increase the number of insureds using the CRSP shops in Connecticut. (Slossbrg Affidavit Ex. 2) (Robert Loughery deposition). The Hartford publishes "Best Practices" materials that govern the conduct of all CCTs, claims handlers, and Automobile Service Representatives (Hartford-employed appraisers) and DRPs. (Supp. Slossberg Affidavit Ex. 3.) The Hartford has prepared scripts for its employees that uniformly direct the manner in which CCTs and claims handlers communicate with insureds. (Supp. Slossberg Affidavit, Ex.4) ([to be circulated] ". . . to show them we are committed to increasing CRSP utilization . . ." Id.) All such employees are subject to common training to instruct and encourage the sale off the CRSP program ( Id., Ex. 5). There is significant pressure on the CCT's to perform. Supervisors regularly monitor customer calls and coach the CCTs to sell the CRSP ( Id., Ex. 6). The Hartford has offered cash and other incentives to CCT's who obtain the best CRSP results which are measured by "CRSP Utilization" numbers ( Id., Ex. 7, 8), which constitute a significant part of a CCT's performance evaluation, bonus compensation, and possible discipline. ( Id., Ex. 6 9.) The CCTs are encouraged to press the program even when an insured expresses a preference to have the repairs done at an independent auto body shop. ( Id., Ex. 10.) The Hartford's own literature encourages its employees to "sell" the CRSP Program and to "influence" and "persuade" insureds to utilize DRP shops. ( Id. Ex. 1.) The defendant argues that the plaintiff class has not presented a single insured person who claims to have been coerced or oppressed into selecting one particular shop over another, and has submitted an affidavit of December 19, 2008 of its Vice President, Claims Practices Group, Eric Brandt, who states that after review of the records of his group (which includes automobile damage claims) and discussions with various employees in the Group who report to him in the ordinary course of business that "(5) when an insured reports a loss, that insured is given a choice as to where the insured may have his or her car repaired. (6) The Hartford does not require the insured to use a specific repair shop. (7) the Hartford does not require the insured to use a specific appraiser . . . (12) When an insured presents a claim, that insured is free to choose any one of these 46 [DRP] shops, as well as any one of the hundreds of other body shops located throughout Connecticut. (13) In no instance does the Hartford ever require an insured to use a particular shop for a particular purpose." The court finds that this conflicting evidence presents a triable issue of fact as to the degree of compulsion or persuasion employed by the Hartford to get its insureds to use the DRP shops and whether or not that practice violates the terms or at least the "penumbra" of the anti-steering statute. Defendant points out in its reply brief that when § 38-354 was enacted in 1979, an early draft of the bill provided that appraisers shall not "request, suggest, or recommend, directly or indirectly, in any manner whatsoever" specific shops. The earlier bill received an unfavorable committee recommendation. The legislature then struck the words "request, suggest, or recommend directly, indirectly, or in any manner whatsoever" and inserted the word "require" in their place. The legislative history reveals that this revision was designed to "[eliminate] the prohibition against physical damage appraisers directly or indirectly requesting or suggesting or recommending certain repair shops. 22 H.R. Proc., Pt. 3, 1979 Session at 12769 (Rep. Parker.) This background is not dispositive of the court's ruling for two reasons. First of all, there is no indication that the "request, suggest, or recommend" language ever applied to what is now subpart (b) of the statute governing the conduct of insurance companies. Whatever public policy the legislative history may evoke, it appears only to apply to subpart (a) of the statute governing the conduct of appraisers. Even if the legislative history did apply in some extended way to the conduct of insurance companies under subpart (b), there is evidence adduced by the plaintiff from which a reasonable jury could conclude that the aggressive and systematic "selling" of the Hartford's CRSP program went farther than "requesting, suggesting, or recommending" and crossed the compulsion line at least into the penumbra of a "requirement." Since the court has found this triable issue of fact on the steering claim, which is one of the two claims alleged in Count I, the defendant would not be entitled to judgment as a matter of law on Count I. (See footnote 1, supra.) It is therefore not necessary for purposes of this motion for the court to consider the policy of the 1963 Consent Decree in United States of America v. Association of Casualty and Surety Companies, American Mutual Insurance Alliance, and the National Association of Mutual Casualty Companies, insofar as it relates to the steering or shop selection claim. Because of the triable issues of fact, the moving party, the defendant, cannot establish entitlement to judgment as a matter of law on Count I claiming unfair trade practices. For the same reason it is also unnecessary to consider here the labor rate claim as alleged in Count I, but there are issues of material fact on that issue as well, to be discussed below in connection with the plaintiff's motion for partial summary judgment on liability.
