Opinion
No. CV10 601 24 27 S
April 1, 2011
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION TO STRIKE
I. FACTUAL BACKGROUND A. THE COMPLAINT
On August 31, 2010, the plaintiff, Patriot National Bank, filed this foreclosure action against the defendants: Riversong Designs, LLC (Riversong); Gregory Bugaj; Bern Conrad; Patriot National Bank; Academy Marble Granite LLC; and Malon Construction LLC. The complaint alleges the following facts.
On January 6, 2006, Riversong, Bugaj and Bern borrowed $1,555,500 from the plaintiff and executed and delivered to the plaintiff a construction loan promissory note (the note) in which they promised to repay the debt pursuant to the terms of the note. On January 6, 2006, in order to secure the debt, Riversong executed and delivered to the plaintiff an open-end construction mortgage deed and security agreement (the mortgage), which conveyed to the plaintiff an interest in a certain parcel of real property Riversong owned known as 591 Hulls Farm Road, Fairfield, Connecticut (the mortgaged premises). On January 6, 2006, in order to further secure the debt, Riversong executed and delivered to the plaintiff a financing statement regarding the mortgaged premises and a collateral assignment of leases and rents regarding the mortgaged premises.
On March 28, 2008, Riversong, Bugaj and Bern executed a first construction loan promissory note, open-end construction mortgage deed and security agreement and loan documents modification agreement (first modification). On September 30, 2008, Riversong, Bugaj and Bern executed a second construction loan promissory note, open-end construction mortgage deed and security agreement and loan documents modification agreement (second modification). On August 28, 2009, Riversong, Bugaj and Bern executed a third construction loan promissory note, open-end construction mortgage deed and security agreement and loan documents modification agreement (third modification). Although the loan matured on July 10, 2010, Riversong, Bugaj and Bern failed, neglected or refused to make payment when due and are in default under the note and mortgage as modified.
In the complaint, the plaintiff references exhibits of copies of the note, mortgage and modifications. On September 14, 2010, the plaintiff filed copies of the note, mortgage and modifications as exhibits and served copies of those exhibits on all appearing parties of record. On October 7, 2010, the plaintiff filed amended exhibits and served them on all appearing parties. "`[A]ny plaintiff desiring to make a copy of any document a part of the complaint may, without reciting it or annexing it, refer to it as Exhibit A, B, C, etc., as fully as if it had been set out at length; but in such case the plaintiff shall serve a copy of such exhibit or exhibits on each other party to the action forthwith upon receipt of notice of the appearance of such party and file the original or copy of such exhibit or exhibits in court with proof of service on each appearing party . . .' Practice Book § 10-29(a). A complaint includes all exhibits attached thereto." (Internal quotation marks omitted.) Tracy v. New Milford Public Schools, 101 Conn.App. 560, 566, 922 A.2d 280, cert. denied, 284 Conn. 910, 931 A.2d 935 (2007).
The plaintiff is the owner and holder of the note, mortgage as most recently modified, UCC-1 financing statement and collateral assignment. The town of Fairfield may claim as interest in the premises by virtue of a tax lien and the plaintiff, as a defendant to this action, may claim an interest in the mortgaged premises by virtue of an open-end construction mortgage deed and security agreement dated December 21, 2006, which was most recently modified on August 28, 2009. Academy Marble Granite, LLC and Malon Construction, LLC may claim an interest in the mortgaged premises by virtue of mechanic's liens.
B. THE ANSWER AND SPECIAL DEFENSES
On October 19, 2010, Riversong and Bugaj filed an answer and two special defenses to the complaint. In their answer, Riversong and Bugaj admitted execution of the note, mortgage and modifications, but denied the other allegations in the complaint.
Riversong and Bugaj assert two special defenses. The first special defense seeks to equitably estop the plaintiff from foreclosing the mortgage and alleges the following facts.
The plaintiff entered into discussion with Riversong and Bugaj as early as December 2009 regarding the modification and extension of the underlying loan. On January 25, 2010, the plaintiff issued a letter outlining a financial package for the extension and modification of the $1,555,500 loan (the extension letter). The extension letter indicated that plaintiff was willing to issue a thirty-year fixed interest rate "1-4 Family Investor Program" loan totaling "$2,2067,249.00." Additionally, it indicated that on May 4, 2009 the plaintiff obtained an appraisal for the property, which set the value at $2,285,000. Based on the terms of the extension letter, Riversong and Bugaj entered into negotiations with plaintiff to obtain an extension of the existing mortgage and did not secure financing from another lender that was available at that time.
