Opinion
LLICV136008646S
11-08-2016
U.S. Bank, National Association v. Kim Anne Kosciusko et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE PLAINTIFF'S MOTION TO STRIKE (#158)
Hon. John D. Moore, J.
I
BACKGROUND
The plaintiff, U.S. Bank, National Association, has moved to strike the substituted special defenses and counterclaims of the defendants, Kim Kosciusko and Loughrea, LLC. The plaintiff advanced a two-pronged argument in regard to both the special defenses and the counterclaims. The plaintiff argued that the allegations giving rise to the special defenses and the counterclaims do not pertain to the making, validity or enforcement of the mortgage or note and that, additionally, the special defenses and counterclaims are legally insufficient. The defendants have objected. The court heard argument on this motion on July 11, 2016. For the following reasons, the court grants the motion to strike in part and denies it in part.
II
STANDARD OF REVIEW
The motion to strike is used " to contest . . . the legal sufficiency of the allegations of any [pleading] . . . 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. Such pleadings may include counterclaims and special defenses. JP Morgan Chase Bank v. Rodrigues, 109 Conn.App. 125, 130, 952 A.2d 56 (2003). In determining whether or not a pleading's allegations are sufficient, all well-pleaded facts and those facts necessarily implied from the allegations " are taken as admitted." (Internal quotation marks omitted.) Gazo v. Stamford, 255 Conn. 245, 260, 765 A.2d 505 (2001). Stated a different way, the court should view the facts " in a broad fashion, not strictly limited to the allegations, but also including the facts necessarily implied by and fairly provable under them." (Internal quotation marks omitted.) Dennison v. Klotz, 12 Conn.App. 570, 577, 532 A.2d 1311 (1987), cert. denied, 206 Conn. 803, 535 A.2d 1317 (1988). However, a " motion to strike . . . does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis omitted; internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997). As a result, " [a] motion to strike is properly granted if the [pleading] alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotations marks omitted). Fort Trumbull Conservancy, LLC v. Alves, supra, 498. The court, however, must " construe the [pleading] in the manner most favorable to sustaining its legal sufficiency . . . [and] [i]f facts provable in the [pleading] would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117-18, 889 A.2d 810 (2006).
III
THE DEFENDANTS' SUBSTITUTED SPECIAL DEFENSES AND COUNTERCLAIMS
The court's analysis, therefore, begins with a review of the pleadings that are the target of this motion to strike: the defendants' substituted special defenses and counterclaims.
This is a foreclosure action. The defendants, on March 4, 2016, filed substituted special defenses and a substituted counterclaim. The substituted counterclaim contained the following factual allegations. It is fair and reasonable to read the factual allegations as supporting the special defenses as well as the counterclaims.
The court will include relevant allegations from the operative complaint to provide necessary context.
The defendants owned two adjacent parcels of real property in Sharon, Connecticut, 119 Amenia Union Road (119) and 121 Amenia Union Road (121). Each parcel had a dwelling situated on it. The plaintiff had issued a note secured by a single mortgage on both properties.
On or about September 2009, the defendants informed the plaintiff bank that a third party had offered to purchase 119 for $710,000 in exchange for a reduction of the at-issue mortgage principal. The plaintiff informed the defendants that it would not allow the purchase of a single parcel or a partial release of the mortgage. The potential buyer withdrew its offer to buy 119. Approximately three months later, the plaintiff informed the defendants that the plaintiff would consider a partial release of the mortgage.
In 2011, the plaintiff told the defendants that it could not consider a mortgage modification or a partial release of the mortgage as long as the defendants were current on their monthly mortgage payments and that, as a prerequisite for the plaintiffs to consider these options, the defendants needed to be in arrears for a period of at least three months. In reasonable reliance on these representations, the defendants stopped making monthly mortgage payments. As a result of the cessation of payments, the plaintiff elected to (1) accelerate the balance due on the note, (2) declare the entire note to be due and owing, and (3) foreclose on the mortgage securing the note.
The plaintiff was not responsive to the defendants' attempts to engage in negotiations concerning loan modification, loan mitigation and even on the status of the mortgage payments. Additionally, the plaintiff provided contradictory information as to what options were available to the defendants and what the qualifying requirements were for such options. On or about October 2011, the defendants received a letter from the plaintiff stating that the defendants were not eligible for a foreclosure alternative because the property was not the defendants' primary residence, even though that statement was false and the plaintiff knew or should have known that it was not true. Through the next two years, the plaintiff repeatedly asked the defendants to supply and re-supply documentation in support of a request for loan modification and loss mitigation even though the defendants had already provided such information and documentation. The defendants continued to comply, even though they had already provided such information and documentation.
