Citibank South Dakota, N.A. v. Alman Beckford (2011)

MEMORANDUM OF DECISION ON MOTION TO STRIKE

This is a credit card debt collection case filed by the plaintiff, Citibank (South Dakota) N.A. “(Citibank)” against Alman Beckford on January 4, 2011.   The defendant filed his answer, special defenses and counterclaims the same day and on January 13, 2011, the plaintiff moved to strike all special defenses and counterclaims.

SPECIAL DEFENSES

I

The defendant has asserted ten distinct special defenses:  (1) that Citibank lacks standing, (2) that Citibank is not a holder in due course, (3) that the complaint fails to state a cause of action, (4) that the plaintiff has unclean hands due to its violation of federal law, (5) setoff, (6) in pari delicto, (7) equitable estoppel, (8) General Statutes § 42a–3–305, (9) subrogation and (10) General Statutes § 33–921.¹

I

The defendant's first special defense states that “Citibank ․ has the burden of proof to demonstrate that it was injured, and as a result suffered damages ․ there is no evidence that any of the aforementioned was accomplished ․ Citibank ․ has failed or refused to establish standing by way of a competent fact witness, causation and injury.”

The proper procedural vehicle for disputing a party's standing is a motion to dismiss.  D'Eramo v. Smith, 273 Conn. 610, 615 n.6, 872 A.2d 408 (2005).   We treat the motion to strike as a motion to dismiss for lack of standing.

In the present case, the complaint alleges that the defendant has failed to make the required payments on his credit card.   Considering these allegations in their most favorable light, the plaintiff has suffered financial loss.   Such allegations are sufficient to confer standing.

II

The defendant's second special defense argues that “Citibank ․ must prove that it is a holder in due course and that the claimant signed the document.”   A plaintiff's status as a holder in due course is relevant only when he or she is seeking to enforce a negotiable instrument.   See Cadle Co. v. Errato, 71 Conn.App. 447, 456–57, 802 A.2d 887, cert. denied, 262 Conn. 918, 812 A.2d 861 (2002).   Since the plaintiff in the present case does not seek to enforce a negotiable instrument, the second special defense is legally insufficient.

III

The defendant's third and tenth special defenses argue that “Citibank ․ has failed to present admissible evidence of the existence of a bald claim in the account stated ․ [A]s such, Citibank ․ [has] failed to state a claim upon which relief can be granted.”

The plaintiff's complaint alleges that statements were mailed to the defendant detailing the charges on the account.   Such allegations are sufficient to support a cause of action sounding in account stated.   See Citibank (South Dakota) N.A. v. Mazzarella, Superior Court, judicial district of Tolland, Docket No. CV 10 6002096 (December 14, 2010, Sferrazza, J.).

IV

The defendant's fourth special defense raises the issue of unclean hands.   Specifically the defendant claims that the plaintiff “violated a federal law [by] contracting with [him].”   The provision of federal law allegedly violated by the plaintiff is not identified within the text of the special defense itself.   However, the defendant does state elsewhere that Citibank “has admitted to extending credit which is a direct violation of federal law.”   As support for this proposition, the defendant cites Bowen v. Needles Bank, 94 F. 925 (9th Cir.1899).

In Smith v. Palasades Collection, LLC, United States District Court, Docket No. 1:07 CV 176 (N.D. Ohio April 3, 2007), the court discussed the applicability of Bowen v. Needles Bank, supra, 94 F. 925, to actions seeking the collection of credit card debt.   The court characterized and disposed of this argument as follows:  “[The defendant] contends that banks have no right to lend credit as this is a violation of ․ federal law ․ In support of this assertion, he takes statements out of context from two very early cases ․ These cases concern situations in which a bank wanted to loan more money to a party than it had available in capital and surplus funds to legally cover so it executed its own promissory note with another bank in order to complete the transaction ․ These cases have no bearing on [an action to collect credit card debt.]”  Smith v. Palasades Collection, LLC, supra, Docket No. 1:07 CV 176.

The defendant's credit, not that of the bank, is at issue in the present case.   Consequently, the cases cited by the defendant are inapposite.   Absent factual allegations that the plaintiff has violated some other provision of federal law, the premise upon which the unclean hands defense rests, the defendant's fourth special defense is insufficient.

V

The defendant's fifth special defense states that the amount owed to the plaintiff at issue should be “offset” by the amount the plaintiff owes for doing damage to him.   It is reasonable to assume that this special defense refers to the equitable right of setoff.

