Wachovia Mortgage a Division of Wells Fargo Bank, N.A. v. JP (2012)

MEMORANDUM OF DECISION ON DEFENDANT'S MOTION TO DISMISS (# 101)

FACTUAL BACKGROUND

The plaintiff, Wachovia Mortgage A Division of Wells Fargo Bank, N.A., commenced this action against the defendant, J.P. Morgan Chase Bank, N.A., seeking to quiet title to certain real property in Trumbull belonging to Javier Valdovinos, and/or seeking equitable subrogation with respect to certain mortgage liens on the subject property.

The plaintiff alleges the following facts.   Valdovinos executed promissory note and an open-ended mortgage deed for a loan in the original principal amount of $290,000 on or about July 14, 2005, with World Savings Bank, FSB (“World”) (“first mortgage”).   Valdovinos executed a promissory note and mortgage deed for a loan in the original principal amount of $50,000 with Washington Mutual Bank (WaMu) on or about December 27, 2006, which was subject to the first mortgage (“home equity mortgage”).   Valdovinos and WaMu agreed that WaMu would not record the home equity mortgage until Valdovinos refinanced his first mortgage, so that the home equity mortgage would remain in second priority position after the refinancing.   Valdovinos executed a promissory note and mortgage deed with World for a loan in the original principal amount of $303,000 on or about January 22, 2007 (“refinance mortgage”).   The plaintiff currently is the holder of the refinance mortgage, which was recorded on the Trumbull land records on April 27, 2007.   The defendant currently is the holder of the home equity mortgage, which was recorded on the Trumbull land records on January 31, 2007.

Based on the order of the recordings, the defendant's home equity mortgage has priority over the plaintiff's refinance mortgage.   The plaintiff alleges that, because the defendant's home equity mortgage was not recorded as of January 22, 2007, consistent with the agreement between WaMu and Valdovinos, it had no notice of the defendant's mortgage.   In count one, the plaintiff seeks to quiet title to the property pursuant to General Statutes § 47–31, and seeks an order from the court that the defendant's claimed interest in the property pursuant to the home equity mortgage is subsequent in right to the plaintiff's refinance mortgage.   In count two, the plaintiff seeks the same relief pursuant to § 47–31, but invokes the doctrine of equitable subrogation.   The plaintiff asks that the court make the defendant's interest second to the plaintiff's at least to the extent of the amount of the first mortgage.

The defendant filed a motion to dismiss on September 8, 2011, claiming that the court lacks jurisdiction over the subject matter.   The defendant asserts two grounds:  one, the plaintiff's claims are barred pursuant to federal law because they relate to the conduct of WaMu, a failed financial institution, and two, the plaintiff lacks standing.   The plaintiff filed a memorandum in opposition on December 8, 2011.   The court heard oral argument at the short calendar on December 12, 2011.

DISCUSSION

“A motion to dismiss ․ properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court ․ A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction.”  (Internal quotation marks omitted.)  Wilcox v. Webster Ins., Inc., 294 Conn. 206, 213, 982 A.2d 1053 (2009).   The motion to dismiss shall be used to assert lack of jurisdiction over the subject matter.   Practice Book § 10–31(a).

“[J]urisdiction of the subject-matter is the power [of the court] to hear and determine cases of the general class to which the proceedings in question belong ․ A court has subject matter jurisdiction if it has the authority to adjudicate a particular type of legal controversy.”  (Internal quotation marks omitted.)  Pedro v. Miller, 281 Conn. 112, 117, 914 A.2d 524 (2007).   “Subject matter jurisdiction involves the authority of a court to adjudicate the type of controversy presented by the action before it ․ A court does not truly lack subject matter jurisdiction if it has competence to entertain the action before it ․ Once it is determined that a tribunal has authority or competence to decide the class of cases to which the action belongs, the issue of subject matter jurisdiction is resolved in favor of entertaining the action ․ It is well established that, in determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged.”  (Citations omitted;  internal quotation marks omitted.)  Amodio v. Amodio, 247 Conn. 724, 727–28, 724 A.2d 1084 (1999).

The plaintiff commenced this action to quiet title in order to rearrange the priorities with respect to the subject property.   The defendant raises two grounds for its position that the court lacks jurisdiction over the action:  first, that the plaintiff's action is barred because it failed to pursue its administrative remedies against a failed financial institution pursuant to federal law, and second, that the plaintiff lacks standing.

A.

Exhaustion of Remedies Under Federal Law

“Because the exhaustion [of administrative remedies] doctrine implicates subject matter jurisdiction, [the court] must decide as a threshold matter whether that doctrine requires dismissal of the [plaintiff's] claim.”   Neiman v. Yale University, 270 Conn. 244, 250–51, 851 A.2d 1165 (2004).

