NINTH RMA PARTNERS, LP v. Krass

• Decision Date: 21 March 2000
• Docket Number: (AC 18106)
• Citation: 746 A.2d 826,57 Conn. App. 1
• Court: Connecticut Court of Appeals
• Parties: NINTH RMA PARTNERS, L.P. v. BARRETT L. KRASS ET AL.

57 Conn. App. 1

746 A.2d 826

NINTH RMA PARTNERS, L.P. v. BARRETT L. KRASS ET AL.

(AC 18106)

Appellate Court of Connecticut.

Argued October 19, 1999.

Officially released March 21, 2000.

Foti, Spear and Vertefeuille, Js. Kerry M. Wisser, with whom, on the brief, was Nathan A. Schatz, for the appellants (defendants).

Richard M. Levy, with whom, on the brief, was Douglas M. Evans, for the appellee (substitute plaintiff).

Opinion

FOTI, J.

The defendants¹ appeal from the judgment of the trial court awarding the plaintiff $231,568.62, plus $7500 in attorney's fees. The defendants claim that the trial court improperly (1) concluded that the plaintiff had standing to maintain its action, (2) concluded that the substitute interest rate charged by the plaintiff and its predecessors was reasonable and (3) admitted evidence that did not satisfy the business record exception to the hearsay rule. We affirm the judgment of the trial court.

The following facts and procedural history are relevant to this appeal. On April 24, 1990, the defendants² executed a $150,000 promissory note payable to Landmark Bank (Landmark). On March 28, 1991, Landmark was declared insolvent, and the Federal Deposit Insurance Corporation (FDIC) was appointed as its receiver. On April 14, 1994, the FDIC transferred the note to RMA Partners, L.P. (RMA); RMA then transferred the note to the plaintiff, Ninth RMA Partners, L.P.

On February 6, 1996, the plaintiff filed suit against the defendants to enforce payment of the note.³ During a December 16, 1996 hearing, the defendants conceded liability on the note. The court, accordingly, rendered summary judgment as to the defendants' liability and set a hearing to resolve the issue of damages. On August 5, 1997, the court held a hearing in damages and on December 1, 1997, rendered judgment awarding damages and attorney's fees to the plaintiff.

I

The defendants first claim that the court improperly ruled that the plaintiff had standing to enforce the note. Resolution of this issue requires the consideration of certain other facts.

On May 30, 1996, the defendants filed a special defense alleging that the plaintiff lacked standing to enforce the note. On December 16, 1996, however, the defendants conceded their liability to the plaintiff and stipulated to the entry of summary judgment as to liability. Although the defendants had conceded liability on the note at the December 16, 1996 summary judgment hearing, they later attempted to deny any liability at the August 5, 1997 hearing in damages. At that hearing, the defendants contested liability by claiming that the plaintiff was not a proper holder of the note and, therefore, lacked the legal standing to enforce it. Specifically, the defendants attempted to raise doubts about the chain of title to the note. While noting that the defendants had previously conceded liability for the note,⁴ the trial court entertained the defendants' argument as to the issue of standing, noting that the issue of standing implicates subject matter jurisdiction and can be raised at any time. In its December 1, 1997 memorandum of decision, the court found that the plaintiff did, in fact, have standing to enforce the note and that the defendants were liable to the plaintiff.

The defendants now appeal, claiming that the trial court improperly found that the plaintiff had standing to enforce the note. The substitute plaintiff, however, claims that the defendants should never have been allowed to raise the issue of standing at the hearing in damages and should not be allowed to raise any issues concerning liability on appeal. Specifically, the substitute plaintiff argues that because the defendants stipulated to liability on the note, they should not have been allowed to contest that liability during the hearing in damages. Of particular note, the substitute plaintiff points to the fact that the defendants initially raised the issue of standing as a special defense, then abandoned that defense by conceding liability on the note and later reintroduced the issue of standing without giving any notice to the plaintiff. As a result, the plaintiff justifiably believed that liability was conclusively established by the summary judgment stipulation and had no notice or opportunity to present more evidence to prove that the plaintiff was a valid holder of the note. Accordingly, the substitute plaintiff argues that the defendants should be precluded from raising any issues relating to liability on appeal.

