Opinion
KNLCV166028059S
07-20-2017
MH Investors, LLC v. CT Financial Partners, LLC et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION IN RE MOTION TO DISMISS: #115
Hon. John J. Nazzaro, J.
FACTS
The plaintiff, MH Investors, LLC, filed a two-count complaint in this action on September 29, 2016, against the defendants, CT Financial Partners, LLC and Joel Greene. In count one of the complaint for the foreclosure of a mortgage, the plaintiff alleges the following facts. By agreement dated November 5, 2013, the defendants promised to pay two million dollars to Weinstein & Wisser, P.C. for legal services rendered. The defendants mortgaged certain parcels of land in Montville, Connecticut to secure the agreement, which was recorded on November 6, 2015. The mortgage was then assigned to MH Investors, LLC on August 15, 2016, and recorded on September 13, 2016. MH Investors, LLC owns the mortgage and on August 16, 2016, the plaintiff made a demand upon the defendant for payment of the amount owed. The defendants did not pay and the plaintiff now seeks to foreclose on the mortgage. Count two alleges breach of contract and repeats the allegations in count one.
The parcels of land in the Town of Montville include the following: 47 Driscoll Drive, 85 Massapeag Side Road, Lot 120-3 Massapeag Side Road, 252 Massapeag Side Road, 255 Massapeag Side Road, 260 Massapeag Side Road, 272 Massapeag Side Road, 266 Massapeag Side Road, 246 Massapeag Side Road, 162 Derry Hill Road, 162 Massapeag Side Road, 1523 Route 32, 245 Massapeag Side Road, 237 Massapeag Side Road, 233 Massapeag Side Road, 241 Massapeag Side Road, 190 Derry Hill Road, Lot 34-40 Derry Hill Road, 43R Driscoll Drive, Lot 42-12 Massapeag Side Road, 46 Massapeag Side Road, 54 Massapeag Side Road, 78 Massapeag Side Road, 68 Massapeag Side Road, 43 Massapeag Side Road, Lot 42-04 Massapeag Side Road, Lot 42-5 Massapeag Side Road, 229 Massapeag Side Road, 217 Massapeag Side Road, 150 Massapeag Side Road, 226 Massapeag Side Road, 238 Massapeag Side Road, 43 Driscoll Drive, 265 Massapeag Side Road, and 329 Massapeag Side Road.
MH Investors, LLC was formed contemporaneously with the assignment from Weinstein & Wisser, P.C. to MH Investors, Inc.
On June 2, 2017, MH Investors, LLC filed a motion to substitute Weinstein & Wisser, P.C. as the plaintiff because the obligation, which serves as the basis for this dispute, was reassigned from MH Investors, LLC to Weinstein & Wisser, P.C. The defendants filed opposition to this. motion on June 9, 2017. The plaintiff filed their reply on June 15, 2017 and the defendants filed their sur-reply on June 16, 2017. This motion was scheduled to be heard on July 17, 2017.
On January 27, 2017, the defendants filed a motion to dismiss the action for lack of standing on the ground that the obligations at issue violate public policy, and therefore cannot be assigned. The motion is accompanied by a memorandum of law (Docket Entry No. 115). On February 27, 2017, the plaintiff filed its opposition to the motion to dismiss (Docket Entry No. 125). On March 27, 2017, the defendants filed a reply to the plaintiff's objection to the motion to dismiss (Docket Entry No. 131). On April 3, 2017, before hearing argument on the motion to dismiss, argument was heard on the defendants' objections to interrogatories. In that hearing, the motion to dismiss was mentioned by the defendants' counsel, specifically the need for subject matter jurisdiction discovery as well as an evidentiary hearing on standing to occur prior to arguing the motion to dismiss. Plaintiff's counsel argued that an evidentiary hearing on the motion to dismiss was unnecessary. The court requested both sides brief the narrow issue of whether discovery ought to be obtained on this issue of standing: whether a violation of the Rules of Professional Conduct provides grounds for a motion to dismiss, or provides a defense that could impact the standing of the plaintiff to bring the case. The court stated at that time that depending on how it ruled would, or would not, permit discovery on the issues in the motion to dismiss. Pursuant to the court's request, the defendants' submitted their brief on April 26, 2017 (Docket Entry No. 135). The plaintiff submitted its brief on April 27, 2017 (Docket Entry No. 136). The court has reviewed these additional briefs and notes that this decision, which is based on the additional briefs, addresses the defendants' arguments in their motion to dismiss. Thus, the resolution of this narrow issue necessarily determines the validity of the defendants' motion to dismiss.
