Opinion
No. CV-09-5011097
November 12, 2009
MEMORANDUM OF DECISION RE MOTION TO STRIKE (NO. 108)
FACTS
U.S. National Bank Association (plaintiff), acting as trustee for the Structured Asset Investment Loan Trust, 2006-4, filed a complaint with the Superior Court on March 25, 2009, against Walter Lewis (defendant) for foreclosure. The complaint alleges that on April 11, 2006, the defendant executed a mortgage and note with BNC Mortgage, Inc. The complaint also alleges that the note and mortgage were subsequently assigned to the plaintiff and that the defendant has defaulted on its obligations. The plaintiff is requesting that the court foreclose on the property securing the note and award possession and costs.
On June 24, 2009, the defendant filed his answer. In it, he denies both that the mortgage is in default and that proper notice was given by either the plaintiff or the original mortgagee. The defendant also claims to have insufficient knowledge with respect to the plaintiff's status as assignee and holder of the mortgage.
Along with his answer, the defendant filed five separate special defenses alleging, respectively that: 1) The plaintiff is not the holder of the applicable note and mortgage, 2) the plaintiff has failed to meet the mortgage's notice provisions, 3) the plaintiff via its predecessor engaged in fraud during the making of the note, 4) the plaintiff's failure to provide notice bars recovery under the equitable doctrine of unclean hands, 5) and the plaintiff's failure to give notice of default as required in by the terms of the mortgage violates the Connecticut Unfair Trade Practices Act (CUTPA).
The plaintiff moved to strike the defendant's special defenses on July 23, 2009, contending that each defense is unsupported by Connecticut law. Along with its motion, the plaintiff provided a memorandum of law in support. The defendant filed a memorandum in opposition on July 28, 2009.
DISCUSSION
Practice Book § 10-39 provides that "[w]henever any party wishes to contest . . . the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, or of any one or more counts thereof to state a claim upon which relief can be granted . . . that party may do so by filing a motion to strike the contested pleading or part thereof." "The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . .to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "A plaintiff can [move to strike] a special defense . . ." Nowak v. Nowak, 175 Conn. 112, 116, 394 A.2d 716 (1978); see also Connecticut National Bank v. Voog, 233 Conn. 352, 354-55, 659 A.2d 172 (1995). In ruling on a motion to strike a trial court has an "obligation to take the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992).
"A valid special defense . . . to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles U.S. National Bank Association v. Reynoso, Superior Court, judicial district of New London, Docket No. CV 07 5004312 (July 17, 2008, Martin, J.) (45 Conn. L. Rptr. 872) (citing Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705-06, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002)). "[A] court may consider the mortgagee's conduct throughout the course of the parties' relationship . . . Such behavior of the mortgagee throughout the course of the relationship may be directly related to the `enforcement' of the mortgage or note." Patriot National Bank v. Bobbi, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 08 5009026 (June 9, 2009, Mintz, J.) [47 Conn. L. Rptr. 851].
Connecticut courts specifically allow fraud, unclean hands and CUTPA to be pleaded as equitable defenses to foreclosure actions. U.S. National Bank Association v. Reynoso, supra, 45 Conn. L. Rptr. 872-73. "Although . . . the facts alleged concern the acts or omissions of the loan originator, the defenses . . . can be asserted against a plaintiff despite the fact that the plaintiff is an assignee of the note and the mortgage because the plaintiff stands in the shoes of the assignor." Id., 873.
Lack of Standing
The plaintiff moves to strike the defendant's first special defense, which attacks the plaintiff's standing as the holder of the mortgage and note, because it argues no specific facts have been alleged to support that conclusion. The plaintiff maintains that Practice Book § 10-50 requires the defendant to allege specific facts in his special defense that are consistent with the complaint but otherwise establish that the plaintiff has no cause of action. The plaintiff also contends that the proper vehicle to attack standing is a motion to dismiss, rather than a special defense.
Specifically, the first special defense states that "[u]pon information and belief, plaintiff is not the holder of the applicable note and mortgage."
