Opinion
FSTCV126015568S
03-17-2017
Pateley Associates, LLC dba Pateley Associates I, LLC, Pateley Associates Limited Partnership et al. v. U.S. Bank, N.A. et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Hon. Kevin Tierney, Judge Trial Referee.
In this lawsuit returnable on September 24, 2012, the plaintiffs are seeking money damages from the defendants on a variety of legal theories based on claims of overcharges made by the defendants in the mortgage payoff of two commercial mortgages located in Newtown, Connecticut and Stamford, Connecticut. The trial commenced on May 13, 2015 and ended sixteen trial days later on September 1, 2016. One hundred and forty-eight exhibits were offered. A number of premarked exhibits were not placed in evidence and thus are not before this court. The last numbered plaintiffs' full exhibit was 130 and the last defendants' full exhibit was BBBBBBBB.
The operative complaint is the Third Revised Complaint dated June 30, 2015 (#200.00). Ten documents were attached to the complaint consisting of the Stamford and Newtown notes, mortgages and assignment of mortgage, default letters dated May 31, 2011 and August 11, 2011 and payoff letters dated May 31, 2012 and June 5, 2012 (#104.00). Each of the four named plaintiffs are named plaintiffs in each of the seven counts of the Third Revised Complaint. Each of the four named defendants are named as defendants in each of the seven counts of the Third Revised Complaint. The seven counts alleged: (1) violation of Connecticut Unfair Trade Practices Act; (2) Breach of Contract as to the Newtown, Connecticut property; (3) Breach of Contract as to the Stamford, Connecticut property; (4) Conversion; (5) Statutory Theft in violation of Gen. Stat. § 52-564; (6) Breach of the Implied Covenant of Good Faith and Fair Dealing as to the Newtown property; and (7) Breach of the Implied Covenant of Good Faith and Fair Dealing as to the Stamford property. No lawyers or law firms are parties to this complaint.
The operative Answer and Special Defenses to Third Revised Complaint filed by all four defendants is dated July 15, 2015 (#203.00). The Answer contained five Special Defenses. The First Special Defense is addressed to the breach of contract claim as to the Newtown property (Count Two) and the breach of the implied covenant of good faith and fair dealing claim as to the Newtown property (Count Six) and alleges that any damages were caused by the plaintiffs' failure to comply with their own contractual obligations pursuant to the Newtown Note and Mortgage. The Second Special Defense is addressed to the breach of contract claim as to the Stamford property (Count Three) and the breach of the implied covenant of good faith and fair dealing claim as to the Stamford property (Count Seven) and alleges that any damages suffered by the plaintiffs were caused by their failure to comply with their own contractual obligations under the Note and Mortgage. The Third Special Defense is addressed to Count One of CUTPA, Count Four of conversion and Count Five of statutory theft and alleges that any damages suffered by the plaintiffs was due to their failure to comply with their own contractual obligations as to the Stamford Note and Mortgage and the Newtown Note and Mortgage. The Fourth Special Defense alleges that the plaintiffs failed to mitigate their damages by failing to comply with their own contractual obligations pursuant to the Newtown and Stamford Notes and Mortgages and by failing to tender full payment of the amounts due and owning. The Fifth Special Defense alleges: " The alleged actions of Defendants are made to enforce Notes 1 and 2 and to protect their interests in the Newtown and Stamford properties. Defendants were justified in acting as they did and, as a result, cannot be held liable for Plaintiffs' damages, if any." Each of these five Special Defenses were replied to by a general denial dated August 3, 2015 (#206.00).
The plaintiffs' Third Revised Complaint seeks money damages, interest, attorneys fees pursuant to the CUTPA statute and the terms of the Notes, punitive damages pursuant to the CUTPA statute, and treble damages pursuant to Gen. Stat. § 52-564 Statutory Theft.
Plaintiffs' Post-Trial Brief dated December 1, 2006 (#213.00) succinctly outlines nine separate claims as to the conduct of the defendants that caused the plaintiffs' damages. " The facts and evidence adduced at trial prove that the Defendants' conduct was unfair, unscrupulous and deceptive because the Defendants: (i) prematurely issued a notice of default in order to file an insurance claim; (ii) altered payoff statements to require the Borrower to pay for legal fees which the Insurer was refusing to pay; (iii) charged the Borrower an exorbitant amount of attorneys fees for what should have been a straightforward foreclosure action; (iv) charged the Borrower for attorneys fees incurred in connection with the insurance claim which were not provided for under the Loan Documents; (v) pursued the Foreclosure Action against the Borrower when the properties were over-secured, which action interfered with the sale of the Newtown property; (vi) commenced the Foreclosure Action despite having received a payment check from the insurer and despite the fact that the Newtown property was under contract of sale; (vii) unlawfully continued to pursue payment of the insurance claim after the debt was fully satisfied; (viii) failed to return sums to the Borrower after the payoff of the Notes; and (ix) failed to provide an accounting of sums paid at closing." (#213.00, pages 6 and 7.)
All four plaintiffs are claiming CUTPA damages, attorneys fees and punitive damages pursuant to Gen. Stat. § 42-110g(a) and § 42-110g(d). The plaintiffs are relying on the following well-known statement as to CUTPA claims.
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 businesspersons] . . . 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 . . .Ulbrich v. Groth, 310 Conn. 375, 409-10, 78 A.3d 76 (2013).
