Opinion
No. CV-03-0196646S
June 29, 2004
Background
This is an action to foreclose a second mortgage on a home located on 4.7 acres of land in the Town of Greenwich owned by the defendant Kimberly Smith. The plaintiff alleges that its second mortgage secures a certain commercial Note of October 30, 2001 made by the defendant Kimberly Smith and her husband Forrest L. Smith (now deceased) in the principal amount of $2,700,000, which Note is a consolidation of two earlier promissory notes in the amounts of $2,160,000 and $540,000 respectively. The defendant Kimberly Smith has filed an answer with four special defenses and a counterclaim. In her answer she admits the execution of the Note, but denies that it is secured by the Mortgage, denies that the Note is in default, and denies that any balance under the Note is due.
By a motion dated December 1, 2003 the plaintiff asks the Court: (1) to strike the four special defenses and the counterclaim filed by the defendant Kimberly Smith, or, in the alternative, to sever the counterclaim from the foreclosure proceeding, (2) to enter judgments of default against the defendants the Estate of Forrest L. Smith, Smith Foods Corporation, and SF Queens Place, LLC, and (3) to enter summary judgment of strict foreclosure in favor of the plaintiff on its complaint dated July 29, 2003. At oral argument the plaintiff's counsel stated that the plaintiff was not asking the Court to rule on the summary judgment motion at this time. Accordingly the part of plaintiff's motion seeking a summary judgment of strict foreclosure is marked off and will not be ruled on. Likewise the Motion to Strike Affidavit dated February 11, 2004 filed by the defendant Kimberly Smith will also be marked off as it relates exclusively to the portion of Plaintiff's motion which seeks a summary judgment of strict foreclosure. The Court will therefore rule herein on the portions of the plaintiff's motion which seeks judgments of default against certain defendants and to strike the special defenses and the counterclaim.
There are several reasons why the entry of a judgment of strict foreclosure would be inappropriate at this stage of the proceedings. On February 23, 2004 this Court (Comerford, J.) granted the motion of Debis Financial Services, Inc. to be cited as a party defendant holding an alleged judgment lien of $786,799.40 against the property in question. On February 18, 2004 the plaintiff moved to amend its complaint to state the interest of Debts Financial Services as a subordinate lien on the premises and to cite in five "John Doe" defendants, being alleged tenants at the property. None of those new defendants have filed any pleading, nor is any motion for default pending against any of them. As will be discussed infra there is a question as to the manner in which "The Estate of Forrest L Smith" has been joined in these proceedings. The plaintiff's moving papers show a claimed indebtedness of $1,074,480.61 and a fair market value of the premises of $4,900,000. Even taking into account the judgment lien claimed by Debis Financial Services and the first mortgage held by Wachovia Bank there would seem to be almost $300,000 equity in the premises which would incline the Court in the exercise of its discretion under Section 49-24 of the Connecticut General Statutes to order a foreclosure by sale as opposed to a strict foreclosure. There are also potential priority issues among the defendants which the newly joined defendants have not yet had an opportunity to address. As the defendant Kimberly Smith has pointed out in her brief, the plaintiff's mortgage deed does not recite the principal amount of indebtedness it secures or the maximum term of that indebtedness as indicated by Section 49-31b of the Connecticut General Statutes.
Discussion 1. Motions for Default Judgments
The plaintiff seeks default judgments against the defendants The Estate of Forrest L. Smith, Smith Foods Corporation, and SF Queens Place, LLC. A motion for default for failure to appear directed to those three defendants was granted by the clerk on October 8, 2003, and notices of those defaults were sent to the non-appearing defendants on that date. An examination of the court file reveals no appearances filed on behalf of any of those defendants since that date. Under Section 17-22 of the Practice Book judgment may enter against a non-appearing defendant after default for failure to appear, but the terms of judgment must be specified. The terms of judgment in this foreclosure case against the non-appearing estate of the note maker, Forrest L. Smith and the non-appearing guarantors Smith Foods Corporation and SF Queens Place, LLC must await the resolution of contested issues raised in the foreclosure pleadings between the plaintiff and the defendant Kimberly Smith. Their in personam liabilities under the note and the guarantees can only be determined after the in rem preceedings against the property have been determined. Sections 49-2 and 49-14, Connecticut General Statutes. The motions for judgment of default therefore are denied without prejudice to renewal at the conclusion of the foreclosure proceedings.
