Groth Family Limited Partnership et al. v. TD (2010)

MEMORANDUM OF DECISION

On February 24, 2010, the plaintiffs, Groth Family Limited Partnership (“Partnership”), the estate of James A. Groth, James D. Groth, Kelly Groth, Groth 1990 Irrevocable Trust, James Groth 1992 Irrevocable Life Insurance Trust, Festivals, Inc. (“Festivals”) and Mountainside Corporation (“Mountainside”) brought the present action against the defendant, TD Bank, N.A. The five-count complaint alleges claims for breach of the covenant of good faith and fair dealing, declaratory judgment, indemnification, negligence and violation of the Connecticut Unfair Trade Practices Act (“CUTPA”).

In their complaint, the plaintiffs allege the following facts.   Mountainside operated an event facility from 1966 until January 12, 2007, paying rent to the Partnership, owner of the facility.   Mountainside used property from Festivals in the operation of its business, which was financed by third parties including Netbank.   On March 21, 2002, Mountainside entered into a financial agreement with Southington Savings Bank (“SSB”) for $3.25 million dollars, of which $3 million would go to the Partnership and the remainder to Mountainside.   Before the financing SSB was provided with extensive information about Mountainside's business and the Partnership's finances, as well as the finances of the guarantors, which included James A. Groth, James D. Groth, Kelly Groth, Groth 1990 Irrevocable Trust, James Groth 1992 Irrevocable Life Insurance Trust and Festivals.   SSB's security in the loan included a mortgage from the owner of the property along with guaranty agreements for the full amount from the guarantors.   On June 18, 2004, the loan was modified after the defendant took over the interests of SSB. Prior to the refinancing, the bank conducted its due diligence by investigating the financial condition of the plaintiffs.   By 2005, Mountainside was encountering financial difficulties and fell behind in its loan payments.

The plaintiffs further allege that in September 2005, the defendant issued a default letter and in October 2005, brought a foreclosure action against all of the named plaintiffs.   Representatives from both sides then began negotiations to resolve the case.   The defendant was provided with additional information and a hearing was held on May 15, 2006.   Judgment was entered on June 19, 2006, and re-entered on October 30, 2006, and a sale was set for November 2006.   There were issues after that date as to what personal property was included in the foreclosure, as a substantial portion was leased.   The plaintiffs allege that the defendant was notified of the leased property.   After the sale was completed on November 27, 2006, the defendant provided a bill of sale to the successful bidder, which included all tangible property owned by Mountainside and the Partnership.

The foreclosure sale closed on January 12, 2007, at which time the dispute over the personal property escalated.   The buyer, Ulbrich, took possession of all the personal property despite the dispute.   Netbank, the leaser of the personal property to Festivals, sued Festivals and other parties claiming conversion and theft of its assets, namely the security interest in the personal property.   In July 2007, James A. Groth passed away and life insurance claims were used to pay the defendant's deficiency claims in the amount of $1.8 million dollars after which a satisfaction of judgment was filed in September 2007.   On December 18, 2007, Festivals brought suit against Ulbrich, his partner and Ulbrich's company Mountainridge.¹  Ulbrich and his partners then initiated suit against the plaintiffs, the defendant, the attorney handling the auction and the auctioneer.²  The gravamen of Ulbrich's complaint is that he was led to believe that all of Mountainside's operations and property were part of the auction and that this property was not conveyed to him and his partner.   Ulbrich charges that TD Bank failed to disclose conflicting claims and that the plaintiffs concealed information.   Ulbrich also claims that pursuant to the sale of interest of TD Bank in life insurance owned by James A. Groth, he is due $3 million.

The defendant, TD Bank, N.A., filed the present motion to strike on March 30, 2010, along with a memorandum of law, moving to strike counts one, two, three and five.   The plaintiffs filed an objection on April 28, 2010.   On July 12, 2010, the defendant filed a reply, and on August 2, 2010, the motion and objection were heard by the court.

