City of New Haven v. 329 Greene Street, LLC
| Decision Date | 07 May 2018 |
| Docket Number | CV106009009 |
| Court | Connecticut Superior Court |
| Parties | City of New Haven v. 329 Greene Street, LLC et al. |
UNPUBLISHED OPINION
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Corradino, Thomas J., J.T.R.
Corradino, J.T.R.
The matter before the court is an action to determine priorities to a surplus resulting from a foreclosure and sale of a condominium property. The action was commenced by the City of New Haven because of unpaid taxes. The case went to judgment in 2017 and the property was sold at a foreclosure sale in August 2017 for $380,000. The City procured a supplemental judgment and was paid the monies it was owed. The condominium association also secured a supplemental judgment and will be or has received its priority debt. There remains a sum of $115,000 retained by the court. The specific issue in this case is presented by the fact that J&J Akoury claims to have a mortgage on the property to cover a debt owed to it by 329 Greene Street and Water Street Partners, LLC also claims to have a mortgage to cover a debt owed to it by 329 Greene Street. The court must decide which of these junior mortgages has a priority to the $115,000 fund held by the court.
As said in Bryson v. New Haven Real Estate and Development Corporation et al., 153 Conn. 267, 273 (1965): " The distribution of a surplus from a foreclosure sale lies within the equity jurisdiction of the court" ; also see Tadros v. Tripodi et al., 87 Conn.App. 321, 335 (2005). As said in Voluntown v. Rytman, 27 Conn.App 549, 556 (1992); " Pursuant to General Statutes 49-27 entitlement to proceeds from such sale and the amount of such entitlement, is to be determined by the court in a supplemental proceeding after the sale has been ratified by the court" ; also see Moran v. Morneau et al., 129 Conn.App. 349, 356-57 (2011). The statute must be read in the context of the fact that a mortgage is a conveyance of property to secure a debt, Guilford Chester Water Company v. Guilford, 107 Conn. 519, 527 (1928). It is in effect a lien on property and " in everyday use, the term " lien" includes a mortgage ..." 51 AM.Jur.2d " Liens," § 2, page 95, see City of Derby v. Murtishi, 33 .[1]
The court will first try to discuss the priority issue. The word " priority" per Black’s Law Dictionary in Section 1 states In a foreclosure case any surplus remaining after satisfying the claim of the primary obligee would be available to junior lien holders under a mortgage obligation in accordance with their priorities, see Am.Jur.2d " Mortgages, § 711 page 414 JP Morgan Chase Bank v. U.S. Bank National Association, 929 So.2d 651, 654 (Fla.Dist.Ct. of Appeals, 2006), Moran v. Morneau, 140 Conn.App. 219, 226-27 (2013).
Exhibit 10 was introduced as the mortgage deed given to Water Street Partners, LLC for the loan of $750,000 it claims it made to 329 Greene Street. It was signed by Adam Brouillard on March 28, 2007. Exhibit A contains the construction contract between the contractor, J&J Akoury and 329 Greene Street, an addendum to the contract, and a mortgage from 329 Greene Street to J&J Akoury wherein it states the 329 Greene Street is a " borrower" of $1,750,000 from the " lender" J&J Akoury as represented in the construction contract for work done on the Greene Street Condominium property. The construction contract is dated December 15, 2006 as is the addendum. The mortgage is dated February 6, 2007. The J&J Akoury mortgage according to the exhibits submitted on their face clearly indicate the Akoury mortgage was prepared and filed prior to the Water Street mortgage. But that is only the beginning of the analysis required in this case.
The fact, however, that a document has the word " mortgage" printed on it with a date, debt it is supposed to be security for, and property description does not mean a claim is necessarily established as to the validity of the mortgage in the context of a dispute as to priorities to a surplus from a foreclosure sale. The court will now try to examine each one of these mortgages.
