Opinion
No. TTD CV 11 6003068 S
September 13, 2011
MEMORANDUM OF DECISION
This foreclosure action arises from an alleged equipment lease executed by the plaintiff, Maxim Commercial Capital, LLC (Maxim), and the defendant, Arjay Precision, Inc. (Arjay), and guaranteed by the defendants Deml Enterprises, LLC, (Deml) and John Pare. On March 10, 2011, Maxim filed a three-count complaint alleging the following facts. Arjay signed a "Commercial Lease Agreement" with the plaintiff, dated August 26, 2009, to lease certain equipment and make forty-three monthly payments of $1,457.40. Subsequently, Arjay failed to make the required monthly payments and defaulted on the lease.
The plaintiff further alleges in count two that Deml signed a "Continuing Guaranty of Indebtedness" in which it "absolutely and unconditionally" guaranteed the full payment of the lease executed by Arjay. To secure its obligations under their guaranty, Deml mortgaged real property located at 72 Windermere Avenue, Ellington, Connecticut to the plaintiff. Despite demand, Deml has failed to pay the amount due pursuant to its guaranty and the lease.
In the third count of the complaint, the plaintiff alleges that John Pare also signed a "Continuing Guaranty of Indebtedness" in which he guaranteed the full payment of the lease executed by Arjay. Despite demand, Pare has failed to pay the balance due on the lease pursuant to his guaranty. As a result, the plaintiff filed the present foreclosure action and in addition, seeks money damages.
On May 10, 2011, the defendants filed an answer, special defenses, and counterclaims. On May 13, 2011, the plaintiff filed a motion to strike all of the defendants' special defenses and counterclaims. The defendants object to the plaintiff's motion to strike.
"[A] party may challenge the legal sufficiency of an adverse party's claim by filing a motion to strike." Vertex, Inc. v. Waterbury, 278 Conn. 557, 564, (2006). Practice Book § 10-39(a) states in relevant part: "Whenever any party wishes to contest (1) 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 (5) the legal sufficiency of any answer to any complaint . . . or any part of that answer including any special defense contained therein, that party may do so by filing a motion to strike the contested pleading or part thereof."
"It is fundamental that in determining the sufficiency of a [pleading] challenged by a . . . motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted . . ." (Internal quotation marks omitted.) Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252-53 (2010). In ruling on a motion to strike, the court must "construe the [pleading] in the manner most favorable to sustaining its legal sufficiency . . . Thus, [i]f facts provable in the [pleading] would support a cause of action, the motion to strike must be denied . . ." (Internal quotation marks omitted.) Id., 252. Nevertheless, "[a] motion to strike is properly granted if the [pleading] alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003).
I Special Defenses
The plaintiff in the present case moves to strike all the defendants' special defenses on the ground that they are legally insufficient. Specifically, the plaintiff argues that the special defenses are inconsistent with the allegations in the complaint and the defendants waived their right to assert any special defenses in the lease and guarantees. The defendants respond that their special defenses are legally sufficient because each sets forth the necessary elements of the defense, and further that they have not waived their right to plead special defenses because their agreement with the plaintiff is unconscionable.
"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." (Internal quotation marks omitted.) Mortgage Electronic Registration Systems, Inc. v. Goduto, 110 Conn.App. 367, 369 n. 2, cert. denied, 289 Conn. 956 (2008).
The plaintiff first argues that the defendants' special defenses and counterclaims should be stricken because the defendants specifically waived their right to assert any special defenses or counterclaims in the lease agreement. The defendants assert that such a waiver is unconscionable and unenforceable and, therefore, their special defenses and counterclaims are viable.
By their terms, the lease agreement and guaranty are to be construed under California law. Nonetheless, the resolution of the present motion to strike would be the same under either Connecticut or California law. Both Connecticut and California recognize finance lease agreements. See General Statutes § 42a-2a-101, et seq.; California Uniform Commercial Code § 10103(a)(7); see also Emlee Equipment Leasing Corp. v. Waterbury Transmission, Inc., 31 Conn.App. 455 (1993); Arriaga v. Citicapital Commercial Corp., 167 Cal.App.4th 1527 (2008). Furthermore, both jurisdictions allow parties to waive warranties and defenses pursuant to waiver of defense and "hell or high water" clauses often found in such agreements. Emlee Equipment Leasing Corp. v. Waterbury Transmission, Inc., supra, 31 Conn.App. 468.
