Opinion
No. CV-10-6012854
May 12, 2011
MEMORANDUM OF DECISION ON MOTION TO STRIKE
The plaintiff, Rockville Bank, has moved to strike the special defenses of the defendants, Southington Hospitality Group, LLC, Sunil Nayak, Vandana Nayak, Ayesha Swaika, Jyoti Nayak, and Suman Nayak (the "defendants"). For the reasons stated herein, the Motion to Strike is granted.
Pleadings
The complaint by the plaintiff alleges that on February 21, 2001, the defendant, Southington Hospitality Group, LLC executed a Mortgage Note in the original amount of two million one hundred seventy-five thousand ($2,175,000) in favor of Rockville Bank. The Mortage Note is secured by a Mortgage Deed on real property located at 462 Queen Street, Southington, Connecticut(the "Property") dated February 21, 2001.
The complaint further alleges that the Property is subject to a mortgage to the defendant, National Republic Bank of Chicago in the original principal amount of $5,600,000, dated October 30, 2002, as well as liens to the Town of Southington, Tax Collector as follows: $40,446, recorded June 5, 2007; $41,353.20 recorded June 4, 2008 and $43,507.80 recorded June 4, 2009.
The complaint also alleges that the defendants are in default under the terms of the Mortgage Note and that the plaintiff has elected to accelerate the Mortgage Note and foreclose the Mortgage.
The Mortgage Note and Open-End Mortgage Deed and Security Agreement ("Mortgage Deed") are attached to and made a part of the complaint. The Mortgage Deed provides that the failure to pay taxes on the Property is an event of default and the Mortgage Note provides that if there is an event of default, the plaintiff may accelerate all amounts due thereunder.
In the special defenses the defendants allege that they fell behind in their taxes and, that the defendants relied on the plaintiff's information about taxes and therefore, failed to make sure that there were no taxes due to the Town of Southington. It further alleges that in March 2010, the Town of Southington had a tax sale of the Property and that the defendant did not bid at the tax sale.
The special defenses further allege that in November 2009 the defendants located a potential buyer for the Property, that the plaintiff and the potential buyer had a meeting and thereafter the potential buyer did not buy the Property. The foregoing factual matrix forms the basis for the first special defense of unclean hands, the second special defense, which alleges breach of the covenant of good faith and fair dealing, the third special defense, which alleges equitable estoppel, the fourth special defense, which alleges the plaintiff's failure to mitigate damages and the fifth special defense, which alleges a violation of the Connecticut Unfair Trade Practice Act ("CUTPA").
Discussion of the Law and Ruling
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . ." Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003). "[A] plaintiff can [move to strike] a special defense . . ." Nowak v. Nowak, 175 Conn. 112, 116 (1978).
It is well established in Connecticut that special defenses in a foreclosure action must relate to the making, validity, or enforcement of the mortgage note. Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 15, 728 A.2d 1114 (1999). In Ulster Savings Bank v. 28 Brynwood Lane, Ltd, (Superior Court, Docket No. X08 CV 05 4007323, January 11, 2010, Jennings, J.T.R.), the court noted that: "there have been many and varied interpretations of the `making, validity and enforcement' requirement by Connecticut Superior Court decisions. There is a line of cases which interprets the phrase very strictly to mean the execution and delivery of an enforceable instrument, and not the occurrences that may arise between the parties during the course of their loan relationship. Id.; see Federal National Mortgage v. Mallozzi, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. 165698 (February 10, 1999, Hickey, J.); Ocwen Federal Bank FSB v. Weinberg, Superior Court, Judicial District of New London, Docket No. 547629 (August 11, 1999, Mihalakos, J.). A second line of cases, however, interprets the `making, validity, and enforcement' requirement less rigidly. See Liberty Bank v. New London Limited Partnership, [Superior Court, judicial district of New London, Docket No. 4005236 (May 1, 2007, Devine, J.) ( 43 Conn. L. Rptr. 326, 326]; Ocwen Federal Bank FSB v. Rivas, Superior Court, judicial district of Fairfield, Docket No CV 99 0368135 (February 21, 2002, Stevens, J.). Bank of America, N.A. v. Groton Estates, LLC, Superior Court, judicial district of New London, Docket No. CV 09 6001697 (July 13, 2010, Devine, J.). These cases take the position that `post-execution actions or positions of a lender can relate to the enforcement of a note and mortgage.' Id. This court favors the strict interpretation
The special defenses here do not go to the validity or making of the Mortgage Note. They pertain to conduct which occurred well after the loan documents were executed.
To state a special defense based on "unclean hands," a party must allege facts "that, if admitted, would rise to the level of unclean hands so as to preclude the court from rendering . . . relief." Bauer v. Waste Mgmt. of Conn., Inc., 239 Conn. 515, 526-27 (1996) (denying motion to amend answer to include unclean hands special defense). "The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in willful misconduct with regard to the matter in litigation." Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 407, 867 A.2d 841 (Conn.App. 2005) (internal citations and quotation omitted) (emphasis added). No willful misconduct by the plaintiff is alleged with regard to the matter in litigation.
