Frederick Ulbrich et al. v. Kelly J. Groth et al. (2010)

MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION TO SET ASIDE DIRECTED VERDICT AND NEW TRIAL AS TO COUNT 14 (# 303)

Pending before the court is plaintiff Frederick Ulbrich's motion to set aside the order issued by the court directing a verdict in favor of the defendant TD Banknorth, N.A. on count fourteen of the operative complaint claiming breach of contract (including the implied covenant of good faith and fair dealing) for the defendant bank's failure to pay insurance proceeds.¹  Count fourteen alleges that the plaintiff was the successful bidder at a foreclosure auction initiated by the Bank involving the sale of real and personal property.   As part of the auction, the plaintiff received bills of sale from the Bank transferring tangible and intangible personal property to him.   According to the complaint, the bill of sale transferring intangible property included a transfer of the Bank's interest in the proceeds of life insurance policies on the life of James A. Groth that were collaterally assigned to the Bank as security for the obligations owed by the debtors, Mountainside Corporation and the Groth Family Limited Partnership.   When Groth died, the plaintiff claims that the insurance proceeds were wrongfully paid over to the Bank rather than to him.   More specifically, the undisputed facts at trial established that after the foreclosure sale, the Bank acquired a deficiency judgment as part of the foreclosure action and the insurance proceeds in the amount of $1.9 million were paid to the bank to satisfy this deficiency judgment.   The plaintiff did not assert any claim to or interest in the deficiency judgment in either the allegations of the complaint or in the evidence of the trial.

During the jury trial, in a ruling issued from the bench, the court granted the Bank's motion for a directed verdict on count fourteen.   In this ruling the court noted that despite the dispute about whether the language of the bill of sale was sufficient to cover the Bank's interest in the insurance policies, there was no dispute about the Bank's ownership of the deficiency judgment, and therefore, there could be no bona fide claim about the Bank's entitlement to the insurance proceeds satisfying that judgment.²

In his motion to vacate the directed verdict, the plaintiff contends that the jury was required to consider whether the parties' intent, as evidenced by the terms of the bill of sale and conduct of the parties, entitled the plaintiff to the insurance proceeds.   The plaintiff admits that the bill of sale did not transfer the underlying obligation evidenced by the promissory notes executed by the debtors.   Nevertheless, relying on the general premise “that an assignment of the security apart from the debt will transfer title to the security to the assignee,” (see Plaintiff's Reply, p. 8 n.2), the plaintiff reasons that if the jury construed the bill of sale as he contends, then the Bank would have been required to pay over the proceeds of the policies to him notwithstanding the Bank's ownership of the promissory notes and subsequent acquisition of the deficiency judgment.   Although the plaintiff's position is well presented, the court nevertheless concludes that in the context of this particular evidentiary record, the plaintiff's argument addresses this legal dispute too narrowly or superficially.

The general rule emphasized by the plaintiff is stated more fully as follows:  “Ordinarily, as between the indebtedness and the mortgage securing it, the indebtedness is the principal thing and the security incidental;  an assignment of the debt carries with it the right and benefit of the security, though that be not assigned;  and an assignment of the security apart from the debt transfers the bare title, the beneficial interest in which remains with the owner of the debt.”  Second National Bank of New Haven v. Dyer, 121 Conn. 263, 269, 184 A. 386 (1936).   As the plaintiff must concede, this general rule does not precisely address what rights may be exercised by a party receiving “bare title” through an assignment of security apart from the debt.   See, e.g., Waterbury Trust Co. v. Weisman, 94 Conn. 210, 219, 108 A. 550 (1919) (“[a]n assignment of the note carries the mortgage with it, while any assignment of the latter alone is a nullity.”)   Typically, such a transfer may involve some sort of accommodation for the benefit of the transferor, but this determination depends on the facts of the particular case.   Cf. Pettus v. Gault, 81 Conn. 415, 422, 71 A. 509 (1908) (“[t]he mortgage ․ was only an incident to the debt, from which it could not be detached and distinct from which it had no determinate value, and the holder or assignee of it must hold it at the will and disposal of the creditor.”)   Thus, from this perspective the dispositive question may be posed as follows:  assuming arguendo that the language of the bill of sale was broad enough to cover the collateral assignment of the insurance policies, what does the evidence show was contemplated or intended by the parties through the transfer of the “bare title” of this security;  or even more specifically, considering the pleadings and the evidence in their entirety and in a manner favorable to the plaintiff, what does the evidence show as to which party, the plaintiff or the Bank, would hold the right to acquire, own and seek satisfaction of the deficiency judgment.   The resolution of these questions properly focuses on the evidence and the law concerning the parties' respective rights to collect on the underlying debt after the closing of the sale of the property through the foreclosure proceedings.

