Monetary Funding Group, Inc. v. Pluchino

• Decision Date: 15 February 2005
• Docket Number: No. 24677.,24677.
• Citation: 867 A.2d 841,87 Conn.App. 401
• Court: Connecticut Court of Appeals
• Parties: MONETARY FUNDING GROUP, INC. v. John PLUCHINO

867 A.2d 841

87 Conn.App. 401

MONETARY FUNDING GROUP, INC. v. John PLUCHINO

No. 24677.

Appellate Court of Connecticut.

Argued November 18, 2004.

Decided February 15, 2005.

Nathalie Feola-Guerrieri, with whom, on the brief, was Daniel Shepro, Stratford, for the appellant (plaintiff).

Janine M. Becker, Bridgeport, for the appellee (defendant). LAVERY, C.J., and SCHALLER and BISHOP, Js.

SCHALLER, J.

The plaintiff, Monetary Funding Group, Inc., appeals from the judgment of the trial court, rendered after a trial to the court, in favor of the defendant, John Pluchino. On appeal, the plaintiff claims that the court improperly (1) determined that it had unclean hands, (2) determined that it had made an unconscionable loan, (3) determined that it had violated the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., and (4) imposed a remedy precluding it from collecting principal and interest. We affirm the judgment of the trial court.

The court found the following facts relevant to the plaintiff's appeal. In the spring of 2000, the defendant, who previously had owned and operated a gasoline station and radiator business for more than thirty years, sought to obtain financing to purchase a convenience store and Laundromat business (business). He applied for a loan from a bank, but was turned down as a result of concerns regarding the stability of the new restaurant with which he had replaced his radiator business.

The defendant, who was not represented by counsel, contacted Paul Dwyer, the president of the plaintiff corporation. He informed Dwyer that he needed to borrow $20,000 in order to purchase the business. On April 13, 2000, the defendant executed a ninety day promissory note in favor of the plaintiff, secured by a mortgage on the defendant's unencumbered property located at 621 Washington Avenue in Bridgeport. The interest rate disclosed on the ninety day note was 15 percent. Additional terms included a $3000 origination fee, a $400 processing fee, $937.50 in prepaid interest, $550 for attorney's fees and $112.50 for a courier fee. In short, the defendant incurred a liability of $25,000 and received a net amount from the note of $20,000. The plaintiff also indicated an annual percentage rate of 28 percent.¹ After ninety days, the loan was to be restructured through a refinancing into an installment loan. Dwyer was aware that the defendant lacked any other means to repay the note, except for refinancing at the conclusion of the ninety days. Dwyer planned to broker the second loan for the benefit of the defendant and receive additional broker fees.

In January, 2001, approximately five months after the defendant had defaulted on the note, the plaintiff located a lender willing to refinance the defendant's debt. At the closing, the defendant, for the first time, learned that it consisted of an $80,000 loan from an entity known as InterBay Funding. According to the proposed terms of the second loan, the defendant would receive only $38,721.25 of the $80,000. A total of $28,678.31 would pay off the original note to the plaintiff, which also would receive a broker fee of $4800. In summary, considering both the original $25,000 note and the second proposed loan in the amount of $80,000, the defendant would receive in hand $58,721.25 and incur up-front costs of $21,278.75 ($5000 for the first transaction and $16,278.75 for the second transaction).

The defendant expressed concerns regarding the $80,000 loan. He requested time to have an attorney review the proposed arrangement, but was told that was not necessary. The defendant, already in default with respect to the original note, never executed the second loan, nor did he ever repay the original note. The plaintiff commenced the present foreclosure action on April 23, 2001. In its prayer for relief, the plaintiff sought a judgment of strict foreclosure.² The defendant answered the complaint and, on April 10, 2002, set forth eleven special defenses³ and a counterclaim alleging a CUTPA violation. The court found that the defendant had demonstrated that the plaintiff had unclean hands and that the loan transaction was unconscionable. Additionally, it found in favor of the defendant with respect to the CUTPA counterclaim and awarded attorney's fees in the amount of $6750. This appeal followed. Additional facts will be set forth as necessary.

