Opinion
No. FST CV 09 5009848 S
September 14, 2010
MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT #130
On January 6, 2009, the plaintiff, JPMorgan Chase Bank, National Association (JPMorgan), filed a foreclosure action against the defendants, Gordon McPhaden, Professional Contracting, and NC Builders LLC (NC Builders). On March 4, 2009, the defendant McPhaden filed an answer and special defenses, and on September 25, 2009, McPhaden filed a revised answer and special defenses. The special defenses sound in fraud in the inducement (one), equitable estoppel (two), Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. (three), waiver (four), and doctrine of unclean hands (five). JPMorgan filed a motion for summary judgment as to liability only, and a memorandum in support, on April 5, 2010, as well as an affidavit filed on the same day. On April 26, 2010, McPhaden filed a memorandum in opposition, and in support filed an affidavit on the same day. The matter was heard at short calendar on April 26, 2010, on which day the court, Mintz, J., issued an order granting the motion for summary judgment as to liability only, ruling that no genuine issue of material fact as to liability existed. In response, McPhaden filed a motion to reargue and reconsider on May 10, 2010, and a memorandum in support. JPMorgan filed an objection May 27, 2010, and the court granted McPhaden's motion on June 1, 2010. The motion for summary judgment was reargued at short calendar on June 15, 2010.
Professional Contracting is Nonappearing.
The defendants Professional Contracting and NC Builders LLC were brought in with the original complaint filed on January 6, 2009. Novicky's Fireside Inc. also filed a motion to be made a party defendant on January 29, 2009, which was granted by the court, Mintz, J., on February 23, 2009. Mark Building Renovations LLC and Northeast Builders Supply Home Centers LLC were brought into the action by way of cross claims filed by the defendant McPhaden, on October 21, 2009, and October 22, 2009, respectively.
The factual background of the note and mortgage at issue, as alleged by JPMorgan, is as follows. On February 28, 2007, McPhaden executed and delivered to Washington Mutual Bank, F.A. (WaMu) a note for a loan in the original principal amount of $2,990,000. To secure the note, McPhaden, on the same date, executed and delivered to WaMu a mortgage, which was dated February 28, 2007 and recorded March 1, 2007. This mortgage was assigned to JPMorgan by virtue of a merger, and JPMorgan is the holder of the note and the mortgage. The note is in default, and JPMorgan, as the holder of the mortgage and the note, has elected to accelerate the balance due on the note, to declare the note to be due in full and to foreclose on the mortgage securing the note. JPMorgan provided written notice to McPhaden of the default, but McPhaden failed and neglected to cure the default.
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Rodriguez v. Testa, 296 Conn. 1, 6, 993 A.2d 955 (2010).
"In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist." Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988). "In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law." (Internal quotation marks omitted.) Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 10-11, 938 A.2d 576 (2008).
"The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent . . . When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue . . . Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue." (Internal quotation marks omitted.) Id., 11.
"A motion for summary judgment shall be supported by such documents as may be appropriate, including but not limited to affidavits, certified transcripts of testimony under oath, disclosures, written admissions and the like." Practice Book § 17-45. "[Section 17-46] sets forth three requirements necessary to permit the consideration of material contained in affidavits submitted in a summary judgment proceeding. The material must: (1) be based on personal knowledge; (2) constitute facts that would be admissible at trial; and (3) affirmatively show that the affiant is competent to testify to the matters stated in the affidavit." (Internal quotation marks omitted.) Barrett v. Danbury Hospital, 232 Conn. 242, 251, 654 A.2d 748 (1995).
