Opinion
No. CV 09-4042533-S
February 7, 2011
MEMORANDUM ORDER RE MOTION TO STRIKE
Upon considering the briefs and arguments of counsel in support of and in opposition to the motion of plaintiff Connecticut Medical Insurance Company ("CMIC") to strike the Counterclaim and Sixth Special Defense of defendants Smith Brothers Insurance, Inc. ("Smith Brothers") and David M. Burke, the Court hereby concludes, for the following reasons, that said motion must be DENIED as to Count Four of the Counterclaim, but must be GRANTED as to Counts One, Two and Three of the Counterclaim and the Sixth Special Defense.
1. CMIC brought this action against Smith Brothers, one of its competitors in the medical malpractice insurance business, and David M. Burke, a former CMIC salesman who now works for Smith Brothers, to recover money damages and obtain injunctive relief on four theories of liability in connection with what it claims to be the defendants' ongoing effort to divert CMIC business to themselves by making false and defamatory representations to CMIC's existing and potential future customers concerning its current business status and likely future financial viability.
2. In Counts One and Two of its Amended Revised ("Complaint") dated December 23, 2009, CMIC claims that the defendants are liable to it for defamation. On that score, it claims that the defendants' false and defamatory representations about CMIC to its customers have caused it to sustain actual and irreparable injury, including loss of customers and business and damage to its reputation and goodwill. In Counts Three and Four, it claims that by engaging in the injurious, defamatory conduct described in Counts One and Two, the defendants have tortiously interfered with its business relationships. In Counts Six and Seven, it further claims that by engaging in the alleged conduct underlying Counts One through Four, the defendants engaged in unfair and deceptive methods of competition, and thereby committed unfair and deceptive trade practices, in violation of General Statutes § 42-110a, et seq., the Connecticut Unfair Trade Practices Act ("CUTPA"). Finally, in Count Five, it claims that defendant Burke, by using its confidential customer lists to identify its existing customers and using other confidential information about its business when making his challenged representations to those customers, breached his contract with it by violating the confidentiality agreement he entered into when he was its employee.
2. The defendants have responded to CMIC's Complaint by denying all claims of wrongdoing against them, asserting nine Special Defenses and filing a four-count Counterclaim, the latter based generally upon allegations that CMIC has caused them to suffer actual and irreparable injury by making false and defamatory representations about them, their products and their business practices to their existing and potential future customers. On the basis of these mirror-image allegations, the defendants seek monetary and injunctive relief against CMIC on three of the four theories of liability upon which CMIC seeks relief against them, to wit: in Count One, that CMIC defamed them; in Count Two, that CMIC tortiously interfered with their business relations; and in Count Three, that CMIC engaged in unfair and deceptive methods of competition against them, in alleged violation of CUTPA. In addition, in Count Four of their Counterclaim, the defendants seek damages from CMIC for abuse of process based upon its institution of the present lawsuit against them with what they claim to have been three primary purposes other than prevailing on the merits of its underlying claims, more particularly: to gain a competitive business advantage over the defendants; to obtain proprietary information relative to the defendants' business; and to damage the defendants' business and business relationships with their existing and potential future customers.
3. As their Sixth Special Defense, the defendants assert that CMIC's claims against them "are barred or partially precluded by virtue of the doctrine of set-off, as CMIC owes Smith Brothers and Burke certain sums for damages and injuries sustained by virtue of CMIC's wrongful and negligent acts as set forth in [their] Counterclaim[.]"
4. The case is now before this Court on CMIC's motion to strike the defendants' Counterclaim and their Sixth Special Defense. That motion is based on the following grounds. As for the Counterclaim, CMIC contends that it must be stricken in its entirety because the claims therein presented do not arise out of the "same transaction" as any of the claims presented in its own underlying Complaint, and thus cannot properly be prosecuted in a counterclaim. As for the defendants' Sixth Special Defense of set-off, based upon their claimed right to recover damages from the plaintiff under their Counterclaim, the plaintiff argues that that special defense is not legally viable because claims of set-off apply only to due and payable debts in fixed or predetermined amounts, not to unliquidated claims for uncertain amounts of money damages.
5. Pursuant to Practice Book § 10-39(a), a party wishing 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 may be granted . . . or (5) the legal sufficiency of any answer to any complaint, counterclaim or cross complaint, or any part of that answer including any special defense contained therein . . . may do so by filing a motion to strike the contested pleading or part thereof." See Ivey Barnum 0'Mara v. Indian Harbor Properties, Inc., 190 Conn. 528, 530, n. 2 (1985). While a motion to strike admits all facts well pleaded, it does not admit legal conclusions. See Mingachos v. C.B.S., Inc., 196 Conn. 91, 108 (1985). With respect to the allegations of a challenged pleading, the burden rests on the pleading party to allege a recognizable cause of action or defense, and it is not sufficient that the pleading refer to some basis or theory of liability or defense by some distinctive name. See Research Associates, Inc., v. New Haven Redev. Agency, 157 Conn. 587, 588 (1968). "In determining whether a motion to strike should be granted, the sole question is whether, if the facts alleged are taken to be true, the allegations provide a cause of action." County Fed. Savings and Loan Ass'n. v. Eastern Associates, 3 Conn.App. 582, 585 (1985). In making its determination, the Court is limited to the facts alleged in the challenged pleading. See Kay v. Board of Edu., 195 Conn. 90, 93 (1985).
