Opinion
HHDCV156058788S
05-16-2017
Michael Williams v. Stuart L. Cohen et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Nawaz M. Wahla, J.
I
PROCEDURAL CONTEXT
Plaintiff, Michael Williams, claims that on August 13, 2010, defendants, Stuart Cohen, Peter Weisenberg and Michael Weisenberg (hereinafter collectively referred to as the defendants) loaned to plaintiff the sum of $80,000.00 with interest only at the rate of 12% for a period of thirty-six months. In addition to monthly interest payments of $800.00, defendants required plaintiff to pay $420.85 per month in escrow for Real Estate Taxes for a total monthly payment of $1,220.85. In August 2013, defendants agreed to extend the loan for an additional eighteen months. Plaintiff tendered $6,000.00 as an extension fee and continued to make monthly payments of $1,220.85. On December 2014, defendants provided a payoff statement in the amount of $105,120.26, which included interest at the rate of 24% during the extension period.
There are five counts to the complaint. Count one, breach of contract claim against all defendants. Count two is breach of contract claim against Stuart Cohen. Count three is breach of fiduciary duty against Stuart Cohen. Count four is negligent misrepresentation against Stuart Cohen and Count five is violation of CUTPA claim against all defendants. The entry of judgment against all defendants is based on the doctrine of joint and several liability.
Plaintiff claims that defendants' actions in failing to pay his property taxes caused tax liens and delinquent interest to accrue against his real estate property taxes which prevented plaintiff from paying the balance due through a refinance of his property in August 2013. Plaintiff further claims that because he paid the $6,000 extension fee to defendants for an additional 18-month term, defendants cannot impose a default rate of 24% during the extension period.
II
FACTUAL FINDINGS
This court, having carefully reviewed the documentary exhibits and evaluated the demeanor and credibility of the witnesses, having analyzed and weighed the evidence according to the applicable standards of law, and having considered the parties' arguments in their memoranda of law, makes the following findings of fact.
1. Plaintiff Michael Williams testified at trial. The court observed his demeanor and considered his whole testimony. The court found the plaintiff's testimony to be persuasive and very credible.
" 'It is well established that [i]n a case tried before a court, the trial judge is the sole arbiter of the credibility of the witnesses and the weight to be given specific testimony . . . The credibility and the weight of expert testimony is judged by the same standard, and the trial court is privileged to adopt whatever testimony [it] reasonably believes to be credible . . . It is the quintessential function of the fact finder to reject or accept certain evidence, and to believe or disbelieve any . . . testimony . . .' (Citations omitted; internal quotation marks omitted.) In re Carissa K., 55 Conn.App. 768, 781-82, 740 A.2d 896 (1999)." In re Jason R., 129 Conn.App. 746, 772-73, 23 A.3d 18 (2011). Moreover, " '[i]t is within the province of the trial court to find facts and draw proper inferences from the evidence presented . . .' (Internal quotation marks omitted.) McKenna v. Delente, 123 Conn.App. 146, 165-66, 2 A.3d 38 (2010)." McKeon v. Lennon, 131 Conn.App. 585, 597, 27 A.3d 436 (2011).
2. Plaintiff is the owner of 53-55 Burton Street, Hartford, Connecticut (the property). On August 13, 2010, plaintiff borrowed the sum of $80,000 (Eighty Thousand Dollars and Zero Cents) from defendants with interest at 12% per annum. The loan was secured by a first mortgage on the property. Annual interest of $9,600.00 was amortized over twelve months resulting in monthly interest only payments of $800.00 for thirty-six months. Annual property taxes of $5,050.00, were amortized over twelve months resulting in a monthly tax escrow payment of $420.85, also for thirty-six months. Plaintiff's total monthly payments were $1,220.85 beginning on September 1, 2010 and continuing until August 13, 2013. (Exhibit 1 and Exhibit B.)
3. At closing $11,885.22 was deducted from the $80,000.00 loan proceeds which sum was placed in an escrow account with defendants' Attorney, Scott Schwartz. This amount was intended to pay past due real property taxes at the closing, and the July 2010 Grand List installment of real property taxes. (Exhibit 1.)
