Opinion
No. 07 5004315
November 13, 2008
MEMORANDUM OF DECISION
FACTS
In its complaint, the plaintiff, PHH Mortgage Corporation, alleges the following facts. The defendant, Sylvester Traylor, owned real property located in Waterford, Connecticut. On or about December 9, 2004, the defendant executed and delivered a note to Emporio, LLC, for a loan in the amount of $37,000. To secure the note, the defendant executed and delivered a mortgage on the Waterford property. On December 14, 2005, the mortgage and note were assigned to the plaintiff. The plaintiff is currently the holder of the note and mortgage in question. The plaintiff commenced this foreclosure action by service of process on the defendant on August 30, 2007.
On June 23, 2008, the defendant filed an answer and five special defenses alleging usury, fraud, breach of the covenant of good faith and fair dealing, lack of consideration and CUTPA. On July 9, 2008, the plaintiff filed a motion to strike all five of the defendant's special defenses because they were legally insufficient, inapplicable in a foreclosure action or did not relate to any conduct that could be attributed to the plaintiff. The defendant filed an objection to the motion to strike on July 23, 2008. The plaintiff filed a memorandum in response to the defendant's objection on August 7, 2008.
DISCUSSION
`The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "[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). When ruling on a motion to strike a special defense, the court "take[s] the facts to be those alleged in the special defenses and [construes] 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). However, a special defense must plead facts that "are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action." McCann Real Equities Series XXII, LLC v. David McDermott Chevrolet, Inc., 93 Conn.App. 486, 491, 890 A.2d 140, cert. denied, 277 Conn. 928, 895 A.2d 798 (2006); see also Almada v. Wausau Business Ins. Co., 274 Conn. 449, 456 876 A.2d 535 (2005).
"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." Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. 183, 187-88, 850 A.2d 260 (2004).
In its memorandum in support of its motion to strike, the plaintiff argues that the court should strike the defendant's first special defense, usury, because under General Statutes § 37-9, bona fide mortgages in property for a sum of more than $5,000 are exempt from usury laws. The plaintiff further argues that the court should strike the defendant's second special defense because the defendant's allegations of fraud pertain only to the loan originator, and not the plaintiff. The plaintiff also argues that the court should strike the defendant's third special defense because special defenses alleging a breach of the covenant of good faith and fair dealing are not equitable defenses to a mortgage foreclosure. Additionally, the plaintiff argues that the court should strike the defendant's fourth special defense because the defendant's claim of lack of consideration is a mere legal conclusion that is not supported by factual allegations. Finally, the plaintiff argues that the court should strike the defendant's fifth special defense because the allegations of unfair trade practices relate solely to the conduct of the loan originator, and not the plaintiff.
In his response to the plaintiff's motion to strike, the defendant argues that his first special defense of usury should not be stricken because the money provided to him was an advance on a housing purchase, not part of a mortgage, and therefore the bona fide mortgages usury exemption under General Statutes § 37-9 does not apply. The defendant also argues that the court should not strike his second special defense because fraud is an equitable defense to foreclosure and he has alleged sufficient facts to establish that the loan originator, the plaintiff's predecessor in interest, defrauded the defendant and that the underlying debt is therefore invalid. The defendant further argues that the court should not strike his third special defense, violation of the covenant of good faith and fair dealing, because he has alleged that the loan originator's conduct goes directly to the making and validity of the mortgage and is therefore distinguishable from other cases where the court found that the defense was inapplicable because it related to conduct that took place after the mortgage had been executed. Additionally the defendant argues that the court should not strike his fourth special defense, lack of consideration, because the funds provided to him were part of a purchase arrangement and not a loan secured by a mortgage. Finally, the defendant argues that the court should not strike his fifth special defense because he has pled sufficient facts to support a claim of CUTPA violations by the loan originator, and therefore the loan instrument should be invalidated at trial.
I. The Defendant's First Special Defense of Usury
Under General Statutes § 37-4, "[n]o person and no firm or corporation or agent thereof . . . shall, as guarantor or otherwise, directly or indirectly, loan money to any person and . . . charge . . . [an interest rate] greater than twelve per cent per annum." However, under General Statutes § 37-9(3), the prohibition on loans bearing an interest rate greater than twelve percent does not apply to "bona fide mortgage[s] of real property for [sums] in excess of five thousand dollars . . ."
