Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Aeton Law Partners LLP : Hartford, Middletown, Glastonbury

 In a decision that will be officially release tomorrow (download) the Connecticut appellate court ordered a new trial in favor of Charter Oak Lending for the claims it brought against employees who defected to a competitor.   Unless there is a successful appeal to the Connecticut Supreme Court, this means Charter Oak will get a second chance to prove its claims against the key employees despite the lack of a written contract in place covering non-competition.   I originally posted about this case in November of 1999 when Charter Oak lost at the trial level.  The case result had generated media interest surrounding the claims because the damages and the lack of a contract governing the employment relationship. 

As I noted at the time, it is always better to have a written contract in place with employees to govern post termination conduct involving competition, solicitation, confidential information, and trade secrets. However, the lack of contract does not by itself leave a business without a remedy especially if the situation involves use of trade secrets or confidential information or the employees actively competing before departure.  

In Charter Oak, the trial court dismissed the claims finding that Charter Oak failed to make out a threshold case during the trial.  In other words, the case never reached the level of a final decision on the merits because the judge found that the basic elements of the claims were not met.  The basic claims were breach of fiduciary duty, misappropriation of trade secrets and unfair trade practices. 

The appellate court reversed the decision and found that facts existed to make out threshold claims for these causes of action.  Therefore, the trial court judge should have permitted the case to proceed to a final decision on the merits.  Significantly,  the appellate court deemed as sufficient Charter Oak's claim that its client list was a trade secret entitled to protection under General Statutes 35-51 known as the Connecticut Uniform Trade Secrets Act (CUTSA).  The court stated:

to make out a prima facie case for a violation of CUTSA, the plaintiff was required to present sufficient evidence that, if believed, would prove that the information in its customer list had independent economic value and that the plaintiff made reasonable efforts to maintain its secrecy.

Here were some of the facts that the court found sufficient to afford trade secret protection to the client list:

• access was limited
• the computers were encrypted
• the building was secured where the computers were stored
• employees were not permitted to share the list
• employees understood the list was private
• the lists were not sold or disclosed to third parties
• the list could not be obtained from any other single source
• the list gave Charter a competitive advantage

In addition to the ruling on CUTSA, the appellate court reaffirmed some aspects of the law with respect to fiduciary obligations of agents or employees.  The court affirmed the duty of loyalty owed by an agent to his or her principal.  This duty applies regardless of a whether a contract exists.  In the business context, this duty forbids an employee from actively competing against an employer concerning the subject matter of the agency or from using confidential information against the employer in competition.

Whether Charter Oak prevails in the new trial remains unclear.  However, the lack of a contract or written agreement should not prevent Charter Oak from getting a final decision on the merits.

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The Connecticut Appellate Court's  recent decision in Schirmer v. Souza is a reminder that there are circumstances where you can still recover damages for non-payment of services even when you do not have a written contract.   In Schirmer, the Appellate Court upheld an award in favor of the plaintiffs on claims of unjust enrichment concerning renovations to a residence on the defendants' property.

In a somewhat strange set of facts, the plaintiffs loaned their daughter and son-in-law money to renovate a home.  The plaintiffs believed that their daughter had title to the property when the son-in-law's parents, the defendants, actually owned the property.  The son-in-law performed the renovations but went beyond the scope of the project and essentially built a new house.  The defendants then sold the house after the renovations.  Plaintiffs expected  over $100,000 from the sale of home to cover the renovation costs and instead got nothing.  Plaintiffs had no contract with the defendants, the owners of the newly constructed house.  Plaintiffs sued and recovered after trial based on a theory of unjust enrichment. 

Unjust enrichment is an equitable remedy.  It is a broad and flexible remedy when the right circumstances are present.  To recover, a plaintiff must prove:

• The defendants were benefited
• The defendants unjustly did not pay the plaintiffs for the benefits
• The failure to pay was to the detriment of plaintiff
• The plaintiff lacks an available remedy under a written contract

 As the court noted in this case, the question becomes "did the defendant, to the detriment of someone else, obtain something of value to which the defendant was not entitled?"  The equitable remedy is based upon the principle that one should not be permitted to unjustly enrich himself at the expense of another.  Instead, there should restitution for the property received. 

