Opinion
No. CV09 502 16 17 S
March 2, 2011
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION TO STRIKE
FACTS
The plaintiff filed an amended complaint in this foreclosure action against the defendants, Edward Lederman and Robyn Lane, alleging the following facts. On March 23, 2007, Lederman executed and delivered a note to "National City Mortgage, a division of National City Bank" (hereafter the lender) in the original principal amount of $604,000. On the same date, the note was secured by a mortgage on real property located at 60 Flower House Drive in Fairfield, Connecticut (the property), which is owned by and in the possession of the defendants. The mortgage was recorded on March 30, 2007, and was subsequently assigned by the lender to the plaintiff on June 14, 2007, recorded on June 29, 2007. The plaintiff is the current holder of the note and the mortgage.
The named plaintiff in this action is "National City Mortgage Co., a subsidiary of National City Bank."
National City Bank was also named as a defendant in this action because it holds an interest in the property being foreclosed on that is subsequent in right to that of the plaintiff. National City Bank has not filed an appearance in this action.
The note is now in default. After giving the defendants written notice of the default, which they failed to cure, the plaintiff elected to accelerate the balance due on the note, declare the note due in full and to foreclose on the mortgage securing the note. The plaintiff filed its original summons and complaint on January 15, 2009, seeking foreclosure of the mortgage, possession of the premises and other relief. The plaintiff filed the operative amended complaint on November 6, 2009, after the court (Hartmere, J.) granted a motion to open judgment on October 5, 2009. On May 12, 2010, the defendants filed an answer along with five special defenses and four counterclaims.
The defendants' special defenses respectively allege that (1) the mortgage is invalid as to Lane for lack of consideration; (2) the mortgage agreement with Lane was achieved through duress; (3) the mortgage is invalid because Lane was not present at the closing, did not execute the mortgage at the closing and her purported signature was not witnessed or acknowledged; (4) the plaintiff engaged in predatory lending practices and concealed the true nature of the loan obligation from an unsuspecting or unsophisticated borrower; and (5) the plaintiff has unclean hands because of the insertion of Lane's name on the mortgage and the purported elicitation of her signature thereon by the plaintiff's agents, servants or employees.
The defendants' counterclaims respectively allege (1) duress, (2) violation of the Connecticut Unfair Trade Practices Act (CUTPA), (3) violation of federal and Connecticut truth in lending laws, and (4) violation of the federal Real Estate Settlement Procedures Act (RESPA).
On September 13, 2010, the plaintiff filed a motion to strike the fourth and fifth special defenses and the second, third and fourth counterclaims, and a supporting memorandum of law. The defendants filed a memorandum in opposition to the motion to strike on October 15, 2010.
The parties were heard at short calendar on November 15, 2010, where the motion to strike as to the defendant's fourth counterclaim was granted by agreement.
DISCUSSION
Practice Book § 10-39(a) provides in relevant part: "Whenever any party wishes to contest . . . the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, or of any one or more counts thereof, to state a claim upon which relief can be granted . . . that party may do so by filing a motion to strike the contested pleading or part thereof." In addition, "a plaintiff can [move to strike] a special defense or a counterclaim." Nowak v. Nowak, 175 Conn. 112, 116, 394 A.2d 716 (1978).
"It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's 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, 990 A.2d 206 (2010). "In ruling on a motion to strike, the court is limited to the facts alleged in the complaint;" (internal quotation marks omitted) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997); and must "construe the complaint in the manner most favorable to sustaining its legal sufficiency." (Internal quotation marks omitted.) American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 971 A.2d 17 (2009). As with a motion to strike a complaint or counterclaim, the court must "take the facts to be those alleged in the special defenses and . . . construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992). Furthermore, our Supreme Court "will not uphold the granting of [a] motion to strike on a ground not alleged in the motion . . ." Blancato v. Feldspar Corp., 203 Conn. 34, 44, 522 A.2d 1235 (1987).