This is how the figure appears in the first special defense and count one of the counterclaim.
On July 12, 2010, after the continued discussions between plaintiff and Riversong and Bugaj, the plaintiff issued a new letter. This letter materially altered the terms of the extension letter upon which Riversong and Bugaj relied. The plaintiff changed the loan type from a "1-4 Family Investor Program" to a "Construction Loan." Rather than a fixed rate amortizing loan, the plaintiff offered a six-month extension of the existing loan. Instead of a fixed rate provision the plaintiff offered an adjustable rate.
The terms of the July 12, 2010 letter were materially different than what the plaintiff promised in the extension letter. Riversong and Bugaj relied on the terms of the extension letter instead of pursuing other available financing. As a result of the plaintiff's conduct, they were damaged. The plaintiff intentionally induced Riversong and Bugaj to forego other financing. As a result of the plaintiff's actions, they could not secure alternate financing before the expiration of the loan. Riversong and Bugaj relied on plaintiff's representations in the extension letter, to their detriment. The plaintiff should be equitably estopped from now foreclosing the mortgage, since plaintiff's conduct made it impossible for Riversong and Bugaj to refinance the debt timely with another lender.
The second special defense alleges that the first, second and third modifications are unenforceable as to Gregory Bugaj because such agreements were not supported by adequate consideration.
C. THE COUNTERCLAIM
Along with their answer and special defenses, Riversong and Bugaj filed a three-count counterclaim against the plaintiff. Count one alleges that Riversong and Bugaj suffered damages on a theory of promissory estoppel. Count one alleges facts similar to the first special defense. Additionally, it alleges the following facts.
Conrad Jones, the plaintiff's loan officer, indicated to Riversong and Bugaj that obtaining new financing from the plaintiff pursuant to terms that would be acceptable to them would not be a problem. The plaintiff knew or should have known that Riversong and Bugaj would rely on the extension letter's promises and on Jones' promises. Riversong and Bugaj did rely on the promises made by the plaintiff in the extension letter. The plaintiff did not fulfill the promises made in the extension letter. Riversong and Bugaj have been harmed by their reliance on the plaintiff's promises in the extension letter and are entitled to damages.
Count two alleges that Riversong and Bugaj suffered damages as a result of the plaintiff's alleged violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. It realleges the facts in count one regarding the extension letter. Additionally, it alleges the following.
The plaintiff issued the extension letter knowing that Riversong and Bugaj would rely on its terms. In addition, the plaintiff never intended to fulfill the extension letter's promises. The plaintiff has issued similar extension letters and modification promises to other borrowers and builders in similar situations. In issuing extension and modification letters to other similarly situated borrowers, the plaintiff never intended to fulfill the promises contained in those letters and in fact did not fulfill those promises. The plaintiff has foreclosed on other borrowers for whom they have issued extension and modification letters with no intention of fulfilling the promises made therein.
The plaintiff has created a subsidiary, Pinpat Acquisition Corporation (Pinpat), for the purpose of acquiring valuable properties from their borrowers through foreclosure. Many of the properties transferred to Pinpat from the plaintiff were acquired through foreclosure from borrowers to whom it issued extension or modification letters, which the plaintiff refused to honor. Pinpat has sold and is expected to sell many of these properties. The plaintiff intended to take the mortgaged premises through foreclosure for the purpose of transferring it to Pinpat for later sale at a profit. The plaintiff's actions are and continue to be immoral, unethical, oppressive, unscrupulous and offensive to public policy.
Count three alleges a breach of the covenant of good faith and fair dealing. It realleges the facts in counts one and two regarding the extension letter. Additionally, it alleges the following.
In issuing the extension letter to Riversong and Bugaj, the plaintiff was bound to deal with them in good faith and to act fairly. By positioning itself to foreclose on the mortgaged premises and sell it for profit, the plaintiff did not act fairly or deal in good faith. As a result of the plaintiff's breach of the covenant of good faith and fair dealing, Riversong and Bugaj have been and continue to be financially harmed in an amount to be determined at trial, in addition to treble damages.
In their prayer for relief, Riversong and Bugaj seek: monetary damages; treble damages; attorneys fees; and such other relief as the court deems fair and just.
