Opinion
CV136043583S
05-26-2016
HSBC Bank USA et al. v. Marilyn Maurer et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION ON MOTION TO STRIKE
Thomas J. Corradino, Judge
The action in this case was brought December 13, 2013 for the purpose of foreclosing on a mortgage. The property is owned by Ms. Maurer which was previously owned by her now deceased husband. The property is located in Madison, Connecticut. On June 12, 2014 the defendant filed an answer with three special defenses (1) Unconscionability (2) Breach of Fiduciary Duty and (3) Breach of the Covenant of Good Faith and Fair Dealing.
The plaintiff now moves to strike all three special defenses. The amended answer and special defense was filed on June 13, 2014 and the motion to strike was filed on December 15, 2015.
The motion claims that all the Special Defenses depend on the alleged existence of an agency relationship among Countrywide and David Beckman and his employer the Andy Ross Group. The argument advanced is that apparent authority may not be used to hold a principal liable for the tortious conduct of its agent, there is a failure to plead a legally sufficient actual agency relationship among Countrywide and Beckman/Ross Group, there is a failure to plead sufficient facts that the mortgage is unconscionable, and the defendant has not pled sufficient facts to show Countrywide owed the defendant a fiduciary duty.
The objection to the motion to strike does not address the just mentioned substantive legal claims on which it is based. The objection is procedural. It notes that the answer and special defenses were filed on June 13, 2014 and the motion to strike was not filed until December 15, 2015 which is over 18 months after the filing of the special defenses. It is noted that this 18-month period is well beyond the fifteen-day period to file a motion to strike set forth in Section 10-8 of the Practice Book. It is also noted that the plaintiff filed its reply to the special defenses on August 6, 2014. Practice Book Section 10-6 is pointed to which sets forth " the order of pleading."
That section says that " the order of the pleading shall be as follows:
(1) The plaintiff's complaint.
(2) The defendant's motion to dismiss the complaint.
(3) The defendant's motion to reverse the complaint.
(4) The defendant's motion to strike the complaint.
(5) The defendant's answer (including any special defenses) to the complaint.
(6) The plaintiff's request to revise the defendant's answer.
(7) The plaintiff's motion to strike the defendant's answer.
(8) The plaintiff's reply to any special defense.
The defendant then cites Practice Book Section 10-7 which says:
§ 10-7 Waiving Right to Plead
In all cases, when the judicial authority does not otherwise order, the filing of any pleading provided for by the preceding section will waive the right to file any pleading which might have been filed in due order and which precedes it in the order of pleading provided in that section.
First the court would note that subsection (5) of Section 10-6 when using the word " answer" encompasses within the meaning " any special defenses." Thus when subsection (7) says " (7) the plaintiff's motion to strike the defendant's answer" as one of the orders of pleading, it incorporates a motion to strike any special defenses. Clearly then permitting a motion to strike at this juncture would violate the order of pleading since a reply to the special defenses was filed (see subsection 8) prior to the filing of this motion to strike and thus out of order.
The plaintiff's response to the defendant's objection to the motion to strike is based on two arguments which the court will set forth.
(i)
" Controlling substantive law that establishes the legal insufficiency of the Special Defenses did not exist on the date that the plaintiff replied to the Special Defenses. Under these circumstances, strict adherence to Practice Book § 10-7 would work a surprise and injustice, on contravention of Practice Book § 1-8."
Plaintiff states that its motion to strike relies heavily on Cefaratti v. Aranow, 154 Conn.App. 1, 3, 105 A.3d 265 (2014), cert. granted, 315 Conn. 919 (1-29-15)-" On August 6, 2014, when the reply was filed, the Appellate Court had not ruled and would not rule until December 9, 2014."
The plaintiff's argument relies on a quote from Cefaratti at page 36. There the Cefaratti court said the following which was quoted in the plaintiff's brief: " The apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent; a principal is responsible for the acts of the agent within his apparent authority only where the principal himself by his acts or conduct has clothed the agent with the appearance of authority, and not where the agents' own conduct has created the apparent authority, " 154 Conn.App. pp. 35-36.