Neither party argued the applicability of the current Federal Trade Commission Rulings as now being Connecticut's CUTPA law despite a number of written admonitions by Justices of the Connecticut Supreme Court that our CUTPA law has changed. Naples v. Keystone Building and Development Corporation, 295 Conn. 214, 238-39, 990 A.2d 326 (Zarella, concurring) (2010). Both parties argued the " cigarette rule." Both parties relied on the well-known CUTPA rules. Votto v. American Car Rental, Inc., 273 Conn. 478, 484, 871 A.2d 981 (2005); Forrest v. Southeby's International Realty, Inc., Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV11-6010200 S, (January 9, 2013, Tierney, J.T.R.); Artie's Auto Body, Inc. et al. v. The Hartford Fire Insurance Company, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number X08-CV 03-0196141 S, (September 22, 2009, Jennings, J.); Artie's Auto Body, Inc. et al. v. The Hartford Fire Insurance Company, 317 Conn. 602, 622, fn.13, 119 A.3d 1139 (2015).
" Review of those authorities indicates that a serious question exists as to whether the cigarette rule remains the guiding rule utilized under federal law . . . Because, in the present case, neither party has raised or briefed this issue, and both have briefed the issue applying the cigarette rule, we decline to address the issue of the viability of the cigarette rule until it squarely has been presented to us." DiTeresi et al. v. Stamford Health System, Inc., Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 06-5001340 S, (September 2, 2011, Tierney, J.T.R.). This court will apply the cigarette rule.
The plaintiffs have alleged two separate counts for breach of contract; one arising out of loan documents for the Newtown property and the second arising out of loan documents for the Stamford property. To establish a breach of contract a party must demonstrate the formation of an agreement, performance by one party, breach of the agreement by the other party, and damages. Bouchard v. Sundberg, 80 Conn.App. 180, 189, 834 A.2d 744 (2003). A promissory note such as that contained in these two commercial loan transactions is a contract, the breach of which can result in an award of money damages. Am. Express Centurion Bank v. Head, 115 Conn.App. 10, 15-16, 971 A.2d 90 (2009).
The plaintiff has filed two separate counts; One for the Newtown property and the other for the Stamford property for breach of the implied covenant of good faith and fair dealing.
[I]t is axiomatic that the . . . duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship . . . In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement . . . The covenant of good faith and fair dealing presupposes that the terms and purpose 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 . . . To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.Renaissance Management Company, Inc. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240, 915 A.2d 290 (2007).
" Bad faith in general implies both actual and constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith means more than mere negligence; it involves a dishonest purpose." Landry v. Spitz, 102 Conn.App. 34, 42-43, 925 A.2d 334 (2007). Thus bad faith must be proven by evidence of a sinister motive or dishonest purpose. " To constitute a breach of the implied covenant of good faith and fair dealing, the acts by which a defendant allegedly impedes the plaintiff's right to receive the benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith." Sidorova v. East Lyme Board of Education, 158 Conn.App. 872, 892, 122 A.3d 656 (2015). Under certain circumstances punitive damages can be awarded for breach of the covenant of good faith and fair dealing. Barry v. Posi-Seal International, Inc., 40 Conn.App. 577, 587-88, 672 A.2d 514 (1996). Intention to harm is not sufficient to award such punitive damages. Id., 588. In this lawsuit the plaintiffs are prohibited from claiming punitive damages for a violation of the implied covenant of good faith and fair dealing in both counts, since their Claim for Relief (#200.00, Page 36) requests punitive damages only in regard to a CUTPA violation, which is permitted by the CUTPA statute; Markey v. Santangelo, 195 Conn. 76, 77, 485 A.2d 1305 (1985); Tindall v. Travelers Property Casualty Corporation, Superior Court, judicial district of Hartford, Docket Number CV 15-6061108 S (October 7, 2016, Peck, J.T.R.) [63 Conn.L.Rptr. 248, ].
The plaintiffs have alleged a single count for conversion against all of the named defendants regardless of whether the Newtown and/or Stamford properties were involved. " Conversion is an unauthorized assumption and exercise of a right of ownership over property belonging to another, to the exclusion of the owner's rights." Mystic Color Lab, Inc. v. Auctions Worldwide, LLC, 284 Conn. 408, 418, 934 A.2d 227 (2007).
The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm . . . The term owner is one of general application and includes one having an interest other than the full legal and beneficial title . . . The word owner is one of flexible meaning, and it varies from an absolute proprietary interest to a mere possessory right . . . It is not a technical term and, thus, is not confined to a person who has the absolute right in a chattel, but also applies to a person who has possession and control thereof.Deming v. Nationwide Mutual Insurance Company, 279 Conn. 745, 770-71, 905 A.2d 623 (2006).
In the event that the property that is claimed to be the subject of conversion is money, only under limited circumstances can money be the subject of a conversion action. Id., 771. In that event the money must be " specifically identifiable moneys, " not a general debt. Id., 772.
The plaintiffs have made a claim against all four defendants, regardless of whether it was the Newtown and/or Stamford property, for statutory theft, sometimes referred to as civil theft. " Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages." Gen. Stat. § 52-564. Statutory theft incorporates the elements of conversion but requires one more element in addition to those of conversion, that is that " the defendant intentionally deprived the complaining party of his or her property." Mystic Color Lab, Inc. v. Auctions Worldwide, LLC, supra, 284 Conn. at 418-19. In this case the underlying claim is that the monies held in the escrow account and the direct deposit account by the lender and its agents were not promptly returned to the plaintiffs after the two loans were paid off and released. Our civil law has engrafted the criminal law concepts of larceny and stealing into a violation of Gen. Stat. § 52-564. Therefore, the plaintiffs have the burden to prove that the defendants intended to permanently deprive the plaintiffs of the alleged funds. Suarez-Negrete v. Trotta, 47 Conn.App. 517, 520-21, 705 A.2d 215 (1998); Lauder v. Peck, 11 Conn.App. 161, 165, 526 A.2d 539 (1987).
