Opinion
KNLCV156023158S
02-17-2017
RCN Capital, LLC et al. v. Sunford Properties & Development, LLC et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION IN RE MOTION FOR SUMMARY JUDGMENT (#156)
Hon. John J. Nazzaro, J.
This is a foreclosure action returnable on or about January 21, 2015. The plaintiff has pleaded several counts. The defendant has filed an answer denying the essential allegations of the complaint and has pleaded insufficient knowledge as to certain facts. Here, the plaintiff has filed a motion for summary judgment (#156) as to count three on the ground that there is no genuine issue as to any material fact related to defendant's liability pursuant to his personal guaranty of the underlying debt. For reasons set forth below, the motion for summary judgment is granted as to count three.
DISCUSSION
This action arises out of claims by the plaintiff, RCN Capital, LLC, against Sunford Properties & Development, LLC (Sunford), Kwok Sang (Sang), and Janny Lam (the defendant), wherein the plaintiff alleges that it is the holder of a delinquent promissory note and mortgage, which was executed by Sunford, secured and guaranteed by a property owned by Sang, and personally guaranteed by the defendant, for which all three are liable. In the second revised complaint filed on December 14, 2015, the plaintiff alleges the following essential facts.
Sunford Properties and Kwok Sang are co-defendants in this case who the court has rendered judgments against for summary judgment and strict foreclosure. They were not involved with the filing of the present motion. Janny Lam is the only defendant involved in the present motion and will be referred to as the defendant, accordingly.
On June 28, 2012, Sunford executed and delivered a promissory note for $600,000, later modified to $800,000, secured by the mortgage deed for 352 Main Street, Norwich, Connecticut (Main Street Premises). At the same time, Sang guaranteed repayment of the sums on the note executed by Sunford by way of a guaranty agreement and mortgage deed for 86-92 Water Street, Norwich, Connecticut (Water Street Premises). At the same time, the defendant personally guaranteed all sums due under the note by way of a guaranty agreement.
The original complaint was filed on January 21, 2015. The second revised complaint was filed on December 14, 2015. The second revised complaint consists of three counts. Count one is against Sunford for foreclosure on the Main Street Premises. Count two is against Sang for foreclosure on the Water Street Premises. Count three is against the defendant personally.
Counts one and two are not at issue in the current motion. On February 2, 2016, the plaintiff moved for summary judgment (#125) as to counts one and two on the ground that there remained no issue of material fact as to liability and foreclosure on both the Main Street and Water Street Premises against both Sunford and Sang. This motion was granted on March 28, 2016, by Judge Emmet Cosgrove. Judge Cosgrove also granted judgment for strict foreclosure on the two properties on May 16, 2016.
On October 31, 2016, the plaintiff filed this motion for summary judgment (#156) as to count three on the ground that there remains no genuine issue as to any material fact related to defendant's liability pursuant to his personal guaranty of the underlying debt. The plaintiff also submitted the following evidence as a part of its motion for summary judgment: an affidavit of Jeffrey Tesch, managing director for the plaintiff bank; a commercial guaranty document between plaintiff and the defendant guaranteeing the underlying note between Sunford and the plaintiff; and the modification agreement between all parties modifying the underlying note to $800,000 dated November 3, 2013.
The defendant, in response, argues that there is a genuine issue of material fact because pursuant to General Statutes § 49-1, the plaintiff is barred from holding the defendant liable for the underlying debt due to the failure by the plaintiff to properly obtain a deficiency judgment according to General Statutes § 49-14. Oral argument was heard on December 5, 2016.
DISCUSSION
" Summary judgment is a method of resolving litigation when pleadings, affidavits, and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." (Internal quotation marks omitted.) Grenier v. Commissioner of Transportation, 306 Conn. 523, 534, 51 A.3d 367 (2012). " The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law . . . and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact . . . A material fact . . . [is] a fact which will make a difference in the result of the case." (Internal quotation marks omitted.) Stuart v. Freiberg, 316 Conn. 809, 821, 116 A.3d 1195 (2015).