6. One proper ground upon which to strike a claim presented in a counterclaim is that the cause of action therein stated cannot properly be prosecuted as a counterclaim. Wallingford v. Glen Valley Associates, Inc., 190 Conn. 158, 160-61 (1983). On this score, the applicable rule is set forth in Practice Book § 10-10, which provides that a claim may be pleaded in a counterclaim if it "arises out of the transaction or any of the transactions which is the subject of the plaintiff's complaint." "Where the underlying purposes of [this rule], to wit, judicial economy, avoidance of multiplicity of litigation, and avoidance of piecemeal disposition of what is essentially one action, are thwarted rather than served by the filing of a cross claim, the cross claim may properly be expunged." Wallingford v. Glen Valley Associates, Inc., supra, 190 Conn. at 161 (quoting from and applying to counterclaims the holding in Jackson v. Conland, 171 Conn. 161, 166-67 (1976), wherein the pre-existing version of the rule was cited as the basis for expunging, i.e. striking, a cross claim).
7. Here, claims CMIC, the first three counts of the defendants' Counterclaim are based upon its own alleged making of false and defamatory representations about the defendants to the defendants' existing and potential future customers, for the purpose of diverting the business of such customers from defendants to itself. The only persons claimed to have been involved in any encounter or conversation where any such representation was allegedly made were obviously the plaintiff itself, by one or more of its agents or employees, and one or more of the defendant's existing or potential customers. By necessary implication, the defendants were not involved in any such encounter or conversation, and thus they had no chance to defend themselves against the plaintiff's false statements in order to set the record straight and avoid the losses and damages resulting therefrom. CMIC's underlying claims against the defendants, by contrast, are based upon the defendants' alleged making of false and defamatory representations about CMIC to its existing and potential future customers, for the purpose of diverting their business from the CMIC to themselves. The only persons claimed to have been involved in any encounter or conversation where such false and defamatory representations about it were allegedly made were just as obviously the defendants, either personally or by one or more of agents or employees. By necessary implication, CMIC was not involved in any such encounter or conversation, and thus never had the chance to defend itself against the defendants' false statements to set the record straight and avoid the losses and damages resulting therefrom. Against this background, CMIC insists that claims based upon its own alleged course of defamatory conduct vis-a-vis the defendants cannot properly be asserted in a counterclaim in litigation based upon the defendants' similar, but otherwise completely separate, course of defamatory conduct against it, because despite the obvious parallels in methods and purposes between them, the two courses of conduct involve distinct and different acts, by and between entirely different sets of people, at entirely different times and places.
8. As for the Fourth Count of the defendants' Counterclaim, claiming abuse of process based upon the plaintiff's allegedly wrongful institution of the present lawsuit for primary purposes other than prevailing on the merits of its underlying claims, the plaintiff argues, quite simply, that the act of instituting a lawsuit based upon particular underlying conduct is an act or transaction separate and distinct from the underlying conduct itself.
9. The defendants oppose the plaintiff's challenge to their Counterclaim, insisting first that the word "transaction" must be broadly construed to mean a single business context in which discrete but related acts occur rather than any single act or event occurring in that business context. Here, then, they claim that the relevant context is the ongoing competition between the parties for business in the insurance marketplace, in the course of which each party is claimed to have made false and defamatory statements about the other to the other's existing and potential future customers. Litigating these claims together would assertedly promote judicial economy by avoiding but would otherwise be a "substantial duplication of effort by the parties and the Court." Defendants' Opposition Memoranda (1/13/11), p. 6 (quoting Foster v. Delmer, 2008 Conn.Super. LEXIS 2170 (Aug. 22, 2008) (Roche, J.)). The defendants argue, moreover, that any counterclaim asserting that the plaintiff's underlying complaint is sham litigation arises, "by its nature[, . . . ] out of the subject of the plaintiff['s] Complaint[;]" Defendants' Supplemental Memorandum on Opposition (1/28/11), pp 5-6 (quoting Classic Limousine v. Alliance Limousine LLC., 2002 Conn.Super. LEXIS 2728, at *28-29 (Aug. 13, 2002) (D'Andrea, J.)).