I. Fourth special defense
The plaintiff's motion to strike argues that the defendants' fourth special defense is legally insufficient because "it attempts to impute a duty to the plaintiff that was not a legal obligation at the time of the closing of the subject loan." Specifically, the plaintiff argues this special defense, as recited by the defendants, is not a defense to a foreclosure action and that a lender has no duty of care to a borrower. It further argues that no duty to inquire into a borrower's ability to repay a loan existed at the time of the loan transaction, and that a lender may rely on representations made by a borrower on their loan application. In addition, the plaintiff describes the Pluchino decision cited by the defendants as "inapposite," and claims that this special defense is "entirely foreign" to the making, validity or enforcement of the note or mortgage.
The defendants' memorandum in opposition argues that they have properly pleaded the special defense of "predatory lending." In support of this proposition, the defendants cite to Superior Court decisions that state predatory lending "would appear to be a valid special defense to foreclosure, as it relates to the making, validity or enforcement of the note," or accepted predatory lending as a valid special defense. The defendants further argue that Pluchino is applicable to this action because it contains similar facts.
"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.) Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 A.2d 968 (2002).
"Because a mortgage foreclosure action is an equitable proceeding, the trial court may consider all relevant circumstances 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 . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles . . .
"At common law, the only defenses to an action of this character would have been payment, discharge, release or satisfaction . . . or, if there had never been a valid lien . . . Moreover, our courts have permitted several equitable defenses to a foreclosure action. If 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." (Citations omitted; internal quotation marks omitted.) Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 15-16, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999).
A.
First, the court must determine whether the defendants have pleaded a valid special defense to a foreclosure 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.) Fidelity Bank v. Krenisky, supra, 72 Conn.App. 705. The defendants' fourth special defense states: "The plaintiff engaged in predatory lending by making an unaffordable loan based on the assets of the defendant borrower rather than on the borrower's ability to repay the obligation and engaging in deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower. Monetary Funding Group, Inc. v. Pluchino, Superior Court, judicial district of Fairfield, Docket No. CV 01 0382851 (September 3, 2003, Stevens J.)."
The defendants cite to Pluchino when referring to this "defense," but Pluchino merely provided a definition for "predatory lending" in a footnote. Monetary Funding Group, Inc. v. Pluchino, Superior Court, judicial district of Fairfield, Docket No. CV 01 0382851 (September 3, 2003, Stevens J.) aff'd. 87 Conn.App. 401, 867 A.2d 841 (2005). The definition provided in Pluchino was supplied by the defendant in that action and drawn from an article from the Banking Law Journal. The court did not render any decision on the merits based on "predatory lending" or even discuss the term beyond noting it among the defendant's allegations. Id.
The Pluchino footnote states: "Relying on Patricia E. Obara, `Predatory Lending,' 118 Banking L.J. 541 (2001), the plaintiff defines `predatory lending' as: making unaffordable loans based on `the assets of the borrower rather than on the borrower's ability to repay an obligation; inducing a borrower to refinance the loan repeatedly in order to charge high points and fees each time the loan is refinanced or flipped; or engaging in fraud or deception to conceal the true nature of the loan obligation or ancillary products from an unsuspecting or unsophisticated borrower. (Defendant's Trial Memorandum, p. 10.)" Monetary Funding Group v. Pluchino, supra, Superior Court, Docket No. CV 01 0382851.