The J&J Akoury mortgage is signed by Adam Brouillard as manager of 329 Greene Street, LLC. Mr. Akoury on behalf of J&J Akoury and Mr. Brouillard and Mr. Goodwin on behalf of the LLC signed the contract for construction work priced at $1,750,000 to be done by J&J Akoury. The mortgage states 329 Greene Street is the borrower owing $1,750,000 under the contract with the mortgage thus being security for that debt. The contract was signed in December 15, 2016, the mortgage was created and signed some months later. In this context does there have to be consideration for the mortgage? There is no evidence of any added consideration in addition to the contract paid for granting of the mortgage. This point was not raised by the parties but it seems to the court that the " debt" created by the contract for work and services to the property is the same " debt" which the mortgage seeks to guarantee- the recipient of the work and services could hardly argue against the validity of the mortgage on the basis of lack of additional consideration. How could anyone else except on some claim that the mortgage was a sham to deprive a claimant of its claim to a surplus after a foreclosure that might take place a decade in the future? To ask the question provides the answer.
There is another issue that must be addressed as regards the validity of this mortgage. The Operating Agreement for 329 Greene Street, LLC, dated November 15, 2004 several years before the operative events in this case, has a section 5.1.3 entitled: " Extraordinary Transaction." It says Earlier in the operating agreement " Capital Transaction" is defined as follows: " Capital Transaction means any transaction not in the ordinary course of business which results in the company’s receipt of cash or other consideration other than capital contributions including, without limitation proceeds of sales or exchange or other dispositions of property not in the ordinary course of business, financing, re-financing, condemnations, recoveries of damage awards, and insurance proceeds."
The court will first assume the just quoted " Extraordinary Transaction" language applies on the issue of the validity of the Akoury mortgage. The question then becomes at the time the mortgage was signed was the majority approval language of the clause operative so as to defeat the validity of the Akoury mortgage. In this regard it should first be noted that a " Transfer of Membership Interest Agreement" was signed by Adam Brouillard, Mr. Goodwin, and Claude Brouillard on March 28, 2007 whereby the latter two transferred their membership interest in the 329 Greene Street, LLC to Adam Brouillard. The necessary conclusion from this is that until the March 28th date, all three were members of the LLC. If in fact the " Extraordinary Transactions" clause applies then a majority of LLC members did not sign the mortgage because Adam Brouillard was the only person who signed the mortgage document.
The testimony of Mr. Goodwin is confusing on this point, however, at one point he testified he was " out" of the Greene Street, LLC when the mortgage was signed. He was quite emphatic at another point in his testimony saying he was " absolutely" out of the LLC when the mortgage was signed. He was directly asked if he felt the mortgage was valid and whether he was in agreement with it- he answered Mr. Goodwin did say at one other point that he approved of the mortgage to J&J Akoury but this contradicted his other testimony on the matter although it would be consistent with the transfer of interest agreement which as noted was signed on March 28, 2007 and thus after the Akoury mortgage was signed.[2]
The testimony of Mr. Akoury adds to the confusion. He said he asked Adam Brouillard why only he signed the mortgage and Adam Brouillard told him they did not sign it because he had bought them out. This, again, like some of Goodwin’s testimony would validate the Akoury mortgage despite the " Extraordinary Circumstances Clause" in the 329 Greene Street, LLC Operating Agreement. In the last analysis, however, the only sure anchor the court can rely upon despite what it considers the confusing testimony in the case is the March 28, 2007 transfer of membership agreement which only removed Goodwin and Claude Brouillard from LLC membership on the March 28th date, after the Akoury mortgage was signed.
But this conclusion leads to the necessary question of whether the " Extraordinary Transaction Clause" of the 329 Greene Street, LLC Operating Agreement applies to the Akoury mortgage transaction so as to defect the validity and therefore the priority of the mortgage vis-a-vis the mortgage of Water Street Partners. The court concludes it does not. The clause in question as noted in effect states the managers shall not undertake any capital transaction without a majority of members approving of it. In the operating agreement it states " Capital Transaction" means " any transaction not in the ordinary course of business which results in the company’s receipt of cash or other consideration other...
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