Town of Plymouth v. LLC (2011)

MEMORANDUM OF DECISION ON DEFENDANT UPS CAPITAL'S MOTION FOR SUMMARY TUDGMENT

The plaintiff Town of Plymouth brings this action to collect overdue municipal taxes against the defendant Structus, LLC. As part of its collection effort, the plaintiff has also brought this action against the defendant UPS Capital Business Credit.   The defendant UPS Capital (hereinafter “UPS”) is a creditor and mortgagee of Structus.

Structus owns a parcel of land at 367–370 South Main Street in the Town of Plymouth.   For some period of time, Structus failed to pay its municipal taxes.   The plaintiff filed liens against Structus on the town land records for the years of overdue taxes, up to what is claimed to be $422,840.00 as of the date this action was instituted.

Structus also failed to comply with the terms of its mortgage to UPS to keep the property insured.   For the period October 26, 2010, to the period October 26, 2011, UPS obtained forced place insurance for the property to protect its collateral.   The policy was underwritten by Underwriters at Lloyd's, London, listing UPS as the sole insured.

On February 8, 2011, the building on South Main Street collapsed under the weight of accumulated snow.   This constituted an insurable event under the Lloyds insurance policy.   The plaintiff has filed an affidavit from its mayor indicating that the plaintiff fears that there will be a payment of insurance proceeds to UPS in derogation of the payment of back taxes to the plaintiff.

The plaintiff has sued Structus to collect the back taxes, and has sued UPS on a count sounding in constructive trust with respect to any insurance proceeds it collects under its policy of forced place insurance.   As to UPS, the plaintiff claims that the town's right to collect its municipal taxes is superior to and has precedence over UPS's contractual right to the insurance proceeds.

UPS has moved for summary judgment.   It states that the undisputed facts set forth above are insufficient to support any cause of action under which it is liable to pay over any sums to the plaintiff on account of the back taxes owed by Structus to the plaintiff.   The plaintiff opposes summary judgment, arguing that the provisions of Conn. Gen.Stat. § 49–73a provide a statutory mechanism by which the town has a lien on the proceeds of the insurance policy between UPS and Lloyds.   In the alternative, the plaintiff claims that UPS will be unjustly enriched if it is allowed to receive the proceeds of the insurance policy to the detriment of the town, such that a constructive trust should be imposed on the insurance proceeds and the amount of the back taxes should be paid over to the town out of the insurance proceeds.

In analyzing these two theories in the context of the undisputed facts, the court finds that, while UPS can prevail on the inapplicability of the statutory remedy, it cannot prevail as to the unjust enrichment theory because that issue is largely dependent on facts that are not part of this record.

THE STANDARDS FOR SUMMARY JUDGMENT

In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.  Appleton v. Board of Education, 254 Conn. 205, 209, 757 A.2d 1059 (2000).   The party seeking summary judgment has the burden of showing the absence of any genuine issue of material fact, such that the party is entitled, under principles of substantive law, to a judgment as a matter of law.  Id.

In ruling on a motion for summary judgment, the court's function is not to decide the issues of material fact, but rather to determine whether any such issues exist.  Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988).   Summary judgment is appropriate only if a fair and reasonable person could conclude only one way, based on the substantive law and the undisputed material facts.  Miller v. United Technologies Corp., 233 Conn. 732, 751, 660 A.2d 810 (1995).

In supporting or opposing summary judgment, Conn. P.B. § 17–45 requires that a party file affidavits and other documentary evidence sufficient to establish or refute the existence of a disputed issue of fact.   Unadmitted allegations in the pleadings are not considered competent evidence and do not constitute proof of a material fact.  New Milford Savings Bank v. Roina, 38 Conn.App. 240, 245, 659 A.2d 1226, cert. denied, 235 Conn. 915, 665 A.2d 609 (1995).