In this case, the defendants claimed there was an error at trial because there was no proof of any contractual relationship between the parties.  However, the basis of recovery was not in contract, but rather quasi contract with restitution as the remedy.  Restitution amounts to restoring to a party that property or money that was wrongfully taken or received by another. The basic idea is that one party should not benefit unfairly to the detriment of another. 

When unjust enrichment applies, a plaintiff can recover in restitution without a contract.  In Connecticut lawsuits, you typically see claims for unjust enrichment in circumstances where there may be no valid contract in place but one of the following occurred:

• Services rendered, but not paid for
• Wrongful receipt of profits
• Mistakes made in payment to the wrong party
• Improvements to property

In his case, the Appellate Court found that the defendants accepted the benefit of the renovations and made a profit upon the sale of the house.  There was some difficulty in establishing the proper damages, but the Appellate Court upheld the finding of damages that amounted to the expenditures of the plaintiffs.  

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The answer is -   yes, under the right set of facts.  In Connecticut, attorneys must abide by a client's decision to settle a case.  Additionally, an attorney has to consult with a client and secure consent to accept or make a settlement offer.  Seems straightfoward, right? 

However, what happens if an attorney reasonably believes he has consent, but the client later disagrees?  Or, what if the client does give consent, but later changes her mind?  Or, how about a situation where it appears to the opposing party that the client's attorney had authority to settle based on conduct of the client.  Does it matter whether there really was express authority given to the attorney to settle?

In a recently released decision,Ackerman v. Sobol Family Partnership, et al, the Connecticut Supreme Court addressed these very issues.  In the case, the Supreme Court upheld a trial court judgment in favor of a group of defendants that sought to enforce a settlement agreement.  The case involved a history of negotiations between well known attorneys for the two sides, including a failed mediation and a few months of verbal and written exchanges on settlement terms. 

The underlying case involved a dispute concerning "management and oversight of a family partnership and various family trusts."  Shortly before trial was scheduled to start, the defendants believed that a global settlement was reached for 1.1 million dollars based on an agreement with the plaintiffs' attorney.  The plaintiffs disagreed and claimed that their attorney did not have authority to bind the plaintiffs to the settlement.  The defendants then filed a motion to enforce the settlement agreement.  Judge Eveleigh held a hearing on the motion, made factual findings on the record, and ultimately entered judgment in the case based on the settlement agreement.  

On appeal, the Supreme Court gave deference to Judge Eveleigh's findings and upheld his decision to enforce the settlement agreement despite one of the plaintiffs stating her attorney had no authority to settle the case.    The Court's decision was based on the actual or apparent authority that the plaintiffs' attorney had to settle the case coupled with the defendants' reasonable belief that the attorney had the authority. 

The following factors, if present, can result in an attorney binding a client to an enforceable settlement agreement whether the client actually agreed or not:

• Terms of the settlement are clear, certain, and unambiguous
• Offer and acceptance of the terms
• Attorney had actual or apparent authority to agree to the terms
• If apparent authority, then opposing party must have good faith belief that attorney had authority

On the issue of apparent authority, the basic question is whether it reasonably appeared to the opposing party that the attorney had authority to settle regardless of whether there was express authority.  The relevant inquiry for the court is the conduct of the client, not the attorney.  In other words, the client can engage in conduct that permits others to believe the client's attorney had authority to settle.  For example, a court may find apparent authority existed if the client through her own actions held the attorney out as "possessing sufficient authority" or knowingly permitted the attorney to act with such authority.   If it was reasonable for the opposing party to believe there was authority to settle, a binding agreement can exist.  In these circumstances, as in the Sobol case, the court can enforce a settlement agreement even if the client later claims that there was no actual authority for the attorney to settle the case.  

The take away here is that a settlement agreement negotiated between attorneys can, under some circumstances,  bind a client to the agreement in court even if a client did not intend to agree or the client later changes her mind.  If a client wants to have final approval over every aspect of a settlement agreement, it should be clear to not only the client's attorney, but also communicated to the opposing party as well. 

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One of the many issues to consider when filing a lawsuit against a party in another state is how you will go about enforcing the judgment if you win.  For example, lets assume you live in Alaska and want to sue someone who lives in Connecticut.  You decide you do not want to hire a Connecticut lawyer, but instead decide to sue in Alaska state court.  You win a "default" judgment in the Alaska case because the Connecticut resident never appeared in the case or hired a lawyer to defend the case. 

