Opinion
No. CV09 502 19 48
February 10, 2011
MEMORANDUM OF DECISION ON DEFENDANTS' MOTION TO REOPEN JUDGMENT OF STRICT FORECLOSURE AND REOPEN DEFAULT FOR FAILURE TO PLEAD
FACTS AND BACKGROUND
On January 30, 2009, the plaintiff, U.S. Bank, filed a complaint against the defendants, Garfield W. Curtis, Jeff Owen Lewis and Lorna Lewis. The plaintiff alleged the following facts. On or about June 29, 2006, Curtis executed and delivered a note for a loan to New Century Mortgage Corporation (New Century) in the amount of $237,405. To secure this note, Curtis executed and delivered a mortgage to New Century on a property located at 13 Hawthorne Street in Bridgeport, Connecticut (the property). This mortgage was dated June 29, 2006 and was recorded on June 30, 2006. The mortgage subsequently was transferred to the plaintiff, who is now the holder of the note and mortgage. The defendants are the owners of the equity of redemption of the property by virtue of a quitclaim deed recorded by Curtis on August 20, 2008. The mortgage is now in default. The plaintiff provided the defendants with a written notice of default and the defendants failed to cure the default. The plaintiff elected to accelerate the balance due on the note, declared the note due in full and recorded a lis pendens on the property.
As set forth in its complaint, the full name of the plaintiff is "U.S. Bank National Association as Trustee Under Pooling and Servicing Agreement Dated as of December 1, 2006 MASTR Asset Backed Securities Trust 2006-HE5 Mortgage Pass-Through Certificates Series 2006-HE5."
On March 26, 2009, the plaintiff filed a motion for default for failure to appear and a motion for default for failure to plead against the Jeff Owen Lewis and Lorna Lewis. Both motions for default were granted on April 8, 2009. On April 17, 2009, the plaintiff filed a motion for a judgment of strict foreclosure and a finding of entitlement to possession.
Hereinafter, "the defendants" shall refer only to the appearing defendants, Jeff Owen Lewis and Lorna Lewis.
On May 4, 2009, the court entered a judgment of strict foreclosure and set a law day for October 27, 2009. On October 9, 2009, the defendants filed a motion to open the judgment of strict foreclosure on the ground that they had made an offer on the property and applied for financing. On October 19, 2009, the court granted the motion to open the judgment of strict foreclosure, modified the judgment to reschedule the law day for January 19, 2010 and reentered the judgment of strict foreclosure. On January 4, 2010, the defendants filed a second motion to open the judgment of strict foreclosure to request that the law day be extended so they could have additional time to secure financing. The court denied this motion without prejudice. On January 12, 2010, the defendants filed a third motion to open the judgment of strict foreclosure. The court granted this motion on January 19, 2010, at which time it rescheduled the law day for April 20, 2010 and reentered the judgment of strict foreclosure. On February 18, 2010, counsel filed an appearance for the defendants, who previously had represented themselves pro se.
On April 12, 2010, the defendants filed a motion to dismiss on the ground that the court lacked subject matter jurisdiction over the present action. The defendants raised two arguments in their motion to dismiss. First, they argued that the plaintiff lacked standing to foreclose because it never had title to the mortgage and did not own the mortgage note. Second, it argued that the pooling and servicing agreement was not an "express trust." On July 22, 2010, the court denied the motion to dismiss. U.S. Bank v. Curtis, Superior Court, judicial district of Fairfield, Docket No. CV 09 5021948 (July 22, 2010, Hartmere, J.). No new law day has since been scheduled and thus, title has not become absolute in the plaintiff.
On August 2, 2010, the defendants filed a "Motion to Reargue or in the Alternative a Motion to Dismiss," in which they argued that the court, in denying their motion to dismiss, failed to consider one of their arguments. This argument is that the plaintiff failed to comply with General Statutes § 47-6a by failing to file its trust documents with the Secretary of the State of Connecticut and therefore lacks the capacity to hold property in Connecticut. On September 1, 2010, the court (Hartmere, J.), denied this motion.
On September 17, 2010, the defendants filed the present motion to open the judgment of strict foreclosure and default for failure to plead, so "that they may, by specific denial, challenge the plaintiff's capacity to hold property in Connecticut including the mortgage note herein." They filed a memorandum in support of this motion, as well as three additional pleadings. On October 8, 2010, the defendants filed two articles, one entitled "Naked Capitalism" from a blog posting by Yves Smith and another entitled "GMAC's Errors Leave Foreclosures in Question," from the New York Times, by David Streitfeld. On October 26, 2010, the defendants filed a supplemental memorandum in support of their motion. Attached to this supplemental memorandum, the defendants attached a third article, entitled "New Century Files for Chapter 11 Bankruptcy," from CNNMoney.com, as well as a decision from a Florida Circuit Court.