The defendant claims that the court lacks jurisdiction in light of the requirements of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), 12 U.S.C. § 1821 et seq.   FIRREA requires that a party exhaust an administrative review process for all claims asserted against the assets of a failed financial institution.   It is undisputed that WaMu, the originator of the home equity mortgage now held by the defendant, is such a failed institution.   The plaintiff argues that the exhaustion requirements of FIRREA do not apply to the present case.

The court in Aber–Shukofsky v. JP Morgan Chase & Co., 755 F.Sup.2d 441 (E.D.N.Y.2010), provided this overview of FIRREA and the exhaustion requirement:  “FIRREA provides an administrative review process for all claims asserted against assets of a failed institution.   If the financial institution has failed, pursuant to 12 U.S.C. §§ 1821(d)(3)-(5), subsequent claims must be presented first to the [Federal Deposit Insurance Corporation (FDIC) ] for an administrative determination on whether they should be paid.”  Id., 445.  “The administrative review process provided by FIRREA is a prerequisite to judicial review.   Until such time as the claim is disallowed by the FDIC, section 1821(d)(13) expressly revokes the jurisdiction of all federal courts to decide claims against the assets of a failed institution.  Section 1821(d)(13)(D) provides in full:  Except as otherwise provided in this subsection, no Court shall have jurisdiction over- (I) any claim or action for payment from, or any action seeking determination of rights with respect to, the assets of any depository institution for which the [FDIC] has been appointed receiver, including assets which the [FDIC] may acquire from itself as such receiver;  or (ii) any claim relating to any act or omission of such institution or the [FDIC] as receiver.  12 U.S.C. § 1821(d)(13)(D).”  (Emphasis added;  internal quotation marks omitted.)  Id.

Although FIRREA uses both “claim or action for payment” and the much broader “any claim relating to any act or omission of the failed institution, it appears to be settled law that a party can challenge the “acts or omissions” of the failed financial institution when such claims are pursued as special defenses.   In this context, courts have construed special defenses are distinct from claims subject to the exhaustion requirement when the “defenses” are not of the kind that could have been asserted against the failed institution in an independent action.   See JP Morgan Chase Bank National Bank v. McPhaden, Superior Court, judicial district of Stamford–Norwalk, Docket No. 09 5009848 (September 14, 2010, Mintz, J.) (50 Conn. L. Rptr. 658, 661–64) (concluding that affirmative defenses in foreclosure action including fraud, equitable estoppel, waiver and unclean hands were not preempted by Act because they were not “ ‘acts or omissions of the institution’ that could have been brought separately as a claim,” but that claim seeking damages pursuant to CUTPA was barred);  Danbury Savings & Loan Assn., Inc. v. Scalzo, Superior Court, judicial district of Danbury, Docket No. 301539 (March 13, 2007, Stodolink, J.) (19 Conn. L. Rptr. 230, 231) (dismissing counterclaim alleging CUTPA violation but allowing special defense of “unclean hands [which was] essentially an estoppel defense”);  see also M. deFreitas, annot., “Exhaustion of remedies requirement under Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) (12 U.S.C.A. § 1821[d] ) with respect to claims against failed financial institution, Federal Deposit Insurance Corporation, or Resolution Trust Corporation,” 122 A.L.R. Fed. 519, §§ 7[a]–7[c] (1994) (concerning which putative defenses have been held to be subject to exhaustion requirement).

The plaintiff argues that equitable subrogation is a recognized special defense asserted by subordinate lienholders in foreclosure actions.   See, e.g., Rosenbilt v. Williams, 57 Conn.App. 788, 792, 750 A.2d 1131, cert. denied, 254 Conn. 206, 755 A.2d 882 (2000).   It argues further that it raised that defense in a prior action in which the defendant sought to foreclose on its priority lien against Valdovinos, but because that action settled, the question of priority never was adjudicated.¹  It argues that its claim is really a “defense” not subject to the exhaustion requirement.   The plaintiff appears to acknowledge the contradiction inherent in its position—it is, in fact, now asserting its claim for equitable subrogation in a direct action to quiet title.   The plaintiff relies on Bolduc v. Beal Bank, SSB, 167 F.3d 667 (1st Cir.1999), in which the First Circuit concluded that the parties' position as plaintiff was not determinative of the exhaustion issue.   The plaintiffs, owners of real property subject to various mortgages originated by the failed financial institution, sought an injunction against the acquiring bank to prevent it from foreclosing on the mortgages.  Id., 699–70.   On appeal from the magistrate judge's order of a temporary injunction, the bank argued that the plaintiffs failed to exhaust their remedies under FIRREA.   Id., 671.   Although the court reversed the grant of the injunction on another ground, it concluded that FIRREA posed no bar to the plaintiffs' argument on the merits because the plaintiffs did not assert a “claim” seeking any type of payment from the bank, nor did they dispute that the bank owned the mortgages at issue.  Id., 672.   The plaintiff in the present case maintains that, similarly, the court should conclude that its action is not subject to the exhaustion requirements of FIRREA.

