Opinion
CV136036501S
09-29-2016
Foundation Capital Resources, Inc. v. Prayer Tabernacle Church of Love, Inc.
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE THE PLAINTIFF'S MOTION TO STRIKE (NO. 166)
William J. Wenzel, J.
This action comes before the court on the plaintiff Foundation Capital Resources, Inc.'s (the plaintiff or Foundation Capital) motion to strike the defendant Prayer Tabernacle Church of Love, Inc.'s (the defendant or Prayer Tabernacle) special defenses and counterclaims (#166), filed on June 20, 2016. This dispute arises from a series of loan, mortgage, and modification agreements entered into by the plaintiff and the defendant. The plaintiff's amended complaint and subsequent pleadings, in their simplest form, put forth the following facts.
On August 27, 2014, the plaintiff filed a motion to strike the first iteration of the defendant's special defenses and counterclaims, which the court (Jennings, J.) granted in part and denied in part. On May 1, 2015, the defendant repleaded its special defenses and counterclaims and later, on February 24, 2016, filed amended special defenses and counterclaims which it labeled " Defendant's Third Special Defenses and Counterclaims." On June 7, 2016, the defendant filed the latest version of its special defenses and counterclaims, which it also labeled " Defendant's Third Special Defenses and Counterclaims." The plaintiff's motion to strike and this memorandum address the defendant's June 7, 2016 pleading.
This action includes additional defendants, none of which joined in Prayer Tabernacle's special defenses and counterclaims. Therefore, this memorandum does not address these other parties.
The plaintiff filed an amended complaint on July 16, 2013. Although, on September 8, 2016, the plaintiff filed a second amended complaint, the amended complaint was the operative complaint at the time that the defendant filed its June 7, 2016 pleading. Therefore, the defendant's special defenses and counterclaims, the plaintiff's motion to strike, and this memorandum all concern the July 16, 2013 amended complaint.
Between 2007 and 2009, the plaintiff made three loans to the defendant in order to enable the defendant to construct a church (construction project). These loans were secured by mortgages on a number of the defendant's properties. In 2009, after the defendant defaulted on the 2007 and 2008 loans, the parties entered into four separate forbearance agreements. In 2012, the parties entered into agreements which modified the 2007, 2008, and 2009 loans. Despite these modifications, the defendant failed to make the required payments. Accordingly, the plaintiff brought this foreclosure action.
In its third special defenses and counterclaims, the defendant puts forth the following four special defenses: (1) the plaintiff, a foreign corporation, violated General Statutes § 33-921 by transacting business in Connecticut without a certificate of authority authorizing it to do so; (2) the plaintiff's conduct, which ultimately caused the defendant to default on the initial loan, constitutes fraud; (3) certain provisions or agreements are unconscionable; and (4) the plaintiff acted with unclean hands. By way of counterclaim, the defendant asserts the following: (1) the plaintiff breached the implied duty of good faith and fair dealing (count one); (2) the plaintiff breached its obligations under agreements entered into in 2007, 2009, and 2012 (counts two through six); (3) the plaintiff violated the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA) (count seven); (4) the plaintiff's conduct constitutes fraud (count eight); and (5) the plaintiff committed statutory theft in violation of General Statutes § 52-564 (count nine).
Section 33-921, in relevant part, states: " A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority."
" Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages." General Statutes § 52-564.
In the present motion, the plaintiff asks the court to strike the defendant's special defenses and counterclaims in their entirety. The plaintiff argues that the defendant's special defenses: (1) are not legally recognized defenses to a foreclosure action; (2) have been previously rejected in the present action by the court and are therefore invalid pursuant to the law of the case doctrine; and (3) are legally insufficient as plead. The plaintiff additionally contends that the defendant's counterclaims: (1) violate Practice Book § 10-10; (2) are time barred; (3) have previously been waived by the defendant; and (4) fail to state a claim upon which relief may be granted. The plaintiff also puts forth specific challenges to the legal sufficiency of each special defense and counterclaim, which are discussed below.
Section 10-10, in relevant part, states: " In any action for legal or equitable relief, any defendant may file counterclaims against any 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 . . ."
I
DISCUSSION
A
Standard of Review
" A motion to strike shall be used whenever any party wishes to contest . . . the legal sufficiency of the allegations of any . . . counterclaim . . . or of any one or more counts thereof, to state a claim upon which relief can be granted; or . . . the legal sufficiency of any answer to any complaint . . . or any part of that answer including any special defense contained therein." Practice Book § 10-39(a). In ruling on a motion to strike, the trial court is limited to the facts alleged inside the four corners of the pleading, must accept as true the facts alleged therein, and must construe the pleading in the manner most favorable to sustaining its legal sufficiency. See, e.g., 1 Beck & Beck, LLC v. Costello, 159 Conn.App. 203, 207-09, 122 A.3d 269 (2015) (motion to strike counterclaim); Doe v. Hartford Roman Catholic Diocesan Corp., 317 Conn. 357, 398, 119 A.3d 462 (2015) (motion to strike special defense).
B
Special Defenses
" Historically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction . . . or, if there had never been a valid lien . . . The 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 . . . 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 . . . [Connecticut] courts have permitted several equitable defenses to foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud from fulfilling a condition of the mortgage, foreclosure cannot be had . . . Other equitable defenses that [the Connecticut] Supreme Court has recognized in foreclosure actions include unconscionability . . . abandonment of security . . . and usury." (Internal quotation marks omitted.) GMAC Mortgage, LLC v. Ford, 144 Conn.App. 165, 181, 73 A.3d 742 (2013).