D. THE MOTION TO STRIKE
On November 17, 2010 the plaintiff filed a motion to strike Riversong and Bugaj's first and second special defenses, counts one, two and three of their counterclaim and their prayer for relief. First, the plaintiff moves to strike the first and second special defenses on the grounds that they are legally insufficient because they fail to plead facts which show that the plaintiff has no cause of action and that they do not relate to the making, validity or enforcement of the underlying note and mortgage. Second, the plaintiff moves to strike counts one, two, and three of the counterclaim on the ground that they do not arise from the same transaction or occurrence as the events of the complaint. Third, the plaintiff moves to strike the prayer for relief on the ground that it is legally insufficient because the relief demanded cannot be legally awarded. In support of its motion, the plaintiff has filed a memorandum of law.
On December 8, 2010, Riversong and Bugaj filed an objection to the plaintiff's motion to strike and a supporting memorandum of law. On February 9, 2011, the court heard oral argument.
II. DISCUSSION
"Pursuant to Practice Book § 10-39(a)(5), when a party seeks to contest the `legal sufficiency of any answer to any complaint, counterclaim or cross complaint, or any part of that answer including any special defense contained therein, the party may do so by filing a motion to strike the contested pleading or part thereof.'" JP Morgan Chase Bank, Trustee v. Rodrigues, 109 Conn.App. 125, 130, 952 A.2d 56 (2008). "[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." (Internal quotation marks omitted.) Id., 131. Additionally, "[A] plaintiff can [move to strike] a special defense . . ." Nowak v. Nowak, 175 Conn. 112, 116, 394 A.2d 716 (1978); see also Connecticut National Bank v. Voog, 233 Conn. 352, 354-55, 659 A.2d 172 (1995). "A motion to strike admits all facts well pleaded; it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis in original; internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997). The court must "construe the [pleading] 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).
A. SUFFICIENCY OF THE MOTION
Riversong and Bugaj argue that the plaintiff has failed to meet the pleading requirements of Practice Book § 10-41 for a proper motion to strike. Accordingly, the court will first address the sufficiency of the motion before considering the merits of its arguments. Specifically, Riversong and Bugaj argue that the motion does not set forth the plaintiff's claim of insufficiency as to each special defense and counterclaim and the reasons for each such claimed deficiency. They argue that as a result, the motion is fatally defective and the court should dismiss the motion.
"Practice Book § 10-41 requires that a motion to strike raising a claim of insufficiency `shall separately set forth each such claim of insufficiency and shall distinctly specify the reason or reasons for each such claimed insufficiency.' Motions to strike that do not specify the grounds of insufficiency are fatally defective and, absent a waiver by the party opposing the motion, should not be granted . . . Our Supreme Court has stated that a motion to strike that does not specify the grounds of insufficiency is fatally defective . . . and that Practice Book § [10-42], which requires a motion to strike to be accompanied by an appropriate memorandum of law citing the legal authorities upon which the motion relies, does not dispense with the requirement of [Practice Book § 10-41] that the reasons for the claimed pleading deficiency be specified in the motion itself." (Internal quotation marks omitted.) Stuart v. Freiberg, 102 Conn.App. 857, 861, 927 A.2d 343 (2007). "[A] motion to strike that lacks specificity but which adequately submits the material issue to the court is sufficient to comply with Practice Book § 10-41 . . ." Id., 862-63 n. 3.
The plaintiff has moved to strike Riversong and Bugaj's two special defenses, three-count counterclaim and prayer for relief. The motion says that the plaintiff moves the court to strike the first and second special defense on the ground that they are legally insufficient as a matter of law because they fail to plead facts that show that the plaintiff has no cause of action and that they do not relate to the making, validity or enforcement of the note and mortgage. In addition, the motion says that the plaintiff moves the court to strike counts one, two and three of the counterclaim on the ground that they do not arise from the same transaction or occurrence as the events of the complaint. Finally, the motion says that the plaintiff moves the court to strike the prayer for relief as it is legally insufficient in that the relief demanded cannot be legally awarded.