In any event, the Court would be unable to enter a judgment against "the Estate of Forrest L. Smith" because there is no such entity recognizable under Connecticut law. As said by the Appellate Court in Isaac, Administratix v. Mount Sanai Hospital, et al, 3 Conn. App. 598, 490 A.2d 1024 (1985): "An estate is not a legal entity. It is neither a natural nor artificial person, but is merely a name to indicate the sum total of the assets and liabilities of the decedent or incompetent. [citation omitted] Not having a legal existence, it can neither sue nor be sued." Id. 3 Conn. App. at 600, 601. It is true that a party who does not file a motion to dismiss within the time provided by Section 10-30 of the Practice Book would be deemed under Section 10-32 of the Practice Book to have waived lack of jurisdiction over the person or insufficiency of process, but "The Estate of Forrest L. Smith," not being a recognizable person or legal entity would be incapable of making that or any other waiver of rights, because it is incapable of having rights and consequently incapable of waiving any rights. The proper procedure for making a claim against the fiduciary of the solvent estate of a decedent is set forth in Sections 45a-390 through 45a-403 of the Connecticut General Statutes.
2. Motions to Strike Special Defenses and Counterclaim Legal Standard
Pursuant to the Connecticut Practice Book, "a motion to strike may be used to contest the legal sufficiency of any answer to any complaint, counterclaim, or any part of that answer including any special defenses . . ." Conn. Practice Book, Section 10-39(a)(5). Like the former demurrer, which it replaced, a motion to strike admits all facts well pleaded, but it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings. In testing the sufficiency of a pleading challenged by a motion to strike the allegations of pleading involved are entitled to the same favorable construction a trier would be required to give in admitting evidence under them and if facts provable under its allegations would support a defense or a cause of action, the motion to strike must fail. Mingachos v. CBS, Inc., 196 Conn. 91, 108, 109, 491 A.2d 368 (1985); Alarm Applications Co. v. Simsbury Volunteer Fire Company, 179 Conn. 541, 545, 427 A.2d 822 (1980). In testing the sufficiency of a pleading it has been said that the factual allegations of the pleading must be deemed to have been admitted by the party moving to strike, R.K. Constructors, Inc. v. Fusco Corp., 224 Conn. 201, 215, 618 A.2d 25 (1992), and must be construed most favorably to the party having filed the challenged pleading. Faulkner v. United Technologies, Corp., 240 Conn. 576, 693 A.2d 293 (1997). But the legal conclusions and opinions stated in a challenged special defense are not deemed admitted but must rather flow from the subordinate facts provided. County Federal Savings and Loan Association v. Eastern, 3 Conn. App. 582, 586 (1985), citing McAdam v. Sheldon, 153 Conn. 278, 283, 216 A.2d 368 (1965). And in deciding upon a motion to strike, a trial court must take the facts to be those alleged in the pleadings and cannot be aided by the assumption of any facts not alleged therein. Liljedahl Bros., Inc. v. Grigsby, 215 Conn. 345, 348, 576 A.2d 149 (1990).
For this reason the Court in deciding the plaintiff's motion to strike will disregard entirely the voluminous affidavits and attachments thereto as submitted by the parties in support of and in opposition to the plaintiff's motion for summary judgment.
In assessing the validity of special defenses to a foreclosure proceeding, such as this case, Connecticut courts have recognized that a valid foreclosure defense must address the "making, validity or enforcement of the mortgage and/or note." Southbridge Associates, LLC v. Garafalo, 53 Conn. App. 11, 17 (1999), cert. denied, 249 Conn. 919 (1999). In applying that test it has been held that the making of the note and subsequent default is the "transaction at issue," Norwest Mortgage v. Edwards, 22 Conn. L. Rptr. 123, 1998 WL 246484 (Conn.Super. 1998, Curran, J.), and that defenses cannot attack some act or procedure of the lienholder. Webster Bank v. Linsley, 2001 WL1042581 (Conn.Super. 2001, Booth, J.).
First Special Defense
The First Special defense reads in its entirety as follows: "On or about August 29, 2003, the plaintiff received and accepted $1,631,800 for the account of Forrest L. and Kimberly Smith." The Court notes that $1,631,800 is less than the principal amount of $2,454,624.81 claimed due by the plaintiff in para. 8 of the complaint, and August 29, 2003 is a date subsequent to the commencement of this action and therefore subsequent to the plaintiff's acceleration of the debt. Defendant Kimberly Smith argues that the special defense of payment is a complete defense to this foreclosure proceeding, because, citing Amresco New England II, L.P. v. Colossale, 63 Conn.App 49, 58, 774 A.2d 1083 (2001): "[t]he mortgage cannot survive the extinction of the debt . . . A mortgagee is entitled to full payment of the debt but no more." But Aremsco was a case where the plaintiff mortgagee was found to have been paid in full by a strict foreclosure of two properties supplemented by a cash payment. The facts alleged in the First Special Defense do not support a claim of full payment. There is no allegation that the $1,631,800 payment alleged was equal to the balance due under the note, or that it was accepted by the plaintiff in full satisfaction of the note. In her brief the defendant Kimberly Smith argues for a construction of the plaintiff's mortgage that it only secured the earlier $540,000 note which was one of the constituent notes of the $2,700,000 Consolidated Note of October 30, 2001. But the Special Defense must be tested for purposes of this Motion to Strike based on the factual allegations of the pleadings, and those alleged facts do not support a claimed defense of full payment. The motion to strike the First Special Defense is therefore granted.