The evidence indicates that after the foreclosure auction, the plaintiff had no intent or interest whatsoever in any deficiency or in acquiring a deficiency judgment.   Therefore, he acquired no interest in the satisfaction of the deficiency judgment through any means.   The Bank acquired satisfaction of the deficiency judgment through the collection of the insurance proceeds, but the Bank was legally entitled to pursue any collection avenues available to a judgment creditor, including executions against the assets of the debtors or the guarantor.   James A. Groth's untimely death and the availability of the insurance proceeds triggered the present controversy, but absent a liquidation of the debt through the acquisition of the deficiency judgment, the parties' present dispute about the insurance proceeds would be nonexistent.   In light of Groth's death, the plaintiff now asserts a claim to the insurance proceeds premised on an after-the-fact view of the parties' bill of sale, rather than on a correct appreciation of the judgment on which legal entitlement to these proceeds is based.

To elaborate further, on its face, the auction transaction between the parties appears to have involved a sale of the debtors' real and personal property free and clear of the Bank's lien or security interests in this property.   In asserting a claim for the insurance proceeds, the plaintiff argues that the transaction was broader-that the terms of the bills of sale transferred all of the Bank's security interests relating to the underlying debt, including the collateral assignments of the insurance policies.   After a foreclosure sale, however, any interest in or right to the insurance proceeds is not evidenced by the bill of sale, but by the deficiency judgment.

The established rule under Connecticut law is that because “the entry of a judgment of foreclosure precludes any further common law proceedings upon the note, the legislatively created remedy of the deficiency judgment is the only available means of satisfying a mortgage debt when the security is inadequate to make the plaintiff whole.”  (Citation omitted;  internal quotation marks omitted.)  Factor v. Fallbrook, Inc., 25 Conn.App. 159, 162, 593 A.2d 520 (1991);  see General Statute § 49-1.   In this case, after the foreclosure auction, the proceeds of the sale were insufficient to satisfy fully the amounts owed by the debtors.   The Bank filed a motion for a deficiency judgment, prosecuted the motion and acquired this judgment.   This procedure was necessary to determine the exact amount of the deficiency and to reduce this amount to judgment.  General Statutes § 49-28.   The plaintiff did not move to intervene in the foreclosure action to maintain that he was now the owner of the underlying debt and entitled to the deficiency judgment.   There is no evidence that the plaintiff objected to the Bank acquiring or holding the deficiency judgment.   There is no evidence that the Bank pursued and acquired the deficiency judgment on behalf of the plaintiff or for his benefit.   The only evidence on this issue indicates that the Bank acquired the deficiency judgment for its own benefit.   There is no evidence that the plaintiff ever claimed any right to seek or acquire the deficiency judgment.   The plaintiff offered no evidence on this issue because it was conceded during the trial that the plaintiff has no specific claim regarding the deficiency judgment.

The legal right to receive the insurance proceeds under the collateral assignment of the policies is premised on the ownership of the deficiency judgment because after the foreclosure sale, the debt is based on and evidenced by the deficiency judgment.   See General Statutes § 49-28.   Any party interested in realizing a recovery of the proceeds of the insurance policy (or realizing any other recovery on the debt after the foreclosure proceedings) also would have an interest in acquiring the deficiency judgment because, as a matter of law, such a recovery would be barred without this judgment.   General Statutes § 49-28.