Prior to filing their reply on March 27, 2017, the defendants filed a nine-count counterclaim on March 13, 2017. Count one is titled " set aside the obligation, mortgage deed, and assignment." Count two is titled " unfair trade practice-remove obligations." Count three is titled " interference with business expectancy-the Mohegan tribe." Count four is titled " CUTPA based upon interference with business expectancy-Mohegan tribe." Count five is titled " slander of title." Count six is titled " declaratory judgment." Count seven is titled " misappropriation of trade secrets-Mohegan." Count eight is titled " quiet title." And, lastly, count nine is titled " CUTPA based on misappropriation of trade secrets."
DISCUSSION
" [B]ecause the issue of standing implicates subject matter jurisdiction, it may be a proper basis for granting a motion to dismiss." Electrical Contractors, Inc. v. Dept. of Education, 303 Conn. 402, 413, 35 A.3d 188 (2012). " The proper procedural vehicle for disputing a party's standing is a motion to dismiss." (Internal quotation marks omitted.) D'Eramo v. Smith, 273 Conn. 610, 615 n.6, 872 A.2d 408 (2005). " If . . . the plaintiff's standing does not adequately appear from all materials of record, the complaint must be dismissed." (Footnote omitted; internal quotation marks omitted.) Burton v. Dominion Nuclear Connecticut, Inc., 300 Conn. 542, 550, 23 A.3d 1176 (2011). " When a trial court decides a jurisdictional question raised by a pretrial motion to dismiss on the basis of the complaint alone, it must consider the allegations of the complaint in their most favorable light . . . In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." (Internal quotation marks omitted.) Conboy v. State, 292 Conn. 642, 651, 974 A.2d 669 (2009).
In the motion to dismiss, the defendants argue that the matter should be dismissed because the plaintiff does not have standing for two reasons: 1) the obligations at issue violate public policy, and 2) the obligations cannot be assigned because they violate public policy. The defendants argue that this action seeking to foreclose on a mortgage based on a compensation agreement between Weinstein & Wisser, P.C. and Joel Green for a previous matter violates Rule 1.5(b). Additionally, the defendants argue that in seeking the mortgage, Weinstein & Wisser, P.C. did not make a disclosure as required by Rule 1.8(a)(2). Because of these rule violations, defendants argue that the plaintiff has no standing to prosecute its claims because the underlying obligation is unenforceable against public policy and, therefore, the assignment is also unenforceable. The plaintiff counters arguing that the defendants' motion to dismiss should be denied because: 1) there are no disputed matters of fact and law that preclude disposing of this matter on a motion to dismiss; 2) the assignments of the agreement and mortgage at issue do not violate any public policy; and 3) the plaintiff is the legitimate entity in interest and has standing to enforce the agreement and mortgage.
