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Atlantic Mortgage, Inv. v. Stephenson

Connecticut Superior Court, Judicial District of Stamford-Norwalk Complex Litigation Docket at Stamford
Apr 4, 2003
2003 Ct. Sup. 4982 (Conn. Super. Ct. 2003)

Opinion

No. X08 CV 01 0182996

April 4, 2003


MEMORANDUM OF DECISION RE MOTION TO STRIKE (190.00) AND MOTION FOR SUMMARY JUDGMENT (188.00)


The plaintiff Atlantic Mortgage and Investment Corporation (Atlantic) seeks to foreclose on a mortgage granted in 1993 by the defendants Joseph Stephenson and Phyllis Stephenson on real property located at 179 Highview Avenue in Stamford, Connecticut which secured a loan in the principal amount of $201,700 to the defendants from Constitution Mortgage Bankers, Inc. (Constitution) and evidenced by an adjustable rate note. The Stephensons also signed a rehabilitation loan agreement. The note, mortgage and related documents were transferred to Atlantic in 1997.

The defendants filed an answer with special defenses to the foreclosure complaint, a cross claim and counterclaims. The cross claim was dismissed in October 2001. A second revised answer, special defenses and counterclaims were filed on December 17, 2002.

The defendants plead insufficient knowledge to answer the allegations of the complaint. They plead several special defenses, including equitable estoppel, unclean hands, collateral estoppel, res judicata, laches, violation of 12 U.S.C. § 4907 and a violation of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA). The defendants also plead a set-off based on the special defenses. Finally, they assert three counterclaims: (1) based on breach of warranty which is essentially a claim of breach of the implied covenant of good faith and fair dealing, (2) fraud, and (3) a violation of CUTPA.

Atlantic has filed two motions: (1) a motion to strike the special defenses, the set-off and counterclaims (190.00), and (2) a motion for summary judgment as to liability on the foreclosure complaint and to dismiss the counterclaims (188.00).

Before turning to the issues at hand, some general background facts, gleaned from the file and the pleadings, are in order. Sometime in 1995 the City of Stamford issued a cease and desist order with respect to the building at 179 Highview Avenue. In 1997 Constitution commenced a foreclosure action, apparently alleging as the grounds for default that defendants failed to comply with the terms of the rehabilitation loan agreement. In October 2000, that case (CV 97 0157208) was called for trial. The plaintiff (now Atlantic) asked for a continuance because it had disclosed no expert on the issue of compliance with local zoning ordinances and Atlantic wished to amend its complaint to allege non-payment as the default. The continuance was denied. Thereafter, Atlantic withdrew the suit and commenced this foreclosure action in 1991, alleging non-payment as a default.

This information is contained in the transcript of the hearing on the request for continuance which is in the file as an attachment to the defendants' (acting pro se at the time) motion to dismiss the complaint.

Atlantic obtained an ex parte attachment in the amount of $210,000.00 on the Stephensons' residence at 251 Greyrock Place in Stamford and to garnish an insurance proceeds check in the amount of slightly under $64,000.00 arising from a claim with respect to the 179 Highview Avenue property.

In considering the Stephensons' claims and defenses the court is cognizant of several recent Appellate Court decisions discussing appropriate special defenses and counterclaims in foreclosure actions. In New Haven Savings Bank v. LaPlace, 66 Conn. App. 1, cert. denied, 258 Conn. 912 (2001), the Appellate Court agreed that the trial court had properly granted summary judgment for the plaintiff in a foreclosure case on the ground that the defendant's special defenses and counterclaim were not related to "the making, validity or enforcement of the [underlying] note." Id., 9, 11. See also Southbridge Associates, LLC v. Garofolo, 53 Conn. App. 11, cert. denied, 249 Conn. 919 (1999). The Appellate Court also stated that an alleged breach of the implied covenant of good faith and fair dealing was not an equitable defense in a foreclosure action. New Haven Savings Bank v. LaPlace, supra, 66 Conn. App. 10.

In LaSalle National Bank v. Freshfield Meadows, 69 Conn. App. 824 (2002), the Appellate Court reiterated its view of the covenant of good faith and fair dealing as a defense to foreclosure and added that, even if it were a defense, the court must look at the plain language of the note and mortgage to see if the defense is consistent with the language of both documents. Id. 835.