In or about January 2013, the defendants once again asked the plaintiff if it could sell one of the two parcels or split the parcels so that the defendants could try to sell off less than the entire two parcels to reduce the mortgage principal and related payments to manageable levels. The plaintiff did not respond for almost three months.
In or about April 2013, the defendants posed these same questions and also asked the plaintiff in writing whether it would honor any potential rental agreements that the defendants might enter into with third parties during the foreclosure process. The defendants did so in an attempt to make renting a more attractive option to prospective tenants. The plaintiff did not respond to the defendants' request for a written response.
In July through August 2013, an investor offered to purchase the note at issue for $815,000. The Bank declined, stating that only a short sale or some other loss mitigation were options.
By means of a letter dated August 22, 2013, the plaintiff informed the defendants that the balance of the principal owed as of November 1, 2013 would be $799,250.07.
Prior to that time, during 2012-2013, third parties made certain offers to buy the properties in question. These offers were neither encumbered by a mortgage nor contingent on an inspection. These offers were conveyed to the plaintiff. The plaintiff did not accept these offers. Specifically, a third party offered to buy the properties or a portion thereof during this time for $815,000, an amount in excess of the amount that would have been due as of November 1, 2013. The parties began foreclosure mediation in or about July 2014. Information concerning the abovementioned offers was forwarded to the plaintiff, but no progress was made. Given the plaintiff's refusal of reasonable offers, realtors began to refuse to show the properties.
On or about January 24, 2014, the plaintiff told the defendants that their request for a deed in lieu of foreclosure for 119 was approved; however, the transaction never closed, in part because the plaintiff contended that tax liens existed upon the properties, even though the Sharon tax collector indicated to the contrary.
In or about September 2014, the plaintiff locked the defendants out of both houses, but did not make any arrangements to insure that the properties, inside or out, were maintained, protected or kept clean. The plaintiff did not, at that time, allow the defendants' property manager/handyman to access the properties. As a result of the plaintiff's failure to do so and the defendants' inability to access the properties, the dwellings located thereupon fell into substantial disrepair, suffering burst pipes, leaking fixtures, collapsing ceilings, structural defects and invasion by wild animals.
The defendants have raised eight special defenses. Some of them invoke the same legal theory, but are based upon different factual allegations. Special defense one pleads unconscionability, based upon allegations that the contract terms so unreasonably favored the plaintiff that the plaintiff could refuse to grant the defendants a partial release of the mortgage or deed in lieu as alternatives to foreclosure. Special defense two also sounds in unconscionability but alleges that the plaintiff refused the defendants the opportunity to sell the properties at or near fair market value to avoid foreclosure. Special defense three claims unclean hands, averring that the plaintiff purposefully prevented the defendants from attempting to negotiate and complete a loan modification and or loss mitigation settlement by means of a partial release of the mortgage and/or a deed in lieu of foreclosure. Special defense four alleges equitable estoppel, claiming that the plaintiff advised the defendants that they had to become delinquent in their monthly mortgage payments in order to qualify for loan modification or loss mitigation and that the defendants relied to their detriment on such representations. Special defense five sounds in a theory of unclean hands, alleging that the plaintiff made intentional misrepresentations to the defendants which resulted in the defendants becoming delinquent in their mortgage payments. Special defenses six, seven and eight allege fraudulent, innocent and negligent misrepresentation, respectively. Each of these three special defenses, although it invokes different standards for the intent requirement, relies on factual allegations that the plaintiff advised the defendants of the purported necessity of missing monthly payments which resulted in the commencement of this foreclosure action.
The defendants have also alleged counterclaims sounding in ten counts. The first count alleges negligence, claiming that the plaintiff was negligent in the handling of the transaction and in its course of dealings with the defendant by failing to (1) maintain consistent conduct, (2) provide correct information, and (3) agree to reasonable alternatives to avoid foreclosure. The second count alleges set-off, averring that the defendants suffered ascertainable loss resulting from (1) damage to the properties sustained after the bank took them over, (2) lost rental and sales income, and (3) other monetary damage and that this loss constitutes a collectible debt of the same kind and quality that the plaintiff claims against the defendant.