Rather, in moving for or opposing summary judgment, a party must submit documentation that would form the basis for evidence admissible at trial.   Great Country Bank v. Pastore, 241 Conn. 423, 436, 696 A.2d 1254 (1997).   See also Conn. P.B. § 17–46.

THE STATUTORY RIGHT TO THE INSURANCE PROCEEDS

The defendant argues that the plaintiff cannot prevail on its claim that the town has a right to the insurance proceeds under Conn. Gen.Stat. § 49–73a.   That statute provides, in pertinent part:

The interest of each person in the proceeds of any policy issued by an insurance company providing fire insurance coverage for loss or damages caused by fire on an item of real estate, including any policy written pursuant to the provisions of section 38a–670, provided the amount of the proceeds for the loss payable under such policy is five thousand dollars or more, shall be subject to any tax lien on such item of real estate continued pursuant to the provisions of section 12–173.

The plaintiff responds by arguing that because Conn. Gen.Stat. § 38a–306 permits an insurance company to write a fire insurance policy that also protects against perils other than fire, the court should broadly construe 49–73a to include a lien on the insurance proceeds resulting from any peril against which the property was actually insured, including weather-related collapse, and not just fire.

As a preliminary matter it must be noted that the plaintiff has not cited this statute in the complaint as a grounds upon which it claims entitlement to the insurance proceeds.   See Conn. P.B. § 10–3.   Because both parties addressed the effect, or lack thereof of the statute at oral argument, the court has analyzed whether the statute applies in this context.

The problem is that the statute is clear on its face.   As UPS points out, the sole circumstance under which the town might have a right to divert or place a lien on insurance proceeds to pay municipal taxes would be when a property insured against the peril of loss or damage by fire is actually destroyed by fire.

Support for the fact that the words “caused by fire” modify the immediately preceding words “loss or damages” come from several sources.   First is the grammatical rule that parenthetical phrases most commonly modify the word or phrase to which they are closest.

Second is the fact that the appellate courts, when discussing the provisions of this statute in different contexts, routinely refer to the loss as one caused by fire, and not just the policy as one that covers fire among other perils.   See, e.g., Municipal Funding, LLC v. Galullo, 72 Conn.App. 755, 762, 806 A.2d 601 (2002) (municipality has a priority in fire insurance proceeds, where “property damaged by fire is encumbered by a tax lien”);  Tucker v. Connecticut Insurance Placement Facility, 192 Conn. 653, 659, 473 A.2d 1210 (1984) (“insurance company may pay fire loss proceeds directly to a municipality” without liability, pursuant to statute).

Third, there is no reason to include the entire modifying phrase “loss or damages caused by fire,” if the purpose of the statute was to provide priority from a fire insurance policy in which the loss was, as here, caused by some other peril.   Such wording would be rendered superfluous.

And finally, and most persuasively, the sequentially numbered statutes following § 49–73a are quite explicit that, whatever the makeup of the insurance policy, the payout must be on account of a fire, as opposed to any other peril.  Conn. Gen.Stat. § 49–73d, which prescribes the procedure an insurance company must follow before paying the proceeds of its policy, states that “prior to the payment of any insurance proceeds for loss or damage to real estate caused by fire ” the insurance company shall first send specific notice to the town clerk to deal with any municipal tax lien issue.   There is no ambiguity in this statute as to the nature of the peril.   It is only for a loss or damage cause by fire.

This entire statutory scheme, under which a lien is created in favor of a town against insurance proceeds, is based only upon a loss caused by fire.   A loss caused by any other means, even if it is one for which an insurance policy was in force, is beyond the statute, and may not be enforced under the statute.

IMPOSITION OF A CONSTRUCTIVE TRUST TO PREVENT UNJUST ENRICHMENT

The plaintiff also argues that, aside from the statute, the defendant is not entitled to summary judgment because even if the statutory lien is not available to the plaintiff, the plaintiff is still entitled to a priority over the claim of the defendant to the insurance proceeds according to equitable principles.   The equitable principle involved is that of unjust enrichment, the plaintiff claims.   The mechanism to enforce the claim of unjust enrichment is the imposition of a constructive trust, which is not itself a cause of action, but rather a remedy.