" Practically speaking, however, neither [the Appellate Court] nor [the] Supreme Court has ever expressed a finite list of equitable defenses available in a foreclosure action. Typically, '[t]he assertion of equitable defenses to a mortgage foreclosure requires that the defenses [also] challenge the making, validity and enforcement of the loan note and mortgage. This principle was . . . considered to include events leading up to the execution of the loan documents, exclusive of issues involving the administration of the loan, such as misapplication of payments.' D. Caron & G. Milne, Connecticut Foreclosures (4th Ed. 2004) § 28.05A, p.612. Nevertheless, given the equitable nature of a foreclosure action, events subsequent to the execution of the loan documents also have been considered." TD Bank, N.A. v. M.J. Holdings, LLC, 143 Conn.App. 322, 328, 71 A.3d 541 (2013).
As a preliminary matter, the court finds that each of the defendant's four special defenses challenges the making, validity, and enforcement of the loan note and mortgage. Special defense one, which alleges a violation of § 33-921, questions the plaintiff's right to enforce the note and mortgage based on conduct which surrounded the making of these documents. Special defense two, which alleges fraud, asserts misconduct on the part of the plaintiff that took place prior to and during the process of negotiating the 2007 loan and mortgage and which includes and impacts the making, validity, and enforcement of both the 2007 and 2008 agreements. Special defense three, which alleges unconscionability, speaks directly to the validity of the 2008 agreements, among others. Finally, special defense four, which alleges unclean hands, is based on allegations which influence the plaintiff's right to enforce the subject agreements. Accordingly, the court will next examine the plaintiff's substantive arguments.
1
Special Defense One: Violation of General Statutes § 33-921
The plaintiff argues that the defendant's first special defense, asserting that the plaintiff transacted business in Connecticut without authority in violation of General Statutes § 33-921, must be stricken because the plaintiff did not transact business in the state. More specifically, the plaintiff relies on the portion of § 33-920(b) which states: " The following activities, among others, do not constitute transacting business within subsection (a) of this section . . . (7) creating or acquiring indebtedness, mortgages and security interests in real or personal property; [or] (8) securing or collecting debts or enforcing mortgages and security interests in property securing the debts . . ." Based on these explicitly exempt categories, the plaintiff argues that it did not need a certificate of authority because it did nothing more than make loans to and enter into forbearance agreements with the defendant.
In support of its first special defense, the defendant puts forth the following relevant facts. The plaintiff is a Georgia corporation with an office in Springfield, Missouri that is not registered to transact business in Connecticut pursuant to § 33-921. As early as January of 2008 and continuing thereafter, employees, agents, and representatives of the plaintiff undertook to engage in activities well beyond those characterized by the bank/lender relationship. Namely, the plaintiff's employees, agents, and representatives: (1) took control of a campaign to solicit contributions from the defendant church's parishioners; and (2) took control of the commercial construction activities related to the new church construction, including developing and publishing the schedule of values for the project and preparing the documents for and submitting the monthly payment requests related to the construction project. In addition, a vice president of the plaintiff took over construction management of the new church project, dealt directly with subcontractors, purchased equipment and materials for the project work, and involved himself with payments to and claims of subcontractors and with mechanic's lien waivers from subcontractors.
The plaintiff avers that the above allegations are conclusory statements that the court need not consider. The court disagrees; the defendant has alleged that the plaintiff engaged in specific and identifiable activities. As this is a motion to strike, the court takes these allegations as true and construes them in a light most favorable to the defendant. Therefore, although the plaintiff avers that a different entity engaged in the alleged activities, pursuant to the motion to strike standard, the court must conclude that the plaintiff partook in activities that do not fall within the ambit of § 33-920(b). Accordingly, the plaintiff's motion to strike the defendant's first special defense, alleging a violation of § 33-921, is denied.
2
Special Defense Two: Fraud
The plaintiff argues that the defendant's second special defense, asserting fraud, must be stricken because the defendant has not pled all of the necessary elements of a fraud cause of action. Specifically, the defendant has not alleged that the plaintiff intentionally made false representations or that the defendant relied on such representations to its detriment.
" Fraud is an equitable defense to a foreclosure action." Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. 183, 188, 850 A.2d 260 (2004). " Fraud involves deception practiced in order to induce another to act to her detriment, and which causes that detrimental action . . . The four essential elements of fraud are (1) that a false representation of fact was made; (2) that the party making the representation knew it to be false; (3) that the representation was made to induce action by the other party; and (4) that the other party did so act to her detriment." (Internal quotation marks omitted.) Id. " Because specific acts must be pleaded, the mere allegation that a fraud has been perpetrated is insufficient." Id.
The defendant's second special defense includes 144 paragraphs of allegations. In sum, the defendant asserts that the plaintiff engaged in activity to trap the defendant in a cycle of excessive interest payments, late fee charges, prepayment penalties, and other costs and to force the defendant to default on loans and pay exorbitant fees. More specifically, the defendant alleges the following. At the time when it applied for a loan with the plaintiff, the defendant already had a mortgage and construction loan with another lender. This other loan had a balance of approximately 1.2 million dollars at an interest rate of 7.63 percent. The plaintiff represented to the defendant that it would offer competitive and lower rates of interest than the defendant's prior lender offered.