“[T]he law of setoff is governed by General Statutes 52–139.   The relevant portion of that statute provides:  (a) In any action brought for the recovery of a debt, if there are mutual debts between the plaintiff or plaintiffs, or any of them, and the defendant or defendants, or any of them, one debt may be set off against the other.”  Petti v. Balance Rock Associates, 12 Conn.App. 353, 362, 530 A.2d 1083 (1987).  “Setoff may be employed only when a defendant requests that the court set off a judgment against a debt owed to the defendant by the plaintiff ․ It is the defendant's burden to demonstrate its right of setoff by affirmatively and adequately alleging such a claim in the pleadings.”  Mariculture Products, Ltd. v. Certain Underwriters at Lloyd's of London, 84 Conn.App. 688, 704, 854 A.2d 1100, cert. denied, 272 Conn. 905, 863 A.2d 698 (2004).   Absent judgment on the defendant's hypothetical claims, the plaintiff does not owe the defendant a debt and consequently, the fifth special defense is legally insufficient.

VI

The defendant's sixth special defense states that “each and every purported cause of action in the complaint are barred because Citibank ․ has engaged in acts and courses of conduct which rendered them in pari delicto.”  “The doctrine of in pari delicto holds that where the parties to an illegal agreement or transaction are equally at fault, the court will leave the parties as it finds them and will not enforce the agreement against one over the other.”  Design Development, Inc. v. Brignole, 20 Conn.App. 685, 689, 570 A.2d 221 (1990).   Because the contract between the parties in the present case is not inherently illegal, the doctrine of in pari delicto is inapplicable and the sixth special defense is legally insufficient.

VII

The defendant's seventh special defense states that “each and every cause of action contained in the complaint are barred by reason of acts, omissions, representations and courses of conduct by Citibank ․ by which the claimant was lead to rely to the detriment ․ under the doctrine of equitable estoppel.”

“The doctrine of equitable estoppel is well established.  [W]here one, by his words or actions, intentionally causes another to believe in the existence of a certain state of things, and thereby induces him to act on that belief, so as injuriously to affect his previous position, he is [precluded] from averring a different state of things as existing at the time ․ [T]here are two essential elements to an estoppel;  the party must do or say something that is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief, and the other party, influenced thereby, must actually change his position or do some act to his injury which he otherwise would not have done.”  Blackwell v. Mahmood, 120 Conn.App. 690, 694–95, 992 A.2d 1219 (2010).   The defendant makes no reference to any statement or representation made by the plaintiff.   Absent such factual allegations the seventh special defense contains only unfounded legal conclusions.

VIII

The defendant's eighth special defense states that the plaintiff is barred from recovery by General Statutes § 42a–3–305.  Section 42a–3–305 states, in relevant part:  “(a) ․ the right to enforce the obligation of a party to pay an instrument is subject to the following:  (1) A defense of the obligor based on ․ (ii) ․ illegality of the transaction which, under other law, nullifies the obligation of the obligor, (iii) fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms.”   This statute relates to the ability to enforce a negotiable instrument.   As stated above, the plaintiff in the present case does not seek to enforce a negotiable instrument, and the defendant's eighth special defense is insufficient.

IX

The defendant's ninth special defense argues that “The alleged debt was insured and as such Citibank ․ has already been paid by the insurance company.   By operation of law, the alleged debt is now owned by the insurance company and the alleged debt was subrogated to them.”

Under the doctrine of equitable subrogation, “a subrogated insurer stands in the shoes of an insured” Allstate Ins. Co. v. Palumbo, 296 Conn. 253, 260, 994 A.2d 174 (2010).   The doctrine is not, however, intended to be used as a shield by the party who was primarily liable.   Consequently, the defendant's ninth special is insufficient.

X

The eleventh special defense asserts that “Citibank ․ has failed to demonstrate the possession of a valid certificate of authority and is in violation of [General Statutes § 33–921].”  Section 33–921 states, in relevant part:  “(a) A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.”

In order to invoke the protections afforded by this statute the defendant must specifically plead facts showing that the defendant transacted business in Connecticut.  Peters Production, Inc. v. Dawson, 182 Conn. 526, 529–30, 438 A.2d 747 (1980).

