Opinion
No. CV 03 0083912
July 1, 2005
MEMORANDUM OF DECISION RE MOTION TO STRIKE #114
This foreclosure action arises out of a real estate transaction between the plaintiff, Lord Corporation, and the defendant, Widewaters New Castle Shelton II Company, LLC. The plaintiff alleges that on or about February 27, 2001, the defendant executed and delivered a note to the plaintiff in the pricipal amount of $1,280,000. To secure this note, the defendant executed and delivered to the plaintiff a mortgage on real property known as 14 Old Stratford Road in Shelton, Connecticut. The plaintiff is the owner of the note and mortgage and said note is in default.
On April 2, 2004, the defendant filed an answer, five special defenses and an eight-count counterclaim. The special defenses assert: (1) equitable estoppel; (2) lack of consideration; (3) breach of contract; (4) unclean hands; and (5) setoff. The eight-count counterclaim asserts: (1) breach of contract; (2) Connecticut General Statutes § 22a-134b claim; (3) violation of the Connecticut Environmental Protection Act; (4) claim for reimbursement for containment or removal costs pursuant to Connecticut General Statutes § 22a-452; (5) negligence; (6) nuisance; (7) breach of implied covenant of good faith and fair dealing; and (8) CUTPA.
On August 23, 2004, the plaintiff filed a motion to strike the defendant's five special defenses on the grounds that each special defense is legally insufficient and does not address the making, validity or enforcement of the note and/or mortgage. The plaintiff also moves to strike the eight-count counterclaim on the grounds that the defendant has failed to plead sufficient facts to sustain each count and each count does not arise out of the same transaction as the foreclosure action. On September 13, 2004, the defendant filed a memorandum in opposition to the plaintiff's motion to strike.
A motion to strike is the appropriate means to test the legal sufficiency of a counterclaim or a special defense. Practice Book §§ 10-39(a)(1) and 10-39(a)(5). In ruling on a motion to strike, "the trial court [is obligated] to take the facts to be those alleged in the special defenses [and counterclaims] and to construe [them] in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992). The motion to strike "admits all facts well pleaded; it does riot admit legal conclusions . . . stated in the pleadings." (Emphasis in original.) Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985). "[I]f facts provable under the allegations would support a defense or cause of action, the [motion to strike] must fail." (Internal quotation marks omitted.) Ferryman v. Groton, 212 Conn. 138, 142, 561 A.2d 432 (1989).
The court first addresses the defendant's special defenses. The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but nonetheless, demonstrate that the plaintiff has no cause of action. Practice Book § 10-50. The traditional defenses in a foreclosure case are generally limited to payment, discharge, release, satisfaction or invalidity of a lien. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 12 (2002). "[The courts] have permitted several equitable defenses to a foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had . . . Other equitable defenses that [the] Supreme Court has recognized in foreclosure actions include unconscionability . . . abandonment of security and usury." (Citations omitted; internal quotation marks omitted.) Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 15-16, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999)
As part of its special defenses, the defendant asserts common factual allegations. In particular, the defendant alleges, inter alia, that the plaintiff breached the purchase agreement in that it failed: (1) to conduct its environmental remediation so as not to unreasonably impede the defendant's intended use of the property; (2) to investigate and remediate environmental conditions that it created at the property in accordance with prevailing standards and remediation standards of the Connecticut Department of Environmental Protection; and (3) to implement a remediation plan which would achieve compliance with the remediation standards within a reasonable amount of time.
The first special defense asserts that the plaintiff is equitably estopped from enforcing the terms of the note and mortgage because the plaintiff's conduct directly prevented the defendant from realizing income with which it could satisfy the note and mortgage. "[A]ny claim of estoppel is predicated on proof of two essential elements: the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief; and the other party must change its position in reliance on those facts, thereby incurring some injury." (Internal quotation marks omitted.) Eis v. Meyer, 213 Conn. 29, 34, 566 A.2d 422 (1989). "Estoppel rests on the misleading conduct of one party to the prejudice of the other. In the absence of prejudice, estoppel does not exist." (Internal quotation marks omitted.) Lombardo's Ravioli Kitchen, Inc. v. Ryan, 268 Conn. 222, 236, 842 A.2d 1089 (2004).