But this concept is not the invention of Cefaratti. Cefaratti 's above quoted language is taken from a 1941 case Fireman's Fund Indemnity Co. v. Longshore Beach & Country Club, 127 Conn. 493, 497, 18 A.2d 347.
Interestingly at 154 Conn.App. page 38 Cefaratti went on to say that the Fireman 's Fund case only held that the facts of that case were not sufficient to establish apparent authority. It noted that the " Supreme Court did not hold or even mention the possibility that the doctrine of apparent authority applied only to actions in contract and was not available to actions in tort; nor of course did it hold to the contrary. The issue of whether vicarious liability could be used to hold a principal liable in tort was simply not an issue in the case." After a thorough review of the case law Cefaratti felt bound to rely the holding in L& V Contractors, LLC v. Heritage Warranty, 136 Conn.App. 662, 47 A.3d 887 (2012) and Cefaratti ultimately relied on the language in that case which states " the doctrine of apparent authority cannot be used to hold a principal liable for the tortious actions of its alleged agent, " 136 Conn.App. page 670. Arguably language which is more favorable to the plaintiff's position than the previously quoted language from the Firemen's Fund case.
But LV Contractor's LLC did not invent this position sua sponte and relied on a 1997 decision. Mullen v. Horton, 46 Conn.App. 759, 771, 700 A.2d 1377 to say that " Connecticut, nevertheless, has yet to apply the doctrine of apparent authority to allow for a principle to be held liable to a third person who was harmed by the tortious conduct of a person held out as the principal's agent." It is true that in Nationstar Mortgage LLC v. DeCormier, CV09-6001681, (Cosgrove, J.) decided July 30, 2015) applied Cefaratti 's legal principles to a mortgage foreclosure case and that was only decided in July 2015. But let us look at Judge Cosgrove's decision in more detail. His comments on Cefaratti were preceded by this comment by way of introduction to his discussion of Cefaratti . Judge Cosgrove said: " Furthermore, as of the date of this decision, 'the doctrine of apparent authority cannot be used to hold a principal liable for the tortious conduct of its alleged agent, L& V Contractors LLC v. Heritage Warranty Ins. Risk Retention Group, Inc., supra at pages 662, 670, 47 A.3d 887 (2012)" a tort case not involving foreclosure claim or issues.
The argument, therefore, that the plaintiff relies on, supporting the claimed legal insufficiency of the special defenses, existed in our law as long ago as 1997 (Mullen v. Horton, supra ) and certainly as of 2012 (L& V Contractors v. Heritage Warranty, supra ) and were available to the plaintiff when it filed its reply to the special defenses. This reason for permitting the late filing of the motion to strike is thus not viable at least in the Court's opinion.
But the Practice Book is not a straight jacket and the Appellate Court has allowed pleadings to be filed out of order. In Sabino v. Ruffolo, 19 Conn.App. 402, 404, 562 A.2d 1134 (1989) the court said:
" Generally, pleadings are not to be filed out of the order specified in (Practice Book § 10-6) and the filing of a pleading listed later in the order set out by (§ 10-6) waives the right to be heard on a pleading that appears earlier on the list. The very words of (Practice Book § 10-7), 'when the court does not otherwise order' indicate, however, that the court has discretion to allow the filing of pleadings out of order. (Section 1-8) of the Practice Book supports this view by allowing for liberal interpretation of the rules where 'strict adherence to them will work surprise or injustice' because the very design of the rules is 'to facilitate business and advance justice.'" In Sabino itself, however, a motion to dismiss was filed simultaneously with a motion to strike although Practice Book § 10-6 says a motion to dismiss is to be filed before a motion to strike which was filed on the same day as the answer, the answer being docketed before the motion to strike. In Ruiz v. State of Connecticut et al., CV10-5033492S, (Wood, J., 2011), a plaintiff objected to the filing of a motion to strike; the answer was docketed above the motion to strike. Judge Wood allowed the motion to strike to be considered because they were filed on the same day. He quoted from another case to the effect that " when deciding whether to allow such altercation (of the order of pleadings) in filing the courts will often consider the length of time that has passed since the filing of the previous pleading." He noted one case where a court exercised its discretion to hear a motion to strike was filed on the same day the answer was filed, Judge Wood said " this is distinguishable" where courts denied a motion to strike " because it was filed a significant amount of time after the party has filed its answer." In one of the cases cited the pleadings were closed almost two years prior to the filing of the motion, in another case the motion was filed five months after the answers were filed. Unlike the situation in Ruiz v. State a significant amount of time has passed since the filing of the reply to the special defenses and the motion to strike and for the reasons previously stated the grounds for the motion existed at the time the reply to the special defenses was filed and for a considerable period of time before it.
