LLC v. Wideband Solutions, Inc. et al. (2013)

MEMORANDUM OF DECISION

The plaintiff, Amos Financial, LLC, (Amos), has brought a breach of contract complaint against the defendants, Wideband Solutions, Inc., (Wideband), Lonny Bowers, Andrew Chiang, and Jun Yang, in which Wideband was indebted to Sovereign Bank under a promissory note/line of credit, and Bowers, Chiang, and Yang signed as guarantors.   Judgment entered against the defendants, Chiang and Yang, on May 13, 2013, and judgment entered against the defendant, Wideband, on September 23, 2013.  (Abrams, J.) ¹

Only one count remains sounding in breach of contract against the defendant, Bowers.   Bowers filed special defenses and counterclaim which address his theory that the plaintiff failed to protect the collateral that was secured by the security agreement in connection with the promissory note.   The counterclaim is in four counts:  breach of contract, promissory estoppel, breach of covenant of good faith dealings,² and bad faith initiation of litigation.³

A court trial was held on November 6, 2013.   The court heard from two witnesses, Brian Donegan, general counsel and officer for Amos, and the defendant, Lonny Bowers.   The court has reviewed the evidence admitted, considered the testimony provided, and the arguments set forth by the parties, and renders this decision after careful consideration of all of these items and the applicable law.

I

FINDINGS OF FACT

“In a bench trial ․ the court sits as the trier of fact ․” (Internal quotation marks omitted.)  Knock v. Knock, 225 Conn. 776, 793, 621 A.2d 267 (1993).   The court makes the following findings of fact based upon the more credible evidence.

On August 10, 2007, Wideband entered into a promissory note agreement with Sovereign Bank, the plaintiff's predecessor in interest, under which Sovereign Bank would provide a line of credit to Wideband.   In addition to the defendant, Bowers, executing the note and security agreement in his capacity as president of Wideband, he also signed an unconditional personal guaranty of payment.⁴  (Plaintiff's Exh. 1.) In the event of default, the note provided for recovery of all costs incurred in pursuing collection including reasonable attorneys fees.  (Id., p. 6.)

On April 13, 2009, Wideband and Sovereign Bank entered into a modification agreement whereby Sovereign Bank would continue to provide a line of credit to Wideband.   Bowers executed the modification agreement in both his capacity as president of Wideband as well as guarantor.  (Plaintiff's Exh. 2.) The modification agreement detailed the original indebtedness to Sovereign Bank by Wideband, Bowers, Chiang and Yang, and provided that the modification would be to the loan and the “loan documents,” which were described as the “[n]ote and all other documents and instrument executed in connection with or relating to the [l]oan.”  (Id.) In addition to modifying the terms of the note, the modification agreement provided that the applicable law governing would be Connecticut, and also provided that as of the date of the modification agreement, Bowers had “no claim, set-off, counterclaim, defense or other cause of action against the [Sovereign Bank] ․ [and][t]o the extent that any such set-off, counterclaim, defense, or cause of action may exist or might hereafter arisen based on facts known or unknown that exist as of this date, such ․ counterclaim, defense and other cause of action is hereby ․ waived.”   (Emphasis added.  Id.)

The plaintiff is a “debt buyer,” and in the business of acquiring non-performing debts from various banks and some private parties.   On November 16, 2010, Amos purchased two pools of loans from Sovereign Bank, one of which included the loan between Sovereign Bank and the defendant.  (Plaintiff's Exh. 3.) After the purchase of the loan, Amos never took possession of the collateral used to secure the loan, nor did they make any attempts to do so.   No payments were made directly to Amos to satisfy the debt, and in fact, no payments were made on the account after the modification in April 2009.   As of November 7, 2013, Amos is owed $132,159.89, which is calculated as principal in the amount of $96,812.55, pre-judgment contractual interest of $35,347.34 with a per diem of $21.51.   Amos is also seeking costs in the amount of $462.00.⁵  (Plaintiff's Exh. 12.)

Additional facts shall be supplied as necessary.