The third, fourth and fifth counts sound in fraudulent misrepresentation, innocent misrepresentation and negligent misrepresentation, respectively. Each of these counts revolves around allegations that the plaintiff, through its agents or representatives, made " incorrect and inaccurate statements . . . as to the inability of [defendants] to obtain a partial mortgage release/loan modification . . ." The differences between these counts pertain to intent and to the reliance of the defendants on such statements. In the third count, fraudulent misrepresentation, the defendants allege that these statements were made " intentionally and knowingly in an effort to cause [defendants] to become delinquent on their mortgage payments" and that the defendants reasonably relied on these misrepresentations to their detriment. In the fourth count, innocent misrepresentation, the defendants claim that these statements were made when the representatives or agents had an obligation not to make incorrect statements, knew or should have known that the statements were incorrect and knew or should have known that the defendants would reasonably rely on these misrepresentations. In the fifth count, negligent misrepresentation, the defendants aver that the plaintiff's agents knew or should have known both that the statements were incorrect and that the defendants would rely on these misrepresentations.
The sixth count sounds in common-law recklessness. This count claims that the plaintiff acted in reckless and wanton disregard of the defendants in several ways: (1) by ignoring the defendants' attempts at loan modification and loss mitigation, including the defendants' attempts to obtain a partial release of the mortgage or a deed in lieu of foreclosure, (2) by failing to negotiate with the defendants over an agreement as to prospective rental of the properties, and (3) by changing the locks, barring the defendants from entering, and creating damage at the properties. The seventh count allegations violations of the Connecticut Unfair Trade Practices Act (CUTPA). This count alleges that the plaintiff's conduct offended public policy and was in violation of established concepts of fairness, was unethical, oppressive and unscrupulous and caused substantial injury to the defendants, who were consumers. The eighth count claims negligent infliction of emotional distress, alleging that the plaintiff's conduct negligently inflicted emotional distress on the individual defendant and that the plaintiff should have realized that its conduct would do so.
The ninth count sounds in conversion. This claim alleges that, by barring the defendants from their property without prior notice and/or consent, the plaintiff deprived the defendants of said property and that severe harm resulted to the property. The tenth count alleges that the plaintiff committed statutory theft under General Statutes § 52-564 by taking possession of the defendants' property without their permission, consent and/or authorization. The defendants claim legal and equitable relief, common-law punitive damages, punitive damages under CUTPA, treble damages under § 52-564, attorneys fees and costs.
IV
DISCUSSION
A
Special Defenses
As mentioned above, the motion to strike mounts two separate attacks on the legal sufficiency of the special defenses. The first is that the special defenses do not address the making, validity and enforcement of the loan, note and mortgage, as special defenses in a foreclosure must. The second is that, even if the special defenses were found to address these issues, they fail to set forth the requisite elements of the special defenses alleged. The court will address these two issues seriatim.
1
Overview of the Impact of the Doctrine of the Making, Validity, and Enforcement of the Note and Mortgage on Special Defenses in a Foreclosure Action
" '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 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 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)." GMAC Mortgage, LLC v. Ford, 144 Conn.App. 165, 181, 73 A.3d 742 (2013).
" Practically speaking, however, neither [the Appellate Court] nor our Supreme Court has ever expressed a finite list of equitable defenses available in a foreclosure action. Typically, '[t]he assertion of equitable defenses to a mortgage foreclosure requires that the defenses [also] challenge the making, validity and enforcement of the loan note and mortgage. This principle was . . . considered to include events leading up to the execution of the loan documents, exclusive of issues involving the administration of the loan, such as misapplication of payments.' D. Caron & G. Milne, Connecticut Foreclosures (4th Ed. 2004) § 28.05A, p. 612. Nevertheless, given the equitable nature of a foreclosure action, events subsequent to the execution of the loan documents also have been considered. See, e.g., Thompson v. Orcutt, 257 Conn. 301, 311-14, 777 A.2d 670 (2001)." TD Bank, N.A. v. M.J. Holdings, LLC, 143 Conn.App. 322, 328, 71 A.3d 541 (2013).