Even if this construction were correct, it would not be a total defense to the plaintiff's case against Kimberly Smith because the plaintiff has also claimed a deficiency judgment against her.
Second Special Defense
The Second Special Defense incorporates and repeats the allegations of the First Special Defense and adds a second paragraph concluding that the alleged payment of $1,631,800 to the plaintiff on or about August 29, 2003 amounted to a "reinstatement" of the loan and "the payment was sufficient to carry the loan well into the future." These allegations are clearly inadequate to state a valid defense to the plaintiff's claim. Under the facts alleged, the full balance of the debt had been accelerated and this foreclosure action had been commenced prior to the date of the alleged payment. See Webster Bank v. Linsley, supra, 2001 WL 1042581 at 6: "tender of payments after commencement of foreclosure does not bar acceleration or foreclosure." This claim also falls outside the scope of a valid foreclosure defense because it fails to relate to the making, validity, or enforcement of the note or mortgage. Accordingly the motion to strike the Second Special defense is granted.
Third Special Defense
The Third Special Defense sounds in Equitable Estoppel or Discharge. The defendant claims that the plaintiff consented to and participated in a certain workout transaction involving the guarantor defendants Smith Foods Corporation and S.F. Queen's Place LLC and their general unsecured creditors that resulted in the sale of all of the assets owned by those guarantor entities with some of the proceeds of sale going to the general unsecured creditors, and $1,631,800 going to the plaintiff on account of the note balance. Because the plaintiff also held a security interest in the assets which were permitted to be sold, and the plaintiff allowed some of the proceeds of sale to go to the general unsecured creditors, defendant Kimberly Smith argues that general creditors were permitted to receive payment at her expense because the amount of those payments to creditors could have been taken by the plaintiff and applied to the debt secured by the mortgage on her home. She concludes that the plaintiff inequitably increased her suretyship, thereby (a) estopping the plaintiff from foreclosure and/or (b) discharging her note and mortgage. The plaintiff correctly points out that Paragraph 13 of the Consolidated Note signed by the defendant Kimberly Smith entitled "Waiver" expressly permits the plaintiff to release other security: "No release of any security for the Debt . . . shall release, modify, amend, waive, extend, change, discharge, terminate, or affect the liability of Maker, and any other who may become liable for the payment of all or any part of the debt, under this Note or any other Loan Documents." Defendant Kimberly Smith in her brief seeks to avoid the impact of that waiver by claiming that it was not the intentional or voluntary relinquishment of a known right inasmuch as she claims she had no idea the plaintiff would be claiming a mortgage that secured more than the $540,000 promissory note. But, no facts are alleged in the Special Defense which would support the conclusion of avoidance of the waiver, especially in a commercial transaction. The waiver alone would be sufficient grounds to strike this Special defense, but it also runs afoul of the rule that, to be a valid defense to a foreclosure proceeding, a special defense must relate to the making, validity, or enforcement of the note or the mortgage. The workout transaction alleged in the Third Special defense had nothing to do with the defendant's failure to make monthly payments under the Note which resulted in default, acceleration, and litigation. See Webster Bank v. Linsley, supra, 2001 WL 1042581 at 6. The motion to strike the Third Special Defense is granted.
A copy of the Consolidated Note is attached to the Complaint as part of Exhibit "D."
Fourth Special Defense
The Fourth Special Defense premised on the Connecticut homestead exemption has been withdrawn. See "Kimberly Smith's Memorandum and Counteraffidavit in Opposition to Plaintiff's Motions Dated December 1, 2003" at p. 9.