Typically, in these circumstances, you take the judgment from one state, hire an attorney in the state where the defendant lives, and you "domesticate" the judgment.  In this example, you would take the Alaska state court judgment to a court in Connecticut and ask the Connecticut court to enforce it.  Under the Full Faith and Credit Clause of the United Stated Constitution, states have a duty to recognize or give "credit" to the "judicial proceedings" of every other state.  

Sounds simple right?  Not always the case.  There are various ways to challenge a foreign or out of state judgment.  One of the primary methods Connecticut attorneys use to challenge a foreign judgment is to contest the personal jurisdiction of the court that rendered the judgment.  This is exactly what happened in Maltas v. Maltas (download here) which was officially released yesterday by the Connecticut Supreme Court. 

John Maltas, an Alaskan resident, sued his brother Brian Maltas in Alaska state court.  He won a default judgment because his brother stayed in Connecticut and ignored the lawsuit.  John Maltas then filed a lawsuit in Connecticut seeking to enforce the default judgment.  Brian Maltas raised as a special defense that the Alaska court lacked jurisdiction over the matter in the first place and no "credit" should be given to the judgment.

At the trial level, John Maltas won summary judgment after arguing that personal jurisdiction may only be challenged in Connecticut state court through a motion to dismiss as opposed to asserting an answer with a special defense.  On appeal, the Connecticut Supreme Court reversed the decision and stated that a special defense may be used to contest whether the Alaska state court had jurisdiction to rule on a dispute involving a Connecticut resident.  As a result, all of John Maltas' efforts thus far, dating back to 2005, have been fruitless and reversed.  He may ultimately win at trial, but for now, jurisdictional defenses have defeated his claim without any hearing at all on the merits of the case.    

The takeaway here is that decisions regarding where to file suit are important, especially when the lawsuit will involve an out of state defendant.   There are ways to avoid or mitigate potential problems that may arise with domesticating a foreign judgment.  For example, you could elect to file the lawsuit where the defendant lives.  This may be an inconvenience in the short term, but it might also avoid jurisdictional problems when the time comes to enforce the judgment. Of course, the ability to enforce the judgment is only one of many issues to consider at the time of filing a lawsuit.

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After 5 years of litigation, two appeals, and one trial, the answer is.......Yes, that statement can constitute a valid offer to end a Connecticut partnership between two feuding sisters who had agreed in writing to split lottery winnings.  The story of the feuding sisters has been covered by Alaine Griffin at the Hartford Courant and the local news stations (NBC CT;   CBS NEWS).

According to yesterday's ruling by Connecticut Superior Court Judge Cynthia Swienton, when one sister said "I don't want to be your partner anymore" and the other said "okay," the partnership was over and the contract rescinded. 

The case involved a dispute between two sisters, Terry and Rose,  over a written contract that dated back to 1995.  Terry split some poker winnings ($165,000) with her sister Rose and decided they needed a contract to make sure there would be a split for any future winnings.  You might call the contract a  paper napkin partnership agreement, but it was notarized and drafted by an accountant.  It was simple and straightforward.  The relevant part of the contract read:

We are partners in any winning we shall receive, to be shared equally.

Fast forward to 2004 and a fight over $250.  The Court found that Terry said during the fight "I don't want to be your partner anymore."  Rose replied "okay."  Rose then went and became partners with her brother, Joe.  Of course, Joe then went out and bought a $500,000 winning Powerball ticket.  Terry found out, Rose refused to pay Terry, and finally a lawsuit was filed for breach of contract.   

After going through the history of the relationship and finding credibility in favor of Rose, the Court found that Terry and Rose mutually agreed to rescind or cancel the contract on the basis of that exchange of words and the conduct of the sisters after the exchange.  Case closed, at least for now.  It is unclear if there will be any appeal.   

In reading the decision, I found it interesting that there was no mention of Connecticut's partnership statute.  It is not clear if either party raised the statute in the case.  The case was decided on pure contractual grounds based on an agreement to rescind the contract.  Nevertheless, it also appears to me that the Court was swayed by more than just the exchange of words, but the actual conduct of the parties after the exchange.  In other words, you could say that they stopped acting like partners, they agreed not to be partners, and therefore, no partnership continued to exist.  

