A case against an alarm company in Connecticut dealt with the allegation of fraud. The issue of fraud can be closely analogous to that of gross negligence so the case is relevant for discussion.
The plaintiff in the action was an insurance company that was subrogated to the rights of its insured. The defendant in the action designed, installed, serviced, tested, maintained and monitored a security and fire alarm system at the residence of the plaintiff’s insured. The defendant also provided the service pursuant to a written agreement with the plaintiff’s insured. A vehicle in the insured’s garage caught fire causing significant damage. The fire alarm system installed by the defendant never sounded and the alarm company never received an alarm signal from the residence. Consequently, the fire department was not notified. The plaintiff contended that if the alarm company had notified the fire department of the blaze, the fire department would have responded more swiftly and the fire would not have caused as much damage.
The insurance company paid the insured and filed the action, subrogating to the rights of its insured seeking to enforce any claims that the insured may have against the security company. The alarm company filed a motion to dismiss the counts of the complaint leveled against it for negligence, breach of warranty, breach of contract, and consumer fraud and misrepresentation. The court in this proceeding dealt only with count six of the complaint, i.e., the count alleging fraud and misrepresentation.
The defendant alarm company argued that the insurance company plaintiff failed to prove fraud with particularity citing Federal Rules of Civil Procedure 9(b) which stated, “In order to comply with Rule 9(b), the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.”
The court then pointed out that the plaintiff’s insurance company did not identify who made the allegedly fraudulent statements on behalf of the alarm company, when the statements were made, where those statements were made, or why those statements were fraudulent. The complaint simply alleged that the alarm company made “false advertisements, statements, representations, assurances and promises” at an unspecified date, at an unspecified location, through an unspecified agent.
The court then determined that the insurance company failed to plead fraud with particularity and the claim must be dismissed. Therefore, the defendant’s motion to dismiss was granted. As stated at the outset, the count alleging fraud is analogous to complaints filed where the plaintiff alleges gross negligence against the defendant in an effort to set aside the protective provision of the contract and defeat a motion for summary judgment. In most states, although the courts will uphold the liquidated damage clause, the limitation of liability provision and the third party indemnification provision, they will not uphold the clauses if the plaintiff can prove that the security company was guilty of gross negligence or fraud. Gross negligence is tantamount to the commission of a willful act, so issue becomes one of fact and therefore, the plaintiff must allege facts with particularity and prove them. The plaintiff cannot just allege that the defendant was guilty of gross negligence. Where the allegation is that the defendant was guilty of fraud, it is no different than if the plaintiff alleged that the defendant company was guilty of gross negligence. Here, as set forth above, the plaintiff did not set forth the specific facts which would establish guilt for fraud, probably because there were none.
The fact that the defendant company did not notify the subscriber even if they had received a signal, would probably be considered negligence, but would not rise to the level of gross negligence. Repeated acts of negligence, however, could rise to the level of gross negligence. The bottom line: Always exercise due care in conducting your business and make sure your employees are well trained to exercise due care.
I have just lost an account to another company. Our subscriber advised us that they were approached by the other company who advised that they can provide a much better system at a much lower rate. The subscriber advised that he accepted the offer from the other company, notwithstanding the fact that they have two-and-a-half years to go on our existing contract. I know I can bring an action against the customer for the balance of our contract, but do I have any recourse against the other alarm company?
From a legal standpoint, if the other alarm company, knowing that you had an existing contract with the subscriber, encourages the subscriber to breach the contract, it was an interference with your contractual relationship and you certainly would have an action against the other company. Unfortunately, it is somewhat impractical as legal fees can be very expensive. More important, the probability of getting your former customer to testify is going to be exceedingly difficult. Normally former customers do not want to be bothered and even if you subpoena them, their testimony will not always be helpful to you. I would suggest that you proceed against the subscriber and attempt to collect your loss of profit.
On the other hand, if the other company makes a habit of systematically calling on your customers, that is a completely different story. In that case your action for interfering with your business relationships would have a much greater probability of success, particularly if you can show a string of these types of occurrences and if you can get any of your customers to testify.
In the present case, by bringing an action against your current subscriber for the loss of profit, it could discourage others from doing the same thing and may also discourage the other alarm company from interfering with your business relationship.