On September 30, 2010, the plaintiff filed an objection to the defendants' motion to open the judgment of strict foreclosure and default for failure to plead. The court heard argument on November 3, 2010.
DISCUSSION
In support of their motion, the defendants argue that the plaintiff, as a foreign business trust, cannot hold an interest in Connecticut real property because it has failed to file trust documents with the Secretary of the State of Connecticut as it is required to do under General Statutes § 47-6a. The defendants contend that, although they failed to mention § 47-6a in their prior motion to dismiss, "at oral argument the Court noted the motion to dismiss made the same claims as the motion to dismiss" in another case, which included a § 47-6a claim. The defendants note that "a defendant who intends to controvert the right of a plaintiff to sue as a corporation" must raise such an attack as a special defense. The defendants argue that they could not raise this as a special defense since they had already been defaulted for failure to plead. They specifically "ask the court to exercise its equitable jurisdiction to relieve them of the forfeiture of a valid defense to plaintiff's action." (Defendants' Memorandum in Support of Motion to Reopen Judgment of Strict Foreclosure, p. 2.)
General Statutes § 47-6a provides: "A trust with transferable shares organized under the laws of any state, commonly known as a business trust, may purchase, hold or transmit real estate, make mortgages thereon, and acquire and convey any interest therein, in the name of such trust in the same manner as a corporation organized under the laws of this state, provided a true copy of the declaration of such trust, duly certified by the proper official of the state in which it is organized or by the secretary of such trust, duly certified by the proper official of the state in which it is organized or by the secretary of such trust, shall first be filed in the office of the Secretary of the State of Connecticut."
The other case is HSBC Bank USA v. Fequiere, Superior Court, judicial district of Fairfield, Docket No. CV 09 5024230 (August 10, 2010, Hartmere, J.).
In response, the plaintiff argues that it has absolute title to the property at issue and under § 49-15, the opening of a judgment must be agreed upon by the parties. The plaintiff does not agree to open the judgment. Also, the plaintiff argues that the court should not exercise its equitable discretion to open the judgment because first, the defendants have not shown cause as they required to do and second, on balance, the equities favor the plaintiff.
Before reaching the defendants' motion to reopen the judgment of strict foreclosure, the court must deal with one preliminary issue. If allowed, the defendants will argue that the plaintiff failed to comply with § 47-6a and cannot legally hold an interest in property in Connecticut. Our Supreme Court has dealt with a similar argument in United States Trust of New York v. DiGhello, 179 Conn. 246, 425 A.2d 1287 (1979). " DiGhello involved the appeal of a trial court decision that denied a defendant's motion to open the judgment in a foreclosure action. The defendant sought to open the judgment so it could file a special defense attacking the corporate capacity of the plaintiff to maintain the action. The specific ground upon which the defendant based its motion to open was that the original plaintiff had failed to comply with the requirements of General Statutes § 47-6a . . . The court, citing the Practice Book, noted that if a defendant intends to controvert the right of a plaintiff to sue as a corporation he must specifically raise that issue in his answer and that any claimed illegality not apparent on the face of the pleadings must be specifically pleaded . . . The court went on to conclude that it is thus clear that an attack on the corporate capacity of a plaintiff to sue must be raised by way of a special defense." (Citations omitted; emphasis in original; internal quotation marks omitted.) HSBC Bank USA v. Fequiere, supra, Superior Court, Docket No. CV 09 5024230.
"[I]t is well established in our case law that a challenge to the plaintiff's right to sue without a certificate of authority to transact business in Connecticut does not go to the subject-matter jurisdiction of the Court, but is a matter of defense that is waived by the defendant unless it is pleaded as special defense and proved at trial." (Emphasis in original; internal quotation marks omitted.) HSBC Bank USA v. Fequiere, supra, Superior Court, Docket No. CV 09 5024230.