Interesting case, but also sad to see.  In the end, Terry's frustration over $250 might have cost her not only a share of the $500,000 winning ticket, but the good relationship she had with her sister. 

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When I started this blog, I decided I would keep an eye on lawsuits related to social networking websites as it seems this type of evidence will soon take the place of the smoking gun email of the last ten years.  The impact of social networking evidence in Connecticut business litigation will continue to grow.

My interest in social networking cases started with a Facebook lawsuit so I made a Facebook category on this blog and discussed some concerns for individuals and Connecticut businesses.  Then Twitter exploded to growth of 1000% last year, so I added a Twitter defamation case and a new category.  And now, its finally here ... I need a  LinkedIn category for LinkedIn lawsuits. 

I do not claim to know about all of the social networking lawsuits out there.  There are also some social networking sites that I ignore, like the dying MySpace.  Nevertheless, I do track cases of interest in this area.  You might also check out Megan Erickson's Social Networking blog as a resource to check on these type of claims or visit Dan Schwartz's Connecticut Employment Law Blog for resources and tips on policies for employers related to social networking.  

The LinkedIn lawsuit involves a non-compete agreement and solicitation of employees by a former employee. Molly DiBianca with The Delaware Employment Law Blog detailed the case in a post about the lawsuit filed by TEKSystems against its former employees.  Nothing strange about this type of lawsuit, only in this case, TEKSystems claims it has evidence of breach of the employment contract arising from post-termination solicitation of its employees through the LinkedIn connections of one of the defendants.  Here is a copy of the lawsuit (go to paragraph 37). 

Molly DiBianca states it is the first lawsuit she is aware of using an employee's LinkedIn account.  She may be right, as I am not aware of another case like it.  Nevertheless, I certainly expect this type of social networking evidence to be the focus of more lawsuits and it was only a matter of time for LinkedIn to be involved in a case with media attention.  In Connecticut, we had our own social networking evidence case with Facebook.  In a bullying case involving Miss Porter's School, Judge Arterton ruled that the plaintiff's postings in an expired account were relevant.   

The way I see it, this is only the beginning.  Soon enough, social networking evidence will be as significant and commonplace as email evidence.  At that point, I'll have to find something else to blog about ....

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Recently, I received a call from an attorney trying to figure a way out of a Master Services Agreement for his client.  His client, the purchaser, was stuck owing a lot of money to a technology vendor under a Master Services Agreement that was not working for the client.  The problem - - there was no protection under the contract for the purchaser and no clear way out without owing money to the vendor. 

The problem is not unique to technology purchasers.  Bad contracts also can hurt technology providers.   Take for example a recent case involving a technology company in a lawsuit over installation of new software for a small business.  The business claimed loss of profits due to extended down time as a result of a claimed breach of warranty.  The problem for the technology vendor - -  no protection in the contract with a limitation of remedy provision or disclaimer of warranty.  This opened up a claim for consequential damages that neither party contemplated.

In these cases, whether you are the attorney for the customer or the vendor, many times you are left saying "I wish you called me when you negotiated this contract."   In most instances, when a large or significant service and technology purchase is involved, the relationship between customer and vendor is set forth in a Master Services Agreement.  Master Services Agreements are typically contracts in information technology or professional services that govern a long term vendor-client relationship.  The contract includes general provisions on price, payment terms, and project scope.  The contracts usually include a Statement of Work. The Statement of Work will define the project specifics, services, or deliverables.

While the negotiation of a Master Services Agreement can be quite complex depending on the scope of the project, there are some general terms and clauses that should be considered or included in each agreement to avoid mutual misunderstandings, bad financial decisions, and unnecessary business litigation.  This applies to both sides of the negotiation whether you represent the customer or the vendor.  