"Mere assertions of fact . . . are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45]." (Internal quotation marks omitted.) Bonington v. Westport, 297 Conn. 297, 305 (2010). "Such assertions are insufficient regardless of whether they are contained in a complaint or a brief . . . Further, unadmitted allegations in the pleadings do not constitute proof of the existence of a genuine issue as to any material." (Internal quotation marks omitted.) Karwowsky v. Fardy, 228 Conn.App. 480, 485, 984 A.2d 480 (2009). The court, however, may consider not only the facts presented by the parties' affidavits and exhibits, but also the "inferences which could be reasonably and logically drawn from them . . ." United Oil Co. v. Urban Redevelopment Commission, 158 Conn. 364, 381, 260 A.2d 596 (1969).
JPMorgan argues that there is no genuine issue as to any material fact regarding McPhaden's liability under the loan documents. Further, the special defenses claimed by McPhaden are not applicable to the underlying action as these claims do not apply to JPMorgan. Specifically, McPhaden's claims against JPMorgan are barred by the Financial Institutions Reform Recovery and Enforcement Act (FIRREA), 12 U.S.C. 1821(d), and alternatively, the borrower's claims are barred under the purchase and assumption agreement (PA Agreement) from the Federal Deposit Insurance Corporation (FDIC) as receiver for WaMu to JPMorgan. In support of its motion for summary judgment, JPMorgan submits the affidavit of Margaret Dalton, Vice President of JPMorgan, which has the following exhibits attached: the note, the mortgage, the notice of default, and the PA Agreement.
MePhaden argues that JPMorgan conflates "special defenses" and "claims" to improperly bring McPhaden's defenses under FIRREA, and that FIRREA does not bar McPhaden's special defenses. McPhaden further argues that the PA Agreement does not control special defenses; and that it does not relieve JPMorgan of borrower's special defenses. Additionally, McPhaden argues that the FDIC transferred all liability connected to the servicing of loans to JPMorgan. Finally, borrowers should not be deprived of their right to proffer a defense in foreclosure, and further the fraudulent conduct of WaMu precludes summary judgment on the special defense of a violation of CUTPA. In support of its opposition, McPhaden submits an affidavit by himself, which has the construction loan agreement attached as an exhibit.
"[B]efore a document may be considered by the court [in connection with] a motion for summary judgment, there must be a preliminary showing of [the document's] genuineness, i.e., that the proffered item of evidence is what its proponent claims it to be. The requirement of authentication applies to all types of evidence, including writings . . . Documents in support of or in opposition to a motion for summary judgment may be authenticated in a variety of ways, including, but not limited to, a certified copy of a document or the addition of an affidavit by a person with personal knowledge that the offered evidence is a true and accurate representation of what its proponent claims it to be." (Citation omitted; internal quotation marks omitted.) Gianetti v. Anthem Blue Cross Blue Shield of Connecticut, 111 Conn.App. 68, 73, 957 A.2d 541 (2008), cert. denied, 290 Conn. 915, 965 A.2d 553 (2009). In the present case, all of the documents submitted by JPMorgan as well as McPhaden are properly authenticated by respective affidavits. Further, because the parties fail to object to any of the evidence presented, any objection is deemed waived and the documents are admissible within the court's discretion. Barlow v. Palmer, 96 Conn.App. 88, 92, 898 A.2d 835 (2006).
FIRREA, Pub.L. No. 101-73, 103 Stat. 183 (August 9, 1989), was enacted by Congress in 1989 "to prevent the collapse of the industry, to attack the causes of the crisis, and to restore public confidence." Anderson v. United States, 344 F.3d 1343, 1346 (2003). "The primary purposes of [FIRREA] are to provide affordable housing mortgage finance and housing opportunities for low-and moderate-income individuals through enhanced management of federal housing credit programs and resources; establish organizations and procedures to obtain and administer the necessary funding to resolve failed thrift cases and to dispose of the assets of these institutions; establish a distinction between the regulatory and insurance functions of the thrift industry by (1) ensuring a well capitalized and independent thrift insurance fund, (2) enhancing thrift industry regulation by providing for stronger supervisory oversight of the industry under the Department of Treasury; establish stronger capital standards for thrifts; and, enhance the regulatory enforcement powers of the depository institution regulatory agencies to protect against fraud, waste and insider abuse." H.R. Conf. Rep. No. 101-54(I), at 307-08 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 103-04.