" In Thompson, our Supreme Court considered actions by the plaintiff subsequent to the execution of the note and mortgage--in particular, fraudulent conduct in a bankruptcy proceeding--to be 'directly and inseparably connected' to the foreclosure action to support the defendant's equitable defense of unclean hands . . . [ Thompson v. Orcutt, supra, 257 Conn. 313]. In doing so, our Supreme Court found that '[t]he original transaction creating the . . . mortgage was not tainted with fraud, but the plaintiff's ability to foreclose on the defendants' property . . . depended on his fraudulent conduct in the bankruptcy proceeding. If the . . . mortgage had been administered as an asset of the bankruptcy estate, the plaintiff would have had no means of bringing the foreclosure action . . . The plaintiff perpetrated the fraud in the bankruptcy court in order to retain title to the . . . mortgage; he would have had no cause to foreclose on the . . . mortgage without the fraud.' . . . Id., 313-14. Thus, although the actions constituting unclean hands occurred after the execution of the original loan documents, those actions directly impacted the enforceability of those loan documents." TD Bank, N.A. v. M.J. Holdings, LLC, supra, 143 Conn. at 328-39. Therefore, under the specific circumstances set forth in TD Bank, N.A., or circumstances analogous thereto, certain actions of the mortgagee after execution may give rise to a special defense.
Courts have held, however, that a mortgagee has a contractual right to seek foreclosure after default and does not have a duty to modify the note or accept other alternatives absent the imposition of such a duty in the note or mortgage. See Bank of America, N.A. v. Groton Estates, LLC, Superior Court, judicial district of New London, Docket No. CV-09-6001697-S, (July 13, 2010, Devine, J.) .
2
Application of the Doctrine of the Making, Validity and Enforcement of the Note and Mortgage on the Special Defenses in this Case
As mentioned above, the defendants raise eight special defenses in their amended answer of March 4, 2016. While the defenses raise a variety of legal and equitable claims, there are two factual bases that underpin the defenses. The first group of special defenses relate to attempts by the defendants to work with the plaintiff to avoid foreclosure. The second group of special defenses relates to allegations that representations made by the plaintiff led the defendants to stop making monthly payments on the mortgage.
Special defenses one, two, and three allege that the plaintiff refused to accept a variety of alternatives to foreclosure including a partial release of the mortgage, a deed-in-lieu of foreclosure, sale of the property at or near market value, and loan modification. It is not clear from the pleadings whether the alleged conduct occurred before or after the defendants defaulted on the loan and the plaintiff instituted the foreclosure action. Therefore, these special defenses do not address the making, validity or enforcement of the mortgage or note. Further, the defendants have not alleged that the plaintiff had a duty under the note or mortgage to accept any of these alternatives to foreclosure or that the plaintiff formally accepted any of these alternatives and then did not honor the parties' agreement. Therefore, the special defenses that allege that the plaintiff refused to accept alternatives to foreclosure, e.g., special defenses one, two, and three, are legally insufficient, and the court grants the plaintiff's motion to strike those defenses.
Special defenses four through eight allege that when defendant Kosciusko contacted the plaintiff to seek a loan modification due to the unsustainability of the monthly mortgage payments, a representative of the plaintiff advised her that she would only qualify for modification if she were delinquent for at least three months. Relying on this representation, she then stopped paying her mortgage in order to qualify for modification. As a result, the mortgage went into default and the plaintiff initiated the foreclosure action. The defendants allege that these facts give rise to special defenses of equitable estoppel, unclean hands, fraudulent misrepresentation, innocent misrepresentation, and negligent misrepresentation.
While the conduct alleged in special defenses four through eight occurred after the execution of the note and mortgage, taking the allegations as true, the defendants would not otherwise have defaulted on their note if not for the plaintiff's conduct. Construed in the light most favorable to denying the motion to strike, the allegations in special defenses four through eight are similar to those in Thompson in that the plaintiff would not have been able to pursue the foreclosure action if not for the alleged misrepresentations of its representative to Kosciusko. Therefore, special defenses four through eight relate to the making, validity or enforcement of the note or mortgage.
As mentioned supra, however, the plaintiff also argues that the special defenses are legally insufficient. As a result, the court must now consider the legal sufficiency of special defenses four through eight.
3
Equitable Estoppel
The plaintiff argues that count four, alleging equitable estoppel, is legally insufficient because the defendants have failed to allege that the plaintiff concealed or falsely represented material facts, as required for a claim of equitable estoppel. Specifically, the plaintiff argues that the allegation that a representative told Kosciusko that loan modification options were not available unless a person defaulted or became delinquent in their loan payments was not a false representation. " [T]here are two essential elements to an estoppel: the party must do or say something which is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief; and the other party, influenced thereby, must actually change his position or do something to his injury which he otherwise would not have done." (Internal quotation marks omitted.) TD Bank, N.A. v. M.J. Holdings, LLC, supra, 143 Conn.App. 338. Based upon the present allegations of this special defense, the defendants have not pleaded that the representative made the statement concerning eligibility for loan modification in order to induce the defendants to stop making monthly payments. Therefore, special defense four is legally insufficient and the court grants the motion to strike special defense four.