As a general matter, we note that it is well established in our jurisprudence that "[f]oreclosure is peculiarly an equitable action, and the court may entertain such questions as are necessary to be determined in order that complete justice may be done.... [B]ecause a mortgage foreclosure action is an equitable proceeding, the trial court may consider all relevant circumstances to ensure that complete justice is done." (Citations omitted; emphasis in original; internal quotation marks omitted.) Morgera v. Chiappardi, 74 Conn.App. 442, 456-57, 813 A.2d 89 (2003); see also Northeast Savings, F.A. v. Hintlian, 241 Conn. 269, 275, 696 A.2d 315 (1997); Moasser v. Becker, 78 Conn.App. 305, 324, 828 A.2d 116, cert. denied, 266 Conn. 910, 832 A.2d 70 (2003). Foreclosure may be withheld by the court on the grounds of equitable considerations and principles. LaSalle National Bank v. Freshfield Meadows, LLC, 69 Conn.App. 824, 833, 798 A.2d 445 (2002). With those legal principles in mind, we turn to the plaintiff's specific claims.

I

The plaintiff first claims that the court improperly determined that it had unclean hands. Specifically, the plaintiff argues that several of the court's factual findings were clearly erroneous and that the court improperly applied the doctrine of unclean hands. We are not persuaded.

The starting point for the resolution of that issue is the determination of the appropriate standard of review. We turn to our Supreme Court's decision in Thompson v. Orcutt, 257 Conn. 301, 777 A.2d 670 (2001), for guidance in resolving that issue. In Thompson, our Supreme Court stated: "[A]pplication of the doctrine of unclean hands rests within the sound discretion of the trial court.... The exercise of [such] equitable authority ... is subject only to limited review on appeal.... The only issue on appeal is whether the trial court has acted unreasonably and in clear abuse of its discretion.... In determining whether the trial court abused its discretion, this court must make every reasonable presumption in favor of [the trial court's] action.... Whether the trial court properly interpreted the doctrine of unclean hands, however, is a legal question distinct from the trial court's discretionary decision whether to apply it." (Citations omitted; emphasis added; internal quotation marks omitted.) Id., at 308, 777 A.2d 670. Similarly, we have stated that "[t]he question of whether the clean hands doctrine may be applied to the facts found by the court is a question of law.... We must therefore engage in a plenary review to determine whether the court's conclusions were legally and logically correct and whether they are supported by the facts appearing in the record." (Citation omitted.) McKeever v. Fiore, 78 Conn.App. 783, 787-88, 829 A.2d 846 (2003). The court's factual findings underlying the special defense of unclean hands, however, are reviewed pursuant to the clearly erroneous standard. See Willow Funding Co., L.P. v. Grencom Associates, 63 Conn.App. 832, 840, 779 A.2d 174 (2001).

We reiterate that foreclosure is an equitable action. "Our jurisprudence has recognized that those seeking equitable redress in our courts must come with clean hands. The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue.... 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 court.... It is applied ... for the advancement of right and justice.... The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation.... The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked." (Citation omitted; internal quotation marks omitted.) Ridgefield v. Eppoliti Realty Co., 71 Conn.App. 321, 334-35, 801 A.2d 902, cert. denied, 261 Conn. 933, 806 A.2d 1070 (2002).

The court found the following facts that, in toto, support a determination that the plaintiff had unclean hands.⁴ Despite the fact that the note was a commercial transaction, the defendant was an unsophisticated borrower⁵ and was unrepresented by counsel. The plaintiff charged an arbitrarily high annual percentage rate and misrepresented the rate to the defendant. Dwyer testified that he arbitrarily charged the defendant a 15 percent origination fee in the amount of $3000, which was significantly higher than the 2 to 6 percent customarily applied to commercial loans. The plaintiff failed to conduct a "bona fide evaluation" of the defendant's ability to repay the loan, and Dwyer conceded that he was aware that repayment by the defendant was impossible, but for a subsequent refinancing. Last, the plaintiff, knowing the defendant's dire financial situation with respect to the note, did not offer him an opportunity to discuss or to evaluate the terms of the second loan. In short, the court found that the plaintiff misled the defendant, who thought he was borrowing a net of $20,000 in exchange for fees totaling $4000 to $5000 when, in reality, the terms consisted of an $80,000 loan, with the defendant receiving approximately $59,000 and the plaintiff and InterBay Funding receiving...