In the present case, there are no allegations that the plaintiff has engaged in any misleading conduct which induced the defendant to act to its detriment. Moreover, the defendant has failed to allege facts that the defendant acted or changed its position in reliance upon the conduct or representations of the plaintiff. Accordingly, the motion to strike the first special defense is granted.
The second special defense asserts that the note and mortgage are void for lack of consideration. "To be enforceable, a contract must be supported by valuable consideration . . . The doctrine of consideration is fundamental in the law of contracts, the general rule being that in the absence of consideration an executory promise is unenforceable." (Citation omitted; internal quotation marks omitted.) Connecticut National Bank v. Voog, 233 Conn. 352, 366, 659 A.2d 172 (1995). "An exchange of promises is sufficient consideration to support a contract." (Internal quotation marks omitted.) Keefe v. Norwalk Cove Marina, Inc., 57 Conn.App. 601, 606, 749 A.2d 1219, cert. denied, 254 Conn. 903, 755 A.2d 881 (2000). "The general rule is that, in the absence of fraud or other unconscionable circumstances, a contract will not be rendered unenforceable at the behest of one of the contracting parties merely because of an inadequacy of consideration." Osborne v. Locke Steel Chain Co., 153 Conn. 527, 532-33, 218 A.2d 526 (1966). The defendant's allegations in the second special defense do not support a claim for lack of consideration. For this reason, the motion to strike the second special defense is granted.
The third special defense asserts that the plaintiff breached the purchase agreement prior to any default by the defendant and therefore, performance by the defendant has been excused due to this breach. "[U]nder Connecticut law, the courts are consistent in holding that [a] breach of contract claim is neither a recognized defense to a foreclosure action nor a defense in equity." (Internal quotation marks omitted.) Homestead Funding Corp. v. Welch Family Enterprises, LLC, Superior Court, judicial district of Windham at Putnam, Docket No. CV 02 0067260 (August 28, 2002, Foley J.); see also Greenpoint Mortgage Corp. v. Ruisi, Superior Court, judicial district of Danbury, Docket No. CV 98 0333106 (June 1, 1999, Moraghan, J.). Thus, the motion to strike the third special defense is granted.
The fourth special defense asserts that the plaintiff has unclean hands by virtue of its conduct and therefore, is not entitled to the equitable remedy of foreclosure. "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 . . . 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." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 407, 867 A.2d 841 (2005). The defendant fails to allege any wilful misconduct engaged in by the plaintiff. Instead, the defendant asserts a legal conclusion that is devoid of factual support. The defendant must support legal conclusions in its special defense with sufficient facts or allegations to inform the plaintiff and the court as to what conduct constitutes unclean hands. Accordingly, the motion to strike the fourth special defense is granted.
The fifth special defense asserts that the defendant is entitled to a setoff of all damages it sustained against any debt claimed due by the plaintiff. As a preliminary matter, a setoff may be asserted as a special defense even if the matter might better have been raised as a counterclaim. See 225 Associates v. Connecticut Housing Finance Authority, 65 Conn.App. 112, 121, 782 A.2d 189 (2001). A claim for setoff may be based either in law or in equity. Godiksen v. Miller, CT Page 10746 6 Conn.App. 106, 109, 503 A.2d 617 (1986). The law of setoff is governed by General Statutes § 52-139, which provides, in relevant part, that "(a) [i]n any action brought for the recovery of a debt, if there are mutual debts between the plaintiff . . . and the . . . defendant . . . one debt may be set off against the other." The defendant has not alleged that the plaintiff was in debt to the defendant nor can a claim of debt be inferred from the allegations. Therefore, in the absence of any mutual debt, there is no legal setoff.