“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.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).  “[C]onsequently, [ruling on a motion to strike] 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 ․ Moreover ․ [w]hat is necessarily implied [in an allegation] need not be expressly alleged ․ It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ․” (Citations omitted;  internal quotation marks omitted.)  Commissioner of Labor v. C.J.M Services, Inc., 268 Conn. 283, 292, 842 A.2d 1124 (2004).

The defendant contends that the first count, which alleges breach of the covenant of good faith and fair dealing, is legally insufficient because the allegations occurred prior to the court approved foreclosure sale.  “[I]t is axiomatic that the ․ duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship ․ In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement ․ The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term ․ To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.”  (Internal quotation marks omitted.)  Carford v. Empire Fire & Marine Ins. Co., 94 Conn.App. 41, 45, 891 A.2d 55 (2006).

“Bad faith in general implies ․ a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive ․ Bad faith ․ involves a dishonest purpose.”  (Citation omitted;  internal quotation marks omitted.)  Habetz v. Condon, 224 Conn. 231, 237, 618 A.2d 501 (1992).  “[B]ad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity ․ it contemplates a state of mind affirmatively operating with furtive design or ill will.”   (Internal quotation marks omitted.)  Buckman v. People Express, Inc., 205 Conn. 166, 171, 530 A.2d 596 (1987).

In the present case, the first count alleges that the defendant has “materially breached the implied covenant of good faith and fair dealing inherent in its agreements with the Mountainside parties.”   The count goes on to specify that the defendant failed to properly investigate the true status of the personal property and its ownership, failed to apprise the buyer of the status, issued an inaccurate bill of sale and acted to protect its own interests at the expense of the plaintiffs.   The defendant, in turn, argues that the alleged breach occurred before the foreclosure sale and that allegations of a commercially unreasonable sale cannot support a claim for a breach of the covenant of good faith.   Rather, the defendant contends, the alleged behavior must violate an implied term of a contract.  “No claim of breach of the duty of good faith and fair dealing will lie for conduct that is outside of a contractual relationship.”  Carford v. Empire Fire and Marine Ins. Co., supra, 94 Conn.App. 46.

The plaintiff does not specifically allege in which contract the defendant violated the covenant of good faith and fair dealing.   Rather, it is alleged that the breach was “based on the implied covenant of good faith and fair dealing inherent to its agreements” and “in a manner inconsistent with the intent and expectations of the parties at the time the contracts were formed.”   The allegations do, however, reference several contractual relationships that existed including the contract based on the interests of SSB in the loan and guaranties, the refinancing and modification of the 2002 agreement and a 2004 agreement that extended additional credit to the plaintiffs while obtaining a mortgage on James A. Groth's homes in Meriden and Wallingford, Connecticut.   The defendant argues that because the duty of good faith cannot be raised as a special defense or counterclaim to a foreclosure action, the allegation is insufficient.

The action before the court is not on the underlying foreclosure.   It is a claim against the defendant for its actions with regard to the auction and sale of Mountainside and its accompanying property.   Therefore, even though the allegations pertain to conduct occurring before the closing, the defendant's argument is irrelevant as to whether the allegation is legally sufficient.   Additionally, the defendant's argument that judicial sale by auction implies a court approval is not inherent in the allegations nor does it necessarily preclude recovery on all actions arising out of prior agreements.   The court must construe the complaint in a light most favorable to sustaining its legal sufficiency and in this case the allegations sufficiently support a claim for breach of the covenant of good faith and fair dealing.   The motion to strike the first count is, therefore, denied.