Most recently, in Fidelity Bank v. Krenisky, 72 Conn. App. 700 (2002), the Appellate Court disposed of a good faith and fair dealing defense by noting that the plaintiff had acted in accordance with its rights set forth in the note and mortgage. The court also emphasized that special defenses in a foreclosure action must include more than an assertion of some legal conclusion; they must allege facts in support thereof.

It is well worth noting that each of the above cases have emphasized that a trial court in a foreclosure action, an equitable proceeding, "may examine all relevant factors to ensure that complete justice is done . . . [and] a court may withhold foreclosure on equitable considerations and principles." E.g. Fidelity Bank v. Krenisky, supra, 72 Conn. App. 705. This point was again brought home in Morgera v. Chiappardi, 74 Conn. App. 442, 455-59 (2003) (stressing, in a foreclosure case, the necessity of providing the defendant with a "fair opportunity to be heard" and that equity looks to substance, not form).

I. The Motion To Strike

The court will turn first to that part of the plaintiff's motion to strike directed at the defendants' special defenses. The following quotation, while describing the standard of review in the content of a motion to strike a complaint, is equally applicable to a motion to strike a special defense.

"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997); see Practice Book § 10-39. "A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court . . . We take the facts to be those alleged in the complaint . . . and we construe the complaint in the manner most favorable to sustaining its legal sufficiency . . . Thus, [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Citations omitted; internal quotation marks omitted.) Vacco v. Microsoft Corp., 260 Conn. 59, 64-65, 793 A.2d 1048 (2002). "A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." Novametrix Medical Systems, Inc. v. BOC Group, Inc., 224 Conn. 210, 215, 618 A.2d 25 (1992).

Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003).

In their first and third special defenses the defendants raise several overlapping allegations as a basis for their claim of equitable estoppel. Their allegations are that Atlantic (1) failed to pursue a prior foreclosure action on the subject mortgage when it was nearing trial by unilaterally withdrawing the complaint and subsequently filing a new case, (2) used an incorrect interest calculation and (3) actively worked with the City of Stamford to prevent the subject property from being developed as an income producing property by providing a "low ball" appraisal of the property's value. Estoppel is predicated on two elements: (1) the party against whom estoppel is asserted must say or do something calculated or intended to induce the other party to believe in the existence of certain facts and to act on that belief and (2) the other party must change its position in reliance on those facts and thereby incur same injury. Eis v. Meyer, 213 Conn. 29, 34 (1989). The defendants do not allege these elements, and indeed it is difficult to see how they could. The first and third special defenses are stricken.

The second special defense alleges that the plaintiff has "unclean hands" on the basis of the allegedly intentionally low appraisal given to Stamford causing the City to hinder development of the property. This defense does not have any relationship to the making, validity or enforceability of the note or mortgage. Furthermore, the matter involving Stamford was not related to this action. See DeCecco v. Beach, 174 Conn. 29, 35 (1977). The second special defense is stricken.

The fourth and fifth special defenses allege that Atlantic is collaterally estopped or subject to res judicata because it was subject to sanctions for not being prepared to try the initial foreclosure case and therefore withdrew that case, which was an abuse of process. Defendants also claim an improper interest rate calculation. Not one of these allegations states a defense of collateral estoppel which is generally defined as the doctrine that bars re-litigation, in a second action, issues already determined in a first action between the same parties. State v. Aillon, 189 Conn. 416, 424 n. 8, cert. denied, 464 U.S. 837 (1983). There were no issues determined in the first action. The fourth special defense is stricken. Practically the same may be said about the fifth special defense alleging res judicata. Res judicata precludes subsequent relitigation of a claim if a judgment on that claim has previously been rendered. Id. 423. There were no judgments entered in the first case, and the fifth special defense is stricken.

The sixth special defense pleads laches. Defendants allege that the initial foreclosure action was commenced on February 18, 1997 and it alleged defaults which occurred well before that date. Atlantic abandoned the case by withdrawing it allegedly on the eve of trial and then has revived it so that there has been a significant passage of time. Laches may be an equitable defense in a foreclosure action. See BayBank Connecticut, N. A. v. Thumlert, 222 Conn. 784, 791-92 (1992). The doctrine of laches, however, requires that a long delay be unreasonable, inexcusable and prejudicial. Dunham v. Dunham, 204 Conn. 303, 327 (1987). Defendants have not alleged, in any fashion, how the delay has prejudiced them. The sixth special defense is stricken.

