LLC v. Winchester Estates, Inc. (2010)

MEMORANDUM OF DECISION

ISSUE

The issue is whether the court should grant the defendant Tissa Funding Corp's motion for summary judgment as to count one on the ground that there are no questions of material fact and that the plaintiff's note and mortgage are invalid as to Winchester Estates?

FACTS

This foreclosure action arises from a commercial loan transaction.   On the present motion, a defendant with a subordinate interest in one of the two properties at issue, Tissa Funding Corporation (Tissa), argues that a note that one of the other defendants, Winchester Estates, LLC (Winchester Estates), has with the plaintiff, Pension Services, LLC (Pensions Services) is invalid.   If the court grants Tissa's motion, Tissa will become a second mortgage holder on Winchester Estates' properties, rather than a third mortgage holder.

This foreclosure action commenced on October 31, 2008, when the plaintiff, Pension Services, filed a two-count complaint against the defendants, Winchester Estates, LLC (Winchester Estates), Aurora Rosa (Rosa) and Capital Source Finance, LLC (Capital Source).   Count one is directed at properties in Winchester, Connecticut (the Winchester properties) that were allegedly mortgaged by Winchester Estates in order to secure a $340,000 promissory note, and count two is directed at properties in Oxford, Connecticut (the Oxford properties) that were allegedly mortgaged by Rosa in order to secure the same note.   Winchester Estates owns the Winchester properties, while Rosa owns the Oxford properties.   Rosa is also a member and manager of Winchester Estates.   Rosa signed the note at issue in her individual capacity and on behalf of Winchester Estates.   Capital Source is named as a defendant because of its subordinate interest in the Winchester properties in favor of Tissa.   On December 17, 2008, Tissa filed a motion to substitute itself as a party defendant for Capital Source, which the court granted on January 5, 2009.

On March 30, 2009, Tissa filed an answer and special defenses.   In its second special defense, Tissa alleges, inter alia, that the mortgage that the plaintiff is seeking to foreclose is invalid and that no consideration or value was given for the note and mortgage.   Tissa seeks a judgment denying foreclosure, attorneys fees, costs of suit and any other equitable relief.   On April 2, 2009, the plaintiff filed a reply to Tissa's special defenses in which it denies the material allegations of Tissa's second special defense.   Winchester Estates, the plaintiff and Rosa all responded to Tissa's requests for admission on September 23, 2009, November 9, 2009 and January 4, 2010, respectively.¹

On March 19, 2010, Tissa filed the motion for summary judgment that is presently before the court, along with a memorandum of law and several exhibits.   On April 1, 2010, the plaintiff filed an objection to Tissa's motion for summary judgment, and on April 8, 2010, Tissa filed a reply brief.   This matter was heard at the short calendar on April 26, 2010.

DISCUSSION

“Summary judgment is a method of resolving litigation when pleadings, affidavits, and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  Wilson v. New Haven, 213 Conn. 277, 279, 567 A.2d 829 (1989).  “In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist.”  Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988).  “[B]efore a document may be considered by the court in support of a motion for summary judgment, there must be a preliminary showing of [the document's] genuineness, i.e., that the proffered item of evidence is what its proponent claims it to be ․ Documents in support of or in opposition to a motion for summary judgment may be authenticated in a variety of ways, including, but not limited to, a certified copy of a document or the addition of an affidavit by a person with personal knowledge that the offered evidence is a true and accurate representation of what its proponent claims it to be.”   (Citation omitted;  internal quotation marks omitted.)  New Haven v. Pantani, 89 Conn.App. 675, 679, 874 A.2d 849 (2005).  “In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact.”  (Internal quotation marks omitted.)  Zielinski v. Kotsoris, 279 Conn. 312, 318, 901 A.2d 1207 (2006).  “It necessarily follows that it is only [o]nce [the] [movant's] burden in establishing ․ [its] entitlement to summary judgment is met [that] the burden shifts to [the] [nonmovant] to show that a genuine issue of fact exists justifying a trial.”   (Internal quotation marks omitted.)  Gianetti v. United Healthcare, 99 Conn.App. 136, 141, 912 A.2d 1093 (2007).

In its motion for summary judgment and supporting memorandum of law, Tissa argues that the plaintiff's note and mortgage are invalid as to Winchester Estates under General Statutes § 34-130(c) because Rosa did not sign them on behalf of Winchester Estates.   Tissa argues that various admissions establish that the plaintiff did not approve the note and mortgage in question, Rosa was not authorized to execute the note on behalf of Winchester Estates, and Rosa was not acting on behalf of Winchester Estates when she signed the note.   Tissa asserts that the proceeds of the note were disbursed directly to Rosa and that a copy of the check produced by the plaintiff does not list Winchester Estates as a payee.   Moreover, Tissa asserts that the check also makes reference to Silano, Rosa's significant other, who has no interest in Winchester Estates.

