DCR III LLC v. Martin T. Sullivan et al. (2010)

MEMORANDUM OF DECISION RE CROSS MOTIONS FOR SUMMARY JUDGMENT

This case is an action by the plaintiff, DCR Mortgage III Sub I, LLC, seeking to foreclose on commercial property located at 26-28 West Main Street in Southington, CT. The case is scheduled for a trial to the court starting October 20, 2010.   In advance of trial, the plaintiff creditor and defendant debtors have filed cross motions for summary judgment.   See Doc. # 127.00 and Doc. # 148.00. Each side claims that the material facts are not in dispute and that they are entitled to judgment as a matter of law.   However, those facts are conflicting and inconsistent and involve documents capable of differing interpretations.   Under those circumstances, and for the following reasons, the cross motions must be denied and the matter permitted to proceed to trial for resolution, except that summary judgment shall enter in favor of the plaintiff and against the defendants as to defendants' Fourth Special Defense and as to defendants' Counterclaims, Counts Four, Five and Six.

I

“The law governing summary judgment and the accompanying standard of review are well settled.   Practice Book § [17-49] requires that judgment shall be rendered forthwith if the 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.   A material fact is a fact that will make a difference in the result of the case ․ The facts at issue are those alleged in the pleadings ․

“In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact.   The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law.   The courts hold the movant to a strict standard.   To satisfy his burden, the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ․ As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent.

“It is frequently stated in Connecticut's case law that, pursuant to Practice Book §§ 17-45 and 17-46, a party opposing a summary judgment motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact ․ demonstrating a genuine issue requires a showing of evidentiary facts or substantial evidence outside the pleadings from which material facts alleged in the pleadings can be warrantably inferred ․ Moreover, [t]o establish the existence of a material fact, it is not enough for the party opposing summary judgment merely to assert the existence of a disputed issue ․ Such assertions are insufficient regardless of whether they are contained in a complaint or a brief ․ Further, unadmitted allegations in the pleadings do not constitute proof of the existence of a genuine issue as to any material fact ․

“An important exception exists, however, to the general rule that a party opposing summary judgment must provide evidentiary support for its opposition, and that exception has been articulated in our jurisprudence with less frequency than has the general rule ․ When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue.”  (Citations omitted;  internal quotation marks omitted.)  Rockwell v. Quintner, 96 Conn.App. 221, 227-30, 899 A.2d 738, cert. denied, 280 Conn. 917, 908 A.2d 538 (2006);  see also Vitale v. Kowal, 101 Conn.App. 691, 923 A.2d 778, cert. denied, 284 Conn. 904, 931 A.2d 268 (2007).   The Practice Book further mandates that “[a]ny adverse party shall at least five days before the date the motion is to be considered on short calendar file opposing affidavits and other available documentary evidence.   Affidavits, and other documentary proof not already part of the file, shall be filed and served as are pleadings.”  Practice Book § 17-45.  “Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein.   Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto.”  Practice Book § 17-46.

II

Based on a review of the plaintiff's complaint, affidavit and exhibits and the defendants' answer with eight special defenses and five counterclaims, and defendants' affidavit and exhibits, the court finds as follows:

On March 24, 1988, Martin, Arthur and Donald Sullivan borrowed $125,000.00 from the State Savings Bank, giving the bank an adjustable rate note and an open ended mortgage on 26-28 West Main Street, Southington, CT, all dated March 24, 1988.   Donald died in 2002.   Martin and Arthur are the surviving debtors, and they are the defendants in this case who have moved for summary judgment in response to plaintiff's motion for summary judgment.   Since 2008, the property has been held in the name of 28 West Main Street, LLC.

Many changes have also occurred over time at the creditor's end of this transaction.   With regard to the mortgage, the following occurred:

September 16, 2003.   Fleet National Bank, successor in interest to the State Savings Bank, assigned the mortgage to Sovereign Bank.

August 21, 2006.   Sovereign Bank assigned the mortgage to DCR Mortgage III Sub I, LLC.

September 6, 2006.   DCR Mortgage in Sub I, LLC made a collateral assignment of the mortgage to Wells Fargo Foothill, Inc.

November 1, 2008.   Wells Fargo Foothill, Inc. assigned the mortgage to Wells Fargo Foothill, LLC.

June 30, 2009.   Wells Fargo Foothill, Inc. reassigned the mortgage to DCR Mortgage III Sub I, LLC.

October 21, 2009.   A corrected reassignment of the same mortgage was made from Wells Fargo Foothill, LLC, an assignee of Wells Fargo Foothill, Inc., to DCR Mortgage III Sub I, LLC.

With regard to the note, the following occurred:

August 21, 2006.   Endorsement by Allonge from Fleet National Bank, successor in interest to State Bank to DCR Mortgage III Sub I, LLC.

September 6, 2006.   Endorsement by Allonge from DCR Mortgage III Sub I, LLC to Wells Fargo Foothill, Inc.