The eleventh special defense merely recites the language of § 33–921 and states that the plaintiff does not have the requisite certificate of authority.   It makes no factual allegations showing the plaintiff was transacting business in Connecticut.   Consequently, the eleventh special defense is legally insufficient.   See North Star Capital Acquisition, LLC v. Murillo, Superior Court, judicial district of Fairfield, Docket No. CV 08 5018084 (November 14, 2008, Maiocco, J.T.R.) [46 Conn. L. Rptr. 595].

COUNTERCLAIMS

The defendant has asserted four counterclaims:  (1) fraud, (2) breach of the covenant of good faith and fair dealing, (3) gross negligence and (4) a violation of 42 U.S.C.1983.   A plaintiff can move to strike counterclaims.   Nowak v. Nowak, supra, 175 Conn. 116.   The plaintiff has done so here.

XI

The first counterclaim states that the defendant was “taken advantage of because [he] was ignorant of the fact that participating in a credit card transaction where [the plaintiff] allegedly extended its own credit, is a violation of federal law ․ [the plaintiff] made a false representation of what a legal contract should be and that the contract/transaction was legal when they knew that said representation was untrue.”

The essential elements of an action in common-law fraud are:  “(1) a false representation was made as a statement of fact;  (2) it was untrue and known to be untrue by the party making it;. (3) it was made to induce the other party to act upon it;  and (4) the other party did so act upon that false representation to his injury.”  Sturm v. Harb Development, LLC, 298 Conn. 124, 142, 2 A.3d 859 (2010).

The substance of the defendant's argument relating to the alleged violation of federal law was addressed above in the context of the doctrine of unclean hands and need not be repeated here.   Absent such a violation, the plaintiff did not make the false representation alleged by the defendant.

XII

The defendant's second counterclaim states that the plaintiff has “a legal and moral duty of good faith and fair dealing” and that it has “breached [its] ․ duty by perpetrating and allowing the illegal, immoral and unconscionable acts mention herein to be perpetrated.”

“[T]he ․ 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.”  Keller v. Beckenstein, 117 Conn.App. 550, 563–64 (2009).

The defendant does not allege that the plaintiff impeded his right to receive benefits that he expected to receive under the contract.   He only argues that the contract is itself illegal and therefore void.   Such allegations cannot support a claim for the breach of the covenant of good faith and fair dealing.

XIII

The defendant's third counterclaim states that the plaintiff has “been and continue to be grossly negligent by being silent/tacit and allowing its financial institution and agents ․ to perpetrate and benefit from illegal, immoral and unconscionable acts mentioned in the forgoing.”   Moreover, it states that the plaintiff has “also been grossly negligent by violating and allowing to be violated the statutes and Federal Laws mentioned herein,” all of which caused him emotional and financial harm.

Our Supreme Court has defined “gross negligence as very great or excessive negligence, or as the want of, or failure to exercise, even slight or scant care or slight diligence.”  19 Perry Street, LLC v. Unionville Water Co., 294 Conn. 611, 630 n.11, 987 A.2d 1009 (2010).

The only allegation made that the contract was illegal states that a bank:  “cannot extend its credit as this is a violation of federal law.”   This argument was previously addressed in the context of the doctrine of unclean hands.   The defendant makes no other factual allegation that would support the conclusion that the contract between himself and the plaintiff is illegal, immoral or unconscionable.   Consequently, the third counterclaim is legally insufficient.

XIV

The defendant's fourth counterclaim states that:  “It is clear that the state along with the directors ․ are participating in, and using state law to enforce these fraudulent credit card agreements ․ A [national bank] cannot extend its credit as this is a violation of federal law.”

“The United States Supreme Court has repeatedly expressed that [t]o state a claim under § 1983, a plaintiff must allege the violation of a right secured by the Constitution and laws of the United States, and must show that the alleged deprivation was committed by a person acting under color of state law.”  Tuchman v. State, 89 Conn.App. 745, 762, 878 A.2d 384, cert. denied, 275 Conn. 920, 883 A.2d 1252 (2005).

Again, the premise underlying this counterclaim, that a bank “cannot extend its credit,” was addressed above in the context of the doctrine of unclean hands.   The defendant has made no other allegations which would support a conclusion that his constitutionally protected rights have been infringed upon.

Motion to strike all the special defenses and counterclaims is granted.

Wagner, J.T.R.

FOOTNOTES

FN1. Although the defendant has listed eleven defenses, the tenth merely repeats the third..  FN1. Although the defendant has listed eleven defenses, the tenth merely repeats the third.

Wagner, Jerry, J.T.R.