The Hartford had presented an earlier affidavit of Eric Brandt dated September 28, 2008. The court has granted plaintiff's motion to strike that affidavit. The subsequent affidavit of December 3, 2008 has not been stricken.
Another claimed ground of the motion for summary judgment on Count I is that "the class' claims under the Connecticut Unfair Insurance Practices Act "CUIPA") are meritless. The plantiff's have made a general allegations of violations of CUIPA in ¶ 26 of Count I as part of their claim of unfair trade practice under CUTPA, but have failed to allege any facts or any specific provision of CUIPA allegedly violated. Practices which violate CUIPA may be alleged as unfair trade practices under CUTPA. Mead v. Burns, 199 Conn. 651, 663 (1986). Here, however, the unspecified CUIPA violations are alleged in the same count as one of several unfair trade practices under CUTPA. As previously mentioned there is no authority for granting summary judgment for a defendant on just one "claim" of a count. (See footnote 1, supra.)
The motion for summary judgment is denied as to Count I.
Count II: Deceptive Trade Practices
In Count II (deceptive trade practices) the plaintiffs allege by incorporation all the allegations of Count I and add ¶ 31 claiming that "The foregoing acts of the Hartford constitute deceptive acts and practices under CUTPA C.G.S. § 42-110b(a)." Paragraph 32 then alleges the damages claimed as a result of the alleged deceptive trade practices, with particular mention only of damages allegedly caused by the steering claim. Defendants move for summary judgment claiming that "The plaintiffs have come forward with no evidence of a misleading practice that actually affected, or was likely to affect shop selection by consumers or labor rates." When asked by interrogatory to identify any deceptive statements, plaintiffs simply referred to the allegations of the complaint and responded "none currently available" when asked to identify documents relating to the claim of deceptive practices. Other than the totally conclusive ¶ 31 of Count II, supra, the complaint makes no allegation of any deceptive act, statement, or practice. The plaintiffs respond to this portion of the motion by saying: that the defendant is actually challenging the adequacy of the allegations of Count II which should have been done several years ago by motion to strike which was waived by filing an answer and special defenses, and that therefore plaintiffs are free to introduce whatever evidence they desire as to deceptive acts and amend the pleadings to conform to that evidence. Neither party has submitted affidavits or other materials relating to this count.
The plaintiff has made some references to exhibits to the Slossberg affidavits with no explanation as to relevance or significance.
The Supreme Court recently had occasion to address this very situation in American Progressive Life and Health Insurance Co., of New York et al. v. Better Benefits LLC, et al., 292 Conn. 111 (June 1, 2009), where the court said:
Under our rules of practice, the filing of a responsive pleading waives the right to file a motion to strike. Practice Book §§ 10-6 and 10-7 . . . Thus, in the present case, by filing its answer to the counterclaim, the plaintiff waived its right to test the legal sufficiency of that pleading by way of a motion to strike.
In Larobina v. McDonald, supra, 274 Conn. 401-02, [2005], this court recognized that our case law had sanctioned the use of a motion for summary judgment to test the legal sufficiency of a pleading despite such a waiver.
After reviewing the competing concerns of entering summary judgment without permitting a repleading or, to prevent unfairness, granting the motion as if it were a motion to strike and permitting a repleading, the court continued:
In light of these competing concerns, in Larobina, we set forth the following parameters to clarify our case law: "[T]he use of a motion for summary judgment to challenge the legal sufficiency of a complaint is appropriate where the complaint fails to set forth a cause of action and the defendant can establish that the defect could not be cured by repleading." Larobina v. McDonald, supra, 274 Conn. 401. We will not reverse the trial court's ruling on a motion for summary judgment that was used to challenge the legal sufficiency of a complaint when it is clear that the motion was being used for that purpose and the nonmoving party, by failing to object to the procedure before the trial court, cannot demonstrate prejudice. A plaintiff should not be allowed to argue to the trial court that his complaint is legally sufficient and then argue on appeal that a trial court should have allowed him to amend his pleading to render it legally sufficient. Id. 402.
Connecticut Report page citations to American Progressive Life and Health Insurance Co. are not yet available.
