J.E. Robert Co. v. Signature Props., LLC

Decision Date16 July 2013
Docket NumberNos. 19050,19051,19052.,s. 19050
CourtConnecticut Supreme Court
PartiesJ.E. ROBERT COMPANY, INC. v. SIGNATURE PROPERTIES, LLC, et al.

OPINION TEXT STARTS HERE

Richard J. Buturla, Milford, with whom were Brian A. Lema, Milford, and Benjamin S. Proto, Jr., Stratford, for the named defendant et al. (appellants).

Julie A. Manning, with whom were Eric S. Goldstein and, on the brief, Sheila A. Huddleston, Hartford, for the substitute plaintiff (appellee).

ROGERS, C.J., and PALMER, ZARELLA, EVELEIGH, McDONALD and VERTEFEUILLE, Js.

McDONALD, J.

As the securitization of mortgage loans has become increasingly favored by financial lenders, and as arrangements for the administration of these loans have become increasingly complex, the relationship between the debtors/mortgagors and the owners of these debts has become more attenuated. Consequently, in foreclosure actions across the country on loans subject to these arrangements, challenges to the standing of parties other than the lender to bring such actions have been on the rise. Connecticut's appellate courts have never had occasion to address this type of challenge, until today. Specifically, we must determine whether a loan servicer for the owner and holder of a note and mortgage can have standing in its own right to institute a foreclosure action against the mortgagor as a transferee of the holder's rights under the Uniform Commercial Code (UCC), General Statutes §§ 42a–3–2031 and 42a–3–301.2

The defendants Signature Properties, LLC (Signature), Andrew J. Julian (Julian) and Michael Murray 3 appeal from the trial court's judgment ordering strict foreclosure of Signature's property and a deficiency judgment against the defendants predicated on the standing of both the original plaintiff, loan servicer J.E. Robert Company, Inc. (J.E. Robert), and the substitute plaintiff, Shaw's New London, LLC (Shaw's). Julian additionally appeals from the trial court's order granting Shaw's application for a prejudgment remedy. We conclude that the trial court properly determined that, under the facts of this case, J.E. Robert had standing to institute this foreclosure action in its own name and reject the defendants' additional claims. Therefore, we affirm the judgment of the trial court.

Our review of the record in this appeal yields both a factual and procedural history that is not in question. On April 13, 2005, Signature executed a promissory note (note) in the amount of $8.8 million payable to the order of JPMorgan Chase Bank, N.A. (JPMorgan). The loan was secured by a mortgage and security interest (mortgage) on Signature's commercial property at 6 Shaw's Cove in New London, as well as an assignment of the property's leases and rents. The note was a conditional nonrecourse instrument under which Signature's liability for any breach was limited to the mortgaged property, unless Signature breached either of two specified sections of the mortgage agreement. If Signature breached either of those sections, it would be liable to the full extent of the debt. The loan was guaranteed jointly and severally by Signature's members, Murray, Julian, Maureen Julian, and Stephanie Lord Drake (guarantors).

At the time of the closing on the loan, JPMorgan required Signature to record on the New London land records a “Notice of Parking License Agreement,” which memorialized an agreement (parking agreement) between Signature and 280 Atlantic Street, LLC (280 Atlantic), the latter owned by guarantors Julian and Maureen Julian, and their sons, Andrew C. Julian and Jason Julian. Under the parking agreement, Signature was permitted to use a paved portion of a nearby 1.175 acre lot owned by 280 Atlantic for the purpose of parking approximately 120 vehicles for “certain tenants of [its] office building....” The parking agreement, executed on April 9, 2005, was made effective as of January 1, 2002, for an initial term of seven years and two additional five year terms, at Signature's option. Signature's main tenant, General Dynamics Electric Boat (Electric Boat), leased spaces in the lot from Signature to supplement the parking available for its employees at 6 Shaw's Cove.

