Chelsea Groton Bank v. Belltown Sports, LLC, 072820 CTCA, AC 42709

Docket Nº:AC 42709
Opinion Judge:ELGO, J.
Party Name:CHELSEA GROTON BANK v. BELLTOWN SPORTS, LLC, ET AL.
Attorney:Patrick W. Boatman, with whom, on the brief, was Jenna N. Sternberg, for the appellants (named defendants et al). Brian D. Rich, with whom was Anthony E. Loney, for the appellee (plaintiff).
Judge Panel:Alvord, Elgo and Beach, Js.
Case Date:July 28, 2020
Court:Appellate Court of Connecticut
 
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CHELSEA GROTON BANK

v.

BELLTOWN SPORTS, LLC, ET AL.

No. AC 42709

Court of Appeals of Connecticut

July 28, 2020

Argued March 3, 2020

Procedural History

Action to foreclose a mortgage on certain real property of the named defendants et al., and for other relief, brought to the Superior Court in the judicial district of Middlesex where the court, Domnarski, J., granted the plaintiff's motion for judgment of foreclosure by sale and rendered judgment thereon, from which the named defendants et al. appealed to this court. Affirmed.

Patrick W. Boatman, with whom, on the brief, was Jenna N. Sternberg, for the appellants (named defendants et al).

Brian D. Rich, with whom was Anthony E. Loney, for the appellee (plaintiff).

Alvord, Elgo and Beach, Js.

OPINION

ELGO, J.

The defendants Belltown Sports, LLC (Bell-town Sports), Sports on 66, LLC (Sports on 66), and Brian Cutler appeal from the judgment of foreclosure by sale rendered by the trial court in favor of the plaintiff, Chelsea Groton Bank.[1] On appeal, the defendants claim that the court improperly (1) rendered summary judgment as to liability in favor of the plaintiff and (2) concluded that the priority of a Small Business Administration (SBA) loan does not bar the plaintiff's right to foreclose on its mortgage.2 We disagree and affirm the judgment of the trial court.

The following facts and procedural history are relevant to our resolution of this appeal. On April 15, 2015, Belltown Sports executed a promissory note (note) payable to the plaintiff in the principal amount of $3, 000, 000. In order to secure the note, Belltown Sports executed an open-end mortgage deed (mortgage) in favor of the plaintiff on real property located at 265 West High Street in East Hampton (property). Contemporaneous with the execution of both the note and the mortgage, Sports on 66 and Brian Cutler executed a guarantee in which they agreed to pay the debt secured by the note and the mortgage. The loan proceeds were used to construct a 42, 000 square foot sports facility (facility) on the property. The facility contains indoor turf fields, floating wood basketball courts, batting cages, and a party room.

The defendants also had signed a commitment letter with the plaintiff, which included, among other things, a requirement that, within forty-five to sixty days upon the issuance of a certificate of occupancy, the defendants obtain a loan in the amount of $1, 118, 150 from the Community Investment Corporation, a lender who provides assistance to Connecticut businesses and is backed by the SBA (SBA loan). The proceeds of the SBA loan were to be paid to the plaintiff in order to reduce the mortgage debt to $1, 881, 850.

Pursuant to the building loan agreement (agreement) signed by the plaintiff and the defendants on April 15, 2015, the facility was scheduled to be completed by April 1, 2016. Due to several issues that arose during construction, however, the facility was completed approximately eight months late and the grand opening took place on December 17, 2016. Following the grand opening, the plaintiff reminded the defendants of their obligation to obtain the SBA loan. To do so, the defendants were required by the SBA to satisfy any liens and other financial obligations associated with the property, except for the mortgage. To that end, on April 14, 2017, the plaintiff completed an interim lender certification form, wherein it stated that it had ‘‘no knowledge of any unremedied substantial adverse change in the condition of[the] [b]orrower and [the o]perating [c]ompany (if any) since the date of [the] loan application to [the] [i]nterim [l]ender. [The] [b]orrower is current on its payments to [the] [i]nterim [l]ender and not otherwise in default on the [i]nterim [l]oan.'' Because the plaintiff completed the certification and the defendants satisfied all financial obligations associated with the property, the funds of the SBA loan were released to the plaintiff on May 22, 2017. Prior to that release, however, the defendants had defaulted on their obligation to pay the note, mortgage, and guarantee.