"The title of the pleading is not controlling. The issue is, rather, whether sufficient facts are pleaded that would allow recovery either as a setoff or as a counterclaim." (Internal quotation marks omitted.) 225 Associates v. Connecticut Housing Finance Authority, 65 Conn.App. 112, 121, 782 A.2d 189 (2001).
The defendant, however, has alleged an equitable setoff. Equitable setoff "applies to cases where, because of the nature of the claim or the situation of the parties, justice cannot be obtained by a separate action." (Internal quotation marks omitted.) Peter Cascio Nursery, Inc. v. Green Acres, Inc., 3 Conn. Cir.Ct. 424, 428, 216 A.2d 856 (1965); see also Grieco v. Dalipovski, Superior Court, judicial district of New Britain, Docket No. CV 00 0502295 (May 10, 2002, Berger, J.) ( 32 Conn. L. Rptr. 131, 132). Here, where the parties are the same and the damage claimed by the defendant arose out of the plaintiff's performance of the agreement, the nature of the claim and the situation of the parties are such that justice cannot be obtained by a separate action. For these reasons, the motion to strike the fifth special defense is denied.
The court next addresses the defendant's eight-count counterclaim. Practice Book § 10-10 provides that "[i]n any action for legal or equitable relief, any defendant may file counterclaims against any plaintiff . . . provided that each such counterclaim . . . arises out of the transaction or one of the transactions which is the subject of the plaintiff's complaint . . .
"For purposes of the determination of the transaction referred to in Practice Book § 10-10 [t]he making of the note and the . . . subsequent default is the transaction at issue." (Internal quotation marks omitted.) Homeowners Finance v. 12-20 Cottages St., Superior Court, judicial district of Tolland at Rockville, Docket No. CV 04 4000161 (May 4, 2005, Scholl, J.) ( 39 Conn. L. Rptr. 272) The general rule and its rationale, however, are not appropriate in the present case where the mortgagee is also the seller of the mortgaged property. Instead, this court follows the reasoning of Decorator Telephone, Inc. v. DeMato, Superior Court, judicial district of New Haven, Docket No. CV 94 0366355 (September 18, 1997, Silbert, J.). In Decorator v. DeMato, supra, the court held that "[w]here, as here, the mortgagee is also the seller, it would be inequitable to permit the mortgagee/seller to enjoy the rights of a mortgagee by foreclosing on the note and mortgage, while avoiding the responsibilities of a seller by preventing the mortgagor/purchaser from raising special defenses based upon the mortgagee/seller's conduct as a seller. Where the mortgagee is also the seller of the mortgaged property, equity requires that the mortgagor/purchaser be permitted to raise special defenses to foreclosure beyond merely attacking the making, validity or enforcement of the note or mortgage." See also A.G. Builders v. Forest Village Associates, Inc., Superior Court, judicial district of Hartford, Docket No. CV 01 0809088 (November 29, 2001, Satter, J.T.R.) ( 30 Conn. L. Rptr. 752, 752) (motion to strike special defenses and counterclaims denied where plaintiff and defendant were seller and buyer of property that was subject of the purchase money mortgage being foreclosed). In the present case, the counterclaim arises out of a single transaction of the purchase agreement and the purchase money mortgage.
The first count of the counterclaim alleges a breach of contract claim and incorporates the common factual allegations asserted in the special defenses. "The elements of a breach of contract action are the formation of an agreement, performance by one party, breach of the agreement by the other party and damages." (Internal quotation marks omitted.) Rosato v. Mascardo, 82 Conn.App. 396, 411, 844 A.2d 893 (2004). The defendant has sufficiently pleaded a claim for breach of contract. Accordingly, the motion to strike the first count of the counterclaim is denied.