The American Progressive court refined the rule of Larobina by holding that a non-moving party who offers to amend the deficient pleading, or even one who tries to defend the deficient pleading but offers in the alternative to amend it if it is found to be defective, has not waived the benefit of the Larobina rule permitting a repleading if the party moving for summary judgment has failed to demonstrate that the deficiency cannot be cured by repleading. Finding these conditions satisfied in the case then at hand, the court reversed the granting of summary judgment and held: "Thus, the trial court should have treated the motion for summary judgment as a motion to strike, under which the defendants would have been afforded the opportunity to replead upon the granting of the motion."
In this case, the non-moving party, the plaintiff class, has admitted that no factual allegations of any deceptive trade practice has been made in Count II and has offered to replead to make such allegations. And the Hartford has failed to demonstrate that a repleading could not cure that defect. Therefore, under the rule of Larobina as refined by American Progressive Life and Health Insurance Co., the court treats the portion of the defendant's motion for summary judgment directed to Count II as a motion to strike Count II which is granted because the plaintiff has totally failed to "allege a plain and concise statement of the material facts on which the pleader relies . . ." as required by Practice Book § 10-1. The plaintiffs shall have seven days from the date of this order to file a substitute pleading.
The normal fifteen days to replead under Practice Book § 10-44 has been shortened because of the impending scheduled start of trial. This is done under the authority of Practice Book §§ 1-8 and 23-14.
Count III: Unjust Enrichment
Count III incorporates by reference all the allegations of Counts I and II, makes no further allegation of fact particularly applicable to Count III, and then claims "[a]s a result of the Hartford's unfair, deceptive, and unlawful conduct, as described herein, the Hartford has been unjustly enriched by the receipt of monies wrongfully obtained" (¶ 35); and [t]he Hartford is not entitled to keep the monies wrongfully improperly obtained through its practice of steering its insureds to non-DRPs." (¶ 36). The relief sought is "an order of restitution from the Hartford" and an order "requiring it to disgorge all profits and other compensation obtained by the Hartford as a result of its wrongful conduct, plus attorneys fees, expert's fees, interest, expenses, disbursements and costs. (¶ 37.) Defendant has moved for summary judgment because Count III is "purely derivative of the plaintiffs' meritless CUTPA claims" and because "summary judgment is appropriate as to the unjust enrichment count because the plaintiffs cannot establish the elements of that claim, and any class member who is or was a direct repair provider for any insurance company cannot invoke equity to recover against Hartford." The plaintiff's entire argument in opposition consists of 8 1/2 lines of briefing in which they claim that "[t]he Hartford retains money that should have been paid for auto body repair by reason of their unlawful suppression of labor rates and steering of claims to direct repair shops." and "plaintiffs are third party beneficiaries to defendant's insurance contracts with its insureds, which relationship clearly can give rise to a claim for unjust enrichment.," citing, for the latter point Ayotte Bros. Construction Company v. Finney, 42 Conn.App. 578, 580-81 (1996).
The reference to steering to "non-DRP's" is totally inconsistent with all of plaintiffs' other arguments about steering and the allegations of Count I which alleges in ¶ 22 "improper steering of its policy holders to repair shops favored by the Hartford including DRPs . . ." (Emphasis added.) Although it may be a typographical error, it has existed in Count III of the complaint in those exact words ("non-DRPs") for more than six years, and the court must deal with the allegations as they are actually pleaded, not as the court may glean what the drafter might have meant to plead.
There is no summary judgment analysis by either party — no reference whatsoever to affidavits or documents. Because the defendant, as in Count II, is in effect challenging the legal sufficiency of the allegations to state a claim of unjust enrichment ("plaintiff cannot establish the elements of that claim."), but, unlike Count II, the plaintiffs are attempting to establish the sufficiency of their pleading and have not offered to replead or asked for permission to replead, under the rule of Progressive Life and Health Insurance, supra, the court will decide the motion for summary judgment strictly on the sufficiency of the allegations of the complaint without treating the motion as a motion to strike which would carry with it the right to replead if stricken.
The elements of a claim of unjust enrichment are well established. "To find unjust enrichment, you must find that the plaintiff has provided [goods or services] that the defendant has benefited from those [goods or services], and that the defendant unjustly did not pay for that benefit, and that the defendant's failure to pay hurt the plaintiff." Connecticut Judicial Branch, Civil Jury Instructions § 4.3-3, citing, inter alia, Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 283 (1994). The sufficiency must be weighed strictly in terms of the labor rate claim, since, as indicated at footnote 7, the steering claim has been pleaded as a benefit to rather than an injury to the plaintiffs. The labor rate allegations of Counts I and II, incorporated into Count III, allege that the plaintiffs were engaged by the Hartford to repair damaged automobiles insured by the Hartford but owned by the Hartford's insureds at labor rates that were allegedly unfairly suppressed. The "benefit" provided by the plaintiffs was the providing of parts and services to repair the cars. That benefit did not go to the Hartford. It went to their insureds, as owners of the cars. The Hartford, by virtue of a contract of insurance with its insureds paid the plaintiffs for providing the benefit to its insureds.