Subsequently, on December 12, 2007, the plaintiff and the defendant entered into the 2007 loan. Pursuant to this agreement, the plaintiff agreed to lend the defendant funds at an initial interest rate of 8.375 percent per annum. Upon conversion to permanent financing, the interest rate would not change. The 2007 note provided that payments made by the defendant would be applied first to late fees, then to interest, and then to the principal. The note stated that " at no time will interest rate . . . be less than eight and three eights percent (8.375%) per annum except as otherwise be agreed to in writing." The plaintiff promised the defendant that the 8.375 percent would prevail only during construction, which was expected to be completed by June of 2009, and that upon completion of construction the interest rate would decrease. Despite these promises, at various points throughout the life of the 2007 loan, the plaintiff charged the defendant interest at a rate of 13.375 percent per year or higher.
The plaintiff also required the defendant to participate in a campaign to raise funds for the construction project and charged the defendant approximately $78,000 to participate. The plaintiff promised that a second construction loan (the 2008 loan) would be equal to 80 to 100 percent of the amount pledged to the capital campaign. The plaintiff also promised the defendant that interest on the 2008 loan would not exceed 6.5 percent and that it would instead float between 4.5 and 6.5 percent. Ultimately, the campaign received $3,768,964. Nonetheless, the plaintiff agreed to lend the defendant just $1,175,000, or approximately 30 percent of the pledges received, at a rate of 10.5 percent per annum.
Construing the pleading broadly, realistically, and in a manner most likely to sustain its legal sufficiency, the court finds that the defendant has alleged, in great specificity, that the plaintiff made false representations of fact as to the interest rates that it would charge and the size of the 2008 loan. As is necessarily implied from the defendant's use of words such as " scheme" and " preyed upon, " these representations were intentionally and knowingly crafted in order to induce the defendant to enter into the loan agreements. Relying on these representations, the defendant entered into the 2007 loan agreement, participated in the capital campaign, and entered into the 2008 agreement. The existence of integration clauses within the loan documents do not operate as a bar to the defendant's allegations that it relied on the plaintiff's fraudulent statements. See Tallmadge Bros., Inc. v. Iroquois Gas Transmission System, L.P., 252 Conn. 479, 505, 746 A.2d 1277 (2000). Accordingly, taking " all well-pleaded facts and those facts necessarily implied from the allegations . . . as admitted"; (internal quotation marks omitted). Geysen v. Securitas Security Services USA, Inc., 322 Conn. 385, 398, 142 A.3d 227 (2016), the plaintiff's motion to strike the defendant's second special defense, alleging fraud, is denied.
At oral argument, the plaintiff presented the contrary argument.
3
Special Defense Three: Unconscionability
The plaintiff argues that the defendant's third special defense, asserting unconscionability, should be stricken because the defendant has failed to identify any clauses in the loan agreements that are so one-sided as to be unconscionable as a matter of law. As to the interest rates, the plaintiff essentially contends that because the interest rates did not violate Connecticut's usury statute, they cannot be declared unconscionable. As to the prepayment penalties, the plaintiff argues: (1) that the defendant was never charged a prepayment penalty, and (2) that Connecticut courts permit prepayment penalties. Finally, as to the provisions that allowed the plaintiff to exercise certain rights, the plaintiff avers that these are standard contractual terms and are in no way unconscionable.
" The classic definition of an unconscionable contract is one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other . . . The doctrine of unconscionability, as a defense to contract enforcement, generally requires a showing that the contract was both procedurally and substantively unconscionable when made-i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party . . ." (Internal quotation marks omitted.) R.F. Daddario & Sons, Inc. v. Shelansky, 123 Conn.App. 725, 741, 3 A.3d 957 (2010).
" The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise . . . As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which, although formally limited to transactions involving personal property, furnishes a useful guide for real property transactions . . . As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, [t]he basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract . . . Unconscionability is determined on a case-by-case basis, taking into account all of the relevant facts and circumstances." (Internal quotation marks omitted.) Emigrant Mortgage, Co. v. D'Agostino, 94 Conn.App. 793, 802, 896 A.2d 814, cert. denied, 278 Conn. 919, 901 A.2d 43 (2006).
Regarding the unconscionability of interest rates, the court first notes that the concepts of usury and unconscionability are distinct. See Hamm v. Taylor, 180 Conn. 491, 494-95, 429 A.2d 946 (1980). Whereas the question of whether an interest rate is usurious requires a court to simply compare the actual rate with the statutory rate, " [w]hether interest rates are unconscionable is a question that should not be decided simply by judicial surmise about prevailing prime interest rates. The financial circumstances of the borrower, the increased risk associated with a second mortgage, and the income-producing capacity of the mortgaged property are some of the questions of fact that might appropriately be explored to shed light on whether a designated interest rate is or is not unconscionable." (Footnote omitted.) Id., 495.