November 1, 2008.   Endorsement by Allonge from Wells Fargo Foothill, Inc. to Wells Fargo Foothill, LLC.

June 30, 2009.   Endorsement by Allonge from Wells Fargo Foothill, LLC to DCR III Sub I, LLC [sic].

In the meantime, on September 25, 2006, DCR Loan Servicing, LLC, a servicer of DCR Mortgage III Sub I, LLC, gave notice to the Sullivans that their loan was in default for failure to pay real estate taxes.   It also immediately accelerated the entire unpaid principal balance, plus interest and costs.   Full payment of $64,157.20 was demanded by October 26, 2006.   However, the servicer entered into a forbearance agreement with the Sullivans on November 6, 2006, agreeing to hold up on foreclosing on the loan if, inter alia, the Sullivans made monthly payments of $1,000.00 until November 6, 2007, when the entire outstanding principal and unpaid interest would be due.   If the Sullivans defaulted on their monthly payments, the parties agreed that the entire principal sum then remaining unpaid, plus accrued interest and fees, would immediately become due and payable, without further notice or demand.

On August 29, 2007, DCR Mortgage III Sub I LLC declared another default due to the Sullivans' failure to pay the May, June, July and August 2007 monthly installments.   It filed the present foreclosure action on August 7, 2009.

Under this history, the Sullivans argue that DCR Mortgage III Sub I, LLC has no right to prosecute this foreclosure action due to errors in the administration of the loan.   They argue, inter alia, that the servicer erred in calling their loan due and payable in 2006 for failure to pay taxes because they were not given the opportunity to cure the defect in advance as required by the mortgage and note.  “[T]he foreclosing party must demonstrate that all conditions precedent to foreclosure, as mandated by the note and mortgage, have been satisfied.”  (Citation omitted.)  Bank of New York v. Conway, 50 Conn.Sup. 189, 194, 916 A.2d 130 (2006).   Whether that was a condition precedent to foreclosure is a factual question controlled by the language of the note and mortgage.   See New Haven Savings Bank v. LaPlace, 66 Conn.App. 1, 14, 258 Conn. 942, 786 A.2d 426 (2001).   Alternatively, they argue that the servicer could not declare the default and accelerate payments without the action of or at least the concurrence of Wells Fargo Foothill, Inc. because Wells Fargo was the holder of the note at the time due to the endorsement by Allonge, and/or because it was a collateral assignee under the collateral assignment agreement and, thereby, was required to participate in any decision declaring default and accelerating payment.   Generally, only the holder of the note can enforce it.   See Fleet Bank v. Nazareth, 75 Conn.App. 791, 818 A.2d 69 (2003).   Also, where there is a collateral assignee, generally that assignee must participate in the decision to declare a default and accelerate the debt.  Gordon v. Donovan, 111 Conn. 106, 111, 149 A. 397 (1930).   Also, the Sullivans argue that they cured the defect when they entered into a payment plan with the Town of Southington in 2006, thus making the triggering of foreclosure illegal and inequitable.   Because a foreclosure action is an equitable proceeding, the trial court should examine all of the relevant factors to ensure that complete justice is done before allowing a foreclosure.  Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 A.2d 1291, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).   Moreover, they argue that the erroneous endorsement of the note to DCR III Sub I LLC instead of to the plaintiff, DCR Mortgage III Sub I, LLC in 2009 deprives plaintiff of standing to sue.   Generally, only the holder of the note can enforce it.   See Fleet Bank v. Nazareth, supra.   These points are all central to their various defenses to this foreclosure action pled in their First Special Defense (Standing to Declare Default, Acceleration), Second Special Defense (Estoppel to Declare Default, Acceleration), Third Special Defense (Waiver re:  Default, Acceleration), Fourth Special Defense (Fraud in the Factum re:  Forbearance Agreement), Fifth Special Defense (Lack of Necessary Party Collateral Assignee), Sixth Special Defense (Failure of Satisfy Condition Precedent re:  Notice, Cure), Seventh Special Defense (Cure) and Eighth Special Defense (Unclean Hands) and also under their Counterclaims Count One (Violation of the Connecticut Unfair Trade Practices Act), Count Two (Breach of Contract);  Count Three (Breach of Implied Duty of Good Faith and Fair Dealing), Count Four (Negligence), Count Five (Negligent Misrepresentation re:  Forbearance Agreement) and Count Six (Fraudulent Misrepresentation re;  Forbearance Agreement).

Plaintiff, on the other hand, argues that on these same central points, any administrative defect in declaring the note and mortgage in default and accelerating payment was superseded by the forbearance agreement;  that the action of or concurrence of Wells Fargo is unnecessary because it was only a collateral assignee in the first place, and even that interest was eventually reassigned albeit with a minor mistake in the name.   Moreover, there is no inequity in allowing the foreclosure to proceed because, after all, the Sullivans defaulted on the forbearance agreement in 2007 and, to date, owe $51,724.55 on the principal balance exclusive of interest, late charges and other fees and attorneys fees and costs.