The relevant sections that are codified in 12 USC § 1821, are Title II, §§ 202(a)(1), (b), 211-14, and Title IX, Subtitle A, § 909. The subsection at issue in the present case is 12 USC § 1821(d)(13)(D) and states: "Limitation on judicial review — Except as otherwise provided in this subsection, no court shall have jurisdiction over — (I) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as such receiver; or (ii) any claim relating to any act or omission of such institution or the Corporation as receiver." (Emphasis added.) Id.
Generally, Title II "sets forth in detail the claims procedures that apply with respect to claims against institutions in liquidation. Those procedures allow a claimant after an initial agency determination, the choice of pursuit of judicial adjudication or with the consent of the agency, administrative review." H.R. Conf. Rep. No. 101-222, at 397 (1989), reprinted in 1989 U.S.C.C.A.N. 432, 436. "Title II preempts State law with respect to claims brought by the FDIC in any capacity against officers or directors of an insured depository institution. The preemption allows the FDIC to pursue claims for gross negligence or any conduct that demonstrates a greater disregard of a duty of care, including intentional tortious conduct." Id., 437.
Specifically, Section 206 of Title II "establishes a limitation on the rights of private parties to the extent that exercise of such rights would impair the ability of the financial institution to perform its obligations under the cross-guarantee provisions." H.R. Conf. Rep. No. 101-54(I), at 290 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 122. "Section 212(5) defines the FDIC's authorities and duties as conservator or receiver. The authorities essentially parallel those heretofore exercised by the FSLIC and the FDIC, and are designed to give the FDIC power to take all actions necessary to resolve the problems posed by a financial institution in default." Id., 126, 211. "Subsection (1) . . . enables the FDIC to set up a variety of administrative procedures to resolve contested claims . . ." Id., 130.
Further, the same house report provides: "This construct of administrative resolution and de novo judicial determination is responsive to the constitutional and statutory concerns with the FSLIC's current claims adjudication process as outlined by the Supreme Court in Coit Independence Joint Venture v. FSLIC (March 21, 1989)." Id., 214. "The claims determination procedure set forth in subsection (1) creates a system which not only meets the concerns raised by the Coit case, but also enables the FDIC to dispose of the bulk of claims against failed financial institutions expeditiously and fairly." Id., 215.
The court in Coit Independence Joint Venture v. Federal Savings and Loan Ins. Corp., 489 U.S. 561, 564, 109 S.Ct. 1361, 103 L.Ed.2d 602 (1989), held that FSLIC did not have authority to bring claims against officers and directors of failed institutions. Specifically, the court stated: "This case presents the question whether Congress granted the Federal Savings and Loan Insurance Corporation (FSLIC), as receiver, the exclusive authority to adjudicate the state law claims asserted against a failed savings and loan association. We hold that Congress did not grant FSLIC such power and that the creditors of a failed savings and loan association are entitled to de novo consideration of their claims in court. We also hold that creditors are not required to exhaust FSLIC's current administrative claims procedure before filing suit because the lack of a clear time limit on FSLIC's consideration of claims renders the administrative procedure inadequate." (Emphasis in original.) Id.
As to Title IX, which addresses the FDIC's disclosure and reporting duties, the house report provides: "Subtitles A-D provide the banking agencies with expanded uniform enforcement powers and necessary clarification of existing law, and also impose on each banking agency increased disclosure and reporting responsibilities." Id., 261. Further, "[t]he Committee believes that the enhancement of the regulatory powers and criminal justice provisions should go far in restoring public confidence in the nation's financial system and serve to protect the public interest. This Title gives the regulators and the Justice Department the tools which they need and the responsibilities they must accept, to punish culpable individuals, to turn this situation around, and to prevent these tremendous losses to the Federal deposit insurance funds from ever again recurring." Id., 262. Specifically, addressing Section 909, "Agencies have been known to withhold documents from the FDIC, in connection with the FDIC's exercise of its receivership responsibilities for failed banks. This section places on the banking agencies an affirmative responsibility to no longer withhold such documentation. This sharing of documentation shall in no way constitute a waiver of any governmental agency, work product attorney-client or other privilege recognized by the courts or by statute." Id., 266.