In the present case, as the movant, the plaintiff has the burden of proving that there is the absence of any genuine issue of material fact as to liability on behalf of the guarantor, the defendant. " To establish a prima facie case of entitlement to recover on [a] [g]uaranty . . . [the] plaintiff must show (1) that it is owed a debt from a third party; (2) that [the] defendant made a guaranty of payment of the debt; and (3) that the debt has not been paid by either the third party or [the] defendant. (Emphasis in the original.) Chase Manhattan Bank, N.A. v. Harris, 899 F.Supp. 64, 67 (D.Conn. 1995)." (Internal quotation marks omitted.) TD Bank, N.A. v. Northern Expansion, LLC, Superior Court, judicial district of Waterbury, Docket No. CV-09-6001534-S, (November 22, 2010, Matasavage, J.).
Research shows that the analysis of whether a plaintiff has met its burden on proving its prima facie case of its entitlement to recover from a guarantor has only been undertaken directly by the Connecticut Superior Court. In those cases, it has, however, been found consistently that this test is determinative. Country Bank v. Georgetown Land Development Co., LLC, Superior Court, judicial district of Danbury, Docket No. CV-10-6005228-S, (April 15, 2015, Truglia, J.); Cadlerock Joint Venture II, L.P. v. Milazzo, Superior Court, judicial district of New Haven, Docket No. CV-98-0265016-S, (September 27, 2011, Markle, J.); TD Bank, N.A. v. Northern Expansion, LLC, supra, Superior Court, Docket No. CV-09-6001534S ; TD Banknorth, N.A. v. Norwich River, Superior Court, judicial district of New London, Docket No. CV-07-5008138, (December 8, 2008, Martin, J.); see Indymac Bank F.S.B. v. Esposito, Superior Court, judicial district of New London, Docket No. CV-07-5004947, (September 9, 2008, Martin, J.). Additionally, at this time, aside from JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, 312 Conn. 662, 94 A.3d 622 (2014), which addresses how to treat a guaranty in light of General Statutes § 49-1, our appellate courts have not taken this issue on directly. Therefore, Connecticut Superior Court cases were used liberally in this decision.
" The plaintiff, as the moving party, must first establish that there is no genuine issue that it is owed a debt from the borrower." TD Bank, N.A. v. Northern Expansion, LLC, supra, Superior Court, Docket No. CV-09-6001534-S . " [T]he liability of the guarantor is based on the liability of the debtor." (Internal quotation marks omitted.) Cadle Co. of Connecticut, Inc. v. C.F.D. Development Corp., 44 Conn.App. 409, 413, 689 A.2d 1166 (1997), appeal dismissed, 243 Conn. 667, 706 A.2d 975 (1998). " [S]ince the guaranty contract secures a principal or primary obligation, the liability of the guarantor also depends upon a construction and application of the primary contract." TD Bank, N.A. v. Northern Expansion, LLC, supra . A plaintiff can meet its burden of showing a debt is still owed under the note by showing a judgment of liability and of strict foreclosure has occurred against the primary borrower. Id.
In the present case on March 28, 2016, Judge Cosgrove granted (#125.01) the plaintiff's motion for summary judgment (#125) against the borrower, Sunford, as to liability on count one of the complaint by finding the plaintiff owns the note and that Sunford defaulted on that note. In the same order, Judge Cosgrove also granted the motion as to count two against Sang as to liability under count two because of his guaranty agreement for the note which was secured by deed for the Water Street Premises. On May 16, 2016, Judge Cosgrove entered a judgment of strict foreclosure (#141) on both the Main Street and Water Street Premises finding that the debt owed to the plaintiff exceeded the fair market value of those properties combined. Therefore, based on these prior decisions by this court, the plaintiff has met its burden of showing the absence of a genuine issue that the plaintiff is still owed on the underlying debt.