(ii)
The second argument the plaintiff raises against the objection to its motion to strike states as follows: " The plaintiff may file a Motion for Summary Judgment to establish the legal insufficiency of the special defenses, which insufficiency is shown in the Motion to Strike. Practice Book § 10-7 was not intended to require the filing of a substantially similar pleading, where to do so would thwart judicial efficiency and work a prejudice upon the plaintiff."
The plaintiff's position is premised on the argument that (1) the special defenses are legally insufficient and thus are amenable to treatment by a motion to strike and (2) because of the legal insufficiency a motion for summary judgment can be used to remove the special defenses from the case which here is substantially similar to a motion to strike. In other words the special defenses are legally insufficient on their face and usual motion for summary judgment practice establishing insufficiency by an evidentiary presentation is not necessary.
As said in Larobina v. McDonald, 274 Conn. 394, 400-01, 876 A.2d 522 (2005), summary judgment shall be granted if the pleadings, affidavits and any other proof submitted show that there is no genuine issue of material fact; the party opposing such a motion has to provide an evidentiary foundation showing the existence of a genuine issue of material fact. Quoting another case Larobina went on to say " a motion to strike challenges the legal sufficiency of a pleading and, consequently requires not factual findings by the court . . . we take the facts to be those alleged in the complaint . . . and we construe the complaint in the manner most favorable to sustaining its legal sufficiency . . . if facts provable in the complaint would support a cause of action, the motion to strike must be denied . . . Thus, we assume the truth of both the specific factual allegations and any facts fairly provable thereunder."
Larobina went on to hold that . . . " we conclude that the use of a motion for summary judgment to challenge the legal sufficiency of a complaint is appropriate when the complaint fails to set forth a cause of action and the defendant can establish that the defect could not be cured by repleading." The court then said this court has repeatedly recognized " that the desire for judicial efficiency inherent in the summary judgment procedure would be frustrated if parties were forced to try a case where there was no real issue to be tried, " 274 Conn. at pages 401-02.
But in exercising this test under Larobina the test for determining legal insufficiency must be kept in mind and would be applied in deciding a motion to strike or a motion for summary judgment which per Larobina can be used to test legal insufficiency. In Kumah v. Brown, 307 Conn. 620, 626, 58 A.3d 247 (2013), the court said of a complaint in language that will apply to any other pleading that might be subject to a motion to strike . . . " If facts provable in the complaint would support a cause of action, the motion to strike must be denied . . . Thus we assume the truth of both the specific factual allegations and any facts fairly provable thereunder." As said in Mingachos v. CBS, Inc., 196 Conn. 91, 108-09, 491 A.2d 368 (1985): " The allegations of the pleading involved are entitled to the same favorable construction a trier would be required to give in admitting evidence under them and if the facts provable under its allegations would support a defense or cause of action, the motion to strike must fail." -or the court might add any motion for summary judgment being used as a vehicle to test the legal sufficiency of a complaint or a defense thereto.
The question becomes how does the plaintiff advance its position that the special defenses are legally insufficient. Two arguments are pursued.
In its reliance on Cefaratti the plaintiff presumes that the Special Defenses are based on a claim of apparent authority which cannot be used as a basis for vicarious liability for tort actions. A predicate to advancing this position is that the Special Defenses are, in any event, legally insufficient because they do not set forth an actual agency relationship between Beckman an employee of the Andy Rose Group and Countrywide which would provide a basis for vicarious liability as against Countrywide. The court will now examine that position.