In the present case, in its third special defense, the defendant has alleged that the plaintiff is a sophisticated lender and that interest rates in the 2008 bridge note, the 2009 addendum, and the 2009 loan are unconscionable. These conclusory allegations are not enough to withstand a motion to strike. Nonetheless, in its second special defense, which it incorporates into its third special defense, the defendant alleges that, although the plaintiff represented that interest on the 2008 loan would not exceed 6.5 percent, in actuality the loan documents contained an interest rate of 10.5 percent. In order to attempt to complete the construction project, which was delayed in part because of the plaintiff's conduct, the defendant had no choice but to accept the plaintiff's terms, including the excessive interest rate. The defendant's allegations necessarily imply knowledge on the part of the plaintiff regarding the defendant's financial circumstances and that the 2008 loan was meant to be a bridge loan. The defendant has thus alleged that it was unfairly surprised by the high interest rate and that it lacked meaningful choice in entering into the agreement. Therefore, the defendant has adequately alleged that the interest rate on the 2008 loan was unconscionable. As this one part of the defendant's unconscionability special defense is legally sufficient, and because the plaintiff has challenged the legal sufficiency of the entire special defense, the plaintiff's motion to strike the defendant's third special defense is denied. See Jolen, Inc. v. Brodie & Stone, PLC, Superior Court, judicial district of Fairfield, Docket No. CV-15-6053151 (May 13, 2016, Kamp, J.) (62 Conn.L.Rptr. 343, 346 n.2, ) (one of plaintiff's theories sufficient to allow CUTPA claim to proceed, motion to strike denied); see also Aurio v. Allstate Ins. Co., Superior Court, judicial district of Waterbury, Docket No. CV-02-0175465-S (November 26, 2003, Gallagher, J.) (36 Conn.L.Rptr. 39, 40, ) (where motion to strike challenges entire count, but any part of plaintiff's claims therein are legally sufficient, motion will fail); Farago v. Pfizer, Inc., Superior Court, judicial district of New London, Docket No. 524911, (May 17, 1993, Teller, J.) (if part of count is viable, count is not subject to motion to strike).
4
Special Defense Four: Unclean Hands
The plaintiff argues that the defendant's fourth special defense, asserting unclean hands, should be stricken. " [Connecticut] jurisprudence has recognized that those seeking equitable redress in our courts must come with clean hands. The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue . . . For a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands . . . The clean hands doctrine is applied not for the protection of the parties but for the protection of the court . . . It is applied . . . for the advancement of right and justice . . . 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 . . . The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked." Emigrant Mortgage, Co. v. D'Agostino, supra, 94 Conn.App. 804.
The plaintiff first contends that, pursuant to the law of the case doctrine, the court should strike this special defense. " The law of the case doctrine expresses the practice of judges generally to refuse to reopen what has been decided and is not a limitation on their power . . . Where a matter has previously been ruled upon interlocutorily, the court in a subsequent proceeding in the case may treat that decision as the law of the case . . . As [the Appellate Court] recently explained, the law of the case doctrine does not preclude a judge from deciding an issue in a way contrary to how it was decided by a predecessor judge in the same case . . . [It] provides that judges may treat a prior ruling as the law of the case if they agree with the determination. He or she may, however, decide the issue differently if he or she is convinced that the prior decision is wrong." (Citation omitted; internal quotation marks omitted.) Sullivan v. Thorndike, 137 Conn.App. 223, 227-28, 48 A.3d 130, 133 (2012).
In its August 12, 2014 order, the court (Jennings, J.) granted the plaintiff's motion to strike the defendant's unclean hands special defense on the ground that the " special defense simply alleged that the various specifications of misconduct by the plaintiff 'failed to do equity' or words to that effect." This order thus struck the defendant's unclean hands special defense, which incorporated limited allegations of misconduct and asserted that the plaintiff's conduct " evidence[d] failure to act equitably." In the iteration of its unclean hands special defense that is relevant to this memorandum, the defendant incorporates the entirety of its fraud claim and asserts eight additional paragraphs of allegations. In these eight paragraphs, the defendant alleges that the plaintiff knowingly made misrepresentations as to interest rates and other loan terms and assumed control of defendant's building project and accumulated excessive and unreasonable debts in the defendant's name. The defendant therefore has articulated the factual basis for its unclean hands special defense and, for this reason, the court cannot grant the plaintiff's motion on its law of the case ground.
Next, the plaintiff argues based on facts that it contends will be established at trial. As this is a motion to strike, " [i]t is . . . improper for the court to consider material outside of the pleading that is being challenged by the motion." (Internal quotation marks omitted.) Tracy v. New Milford Public Schools, 101 Conn.App. 560, 566, 922 A.2d 280, cert. denied, 284 Conn. 910, 931 A.2d 935 (2007). Accordingly, the court cannot grant the plaintiff's motion on this ground.
Finally, the plaintiff avers that none of the defendant's allegations rise to the level of wilful misconduct that an unclean hands claim requires. The court disagrees. In Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 405, 867 A.2d 841 (2005), the Appellate Court considered whether the trial court had properly determined that the plaintiff had unclean hands. In this review, the Appellate Court found facts which, in total, supported the trial court's determination. These facts included many of the same circumstances and events which are present before this court, albeit as allegations: an unsophisticated borrower involved in a complex and highly structured commercial transaction, a series of changing and increasing fees as well as an assortment of charges and expenses, all accompanied by misrepresentations and deceit.
Similarly to Monetary Funding Group, Inc., in the present case the defendant has alleged that the plaintiff is a sophisticated lender who charged unreasonably high annual percentage rates and misrepresented the rates to the defendant. These rates were significantly higher than the rate that the defendant was paying on a different commercial loan from a different lender. The defendant has also asserted that the plaintiff knew that the loan would not cover the cost of construction, that the defendant would default on the loan, and that the defendant would be forced to enter into a subsequent agreement. In short, the defendant has alleged that the plaintiff misled the defendant, who thought it was borrowing enough money to fund its project at a reasonable interest rate. Taking these allegations as admitted, the court's enforcement of these agreements according to their terms would involve the court in an unfair transaction in a manner that would run afoul of the unclean hands doctrine. Construing the pleading broadly, realistically, and in a manner most likely to sustaining its legal sufficiency, the defendant has alleged that the transactions were structured by the plaintiff for its own benefit in order for it to receive an amalgamation of fees, all of which the plaintiff could not have demanded as part of a single loan transaction. Based on the foregoing, the plaintiff's motion to strike the defendant's fourth special defense, alleging unclean hands, is denied.
