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U.S. Bank National Association v. Blowers

Court of Appeals of Connecticut

October 31, 2017

U.S. BANK NATIONAL ASSOCIATION, TRUSTEE
v.
ROBIN BLOWERS ET AL.

          Argued May 16, 2017

          P. Solange Hilfinger-Pardo, certified legal intern, with whom were Jeffrey Gentes and, on the brief, Anderson Tuggle, Noah Kolbi-Molinas and Emily Wanger, certified legal interns, for the appellant (defendant Mitchell Piper).

          Pierre-Yves Kolakowski, with whom, on the brief, was Zachary Bennett Grendi, for the appellee (plaintiff).

          Alvord, Prescott and Pellegrino, Js.

         Syllabus

         The plaintiff bank, as trustee, sought to foreclose a mortgage on certain real property owned by the defendants P and B. Following the defendants default on their mortgage payments, the plaintiff, through its loan servicing agent, initiated loan modification negotiations with the defendants, but the parties were unable to agree on a binding modification. Thereafter, the plaintiff commenced a foreclosure action, and the parties subsequently participated in a foreclosure mediation program but were unable to reach an agreement. The defendants then filed an answer, special defenses and counterclaims, claiming, inter alia, that during the foreclosure mediation and loan modification negotiations, the plaintiff hindered their ability to obtain a binding loan modification, thereby unnecessarily increasing the amount that the plaintiff sought to recover from the defendants, and that the plaintiff and its loan servicer failed to conduct themselves in a manner that was fair, equitable and honest. In response, the plaintiff filed a motion to strike the defendants' special defenses and counterclaims, which the trial court granted. Thereafter, the trial court rendered a judgment of strict foreclosure, and P appealed to this court. Held:

         1. P could not prevail on his claim that the trial court improperly granted the plaintiff's motion to strike the defendants' special defenses and counterclaims:

a. The trial court properly determined that the special defenses did not relate to the making, validity or enforcement of the subject note and mortgage; all of the alleged improper conduct giving rise to the special defenses took place during foreclosure mediation or the loan modification negotiations and no binding modification was agreed on by the parties, and contrary to P's assertion that the transaction test set forth in the applicable rule of practice (§ 10-10) applied to the special defenses, that rule, which, in a foreclosure action, requires consideration of whether a counterclaim has some reasonable nexus to the making, validity or enforcement of the note or mortgage, does not mention special defenses and applying it to them would be unnecessary and duplicitous because the purpose of the rule is to permit the joinder of closely related claims and special defenses, which, by their nature, must be tried with the corresponding complaint.
b. The allegations in the defendants' counterclaims were insufficient to establish that the counterclaims had a reasonable nexus to the making, validity or enforcement of the note or mortgage pursuant to the transaction test; the allegations of the counterclaims related solely to the plaintiff's conduct during the foreclosure mediation and the loan modification negotiations, which did not demonstrate a sufficient nexus to the making, validity or enforcement of the note or mortgage.

         2. This court declined P's request to diverge from well established legal precedent and to adopt a transaction test in foreclosure actions that does not include the requirement that special defenses and counterclaims have a reasonable nexus to, or relate to, the making, validity or enforcement of the note or mortgage; contrary to P's contention that the requirement is opposed to fundamental principles of equity jurisprudence, the requirement permits equitable considerations when justice requires while simultaneously serving to promote judicial economy through the swift and uncomplicated resolution of foreclosure proceedings, and adopting the transaction test requested by P would lead to an increase of special defenses and counterclaims in foreclosure actions that would unnecessarily convolute and delay the foreclosure process and would deter mortgagees from participating in mediation and loan modification negotiations.

         3. P could not prevail on his claim that, even if the making, validity or enforcement requirement applied to counterclaims and special defenses, the trial court erred by improperly limiting the scope of the term enforcement; that court did not err in its interpretation of the term enforcement, as the alleged conduct of the plaintiff did not relate to the enforcement of the note or mortgage because it occurred during the foreclosure mediation and loan modification negotiations, and no binding loan modification was reached between the parties that rendered the original note and mortgage unenforceable.

         4. P's claim that the trial court made factual errors when assessing the plaintiff's motion to strike was unavailing; even if this court accepted all of the allegations as true and viewed them in the light most favorable to sustaining their legal sufficiency, the defendants failed to allege that the parties agreed to a binding modification that affected the making, validity or enforcement of the original note or mortgage, and, therefore, the trial court did not err in finding that no binding loan modification existed between the parties.