The court makes the following findings of facts and legal conclusions:
The parties entered into two Joint Stipulation of Facts (#180.00 and #185.00). There were forty-seven separate paragraphs included in the latest May 18, 2015 Revised Joint Stipulation of Facts (#185.00). Despite that Stipulation, one-hundred forty-eight exhibits were offered into evidence. Multiple witnesses testified over the sixteen-day trial. Pleadings were amended, revised and modified during the trial. The parties agreed that there were two separate loans dated August 1, 2001; the first for $2,143,000 secured by a mortgage on the Newtown property and the second for $2,871,000 secured by a mortgage on the Stamford property. Ex. 1, Ex. 3. Lengthy legal documents were recorded on the land records on August 1, 2001. Ex. 2, Ex. 4, Ex. 5, Ex. 6, Ex. 7A, Ex. 7B, Ex. 7C, Ex. 7D. This is typical for such commercial transactions. At the closing the plaintiffs executed Cross Default and Cross Collateralization Agreements and a modification thereto wherein if one defendant defaulted both notes and mortgages with respect to the Stamford and Newtown notes and mortgages would be in default. Ex. 5, Ex. 6. The plaintiff, Pateley Associates, LLC, was the borrower and Morgan Stanley Dean Witter Mortgage Capital, Inc. was the original lender on both transactions. As of the June 2012 loan payoff, the holder of the mortgage was U.S. Bank, National Association, as Trustee, successor in-interest to Bank of America, N.A., as Trustee, successor by merger to LaSalle Bank National Association, as Trustee for Bears Stearns Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 2002-TOP6. Wells Fargo Bank, N.A. was the master servicer of both loans. Berkadia Commercial Mortgage, LLC was the Special Servicer. Pursuant to the terms of the Pooling and Servicing Agreement, CWCapital Asset Management Company, LLC was the Successor Special Servicer on or about May 15, 2012. Both commercial properties were occupied under long-term leases between Pateley Associates Limited Partnership and Pitney Bowes, Inc., as the tenant in possession. Ex. 12-16. Around 2005 the plaintiffs became aware of environmental contamination that occurred to real property adjacent to the Stamford premises. Ex. S. Environmental litigation commenced in the United District Court, District of Connecticut. On February 28, 2009 Pitney Bowes, Inc. vacated the Stamford property at the end of its lease term and the Stamford property remained vacant thereafter.
Prior to the August 1, 2001 mortgage loan closing, an insurance policy had been obtained issued to the lender covering both the Newtown and Stamford property that provided for environmental insurance coverage called a Secured Creditor Impaired Property Policy. Ex. 8. Pursuant to that policy the insurer would indemnify the lender for certain losses relating to environmental conditions on the insured properties provided the loan was in default. Ex. 8, Article 1.A, Ex. 109, Article 1.A. On June 10, 2011 Berkadia Commercial Mortgage, LLC as the loans' Special Servicer notified the insurance company of the environmental claim.
On May 31, 2011 the Special Servicer, Berkadia Commercial Mortgage, LLC, by its attorneys Zeichner, Ellman & Krause, LLP, issued a notice of default claiming that the loans that had been made by the plaintiff, Whisper Capital, LLC, to keep the Stamford property mortgage current after Pitney Bowes, Inc. vacated and no longer was paying rent, amounted to a violation of the terms of the Stamford Note and Mortgage. Ex. 22. The plaintiffs disputed that alleged default. No foreclosure was filed as a result of the May 31, 2011 notice of default.
Both Notes matured and were due in full on August 10, 2011. Neither Note was paid in full on August 10, 2011. On August 11, 2011 the defendants by its attorneys Zeichner, Ellman & Krause, LLP sent a notice of default and demand for payment as to both notes and mortgages on the Newtown and Stamford properties. Ex. 25. The first foreclosure complaint was prepared on October 10, 2011 by the defendants but the complaint was not returned to court. Ex. 27. The defendants commenced a second foreclosure action against the plaintiffs for both the Newtown and Stamford properties on March 12, 2012. Ex. 34. It was served, returned to the Danbury Superior Court and assigned a docket number. Written payoff letters were exchanged between the parties in May 2012. On June 5, 2012 the plaintiffs tendered payment to the defendants in an amount set forth in a June 5, 2012 payoff letter on both mortgages. Ex. 36. Included in that payment was $189,602.35 for attorneys fees (called Property Protection Advances) incurred by the plaintiffs' attorneys in the litigation of the foreclosure action, analysis of the various documents including the Cross Default and Cross Collaterization Agreements and attorneys fees incurred by an Atlanta law firm involved in the environmental claim as well as claims against the environmental insurance policy. On June 14, 2012 the defendants withdrew the foreclosure action and on August 1, 2012 the releases of the respective mortgages were recorded on the land records. See DBD CV12-6009099 S, #113.00 and #113.05.
The periodic payments on the two mortgages were made by a direct deposit account permitting the monthly sweep of the account to pay the debt service on both the Newtown and the Stamford properties. Ex. 37. The borrower never defaulted in any periodic payment until the maturity in August 2011. Proceeds of the rental income were deposited directly into the direct deposit account. After the June 5, 2012 payment in full, the direct deposit account had on deposit funds that were due to be returned by the defendants to the plaintiffs. In addition excess escrow funds were due from the defendants to the plaintiffs. Correspondence ensued between the parties directly and between their respective attorneys. These attorneys involved in that correspondence were the respective party's trial attorneys. On March 13, 2013 counsel for the defendants, Zeichner Ellman & Krause LLP, sent to plaintiff's counsel, Murtha Cullina LLP, two separate sums, $37,073.42 and $8,846.79. Ex. 41. These sums were the respective balances of the direct deposit account and the excess escrow account for both properties. Those funds were accepted by the plaintiffs.