The plaintiff sets forth the law on agency in citing two cases. Botticello v. Stefanovicz, 177 Conn. 22, 25, 411 A.2d 16 (1979) is quoted: " Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act (Restatement (Second) Agency § 1 (1958) . . . Thus the three elements required to show the existence of an agency relationship include: (1) a manifestation by the principal that the agent will act for him (2) acceptance by the agent of the undertaking; and (3) the understanding between the parties that the principal will be in control of the undertaking."
Beckenstein v. Potter & Carrier, Inc., 191 Conn. 120, 133, 464 A.2d 6 (1983) is also cited which states " some of factors listed by the Second Restatement of Agency in assessing whether such a relationship (i.e. of agency) exists include: (1) whether the alleged principal has the right to direct and control the work of the agent; (2) whether the agent is engaged in a distinct occupation; (3) whether the principal provides the place of employment or the hardware or tools needed to perform the work; and (4) the method of paying the agent. The labels used by the parties in referring to their relationship do not control whether an agency relationship exists. Instead, a court must examine the operative terms of the agreement or understanding between the parties."
With the foregoing in mind it is necessary to examine the Special Defenses to determine whether they are legally insufficient to support the premise on which they are based-i.e. an agency relationship between Countrywide and Beckman/Andy Ross Group, LLC. To put the Special Defenses in context we must first look at the first two paragraphs of the Complaint. The complaint in the first paragraph claims that the defendant by means of a note promised to pay to the order of Countrywide Bank the sum of $1, 262, 250. The plaintiff in this action, HSBC Bank USA brings it as the present holder of the note (par. 2). The Special Defenses are as follows the first special defense is based on Unconscionability, the second on Breach of Fiduciary Duty and the third special defense is a claim of Breach of the Covenant of Good Faith and Fair Dealing. All the special defenses incorporate the first thirteen paragraphs of the First Special defense. The second special defense adds three paragraphs claiming violations of fiduciary duty by Countrywide which the third special defense also incorporates.
All the special defenses in common paragraphs allege that one Beckman, an employee of Andy Rose Group, LLC and a securities dealer induced the defendant to refinance her existing mortgage and replace it with a mortgage from Countrywide Bank (par. 2). Paragraph 3 alleges the defendant believed these parties were acting as agents of Countrywide-not a surprising result since it seems obvious that the replacement mortgage being discussed would run to Countrywide.
Paragraph 6 alleges that misrepresentations by Becker et al were done to not only garner fees for themselves but to secure approval of the refinancing by Countrywide. Paragraph 7 indicates Becker and Warner submitted the mortgage application to Countrywide which did not review the application-if it had Countrywide would have discovered that the defendant had substantially fewer assets and income than presented in the application by its agents who throughout the paragraphs under discussion in all these special defenses are explicitly identified as agents of Countrywide. Paragraph 11 goes on to say neither Countrywide nor its agents, Beckman and/or Andy Rose Group explained to the defendant the risks of the " negative amortization" for an elderly homeowner.
Given all of the above can the special defenses here be said to be legally insufficient insofar as there is an argument that it does not set forth a legally sufficient basis for actual agency? It is necessary to discuss that concept as discussed in our Practice Book. When special defenses are said to be legally insufficient it can generally be assumed that the same standards for legal sufficiency apply to such a claim when directed to a complaint as to a special defense. Also of course those standards are operative when a claim of legal insufficiency is advanced by a motion to strike as when such a claim is permitted to be advanced on a motion for summary judgment.