10. As for the first three counts of the defendants' challenged Counterclaim, which are all based, as aforesaid, upon the plaintiff's alleged defamatory conduct towards the defendants, the Court agrees with the plaintiff that such counts must be stricken because they do not state claims arising from any of the transactions on which the plaintiff's own claims against the defendants are based. The events at issue under the plaintiff's Complaint all concern alleged encounters or conversations between the defendants and the plaintiff's existing or possible future customers, which are claimed to have caused reputational and business injury to the plaintiff. Unlike the claims presented in the Counterclaim, they do not concern false and defamatory representations made by the plaintiff to the defendants' existing or possible future customers, or any reputational or business injury which the defendants may have suffered as a result of any such representations. In fact, none of the representations allegedly made by the plaintiff about the defendants, as described in the Counterclaim, are claimed to have been made at the same time, in the same place or setting, or to any of the same persons as any of the defendants' alleged representations about the plaintiff of which the plaintiff complains in its Complaint. Thus the making of such representations by the plaintiff is not a matter that would naturally arise in the litigation of the plaintiff's separate and distinct claims, either in pretrial discovery or at trial, and since neither the participants in nor the witnesses to any of the encounters or conversations in which the plaintiff is claimed to have made false and defamatory representations about the defendants are the same as those who allegedly participated in or witnessed the encounters or conversations in which the defendants allegedly made their false and defamatory representations about the plaintiff, judicial economy would not be well served by trying both sets of claims together in one lawsuit.
11. In reaching this conclusion, the Court agrees with the conclusions of Judge Melville, in Westport News, Inc., v. Minuteman Press, Inc., 1996 WL 737526 (Conn.Super. 1996), and of Judge Corradino, in Grant v. Lettieri, 2009 WL 5322219 (Conn.Super. 2009), that similar counterclaims, linked only by the identities of the parties and the general business context in which they arise, should be stricken. Judge Melville struck a counterclaim brought by a defendant against a plaintiff which had sued it for conduct occurring in the course of an intense competition between them for business in the relatively small print-advertising market. He did so on the ground that the counterclaim, though arising in the course of the parties' competition, did not arise from any of the particular transactions that were claimed to have given rise to the plaintiff's own underlying claims. On that score, Judge Melville noted that the related but later-occurring transaction upon which the counterclaim was based "could not logically be a part of an ongoing transaction although they may be part of an ongoing battle." Westport News, Inc., v. Minuteman Press, Inc., supra. 1996 WL 737526 at *2. Similarly, In Grant v. Lettieri, Judge Corradino found that a counterclaim involving a new chapter in an ongoing saga concerning a feud between two neighbors did not arise out of the same transaction as the plaintiff's underlying claims because success or failure on the counterclaim could not logically affect the outcome of any of the underlying claims.
12. Here, as in Westport News, Inc., v. Minuteman Press, Inc. and Grant v. Lettieri, the existence of a broader context in which the plaintiff's underlying claims and the claims presented in the first three counts of the defendants' challenged Counterclaim may arose cannot transform the claims presented in the Counterclaim into claims arising from the same transaction as the plaintiff's underlying claims. Absent a closer relation between them, such temporarily unrelated claims, involving different conduct by different persons at different times, must be stricken.
13. As for the defendants' claim of abuse of process, as set forth in the Fourth Count of their challenged Counterclaim, the Court must agree initially with the plaintiff that its own act of filing the instant lawsuit was entirely separate and distinct from the defendants' alleged acts of making false and defamatory representations about the plaintiff to the plaintiff's customers and defendant Burke's alleged violation the confidentiality agreement between himself and the plaintiff upon which the present lawsuit is based. Plainly, they occurred at different times and places and were engaged in by different parties. Even so, the question presented on this motion is not whether the acts or events upon which the challenged counterclaim is based are identical to the plaintiff's underlying claims, but whether they "arise from" the same transaction or transactions as any such underlying claims. A claim that institution of a lawsuit based upon particular underlying conduct constituted an abuse of process definitely does arise from the same transaction as those on which the claims in the lawsuit are based, the essential question presented on the abuse of process claim is whether or not the plaintiff's primary purpose for initiating its lawsuit on those claims was to obtain the relief therein requested as opposed to pursuing other improper objectives. Plainly, whether the claims made in the lawsuit have factual and legal merit as presented and, if so, whether the plaintiff suffered any actual injury due to the conduct therein complained of, are central issues both on the underlying claims and on the claim of abuse of process. As for the latter, they bear on whether the plaintiff's primary purpose for instituting the lawsuit was to prevail on and obtain the relief requested on those claims. The abuse-of-process claim thus arises from the same transaction as that on which the plaintiff's underlying claims are based, and it may appropriately be litigated as part of a counterclaim in the plaintiff's underlying lawsuit. Accord, Classic Limousine v. Alliance Limousine, LLC, supra, 2002 Conn.Super LEXIS 2728, at *28-29. For these reasons, insofar as the plaintiff's motion challenges the propriety of prosecuting the defendants' claim of abuse of process as the Fourth Count of their Counterclaim in this action, the motion must be DENIED.