Plaintiffs seeking recovery for unjust enrichment must prove (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 plaintiffs' detriment.   See Vertex, Inc. v. Waterbury, 278 Conn. 557, 573, 898 A.2d 178 (2006).   In order to succeed in imposing a constructive trust the plaintiff/claimant must also “identify property in the hands of the [defendant] that represents or embodies ․ property obtained at the claimant's expense or in violation of the claimant's rights.”   Restatement (Third) Restitution and Unjust Enrichment § 58, comment (a), p. 1256.

Unjust enrichment in the context of the competing claims in this case involve two related concepts.   First is the concept that the enrichment to the respondent claimant—here UPS—must be, in some way, unjust.   Because the defendant UPS is a mortgagee of the co-defendant Structus and is owed money under the loan giving rise to the mortgage, it is hard to see how the retention of insurance proceeds by UPS, at least up to the amount of their debt, is unjust.   Second is the concept that UPS somehow acquired the proceeds of the insurance policy at the expense of the plaintiff or in violation of the plaintiff's rights.   Given that UPS obtained the insurance pursuant to its mortgage contract with Structus—and presumably paid the insurance premiums charged by Lloyds to keep the insurance in place—it is again hard to see how the town has a superior right to the proceeds.

Nonetheless there is some support in our law for the proposition that there are certain circumstances under which the town may be entitled to the proceeds of the policy, if any, above the amount necessary to compensate UPS for any loss of its collateral up to the amount of UPS's loan.   For example in Estes v. Thurman, 192 S.W.3d 429, 432 (Ky.App.2005), cited with approval in New Hartford v. Connecticut Resources Recovery Authority, 291 Conn. 433, 468, 970 A.2d 592 (2009), an uninsured purchaser of real estate that was destroyed by fire was awarded a constructive trust over certain insurance proceeds that were above that necessary to compensate the insured seller the seller's loss, this pursuant to the doctrine of unjust enrichment.

But the problem for the defendant in advocating for summary judgment here is the paucity of the underlying record upon which to evaluate the competing claims of the parties to the disputed insurance fund.   Aside from filing documents that arguably show that it had perfected its continuing lien for back taxes on the land records, the plaintiff has submitted no other evidence in opposition to summary judgment.   If the court stretches back to look at the earlier record in this case (and it is unclear that the court can take notice of evidence not appended to the summary judgment papers), the court finds the affidavit of the mayor of Plymouth, dated February 22, 2011, a mere two weeks after the fire, and filed in support of the prejudgment remedy in this case.   That affidavit states that he “fears” that the town's ability to collect its back taxes will be impaired if it cannot impose a lien and collect the proceeds of UPS's insurance.

Nowhere in any of the documents submitted by the plaintiff or the defendant is there any competent evidence of the value of the property, upon which, by the way, the town was allowed an attachment via a prejudgment remedy early in this case.   Nowhere is there any competent evidence of the dollar amount of UPS's current interest in the property.   There is not even any competent evidence that Lloyds intends to honor the insurance contract and make a payment of proceeds under the policy.   Nor can one discern the amount of the likely insurance proceeds over which the parties are contending in this case.

The reason why this missing information is important is that it is not possible even to begin to evaluate whether the defendant is unjustly enriched without a finding of fact on these basic issues;  and conversely it is not possible to evaluate whether UPS is entitled to summary judgment.   On this record, the court cannot say that there is no rubric under which UPS may be liable to the town out of proceeds of the insurance policy for the amount of back taxes.

CONCLUSION

The court cannot grant summary judgment on the record submitted.   Therefore, the Motion for Summary Judgment is denied.

Patty Jenkins Pittman, Judge

Pittman, Patty Jenkins, J.