Additionally, Tissa argues that the note is invalid as to Winchester Estates for lack of consideration.   Specifically, Tissa contends that no consideration was disbursed to Winchester Estates, no consideration was received by Rosa on behalf of Winchester Estates and no consideration was deposited into Winchester Estates' account.   As to the plaintiff's role, Tissa asserts that Monte Klein was an attorney and member of Pension Services at the time Rosa executed the note and that he was also a member of Winchester Estates.   As a result, Tissa argues that Klein should have been aware that Rosa was not authorized to execute the note on behalf of Winchester Estates, she was acting outside of her authority, the proceeds of the note were not being used for Winchester Estates' business and Winchester Estates' members did not meet to authorize Rosa to sign the note at issue.

In addition to its memorandum of law, Tissa submits:  (1) a copy of the note at issue;  (2) the plaintiff's admissions dated November 9, 2009;  (3) Rosa's admissions dated January 4, 2010;  (4) Winchester Estates' admissions dated September 23, 2009;  (5) a copy of an April 20, 2006 check from Klein & Becker Attorneys at Law, LLC trustee's account to Aurora Rosa in the amount of $304,527.33;  (6) a list of Winchester Estates' initial members;  (7) a copy of the commercial mortgage deed at issue;  and (8) the third party complaint filed by Rosa and Winchester Estates.

In its objection to the motion for summary judgment, the plaintiff argues that there are material facts in dispute that are not resolved by Tissa's evidence.   Specifically, the plaintiff argues that the list of Winchester Estates' members that Tissa submits with its motion for summary judgment has “no evidentiary value” because it is dated as “revised 3/12/09,” after the mortgage and note were signed on April 19, 2006.   Thus, the plaintiff alleges that there are material issues of fact as to Winchester Estates' members at the time the transaction took place.   The plaintiff also argues that the admissions signed by Winchester Estates and Rosa are self serving and a joint effort by the defendants to evade their debt.   Moreover, in its memorandum in objection, the plaintiff asserts that the affidavit of Monte Klein, the plaintiff's manager, is evidence that Rosa had authority to sign the note on behalf of Winchester Estates because Anthony Silano represented as much.

On April 8, 2010, Tissa filed a reply memorandum challenging Klein's affidavit.   Tissa asserts that although Klein's affidavit identifies Silano as “guarantor” of the note, Silano is not a party to the present action, and Winchester Estates' admissions establish that he is neither a member nor a manager of Winchester Estates.   Tissa characterizes the remaining portion of Klein's affidavit as self serving and conclusory.   Finally, Tissa states that the note and mortgage were for a personal debt of Rosa, not a debt of Winchester Estates, and the evidence establishes that Winchester Estates received no consideration for the note and mortgage.

General Statutes § 34-130 provides:  “(a) Except as provided in subsection (b) of this section, every member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a member binds the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom he is dealing has knowledge of the fact that the member has no such authority. (b) If the articles of organization provide that management of the limited liability company is vested in a manager or managers:  (1) No member, solely by reason of being a member, is an agent of the limited liability company;  and (2) every manager is an agent of the limited liability company for the purpose of its business or affairs, and the act of any manager, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a manager binds the limited liability company, unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom he is dealing has knowledge of the fact that the manager has no such authority. (c) An act of a manager or member which is not apparently for the carrying on in the usual way the business or affairs of the limited liability company does not bind the limited liability company, unless authorized in accordance with the operating agreement, at the time of the transaction or at any other time. (d) An act of a manager or member in contravention of a restriction on authority shall not bind the limited liability company to persons having knowledge of the restriction.”

At the outset, certain items submitted with Tissa's motion for summary judgment have not been authenticated.   These items include the alleged April 20, 2006 check from Klein & Becker Attorneys at Law, LLC trustee's account to Aurora Rosa in the amount of $304,527.33 and the list of Winchester Estates' initial members.   As a result, the court will disregard these documents in considering whether Tissa has met its burden on this motion for summary judgment.   Thus, the court is left to consider the parties' admissions.

In response to Tissa's request for admissions, Winchester Estates admits that Rosa is one of its managers and that she must be duly authorized by its members to execute notes and mortgages on behalf of the company.   Winchester Estates also admits that its members did not meet to authorize the note and mortgage and that it did not authorize the note and mortgage at issue.   In contrast, Winchester Estates admits that Silano is not a member and that he does not have an ownership interest in Winchester Estates.   Finally, Winchester Estates admits that it did not receive any funds in connection with the note and mortgage, it does not own the Oxford property, and the Oxford property is Rosa's personal residence.