The defendant has responded to the plaintiff's motion arguing that either party or the court itself may raise the issue of subject matter jurisdiction at any time. The defendant cites Connecticut precedent for the proposition that questions of subject matter jurisdiction must be resolved before the court may decide the case, and that once it is raised, the plaintiff bears the burden of proof.
Practice Book § 10-1 indicates that "[e]ach pleading shall contain a plain and concise statement of the material facts on which the pleader relies, but not of the evidence by which they are to be proved . . ." (Emphasis added.) Specifically, the use of the words "on information and belief," are adequate for the purposes of meeting Connecticut's fact pleading standard. ABB Automation, Inc. v. Zaharna, 77 Conn.App. 260, 265-67, 822 A.2d 340 (2003). Under ABB Automation, "the court must only look to `[t]he substance of the allegations' to see if they state the necessary elements of the claim." (Internal quotation marks in original). State v. Acordia, Superior Court, complex litigation docket at Hartford, Docket No. X09 CV 07 4027314 (January 9, 2008, Shortall, J.).
The allegations based on "information and belief" cannot be considered legally conclusory in light of ABB Automation because they allege the necessary element for a challenge to standing, specifically that the plaintiff is not the proper party to bring suit because it does not own the mortgage. Unfortunately, other problems exist with respect to the defendant's first defense, namely that it cannot strictly be considered a special defense.
"[T]he purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action." (Internal quotation marks omitted.) Emigrant Mortgage Corp. v. D'Agostino, 94 Conn.App. 793, 802, 896 A.2d 814, cert. denied, 278 Conn. 919 (2006). Practice Book § 10-50 provides that such defenses must be "specially alleged."
The defendant's first special defense is not consistent with, but is in conflict with paragraph four of the complaint in which the plaintiff states that the note and mortgage was assigned to it from BNC Mortgage, Inc. Thus the purported special defense cannot properly be considered such; it is actually a denial. Further, despite the defendant's assertions, the challenge to the plaintiff's status as holder of the note goes to the merits and not jurisdiction, thus the issue of subject matter jurisdiction cannot be said to be "raised" as the defendant has implied in his reply brief.
The plaintiff's memorandum in support of the motion to strike cites the General Statutes § 49-17 as the statutory basis underlying their standing in this foreclosure action.
"The issue of standing implicates subject matter jurisdiction . . ." May v. Coffey, 291 Conn. 106, 113, 967 A.2d 495 (2009). It is definitely true also that "[o]nce the question of subject matter jurisdiction has been raised, cognizance of it must be taken and the matter passed upon before [the court] can move one further step in the cause; as any movement is necessarily the exercise of jurisdiction." (Internal quotation marks omitted.) Schaghticoke Tribal Nation v. Harrison, 264 Conn. 829, 839 n. 6, 826 A.2d 1102 (2003); Esposito v. Specyalski, 268 Conn. 336, 347-48, 844 A.2d 211 (2004). But "there is a difference between challenging a party's standing to maintain a cause of action and challenging the merits of the cause of action itself." Ninth RMA Partners, L.P. v. Krass, 57 Conn.App. 1, 5, 746 A.2d 826, cert. denied, 253 Conn. 918, 755 A.2d 215 (2000).
In the context of "an action to enforce a negotiable instrument, the plaintiff must be a holder of the instrument or a nonholder with the rights of a holder . . . This status is an element of an action on a note." (Citations omitted.) Ninth RMA Partners, L.P. v. Krass, supra, 57 Conn.App. 1, 5. Specifically, our Appellate Court has held that where a party in an enforcement action challenges the plaintiff's status as holder of the note, the argument goes to the merits of the action as opposed to jurisdiction. Id., 5-7 ("[w]hen the defendants argued . . . that the plaintiff was not a proper holder of the note, their argument went to the merits of the case . . . Although they called their claim a lack of subject matter jurisdiction, we do not view it as such").
Applying Ninth RMA Partners, the first special defense cannot be said to raise the issue of subject matter jurisdiction as the defendant has implied in his reply brief. Because the first special defense is invalid and cannot be read as adequately raising the issue of subject matter jurisdiction, the motion to strike as to the first special defense is granted.