The court will now turn to a discussion of Count Four alleging conversion. The allegations of conversion have incorporated by reference the first seventy-one paragraphs of Count One, including allegations of the May 31, 2011 notice of default based upon the Whisper Capital, LLC, loans, consideration of the environmental insurance claim, commencement of two foreclosure actions, the claim in the extra payoff letters, $190,000 of attorneys fees, and property protection advances. Regardless of those allegations many of the stated paragraphs relate to the direct deposit account. The allegations contained in paragraphs 72 through 82 relate to the escrow balance and the failure to return the direct deposit funds after the June 5, 2012 payoff. The plaintiffs limit their discussion of the conversion claim to pages 31 and 32 of its December 1, 2016 Post-Trial Brief devoting it entirely to the direct deposit account and escrow finds and concludes: " This court should not condone this action and therefore, should find in favor of the Plaintiffs on Count Four of the Complaint and should award damages in the amount of $45,920.21 plus interest." (#213.00, page 32.) That sum is the exact amount of money paid by the defendants' attorney to the plaintiffs' attorney on March 31, 2013. Ex. 41.
The court finds that the elements of conversion have been met concerning the failure of the defendants to timely pay a designated amount of funds on deposit in the direct deposit account and the escrow balance within a reasonable period of time after the June 5, 2012 payoff. Although the plaintiffs argue that the measure of damages is the loss of the value of the property at the time of the conversion citing Barker et ux v. S.A. Lewis Storage & Transfer Company, 78 Conn. 198, 61 A. 363 (1905), the fact remains that the $45,920.21 was returned to the plaintiffs, albeit not timely. The court finds that the plaintiff has sufficiently proven " specifically identifiable moneys, " to wit, the funds in the direct deposit and escrow accounts. Deming v. Nationwide Mutual Insurance Company, supra, 279 Conn. 772. The court finds that the time value to the plaintiffs is the proper measure of damages; the loss of the use of $45,920.21. Applying the maximum rate of interest of 10.0% pursuant to Gen. Stat. § 37-3a to the said sum of $45,920.21 divided by 365 days, the per diem interest is $12.58 per day. The court allows a period of thirty days as a reasonable period of time from June 5, 2012 for the reconciliation, allocation and reimbursement to the plaintiffs of the sums in the direct deposit and escrow accounts. The court awards damages for 262 days at 10.0% on the $45,920.21 for a total amount of damages of $3,296.00 to the plaintiff. (July 5, 2012 - March 13, 2013 is 262 days x $12.58 = $3,295.96 (rounded off to $3,296.00). This award is joint and several as to all four defendants and is in favor of all three plaintiffs. The court finds that all four defendants had some participation in not returning the $45,920.21 to the three plaintiffs. The court finds the issues for the four plaintiffs on the Third Special Defense addressed to the conversion count.
The larceny statutes are engrafted into Gen. Stat. § 52-564 in a civil action for statutory theft. The plaintiffs therefore must prove that a larceny occurred as defined in Gen. Stat. 53a-119. Gen. Stat. § 53a-118(a)(3) requires proof of " to deprive." There are four possible methods of depriving; (1) To be withheld from the victim permanently, or (2) to be withheld from the victim for an extended period of time, or (3) To be withheld from the victim under such circumstances that the major portion of its economic value or benefit has been lost or (4) to dispose of property to render it of little or no value upon its return.
There is no proof that the economic value of the $45,920.21, when it was returned to the plaintiff on March 13, 2013, was either destroyed or substantially reduced. The funds were actually returned to the plaintiffs and therefore the plaintiffs have failed to prove that these funds were withheld from the plaintiffs on a permanent basis. That leaves only the second of the possibilities under Gen. Stat. § 53a-118(a)(3) as the only claim that can be made; the monies were withheld for such an extended period of time. State v. Hayward, 169 Conn.App. 764, 772-73, 153 A.3d 1 (2016) defines that the lengthy period of time is virtually permanence. Larceny is defined as a taking or retaining for such a period of time as virtually it becomes permanent. " The requisite intent for retention is permanency." State v. Flowers, 161 Conn.App. 747, 752, 129 A.3d 157 (2015), cert. denied, 320 Conn. 917, 131 A.3d 1154 (2016). The plaintiff must prove statutory theft by clear and convincing evidence. Suarez-Negrete v. Trotta, 47 Conn.App. 517, 518, 705 A.2d 215 (1998).
This court finds that the withholding of the $45,920.21 for a period of nine months was not such an extended period of time. It was not the equivalent of permanency. The funds were actually returned and accepted by the plaintiffs. The fair compensation to the plaintiffs for the withholding of those funds for a nine-month period of time is the 10.0% maximum interest rate that the court awarded in Count Four sounding in conversion. The issues on the plaintiff's claim for statutory theft in Count Five are found for the defendants.