Here, the plaintiff has done more on the face of its motion than state that the special defenses, the counts of the counterclaim and prayer for relief are legally insufficient. Rather, the motion specifies that the special defenses fail to plead facts that show that the plaintiff has no cause of action and do not relate to the making, validity or enforcement of the note and mortgage. Additionally, the motion specifies that the counts of the counterclaim do not arise from the same transaction or occurrence as the events of the complaint. By doing so, the motion adequately submits the material issues to the court. See Ulster Savings Bank v. 28 Brynwood Lane, Ltd., Superior Court, complex litigation docket at Stamford-Norwalk at Stamford, Docket No. X08 CV 05 4007323 (January 11, 2010, Jennings, J.T.R.) (sustaining the plaintiff's motion to strike, which specified that special defenses and counterclaim counts did not address the making, validity and enforcement of the note and mortgage and did not arise out of the same transaction as the complaint, because it adequately submitted the material issues to the court). Accordingly, the court will address the merits of the motion's arguments.
B. THE SPECIAL DEFENSES
"Historically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction . . . or, if there had never been a valid lien . . . 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 . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles . . . [O]ur courts have permitted several equitable defenses to a foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had . . . Other equitable defenses that our Supreme Court has recognized in foreclosure actions include unconscionability . . . abandonment of security . . . and usury." Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705-06, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).
"In Ulster Savings Bank v. 28 Brynwood Lane, Ltd, [ supra, Superior Court, Docket No. X08 CV 05 4007323], the court noted that: `There have been many and varied interpretations of the `making, validity and enforcement' requirement by Connecticut Superior Court decisions.' There is a line of cases which interprets the phrase very strictly to mean the execution and delivery of an enforceable instrument, and not the occurrences that may arise between the parties during the course of their loan relationship.' Id.; see Federal National Mortgage v. Mallozzi, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. 165698 (February 10, 1999, Hickey, J.); Ocwen Federal Bank FSB v. Weinberg, Superior Court, Judicial District of New London, Docket No. 547629 (August 11, 1999, Mihalakos, J.). A second line of cases, however, interprets the `making, validity, and enforcement' requirement less rigidly. See Liberty Bank v. New London Limited Partnership, [Superior Court, judicial district of New London, Docket No. 4005236 (May 1, 2007, Devine, J.) ( 43 Conn. L. Rptr. 326, 326]; Ocwen Federal Bank FSB v. Rivas, Superior Court, judicial district of Fairfield, Docket No CV 99 0368135 (February 21, 2002, Stevens, J.)." Bank of America, N.A. v. Groton Estates, LLC, Superior Court, judicial district of New London, Docket No. CV 09 6001697 (July 13, 2010, Devine, J.). These cases take the position that "post-execution actions or positions of a lender can relate to the enforcement of a note and mortgage." Id. This court favors the strict interpretation.
1. First Special Defense (Equitable Estoppel)
First, the plaintiff argues that the court should strike the first special defense because it fails to plead sufficient facts to support a defense of equitable estoppel. Specifically, the plaintiff argues that Riversong and Bugaj do not plead facts that show that: (1) they reasonably relied on the extension letter to change their position; (2) they exercised due diligence to know the plaintiff would not exercise its rights under the existing loan documents; (3) or that they lacked reasonable available means of acquiring knowledge of the plaintiff's rights. Second, the plaintiff argues that the equitable estoppel defense, on its face, does not relate to the making, validity or enforcement of the mortgage and note, but to a purported extension letter dated January 25, 2010 from the plaintiff, which Riversong and Bugaj do not allege they accepted.
Riversong and Bugaj counter that the court should adopt the less rigid interpretation of the "making, validity and enforcement" requirement. They argue that they allege the plaintiff intentionally induced them to forego other financing based on the financing promised by the plaintiff in its extension letter. Additionally, they argue that they allege they relied on the plaintiff's statement regarding the terms of the refinancing in the extension letter. Riversong and Bugaj argue the extension letter was issued well before the expiration of the existing loan and directly impacted the enforcement and collection of the existing loan. They argue that these allegations implicate the court's equitable powers to prevent the plaintiff from recovering based on its alleged inequitable conduct.
The allegations of Riversong and Bugaj's first special defense do not relate to the making, validity or enforcement of the mortgage and note. The first special defense alleges that modification negotiations started in December 2009. These negotiations involved the January 25, 2010 extension letter containing the promises on which Riversong and Bugaj allegedly relied. These allegations occurred well after the execution of the note and mortgage on January 6, 2006 and the execution of the final modification on August 28, 2009. Although they are occurrences between the parties during the course of their loan relationship, they do not relate to the execution and validity of the enforceable instrument. Therefore, the court will grant the motion to strike the first special defense. As a result, it is unnecessary for the court to address whether the first special defense contains adequate facts for an equitable estoppel defense.
