Opinion
No. X01 CV-04-4006907 S
January 24, 2006
MEMORANDUM OF DECISION RE MOTION TO STRIKE (#141)
Factual Background
The plaintiff, Tienshan, Inc. (Tienshan), is an importer of tabletop and pet products. The defendant George was employed by Tienshan as an independent contractor who, since September of 1999, was Vice-President of Product Development and managed a pet products division (Castlemere). A product developer and designer of pet products for Tienshan, she also procured designs of such products for Tienshan. It is alleged a written agreement memorialized their relationship (though the court has not been provided the same.) In January of 2004, George terminated her employment to develop her own line of pet products competitive with Tienshan's product line. The Second Amended Complaint asserts George then took the position her commissions were "royalties" earned from use of her designs (Tienshan alleges what she created as an independent contractor for the company was its own.) and that she would entertain licensing her designs to Tienshan for the balance of 2004 or until its new product catalog was published. Tienshan alleges that, since her termination, George has demanded additional compensation in excess of that provided in a "Memorandum" from Tienshan to her as part of her 2003 compensation package.
Essentially she received a base salary and a commission based on the volume of Castlemere's sales.
Tienshan sued George in eight (8) counts curiously captioned as follows: First Count — Declaratory Judgment (Independent Contractor); Second Count — Breach of Fiduciary Duty (Independent Contractor); Third Count — Breach of Fiduciary Duty (Independent Contractor — In the Alternative to the First Count); Fourth Count — Declaratory Judgment (In the Alternative — Joint Venture); Fifth Count — Breach of Fiduciary Duty (In the Alternative — Joint Venture); Sixth Count — Violation of the Connecticut Uniform Trade Secrets Act (CUTSA); Seventh Count — CUTPA; and Eighth Count — Disgorgement of Ill-Begotten Gains. George's response was to file two (2) special defenses to the Fourth and Fifth Counts — Laches and Waiver and Estoppel — and a counterclaim consisting of ten (10) counts: First Count — Breach of Express Contract; Second Count — Breach of Implied Contract; Third Count — Breach of Covenant of Good Faith and Fair Dealing; Fourth Count — CUTPA: Fifth Count — Violation of Mass.Gen.L.c. 93A); Sixth Count — Declaratory Judgment; Seventh Count — Conversion, Eighth Count — CUTSA; Ninth Count — Unjust Enrichment (In the Alternative); Tenth Count — Quantum Meruit.
Tienshan is a Delaware corporation with its principal place of business in So. Norwalk, CT.; George is a Massachusetts resident. She claims wrongful conduct "occurred primarily and or substantially within the Commonwealth of Massachusetts." Counterclaim, Fifth Count ¶ 46.
Despite both parties alleging a written agreement, George alleges causes of action for breach of contract and unjust enrichment and quantum meruit. Tienshan did not address that anomaly and has now waived its right to request any of those counts be stricken.
Relevant to some of George's claims in her objection to this motion is that she asserts she was an independent contractor for Tienshan "pursuant to a compensation agreement, which was subsequently discussed on a calendar year basis" (First Count, ¶ 9). She also claims that in addition to a base salary and a bonus/sales override, she was paid a royalty fee on a percentage basis of the net sales of her designs, which fees were paid within two (2) weeks of the close of the previous quarter ( Id., ¶ 15).
Tienshan has moved to strike all of the referenced special defenses and the Third — Eighth Counts of the Counterclaim — to which George has objected. Both parties have submitted memoranda of law with numerous attachments and each has waived oral argument, consenting to adjudication of the motion on the papers.
Appicable Law
"A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court." (Citation omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003). It tests whether the complaint states a claim upon which relief can be granted. Vacco v. Microsoft Corp., 260 Conn. 59, 65 (2002); P.B. § 10-39. The trial court's role is to examine the complaint and construe it in favor of the pleader. Suffield Development Associates Ltd. Partnership v. National Loan Investors, L.P., 260 Conn. 766, 772 (2002). Specifically, the court must "assume the truth of both the specific factual allegations and any facts fairly provable thereunder" and "read the allegations broadly, rather than narrowly." Craig v. Driscoll, 262 Conn. 312, 321 (2003). The requirement of a favorable construction does not extend, however, to legal opinions or conclusions stated in the complaint but only to factual allegations and the facts "necessarily implied and fairly provable under the allegations," Forbes v. Ballaro, 31 Conn.App. 235, 239 (1993). The motion is to be tested by the allegations of the pleading, which allegations cannot be enlarged by the assumption of any facts not therein alleged. Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 549-50 (1980). The motion is properly granted if the complaint alleges mere conclusions of law unsupported by the facts alleged. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 720 (2002); Donar v. King Associates, Inc., 67 Conn.App. 346, 349 (2001). If any facts provable under the express and implied allegations in the plaintiff's complaint support a cause of action the complaint is not vulnerable to a motion to strike. Bouchard v. People's Bank, 219 Conn. 465, 471 (1991).