4
Unclean Hands
The plaintiff further argues that special defense five, alleging unclean hands, is legally insufficient because the allegations do not support a finding that the plaintiff engaged in willful misconduct with the design, desire or intent to injure. " Because the doctrine of unclean hands exists to safeguard the integrity of the court . . . [w]here a plaintiff's claim grows out of or depends upon or is inseparably connected with his own prior fraud, a court of equity will, in general, deny him any relief, and will leave him to whatever remedies and defenses at law he may have." (Citations omitted; internal quotation marks omitted.) Thompson v. Orcutt, supra, 257 Conn. 310. In contrast to special defense four, which does not allege intentional conduct, the allegations in special defense five include the allegation that the plaintiff intentionally misrepresented to the defendants the steps they needed to take to avail themselves of loan modification. Read broadly, the fifth special defense claims that the plaintiff intentionally misrepresented to the defendants that they needed to stop paying their mortgage to induce them to default. Therefore, special defense five is legally sufficient and the court denies the plaintiff's motion to strike special defense five.
5
Misrepresentation
The plaintiff also argues that special defenses six, seven and eight, alleging fraudulent misrepresentation, innocent misrepresentation, and negligent misrepresentation, should be stricken because they do not allege that the plaintiff made a false statement. The defenses, however, allege that the plaintiff falsely represented the steps the defendants needed to take to be eligible for loss mitigation. Insofar as those steps including stopping payment of their mortgage, such statement can reasonably be construed as a false statement. Special defenses six, seven and eight also allege the other elements of fraudulent, innocent and negligent misrepresentation, respectively. (Please see footnotes 5, 6 and 7, infra.) Therefore, the defendants have alleged that the plaintiff, through its agents, made a false statement and the court denies the plaintiff's motion to strike special defenses six, seven and eight.
B
Counterclaims
As mentioned above, the plaintiff has made a two-pronged attack on the sufficiency of the counterclaims as well as on the sufficiency of the special defenses. The first prong is, again, a lack of nexus between the counterclaim allegations and the making, validity or enforcement of the note. In regard to foreclosure counterclaims, this issue is relevant because a counterclaim must arise out of at least one transaction which is the subject of the complaint. The second prong is, as it was above, legal sufficiency. The court will begin by reviewing the manner in which the making, validity and enforcement of a note pertain to a foreclosure counterclaim.
" Section 10-10 of the Practice book provides in relevant part 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 . . .' Th[e Appellate Court] previously has held that, '[i]n 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.' JP Morgan Chase Bank, Trustee v. Rodrigues, 109 Conn.App. 125, 133, 952 A.2d 56 (2008) . . . Thus, '[c]onduct on the part of the [foreclosing party] that occurred after the loan documents were executed and not necessarily directly related solely to enforcement of the note . . . properly has been found not to arise out of the same transaction as the complaint.' JP Morgan Chase Bank, Trustee v. Rodrigues, supra, 134-35, citing Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 16-21, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999). In CitiMortgage, Inc. v. Rey, 150 Conn.App. 595, 605-06, 92 A.3d 278, cert. denied, 314 Conn. 905, 99 A.3d 635 (2014), th[e Appellate Court] clarified that a proper application of Practice Book § 10-10 in a foreclosure context requires consideration of whether a counterclaim has some reasonable nexus to, rather than directly attacks, the making, validity or enforcement of the mortgage and note.'" (Citation omitted.) U.S. Bank National Ass'n v. Sorrentino, 158 Conn.App. 84, 95-96, 118 A.3d 607 (mortgagee's conduct during foreclosure mediation program not valid counterclaim because " program did not begin until after the execution of the note and mortgage, and after the foreclosure action was commenced" id., 97), cert. denied, 319 Conn. 951, 125 A.3d 530 (2015). " The relevant transactions for purposes of Practice Book § 10-10 are . . . the execution of the note and mortgage, and the subsequent default ." (Emphasis added.) Id., 97.