In his amended answer and first special defense, the defendant alleges that the money given to him by the plaintiff's predecessor in interest, Emporio, LLC, was not a bona fide mortgage, but rather a series of "deposit advances" that were part of a "mortgage bail out" plan wherein Emporio, LLC would purchase the defendant's property and then resell the property later for profit. (Defendant's First Special Defense, ((8-19.) The defendant also alleges that the total sum advanced to him under the "mortgage bail out" plan was $18,000 and that the plaintiff seeks to collect $37,000 on the note in violation of Connecticut's usury laws. (Defendant's First Special Defense, ((27-8.)
When considering a motion to strike a special defense, the court "take[s] the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, supra, 221 Conn. 536. However, a special defense must plead facts that "are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action." (Emphasis added.) McCann Real Equities Series XXII, LLC v. David McDermott Chevrolet, Inc., supra, 93 Conn.App. 491.
The defendant's usury claim hinges on the factual allegation that the $18,000 provided by the plaintiff's predecessor in interest was not part of a mortgage, but rather a series personal loans or purchase deposits that were part of a "mortgage bail out." (Defendant's First Special Defense ((4-15.) These allegations are in direct conflict with the plaintiff's complaint, which alleges that these payments were loans given in exchange for the note and mortgage. (Plaintiff's Complaint, ((3-5.) Because the facts alleged in the defendant's first special defense are inconsistent with the facts alleged in the plaintiff's complaint, the court strikes the defendant's first special defense.
II. The Defendant's Second Special Defense of Fraud
"Fraud is an equitable defense to a foreclosure action. Fraud involves deception practiced in order to induce another to act to her detriment, and which causes that detrimental action . . . Actions of agents of a lender may also give rise to a defense of fraud . . . However, a court, generally, will not invalidate a mortgage agreement against the lender unless [it] in some way participated in or knew of the fraud." (Citations omitted; internal quotation marks omitted.) FV-1, Inc. v. Forgey, Superior Court, judicial district of New London, Docket No. CV 07 5002447 (May 22, 2008, Martin, J.). "Because specific acts must be pleaded, the mere allegation that a fraud has been perpetrated is insufficient." Chase Manhattan Mortgage Corp. v. Machado, supra, 83 Conn.App. 188. Where the defendant in a foreclosure action has alleged that the plaintiff was a participant in the fraud or was the agent of the defrauding loan originator, this court has denied motions to strike a special defense of fraudulent inducement. FV-1, Inc. v. Forgey, supra, Superior Court, Docket No. CV 07 5002447; U.S. Bank National Ass'n. v. Reynoso, Superior Court, judicial district of New London, Docket No. CV 07 5004312 (July 17, 2008, Martin, J.) [ 45 Conn. L. Rptr. 872]. However, in cases where the defendant failed to allege that the plaintiff was either aware of, or a participant in, a fraudulent loan transaction, courts have stricken fraudulent inducement special defenses. See First Charter National Bank v. Ross, 29 Conn.App. 667, 672-73, 617 A.2d 909 (1992), appeal dismissed, 228 Conn. 203, 635 A.2d 796 (1994); Deutsche Bank National Trust Co. v. Griffin, Superior Court, judicial district of Litchfield, Docket No. CV 07 5002285S (January 17, 2008, Pickard, J.).
The defendant has made no claim in his amended answer that the plaintiff was aware of, or participated in the alleged fraud perpetrated by its predecessor in interest, Emporio, LLC. In fact, in his objection to the plaintiff's motion to strike, he states "[t]he defendant is not claiming that the plaintiff herein was the Assignor's agent, nor is he trying to impute liability to the plaintiff." (Emphasis in original.) (Defendant's Objection to the Plaintiff's Motion to Strike, 5.) Because the defendant has not made any factual allegations that the plaintiff participated in, or was even aware of, any fraudulent conduct on the part of Emporio, LLC, the court strikes the defendant's second special defense.
III.
