Rockstone Capital, LLC v. Caldwell

• Decision Date: 24 August 2021
• Docket Number: AC 43653
• Parties: ROCKSTONE CAPITAL, LLC v. Morgan J. CALDWELL, Jr., et al.
• Court: Connecticut Court of Appeals

206 Conn.App. 801

261 A.3d 1171

ROCKSTONE CAPITAL, LLC

v.Morgan J. CALDWELL, Jr., et al.

AC 43653

Appellate Court of Connecticut.

Argued May 17, 2021

Officially released August 24, 2021

Deborah L. Dorio, with whom, on the brief, was Michael A. Pease, Farmington, for the appellant (plaintiff).

Sophie Laing, certified legal intern, with whom were Jeffrey Gentes, and, on the brief, J. L. Pottenger, Jr., and Chaarushena Deb and Zaria Noble, certified legal interns, for the appellee (defendant Vicki A. Ditri).

Elgo, Cradle and DiPentima, Js.

CRADLE, J.

In this strict foreclosure action, we consider the enforceability of a settlement and forbearance agreement (settlement agreement) entered into by the plaintiff, Rockstone Capital, LLC, the defendants, Vicki A. Ditri and Morgan J. Caldwell, Jr., and Caldwell's business, Wesconn Automotive Center, LLC (Wesconn), that resulted from a collections action brought by the plaintiff against Caldwell and Wesconn.¹ The plaintiff appeals from the judgment of the trial court, rendered after a court trial, in favor of the defendant, on her special defense that the settlement agreement was unconscionable and, therefore, unenforceable. On appeal, the plaintiff contends that the trial court improperly concluded that the settlement agreement was both procedurally and substantively unconscionable as to the defendant. We agree and, accordingly, reverse in part the judgment of the trial court.²

The following facts, as found by the trial court, and procedural history are relevant to this appeal. The defendant and Caldwell have been in an intimate relationship for more than twenty-eight years. Since the 1990s, they have jointly owned and lived in a residence located at 11 Devon Avenue in Norwalk (Devon Avenue property). In August, 2003, Wesconn³ obtained a line of credit with Fleet National Bank, now Bank of America, N.A., in the initial amount of $27,000, which amount was later increased to $75,000.⁴ Caldwell executed a personal guarantee of payment and performance of the credit line. On December 14, 2004, Fleet National Bank issued an additional $5400 to Wesconn, and Caldwell again executed a guarantee of payment and performance.

The plaintiff purchased Wesconn's line of credit and Caldwell's guarantees from Bank of America, N.A., in 2006, and was assigned all rights to the debts. In 2007, the plaintiff brought a collections action against Wesconn and Caldwell, alleging nonpayment of principal and interest. To resolve the action, the plaintiff, Wesconn, Caldwell, and the defendant⁵ entered into the settlement agreement on August 31, 2010.⁶ The settlement agreement provided generally that Caldwell and Wesconn would agree to waive all defenses with respect to the agreement and would make regular payments in exchange for the plaintiff's offer to forbear litigation and reduce the total amount of indebtedness. To secure the obligations under the settlement agreement, Caldwell and the defendant granted the plaintiff an open-end mortgage against their respective interests in the Devon Avenue property. The defendant has never had any personal liability for the debt, beyond her interest in the Devon Avenue property.⁷

On the day of closing, and at Caldwell's behest, the defendant traveled to the office of Caldwell's attorneys during her lunch break to execute the settlement agreement. Prior to signing, Caldwell had not informed the defendant of the nature of the agreement and had simply asked her to "sign some papers." The defendant had not spoken with Caldwell's attorneys before the closing date and was not provided an advance copy of the settlement agreement. At the signing, the defendant was unrepresented by counsel, and neither Caldwell nor his attorneys explained to the defendant what the settlement agreement or mortgage entailed. The settlement agreement was opened to the signature page when the defendant arrived, and she did not read the other pages before signing it. The plaintiff was not present at the closing.

Wesconn and Caldwell subsequently defaulted on the amounts owed under the settlement agreement and the plaintiff exercised its option to declare the entire balance immediately due and payable. The plaintiff then filed the present action on April 26, 2018, seeking to foreclose the mortgage on the Devon Avenue property. Caldwell and the defendant, each self-represented, filed individual appearances and pleaded separate special defenses.⁸ In her answer, the defendant alleged the following special defense: "I Vicki Ditri was not involved in Wesconn Auto [and] Tire. Maria Janice Lawrence stole money from Wesconn Tire [and] Auto, she got arrested. Next thing I know I have to go to a lawyer's office (not my lawyer I was not [i]nvolved), to sign papers which I never read and was not represented by a lawyer. I would never agree to [forbearance] (which I just learned what that means!)."