The defendant also contends that the second count, a claim for relief by way of declaratory judgment, is legally insufficient as there is no underlying substantive claim for which relief can be granted.  Practice Book § 17-54 provides:  “The judicial authority will, in cases not herein excepted, render declaratory judgments as to the existence or nonexistence (1) of any right, power, privilege or immunity;  or (2) of any fact upon which the existence or nonexistence of such right, power, privilege or immunity does or may depend, whether such right, power, privilege or immunity now exists or will arise in the future.”   The three necessary conditions for a declaratory judgment action are that “[t]he party seeking the declaratory judgment has an interest, legal or equitable, by reason of danger of loss or of uncertainty as to the party's rights or other jural relations;  [t]here is an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement between the parties;  and [i]n the event that there is another form of proceeding that can provide the party seeking the declaratory judgment immediate redress, the court is of the opinion that such party should be allowed to proceed with the claim for declaratory judgment despite the existence of such alternate procedure.”  Practice Book § 17-55.  “This provision [§ 17-55(2) ] means no more than that there must appear a sufficient practical need for the determination of the matter, and that need must be determined in the light of the particular circumstances involved in each case.”  Bania v. New Hartford, 138 Conn. 172, 175, 83 A.2d 165 (1951).

“Statutes and rules relating to the remedy of declaratory judgments are given a liberal construction to effectuate their purposes ․ One great purpose is to enable parties to have their differences authoritatively settled in advance of any claimed invasion of rights, that they may guide their actions accordingly and often may be able to keep them within lawful bounds, and so avoid the expense, bitterness of feeling and disturbance of the orderly pursuits of life which are so often the incidents of law suits.   Fully to carry out the purposes intended to be served by such judgments, it is sometimes necessary to determine rights which will arise or become complete only in the contingency of some future happening.   Even if the right claimed ․ is a contingent one, its present determination may well serve a very real practical need of the parties for guidance in their future conduct.   A construction of our statute and rules which would exclude from the field of their operation the determination of rights, powers, privileges and immunities which are contingent upon the happening or not happening of some future event would hamper their useful operation.”  (Citation omitted;  internal quotation marks omitted.)  AIU Ins. Co. v. Brown, 42 Conn.App. 363, 368-69, 679 A.2d 983 (1996).  “Implicit in [the declaratory relief] principles is the notion that a declaratory judgment action must rest on some cause of action that would be cognizable in a nondeclaratory suit.”  Wilson v. Kelley, 224 Conn. 110, 116, 617 A.2d 433 (1992).

The plaintiffs seek a declaratory judgment that “in the event Ulbrich is successful in his claim to recover any or all of the insurance proceeds from the Mountainside parties, or any of them, that TD Bank shall indemnify those parties against that loss and that, in the event that TD Bank is ordered to pay over any portion of the funds that discharged the deficiency judgment to Ulbrich, that the deficiency nonetheless remains satisfied, such that none of the plaintiffs owes any money to TD Bank.” The defendant argues that count two should be stricken because it fails to allege an underlying cause of action in support of relief.

The plaintiffs' underlying claim alleges indemnification.   The plaintiffs, however, fail to allege the necessary elements to support such a claim.   Specifically, there is no alleged contract provision providing indemnification nor is there an alleged joint tortfeasor relationship.   As a result, there is no practical need for issuing a declaratory judgment.   Likewise, there is no actual bona fide, substantial issue in dispute nor a substantial uncertainty of legal relations requiring future settlement between the parties.   The second count is, therefore, legally insufficient and the motion to strike count two is granted.

The defendant also moves to strike the third count, a claim for indemnification, because it fails to allege a legal basis to support the claim for indemnification.  “Indemnity involves a claim for reimbursement in full from one who is claimed to be primarily liable.”  Atkinson v. Berloni, 23 Conn.App. 325, 326, 580 A.2d 84 (1990).  “Generally, indemnity agreements fall broadly into two classes, those [in which] the contract is to indemnify against liability and those [in which] it is to indemnify against loss.   In the first, the cause of action arises as soon as liability is incurred, but in the second it does not arise until the indemnitee has actually incurred the loss ․ Whe [n] an indemnity agreement, however, indemnifies against liability as well as against loss ․ the indemnitee does not have to wait until the loss occurs, but may sue on the agreement as soon as liability is incurred.”  Amoco Oil Co. v. Liberty Auto & Electric Co., 262 Conn. 142, 149, 810 A.2d 259 (2002).