Superior Court decisions after Pluchino have not dealt with allegations of "predatory lending" uniformly, with some construing it as an independent special defense, others incorporating it within the confines of an established foreclosure special defense such as unclean hands, while still others have avoided directly addressing it as a stand alone defense. See Deutsche Bank v. Gregory-Boutot, Superior Court, judicial district of Windham at Willimantic, Docket No. CV 08 5003138 (July 15, 2009, Potter, J.T.R.) (viewing predatory lending as a valid special defense to foreclosure because it relates to the making, validity or enforcement of the note); Deutsche Bank v. Lichtenfels, Superior Court, judicial district of New Haven, Docket No. CV 04 4003402 (June 17, 2009, Corradino, J.) ( 48 Conn. L. Rptr. 133) (alleging predatory lending practices within the context of a CUTPA claim); RBS Citizens v. Mustang Group, LLC, Superior Court, judicial district of New Britain, Docket No. CV 08 5009034 (June 1, 2009, Vacchelli, J.) (finding material facts still in dispute and denying plaintiff's motion for summary judgment where the defendant pleaded separate special defenses of unclean hands and predatory lending practices; the court did not address the merits of either defense); WM Specialty Mortgage, LLC v. Brandt, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 09 5001157 (February 10, 2009, Moran, J.T.R.) (finding, in plaintiff's motion for summary judgment, that defendant's counterclaim alleging predatory lending was legally insufficient because defendant's affidavit failed to satisfy the definition set forth in Pluchino); Bank of New York Trust Co. v. Gbeh, Superior Court, judicial district of Litchfield, Docket No. CV 07 5002495 (February 26, 2008, Marano, J.) (alleging predatory lending within the context of the special defense of unclean hands); Deutche Bank National Trust v. Griffin, Superior Court, judicial district of Litchfield, Docket No. CV 07 5002285 (January 17, 2008, Pickard, J.) (referencing predatory lending practices in the context of the special defense of unclean hands).
This court is unwilling to recognize "predatory lending" as a distinct special defense because of the scant authority supporting it as an independent defense and the dearth of formal legal elements that would allow a court to test whether this defense has been sufficiently pleaded. The definition drawn from Pluchino sets forth no formal elements of the defense and is more akin to a nonexhaustive list of practices that could be encompassed within the broad descriptive term "predatory lending." Nevertheless, the court will consider the allegations of the fourth special defense in order to determine whether the defendants have pleaded a valid foreclosure defense that relates to the making, validity or enforcement of the note or mortgage.
The Banking Law Journal article referenced in Pluchino for the definition of "predatory lending" also states that "the difficulty in agreeing on a definition of either predatory lending or subprime lending has caused concern." (Emphasis added.) Patricia E. Obara, "Predatory Lending," 118 Banking L. J. 541, 542 (2001). The definition provided in Pluchino is drawn from an inclusive list provided by the Federal Banking Agencies' Expanded Guidance for Sub-prime Lending Programs in a section of the article discussing federal initiatives and banking regulatory guidelines; (emphasis added) id. 542-43; but repeatedly states that there is no accepted definition of "predatory lending." Id., 541 n. 1 and accompanying text.
B.
The fourth special defense alleges that the plaintiff engaged "in deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower." This could be construed as a defense of fraud or intentional misrepresentation, which relate to the making or validity of the note or the mortgage.
"Each pleading shall contain a plain and concise statement of the material facts on which the pleader relies . . ." Practice Book § 10-1. "Facts that are consistent with such statements but show, notwithstanding, that the plaintiff has no cause of action, must be specifically alleged." Practice Book § 10-50. "The fundamental purpose of a special defense, like other pleadings, is to apprise the court and opposing counsel of the issues to be tried, so that the basic issues are not concealed until the trial is underway." Bennett v. Automobile Insurance Co. of Hartford, 230 Conn. 795, 802, 646 A.2d 806 (1994); see also U.S. Bank National Association v. Ascenzia, Superior Court, judicial district of New Haven, Docket No. CV 08 5022527 (July 30, 2009, Abrams, J.) ( 48 Conn. L. Rptr. 345, 346). "[T]he total absence of any factual allegations specific to [a] dispute . . . renders [a special defense] legally insufficient." Id.; see also Cluney v. Regional School District No. 13, Superior Court, judicial district of Middlesex, Docket No. CV 99 0089468 (June 19, 2000, Gordon, J.) ( 27 Conn. L. Rptr. 415, 416-17) (rejecting a line of cases holding that specific factual allegations in support of special defenses are unnecessary).
"The fact that in a special defense one must plead facts which are consistent with the allegations of the complaint does not relieve the defendants of the duty of providing the plaintiff with a plain and concise statement of the material facts on which they rely. It does not enable the defendants to incorporate the factual claims of the plaintiff without stating them . . . Thus [where] no information is provided as to what actions or lack thereof the defendants rely on, a motion to strike is properly granted." (Citations omitted; internal quotation marks omitted.) Cabala v. JP Morgan Chase Bank, Superior Court, judicial district of New Haven, Docket No. CV 10 6008853 (August 5, 2010, Zoarski, J.T.R.).
