People's United Bank v. Estate of Robert Jones (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE # 121

I

BACKGROUND AND ANALYSIS

The plaintiff has filed a motion to strike the defendant's special defense of equitable estoppel.   In support of the motion to strike, the plaintiff asserts that equitable estoppel is not a proper defense to foreclosure and, furthermore, insufficient facts have been pleaded to support the defense, if it were to apply.   Although the court disagrees with the plaintiff regarding the applicability of equitable estoppel as a defense to foreclosure, the motion to strike is nonetheless granted for insufficient allegations of fact.

Equitable estoppel may be a valid special defense in a foreclosure action.   See Barasso v. Rear Still Hill Road, LLC, 81 Conn.App. 798, 805, 842 A.2d 1134 (2004).  “Equitable estoppel is a doctrine that operates in many contexts to bar a party from asserting a right that it otherwise would have but for its own conduct ․ In its general application, we have recognized that [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.”  (Citations omitted;  internal quotation marks omitted.)  Glazer v. Dress Barn, Inc., 274 Conn. 33, 60, 873 A.2d 929 (2005).

The special defense in the present case asserts that the defendant entered into a course of conduct, involving the expenditure of significant funds, to enhance the marketability of the real property that is subject to foreclosure in this case.   This was done in the reasonable anticipation of a higher market value than the combined debt and expenditures of the defendant.   The current offer on the property is, unfortunately, significantly less than the debt owed to the plaintiff alone.   Therefore, the defendant's expenditure of limited estate funds to enhance the value of the property, now only for the exclusive benefit of the plaintiff, has been done to its injury and prejudice.¹

The court is required to construe these allegations “in the manner most favorable to sustaining [their] 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 defendants 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.”  (Citations omitted;  internal quotation marks omitted.)  Doe v. Yale University, 252 Conn. 641, 667–68, 748 A.2d 834 (2000).   The special defense pleaded here is insufficient because it alleges no facts regarding inducement by the plaintiff.   On this basis alone, the motion to strike is granted.

The plaintiff further claims that the facts pleaded in the defendant's special defense are insufficient because equitable defenses in a foreclosure action are limited to those relating to the making, validity or enforcement of the note.   This generally repeated rule appears to have originated in Superior Court case law, beginning with Citytrust v. Kings Gate Developers, Inc., Superior Court, judicial district of Stamford at Norwalk, Docket No. CV 90 0106448 (October 18, 1990, Lewis, J.) (2 Conn. L. Rptr. 639).   The plaintiff asserts that the conduct pleaded in the special defense here does not relate to the making, validity or enforcement of the note and mortgage because it occurred subsequent to the execution of the note and mortgage.   The court disagrees with this conclusion.

The limitation on special defenses in foreclosures to those relating to the “making, validity or enforcement” of the note and mortgage, on its face, appears applicable to inequitable post-execution actions by creditors, as the very language of this phrase encompasses the “enforcement” of notes and mortgages, which would inevitably occur after a mortgage closing.   Furthermore, “while this construction of ‘making, validity or enforcement’ has been utilized by Superior Court judges for well over a decade ․ it has not been adopted by our Supreme Court ․ It is also noted that some Superior Court judges have rejected a construction of ‘making, validity or enforcement’ that prevents a court from considering post-execution conduct of the mortgagee.”   (Citation omitted.)   Liberty Bank v. New London Limited Partnership, Superior Court, judicial district of New London, Docket No. CV 06 4005236 (May 1, 2007, Devine, J.) (43 Conn. L. Rptr. 326, 328);  see Connecticut Community Bank, N.A. v. Six Hundred Twenty–Three Steamboat, LLC, Superior Court, judicial district of Stamford–Norwalk, Docket No. CV 12 6013283 (February 15, 2013, Mintz, J.).

A special defense attacking the underlying mortgage transaction giving rise to the cause of action for foreclosure should be permitted because it directly attacks the propriety of the cause of action to foreclose, which is consistent with the requirements of special defenses, generally.   Some post-execution actions by creditors, however, may be so inequitable as to encompass and extinguish the cause of action itself.   Therefore, special defenses in foreclosure actions should not be categorically limited to the transaction relating to the execution of the note and mortgage.²

“As a general rule, facts must be pleaded as a special defense when they are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action ․ No facts may be proved under either a general or special denial except such as to show that the plaintiff's statements of fact are untrue.   Facts which are consistent with such statements but show, notwithstanding, that the plaintiff has no cause of action, must be specially alleged ․ If a party seeks to introduce evidence under a denial which is consistent with a prima facie case, but nevertheless would tend to destroy the cause of action, the ‘new matter’ must be affirmatively pleaded as a special defense.”  (Emphasis added;  citations omitted;  internal quotation marks omitted.)  Mitchell v. Guardian Systems, Inc., 72 Conn.App. 158, 166–67, 804 A.2d 1004, cert. denied, 262 Conn. 903, 810 A.2d 269 (2002), see Practice Book § 10–50.

Limiting special defenses to those relating to the making, validity and enforcement of a note and mortgage does not appear to be a test adopted by the Supreme Court.   However, it was tacitly acknowledged but not limited to mortgage transactions in Thompson v. Orcutt, 257 Conn. 301, 777 A.2d 670 (2001).   In Thompson, the right to foreclose was successfully challenged by the special defense of unclean hands, where the foreclosing creditor was found to have engaged in fraudulent, post-execution behavior.   The Supreme Court stated in Thompson that the creditor's right to foreclose “would not have existed had he not lied to the bankruptcy trustee and withheld information concerning the Northeast lien.   The original transaction creating the Thompson mortgage was not tainted with fraud, but the plaintiff's ability to foreclose on the defendants property in this case depended upon his fraudulent conduct in the bankruptcy proceeding.   If the Thompson mortgage had been administered as an asset of the bankruptcy estate, the plaintiff would have had no means of bringing this foreclosure action.”  Id., 313–14.   Under the facts of Thompson, it would appear that a defense attacking the underlying right to foreclose would be required.

Based upon this analysis, the court concludes that equitable special defenses need not be limited to those arising out of the mortgage transaction.   They may relate to the enforcement of the note and mortgage, as well as to equitable defenses showing there ought to be no cause of action.   See Practice book § 10–50.   Accordingly, the court declines to grant the plaintiff's motion to strike on this basis at this time.

II

CONCLUSION

For reasons set forth by the court above, the plaintiff's motion to strike is granted.

BY THE COURT

MARK H. TAYLOR, J.

FOOTNOTES

FN1. The defendant's brief in opposition to the motion to strike recites facts that, if true, would show that the plaintiff's attorney was aware of this course of conduct and implies that it was assented to and induced by the plaintiff.   These facts are neither stated nor implied in the language of special defense filed with the court..  FN1. The defendant's brief in opposition to the motion to strike recites facts that, if true, would show that the plaintiff's attorney was aware of this course of conduct and implies that it was assented to and induced by the plaintiff.   These facts are neither stated nor implied in the language of special defense filed with the court.

FN2. The transaction test for counterclaims pursuant to Practice Book section 10–10 should not be misapplied to limit defenses subject to the cause of action test pursuant to Practice Book section 10–50.   To do so may lead to the misunderstanding that special defenses in foreclosure actions are limited to the note and mortgage transaction and not to their inequitable enforcement after the closing..  FN2. The transaction test for counterclaims pursuant to Practice Book section 10–10 should not be misapplied to limit defenses subject to the cause of action test pursuant to Practice Book section 10–50.   To do so may lead to the misunderstanding that special defenses in foreclosure actions are limited to the note and mortgage transaction and not to their inequitable enforcement after the closing.

Taylor, Mark H., J.