The second count of the counterclaim asserts a claim based on strict liability for remediation costs and damages pursuant to Connecticut General Statutes § 22a-134b. Section 22a-134b provides that "`[f]ailure of the transferor to comply with any of the provisions of sections 22a-134 to 22a-134e, inclusive, entitles the transferee to recover damages from the transferor, and renders the transferor of the establishment strictly liable, without regard to fault, for all remediation costs and for all direct and indirect damages." "[A] violation of General Statutes § 22a-134b could give rise to a private cause of action of a transferee against a transferor." Holly Hill Holdings v. Lowman, 30 Conn.App. 204, 206 n. 3, 619 A.2d 853, aff'd, 226 Conn. 748, 628 A.2d 1298 (1993).
In the second count, the defendant alleges that the plaintiff, as the seller of the property, executed a Form III filing under the Connecticut Property Transfer Act, Connecticut General Statutes § 22a-134. As part of the Form III filing, the plaintiff certified that it would "investigate the parcel in accordance with prevailing guidelines and remediate pollution in accordance with the remediation standards." As a result of the plaintiff's alleged failure to investigate and remediate the property, the defendant alleges that the plaintiff is strictly liable to the defendant for all remediation costs and all direct and indirect damages pursuant to General Statutes § 22a-134b. Thus, the defendant has properly pleaded a transfer act cause of action. Moreover, as stated above, the allegations of the counterclaim arise out of a single transaction. The motion to strike the second count of the counterclaim is denied.
The third count of the counterclaim asserts a violation of the Connecticut Environmental Protection Act (CEPA). The Appellate Court in Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 815 A.2d 1188 (2003), determined that a party, such as the defendant in this case, may proceed on a private cause of action pursuant to the CEPA. In the present case, the defendant alleges that the plaintiff's conduct caused or created soil and groundwater contamination at the property. Such conduct constitutes an unreasonable impairment or destruction of the water and other natural resources existing at the property and elsewhere. Further, the plaintiff has a contractual, statutory and common-law duty to investigate the property and a duty to remediate the property in accordance with prevailing standards. Thus, these allegations sufficiently allege a claim against the plaintiff under CEPA, and the allegations of the counterclaim arise out of a single transaction. The motion to strike the third count of the counterclaim is denied.
The plaintiff argues, inter alia, that because the count does not specifically name the statute in the complaint, it does not comply with the Practice Book. Practice Book § 10-3(a) provides: "When any claim made in a complaint, cross complaint, special defense or other pleading is grounded on a statute, the statute shall be specifically identified by its number." Practice Book § 10-3(a) "has been construed as directory rather than mandatory." Colon v. Board of Education, 60 Conn.App. 178, 188 n. 4, 758 A.2d 900, cert. denied, 255 Conn. 908, 763 A.2d 1034 (2000). "As long as the defendant is sufficiently apprised of the nature of the action . . . the failure to comply with the directive of Practice Book § 10-3(a) will not bar recovery." (Citation omitted.) Id.; see also Anquillare, Lipnicki, Ruocco v. VCR Realty, Superior Court, judicial district of Ansonia-Milford at Milford, Docket No. CV 00 007017 (February 5, 2003, Alander, J.) ( 33 Conn. L. Rptr. 727, 728).
The fourth count of the counterclaim asserts a claim for reimbursement for containment or removal costs pursuant to General Statutes § 22a-452. Connecticut General Statutes § 22a-452(a) provides in relevant part: "Any person, firm, corporation or municipality which contains or removes or otherwise mitigates the effects of oil or petroleum or chemical liquids or solid, liquid or gaseous products or hazardous wastes resulting from any discharge, spillage, uncontrolled loss, seepage or filtration of such substance or material or waste shall be entitled to reimbursement from any person, firm or corporation for the reasonable costs expended for such containment, removal, or mitigation, if such oil or petroleum or chemical liquids or solid, liquid or gaseous products or hazardous wastes pollution or contamination or other emergency resulted from the negligence or other actions of such person, firm or corporation."