The defendants have pleaded ten counterclaims which all incorporate a common set of factual allegations that include conduct by the plaintiff that occurred both before and after the defendants defaulted on the note. In addition to alleging the same facts raised in their special defenses, namely that the plaintiff induced the defendants to default and then refused to accept any alternatives to foreclosure, the defendants also allege that the plaintiff denied them access to the property by changing the locks and, without anyone maintaining the property, significant damage has occurred. The plaintiff argues that all of the counterclaims are legally insufficient because they do not relate to the making, validity or enforcement of the note or mortgage. As mentioned above, the plaintiff also raises claims concerning the legal sufficiency of individual counts that will be addressed as necessary in the discussion of the individual counterclaim counts.
To remain consistent with the discussion of the special defenses, the counterclaim plaintiffs will continue to be referred to as the defendants and the counterclaim defendant will continue to be referred to as the plaintiff.
1
Count One--Negligence
Count one alleges that the plaintiff's conduct, both before and after default, was negligent because the plaintiff failed to maintain consistent conduct, provide correct information, or agree to alternatives provided by the defendants. The plaintiff has not moved for the defendants to revise this count to separate the allegations that led to the defendants' default from those that occurred after the default. Insofar as the count may reasonably be construed to allege that the plaintiff was negligent when a representative told Kosciusko that she needed to be three months delinquent in order to qualify for modification, the allegations of count one do relate to alleged improper conduct on the part of the plaintiff that led to the default. Therefore, these allegations address the making, validity or enforcement of the note or mortgage.
The plaintiff also argues, however, that count one is legally insufficient because, as a matter of law, the plaintiff did not owe a duty to the defendants that was implicated by the conduct alleged in the counterclaim. " The essential elements of a cause of action in negligence are well established: duty; breach of that duty; causation; and actual injury." (Internal quotation marks omitted.) Sturm v. Harb Development, LLC, 298 Conn. 124, 139, 2 A.3d 859 (2010). Even read broadly, the allegations in count one do not allege what relationship between the plaintiff and the defendants resulted in a duty the plaintiff owed to the defendants. Therefore, count one is legally insufficient and the court grants the motion to strike count one of the counterclaim.
2
Count Two--Setoff
Count two alleges that the defendants are entitled to a setoff for the loss in value to the property due to the plaintiff denying the defendants access to maintain the property or use it as a rental property. " In the usual case, setoff is [t]he equitable right to cancel or offset mutual debts or cross demands . . ." (Internal quotation marks omitted.) OCI Mortgage Corp. v. Marchese, 255 Conn. 448, 464-65, 774 A.2d 940 (2001). The plaintiff argues that the defendants' setoff counterclaim is legally insufficient because it is dependent upon alleged conduct that does not relate to the making, validity or enforcement of the note and mortgage. The damages alleged in count two that purportedly give rise to the debt that the defendants propose to use as a setoff arise from conduct that occurred after the defendants defaulted and do not relate to the making, validity or enforcement of the note or mortgage. Therefore, the court grants the plaintiff's motion to strike counterclaim count two.
3
Counts Three through Five--Misrepresentation
Counts three through five allege misrepresentation in that the plaintiff misrepresented to the defendants that they needed to stop paying their mortgage in order to qualify for modification, they relied on that representation, and as a result the plaintiff found them to be in default and instituted the foreclosure action. Because the defendants allege improper conduct on the part of the plaintiff that led to their default and the institution of the foreclosure action, counts three through five relate to the making, validity or enforcement of the note and mortgage.
As mentioned supra, count three alleges fraudulent misrepresentation, count four alleges innocent misrepresentation, and count five alleges negligent misrepresentation.
The plaintiff also argues that the alleged representation cannot constitute a misrepresentation because it is true, but that argument construes the defendants' counterclaim too narrowly. The plaintiff argues that the defendants allege that a representative told them that borrowers who are current on their mortgage are not eligible for loss mitigation. Read broadly and realistically, employing the allegations' necessary inferences, however, the defendants' counterclaim alleges that the representative told Kosciusko that she needed to stop paying the mortgage for three months to be eligible for loss mitigation. Reviewing the well-pleaded allegations of the counterclaim, the defendants have alleged in each misrepresentation count that: (1) a representative from the plaintiff intentionally or negligently told Koscuisko that she should stop paying her mortgage for three months in order to qualify for loss mitigation, (2) she reasonably relied on that representation and stopped payment, and (3) the plaintiff, as a result, found her in default and instituted a foreclosure action. The allegations of each of these three counts also satisfy the necessary prerequisites for the elements of actions sounding in innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. Therefore, the defendants have pleaded legally sufficient claims for innocent, negligent, and fraudulent misrepresentation. As a result, the court denies the plaintiff's motion to strike counterclaim counts three through five.
