Opinion
No. CV 05-4015105
March 27, 2007
MEMORANDUM OF DECISION ON MOTION TO STRIKE
In this foreclosure action the allegations upon which defendants base their special defenses and counterclaims are as follows:
When in October 2004 defendants failed to obtain homeowner's insurance, as stipulated by the underlying mortgage, plaintiff obtained an insurance policy on the residence to cover the outstanding balance of the mortgage and required defendants to pay the premium therefor. A fire destroyed the residence in April 2005. The balance owed on the note at that time was $ 365,802.38 and the policy fully covered that amount. However, the policy contained a provision that the full mortgage note would be paid only if the defendant started rebuilding the house within one year of the fire. The plaintiff never gave a copy of the policy to the defendants nor disclosed that fact to the defendants. As a consequence, the defendants never acted within the year so that the requirement that the policy would cover the full amount of the mortgage note could be met. The plaintiff was paid only $ 310,619.86 from the policy, leaving a balance of $ 57,670.46. That difference became the unpaid amount upon which this foreclosure action was based.
SPECIAL DEFENSES
The first and second special defenses allege that the plaintiff is equitably estopped from accelerating the note and foreclosing on the mortgage. The plaintiff moves to strike on the grounds that these special defenses do not attack the making, validity or enforcement of the note and mortgage. Plaintiff cites numerous cases where equitable estoppel is allowed as a defense in the foreclosure action only when they relate to the making, validity or enforcement of the note. Moreover, plaintiff asserts that conduct occurring subsequent to the execution of the note and mortgage does not relate to its making, validity or enforcement.
The alleged failure of plaintiff to inform defendant of a step necessary to assure that the policy covered the entire mortgage debt clearly relates to defendant's obligation to pay the unpaid portion of the note and plaintiff's right to enforce that obligation by this foreclosure action.
In Connecticut National Bank v. Voog, 233 Conn. 352, involving an action on promissory notes, the special defense of equitable estoppel, based on plaintiff's misrepresentations, was held to go directly to plaintiff's right to enforce the note and to arise out of the same transaction that was the subject of the complaint. If such a defense was allowed in an action on a note, it should also be available in an action to foreclose on the mortgage securing the note.
If the plaintiff here had taken the insurance proceeds, not applied them to the mortgage debt and brought a foreclosure action, an equitable estoppel defense surely would be allowed against the plaintiff enforcing the note.
If plaintiff had taken insurance premiums regularly paid by the defendant, not forwarded them to the insurance company resulting in the policy lapsing, and plaintiff had brought a foreclosure action, surely an equitable estoppel defense would be allowed against the plaintiff enforcing the note.
Here, the allegation is that the plaintiff failed to notify the defendants of an option to start rebuilding the residence within the year, so that the option lapsed and the full amount of the mortgage debt was not paid. In this foreclosure action, based upon the unpaid difference, the defendant has the right to assert an equitable estoppel defense against enforcement of the note.
The insurance policy covered only the mortgage debt and did not even cover the defendant's equity in the property. The plaintiff's concealment of the option resulted in the full mortgage debt not being paid by the insurance policy and the plaintiffs foreclosed on that default. Clearly plaintiff's actions relate to the enforcement of the note and the defendant's special defenses should be allowed.
With respect to the specific allegations of the defense of equitable estoppel, the plaintiff asserts that although the defendants met the first prong of that defense, namely that plaintiff had induced the defendants to believe that the insurance policy covered up to the amount of the outstanding balance of the mortgage, defendants failed to allege that they changed their position in reliance upon plaintiff's statement. In Connecticut National Bank v. Voog, 233 Conn. 352, 366 (1995), the Supreme Court noted that the doctrine of equitable estoppel applies: (1) when a party is "guilty of misrepresentation of facts including concealment, (2) upon which the other party justifiably relies, (3) to his injury." Also, as stated in Lombardo's Ravioli Kitchen, Inc. v. Ryan, 268 Conn. 222, 236 (204), "Estoppel rests on the misleading conduct of one party to the prejudice of the other."
The allegations of defendant's special defenses set forth facts that demonstrate that plaintiff misled the defendants into believing there was adequate insurance to cover the mortgage debt and concealed from them that the full amount of that policy would not be paid unless rebuilding costs were incurred within one year of the fire. The special defenses also alleged the concealment of material facts that led to the defendants not acting, so that the full amount of the policy was not paid and a default on the mortgage occurred to the detriment of the defendant.