First of all, the plaintiffs have pleaded that "the Hartford has been unjustly enriched by the receipt of monies improperly obtained" which seems to make no sense in the context of unjust enrichment or the allegations of Counts I and II which repeatedly allege that the plaintiffs provided services and were paid by the Hartford. Except for this one conclusory allegation in Count III there is no indication anywhere in the complaint of any payment of any money to the Hartford or from the plaintiffs, but there is abundant factual pleading of a flow of money in the opposite direction This is clearly insufficient pleading.
It has also not been pleaded that the defendant was the recipient or receiver of the "benefit" provided by the plaintiffs which is an element of the cause of action. For instance, in Ayotte, supra, cited by the plaintiffs, the defendant was the owner of premises at which the plaintiff had provided paving services pursuant to a contract entered into by the defendant's tenant with the knowledge and consent of the defendant owner. The court found that "[t]he defendant, as the owner of the property was benefited by the paving." Id. at 582, and upheld a judgment against the owner on a theory of unjust enrichment. But in this case the defendant was not the owner of the property benefited because the repaired cars were owned by the insureds. The "benefit" element is therefore insufficient as pleaded. The plaintiffs in argument try to bridge that gap by claiming that they are third-party beneficiaries of the Hartford's insurance policies, but that theory has not been pleaded, let alone the facts to bring that theory into play.
"[T]he ultimate test to be applied [in determining whether a person has a right of action as a third party beneficiary] is whether the intent of the parties to the contract was that the promisor should assume a direct obligation to the third party [beneficiary] and . . . that intent is to be determined from the terms of the contract read in light of the circumstances attending its making, including the motives and purposes of the parties . . . Although [the Supreme Court] has explained that it is not in all instances necessary that there be express language in the contract creating a direct obligation to the claimed third party beneficiary . . . [it has] emphasized that the only way a contract could create a direct obligation between a promisor and a third-party beneficiary would have to be . . . because the parties to the contract so intended." (Citation omitted; emphasis in original; internal quotation mark omitted.) Grigerik v. Sharpe, 247 Conn. 293, 311-12 (1998).
Count III is insufficiently pleaded and the motion for summary judgment is granted.
Injunctive Relief — Count IV
Count IV incorporates all the allegations of the first three counts and adds that the alleged acts of the Hartford that are in violation of the public policy of Connecticut will continue unless enjoined by the court. Plaintiffs ask for a permanent and temporary (never pursued) injunction against all acts found by the court to be in violation of CUTPA or CUIPA. The defendant moves for summary judgment on the ground that Count IV is derivative of the CUTPA claims. The plaintiffs concede that Count IV is primarily derivative of their CUTPA claims.
Count IV does not allege a cause of action. Conn. Gen Stat. § 42-110b(d) provides in part that "In any action brought under this section [CUTPA action] the court may, in its discretion order, in addition to damages or in lieu of damages, injunctive or other relief," and the court notes that the plaintiffs have included a request for injunctions in their Prayer for Relief, Count IV adds no factual allegations to those previously alleged in the other counts and is unnecessary. It is stricken by the court. (Since no cause of action is alleged it would be inappropriate to enter summary judgment on this count.)
B. Plaintiff's Motion for Partial Summary Judgment
The plaintiffs have moved for partial summary judgment as to liability only as to the labor rate claim only. The labor rate claim is alleged as one of two claims in both Count I and Count II. But since a plaintiff needs to prevail only on any one claim in a count to be entitled to judgment on that count, the motion for summary judgment limited to the labor rate claim is not improper.
The complaint alleges in Counts I and II that the Hartford has violated Connecticut and federal public policy "by establishing an artificially low `standard' or `prevailing' hourly rate for reimbursement to non-DRP shops . . ." (¶ 22b); and that "[t]he Hartford has additionally provided positive and negative incentives to supposedly independent insurance appraisers to encourage or pressure them into accepting monetary and other limits proposed by the Hartford. It is further alleged that those appraisers have acceded to these incentives and have regularly implemented the limits in their appraisals." (¶ 23.) Plaintiffs argue that summary judgment should be granted on the labor rate claim as it rests entirely on the admissions of the Hartford's own personnel which admissions eliminate any material issues of fact.
