FREDERICK C. ULBRICH et al. v. KELLY J. GROTH et al., SC 18815

Judicial District of Waterbury


      Auctions; Whether Economic Loss Doctrine Barred Successful Bidder's Claim that a Bank and an Auctioneer Improperly Failed to Ascertain the Ownership Status of Personal Property Sold at Auction.  The defendant, TD Banknorth, N.A., initiated foreclosure proceedings to recover a debt owed by two entities.  The debt was secured by a special events facility and certain items of personal property that were used in the facility.  A foreclosure sale of the real estate and a secured party sale of the personal property were held as part of a combined auction sale that was conducted by the defendant, Tranzon Auction Properties.  The plaintiff, Frederick Ulbrich, was the successful bidder on the real and personal properties, which were later transferred to the plaintiff, Ulbrich Properties, LLC.  The plaintiffs subsequently brought this action, alleging that they did not receive all of the items of personal property that they were entitled to receive because many of the items that were in the facility were not owned by the debtors.  They claimed that the defendants improperly failed to ascertain the ownership status of the personal property.  After the jury found in favor of the plaintiffs, the defendants filed a motion for judgment notwithstanding the verdict, arguing that the plaintiffs' negligent misrepresentation and Connecticut Unfair Trade Practices Act claims were barred by the "economic loss doctrine," which prohibits recovery in tort where the claim arises out of a contractual relationship and the damages are limited to purely economic losses.  They also contended that a secured party seller and an auctioneer do not owe a common law duty of care to the participants of an auction sale that is conducted pursuant to article 9 of the Uniform Commercial Code (UCC), which governs a secured creditor's disposition of collateral.  They further maintained that the plaintiffs' negligent misrepresentation and breach of warranty claims were precluded by certain disclaimers of liability that they had provided to prospective bidders.  The trial court denied the motion, determining that the economic loss doctrine applies only to tort claims that seek economic losses in cases involving the sale of goods under article 2 of the UCC.  It reasoned that, in an auction sale of collateral that is conducted pursuant to article 9, the parties do not have the opportunity to negotiate the terms of the contract in order to allocate any risks for potential losses.  The court added that, unlike article 9, article 2 provides extensive regulations for transactions involving the sale of goods, and it contains specific remedies for nonperformance by a buyer or seller.  The court also rejected the defendants' assertion that they did not owe a common law duty of care to the participants of the auction sale, holding that the seller of property has a duty to exercise reasonable care to properly identify the property that is being sold.  As to the defendants' claim regarding the disclaimers of liability, the court determined that contractual disclaimers do not negate claims for negligent misrepresentation when the buyer is unaware of the true ownership of the property.  It also concluded that it was the jury's task to determine whether the disclaimers were sufficient to defeat the breach of warranty claim and that there was no basis for disturbing the jury's finding of liability.  In this appeal, the Supreme Court will determine whether the trial court's conclusions were proper.