II

DISCUSSIONA. Plaintiff's ComplaintBreach of Contract

Amos claims damages for breach of contract based upon the promissory note and line of credit agreement as well as the associated modification agreement.   It demanded full payment from Bowers, as a joint and several guarantor of the promissory note/line of credit agreement and modification agreement.   Bowers has refused to pay the amount owed, and as a result, the plaintiff claims he has breached the agreements with the plaintiff.

“The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other, and damages.”  (Internal quotation marks omitted.)  American Express Centurion Bank v. Head, 115 Conn.App. 10, 15–16, 971 A.2d 90 (2009).  “It is a fundamental principle of contract law that the existence and terms of a contract are to be determined from the intent of the parties ․ [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and ․ the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the [writing] ․ Where the language of the [writing] is clear and unambiguous, the [writing] is to be given effect according to its terms.   A court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity.”  (Citations omitted;  internal quotation marks omitted.)  Auto Glass Express v. Hanover Insurance Co., 293 Conn. 218, 225–26, 975 A.2d 1266 (2009).

After careful review of all the evidence and corresponding legal principles, the court concludes that Amos has sustained its burden of proof as to a breach of contract claim against Bowers.   The promissory note/line of credit and modification agreement are clear, concise and unambiguous.   Amos has made demand of Bowers for the full payment of the loan, and Bowers has failed to pay said amount as provided for in the loan documents.   The court finds in favor of the plaintiff on the breach of contract count.

B. Defendant's Counterclaim

The defendant has filed a counterclaim in four counts:  breach of contract, promissory estoppel, breach of covenant of good faith dealing, and bad faith initiation of litigation, as well as special defenses.   All of these can be addressed collectively, as the basis for these claims and defenses is the defendant's theory that the plaintiff failed to protect the collateral that was secured through the agreement at the time it was transferred to Amos by Sovereign Bank. Count one claims that the plaintiff breached its obligation under the Uniform Commercial Code to make an effort to obtain the full market value of the collateral to offset the debt owned, and is therefore in breach of contract.   Count two sounds in promissory estoppel resulting from the plaintiff's refusal to enforce the conditions relating to the security interest in the collateral in violation of the UCC. Count three asserts that the plaintiff breached its covenant of good faith dealings in refusing to take action regarding the collateral and “[ignoring] Lonny Bowers' request and offer of assistance in obtaining the fair market value for the collateral that secured the loan.”  (Counterclaim, count three, ¶ 47.)   Count four asserts a claim for bad faith initiation of litigation and alleges that the plaintiff was aware when it filed the initial action that the Stamford judicial district was not the proper venue and lacked jurisdiction, which resulted in making the action more difficult for Bowers to defend and increasing expenses for him.

The plaintiff argues that the defendant's defenses and counterclaim have no merit because he waived his right to make such claims when he executed the modification agreement which contained the “Release of Lender” clause precluding the defendant from filing any counterclaims.⁶

The Release of Lender clause set forth above provides each obligor declares that as of the date of the signing of the modification agreement (April 13, 2009), there are no known counterclaims or defenses, and to the extent any such counterclaim or defense may exist or might hereafter arise based on facts known or unknown that exist as of the [April 13, 2009] date, those claims are waived.   The contention of Bowers is that at some point he notified Sovereign Bank that the assets which served as collateral for the loan were being transferred.   Sovereign Bank took no action to enforce its superior rights based on their security interest, and subsequently sold its rights on the loan to the plaintiff, Amos, on November 16, 2010.   Thereafter, Amos made no efforts to obtain the full market value for the collateral assets, or to take action relating to its interest in the collateral.

The plaintiff argues that Bowers waived his right to raise any special defenses or counterclaim under the Release of Lender clause in the modification agreement.   The court disagrees.   The modification agreement states that the obligor declares he is unaware of any known counterclaims or defenses as of the date of the modification agreement, which was April 13, 2009.   The theory under which Bowers asserts his special defenses and counterclaim appears to have arisen after the date of the signing of the modification agreement.

However, there are greater problems with Bowers' claims.   First, the security agreement provides that upon default the lender has the right to repossess or seize the collateral, have a sale of the collateral, apply the sales proceeds against the outstanding balance, and proceed against the balance.   It has the right to do so, but not the obligation.   Amos did not repossess the collateral in this instance, nor has made any attempts through the courts or otherwise to do so.