4. Hartford property taxes are due and payable twice yearly in July and January. Beginning on September 1, 2010 and continuing each month thereafter, up to and including August 2013, Plaintiff made a monthly payment of $1,220.85. All total, Plaintiff made interest payments of $28,800 and tax escrow payments of $15,150.60. (Exhibit B.)
5. Despite having made a total of $15,150.60 in tax escrow payments during the original loan term, and despite having escrowed $11,885.22 with defendant's agent, in 2012 plaintiff was made a party to a lawsuit brought by a third party seeking to foreclose on the property for the non-payment of delinquent property taxes. (Exhibits 7, 8, 9, and 10.)
6. On or about April 2012, plaintiff advised the defendant's closing attorney about the lawsuit and then chose to make the payment of the delinquent taxes. (Exhibit 8 and 9.) Because property taxes on Grand List Year 2011 and after were not paid resulting in the recording of additional tax liens against the property, plaintiff could not refinance the loan due to the presence of delinquent tax liens. (Exhibit 11 and 12.)
7. Defendants' first disbursement from plaintiff's tax escrow account occurred in May 2011 in the amount of $3,787.65 despite credible evidence that tax payments are due in July and January of each year respectively. (Exhibit B.)
8. Plaintiff paid commitment fee to a mortgage company in connection with a refinance request in 2013. (Exhibit 15.)
9. Prior to August 2013, plaintiff received denial notices for refinance requests from Webster Bank due to delinquent tax payments. On or about August 2013, after being unable to refinance, plaintiff obtained a written letter from the defendant which he believed set forth the terms under which the original loan would be extended. (Exhibit 20.) The letter provided for payment of an additional $6,000.00 to the defendant in one installment of $3,000.00 and three monthly installments thereafter of $1,000.00. In addition, the loan account was to remain " up to date, " and a 18-month extension was to be granted.
10. Plaintiff made the additional $6,000 payment, as requested and continued to make his regular payment believing that the interest rate and escrow provisions of the original Note term applied to the eighteen-month extension term.
11. Defendant, Stuart Cohen, testified at trial. The court finds his testimony to be totally unpersuasive and completely lacking in credibility. The court attaches no weight to his testimony.
12. On or about December 8, 2014, the defendants provided to the plaintiff a payoff statement showing a payoff amount of $105,120.20, which included accrued interest at the default rate of twenty-four percent. The plaintiff objected to the additional interest charge, and demanded to know why his payoff figure was not $80,000 as it was when he requested a payoff in 2013. The plaintiff paid the sum of $105,120.20 under protest, in order to prevent additional fees or costs from accruing, promising the defendants that he would " see them in court" regarding the imposition of a default interest rate.
13. Defendants received tax escrow payments, but chose not disburse them to the Tax Collector on a timely basis, or refund to Plaintiff any escrowed tax payments which were not disbursed.
14. Furthermore, the defendants did not refund to plaintiff any additional interest that he have included in his payoff letter which he did not earn when the loan was paid in full on December 8, 2014.
15. Scott Schwartz testified at trial that he was the closing attorney for the defendant in this transaction. The sum of $13,500.22 was deducted from the loan amount of $80,000.00. Schwartz took possession of the subject amount as an escrow agent. Schwartz was to make the disbursement of these funds to American Tax Funding, Hartford Tax Collector among others. Schwartz did not pay Hartford Tax Collector until the foreclosure proceedings were initiated against the plaintiff in 2012. Schwartz testified that he paid $4000.00 from his personal funds to pay outstanding taxes from 2010 to 2012. Schwartz's testimony is not clear as to when, how and why escrow account did not pay and/or clear the tax payments to the Hartford Tax Collector.
16. Defendants collected additional monies to pay the plaintiff's property taxes on timely basis. Up until 2013, the tax payments were still outstanding on the plaintiff's property.
III.
COMPLAINT
A. Breach of Contract
" 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.) Chiulli v. Zola, 97 Conn.App. 699, 706-07, 905 A.2d 1236 (2006). The complaint alleges that the defendants breached the terms and conditions of its Note when they imposed a 24% default rate on Plaintiff's Loan in 2014.