As to the CUPTA count, the parties have litigated this case on the basis of the cigarette rule. Even if the plaintiff proved all nine claims found on pages 6 and 7 of Plaintiff's Post-Trial Brief dated December 1, 2016, those claims would not rise to the level of a CUTPA violation. Based upon an analysis of each of the one hundred forty-eight documents offered into evidence and the extensive testimony, the court finds insufficient evidence of egregious conduct that would warrant the applicability of CUTPA damages. " . . . the defendants only had committed a simple breach of contract, rather than acting unethically, unscrupulously, wilfully or recklessly." Naples v. Keystone Building and Development Corporation, supra, 295 Conn. 221. Commencing an unnecessary foreclosure litigation cannot support a claim for damages, absence proof of abuse of process or vexation litigation. Piels v. Bendett and McHugh, P.C., Superior Court, judicial district of Fairfield at Bridgeport, Docket Number FBT CV 14-5030189 S (September 19, 2016, Arnold, J.) [63 Conn.L.Rptr. 62, ]. The issues on the CUPTA claim in Count One are found for the defendants.
The two counts for violation of the breach of the implied covenant of good faith and fair dealing require the plaintiffs to prove bad faith. The court finds that there is insufficient evidence of statutory theft, that is the intentional withholding of the funds. The court finds that the proof offered by the plaintiffs failed to meet the necessary requirements of breach of the implied covenant of good faith and fair dealing. Tindall et al. v. Travelers Property Casualty Corporation, Superior Court, judicial district of Hartford, Docket Number CV 15-6061108 S, (October 7, 2016, Peck, J.T.R.) The issues on Counts Six and Counts Seven are found for the defendants.
Both the Note and the Mortgage deed permit attorneys fees to be awarded utilizing the standard of reasonableness. The court finds that the defendants have shown by the documents and testimony that they have satisfied the predicate findings for attorneys fees in Smith v. Snyder .
Accordingly, when a court is presented with a claim for attorneys fees, the proponent must present to the court at the time of trial or, in the case of a default judgment, at the hearing in damages, a statement of the fees requested and a description of services rendered. Such a rule leaves no doubt about the burden on the party claiming attorneys fees and affords the opposing party an opportunity to challenge the amount requested at the appropriate time.Smith v. Snyder, 267 Conn. 456, 479, 839 A.2d 589 (2004).
Thus, as our case law demonstrates, to support an award of attorneys fees, there must be a clearly stated and described factual predicate for the fees sought, apart from the trial court's general knowledge of what constitutes a reasonable fee. Although we have been careful not to limit the contours of what particular factual showing may suffice, our case law demonstrates that a threshold evidentiary showing is a prerequisite to an award of attorneys fees.Smith v. Snyder, supra, 267 Conn. 477.
Section 19.1 and 19.2 of both the Stamford and the Newtown Open-End Mortgage and Security Agreement provide that attorneys fees charged to the plaintiffs must be " reasonable." The Promissory Notes also contain the same reasonable attorneys fee standard in Article 16(a). The total amount of attorneys fees charged by both the Greenwich, Connecticut and the Atlanta, Georgia law films were $189,602.35. Ex. 36. The plaintiffs claim that $81,000 of those attorney fees were unreasonable since they related to issuances of notices of default and prosecution of a foreclosure action that was short lived. The plaintiffs further claim that $86,000 incurred by the Atlanta, Georgia law film, Kilpatrick Townsend, in connection with the environmental insurance claim was not related to the Note and Mortgage and should be disallowed. Ex. 125 (lesser redated copy then Ex. 47). The plaintiffs' expert testified that this was a routine foreclosure in which the fair market value of the real property more than secured the unpaid debt. The debt was paid off in full within a very short period of time. The plaintiffs' expert testified that the maximum amount of attorneys fees charged to the borrower should not have exceeded $10,000.
The court has examined Sections 19.1 and 19.2 of both the Stamford and Newtown Open-End Mortgage and Security Agreements and Article 16(a) of both Promissory Notes.
See Ex. 1, Newtown August 1, 2001 Promissory Note, Article 16(a):
Wherever pursuant to this Note it is provided that Borrower pay any reasonable costs and expenses, such costs and expenses shall include, but not be limited to reasonable legal fees and disbursements of Lender. Borrower shall pay to Lender on demand any and all expenses, including legal expenses and reasonable attorneys fees, incurred or paid by Lender in enforcing this Note, whether or not any legal proceeding is commenced hereunder, together with interest thereon at the Default Rate from the date paid or incurred by Lender until such expenses are paid by Borrower.
See. Ex. 3, Stamford August 1, 2001 Promissory Note, Article 16(a) in the same language as cited above in Article 16(a).
See Ex. 2, Newtown Open-End Mortgage and Security Agreement, Section 19.1:
Section 19.1. Performance At Expense . Mortgagor acknowledges and confirms that Lender shall impose certain reasonable administrative processing fees pursuant to the terms of the Note, this Security Instrument or the Other Security Documents in connection with (a) the extension, renewal, modification, amendment and termination of the Loan, (b) the release or substitution of collateral therefor, (c) obtaining certain consents, waivers and approvals with respect to the Property, or (d) the review of any Lease or proposed Lease or the preparation or review of any subordination, non-disturbance agreement (the occurrence of any of the above shall be called an " Event"). Mortgagor further acknowledges and confirms that it shall be responsible for the payment of all costs of one reappraisal of the Property or any part thereof, whether required by law, regulation, Lender or any governmental or quasi-governmental authority. Mortgagor hereby acknowledges and agrees to pay, immediately, with or without demand, all such fees (as the same may be increased or decreased from time to time), and any additional fees of a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of any Event or otherwise. Wherever it is provided for herein that Mortgagor pay any costs and expenses, such costs and expenses shall include, but not be limited to, all reasonable legal fees and disbursements of Lender.