On July 29, 2005, JPMorgan assigned Signature's note, mortgage and assignment of leases and rents to LaSalle Bank National Association (LaSalle). A pooling and servicing agreement (pooling agreement), also executed on this date, established a mortgage backed security 4 wherein J.P. Morgan Chase Commercial Mortgage Securities Corporation was identified as depositor, LaSalle as trustee and paying agent, and J.E. Robert as special servicer for numerous mortgage loans, including Signature's.5 On August 15, 2007, several months after Signature had ceased to make payments on the loan, J.E. Robert brought a one count foreclosure action against Signature.6

On October 17, 2007, LaSalle assigned the note and related instruments to Shaw's, and, on the following day, J.E. Robert moved to substitute Shaw's as the plaintiff pursuant to Practice Book § 9–22. Signature made no objection, and the court, Martin, J., granted the motion. In January, 2008, the court granted Shaw's permission to file an amended complaint, over Signature's objection, which added the guarantors as defendants and added counts alleging, inter alia, that: Signature had terminated the parking agreement with 280 Atlantic, thereby breaching §§ 4.3 and 8.2 of the mortgage (count two); pursuant to § 10(a)(i) of the note, such breach caused the conditional nonrecourse note to be converted into a full recourse obligation 7 (count three); and, under the guarantee the guarantors were liable for a deficiency judgment (count four).

On September 14, 2009, Shaw's moved for summary judgment on its amended complaint, which the trial court, Shapiro, J., granted.8 Observing that it was undisputed that Signature had defaulted on its payment obligations, as alleged in count one seeking foreclosure, the trial court held that only the extent of liability remained to be determined. On count two, the court found no support in the parking agreement for the defendants' assertion that the agreement had lapsed upon Electric Boat's termination of its tenancy. Additionally, relying principally on a memorandum drafted by 280 Atlantic, the court concluded that: (1) Signature had terminated the parking agreement without the lender's permission, thereby breaching § 8.2 of the mortgage by transferring a property interest; and (2) termination of the parking agreement amounted to Signature's commingling of assets with an affiliate, 280 Atlantic, thereby breaching § 4.3 of the mortgage. Regarding count three, the court concluded that, because Signature had breached §§ 4.3 and 8.2 of the mortgage, Shaw's was not limited to the security interests granted by Signature in seeking recovery after default. Finally, on count four, the court concluded that the guarantors were liable under the terms of the guarantee for Signature's full recourse obligation under the note and mortgage.

Subsequently, Julian and Murray moved to dismiss the action, arguing that it was void ab initio because the original plaintiff, J.E. Robert, as a mere servicer of the loan rather than the holder of the note and mortgage, lacked standing to bring the foreclosure action. Signature later moved to dismiss the action on identical grounds. The court denied both motions. In its memorandumof decision denying Julian and Murray's motion, the trial court concluded that the substitution of Shaw's, the present holder of the note, cured any alleged lack of standing by J.E. Robert. In its subsequent memorandum of decision on Signature's motion to dismiss, the court additionally concluded that J.E. Robert had standing to institute the action in its own name, both as a transferee/nonholder pursuant to §§ 42a–3–203 and 42a–3–301 and as a nominal party in interest for LaSalle. Finally, the court held that, even if J.E. Robert lacked standing and Shaw's substitution could not cure such a defect, the court would retain jurisdiction over the action pursuant to General Statutes § 52–123,9 because the defendants had notice of the real parties in interest. On November 19, 2010, the court granted Shaw's application for a prejudgment remedy to attach property and assets belonging to the guarantors in the amount of $7,308,400. Subsequently, the trial court, Bright, J., rendered a judgment of strict foreclosure.

Julian appealed from the trial court's decision granting Shaw's application for a prejudgment remedy. Thereafter, in two separate appeals, later consolidated by the Appellate Court, Signature and, jointly, Julian and Murray, appealed from the trial court's judgment of strict foreclosure. After hearing oral argument on both matters, the Appellate Court filed a statement with this court pursuant to Practice Book § 65–2 requesting that we transfer the appeals to this court. We granted the Appellate Court's request, and now address issues stemming from the appeals.

In these consolidated appeals, the defendants claim that: (1) the trial court improperly denied their motions to dismiss for lack of subject matter jurisdiction because (a) J.E. Robert lacked standing to commence the action, and (b) Shaw's substitutioncould not cure a judgment that was void ab initio; and (2) the trial court improperly granted Shaw's motion for summary judgment because there were disputed issues of material fact regarding Signature's conduct in relation to the parking agreement and the materiality of that conduct as it pertained to an alleged breach of the mortgage. In his separate appeal, Julian contends that the trial court improperly granted Shaw's application for a prejudgment remedy in the absence of sufficient competent evidence to establish the amount of Signature's debt at the time of judgment. 10

We conclude that J.E. Robert had standing in its own right to bring this foreclosure action 11 and disagree with the defendants'...

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