The Note provided that the Plaintiff would make interest only payments of $800.00 per month during the original thirty-six-month term. The Note further provided that: " On August 13, 2013, the entire principal balance together with any unpaid interest, shall become due and payable." In addition, the Note provided that if any payment was not made within thirty days of the due date " interest on this note will increase to 24% per year, thereafter, until this note is paid in full, even after judgment." The mortgage provided that the Lender required the borrower to make monthly payments of $420.85 which the Lender would use to make timely payments of real property taxes. The parties testified that both agreed that the August 13, 2013, maturity date was extended for an additional eighteen months up to and including February 2015. In furtherance of the extension agreement, Defendant accepted monthly interest payments of $800.00 per month, and escrow payments of $420.85 per month after August 13, 2013.
The court agrees with the plaintiff that at no time during the original term and the extension term did the defendants provided the plaintiff with notice of default and notice that the 24% penalty rate became applicable. Therefore, based on the terms of the original term and the extension term, the plaintiff and the defendants agreed to accept $80,000 plus any un-accrued interest at 12% whenever the loan term concluded or the plaintiff tendered full payment. There was a provision, it just was not operative because the conditions precedent, i.e., default of payment and notice of default had not occurred.
Absent a provision which allowed the defendant to impose a 24% interest rate, the court concludes that the defendant breached the agreement.
B.
As noted above, the plaintiff testified credibly that he intended to extend the time period for payment upon the same terms. In furtherance of this intention, the plaintiff faithfully tendered his monthly payment. The defendants' business ledger at pages 1-3 displayed the Annual Rate of 12% only, and monthly payments of $1,220.85 only. No changes or notations exist to confirm any increase in interest rate or payment. The court concludes that the defendants had no contractual basis to impose the $25,120.20 penalty.
C. Interest Rate
The plaintiff raises the question, can the Lender impose a rate of interest in excess of seventeen per cent during the extension term? " [T]he question of usury is a matter of law to be decided by the court based on all the facts and circumstances of the case."
Connecticut General Statutes Section 37-9(4) provides that " any loan, carrying an annual interest rate of not more than the deposit index, as determined under § 38 of this act, for the calendar year in which the loan is made plus seventeen per cent, made to a foreign or domestic corporation, statutory trust, limited liability company, general, limited or limited liability partnership or association organized for a profit or any individual, provided such corporation, trust, company, partnership, association or individual is engaged primarily in commercial, manufacturing, industrial or non-consumer pursuits and provided further that the funds received by such corporation, trust, company, partnership, association or individual are utilized in such entity's business or investment activities and are not utilized for consumer purposes and provided further that the original indebtedness to be repaid is in excess of ten thousand dollars but less than or equal to two hundred fifty thousand dollars, or, in the case of one or more advances of money of less than ten thousand dollars made pursuant to a revolving loan agreement or similar agreement or a loan agreement providing for the making of advances to the borrower from time to time up to an aggregate maximum amount, the total principal amount of all loans owing by the borrower to the lender at the time of any such advance is in excess of ten thousand dollars but less than or equal to two hundred fifty thousand dollars, or . . ." shall not be considered usurious.
In the present case the defendant provided a non-consumer loan to Plaintiff during the original term at 12% which clearly falls within the requirements of C.G.S. § 37-9(4). However, whereas here, the defendant is attempting to assert and did charge the plaintiff the sum of 24% during the extension term, a 24% rate of interest exceeds the interest rate limit imposed by C.G.S § 37-9. " Every contract made for or about any matter or thing which is prohibited and made unlawful by statute is a void contract, though the statute does not mention that it shall be so, but only inflicts a penalty upon the offender." Sagal v. Fylar, 89 Conn. 293, 295, 93 A. 1027 (1915); DiBiase v. Garnsey, 103 Conn. 21, 27, 130 A. 81 (1925). " A usurious mortgage, which is declared to be void, can no more be enforced for the benefit of the mortgagee, upon his petition to foreclose, than the usurious debt for which the mortgage was given as security, can be collected, by means of a suit at law instituted for that purpose." Camp v. Bates, supra, 11 Conn. 502; Cowles v. Woodruff, 8 Conn. 35, 36 (1830); Atlas Realty Corp. v. House, supra, 120 Conn. 666.
