Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Conn. Sup. Ct.: Auction buyer prevailed on claims against seller for misrepresenting owner of goods, (Nov 4, 2013)

By Jody Coultas, J.D.

A trial court properly held that auction buyer Frederick C. Ulbrich prevailed on his Connecticut Unfair Trade Practices Act (UTPA) claim against TD Banknorth, N.A., the Connecticut Supreme Court has held (Ulbrich v. Groth, November 12, 2013, Vertefeuille, C.). The trial court also properly awarded punitive damages.

TD Banknorth held mortgage and security interests in real and personal property that was sold at auction. Before the auction, TD Banknorth learned that the property owner did not own many of the items of personal property but had leased them, and, therefore, it was possible that the items were not subject to the bank’s security interest. However, TD Banknorth did not inform potential bidders that some of the property did not belong to the property owner, and the property owner also led Ulbrich to believe that virtually all of the personal property was included in the auction sale. After Ulbrich purchased the property, he discovered that there were conflicting claims as to the ownership of the personal property and that he would not receive many of the items that he believed were included in the sale.

To determine whether a practice violates the UTPA, Connecticut courts have adopted the criteria set out in the cigarette rule by the FTC for determining when a practice is unfair: (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; (2) whether it is immoral, unethical, oppressive, or unscrupulous; and (3) whether it causes substantial injury to consumers.

A jury found in favor of Ulbrich on the UTPA claims against TD Banknorth. A trial court awarded punitive damages and attorney fees pursuant to the UTPA, but held that it lacked authority to grant Ulbrich’s request for nontaxable costs. The jury rendered a damages award of $462,000. The trial court awarded $273,128 in attorney’s fees and $1,251,000 in punitive damages on the UTPA claim.

The economic loss doctrine did not bar the UTPA claim, according to the court. In a previous case, the court had held that UTPA claims arising from a breach of contract were barred by the economic loss doctrine because the claims depended on allegations of fact that were identical to breach of contract claims. The court had also held that under the UCC, actions for fraud or misrepresentation, which formed the basis for the UTPA claim, were presumptively inconsistent with post-acceptance claims for breach of warranty. However, in every other case, Connecticut courts have never held that UTPA claims were barred if the plaintiff suffered only an economic loss and the loss arose solely from a breach of contract. Therefore, the court overruled that previous decision and the defendants could not rely on that case to assert that the UTPA claim was barred by the economic loss doctrine. The economic loss doctrine does not bar claims arising from a breach of contract, including a breach of a contract for the sale of goods covered by the UCC, when the plaintiff has alleged that the breach was accompanied by intentional, reckless, unethical, or unscrupulous conduct.

Because TD Banknorth failed to properly preserve its claim that the trial court improperly instructed the jury, the court held that the claim was not reviewable. TD Banknorth argued that the trial court improperly instructed the jury that the “cigarette rule” provided the proper legal standard for the UTPA claim when the federal courts have abandoned that rule in favor of a different rule. In determining whether a practice violates the UTPA, Connecticut courts have adopted the criteria set out in the cigarette rule by the Federal Trade Commission for determining when a practice is unfair. TD Banknorth pointed to a Connecticut Supreme Court case in which the court noted decisions on unfairness under the UTPA are to be guided by the interpretations of the Federal Trade Act by the Federal Trade Commission and the federal courts. TD Banknorth submitted a request to charge in which they asked the court to instruct the jury in accordance with the cigarette rule, as well as to instruct them that there could not be an unjustified injury to the consumer if Ulbrich proved only that TD Banknorth was negligent under the cigarette rule. To preserve a claim that a jury instruction was defective for appeal, a party must either submit a written request to charge covering the matter or take an exception to the charge as given. TD Banknorth neither requested that the trial court instruct the jury in accordance with current federal law applicable to unfair trade practices instead of the cigarette rule, nor excepted to the instruction given by the trial court on that ground. The court dismissed TD Banknorth’s argument that it would have been futile to request the trial court to instruct the jury in accordance with current federal law instead of the cigarette rule because the trial court had no power to overrule the court’s decisions holding that the cigarette rule applies to UTPA claims. There was no authority for the proposition that the futility of requesting a trial court to overrule a decision automatically excuses failure to preserve a claim.

The evidence was sufficient to support a finding that TD Banknorth was not merely negligent or incompetent, but had engaged in unethical or unscrupulous conduct, according to the court. TD Banknorth argued that the trial court improperly determined that the evidence was sufficient to support the jury’s finding that TD Banknorth violated the UTPA. All parties involved in sale of the personal property knew that some of the personal property was not owned by the debtors, and reasonably believed that the seller had an obligation to warn potential buyers of that fact. Therefore, the jury reasonably could have found that TD Banknorth’s failure to inform potential buyers that some of the items of property were leased and would not be conveyed to the buyers was not the result of a mistaken but good faith belief that the burden was exclusively on the buyers to determine whether the debtors had good title to the personal property, but was the result of a conscious decision not to perform a known obligation. A defendant’s subjective belief that it has a particular obligation does not necessarily support a jury finding that the failure to fulfill that obligation violates the UTPA. However, TD Banknorth knew that it was required to disclose the issues involved in the sale to potential buyers and that its failure to do so was more than mere negligence.

The trial court did not abuse its discretion in awarding punitive damages, according to the court. Awarding punitive damages and attorney’s fees under the UTPA is discretionary and will not ordinarily be interfered with on appeal unless the abuse is manifest or injustice appears to have been done. To award punitive or exemplary damages, evidence must reveal a reckless indifference to the rights of others or an intentional and wanton violation of those rights. The trial court reasonably concluded that punitive damages were proper based on the evidence presented at trial that TD Banknorth acted with a reckless indifference to the rights of potential buyers.

The court held that punitive damages under UTPA did not have to be limited to attorney’s fees to avoid injustice. TD Banknorth argued that even when punitive damages are statutorily authorized, the damages are measured by attorney’s fees. The court has never squarely addressed the question of whether punitive damages under the UTPA should be limited to common law punitive damages, which include only attorney’s fees, less taxable costs. Based on a review of the legislative history and wording of the statute, the legislature did not intend to limit punitive damages awards to the expenses of bringing the legal action. If the legislature had intended to impose such a limitation, it presumably would have done so either by authorizing the trial court to award double attorney’s fees or by authorizing it to award double punitive damages.

Dissent. The dissent disagreed with the majority’s conclusion that the issue of whether the cigarette rule remained the appropriate test for unfairness under the UTPA was not properly preserved and would have modified the existing jurisprudence. It was inappropriate and unnecessarily formalistic to decline to review the issue simply because the proposed jury instruction was phrased as a modification, rather than a wholesale abrogation, of the cigarette rule, particularly in light of the court’s inconsistent pronouncements on this issue, according to the dissent.

The case is No. SC 18815.

Attorneys: Richard P. Weinstein (Weinstein & Wisser, P.C.) for Frederick C. Ulbrich. Allan B. Taylor (Day Pitney LLP) for Kelly J. Groth.

Companies: TD Banknorth, N.A.

Cases: StateUnfairTradePractices ConnecticutNews