City of Milford v. Recycling, Inc. (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE (# 227)

On February 14, 2012, the plaintiff, the city of Milford, filed its fifth amended complaint seeking to foreclose certain tax liens on real property held by the defendant, Recycling, Inc.¹ On March 15, 2012, the defendant filed an answer and two special defenses.   In its first special defense, the defendant alleges the following facts.   The plaintiff improperly prevented the premises from being used as a facility to process recyclable material despite its location in an industrial zone.   The defendant has received a judgment against the plaintiff with regards to this proposed use of the premises.   The plaintiff, therefore, wrongfully prevented the defendant from operating, financing, developing and/or selling said property and paying the taxes and encumbrances on the property.   In the second special defense, the defendant alleges that it has made substantial payments and significantly reduced the amount of outstanding taxes owed on the premises on the belief that, in return for such payments, the plaintiff would no longer pursue a foreclosure action against the premises and would allow the taxes to be brought current by future payments by the defendant.   The plaintiff is continuing this foreclosure action solely in an attempt to coerce or prevent the defendant from using the premises as a facility to process recyclable materials.   Therefore, due to the improper actions of the plaintiff described in the first special defense and the bad faith actions of the plaintiff described in the second special defense, the plaintiff has acted with unclean hands and should be denied relief in this foreclosure action.

On March 22, 2013, the plaintiff filed a motion to strike the defendant's special defenses and submitted a memorandum of law in support of its motion.   On May 15, 2013, the defendant filed an objection and submitted a memorandum of law in support of its objection.   The court heard argument on May 20, 2013.

“Whenever any party wishes to contest ․ the legal sufficiency of ․ any answer to any complaint ․ or any part of that answer including any special defense contained therein, that party may do so by filing a motion to strike the contested pleading or part thereof.”  Practice Book § 10–39(a).   When ruling on a motion to strike, a trial court is obligated “to take the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency.”  Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992).  “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Bridgeport Harbour Place I, LLC v. Ganim, 303 Conn. 205, 213, 32 A.3d 296 (2011).  “In ruling on a motion to strike the trial court is limited to considering the grounds specified in the motion.”  Meredith v. Police Commission, 182 Conn. 138, 140, 438 A.2d 27 (1980).  “It is well established that a motion to strike must be considered within the confines of the pleadings and not external documents ․ We are limited ․ to a consideration of the facts alleged in the complaint.”  (Internal quotation marks omitted.)   Zirinsky v. Zirinsky, 87 Conn.App. 257, 268 n.9, 865 A.2d 488, cert. denied, 273 Conn. 916, 871 A.2d 372 (2005).

In the present case, the plaintiff moves to strike the defendant's special defenses on the grounds that both special defenses alleging unclean hands fail to attack the making, validity or enforcement of the tax liens themselves and fail to allege willful misconduct with regard to the creation of the tax liens.   Specifically, the plaintiff raises four arguments in support of these contentions.   First, it argues that the lien in question by the plaintiff's own admission does not arise out of the making, validity or enforcement of the lien itself.   Second, it argues that the defenses attempt to impermissibly use foreclosure proceedings on a tax lien to challenge the underlying tax assessment.   Third, the plaintiff contends that the special defenses allege conduct by the plaintiff that has nothing to do with the creation of the tax liens under foreclosure.   Fourth and final, the plaintiff argues that the second special defense further fails to allege conduct that rises to the level necessary for the court to find that the plaintiff acted with unclean hands.

The defendant counters these positions, contending that it has alleged facts in support of each special defense asserting unclean hands.   It also argues that the plaintiff has impermissibly filed a speaking motion and improperly relies on facts not found within the defendant's special defenses.

In mortgage foreclosures, “defenses to a foreclosure action have [historically] been limited to payment, discharge, release or satisfaction ․ or, if there had never been a valid lien ․ A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both.”  (Internal quotation marks omitted.)  TD Bank, N.A. v. M.J. Holdings, LLC, 143 Conn.App. 322, 327 (2013).   The Superior Court has applied similar principles to the foreclosure of tax liens.   See, e.g., Norwich v. Hallstrom, Superior Court, judicial district of New London, Docket No. CV 11 6010272 (March 6, 2012, Devine, J.) (“[d]efenses ․ in tax lien foreclosures have been limited to those relating to the making, validity or enforcement with the lien being foreclosed”);  Middletown v. 180 Johnson Road, Inc., Superior Court, judicial district of Middlesex, Docket No. CV 97 0082578 (January 6, 1998, Fineberg, J.) (granting motion to strike when “Special Defense ․ involve[d] factual and legal issues not arising from or related to the making, validity or enforcement of the subject municipal liens”).