The question becomes what are the criteria for determining whether a pleading is legally insufficient. Those criteria are dictated by the fact that our state is a fact pleading jurisdiction, see Practice Book § 10-3, Florian v. Lenge, 91 Conn.App. 268, 274, 880 A.2d 985 (2005). In Industrial Mold & Tool v. Zaleski, 146 Conn.App. 609, 614, 78 A.3d 218 (2013), quoting from an earlier case, the court said: " As this court has explained 'pleadings are intended to limit the issues to be decided at the trial of a case and (are) calculated to prevent surprise . . . (The) purpose of pleadings is to frame, present, define, and narrow the issues and to form the foundation of, and to limit, the proof to be submitted at trial . . .'" Expanding on this the court in Fort Trumbull Conservancy, LLC v. Alves, 286 Conn. 264, 277, 943 A.2d 420 (2008) made a comment in footnote 13 which would apply to special defenses: " The burden is on a plaintiff to plead his case clearly and not expect the court or his opposing counsel to have to wade through a poorly drafted complaint to glean from it the plaintiff's theory of relief" -or as this court might add the theory of defense.
But on the other hand in Brown & Brown, Inc. v. Blumenthal, 297 Conn. 710, 735, 1 A.3d 21 (2010) at footnote 23 the court said in commenting on § 10-1 of the Practice Book " In accordance with this provision, 'attorneys in Connecticut are not required, at the time a pleading is filed, to substantiate the allegations contained therein with evidentiary support, ' Brunswick v. Statewide Grievance Committee, 103 Conn.App. 601, 617, 931 A.2d 319 (2002) . . . To the contrary, inclusion of evidence in a complaint is a violation of our rules of practice, Fort Trumbull Conservancy, LLC v. Alves, 286 Conn. 264, 277, 943 A.2d 420" fn. 13.
As the Brunswick case succinctly states: " Practice Book § 10-1 requires only that each pleading '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 . . .'" Relying on the foregoing the court cannot conclude the special defenses are legally insufficient. The defendant throughout the special defenses characterizes Beckman and his employer as agents of Countrywide thereby attempting to rebut Countrywide's suit because of the actions of its agents. In support of the legal insufficiency claim the plaintiff makes the following observation:
In the case at bar, the Defendant has not made any allegations that support the existence of an agency relationship between Beckman/Ross and Countrywide. For example, there is no allegation of the existence of a service contract between Countrywide and Beckman or Ross or of any conduct on the part of Countrywide that showed that it had a right to control the performance of Beckman or of Ross. Nor are there allegations of the existence of any other agreement or understanding between Countrywide and Beckman/Ross, or that Beckman/Ross accepted the terms of such an agreement. In short, missing from the Defenses is a claim of the existence of an agreement pursuant to which Countrywide dictated the conduct of Beckman/Ross in procuring a mortgage lender who would be willing to loan the Defendant the funds required to effectuate the proposed investment transaction between Warner and the Defendant.
Later in its first brief filed in support of its motion to strike and referring to the Andy Ross Group the plaintiff also says as the employee of the Andy Ross Group, LLC, the latter would have compensated Beckman for his employment and there is no allegation Beckman was a salaried employee of Countrywide. First it should be noted that corporations (and it would seem obvious that LLCs) can act as agents for other corporations, Rathbun v. HealthNet, 315 Conn. 674, 677, 110 A.3d 304 (2015), Town of Groton v. Commissioner of Revenue Services, 317 Conn. 319, 330, 118 A.3d 37 (2015) and presumably the corporate agent would pay its employee's salaries.
More to the point the plaintiff is faulting the defendant for not producing detailed evidence to establish an agency relationship between Beckman/Andy Ross Group, LLC and Countrywide and as previously discussed the case law does not require a litigant to plead evidence but only facts which establish a legal theory in support of a claim or as a defense to it. The defendant does allege a fact-that Beckman and the Andy Ross Group, LLC were agents of Countrywide. The Special Defenses claim there is an agency relationship. They indicate that Beckman/Andy Ross Group " induced" the defendant to refinance her mortgage with Countrywide. The application she filled out was sent to Countrywide and Countrywide failed to review it. Countrywide along with its " agents" never explained the risks of negative amortization associated with the refinancing. The purpose of the alleged misrepresentation " was for the sole purpose of obtaining the approval of the refinancing." The plaintiff's original brief with its lengthy observations indicates that Countrywide was well aware of the defenses being advanced including the allegations of actual agency and the alleged wrongful conduct of the claimed agents-i.e. the theory of relief against Countrywide's suit insofar as an actual agency theory was being advanced.