The defendant argues that the exhaustion requirement is mandatory because the plaintiff's claims against it arise out of the claimed acts or omissions of WaMu, a failed financial institution.   In Caires v. JP Morgan Chase Bank, 745 F.Sup.2d 40 (D.Conn.2010), the owner of mortgaged property commenced suit against the defendant, the successor of WaMu, alleging fraud, equitable estoppel and violations of CUTPA.   The court found that the successor bank does not automatically step into the shoes of the FDIC, entitling the bank to avail itself of the claims exhaustion process.  Id., 48–49.²  In contrast, in Aber–Shukofsky v. JP Morgan Chase & Co., supra, 755 F.Sup.2d 446– 47, the court explained that the requirements of FIRREA are not only designed to protect the FDIC, but also a defendant bank who stands as the failed institution's successor in interest, reasoning that the plain language of FIRREA as pertaining to “any claim relating to any act or omission” of the failed institution does not make its application contingent upon whom the claim is against.   The latter case is distinguishable from the present case because the plaintiffs therein clearly pursued a “claim” as that term is used in FIRREA:  they sought to recover damages from the successor for the failed institution's alleged violations of the Fair Labor Standards Act. Id., 443.   See also Russell v. Gateway Bank, Superior Court, judicial district of Fairfield, Docket No. CV 92 299790 (August 17, 1994, Pittman, J.) [12 Conn. L. Rptr. 340] (dismissing claim for damages arising out of personal injury because plaintiff did not exhaust her remedies under FIRREA).³

There is no question that the court has the power to hear and finally adjudicate controversies concerning the priority of lienholders against a subject property, whether in foreclosure proceedings or in actions to quiet title pursuant to § 47–31.   See, e.g, Country Lumber, Inc. v. Newington Builders Finish Co., 4 Conn.App. 589, 495 A.2d 1121 (1985).   If the procedural posture of this case was such that the plaintiff asserted an affirmative defense of equitable subrogation in a foreclosure action commenced by the defendant, it would be consistent with the Superior Court and other authority cited previously for this court to conclude that the exhaustion requirement of FIRREA would not bar the court from considering that defense and adjudicating the claim accordingly.   See, e.g., JP Morgan Chase Bank National Bank v. McPhaden, supra, 50 Conn. L. Rptr. 658.

The only question is whether the procedural posture of this action requires a different result.   The plaintiff does not assert a claim for damages;  it does not seek to be “paid” from the assets of the failed institution.   Nor does the plaintiff challenge the defendant's “rights with respect to” the asset in that it does not contest the validity of the defendant's home equity mortgage.   Our Supreme Court “repeatedly has eschewed applying the law in such a hypertechnical manner so as to elevate form over substance.   See, e.g., Stepney Pond Estates, Ltd v. Monroe, 260 Conn. 406, 422, 797 A.2d 494 (2002) (‘[t]o conclude ․ that the fact that the plaintiff invoked [a statute] instead of bringing a common-law action in equity deprived the trial court of jurisdiction would be to exalt form over substance’) ․” (Citations omitted.)  Lostritto v Community Action Agency of New Haven, Inc., 269 Conn. 10, 34, 848 A.2d 418 (2004).   Similarly, it would elevate form over substance to conclude that this court does not have subject matter jurisdiction over this action pursuant to the doctrine requiring a party to exhaust its administrative remedies when it appears that the exhaustion requirement would not bar the adjudication of identical claims under different procedural facts.

Accordingly, the motion to dismiss on this ground will be denied.

B.

Standing

The defendant also moves to dismiss on the ground that the court lacks jurisdiction because the plaintiff does not have standing.

“The issue of standing implicates this court's subject matter jurisdiction ․ Standing is the legal right to set judicial machinery in motion.   One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy ․ When standing is put in issue, the question is whether the person whose standing is challenged is a proper party to request an adjudication of the issue ․ Standing requires no more than a colorable claim of injury;  a [party] ordinarily establishes ․ standing by allegations of injury.”  (Citations omitted;  internal quotation marks omitted.)  Eder Brothers, Inc. v. Wine Merchants Of Connecticut, Inc., 275 Conn. 363, 368–69, 880 A.2d 138 (2005).