“[A] party is entitled to indemnification, in the absence of a contract to indemnify, only upon proving that the party against whom indemnification is sought either dishonored a contractual provision or engaged in some tortious conduct.”  Burkert v. Petrol Plus of Naugatuck, Inc., 216 Conn. 65, 74, 579 A.2d 26 (1990).   A party seeking indemnification “must allege facts sufficient to establish at least four separate elements in order to maintain a common-law action for indemnity.   These elements are:  (1) that the other tortfeasor was negligent;  (2) that [that] negligence, rather than [the party seeking indemnification's negligence], was the direct, immediate cause of the accident and injuries;  (3) that [the other tortfeasor] was in control of the situation to the exclusion of [the party seeking indemnification];  (4) that [the party seeking indemnification] did not know of such negligence, had no reason to anticipate it, and could reasonably rely on the other tortfeasor not to be negligent.”  (Internal quotation marks omitted.)  Skuzinski v. Bouchard Fuels, Inc., 240 Conn. 694, 698, 694 A.2d 788 (1997).   An implied obligation to indemnify exists between joint tortfeasors where one tortfeasor is primarily or actively negligent.  Kaplan v. Merberg, 152 Conn. 405, 411, 207 A.2d 732 (1965).   For a tortious indemnification claim, it is a prerequisite that the party alleging indemnification must be a joint tortfeasor with the party it seeks to recover from.  ATC Partnership v. Coats North America Consolidated, Inc., 284 Conn. 537, 552, 935 A.2d 115 (2007).

The plaintiffs seek indemnification from the defendant alleging that they are entitled to be indemnified against any claims brought by the buyer, Ulbrich, and other parties related to him.   The defendant moves to strike the indemnification claim arguing that the plaintiffs do not allege a legal basis for the claim and fail to allege a contract provision providing for indemnification.

The defendant correctly contends that the plaintiffs have not alleged a contractual provision for which indemnification is provided.   The plaintiffs have also failed to allege a tortious indemnification claim.   In particular, the plaintiffs have failed to allege that it was the defendant's negligence that was the direct, immediate cause of the alleged injuries, that the defendant had control of the situation to the exclusion of the plaintiffs or that the plaintiffs did not know of the defendant's alleged negligence nor have any reason to anticipate the defendant's negligence.   The plaintiffs have also not alleged that the plaintiff and defendant are joint tortfeasors.   Therefore, the claim for indemnification is legally insufficient and the motion to strike the third count is granted.

The defendant moves to strike the fifth count, which asserts a claim of violation of CUTPA, arguing it is time barred pursuant to General Statutes 42-110g(f).  “A claim that an action is barred by the lapse of the statute of limitations must be pleaded as a special defense, not raised by a motion to strike ․ The advantage of the statute of limitations cannot be taken by [a motion to strike] ․ [T]he objection to this mode of pleading is that it raises no issue and deprives the plaintiff of an opportunity to reply a new promise, or an acknowledgment ․ A motion to strike might also deprive a plaintiff of an opportunity to plead matters in avoidance of the statute of limitations defense ․ In two limited situations, however, we will allow the use of a motion to strike to raise the defense of the statute of limitations.   The first is when [t]he parties agree that the complaint sets forth all the facts pertinent to the question whether the action is barred by the [s]tatute of [l]imitations and that, therefore, it is proper to raise that question by [a motion to strike] instead of by answer ․ The second is where a statute gives a right of action which did not exist at common law, and fixes the time within which the right must be enforced, the time fixed is a limitation or condition attached to the right-it is a limitation of the liability itself as created, and not of the remedy alone.”  (Citations omitted;  internal quotation marks omitted.)  Forbes v. Ballaro, 31 Conn.App. 235, 239-40, 624 A.2d 389 (1993).   The second situation is present as CUTPA is a statutory right of action with a fixed time within which the right must be enforced.

