Opinion
No. CV06-5004255S
March 20, 2008
MEMORANDUM OF DECISION RE MOTION TO SUBSTITUTE
I
In this case a complaint was filed in May of 2006. The complaint was brought in the name of the plaintiff Master Financial, Inc. against several defendants. It contains two counts of breach of contract and two counts of unjust enrichment. All counts refer to a purported settlement agreement regarding claims on notes and guaranty agreements. It is alleged that there was a default and the loans represented by the notes became delinquent.
Paragraph six of all the counts alleges that:
6. On or about October 11, 2000, a settlement agreement was reached among the defendants and American Capital, the plaintiff's predecessor in interest, addressing the defaults under (the notes).
In an answer filed September 8, 2006 the response to Paragraph 6 reads as follows:
6. Defendants deny that they entered into an agreement with American Capital, the plaintiff's predecessor in interest. Defendants admit that, on or about October 11, 2000, defendants entered into an agreement entitled "Settlement Agreement Between D.A.N. Joint Venture, A Limited Partnership, and H. David Christensen, Donna Christensen, and Betty Christensen (the `Settlement Agreement'). The Settlement Agreement speaks for itself and defendants deny any allegation inconsistent with its terms.
On September 5, 2006 a Disclosure of Defense was filed by the defendants wherein it is stated that after the Settlement Agreement was executed the Cadle Company "obtained the right to receive some or all of the payments to which D.A.N. was entitled pursuant to the terms of the Agreement, and, on or about September 20, 2003, Cadle assigned and/or transferred its rights pursuant to that Agreement to plaintiff, Master Financial, Inc . . ."
On August 31, 2007 a Motion to Substitute Party Plaintiff was filed. In that motion American Capital Group, LLC (ACG) moved the court pursuant to P.B. § 9-20 for an order substituting ACG for the present plaintiff Master Financial, Inc. (MFI). Paragraph 2 alleges that at the time of the commencement of suit MFI was acting as servicing agent for ACG with respect to the notes and mortgages that are the subject of the Settlement Agreement. Paragraph 3 states that subsequently ACG took back servicing rights on the notes and mortgages that are the subject of the Settlement Agreement.
Argument was held on October 26, 2006 on which date the plaintiff filed a brief in support of the motion to substitute. The defendants filed a brief in response dated November 12, 2006. Earlier briefs were filed August 20, 2006 (defendants) and plaintiff (August 23, 2006). Interestingly on January 15, 2007 the plaintiff faxed a letter and additional brief to the court.
II
At common law there are said to be restrictions on substitution of new entities in place of the person or entity who originally brought suit, see generally 59 Am.Jur.2d "parties," § 320, page 746. Thus in New York Evening Post Co. v. Chalener, 265 F 204, 213 (CA 2, 1920) the court said, "At common law an entire change of plaintiffs is not allowable, being in effect regarded as a change in the cause of action . . . The reason for the rule indicates its qualification and where there is no change in the cause of action and the party substituted bears some relation of interest to the original party and to the suit the substitution is allowed. Thus a trustee may be substituted for its beneficiary . . . And when an action is brought by a person who has a beneficial interest in the subject matter, the person who has the legal right to sue may and should be substituted."
The claim made here by ACG is that when suit was brought, MFI was acting as its servicing agent. ACG claims, however, that it is the real party in interest as it took back servicing rights on the notes and mortgages which are the subject of the Settlement Agreement. If these facts, as represented are true, there would clearly be no change in the cause of action by allowing the substitution. Gurliacci v. Mayes, 218 Conn. 531, 546-47 (1991) said that "A cause of action is that single group of facts claimed to have brought about an unlawful injury to the plaintiff . . . a right of action at law arises from the existence of a primary right in the plaintiff, and an invasion of that right by some delict on the part of the defendant. The facts which establish the existence of that right and the delict constitute the cause of action." Again, if MFI was merely the servicing agent for a right vested in ACG, allowing substitution would not alter the fact that the same alleged wrongful acts of the defendants before substitution are the basis of the rights which would now be advanced by ACG if substitution were to be allowed and ACG would merely be seeking to right a wrong done to it which would not be changed in character from the relief sought prior to substitution. That is what the concept of servicing agent implies. Servicing agents are apparently commonly used in the commercial world for bringing foreclosure actions and actions on commercial paper.
