Robert McKay v. Stuart Longman et al. (2012)

MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT # 186

INTRODUCTION

This action was filed on October 15, 2010.   The plaintiff names as defendants Stuart Longman, Sapphire Development, LLC, Emerald Investments, LLC, Fifty-five Post Road West Management Company, Inc., R.I.P.P. Corp., Chatham Haste, LLC, Stuart Longman Trustee of Stuart Longman Family Trust, Sixty SRA Management, LLC, Shelter Rock Enterprises, LLC, Sixty Shelter Rock Associates, LLC, Shelter Rock Development Associates, LLC, Two Great Pasture Road Associates, LLC, Lurie Investments, LLC, Parcelle Development, LLC, Solaire Development, LLC, Solaire Management, LLC, Solaire Funding, Inc., Solaire Tenant, LLC, Thirty-one Pecks Lane Associates, LLC, Dreamfields, LLC, WW Land Company, LLC, Hudson City Savings Bank, The Savings Bank of Danbury, and J.P. Morgan Chase Bank NA Intervening Defendant.

The complaint is in eight counts.   The first count seeks a constructive trust based upon common-law fraud;  the second count alleges a constructive trust as to the Greenwich property that is not subject to this motion;  the third and fourth counts allege fraudulent transfers of the Longman residence pursuant to C.G.S. § 52–552e and/or 52–552f the fifth and sixth counts relate to the Greenwich property and the seventh count and the eighth count allege reverse piercing of the Longman estate.   The defendant Hudson City Savings Bank (HCSB) filed a motion for summary judgment dated March 20, 2012.   This motion applies specifically to the position of the bank in relation to the mortgage of the property at 424 West Mountain Road, Ridgefield, Connecticut.

The plaintiff filed a memorandum in opposition to the motion dated April 25, 2012.   The defendant HCSB filed a reply memorandum dated July 12, 2012.

BACKGROUND

On October 26, 2007, Hudson City entered into a loan transaction with Sapphire Development, LLC for property known as 424 West Mountain Road, Ridgefield, Connecticut.¹  Sapphire Development, LLC. was the borrower on the open-end mortgage that was signed by Stuart Longman as member of Sapphire Development, LLC. The mortgage for the property was secured and processed as a “No Income Stated Assets” loan.   The loan was the first business transaction that Hudson City had with Sapphire Development, LLC. The tax deductions for the real property and mortgage interest paid were taken by the individual defendant Longman.

The property that was subject to the mortgage was a residence and ancillary buildings that occupied 30 acres of land.   The defendant Stuart Longman, with his wife and children, utilized the residence as their home with the exception of a small office for the business of Gayla Longman.   The taxes and mortgage on the property are paid by Sapphire Development, LLC. However, Sapphire has not filed an income tax return since 2006.

Prior to this mortgage, on or about July 1, 1996, the plaintiff obtained a judgment in the amount of $3,964,046.86 against the defendant Stuart Longman in the Supreme Court of the State of New York. The plaintiff filed a certified copy of the judgment in this Superior Court for the Judicial District of Stamford/Norwalk at Stamford in Connecticut on September 10, 1996 and again on September 25, 1996.   The plaintiff did not file notice or record the judgment on any land records in Connecticut.   On July 1, 1996 and September 10, 1996 the property was held by Webster Bank. On September 25, 1996 the property was held in the name of Highland Connecticut Investment, LLC.

The defendant Hudson City Savings Bank (HCSB) contends that it cannot be subject to a constructive trust as alleged in the first count.   The defendant contends summary judgment should be granted because there are no facts to support the claim that HCSB is responsible for of any of the required behavior that would support a constructive trust against it and the plaintiff has failed to adequately plead a claim or provide evidence pursuant to C.G.S. § 34–130.   The defendant also contends that the plaintiff failed to record any notice or lien with regard to the New York judgment on the Ridgefield land records to give it notice of the plaintiffs' judgment when it obtained a mortgage from Sapphire Development, LLC.

DISCUSSION

“Practice Book § 17–49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.   In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Provencher v. Enfield, 284 Conn. 772, 790–91, 936 A.2d 625 (2007).  “[S]ummary judgment is appropriate only if a fair and reasonable person could conclude only one way ․ [A] summary disposition ․ should be on evidence which a jury would not be at liberty to disbelieve and which would require a directed verdict for the moving party.”  (Citations omitted, internal quotation marks omitted.)   Dugan v. Mobile Medical Testing Services, Inc., 265 Conn. 791, 815, 830 A.2d 752 (2003).   The burden is on the moving party to demonstrate an absence of any triable issue of material fact and “[t]o satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17–45].”  (Internal quotation marks omitted.)  Zielinski v. Kotsoris, 279 Conn. 312, 318–19, 901 A.2d 1207 (2006).