The plaintiff commenced this mortgage foreclosure action on September 26, 2017. The defendants filed their answer and special defenses on December 1, 2017. Specifically, the defendants alleged as special defenses: (1) foreclosure of the plaintiff's mortgage could only be in the amount of $360, 000, the total funds advanced by the plaintiff at the closing of the mortgage and (2) the plaintiff acted with unclean hands in its representations to the SBA that there had been no material adverse change in the defendants' financial status and in its representations to the defendants that it would provide a line of credit.

On June 11, 2018, the plaintiff filed a motion for summary judgment as to liability, which was accompanied by a memorandum of law in support of the motion, an affidavit, and appended exhibits, including the mortgage and the note. The defendants filed a memorandum of law in opposition to the plaintiff's motion for summary judgment and an affidavit of Brian Cutler on August 8, 2018. Shortly thereafter, the plaintiff filed a reply to the defendants' opposition to the motion for summary judgment on August 23, 2018. The hearing on the plaintiff's motion took place on August 27, 2018.

Following that hearing, this court decided U.S. Bank National Assn. v. Eichten, 184 Conn.App. 727, 196 A.3d 328 (2018). In light of that decision, the trial court ordered, sua sponte, the parties to file supplemental briefs on its impact on the pending motion for summary judgment. Only the defendants filed a supplemental brief.

Subsequently, on November 16, 2018, the court granted the plaintiff's motion for summary judgment as to liability. On February 26, 2019, the court rendered a judgment of foreclosure by sale. This appeal followed. Additional facts will be set forth as necessary.

The defendants claim that (1) their special defense of unclean hands ‘‘properly raise[d] a genuine issue of material fact sufficient to deny summary judgment, '' and (2) the court improperly concluded that the special defense ‘‘failed to relate to the mortgage being foreclosed.'' We disagree.

We begin by setting forth the relevant standard of review and applicable legal principles. ‘‘In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. . . . Although the party seeking summary judgment has the burden of showing the nonexistence of any material fact . . . a party opposing summary judgment must substantiate its adverse claim by showing that there is a genuine issue of material fact together with the evidence disclosing the existence of such an issue. . . . A material fact is one that makes a difference in the outcome of a case. . . .

‘‘Summary judgment shall be granted if the pleadings, affidavits and any 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. . . . The trial court must view the evidence in the light most favorable to the nonmoving party. . . .

‘‘Appellate review of the trial court's decision to grant summary judgment is plenary. . . . [W]e must [therefore] decide whether [the trial court's] conclusions are legally and logically correct and find support in the facts that appear in the record. . . .

‘‘In order to establish a prima facie case in a mortgage foreclosure action, the plaintiff must prove by a preponderance of the evidence that it is the owner of the note and mortgage, that the defendant mortgagor has defaulted on the note and that any conditions precedent to foreclosure, as established by the note and mortgage, have been satisfied. . . . Thus, a court may properly grant summary judgment as to liability in a foreclosure action if the complaint and supporting affidavits establish an undisputed prima facie case and the defendant fails to assert any legally sufficient special defense. . . .

‘‘[A] holder of a note is presumed to be the owner of the debt, and unless the presumption is rebutted, may foreclose the mortgage under [General Statutes § 49-17]. . . . It [is] for the defendant to set up and prove the facts which limit or change the plaintiff's rights. . . .

‘‘[T]he party raising a special defense has the burden of proving the facts alleged therein. . . . If the plaintiff in a foreclosure action has shown that it is entitled to foreclose, then the burden is on the defendant to produce evidence supporting its special defenses in order to create a genuine issue of material fact . . . . Legally sufficient special defenses alone do not meet the defendant's burden. 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. . . . Further . . . [t]he applicable rule regarding the material facts to be considered on a motion for summary judgment is that the facts at issue are those alleged in the pleadings. . . . [B]ecause any valid special defense raised by the defendant ultimately would prevent the court from rendering judgment for the plaintiff, a motion for summary judgment should be denied when any [special] defense presents significant fact issues that should be tried. ...

‘‘Because an action to foreclose a mortgage is an equitable proceeding, the doctrine of unclean hands may be applicable. It is a fundamental principle of equity jurisprudence that 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...

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