U.S. Bank Nat'l Ass'n v. Blowers

• Decision Date: 13 August 2019
• Docket Number: SC 20067
• Citation: 332 Conn. 656,212 A.3d 226
• Court: Connecticut Supreme Court
• Parties: U.S. BANK NATIONAL ASSOCIATION, Trustee v. Robin BLOWERS et al.

332 Conn. 656

212 A.3d 226

U.S. BANK NATIONAL ASSOCIATION, Trustee

v.Robin BLOWERS et al.

SC 20067

Supreme Court of Connecticut.

Argued December 11, 2018

Officially released August 13, 2019

Eli Jacobs Hartford, and Michael Linden, certified legal interns, with whom were Jeffrey Gentes and, on the brief, J.L. Pottenger, Jr., and Jessica Lefebvre, Victoria Stilwell, Anderson Tuggle, and Emily Wanger, certified legal interns, for the appellant (defendant Mitchell Piper).

Pierre-Yves Kolakowski, Greenwich, with whom was Zachary Grendi, for the appellee (plaintiff).

Robinson, C.J., and Palmer, McDonald, D'Auria, Mullins, Kahn and Ecker, Js.

McDONALD, J.

This certified appeal calls upon the court to decide whether allegations that a mortgagee engaged in a pattern of misrepresentation and delay in postdefault loan modification negotiations before and after initiating a foreclosure action—thereby adding to the mortgagor's debt and frustrating the mortgagor's ability to avoid foreclosure—can establish legally sufficient special defenses and counterclaims in that action. The defendant mortgagor, Mitchell Piper,¹ appeals from the judgment of the Appellate Court affirming the trial court's judgment of strict foreclosure in favor of the plaintiff mortgagee, U.S. Bank National Association,² following the trial court's decision striking the defendant's special defenses and counterclaims. See U.S. Bank National Assn. v. Blowers , 177 Conn. App. 622, 638, 172 A.3d 837 (2017). The defendant's principal claim is that the Appellate Court incorrectly concluded that such allegations cannot establish legally sufficient special defenses or counterclaims because the misconduct alleged does not relate to the making, validity, or enforcement of the note or mortgage. We agree with the defendant and reverse the Appellate Court's judgment.

The record reveals the following undisputed background facts. In August, 2005, the defendant executed a promissory note in exchange for a loan in the original principal amount of $488,000. The plaintiff subsequently became the holder of the note. The note was secured by a mortgage on the defendant's real property in Avon, and the mortgage was assigned to the plaintiff in 2010. The defendant defaulted on the note in January, 2010.

In February, 2014, the plaintiff commenced the present foreclosure action. Upon the defendant's election, the parties participated in the state's court-supervised foreclosure mediation program; see General Statutes §§ 49-31k through 49-31o ;³ but were unable to reach a loan modification agreement during that process. The defendant thereafter filed an answer, special defenses, and counterclaims. The special defenses sounded in equitable estoppel and unclean hands; the counterclaims sounded in negligence and violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq.⁴

The defendant alleged the following facts in support of all of his special defenses and counterclaims. In early 2010, the defendant fell behind on his mortgage payments due to decreased business revenue resulting from the "Great Recession."⁵ Shortly thereafter, the plaintiff, through its servicing agent,⁶ reached out to the defendant and offered him a rate reduction that would result in a monthly mortgage payment of $1950.⁷ After the defendant successfully completed a three month trial modification period, the plaintiff informed the defendant that the reduced monthly amount previously offered was too low. Thereafter, over an approximately two year period, the plaintiff similarly offered and reneged on at least four additional modifications after accepting trial payments from the defendant. Each successive modification offer sharply increased the defendant's monthly payment, rising from the initial proposal of $1950 to approximately $3445.

In April, 2012, the defendant contacted the state's Department of Banking,⁸ which intervened on the defendant's behalf, "resulting in an immediate modification being received." Within months, however, the plaintiff notified the defendant that his monthly payment was increasing nearly 20 percent from that modified payment. The defendant was unable to afford the increased payments but continued to make the monthly payment set by the April modification until October, 2012, when the plaintiff rejected them as " ‘partial’ " payments.

