Bank of America et al. v. AGCPP LLC (2010)

MEMORANDUM OF DECISION MOTION FOR SUMMARY JUDGMENT

FACTUAL AND PROCEDURAL BACKGROUND

On November 12, 2009 the plaintiff filed an action seeking a foreclosure of property at 75 Holly Hill Lane, Greenwich, Connecticut (Mortgaged Property).   The defendant AGCPP Greenwich Atrium Owner, LLC (Borrower) signed a mortgage note in the principal amount of $26,000,000 with Wachovia Bank, National Association.   To secure repayment of the Note, the Borrower executed an Open-End Mortgage Deed, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits in favor of Wachovia.   This note was dated September 29, 2006 and recorded on the land records on October 2, 2006.  (Smith Affidavit, Exh. B.) Wachovia assigned the Mortgage to Wells Fargo Bank, Trustee (Wells Fargo) on December 27, 2006 and recorded it on July 17, 2007 in the Greenwich Land Records.   Thereafter, Wells Fargo assigned the mortgage to the plaintiff on April 14, 2009 and recorded in the Greenwich Land Records on August 10, 2009.

The Borrower, AGCCP, failed to make payments on the note beginning in June 2009 and this foreclosure action followed.

The defendant, Ahearn Holtzman Inc. (Ahearn), worked on the premises and furnished material from February 5, 2007 until May 15, 2009.   Ahearn was not paid for its services and materials and on May 18, 2009 recorded a mechanic's lien.   Ahearn was named as a defendant in this foreclosure action as a subsequent encumbracer.

On March 18, 2009, Ahearn filed an answer, special defenses, counterclaim and cross claim.   The defendant set forth five separate special defenses as follows:  1) the plaintiff is the present holder of the Mortgage, and therefore, of title to the Property, ․ and the agreement for the construction was entered into, and completed on behalf of the Plaintiff as the holder of title of the property thus obligating the plaintiff as the holder of title to pay the Defendant under the Agreement, 2) the party that entered into an agreement with the Defendant did so as the agent of the Plaintiff and thus the plaintiff is obligated to pay the Defendant under the agreement, 3) the Plaintiff as the holder of title and the mortgagee of the Property has been unjustly enriched as a result of the failure to pay for the benefit, 4) the Plaintiff is engaging in unconscionable conduct in that it is colluding with Borrower and the Common Members Entity to foreclose the Defendant's lien, and 5) the Defendant retains the interest in all fixtures installed and thus the Defendant's interest in the Property is indivisible from the Property and it is entitled to the value of the installations.   Ahearn also filed a counterclaim consisting of two separate counts.   The two-count Counterclaim alleges in count one a foreclosure of the mechanic's lien as to the plaintiff as the holder of title of the Property by the mortgage.   Count two alleges a cause of action for unjust enrichment.

The plaintiff filed a motion for summary judgment as to each of the special defenses and the counterclaim on June 3, 2010.   The defendant submitted an objection and memorandum in support of the objection dated July 22, 2010.   The plaintiff submitted a reply dated August 6, 2010.   On August 9, 2010, the parties appeared at short calendar to argue the motion.

DISCUSSION

“Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and 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.   In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Provencher v. Enfield, 284 Conn. 772, 790-91, 936 A.2d 625 (2007).  “[S]ummary judgment is appropriate only if a fair and reasonable person could conclude only one way ․ [A] summary disposition ․ should be on evidence which a jury would not be at liberty to disbelieve and which would require a directed verdict for the moving party.”  (Citations omitted;  internal quotation marks omitted.)   Dugan v. Mobile Medical Testing Services, Inc., 265 Conn. 791, 815, 830 A.2d 752 (2003).   The burden is on the moving party to demonstrate an absence of any triable issue of material fact and “[t]o 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 ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45].”  (Internal quotation marks omitted.)  Zielinski v. Kotsoris, 279 Conn. 312, 318-19, 901 A.2d 1207 (2006).

The plaintiff argues that it is entitled to judgment as a matter of law because there is no basis in the law for the claims set forth in the special defenses and counterclaim of the defendant Ahearn-Holtzman.

FIRST AND SECOND SPECIAL DEFENSES

The first and second special defenses are contingent upon the defendant's claim that the plaintiff has title to the property by means of the open ended mortgage and thus as the owner of Property, the plaintiff is liable for the construction costs incurred.   Both of the parties argue with opposite conclusions as to whether the plaintiff is an owner of the property and as such would be responsible to the defendant for the mechanic's lien.

The plaintiff contends that the first and second special defenses cannot succeed because the plaintiff as the holder of the note and mortgage is not the owner of the property as set forth in the special defenses.   The plaintiff relies upon the decision in Red Rooster Construction Co. v. River Associates, Inc., 224 Conn. 563, 620 A.2d 118 (1993) that a mortgagee is not the owner.

