Opinion
No. CV07 500 60 88 S
February 18, 2010
MEMORANDUM OF DECISION
This matter is before the court on the plaintiff's motion to strike the defendant's first through fifth special defenses and first through fifth counterclaims.
The plaintiff, Wells Fargo Bank, initiated a foreclosure action by way of a one-count complaint filed December 26, 2006, with a return date of January 2, 2007, in which it alleges the following facts. The plaintiff is the successor in interest to a mortgage note executed on December 23, 2003, in which the defendant, Cynthia Lewis, promised to pay the amount of $205,000 to Guardian Loan Company of Massapequa, Inc. To secure the note, the defendant mortgaged her interest in the premises known as 1020 Old Town Road in Trumbull. The note and mortgage came into default as a result of the defendant's nonpayment of installments of principal and interest, and the plaintiff exercised its option to declare the entire balance due on the note. The plaintiff seeks foreclosure of the mortgage and immediate possession of the mortgaged premises, among other relief.
On January 17, 2007, the defendant filed her original answer and special defense. The plaintiff filed a motion for summary judgment on June 12, 2007, which was denied by the court (Maiocco, J.) on September 19, 2007. The defendant filed the present revised answer with five special defenses and five counterclaims on September 23, 2009. On October 29, 2009, the defendant filed a motion to strike all ten of the defendant's special defenses and counterclaims. The motion was accompanied by a memorandum of law. The defendant filed a memorandum in opposition to the motion to strike on December 11, 2009.
The five special defenses allege 1) fraudulent misrepresentation; 2) negligent misrepresentation; 3) innocent misrepresentation; 4) unconscionability; and 5) unclean hands. The five counterclaims allege 1) fraudulent misrepresentation; 2) negligent misrepresentation; 3) innocent misrepresentation; 4) breach of the covenant of good faith and fair dealing; and 5) a violation of CUTPA.
Practice Book § 10-39(a) provides in relevant part: "Whenever any party wishes to contest . . . the legal sufficiency of any answer to any complaint, counterclaim or cross 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." "[G]rounds other than those specified [in the motion] should not be considered by the trial court in passing upon a motion to strike . . ." Gazo v. Stamford, 255 Conn. 245, 259, 765 A.2d 505 (2001). "In . . . ruling on the . . . motion to strike, the trial court recognize[s] its obligation to take the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992). "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 . . ." Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2005).
As a preliminary matter, the plaintiff claims in its supporting memorandum that the "defendant avers that the default notices sent by the plaintiff were incorrect, because the notices said . . . she did not make payments. Essentially, the defendant is claiming a defense of payment." The plaintiff argues that the special defenses are therefore legally insufficient and requests that the plaintiff be ordered to assert the payment defense alone. This argument misconstrues the factual allegations of the special defenses. When read in the manner most favorable to sustaining their sufficiency, the defendant's special defenses do not allege that the notices falsely claimed the existence of a default, but rather misrepresented the nature of the default as well as facts relating to the acceptance of payments. The defendant nowhere alleges that full payments were made. Therefore the court will not strike the special defenses on this ground.
The defendant's first special defense alleges in relevant part: "[T]he Defendant was induced by fraudulent misrepresentation made within the default notices, to believe that the acceleration of her loan was due to missed payment, while no payments were missed . . ." The defendant also alleges that she had made "timely" payments in the months preceding the commencement of this action, and that the plaintiff had failed to post or refused to accept timely payments.
First Special Defense: Fraudulent Misrepresentation
The defendant's first special defense alleges that the defendant's fraudulent misrepresentations on the default notices misled the plaintiff as to its obligations under the mortgage note. In its motion to strike, the plaintiff notes that the defendant's first special defense fails to allege that she was making "proper and sufficient" payments. Without alleging such, the plaintiff argues, the defendant's claim for misrepresentation is factually insufficient. The defendant counters in her memorandum in opposition that she alleged sufficient facts to plead fraudulent misrepresentation, and that an allegation that she made sufficient payments is not required to raise this special defense.