"A cause of action for intentional misrepresentation is essentially a claim of fraud . . . Fraud consists [of] deception practiced in order to induce another to part with property or surrender some legal right, and which accomplishes the end designed . . . The elements of a fraud action are:(1) a false representation was made as a statement of fact; (2) the statement was untrue and known to be so by its maker; (3) the statement was made with the intent of inducing reliance thereon; and (4) the other party relied on the statement to his detriment . . . Additionally, [t]he party asserting such a cause of action must prove the existence of the first three of [the] elements by a standard higher than the usual fair preponderance of the evidence, which higher standard we have described as clear and satisfactory or clear, precise and unequivocal . . . The determination of what acts constitute fraud is a question of fact . . ." (Citation omitted; internal quotation marks omitted.) Reid v. Landsberger, 123 Conn.App. 260, 281, 1 A.3d 1149 (2010).
Here, the defendants' allegations in the fourth special defense have been pleaded in a conclusory manner and fail to sufficiently plead each of the elements of the defense. The defendants simply quote the definition for predatory lending as stated in Pluchino as their fourth special defense. This fails to plead the requisite underlying facts that would support this defense. Additionally, the defendants have failed to sufficiently allege a defense of fraud or misrepresentation. The defendants only allege that the lender engaged "in deception" and fail to specify any false statements that were made to induce the defendants to rely on the lender. These allegations do not adequately set forth the elements for the defense of fraud.
For the foregoing reasons the motion to strike the fourth special defense is granted.
II. Fifth special defense: unclean hands
The plaintiff argues that the defendants' fifth special defense is legally insufficient because it "does not relate to the making, validity or enforcement of the note or mortgage" and is insufficiently pleaded. Specifically, the plaintiff argues that this special defense is conclusory, that mere allegations of intentional and willful conduct are not enough to invoke the clean hands doctrine, that the defendants fail to allege any intentional or willful conduct on the part of the plaintiff, and that facts supporting the allegations of intentional and willful conduct are not reflected by the record. In addition, the plaintiff argues that its act of securing the note with a mortgage was a complete encumbrance of record on the premises, and it is immaterial that only Lederman's name appears on the note and that both defendants' names appear on the mortgage.
The defendants respond by arguing that they have properly pleaded that the plaintiff has not come to court with clean hands because its "conduct has not been fair, equitable and/or honest." Specifically, the defendants claim they have pleaded that the plaintiff engaged in wrongful conduct by inserting Lane's name on the mortgage and eliciting her signature thereon. The defendants also allege that the plaintiff undertook these actions to obtain additional security on the note, which it had originally represented would be secured solely by Lederman's equitable rights to the property. The plaintiff allegedly knew that the defendants would have no choice but to sign the mortgage document that also required Lane's signature because the alternative was that the defendants would lose their principal place of residence.
"It is a fundamental principle of equity jurisprudence that for a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands . . . The clean hands doctrine is applied not for the protection of the parties but for the protection of the court . . . It is applied not by way of punishment but on considerations that make for the advancement of right and justice . . . The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue . . . Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." (Citations omitted; internal quotations omitted.) Thompson v. Orcutt, 257 Conn. 301, 310, 777 A.2d 670 (2001).
"[A] defense of unclean hands is proper in a mortgage case when the plaintiff . . . require [s] the aid of the illegal transaction to make out his case . . . In other words, the unclean hands defense is proper if the plaintiff would not be able to bring the action but for its improper conduct." (Citations omitted; internal quotation marks omitted.) LaSalle Bank National Association v. Bardales, Superior Court, judicial district of New London, Docket No. CV 08 5007137 (April 14, 2009, Devine, J.) citing Thompson v. Orcutt, supra, 257 Conn. 311-14; see also Wells Fargo Bank, N.A. v. Riverview East Windsor, LLC, Superior Court, judicial district of Hartford, Docket No. CV 09 6004927 (December 22, 2010, Aurigemma, J.).