“A foreclosure action ․ is an equitable proceeding.”  New Haven v. God's Corner Church, Inc., 108 Conn.App. 134, 139, 948 A.2d 1035 (2008).  “Because an action to foreclose ․ is an equitable proceeding, the doctrine of unclean hands may be applicable.”  (Internal quotation marks omitted.)  Ulster Savings Bank v. 28 Brynwood Lane, Ltd., 134 Conn.App. 699, 710, 41 A.3d 1077 (2012).  “The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue ․ For a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands ․ The clean hands doctrine is applied not for the protection of the parties but for the protection of the court ․ It is applied ․ for the advancement of right and justice ․ The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked.”  (Internal quotation marks omitted.)  Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 407, 867 A.2d 841 (2005).  “The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation.”  (Internal quotation marks omitted.)  Id.

“Because the doctrine of unclean hands exists to safeguard the integrity of the court ․ [w]here a plaintiff's claim grows out of or depends upon or is inseparably connected with his own prior fraud, a court of equity will, in general, deny him any relief, and will leave him to whatever remedies and defenses at law he may have ․ The doctrine generally applies [only] to the particular transaction under consideration, for the court will not go outside the case for the purpose of examining the conduct of the complainant in other matters or questioning his general character for fair dealing.   The wrong must ․ be in regard to the matter in litigation ․ Though an obligation be indirectly connected with an illegal transaction, it will not thereby be barred from enforcement, if the plaintiff does not require the aid of the illegal transaction to make out his case.”  (Citations omitted;  internal quotation marks omitted.)  Thompson v. Orcutt, 257 Conn. 301, 310–11, 777 A.2d 670 (2001).  “In other words, the unclean hands defense is proper if the plaintiff would not be able to bring the action but for its improper conduct.”   LaSalle Bank National Assn. v. Bardales, Superior Court, judicial district of New London, Docket No. 08 5007137 (April 14, 2009, Devine, J.), citing Thompson v. Orcutt, 313–14.

“Wilful misconduct has been defined as intentional conduct designed to injure for which there is no just cause or excuse ․ [Its] characteristic element is the design to injure either actually entertained or to be implied from the conduct and circumstances ․ Not only the action producing the injury but the resulting injury also must be intentional ․ [T]he term wilful has [also] been used to describe conduct deemed highly unreasonable or indicative of bad faith.”  (Citation omitted;  internal quotation marks omitted.)  19 Perry Street, LLC v. Unionville Water Co., 294 Conn. 611, 630–31 n.10, 987 A.2d 1009 (2010).  “Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive ․ Bad faith means more than mere negligence;  it involves a dishonest purpose.”  (Internal quotation marks omitted.)  Id., 637.  “Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply.”  (Internal quotation marks omitted.)  Thompson v. Orcutt, supra, 257 Conn. 310.

In the present case, the first two arguments raised by the plaintiff in support of its motion to strike both of the defendant's special defenses are not convincing.   Its first argument that the argument does not go to the making, validity or enforcement of the tax lien remains an accurate characterization of the requirements for a special defense at law to foreclosure.   Despite Superior case law to the contrary, however;  Milford v. Andresakis, Superior Court, judicial district of Ansonia–Milford, Docket No. CV 94 047124 (December 1, 1997, Corrigan, J.) (“equitable defenses are limited to those defenses which attack the making, validity or enforcement of the lien rather than some act or procedure of the lien holder” [internal quotation marks omitted] );  these requirements do not appear to have been strictly required under a recent Supreme Court analysis of the unclean hands defense a mortgage foreclosure.   See Thompson v. Orcutt, supra, 257 Conn. 311–14 (although inequitable behavior arose after creation of the lien and in spite of plaintiff's argument that “defense of unclean hands should not apply in mortgage foreclosure actions unless the allegedly wrongful conduct relates to the making, enforcement or validity of the mortgage note,” holding that unclean hands defense applied because “plaintiff's cause of action to foreclose on the mortgage was directly and inseparably connected to his prior fraud on the bankruptcy court” [internal quotation marks omitted] ).   But see Liberty Bank v. New London, LP, Superior Court, judicial district of New London, Docket No. CV 4005236 (May 1, 2007, Devine, J.) (43 Conn. L. Rptr. 326, 328) (“Simply stated, allowing a defendant to craft a defense that is based on facts associated with the mortgagee's post-execution behavior is not inimical to the requirement that a special defense in a foreclosure action relate to the ‘making, validity or enforcement’ of the note or mortgage.   Such behavior of the mortgagee throughout the course of the relationship may be directly related to the ‘enforcement’ of the note or mortgage”).