B
Counterclaims
In Citimortgage, Inc. v. Rey, 150 Conn.App. 595, 92 A.3d 278, cert. denied, 314 Conn. 905, 99 A.3d 635 (2014), the Appellate Court stated " that the proper test to be utilized when assessing the legal viability of a counterclaim is set forth in Practice Book § 10-10, and is commonly referred to as the 'transaction test.' Although that test, in the foreclosure context, may incorporate a consideration of whether a counterclaim has a sufficient nexus to the making, validity or enforcement of the note and mortgage, it does not limit a viable counterclaim to those that directly challenge the making, validity or enforcement of a note or mortgage." Id., 602-03. The court further explained: " [A] counterclaim must simply have a sufficient relationship to the making, validity or enforcement of the subject note or mortgage in order to meet the transaction test as set forth in Practice Book § 10-10 and the policy considerations it reflects." Id., 605. The court accordingly concluded " that in assessing the legal viability of counterclaims to a foreclosure action, the court should employ the transaction test set forth in Practice Book § 10-10, and that although this test may require an assessment of whether the counterclaim in question relates to the making, validity or enforcement of the subject note and mortgage, there can be such a nexus even though the counterclaim may not directly attack the making, validity or enforcement of the mortgage and note which form the basis of the foreclosure complaint." Id., 605-06.
1
Counterclaim Count One: Breach of the Implied Covenant of Good Faith and Fair Dealing
The plaintiff argues that count one of the defendant's counterclaims should be stricken because a claim for a breach of the implied covenant of good faith and fair dealing is not a legally recognized defense in a foreclosure action.
As the court pointed out in its previous order (Jennings, J.), there is appellate authority that " special defenses and counterclaims alleging a breach of an implied covenant of good faith and fair dealing . . . are not equitable defenses to a mortgage foreclosure." (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, 72 Conn.App. 700, 716, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002); see also LaSalle National Bank v. Freshfield Meadows, LLC, 69 Conn.App. 824, 835, 798 A.2d 445 (2002). Regardless of the fact that this statement is made in a single sentence, " [a] trial court is required to follow the prior decisions of an appellate court to the extent that they are applicable to the facts and issues in the case before it, and the trial court may not overturn or disregard binding precedent." Potvin v. Lincoln Service & Equipment Co., 298 Conn. 620, 650, 6 A.3d 60 (2010). For this reason, the plaintiff's motion to strike the first count of the defendant's counterclaim, alleging a breach of the implied covenant of good faith and fair dealing, is granted.
In its response to the plaintiff's motion to strike, the defendant argues that this quote from Fidelity Bank, which is included in the plaintiff's brief, " is a single sentence, which multiple courts appear to have cut and paste, and they routinely go on to evaluate the facts of the specific case before [them] on the merits."
2
Counterclaim Counts Two through Six: Breach of Contract
The plaintiff argues that counts two through six of the defendant's counterclaim should be stricken because: (1) the claims do not arise out of the making, validity, and enforcement of the notes and mortgages at issue; and (2) the defendant has failed to state a claim for breach of contract as to the agreements at issue.
As to the plaintiff's first argument, as is stated above, " proper application of Practice Book § 10-10 in a foreclosure context requires consideration of whether a counterclaim has some reasonable nexus to, rather than directly attacks, the making, validity or enforcement of the mortgage and note." U.S. Bank National Association v. Sorrentino, 158 Conn.App. 84, 96, 118 A.3d 607, cert. denied, 319 Conn. 951, 125 A.3d 530 (2015). " Practice Book § 10-10 provides in pertinent part: 'In any action for legal or equitable relief, any defendant may file counterclaims against any 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.' In assessing the legal viability of a counterclaim and, in particular, whether it arises from the same transaction as the complaint, [the Appellate Court] ha[s] not required a complete identity of issues. Rather, the claims must have a sufficient closeness that the trial of the complaint and counterclaim will not imperil judicial economy. For example, in Ceci Bros., Inc. v. Five Twenty-One Corp., 81 Conn.App. 419, 423 n.3, 840 A.2d 578, cert. denied, 268 Conn. 922, 846 A.2d 881 (2004), [the Appellate Court] concluded, in the particular facts: 'Because the two agreements, one alleged in the plaintiff's amended complaint and the other alleged in the defendant's counterclaim, were intertwined, the counterclaim in this case was proper.' As [the Appellate Court] has previously observed: 'Our Supreme Court has instructed that the [r]elevant considerations in determining whether the transaction test has been met include whether the same issues of fact and law are presented by the complaint and the [counter]claim and whether separate trials on each of the respective claims would involve a substantial duplication of effort by the parties and the courts.' (Internal quotation marks omitted.) South Windsor Cemetery Ass'n, Inc. v. Lindquist, [114 Conn.App. 540, 547, 970 A.2d 760, cert. denied, 293 Conn. 932, 981 A.2d 1076 (2009)]. Further, [the Connecticut] Supreme Court has stated: 'Where the underlying purposes of [Practice Book § 10-10], to wit, judicial economy, avoidance of multiplicity of litigation, and avoidance of piecemeal disposition of what is essentially one action, are thwarted rather than served by the filing of a cross claim, the cross claim may properly be expunged.' " Citimortgage, Inc. v. Rey, supra, 150 Conn.App. 595, 606-07. When " [t]he subject matter of the underlying complaint is the foreclosure of a mortgage . . . [t]he relevant transactions for purposes of Practice Book § 10-10 are . . . the execution of the note and mortgage, and the subsequent default." U.S. Bank National Association v. Sorrentino, supra, 96-97.