Failure to Provide Notice
The plaintiff maintains that the defendant's second special defense, which alleges that the plaintiff has failed to provide adequate notice of the default, is insufficient because it alleges facts which are inconsistent with the complaint. The plaintiff alternatively attacks the special defense because it does not affect the making, validity or enforcement of the note. The defendant's opposition brief does not address the plaintiff's challenges to its second special defense.
The second special defense alleges "[the] [p]laintiff and BNC have failed to meet the applicable notice provisions of the note and mortgage."
The second special defense must be stricken; it alleges facts which are inconsistent with the plaintiff's complaint. These allegations therefore fall outside of the Practice Book § 10-50 definition of a special defense. The proper method for the defendant to attack the allegations regarding the adequacy of notice would be to deny the allegations. Because it is by definition insufficient as a special defense, the motion to strike with respect to the second special defense is granted.
Paragraph six of the plaintiff's complaint states "[t]he [p]laintiff has provided written notice in accordance with the [n]ote and [m]ortgage to the [d]efendant(s) of the default under the [n]ote and [m]ortgage . . ."
The defendant has in fact denied the allegation that the plaintiff provided notice of default as required by the mortgage terms in paragraph six of his answer.
Fraud
The plaintiff's memorandum further challenges the defendant's third special defense, which alleges fraud in the making and closing of the mortgage. The plaintiff asserts that the defendant has failed to plead facts establishing the elements of a cause of action for fraud and that the statements fail to attack the making, validity or enforcement of the note.
The defendant has responded to the plaintiff's arguments by stating that Connecticut law only requires a pleading sufficient to put the defendant on notice that the special defense will be used at trial. The defendant also argues that a fraud defense can arise out of the actions of the plaintiff's agents as well.
Practice Book § 10-1 indicates that "[e]ach pleading shall contain a plain and concise statement of the material facts on which the pleader relies, but not of the evidence by which they are to be proved . . ." (Emphasis added.) "It may not take much to plead the appropriate factual allegations to establish a . . . claim but we are a fact-pleading state and there must be something in the way of facts supporting such a claim alleged . . ." Figliomeni v. C.S.R. Getty, LLC, Superior Court, judicial district of New Haven, Docket No. CV 03 0479244 (November 3, 2003, Corradino, J.) [35 Conn. L. Rptr. 725].
"The essential elements of an action in fraud . . . are: (1) [T]hat a false representation was made as a statement of fact; (2) that it was untrue and known to be untrue by the party making it; (3) that it was made to induce the other party to act on it; and (4) that the latter did so act on it to his injury." Updike, Kelly Spellacy, P.C. v. Beckett, 269 Conn. 613, 643, 850 A.2d 145 (2004). "A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, supra, 262 Conn. 498.
The defendant has alleged that the plaintiff, or the plaintiff's predecessor, engaged in fraud during the making of the mortgage and throughout the closing process. No other facts have been alleged. In particular, there are no allegations that the plaintiff made false representations, that the defendant relied on the plaintiff's representations, or that the defendant suffered injury as a result of the plaintiff's actions. None of the four elements essential to a fraud claim have been satisfied in the defendant's third special defense, thereby rendering it insufficient and conclusory as a matter of law. The motion to strike the third special defense of fraud is therefore granted.
Unclean Hands
The plaintiff moves to strike the defendant's fourth special defense, which claims that the plaintiff has unclean hands, arguing that no showing has been made with respect to the element of wilful misconduct. The plaintiff also maintains that the defendant's breach of contract as to the note payments precludes its right to invoke the unclean hands doctrine.
The defendant argues in opposition that the court is permitted to consider the mortgagee's conduct during the course of the relationship in evaluating an equitable remedy because the post-default conduct relates to the enforcement of the motion. The defendant contends that if its factual allegations are proven at trial, they will establish that the plaintiff has unclean hands.
"Under [the unclean hands] maxim, any wilful act in regard to the matter in litigation, which would be condemned and pronounced wrongful by honest and fairminded men, will be sufficient to make the hands of the applicant unclean." (Emphasis added; internal quotation marks omitted.) Boretz v. Segar, 124 Conn. 320, 324, 199 A. 548 (1938). It is well settled that "[o]ne who seeks to prove that he is entitled to the benefit of equity must first come before the court with clean hands . . . The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation." (Emphasis added; internal quotation marks omitted.) Thompson v. Orcutt, 59 Conn.App. 201, 205, 756 A.2d 332, 334 (2000), rev'd on other grounds, 257 Conn. 301, 777 A.2d 670 (2001).
