Opinion
No. CV 07-6000653 S
April 19, 2007
MEMORANDUM OF DECISION
This is a decision on the plaintiff's motion to strike the defendants' special defenses and counterclaims, dated March 7, 2007.
On December 27, 2006, the plaintiff, Merrill Lynch Mortgage Capital, Inc., filed a complaint against the defendants, Denny and Hector Vierra, seeking to foreclose on a mortgage on their property located at 45 Barnum Terrace in Stratford, due to their allegedly defaulting on a promissory note.
The defendant, Denny Vierra, filed an answer with four special defenses and a five-count counterclaim on February 9, 2007. In her pleading, the defendant purportedly raises the special defenses of fraudulent misrepresentation, negligent misrepresentation, innocent misrepresentation and unconscionability. In her counterclaims, the defendant purportedly raises the claims fraudulent misrepresentation, negligent misrepresentation, innocent misrepresentation, breach of good faith and fair dealing and CUTPA.
Connecticut Unfair Trade Practices Act, C.G.S. § 42-110a, et seq.
On March 9, 2007, the plaintiff filed a motion to strike the defendants' special defenses and counterclaims along with a memorandum of law. The defendant filed a memorandum of law in opposition on March 28, 2007. The motion to strike was heard on short calendar on April 2, 2007.
I.
"Whenever any party wishes to contest . . . the legal sufficiency of any answer to any complaint . . . or any part of that answer including any special defense contained therein, that party may do so by filing a motion to strike the contested pleading or part thereof." Practice Book § 10-39(a)(5). "It is fundamental that in determining the sufficiency of a [pleading] challenged by a [party's] motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) CT Page 5576 Commissioner of Labor v. C.J. M. Services, Inc., 268 Conn. 283, 292, 842 A.2d 1124 (2004). "The court must construe the facts in the [challenged pleading] most favorable to the [pleading party]." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). "A motion to strike . . . does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis in original; internal quotation marks omitted.) Id., 588. "A motion to strike is properly granted if the [challenged pleading] alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). However, the court is limited "to a consideration of the facts alleged in the complaint. A `speaking' motion to strike (one imparting facts outside the pleadings) will not be granted." Doe v. Marselle, 38 Conn.App. 360, 364, 660 A.2d 871 (1995), rev'd on other grounds, 236 Conn. 845, 675 A.2d 835 (1996); see also Rowe v. Godou, 209 Conn. 273, 278, 550 A.2d 1073 (1988). "Where the legal grounds for . . . a motion [to strike] are dependent upon underlying facts not alleged in the plaintiff's pleadings, the defendant must await the evidence which may be adduced at trial, and the motion should be denied." Liljedahl Bros., Inc. v. Grigsby, 215 Conn. 345, 348, 576 A.2d 149 (1990).
II.
As a general matter, we note that it is well established in our jurisprudence that "[f]oreclosure is peculiarly an equitable action, and the court may entertain such questions as are necessary to be determined in order that complete justice may be done . . . [B]ecause a mortgage foreclosure action is an equitable proceeding, the trial court may consider all relevant circumstances to ensure that complete justice is done." (Citations omitted; emphasis in original; internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 405 (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. [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." (Citations omitted; internal quotation marks omitted.) Lasalle National Bank v. Freshfield Meadows, 69 Conn.App. 824, 833-34 (2002).