Fourth Count — Special Defenses
Tienshan's Fourth Count seeks a declaratory judgment regarding its claim the parties were joint venturers. It there asserts the parties have, since September of 1999, combined their monies, efforts skills and knowledge "in a common undertaking and have engaged in a joint venture." Comp., Fourth Count, ¶ 43. Tienshan argues both the First Special Defense (Laches) and the Second Special Defense (Waiver and Estoppel) should be stricken because more in the way of denials rather than special defenses since inconsistent with the allegations of the Second Amended Complaint. George is denying that she is a joint venturer because she is an "independent contractor." Memo, at 6. George asserts Tienshan's Fourth Count is barred because: a) it never informed her she had entered into a "joint venture" until suit was brought; b) it delayed telling her they were in a joint venture; and c) the delay prevented her from seeking available remedies as a joint venturer and thereby prejudiced her.
George also asserts the motion to strike is a "speaking motion" (one imparting facts outside the pleadings) and should therefore be denied. Liljedahl Bros. v. Grigsby, 215 Conn. 345, 348 (1990). George does not, however, sufficiently identify the ways in which plaintiff's memorandum relies on facts outside the pleading and, thus, the court disregards the claim.
Our Supreme Court has said, "Facts must be pleaded as a special defense when they are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action." Coughlin v. Anderson, 270 Conn. 487, 501 (2004). In an attempt to clarify the distinction between evidence that may be presented following a general denial and evidence that must be specifically pleaded as a special defense, the Court in Coughlin went on to say, "The denial of a material fact places in dispute the existence of that fact. Even under a denial, a party generally may introduce affirmative evidence tending to establish a set of facts inconsistent with the existence of the disputed fact . . ." Id., at 502. Clearly, the distinction between these two procedural vehicles is blurred. Just as clearly, George has denied she was a joint venturer with Tienshan; she has, however, gone beyond that in stating that Tienshan never informed her of the same until it brought suit and she should therefore have the right to introduce such evidence at trial. The defense of laches is properly pled by alleging an "inexcusable delay" and resulting "prejudice." Tinaco Plaza, LLC v. Freebob's, Inc., 74 Conn.App. 760, 776 (2003). She has pled both "delay" and "prejudice" in her First Special Defense. Use of such talismanic qualifiers as "inexcusable" is unnecessary when she states — as she does — that she was never informed she and the company were in a joint venture during her years of employment there. She has satisfactorily pled the elements and has stated facts that "relate to" that which Tienshan has pled in the Fourth Count. See Daddona v. RWS Son Contracting, LLC., judicial district of New Haven at New Haven, Docket No. CV 02046271, Zoarski, J. (Oct. 1, 2004). The motion to strike this special defense is denied.
Waiver is the voluntary relinquishment of a known right. Heyman Assoc. No. 1 v. Ins. Co. of Pa., 231 Conn. 756, 777 (1995). A waiver occurs only if there is both knowledge of the existence of the right and an intent to relinquish it. Novella v. Hartford Accident Indemnity Co., 163 Conn. 552, 562 (1972). George has pled a legal conclusion without stating within her special defense any facts to support the same. This special defense is stricken; the motion to strike is granted as to waiver.
"[Equitable] estoppel is predicated on proof that: a) the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief; and b) the other party must change its position in reliance on those facts, thereby incurring some injury." (Internal quotation marks omitted.) O'Sullivan v. Bergenty, 214 Conn. 641, 648 (1990). Additionally, it is the burden of the person claiming the estoppel to show that he exercised due diligence to ascertain the truth and that he not only lacked knowledge of the true state of things but had no convenient means of acquiring that knowledge. Spear-Newman, Inc. v. Modern Floors Corporation, 149 Conn. 88, 91-92 (1961). Claiming merely that she was retained as an independent contractor and performed as the same does not establish the necessary factual predicate for this special defense nor is it consistent with the cause of action Tienshan here asserts (breach of fiduciary duty one joint venturer owes another). The motion to strike this special defense is granted.