Here, the defendants plead that the lender purposefully and willfully failed to give them essential information about the mortgage transaction, specifically that Lane's interest in the property would need to be included in the mortgage securing the note. When the defendants were made aware that Lane was also required to sign the mortgage, her only alternatives at that point were to sign the mortgage or to lose the defendants' primary residence. In addition, the defendants allege that the plaintiff intentionally and willfully handwrote Lane's name on the mortgage document in furtherance of their efforts to obtain a security interest in the entire premises rather than only Lederman's interest therein. Construing these allegations in the manner most favorable to maintaining the sufficiency of the special defense, the defendants have adequately pleaded the defense of unclean hands.
For the foregoing reasons the court denies the motion to strike the fifth special defense.
III. Second counterclaim: CUTPA
The plaintiff argues that the defendants' second counterclaim fails to allege a cause of action under the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42a-110 et seq. Specifically, the plaintiff argues that the defendants have not pleaded facts that demonstrate that the plaintiff has engaged in unfair or deceptive acts or practices, or that support "the condition of duress or lack of choice as to whether or not to execute the mortgage deed." The plaintiff claims that it cannot understand the basis of the duress claim without knowing why the defendants would lose their primary residence. The plaintiffs further argue that this special defense does not meet the first prong of the cigarette rule and test for an injury sufficient for a CUTPA claim, nor does it demonstrate "substantial injury." Finally, the plaintiff argues that the defendants' "internal duress" cannot be imputed to the plaintiff and is irrelevant to the plaintiff's conduct.
The defendants respond that they have adequately set forth a claim under CUTPA. The defendants first note that all three criteria of the cigarette test do not need to be met to support a finding of unfairness. Second, the defendants argue that the duress claim is supported by the allegations that the plaintiff, through its agents, had knowledge of the defendants' financial situation and the defendants' belief that only Lederman's interest in the premises would serve as collateral for the loan. In spite of this knowledge, the plaintiff unilaterally inserted Lane's name on the mortgage and attempted to obtain her signature thereto, knowing that the defendants would lose their primary residence if they did not sign the mortgage document. This was done to "elicit additional security and guarantee" the note originally understood to be solely secured by Lederman's interest in the property.
"[A] counterclaim is a cause of action existing in favor of the defendant against the plaintiff and on which the defendant might have secured affirmative relief had he sued the plaintiff in a separate action . . . A motion to strike tests the legal sufficiency of a cause of action and may properly be used to challenge the sufficiency of a counterclaim . . . [A] motion to strike [is] the proper procedural vehicle to test the sufficiency of the defendants' counterclaim." (Citation omitted; internal quotation marks omitted.) JP Morgan Chase Bank, Trustee v. Rodrigues, 109 Conn.App. 125, 131, 952 A.2d 56 (2008). "In a foreclosure action, a counterclaim must relate to the making, validity or enforcement of the mortgage note in order to be joined with the complaint." Id., 133.
The Connecticut Unfair Trade Practices Act is set forth under General Statutes § 42-110 et seq. 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." Section 42-110g(a) provides, in relevant part; that "[a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b, may bring an action . . . to recover actual damages." "[A] violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy . . . Whether a practice is unfair and thus violates CUTPA is an issue of fact . . . The facts found must be viewed within the context of the totality of circumstances which are uniquely available to the trial court." (Internal quotation marks omitted.) De La Concha of Hartford v. Aetna Life Ins. Co., 269 Conn. 424, 434, 849 A.2d 382 (2004).
"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 [f]ederal [t]rade [c]ommission 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." (Internal quotation marks omitted.) Naples v. Keystone Building Development Corp., 295 Conn. 214, 227-28, 990 A.2d 326 (2010).
"[A] violation of CUTPA may be established by showing either an actual deceptive practice . . . or a practice amounting to a violation of public policy . . . Furthermore, a party need not prove an intent to deceive to prevail under CUTPA." (Internal quotation marks omitted.) Keller v. Beckenstein, 117 Conn.App. 550, 566, 979 A.2d 1055, cert. denied, 294 Conn. 913, 983 A.2d 274 (2009).
