State Farm Bank v. Walter Nado (2013)

Memorandum of Decision on Motion to Strike (No. 132)

ISSUE

At issue is whether the court should grant the plaintiff's motion to strike the defendant's first, second, third, and fifth special defenses on the ground that they are legally insufficient because they are not recognized as special defenses, lack factual allegations, and are mere conclusions of law.

FACTS

On November 30, 2010, the plaintiff, State Farm Bank, filed a two-count complaint against the defendant, Walter Nado. On November 20, 2012, the plaintiff filed an amended complaint in which it alleges the following facts.   The defendant opened a credit account with the plaintiff.   The account was governed by an agreement which provided that the defendant was responsible for his debt and could also be responsible for fees or interest.   The defendant failed to make payments against the balance on the account, which resulted in late fees and accrued interest as required under the agreement.   On March 19, 2010, the defendant became indebted to the plaintiff in the amount of $14,216.61 for the outstanding balance on the account.   The plaintiff mailed periodic account statements to the defendant indicating the balance due and owing, but the defendant failed to tender any payments.   As a result of the defendant's failure to make payments on the account, the plaintiff seeks damages for the balance due.

On January 18, 2013, the defendant filed an answer and six special defenses.¹  On July 10, 2013, the plaintiff filed a motion to strike and a memorandum of law in support.   The plaintiff moves to strike the defendant's first, second, third, and fifth special defenses on the ground that they are legally insufficient because they are not recognized as special defenses, lack factual allegations, and are mere conclusions of law.   On July 29, 2013, the defendant filed a memorandum of law in opposition.   The matter was heard at the short calendar on August 5, 2013.

DISCUSSION

“The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any [pleading] ․ to state a claim upon which relief can be granted.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).  “A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court.”  (Internal quotation marks omitted.)   Simms v. Seaman, 308 Conn. 523, 529, 69 A.3d 880 (2013).  “It is fundamental that in determining the sufficiency of a [pleading] challenged by a [party's] motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted.”  (Internal quotation marks omitted.)  Coe v. Board of Education, 301 Conn. 112, 116–17, 19 A.3d 640 (2011).  “The role of the trial court in ruling on a motion to strike is to examine the [pleading], construed in favor of the [pleading party], to determine whether the [pleading party has] stated a legally sufficient cause of action.”  (Internal quotation marks omitted.)  Id., 117.

As a threshold issue, the plaintiff argues in its memorandum of law in support of the motion to strike that the defendant's first special defense (payment), second special defense (improper notice), third special defense (novation by forbearance), and fifth (breach of the implied covenant of good faith and fair dealing) are legally insufficient because they are not recognized defenses under Practice Book § 10–50.   In opposition, the defendant argues that payment is a valid special defense because it is specifically enumerated in § 10–50.   Furthermore, the defendant argues that the list of defenses in § 10–50 is permissive rather than mandatory;  therefore, defenses such as improper notice, novation by forbearance, and breach of the implied covenant of good faith and fair dealing are valid even though they are not specifically enumerated.

“Practice Book § 10–50 ² governs the pleading of special defenses ․” Atlantic National Trust, LCC v. Van Eck, 89 Conn.App. 200, 209, 873 A.2d 179 (2005).   Special defenses are different from general denials because where “the defendant's claim is consistent with the allegations of the complaint, [he is] required to plead it as a special defense.”  Kosinski v. Carr, 112 Conn.App. 203, 209 n.6, 962 A.2d 836 (2009).  “The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action.”   (Internal quotation marks omitted.)  Danbury v. Dana Investment Corp., 249 Conn. 1, 17, 730 A.2d 1128 (1999).  “[Section 10–50] lists some of the defenses which must be specially pleaded and proved.”  (Emphasis in original;  internal quotation marks omitted.)  Kosinski v. Carr, supra, 209 n.6. This list, however, “is illustrative rather than exhaustive.”  Id.