The legislative history clarifies that the purpose of FIRREA is to give the FDIC enhanced powers of enforcement, which also come with duties and responsibilities as to transparency of information. Accordingly, it appears to follow that the purpose of preemption is to provide greater control and ease in the claims process, not to prevent persons from being able to defend themselves against claims made against them.
In Connecticut, "[a] special Defense is an affirmative defense that must be proven by the defendant." (Internal quotation marks omitted.) Caciapoli v. Lebowitz, Superior Court, judicial district of New Haven, Docket No. CV 08 5020658 (March 4, 2010, Berdon, J.T.R.). Resolving the question "whether [the] defendants' affirmative defenses against [the plaintiff] are `claims' or `actions' within the meaning of Section 1821(d)(13)(D)," the court in Resolution Trust Corp. v. Schonacher, 844 F.Sup. 689, 692 (D.Kan. 1994), stated: "Courts are in unanimous agreement that Section 1821(d)(13)(D) establishes a mandatory administrative claim exhaustion requirement . . . As a result, if the affirmative defenses are `claims' or `actions' encompassed by Section 1821(d)(13)(D), this court has no jurisdiction to hear them, and they must be stricken." (Internal quotation marks omitted.) Id. Acknowledging that "[c]ourts are divided over whether the terms `claim' and `action' as described in this statute apply to affirmative defenses"; Id.; the court states: "Although different results were reached in [various cases], they are not totally inconsistent in their reasoning. Distilling that reasoning and examining the statutory language and purposes, this court concludes that a two-step process is required to determine which counterclaims and affirmative defenses are subject to the mandatory administrative procedure." Id., 694.
JPMorgan does not move to strike McPhaden's special defenses, but rather moves for summary judgment on them. As the court states in Deutsche Bank National v. Lobaton, Superior Court, judicial district of New London, Docket No. 09 5009907 (May 5, 2010, Devine, J.) ( 49 Conn. L. Rptr. 779, 780); "Although there is no Connecticut appellate authority, [t]he decisions of the Connecticut Superior Court are almost in unanimous agreement that a motion for summary judgment as to a special defense is improper. Such a motion is improper because Practice Book § 17-44 does not provide for summary judgment on special defenses . . . Summary judgment on a special defense is also improper because [e]ven if the special defenses were all to fail . . . the plaintiff's motion and supporting documents do not remove from disputed facts relevant to determining whether they are entitled to judgment as a matter of law of the complaint itself . . ." Although this case law would provide the court with non-binding authority to deny the present motion for summary judgment, the court will, in the absence of binding appellate authority on the matter, address the motion for summary judgment on its merits.