Additionally, a motion to strike is not the proper vehicle for deciding the truth or falsity of well-pleaded allegations.
" [I]nnocent misrepresentation of fact may be actionable if the declarant has the means of knowing, ought to know, or has the duty of knowing the truth." (Internal quotation marks omitted.) Coppola Construction Co. v. Hoffman Enterprises Ltd. Partnership, 309 Conn. 342, 351, 71 A.3d 480 (2013).
" Traditionally, an action for negligent misrepresentation requires the plaintiff to establish (1) that the defendant made a misrepresentation of fact, (2) that the defendant knew or should have known was false, and (3) that the plaintiff reasonably relied on the misrepresentation, and (4) suffered pecuniary harm as a result." (Internal quotation marks omitted.) Coppola Construction Co. v. Hoffman Enterprises Ltd. Partnership, supra, 309 Conn. 351-52.
" In contrast to a negligent representation, [a] fraudulent representation . . . is one that is knowingly untrue, or made without belief in its truth, or recklessly made and for the purpose of inducing action upon it . . . This is so because fraudulent misrepresentation is an intentional tort." (Citation omitted; internal quotation marks omitted.) Sturm v. Harb Development, LLC, 298 Conn. 124, 142, 2 A.3d 859 (2010).
4
Count Six--Recklessness
In count six, the defendants allege that the plaintiff acted recklessly in its dealing with the defendants by refusing offers for loss mitigation, refusing to negotiate with the defendants to allow them to rent the property, and by changing the locks to the property. The conduct alleged in count six does not relate to the execution of the note and mortgage or conduct that led to the defendants' default. As a result, this conduct does not relate to making, validity or enforcement of the note. Therefore, count six is legally insufficient and the court grants the plaintiff's motion to strike count six.
5
Count Seven--CUTPA
Count seven alleges that the general factual allegations of the counterclaim constitute a violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110b et seq.
General Statutes § 42-110b(a) provides: " No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." " '[I]n determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the [F]ederal [T]rade [C]ommission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other business persons] All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.' . . . Harris v. Bradley Memorial Hospital & Health Center, Inc., 296 Conn. 315, 350-51, 994 A.2d 153 (2010)." Artie's Auto Body, Inc. v. Hartford Fire Ins. Co., 317 Conn. 602, 609 n.9, 119 A.3d 1139 (2015).
Although the continued applicability of the cigarette rule has been questioned in light of the fact that the Federal Trade Commission no longer uses this test, our Supreme Court has declined to abandon the cigarette rule in favor of the Federal Trade Commission's substantial unjustified injury test. Artie's Auto Body, Inc. v. Hartford Fire Ins. Co., supra, 317 Conn. 622 n.13; see also Glazer v. Dress Barn, Inc., 274 Conn. 33, 82 n.34, 873 A.2d 929 (2005) (declining to address viability of cigarette rule because not yet squarely presented).
" [A] party need not prove an intent to deceive to prevail under CUTPA." (Internal quotation marks omitted.) Willow Springs Condominium Ass'n, Inc. v. Seventh BRT Development Corp., 245 Conn. 1, 43, 717 A.2d 77 (1998). Although " [a] violation of CUTPA may be shown by proof of deceptive conduct . . . [i]t is not necessary to prove that the defendant intended to deceive. Web Press Services Corp. v. New London Motors, Inc., 203 Conn. 342, 363, 525 A.2d 57 (1987). An act or practice is deceptive if three requirements are met. 'First, there must be a representation, omission, or other practice likely to mislead consumers. Second, the consumers must interpret the message reasonably under the circumstances. Third, the misleading representation, omission, or practice must be material--that is, likely to affect consumer decisions or conduct.' . . . Caldor, Inc. v. Heslin, 215 Conn. 590, 597, 577 A.2d 1009 (1990), cert. denied, 498 U.S. 1088, 111 S.Ct. 966, 112 L.Ed.2d 1053 (1991), citing Figgie International, Inc., 107 F.T.C. 313, 374 (1986)." Freeman v. A Better Way Wholesale Autos, Inc., Superior Court, judicial district of Hartford, Docket No. CV-13-6045900-S, (April 1, 2015, Huddleston, J.) (failure of auto dealer to disclose financing terms before requiring nonrefundable deposit was deceptive act that additionally violated all three prongs of cigarette rule).