The defendant argues that the plaintiff does not have standing to pursue claims that properly belong to Valdovinos, relying on an allegation in the complaint concerning an alleged agreement between Valdovinos and WaMu. The plaintiff responds that, in a controversy concerning the priority of mortgages against the subject property, it is a real party in interest.   It in no way seeks to enforce any purported right of Valdovinos.

It is clear from reading the entire complaint that the plaintiff has standing to pursue its claims.   It alleges that it has been injured by the fact that the defendant's home equity mortgage was recorded such that it has priority over the plaintiff's refinance mortgage.   It relies, in part, on an alleged agreement between Valdovinos and WaMu to support its position that its refinance mortgage should have priority.   It does not seek to vindicate any rights belonging to Valdovinos.   Accordingly, the motion to dismiss based on lack of standing will be denied.

CONCLUSION

Based on all of the foregoing, the defendant's motion to dismiss is denied.

HARTMERE, J.

FOOTNOTES

FN1. The court takes judicial notice of the file in J.P. Morgan Chase Bank, NA v. Valdovinos, Superior Court, judicial district of Fairfield, Docket No. CV 09 6004396 (withdrawn October 27, 2010)..  FN1. The court takes judicial notice of the file in J.P. Morgan Chase Bank, NA v. Valdovinos, Superior Court, judicial district of Fairfield, Docket No. CV 09 6004396 (withdrawn October 27, 2010).

FN2. Rather, the court looked to the purchase and assumption agreement governing the transfer of assets between the FDIC and the defendant successor bank to determine which assets and corresponding liabilities were assumed.  Caires v. JP Morgan Chase Bank, supra, 745 F.Sup.2d 49–51.   After reviewing the agreement and concluding that the defendant expressly did not assume the predecessor's liabilities, which subjected some of the plaintiff's claims to the exhaustion requirement of FIRREA, the court allowed the plaintiff to replead because some of his claims involved the defendant's own behavior and were not subject to the exhaustion requirement.  Id., 50.At this juncture in the present case, the court does not have before it any evidence concerning how the defendant came to be, as alleged in the complaint, the holder of the home equity mortgage.   It is unclear whether such inquiry would be material under these facts because, unlike in Caires, the plaintiff in this action does not seek payment for damages or challenge the validity of the defendant's claim to the asset itself.   Rather, it seeks adjudication of the question of the priority of its own asset..  FN2. Rather, the court looked to the purchase and assumption agreement governing the transfer of assets between the FDIC and the defendant successor bank to determine which assets and corresponding liabilities were assumed.  Caires v. JP Morgan Chase Bank, supra, 745 F.Sup.2d 49–51.   After reviewing the agreement and concluding that the defendant expressly did not assume the predecessor's liabilities, which subjected some of the plaintiff's claims to the exhaustion requirement of FIRREA, the court allowed the plaintiff to replead because some of his claims involved the defendant's own behavior and were not subject to the exhaustion requirement.  Id., 50.At this juncture in the present case, the court does not have before it any evidence concerning how the defendant came to be, as alleged in the complaint, the holder of the home equity mortgage.   It is unclear whether such inquiry would be material under these facts because, unlike in Caires, the plaintiff in this action does not seek payment for damages or challenge the validity of the defendant's claim to the asset itself.   Rather, it seeks adjudication of the question of the priority of its own asset.

FN3. The defendant also cites Herrera v. Streamline Funding, Inc., 2011 U.S. Dist. Lexis 57346 (N.D.Cal. May 26, 2011), as authority for the proposition that FIRREA's exhaustion requirement applies to claims seeking to quiet title.   In that case, the court granted the successor entity's unopposed motion to dismiss pursuant to Fed. R. Civ. Pro. 12(b)(6), which challenged the legal sufficiency of the plaintiff's numerous claims, including claims for unjust enrichment, wrongful foreclosure, injunctive relief and quiet title, and did not address the question of the court's jurisdiction over the subject matter with respect to those claims.The court dismissed, on the jurisdictional ground, claims asserted against the FDIC. Id.  FN3. The defendant also cites Herrera v. Streamline Funding, Inc., 2011 U.S. Dist. Lexis 57346 (N.D.Cal. May 26, 2011), as authority for the proposition that FIRREA's exhaustion requirement applies to claims seeking to quiet title.   In that case, the court granted the successor entity's unopposed motion to dismiss pursuant to Fed. R. Civ. Pro. 12(b)(6), which challenged the legal sufficiency of the plaintiff's numerous claims, including claims for unjust enrichment, wrongful foreclosure, injunctive relief and quiet title, and did not address the question of the court's jurisdiction over the subject matter with respect to those claims.The court dismissed, on the jurisdictional ground, claims asserted against the FDIC. Id

Hartmere, Michael, J.