Rosa admits the following in response to Tissa's request for admissions.   Rosa is or was a member of Winchester Estates at the time this lawsuit began, and she owned less than a fifty percent interest in Winchester Estates at the time the note and mortgage were executed.   The proceeds of the note at issue were disbursed to Rosa, but not to Winchester Estates.   Moreover, the proceeds of the note were not deposited in Winchester Estates' account, nor were the proceeds received on behalf of Winchester Estates.   Rosa executed the note and mortgage on April 19, 2006, in Klein's office, without counsel, and her counsel did not prepare the note and mortgage.   Winchester Estates' members or managers did not meet to authorize Rosa to execute the note and mortgage, and Rosa was not authorized to execute the note and mortgage on behalf of Winchester Estates.

The plaintiff, Pension Services, admits the following in response to Tissa's request for admissions.   Monte Klein has or had an ownership interest in the plaintiff company at the time this lawsuit commenced, and he is the plaintiff's manager.   The plaintiff does not possess minutes of a meeting of Winchester Estates' members or managers or any other documents authorizing Rosa to execute a note and mortgage on its behalf.   The proceeds of the note were disbursed to Rosa, but not to Winchester Estates.   The mortgage at issue encumbers the Winchester properties and the Oxford properties, and the plaintiff knows or should have known that the Oxford property at Lot 71, 27 Belinsky Circle is Rosa's personal residence.   The plaintiff took a mortgage on Rosa's personal residence, and both the plaintiff and Klein are aware that Winchester Estates does not own the Oxford properties.   In those same admissions, the plaintiff denies that it approved the note and mortgage and denies that there was no consideration for the note.

On the present motion, Tissa must submit sufficient evidence to support a judgment in its favor before the burden shifts to the plaintiff to submit contradictory evidence, thereby creating a genuine issue of material fact.   Specifically, Tissa must submit sufficient evidence that Rosa lacked the authority to act on behalf of Winchester Estates.   Alternatively, Tissa has to submit sufficient evidence that Winchester Estates did not receive consideration for the note.

Tissa relies on § 34-130, specifically subsection (c), to support its argument that the note is void based on Rosa's lack of authority.  Section 34-130(a) governs the actions of a limited liability company's member that are for “apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a member,” while § 34-130(c) governs the actions of a member that are “not apparently for the carrying on in the usual way the business or affairs of the limited liability company of which he is a member ․” Tissa has failed to submit any evidence of what constitutes Winchester Estates' “usual way” of business or affairs, or what should have been “apparent” or “not apparent” as its usual way of business or affairs.   Thus, the court is unable to conclude that § 34-130(c) is even applicable.   Moreover, if § 34-130(a) is applicable, that portion of the statute establishes a conjunctive test whereby the company is not bound by a member's actions if the member had no such authority, and the person on the other end of the transaction knew that the member had no such authority.²  Although Winchester Estates and Rosa deny Rosa's authority, Tissa has failed to submit sufficient evidence that the plaintiff knew that Rosa lacked such authority.   While Tissa makes an argument that Klein, the plaintiff's manager, should have known that Rosa lacked such authority because of his alleged membership in Winchester Estates, this is insufficient to establish that the plaintiff knew that Rosa lacked such authority.³

The last question is whether the alleged lack of consideration for Winchester Estates makes the note and mortgage void as to Winchester Estates.   Tissa argues that no consideration was given to Winchester Estates because it did not receive any money in the transaction, and Rosa did not receive the money on behalf of Winchester Estates.  “[T]here is a presumption that every negotiable instrument has been issued for a valuable consideration and that every party whose signature appears on the instrument has become a party for value.   Molk v. Micklewright, 151 Conn. 606, 201 A.2d 183 (1964).   One who asserts a lack of consideration must prove it by a preponderance of the evidence.   Taylor v. Hamden Hall School, Inc., 149 Conn. 545, 182 A.2d 615 (1962).”   Patel v. Keshwala, Superior Court, judicial district of New Haven at Meriden, Docket No. 249428 (April 30, 1996, Silbert, J.).   When ruling on a motion for summary judgment, the trial court must view the evidence through the prism of the applicable evidentiary burden.   See, e.g., Jones v. New Haven Register, Inc., 46 Conn.Sup. 634 (2000) [26 Conn. L. Rptr. 299].   Moreover, in other contexts, Connecticut courts have held that where there is a presumption in the law, such presumptions cannot be “ousted simply by the introduction of any evidence to the contrary.”  Engram v. Kraft, 83 Conn.App. 782, 786, 851 A.2d 363 (2004).