2. Second Special Defense (Lack of Consideration)
The plaintiff argues that the second special defense is legally insufficient because it fails to plead facts which show that the plaintiff has no cause of action. Specifically, the plaintiff argues that the second special defense, which alleges the loan documents are unenforceable against Bugaj because such agreements were not supported by adequate consideration, only alleges a legal conclusion with no supporting facts.
Riversong and Bugaj counter that the allegation that the loan documents are unenforceable against Bugaj because such agreements were not supported by adequate consideration is a factual allegation that goes to the validity of the mortgage documents. They argue that if the mortgage is invalid for lack of consideration it is unenforceable.
"As a general rule, facts must be pleaded as a special defense when they are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action . . . `No facts may be proved under either a general or special denial except such as to show that the plaintiff's statements of fact are untrue. Facts which are consistent with such statements but show, notwithstanding, that the plaintiff has no cause of action, must be specially alleged . . .' Practice Book § 10-50." (Citation omitted; Internal quotation marks omitted.) Mitchell v. Guardian Systems, Inc., 72 Conn.App. 158, 166, 804 A.2d 1004, cert. denied, 262 Conn. 903, 810 A.2d 269 (2002).
"Several Superior Court cases have held that a defendant's failure to specially allege facts in support of a special defense is a ground for that defense to be stricken. See Lamothe v. Midstate Medical Center, Superior Court, judicial district of New Haven, Docket No. CV 05 4002893 (April 10, 2006, Taylor, J.) (failing to plead specific facts in support of special defense is ground for special defense to be stricken); McRea v. Davis, Superior Court, judicial district of Fairfield, Docket No. CV 02 0401037 (May 5, 2004, Dewey, J.) (holding allegation of mere legal conclusions without specifically pleaded facts is not properly pleaded special defense). In Senise v. Merritt Seven Venture, LLC, Superior Court, judicial district of Fairfield, Docket No. CV 02 0397413 (February 17, 2006, Rodriguez, J.) ( 40 Conn. L. Rptr. 770, 771), the defendant asserted a special defense that simply stated: `The claims set forth in the third party's complaint are barred by the doctrine of laches.' The court granted the plaintiff's motion to strike that special defense because no facts were pleaded to support the elements of the defense. Id. The court stated that `[e]xplicit in [Practice Book § 10-50] is that a party pleading a special defense must plead facts, consistent with the special defense they are alleging.' Id. The court further recognized that a special defense must be stricken if it fails to plead facts to support the legal conclusion it purports to assert. (Emphasis in original.) Id." People's United Bank v. Wetherill Associates, Superior Court, judicial district of Hartford, Docket No. CV 09 6005763 (January 4, 2011, Robaina, J.).
"A promissory note is nothing more than a written contract for the payment of money, and, as such, contract law applies." (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, supra, 72 Conn.App. 707. "The doctrine of consideration is of course fundamental in the law of contracts, the general rule being that in the absence of consideration an executory promise is unenforceable. In defining the elements of the rule, we have stated that consideration consists of a benefit to the party promising, or a loss or detriment to the party to whom the promise is made . . . An exchange of promises is sufficient consideration to support a contract." (Internal quotation marks omitted.) Keefe v. Norwalk Cove Marina, Inc., 57 Conn.App. 601, 606, 749 A.2d 1219, cert. denied, 254 Conn. 903, 755 A.2d 881 (2000).
Riversong and Bugaj pleaded in their second special defense that the first, second and third modifications "are unenforceable as to Gregory Bugaj because such agreements were not supported by adequate consideration." Much like the defendant in Senise v. Merritt Seven Venture, LLC, supra, 40 Conn. L. Rptr. 771, Riversong and Bugaj have only pleaded legal conclusions. They have not pleaded facts to support the elements of the defense of lack of consideration. Therefore, the court will grant the motion to strike the second special defense.
C. THE COUNTERCLAIM
"Practice Book § 10-10 provides that `[i]n any action for legal or equitable relief, any defendant may file counterclaims against any plaintiff . . . provided that each such counterclaim . . . arises out of the transaction or one of the transactions which is the subject of the plaintiff's complaint . . .' This section is a common-sense rule designed to permit the joinder of closely related claims where such joinder is in the best interests of judicial economy." (Internal quotation marks omitted.) JP Morgan Chase Bank, Trustee v. Rodrigues, supra, 109 Conn.App. 131. "In a foreclosure action, a counterclaim must relate to the making, validity or enforcement of the mortgage note in order properly to be joined with the complaint." Id., 133.