Rules of Professional Conduct 1.5(b) states: " The scope of the representation, the basis or rate of the fee and expenses for which the client will be responsible, shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation, except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client in writing before the fees or expenses to be billed at higher rates are actually incurred. In any representation in which the lawyer and the client agree that the lawyer will file a limited appearance, the limited appearance engagement agreement shall also include the following: identification of the proceeding in which the lawyer will file the limited appearance; identification of the court events for which the lawyer will appear on behalf of the client; and notification to the client that after the limited appearance services have been completed, the lawyer will file a certificate of completion of limited appearance with the court, which will serve to terminate the lawyer's obligation to the client in the matter, and as to which the client will have no right to object. Any change in the scope of the representation requires the client's informed consent, shall be confirmed to the client in writing, and shall require the lawyer to file a new limited appearance with the court reflecting the change(s) in the scope of representation. This subsection shall not apply to public defenders or in situations where the lawyer will be paid by the court or a state agency."
Rules of Professional Conduct 1.8(a)(2) states: " The client or former client is advised in writing that the client or former client should consider the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in the transaction."
In the briefs submitted addressing the narrow issue, as requested by the court, the defendants argue the following: 1) a violation of the Rules of Professional Conduct has been recognized as a violation of public policy, which can make an agreement void; 2) agreements between lawyers and their clients should be scrutinized; 3) the Ankerman case has no application to this case, and; 4) the assignment of the two million dollar obligation is unenforceable against public policy. The plaintiff counters that Connecticut law is clear that violations of the Rules of Professional Conduct do not give rise to causes of actions or defenses of otherwise valid instruments.
The plaintiff is correct in asserting that violations of the Rules of Professional Conduct do not give rise to causes of action or special defenses of valid instruments, such as mortgages. In Noble v. Marshall, 23 Conn.App. 227, 228, 579 A.2d 594 (1990), the Appellate Court addressed the issue of whether the facts alleged, including a claimed violation of the Rules of Professional Conduct, gave rise to a violation of the Connecticut Unfair Trade Practices Act (CUTPA). In that case, an attorney brought a claim against a client for nonpayment of legal fees. Id., 228. The client counterclaimed, alleging a violation of CUTPA because the plaintiff was negligent in his legal representation and his legal fee was unreasonable, and therefore, he had breached Rule 1.5(a) of the Rules of Professional Conduct. Id. The plaintiff attorney moved to strike that count, which the trial court granted. Id. In its review, the Appellate Court noted that " [t]he crux of the defendant's argument is her reliance upon the plaintiff's alleged violation of Rule 1.5(a) . . . to support her claimed violation of CUTPA. Unless she can establish that Rule 1.5(a) gives rise to a CUTPA action, her counterclaim must fail." Id., 230. In affirming the trial court, the Appellate Court concluded that " the Rules of Professional Conduct do not of themselves give rise to a cause of action, even to an attorney's client." Id., 231. The Appellate Court looked to the preamble of the Rules of Professional Conduct which states in part: " Violation of a Rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The rules [were] designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability . . . The fact that a Rule is a just basis for a lawyer's self-assessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement of the Rule." Id., n.3.
Rules of Professional Conduct 1.5(a) states: " A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following: 1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; 2) The likelihood, if made known to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; 3) The fee customarily charged in the locality for similar legal services; 4) The amount involved and the results obtained; 5) The time limitations imposed by the client or by the circumstances; 6) The nature and length of the professional relationship with the client; 7) The experience, reputation, and ability of the lawyer or lawyers performing the services; and 8) Whether the fee is fixed or contingent."
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 . . . In determining whether a case falls within the scope of CUTPA's general description of unfair or deceptive practices, our courts have adopted the " cigarette rule" . . . Under that standard, three factors will be looked at to determine if an action or practice is unfair: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-whether, in other words, it is within at least the penumbra of some common law statute, or other established concept of fairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers . . ." (Citation omitted; internal quotation marks omitted.) Noble v. Marshall, supra, 23 Conn.App. 229. Interestingly, despite the first prong which concerns public policy, the Noble court found that the defendant's reliance on the alleged violation of a rule of professional responsibility to assert a CUTPA violation was not enough.