The special defense of laches therefore remains; the special defenses of waiver and estoppel do not.
Fifth Count — Special Defenses
In the Fifth Count, Tienshan has alleged George breached a fiduciary duty she owed it as a joint venturer.
George's First and Second Special Defenses to this Fifth Count (laches, waiver and estoppel) are replications of its special defenses to the plaintiff's Fifth Count. For the same reasons above stated, the motion to strike the First Special Defense is denied; it is granted as to the Second Special Defense of waiver and estoppel.
Third Count — Breach of Covenant of Good Faith and Fair Dealing
George has pled she had an independent contractor relationship with Tienshan since September of 1999, that there was an express compensation agreement which included a bonus based on net sales and royalties, that Tienshan failed to compensate her under the terms of that agreement through 2003 (She also claims it attempted to re-negotiate and to "unilaterally reduce" her compensation package eight and one-half [8 1/2] months into the calendar year 2003.), and that, as a result, she lost monies and was injured thereby.
¶ 33a of the Third Count of the Counterclaim asserts Tienshan failed in good faith to negotiate an agreement for calendar year 2003. ¶ 10 alleges the compensation package was terminated in January of 2004. Tienshan proposed a new package in August of 2003. The claim is only that a new contract was to be "discussed" yearly. George's claim that Tienshan failed to negotiate in good faith is less than clear since other allegations suggest she continued to work under the terms as she knew them for numerous months.
It is well settled that every contract carries an implied covenant of good faith and fair dealing that requires neither party will do anything to injure the rights of another under that agreement. The plaintiff asserting such breach must plead: 1) there was a contract under which the plaintiff reasonably expected to receive certain benefits; 2) the defendant engaged in conduct that injured the plaintiff's rights to receive some or all of those benefits; and 3) when engaged in such conduct, the defendant was acting in bad faith. Habetz v. Condon, 224 Conn. 231, 238 (1992). The plaintiff on the counterclaim has pled all three (3) elements when she pled in ¶ 33b the counterclaim defendant failed to abide by the terms of the existing agreement in 2003. That the other sub-paragraphs present to the counterclaim defendant as over-reaching may present in the same way to a jury. So long, however, as there are any facts provable under the express and implied allegations to support the cause of action pled, the complaint is not susceptible to a motion to strike. Given ¶ 33b, the Third Count of the counterclaim survives this motion. Since, however, George claims only that Tienshan had a duty to "discuss" the compensation package "on a calendar year basis" (¶ 10) without specifying when in such calendar year that discussion was to occur, because there is no claim the employer had a duty to yearly increase the compensation package in terms of the amount of bonus or royalties received, and because the word "disingenuous" without factual support lends nothing to the claim, sub-paragraphs a and c are here stricken.
Fourth Count — CUTPA
C.G.S. § 42-110a et seq., the Connecticut Unfair Trade Practices Act (CUTPA), prohibits the use of unfair or deceptive trade practices. There is no requirement of a consumer relationship to seek the protection of CUTPA. Fink v. Golenbock, 238 Conn. 183, 215 (1996). The standard for determining whether an act or practice constitutes a CUTPA violation is known as the "cigarette rule" — specifically: (1) whether 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, statutorily, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; or (3) whether it causes substantial injury to consumers . . . All three criteria do not need to be satisfied to support a finding of a violation of CUTPA. Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 644 (2002).