1. Count One (Promissory Estoppel)
First, the plaintiff argues that the court should strike count one of the counterclaim because the facts alleged do not arise out of the same transaction and allegation in the complaint. The plaintiff argues that in a foreclosure action, a counterclaim must relate to the making, validity or enforcement of the mortgage note. It argues that count one of the counterclaim alleges a separate transaction regarding a promise of a fully amortizing thirty-year loan at a fixed interest rate, which is separate and unrelated to the underlying short-term construction loan. Additionally, the plaintiff argues that the prayer for relief solely seeks monetary damages as a result of the breach of the promise and does not seek any relief to the foreclosure of the mortgage, which indicates that the counterclaim does not arise out of the same transaction and allegation in the complaint. The plaintiff does not argue that Riversong and Bugaj have failed to plead the proper elements for promissory estoppel claim.
Riversong and Bugaj counter that count one of their counterclaim, in which they allege they detrimentally relied on the promises made by Jones, the plaintiff's loan officer, and the extension letter, which dealt with the extension of the existing loan, meets the transaction test. First, they argue count one addresses the extension or modification of the existing note and mortgage. Riversong and Bugaj argue that count one arises from the alleged fact that the plaintiff issued the extension letter knowing that they would rely on its terms and intended to never fulfill its promises. Second, Riversong and Bugaj argue that the same issues of fact and law are presented by the complaint and count one. Third, Riversong and Bugaj argue that conducting separate trials for count one and the complaint would involve a substantial duplication of effort, which would waste judicial resources. They argue that both trials would require the same witnesses and documentary evidence including, the sophisticated loan documents and depositions of the loan officers and Riversong principals. Riversong and Bugaj argue that the preceding arguments apply to all three counts of their counterclaim.
As previously discussed, this court favors the strict interpretation of the "making, validity or enforcement" requirement. The allegations of count one of the counterclaim are substantially similar to the allegations of the first special defense. Because these allegations occurred well after the execution of the note and mortgage on January 6, 2006 and the execution of the final modification on August 28, 2009 they do not relate to the making, validity or enforcement of the mortgage note. Therefore, count one of the counterclaim does not arise out of the transaction which is the subject of the plaintiff's complaint. The court will grant the motion to strike count one of the counterclaim.
2. Count Two (CUTPA)
The plaintiff argues that CUTPA counterclaims to foreclosure complaints have been disallowed because they do not relate to the making, validity or enforcement of the note and mortgage and therefore do not arise out of the same transaction as the complaint. The plaintiff argues that count two alleges the plaintiff issued commitment letters, which it never had the intention of fulfilling, to other borrowers who are not parties to this action. Additionally, the plaintiff argues that the second count also references a subsidiary of the plaintiff, Pinpat, which is not a party to this action, and alleges that it exists for the purpose of acquiring properties from other borrowers, who are not parties to this lawsuit. It argues that the allegations neither relate to the underlying loan nor underlying borrowers. Finally, the plaintiff argues the conduct constituting the basis for count two relates entirely to acts of the plaintiff that allegedly occurred after the execution of the note and mortgage, and therefore, do not attack the making, validity or enforcement of the note and mortgage. The plaintiff does not argue that Riversong and Bugaj failed to plead the proper elements of a CUTPA claim.
Riversong and Bugaj counter by arguing that a CUTPA claim is proper where the allegations of the counterclaim go to enforcement of the mortgage being foreclosed. Specifically, they argue that when a lender issues a modification commitment that it refuses to honor, a CUTPA counterclaim is appropriate in the action to foreclose the underlying mortgage. They argue that the plaintiff intended to never honor the terms of the extension letter, which would have modified the terms of the existing loan. Therefore, they argue, the plaintiff's conduct in connection with the extension letter relates directly to the making, validity and enforcement of the existing loan.
"There are instances in which violations of CUTPA have been upheld as valid counterclaims brought in foreclosure actions." JP Morgan Chase Bank, Trustee v. Rodrigues, supra, 133. "In foreclosure actions, the mortgagee's conduct in the making of the mortgage note has been held to constitute a violation of CUTPA . . . Conduct on the part of the party seeking foreclosure that occurred after the loan documents were executed and not necessarily directly related solely to enforcement of the note, however, properly has been found not to arise out of the same transaction as the complaint." (Citations omitted.) Id., 134-35.