"The first step is to determine whether the claim embodied in the affirmative defense or counterclaim is of the type described in the statute." Id. Thereafter, "[i]f the claim is of the type included in the statute's language, the next step is to determine whether the claim could have been brought independently by the defendant against the institution or receiver." Id. The court clarifies that "[i]n making this evaluation, the determining factor is not whether a defendant labels his response as an affirmative defense or as a counterclaim. Instead, the court must evaluate whether an asserted defense or counterclaim could have been brought against the receiver or the institution independently. In other words, if a defendant prior to being sued by the [plaintiff], would have had no independent grounds for filing a claim based on his asserted defense against the [plaintiff] or the institution, then Section 1821(d)(13)(D) does not divest the district court of jurisdiction even though the defendant has not exhausted the FIRREA administrative claims procedure." Id. The court continues to "hold that defenses are not subject to the administrative claims procedure unless they could have been asserted independently against the [plaintiff] or the institution, and reject[s] the [plaintiff's] argument that all affirmative defenses come under the scope of Section 1821(d)(13)(D)." Id. The court in Danbury Savings and Loan Ass'n., Inc. v. Scalzo, Superior Court, judicial district of Danbury, Docket No. 301539 (March 13, 1997, Stodolink, J.) ( 19 Conn. L. Rptr. 230, 231), adopted the court's reasoning in Schonacher, granting the plaintiff's motion to dismiss the defendant's special defenses in part, and denying it in part. Specifically, the defendant's first special defense in Scalzo, alleged unclean hands, which the court held was "essentially an estoppel defense brought in response to the institution's foreclosure action against the defendant and could not have been asserted independently against the [plaintiff] . . . The defendant's second special defense, however, allege[d] that the [plaintiff] breached its obligations under a construction mortgage agreement" which the court held fell "within the types of claims included in § 1821(d)(13)(D) as an action for determination of [r]ights with respect to the assets of the failed institution or a claim relating to an act or omission of the institutions and could have been brought independently by the defendants against the failed institution." Id.
The court in Bolduc v. Beal Bank, SSB, 994 F.Sup. 82, 89 (D.NH 1998), stated that "the majority view is that affirmative defenses need not be submitted to FIRREA's administrative claims review process in order to remain open to judicial review." The court went so far as to hold that "despite the Bolducs' role as plaintiffs, their `claims' constitute affirmative defenses." Id., 90. This is in line with the reasoning and holding in Schonacher, that the court should look to the substance of the defenses or claims, as opposed to strictly abiding by the labels. Accordingly, FIRREA only preempts actual claims, and not special defenses. The court, therefore, must decide whether a pleaded special defense is truly a defense or a preempted claim, addressing every defense in turn.
"Four Circuit Courts of Appeal have adopted the position that affirmative defenses are not subject to FIRREA's administrative exhaustion requirement, while no Circuit Court has held that all affirmative defenses must be administratively exhausted." Bolduc v. Beal Bank, SSB, 994 F.Sup. 82, 89 (D.NH 1998).
The general concepts underlying a foreclosure action are as follows: "[A] foreclosure action constitutes an equitable proceeding . . . In an equitable proceeding, the trial court may examine all relevant factors to ensure that complete justice is done . . . The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court . . .
"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 at law 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 . . . [O]ur courts have permitted several equitable defenses to a 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 our Supreme Court has recognized in foreclosure actions include unconscionability . . . abandonment of security . . . and usury." (Citation omitted; internal quotation marks omitted.) LaSalle National Bank v. Freshfield Meadows, LLC, 69 Conn.App. 824, 833-34, 798 A.2d 445 (2002).
As to the first special defense, fraud in the inducement, the relevant law states that "[f]raud in the inducement to enter a contract is a well established equitable defense . . . Fraud and misrepresentation cannot be easily defined because they can be accomplished in so many different ways. They present, however, issues of fact . . . Our Supreme Court has stated that the summary judgment procedure is particularly inappropriate where the inferences which the parties seek to have drawn deal with questions of motive, intent and subjective feelings and reactions . . . It is only when the witnesses are present and subject to cross-examination that their credibility and the weight to be given to their testimony can be appraised." (Citations omitted; internal quotation marks omitted.) Barasso v. Rear Still Hill Road, LLC, 81 Conn.App. 798, 806, 842 A.2d 1134 (2004). "In order to establish the special defense of fraud, [the defendant] must prove that (1) a false representation was made by the plaintiff as a statement of fact, (2) the statement was untrue and known to be so by the plaintiff, (3) the statement was made with intent of inducing reliance thereon and (4) the defendant relied on the statement to her detriment." Harrington v. Dyer, 50 Conn.Sup. 460, 469, 937 A.2d 77 (2007).