         Procedural History

         Action to foreclose a mortgage on certain real property owned by the named defendant et al., brought to the Superior Court in the judicial district of Hartford, where the defendant Farmington Valley Landscape, LLC, et al. were defaulted for failure to appear; thereafter, the defendant C&I Solutions, LLC, was defaulted for failure to plead; subsequently, the named defendant et al. filed counterclaims; thereafter, the named defendant et al. withdrew the counterclaims in part; subsequently, the court, Dubay, J., granted the plaintiff's motion to strike the special defenses and counterclaims; thereafter, the court, Wahla, J., granted the plaintiff's motion for judgment on the counterclaims; subsequently, the court, Peck, J., granted the plaintiff's motion for summary judgment as to liability; thereafter, the court, Wahla, J., granted the plaintiff's motion for a judgment of strict foreclosure and rendered judgment thereon, from which the defendant Mitchell Piper appealed to this court. Affirmed.

          OPINION

          PELLEGRINO, J.

         In this mortgage foreclosure action, the defendant Mitchell Piper, [1] appeals from the judgment of strict foreclosure rendered by the trial court in favor of the plaintiff, U.S. Bank National Association, as Trustee for the Holders of the First Franklin Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 2005-FF10. On appeal, Piper claims that the court improperly granted the plaintiff's motion to strike the defendants' special defenses and counterclaims. Specifically, he contends that the court improperly required the special defenses to directly relate to and the counterclaims to have a sufficient nexus to the making, validity, or enforcement of the note and mortgage. Instead, Piper argues, the court should have applied a ‘‘straightforward version of the transaction test with allowances for equitable considerations'' to both the special defenses and counterclaims. Additionally, Piper claims that even if the court did not err in applying the making, validity, or enforcement requirement, the counterclaims and special defenses should have survived a motion to strike under a broad reading of the term ‘‘enforcement.'' Finally, Piper claims that the court erred in its determinations that no binding modification to the defendants' loan existed, that, if such modification existed, the defendants defaulted on the loan, and that all of the plaintiff's alleged misconduct took place during foreclosure mediation. We disagree with Piper contentions and, accordingly, affirm the judgment of the trial court.

         The following facts and procedural history are relevant to this appeal. The defendants executed a promissory note, dated August 2, 2005, in which they promised to pay First Franklin division of National City Bank of Indiana the principal sum of $488, 000. To secure the note, the defendants mortgaged their interest in their property located at 129 Stagecoach Road in Avon. The mortgage was assigned to the plaintiff on September 1, 2005.

         In February, 2014, the plaintiff commenced this action to foreclose the mortgage on the subject property. In its complaint, the plaintiff alleged that the defendants defaulted under the terms of their note and mortgage, that the plaintiff exercised its option to declare the entirety of the balance due, and that, despite due demand, the defendants failed to pay the balances due and owing. The parties subsequently participated in a foreclosure mediation program but were unable to reach an agreement. On April 17, 2015, the defendants filed an answer, three special defenses and three counterclaims. The counterclaims sounded in negligence; violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq.; and unjust enrichment. The special defenses sounded in equitable estoppel, unjust enrichment, and unclean hands. On July 17, 2015, the plaintiff filed a motion to strike the defendants' special defenses and counterclaims, which was granted by the court on December 28, 2015. Thereafter, the court rendered a judgment of strict foreclosure. This appeal followed. Additional facts will be set forth as necessary.

         ‘‘Our standard of review is undisputed. Because a motion to strike challenges the legal sufficiency of a pleading and, consequently, requires no factual findings by the trial court, our review of the court's ruling on [a motion to strike] is plenary. . . . A party wanting to contest the legal sufficiency of a special defense [or counterclaim] may do so by filing a motion to strike. 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. . . . In ruling on a motion to strike, the court must accept as true the facts alleged in the special defenses and construe them in the manner most favorable to sustaining their legal sufficiency.'' (Citations omitted; internal quotation marks omitted.) Brasso v. Rear Still Hill Road, LLC, 64 Conn.App. 9, 12-13, 779 A.2d 198 (2001).

         I

         We first address Piper's claim that the court improperly struck the defendants' special defenses, namely, equitable estoppel and unclean hands.[2] Piper contends that the court failed to apply properly the transaction test when reviewing the special defenses. Instead, he argues, the court improperly narrowed the transaction test by requiring the defendants' special defenses to relate to the making, validity, or enforcement of the note or mortgage.