As to the plaintiff's second argument, the court recognizes that " [t]he elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." (Internal quotation marks omitted.) Rosato v. Mascardo, 82 Conn.App. 396, 411, 844 A.2d 893 (2004). To determine whether the defendant has pleaded legally sufficient counterclaims, the court must consider each count individually.
a
2007 Loan Agreement
In the second count of its counterclaim, the defendant incorporates or puts forth the following allegations. In 2007, the plaintiff and the defendant entered into a loan agreement pursuant to which the plaintiff promised to perform certain duties related to the construction project. The plaintiff breached its obligations under the 2007 loan agreement by failing to timely, properly, competently, and effectively carry out such duties by, among other things, failing to properly supervise construction, manage relationships with participants in the construction project, and ensure that the project complied with legal requirements. In addition, the plaintiff improperly assessed prepayment penalties. As a result of the plaintiff's conduct, the defendant has suffered harm, including incurring additional costs, being unable to secure a permanent certificate of occupancy, and expending substantial money towards legal fees in order to defend itself against or settle with participants in the construction project. In addition, the construction project was delayed and the defendant fell behind, and ultimately defaulted, on the 2007 loan. In sum, these paragraphs include allegations that the plaintiff failed to follow through on its promises and caused the defendant to default on the 2007 loan. Accordingly, the defendant's claim that the plaintiff breached the 2007 loan agreement is an appropriate counterclaim in this action because one subject of the complaint is a foreclosure based on the defendant's defaulting on the 2007 loan. Furthermore, these allegations, taken as truth, set forth a legally sufficient breach of contract claim. Accordingly, the plaintiff's motion to strike the second count of the defendant's counterclaim is denied.
b
2009 Loan Agreement and Forbearance and Settlement Agreement
In count three of its counterclaim, the defendant incorporates or asserts the following allegations. In 2009, the plaintiff and the defendant entered into an agreement by which the plaintiff agreed to loan the defendant up to $850,000 for the purpose of completing the construction project (2009 loan). The 2009 loan provided that the defendant would continue to make certain payments, and that these payments would be applied first to the interest due on the 2007 loan, then to the interest due on the 2008 loan, and finally to the principal and interest due on the 2009 loan. In November of 2009, after the defendant had fallen behind on payments, the parties entered into a forbearance agreement (2009 forbearance agreement). The 2009 forbearance agreement provided that interest rates on the 2007, 2008, and 2009 loans would revert to 8.375 percent, 10.5 percent, and 11.5 percent, respectively. It also stated that payments would be applied first to 2007 loan interest, then the 2008 loan interest, and finally to the amortization of the 2009 loan. It also contained provisions which provided that proceeds would be used to make final payments to contractors, to settle outstanding invoices owed to contractors, and to obtain necessary final lien waivers. Despite these obligations, the plaintiff failed to timely and fully pay contractors, failed to timely and properly obtain waivers of liens and/or settlements, improperly authorized excessive payments to contractors, expanded the contractors' scope of work, made partial payments on outstanding invoices and told the defendant that it had made full payments, misapplied payments received from the defendant, and unreasonably increased the cost of the construction project. As a result, the defendant suffered damages. Specifically, the defendant has incurred additional costs to move toward completion of the construction project, has been unable to secure a permanent certificate of occupancy for the church, and was unable to pay down the principals of the loans. These allegations speak to how the plaintiff's conduct caused the defendant to default on the 2007 and 2008 loans, which are the subject of the complaint, and impact the terms of these agreements. They are therefore sufficiently relevant to constitute a proper counterclaim. In addition, these allegations, taken as truth, assert a valid breach of contract claim. Accordingly, the plaintiff's motion to strike the third count of the defendant's counterclaim is denied.
c
2012 Mortgage Modification Agreements Regarding 2007 Loan, 2008 Loan, and 2009 Loan
In count four of its counterclaim, the defendant incorporates or asserts the following allegations. On or about March 27, 2012, the parties entered into an agreement to modify the 2007, 2008, and 2009 mortgages and notes (2012 mortgage modifications). The 2012 mortgage modifications provided that the plaintiff would reduce the interest on the 2007 loan, the 2008 loan, and the 2009 loan to 6.25 percent per annum. The 2012 mortgage modifications also provided a procedure by which all future payments would be applied. Despite these provisions, the plaintiff charged the defendant interest on the 2007 loan, the 2008 loan, and the 2009 loan in excess of 6.25 percent. In addition, instead of applying payments as per the agreed-upon arrangement, the plaintiff applied payments in ways that resulted in improper interest charges and improper inflation of the defendant's debt. As a result of these actions, the defendant suffered economic damages.
Although " neither [the Appellate Court] nor [the] Supreme Court has addressed whether breach of a loan modification agreement constitutes a valid defense to a foreclosure action . . . [a] number of decisions of the Superior Court . . . have asserted that [a]llegations of modification directly attack the validity or enforcement of the original note or [mortgage such that] a special defense alleging modification is properly raised in a foreclosure proceeding . . . [The Appellate Court found] this rationale persuasive . . . [and] recognize[d] that in order to raise this defense, [a defendant] must allege a valid loan modification agreement that attacks the making, validity or enforcement of the original note and/or mortgage." (Citations omitted; internal quotation marks omitted.) TD Bank, N.A. v. M.J. Holdings, LLC, supra, 143 Conn.App. 330-31. As a counterclaim must be even less related to the making, validity, or enforcement of the original note and/or mortgage than a special defense must be, breach of a modification agreement is a valid counterclaim in a foreclosure proceeding.