"The essential elements of a cause of action in [fraudulent misrepresentation] 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 the false representation to his injury." Solano v. Calegari, 108 Conn.App. 731, 741, 949 A.2d 1257 (2008). "Because specific acts must be pleaded, the mere allegation that a fraud has been perpetrated is insufficient." Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. 183, 188, 850 A.2d 260, aff'd, 92 Conn.App. 904, 884 A.2d 22 (2005).
In the present case, the defendant does allege that the notices contained false representations and the plaintiff concedes as much in its memorandum. The plaintiff does not directly challenge the sufficiency of the defendant's allegations, but rather implies that they are insufficient by arguing that "the defendant should be made to allege that she was making sufficient and full payments . . . if she is to sustain [the] defense . . ." The plaintiff does not explain why such additional allegations are needed beyond the conclusory statement that "[t]hose facts are critical to the sufficiency of defendant's assertions." Construed in the manner most favorable to the defendant, however, the allegations in the first special defense as they presently exist allege that a false representation of fact was made. The court cannot find any basis, and the plaintiff does not supply any, in support of the argument that the defendant is required to allege full payment to raise a legally sufficient defense of fraudulent misrepresentation. Accordingly, the court denies the motion to strike the first special defense.
The plaintiff states that "the defendant merely alleges that she was making payments and the default notices were false."
Second Special Defense: Negligent Misrepresentation
The defendant's second defense alleges that the default notices contained negligent misrepresentations on which the defendant relied to her detriment. In its motion to strike, the plaintiff again notes that the special defense is factually insufficient in that it fails to allege that she was making "full and sufficient" payments.
"[T]o establish the claim of negligent misrepresentation as a defense in [a] foreclosure action, the [defendant has] to establish (1) that the [plaintiff] made a misrepresentation of fact (2) that the [plaintiff] knew or should have known was false, and (3) that the [defendant] reasonably relied on the misrepresentation, and (4) suffered pecuniary harm as a result." Johnnycake Mountain Associates v. Ochs, 104 Conn.App. 194, 201, 932 A.2d 472, cert. denied, 286 Conn. 906, 944 A.2d 978 (2008).
As with the first special defense, the defendant's second special defense, when read in the manner most favorable to sustaining its sufficiency, alleges the existence of a misrepresentation in the default notices. That the defendant's second special defense is silent as to whether the payments alleged to have been made were proper and sufficient is irrelevant to the legal sufficiency of the special defense, as the defendant is not required to plead any particular set of facts in raising a defense of negligent misrepresentation. Accordingly, the court denies the plaintiff's motion to strike the second special defense.
Third Special Defense: Innocent Misrepresentation
The defendant's third special defense alleges that the defendant was induced by the innocent misrepresentations of the plaintiff. The plaintiff argues that the defendant's failure to allege that full and sufficient payments were being made at the time of default precludes her from claiming that the default notices were false.
"Traditionally, an action for negligent [or innocent] 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." Nazami v. Patrons Mutual Ins. Co., 280 Conn. 619, 626, 910 A.2d 209 (2006). "Even an innocent 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." Barton v. Bristol, 291 Conn. 84, 102, 967 A.2d 482 (2009).
As with the first and second special defenses, the third special defense, when viewed in the manner most favorable to sustaining its sufficiency, alleges the existence of a misrepresentation. That the defendant's third special defense is silent as to whether the payments alleged to have been made were proper and sufficient is irrelevant to the legal sufficiency of the special defense, as the defendant is not required to plead any particular set of facts in raising a defense of innocent misrepresentation. Accordingly, court denies the plaintiff's motion to strike the third special defense.
Fourth Special Defense: Unconscionability
The defendant's fourth special defense alleges that the plaintiff's conduct, including a failure to post the defendant's timely payments, was unconscionable. The plaintiff, in its motion to strike, argues that the defense is legally insufficient on the ground that the doctrine of unconscionability requires allegations that the clauses of a contract are one-sided. The defendant counters that unconscionability "is not limited to clauses" and may be extended to other one-sided transactions.