In summary, there is no evidence whatsoever that the parties intended for the plaintiff to receive the right to acquire the deficiency judgment with the associated right to pursue satisfaction of this judgment.   Indeed, the undisputed evidence is to the contrary.   By offering no evidence indicating any interest in the deficiency judgment and by denying any claim to such an interest, the plaintiff cannot support his claim of a right to receive the proceeds used to satisfy the deficiency judgment.   Consequently, even assuming arguendo that the plaintiff's position is correct and he received “bare title” to the insurance proceeds under the bill of sale, his “interests” would have been ephemeral and he would be entitled to nothing because he had no intention to seek or claim a deficiency judgment.   As just explained, absent the deficiency judgment, recovery of the insurance proceeds would have been barred by Connecticut statute.  General Statutes § 49-28.

Although directed verdicts are not favored, the court nevertheless has a duty not to submit an issue to the jury on which the evidence would not reasonably support a finding.  DiStefano v. Milardo, 82 Conn.App. 838, 845, 847 A.2d 1034 (2004).   Under count fourteen of the complaint, the plaintiff claimed that he was entitled to the proceeds of the insurance policies.   This claim required proof that he held a legally cognizable ownership right to those proceeds.   As a matter law, no such right could be proven under the specific circumstances of this case absent evidence showing an interest in both obtaining and holding the deficiency judgment.   The undisputed evidence established that after the foreclosure auction, the Bank retained the right to acquire the deficiency judgment for its own benefit.   Because the plaintiff asserted no interest in acquiring the deficiency judgment and offered no evidence establishing any such interest, there existed no disputed fact of legal significance requiring jury determination regarding count fourteen of the complaint and the Bank was entitled to a directed verdict.

Therefore, the plaintiff Frederick Ulbrich's motion to set aside the directed verdict and for a new trial on count fourteen of the operative complaint is denied.

So ordered this 25th day of October 2010.

STEVENS, J.

FOOTNOTES

FN1. “A trial court should direct a verdict for a defendant if, viewing the evidence in the light most favorable to the plaintiff, a jury could not reasonably and legally reach any other conclusion than that the defendant is entitled to prevail.   In assessing the evidence, the court should weigh both direct and circumstantial evidence, including all reasonable inferences to be drawn therefrom.”  (Citations omitted.)  Harewood v. Carter, 63 Conn.App. 199, 203, 772 A.2d 746 (2001)..  FN1. “A trial court should direct a verdict for a defendant if, viewing the evidence in the light most favorable to the plaintiff, a jury could not reasonably and legally reach any other conclusion than that the defendant is entitled to prevail.   In assessing the evidence, the court should weigh both direct and circumstantial evidence, including all reasonable inferences to be drawn therefrom.”  (Citations omitted.)  Harewood v. Carter, 63 Conn.App. 199, 203, 772 A.2d 746 (2001).

FN2. In prior rulings, the court concluded that the language of the bill of sale was ambiguous as to whether any transfer of the bank's interest in the insurance policies was made.   After further consideration, the court questions the correctness of this conclusion because there is no dispute that the bill of sale did not transfer the underlying debt obligation.   Because the “security follows the obligation”;  see Fleet National Bank v. Nazareth, 75 Conn.App. 791, 818 A.2d 69 (2003);  it is questionable whether a valid or enforceable transfer of the collateral assignment of the insurance policies could be effectuated under the circumstances presented in this case without a transfer of the underlying promissory note.   Cf. Waterbury Trust Co. v. Weisman, 94 Conn. 210, 219, 108 A. 550 (1919) ( “An assignment of the note carries the mortgage with it, while any assignment of the latter alone is a nullity.”).  FN2. In prior rulings, the court concluded that the language of the bill of sale was ambiguous as to whether any transfer of the bank's interest in the insurance policies was made.   After further consideration, the court questions the correctness of this conclusion because there is no dispute that the bill of sale did not transfer the underlying debt obligation.   Because the “security follows the obligation”;  see Fleet National Bank v. Nazareth, 75 Conn.App. 791, 818 A.2d 69 (2003);  it is questionable whether a valid or enforceable transfer of the collateral assignment of the insurance policies could be effectuated under the circumstances presented in this case without a transfer of the underlying promissory note.   Cf. Waterbury Trust Co. v. Weisman, 94 Conn. 210, 219, 108 A. 550 (1919) ( “An assignment of the note carries the mortgage with it, while any assignment of the latter alone is a nullity.”)

Stevens, Barry K., J.