See Ex. 2, Newton Open-End Mortgage and Security Agreement, Section 19.2:
Section 19.2 Legal Fees For Enforcement . (A) Borrower shall pay all reasonable legal fees incurred by Lender in connection with (i) the preparation of the Note, this Security Instrument and the Other Security Documents and (ii) the items set forth in Section 19.1 above, and (b) Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys fees, incurred or paid by Lender in protecting its interest in the Property or in collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the Property, whether or not any legal proceeding is commenced hereunder or thereunder, together with interest thereon at the Default Rate from the date paid or incurred by Lender until such expenses are paid by Borrower.
See Ex. 4, Stamford Open-End Mortgage and Security Agreement, Section 19.1 in the same language as cited above in Section 19.1.
See Ex. 4, Stamford Open-End Mortgage and Security Agreement, Section 19.2 in the same as cited above in Section 19.2.
Connecticut has adopted the American Rule as to an award of attorney fees. The American Rule is " that attorneys fees and ordinary expenses and burdens of litigation are not allowed to the successful party absent a contractual or statutory exception." ACMAT Corporation v. Greater New York Mutual Insurance Company, 282 Conn. 576, 580-81, 923 A.2d 697 (2007). The defendants' claim for attorney fees are based on contract law, the terms of the Promissory Notes and the Open-End Mortgage and Security Agreement. The defendants cite no statutory basis for these environmental and other attorney fees. The provisions in these documents for attorney fees are set forth in this Memorandum of Decision as Section 19.1, Section 19.2 and Article 16(a). The defendant's claim for the environmental insurance attorney fees are based on the language of the mortgage documents.
Both parties are sophisticated real estate investors. As lenders and borrowers both parties have entered into many similar real estate loans. Tallmadge Brothers, Inc. v. Iroquois Gas Transmission System, LP, 252 Conn. 479, 496-97, 746 A.2d 1277 (2000). The court finds that both parties to this transaction were sophisticated commercial parties with relative equal bargaining powers each assisted by counsel during the drafting phases of the loan documents. Id., 496-97. Thus the language of the mortgage documents is presumed to be definitive. " . . . the parties meant what they said and said what they meant in language sufficiently definitive to obviate any need for deference to the trial court's factual findings as to the parties' intent." Id., 497.
Ex. 2 and Ex. 4. contain the following provision: Section 3.3 Insurance . " (viii) Environmental Insurance . Environmental Insurance in such an amount and such form as shall be satisfactory to Lender, which shall be purchased by Borrower concurrently with the closing of the Loan." This section of the Note makes no mention that Borrower is responsible for attorney fees to prosecute a lender's claim under that environmental insurance policy. The name of the issuing environmental insurance company, policy number and terms of the policy are not contained in the loan documents.
Nowhere in those loan documents does it indicate that the payment of attorney fees to collect on an environmental insurance claim is authorized or contemplated. The issued environmental insurance policy is not mentioned in the Note and Mortgage other than a generic reference in Section 3.3 above. This court is of the opinion that the environmental insurance policy was additional security offered to the Lender. The Borrower was not a party to the environmental insurance policy, only the Lender. Ex. 8, Ex. 51. Its terms and conditions were not contained with either the underlying Promissory Note nor the Open-End Mortgage and Security Agreement. Pages 196-97 of Ex. XXXXXXX, the Pooling and Servicing Agreement, cannot be justification for the defendants' claim for attorney fees since the plaintiffs did not sign that document and the plaintiffs were not parties to the Pooling and Servicing Agreements. Wells Fargo Bank, N.A., Trustee v. Strong, 149 Conn.App. 384, 401, 89 A.3d 392, cert. denied. 312 Conn. 923, 94 A.3d 1202 (2015). The court finds that the defendants' charging the plaintiffs attorneys fees under the stated terms and conditions of the Note and Mortgage, when such environmental insurance was not mentioned in those documents, is a violation of the underlying loan documents and is a breach of contract by the defendant, U.S. Bank, National Association, as Trustee, successor-in-interest to Bank of America, N.A., as Trustee, successor by merger to LaSalle Bank National Association, as Trustee for Bears Stearns Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 2002-TOP6. (U.S. Bank, N.A.) The court finds therefore that the defendant, successor lender, U.S. Bank, N.A., has breached both loan contracts by overcharging attorneys fees in this transaction, both as to the hourly rate and the billing for environmental matters. Sunset Mortgage v. Agolio, 109 Conn.App. 198, 202, 952 A.2d 65 (2008). The Promissory Note was signed by Pateley Associates, LLC and Pateley Associates I, LLC as the borrowers. Pateley Associates, LLC, Pateley Associates I, LLC and Whisper Capital, LLC all executed the Open-End Mortgage and Security Agreement. The court finds the issues for the three plaintiffs as against the one defendant, above, on Count Two and Count Three sounding in breach of contract. The court finds the issues for the three plaintiffs on the defendants' First Special Defense, Second Special Defense, Fourth Special Defense, and Fifth Special Defense.
In Johnson v. Georgia Highway Express, Inc., supra, 488 F.2d at 715, the question before the Fifth Circuit Court of Appeals concerned the adequacy of attorneys fees awarded by the District Court in an " across-the-board" action to remedy employment discrimination pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. The Circuit Court of Appeals set out twelve guidelines for the District Court to consider on remand in setting reasonable attorneys fees: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee for similar work in the community; (6) whether the fee is fixed or contingent, (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation and ability of the attorneys; (10) the " undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Id. at 717-19.Steiger v. J.S. Builders, Inc., 39 Conn.App. 32, 38, 663 A.2d 432 (1995).
The court will now review the above twelve guidelines.