The First and Second Special Defenses sufficiently state the grounds for equitable estoppel. The motion to strike these defenses is denied.
COUNTERCLAIMS
The law as to counterclaims is that they will be allowed in any legal or equitable action provided they arise out of the transaction which is the subject of the plaintiff's complaint. Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 21, cert. denied 249 Conn. 1919 (1999). The plaintiff asserts that the counterclaims alleged by the defendant do not relate to the making, validity or enforcement of the note and mortgage and thus do not arise out of the same transaction as the foreclosure action. The defendant quotes New Haven Savings Bank v. LaPlace, 66 Conn. 111, cert. denied, 258 Conn. 942 (2001) to the effect that, "[c]ounterclaims are irrelevant to the foreclosure issue [if] they do not attack the making, validity or enforcement of the note or mortgage . . ." That case involved the assertion of counterclaims based upon a breach of fiduciary duty owed to the defendant remainderman under a trust that affected the manner in which the mortgage could be enforced. The case in turn relied upon Southbridge Associates, LLC v. Garofalo, supra, in which the counterclaim in the foreclosure action alleged that the foreclosing bank breached a fiduciary duty owed to the mortgagor by not offering the mortgagor to pay off the mortgage at the discount it allowed a subsequent assignee to purchase the mortgage. These cases significantly differ from some of the counterclaims alleged by the defendant which directly relate to the debt being foreclosed upon.
CT Page 8648
I. FIRST COUNT OF COUNTERCLAIMS — NEGLIGENT MISREPRESENTATION
In this count defendants allege that plaintiff represented to them that the premiums defendants were paying for the policy would ensure that the proceeds would be available to pay the full amount of any outstanding balance of the note and mortgage. In fact, that representation was untrue in that full coverage was contingent upon incurring defendants' rebuilding costs within one year of the subject fire. The count further alleges that defendants relied upon the plaintiff's representation to its detriment, resulting in the subject foreclosure action. As stated above, the plaintiff's misrepresentations related to the default and have a connection with this foreclosure action.Plaintiff further asserts that the negligent misrepresentation count fails to state a claim against the plaintiff because plaintiff owed no duty to the defendant with regard to insuring the property. It cited a provision of the mortgage deed to the effect that if the defendants did not obtain homeowner's insurance, plaintiff may obtain the insurance coverage at plaintiff's option, and the plaintiff was under no obligation to purchase any particular type or amount of coverage.
Whether the plaintiff had the duty to obtain the insurance, the fact was that it did obtain it, required the defendants to pay the premiums for it and represented that it insured the entire debt. That policy benefitted the plaintiff in that it insured the mortgage debt, and benefitted the defendants in that it covered the defendants' obligation to pay that debt. Clearly, the defendant was a third party beneficiary of the policy.
The plaintiff had the duty to inform the defendants of the option under the policy in order for the full coverage to be paid. The count alleged it breached that duty. The breach was also the proximate cause of the defendants being in default under the mortgage giving rise to this foreclosure action.
Plaintiff's motion to strike the First Count of the counterclaim is denied.
II. SECOND COUNT — INTENTIONAL MISREPRESENTATION
This count alleges that the plaintiff intentionally misrepresented to the defendants that the premiums of the policy would ensure that the proceeds pay off the full amount of the balance of the note and mortgage.
For the reasons cited with respect to the First Count, this motion to strike the Second Count is denied.
III. THIRD COUNT — ESTOPPEL
In this count the defendants allege that the plaintiff is estopped from denying the defendants the full amount of the policy proceeds to pay down the note and mortgage.
For reasons stated above with respect to equitable estoppel the motion to strike this Third Count is denied.
IV. FOURTH COUNT — AFFIRMATIVE INJUNCTION
In this count the defendants allege they are entitled to an order of this court requiring the plaintiff to immediately mark the note fully paid and release it.
The plaintiff moves to strike on the grounds that the defendants fail to allege irreparable harm and lack of an adequate remedy at law. These grounds to strike are merited and the motion to strike the Fourth Count is granted.