Generally, "[u]nder Connecticut law, a party to a contract may waive any defenses or rights it has against the other party to the contract, and such a waiver will be enforced if it is clear and unambiguous. Albany Insurance Co. v. United Alarm Services, Inc., 194 F.Sup.2d 87, 91 (D.Conn. 2002). Clear and definitive contract language can establish waiver as a matter of law. Connecticut National Bank v. Douglas, 221 Conn. 530, 545 (1992); Red Tulip v. Neiva, 44 A.D.3d 204, 205, 2007 NY Slip Op 06340, 842 N.Y.S.2d 1 [1st Dept 2007]." (Internal quotation marks omitted.) Royal Bank of Scotland, PLC v. Lexham Farmington I, LLC, Superior Court, judicial district of Hartford, Docket No. CV 10 6007558 (March 3, 2011, Aurigemma, J.) (striking special defenses in foreclosure action because the defendant clearly waived right to assert defenses in loan agreement).
Notwithstanding the validity of a waiver, or "hell or high water" clause, courts often permit the maintenance of defenses attacking the making and validity of a finance lease. See, e.g., Frontier Leasing Corp. v. Krueger, 791 N.W.2d 429, (Iowa App. 2010) ("Defenses to contract formation may be raised despite an enforceable hell or high water clause."). This logic is echoed in Connecticut's foreclosure jurisprudence, where, "[h]istorically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction . . . or, if there had never been a valid lien . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles . . ." LoRico Towers Condominium Ass'n. v. Pantani, 90 Conn.App. 43, 51, cert. denied, 276 Conn. 925 (2005). "[O]ur courts have permitted several equitable defenses to a foreclosure action." (Internal quotation marks omitted.) Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. 183, 188 (2004), aff'd, 92 Conn.App. 904 (2005). "[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." (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, 72 Conn.App. 700, 706, cert. denied, 262 Conn. 915 (2002). Thus, the court will examine the defendants' special defenses in order to ascertain whether they attack the making and validity of the finance lease and guaranty.
In its first special defense the defendants assert that the commercial lease agreement which they entered into with the plaintiff is both "procedurally and substantially unconscionable" pursuant to General Statutes § 42a-2-302. The defendants state the agreement contains "numerous boilerplate provisions that were not readily understandable by the [d]efendants . . . and neither the [p]laintiff or its agents made any effort to review the documents with the [d]efendants or their agents. The [d]efendants had no ability to negotiate the terms of the `Commercial Lease Agreement' . . . [and] were unable to make any substantive changes to the content of the contract." Specifically, the defendants allege that paragraphs 2, 3, 4, 7, 8 and 11 "unreasonably and unfairly favor the plaintiff and are oppressive to the defendants such that no reasonable person or entity would make them and no fair or equitable person would accept them."
As noted, even in the presence of a waiver clause, a defense of unconscionability remains viable. Also, the court must assume the factual allegations to be true. Therefore, the motion to strike the defendants' first special defense is denied.
The defendants' second special defense asserts that the plaintiff has violated the public policy of the state of Connecticut. This special defense incorporates the first special defense, attacking the terms of the lease agreement, and, in addition, asserts that the second paragraph of the guaranty, which waives the statute of limitations, is invalid.
The defendants note that our Appellate Court has held a waiver of the statute of limitations void. The holding of Haggerty v. Williams, 84 Conn.App. 675 (2004), however, does not save the defendants' defense. A contract clause providing for a waiver of certain defenses, in and of itself, does not offend Connecticut's public policy. Furthermore, even if a waiver of the statute of limitations violates Connecticut's public policy, the statute of limitations is not at issue in the present matter. In addition, the lease contract contains a savings clause in its eleventh paragraph. Accordingly, the express terms of the contract carve out any specific provision that may be void as against public policy, rendering a defense on that basis moot. Therefore, the motion to strike as to the second special defense is granted.
The defendants' third special defense asserts that the plaintiff breached the covenant of good faith and fair dealing. This court has previously held that a breach of the covenant of good faith and fair dealing may be a valid defense to a foreclosure action where it attacks the making and validity of the mortgage. Robinson v. Robinson, Superior Court, judicial district of Tolland at Rockville, Docket No. CV 08 5003041 (January 23, 2009, Sferrazza, J.). The present facts, however, fail to support such a defense.
Here, the defendants' third special defense simply incorporates the assertions of their first and second special defenses. The covenant of good faith and fair dealing "presupposes that the terms and purposes of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term." Celentano v. Oaks Condominium Association, 265 Conn. 579, 617 (2003).
Because the defendants' third special defense is targeted at conduct surrounding the creation of the lease and guaranty, as opposed to the application or interpretation of a specific term of either contract, a defense grounded in a breach of the covenant of good faith and fair dealing is invalid. Therefore, the motion to strike, as to the third special defense, is granted.
In their fourth special defense, the defendants assert that the plaintiff lacked legal authority to enter into the subject agreements. The defendants' fourth special defense, however, pleads a legal conclusion and is, therefore, invalid. See Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003) ("A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." [Internal quotation marks omitted.]). Accordingly, the motion to strike, as to the fourth special defense, is granted.