On June 14, 2018, the plaintiff filed motions to strike both Caldwell's and the defendant's special defenses on the ground that they were legally insufficient because they did not "relate to the making of the debt obligation ...." The trial court, Lee, J. , granted the motion to strike Caldwell's special defense but denied the motion as to the defendant's special defense.

A bench trial was held on July 16, 2019. On November 7, 2019, the trial court, Lee, J. , issued its memorandum of decision. The court determined that the plaintiff had established a prima facie case of mortgage foreclosure and rendered a judgment of strict foreclosure in favor of the plaintiff against Caldwell.⁹ With regard to the defendant, however, the court held that the settlement agreement was unconscionable and, consequently, unenforceable. Specifically, the court explained, inter alia, that the rushed nature of the closing, the defendant's lack of business acumen, and the "overly harsh" terms of the settlement agreement rendered the agreement both procedurally and substantively unconscionable.

On December 27, 2019, the plaintiff filed a motion for articulation seeking articulation on five points.¹⁰

The trial court, Lee, J. , responded to the plaintiff's motion for articulation, explaining, inter alia, that the "conduct of the closing of the underlying settlement agreement and its provisions, pursuant to which [the defendant] agreed to a mortgage securing ... Caldwell's obligations, despite having no liability herself, and being unaware of the contents or effect of the document she was signing" militated a determination of unconscionability. The plaintiff's motion for further articulation was denied. This appeal followed.

The plaintiff claims that the trial court erred in concluding that the settlement agreement was both procedurally and substantively unconscionable as to the defendant. We agree with the plaintiff.

The following legal principles guide our analysis of the plaintiff's claim on appeal. "We first note that the defense of unconscionability is a recognized defense to a foreclosure action. ... The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise. ... As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which, although formally limited to transactions involving personal property, furnishes a useful guide for real property transactions. ... As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, [t]he basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. ...

Unconscionability is determined on a case-by-case basis, taking into account all of the relevant facts and circumstances." (Citations omitted; internal quotation marks omitted.) Hirsch v. Woermer , 184 Conn. App. 583, 588–89, 195 A.3d 1182, cert. denied, 330 Conn. 938, 195 A.3d 384 (2018).

In practice, we have divided claims of unconscionability into two categories—one substantive and the other procedural. "Substantive unconscionability focuses on the content of the contract, as distinguished from procedural unconscionability, which focuses on the process by which the allegedly offensive terms found their way into the agreement." (Internal quotation marks omitted.) Cheshire Mortgage Service, Inc. v. Montes , 223 Conn. 80, 87 n.14, 612 A.2d 1130 (1992), quoting J. Calamari & J. Perillo, Contracts (3d Ed. 1987) § 9-37, p. 399. Procedural unconscionability is intended to prevent unfair surprise and substantive unconscionability is intended to prevent oppression. Smith v. Mitsubishi Motors Credit of America, Inc. , 247 Conn. 342, 349, 721 A.2d 1187 (1998).

"The doctrine of unconscionability, as a defense to contract enforcement, generally requires a showing that the contract was both procedurally and substantively unconscionable when made—i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party ...." (Internal quotation marks omitted.) Hirsch v. Woermer , supra, 184 Conn. App. at 589–90, 195 A.3d 1182, quoting R. F. Daddario & Sons, Inc. v. Shelansky , 123 Conn. App. 725, 741, 3 A.3d 957 (2010) ; see also Emeritus Senior Living v. Lepore , 183 Conn. App. 23, 29, 191 A.3d 212 (2018).

"[T]he question of unconscionability is a matter of law to be decided by the court based on all the facts and circumstances of the case."

Iamartino v. Avallone , 2 Conn. App. 119, 125, 477 A.2d 124, cert. denied, 194 Conn. 802, 478 A.2d 1025 (1984). "[O]ur review on appeal is unlimited by the clearly erroneous standard. ... [T]he ultimate determination of whether a transaction is unconscionable is a question of law, not a question of fact, and ... the trial court's determination on that issue is subject to a plenary review on appeal. It...