The breaches of the 2012 loan modification agreements constitute valid counterclaims to this foreclosure action because the defendant has alleged valid loan modification agreements that speak to the defendant's defaulting on and the plaintiff's ability to enforce the original notes and/or mortgages. In addition, the defendant has alleged that the 2012 agreements modified the earlier agreements. Furthermore, accepting these allegations as true, the defendant has alleged legally sufficient breach of contract claims. Accordingly, the court cannot grant the plaintiff's motion to strike counts four, five, and six of the defendant's counterclaim.
3
Counterclaim Count Seven: Violation of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA)
The plaintiff argues that the defendant's CUTPA count should be stricken because it is time barred. The defendant contends that this argument should be raised as a special defense to the counterclaim, as opposed to by a motion to strike. " [O]rdinarily, [a] claim that an action is barred by the lapse of the statute of limitations must be pleaded as a special defense, not raised by a motion to strike." (Internal quotation marks omitted.) Greco v. United Technologies Corp., 277 Conn. 337, 344 n.12, 890 A.2d 1269 (2006). " [T]here are two exceptions to that holding. Those exceptions relate to situations in which a motion to strike, filed instead of a special defense of a statute of limitations, would be permitted." Girard v. Weiss, 43 Conn.App. 397, 415, 682 A.2d 1078, cert. denied, 239 Conn. 946, 686 A.2d 121 (1996). " The first is when [t]he parties agree that the complaint sets forth all the acts pertinent to the question [of] whether the action is barred by the [s]tatute of [l]imitations and that, therefore, it is proper to raise that question by [a motion to strike] instead of by answer." (Internal quotation marks omitted.) Forbes v. Ballaro, 31 Conn.App. 235, 239, 624 A.2d 389 (1993). The second exception " exists . . . when a statute gives a right of action which did not exist at common law, and fixes the time within which the right must be enforced, the time fixed is a limitation or condition attached to the right-it is a limitation of the liability itself as created, and not of the remedy alone." (Internal quotation marks omitted.) Greco v. United Technologies Corp., supra, 345 n.12.
Under the second exception, the plaintiff's CUTPA challenge is procedurally proper. CUTPA statutes give a right of action which did not exist at common law. See Associated Investment Co. Ltd. Partnership v. Williams Associates IV, 230 Conn. 148, 159, 645 A.2d 505 (1994). In addition, General Statutes § 42-110g fixes the time within which the right must be enforced. Section 42-110g, in relevant part, provides: " An action under this section may not be brought more than three years after the occurrence of a violation of this chapter." Therefore, the plaintiff's statute of limitations argument in regard to the CUTPA count falls within the second exception and is procedurally proper.
Having decided that the plaintiff's CUTPA argument is procedurally proper, the court will address the plaintiff's contentions as to why the CUTPA action is time barred. The plaintiff argues that the defendant's CUTPA counterclaim should be stricken because the defendant has conceded that this claim is barred by the statute of limitations. In its previous order, the court (Jennings, J.) granted the plaintiff's motion to strike the defendant's CUTPA count on statute of limitations grounds because the defendant conceded that " the actions, inactions, and doings of the [plaintiff] are not set forth in such a way as to overcome the [s]tatute of [l]imitations claim . . ." As the defendant has now put forth additional facts in support of its CUTPA count, and argues that it has set forth such facts in an adequate way, the court believes the previous ruling should not serve as law of the case.
The plaintiff contends that, even if the court chooses to analyze the CUTPA count as currently plead, on the merits, it will reach the same conclusion. The plaintiff argues that the latest conduct of which the defendant complains about occurred in 2009 and therefore the statute of limitations ran in 2012, prior to the date on which the defendant brought its CUTPA counterclaim. In count seven of its counterclaim, the defendant relies on its fraud special defense to provide the factual allegations that make up its CUTPA claim. These 144 paragraphs include allegations that relate to conduct that took place in 2007, 2008, 2009, 2010, 2011, and 2012. The defendant first brought a CUTPA counterclaim in its original answer, special defenses, and counterclaim, filed on May 9, 2014. Accordingly, the paragraphs of the defendant's CUTPA count that are based on conduct that occurred in 2007, 2008, 2009, 2010, and on April 29, 2011 are time barred. As " [the Connecticut] Supreme Court has stated that the continuing course of conduct doctrine does not toll the three-year statute of limitations set forth in § 42-110g(f)"; Flannery v. Singer Asset Finance Co., LLC, 128 Conn.App. 507, 514, 17 A.3d 509, aff'd, 312 Conn. 286, 94 A.3d 553 (2014); the lapse of the statute of limitations cannot be postponed. The defendant, however, also asserts misconduct that took place in 2012 and is therefore not time barred. As is explained above, where a motion to strike challenges an entire count, but any part of the challenged claim is legally sufficient, the motion will fail. See Aurio v. Allstate Ins. Co., supra, 36 Conn.L.Rptr. 40, . Accordingly, the plaintiff's motion to strike the defendant's CUTPA count is denied.
" In order for a defendant to commence an action against a plaintiff, and therefore satisfy a statute of limitations, the proper procedure is to bring a counterclaim." Valentine v. LaBow, 95 Conn.App. 436, 447 n.10, 897 A.2d 624, cert. denied, 280 Conn. 933, 909 A.2d 963 (2006).