There are some standard clauses and considerations in Master Services Agreements that can help the parties reach a true meeting of the minds as to the scope, risks, and obligations. Here is a checklist of some topics and questions that should be discussed as part of the negotiation of a Master Services Agreement:

• Price.  Very important to remember that the sticker price or price on the contract is many times not as important as the soft costs and expenses.  It benefits both sides of the deal to make sure the price and payment terms (including add on fees like renewals, maintenance and service) are clear and understood.
• Payment.  Is the agreement going to call for payment by time and materials?  A fixed fee?  A hybrid of both?  Will the payments be tied to meeting milestones on deliverables?  Penalty or late fees? Any retained amounts until completion?  For both sides of any deal, it is better to work out the details on payment ahead of time and avoid problems before they arise.
• Intellectual Property.  Who is going to own the intellectual property rights to the new software or work performed?  If this is not addressed in the contract, unintended results may occur where the vendor has future property rights for a project paid for by the customer. 
• Warranty.  What is the scope of the warranty of the work? Will the warranty be limited to the vendor's performance in a workmanlike manner or is greater warranty protection needed for a new product installation?  Does the vendor warrant the software or other products? The warranty many times provides the basis of the claim for damages against the vendor.  By limiting or expanding the warranty, the scope of liability is understood by both parties at the outset. 
•  Statement of Work.  This is the document that will provide the specifics on the deliverables under the agreement.  Will it be a separate document?  How much detail will be included?  What assumptions are made?  How can the scope of the project increase?  What are the due dates and deadlines?  An overly broad Statement of Work can be a problem for both a vendor and customer. 
• Confidentiality Agreement.  Typically, the parties to a Master Services Agreement will want a mutual confidentiality agreement or non-disclosure agreement to prevent disclosure of proprietary information and company trade secrets.  How will you define proprietary information and trade secrets?  How long will the agreement last?  What are the penalties for violation?
• Indemnification.  These clauses typically shift the risk associated with a loss or a claim from one party to another.  For example, what happens if the customer gets sued for patent infringement for work product of the vendor?  Should the vendor have to defend and indemnify the customer for the lawsuit?
• Attorneys fees and Alternative Dispute Resolution (ADR).  How will disputes under the contract be resolved?  ADR clauses in the contract can provide for the award of attorney's fees to the prevailing party and force all disputes to be resolved in a binding arbitration as opposed to a typical lawsuit in court.   More and more, both customer and vendor are seeking to avoid costly litigation by electing for a streamlined dispute resolution process.
• Insurance.  Does the vendor have errors and omissions insurance?  Should it be required in the contract?
• Termination.  What terms will govern when one party is unhappy or if a party is in breach?  How do you get out of the contract?  30 days notice?  10 days notice?  Is there any payment for at will termination?  Does work stop upon notice?

These are just a few of the major considerations at play for both a purchaser and vendor under a Masters Services Agreement.  For any significant transaction,  it is advisable for a technology lawyer to negotiate the contract.  Early involvement of a technology attorney can save time and expense later and help each party understand the risks of any particular project. 

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As we head to the new year, here is a round up from some fellow bloggers on contracts, cobra, wage disputes, patents, and oral agreements for limited liability companies. 

The California Business Lawyer Blog offers a very detailed post about contractual relationships  between manufacturers and suppliers.  The focus is on well drafted agreements eliminating the fears and concerns of both sides.

A lot of talk about the AT&T suits in different states for $1 billion dollars for unpaid overtime.  The suits picked up a lot of steam with a recent employee favorable ruling from the federal court in Connecticut allowing the claim to proceed as a class action. Rush on Business covers some tips for businesses to avoid these suits.

Just in time for Christmas, President Obama has extended the COBRA subsidy.  Dan Schwartz's Connecticut Employment Law Blog covers this topic in detail for employers.

Twin Cities Business Litigation Blog has an interesting post on concerns you might have as a shareholder of corporation that fails to follow corporate formalities.  Gavin Craig gives examples of how a shareholder could be exposed to liability.

Anyone who frequently litigates matters involving limited liability companies will tell you that there is not much case law out there in Connecticut.  It is still a developing area of the common law.  Delaware law is often a good option for law in this area because these issues are more frequently litigated by volume in Delaware.  A good resource is the Delaware Corporate and Commercial Litigation Blog.   Two recent posts concerning oral partnerships and LLC agreements are just an example.

PatentlyO hits on some themes for 2010, including an expected increase in patent prosecution and litigation.    They also have a cool picture of heat miser, a childhood classic.

Jeff Mehalic, author of the West Virginia Business Litigation Blog, writes a detailed follow up post to his coverage of the Connecticut dispute between Charter Oak Lending and CTX Mortgage.  Jeff also comments about a post I wrote on the same case.  The case remains significant as it is an example of what can go wrong when a business grows too fast and no written agreements are in place with employees.