"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, the 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." Family Financial Services, Inc. v. Spencer, 41 Conn.App. 754, 763, 677 A.2d 479 (1996). "A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made — i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party . . ." Hottle v. BDO Seidman, LLP, 268 Conn. 694, 719, 846 A.2d 862 (2004).
In the present case, the defendant provides no allegations that the terms of the loan agreement are one-sided or unreasonably favorable to the plaintiff. Although the defendant argues that unconscionability is not limited to clauses within agreements, she provides no authority in support of this proposition. In the absence of allegations that any of the clauses or terms of the loan agreement are one-sided, the defendant's facts as set forth are legally insufficient to sustain a defense of unconscionability. Accordingly, the court grants the plaintiff's motion to strike the fourth special defense.
Fifth Special Defense: Unclean Hands
In her fifth special defense, the defendant alleges that the plaintiff cannot maintain the present foreclosure action against her because it comes to the court with unclean hands. The plaintiff argues that this defense should be stricken on the ground that the defendant fails to allege that the plaintiff engaged in wilful misconduct, or in conduct of such a character as to be condemned by honest and fair-minded people. The defendant counters that she has alleged sufficient facts to invoke the doctrine of unclean hands, as she has alleged that the plaintiff would not be permitted to bring this foreclosure action but for its refusal to accept her timely payments, although that is not alleged in the special defense. The defendant also claims that the notices were improper in that they misled her. That allegation, while pleaded within the first special defense, is not incorporated into the fifth special defense.
The defendant incorporates only paragraphs 1-24 of the first special defense into the special defense of unclean hands, thus omitting the allegation, present in paragraph 26, that the "[d]efendant was induced by fraudulent misrepresentations made within the default notices, to believe that the acceleration of her loan was due to missed payment . . ." Paragraphs 1-24 do not expressly allege that the defendant was misled by representations in the notices. The court may not look beyond those facts alleged in a special defense in considering a motion to strike. See Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 549-50, 427 A.2d 822 (1980) ("A motion to strike . . . is to be tested by the allegations of the pleading demurred to, which cannot be enlarged by the assumption of any fact not therein alleged.")
"The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue . . . Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." Thompson v. Orcutt, 257 Conn. 301, 310, 777 A.2d 670 (2001). "The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation . . . The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked." Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 407, 867 A.2d 841 (2005).
"Our Supreme Court defines `wilful misconduct' as `intentional conduct' with `the design to injure either actually entertained or to be implied from the conduct and circumstances . . . Not only the action producing the injury but the resulting injury must also be intentional.'" Witczak v. Gerald, 69 Conn.App. 106, 116, 793 A.2d 1193 (2002). Mere allegations that a party engaged in wrongful or improper conduct may be insufficient to show wilfulness, nor will a showing of wilfulness suffice where an intent to injure is not alleged. See EMC Mortgage Corp. v. Shamber, Superior Court, judicial district of Tolland, Docket No. CV 07 5001252S (November 12, 2009, Sferrazza, J.) (holding that an allegation that a bank "wrongfully" rejected a homeowner's mortgage payments was insufficient to show that the bank acted wilfully); Deutsche Bank National Trust v. Griffin, Superior Court, judicial district of Litchfield, Docket No. CV 07 5002285S (January 17, 2008, Pickard, J.) (finding allegations of intentional misconduct insufficient to sustain an unclean hands defense to a foreclosure action where there was no allegation of intent to injure).