The defendant's fourth special defense alleges that the plaintiff has unclean hands with respect to the administration of the loan, specifically that the defendant failed to provide notice of interest rate changes as required under the mortgage's loan terms. Even if the defendant was able to demonstrate at trial that notice was not provided, no allegations have been pleaded indicating that the failure to give any type of notice was done wilfully or intentionally. Without allegations establishing the element of intentional or wilful misconduct, the fourth special defense is insufficient. The motion to strike the fourth special defense is accordingly granted.
CUTPA
The plaintiff moves to strike the defendant's fifth special defense, which alleges violations of CUTPA, by citing Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 644, 804 A.2d 311 (2002), for the proposition that a CUTPA claim must satisfy the federal "cigarette rule." The plaintiff argues that the facts pleaded in the defendant's special defense do not satisfy the requirements of the "cigarette rule," and also fail to point to "unfair or deceptive trade practices" rendering them legally insufficient under CUTPA.
The fifth special defense provides that "[the] [p]laintiff (or plaintiff's predecessor in interest) violated CUTPA in the making and administration of the underlying mortgage." Specifically, "[the] plaintiff (or plaintiff's predecessor in interest) failed to comply with the notice provisions of the note as they apply to assignment of the mortgage and calculation of interest rate adjustments. These actions violated CUTPA."
The defendant argues in response that CUTPA is to be construed liberally in favor of the class of persons whom the legislature intended to benefit. He contends that his special defense has alleged sufficient unscrupulous or immoral conduct on behalf of the plaintiff and its predecessor to set out a special defense under CUTPA.
CUTPA prohibits a person from engaging in "unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes § 42-110b(a). Trade and commerce is defined broadly, including the distribution of services under its umbrella. General Statutes 42-110a(4). "In determining whether a practice violates CUTPA [the Connecticut Supreme Court] has adopted the criteria set out in the cigarette rule by the federal trade commission for determining whether a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . A practice may be unfair because of the degree to which it meets one of the [cigarette rule] criteria or because to a lesser extent it meets all three." (Internal quotation marks omitted.) Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 155, 881 A.2d 937 (2005), cert. denied, 547 U.S. 1111, 126 S.Ct. 1913, 164 L.Ed.2d 664 (2006). There is no special requirement that a CUTPA claim be pleaded to conform to the prongs of the "cigarette rule." Macomber v. Travelers Property and Casualty Corp., supra, 261 Conn. 644.
Despite the facially liberal provisions cited with respect to the proper pleading of a CUTPA claim, "[a] simple breach of contract does not offend traditional notions of fairness and, standing alone, does not offend public policy so as to invoke CUTPA. A CUTPA claim lies where the facts alleged support a claim for more than a mere breach of contract. Depending upon the nature of the assertions, however, the same facts that establish a breach of contract claim may be sufficient to establish a CUTPA violation. That is generally so when the aggravating factors present constitute more than a failure to deliver on a promise." (Citation omitted; internal quotation marks omitted.) Davenport v. W.H. Milikowski, Inc., Superior Court, judicial district of Fairfield, Docket No. CV 09 5005534 (June 23, 2009, Ginocchio, J.).
Ultimately, the court must find that the CUTPA defense is insufficient. Although Macomber does not require the plaintiff to phrase his complaint to correspond to the exact form provided in the "cigarette rule," a claimant still must make out the basic elements of a CUTPA claim. The allegations pleaded in the special defense allege only noncompliance with the contractual provisions of the note. There is also no indication that the failure to provide notice was intentional, violative of a particular public policy, or that the circumstances were aggravated by bad faith on the part of the plaintiff or the initial mortgagor. As a result of the deficiencies, the motion to strike the fifth special defense is granted.
CONCLUSION
For the foregoing reasons, the plaintiff's motion to strike the defendant's first, second, third, fourth and fifth special defenses is granted.