In the present case, McPhaden pleads that JPMorgan colluded and/or conspired with representatives of NC Builders to locate potential homeowners for renovation projects and to offer financing to purchase interests in real property and to renovate those properties. Further, JPMorgan knew or should have known that NC Builders had neither the capacity nor the intention to complete the projects competently, in compliance with the relevant building codes, or within the contract terms. Based upon these facts, McPhaden further pleads with specificity all four elements required for a fraud action, stating that JPMorgan made false representations, which it knew were false, and were made to induce McPhaden into the purchase of the property, and McPhaden acted upon the false representations to his detriment.
Accordingly, as McPhaden pleads all the necessary elements of a fraud defense, and because a special defense of fraud is permissible under the law, McPhaden's first special defense is proper and withstands preemption under FIRREA.
As to the second special defense, equitable estoppel, upon the defendant "assert[ing] the special defense of equitable estoppel . . . the doctrine of equitable estoppel [in its traditional form] states that a party (1) who is guilty of a misrepresentation of existing fact including concealment, (2) upon which the other party justifiably relies, (3) to his injury, is estopped from denying his utterances or acts to the detriment of the other party . . . In considering the law of estoppel in Connecticut, we have stated: Under our well-established law, any claim of estoppel is predicated on proof of two essential elements: the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief, and the other party must change its position in reliance on those facts, thereby incurring some injury . . . It is fundamental that a person who claims an estoppel must show that he has exercised due diligence to know the truth, and that he not only did not know the true state of things but also lacked any reasonably available means of acquiring knowledge." Connecticut National Bank v. Voog, 233 Conn. 352, 366-67, 659 A.2d 172 (1995).
McPhaden pleads that JPMorgan is equitably estopped from foreclosing upon the property in that it made false representations of fact, the false statements and actions were calculated and intended to induce McPhaden to act on his belief in those false statements, McPhaden changed his position based on those statements in that he accepted a mortgage from JPMorgan and accepted JPMorgan's recommendations of NC Builders as general contractor which he would not have done but for JPMorgan's false representations, defendant has thereby incurred injury in that the project was not managed according to JPMorgan's representations and McPhaden has lost the value of the investment as well as other financial detriments, and McPhaden exercised due diligence to discover the truth of the information provided by JPMorgan but did not know the true state of things and also lacked any reasonably available means of acquiring the truth.
Accordingly, as McPhaden pleads all the necessary elements of an equitable estoppel defense, and because a special defense of equitable estoppel is permissible under the law, McPhaden's second special defense is proper and withstands preemption under FIRREA.
As to the third special defense, violation of CUTPA, there is limited appellate authority addressing whether CUTPA can be pleaded as a special defense. Acknowledging a division among Superior Court judges, the court in Windsor Federal Savings v. AQB Properties LLC, Superior Court, judicial district of Hartford, Docket No. CV 06 5002705 (December 1, 2006, Freed, J.T.R.), holds that it is the "better view . . . that CUTPA provides a cause of action for its violation. It speaks nothing of a defense, but rather could be a basis for a counterclaim . . ." Id.
Holding that CUTPA cannot be asserted as a special defense, the court in Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 405 n. 3, 867 A.2d 841 (2005), affirmed the trial court's judgment, which in relevant part denied the defendant's special defense alleging CUTPA violations "ruling, on the basis of several trial court opinions, that a CUTPA violation cannot be asserted as a special defense." Id. Further, in Discovery Bank v. Gallicchio, Superior Court, judicial district of New Britain, Docket No. CV 09 5012159 (May 5, 2010, Pittman, J.), the court held that the special defense, alleging a violation of CUTPA, "is simply not a special defense at all. It is an affirmative cause of action which may be asserted as a means of recovery for having suffered actual harm." Id.
