Time Does Not Run Against The King Or The State of Connecticut

Imagine you are a subcontractor hired to work on a project for the State of Connecticut in 1994.  You did not deal with the State at all in your contractual dealings.  You were hired by a general contractor to do a small part of a large building project.  Next, you priced your work, completed it, and got paid.

KING GEORGE(2)

Now, fast forward 12 years.  Without any notice to you (some defendants claimed they had no notice of issues) of any problems for 12 years, the State of Connecticut knocks on your door with a lawsuit seeking over 15 million dollars from more than 20 defendants, including your company.

When you receive this lawsuit, you might immediately conclude that the lawsuit is time barred by the statute of limitations for breach of contract and negligence.  You might even ask your attorney, and your attorney probably would agree that the statute of limitations for your work has long expired. Nothing to worry about, right?  WRONG.

Here is the case:  Lombardo Case Nullum Tempus Lives!State of Connecticut v. Lombardo Brothers Mason Contractors, et al.  In this case, the Supreme Court of Connecticut upheld the ancient doctrine of nullum tempus occurrit regi, or "no time runs against the king."  The king is the State of Connecticut.  The court noted that nullum tempus is "a common-law rule that exempts the state from the operation" of time based statutes, such as statutes of limitation and repose. In short, the 12 year passage of time does not matter because the state is like the king.        

The state filed its lawsuit against more than 20 contractors in 2008 for over 15 million dollars in alleged damages caused by faulty construction and water leakage at the University of Connecticut law library.   The work was completed in 1996.  The state immediately began to notice problems with water leakage.  This was not a hidden defect case.  The State knew right away, and did not bring a lawsuit for damages for 12 years.  The state sought recovery for breach of contract, negligence, and product liability.  

None of this mattered as the Supreme Court found that nullum tempus has been alive and well in Connecticut since at least 1879 and traceable all the way back to English common law.  The court deemed it "well established and clear-cut."  Maybe so, but clarity to the court does not make it any less shocking to contractors and their attorneys.  The court also noted that if someone wants the common law of Connecticut changed, that is the job of the legislature.  

Nothing like a 15 million dollar lawsuit to remind you that our law is largely based on English common law….

 

You Should Not Ignore Choice of Law or Forum Selection Provisions In Business Contracts

In a typical business deal, the parties negotiate over essential terms such as price, payment, deliverables, indemnification, warranties, etc. Once you work out all the important details, the parties put together a written contract with the essential terms in it. If a lawyer is involved, the contract also will include a bunch of so called boiler plate clauses. The boiler plate clauses are the 10 or 12 clauses that appear at the end of a contract.

Many times the boiler plate clauses get overlooked because the parties typically say “these clauses are in every contract.” Ignoring these provisions can be a costly mistake if the relationship breaks down and a lawsuit becomes necessary. In fact, when parties finalize a business deal they do not anticipate how these clauses might impact litigation down the road.

Two of these clauses that frequently get overlooked are known as “choice of law” and “forum selection” clauses. This post will focus on forum selection. I will address choice of law in the next post.

Forum selection clauses typically govern the location and venue where the parties can file a lawsuit arising out of any dispute subject to the contract. The provisions vary. Parties usually negotiate over the location, but often times the exclusivity of the location gets overlooked. Some examples might require the parties to file a lawsuit:

in only one location, such as Connecticut or Massachusetts (exclusive)
in only one court, such as Hartford Superior Court in Connecticut (exclusive)
in multiple locations or courts (non-exclusive)
The forum selection clause might also include a waiver of any defenses to personal jurisdiction and consent to the chosen location. The laws in each state vary on enforcement of forum selection clauses. However, for the most part, if a party cannot avoid enforcement of the contract based on other defenses (such as fraud, durress, coercion, etc), courts tend to enforce these clauses.

Every business deal raises different concerns, but it is important to analyze these clauses with the potential scenarios that might occur. For example, sometimes, these clauses carry no particular concern, such as in a dispute between two companies in the same state. However, there are many scenarios where this simple boiler plate clause becomes problematic to one side, and very favorable to the other. This is especially so in the case of an exclusive forum.

Take for example a clause that requires all lawsuits to be filed in Connecticut state court . If you are a Connecticut business, and you expect that you might have to file a lawsuit, this could be an important advantage to you. It might eliminate the possibility and expense of an out-of-state opponent filing a motion to dismiss based on jurisdiction. You might also avoid the need to hire an out-of-state law firm.

On the other hand, in some circumstances, a Connecticut business might want to file a lawsuit in another location where the out-of-state defendant resides. This may become important to more easily enforce a judgment or attach assets. Additionally, in some circumstances, you might want to get an injunction enforced by a court where the defendant resides.

This post only touches upon some of the possible concerns with forum selection clauses. The take away here is that you should never ignore these clauses. You might not be able to solve all your concerns by negotiation of these terms, but forum selection should always be factored into decision making.

No Contract, No Problem – Charter Oak Gets A Chance To Prove Its Case

 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.

Unjust Enrichment In Connecticut – The Catchall When You have No Contract

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.  

CT Supreme Court Affirms Right To Challenge Foreign Judgment With Special Defense

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. alaska

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.

Getting A Contract In Writing Does Not Always Satisfy The Statute Of Frauds

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.