LLC v. Harry Hirsch, Esquire et al. (2013)

MEMORANDUM OF DECISION RE MOTIONS TO DISMISS (# 296 and # 300 in Dkt. No. 10–6008972;  # 281 and # 285 in Dkt. No. 10–6008973)

Preliminary Statement

These consolidated actions arise out of two residential real estate purchases for which mortgage loans were provided by First Maguus Financial Corporation (First Magnus).   The loans, evidenced by notes and secured by mortgages on the two properties, were subsequently sold by First Maguus and are presently held by Deutsche Bank, as trustee.   The plaintiff, the loan servicer for these loans,¹ brought this action on behalf of Deutsche Bank. The plaintiff brings claims against Harry Hirsch, Esquire, the attorney who represented First Magnus at the closing of the loans.   The allegations against Hirsch include legal malpractice, fraud and breach of his fiduciary duty to First Magnus and CUTPA violations.   The plaintiff brings claims against the Connecticut Attorneys Title Insurance Company (CATIC) under the terms of the title insurance policies issued at the time of closing.   The plaintiff also alleges a cause of action premised upon the “closing protection letter” (CPL) provided by CATIC at the time of closing.

Defendants Hirsch and CATIC have moved to dismiss the action on the grounds that the plaintiff does not have standing to assert the claims alleged and thus, the court is without subject matter jurisdiction.   The initial motion challenged, among other things, the standing of the plaintiff, as a servicing agent, to bring an action in its own right and on its own behalf.   In response, the plaintiff clarified that it is proceeding as the agent for Deutsche Bank and is not attempting to sue the defendants in its own right.²  The plaintiff further clarified that the claims are premised on Deutsche Bank's status as the assignee of the causes of action.   Hirsch and CATIC both aver that Deutsche Bank is not the assignee of these claims.   Hirsch further argues that the claims asserted against him are not assignable under Connecticut law.

The issues have been briefed exhaustively.   The court heard evidence on the question of whether Deutsche Bank is the assignee of these claims on February 28, 2013.   The parties submitted post-hearing briefs on March 22, 2013.   For the reasons set forth below, the motions to dismiss filed by Hirsch are GRANTED.   The motions to dismiss filed by CATIC are DENIED.

Standard of Review

Subject matter jurisdiction is properly raised in a motion to dismiss.  PB § 10–30;  Upson v. State, 190 Conn. 622, 624 (1983);  Sadloski v. Manchester, 235 Conn. 637, 645–46 n.13 (1995).  “Standing ․ implicates a court's subject matter jurisdiction, which may be raised at any point in judicial proceedings.”  Stamford Hospital v. Vega, 236 Conn. 646, 656 (1996).

Standing is the legal right to set judicial machinery in motion.   One cannot rightfully invoke the jurisdiction of the court unless [one] has, in an individual or representative capacity, some real interest in the cause of action ․ Ardmare Construction Co. v. Freedman, 191 Conn. 497, 501, 467 A.2d 674 (1983).  (Internal quotation marks omitted.)  Tomlinson v. Board of Education, 226 Conn. 704, 717, 629 A.2d 333 (1993).   Standing focuses on whether the party initiating the action is the proper party to request adjudication of the issues.  Nye v. Marcus, 198 Conn. 138, 141, 502 A.2d 869 (1985).   In general, a party does not have standing to raise rights belonging to another.  Third Taxing District v. Lyons, 35 Conn.App. 795, 798, 647 A.2d 32, cert. denied, 231 Conn. 936, 650 A.2d 173 (1994).

Id. at 657.  “The plaintiff bears the burden of establishing subject matter jurisdiction whenever and however raised.”  Fink v. Golenbock, 238 Conn 183, 199 n.13 (1996).

Factual Allegations and Findings

As indicated, these consolidated cases arise out of the closing of two separate residential real estate transactions.   The first action, bearing Dkt. No. CV 10–6008972, involved a transaction for property located at 52B Mardie Lane, Groton, Connecticut.   The second action, bearing Dkt. No. CV 10–6008973, involved property located at 47B Mardie Lane, Groton, Connecticut.   Mortgage loans were provided on both transactions by First Magnus Financial Corporation.   Defendant Hirsch served as attorney for the purchasers as well as First Magnus.   Hirsch was also an agent for CATIC, which issued both CPLs and title insurance policies in connection with the transactions.