Additionally, the court in PHH Mortgage Corp. v. Traylor, Superior Court, judicial district of New London, Docket No. CV 07 5004315 (November 13, 2008, Martin, J.), stated: "CUTPA . . . [is a] recognized equitable [defense] to a foreclosure action . . . In cases where the defendant has alleged CUTPA as a special defense against a mortgage assignee and alleged that the foreclosing mortgage assignee was somehow involved in the unfair trade practice or had an agency relationship with the loan originator, this court has sustained a CUTPA special defense . . . However, in cases where the defendant has failed to allege any wrongdoing on the part of the mortgage assignee, or the existence of an agency relationship between the loan originator and the foreclosing plaintiff, at least one court has stricken the CUTPA special defense." (Citations omitted; internal quotation marks omitted.) Id.
McPhaden pleads that JPMorgan committed violations of CUTPA in that it made false representations of fact, which constitute violations of public policy, Connecticut statutes, and the common law, and are unlawful, unethical, immoral, oppressive, unscrupulous and unfair, that the actions caused substantial injury to the defendant who was and is a consumer of JPMorgan's lending services, and that the substantial injury suffered by McPhaden could not be reasonably avoided and is not outweighed by any countervailing benefits to consumers.
Although there is limited appellate authority, the law appears to be clear that an allegation of a violation of CUTPA is indeed a claim in substance. The CUTPA claim in the present case addresses an "act of omission of the institution" that could have been brought separately as a claim. See Danbury Savings and Loan Ass'n., Inc., v. Scalzo, supra, 19 Conn. L. Rptr. 230. Further, McPhaden fails to plead an actual violation by JPMorgan, but rather pleads violations by WaMu, for which JPMorgan is now responsible. Accordingly, as CUTPA constitutes a claim in the present case, it is preempted by FIRREA, and the court must grant the motion for summary judgment as to the CUTPA claim, as that is not a defense, but indeed a claim.
As to the fourth special defense, waiver, the Appellate Court has stated that "[w]aiver is an intentional relinquishment or abandonment of a known right or privilege." (Internal quotation marks omitted.) Jo-Ann Stores, Inc. v. Property Operating Co., LLC, 91 Conn.App. 179, 198, 880 A.2d 945 (2005). Additionally. "[w]aiver, as a special defense, must be specifically pleaded." (Internal quotation marks omitted.) Id.
In the present case, McPhaden pleads that JPMorgan intentionally relinquished or abandoned any contractual right to foreclose in this action in that it made false representations of fact, which were used to induce McPhaden to undertake the mortgage in question, which constitutes a violation of fundamental principles of equity and may not be relied upon as the basis of an action in equity. McPhaden argues that, as such, JPMorgan has impliedly waived their right to foreclosure upon the equity in question.
Accordingly, as McPhaden pleads all the necessary elements of a waiver defense, and because a special defense of waiver is permissible under the law, McPhaden's fourth special defense is proper and withstands preemption under FIRREA.
As to the fifth special defense, doctrine of unclean hands, the Appellate Court has held that "[t]he doctrine of unclean hands holds that one who seeks to prove that he is entitled to the benefit of equity must first come before the court with clean hands . . . and must therefore show that his conduct has been fair, equitable and honest as to the particular controversy in issue." (Citation omitted; internal quotation marks omitted.) Barasso v. Rear Still Hill Road, LLC, supra, 81 Conn.App. 806 n. 4. "Application of that doctrine, which requires a weighing of facts, rests within the sound discretion of the trial court." (Internal quotation marks omitted.) Id., 806-07.
Although "Practice Book § 10-50 specifically does not require that the special defense of unclean hands be specially [pleaded]"; (internal quotation marks omitted) Kosinski v. Carr, 112 Conn.App. 203, 209 n. 6, 962 A.2d 836 (2009); "the doctrine of unclean hands may be pleaded as a special defense to a mortgage foreclosure proceeding. See Thompson v. Orcutt, 257 Conn. 301, 308-11, 777 A.2d 670 (2001)." Deutsche Bank National Trust Co. v. Griffin, Superior Court, judicial district of Litchfield, Docket No. CV 07 5002285 (January 17, 2008, Pickard, J.). In fact, "[t]he defense of unclean hands can [even] be found by the court without the express pleading as a special defense when equity requires it. Connecticut Foreclosures, Sec. 28.05 A (Caron Milne, 2004); McKeever v. Fiore, 78 Conn.App. 783, 789, 829 A.2d 846 (2003)." Sovereign Bank v. 2nd Family, LLC, Superior Court, judicial district of New London, Docket No. CV 09 5012519 (December 21, 2009, Devine, J.).