The defendants were defaulted for failure to plead on April 8, 2009. The effect of the default is that it "admits the material facts that constitute a cause of action . . . and entry of default, when appropriately made, conclusively determines the liability of a defendant . . . If the allegations of the plaintiff's complaint are sufficient on their face to make out a valid claim for the relief requested, the plaintiff, on the entry of a default against the defendant, need not offer evidence to support those allegations . . . Therefore, the only issue before the court following a default is the determination of damages." (Citations omitted; internal quotation marks omitted.) Tang v. Bou-Fakhreddine, 75 Conn.App. 334, 337-38, 815 A.2d 1276 (2003). As this court noted in its denial of the defendants' motion to dismiss, "[w]hile the court may examine the question of subject matter jurisdiction upon its own recognizance regardless of the defendants defaulted status, the court is not obliged to address the arguments of a defaulted party as to issues of liability." U.S. Bank v. Curtis, supra, Superior Court, Docket No. CV 09 5021948.
The defendants' argument regarding § 47-6a does not affect the subject matter jurisdiction of the court. Rather, it is a special defense that is considered waived because the defendants have been defaulted for failure to plead and this default cannot be opened. With respect to its jurisdiction, the court is therefore not obligated to address the defendants' argument regarding § 47-6a.
The court must therefore determine whether the defendants can open the judgment under General Statutes § 49-15(a), because a judgment of strict foreclosure has already entered against the defendants but title has not become absolute in the plaintiff. Section 49-15(a) provides, in relevant part: "Any judgment foreclosing the title to real estate by strict foreclosure may, at the discretion of the court rendering the same, upon the written motion of any person having an interest therein, and for cause shown, be opened and modified . . . but no such judgment shall be opened after title has become absolute in any encumbrancer."
Section 49-15(a) has been amended by No. 09-209, § 37 of the 2009 Public Acts. After this amendment, the relevant statute is General Statutes § 49-15(a)(1). Other than technical changes, the substantive language in this section is the same as in the old § 49-15(a).
The plaintiff first argues that it has absolute title to the property at issue and under § 49-15, the parties must agree to open the judgment and the plaintiff does not so agree. This argument fails because title has not become absolute in the plaintiff. The last scheduled date for the law day was April 20, 2010. This law day, however, was not held because of the defendants' motion to dismiss filed on April 12, 2010. The plaintiff has not introduced any evidence indicating that it has taken absolute title to the property at issue. Since title has not become absolute in plaintiff, General Statutes § 49-15(a)(2), as created by No. 09-209, § 37 of the 2009 Public Acts, does not apply.
In support of this argument, the plaintiff cites General Statutes § 49-15(b). The text cited by the plaintiff, however, is from General Statutes § 49-15(a)(2), as created by No. 09-209, § 37 of the 2009 Public Acts. Section 49-15(a)(2) provides, in relevant part: "Any judgment foreclosing the title to real estate by strict foreclosure may be opened after title has become absolute in any encumbrancer upon agreement of each party to the foreclosure action who filed an appearance in the action and any person who acquired an interest in the real estate after title became absolute in any encumbrancer . . ."
Under § 49-15(a), the court may, in its discretion, open the judgment of strict foreclosure upon cause shown by the defendants. "Because foreclosure is peculiarly an equitable action . . . the court may entertain such questions as are necessary to be determined in order that complete justice may be done." (Internal quotation marks omitted.) New Milford Savings Bank v. Jajer, 244 Conn. 251, 256, 708 A.2d 1378 (1998). "In an equitable proceeding, the trial court may examine all relevant factors to ensure that complete justice is done . . . The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court." (Internal quotation marks omitted.) Citicorp Mortgage, Inc. v. Burgos, 227 Conn. 116, 120, 629 A.2d 410 (1993). "The decision to grant or deny a motion to open a judgment is within the trial court's discretion and this decision will not be disturbed on appeal unless it was unreasonable and a clear abuse of discretion." Altberg v. Paul Kovacs Tire Shop, Inc., 31 Conn.App. 634, 640, 626 A.2d 804 (1993). "Such discretion, however, imports something more than leeway in decision-making and should be exercised in conformity with the spirit of the law and should not impede or defeat the ends of substantial justice." Ducci Electrical Contractors, Inc. v. Department of Transportation, 28 Conn.App. 175, 182, 611 A.2d 891 (1992). "While [a motion to open] should not be readily granted nor without strong reasons, it ought to be when there appears cause for which the court acting reasonably would feel bound in duty so to do." (Internal quotation marks omitted.) Steve Viglione Sheet Metal Co., Inc. v. Sakonchick, 190 Conn. 707, 710-11, 462 A.2d 1037 (1983).