The second problem is of greater magnitude.   The items pledged as collateral were not legally owned by Wideband.   Wideband was the subject of a federal lawsuit brought by a company, Clear One, which alleged that Wideband had stolen a source code from Clear One and violated the trade secrets act.   Clear One obtained a $2 million verdict against Wideband, and the collateral which Wideband used as security for the loan was seized by the order of the federal court and transferred to Clear One on September 14, 2009.   The collateral which was pledged for the loan with Sovereign Bank was determined to have been stolen from Clear One.

Furthermore, it is not actionable that the plaintiff instituted this action in the Judicial District of Stamford, and the defendant cites no authority for this claim.

The court finds in favor of the plaintiff, Amos, on all counts of the counterclaim.

CONCLUSION

Judgment shall enter against the defendant, Bowers, in the amount of $132,783.68, with costs in the amount of $462, and attorneys fees in the amount of $19,917.56, for a total of $153,163.24.   The court orders postjudgment interest pursuant to General Statutes § 37–3a at the rate of ten (10) percent.

Swienton, J.

FOOTNOTES

FN1. Judgment entered against the defendants, Yang and Chiang, jointly and severally, in the amount of $127,872.90, with costs in the amount of $64.63 and attorneys fees in the amount of $19,180.95.   Judgment entered against Wideband in the amount of $129,965.47, with costs in the amount of $494.92 and attorneys fees in the amount of $19,494.82.   In both judgments, “post judgment interest [was ordered] in accordance with the statute.”  (Abrams, J.).  FN1. Judgment entered against the defendants, Yang and Chiang, jointly and severally, in the amount of $127,872.90, with costs in the amount of $64.63 and attorneys fees in the amount of $19,180.95.   Judgment entered against Wideband in the amount of $129,965.47, with costs in the amount of $494.92 and attorneys fees in the amount of $19,494.82.   In both judgments, “post judgment interest [was ordered] in accordance with the statute.”  (Abrams, J.)

FN2. The defendant titled this count “breach of covenant of good faith dealings” instead of the correct cause of action, breach of covenant of good faith and fair dealing..  FN2. The defendant titled this count “breach of covenant of good faith dealings” instead of the correct cause of action, breach of covenant of good faith and fair dealing.

FN3. A further basis for the bad faith initiation of litigation count relates to the plaintiff originally filing the action in the Judicial District of Stamford, and later moving to transfer the action to the Judicial District of New Britain, which was ordered on December 5, 2011.   (Mintz, J.).  FN3. A further basis for the bad faith initiation of litigation count relates to the plaintiff originally filing the action in the Judicial District of Stamford, and later moving to transfer the action to the Judicial District of New Britain, which was ordered on December 5, 2011.   (Mintz, J.)

FN4. Because judgment has entered against the defendants, Chiang and Yang, this decision shall only address Bowers.   The court notes that the obligation under the guaranty is joint and several..  FN4. Because judgment has entered against the defendants, Chiang and Yang, this decision shall only address Bowers.   The court notes that the obligation under the guaranty is joint and several.

FN5. The plaintiff is also seeking attorneys fees as provided for in the loan documents in the amount of $19,823.98, which is based upon a fifteen (15) percent contingency fee arrangement based upon the principal and interest to be collected of $132,159.89.  (Plaintiff's Exh. 13.).  FN5. The plaintiff is also seeking attorneys fees as provided for in the loan documents in the amount of $19,823.98, which is based upon a fifteen (15) percent contingency fee arrangement based upon the principal and interest to be collected of $132,159.89.  (Plaintiff's Exh. 13.)

FN6. This was addressed in a motion to dismiss the counterclaims wherein the plaintiff argued that the court lacked subject matter jurisdiction due to the Release of Lender clause.   The motion to dismiss was denied.   (Gleeson, J.).  FN6. This was addressed in a motion to dismiss the counterclaims wherein the plaintiff argued that the court lacked subject matter jurisdiction due to the Release of Lender clause.   The motion to dismiss was denied.   (Gleeson, J.)

Swienton, Cynthia K., J.