The defendant HCSB has raised a number of arguments in support of its motion for summary judgment.   The first argument which is present throughout its memorandum is that the plaintiff failed to file a notice of lien on the Ridgefield land records for the New York judgment which would give notice to the defendant.   The plaintiff counters with the argument that this would be impossible because Stuart Longman for the most part placed the property in the name of various entities, although it is clear from the evidence that the property is used as the primary family residence of Mr. Longman.   The evidence indicates that there was a period of time of eleven days in which the property was recorded as owned by Stuart Longman.   Additionally, on the same day as the mortgage with HCSB was recorded the property was briefly transferred through a quit claim to Stuart Longman.   There were three documents executed at the closing of the mortgage with HCSB. The first document was a quit claim deed of the property from Sapphire Development, LLC to Stuart Longman.   This document executed and recorded on the same day as the mortgage executed by Longman on behalf of Sapphire Development, LLC for the open-end mortgage with HCSB creates a question as to whether the bank knew or should have known of the involvement of Longman as the true owner of the property.   However, it was not simply this quit claim that leaves open the question as to whether HCSB should have been alerted, but it was also the application that Stuart Longman prepared for the mortgage.   This application document clearly indicates that Stuart Longman is the borrower and the property was to serve as a primary residence for Stuart Longman.  (Exhibit 29B.) The information in this exhibit was confirmed by the Affidavit of Residency dated August 28, 2007 which indicates that Stuart Longman was to utilize the property as a primary residence.  (Exhibit 29C.) This is further supported by the Adjustable Rate Note which has three signatures, all three were Stuart Longman, but each representing different entities.   The first was Sapphire Development, LLC, and the second and third were Stuart Longman as member and individual.  (Exhibit 29J, Emphasis added.)   Further, the testimony of Patricia Seeback, a HCSB employee, confirms the belief that during the mortgage process some bank employees had knowledge of the ownership and believed Longman to be the owner of the property.   Ms. Seeback was asked during her deposition, “Q ․ Is that because Sapphire Development was the owner of the property?   A. No, no, no.”   This was followed with the question whether she understood that Mr. Longman himself owned the property, to which she responded, “Yes.” (Exhibit DD.) However, with the information suggesting the involvement of Stuart Longman, the bank turned a blind eye to the many warning signs and went full speed ahead without confirming even minimal information or follow up on obvious discrepancies before entering into the mortgage commitment.   The facts as presented by the plaintiff create genuine issues of fact as to what was known at the time of the mortgage to Longman and whether the bank in entering into the mortgage with this knowledge did so to the detriment of the plaintiff.

The first count of the complaint seeks to have the court impose a constructive trust in equity as to the ownership of the property at 424 West Mountain Road, Ridgefield.  “The imposition of a constructive trust by equity is a remedial device designed to prevent unjust enrichment ․ Thus, a constructive trust arises where a person who holds title to property is subject to an equitable duty to convey to another on the ground that he would be unjustly enriched if he were permitted to retain it.”  (Internal quotation marks omitted.)  Gold v. Rowland, 296 Conn. 186, 210, 994 A.2d 106 (2010).  “The issue raised by a claim for constructive trust is in essence, whether a party has committed actual or constructive fraud or whether he or she has been unjustly enriched.”  Cadle Co. v. Gabel, 69 Conn.App. 279, 295, 794 A.2d 1029 (2000) As noted by the defendant in its memorandum the constructive trust arises ․ against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy ․” Giulietti v. Giulietti, 65 Conn.App. 813, 856 (2001) The defendant bank had within its application process and its employee knowledge, notice that the property was not a part of the LLC. The information known to the defendant was in fact that the property was to be used and on the day of the mortgage for a brief time actually owned by the individual.   The bank was also on notice that the record owner of the property had regularly changed even though the property was the primary residence for the defendant Longman.   These facts alone create an issue of what responsibility the bank had before completing the mortgage transaction.   The bank cannot sit idly by and ignore some obvious signs of conflict with the property.   In this factual scenario it was not simply a verification of the borrowers income or the review of the resolution but it was a series of events and factors that should have alerted the bank to the questionable nature of the transaction.   Even its own employee was of the opinion that the property was owned by Longman.   If the bank had engaged in even minimal review, there was a greater chance that it would have determined that the mortgage to Sapphire Development had ulterior motives.   The bank upon minimal investigation could have determined that Longman had at least one judgment filed in the Superior Court.   The Bank had notice through the filing of the Judgment in this court pursuant to the Uniform Reciprocal Enforcement Act, § 52–604 et seq.   This minimal investigation was much more likely to lead to a finding of concealment by Longman more so than the plaintiff being able to lien the property after discovery that the property was owned by an LLC that he managed or owned for a number of days or hours.