Further, despite the plaintiff's assertions to the contrary, neither of the defendant's special defenses attack the validity of the tax assessments that form the underlying basis for the liens;  rather, it points to alleged acts by the plaintiff that the defendant asserts make it inequitable for the court to allow the plaintiff to continue its foreclosure action.   This situation is therefore different from cases where a special defense specifically challenges the validity of an assessment itself.   Cf. Danbury v. Dana Investment Corp., 249 Conn. 1, 14–15, 730 A.2d 1128 (1999);  see also Redding v. Elfire, LLC, 74 Conn.App. 498–99, 812 A.2d 211 (2003).

With regards to the plaintiff's third argument, it appears to argue that neither of the defendant's special defenses arise out of the current transaction and therefore is not a valid defense to the present dispute.   In so arguing, however, the plaintiff applies the wrong standard for determining when this occurs.   The defendant relies upon the court's decision in Windham v. Massad, Superior Court, judicial district of Windham, Docket No. CV 98 0059338 (July 28, 1999, Sferrazza, J.), for the following proposition:  “The untoward behavior which purportedly sullies the foreclosing party ․ must pertain directly to the transaction which generates the lien being foreclosed ․ In the context of municipal liens, the misconduct alleged must relate to the creation of the lien and not to other municipal activity ․” (Citations omitted;  internal quotation marks omitted.)   That decision, however, predates the Supreme Court's decision in Thompson v. Orcutt by almost two years which stressed in the context of mortgage foreclosures that the courts may consider whether inequitable behavior by the foreclosing party subsequent to the creation of the lien should preclude the court from granting equitable relief.   See Thompson v. Orcutt, supra, 257 Conn. 311–14.   It reiterated that the standard for making this determination is whether the present action “grows out of or depends upon or is inseparably connected with” their prior misconduct and is “generally applie[d] [only] to the particular transaction under consideration ․” See id., 310.

Applying the proper standard to the alleged facts in the present matter, however, both of the defendant's special defenses fail.   With regards to the first special defense, the defendant alleges that, by improperly preventing the plaintiff from using the premises as a processing plant for recyclable materials, the plaintiff wrongfully impaired the defendant from using the property to generate income and pay the taxes and encumbrances on the property.   The plaintiff's wrongful behavior—the interference with the use of the premises—constitutes a separate transaction from the present action foreclosing on the property for past due taxes, which could have arguably been paid even as the parties were resolving their dispute concerning the use of the premises in the Superior Court.

With regards to the second special defense, the defendant has alleged that it made substantial payments to the plaintiff on the belief that, by doing so, the plaintiff would not continue to pursue the foreclosure action and allow the defendant to pay off the taxes still past due.   Assuming that the defendant would not have made these payments but for the plaintiff's behavior in creating what the court must assume was a valid belief that the plaintiff would delay any action to foreclose, then the tax debt on the property would nonetheless exist and would in fact be larger than it presently is.   Therefore, because the plaintiff could foreclose in either scenario, the present foreclosure action cannot be said to available only but for any wrongful action by the plaintiff.

Because the third argument is sufficient to dispense with each special defense, the court does not have to consider the plaintiff's fourth argument in support of its motion to strike.

For the foregoing reasons, this court grants the plaintiff's motion to strike.

The Court

John W. Moran, J.T.R.

FOOTNOTES

FN1. The plaintiff alleges in its complaint that several other defendants have interests in the property by virtue of, inter alia, a judgment lien, mechanic's liens, a lease and various mortgages.   For the sake of consistency and because the only defendant who is a party to this motion to strike is Recycling, Inc., the term “the defendant” as used throughout this memorandum refers solely to Recycling, Inc..  FN1. The plaintiff alleges in its complaint that several other defendants have interests in the property by virtue of, inter alia, a judgment lien, mechanic's liens, a lease and various mortgages.   For the sake of consistency and because the only defendant who is a party to this motion to strike is Recycling, Inc., the term “the defendant” as used throughout this memorandum refers solely to Recycling, Inc.

Moran, John W., J.T.R.