Opinion
No. CV-91-512558
October 19, 1992.
MEMORANDUM OF DECISION ON MOTION TO STRIKE SPECIAL DEFENSE AND TO STRIKE OR BIFURCATE COUNTERCLAIMS
The Complaint in this action is in four counts. The First Count seeks to foreclose a mortgage on various parcels of real property in Bristol, Connecticut, which secures a promissory note dated December 16, 1982, from the defendant Chapin W. Miller ("Miller") to the plaintiff in the original principal amount of $235,000. The Second Count seeks to foreclose a mortgage on the same parcels of real property that secures the $235,000 note, which mortgage secures a promissory note dated September 18, 1989, from Miller to the plaintiff in the original principal amount of $600,000. The complaint alleges that the installments of principal and interest due under each note have not been paid. The Third and Fourth Counts seek recovery on the notes themselves.
By Amended Answer dated July 20, 1992, the defendant Miller interposed two special defenses and four counterclaims. The plaintiff has moved to strike the special defenses and has moved to strike or bifurcate the counterclaims.
In the First Special Defense the defendant alleges that in its transactions and business dealings with the defendant the plaintiff impliedly covenanted to act in good faith and that the plaintiff breached this covenant in various ways including its refusal to permit an extension of the amortization schedule on certain interrelated loans between the parties, its untrue representations that it would provide additional financing to the defendant, its negotiation in bad faith concerning additional financing, its refusal to provide additional financing, and its refusal to release "excess" collateral to permit the defendant to obtain financing from other sources. The defendant does not allege that the foregoing actions bar the plaintiff's foreclosure action, but, rather, that they caused the defendant to sustain damages.
The Second Special Defense alleges that the conduct described in the First Special Defense constituted the breach of a fiduciary relationship between the plaintiff and the defendant which arose during a course of dealing between the parties over a period of years. As in the First Special Defense, the defendant does not allege that the breach of the fiduciary duty bars or defeats the foreclosure action, but that it caused the defendant to sustain damages.
Practice Book 164 provides in relevant part:
No facts may be proved under either a general or special denial except such as show that the plaintiff's statements of fact are untrue. Facts which are consistent with such statements which show, notwithstanding, that he has no cause of action, must be specially alleged.
The First and Second Special Defenses do not show that the plaintiff has no cause of action. They do not address the making, validity or enforcement of the notes and mortgages which are the subject of the complaint. Rather they allege the nonperformance, breach, and misrepresentation with respect to agreements and dealings between the parties which are separate from the notes and mortgages referred to in the complaint.
Connecticut has recognized the following defenses to an action for foreclosure: payment, discharge, release or satisfaction, Connecticut Savings Bank v. Reilly, et al, 12 Conn. Sup. 327 (1944); accident, mistake or fraud, Boretz v. Segor, 124 Conn. 320, 199 A. 548 (1938); unconscionability, Hamm v. Taylor, 180 Conn. 491, 29 A.2d 946 (1988); abandonment of security; Glotzer v. Keyes, 125 Conn. 227, 5 A.2d 1 (1939); and usury, Atlas Realty Corp. v. House, 120 Conn. 661, 183 A. 9 (1936).
Various Superior Court decisions have held that special defenses similar to those alleged by the defendant are inapplicable to a mortgage foreclosure proceeding. In New England Savings Bank v. High Ridge, Inc., et al, Conn. L.Rptr. #5 110 (November 10, 1991, Leuba, J.) the court held that the defense of "unclean hands" claiming that the bank failed to comply with the terms of a loan modification agreement was inapplicable in a foreclosure action.
In Citytrust v. Kings Gate Developers, Inc., 2 Conn. L. Rptr. #639 (1990, Lewis, J.) the court held that a claim that the bank tortiously interfered with a contract to sell the mortgaged property at a price which would have satisfied the mortgage note was not a valid Special Defense under Practice Book 164.
Similarly in Connecticut Savings Bank v. Thomas F. Reilly, 12 Conn. Sup. 327 (1944) the Superior Court sustained a demurrer to a Special Defense alleging abuse of process due to excessive attachment stating that "it does not avoid the plaintiff's cause of action and is totally without merit as a defense." 12 Conn. Sup. at 329.
The defendant filed a Request to Amend Special Defenses dated August 14, 1992 in which he has added an allegation to the Special Defenses to the effect that the alleged breach of the covenant of good faith and fair dealing relieved the defendant of any and all obligations under the mortgages and notes which are the subject of the action. Since the Request to Amend was filed after the Motion to Strike, and the plaintiff has not addressed the Amended Special Defenses in its Motion to Strike, the court does not consider the Amended Special Defenses here.
The defendant has also interposed a counterclaim which alleges that defendant Miller, Chic Miller's Chevrolet-Isuzu, Inc., EFA Acceptance Corporation, and Aries Insurance Co., Inc. ("Consolidated Defendants") are defendants in six interrelated actions commenced simultaneously by the plaintiff. It further alleges that for a number of years the plaintiff and the Consolidated Defendants engaged in a continuing business relationship which included a number of loan transactions and deposit relationships. During 1989, 1990 and 1991 economic conditions in areas in which the Consolidated Defendants operated took a significant downturn. In early 1990 the Consolidated Defendants requested that the plaintiff rewrite and restructure loan transactions and advance additional funds. The plaintiff refused to do so and also refused to release certain "excess" collateral to permit the consolidated Defendants to obtain financing from another source. As a result of those actions the defendant claims that the business of the Consolidated Defendants was adversely affected and the defendant suffered damages.
The Counterclaim is in four counts which allege that the conduct of the plaintiff constituted 1) a breach of its implied covenant of good faith and fair dealing; 2) a breach of its "contractual agreements" with the Consolidated Defendants; 3) a breach of fiduciary duties owed to the Consolidated Defendants; and 4) unfair or deceptive acts or practices under Connecticut General Statutes 42-110b et. seq. (Connecticut Unfair Trade Practices Act or "CUTPA").
Practice Book 116 provides that a defendant may file a counterclaim against a plaintiff provided that "each such counterclaim . . . arises out of the transaction or one of the transactions which is the subject of the plaintiff's complaint."
The purposes underlying Practice Book 116 are "judicial economy, avoidance of multiplicity of litigation and avoidance of piecemeal disposition of what is essentially one action." Wallingford v. Glen Valley Associates, Inc., 190 Conn. 158, 161, 459 A.2d 525 (1983). In determining whether claims made in a complaint and counterclaim are essentially "one action," a court must consider whether a substantial duplication of effort would result if each claim was tried separately. Id.
The complaint alleges that the defendant Miller breached his obligation (payment) under two notes, one dated in 1982 and the other in 1989. The counterclaims do not relate to the making, validity, or enforcement of those notes or the mortgages by which they were secured. Instead, the counterclaims allege agreements, failures to agree, and other actions by the plaintiff which post-dated the aforementioned notes and which were wholly separate and distinct from the rights and obligations of the parties under the notes. Therefore, if the claims of the complaint and counterclaims are tried separately, a substantial duplication of effort will not result.
For the foregoing reasons, the Motion to Strike the special defenses and counterclaims is granted.
Aurigemma, J.