In recognition that a foreclosure action is an equitable proceeding, courts have allowed mistake, accident, fraud, equitable estoppel, CUTPA, laches, breach of implied covenant of good faith and fair dealing, tender of deed in lieu of foreclosure and a refusal to agree to a favorable sale to a third party to be pleaded as special defenses. See Lawall Realty, Inc. v. Auwood, Superior Court, judicial district of New London at New London, Docket No. 527050 (March 1, 1994) (Leuba, J.); First Federal v. Kakaletris, supra [11 Conn. L. Rptr.]; National Mortgage Co. v. McMahon, 9 CSCR 300 (February 18, 1994) (Celotto, J.): Shawmut Bank v. Wolfrey, supra; Citicorp Mortgage, Inc. v. Kerzner, supra. Other defenses which have been recognized are usury, unconscionability of interest rate, duress, coercion, material alteration and lack of consideration. See Fleet Bank v. Barlas, 12 Conn. L. Rptr. 32 (June 29, 1994) (Aurigemma, J.); Donza v. Depamphilis, 9 CSCR 472 (April 7, 1994); Connecticut National Bank v. Montanari, Superior Court, judicial district of Hartford/New Britain at Hartford, Docket No. 517808, 11 Conn. L. Rptr. 10 (January 26, 1994) (Aurigemma, J.). While courts have recognized equitable defenses in foreclosure actions, they have generally only been considered proper when they "attack the making, validity or enforcement of the lien, rather than some act or procedure of the lienholder." Lawall Realty, Ltd. v. Auwood, supra; National Mortgage Co. v. McMahon, supra. "The rationale behind this is that counterclaims and special defenses which are not limited to the making, validity or enforcement of the note or mortgage fail to assert any connection with the subject matter of the foreclosure action and as such do not arise out of the same transaction as the foreclosure action. Lawall Realty, Ltd. v. Auwood, supra; National Mortgage Co. v. McMahon, supra, 9 CSCR 300-01.
III.
The plaintiff, in its memorandum of law in support of its motion, argues that the defendant has not set out a proper defense or counterclaim for fraudulent, negligent or innocent misrepresentation. Fraud and misrepresentation cannot be easily defined because they can be accomplished in so many different ways. Ferris v. Faford, 93 Conn.App. 679, 691 (2006). "Under the common law . . . it is well settled that the essential elements of fraud are: (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (3) it was made to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury . . ." (Citations omitted.) Duplissie v. Devino, 96 Conn.App. 673, 681 (2006).
The plaintiff claims in its memorandum that there are absolutely no allegations that a false statement of material fact made intentionally or otherwise, that the defendant relied upon. However, the defendant alleges in paragraph 6 of each of its special defenses and counterclaims that the "plaintiff knew or should have known that the making of the note and mortgage was invalid because the original mortgage application was made for a 40 year fixed rate mortgage which balloons in 30 years, but the loan closed at a 3 year adjustable rate mortgage. This loan was never re-disclosed to the customer prior to closing." The defendant further alleges in paragraph 14 that the "plaintiff took advantage of the legally unsophisticated and vulnerable defendant to secure refinancing by the aforementioned misrepresentations." The defendant also alleges facts to establish that she relied on the representations to her detriment.
After examining the facts alleged in the special defenses and counterclaims, and construing the same in a light most favorable to the defendant, the court concludes that the defendant has sufficiently pled defenses and causes of action sounding in misrepresentation. The plaintiff alleges many facts in its memorandum which are outside of the pleadings. Such facts alleged in a `speaking' motion to strike must await for another day and another motion. As such, the plaintiff's motion to strike the special defenses and counterclaims sounding in misrepresentation is denied.
IV.
The plaintiff next claims that breach of good faith and fair dealing is not a recognized counterclaim to a foreclosure action. "The implied covenant of good faith and fair dealing requires faithfulness to an agreed common purpose and consistency with the justified expectation of the other party in the performance of every contract . . . Essentially, it is a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended. The principle, therefore, cannot be applied to achieve a result contrary to the clearly expressed terms of a contract, unless, possibly, those terms are contrary to public policy." (Citations omitted; internal quotation marks omitted.) Lasalle National Bank v. Freshfield Meadows, 69 Conn.App. 824, 834 (2002). The defendant claims the plaintiff breached that covenant by failing to disclose the real terms of the mortgage to fulfill the reasonable expectations of the contracting parties as they presumably intended.