Because the facts raised by the defendant in its memorandum in opposition are not alleged in the fifth special defense, the court may not consider them in the context of deciding a motion to strike. Nonetheless, the defendant does allege in its special defense that the plaintiff committed the "error of failing to accept the [d]efendant's timely payment," and failed to post other payments made by the defendant. It furthermore alleges that "the [p]laintiff . . . reaped profits through the employment of a pattern of deceptive practices, resulting in foreclosure of the [d]efendant's property." Absent from these factual claims is any allegation that the plaintiff acted wilfully in failing to accept or post the defendant's payments. The defendant's characterization of the plaintiff's action as an "error" is connotative of mistake or negligence rather than intentional conduct, and cannot be construed to mean that the plaintiff acted wilfully. Additionally, the defendant does not make clear which practices were deceptive, or how. The defendant's allegation that the plaintiff engaged in "wilful misconduct" is a legally conclusory statement, and cannot assist the court in determining whether facts exist which, if proved, would show that the plaintiff acted wilfully. Accordingly, the court grants the motion to strike the fifth special defense.
First, Second and Third Counterclaim: Fraudulent, Negligent and Innocent Misrepresentation
In her first, second and third counterclaim, the defendant alleges that the plaintiff's notices contained fraudulent, negligent and innocent misrepresentations, respectively. The plaintiff argues in its motion to strike that in all three counterclaims the defendant fails to allege that she made full and sufficient payments and therefore the counterclaims are legally insufficient. As with the first, second and third special defenses, the fact that these counterclaims are silent as to whether the payments alleged to have been made were full and sufficient is immaterial to the legal sufficiency of the counterclaims, which allege the existence of misrepresentations in the default notices. Therefore the court denies the motions to strike the first three counterclaims.
Fourth Counterclaim: Covenant of Good Faith and Fair Dealing
The plaintiff next argues that the fourth counterclaim should be stricken on the ground that a claim for breach of the covenant of good faith and fair dealing is not a recognized counterclaim in a foreclosure proceeding. The defendant argues that such a claim is only barred when it fails to address to making, validity or enforcement of the mortgage. Here, the defendant argues, the counterclaim addresses the enforcement of the note.
In support of its argument the plaintiff cites the proposition in New Haven Savings Bank v. LaPlace, 66 Conn.App. 1, 10, 783 A.2d 1174, cert. denied, 258 Conn. 942, 786 A.2d 426 (2001), that "counterclaims alleging a breach of an implied covenant of good faith and fair dealing . . . are not equitable defenses to a mortgage foreclosure." In apparent contrast, however, in Atlantic Mortgage Investment Corp. v. Stephenson, 86 Conn.App. 126, 130, 860 A.2d 751 (2004), our Appellate Court affirmed a trial court decision holding that a defendant in a foreclosure action had prevailed in its counterclaim for breach of the implied covenant of good faith and fair dealing. Thus, our Appellate Court has not clearly and consistently held that a counterclaim alleging a breach of an implied covenant of good faith and fair dealing may never serve as a defense in foreclosure actions.
This court has previously recognized that a breach of the implied covenant of good faith and fair dealing may be a permissible defense in a foreclosure action. See First Connecticut Capital Mortgage Fund v. Lighthouse Homes, LLC, Superior Court, judicial district of Fairfield, Docket No. CV 06 5004695 (August 10, 2007, Maiocco, J.T.R.). More recent decisions of our Superior Court have considered the appellate authority in this area and concluded that such a counterclaim is not automatically barred in a foreclosure action. See EMC Mortgage Corp. v. Shamber, supra, Superior Court, Docket No. CV 075001252S (questioning the underpinnings of the holding in LaPlace and concluding that "a breach of the covenant of good faith and fair dealing may be a valid . . . counterclaim in a foreclosure case but only if the specific breach asserted goes to the making, validity, or enforcement of the note and/or mortgage."); see also U.S. National Bank Ass'n. v. Ascenzia, Superior Court, judicial district of New Haven, Docket No. CV 08 5022527 (July 30, 2009, Abrams, J.) ( 48 Conn. L. Rptr. 345, 347); Patriot National Bank v. Bobbi, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 08 5009026S (June 9, 2009, Mintz, J.) ( 47 Conn. L. Rptr. 851, 854-55).