         The following additional facts are relevant to this claim. Shortly after the defendants defaulted on their mortgage payments in January, 2010, a servicing agent for the plaintiff reached out to the defendants offering a ‘‘rate reduction.'' After the defendants successfully completed a three month trial modification period, however, the plaintiff withdrew its offer to modify the loan. The plaintiff continued to offer loan modifications, but no offers resulted in a final, binding modification to the defendants' mortgage. Following the defendants' failure to cure the debt, the plaintiff commenced this foreclosure action.

         In their answer, special defenses, and counterclaims filed on April 17, 2015, the defendants claimed, in relevant part, that throughout the foreclosure mediation and loan modification negotiation period, the plaintiff hindered their ability to obtain a proper loan modification. As a result, the defendants claimed, the amount that the plaintiff sought to recover from them in connection with the foreclosure action unnecessarily increased. Additionally, the defendants claimed that the plaintiff and its servicing agent failed to conduct them- selves in a manner that was fair, equitable, and honest during the mediation and loan modification negotiation period.

         We begin by setting forth the relevant legal principles. ‘‘In addition to challenging the legal sufficiency of a complaint or counterclaim, our rules of practice provide that a party may challenge by way of a motion to strike the legal sufficiency of an answer, including any special defenses contained therein . . . .'' (Internal quotation marks omitted.) GMAC Mortgage, LLC v. Ford, 144 Conn.App. 165, 179-80, 73 A.3d 742 (2013). ‘‘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.) TD Bank, N.A. v. M.J. Holdings, LLC, 143 Conn.App. 322, 326, 71 A.3d 541 (2013). ‘‘A motion to strike does not admit legal conclusions. . . . Conclusions of law, absent sufficient alleged facts to support them, are subject to a motion to strike. The trial court may not seek beyond the complaint for facts not alleged, or necessarily implied . . . .'' (Citations omitted.) Fortini v. New England Log Homes, Inc., 4 Conn.App. 132, 134-35, 492 A.2d 545, cert. dismissed, 197 Conn. 801, 495 A.2d 280 (1985).

         ‘‘Historically, defenses to a foreclosure action have 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. . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles. . . . [O]ur courts have permitted several equitable defenses to a foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had . . . . Other equitable defenses that our Supreme Court has recognized in foreclosure actions include unconscionability . . . abandonment of security . . . and usury.'' (Citation omitted; internal quotation marks omitted.) LaSalle National Bank v. Freshfield Meadows, LLC, 69 Conn.App. 824, 833-34, 798 A.2d 445 (2002).

         In the present case, neither of the defendants' special defenses at issue directly attacks the making, validity, or enforcement of the note or mortgage. See CitiMortgage, Inc. v. Rey, 150 Conn.App. 595, 603, 92 A.3d 278, cert. denied, 314 Conn. 905, 99 A.3d 635 (2014). All events giving rise to the special defenses took place during the loan modification negotiation period or during foreclosure mediation. This court previously has held that alleged improper conduct occurring during mediation and modification negotiations lacked ‘‘any reasonable nexus to the making, validity or enforcement of the mortgage or note . . . .'' U.S. Bank National Assn. v. Sorrentino, 158 Conn.App. 84, 97, 118 A.3d 607, cert. denied, 319 Conn. 951, 125 A.3d 530 (2015). By contrast, if the modification negotiations ultimately result in a final, binding, loan modification, and the mortgagee subsequently breaches the terms of that new modification, then any special defenses asserted by the mortgagor in regard to that breach would relate to the enforcement of the mortgage. In the present case, however, no binding modification was ever agreed upon by the parties. Accordingly, the special defenses raised by the defendants do not relate to the making, validity, or enforcement of the note or mortgage.

         Piper attempts to circumvent the fact that the defendants' special defenses do not relate to the making, validity, or enforcement of the note or mortgage by arguing that the broader transaction test set forth in Practice Book § 10-10 applies to their special defenses. Section 10-10 provides, in relevant part, that ‘‘[i]n any action for legal or equitable relief, any defendant may file counterclaims against any plaintiff . . . provided that each such counterclaim . . . arises out of the transaction or one of the transactions which is the subject of the plaintiff's complaint . . . .'' This section is ‘‘a common-sense rule designed to permit the joinder of closely related claims where such joinder is in the best interests of judicial economy.'' (Internal quotation marks omitted.) JP Morgan Chase Bank, Trustee v.Rodrigues, 109 Conn.App. 125, 131, 952 A.2d 56 (2008). Section 10-10 makes no mention of special defenses and explicitly states that it applies to counterclaims. Further, because the purpose of the rule is to permit the joinder of closely related claims that meet the transaction test, this purpose could not possibly be furthered when the rule is applied to special defenses. ‘‘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.) Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 ...


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