Our Appellate Court has found the same facts that establish a breach of contract may be sufficient to establish a CUTPA violation. Lester v. Resort Camplands Inter'nl., Inc., 27 Conn.App. 59, 71 (1992). The question generally turns on whether, as Tienshan here claims, this count is merely a reconstituted breach of contract claim or whether there are sufficient aggravating factors or fraudulent behavior accompanying the breach. Here, there is no claim of fraudulent behavior; George, however, claims aggravating factors in that Tienshan attempted to sell, market, reproduce, etc. her intellectual property, "illegally" attempted to retroactively re-negotiate and unilaterally reduce her compensation package after she had rendered services for Tienshan for several months under an existing agreement, and continued to use her designs while refusing to pay her royalties. The majority of the claims in ¶ 37 of the Fourth Count do no more than re-hash the contract count. The claim, however, that Tienshan attempted to market, copy, reproduce, or use her "intellectual property" is a sufficient aggravating factor since that claim implies an attempt to usurp what was hers as the company's own. Absent discovery which clarifies what is properly claimed as "intellectual property," the court must accept as true this allegation for the purpose of a motion to strike. The court therefore denies the motion to strike this count but restricts the claim to that asserted in ¶ 37(2) only. That claim fairly presents as unfair conduct resulting in ascertainable loss to the counterclaim plaintiff.
She also claims she was not adequately compensated in 2003 (a simple breach of contract claim) "through February 20, 2004"; yet, George concedes she terminated her employment on or about January 30, 2004. It is therefore not clear on what basis she was entitled to compensation after that date (unless for reason of unpaid royalties which is not asserted in ¶ 37[2] of this count).
Fifth Count — Violation of M.G.L.c. 93A
M.G.L.c. 93A is the Massachusetts Unfair Trade Practices Act. Resolution of this claim requires the same analysis applicable to CUTPA since the required findings for a violation under both statutes are the same. At least one Massachusetts court has set the bar high in saying, "The objectionable conduct must attain a level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce." Levings v. Forbes Wallace, Inc., 396 N.E.2d 149, 153, 8 Mass.App.Ct. 498 (1979). However, a superior court in Massachusetts has determined the repeated and intentional failure to pay commissions was sufficient "rascality" to assert a violation under that state's law. See Washington Heights, Ltd. v. AM Enterprises, Inc., Super. Ct. Of Ma. at Worcester, Docket No. 93-2562-A (Toomey, J., March 23, 1994). If there is any "rascality" to George's claims in this count, it is limited to ¶ 37(2). The motion to strike the count is denied; the Fifth Count is, however, limited to that claim only.
Presumably, George makes this claim to preserve her right to later claim Massachusetts law should apply in view of her allegation the counterclaim defendant's wrongful conduct occurred primarily in Massachusetts. The court does not decide that issue at this time and any ruling on this cause of action is not dispositive of that issue.
Sixth Count — Declaratory Judgment
The sole basis for Tienshan's claim this count should be stricken is premised upon George's failure to append to its counterclaim "a certificate stating that all interested persons have been joined as parties" as required by P.B. § 17-56(b). Tienshan does not, however, argue there are any other interested parties who should have been provided notice. Under circumstances where it does not appear there are such other interested parties, it would be imprudent to strike this count for that reason alone. "Our Supreme Court's jurisprudence has construed the rules of practice to permit the mandatory certificate of notice to be filed at any time before a judgment is rendered at trial." 37 Huntington Street, H, LLC v. Hartford, 62 Conn.App. 586, 593 (2001). The motion to strike the Sixth Count of the counterclaim is denied.
Seventh Count — Conversion
To establish a claim for conversion, a party must demonstrate ownership of the asset at issue, that the other party deprived it of the asset for an indefinite period of time, that the deprivation was not authorized, and that loss resulted from it. Aetna Life Casualty Co. v. Union Trust Co., 230 Conn. 779, 790-91 (1994); Discover Leasing, Inc. v. Murphy, 33 Conn.App. 303, 309 (1993).
Our Supreme Court has defined "conversion" as an "unauthorized assumption and exercise of the right of ownership over goods belonging to another, to the exclusion of the owner's rights." Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 649 (2002). Our Court of Appeals has identified two (2) general classes of conversion — that in which the possession of another's goods is wrongful from the outset and that in which the conversion arises subsequent to an initial rightful possession. Miller v. Guimaraes, 78 Conn.App. 760, 778 (2003), citing to Luciani v. Stop Shop Cos., 15 Conn.App. 407, 410, cert. denied, 209 Conn. 809 (1988). Clearly, if there is conversion here, it is of the second kind since the pleadings assert Tienshan had the right to use, sell and market George's products and it was not until she terminated and Tienshan allegedly continued to sell without appropriate payment to her that conversion could have occurred. Tienshan correctly argues George has not asserted Tienshan's conduct was to the exclusion of her rights. The tort of conversion occurs "when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights." News America Marketing In-Store, Inc. v. Marquis, 86 Conn.App. 527, 544 (2004), citing to Wellington Systems, Inc. v. Redding Group, Inc., 49 Conn.App. 152, 169, cert. denied, 247 Conn. 905 (1998).