The plaintiffs rely heavily in this regard on a letter written to the Attorney General of the State of Connecticut (with a copy to the Connecticut Insurance Department) on February 12, 2002 by four Hartford-employed appraisers, Timothy Davis, David Evans, Robert Leonard, and Mike O'Mara. In that letter the appraisers expressed concern for their personal liability under Conn. Gen. Stat. § 38-92b [now § 38a-790, providing for licensing of motor vehicle physical damage appraisers and the adoption of Insurance Department regulations "by which licensees shall conduct their business," and providing criminal penalties for violations]. They complained that the Hartford:
. . . establishes parameters for what labor rates are paid and directs its staff accordingly . . . That labor rate therefore is what they consider the prevailing rate to be and they won't pay more than that . . . Our concern here is from the appraiser's position. Wouldn't the Code of Ethics require an appraiser to write their estimates at whatever rate they honestly felt was a fair and reasonable rate? Considering the widening gap between autobody repair rates and mechanical service rates, we can not honestly say that we believe the current "prevailing rate" is fair. In fact, we believe that it is very low due to Insurer influence, and not due to market influence . . . If we were to write estimates at a rate we believe to be fair and reasonable, as we believe the law mandates, we would be terminated.
Plaintiffs treat this letter as a "straightforward," admitted violation by the appraisers of the public policy of Connecticut, conclusive and binding on the Hartford as their employer, and have cited several trial court decisions where partial summary judgment has been granted on CUTPA liability based on admitted conduct in much simpler circumstances. But a single letter in a complex multi-faceted claim of public policy violations such as this would not ordinarily be conclusive. "Unless an admission qualifies as a judicial admission, the words and acts of a party are not conclusive on the party. The party against whom the admission has been admitted is entitled to explain the circumstances accompanying the admission so that the trier can properly evaluate it." Tait's Handbook of Connecticut Evidence, 4th Ed. § 8.16.4(b), citing Kucza v. Stone, 155 Conn. 194, 197-98 (1967). [A judicial admission is a voluntary and knowing concession of fact by a party or a party's attorney, occurring during judicial proceedings. Tait, supra, § 8.16.2(c)]. Here the Hartford has adduced evidence which counter the claim of conclusive admissions contained in this letter. For example, Robert Leonard testified at his deposition that he was not aware of a single person who had been terminated at the Hartford for writing a fair and reasonable labor rate. (Deposition Excerpt, Thomas Rhoback Affidavit, December 3, 2008, Ex. J Tr. 68); and when asked "But in reality. Who was setting them [labor rates]," he responded, "Market." ( Id. Tr. 69). Mr. Leonard further testified that, after sending the letter, the four appraisers met with people from the Connecticut Insurance Department, "And we decided at that point to rescind the letter." (Affidavit of Craig A. Raabe, Esq., September 29, 2008, Ex. 2 Tr. 41.) There is also a factual issue as to the authority of the four letter signatories to bind the Hartford by their statements. An employee generally does not have authority to speak for his or her employer. An employee's statements, even in the course of employment, are not binding on the employer. Tait, supra, § 8.16.7(b), citing Wade v. Yale University, 129 Conn. 615, 618 (1943), and Connecticut Code of Evidence § 8.3(1).
The court finds that there are genuine issues of material fact relating to the February 12, 2002 letter.
To support their contention that the Hartford's Practices regarding labor rates used in appraisals are unfair as a matter of law, and violate at least the "penumbra" of Conn. Gen Stat. § 38a-354, the plaintiffs rely on the deposition testimony of Hartford ASR supervisor Louis Chasse who testified on deposition the Hartford requires that its own appraisers — ASRs — look at each damaged car for which a claim is made, and that since 2004 to the best of his knowledge he could not think of a single instance when anyone other than a Hartford ASR had looked at a damaged car. (Affdavit of David A. Slossberg, September 29, 2008, Ex. 11, Tr. 184-85.) But, as the defendant points out, there is no express prohibition in the statute against an insurer suggesting or even directing that a particular appraisal must be used. Section 38a-354 in subsection (b) does prohibit an insurer from requiring any insured from using a specific person for the provision of automobile physical damage repairs, but there is no prohibition from directing the use of a specific appraiser. Subsection (a) prohibits an appraiser from requiring that appraisals or repairs "should not be made in a specified facility." (Emphasis added.) Plaintiffs counter that the required use of a specific appariser — a Hartford ASR — violates at least the peumbra of the underlying policy of the statute and violates subsection (b) because "an appraiser is an integral and indispensible part of the repair process." In the court's view that is an argument to be directed to the finder of fact. It does not establish violation of public policy as a matter of law.
