T.D. Bank, N.A. v. SM LLC (2011)

MEMORANDUM OF DECISION

FACTUAL BACKGROUND

On March 15, 2011, the plaintiff,¹ TD Bank, N.A., filed a twelve-count, revised second amended complaint against the defendants,² SM Phoenix Merritt 8, LLC (“SM Phoenix”) and Square Mile Partners II, L.P. (“Square Mile”).³  The plaintiff alleges the following claims against SM Phoenix:  in count one, foreclosure;  in counts two through four, breach of contract;  in counts five through seven, unjust enrichment;  and in counts eight through ten, fraudulent transfer.   In counts eleven and twelve, the plaintiff alleges fraudulent transfer claims against Square Mile.

The plaintiff alleges the following facts.   By an “Amended and Restated Mortgage Note” (“note one”), SM Phoenix promised to pay the plaintiff the principal sum of $17,933,580.16, plus interest.   Via a “Mortgage Note” (“note two”), SM Phoenix promised to pay the plaintiff the principal sum of $4,400,000, plus interest.   To secure note one and note two, SM Phoenix mortgaged to the plaintiff all of its rights in the land identified as “Unit One, Merritt Eight Corporate Park” located at 99 Hawley Lane in Stratford, Connecticut, in an “Amended and Restated Open–End Mortgage Deed and Security Agreement” (“mortgage”).   To further secure these notes, SM Phoenix granted the plaintiff an “Amended and Restated Collateral Assignment of Leases, Rentals and Property Income” (“assignment”).   Note one, note two, the mortgage and the assignment are all dated May 4, 2007.   SM Phoenix also granted the plaintiff two “UCC–1” financing statements, one recorded on May 8, 2007, and the other on January 9, 2008.

The plaintiff further alleges the following.   SM Phoenix defaulted on note one, note two and the mortgage.   The plaintiff, as a holder in due course of all three documents, has elected to declare the entire balance due on both note one and note two.   Three parties have encumbrances that are prior in right to the plaintiff's interest and are not affected by the present action:  Stratford, Aquarion Water Co. and Merritt Eight Corporate Park Association, Inc. Merritt–Stratford, LLC has an interest subsequent in right and subject to the plaintiff's mortgage.

On March 30, 2011, the defendants filed the present motion to strike and a memorandum in support thereof.   On April 13, 2011, the plaintiff filed an objection to the motion to strike and a memorandum in support of its objection.   The court heard the parties' arguments at short calendar on May 12, 2011.

DISCUSSION

“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).  “We take the facts to be those alleged in the complaint that has been stricken 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, we note that [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 ․ Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically.”  (Internal quotation marks omitted.)   Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252–53, 990 A.2d 206 (2010).

The defendants first argue that the court should strike the plaintiff's unjust enrichment claims because these claims contain inconsistent legal theories:  the existence of a contract and unjust enrichment.   Specifically, the defendants argue that because the plaintiff incorporates its prior allegations regarding the existence and breach of a contract in its unjust enrichment claims, the plaintiff may not maintain its actions for unjust enrichment.   Second, the defendants argue that the court should strike the plaintiff's fraudulent transfer claims because the plaintiff fails to plead these causes of action with any particularity or factual support.

The plaintiff argues that it alleges the elements required for its unjust enrichment claims and that these claims do involve the existence of an express contract.   The plaintiff also argues that it alleges its claims of fraudulent transfer with requisite particularity and factual support.

I. Unjust Enrichment Claims

“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.”  (Internal quotation marks omitted.)  Gagne v. Vaccaro, 255 Conn. 390, 401, 766 A.2d 416 (2001).  “Although the lack of a remedy under the contract is a precondition for recovery based upon unjust enrichment ․ the existence of a contract, in itself;  does not preclude equitable relief which is not inconsistent with the contract.”  (Citation omitted;  internal quotation marks omitted.)  Rent–A–PC, Inc. v. Rental Management, Inc., 96 Conn.App. 600, 605–06, 901 A.2d 720 (2006).  “Under our pleading practice, a plaintiff is permitted to advance alternative and even inconsistent theories of liability against one or more defendants in a single complaint.”  Dreier v. Upjohn Co., 196 Conn. 242, 245, 492 A.2d 164 (1985).

“It has been held in several recent Superior Court cases that allegations of express contract between the parties incorporated into a count stating a claim for unjust enrichment cause a violation of the rule that those alternative causes of action must be pleaded in separate counts ․ [One decision] concluded that by incorporating allegations of the previous counts, the plaintiff clearly alleges the existence and breach of an express contract in the count seeking unjust enrichment, contrary to the rule that alternative causes of action must be pleaded in separate counts.   In short, the plaintiff may plead unjust enrichment in the alternative, but this is not accomplished by incorporating into this count all the allegations of an express contract.   Such a complaint does not involve alternative pleading, but involves legally inconsistent pleading ․ Several other Superior Court cases have dealt with similar inconsistent pleading and have all reached the same conclusion by striking the count alleging unjust enrichment.”  (Citations omitted;  internal quotation marks omitted.)   MBMB, LLC v. New Alliance Bank, Superior Court, Judicial District of New Haven, Docket No. CV 10 6011842 (December 9, 2010, Woods, J.).

“On the other hand, some [S]uperior [C]ourt opinions permit incorporating allegations so long as the allegation that the contract was breached does not appear in the count for unjust enrichment.  [M]erely incorporating allegations regarding the existence of a contract into an unjust enrichment claim does not necessarily mean that the unjust enrichment claim should be stricken, so long as it has not been alleged that the contract was breached.”  (Citation omitted;  emphasis in original;  internal quotation marks omitted.)  MBMB, LLC v. New Alliance Bank, supra, Superior Court, Docket No. CV 10 6011842.