The first special defense fails to allege facts that would support an unclean hands defense. The defendants do not allege that the plaintiff intended to cause the defendants harm in connection with its dealing with the Town of Southington or the prospective buyer.
A successful unclean hands defense to a foreclosure action may be asserted in situations where a lender takes advantage of an unsophisticated borrower, unrepresented by counsel, such as by charging significant fees or an arbitrarily high interest rate. Monetary Funding Group, Inc., supra, 87 Conn.App. at 407-08. Similarly, where a lender misleads an unsophisticated borrower, a foreclosure of the note held by the lender may be barred by unclean hands. Id. The lender's misdeeds must, however, arise to "intentional misconduct with respect to the various transactions" and be undertaken to gain some improper advantage, such as generating "excessive fees and costs" for the lender. Id. at 410.
The defendants do not allege that they were unsophisticated borrowers, unrepresented by counsel, or that the plaintiff engaged in sharp lending practices, such as charging excessive fees. The first special defense is ordered stricken.
The Connecticut Appellate Court has rejected the breach of implied covenant of good faith and fair dealing as a valid defense to a foreclosure action. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 716-17, cert. denied, 262 Conn. 915 (2002). The second special defense is, therefore, ordered stricken.
The third special defense of equitable estoppel does not relate to the making, validity or enforcement of the mortgage and note. Under the terms of the Mortgage Note and Mortgage Deed, the defendants were responsible for paying taxes. The complaint alleges and the defendants have not denied, that there are at least three tax liens on the Property. Any communication by the plaintiff to the Town of Southington came after the execution of the Mortgage Note and Deed and did not change the provisions in those documents which makes the defendants responsible for paying taxes, and makes failure to pay taxes an event of default. The third special defense is ordered stricken.
The fourth special defense alleges that the plaintiff failed to mitigate its damages. The plaintiff has failed to mention this special defense in its Motion to Strike or the Memorandum in Support thereof. Generally, one who has been injured by the negligence of another must use reasonable care to mitigate his damages. Futterleib v. Mr. Happy's, Inc., 16 Conn.App. 497, 501, 548 A.2d 728 (1988). Lessors must also mitigate their damages under certain circumstances. See, e.g. Brennan Associates v. Obgyn Specialty Group, 127 Conn.App. 746 (2011); K R Realty Associates v. Gagnon, 33 Conn.App. 815, 819, 639 A.2d 524 (1994). Similarly, those seeking contract damages sometimes must mitigate their damages. Keefe v. Norwalk Cove Marina, Inc., 57 Conn.App. 601, 610, 749 A.2d 1219, cert. denied, 254 Conn. 903, 755 A.2d 881 (2000).
Various judges of this court have held that the special defense of failure to mitigate damages is not applicable to a mortgage foreclosure. Citimortgage, Inc. v. Speer, 2011 Ct.Sup. 5270 (Feb. 17, 2011); Great Western Bank v. McNulty, Superior Court, Judicial District of Stamford/Norwalk at Stamford, Docket No. 139799 (March 16, 1995) (D'Andrea, J.). This court agrees. The concept of mitigation of damages is inapplicable to a mortgage foreclosure action where the damages consist of a sum certain, the repayment of which has been agreed to by the defendant maker of a promissory note. However, the plaintiff has not moved to strike the fourth special defense and, therefore, it is not ordered stricken.
Connecticut Superior Court judges are split on whether a violation of the Connecticut Unfair Trade Practices Act, Connecticut General Statutes § 42-110a et seq., CUTPA, is a valid defense to a foreclosure action. This court agrees with those who have held that a violation of CUTPA is not a valid special defense in a foreclosure action. "CUTPA is a sword rather than a shield." See U.S. Bank National Ass'n v. Ascenzia, No. CV-08-5022527, 2009 Ct.Sup. 12785, 48 Conn. L. Rptr. 345 (Jul. 30, 2009); GE Capital Mortgage v. Klett, No. CV 95-0552540 16 Conn. L. Rptr. 186 (February 21, 1996). In this case the complaint alleges municipal tax liens on the property placed each year for several years prior to the alleged unfair conduct by the plaintiff. In essence, the defendant is alleging that the plaintiff's failure to communicate to it about municipal taxes after a default for failure to pay taxes had existed for years is conduct sufficient to eradicate the defendant's $2,175,000 mortgage debt to the plaintiff. In addition, the defendant further alleges that an unnamed potential buyer's failure to buy the mortgaged property after a meeting with the plaintiff is also sufficient to erase its debt to the plaintiff.
Even if violation of CUTPA was a proper defense to a foreclosure action, which it is not, the alleged conduct by the plaintiff clearly does not rise to the level of being unfair or deceptive.
In determining whether a practice violates CUTPA Connecticut courts are guided by the criteria set out in the Federal Trade Commission's so-called cigarette rule: "(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]." (Internal quotation marks omitted.) Ventres v. Goodspeed Airport, LLC, 275 Conn. 105, 155, 881 A.2d 937 (2005), cert. denied, 547 U.S. 1111, 126 S.Ct. 1913, 164 L.Ed.2d 664 (2006).
For the foregoing reason the fifth special defense is ordered stricken.