General Statutes § 42-110b(a) provides that “[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”   All claims pursuant to CUTPA must be brought within three years of the occurrence of a violation of the statute.   General Statutes § 42-110g(f).  “Since CUTPA violations are defined in General Statutes § 42-110b to include deceptive acts or practices in the conduct of any trade or commerce, it is evident that the legislature intended that the perpetrators of such fraudulent practices, as well as other CUTPA violators, should be permitted to avail themselves of the statute of limitations defense provided by § 42-110g(f).  Despite the existence in other states of statutes of limitations applicable to unfair trade practices establishing a limitation period for bringing an action that begins after discovery of the violation, our legislature has failed to create such an option for victims of CUTPA violations in this state ․ Therefore, if the deceptive acts that the jury reasonably could have found form the basis of the CUTPA claim occurred more than three years prior to the commencement of the action, that claim is time barred.”  (Citation omitted;  internal quotation marks omitted.)  Willow Springs Condominium Assn., Inc. v. Seventh BRT Development Corp., 245 Conn. 1, 45-46, 717 A.2d 77 (1998).

The plaintiffs allege that the defendant's conduct constitutes unfair or deceptive acts or practices in violation of CUTPA, causing money and property damages.   The defendant has moved to strike based on the statute of limitations arguing that the allegations refer to acts prior to the closing date of January 12, 2007.   Although the gravamen of the complaint is focused on events happening prior to the court approved closing on Mountainside, there are also several allegations surrounding the defendant's conduct after January 12, 2007.

“It is axiomatic that [w]hen the wrong sued upon consists of a continuing course of conduct, the statute does not begin to run until that course of conduct is completed ․ [I]n order [t]o support a finding of a continuing course of conduct that may toll the statute of limitations there must be evidence of the breach of a duty that remained in existence after the commission of the original wrong related thereto.   That duty must not have terminated prior to commencement of the period allowed for bringing an action for such wrong ․ Where [our Supreme Court] has upheld a finding that a duty continued to exist after the cessation of the act or omission relied upon, there has been evidence of either a special relationship between the parties giving rise to such a continuing duty or some later wrongful conduct of a defendant related to the prior act.”  (Internal quotation marks omitted.)   Bellemare v. Wachovia Mortgage Corp., 94 Conn.App. 593, 608, 894 A.2d 335 (2006).   In this case, the plaintiffs allege that there was wrongful conduct that was related to the defendant's prior act.   Specifically, that “[a]fter the closing, the dispute over the personal property escalated” and that “through counsel [the defendant] stated to Festival's lender, Netbank, that the bank had received nothing on the sale of personal property and therefore had no duty to account to Netbank ․” These allegations center around the defendant's prior act, the sale of Mountainside and the personal property, and occur within three years of the date the complaint was filed.   Despite the defendant's argument that these allegations after January 12, 2007 only deal with the plaintiffs' discovery of certain facts, the continuing course of conduct in the allegations is legally sufficient to defeat a motion to strike.   Therefore, the motion to strike the fifth count is denied.

Accordingly, the motion to strike is denied as to the first and fifth counts and the motion to strike as to the second and third counts is granted.

Burgdorff, J.

FOOTNOTES

FN1. This case is pending in Waterbury Superior Court, Docket No. UWY CV 07 5008508S..  FN1. This case is pending in Waterbury Superior Court, Docket No. UWY CV 07 5008508S.

FN2. This case is pending in Waterbury Superior Court, Docket No. UWY CV 07 4016022S..  FN2. This case is pending in Waterbury Superior Court, Docket No. UWY CV 07 4016022S.

Burgdorff, Mary-Margaret D., J.