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The short answer is that it depends.  Settlement agreements are generally enforceable if the terms of the agreement are clear and authorized by the litigants or parties to the litigation.  In Gengaro v. City of New Haven (to be officially released December 29th), the Appellate Court had another opportunity to comment on the long standing law in Connecticut that "a compromise agreement . . . if free from fraud, mistake or undue influence . . . is conclusive between the parties." 

In Gengaro, a trial court granted summary judgment in favor of the City concerning employment claims because Gengaro had signed a confidential settlement agreement prior to the lawsuit.  Gengaro claimed he was forced to so sign the agreement because of threats of losing his job.  He claimed undue influence to attempt to invalidate the settlement agreement.   Gengaro claimed that he had serious financial and medical problems.  Coupled with the threat  of job loss, he claimed that he had no reasonable alternative but to agree to the settlement.  

The trial court granted summary judgment finding insufficient issues of fact concerning undue influence.  Essentially, the court concluded that the threat of losing his job was not sufficient for the exercise of undue influence.  The Appellate Court agreed.  For a good analysis of what employers should to to avoid these type of claims check of the Connecticut Employment Law Blog post on the case.

To establish undue influence in Connecticut, four elements must be established:

• a person is who is subject to influence
• an opportunity to exert undue influence
• a disposition to exert undue influence; and
• a result indicating undue influence

Relevant factors in the inquiry include age, physical and mental condition, whether the person had disinterested or legal advice, the consideration of value of the contracted for exchange, and active solicitations and persuasions by the other party.

In summary, undue influence is the exercise of control by one person over another in an attempt to destroy the person's free agency and "constrain him to do something other than he would do under normal control..."  Undue influence, if demonstrated, may invalidate a contract because the free assent of one party to the contract is lacking.

Settlements agreements are enforceable in court if the terms are clear and authorized by the parties.  Attempting to invalidate the agreement by showing undue influence, fraud, or mistake are difficult claims to make.  The take away here is to carefully review your settlement agreements with counsel because once you sign an agreement, it is likely to be enforced absent special factors.

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Unfortunately, all too often business competitors resort to unfair and improper tactics to gain an advantage in business.  A common example occurs when a competitor maliciously or intentionally interferes with a company's contracts or business relationships.   When this occurs, businesses have to consider whether a legal remedy is available.

In Connecticut, courts have long recognized the business litigation claim of tortious interference with contractual relations as an available remedy for this type of conduct.  To be successful against a competitor in a lawsuit for this claim, a business must prove three essential elements:

• Existence of a contract or beneficial business relationship
• Knowledge of the relationship
• Intentional interference with the contract or business relationship
• Actual loss or damage 

Upon first consideration, tortious interference with a contract might seem to apply to many business competitors.  However, Connecticut courts require more than mere interference for a successful lawsuit.  In particular, not every act of interference is actionable in court. 

In Connecticut, a business must also prove that the interference was "improper" or with an "improper motive."   A business can prove that interference with a contract was improper by demonstrating any of the following:

• Fraud or misrepresentation
• Intimidation
• Malice
• Other improper motive or means

Although the improper motive element is harder to prove, a successful claim could also result in an award of punitive damages.  Additionally, a business does not have to prove that the interference actually resulted in a breach of the contract or business relationship.

As such, if your business is dealing with a competitor that has crossed the line and resorted to fraud or unfair practices to harm your business, a lawsuit for tortious interference with contractual relationship is one of the available remedies in Connecticut.   

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One of the first things lawyers check for when contesting an oral contract is the statute of frauds.  The statute of frauds comes from an English rule dating back to the 1600's.  At its most basic level, the statute of frauds requires certain types of contracts to be in writing or else they are not enforceable in court actions.  However, sometimes, even when a contract is in writing, it still will not satisfy the statute of frauds.

That is what happened in SS-II, LLC v. Bridge Street Associates, an advanced opinion released today by the Connecticut Supreme Court.  The dispute involved an option to purchase property pursuant to a commercial lease that was in writing.  The tenant wanted to exercise the option and the seller did not want to close on the sale. 

When the tenant brought a lawsuit for specific performance trying to force the sale, the owner raised the Connecticut Statute of Frauds as a defense and won in court.  In Connecticut, the agreements that must be in writing under the statute of frauds include the following:

• any agreement by any executor promising to answer damages out of his own property
• any promise to answer for the debt, default or miscarriage of another
• any agreement made upon consideration of marriage
• any agreement for the sale of real property or any interest in or concerning real property
• any agreement that is not to be performed within one year 
• any agreement for a loan in an amount which exceeds fifty thousand dollars.