There are mechanisms in the Practice Book permitting the real party in interest to enter into an action which an entity like a servicing agent initiated or in situations where a note held by the first plaintiff when the action began was then purchased by a second plaintiff who wishes to be substituted as plaintiff. The second sentence of P.B. § 9-18 says "if a person not a party has an interest or title which the judgment will affect, the judicial authority, on its own motion, shall direct that person to be made a party," see Investors Mortgage Co. v. Rodia, 31 Conn.App. 476, 480-81 (1993). P.B. § 9-23 states "An action may be brought in all cases by the real party in interest, but any claim or defense may be set up which would have been available had the plaintiff sued in the name of the nominal party on interest." see Don Rich Corp. v. Rossini et al, 1 Conn.App. 120, 122, 123 (1983). This interesting language implies that an action can be brought by a nominal party in interest such as a servicing agent but also protects defendants such as these defendants by allowing them to assert any claim or defense when the real party in interest enters the litigation — what else could be the case when the whole basis for permitting substitution in a case like this is the representation of ACG that MFI was its agent, and thus exposing ACG to any claims or any defenses under agency theory? Finally P.B. § 9-23 must be held to contemplate post commencement of litigation substitution by the real party in interest; what else can explain the "any claim or defense" language that would have been available if litigation was commenced by the "nominal party in interest."
Substitution can, from another perspective, be considered as a subcategory of the general right to intervene. They are just two fancy terms for allowing a new party to come into a case. In Horton v. Meskill, 187 Conn. 187, 192 (1982) our court said: "Most of our cases discuss the admission of new parties as coming within the `broad discretion' of the trial court . . . But there are also cases which make clear that intervention of right exists in Connecticut." At page 195 the court commented on our present P.B. § 9-23 `saying intervention is allowed "where the applicant's interest is of such a direct and immediate character that the `applicant will either gain or lose by the direct legal operation and effect of the judgment.' "In a servicing agent situation how could it ever be said that the real party in interest, here ACG, does not have the right to enter the litigation?
Furthermore, not only does the defendant not lose his or her right to present claims or defenses as ACG seems to concede once substitution is allowed, but even after substitution is permitted, the defendant, as in any other case, can still defend on the grounds that the substituted party has no interest in the action or that it cannot establish its right to recover on the grounds alleged in the complaint, cf. Bank of America, FSB v. Franco, 57 Conn.App. 688, 691 et seq. (2000). By granting this motion to substitute, the court by no means has decided that the cause of action is or is likely to be established or even that ACG has the right to recover on the cause of action. ACG must prove those rights in litigation like any other party.
Finally, the court notes the defendant's concern for MFI in its status of an abandoned client. If in fact MFI was the servicing agent, it has no claim to the underlying monetary recovery but only possibly a claim for the cost of any services provided ACG in advancing the latter's claims which the court has no reason to believe are in dispute.
The court does have some concern about two matters, however, which it wishes ACG and its counsel to address before it actually grants this motion. In the complaint, Paragraph 6, MFI characterizes ACG is its "predecessor in interest." This is confusing and does not sound in the language of a servicing agent agreement. The court requests that an affidavit be supplied by an authorized representative of ACG setting forth the fact that MFI was its servicing agent and ACG was and remains the real party in interest on the claims asserted in this lawsuit. Furthermore the court would request counsel for MFI/ACG to attempt to mail a copy of that affidavit and this decision to MFI's agent for service if one exists and its last known business address by registered mail. Upon completion of those tasks, the court intents to immediately grant the motion to substitute. The court would appreciate it if bench copies of the foregoing documents be sent to it in addition to regular filings of these documents in court, that is the affidavit and a verification letter from counsel that the foregoing documents were sent to MFI.