On the one hand, payment is a special defense that is enumerated in § 10–50 and, therefore, it “must be specially pleaded as a defense.”  Connecticut Bank & Trust Co. v. Dadi, 182 Conn. 530, 532, 438 A.2d 733 (1980);  see also New Haven Securities, Inc. v. Drazen, 38 Conn.Sup. 578, 580, 455 A.2d 351 (1982) (defendant failed to plead special defense of payment as required by the Practice Book).   On the other hand, notice and novation are among the defenses that are not enumerated in § 10–50, but they still must be specially pleaded rather than asserted as a general denial.   See Sweeney v. AFSCME, Superior Court, judicial district of Litchfield, Docket No. CV–99–0080753–S (October 4, 2001, Agati, J.) (defendant failed to specially plead lack of notice and was thus precluded from later raising it as a defense);  see also Customers Bank v. Wisse Sinis Enterprises, LLC, Superior Court, judicial district of Fairfield, Docket No. CV–11–6018278–S (May 17, 2013, Sommer, J.) (court accepted novation as a special defense in a breach of contract claim).   Additionally, “[t]he implied covenant of good faith and fair dealing has been applied by [the Connecticut Supreme Court] in a variety of contractual relationships ․” Magnan v. Anaconda Industries, Inc., 193 Conn. 558, 566, 479 A.2d 781 (1984);  see Centerbank v. Dowcom, Inc., Superior Court, judicial district of Waterbury, Docket No. 111626 (November 17, 1993, McDonald, J.) (8 C.S.C.R. 1286, 1286) (“Connecticut has recognized the defense of a breach of a covenant of good faith and fair dealing in most contract actions.”).

In the present case, the defendant puts forth four special defenses:  (1) the plaintiff misapplied funds paid on the credit card debt;  (2) the plaintiff failed to give proper notice to the defendant that the debt was in default and being accelerated;  (3) the parties entered into a subsequent parol agreement to forbear collection of the debt;  and (4) the plaintiff acted in bad faith and breached the implied covenant of good faith and fair dealing.³  As an initial matter, the defendant's argument in his first special defense that the plaintiff “misapplied funds paid on the credit card debt” is sufficiently similar to a payment defense and thus is an enumerated special defense under Practice Book § 10–50.   The defendant's second, third, and fifth special defenses, however, are not specifically identified in § 10–50.   In the second defense, the defendant refers to lack of notice regarding the debt's default and acceleration.   Although notice is not explicitly identified in § 10–50, it was recognized in Sweeney as a valid special defense.   In the third defense, the defendant refers to a parol agreement between himself and the plaintiff.   This parol agreement can be characterized as a novation.   Although novation is not specifically mentioned in § 10–50, it was accepted as a valid special defense in Customers Bank. Finally, the defendant's fifth special defense alleges that the plaintiff breached the implied covenant of good faith and fair dealing.   Connecticut has definitely recognized this defense in Centerbank v. Dowcom, Inc., supra, Superior Court, Docket No. 111626.   Therefore, the plaintiff's argument that these defenses are not permitted under § 10–50 must fail because each of them can be, nonetheless, if properly pleaded, a valid special defense.

Next, the plaintiff argues in its memorandum of law in support of the motion to strike that the defendant's special defenses lack sufficient factual allegations and are mere conclusions of law.   In opposition, the defendant counters that if the plaintiff wished to obtain additional facts, it should have done so through a request to revise rather than a motion to strike.   Furthermore, the defendant argues that he is merely required to provide the claimed facts without any type of evidentiary support.

Practice Book § 10–1 provides in relevant part:  “Each pleading shall contain a plain and concise statement of the material facts on which the pleader relies.”   In particular, each special defense must “set forth something more than mere assertions of legal conclusions unsupported by factual allegations.”   Twenty Twenty–Eight Operating Co. II, LLC v. Barone, Superior Court, judicial district of New Haven, Docket No. CV–11–6017323–S (April 26, 2012, Gold, J.).   Nonetheless, § 10–1 specifies that each pleading need not contain a plain and concise statement of “the evidence by which [the material facts] are to be proved.”  “Attorneys in Connecticut are not required, at the time a pleading is filed, to substantiate the allegations contained therein with evidentiary support.”  Brunswick v. Statewide Grievance Committee, 103 Conn.App. 601, 617, 931 A.2d 319, cert. denied, 284 Conn. 929, 934 A.2d 244 (2007).   Although the Appellate Court in Brunswick made it clear that evidentiary support is not required to substantiate a special defense, the factual allegations which are sufficient to withstand a motion to strike differ among the diverse special defenses.

I

PAYMENT

“Superior Court decisions vary in their treatment of the various forms of the payment defense in the context of a motion to strike the defense.”  (Internal quotation marks omitted.)   Ocwen Federal Bank, FSB v. Viarengo, Superior Court, judicial district of Litchfield, Docket No. CV–05–4001661–S (February 3, 2006, Pickard, J.).⁴  In Homecomings Financial Network, Inc. v. Starbala, 85 Conn.App. 284, 289, 857 A.2d 366 (2004) (Homecomings), the court found that the defendants' payment defense was sufficient even though it merely alleged that defendants “tendered timely payment of the mortgage to the previous note holder, and that such payment was refused.”   In Bristol Savings Bank v. EFA Acceptance Corp., Superior Court, judicial district of Hartford–New Britain at Hartford, Docket No. CV–91–0515249–S (June 1, 1993, Aurigemma, J.).  (Bristol), the court held that although the special defenses were “bereft of any specific factual allegations ․ the plaintiff could have obtained additional facts by filing a request to revise” instead of a motion to strike.