However, even with these unusual circumstances and blatant acknowledgement in the mortgage documents, the Bank did nothing to determine the legal position of the borrower, Longman.   Counsel for the bank did nothing to address the change in name which removed this property from the reach of a judgment.   There is a question of fact as to whether HCSB's action and non-action with the disclosure and knowledge of ownership was in any manner against equity and good conscience.

The defendant also contends that there is no claim pursuant to C.G.S. § 34–130.   The plaintiff contends that the defendant HCSB was required to have a resolution of approval for the mortgage from all members of Sapphire Development, LLC. The defendant contends that the plaintiff failed to plead such a claim and is therefore precluded from raising this issue.

C.G.S. § 34–130 states in pertinent part:  “(b) If the articles of organization provide that management of the limited liability company is vested in a manager or managers:  (1) No member, solely by reason of being a member, is an agent of the limited liability company;  and (2) every manager is an agent of the limited liability company for the purpose of its business or affairs, and the act of any manager, including but not limited to, the execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business or affairs of the limited liability company of which he is a manager binds the limited liability company, unless the manager so acting has, in fact, no authority to act for the limited liability company in the particular matter and the person with whom he is dealing has knowledge of the fact that the manager has no such authority. (c) An act of a manager or member which is not apparently for the carrying on in the usual way the business or affairs of the limited liability company does not bind the limited liability company, unless authorized in accordance with the operating agreement, at the time of the transaction or at any other time.”   At the time of the transaction for the mortgage, the defendant HCSB received a copy of the operating agreement of Sapphire Development, LLC on September 13, 2007.   This operating agreement was provided to David Pelosi prior to the mortgage with HCSB. In particular, Article 6.1(c) states that the “managers shall not have the authority without the prior approval of a Super Majority in interest to:  ․ (ii) Cause the Company to incur any indebtedness for borrowed money;  (iii) Permit the Company to pledge or mortgage any property whether tangible or intangible ․” All parties agree that at the time of the mortgage HCSB did not have in its possession a signed resolution of the members of Sapphire giving approval and authorization to permit Mr. Longman to execute on behalf of Sapphire to enter into the mortgage.   The operating agreement of HCSB provides that the manager does not have authority to borrow money or mortgage any property without prior approval of a “super majority” of the members. (§ 6.1 of the Operating Agreement of Sapphire Development, LLC.) The plaintiff argues that the failure to demonstrate authority and approval for the mortgage is contrary to the practice and obligations of HCSB for a real estate transaction in accordance to the statutory obligations.²  The defendant contends that the resolution was signed by the members in accordance to the operating agreement and in support filed two separate agreements as evidence of this authority.   In making this argument the defendant produced the first document which was unsigned resolution and thereafter the document which it contends was the written resolution of approval.  (Exhibit 20.)   However, this second exhibit that was provided well after the close of the discovery when the defendant had represented that it could not locate a signed resolution.   The plaintiff has questioned the validity of this new resolution because the typing is different and the spacing is different on the latest signed version provided to counsel.   Longman testified that the documents were one and the same and the differences were related to the manner in which it was printed.   A determination of this issue is a genuine issue of fact especially in light of the testimony of Longman about the lease which he testified at a deposition was prepared in November 2006.   However, the reference to the lease in 2006 supposedly refers to the HCSB mortgage which did not exist until 2007.   In addition to this discrepancy, there are other concerns about the accuracy and reliability of the signed document.   The two documents refer to different Limited Liability Companies for the resolution.   The mortgage from HCSB is to Sapphire Development, LLC but the resolutions (signed and unsigned) refer to Sapphire Investment, LLC. (Emphasis added.)   The defendant attempts to ignore the distinction contending it is a typographical error but this distinction, if correct, could invalidate the resolution.   It is significant that HCSB neither questioned the absence of a signed resolution or in the alternative did not recognize the different entity referred to in the signed resolution.³  The affidavit of Nicholas Gazetos, Executive Vice President of Savings Bank of Danbury confirmed that the custom for institutional mortgages to limited liability companies in this time frame included documentation of a prior Resolution of all of the members of the company.  (Exhibit 10, 11 and 12.)   There is certainly a question of fact as to the discrepancies and whether the document truly satisfies the authorization argument.   Even if the court agrees that there is a validly signed version, there remains an issue of whether the resolution was provided to HCSB at the closing and whether it was approved prior to the closing.