The plaintiff does try to categorize the defense presented as based on apparent authority presumably on the basis of saying, since no actual agency was established by a reading of the special defenses, the special defenses must be held to be advancing an apparent authority theory which then involved a discussion of Cefaratti which establishes the invalidity of such a position. But the court cannot agree with this categorization based on a reading of the special defenses which are legally sufficient in claiming an actual agency relationship and make no specific reference to actions by Countrywide which were intended to cloak Beckman/Ross with certain authority apart from the actual existence of an agency relationship.
Cefaratti itself dealt with two analytically separate concepts-actual agency 154 Conn.App. at pp. 28-34 and apparent agency, id., pp. 34-45. In Cefaratti a patient brought a suit for malpractice against a doctor and the hospital where the procedure was performed. As to actual agency the court said at page 29: " Pursuant to the theory of vicarious liability, a principal can be held liable for the negligent acts of its agent. Before vicarious liability can be imposed, however, there must be sufficient evidence produced to warrant a finding of agency between the parties." Tortious activity includes negligence and the type of activity alleged in these special defenses. In Cefaratti the court upheld the trial court's granting of summary judgment as to a lack of proof as to actual agency despite the plaintiff's submission in that case of affidavits submitted by the defendant hospital. The Cefaratti court only then went on to hold that the hospital could not be held vicariously liable as to a matter of law for the doctor's negligence pursuant to the doctrine of apparent authority.
The defendant in its original brief addresses the same dichotomy despite its general categorization of the special defenses as being based on apparent authority.
For all the foregoing reasons the court cannot conclude that a motion for summary judgment in this case would advance the goal of judicial efficiency since the court concludes the special defenses are not legally insufficient. Discovery should have been prompted by the special defenses and a standard motion for summary judgment could have been filed with attached affidavits and deposition testimony to establish the non-existence of an actual agency relationship between Beckman/Andy Ross Group, LLC and Countrywide also containing reference to the nonviability of an apparent authority argument by the defendant.
The motion to strike is denied.
To the court, at least, the discussion in Cefaratti is not clear as to the issues being discussed in this case. Cefaratti was a medical malpractice case where the doctor performing an operation in an allegedly negligent fashion was sued as well as the hospital where the operation was performed. First the court upheld the trial court's decision that the doctor was not an agent of the hospital and thus no vicarious liability could be found against the hospital. The hospital had no employment contract with the doctor and provided him no compensation. He was a private surgeon with his own office who merely had medical staff privileges. These allegations by the defendant hospital were supported by affidavits.
It was only then that the court moved on to discuss the doctrine of apparent authority which the plaintiff also advanced. At one point the court said, quoting from an earlier case that " Apparent and ostensible authority is such authority as a principal intentionally or by want of ordinary care causes or allows a third person to believe that the agent possess." 154 Conn.App. at page 35. But at page 45 referring to L& V Contractors, LLC v. Heritage Warranty, supra, it states " the doctrine of apparent authority cannot be used to hold a principal liable for the tortious actions of its alleged agent." The Cefaratti court also said at page 36 that " the apparent power of an agent is to be determined by the acts of the principal and not by the acts of the agent, a principal is responsible for the acts of an agent within his apparent authority only where the principle himself by his acts or conduct has clothed the agent with the appearance of authority, and not where the agent's own conduct has created the apparent authority." At another point the apparent authority doctrine is referred to as " agency by estoppel." The first part of the Ceferrati opinion seems to say, at least to this reader, that if agency is established vicarious liability leads down a sure path to liability of the principal. The apparent authority section talks of alleged agency and agency by estoppel but then suggests that the doctrine also applies to situations where an employee does a tortious act but the principal is not liable because the employee (or agent) was not held out as being entrusted with the activity that provided the setting or the tort, see discussion of Fireman's Fund Indemnity Co. v. Longshore Beach & Country Club, 127 Conn. 493, 18 A.2d 347 (1941) (Cefaratti discussion of Fireman's Fund facts at 154 Conn.App. pp. 36-37).