The seventh special defense alleges that Atlantic and its predecessor intentionally applied an excessive rate of interest in violation of 12 U.S.C. § 4907. This section of the United States Code only applies to single-family residence mortgages transactions occurring after July 29, 1998 and does not apply to this case. The seventh special defense is stricken.

The eighth special defense alleges that Atlantic and its predecessor violated "state and federal statutes and regulations relating to the deceptive application of interest rates, under Connecticut Unfair Trade Practice Act." This special defense is incomplete in a number of ways; notably it lacks any specification as to what statutes were violated. In addition, the special defense does not allege the elements of a CUTPA violation. Without such specification, it is legally meaningless and is stricken.

Atlantic's motion to strike also seeks to strike the set-off pleaded by the Stephensons. The set-off is based on the alleged violation of duties set forth in the special defenses which allegedly caused damages in an unspecified amount to the defendants including costs of defense of the initial foreclosure action, loss of income, loss of property and pain and suffering. Because the set-off contains no allegations of fact and is entirely based on the special defenses, which have been found wanting, the set-off is stricken. However, in the interests of equity, some of the claimed damages will be discussed infra.

II. The Motion for Summary Judgment

Atlantic has moved for summary judgment as to liability on its complaint and to dismiss the Stephensons' counterclaims. Summary judgment may be granted when the pleadings, affidavits and other proof "show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Practice Book § 17-49.

In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party . . . The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact and that the party is, therefore, entitled to judgment as a matter of law . . .

Gold v. Greenwich Hospital Ass'n, 262 Conn. 248, 253 (2002).

As to liability on the complaint Atlantic offers the note in the amount of $201,700, and the mortgage on 179 Highview Avenue both signed by the Stephensons. The Snider affidavit states that the note has been in default since February 1997, that notice of demand was made and that the amount of principal and interest due and owning as of January 1, 2003 $230,943.37. Taxes and other charges are also claimed.

The affidavit of Lucy Snyder, first vice-president of Atlantic, presenting these documents, refers to the mortgaged property 251 Greyrock Place. This is an error, as that is the Stephensons' residence address.

The defendants do not contest that they are in default. The issue of liability on the note is not addressed in either the affidavit of Joseph Stephenson or in the defendants' opposing memorandum of law. There are no material facts at issue with respect to liability on the note. Therefore, summary judgment as to liability on the note is granted.

The defendants have asserted three counterclaims. The first is styled breach of warranty, the second alleges fraud, and the third alleges a violation of CUTPA. All the counterclaims, which are confusingly drafted, contain the same allegations, i.e. that Atlantic (1) failed to make certain disclosures and improperly administered the loan; (2) took a position adversarial to the defendants in the zoning enforcement case; (3) procured a fraudulently "low ball" appraisal of the subject property for use in the zoning enforcement case, and in support of an ex parte attachment; (4) refused to negotiate the disposition of an insurance check; and (5) made misrepresentations as to the interest rate and debt. Each of the counterclaims also refer to "abuse of process" in the initial foreclosure action.

The allegations of the counterclaims are, in part, supported by an affidavit submitted by the defendant Joseph Stephenson. However, the Stephenson affidavit is deficient in several significant respects. In large part it repetitively parrots the allegations of the counterclaims and by so doing states conclusions and legal theorums, rather than facts. Paragraphs 12-16 contain the essence of the affidavit:

12. Atlantic Mortgage acting through its attorneys and agents have breached the terms of the contracts between the parties, including the implied covenant of good faith and fair dealing in one of more of the following ways:

a. by not making full disclosures and (sic) properly making and administering the loan,

b. by taking litigation positions in the Stamford v. Stephenson zoning enforcement litigation which impaired the value of the property securing the loan,

c. by procuring a fraudulent "lowball" appraisal of Defendants' property for use in the Stamford v. Stephenson zoning enforcement litigation for the purpose of putting Defendants in an untenable position with respect to the City of Stamford v. Stephenson and for its own purpose with respect to an unconstitutional Ex Parte Attachment,

d. by refusing to respond in any fashion to efforts to negotiate the disposition of the proceeds of $63,946.34 insurance check payable to all of the parties, by abusing process in not pursuing to trial the original foreclosure litigation, by falsely misrepresenting the value of the property to the court in this foreclosure proceeding in a wrongful effort to maximize the possible deficiency judgment and seek other litigation and negotiating advantages,

e. by making misrepresentations regarding the interest rate and debt,

f. by seeking ex parte orders in this pending litigation with no notice to the parties or counsel and by other acts such as not seeking a variance on the property to protect its value, all of which may be more specifically pleaded as discovery is pursued.