Connecticut General Statutes § 22a-452 permits reimbursement of remediation costs only if the party has contained, removed or otherwise mitigated contamination. Augelli v. Matos, Superior Court, judicial district of Waterbury, Docket No. CV 01 0163496 (July 29, 2003, Dubay, J.) ( 35 Conn. L. Rptr. 228, 229). "Courts that have considered the sufficiency of a claim for reimbursement under § 22a-452 have uniformly held that a plaintiff seeking reimbursement under the statute must at least allege that he has taken action to remediate the alleged contamination of the property or that he has expended funds for such remediation." Id.; see, e.g., Hartt v. Schwartz, Superior Court, judicial district of New Haven, Docket No. 331912 (December 3, 1997, Blue, J.) ( 21 Conn. L. Rptr. 52, 55).
The fourth count of the defendant's counterclaim incorporates some of the common factual allegations contained in the special defenses. Additionally, the fourth count alleges that as a result of the plaintiff's failure to investigate and remediate the environmental condition, the defendant "has and will be forced to incur" costs to investigate, contain, remove or otherwise mitigate the effects of contamination. The fourth count further alleges that the defendant is entitled to reimbursement of all such costs pursuant to Connecticut General Statutes § 22a-452. Based on these allegations, the fourth count is sufficient to withstand the plaintiff's motion to strike to the extent that it alleges that the defendant "has . . . [incurred] costs to investigate, contain, remove or otherwise mitigate the effects of contamination." To the extent, however, that the allegations of the fourth count seek to recover for costs not yet incurred, they are improper and are hereby stricken. Augelli v. Matos, supra, 35 Conn. L. Rptr. 230.
The fifth count of the counterclaim asserts a negligence claim. "The essential elements of a cause of action in negligence are well established: duty; breach of that duty; causation; and actual injury." (Internal quotation marks omitted.) Silano v. Cumberland Farms, Inc., 85 Conn.App. 450, 453, 857 A.2d 439 (2004). This claim arises out of the plaintiff's duty to investigate contamination in accordance with prevailing standards and to remediate in accordance with remediation standards. The defendant alleged the ways the plaintiff breached its contractual, statutory and common-law duty. It also alleges that as a proximate cause of the plaintiff's breach of duty, the defendant incurred damages. Taking these allegations together, the defendant has alleged the essential elements of a cause of action in negligence. Again, the fifth count arises out of a single transaction and therefore, the motion to strike the fifth count is denied.
The sixth count of the counterclaim asserts a nuisance claim. In order to establish a claim of nuisance, the defendant has to prove the existence of the following four elements: "(1) the condition complained of had a natural tendency to create danger and inflict injury upon person or property; (2) the danger created was a continuing one; (3) the use of the land was unreasonable or unlawful; [and] (4) the existence of the nuisance was the proximate cause of the [defendant's] injuries and damages." (Internal quotation marks omitted.) Tomasso Bros., Inc. v. October Twenty-Four, Inc., 221 Conn. 194, 197, 602 A.2d 1011 (1992). "Whether the elements necessary to establish a claim of nuisance have been proven is . . . a question of fact which is ordinarily determined by the trier of fact." (Internal quotation marks omitted.) Id.; Couture v. Board of Education, 6 Conn.App. 309, 314, 505 A.2d 432 (1986).
In the present case, the defendant incorporates allegations from the fifth count into the sixth count. The defendant alleges that the "environmental condition at the property had and has a natural tendency to create danger and inflict injury upon person or property, which danger is a continuous one unless and until it is remediated properly." The defendant also alleges that the "continued maintenance of the land in its present environmental condition by seller is in violation of Connecticut's environmental laws." Further, the defendant alleges that the "existence of the environmental conditions at the property and the surrounding parcel has proximately caused damage to the defendant." Construing the facts most favorably to the defendant, the sixth count is legally sufficient. The motion to strike the sixth count is hereby denied.
