JP Morgan Chase Bank, N.A. v. Winthrop Props., LLC

312 Conn. 662

94 A.3d 622

JP MORGAN CHASE BANK, N.A.

v.WINTHROP PROPERTIES, LLC, et al.

No. 19048.

Supreme Court of Connecticut.

Argued Feb. 11, 2014.

Decided July 29, 2014.

Walter M. Spader, Jr., North Branford, for the appellant (substitute plaintiff).

Hugh D. Hughes, with whom, on the brief, were William F. Gallagher, David McCarry and David Pinciaro, New Haven, for the appellees (defendant Zeev Zuckerman et al.).

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

McDONALD, J.

The sole issue in this certified appeal is whether General Statutes § 49–1,¹ under which the foreclosure of a mortgage is a bar to further action against persons liable for the payment of the mortgage debt, note or obligation who are, or may be, made parties to the foreclosure, applies to guarantors of the mortgage note. The mortgagee plaintiff, 1533 Chapel, LLC,² appeals from the judgment of the Appellate Court, which reversed the judgment of the trial court in favor of the plaintiff on its claim against the defendant guarantors of the mortgage debt, Zeev Zuckerman and Leon Szusterman (guarantors). The plaintiff claims that the Appellate Court improperly concluded that, following the entry of the judgment of strict foreclosure and lapse of the period provided for filing a motion for a deficiency judgment under General Statutes § 49–14, § 49–1 barred the plaintiff from obtaining any additional remedy from the guarantors. We conclude that § 49–1 had no effect on the plaintiff's ability to recover the remaining unpaid debt from the guarantors because, irrespective of the fact that the plaintiff advanced claims to foreclose the mortgage and to enforce the guarantee in a single cause of action, the guarantors were not parties to the foreclosure claim because their liability arises separately under their guarantee. Therefore, we reverse the judgment of the Appellate Court.

The Appellate Court's opinion set forth the following undisputed facts and procedural history. “In 2005, the [named defendant, Winthrop Properties, LLC, (defendant) ] borrowed $1,012,500 from Washington Mutual Bank. In return for the loan, the defendant executed a promissory note and a mortgage on property in New Haven known as 1533 Chapel Street, also known as 1531 Chapel Street. As a further condition to obtaining the loan, the guarantors were required to execute a personal guarantee in which they assumed joint and several liability for repayment of the note. The defendant later defaulted on the note by failing to make the required monthly mortgage payments. JP Morgan Chase Bank, N.A., as the successor in interest to Washington Mutual Bank, filed the present action. [The named plaintiff, JP Morgan Chase Bank, N.A., assigned its interest in the subject note and mortgage to the plaintiff.]

“Count one of the operative complaint sought to foreclose on the mortgage securing the note. Count two sought to enforce the guarantee. The ad damnum clause indicated that the plaintiff sought, inter alia, a judgment of strict foreclosure ... a deficiency judgment against the makers of or obligors on the note [and money damages against the makers of or obligors on the note]. Shortly after commencing the action, the plaintiff filed a motion for a judgment of strict foreclosure.

“The plaintiff filed a motion for summary judgment as to liability only on February 17, 2010. The plaintiff directed the motion to both counts of the complaint, arguing that there were no genuine issues of material fact concerning liability and that it was entitled to judgment as a matter of law. On May 20, 2010, the court issued an order granting summary judgment against the defendant and the guarantors as to liability only. Subsequently, on June 28, 2010, the court granted the plaintiff's motion for a judgment of strict foreclosure. In rendering the judgment of strict foreclosure, the court found that the fair market value of the subject property was $325,000 and that the debt was $1,159,014.55, plus attorney's fees. The court set the defendant's law day for August 23, 2010. The defendant did not appeal the foreclosure judgment, nor did it attempt to redeem the property prior to the passing of its law day. Accordingly, on August 24, 2010, in the absence of redemption by the defendant, title to the subject property vested in the plaintiff.