Fifth Special Defense
The Fifth Special Defense (which is also the defendant Kimberly Smith's Counterclaim) is based on alleged violation of the federal Equal Credit Opportunity Act, 15 U.S.C. § 1691a et seq. ("ECOA"). Mrs. Smith claims that her signature on the Consolidated Note and the mortgage on her home was illegal discrimination against her on the basis of sex or marital status in violation of ECOA because the bank, upon her information and belief, never looked to her assets or income but merely included her as an accommodation maker in violation of the act. She claims in paragraph 20 that her signature on the Note and mortgage was required as Forrest Smith's spouse. Based on her alleged ECOA violation Kimberly Smith asks that the note be voided as to her, that an injunction enter prohibiting the plaintiff from foreclosing its mortgage, and for other appropriate equitable relief. The plaintiff, citing several Superior Court decisions striking ECOA special defenses in foreclosure proceedings, argues that there is no provision in ECOA that an ECOA violation renders an offending instrument void, and that an alleged ECOA violation therefore cannot be used defensively. Defendant Kimberly Smith relies on the holding of National Collectors and Liquidators, L.P. v. Millco of Danbury, Inc., 30 Conn.Rptr. 229, 230, 2001 WL 1004257 (Conn.Super. Sept. 24, 2001, Devlin, J.), which rejects the holdings of those other Superior Court cases (and some federal cases as well) to the extent that it holds that, although the offending instrument should not be voided, an offending creditor should not be permitted to look for payment to parties who, but for the ECOA violation, would not have incurred personal liability on the underlying debt in the first instance. Millco follows the holding of Integra Bank/Pittsburgh v. Freeman, 839 F. Sup. 326 (E.D.Pa., 1993). As said by Judge Devlin, "In this court's view, the Integra approach provides a better framework to adjudicate ECOA claims that arise in the present context." Id. at 230, 231. This court adopts the approach of National Collectors and Liquidators v. Millco, and holds that Kimberly Smith may use her alleged ECOA violation defensively. Since her ECOA claim relates directly to the circumstances leading to the making of the plaintiff's note and mortgage, it may form the basis of a valid foreclosure defense. See Webster Bank v. Linsley, supra at p. 6. The plaintiff's motion to strike the Fifth Special defense is denied.
The cases are: GE Capital Mortgage v. Klett, 16 Conn. L. Rptr. 186 (February 21, 1996, Satter, J.); North American Bank Trust Company v. TLF, Inc., J.D. Waterbury, Docket No. CV95-123953, 1995 WL 118426 (March 14, 1995, Pellegrino, J.); Federal Deposit Ins. Corp. v. LRV Company, J.D. Hartford-New Britain at Hartford, Docket No. CV92-0518729, 12 Conn. L. Rptr. 418 (Sept. 9, 1994, Aurigemma, J.); Federal Deposit Ins. Corp. v. Piccolo, J.D. of Fairfield at Bridgeport, Docket No. CV 94-03-10755 (June 29, 1994, Freedman, J.); and First Fed. Sav. And Loan Ass'n of East Hartford v. Chappel, 1997 WL 12801 (January 3, 1997, Rittenband, J.).
Counterclaim
The defendant Kimberly Smith's counterclaim is the same as the Fifth Special defense, except that it relies on the ECOA remedy of compensatory and punitive money damages. It relates to the making of the plaintiff's note and mortgage and therefore arises out of the same transaction as the plaintiff's complaint and is a valid counterclaim under Section 10-10 of the Connecticut Practice Book. ECOA is gender neutral and acts to provide relief in the case of a wife required to give her signature even though her husband is independently creditworthy as well as the opposite situation. FDIC v. Medmark, 897 F. Sup. 511 (D. Kansas, 1995). The plaintiff suggests that Mrs. Smith has failed to allege that the bank required her signature on the Note and Mortgage, but the Court finds that allegation is sufficiently made in paragraph 20 of the counterclaim. The Court finds that the counterclaim states a cause of action under ECOA, and the motion to strike the counterclaim is denied.
2. Motion to Sever Counterclaim
The motion to sever the counterclaim is denied at this time without prejudice to either party's right to ask the trial court to bifurcate the issues or to adjudicate the foreclosure proceedings separately from the ECOA counterclaim pursuant to Connecticut Practice Book, Section 17-51. See, Saunders v. Stigers, 62 Conn. App. 138, 141, 773 A.2d 971 (Conn.App. 2001). Absent such a bifurcation, the issues can be tried simultaneously even if the defendant claims her right to a jury trial on the counterclaim. Connecticut Practice Book, Section 16-11.
Orders
The plaintiff's Motion to Strike the defendant Kimberly Smith's special defenses is granted as to the First, Second, and Third Special Defenses, and denied as to the Fifth Special Defense. The Motion to Strike the Counterclaim is denied. The Motion to Sever the Counterclaim is denied without prejudice.
BY THE COURT:
Alfred J. Jennings, Jr., Judge