City of Hartford v. McKeever

314 Conn. 255

101 A.3d 229

CITY OF HARTFORD

v.Brian McKEEVER et al.

No. 19099.

Supreme Court of Connecticut.

Argued March 26, 2014.

Decided Oct. 28, 2014.

Christopher M. Reeves, Bristol, for the appellant (named defendant).

Catharine H. Freeman, assistant corporation counsel, for the appellee (plaintiff).

ROGERS, C.J., and PALMER, ZARELLA, EVELEIGH, McDONALD, ESPINOSA and VERTEFEUILLE, Js.

Opinion

VERTEFEUILLE, J.

The primary issue that we must resolve in this certified appeal is whether the Appellate Court properly determined as a matter of law that the plaintiff, the city of Hartford, as assignee of the note and mortgage executed by the defendant Brian McKeever,¹ did not take the note and mortgage subject to the defendant's affirmative claims against the assignor, or, instead, the Appellate Court should have recognized and applied an equitable exception to this rule because the assignor or its predecessors had received overpayments on the note on the plaintiff's behalf. The plaintiff, as the assignee of a promissory note and mortgage executed by the defendant, brought an action to foreclose the mortgage. The defendant filed a five count counterclaim seeking, inter alia, an accounting of amounts paid pursuant to the note and recoupment of any excess amounts paid, including amounts that he had paid to the entity that had assigned the note and mortgage to the plaintiff and that entity's predecessors in interest. The trial court rendered judgment in favor of the defendant on his counterclaim and awarded him damages of $195,909. The plaintiff appealed from the judgment of the trial court to the Appellate Court, which reversed the judgment and remanded the case for further proceedings. Hartford v. McKeever, 139 Conn.App. 277, 288, 55 A.3d 787 (2012). We then granted the defendant's petition for certification to appeal to this court.

Hartford v. McKeever, 307 Conn. 956, 59 A.3d 1191 (2013). The issue that we must address on appeal is whether the Appellate Court properly determined that the plaintiff, as the most recent assignee and current holder of the defendant's note, could not be held liable to repay the defendant for sums that were overpaid on the note before it was assigned to the plaintiff.² We answer this question in the affirmative and, therefore, affirm the judgment of the Appellate Court.

The opinion of the Appellate Court sets forth the following facts and procedural history. “In May, 1983, the defendant owned a building in Hartford, known as 206–208 Hamilton Street (property). The property contained multiple units that the defendant rented to tenants. On May 5, 1983, the defendant borrowed a total of $143,065 in two separate loans from the Community Development Corporation (corporation). In one loan transaction (loan one), the defendant and the corporation entered into a promissory note agreement with a principal amount of $28,879. In the other loan transaction (loan two), the defendant and the corporation entered into a promissory note agreement with a principal amount of $114,186. Each loan was secured by a separate mortgage on the property. At the time they entered into the loan agreements, the defendant and the corporation also entered into a separate agreement, entitled ‘Collateral Assignment of Leases and Rentals' (assignment of rents agreement), pursuant to which the corporation was empowered to collect rent directly from the defendant's tenants if he defaulted on his obligation to make payments on the notes.

“Although the corporation immediately assigned its interest in the notes to Colonial Bank, which later became State Street Bank & Trust Company of Connecticut (State Street Bank), the corporation continued to service the loans. In July, 2001, State Street Bank assigned loan two to the plaintiff for the sum of [$1]. By that time, the defendant had fully paid loan one, but the plaintiff determined that the defendant had defaulted on his payment obligations as to loan two. Accordingly, in 2003, the plaintiff brought an action against the defendant to foreclose on the property.

“On April 21, 2003, the defendant filed a five count counterclaim against the plaintiff, claiming: (1) violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42–110a et seq. ; (2) violation of the Connecticut Creditors' Collection Practices Act, General Statutes (Rev. to 1993) § 36–243a; (3) breach of the implied covenant of good faith and fair dealing; and (4) breach of a modification agreement previously agreed to by himself and the plaintiff. [The defendant] also sought, in the fifth count, an accounting as to all payments that his tenants had made under the assignment of rents agreement.