In the present case, McPhaden pleads that JPMorgan engaged in willful misconduct in connection with the formation and making of the note in question and, therefore, violated the equitable doctrine of unclean hands in the formation of the mortgage at issue here. Specifically, McPhaden argues that JPMorgan made false representations of fact, which constitute violations of public policy, Connecticut statutes and the common law, and are unlawful, unethical, immoral, oppressive, unscrupulous and unfair, and that the substantial injury suffered by McPhaden is the direct result of this willful misconduct by JPMorgan.
Accordingly, as McPhaden pleads all the necessary elements of an unclean hands defense, and because a special defense of unclean hands is permissible under the law, McPhaden's fifth special defense is proper and withstands preemption under FIRREA.
As to the proper defenses not preempted by FIRREA, the court must also consider whether the PA Agreement bars any claims by McPhaden. JPMorgan cites to section 2.5 on borrowers claims, for the proposition that the borrower's claims are barred under the PA agreement from the FDIC as receiver for WaMu to JPMorgan. Specifically, JPMorgan did not assume any liabilities of WaMu that are "claims for payment of or liability to any borrower for monetary relief, or that provide for any other form of relief to any borrower . . . related in any way to any loan or commitment to lend made by [WaMu]" prior to September 25, 2008, when WaMu was placed into FDIC receivership, "or otherwise arising in connection with [WaMu]'s lending or loan purchase activities." JPMorgan argues that the PA Agreement expressly provides that it did not assume borrower claims against WaMu arising prior to September 25, 2008, and that, accordingly, JPMorgan has no liability for such claims.
McPhaden responds that not only does the plain language of the PA Agreement not support JPMorgan's argument, but it specially contradicts it. Specifically, McPhaden argues that section 2.5 does not apply to defenses at all, and as JPMorgan correctly states, only applies to claims. Section 3.3, however, does apply to defenses, stating that JPMorgan accepts the assets, including McPhaden's property, without warranties with respect to enforceability. McPhaden argues that by arguing that the FDIC is responsible for any defenses against foreclosure, JPMorgan is essentially arguing that the FDIC has given JPMorgan a guarantee of collectibility on all of WaMu's assets, something it has explicitly denied in section 3.3.
"The construction of a contract is usually a question of fact because the interpretation of its language is a search for the intent of the parties, making contractual intent a classic question of fact." Viera v. Cohen, 283 Conn. 412, 439-40, 927 A.2d 843 (2007). In the present case, JPMorgan argues that it only acquired the assets but not the liabilities of WaMu, whereas McPhaden argues, and states in his affidavit, that JPMorgan acquired both, the assets and the liabilities from WaMu. The parties, therefore, appear to not only be in disagreement over which section of the PA Agreement applies to the current situation, but also as to the interpretation of the agreement, determining the underlying facts. Accordingly, whether any defenses are barred under the PA Agreement is an issue of fact remaining to be decided. As this issue of fact is material, because it determines the viability of any defenses in the present case, the motion for summary judgment as to the defenses must be denied.
As only claims and not defenses are preempted by FIRREA, and all special defenses, with the exception of CUTPA, are properly pleaded valid special defenses, and an issue of material fact remains as to whether the PA Agreement bars any defenses, the court denies the motion for summary judgment as to special defenses one (fraud), two (equitable estoppel), four (waiver), and five (unclean hands), and grants the motion for summary judgment as to special defense three (CUTPA).