C.G.S. § 37-9 exempts from the usury statue certain transactions. This loan fits under exception (4) of 37-9 in that it is a loan made for commercial purposes for an amount in excess of $5,000.00 but less than $250,000.00, and for which an interest rate of no greater than 18% plus the deposit rate is charged. The defendant's Note which it attempted to enforce contains an interest rate of 24% exceeds the interest rate exceptions as outlined in C.G.S. Section 37-9 and is void. The court concludes that the interest rate charged was usurious, therefore court limits the defendant's recovery to the original principal amount due plus the original interest non-usurious interest rate. See Fisher v. Bidwell, 27 Conn. 363 (1858).
D. Breach of Fiduciary Duty
As the court has noted above, the defendants were non-compliant in administering the plaintiff's escrow account, which was a direct and proximate cause of the plaintiff's inability to refinance in 2013. " The existence of a [fiduciary] duty is a question of law and [o]nly if such a duty is found to exist does the trier of fact then determine whether the defendant violated that duty in the particular situation at hand." (Internal quotation marks omitted.) Iacurci v. Sax, 313 Conn. 786, 795-96, 99 A.3d 1145 (2014). " [A] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other . . . The superior position of the fiduciary or dominant party affords him great opportunity for abuse of the confidence reposed in him . . . We have not, however, defined that relationship in precise detail and in such a manner as to exclude new situations, choosing instead to leave the bars down for situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other." (Citation omitted; internal quotation marks omitted.) Falls Church Group, Ltd. v. Tyler, Cooper, Alcorn, LLP, 281 Conn. 84, 108, 912 A.2d 1019 (2007). " The fact that one business person trusts another and relies on [the person] to perform [his obligations] does not rise to the level of a confidential relationship for purposes of establishing a fiduciary duty . . . [N]ot all business relationships implicate the duty of a fiduciary . . . In the cases in which this court has, as a matter of law, refused to recognize a fiduciary relationship, the parties were either dealing at arm's length, thereby lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence . . . Accordingly, a mere contractual relationship does not create a fiduciary or confidential relationship." (Citations omitted; internal quotation marks omitted.) Saint Bernard School of Montville, Inc. v. Bank of America, 312 Conn. 811, 836, 95 A.3d 1063 (2014).
In the present case, the defendants pursuant to the terms and conditions of its note and mortgage created a fiduciary relationship and/or relationship of trust with the plaintiff wherein the defendants undertook to pay past due property taxes and current taxes as they became due. The defendants failed to pay the past due taxes in a timely manner, and failed to pay the current taxes in a timely manner, causing Plaintiff to incur additional interest and fees, as well as harm to his credit standing. The defendant's actions were in breach of its obligation to the plaintiff and the Plaintiff has suffered damages as a result of that trust. The defendants cannot breach his fiduciary obligation to Plaintiff and then use the same breach as a condition of imposing additional interest charges, fees and penalties against the plaintiff.
In the present case, the defendants breached their fiduciary and/or trust obligations to the plaintiff by failing to timely pay his property taxes, failing to disburse all monies collected on account of tax payments, have and caused additional tax interest and late fees to accrue against his account.
E. CUTPA
General Statutes § 42-110b(a) provides: " No person shall engage in unfair methods of competition or unfair or deceptive acts or practices in the conduct of any trade or commerce." Connecticut has adopted the cigarette rule in applying the unfairness or deceptive acts or practices prong: a rule imposed by the Federal Trade Commission in Federal Trade Commission v. Sperry & Hutchinson Co., 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170 (1972). " The 'cigarette rule' expressly fleshes out only the 'unfair prong.'" Milford Paintball, LLC v. Wampus Milford Associates, LLC, 156 Conn.App. 750, 758, fn.5, 115 A.3d 1107 (2015). " (1) Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, otherwise-whether, 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 (or competitors or other businessmen)." Harris v. Bradley Memorial Hospital & Health Center, Inc., 296 Conn. 315, 350-51, 994 A.2d 153 (2010); Artie's Auto Body, Inc. v. The Hartford Fire Insurance Company, 317 Conn. 602, 609, fn.9, 119 A.3d 1139 (2015).