“The plaintiff subsequently withdrew its foreclosure complaint, conceding that the defendant had overpaid loan two by $17,397.93. Accordingly, [the plaintiff] offered to compensate [the defendant] in that amount. The defendant, however, declined the plaintiff's offer, electing instead to proceed to trial on his counterclaim to recover what he claimed to have been an overpayment of $195,909 on loan two. The plaintiff filed an answer to the counterclaim, denying its essential allegations, and pleaded as a special defense that CUTPA does not apply to municipalities.

“After a five day trial, the court issued a memorandum of decision in which it concluded that the plaintiff was liable to the defendant for the total amount he claimed to have overpaid on loan two to the plaintiff and all other prior holders of the note. The court therefore awarded him damages of $195,909, albeit without specifying the count of the counterclaim under which it made that award.... [A]pproximately eleven months after the court's November 9, 2010 decision, the plaintiff filed a motion for articulation, requesting for the first time that the court explain, inter alia, under which count of the counterclaim it had found in the defendant's favor. The court responded that, without having access to the court file, it was unable to identify the specific count of the counterclaim under which it had found in the defendant's favor.”³ (Footnotes omitted.) Hartford v. McKeever, supra, 139 Conn.App. at 280–82, 55 A.3d 787.

The plaintiff appealed to the Appellate Court claiming that the trial court incorrectly had concluded as a matter of law that, as an assignee, it was liable for the defendant's overpayments to the assignor, State Street Bank, or to any other prior holders of the note. Id., at 282–83, 55 A.3d 787. The defendant contended that there was no need for the Appellate Court to consider whether, as a legal matter, an assignee can be held liable for the conduct of its assignor, “because the trial court found, as a factual matter, that the plaintiff was involved from the beginning and specifically that [the corporation] was acting, throughout the history of the loan, as an agent of Colonial Bank which in turn was the plaintiff's trustee.”⁴

Hartford v. McKeever,

Conn. Appellate Court Records & Briefs, April Term, 2012, Defendant's Brief pp. 7–8. The defendant contended that the claim that the plaintiff had made in its brief that the corporation was not an agency of the plaintiff was contradicted by a deed of restrictive covenants that had been executed in connection with a regulatory agreement that the defendant entered into as a condition for receiving the loans, and that stated that the plaintiff “has adopted redevelopment plans ... and has issued and sold [b]onds in the aggregate principal amount of $10,000,000 to provide loans for the financing of the rehabilitation ... of certain residential real property within the geographical boundaries of the [c]ity of Hartford....”⁵

A majority of the Appellate Court agreed with the plaintiff's legal claim. Accordingly, it reversed the judgment of the trial court and remanded the case for further proceedings. Judge Gruendel authored a dissenting opinion in which he contended that the court should “generally preclude affirmative claims against an assignee arising from the acts or liabilities of the assignor, while at the same time permitting equitable claims that merit exception therefrom.” Hartford v. McKeever, supra, 139 Conn.App. at 298, 55 A.3d 787. Judge Gruendel further argued that “[t]he present case is a quintessential example of the need for, and the appropriateness of, that exception.... [T]he plaintiff here was involved in the loan transactions from the beginning, as the trial court specifically found and as the plaintiff admitted in its answer.” (Citation omitted.) Id., at 303, 55 A.3d 787Gruendel, J., dissenting). In support of this conclusion, Judge Gruendel pointed out that the plaintiff had admitted the portion of the defendant's counterclaim alleging that he had “executed two promissory notes to [the plaintiff] in exchange for [the] loans....”⁶ Id., at 303 n. 14, 55 A.3d 787. Judge Gruendel also contended that “the two promissory notes in question were assigned to the trustee bank the very day they were entered into, and thereafter were held at all times by the trustee bank on behalf of the plaintiff.” Id., at 303, 55 A.3d 787. In addition, Judge Gruendel pointed out that the plaintiff had admitted in its answer to the defendant's counterclaim that “the rentals were being collected pursuant to a collateral assignment of leases and rentals.... [A] third party was collecting the rent on behalf of [the plaintiff]. ”⁷ Emphasis in original; internal quotation marks omitted.) Id., at 305, 55 A.3d 787.

In response to Judge Gruendel's argument, the majority of the Appellate Court stated that “the trial court made no finding as to the making or significance of the [plaintiff's] alleged admission [that rents were collected on its behalf] and based no legal conclusion upon it. It is thus not within our power to consider the factual and legal ramifications of the admission on the issues before us....”⁸ Id., at 283 n. 7, 55 A.3d 787. The majority further stated that, “where the trial court expressly...