These facts and arguments show that the parties are in actual dispute as to the important facts.   They disagree as to how the operative documents should be interpreted, as to the circumstances, and as to the resulting impact on the rights of the respective parties.   This presents a set of material facts in dispute.   Moreover, the instruments are capable of diverse interpretation.   “Where the question ․ depends on the construction of a written instrument or the circumstances are such that lead to only one reasonable conclusion, it will be one of law, but where the conclusion involves the effect of various circumstances capable of diverse interpretation, it is necessarily one of fact for the trier.”  (Citation omitted;  internal quotation marks omitted.)   Citicorp Mortgage, Inc. v. Porto, 41 Conn.App. 598, 602, 677 A.2d 10 (1996).   Thus, this case requires the court to find disputed facts and interpret written instruments capable of diverse interpretation.   It is not appropriate for summary disposition as a matter of law.   Accordingly, the cross-motions for summary judgment as to the complaint must be denied and the matter proceed to trial.

However, certain of the defendants' special defenses and counterclaims can be resolved in advance of trial.   Defendants' Counterclaim, Count Four, alleges negligence.   Nothing in the note or mortgage or other records in the case creates or imposes on the plaintiff a duty of care owed to the defendants.   On this point, it has been held that “[a] lender has the right to further its own interest in a mortgage transaction and is not under a duty to represent the customer's interest.”  (Citation omitted.)  Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 19, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999).   Accordingly, judgment shall enter in favor of the plaintiff and against the defendants on defendants' Counterclaim, Count Four.

Also, Defendants' Fourth Special Defense and their Counterclaims, Count Five and Count Six, are all aimed at plaintiff's allegedly illegal and unfair conduct in coercing a forbearance agreement.   To be raised in a foreclosure action, special defenses and counterclaims must relate to the making, validity or enforcement of the note and mortgage.  Southbridge Associates, LLC v. Garofalo, supra, 53 Conn.App. 19.   The Fourth Special Defense does not relate to the making, validity or enforcement of the note and mortgage.   It has also been held that a counterclaim can be considered provided it “arises out of the transaction or one of the transactions which is the subject of the plaintiff's complaint.”  Practice Book § 10-10;  Southbridge Associates, LLC v. Garofalo, supra, 53 Conn.App. 21.   Plaintiff's complaint concerns the note and mortgage.   See Complaint.   The counterclaims in Counts Five and Six all concern the forbearance agreement executed by the defendants in 2006 with plaintiff's servicer.   These counterclaims do not arise out of the transaction that is the subject of the plaintiff's complaint.   Accordingly, summary judgment shall enter in favor of the plaintiff and against the defendants on the Fourth Special Defense and on the Counterclaims in Count Four and Count Five. Accord, JP Morgan Chase Bank v. Rodriguez, 109 Conn.App. 125, 132-35, 952 A.2d 56 (2008).

Defendants' Counterclaim, Count Three, alleges a claim for breach of an implied covenant of good faith and fair dealing.   On this point, it has been held 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.”  (Citation omitted.)  Fidelity Bank v. Krenisky, supra, 72 Conn.App. 716-17;  New Haven Savings Bank v. LaPlace, 66 Conn.App. 1, 10, 783 A.2d 1174, cert. denied, 268 Conn. 942, 786 A.2d 426 (2001).   However, defendants seek money damages on this counterclaim in this case, not exclusively prevention of the foreclosure.   Our Appellate Court has upheld the award of damages to a defendant on such a counterclaim in a case where a foreclosure was granted.   See Atlantic Mortgage & Investment Corp. v. Stephenson, 86 Conn.App. 126, 142-46, 130 A.2d 751 (2004).   Since the counterclaim is permitted for some purposes, the matter should be allowed to proceed.   Accord, Wells Fargo Bank v. Lewis, Superior Court, judicial district of Fairfield, Doc. No. CV 07-5006088 S (February 18, 2010, Maiocco, J.T.R.).

Accordingly, summary judgment shall enter in favor of the plaintiff on the defendants' Fourth Special Defense and on defendants' Counterclaims, Counts Four, Five and Six.

All other special defenses and counterclaims, at least in part, are legally sufficient, but the material facts necessary are in dispute requiring resolution at trial.   Under such circumstances, the case should proceed to trial on the plaintiff's complaint and the defendants' remaining special defenses and counterclaims.   Accord, Citimortgage, Inc. v. Ceraso, Superior Court, judicial district of Fairfield, Doc. No. CV 08-5017954 S (May 4, 2010, Owens, J.T.R.).

III

For all of the foregoing reasons, the court denies the cross motions for summary judgment because there are material facts remaining in dispute that require resolution by the trier of fact at trial, except that summary judgment shall enter in favor of the plaintiff and against the defendants as to defendants' Fourth Special Defense and as to defendants' Counterclaims, Counts Four, Five and Six. The case should proceed to trial on the plaintiff's complaint and the defendants' remaining special defenses and counterclaims.

Robert F. Vacchelli

Judge, Superior Court

Vacchelli, Robert F., J.