Next, " [t]he plaintiff must also establish that there is no genuine issue that the defendants made a guaranty of payment of the debt that is owed by the borrower." TD Bank, N.A. v. Northern Expansion, LLC, supra, Superior Court, Docket No. CV-09-6001534-S . " [A] guaranty contract defines the obligations and rights of both the guarantor and the creditor, and contains any express conditions on the guarantor's liability. Thus, the liability of a guarantor depends primarily on the construction and application of the guaranty contract . . . Our Supreme Court has stated that where the guaranty of a note [is] unconditional or absolute, default of the maker or endorser to pay the note promptly . . . [causes] the guarantor [to] become liable to the holder, and the relation of debtor and creditor [is] at once established between the guarantor and holder of the note." (Internal quotations omitted) Id. ; see Perry v. Cohen, 126 Conn. 457, 11 A.2d 804 (1940); see 38 Am.Jur.2d § § 1 and 53. A plaintiff can meet its burden of showing a guaranty agreement was in full force and effect by submitting the guaranty agreement, and that the agreement terms show that the defendant had agreed that as a condition of the plaintiff making the loan, the defendant would repay the underlying debt upon default by the borrower. TD Bank, N.A. v. Northern Expansion, LLC, supra .
In the present case, the guaranty agreement executed by the defendant, as submitted by the plaintiff with its motion for summary judgment, states that the plaintiff agrees to lend the borrower, Sunford, the principal sum of $600,000 secured by the mortgage note. The guaranty agreement further states that the plaintiff requires that, as a condition for making the loan that the defendant agrees " unconditionally and absolutely to guarantee the prompt payment and performance" on the note and consents to any changes of the terms of the note or loan documents. Additionally, the plaintiff submitted an affidavit of Jeffrey Tesch, managing director of the plaintiff bank, which states that " [a]s additional collateral for obligations due and owing under the note, the Defendant Janny Lam executed and delivered to the Plaintiff a commercial guaranty, thereby guaranteeing all sums due and owing under the promissory note." The plaintiff further alleges in its second revised complaint, and shows by submission of the modification agreement, that the note and mortgage were modified by written agreement by all parties on November 5, 2013 to increase the subject loan amount to $800,000. Also, the affidavit of Jeffrey Tesch states that the original note was modified and agreed to by all parties on November 5, 2013, to $800,000. The clear language of the modification and guaranty agreements, subsequent default on the debt, decisions by this court, and the affidavit by Jeffrey Tesch all make it clear that the debt exists and the defendant is liable for the debt to the plaintiff through the guaranty agreement for the full amount still owed. Therefore, based on this showing the plaintiff has met its burden ofshowing the absence of a genuine issue that the defendant made a guaranty of payment of the underlying debt of $800,000.
" Finally, the plaintiff must establish that the debt currently due and owing, and personally guaranteed by the defendants, has not been paid by either the borrower or the defendants." TD Bank, N.A. v. Northern Expansion, LLC, supra, Superior Court, Docket No. CV-09-6001534-S . A plaintiff can meet its burden of showing a debt is currently owed by establishing that strict foreclosure has been entered and that the judgment of such showed a debt still outstanding. Id.
In the present case, on May 16, 2016, Judge Cosgrove entered a judgment of strict foreclosure (#141) on both the Main Street and Water Street Premises and found that the debt owed to the plaintiff exceeded the fair market value of those properties. It was determined on that date that $1,040,845.02 was owed. It was further determined that the Main Street and Water Street Premises had a combined fair market value of $997,000; leaving a debt remaining of $43,845.02. Therefore, based on this showing, the plaintiff has met its burden of proving an absence of a genuine issue regarding whether it is owed a debt by evidence that shows that the outstanding debt has not been fully satisfied.
Based on this finding, along with the other two prongs of this three-part test, as analyzed supra, the plaintiff has met its burden in proving its prima facie case of its entitlement to recover from the defendant as a guarantor of the underlying debt. Accordingly, the burden shifts to the defendant to show the existence of a genuine issue of material fact. The defendant, in response, argues that there remains a genuine issue because the plaintiff has failed to address his special defenses of partial or total satisfaction of the debt and lack of subject matter jurisdiction in accordance with § § 49-1 and 49-14. Specifically, the defendantargues that § 49-1 is a bar to holding him liable for the underlying debt of Sanford and that the failure by the plaintiff to properly obtain a deficiency judgment pursuant to § 49-14, requires denial of the plaintiff's motion for summary judgment.