The court has before it records of (1) the time and labor required in the form of contemporaneous time records of the attorneys. Exs. 47, 49, 50 and 125. The parties differed as to (2) the novelty and difficulty of the questions. The court will discuss those guidelines in the next paragraph. There was no issue that the defendants attorneys have represented lenders in foreclosure actions (9) and possess the skill to perform the legal work properly (3). There was no evidence of (4) preclusion of other employment by the attorney due to acceptance of the case, (6) a fixed or contingent fee, (7) time limitations imposed by the client or the circumstances, (10) the undesirability of the case, and (11) the nature and length of the professional relationship with the client.
That leaves the guidelines to be discussed; (1) the time and labor required, (2) the novelty and difficulty of the questions; (5) customary fees for similar work in the community; (8) the amount involved and the results obtained and (12) awards in similar cases. The court will now discuss guidelines (2) and (8) in the following section and then (1), (5) and (12) in subsequent sections of this Memorandum of Decision.
As to guidelines (2) and (8), the defendants claim this was a complex commercial foreclosure with a myriad of legal and factual issues presented. Among the complications noted by the defendants were the effects of environmental contamination on the Stamford property, the claim requirements of an environmental insurance policy issued to the lender, the contamination lawsuit filed by the neighbors on properties adjacent to the Stamford property, the need for the declaration of a loan default before a claim could be made by the lender against the environmental insurance policy, the effect of the Cross Default and Cross Collaterization Agreements on both properties, the possibility of a subrogation claim being made against the non-environmentally impacted Newtown property by the environmental insurance company, the adjustments and accountings as to the direct deposit and escrow account, the vacating of the Stamford property by the tenant, the later default caused by failure to pay the entire indebtedness on the August 10, 2011 maturity date, the effect of the loans made by Whisper Capital, LLC as being a claimed default, and the determination of the fair market value of the Stamford property in light of a tenant vacating the Stamford property after causing environmental damage to the Stamford property and those of its neighbors. The defendants supported its claim of complexity and the need for extensive attorneys efforts to address these issues with expert testimony from a foreclosure litigation Connecticut attorney.
The plaintiff countered by demonstrating that the claimed default caused by the Whisper Capital, LLC loan was a pretext in order to create a technical default so that the lender could prosecute a claim against the environmental insurance policy. The plaintiff demonstrated that it was never in default of any periodic payment despite the tenant vacating and no rent being received from the Stamford property. There were minimal pleadings in the Danbury foreclosure action. The Danbury foreclosure was returnable April 10, 2012 and withdrawn after the June 5, 2012 loan payoff. The essence of the Danbury Superior Court pleadings addressed the very issue in this litigation, the reasonableness of the defendants' claimed attorney fees. There were only two assigned short calendars in the Danbury foreclosure action and both were marked Take Papers. The very first pleading was a Motion for Stay filed on April 24, 2012 to stay the proceeding in order for the borrower to pay off the loans. The stay was granted by the court on May 29, 2012 (#104.05). The environmental insurance claim was totally unnecessary in light of the plaintiff's immediate willingness to pay off the entire indebtedness within a matter of less than two months from the Return Day. The Newtown loan was $1,800,000 and the Newtown property sold for $4,800,000 on June 2012. The Stamford loan was $2,500,000 and the Stamford property sold for $7,000,000 in December 2012. Ex. 36. The loans were always current in periodic payments. The loans were paid off in full soon after its maturity. There was more than ample security for each loan based on the value of the real property. The plaintiffs claim that there was no need to explore and attempt to litigate the various legal and factual issues set forth in the defendants' attorney bills.
After considering the testimony, the court finds that the admonishment of another Stamford Superior Court Judge apropos: " While plaintiff was at liberty to choose an unreasonable course of litigation in order to recover a relatively insignificant amount, the court will not require defendant to pay for plaintiff's folly." Noroton Properties, LLC v. Lawendy, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 11-6011274 S, (September 29, 2016, Lee, J.). This court was the original trial Judge in the Lawendy case and thus is fully familiar with the underlying note litigation. The court finds on balance, that the plaintiffs' position as to guidelines (2) and (8) of the Georgia Highway case more reasonable.
As to (12) awards in similar cases and (5) the customary fee for similar work in the community, the court notes that Superior Courts have limited the amount of attorneys fees under certain circumstances. For example, in the December 20, 2016 issue of the Connecticut Law Journal, the Connecticut Judicial Branch published the rates of compensation furnished by the Office of Chief Public Defender to those attorneys who enter into an annual agreement for the handling of certain types of criminal cases. In those cases the hourly compensation rates ranges from $50 per hour for AMC/GAL Child Protection and Misdemeanor cases to $75 per hour for Felony cases. A flat rate compensation ranges from $350 per case for Juvenile Delinquency to $1,000 per case for Judicial District Cases, serious felonies.