The third public policy argument centers on the 1963 Consent Decree in United States of America v. Association of Casualty and Surety Companies, American Mutual Insurance Alliance, and the National Association of Mutual Casualty Companies, supra. There are complex issues concerning the relevance and admissibility of that document which have been raised in defendant's recent motion in limine. Those issues will have to be decided in conjunction with that motion, or at trial, and therefore the consent decree not an appropriate basis for granting summary judgment at this time.
Practice Book § 15-3 provides that the judicial authority may grant the relief sought in a motion in limine or such other relief as it may deem appropriate, may deny the motion with or without prejudice to its later renewal, or may reserve decision thereon until a later time in the proceeding.
Finally, there is the over-arching issue of causation, which would apply to any of the public policy arguments made by the plaintiffs. There are material issues of fact as to whether or not any conduct of the Hartford was the proximate cause of the plaintiff shops working at the hourly rates of which they complain.
CUTPA claims require proof of two elements: (1) the defendant engaged in unfair or deceptive acts or practices in the conduct of its trade or business, and (2) plaintiff suffered an ascertainable loss of money or property as a result of defendant's conduct. See Arties's Auto Body, Inc. v. Hartford Fire Insurance Co., supra, [this case] 287 Conn. at 217, Hinchcliffe v. American Motors Corp., 184 Conn. 607, 612-13 (1981). "An `ascertainable loss' is a loss that is capable of being discovered, observed, or established." Artie's supra, at 218. "The term `loss' necessarily encompasses a broader meaning than the term `damage,' and has been held synonymous with deprivation, detriment, and injury. Id. A plaintiff need only show that some unquantified harm has been proximately caused by the unfair trade practices to prevail under CUTPA, Id.
The plaintiff shops allege that the "price suppression" acts of the Hartford have proximately caused them to suffer the loss on each job performed for a Hartford insured during the class period measured by the difference between the hourly rate the Hartford was willing to pay and the hourly rate that would be fair and reasonable. But there is substantial evidence in the record that each plaintiff shop was presented with an appraisal prepared for the repair of each damaged car, at the hourly rate the Hartford was willing to pay, and agreed to do the job at that price. There was also evidence that during the class period the plaintiff shops performed repair services for other insurance companies at the same hourly rates the Hartford was offering to pay, thereby giving rise to the inference that the rates the Hartford paid, were driven by the "market." Each of these factors would inferentially support the claim that the Hartford's conduct was not the proximate cause of the ascertainable loss suffered by the plaintiffs, thereby creating a genuine issue of material fact as to causation to be resolved at trial.
The evidence on these points comes from witnesses for both parties. Robert Leonard's testimony has previously been quoted at page 23. The other ASRs who signed the February 12, 2002 letter, Timothy Davis, Michael O'Meara, and David Evans likewise testified that the rates they used in their appraisals were "market" or "prevailing" rates. (Raabe, affidavit, Ex. 3, 4, and 5.) Plaintiff class members admitted their agreements to accept the rates offered by the Hartford, when approached by the Hartford appraiser. Harold "Chip" Platz, the owner of class representative Artie's Auto Body, Inc. acknowledged that competition is the reason he agrees to perform repairs at the rates offered by the Hartford appraisers and other insurance companies. "If I don't take the $46 per hour, the guy behind me or the guy down the street body shop will take the Progressive account and put me out of business." (Raabe Affidavit, Ex 6, Tr. 25.) Anthony Ferrialo of A R Body Specialty testified that if he refused the appraised rates he might lose customers who would go to shops that accept those rates. (Raabe Affidavit, Ex. 7, Tr 111-13.) Many other instances of similar testimony are cited in the briefs. There is a material issue of fact on the issue of causation of the plaintiffs' claimed loss or damage.
ORDER
For the foregoing reasons, the court orders as follows.
1. The defendant's motion for summary judgment is denied as to Count I.
2. The defendant's motion for summary judgment as to Count II is treated by the court as a motion to strike Count II, and granted. The plaintiff shall have seven days to file a substitute pleading.
This ruling as to Count II was verbally delivered in open court on September 17, 2009. The substitute pleading may therefore be filed not later than September 24, 2009.
3. The defendant's motion for summary judgment is granted as to Count III.
4. Count IV is stricken.
5. Plaintiff's motion for partial summary judgment on liability as to the labor rate claim of Counts I is denied.