The defendants' fifth special defense is likewise conclusory and it is stricken for the same reason as the fourth special defense.
Finally, the defendants' sixth special defense asserts that the plaintiff was not registered with either the Connecticut Department of Banking or the Connecticut Secretary of State, and consequently, was not licensed to transact business in Connecticut. General Statutes § 33-920(a) requires a foreign corporation, other than an insurance, surety or indemnity company, to obtain a certificate of authority from the Secretary of State before transacting business in Connecticut. General Statutes § 33-921 provides: "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." "In order to invoke the protections afforded by this statute the defendant must specifically plead facts showing that the defendant transacted business in Connecticut." Citibank South Dakota, N.A. v. Beckford, Superior Court, judicial district of Hartford, Docket No. CV 11 6017714 (March 1, 2011, Wagner, J.T.R.); See Peters Production, Inc. v. Dawson, 182 Conn. 526, 529-30 (1980).
Here, the defendants fail to allege that the plaintiff was conducting business in Connecticut, and the sixth special defense is legally insufficient. Moreover, even if the defendants had alleged facts showing that the plaintiff was transacting business in Connecticut, the plaintiff was under no obligation to obtain a certificate of authority from the Secretary of State to transact business with regard to this transaction. General Statutes § 33-920(b) provides in relevant part: "The following activities, among others, do not constitute transacting business within the meaning of subsection (a) of this section: . . . (7) creating or acquiring indebtedness, mortgages and security interests in real or personal property; (8) securing or collecting debts or enforcing mortgages and security interests in property securing the debts . . ." Consequently, the plaintiff's alleged actions, which are the subject of this litigation, do not constitute "transacting business" for purposes of General Statutes § 33-920, and the defendants cannot properly assert a special defense claiming that the plaintiff was not licensed to transact business in Connecticut due to its failure to obtain a certificate from the Secretary of State. Therefore, the plaintiff's motion to strike the defendants' sixth special defense is granted.
II Counterclaims
The plaintiff also moves to strike the defendants' counterclaims. The defendants' first counterclaim alleges, generally, that the actions of the plaintiff offend and violate the public policy of Connecticut, as established by common law as well as statutes, that the subject lease agreement is oppressive, and that the acts and practices of the plaintiff cause substantial injury to competitors and consumers. These allegations appear to raise a claim based on a violation of CUTPA, which is already pleaded by way of the defendants' second counterclaim. Because the first counterclaim is largely duplicative of the second counterclaim, the motion to strike the first counterclaim is granted.
The defendants' second counterclaim incorporates the allegations of their six special defenses and states, in conclusory fashion, that the plaintiff has violated CUTPA. The plaintiff argues that the defendants' second counterclaim fails to allege a method, act or practice prohibited by Connecticut statutes, and also fails to allege that the defendant has sustained an ascertainable loss.
Our Supreme Court has stated: "[General Statutes § ]42-110b(a) provides that [n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other business persons] . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three . . . Thus a violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy . . ." Harris v. Bradley Memorial Hospital Health Center, Inc., 296 Conn. 315, 350-51 (2010).
"The allegation of `damages' rather than `ascertainable loss' does not make [a] CUTPA claim defective. This is because `loss' has a broader meaning than the term `damage.' Beverly Hills Concepts, Inc. v. Schatz Schatz, Ribicoff Kotkin, 247 Conn. 48, 79 (1998). Therefore, `damages' fall within the broader concept of `ascertainable loss.' By pleading `damages' the plaintiffs have pled a particular kind of `ascertainable loss.'" Landau v. Advanced Home Technology, LLC, Superior Court, judicial district of Litchfield, Docket No. CV 030090957 (March 8, 2004, Pickard, J.).
"There are instances in which violations of CUTPA have been upheld as valid counterclaims brought in foreclosure actions." JP Morgan Chase Bank, Trustee v. Rodrigues, 109 Conn.App. 125, 133 (2008). "In foreclosure actions, the mortgagee's conduct in the making of the mortgage note has been held to constitute a violation of CUTPA . . . Conduct on the part of the party seeking foreclosure that occurred after the loan documents were executed and not necessarily directly related solely to enforcement of the note, however, properly has been found not to arise out of the same transaction as the complaint." (Citations omitted.) Id., 134-35.
Reading the allegations of the defendants' second counterclaim broadly, as the court must, the allegations appear to attack the making of the lease and guaranty. Additionally, the defendants have sufficiently alleged that they have been damaged as a result of the plaintiff's acts or omissions. Therefore, the motion to strike as to the second counterclaim is denied.
CONCLUSION
For the foregoing reasons, the court grants the plaintiff's motion to strike as to special defenses two, three, four, five and six, as well as counterclaim one. The court denies the motion to strike as to special defense one and counterclaim two.