The court therefore concludes that a counterclaim alleging breach of the covenant of good faith and fair dealing in a foreclosure action is not automatically barred as a matter of law. Therefore the court denies the plaintiff's motion to strike the fourth counterclaim.
Fifth Counterclaim: CUTPA
The plaintiff has also moved to strike the defendant's fifth counterclaim, which alleges a violation of the Connecticut Unfair Trade Practices Act (CUTPA), codified in General Statutes § 42-110(a) et seq. The plaintiff argues that the counterclaim fails to set forth allegations of immoral or unethical conduct, and that the plaintiff must allege that her payments were full and sufficient. The plaintiff also argues that the defendant's claim under CUTPA is essentially a breach of contract claim, and that breach of contract allegations are generally insufficient to state a claim under CUTPA. The defendant counters that her factual allegations are sufficient to show immoral or unethical conduct in that the plaintiff misrepresented the nature of the default in the default notices.
"CUTPA provides that no person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce . . . In order to enforce this prohibition, CUTPA provides a private cause of action to any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a [prohibited] method, act or practice . . . Thus, in order to prevail in a CUTPA action, a plaintiff must establish both that the defendant has engaged in a prohibited act and that, as a result of this act, the plaintiff suffered an injury." Stevenson Lumber Co.-Suffield, Inc. v. Chase Associates, Inc., 284 Conn. 205, 213-14, 932 A.2d 401 (2007). For conduct to fall within CUTPA, it must generally be shown to be immoral, unethical, oppressive or unscrupulous. Ramirez v. HealthNet of the Northeast, Inc., 285 Conn. 1, 19, 938 A.2d 576 (2008). A counterclaim alleging a violation of CUTPA may be properly brought in a foreclosure action. Monetary v. Pluchino, supra, 87 Conn.App. 412-15. Absent substantial aggravating circumstances, a claim alleging simple breach of contract is insufficient to establish a violation of CUTPA. See Lydall, Inc. v. Ruchsmeyer, 282 Conn. 209, 248, 919 A.2d 421 (2007). "Depending upon the nature of the assertions, however, the same facts that establish a breach of contract claim may be sufficient to establish a CUTPA violation." Greene v. Orsini, 50 Conn.Sup. 312, 315, 926 A.2d 708 (2007).
Although the plaintiff first argues that the CUTPA counterclaim is legally insufficient in that it fails to allege immoral or unethical conduct, this assertion is not accompanied by any relevant law or specific factual analysis. In the absence of supporting law and analysis, such an argument will not be reviewed by the court. Ward v. Greene, 267 Conn. 539, 546, 839 A.2d 1259 (2004) ("Analysis, rather than mere abstract assertion, is required in order to avoid abandoning an issue by failure to brief the issue properly.") Elia v. Elia, 99 Conn.App. 829, 838, 916 A.2d 845 (2007) ("[P]arties may not merely cite a legal principle without analyzing the relationship between the facts of the case and the law cited . . .")
The plaintiff also argues that the CUTPA counterclaim merely alleges a breach of contract, and argues that for this reason the claim should be stricken. The plaintiff's argument misconstrues the allegations of the defendant's counterclaim. The defendant nowhere alleges that the plaintiff breached the terms of the loan agreement, nor does the plaintiff's memorandum attempt to identify any such allegations. Neither does the plaintiff explain why the existing allegations should be construed as breach of contract allegations. Moreover, even were the defendant's counterclaim interpreted as a breach of contract claim, this fact alone would not render it legally insufficient. The plaintiff would still be obligated to demonstrate that the facts alleged were not sufficient to establish a CUTPA claim. Finally, it is not necessary, as the plaintiff argues, that the defendant allege she was making full and sufficient payments in order to state a legally sufficient claim under CUTPA. Accordingly, the court denies the plaintiff's motion to strike the fifth counterclaim.
In summary, as to plaintiff's Motion to Strike, the court finds as follows:
DENIED as to Special Defenses one, two and three;
GRANTED as to Special Defenses four and five;
DENIED as to Counterclaims one, two three, four and five.