The plaintiff cites Fidelity Bank v. Krenisky, 72 Conn.App. 700, 716-17 (2002), for the proposition that breach of good faith and fair dealing is not a recognized counterclaim in a foreclosure action. In that case, the appellate court opined: "(w)e recently stated that special defenses and counterclaims alleging a breach of an implied covenant of good faith and fair dealing . . . are not equitable defenses to a mortgage foreclosure . . . Even if a breach of the implied covenant of good faith and fair dealing were an equitable defense to a mortgage foreclosure, the clear language of the mortgage and the note fails to support the defendant's claim that the plaintiff breached such an implied covenant." This court notes that Fidelity Bank v. Krenisky was a decision on a motion for summary judgment, not a motion to strike.
In Atlantic Mortgage Investment Corp. v. Stephenson, 86 Conn.App. 126, 130 (2004), the appellate court affirmed the decision of the trial court in a foreclosure matter. In that case, the court ordered strict foreclosure of a property, and also found for the defendants on their counterclaim for breach of the implied covenant of good faith and fair dealing and awarded them damages on the counterclaim.
Since the appellate court has more recently recognized the counterclaim of breach of good faith and fair dealing in a foreclosure matter, the plaintiff's motion to strike the third counterclaim is denied.
On page 12 of the defendant's pleading, two separate and distinct counts are entitled "Third Counterclaim." This decision involves the counterclaim involving a breach of good faith and fair dealing.
V.
The plaintiff next claims that the defendant has failed to set out a claim for unconscionability. "The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise . . . As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which, although formally limited to transactions involving personal property, furnishes a useful guide for real property transactions . . . As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, [t]he basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract . . . Unconscionability is determined on a case-by-case basis, taking into account all of the relevant facts and circumstances." (Citations omitted.) Emigrant Mortgage Corp. v. D'agostino, 94 Conn.App. 793, 802 (2006). The defendant has alleged that the plaintiff knew the original mortgage application was made for a 40-year fixed rate mortgage which balloons in 30 years, but the loan closed at a 3-year adjustable rate mortgage. This loan was never re-disclosed to the customer prior to closing. Further, the defendant alleges that the plaintiff took advantage of the legally unsophisticated and vulnerable defendant to secure refinancing by misrepresentations.
In its motion to strike, the plaintiff has again engaged in a "speaking motion," importing facts outside of the pleadings. In construing the facts alleged in the special defense in the light most favorable to the defendant, the defendant has set out a defense for unconscionability. Therefore, the motion to strike the fourth special defense is denied.
VI.
The plaintiff next claims that the defendant failed to set out a valid claim under CUTPA in her counterclaim. "It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the federal trade commission 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 businesspersons] . . . 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." (Citations omitted; internal quotation marks omitted.) Ventres v. Goodspeed Airport, 275 Conn. 105, 155 (2005). In viewing the facts alleged in the counterclaim in the light most favorable to the defendant, the allegations of misrepresentations of the mortgage term and interest rate to an unsophisticated consumer would support a CUTPA claim. As such, the motion to strike the fourth counterclaim is denied.
General Statutes § 42-110g(a) provides: "Any person who suffers any ascertainable loss of money or properly, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110b, may bring an action in the judicial district in which the plaintiff or defendant resides or has his principal place of business or is doing business, to recover actual damages. Proof of public interest or public injury shall not be required in any action brought under this section. The court may, in its discretion, award punitive damages and may provide such equitable relief as it deems necessary or proper."
VII.
The plaintiff lastly claims that the defendant's special defenses are legally insufficient in that they fail to state facts that show that the plaintiff has no cause of action. However, nowhere in the plaintiff's memorandum of law does it indicate specifically which of the four special defenses are insufficiently pled. "The parties may not merely cite a legal principle without analyzing the relationship between the facts of the case and the law cited." Ella v. Ella, 99 Conn.App. 829, 838 (2007). The plaintiff has not set out specific reasons for this aspect of its motion, as per Practice Book § 10-41. Therefore, the motion is denied.
VIII.
In conclusion, the plaintiff's motion to strike is denied in its entirety.