The Defendant's Special Defense of Violation of the Covenant of Good Faith and Fair Dealing
"[S]pecial defenses and counterclaims alleging a breach of an implied covenant of good faith and fair dealing . . . are not equitable defenses to a mortgage foreclosure . . ." Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 405 n. 3, 867 A.2d 841 (2005); see also Barasso v. Rear Still Hill Road, LLC, 81 Conn.App. 798, 807 n. 5, 842 A.2d 1134 (2004); Fidelity Bank v. Krenisky, 72 Conn.App. 700, 716, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002); New Alliance v. Win Holdings International, Inc., Superior Court, judicial district of New London, Docket No. CV 07-5002721 (February 27, 2008, Leuba, J.). Further, this court has also indicated that, in accordance with the Appellate Court decision in Fidelity Bank v. Krenisky, special defenses alleging a breach of the covenant of good faith and fair dealing are not equitable defenses in a foreclosure action. Indymac Bank, F.S.B. v. Esposito, Superior Court, judicial district of New London, Docket No. CV 07 5004947 (September 9, 2008, Martin, J.).
Accordingly, the court strikes the defendant's third special defense.
IV. The Defendant's Special Defense of Lack of Consideration
Lack of consideration is "on its face a valid defense in a foreclosure action." Thomas v. Lieberman, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 99 0171052 (July 5, 2001, Adams, J.); see also, Molk v. Micklewright, 151 Conn. 606, 609, 201 A.2d 183 (1964); Lord Corp. v. Widewaters New Castle, Superior Court, judicial district of Ansonia-Milford at Derby, Docket No. CV 03 0083912 (July 1, 2005, Moran, J.).
However, a special defense must plead facts that "are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action." (Emphasis added.) McCann Real Equities Series XXII, LLC v. David McDermott Chevrolet, Inc., supra, 93 Conn.App. 491; see also, Almada v. Wausau Business Ins. Co., supra, 274 Conn. 449.
The defendant's claim of lack of consideration hinges on the factual allegation that the $18,000 provided by the plaintiff's predecessor in interest was not part of a mortgage, but rather was a series personal loans or deposits on a purchase as part of a "mortgage bail out." (Defendant's Fourth Special Defense ((4-15.) These allegations are in direct conflict with the plaintiff's complaint which alleges that these payments were consideration for the note and mortgage. (Plaintiff's Complaint, ((3-5.) Because the facts alleged in the defendant's fourth special defense are inconsistent with the facts alleged in the plaintiff's complaint, the court strikes the defendant's fourth special defense.
V. The Defendant's Special Defense of CUTPA Violations
"CUTPA . . . [is a] recognized equitable [defense] to a foreclosure action." U.S. Bank National Assn. v. Reynoso, supra, Superior Court, Docket No. CV 07 5004312. In cases where the defendant has alleged CUTPA as a special defense against a mortgage assignee and alleged that the foreclosing mortgage assignee was somehow involved in the unfair trade practice or had an agency relationship with the loan originator, this court has sustained a CUTPA special defense. Id.; U.S. Bank National Ass'n. v. Garces, Superior Court, judicial district of New London, Docket No. CV 07 5004536 (July 17, 2008, Martin, J.). However, in cases where the defendant has failed to allege any wrongdoing on the part of the mortgage assignee, or the existence of an agency relationship between the loan originator and the foreclosing plaintiff, at least one court has stricken the CUTPA special defense. Bank of New York Trust Co., North America v. Gbeh, Superior Court, Docket No. CV 07 5002495S, judicial district of Litchfield, (February 26, 2008, Marano, J.).
The defendant has not alleged that the plaintiff was an agent of the loan originator or that the plaintiff engaged in any practices that run afoul of CUTPA. Rather, the defendant's factual allegations relate solely to the conduct of the plaintiff's predecessor in interest. (Defendant's Fifth Special Defense ((2-3.) Because the defendant's factual allegations do not relate to any conduct by the plaintiff, the court strikes the defendant's fifth special defense.
CONCLUSION
For the reasons stated above, the defendant's five special defenses are ordered stricken. The plaintiff's motion to strike #144 is granted.