In late 2013, the plaintiff erroneously informed the defendant's insurance company that the Avon property was no longer being used as the defendant's residence. As a result, the defendant's insurance policy was cancelled, and the defendant was forced to replace coverage at premium costs that increased from his prior rate of $900 to $4000 per year.

The defendant also alleged that the following conduct occurred after the February, 2014 commencement of the foreclosure action, during the parties' participation in court-supervised mediation. In the course of approximately ten months of mediation, the plaintiff regularly ignored agreed upon deadlines, arrived late to mediation sessions, made duplicative, exhaustive, and ever changing requests, and provided the defendant with conflicting or incomplete information. Due to the plaintiff's tardiness, little was accomplished during mediation sessions given the time constraints of the program's scheduling. Although the plaintiff offered a modification at one point, it could not be finalized because the financial information on which it rested was more than four months out of date by the time it was presented to the defendant.

The defendant alleged that the foregoing preforeclosure and postforeclosure misconduct not only frustrated his ability to obtain a proper modification but also caused thousands of dollars in additional accrued interest, attorney's fees, escrow advances, and other costs to be added to the debt claimed by the plaintiff in the foreclosure action. In his negligence counterclaim, the defendant further alleged that the unnecessary and negligent prolonging of this process had ruined his credit score, which adversely impacted his business and personal affairs, and had caused him to incur significant expenses for legal representation and other professional services. The defendant claimed that the plaintiff should be equitably estopped from collecting the damages it caused by its own misconduct and that the plaintiff's attempt to foreclose should be barred by the doctrine of unclean hands. He further sought compensatory and punitive damages, injunctive relief, and attorney's fees under his counterclaims.

The plaintiff moved to strike all of the special defenses and counterclaims. It contended that they were legally insufficient because they were not related to the making, validity, or enforcement of the note, as required under appellate precedent, and also were otherwise insufficient to state a claim upon which relief may be granted. The trial court, Dubay, J. , granted the motion to strike in its entirety.

With respect to the counterclaims, the trial court explained that the proper application of Practice Book § 10-10, which dictates that counterclaims must "[arise] out of the transaction [that] is the subject of the plaintiff's complaint," requires, in the foreclosure context, consideration of whether the counterclaim has some reasonable nexus to the making, validity, or enforcement of the note. The court concluded that this test was not met in the present case because all of the misconduct alleged related to activities that took place subsequent to the execution of the note or mortgage. The court acknowledged that a foreclosure sought after a modification had been reached during mediation could have the requisite nexus to enforcement of the note, but found that there had been no such modification in the present case. In light of its conclusion that the allegations did not establish this nexus, the court did not reach the issue of whether they were otherwise legally sufficient to support the CUTPA and negligence counterclaims.

Conversely, with respect to the special defenses, the trial court found that the defendant had alleged sufficient facts to support equitable estoppel and unclean hands defenses. It cited, however, Appellate Court case law under which "[a] valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both." (Emphasis added; internal quotation marks omitted.) TD Bank, N.A. v. J & M Holdings, LLC , 143 Conn. App. 340, 343, 70 A.3d 156 (2013). As with the counterclaims, the court concluded that, because the defendant did not allege that the parties had agreed to a modification of the loan postforeclosure, he could not rely on postforeclosure conduct to support his special defenses. Therefore, the trial held that the special defenses were legally insufficient because they did not directly relate to the making, validity or enforcement of the note. The trial court, Wahla, J. , subsequently rendered a judgment of strict foreclosure.

The defendant appealed from the judgment of strict foreclosure to the Appellate Court, challenging the trial court's decision granting the plaintiff's motion to strike. The Appellate Court panel, with one judge dissenting, affirmed the judgment. U.S. Bank National Assn. v. Blowers , supra, 177 Conn. App. at 638, 172 A.3d 837. The Appellate Court majority agreed that the special defenses and counterclaims did not satisfy the making, validity, or enforcement test as required under its precedent. Id., at 627–32, 172 A.3d 837. It rejected the defendant's request to abandon this test in favor of a straightforward application of the standard transactional test applied in other settings. Id., at 633–34, 172 A.3d 837. The majority reasoned that "automatically allowing counterclaims and special defenses in foreclosure actions that are based on conduct of the mortgagee arising during mediation and loan modification negotiations would serve...