" Not every misrepresentation rises to the level of a CUTPA violation . . . There must be some nexus with a public interest, some violation of a concept of what is fair, some immoral, unethical, oppressive or unscrupulous business practice or some practice that offends public policy." Muniz v. Kravis, 59 Conn.App. 704, 715, 757 A.2d 1207 (2000); Hudson United Bank v. Cinnamon Ridge Corporation, 81 Conn.App. 557, 571, 845 A.2d 417 (2004). A more seminal question is whether the transaction was unreasonably designed to benefit the Plaintiff.
In the present case the defendants represented in writing to the plaintiff that they would act as escrow agent, collect additional monies from which to pay the plaintiff's property taxes, pay the taxes on a timely basis. The defendant was represented at the closing by the defendant's agent Scott Schwartz. Attorney Schwartz confirmed through testimony that up to 2013, Plaintiff was still resolving outstanding tax payment issues with his property. The tax payment issues prevented Plaintiff from being able to refinance with another lender in order to reduce his interest rate payments from 12% to a more reasonable market level rate. The court agrees with the plaintiff that Plaintiff was unable to refinance. The Defendants received an additional 18 months interest at 12%, in addition to any extension fees were charged.
The defendants imposed a $6,000.00 extension fee against the plaintiff, and directed the plaintiff that the loan would continue as long as he kept his account " up to date." The defendants then collected interest for an extra 13 months, and also imposed a penalty of 24% interest from September 2013 through December 2014. Furthermore, the defendants represented that upon full payment any amounts that they held which had not been disbursed to pay taxes or accrued interest would be refunded to the plaintiff. The court finds that the defendant breached this duty. All of these facts combined established that the defendants took an extremely unfair advantage of the plaintiff from August 2010 until December 2013, with regards to servicing, extending the loan, and in determining the payoff amount for the loan.
The combination of these foregoing factors, a conduct over such an extended period of time, repeated and deliberate disregard for the obligations, amount to a pattern of unfair, deceptive, oppressive business practices, which caused extensive harm to the plaintiff. The court concludes that these actions were unfair, violates public policy and did cause harm to consumer, a violation of CUTPA is established and the plaintiff is entitled to an award of damages consistent with the CUTPA claim.
IV
DAMAGES
" [T]he amount of a damage award is a matter peculiarly within the province of the trier of fact." (Internal quotation marks omitted.) Hughes v. Lamay, 89 Conn.App. 378, 384, 873 A.2d 1055, cert. denied, 275 Conn. 922, 883 A.2d 1244 (2005). Plaintiff can recover damages both direct and proximate flowing from a breach of contract by the Defendant. Moreover, " [t]he non-breaching party may recover only for damages that are direct[ly] and proximate[ly] caused by a defendant's breach of contract [as c]ausation is an element-and a crucial one-of the plaintiff's prima facie case." (Internal quotation marks omitted.) McCann Real Equities Series XXII, LLC v. David McDermott Chevrolet, Inc., 93 Conn.App. 486, 504, 890 A.2d 140, cert. denied, 277 Conn. 928, 895 A.2d 798 (2006).
The court concludes above that the plaintiff had proven all counts of the complaint and is entitled to damages and an award of attorneys fees. The court enters the following award of damages:
1. $25,120.20 (Difference in the amount paid and principal amount $105,120.20-$80,000.00).
2. $12,000.00 (Interest in the amount of $12,000.00 which was paid from September 2013 through December 2014).
3. Return of loan extension fee for the amount of $6,000.00.
4. $1,921.11 (Difference in tax reimbursement-plaintiff paid $32,927.72, defendants made payment of $31006.61).
Total award for the amount of $45,041.31.
V
CONCLUSION
The judgment is entered in favor of the plaintiff on all counts for the total amount of $51,652.30. Cost are awarded to the plaintiff. The attorneys fees are awarded under C.G.S. § 42-110g(d). The counsel for the plaintiff shall file an affidavit of attorneys fees and costs within 30 days from the receipt of this memorandum of decision.