13. I am convinced that Atlantic Mortgage and its agents have caused my mother and me to suffer monetary losses, emotional distress, litigation costs and expenses, pain and suffering, and had their ability to negotiate and resolve other related land use litigation, including the abuse of process in the original foreclosure action improperly impairing the property causing monetary damages.

14. As a result, my mother and I have been injured and incurred damages as a result of Atlantic Mortgage's breach of its warranty of good faith and fair dealing and the result in its fraudulent conduct with respect to our mortgage and note.

15. The actions of Atlantic Mortgage and its agents violate CUTPA, C.G.S. Section 42-110 (g), et seq. in that they are immoral, oppressive, or violate public policy or the law thereby causing monetary damages to my mother and I.

16. I am convinced that the issues of this litigation are numerous, complex, and have a significant factual aspect.

Putting the most favorable gloss on the Stephenson affidavit and the allegations of the counterclaims the Stephensons assert that Atlantic presented an artificially low appraisal of the subject property and this somehow adversely affected the zoning enforcement litigation with the City of Stamford and allowed Atlantic to obtain an improper ex parte attachment. Second, the defendants are asserting that an insurance proceeds check of almost $64,000 payable to the Stephensons and Atlantic was never negotiated. Finally, the Stephensons allege that they were prejudiced and damaged by Atlantic's unilateral withdrawal of the initial foreclosure action and subsequent filing of a second foreclosure action.

In support of Atlantic's motion for summary judgment the affidavit of Lucy Snyder states that the plaintiff has not made any efforts to provide an artificially low appraisal, that it did not engage in any efforts in conjunction with the City of Stamford to avoid the development of the property and that it has not made any intentional misrepresentations concerning interest or property values. This portion of the affidavit, in many ways, is as conclusory as that of Stephenson, although the court recognizes the unique burdens of proving a negative.

With regard to the so-called "low ball" appraisal the defendants simply have not set out facts which support a claim against Atlantic. First, there are no facts about the appraisal that support the conclusion that it was artificially or unprofessionally low, and second, there are no facts to support that Atlantic purposely procured a low appraisal. Equally important, the Stephensons provide no factual allegations as to how the appraisal injured them. The court takes judicial notice of the following. The City of Stamford zoning enforcement action resulted in an order of the Superior Court dated January 11, 2001 (Tierney, J.) finding that the Stephensons "in constructing, altering and maintaining the building at 179 Highview Avenue [in Stamford], their failure to remedy and abate the zoning and building violations, and their failure to abide by the cease and desist order of June 12, 1995, continuing to this date, have been and are willful." The court found that the building was an unsafe structure, "it is open to the weather . . . [c]eilings are falling. Stairs are broken." Since neither Atlantic nor the Stephensons seemed inclined to undertake reconstruction, the court ordered the building demolished, although allowing Atlantic time to apply for a variance to reconstruct a non-conforming building, which it did not do. The Stephensons were assessed a civil penalty of $2,500 and fined $203,600 for ignoring the cease and desist order for over five years. Order, City of Stamford v. Stephenson, Judicial District of Stamford-Norwalk at Stamford, CV 98 0163386 (January 11, 2001, Tierney, J.). Clearly, the Stephensons and their property were in dire straits well before Atlantic took ownership of the note and mortgage, and there is no factual connection offered linking these straits and the appraisal.

The attempt to make the same appraisal into a cause of action on the basis of its use by Atlantic to obtain an ex parte attachment in this case lacks merit. The defendants have never moved to dismiss or modify that attachment as is their right pursuant to General Statutes § 52-278e (d) (e). Nor, as noted, have they provided this court with any appraisal of their own, or other evidence contesting the findings of the allegedly low appraisal.