The defendant Ahearn Holtzman argues that the facts of the instant action distinguish it from the broad application of owner that the plaintiffs have asserted.   In particular, the defendant contends that the plaintiff in this action had certain control over the construction and the construction contracts by its set aside amounts established by the terms of the mortgage.   The defendant argues that the plaintiff is not only the owner because of indicia of ownership but is also “directly liable under the construction contract.”   This argument is a not consistent with the factual scenario of the present foreclosure.   In fact, if the plaintiff entered into a contractual obligation with the defendant, Ahearn Holtzman would be pursuing a contract action against the plaintiff for the work completed.   No such claim has been raised.   The argument of Ahearn Holtzman is that they provided fixtures and performed work at the property and unfortunately have not received payment from the party who engaged their services.   So instead, they are attempting to receive payment from another party who has a distinctly different legal interest in the property.   The position of the defendant is not consistent with the prevailing law as enunciated in Red Rooster Construction Co. v. River Associates, Inc., supra.   The court stated:  “․ we have recognized that the law of mortgages is built primarily on a series of legal fictions ‘as a convenient means of defining the various estates to which conveyances may give rise.”  (Citations omitted.)  Red Rooster, supra 224 Conn. 569.   The court further strengthened its ruling when it stated that the “mortgagor before foreclosure is the owner of the property ․ while the interest of the mortgagee is mere personal estate.”  Red Rooster, supra, 224 Conn. 568.

In deciding Red Rooster, the court did not restrict its analysis of the issue of which holders of interest in land are the owners to the context of the notice provision as the defendant here would have the court believe.   Noting its responsibility to “interpret a statutory scheme as a whole with a view toward reconciling its separate parts in order to render a reasonable overall interpretation” Red Rooster Construction Co. v. River Associates, Inc., supra 224 Conn. 570-71.   The court then went on to state that a mortgagee does not have “the power to subject the property to claims that may give rise to a mechanic's lien, at least before the mortgagee takes possession of the property.”  Id. The defendant argues that the provisions in the mortgage that provide a set aside of funds or the holding of funds to assist with the construction of the property somehow falls outside of the scope of Red Rooster and obligates the plaintiff just as if it was the “owner” misreads and misinterprets the law set forth in Red Rooster.   This argument cannot be successful and permit the court to ignore the clear language and holding of Red Rooster.

Therefore, the motion for summary judgment as to the first and second special defenses is granted.

THIRD SPECIAL DEFENSE AND COUNTERCLAIM

The third special defense and count two of the counterclaim allege that the plaintiff has been unjustly enriched as a result of the work on the property by the defendant Ahearn-Holtzman.   A claim for unjust enrichment “applies whenever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract.   5 Williston, Contracts (Rev. Ed.) § 1479.   A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.  Franks v. Lockwood, 146 Conn. 273, 278, 150 A.2d 215 (1959).  Connecticut National Bank v. Chapman, 153 Conn. 393, 399, 216 A.2d 814 (1966).   The essential elements of an unjust enrichment claim are:  1) that the defendants were benefitted;  2) that the defendants unjustly did not pay the plaintiffs for the benefits, and 3) that the failure of payment was to the plaintiff's detriment.”  (Internal quotation marks omitted.)  Data-Flow Technologies, LLC v. Harte Nissan, Inc., 111 Conn.App. 118, 126, 958 A.2d 195 (2008).

The plaintiff argues that the legal theory of unjust enrichment cannot be raised as a defense in a foreclosure action.   However, the theory of unjust enrichment is an equitable remedy available to redress actions contrary to equity and good conscience that permit one party to obtain a benefit at the expense of another.  Polveri v. Peatt, 29 Conn.App. 191, 200, 614 A.2d 484, cert. denied, 224 Conn. 913, 617 A.2d 166 (1999).   The plaintiff correctly argues that the mechanic's lien of this defendant is junior to the plaintiffs' mortgage.   However, this statutory interpretation cannot have such an unyielding result when, as claimed here, the plaintiff not only had some control over the financing and payment for work but also utilized the completed work to increase the value for sale of the property.   In United States Bank International v. RiverGlen Condo, Superior Court, judicial district of Litchfield at Litchfield, Docket No. CV10 6001829S (August 3, 2010, Danaher, J.) [50 Conn. L. Rptr. 401], the court addressed the claim of unjust enrichment when a foreclosure was entered for an amount that was miniscule compared to the value of the property.   The court addressed the windfall that resulted from the sale.   As a result of the large financial benefit to the plaintiff in the foreclosure action, the court recognized the claim of unjust enrichment and denied the motion to strike.   The court permitted the plaintiff to proceed on the claim of unjust enrichment although a foreclosure had been granted.