In the present case, the defendant maintains that the plaintiff misapplied funds paid on the credit card debt in direct or implied contravention of the credit documents and/or subsequent parol agreements entered into between the parties.   As an initial matter, the plaintiff is using its motion to strike to ask specific questions regarding how much money was misapplied when this alleged misapplication took place, and what credit documents or parol agreements were contravened.   Consistent with the court's holding in Bristol, the plaintiff could have sought allegations of these additional facts by filing a request to revise instead of a motion to strike.   Moreover, the defendant pleads that funds were paid on the credit card debt and that such payments were misapplied by the plaintiff.   Because the court accepted similar factual allegations in Homecomings, the defendant's first special defense is legally sufficient and survives the motion to strike.

II

IMPROPER NOTICE

In the context of foreclosures, “[n]otices of default and acceleration are controlled by the mortgage documents ․ Where the terms of the note and mortgage require notice of default, proper notice is a condition precedent to an action for foreclosure.”  (Internal quotation marks omitted.)  Fidelity Bank v. Krenisky, 72 Conn.App. 700, 706–07, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).   As noted earlier, mortgages and notes are similar to credit agreements;  therefore, foreclosure cases involving such mortgages and notes can provide useful analogies to actions on credit card debt.

In the present case, the defendant asserts in his second special defense that the plaintiff failed to give proper notice of the debt's default and acceleration.   Similar to foreclosure cases, improper notice would be governed by the agreement.   Here, however, the defendant does not make the allegation that notice is required by the agreement between them;  rather, the defendant makes a legal conclusion that the notice was improper.   Therefore, without referencing an agreement, the defendant has not alleged sufficient facts demonstrating that the plaintiff failed to give proper notice regarding the default and acceleration.⁵

III

NOVATION BY FORBEARANCE

“[A]n essential element of any novation is the extinguishing of the original contract by substitution of a new one.”  Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126, 145, 709 A.2d 1075 (1998);  see also Norwest Mortgage, Inc. v. Clapper, Superior Court, judicial district of Windham, Docket No. CV–99–0060598–S (January 4, 2002, Kocay, J.).  “In order to have a legally enforceable substitute agreement, the parties must intend that the new agreement discharge the prior contract and all claims and demands growing out of it.”  (Internal quotation marks omitted.)  Norwest Mortgage, Inc., v. Clapper, supra, Superior Court, Docket No. CV–99–0060598–S.   Furthermore, “the substituted contract must be supported by consideration or it is ineffective.”  (Internal quotation marks omitted.)  Id. In Norwest Mortgage, Inc., the defendant's special defense alleged that the parties had entered into subsequent agreements “which supersede[d] the original agreement and alter[ed] the terms of the note.”  Id. The court ruled that this defense was legally insufficient because the defendant did not plead consideration.   Id.

In the present case, the defendant's third special defense is that the parties discussed, negotiated, and entered into a subsequent parol agreement to forbear and/or settle any collection of the credit card debt.   This is a special defense based on novation and therefore requires that the defendant plead facts relating to consideration.   Here, the defendant has only put forth the existence of a subsequent agreement;  he has not put forth facts relating to consideration for such agreement.   Therefore, the defendant's special defense regarding novation is legally insufficient.

IV

BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

“[E]very contract carries an implied covenant of good faith and fair dealing requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement ․ To constitute a breach of that covenant, the acts by which a [party] allegedly impedes the [other party's] right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.”  (Internal quotation marks omitted.)  Jones v. H.N.S. Management Co., Inc., 92 Conn.App. 223, 227, 883 A.2d 831 (2005);  Discovery Bank v. Kollars, Superior Court, judicial district of Tolland, Docket No. CV–09–5005293–S (October 15, 2010, Bright, J.).   In Discovery Bank, the court upheld a breach of the covenant of good faith and fair dealing as a valid special defense to credit card debt collection.  Id. There, the defendant alleged in his special defense that the plaintiff imposed various fees and charges in violation of the cardholder agreement and federal law.  Id. The defendant argued that these actions constituted a “breach of [the plaintiff's] duty of good faith and fair dealing.”  Id. In granting the plaintiff's motion to strike this special defense, the court reasoned that “the defendant's allegation that the actions of the [p]laintiff are in breach of its duty of good faith and fair dealing is merely a legal conclusion.”  (Internal quotation marks omitted.)  Id. Additionally, the court noted that “[n]owhere in its first special defense ․ does the defendant make any factual allegations as to the plaintiff's acting in bad faith.”  Id.