To summarize, under the latter line of cases the plaintiff may incorporate its breach of contract allegations from count two in its unjust enrichment claims, as long as the unjust enrichment claims do not contain the specific allegation regarding the breach of contract.   The court must therefore review the specific allegations of counts five through seven, the plaintiff's unjust enrichment claims.   Each of these counts begins by incorporating paragraphs one through five of count two, which describe the plaintiff and SM Phoenix, as well as note one, note two and the mortgage.   Paragraph six in counts five through seven all allege that SM Phoenix defaulted on its obligations to the plaintiff under note one, note two and the mortgage.   Therefore, the plaintiff claims that SM Phoenix was unjustly enriched under note one, note two and the mortgage.

Notably, in its breach of contract claims, the plaintiff alleges that SM Phoenix acted “in direct violation of the Assignment.”   Therefore, the contract that the plaintiff claims was breached is the assignment.   As discussed above, the plaintiff's unjust enrichment claims rely on SM Phoenix's default under note one, note two and the mortgage—not under the assignment.   The plaintiff may incorporate its allegations with respect to the existence of note one, note two and the mortgage in its unjust enrichment claims, since these claims do not allege the breach of these agreements.   Therefore, the court will deny the defendants' motion to strike with respect to counts five through seven of the plaintiff's revised second amended complaint.

II. Fraudulent Transfer Claims

“Under Connecticut law, a plaintiff may maintain an action for fraudulent conveyance under either the common law or the Uniform Fraudulent Transfer Act. Whether a claim is brought under the common law or the applicable statute, General Statutes § 52–552e, the elements are the same ․ A party alleging a fraudulent transfer or conveyance under the common law bears the burden of proving either:  (1) that the conveyance was made without substantial consideration and rendered the transferor unable to meet his obligations or (2) that the conveyance was made with a fraudulent intent in which the grantee participated ․ These are also the elements of an action brought pursuant to General Statutes § 52–552e(a) ․ Indeed, although the statute provides a broader range of remedies than the common law ․ the Uniform Fraudulent Transfer Act is largely an adoption and clarification of the standards of the common law of [fraudulent conveyances] ․ (Citations omitted;  internal quotation marks omitted.)   Rockwell Excavating, Inc. v. PAS Realty, LLC, Superior Court, judicial district of Danbury, Docket No. CV 08 5004602 (May 6, 2011, Maronich, J.).   The plaintiff brings all of its fraudulent transfer claims under the statute.

Section 52–552e(a) provides:  “[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor, if the creditor's claim arose before the transfer was made or the obligation was incurred and if the debtor made the transfer or incurred the obligation:  (1) with actual intent to hinder, delay or defraud any creditor of the debtor;  or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor (A) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction, or (B) intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.”

Section 52–552f(a) provides:  “[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”   Section 52–552f(b) provides:  “[a] transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time and the insider had reasonable cause to believe that the debtor was insolvent.”

The plaintiff alleges five causes of action for fraudulent transfer, three against SM Phoenix and two against Square Mile. Those against SM Phoenix incorporate paragraphs one through ten of count two, which set out the facts as described above, and note that SM Phoenix defaulted on its obligations under note one, note two and the mortgage.   Those against Square Mile incorporate paragraphs one through twelve of count two, which additionally allege that Square Mile was the recipient of a preferential transfer from SM Phoenix while SM Phoenix was in default on its obligations.   In count eight, the plaintiff further alleges that SM Phoenix, “while still in default on its obligations ․ preferentially transferred [money] to Square Mile ․ to the exclusion of the plaintiff.”   The plaintiff makes similar allegations in counts nine, eleven and twelve.   In count ten, the plaintiff alleges that SM Phoenix, “while still in default on its obligations ․ preferentially transferred [money] to Cohen and Wolf.” In each of counts eight through twelve, the plaintiff has pleaded the requisite elements to establish a fraudulent transfer claim, a matter that the defendants do not challenge.

The sole ground raised by the defendants in support of their motion to strike is that the plaintiff has failed to plead any facts in support of its fraudulent transfer claims.   Each fraudulent transfer count contains an allegation of a specific act—a preferential transfer while SM Phoenix was in default on its obligations—that the plaintiff claims to be fraudulent.   The plaintiff has therefore pleaded facts that, if proved, would establish its fraudulent transfer claims.   Therefore, the court will deny the defendants' motion to strike with respect to counts eight through twelve of the plaintiff's complaint.

CONCLUSION

The plaintiff's unjust enrichment claims are not legally inconsistent with its breach of contract claims.   The plaintiff has pleaded sufficient facts to support its fraudulent transfer claims.   The court will deny the defendants' motion to strike in its entirety.

HARTMERE, J.

FOOTNOTES

FN1. Merritt 8 JV, LLC and Mountain Development Corp. are also listed as plaintiffs in this case, but are not parties to the present motion to strike..  FN1. Merritt 8 JV, LLC and Mountain Development Corp. are also listed as plaintiffs in this case, but are not parties to the present motion to strike.

FN2. Merritt Stratford, LLC is also listed as a defendant in this case, but is not a party to the present motion to strike..  FN2. Merritt Stratford, LLC is also listed as a defendant in this case, but is not a party to the present motion to strike.

FN3. The plaintiff commenced this lawsuit on July 7, 2010.   Square Mile joined this action as a defendant after the court (Hartmere, J.) granted the plaintiff's motion to cite in Square Mile as an additional party on January 3, 2011..  FN3. The plaintiff commenced this lawsuit on July 7, 2010.   Square Mile joined this action as a defendant after the court (Hartmere, J.) granted the plaintiff's motion to cite in Square Mile as an additional party on January 3, 2011.

Hartmere, Michael, J.