"A conclusory statement . . . without further elaboration . . . is not sufficient to fashion a CUTPA claim." Princeton Capital Finance Co., LLC v. Webster Bank, Superior Court, judicial district of Hartford, Docket No. CV 99 0590676 (February 4, 2002, Peck, J.) ( 31 Conn. L. Rptr. 360, 362).
The defendants have pleaded the following facts in support of their counterclaims. On March 23, 2007, Lederman executed the note in question with the lender without any co-signors or guarantees. On the same date, Lederman executed a mortgage securing the note conveying his right, title and interest in the premises. At the closing and prior to the execution of the loan documents, Lane's name was handwritten on to the mortgage document, and the mortgage purports to bear her signature as acknowledged and witnessed by James M. Kavanagh, an agent of the plaintiff, on March 23, 2007. Lane did not attend the closing and has no recollection of signing the mortgage, nor did she fill out the loan application, sign the note or guarantee the note. Both defendants were under the belief that Lederman was the only person required to effectuate the note and mortgage. On the date of the closing, the lender inserted Lane's name on the mortgage and sought to obtain her signature without prior notice or advisement, and with the knowledge that the defendants would be compelled to sign or lose their principal residence. The insertion of Lane's name on these documents was intentional and willfully designed to elicit additional security guarantees for a loan originally represented as solely for Lederman.
Construing the facts alleged by the defendants in the manner most favorable to sustaining the sufficiency of the counterclaim, the court finds that the defendants have adequately alleged a claim under CUTPA. When taken together, the allegations that (I) the plaintiff led the defendants to believe that only Lederman's interest was required to secure the loan, (ii) the insertion of Lane's name on the mortgage document, (iii) the "purposeful elicitation" of Lane's signature without notice or warning when the alternative to signing would be to forfeit the defendants' primary residence, and (iv) the plaintiff's knowledge thereof, sufficiently allege acts that could be construed as deceptive, unscrupulous, fraudulent, misrepresentative, and conduct that would cause substantial injury to the defendants. These pleadings satisfy the first and second prongs of the cigarette rule, and are specific enough so as not be conclusory. The plaintiff's alleged failure to provide notice to Lane until a later stage of the closing and the requirement that she also sign the mortgage could also be construed as intentionally placing Lane in an untenable situation so as to coerce her into signing the mortgage document. Likewise, a substantial injury might be found given that it was represented to the defendants that they could secure the note with only Lederman's interest in the property rather than their combined interests. This is sufficient to defeat the motion to strike.
For the foregoing reasons, the motion to strike the second counterclaim is denied.
IV: Third counterclaim: TILA
The plaintiff argues that the defendants' third counterclaim, which alleges that the plaintiff violated the truth in lending laws, "is time barred as a matter of law and requests relief that cannot be granted." The plaintiff specifically argues that it was only required to provide the defendants with disclosures and good faith estimates prior to the execution of the mortgage, and that there is no requirement to deliver such notice after the closing, as argued by the defendants. In addition, even if the disclosures referred to by the defendants were improperly omitted prior to the mortgage transaction, this defense is barred by the one-year statute of limitations for TILA claims, 15 U.S.C. § 1640(e) and General Statutes § 36a-683(e)(j)(2). The plaintiff concludes that this counterclaim must fail because the limitations period has passed and the defendants' pleading does not conform to requirements as a setoff or recoupment in an action to collect on the underlying debt.
The defendants' memorandum in opposition to the motion to strike only defends the third counterclaim on the ground that it is an action by way of recoupment that is not subject to any statute of limitations provisions.
The Connecticut Truth in Lending Act, General Statutes § 36a-678 et seq., adopts the provisions of the Federal Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq. General Statutes § 36a-683 provides certain penalties for failure to comply with TILA, stating: "Any action under this section shall be brought in any court of competent jurisdiction within one year from the date of the occurrence of the violation. This subsection does not bar a person from asserting a violation of sections 36a-675 to 36a-685, inclusive, in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action." (Emphasis added.) General Statutes § 36a-683(e).