The allegations in the complaint, which the court accepts as true for purposes of the motion to dismiss, are that the mortgage loans were procured through a fraudulent scheme perpetrated by Hirsch as well as the purchasers of the property.   The complaints against Hirsch allege fraud, legal malpractice (negligence), breach of fiduciary duty and CUTPA violations.   As to CATIC, the plaintiff brings a claim for damages under each of the CPLs that were issued at the time of closing as well as the title insurance policies procured in connection with each property.

These mortgage loans were sold by First Magnus and eventually bundled with hundreds or thousands of other mortgage loans which are held in trust by Deutsche Bank, as trustee, for the benefit of investors.   The plaintiff, by virtue of a servicing agreement, is the loan servicer for the loans held in the Trust.³  As such, plaintiff successfully prosecuted foreclosure actions as to each property.

The plaintiff introduced the notes and the various allonges attached thereto.   The court accepts that the mortgage loans were transferred from First Magnus and ultimately were acquired for inclusion in the Trust.   At issue is whether the assignments from First Magnus and ultimately to the Trust included an assignment of the claims brought in these actions.

With respect to the claims against Hirsch, plaintiff argues that these tort claims are ancillary to the notes and mortgages and therefore are assigned by operation of the assignment of the notes and mortgages.   With respect to the claims against CATIC, plaintiff argues that the insurance policies were specifically assigned along with the note and that the CPL was included by implication.

Discussion

“An assignment is a contract between the assignor and the assignee, and is interpreted or construed according to rules of contract construction.   6 Am.Jur.2d 153, Assignments § 1 (1999).”  Schoonmaker v. Lawrence Brunoli, Inc., 265 Conn. 210, 227 (2003).   An “assignee of a chose in action stands in the shoes of the assignor.”  Mall v. LaBow, 33 Conn.App. 359, 362 (1993), cert. denied, 229 Conn. 912 (1994);  DaimlerChrysler Services North America, LLC v. Commissioner, 274 Conn. 196, 212 (2005).   Indeed, “[a] valid assignment transfers to the assignee exclusive ownership of all of the assignor's rights to the subject assigned and extinguishes all of those rights in the assignor.”  Id.;  Bouchard v. People's Bank, 219 Conn. 465, 473 (1991).

“Generally, to constitute an assignment there must be a purpose to assign or transfer the whole or a part of some particular thing, debt, or chose in action, and the subject matter of the assignment must be described with such particularity as to render it capable of identification.  (Internal quotation marks omitted.)  Dysart Corp. v. Seaboard Surety Co., 240 Conn. 10, 17, 688 A.2d 306 (1997).”  Schoonmaker v. Lawrence Brunoli, Inc. supra, 277.   However, “[n]o words of art are required to constitute an assignment;  any words that fairly indicate an intention to make the assignee owner of a claim are sufficient ․ 29 S. Williston, Contracts (4th Ed.2003) § 74:3, p. 219.”   Sunset Gold Realty, LLC v. Premier Bldg. and Development, Inc., 133 Conn.App. 445, 452–53 (2012) (combination of evidence satisfied particularity requirement of assignment).

Moreover, it is the assignee's burden of proving the existence of the assignment.   Cuda & Associates, LLC v. Lumpkin, Superior Court, judicial district of New Haven, Docket No. CV 09 5031901 (November 29, 2011, Woods, J.) [52 Conn. L. Rptr. 916].   Such burden may be met “ ‘by evidence that is satisfactory in character to protect the defendant from another action by the alleged assignor, and which shows that there was a full and complete assignment of the claim from an assignor who was the real party in interest with respect to the claim.’   6A C.J.S. Assignments § 147.”  Id.

An agreement that simply purports to bind an assignee is not sufficient evidence of an actual assignment of the agreement.  Location Realty, Inc. v. Colaccino, 287 Conn. 706, 722 (2008).   In Location Realty, the plaintiff claimed that a listing agreement applied to the defendants because it contained a term stating that it was binding on “assigns.”   The Supreme Court rejected the argument because there was no written modification of the agreement or “other agreement specifically designating the defendants as assigns.”  Id. Thus, although an agreement or cause of action may be assignable, such a determination does not answer the question of whether an assignment has occurred.

Claims as to Hirsch

With these principles in mind and upon examination of the evidence submitted, the court concludes that plaintiff has failed to establish that Deutsche Bank is the assignee of the claims pursued against Hirsch.⁴  The documentation and purported assignments of the notes and mortgages relied upon by plaintiff to support his argument that he is the assignee of First Magnus' tort claims against Hirsch are silent as to any of the claims brought herein.