In Ankerman v. Mancuso, 79 Conn.App. 480, 481 830 A.2d 388 (2003), aff'd, 271 Conn. 772, 860 A.2d 244 (2004), the court addressed whether a violation of the Rules of Professional Conduct is a legally sufficient special defense that bars the enforcement of a promissory note and mortgage. In that case, a lawyer acquired a mortgage and promissory note from the client during the pendency of litigation as a means to secure the payment of his fees. Id., 482. The plaintiff lawyer filed a one-count complaint on the promissory note and the defendant filed several special defenses and a two-count counterclaim. On appeal, the Appellate Court concluded that a violation of the Rules of Professional Conduct is not legally sufficient to preclude the enforcement of the note and mortgage on the defendants' property, stating that " the Rules of Professional Conduct cannot form the basis of a cause of action between attorney and client . . . [And] [i]t is clear . . . that this logic extends to special defenses . . . According to the scope of the Rules of Professional Conduct, the rules are not designed to augment the attorney's legal duty and are provided to guide disciplinary agencies in regulating attorneys' actions." Id., 486-87.
The defendant alleged five special defenses, the first of which is similar to the present case. The five special defenses included: 1) the taking of the note and mortgage is unenforceable due to an ethical violation; 2) the plaintiff's mortgage is a second mortgage and is not enforceable because the plaintiff is not licensed to operate as a secondary mortgage lender; 3) the note is not supported by consideration; 4) the note is voidable pursuant to truth in lending laws; and 5) the taking of the loan is unconscionable. Ankerman v. Mancuso, supra, 79 Conn.App. 482-83 n.2.
The defendants' position that a violation of the Rules of Professional Conduct has been recognized as a violation of public policy, which can void an agreement, is well argued but overstated. The defendants posit that the Supreme Court " has indicated that a violation of the Rules of Professional Conduct can be a violation of public policy and/or breach of a duty . . . Various provisions of the Rules of Professional Conduct have been found to be a violation of public policy, precluding enforcement of a fee agreement." (Emphasis added.) Docket No. 135. It has been observed, however, that " there is simply no cause of action recognized in Connecticut law for violation of a claimed public policy; even with respect to attorneys, there can be no cause of action based solely on alleged violations of the Rules of Professional Conduct. (Emphasis added.) Biller Associates v. Peterken, [269 Conn. 716, 722, 849 A.2d 847 (2004)]." McGuire v. Hudson Valley Bank, N.A., Superior Court, judicial district of Stamford, Docket No. CV-13-6018303-S, (November 20, 2013, Truglia, J.). " [N]either the Connecticut Supreme Court nor the Appellate Court has ever held-nor even suggested-that attorney fee agreements are unenforceable if they violate Rule 1.5(b) or Rule 1.5(c)." (Internal quotation marks omitted.) Rucci, Burnham, Carta, Carello & Reilly, LLP v. Stuart, Superior Court, judicial district of Stamford, Docket No. CV-09-5012543-S, (August 12, 2016, Tobin, J.T.R.).
The defendants also argue in their brief that the decision in Barr v. Barr, Superior Court, judicial district of Stamford, Docket No. FA-13-4025428-S (June 2, 2015, Heller, J.) (60 Conn.L.Rptr. 555, ), which invalidated mortgages to secure legal fees because those liens involved the subject matter of that litigation, supports their positon. The defendants' reliance on this case is misplaced as that ruling was narrowly confined to obtaining liens, deeds, interests, and arrangements in marital property in the midst of a dissolution action. Judge Heller noted the unique policy concerns associated with marital dissolution actions and was concerned about the existence of a conflict of interest between the client and counsel in that situation. The present case is not a marriage dissolution matter, the policy concerns cited by Judge Heller are not applicable, and Weinstein & Wisser, P.C. only took an interest in the property years after the litigation regarding it had been resolved. The defendants' argument relating to agreements between lawyers and their clients seems to hinge on the position that, regardless of whether this court finds the Rules of Professional Conduct are a source of public policy or not, the transaction at issue contains a rebuttable presumption of undue influence which can invalidate the transaction. This position is not argued in the defendants' motion to dismiss and is outside the scope of the current issue. Therefore, the court will not address it at this time.