Here, the allegations of count two of the counterclaim do not relate to the making, validity or enforcement of the note and mortgage and therefore do not arise out of the same transaction as the complaint. In count two, Riversong and Bugaj allege that the plaintiff has issued similar extension letters to other borrowers and builders in similar situations with no intention of fulfilling the promises within the letters. They allege that the plaintiff has foreclosed on these borrowers so that its subsidiary, Pinpat, may acquire these properties and sell them for a profit. Riversong and Bugaj allege that such conduct violates CUTPA. These allegations relate to parties and conduct not alleged in the plaintiff's complaint. Moreover, they do not relate to the enforcement of the note in the present case. Therefore, the court will grant the motion to strike count two of the counterclaim.
3. Count Three (Breach of the Covenant of Good Faith and Fair Dealing)
First, the plaintiff argues that the third count of the counterclaim is legally insufficient because it does not arise out of the same transaction as the underlying mortgage. The plaintiff argues that its alleged conduct regarding the extension letter occurred after the execution of the underlying mortgage. Second, the plaintiff argues that because there is no contract with respect to which the plaintiff could have breached the covenant of good faith and fair dealing. The plaintiff argues that the defendants have not alleged that there was a contract between the parties, but have rather alleged that they relied on promises by the plaintiff.
Riversong and Bugaj counter by arguing that they have a purported contract with the plaintiff by virtue of the loan documents under which the plaintiff wishes to charge Riversong and Bugaj with liability. They argue that the plaintiff's conduct in issuing and then reneging on the extension letter goes to the heart of their contractual relationship.
"In Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 21, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999), a panel of this court held that the trial court did not abuse its discretion in determining that the defendants' counterclaim alleging violation of the implied covenant of good faith and fair dealing or breach of fiduciary duty did not arise out of the same transaction as the complaint, as required by Practice Book § 10-10. The defendants' allegations related to the conduct of an assignee of the subject notes and mortgage in selling the notes to the plaintiff for an amount less than that which the named defendant was willing to pay. Southbridge Associates, LLC v. Garofalo, supra, 53 Conn.App. 15. This conduct occurred well after the loan documents were executed and, as such, did not relate precisely to the making, validity and enforcement of the notes. Id., 17. The trial court, then, did not abuse its discretion by rendering summary judgment for the plaintiff on the defendants' counterclaim in the foreclosure action. Id., 21." JP Morgan Chase Bank, Trustee v. Rodrigues, supra, 132-33.
Count three of the counterclaim realleges the facts of count one regarding the plaintiff's issuance of the extension letter. Similar to the conduct alleged in Southbridge Associates, LLC v. Garofalo, supra, 53 Conn.App. 17, the conduct relating to the January 25, 2010 extension letter occurred well after the execution of the note and mortgage on January 6, 2006 and the execution of the final modification on August 28, 2009 and, as such, does not relate precisely to the making, validity and enforcement of the note. Therefore, count three of the counterclaim does not arise out of the transaction which is the subject of the plaintiff's complaint. The court will grant the motion to strike count three of the counterclaim.
4. Prayer for Relief
The plaintiff argues that the prayer for relief is legally insufficient because it requests damages that cannot legally be awarded. Specifically, the plaintiff argues that Riversong and Bugaj are requesting treble damages as a result of the plaintiff's alleged breach of the covenant of good faith and fair dealing. The plaintiff argues that damages for the breach of the covenant of good faith and fair dealing are limited to economic damages, similar to the damages for breach of contract.
Riversong and Bugaj counter by arguing that they are entitled to enhanced damages for both their bad faith claim and their CUTPA claim. They argue that punitive damages have been awarded in a number of situations involving bad faith breaches of contracts.
"Practice Book . . . § 10-39, allows for a claim for relief to be stricken only if the relief sought could not be legally awarded." Pamela B. v. Ment, 244 Conn. 296, 325, 709 A.2d 1089 (1998). The court will grant the motion to strike the prayer for relief because the counts of the counterclaim on which it relies are legally insufficient.
III. CONCLUSION
For the foregoing reasons the court will grant the plaintiff's motion to strike Riversong and Bugaj's first and second special defenses, counts one, two and three of their counterclaim and their prayer for relief.