The defendant contends that it is entitled to judgment based upon the Doctrine of Laches.   The defendant contends that the plaintiff failed to take action to enforce his judgment and if he had done so by recording the judgment the defendant may not have entered into the loan until the judgment was discharged.   Laches “bars a party from seeking equitable relief in a case in which there has been an inexcusable delay that has prejudiced the [opposing party].   First, there must have been a delay that was inexcusable and second that delay must have prejudiced the [opposing party] ․ The mere lapse of time does not constitute laches, unless it results in prejudice to the [opposing party] ․ as where, for example, the opposing party is led to change its position with respect to the matter in question.”  (Citations omitted, internal quotation marks omitted.)  Fromm v. Fromm, 108 Conn.App. 376, 385, 948 A.2d 328 (2008).   The evidence in this matter demonstrates that the plaintiff filed this action when he became aware of Longman's continual utilization of the various entities to do business and own property.   The affidavit of the plaintiff indicates that he learned of Longman's purchase of property but before he could place a lien, Longman transferred the property to another entity.   This cycle made it difficult if not impossible to record a notice of lien.   Lastly, there is no statute of limitations argument because the action has been filed within the twenty-year New York law and the twenty-five-year statute for enforcement in the State of Connecticut.   Based upon the plaintiff's assertion that there was fraudulent activity on the part of Stuart Longman to prevent enforcement of the judgment and the series of transfers reflected in the memorandum and exhibits there is no question that the Doctrine of Laches does not apply.

The total lack of verification by the bank including any information concerning the many entities that were established by Mr. Longman and the entities involved with the property since 2007, ignoring the mortgage application which designated Stuart Longman as the owner and thus failing to investigate his financial status, the failure to obtain as part of the mortgage documents a resolution required by the operating agreement of the LLC approving the mortgage prior to the issuance in accordance with business practice, and the utilization of the same counsel for the bank and LLC for the closing thus shielding itself from the documents filed including the three transfers of ownership, raise genuine issues of fact which prevents the court from granting summary judgment.

Therefore, the motion for summary judgment of the defendant Hudson City Savings Bank is Denied.

THE COURT

Brazzel–Massaro, J.

FOOTNOTES

FN1. Both R.I.P.P. and Highland Connecticut Investments, LLC were predecessors by merger to Sapphire Development, LLC. Each of these entities had title to the property prior to Sapphire.   Stuart Longman was a member of each of these entities..  FN1. Both R.I.P.P. and Highland Connecticut Investments, LLC were predecessors by merger to Sapphire Development, LLC. Each of these entities had title to the property prior to Sapphire.   Stuart Longman was a member of each of these entities.

FN2. The plaintiff included within its memorandum and exhibits documents that satisfy this authorization and resolution obligation which were part of the purchase of 2 Great Pasture Road in Danbury by the entity as well as other resolutions adopted for loans to Sapphire..  FN2. The plaintiff included within its memorandum and exhibits documents that satisfy this authorization and resolution obligation which were part of the purchase of 2 Great Pasture Road in Danbury by the entity as well as other resolutions adopted for loans to Sapphire.

FN3. The plaintiff attacks the credibility of the defendant Longman in support of the arguments that the documents are either fabricated or the signatures are not acceptable.   The court does not make a finding as to this issue but simply reviews the inconsistent evidence in support of the motion to determine there is a question of fact..  FN3. The plaintiff attacks the credibility of the defendant Longman in support of the arguments that the documents are either fabricated or the signatures are not acceptable.   The court does not make a finding as to this issue but simply reviews the inconsistent evidence in support of the motion to determine there is a question of fact.

Brazzel–Massaro, Barbara, J.