We agree with the substitute plaintiff that once the defendants conceded liability on the note, it was improper for them to attempt to raise the issue of liability at the hearing in damages and in this appeal. The defendants make much of the maxim that standing implicates the subject matter jurisdiction of the court and may be raised at any time. The defendants, however, fail to understand that there is a difference between challenging a party's standing to maintain a cause of action and challenging the merits of the cause of action itself. "The question of standing does not involve an inquiry into the merits of the case. It merely requires the party to make allegations of a colorable claim of injury to an interest which is arguably protected or regulated by the statute ... in question." State v. Pierson, 208 Conn. 683, 687, 546 A.2d 268 (1988), cert. denied, 489 U.S. 1016, 109 S. Ct. 1131, 103 L. Ed. 2d 193 (1989).⁵

When the defendants argued at the hearing in damages that the plaintiff was not a proper holder of the note, their argument went to the merits of the case, that is, to whether the plaintiff should prevail. Although they called their claim a lack of subject matter jurisdiction, we do not view it as such. We view it, instead, as a claim that goes to the heart of the issues that would have had to be resolved if the case had gone to trial. See State v. Seravalli, 189 Conn. 201, 206, 455 A.2d 852, cert. dismissed, 461 U.S. 920, 103 S. Ct. 2076, 77 L. Ed. 2d 291 (1983) (mere characterization of issue as one of double jeopardy does not require court to grant interlocutory review); see also State v. Gooch, 186 Conn. 17, 18, 438 A.2d 867 (1982) (putting constitutional tag on nonconstitutional claim will not change its essential character).

To prevail in an action to enforce a negotiable instrument, the plaintiff must be a holder of the instrument or a nonholder with the rights of a holder. See General Statutes § 42a-3-301; Donnelly v. Garvan, 111 Conn. 626, 629, 151 A. 168 (1930). This status is an element of an action on a note. See 12 Am. Jur. 2d, Bills and Notes § 650 (1997) (action brought on negotiable instrument, such as promissory note, must allege facts on which plaintiffs right to recover from defendant on instrument depends). The failure to plead this fact properly is challenged by a motion to strike. See Sheiman v. Lafayette Bank & Trust Co., 4 Conn. App. 39, 42, 492 A.2d 219 (1985). The failure to prove such element will result in a judgment for the defendants. See Barnes v. Upham, 93 Conn. 491, 495-96, 107 A. 300 (1919). In neither event is jurisdiction implicated.

The trial court, therefore, need not have addressed the defendants' argument, which was, in essence, an effort to undo the stipulation by labeling as jurisdictional a challenge to the merits of the plaintiffs right to recover. Although the issue decided was not a jurisdictional claim and need not have been considered by the court, we note that the court decided the issue correctly.

General Statutes § 42a-1-201 (20) provides in relevant part that a " `[h]older', with respect to a negotiable instrument, means the person in possession ... in the case of an instrument payable to an identified person, if the identified person is in possession...."When the FDIC took over as Landmark's receiver, the defendants' note was found in Landmark's possession. Because the note was payable to Landmark and Landmark was in possession of the note, Landmark had clearly been the "holder" of the note at the time that the FDIC became Landmark's receiver.⁶ As Landmark's receiver, the FDIC succeeded to all rights, titles, powers and privileges of Landmark. 12 U.S.C. § 1821 (d) (1); see also Resolution Trust Corp. v. Juergens, 965 F.2d 149 (7th Cir. 1992)

. The FDIC, therefore, acquired all the rights of a holder. The FDIC then transferred the note to RMA, which acquired the rights of a holder to enforce the note; RMA then transferred the note to the plaintiff, which also succeeded to the rights of a holder and was entitled to enforce the note.

General Statutes § 42a-3-301 provides that a note may be enforced by a holder of the instrument or a nonholder in possession of the instruments who has the rights of a holder. Our review of the record shows that the plaintiff had acquired the rights of a holder and was therefore entitled to enforce the note. The trial court correctly determined that the plaintiff was entitled to bring this action against the defendants.⁷

II

The next issue raised by the defendants concerns the interest rate that the court used to calculate the amount owed on the note. Originally, the interest rate on the note was equal to the prime rate of Landmark, plus two percentage points. When Landmark became insolvent, however, its internal prime rate index ceased to exist. Thus, the plaintiff and its predecessors on the note necessarily implemented a substitute interest rate. The defendants now claim that the court improperly determined that that substitute interest rate was reasonable.

It is well established that "[w]hen a variable interest rate is based on the rate of a failed institution, the trial court must determine whether the substitute rate is reasonable by examining the documents and testimony offered by the plaintiff." Central Bank v. Colonial Romanelli Associates, 38 Conn. App. 575, 578, 662 A.2d 157 (1995). In determining reasonableness, the court need not determine the exact methodology...