A consumer's right to rescind certain transactions under the federal truth in lending law, 15 U.S.C. § 1635, provides in relevant part: "Time limit for exercise of right — An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor . . ." (Emphasis added.) 15 U.S.C. § 1635(f).
"Recoupment . . . refers to the defendant's right, in the same action, to cut down the plaintiff's demand, either because the plaintiff has not complied with some cross obligation of the contract on which he or she sues or because the plaintiff has violated some legal duty in the making or performance of that contract . . . The practice serves to avoid needless delay and unnecessary litigation by permitting a court to examine all aspects of the transaction that is the subject of the action." (Internal quotation marks omitted.) Fadner v. Commissioner of Revenue Services, 281 Conn. 719, 730-31, 917 A.2d 540 (2007).
"Recoupment is available defensively as long as the plaintiff's cause of action exists. It may be asserted even though the defendant's claim, as an independent suit, is barred by the statute of limitations." Genovese v. J.N. Clapp Co., 4 Conn.App. 443, 446, 495 A.2d 1079 (1985), citing Beecher v. Baldwin, 55 Conn. 419, 431, 12 A. 401 (1887); Jewett City Trust Co. v. Gray, 35 Conn.Sup. 508, 510, 390 A.2d 948 (1977).
The third counterclaim incorporates the allegations of the first and second counterclaims and additionally alleges "[t]hat subsequent to the closing of the note and the mortgage, the [lender] failed to generate and disclose at any time to the [defendants] a truth in lending disclosure reflecting the actual terms and costs of the credit including but not limited to Annual Percentage Rate (APR), finance charges and annual fees in violation of C.G.S. § 36a-683 and 15 U.S.C.A. § 1601 et seq. As a result of the foregoing, the counterclaimants have been damaged all to their financial detriment."
As set-forth above, truth in lending law only allows TILA actions within one year of the date of the violation, or three years where a consumer has exercised their right to rescind a transaction. Here, the defendants have not taken the steps necessary to rescind the transaction so the three-year limitations period does not apply. Likewise, the alleged violation took place in 2007, which is outside the one-year limitations period for the TILA-based claims.
In addition, although "a mortgage foreclosure action is an equitable proceeding [and] the trial court may consider all relevant circumstances to ensure that complete justice is done;" Morgera v. Chiappardi, 74 Conn.App. 442, 457, 813 A.2d 89 (2003); and "[e]quity always attempts to get at the substance of things, and to ascertain, uphold, and enforce rights and duties which spring from the real relations of parties;" Id., 458; it is also true that "in an equitable action, as in one at law, the rules of pleading apply and motions to strike are appropriately filed." (Internal quotation marks omitted.) J.E. Robert Co. v. Signature Properties, LLC, Superior Court, judicial district of Hartford, Docket No. X04 CV 07 5026084 (November 19, 2010, Shapiro, J.) citing Morgera v. Chiappardi, supra, 74 Conn.App. 454 n. 14.
Here, even though General Statutes § 36a-683(e) allows a debtor to plead a violation of TILA defensively by way of recoupment or set-off where the statute of limitations has expired, the defendants failed to present any claim for recoupment to the court in their answer, special defenses, counterclaims or their prayer for relief, and only raise the issue of recoupment for the first time in their memorandum in opposition to the motion to strike. The defendants cannot ignore the proper pleading requirements and recast their counterclaim as an action by way of recoupment when the underlying allegations are directed at the plaintiff's failure to disclose information required under TILA.
For the foregoing reasons, the motion to strike is granted as to third counterclaim.
V: Fourth counterclaim: RESPA
As noted above, the plaintiff's fourth counterclaim, alleging a violation of the Real Estate Settlement Procedures Act (RESPA), has been stricken by agreement between the parties.
CONCLUSION
For the foregoing reasons, the plaintiff's motion to strike is granted as to the fourth special defense, the third counterclaim and the fourth counterclaim. The motion to strike is denied as to the fifth special defense and the second counterclaim.