In the present matter, the only evidence that Tissa has submitted to support Winchester Estates' alleged lack of consideration is Winchester Estates' own admissions that it did not receive consideration.⁴  In light of an analogous situation in Engram, the court cannot conclude that these admissions are enough to overcome the presumption that the note was issued for valuable consideration.   Thus, Tissa's evidence is insufficient as to its final argument, and the court concludes that Tissa has failed to meet its burden on summary judgment.   As a result, the burden never shifts to the plaintiff to demonstrate a genuine issue of material fact, and the court does not address Tissa's additional arguments about the evidence that the plaintiff submits in opposition to Tissa's motion for summary judgment.

CONCLUSION

For the foregoing reasons, the court denies Tissa's motion for summary judgment.

BY THE COURT,

Roche, J.

FOOTNOTES

FN1. On March 10, 2010, Rosa and Winchester Estates filed a three-count, third-party complaint against Monte Klein, the plaintiff's manager.   In count one, which sounds in misrepresentation and fraud, Rosa and Winchester Estates allege the following.   Klein owns the plaintiff company, Pension Services, and he lent money to Anthony Silano, Rosa's “significant other,” in separate transactions for his personal use.   On December 1, 2005, Klein also lent money to Winchester Estates through Southern Connecticut Financial Services, which was approved by the members of the Winchester Estates and is recorded on the land records.   In exchange, Klein received a seven percent stake in Winchester Estates.   Klein lent money to Silano without notes, and, as the amounts owed from Silano to Klein grew, Klein demanded that Silano and Rosa sign a note.   Winchester Estates was not indebted to Klein for the funds loaned to Silano, nor was Winchester Estates aware of those loans.   Silano went to Klein's office on April 19, 2006, to sign the note sought by Klein.   Silano did not sign any mortgages and was unaware that a mortgage was created, and he has no interest in Winchester Estates or in the Oxford property.   Rosa went to Klein's office at Silano's request and signed the note and mortgage that are at issue.   Rosa did not know what she was signing, she did not get a copy of the note and mortgage, nor did she raise her hand to acknowledge that her signing was a free act or that she was authorized to enter into the transaction.   Klein should have known that Rosa was not authorized to act on behalf of Winchester Estates because he was a member of Winchester Estates at that time..  FN1. On March 10, 2010, Rosa and Winchester Estates filed a three-count, third-party complaint against Monte Klein, the plaintiff's manager.   In count one, which sounds in misrepresentation and fraud, Rosa and Winchester Estates allege the following.   Klein owns the plaintiff company, Pension Services, and he lent money to Anthony Silano, Rosa's “significant other,” in separate transactions for his personal use.   On December 1, 2005, Klein also lent money to Winchester Estates through Southern Connecticut Financial Services, which was approved by the members of the Winchester Estates and is recorded on the land records.   In exchange, Klein received a seven percent stake in Winchester Estates.   Klein lent money to Silano without notes, and, as the amounts owed from Silano to Klein grew, Klein demanded that Silano and Rosa sign a note.   Winchester Estates was not indebted to Klein for the funds loaned to Silano, nor was Winchester Estates aware of those loans.   Silano went to Klein's office on April 19, 2006, to sign the note sought by Klein.   Silano did not sign any mortgages and was unaware that a mortgage was created, and he has no interest in Winchester Estates or in the Oxford property.   Rosa went to Klein's office at Silano's request and signed the note and mortgage that are at issue.   Rosa did not know what she was signing, she did not get a copy of the note and mortgage, nor did she raise her hand to acknowledge that her signing was a free act or that she was authorized to enter into the transaction.   Klein should have known that Rosa was not authorized to act on behalf of Winchester Estates because he was a member of Winchester Estates at that time.

FN2. Section 34-130(a) provides:  “[E]very member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a member binds the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom he is dealing has knowledge of the fact that the member has no such authority.”.  FN2. Section 34-130(a) provides:  “[E]very member is an agent of the limited liability company for the purpose of its business or affairs, and the act of any member, including, but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a member binds the limited liability company, unless the member so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom he is dealing has knowledge of the fact that the member has no such authority.”

FN3. Even if the court were to consider the unauthenticated list of Winchester Estates' members that Tissa submitted with its motion for summary judgment, this would still not establish the plaintiffs knew that Rosa lacked such authority..  FN3. Even if the court were to consider the unauthenticated list of Winchester Estates' members that Tissa submitted with its motion for summary judgment, this would still not establish the plaintiffs knew that Rosa lacked such authority.

FN4. Even if the court were to consider the unauthenticated check made out to Rosa that Tissa submitted with its motion for summary judgment, this would not establish that Winchester Estates did not receive consideration, especially given that Rosa signed the note on behalf of Winchester Estates..  FN4. Even if the court were to consider the unauthenticated check made out to Rosa that Tissa submitted with its motion for summary judgment, this would not establish that Winchester Estates did not receive consideration, especially given that Rosa signed the note on behalf of Winchester Estates.

Roche, Vincent E., J.