Examination of the counterclaim reveals no assertion either that Tienshan's exercise of control over George's creations deprived her of the right to sell or market her products simultaneous with Tienshan's sale of those products nor is there any allegation the original agreement between the parties gave Tienshan the exclusive right to sell George's products. No reason is offered as to why George could not continue to sell them. Her products were sold through the Castlemere Creations Division of Tienshan and part of her responsibility was to promote and sell Castlemere Creations products. First Count, Counterclaim ¶ 6, ¶ 12. The significance is that, absent Tienshan's conduct resulting in George's inability to exercise any ownership or control over her creations, George's only injury is Tienshan's failure to compensate her for what was sold through Castlemere after she terminated. That is a mere breach of contract claim.
The pleading thus does not state a cause of action for conversion. The motion to strike the Seventh Count of the Counterclaim is granted.
Eighth Count — Violation of CUTSA
This count alleges Tienshan violated C.G.S. § 35-51, et seq., the Connecticut Uniform Trade Secrets Acts (CUTSA). § 35-51(d) provides a trade secret is "information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that: (1) derives independent economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Id. Whether or not particular material is a trade secret, and therefore entitled to protection is a fact-driven analysis. See Town Country House Home Service, Inc. v. Evans, 150 Conn. 314(1963). "Information of a business is a proprietary trade secret if it is information not generally available to competitors which has been developed at the expense of the business and which the business safeguards as a secret known only by those acting on behalf of the business." Id., at 319.
The only paragraph in the Eighth Count which describes the alleged "trade secrets" is ¶ 60 which states they include but are not limited to " detailed information concerning her product designs." The following paragraphs consist of generic language taken from this state's statutory or decisional law. It is then asserted Tienshan has sought to use and profit from these trade secrets, failed properly to safeguard those secrets, maliciously and willfully misappropriated them to the injury of George and the unjust enrichment of Tienshan — all in violation of CUTSA. ¶ 63-67. In her memorandum, George argues that the trade secrets here claimed are more than just the finished product but instead consisted of "all drawings and/or other information upon which the final product is actually based," and "all work that leads up to the actual manufacture of the product, including thought processes and designs (sic) techniques." Memorandum, p. 37. The counterclaim plaintiff paints with too broad a brush. Defendant has a right to know whether what is claimed a trade secret is a compilation of materials used in the product design, a manufacturing technique, a paint made long-wearing by addition of some specific ingredient, the insertion in a pet toy of a unique mechanical speech device, etc. No clue is provided. The motion is to be tested by the allegations of the complaint and they may not be enlarged by any assertions outside this counterclaim. Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 549-50 (1980). The court's obligation to favorably construe the allegations of the complaint does not extend to legal opinions or conclusions but applies only to factual allegations. Forbes v. Ballaro, 31 Conn.App. 235, 239 (1993). The motion is properly granted if the complaint alleges mere conclusions of law unsupported by the facts alleged. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 720 (2002); Donar v. King Associates, Inc., 67 Conn.App. 346, 349 (2001).
¶ 61 asserts these "trade secrets derived independent economic value from not being widely known, were not well known outside of the plaintiff's business, would be of great value in the hands of a competitor, could only be lawfully acquired with great difficulty, and were learned by the plaintiff through great effort and/or expenditure of large sums of capital." ¶ 62 alleges none of this information "was known or open to the public, and the plaintiff undertook reasonable measures to keep the trade secrets confidential and out of the public domain."
Under Nora Beverages v. Perrier Group of America, 164 F.3d 736 (2d Cir. 1998), finished products are not "trade secrets" because "readily observable in the marketplace." Id., at 750.
The allegations of "trade secrets" as asserted in the Eighth Count of the counterclaim are legal conclusions unsupported by any factual assertions.
The motion to grant this count is granted.
The plaintiff on the counterclaim is ORDERED to revise her counterclaim within thirty (30) days of this date consistent with this decision.