"Cause," as used in § 49-15, means "good cause." Connecticut National Bank v. Zuckerman, 29 Conn.App. 541, 546, 616 A.2d 814 (1992). It is the burden of party moving to open judgment "to establish the existence of good cause to be entitled to an opening of the judgment pursuant to General Statutes § 49-15." Id. "[T]he presence or absence of a good defense to the original foreclosure judgment, per se, is immaterial to the determination of whether a judgment should be opened under § 49-15." HSBC Bank USA, As Trustee v. McLaughlin, Superior Court, judicial district of Tolland, Docket No. CV 03 0082276 (May 8, 2007, Sferrazza, J.).
In support of its objection, the plaintiff cites HSBC Bank USA, As Trustee v. McLaughlin, supra, Superior Court, Docket No. CV 03 0082276. In McLaughlin, the court considered a mortgagee's motion to open a judgment of strict foreclosure under § 49-15(a). As one equitable consideration, the court noted that, "Multiple openings of a strict foreclosure judgment are prejudicial to the foreclosing plaintiff and are a valid reason for denying the opening of a foreclosure judgment . . ." Id., citing Brooklyn Savings Bank v. Frimberger, 29 Conn.App. 628, 633, 617 A.2d 462 (1992).
In cases where a court has opened a judgment of strict foreclosure, the equities typically weigh much more strongly in favor of the party seeking to open judgment than in the present matter. In one case, the court opened the judgment where the mortgagor failed to provide the mortgagee with proper notice of a short calendar hearing pertaining to the foreclosure. Deutsche Bank v. Wall, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV 07 6000690 (May 14, 2008, Nadeau, J.). In another, the court opened the judgment because the mortgagee demonstrated that there was sufficient equity in the property to mandate a foreclosure by sale, rather than by a judgment of strict foreclosure. Monroe v. Mandanici, Superior Court, judicial district of Fairfield, Docket No. CV 920293224 (March 2, 1995, Rush, J.), cert. denied, 514 U.S. 1003, 115 S.Ct. 1313, 131 L.Ed.2d 195 (1995).
The defendants have not provided cause for the court to exercise its discretion to open the judgment of strict foreclosure. The possibility that their argument under § 47-6a could present a good defense is insufficient to establish cause. See HSBC Bank USA, As Trustee v. McLaughlin, supra, Superior Court, Docket No. CV 03 0082276. Unlike the defendant in Deutsche Bank v. Wall, the defendants in the present case had notice of the foreclosure proceedings. Unlike the defendant in Monroe v. Mandanici, the defendants have not shown that a foreclosure by sale would be proper, rather than the judgment by strict foreclosure.
The equities weigh in favor of the plaintiff. The court already granted two of the defendants' motions to open the judgment of strict foreclosure. As noted in McLaughlin, multiple openings of a judgment of strict foreclosure are prejudicial to the foreclosing plaintiff. Also, although the defendants appeared initially as pro se litigants, they had counsel as of February 18, 2010. As pro se litigants, the defendants had ample time prior to the second reentry of judgment to file a responsive pleading, but they did not do so. The defendants demonstrated their ability to file pleadings without the aid of counsel by filing three motions to open the judgment of strict foreclosure before counsel first filed an appearance on their behalf. After judgment of strict foreclosure was reentered for the second time, the defendants, now with counsel, could have moved to open the judgment to raise their § 47-6a argument at an earlier time. Finally, the court notes that the plaintiff filed this lawsuit approximately two years ago and the defendants have been in default on this loan for at least two years. "Fairness demands that the plaintiff achieve finality with respect to this case." HSBC Bank USA, As Trustee v. McLaughlin, supra, Superior Court, Docket No. CV 03 0082276. Thus, the court will deny the defendants' motion to reopen the judgment of strict foreclosure.
As noted above, the present motion also involves a motion to reopen the default for failure to plead. "Where a defendant is in default for failure to plead pursuant to Section 10-8, the plaintiff may file a written motion for default . . ." Practice Book § 17-32(a). "A motion to set aside a default where no judgment has been rendered may be granted by the judicial authority for good cause shown upon such terms as it may impose." Practice Book § 17-42.
A party in default for failure to plead may move to set aside such default only if the judicial authority has yet to render a judgment. See Practice Book § 17-42. In the present case, judgment was first entered against the defendants on May 4, 2009. After the court granted two previous motions to open the judgment of strict foreclosure, judgment was reentered for the final time on January 19, 2010. The defendants may not move to set aside the default for failure to plead under Practice Book § 17-42.
Based on the foregoing, the court will deny the defendants' motion to reopen the judgment of strict foreclosure and reopen default for failure to plead.