The court notes that for a number of years attorneys in the Stamford/Norwalk judicial district requesting payment to lenders of attorneys fees have been limited to $225 per hour. That limit was established by Judge Douglas Mintz, Presiding Judge Civil. The court finds that the following cases have approved the $225 per hour fee limitation: Moasser v. Becker, Superior Court judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 92-0128759 S (December 21, 2010, Tobin, J.) [51 Conn.L.Rptr. 184, ], Moasser v. Becker, 121 Conn.App. 593, 596, 996 A.2d 1200 (2010) (" We find no abuse of discretion on the part of the court in its award of postjudgment attorney fees"); Noroton Properties, LLC v. Lawendy, Superior Court judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV-11-6011274 S, (September 29, 2016, Lee, J.); J.P. Morgan Chase Bank, N.A. v. Eldon, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 10-6004512 S, (September 10, 2014, Adams, J.T.R.) . (" For several years attorney fees allowed to foreclosing plaintiffs have been capped at $225 per hour in the Stamford-Norwalk judicial district.") Connect REO, LLC v. Nistico, III, Superior Court, judicial district of Fairfield at Bridgeport, Docket Number FBT CV 13-6033002 S (November 4, 2015, Jennings, J.T.R.) (Uniform policy of Fairfield J.D. is to limit foreclosure fees to $200 per hour.) This court has on two separate occasions awarded attorneys fees in contested foreclosure actions tried to a conclusion capped at $225 per hour. 5-9 Woodland, LLC v. 5/9 Woodland Avenue, LLC, Superior Court, judicial district, of Stamford/Norwalk at Stamford, Docket Number FST CV 13-6020427 S, (May 6, 2016, Tierney, J.T.R.); Coachman's Square, Inc. v. Thomas, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 14-6022204 S, (September 12, 2016, Tierney, J.T.R.).
Courts in foreclosure actions regularly determine reasonable attorney fees, which court-ordered fees are less than billed or called for in the attorney client retainer agreement. Rosenberg & Press, LLC v. Success Village Apartments, Inc., Superior Court, judicial district of Fairfield at Bridgeport, Docket Number FBT CV-14-6044607 (August 10, 2016, Kamp, J.) [62 Conn.L.Rptr. 809, ].
" An award of attorneys fee [pursuant to § 52-251a] is not a matter of right. Whether any award is to be made and the amount thereof lie within the discretion of the trial court, which is in the best position to evaluate the particular circumstances of a case . . . A court has few duties of a more delicate nature than that of fixing counsel fees. The issue grows even more delicate on appeal . . . Because the trial court is in the best position to evaluate the circumstances of each case, we will not substitute our opinion concerning counsel fees or alter an award of attorneys fees unless the trial court has clearly abused its discretion." (Citation omitted; internal quotation marks omitted.) LaMontagne v. Musano, Inc., 61 Conn.App. 60, 63-64, 762 A.2d 508 (2000).Computer Reporting Service, LLC v. Lovejoy and Associates, LLC, 167 Conn.App. 36, 57-58, 145 A.3d 266 (2016).
The court has examined Exhibits 47, 49, 50 and 125 in detail, the attorney fees invoices.
The court finds that the defendant's attorneys fees that should be allowed in this case should be capped at $225 per hour. The court finds that the reasonable value of the attorneys fees as charged in this case must not involve the fees incurred in regards to the environmental insurance policy. The court finds it unreasonable the amount of attorney fees charged after the June 5, 2012 loan payoff.
From June 6, 2012 through July 26, 2012, Zeichner Ellman & Krause LLP billed 10.8 hours, mainly on the post-payoff accounting and calculation of attorney fees: (1) time and labor involved. The court will allow two hours for post-June 5, 2012 legal services for the preparation, filing and/or recordation of releases of the lis pendens and withdrawal of the foreclosure action. The court disallows the remaining post-June 5, 2012 8.8 hours.
The court now has to calculate the remaining hours submitted in Zeichner Ellman & Krause LLP invoices: (1) time and labor involved. Ex. 49, Ex. 50. It has added the total hours on the right side of each invoice in those two exhibits that total sixty-six pages. The court has allowed all expenses listed as billed in Ex. 49 and Ex. 50. It has excluded the 10% discount. The court notes that there was no billing for non lawyer's time. The lawyers' hourly rate ranged from $230.00 to $595.00 per hour. These billings are from March 8, 2011 to July 26, 2012.
The court, after removing the 8.8 hours, finds that Zeichner Ellman & Krause LLP expended 173.8 hours. The court then has multiplied the 173.8 hours times $225 per hour regardless of the years of practice of the attorneys. The court finds that the defendants' reasonable attorneys fees are $39,105. (173.8 x $225.00 = $39,105). The total disbursements in the Zeichner Ellman & Krause LLP billing are allowed at $4,532.21. Ex. 49, Ex. 50. The total attorney fees allowed are Kilpatrick Townsend, zero, Zeichner Ellman and Krause LLP disbursements $4,532.21 and Zeichner Ellman and Krause LLP attorney fees $39,105. The court finds that the total reasonable attorney fees and disbursements incurred by the defendants is $43,637.00 ($39,105.00 + $4,532.21 = $43,637.21 rounded off to $43,637.00).
Since the plaintiffs paid $189,602.35 and the court has allowed the defendants $43,637 for attorney fees, the court finds that the fair and reasonable damages sustained by the plaintiffs for the breach of contract claims for both counts as to the Newtown property and Stamford property is $145,965 ($189,602.35 - $43,637 = $145,965.35 rounded off to $145,965). The court is not going to allocate the attorneys fees as between those two counts.
Judgment in both breach of contract counts, Count Two and Count Three, will enter in favor of the three plaintiffs, Pateley Associates, LLC, and Pateley Associates I, LLC and Whisper Capital, LLC against the defendant, U.S. Bank, National Association, as Trustee, successor-in-interest to Bank of America, N.A., as Trustee, successor by merger to LaSalle Bank National Association, as Trustee for Bears Stearns Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series, 2002-TOP6 in the amount of $145,965.
Judgment in the conversion count, Count Four, will enter in favor of all three plaintiffs against all four defendants, jointly and severally, in the additional amount of $3,296.
The court clerk will tax costs. There will be no further hearings on plaintiffs' claim for attorney fees. P.B. § 11-21.