In the present case, the defendant claims in his fifth special defense that the plaintiff acted in bad faith and breached the implied covenant of good faith and fair dealing with respect to the defendant's obligations, negotiations between the parties, the alleged default, and collection of the debt.   This special defense does not, however, make any factual allegations which would tend to show that the plaintiff acted in bad faith.   Instead, the defendant's allegation is merely a legal conclusion unsupported by facts.   Therefore, the defendant has not pleaded sufficient facts in his fifth special defense in order to survive the motion to strike.

CONCLUSION

For the foregoing reasons, the motion to strike is denied as to the first special defense;  and motion to strike is granted as to the second, third, and fifth special defenses.

SO ORDERED,

Alfred J. Jennings, Jr.

Judge Trial Referee

FOOTNOTES

FN1. As a result of the plaintiff's request to revise and the resulting order on June 26, 2013, the defendant's fourth and sixth special defenses were deleted..  FN1. As a result of the plaintiff's request to revise and the resulting order on June 26, 2013, the defendant's fourth and sixth special defenses were deleted.

FN2. Practice Book § 10–50 provides:  “No facts may be proved under either a general or special denial except such as 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.   This, accord and satisfaction, arbitration and award, coverture, duress, fraud, illegality not apparent on the face of the pleadings, infancy, that the defendant was non compos mentis, payment (even though nonpayment is alleged by the plaintiff) release, the statute of limitations, and res judicata must be specially pleaded, while advantage may be taken, under a simple denial, of such matters as the statute of frauds, or title in a third person to what the plaintiff sues upon or alleges to be the plaintiff's own.”.  FN2. Practice Book § 10–50 provides:  “No facts may be proved under either a general or special denial except such as 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.   This, accord and satisfaction, arbitration and award, coverture, duress, fraud, illegality not apparent on the face of the pleadings, infancy, that the defendant was non compos mentis, payment (even though nonpayment is alleged by the plaintiff) release, the statute of limitations, and res judicata must be specially pleaded, while advantage may be taken, under a simple denial, of such matters as the statute of frauds, or title in a third person to what the plaintiff sues upon or alleges to be the plaintiff's own.”

FN3. The special defense listed as number four is actually the defendant's fifth defense and will hereinafter be referred to as the fifth special defense..  FN3. The special defense listed as number four is actually the defendant's fifth defense and will hereinafter be referred to as the fifth special defense.

FN4. Many Superior Court decisions that analyze the legal sufficiency of special defenses do so in the context of foreclosures.   These decisions, similar to the collection of credit card debts, provide useful analogies to the present motion to strike..  FN4. Many Superior Court decisions that analyze the legal sufficiency of special defenses do so in the context of foreclosures.   These decisions, similar to the collection of credit card debts, provide useful analogies to the present motion to strike.

FN5. In his objection to the present motion, the defendant asserts that the plaintiff has used an improper “speaking motion.”  “A speaking motion to strike (one imparting facts outside the pleadings) will not be granted.”  (Internal quotation marks omitted.)  Zirinsky v. Zirinsky, 87 Conn.App. 257, 269 n.9, 865 A.2d 488, cert. denied, 273 Conn. 916, 871 A.2d 372 (2005).   The defendant's argument must fail, however, because the plaintiff is not imparting facts outside of the pleadings.   Rather, the plaintiff is merely asking for further clarification regarding where its alleged duty to provide notice arose..  FN5. In his objection to the present motion, the defendant asserts that the plaintiff has used an improper “speaking motion.”  “A speaking motion to strike (one imparting facts outside the pleadings) will not be granted.”  (Internal quotation marks omitted.)  Zirinsky v. Zirinsky, 87 Conn.App. 257, 269 n.9, 865 A.2d 488, cert. denied, 273 Conn. 916, 871 A.2d 372 (2005).   The defendant's argument must fail, however, because the plaintiff is not imparting facts outside of the pleadings.   Rather, the plaintiff is merely asking for further clarification regarding where its alleged duty to provide notice arose.

Jennings, Alfred J., J.T.R.