The seventh count asserts a claim for breach of the implied covenant of good faith and fair dealing. Specifically, the defendant alleges that the "plaintiff's attempt to enforce the terms of the note and mortgage after and during its breach of the purchase agreement . . . constitutes a breach of the implied covenant of good faith and fair dealing."
"Every contract carries an implied covenant of good faith and fair dealing requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement." (Internal quotation marks omitted.) Hudson United Bank v. Cinnamon Ridge Corp., 81 Conn.App. 557, 576, 845 A.2d 417 (2004). "The implied covenant of good faith and fair dealing requires faithfulness to an agreed common purpose and consistency with the justified expectation of the other party in the performance of every contract . . . Essentially, it is a rule of construction designed to fulfill the reasonable expectations of the contracting parties as they presumably intended. The principle, therefore, cannot be applied to achieve a result contrary to the clearly expressed terms of a contract, unless, possibly, those terms are contrary to public policy." (Citation omitted; internal quotation marks omitted.) Southbridge Associates, LLC v. Garofalo, 53 Conn.App. 11, 16, 728 A.2d 11, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999).
The Connecticut appellate court recently noted that "special defenses and counterclaims alleging a breach of an implied covenant of good faith and fair dealing . . . are not equitable defenses to a mortgage foreclosure." (Internal quotation marks omitted.) Barasso v. Rear Still Hill Road, LLC, 81 Conn.App. 798, 807 n. 5, 842 A.2d 1134 (2004). Therefore, because the breach of an implied covenant of good faith and fair dealing is not a recognized counterclaim to a foreclosure action, the motion to strike the seventh count of the defendant's counterclaim is granted.
Lastly, the eighth count of the counterclaim asserts a CUTPA claim. "A violation of CUTPA has been recognized as a valid counterclaim brought in a foreclosure action." Mortgage Electronic Registration Systems, Inc. v. Perfido, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 030193829 (September 17, 2003, D'Andrea, J.T.R.); see, e.g., Cheshire Mortgage Service, Inc. v. Montes, 223 Conn. 80, 105-15, 612 A.2d 1130 (1992). CUTPA provides that: "No person shall engage in unfair methods of competition and unfair or deceptive acts of practices in the conduct of any trade or commerce." Connecticut General Statutes § 42-110b(a). In determining whether certain acts constitute a violation of CUTPA, the court has "adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] . . . All three criteria do not need to be satisfied to support a finding of unfairness." (Internal quotation marks omitted.) Updike, Kelly Spellacy, P.C. v. Beckett, 269 Conn. 613, 655-56, 850 A.2d 145 (2004).
In the present case, the defendant alleges, inter alia, that the plaintiff engaged in trade or commerce when it caused contamination of the property, when it entered into the purchase agreement with the defendant and when it breached its duties to investigate and remediate the site. The plaintiff also engaged in trade or commerce when it commenced enforcement of the note and mortgage. The defendant further alleges that the plaintiff's conduct constitutes immoral, oppressive and unscrupulous conduct and caused substantial injury to the defendant. Construed in the light most favorable to the defendant, the allegations of the eighth count are sufficient to support a cause of action for a violation of CUTPA. Moreover, the allegations arise out of the same transaction as the foreclosure action. Accordingly, the motion to strike the eighth count of the counterclaim is denied.
For the foregoing reasons, this court grants in part and denies in part the plaintiff's motion to strike. The motion to strike re special defenses is granted as to the first, second, third and fourth special defenses, and denied as to the fifth special defense. The motion to strike re counterclaim is granted as to the seventh count and is denied as to the first, second, third, fifth, sixth, and eighth counts of the counterclaim. Lastly, the motion to strike re counterclaim is denied in part and granted in part as to the fourth count of the counterclaim.
MORAN, J.