The evidence of transfers by First Magnus, the entity which “owns” these causes of action in the first instance, includes the notes with their various allonges and the assignment of the mortgages and notes from MERS as nominee for First Magnus to the plaintiff.⁵  The various servicing agreements and other records of transfer related to these loans are beyond the initial transfer from First Magnus and therefore shed little if any light on that which First Magnus intended to transfer in the first instance.⁶  To the extent they may be relied upon by the plaintiff, the assignments by MERS as nominee for First Magnus to the plaintiff with respect to each property provides as follows:

Assignor hereby assigns unto the ․ Assignee, the said Mortgage together with the Note or other evidence of indebtedness (the “Note”), ․ together with all moneys now owing or that may hereafter become due or owing in respect thereof, and the full benefit of all the powers and of all the covenants and provisos therein contained, and the said Assignor hereby grants and conveys unto the said Assignee, the Assignor's beneficial interest under the Mortgage.

There is no mention of any tort claims, let alone these specific causes of action.   Plaintiff does not argue to the contrary.   Rather, plaintiff first relies upon the authority of the loan servicer as set forth in the servicing agreement, to prosecute ancillary claims arising out of ownership of the note.   This argument begs the question.   Whether the servicer is authorized to prosecute ancillary claims does not answer the question of whether these claims are in fact ancillary claims.   See e.g. Location Realty, Inc. v. Colaccino, supra

The plaintiff further argues that assignment of the mortgage and note serves to assign any tort actions that might have arisen in connection with the issuance of the mortgage and note.   The court rejects this argument.   No Connecticut court has ever held as much and such a holding seems inapposite to the requirement that assignments be set forth with sufficient particularity in order to be relied upon.   The court recognizes that other states, under different circumstances, have allowed for assignees of contracts or commercial paper to maintain tort actions arising out of the signing of those contracts or issuance of that commercial paper.   In Banque Arabe et Internationale D'Investissement v. Maryland National Bank, 57 F.3d 146 (2d Cir.1995), a case relied upon by the plaintiff, the Second Circuit Court of Appeals, applying New York law, held that an assignment of “all right, title and interest” in a note was broad enough to encompass tort claims arising out of the signing of the note.  Id. at 153.   This court does not give the Banque Arabe et Internationale D'Investissement case as broad a reading as plaintiff would urge.   Other cases relied upon by the plaintiff are similarly unpersuasive.   In Cerberus Partners, L.P. v. Gadsby and Hannah, 728 A.2d 1057 (R.I.1999), the Rhode Island Supreme Court considered, as a matter of public policy, whether legal malpractice claims were assignable under the circumstances presented.   It determined that they were properly assignable.   The decision is silent as to the mechanism by which the assignment occurred and/or the language of any purported assignment.   The decision presumes without discussing, that the cause of action was in fact assigned to the plaintiff.   In St Luke's Magic Valley Regional Medical Center v. Luciani, Stamper, Rubens, Stocker & Smith, P.S., 293 P.3d 661 (Id.2013), the Idaho Supreme Court answered a certified question from the United States District Court for the District of Idaho of whether a legal malpractice claim that is transferred to an assignee in a commercial transaction along with other business assets and liabilities, is assignable.  Id. 662.   The Idaho Supreme Court determined, as a matter of policy, that under the circumstances presented, the assignment was permissible under Idaho law.   Although not the subject of the court's analysis, it is worth noting that the assignment in the St. Luke's decision provided:

[I]t is the intent of the Parties that all property and interest of the Hospital whether real or personal, tangible or intangible, be leased, sold, assigned, licensed or transferred by [Twin Falls] County and the [Magic Valley] Subsidiaries, as applicable, to [St. Luke's] (including any rights of first refusal, options or claims against third parties by the Hospital and settlements received thereto) whether or not reflected on the Hospital's Balance Sheet and whether known or unknown, contingent or otherwise.

(Emphasis added.)  Id. 663.

Thus, even under the authority of states which have allowed such claims, standing derived from the specific language of the assignment.   Here, as indicated, the evidence of any transfer or assignment from First Magnus makes no mention nor provides “any words that fairly indicate an intention to make the assignee owner of [these] claim[s].”  See, Sunset Gold Realty, LLC v. Premier Bldg. and Development, Inc., 133 Conn.App. 445, 452–53 (2012).   The plaintiff has not met its burden of establishing its standing to bring these claims.   The motions to dismiss (# 296 in Dkt No. 10–6008972 and # 281 in Dkt. No. 10–6008973) filed by Hirsch are granted.