The argument of partial or total satisfaction of debt is not sufficient to deny the motion for summary judgment. This is because of the judgment of strict foreclosure entered by this court on May 16, 2016, which establishes that a debt is still owed. Even though part of the debt has been satisfied, there remains a debt outstanding. Therefore, it is clear the debt has not been satisfied and the defendant is still liable as the guarantor of any outstanding debt.
The argument of subject matter jurisdiction, however, requires a closer look. Section 49-1 provides in relevant part, that " [t]he foreclosure of a mortgage is a bar to any further action upon the mortgage debt, note or obligation against the person or persons who are liable for the payment thereof who are made parties to the mortgage." Therefore, normally, under " § 49-1, a judgment of strict foreclosure extinguishes all rights of the foreclosing mortgagee on the underlying note, except those enforceable through the use of the deficiency judgment procedure delineated in § 49-14. [Section] 49-14 provides, in relevant part, that [a]t any time within thirty days after the time limited for redemption has expired, any party to a mortgage foreclosure may file a motion seeking a deficiency judgment." (Citations omitted; footnote omitted; internal quotation marks omitted.) First Bank v. Simpson, 199 Conn. 368, 370-71, 507 A.2d 997 (1986). " Therefore, once a mortgagee strictly forecloses on a mortgage and obtains title to the property following the running of the law days, § 49-1 extinguishes all rights of the mortgagee with respect to the mortgage debt, note or obligation against persons who are or could have been made parties to the foreclosure, except as provided in § 49-14." (Internal quotation marks omitted.) JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, 312 Conn. 662, 94 A.3d 622 (2014).
Nevertheless, our Supreme Court in JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, supra, 312 Conn. 673, held that guarantors " are not parties to the foreclosure, irrespective of whether the mortgagee pursues a claim against the guarantors in the same cause of action in which it pursues foreclosure of the mortgage, " and as such guarantors are not subject to the bar established by § 49-1. (Internal quotation marks omitted.). This is because, " [a] guarantee is a promise to answer for another's debt, default or failure to perform a contractual obligation . . . As a contractual obligation separate from the contractual agreement between the lender and borrower . . . this court has recognized the general principle that a guarantee agreement is a separate and distinct obligation from that of the note or other obligation." (Citations omitted.) Id., 675. " Due to the separate and distinct liability of a guarantor . . . in the absence of a statute expressly pertaining to guarantors, such secondary obligors are not proper parties to a claim seeking the foreclosure of a mortgage and their obligations are not limited by the extinguishment of the mortgagor's rights and obligations." Id., 677. " Thus, in jurisdictions in which a statute limits mortgagee's rights to a deficiency judgment (anti-deficiency statute), courts generally have construed these provisions to apply only to primary obligors and not guarantors because of their separate and distinct contractual obligations." Id., 677-78.
JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, supra 312 Conn. 675, " there is little Connecticut appellate law specifically addressing guarantee agreements in the context of mortgages, " and as such looked to other jurisdictions for this holding.
Thus, in these circumstances, because a " plaintiff [can] not properly make the guarantors parties to the foreclosure claim because it [can] not seek to extinguish the guarantor's right of redemption, which is the purpose of foreclosure, nor in the alternative seek to enforce the note against them, . . . § 49-1 [has] no effect on the plaintiff's ability to recover money damages from the guarantors . . . following the judgment of strict foreclosure . . ." (Footnote omitted.) Id., 682-83. Therefore, the defendant's argument in the present circumstances that § 49-1 is a bar to the plaintiff's claim against him is inapplicable because defendant is a guarantor. Thus, it is insufficient to rebut the plaintiff's prima facie case as to its entitlement to recover from the defendant for the underlying debt of Sanford and Sang.
CONCLUSION
For the foregoing reasons, the motion for summary judgment is granted as to count three only.
It is so ordered.