" [I]t is well settled that an amended complaint relates back to and is treated as filed at the time the original complaint unless it alleges a new cause of action." (Internal quotation marks omitted.) Wright v. Teamsters Local 559, 123 Conn.App. 1, 6, 1 A.3d 207 (2010). " It is proper to amplify or expand what has already been alleged in support of a cause of action, provided the identity of the cause of action remains substantially the same . . . [The] relation back doctrine provides that an amendment relates back when the original complaint has given the party fair notice that a claim is being asserted stemming from a particular transaction or occurrence, thereby serving the objectives of our statute of limitations, namely, to protect parties from having to defend against stale claims." (Internal quotation marks omitted.) Id., 7.
In affirming the Appellate Court's decision, the Supreme Court explicitly did not address whether tolling can save an untimely CUTPA action. See Flannery v. Singer Asset Finance Co., LLC, supra, 312 Conn. at 298.
4
Counterclaim Count Eight: Fraud
The plaintiff argues that the defendant's fraud count should be stricken because it is time barred. The defendant contends that this argument should be raised as a special defense to the counterclaim, as opposed to by a motion to strike. As is stated in the previous section, a claim that an action is barred by lapse of a statute of limitations can be raised by a motion to strike under two circumstances. See Girard v. Weiss, supra, 43 Conn.App. 415. As fraud is not statutory, in order to be properly asserted via a motion to strike, the plaintiff's argument regarding the timeliness of the defendant's fraud claim must meet the first exception. In other words, " [t]he parties [must] agree that the [pleading] sets forth all the acts pertinent to the question [of] whether the action is barred by the [s]tatute of [l]imitations and that, therefore, it is proper to raise that question by [a motion to strike] instead of by answer." (Internal quotation marks omitted.) Forbes v. Ballaro, supra, 31 Conn.App. at 239.
The defendant has not agreed that its pleading sets forth all of the facts pertinent to this question. Instead, the defendant argues that the plaintiff should have brought this argument as a special defense to a counterclaim. Furthermore, although the defendant's fraud count incorporates all 144 paragraphs of allegations from its fraud special defense, neither the counterclaim nor the special defense assert facts as to why the statute of limitations should be tolled. There are also very few specific dates alleged. Therefore, the pleading is missing pertinent facts. Accordingly, the plaintiff's statute of limitations argument in regard to the fraud count does not fall within the first exception and is procedurally improper.
The plaintiff also argues that the defendant's fraud claim should be stricken because the defendant has failed to allege all of the necessary elements of fraud. In support of this argument, the plaintiff relies on the argument that it made in regard to the defendant's fraud special defense, namely that the defendant has failed to allege that the plaintiff knowingly made intentional misrepresentations and that the defendant relied on those misrepresentations to its detriment. As it did previously, the court finds that the defendant has alleged these elements. Accordingly, the plaintiff's motion to strike count eight of the defendant's counterclaim is denied.
5
Counterclaim Count Nine: Statutory Theft in Violation of General Statutes § 52-564
The plaintiff argues that count nine of the defendant's counterclaim should be stricken because the defendant's claim is barred by the statute of limitations. The defendant argues that the statute of limitations argument should be addressed via a special defense to the counterclaim, not a motion to strike. As it did with the statute of limitations argument regarding the fraud count, the court agrees with the defendant. The defendant's pleading does not set forth facts regarding why the statute of limitations should be tolled. In addition, the pleading does not include specific dates on which the alleged theft occurred. Therefore, the pleading is missing pertinent facts. Accordingly, the plaintiff's statute of limitations argument in regard to the statutory theft count does not fall within the first exception and is procedurally improper.
The plaintiff also argues that the defendant's claim for civil theft must be stricken because the defendant has not proved, and cannot prove, the requisite element of intent for this claim. " [The Appellate Court] consistently ha[s] held that [s]tatutory theft under § 52-564 is synonymous with larceny under General Statutes § 53a-119 . . . A person commits larceny within the meaning of . . . § 53a-119 when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or withholds such property from an owner. An owner is defined, for purposes of § 53a-119, as any person who has a right to possession superior to that of a taker, obtainer or withholder . . . [S]tatutory theft requires an intent to deprive another of his property . . . Therefore, statutory theft requires a plaintiff to prove the additional element of intent . . . Intent may be inferred by the fact finder from the conduct of the defendant . . . Intent may be, and usually is, inferred from the defendant's verbal or physical conduct . . . Intent may also be inferred from the surrounding circumstances . . . The use of inferences based on circumstantial evidence is necessary because direct evidence of the [defendant's] state of mind is rarely available . . . Intent may be gleaned from circumstantial evidence such as . . . the events leading up to and immediately following the incident." (Citations omitted; internal quotation marks omitted.) Fernwood Realty, LLC v. AeroCision, LLC, 166 Conn.App. 345, 359, 141 A.3d 965 (2016). In the present case, the defendant has alleged that the plaintiff's actions were part of a scheme to defraud the defendant into paying the plaintiff extraordinary sums of money to which it was not entitled. As it did in regard to the defendant's fraud special defense and counterclaim, the court finds that the defendant's language regarding the plaintiff's overall scheme necessarily implies that the plaintiff acted with intent. Accordingly, the plaintiff's motion to strike count nine of the defendant's counterclaim is denied.
II
CONCLUSION
By reason of the foregoing, the plaintiff's motion to strike special defenses one (violation of § 33-921), two (fraud), three (unconscionability), and four (unclean hands) is denied. The plaintiff's motion to strike counterclaim counts two through six (breach of contract), seven (CUTPA), eight (fraud), and nine (statutory theft) is denied. The plaintiff's motion to strike counterclaim count one (breach of the duty of good faith and fair dealing) is granted.