The plaintiff argues that the defendants' CUTPA claim is legally insufficient because it is based upon the plaintiff's refusal to accept any of the defendants' proposed loss mitigation proposals. If the defendants' claim were limited to the plaintiff's post-default conduct, this would be correct. See TD Bank, N.A. v. M.J. Holdings, LLC, supra, 143 Conn.App. 322. The defendants also plead, however, that (1) the plaintiff misrepresented to the defendants that they could cease paying their mortgage for three months and become eligible for loss mitigation, (2) the defendants relied on that representation, and (3) the defendants ceased payment, which cessation resulted in their default. Such allegations both relate to the making, validity and enforcement of the note and mortgage and allege a legally sufficient claim under CUTPA. Therefore, the court denies the plaintiff's motion to strike count seven of the counterclaim.
6
Count Eight--Negligent Infliction of Emotional Distress
Count eight alleges negligent infliction of emotional distress arising from the common allegations of the counterclaim. The plaintiff argues that count eight is legally insufficient because the allegations do not support the conclusion that the plaintiff owed a duty to avoid causing the defendants emotional distress or that the plaintiff could reasonably foresee that its conduct would result in emotional distress severe enough to cause illness or bodily harm to the defendant. The allegations of count eight include claims of emotional distress resulting from the pre-default actions of the plaintiff relating to the representations that led the defendants to default upon their loan. Therefore, count eight includes allegations pertaining to the making, validity and enforcement of the note and mortgage.
The court then moves to consider whether the allegations are legally sufficient to state a claim upon which relief may be granted. " 'To establish a claim of negligent infliction of emotional distress, a plaintiff must prove the following elements: (1) the defendant's conduct created an unreasonable risk of causing the plaintiff emotional distress; (2) the plaintiff's distress was foreseeable; (3) the emotional distress was severe enough that it might result in illness or bodily harm; and (4) the defendant's conduct was the cause of the plaintiff's distress.' Murphy v. Lord Thompson Manor, Inc., 105 Conn.App. 546, 552, 938 A.2d 1269, cert. denied, 286 Conn. 914, 945 A.2d 976 (2008). In addition, the plaintiff must allege that the defendant owed the plaintiff a duty to prevent the plaintiff from experiencing emotional distress. See Perodeau v. Hartford, 259 Conn. 729, 754, 792 A.2d 752 (2002); see also Zamstein v. Marvasti, 240 Conn. 549, 564, 692 A.2d 781 (1997) (concluding 'trial court properly struck' plaintiff's negligent infliction of emotional distress claim based on lack of duty)." Leonardo v. Ultimate Brands, Inc., Superior Court, judicial district of New Haven, Docket No. CV-08-5024048-S, (September 18, 2009, Holden, J.). In Leonardo, the court held that a mortgagee does not owe such a duty of care to a mortgagor to prevent emotional distress arising from foreclosure action. Id.
As a result, the defendants have not pleaded allegations that support a finding that the plaintiff owed a duty towards the defendants to avoid causing them emotional distress. Therefore, the court grants the plaintiff's motion to strike count eight of the counterclaim.
7
Counts Nine and Ten--Conversion and Statutory Theft
Counts nine and ten allege conversion and statutory theft, pursuant to General Statutes § 52-564, arising from the plaintiff changing the locks on the subject property and denying the defendants access to the property to maintain it or otherwise utilize it. The plaintiff argues that the claims of conversion and civil theft are legally insufficient because they do not relate to the making, validity or enforcement of the note and mortgage and, further, because the plaintiff had a right, under the mortgage and note, to access and maintain the property. Based on the allegations of the counterclaim, the plaintiff took possession and control of the property, as evidenced by changing the locks, between two and three years after the defendants defaulted on the note. Therefore, counts nine and ten of the counterclaim are legally insufficient because they do not relate to the making, validity or enforcement of the note and mortgage and the court grants the plaintiff's motion to strike counts nine and ten.
The court notes that it has stricken counterclaim counts two (setoff), six (recklessness), nine (conversion) and ten (statutory theft) because they do not relate to the making, validity or enforcement of the note, and therefore, are not sufficiently related to the transactions alleged in the underlying complaint. This finding does not constitute a holding that these allegations, if brought in an independent action, would be legally insufficient.
V
CONCLUSION
Based on the foregoing, the court grants the plaintiff's motion to strike special defenses one, two, three, and four and counterclaim counts one, two, six, eight, nine, and ten, and denies the plaintiff's motion to strike special defenses five, six, seven and eight, and counterclaim counts three, four, five, and seven.
SO ORDERED.