The defendant has argued that the work performed on the property including the installation of a number of fixtures greatly increases the value of the property.   The defendant included notices that specifically refer to the value because of the updated fixtures and work performed at the property.   These notations were made by the plaintiff in efforts to market the property at an increased value.   The defendant has within its special defense and counterclaim left considerable question as to whether the failure to pay for the work and fixtures is unjust.   In particular, the pleadings and the arguments regarding this claim demonstrate that the plaintiff has benefitted if the property is available without the burden of a mechanics lien, and that eliminating payment to Ahearn is to their detriment.   The second element of unjust enrichment in this action would require that the plaintiff unjustly did not pay the defendant Ahearn for the benefits.   This element is a question of fact, which at this time leaves a genuine issue to be determined at trial.  Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 283, 649 A.2d 518 (1994).   As a result, summary judgment for the third special defense and count two of the counterclaim is denied.

FOURTH AND FIFTH SPECIAL DEFENSES AND COUNTERCLAIM

The fourth special defense refers to an allegation that the plaintiff is presently accepting bids for the building from an entity that is closely aligned to the plaintiff.   It is the defendant's intent to have the court infer that the plaintiff is involved in activity that would leave the property in better condition with no expenses or obligations for the renovation.   Other than the general claim by the defendant that the plaintiff is involved in this collusion, there is no evidence or testimony to create a genuine issue.   The only basis for this claim is the unsupported allegations contained in the complaint.   The inclusion of such a claim regarding the conduct of the plaintiff is a serious and significant allegation.   However, the mere allegation without support is not enough for this court to declare that there is a genuine issue to be tried.   Additionally, in order to challenge a foreclosure as the defendant has in the instant action the defendant is limited to challenges which address the making, validity, and enforcement of the note and mortgage.  Fidelity Bank v. Krenisky, 72 Conn.App. 700, 807, A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).   The fourth special defense fails to satisfy this criteria.   Therefore, the motion for summary judgment as to the fourth special defense is granted.

Lastly, the fifth special defense refers to the defendant's interest in the value of the fixtures and installations on the property.   This is synonymous with the claim for foreclosure of the mechanic's lien that the defendant has included as count one in its counterclaim.  Connecticut General Statutes § 49-33(b) provides:  “The claim is a lien on the land, building, appurtenances or lot or in the event that the materials were furnished or services were rendered in the site development ․ the claim takes precedence over any other encumbrance originating after the commencement of the services, or the furnishing of such materials ․” This statute establishes a priority over any encumbrance that originates after the date the contractor first performs work on the project at issue.   Edgewood Mac, LLC. v. MIRG Mystic Harbour, LLC, Superior Court, judicial district of New London, at New London, Docket N. CV 06 5002009 (September 23, 2008, Abrams, J.).

The defendant has not provided a factual or legal basis to support this special defense or the counterclaim.   The parties agree that the mortgage was recorded on October 2, 2006 and the services and material that are the subject of the mechanic's lien began on February 5, 2007.   Therefore, the defendant is a junior lienholder within the statute.   A junior lienholder cannot foreclose a senior lienholder.   DiNardo v. First Constitution Bank, Superior Court, judicial district of Fairfield at Bridgeport, Docket Nos. CV-89-0264157 and CV-89-0264428 (November 8, 1991, Spear, J.) [5 Conn. L. Rptr. 250], aff'd., 29 Conn.App. 903 (1992).   When a junior lienholder forecloses upon its interest, the junior lienholder's interest is still subject to the entirety of the senior lienholder's interest.   Shepard Steel Co., Inc. v. Bank of Scotland, Superior Court, judicial district of Waterbury at Waterbury, Docket No. CV 08-5010234 (April 7, 2009, Scholl, J.).

The mortgage recorded on October 2, 2006 is a senior lien and therefore, the junior mechanic's lien which provides the beginning date of services as approximately five months later cannot as a matter of law foreclose out the senior interest.   Ashforth Properties Construction, Inc. v. Bank of Scotland, Superior Court, judicial district of Waterbury at Waterbury, Docket No. X01UWYCV 085010671 (April 7, 2009, Scholl, J.).

Therefore, the motion for summary judgment as to the fifth special defense and count one of the counterclaim is granted.

CONCLUSION

Based upon the above, the court grants the motion for summary judgment as to the first, second, fourth and fifth special defenses as well as count one of the counterclaim.   As to the third special defense and count two of the counterclaim regarding the claim of unjust enrichment, the court denies the motion for summary judgment because there is a genuine issue of material fact as noted above regarding the equitable claims.

THE COURT

Brazzel-Massaro, J.

Brazzel-Massaro, Barbara, J.