14. Finally, turning to the plaintiff's claim that the defendants' Sixth Special Defense of set-off must be stricken because it improperly bases that special defense on an unliquidated claim for money damages, the Court agrees with the plaintiff, for the following reasons, that that special defense must be stricken. Practice Book § 10-54 provides: "In any case in which the defendant has either in law or in equity or in both a counterclaim, or right of setoff, against the plaintiff's demand, the defendant may have the benefit of any such setoff or counterclaim by pleading the same as such in the answer, and demanding judgment accordingly; and the same shall be pleaded and replied to according to the rules governing complaints and answers."
15. The law of setoff is controlled by General Statutes § 52-139. The relevant portion of that statute provides as follows: "(a) In any action brought for the recovery of a debt, if there are mutual debts between the plaintiff or plaintiffs, or any of them, and the defendant or defendants, or any of them, one debt may be set off against the other. (b) No debt claimed by assignment may be set off unless the plaintiff had notice, at the commencement of the action, that the debt was due the defendant." (Emphasis added.) General Statutes § 52-139. "A debt is defined as an `unconditional and legally enforceable obligation for the payment of money.' Ballentine's Law Dictionary (3d Ed.)." Petti v. Balance Rock Associates, 12 Conn.App. 353, 362, 530 A.2d 1083 (Conn.App. 1987). Importantly, then, "[a] condition precedent to the application of the setoff statute . . . is that the defendant's claim arises from a debt due from the plaintiff." Lind-Larsen v. Fleet National Bank of Connecticut, 84 Conn.App. 1, 22, 852 A.2d 799, cert. denied, 271 Conn. 940, 861 A.2d 514 (2004). See also E. Stephenson, Connecticut Civil Procedure, Volume 1, p. 258 (3rd Ed. 1997) ("[a]s to setoff . . . [i]t is available only when the plaintiff sues for recovery of a debt"). It has thus been held that, "[w]here there are no equitable considerations involved, a defendant . . . can set off debts only where they are presently due to him." (Emphasis added.) Bridgeport City-Trust Co. v. Niles-Bement-Pond Co., 128 Conn. 4, 10, 20 A.2d 91 (1941). Finally, the debt must be a "mutual" one. General Consolidated, Ltd. v. Rudnick Sons, Inc., 4 Conn. Cir.Ct. 581, 586 (1967). "Mutual debts are cross debts in the same capacity and right and of the same kind and quality; they must exist between the parties in their own right and they must be clearly ascertained and liquidated." Armatino v. Romano, Superior Court, judicial district of New Haven, Docket No. 283687 (November 28, 1989, Cretella, J.) ( 1 Conn. L. Rptr. 60, 61).
16. Applying these rules in People's Bank v. Guttman, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 93 0306692 (February 28, 1995, Hauser, J.), the Court struck a claim for setoff based on the defendant's allegation that he "is entitled to recover damages from plaintiff for loss of the use of his property and for loss of the use of the income from his property." The Court found that the defendant had failed to allege that the plaintiff presently owed a debt to the defendant. Id. In contrast, in Aitkin v. Pianka, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 06 4015879 (October 31, 2006, Rodriguez, J.), the Court denied the plaintiff's motion to strike the defendant's claim for setoff arising from an alleged agreement between the parties to share equally in the company's liabilities and profits. In that case, the defendant alleged in one count that he paid $22,238.00 on the company's credit card and was entitled to half of that pursuant to the parties' agreement. Id. The Court's reasoning rested on the explicit terms of the business agreement, and the specific amounts alleged by the plaintiff.
17. In the present case, the defendant's Sixth Special Defense alleges that "CMIC's claims are barred or partially precluded by the doctrine of set-off, as CMIC owes Smith Brothers certain sums for damages and injuries sustained by virtue of CMIC's wrongful and negligent acts as set forth in Smith Brothers' and Burke's [four count] Counterclaim" for defamation, tortious interference with business relationships, a CUTPA violation and abuse of process. The defendants in the present case have not affirmatively alleged a debt that is presently due and owing by the plaintiff. The money which the defendants seek to recover by way of a setoff relates to damages allegedly caused by the plaintiff, which are not presently due and owing. In addition, such damages are not ascertained or liquidated. Accordingly, the defendants in the present case may not pursue a setoff, and the plaintiff's motion to strike the special defense so claiming must be GRANTED.
18. For all of the foregoing reasons, the Court hereby concludes that the plaintiff's Motion to Strike must be GRANTED as to Counts One, Two and Three of the defendants' Counterclaim and as to their Sixth Special Defense, but that it must be DENIED as to Count Four of the Counterclaim. IT IS SO ORDERED this 7th day of February 2011.