Claims against CATIC

The same is not true with respect to the plaintiff's claims against CATIC.   Although the evidence regarding the initial transfer from First Magnus of these mortgage loans is similarly lacking, the plaintiff has offered sufficient evidence that the title insurance policies associated with each of these loans were included in the transfers and eventual assignment to Deutsche Bank. With respect to the mortgage loan for property located at 47B Mardie Lane, the Pooling and Servicing Agreement by which the mortgage loan was transferred to Deutsche Bank, as trustee, requires that the transfer to Deutsche Bank included not only the mortgage loans but also “interest in any insurance policies in respect of the mortgage loans.”   Exhibit 7. The Pooling and Service Agreement also demonstrates that the transferor was required to provide Deutsche Bank with original or certified copies of the title insurance policies for each of the mortgage loans.   Finally, the Pooling and Servicing Agreement specifically states that the intent of the parties is to transfer not only the mortgage loans but also “related documents.”

With respect to the mortgage loan for 52B Mardie Lane, the series of transfers resulting in Deutsche Bank's possession of the mortgage loan as trustee and its attendant title insurance policy is less explicit.   The court is satisfied however that the ultimate transfer to Deutsche Bank included the CATIC policy for 52 Mardie Lane.

Consistent with this finding is the language of the CATIC policies for both properties.   Each defines an “insured” under the policy to include “the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness ․” Insofar as the plaintiff has established that Deutsche Bank is the holder of the underlying indebtedness, the plaintiff, in its representative capacity has standing to bring claims based upon the title insurance policies.

Furthermore, the representative of Deutsche Bank and Nationstar (the current loan servicer and assignee of the Aurora) each testified that the mortgage loan documents transferred to Deutsche Bank included the CPLs.⁷ This court credits that testimony and otherwise finds that the evidence, in the aggregate, adequately establishes the assignment of rights and interests under the CPLs for purposes of establishing the plaintiff's standing.

The motions to dismiss (# 300 in Dkt. No. 10–6008972 and # 285 in Dkt. No. 10–6008973) filed by CATIC, are denied.

SO ORDERED.

K. DOOLEY, J.

FOOTNOTES

FN1. The current loan servicer is Nationstar by virtue of an assignment from Aurora to Nationstar which occurred subsequent to the commencement of this action.   The motion to substitute party plaintiff is pending the outcome of this motion..  FN1. The current loan servicer is Nationstar by virtue of an assignment from Aurora to Nationstar which occurred subsequent to the commencement of this action.   The motion to substitute party plaintiff is pending the outcome of this motion.

FN2. The court notes that this plaintiff previously brought and successfully prosecuted foreclosure actions with respect to both properties..  FN2. The court notes that this plaintiff previously brought and successfully prosecuted foreclosure actions with respect to both properties.

FN3. See footnote 1, supra..  FN3. See footnote 1, supra.

FN4. In light of this finding, the court does not address the question of whether, as a matter of policy, these claims are assignable under the circumstances presented here..  FN4. In light of this finding, the court does not address the question of whether, as a matter of policy, these claims are assignable under the circumstances presented here.

FN5. Oddly, the assignment by MERS as nominee for First Magnus appears to have occurred after the mortgage loans had been transferred to Deutsche Bank. Plaintiff does not explain this apparent inconsistency in the evidence..  FN5. Oddly, the assignment by MERS as nominee for First Magnus appears to have occurred after the mortgage loans had been transferred to Deutsche Bank. Plaintiff does not explain this apparent inconsistency in the evidence.

FN6. Notwithstanding their limited probative value as to whether First Magnus intended to assign these tort claims, the servicing agreements also make no mention of claims sounding in tort arising out of the issuance of the mortgages and notes..  FN6. Notwithstanding their limited probative value as to whether First Magnus intended to assign these tort claims, the servicing agreements also make no mention of claims sounding in tort arising out of the issuance of the mortgages and notes.

FN7. The court agrees that the CPL is distinct from the title policy and each confers distinct rights in the holders.   See, JPMorgan Chase Bank, N.A. v. FDIC, 795 F.Sup.2d 624, 628–29 (E.D.Mich 2011), and cases cited therein.   It is not contested that rights acquired under both a title insurance policy and a CPL may be assigned.   See, JPMorgan Chase, Bank, NA v. FDIC, supra..  FN7. The court agrees that the CPL is distinct from the title policy and each confers distinct rights in the holders.   See, JPMorgan Chase Bank, N.A. v. FDIC, 795 F.Sup.2d 624, 628–29 (E.D.Mich 2011), and cases cited therein.   It is not contested that rights acquired under both a title insurance policy and a CPL may be assigned.   See, JPMorgan Chase, Bank, NA v. FDIC, supra.

Dooley, Kari A., J.