V. FIFTH COUNT — UNJUST ENRICHMENT
In this count the defendants allege that by requiring the defendants to pay the premiums on the policy and holding the defendants responsible for the approximately $ 57,000 difference between the outstanding balance of the note and the amount of the proceeds of the policy paid, the plaintiff has been unjustly enriched. Plaintiff moves to strike this count on the grounds that defendants do not allege any way in which plaintiff is benefitted by defendants paying the insurance premiums. There is merit to this ground and the motion to strike this Fifth Count is granted.
VI. SIXTH COUNT — CIVIL CONSPIRACY
The defendants allege in this count that the plaintiff conspired with Balboa Insurance Group, Inc. and Countrywide Home Loans, a mortgage servicing company, to misrepresent to the defendants that the policy would pay off the full amount of the outstanding balance on the note and mortgage.
The plaintiff moves to strike on the grounds that the defendants fail to allege there was a combination by and between those three companies for the purpose of perpetuating the alleged misrepresentation or any substantive facts which would tend to support a conspiracy. The plaintiff's assertion has merit and the motion to strike the Sixth Count is granted.
VII. SEVENTH COUNT — VIOLATION OF CONNECTICUT UNFAIR TRADE PRACTICES ACT
The defendants allege that based on its previous allegations the plaintiff's acts and omissions violate CUTPA. The only act previously alleged is the plaintiff's alleged intentional misrepresentation. The plaintiff moves to strike on the grounds that those allegations are not sufficient to state a cause of action in CUTPA. In Voog, supra, allegations of intentional misrepresentations were adequate upon which base a CUTPA claim. The motion to strike the Seventh Count is denied.
VIII. EIGHTH COUNT — NEGLIGENCE
In this count the defendants allege that because of the negligence of the plaintiff's failure to notify the defendants of the option in the policy, it lapsed and as a result, caused the defendants damages. Plaintiff moves to strike on the grounds that the plaintiff had no duty to the defendants regarding the insurance policy. For the reasons stated above, this ground has no merit and the motion to strike the Eighth Count is denied.
IV. NINTH COUNT — BREACH OF THE MORTGAGE AGREEMENT
In this count the defendants allege that the plaintiff contacted the defendants after the fire loss concerning delinquent mortgage payments, and harassed and tormented the defendants. The court determines that this count fails to allege a breach of the mortgage agreement and the motion to strike this Ninth Count is granted.
X. TENTH COUNT — BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING
The plaintiff moves to strike this count on the basis of the dicta in LaSalle National Bank v. Fresh Field Meadows, LLC, 69 Conn.App. 824, 835 (2002) to the effect that a breach of implied covenant of good faith and fair dealing is not allowed as an equitable defense in a mortgage foreclosure action. In that case the defendants allege a breach of implied covenant of good faith and fair dealing because the plaintiff bank refused to renegotiate the mortgage debt or to accept less than the amount provided for in the mortgage. The court found that these allegations were, in fact, not established and there was no genuine issue of material fact that the plaintiff had breached the implied covenant of good faith and fair dealing.
In Magnan v. Anaconda Industries, 193 Conn. 558, 566 (1984), it is stated, "[t]he Connecticut Supreme Court has recognized that the duty of good faith and fair dealing is present in every contract." The court finds that the defendants have alleged facts that the plaintiffs breached the covenant of good faith and fair dealing in a manner related to the enforcement of the note. The motion to strike the Tenth Count of the counterclaim is denied.
XI. ELEVENTH AND TWELFTH COUNTS — NEGLIGENT AND INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS
The defendants allege that the plaintiff, after the loss of the defendants' home, continued to harass and annoy the defendants by seeking payment on the mortgage debt. The plaintiff moves to strike on the grounds that the defendants have failed to allege conduct that is atrocious, utterly intolerable in a civilized community and goes beyond all possible bounds of decency. Heim v. California Federal Bank, 78 Conn.App. 351, 356, cert. denied 266 Conn. 911 (2003).
The Heim case dealt directly with the bank claiming payments of a defaulted mortgage. The court finds that case authoritative on the issue and grants the motion to strike the Eleventh and Twelfth Counts of the counterclaim.
Based on the foregoing, the court denies the motion to strike the special defenses, denies the motion to strike Counts First, Second, Third, Seventh, Eighth and Tenth of defendants' counterclaims, and grants the motion to strike Counts Fourth, Fifth, Sixth, Ninth, Eleventh and Twelfth of the defendants' counterclaims.