Atlantic's right to withdraw its initial foreclosure action is "absolute and unconditional." Smith v. Reynolds, 54 Conn. App. 381, 383 (1999); see also General Statutes § 52-80. However, that does not mean it is absolutely without consequences. There may arise occasions when the withdrawal of an action and the subsequent refiling of the same or a similar case causes a defendant to expend funds and time without any material benefit. Abuse of process is defined as using legal process against another in an improper manner or primarily to accomplish a purpose for which it is not designed. Norse Systems, Inc. v. Tingley Systems, Inc., 49 Conn. App. 582, 601 (1998) (quoting from Restatement Second [1977] of Torts § 682). There are material facts at issue in this context such as the intent and purpose of Atlantic's withdrawal of its initial foreclosure case.

The Stephensons also allege they were injured by Atlantic's failure to negotiate an insurance check in the amount of slightly under $64,000. The facts regarding this allegation are very sparse. Stephenson's affidavit statements are set forth above. The affidavit of Snyder does not touch on the subject. Atlantic contends that the mortgage requires the insurance proceeds check to be made payable to it, rather than the Stephensons. However, the provision is a directive to the insurance company, and there is no indication that the Stephensons violated that provision. The proceeds of the insurance check could be used to reduce the amount of indebtedness. The court is concerned that a significant amount of money was apparently available and now is not.

Lastly, the Stephensons contend that an erroneous interest rate was used by Atlantic and there were other unspecified errors in the administration of the loan and mortgage. At an earlier stage of this case the court (Rogers, J.) sustained Atlantic's challenge to the Stephensons' responses to Atlantic's requests for admission. The court found the responses not timely filed, and therefore, the requests are deemed admitted. Practice Book § 13-23. Among the plaintiff's requests to admit, dated May 15, 2001 are the following: No. 3 "The Defendant does not dispute how any payments were applied in this case" and No. 8 "all interest computations on the loan in this case are correct." For the purposes of this case and the pending motion the above statements are admitted.

Subsequent to the oral argument of these motions, the defendants moved to withdraw the deemed admissions. The court cannot perceive any benefit in relitigating this matter at this late date. The motion is denied.

As noted above, the three counterclaims, breach of warranty (implied covenant of good faith and fair dealing) fraud and violation of CUTPA contain the same factual allegations and refer to the same incidents. The court finds that there are material facts which are either disputed or unknown in two areas: the withdrawal of the initial suit and the failure to negotiate an insurance check.

The court concludes that while there may be unresolved facts they do not pertain to the claim of fraud. The Stephensons have not offered any facts to support that theory which must be pleaded with specificity and proven clearly and convincingly. The fraud counterclaim is dismissed.

As to the remaining claims there are disputed facts that must be resolved at trial. While the implied covenant claim is not viewed favorably as on equitable defense, see New Haven Savings Bank v. LaPlace supra, 66 Conn. App. 10; it may be the basis for a counterclaim. The court concludes that summary judgment should be denied as to the breach of the covenant of good faith and fair dealing and CUTPA counts, and that the Stephensons shall be allowed to present evidence at a trial to prove liability and damages only on their claims with respect to the insurance proceeds check and abuse of process claim. Practice Book § 17-51.

Conclusion

The motion to strike the special defenses and the set-off is granted. The motion for summary judgment on the issue of liability under the complaint and to dismiss the fraud count is granted. The motion for summary judgment as to the first and third counts is denied to the extent set forth above.

TAGGART D. ADAMS

SUPERIOR COURT JUDGE


Summaries of

Atlantic Mortgage, Inv. v. Stephenson

Connecticut Superior Court, Judicial District of Stamford-Norwalk Complex Litigation Docket at Stamford
Apr 4, 2003
2003 Ct. Sup. 4982 (Conn. Super. Ct. 2003)
Case details for

Atlantic Mortgage, Inv. v. Stephenson

Case Details

Full title:ATLANTIC MORTGAGE AND INVESTMENT CORP. v. JOSEPH STEPHENSON ET AL

Court:Connecticut Superior Court, Judicial District of Stamford-Norwalk Complex Litigation Docket at Stamford

Date published: Apr 4, 2003

Citations

2003 Ct. Sup. 4982 (Conn. Super. Ct. 2003)