Citing the Supreme Court of Utah: " There is good reason to preclude attorneys from acquiring a lien in the property of a marital estate prior to the entry of a decree of divorce. The value and distribution of marital property is often hotly contested by the parties to a divorce. For example, it may be in the client's best interest to relinquish her claim to the marital home as a means of facilitating a favorable settlement. If her attorney has an interest in the home, the attorney's interests are then directly at odds with the client's. Moreover, marital property still subject to equitable distribution by the court should remain free from encumbrances that might serve to hinder the efficient liquidation and distribution of that property."
A lawyer in Connecticut may acquire a security interest, such as a mortgage, on a property owned by his or her client to secure the payment of legal fees. See, e.g., Twachtman v. Hastings, Superior Court, judicial district of Tolland, Docket No. CV-95-57307-S (July 23, 1997, Hammer, J.T.R.) (20 Conn.L.Rptr. 145, ); Gersten v. Statewide Grievance Committee, Superior Court, judicial district of Hartford, Docket No. CV-96-0565949-S (June 10, 1997, McWeeny, J.) [19 Conn.L.Rptr. 554, ].
The defendants have also valiantly argued that the Ankerman Appellate Court case has no application to the present case. Respectfully, this court disagrees. The Ankerman case is not only persuasive but is dispositive of this narrow issue. The Ankerman decision does not rely on the fact that a Rule 1.8 disclosure was made prior to the execution of the instruments. The decision is grounded in precedent regarding the effect of violations of the Rules of Professional Conduct on parties' rights outlined in Noble v. Marshall, supra, 23 Conn.App. 231. The Appellate Court extended the logic of Noble to also apply to special defenses. Ankerman v. Mancuso, supra, 79 Conn.App. 486. " The public policy underlying rule 1.8 is to prevent conflicts of interest between attorney and client. According to the scope of the Rules of Professional Conduct, the rules are not designed to augment the attorney's legal duty and are provided to guide disciplinary agencies in regulating attorneys' actions." Id., 486-87. Indeed, the court observed that the plaintiff's motive in obtaining the note and mortgage was to obtain and secure payment of legal fees. Id., 487. The Appellate Court stated that " [w]hile the means violated the Rules of Professional conduct, the motive was not improper or unjustifiable or otherwise malicious . . ." Id. The court went on to state it did not condone violations of the ethical rules governing attorneys, but after reviewing Noble and the preamble of the Rules of Professional Conduct, the violation did not bar enforcement of the note. Id. In the present case, the plaintiff's motive in obtaining the agreement, and then the mortgage, was to secure payment for legal fees. At this point in the litigation, it does not appear that the motive was improper, unjustifiable, or malicious. It is alleged that the defendants had several years to pay the two million dollars owed by agreement. The plaintiff did not receive payment so it had a mortgage executed. Still not receiving payment, the plaintiff subsequently instituted this action to foreclose on the mortgage. These events all took place well after the litigation concerning the property had concluded.
Lawyers and their clients often come to terms regarding outstanding legal fees after the subject matter of their representation has concluded.
In light of the precedent set by controlling case law, it is clear that a violation of the Rules of Professional Conduct does not create a cause of action or provide a special defense. Even if evidence is introduced that supports a finding of one or more violations of Professional Conduct, this court agrees with the courts in Noble and Ankerman, as well as Biller Associates, that such violations alone would not sufficiently serve as the basis for invalidating the agreement based on public policy.
CONCLUSION
For the foregoing reasons, this court concludes that a violation of the Rules of Professional Conduct do not give rise to a cause of action or provide a special defense. This ruling is dispositive of the defendants' arguments made in their motion to dismiss. The motion to dismiss is, therefore, denied.
It is so ordered.