Not only do these agreements have to be in writing, but they also have to contain the contract's essential terms.  In a contract to sell land, the terms must describe a certain price, the parties to the contract, and the land.  In the SS-II case, the contract did not comply with the statute of frauds because the purchase price was not certain and was subject to some conditions.  Although there are counter defenses to the statute of frauds, such as partial performance, the court deemed that they did not apply. 

The takeaway from this case is to be cautious with oral contacts and do not assume a writing alone will make the agreement enforceable.  A contract has to be in writing, signed, and have the proper terms in it or else you may not have an enforceable agreement if the statute of frauds applies.  

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Connecticut's Home Improvement Act requires contractors performing home improvement services to register and to comply with it provisions concerning contracts with homeowners. The Act has a series of requirements for contracts as follows:

• Contract must be in writing;
• Contract must include the contractors registration number;
• Contract must include four dates: date of signing, date work will begin, date of completion, and date by which the homeowner may cancel the contract; and
• Contract must contain specific notice provision of the homeowner's right to cancel the contract within three business days after signing.

If a contractor fails to comply with these contractual requirements, the contractor risks non-payment by the homeowner.  If a homeowner refuses to pay, the contractor likely will not be able to recover payment with a lawsuit in court absent some showing that the homeowner acted in bad faith.  This can bring about a harsh and inequitable result in some cases.   

In Drain Doctor, Inc. v . Jason Lyman, the Appellate Court recently had to consider the potential harsh consequences of failing to comply with the Home Improvement Act.  The contractor at issue in the case had to perform plumbing work below the surface of the home and driveway in order to make the home habitable.  The contract was oral.

The contractor repaired a sewer a line under the home and a storm drain under the driveway.  The contractor finished the job and then restored the driveway and grass.  The homeowner refused to pay.  The contractor brought a lawsuit, but had it stricken by the trial court because the homeowner alleged that the oral contract did not comply with the Home Improvement Act.

The contractor was a licensed plumber and tried to rely on the exemption in the Home Improvement Act at Connecticut General Statutes 20-248.  The exemption provides that the Act does not apply to:

any person holding a current professional or occupational license issued pursuant to the general statutes, and any person registered pursuant to sections 25-126 to 25-137, inclusive, provided such person engages only in that work for which such person is licensed or registered.
 

The trial court found that the work on the driveway and lawn was outside the scope of the work for licensed plumbers and the exemption did not apply.  This ruling produced a potentially unfair result.  The contractor did the work requested.  The only apparent reason for non-payment was the homeowner's technical reliance on the Home Improvement Act requirements for contracts.  

The Appellate Court overruled the trial court and found that the driveway and grass work was "ancillary" to the work for licensed plumbers.  The Appellate Court looked at the licensing statute to determine the different types of work that plumbers engage in, and then determined that the driveway and lawn restoration was incidental to work directly listed for licensed plumbers.  Therefore, the licensed plumber did not have to comply with the Home Improvement Act.

Although the Drain Doctor decision provides some clarity for contractors on when they need to comply with the Home Improvement Act,  questions will continue as to the scope of the exemption and "ancillary" work.  What should contractors do when faced with a similar situation?  Here are a few tips:

1.  Determine the scope of each project you are estimating.

2.  Consult the licensing provisions for your trade, whether it be electrical, plumbing, heating and cooling, or other trade.  The licensing statute defines the scope of work for the particular trade.  For example, plumbing and piping work is listed and defined here.  If  the work is listed in the definition, and you hold that license, then you likely will not have to comply with the contractual provisions of the Home Improvement Act.

3.  If the scope of the project is outside of the definitions of work for the particular license, you must then consider whether the work is "ancillary" to work that is listed in the definition.  If it is clearly outside the scope of work defined for the license, a contractor should seek to comply with the Home Improvement Act. 

A good starting point for a "how to" on complying with the Home Improvement Act is the Department of Consumer Protection's handbook and guide for contractors. When in doubt, a contractor should consider complying with the Act.  If not, the contractor risks not getting paid even if the work was done properly.

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