“On October 14, 2010, more than thirty days after the time in which to redeem the subject property had expired, the plaintiff filed a motion for a deficiency judgment. Recognizing that the motion was not timely filed, the plaintiff never sought adjudication of the motion. Instead, on January 14, 2011, in reliance on the fact that summary judgment as to liability had been granted against the guarantors on count two of the complaint, the plaintiff filed a request for a hearing in damages on that count. On March 4, 2011, the guarantors filed an objection to the request for a hearing in damages. They argued that, because the plaintiff had not filed a motion for a deficiency judgment within thirty days of the running of the law days as required by § 49–14, the plaintiff was barred by § 49–1 from taking any further action to collect money damages from the guarantors. The plaintiff filed a reply to the objection. The guarantors also filed a notice of defense in which they raised the same argument made in their objection to the request for a hearing in damages. On March 22, 2011, the plaintiff filed a motion to strike the guarantors' notice of defense,³ arguing that [t]he purported defense is legally insufficient for it fails to defeat the plaintiff's cause of action on count two of the complaint, as a guaranty is a separate and distinct contractual instrument upon which the plaintiff can proceed to judgment. The guarantors filed an opposition to the motion to strike.

“The court [ Zemetis, J.] granted the motion to strike on May 12, 2011, stating: The court adopts the analysis of Connecticut Bank & Trust Co. v. Boston Post Ltd. Partnership, [Superior Court, judicial district of New London, Docket No. 515294, 1990 WL 265362 (December 12, 1990) (3 Conn. L. Rptr. 56) ] in finding count two, the guaranty count, a separate, independent and distinct cause of action from that stated in count one. The failure of the plaintiff to timely seek a deficiency judgment on count one is of no moment to the cause of action stated in count two. The motion to strike the defense raised by a failure to secure a deficiency judgment on count one is therefore granted. On August 24, 2011, the court, Hon. Howard F. Zoarski, judge trial referee, following a hearing in damages, rendered ... judgment in the amount of $1,295,888.45 against the guarantors and in favor of the plaintiff.” (Footnotes altered; internal quotation marks omitted.) JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, 137 Conn.App. 680, 683–85, 50 A.3d 328 (2012).

On appeal to the Appellate Court, the guarantors claimed that the trial court improperly had granted the plaintiff's motion to strike their notice of defense because §§ 49–1 and 49–14 indicate that a mortgagee who fails to file a timely motion for a deficiency judgment following the expiration of the time for redemption cannot recover additional damages from a guarantor based on the terms of a guarantee. Id., at 685–86, 50 A.3d 328. The Appellate Court agreed, reversing the trial court's “deficiency judgment” and remanding the case with direction to vacate the award of damages. Id., at 690, 50 A.3d 328. The court first determined that the general bar to further recovery following foreclosure of a mortgage under § 49–1 applied to the second count of the complaint seeking recovery under the guarantee. Id., at 689, 50 A.3d 328. Specifically, the court noted that it was undisputed that the guarantors were parties to the foreclosure action, and therefore focused solely on whether the action against the guarantors was “further action upon the mortgage debt, note or obligation” against the person or persons who are “liable for the payment thereof” under § 49–1. (Internal quotation marks omitted.) Id. The court interpreted “ ‘obligation’ ” to unambiguously encompass an obligation to repay a mortgage debt incurred under a guarantee. Id. The court next determined that, because the plaintiff had been made partially whole by the judgment of strict foreclosure in the first count of the complaint, the only measure of damages available on the second count would have been an amount equal to a deficiency judgment. Id., at 689–90, 50 A.3d 328. Although § 49–14 provides a limited exception to the bar under § 49–1 for a deficiency judgment, the Appellate Court concluded that the plaintiff had filed an untimely motion under § 49–14 and had in fact abandoned an adjudication of that motion. Id., at 690, 50 A.3d 328. The Appellate Court concluded, therefore, that the trial court improperly had granted the plaintiff's motion to strike the guarantors' special defense. Id. This certified appeal followed.

On appeal, the plaintiff claims that a guarantee is a legal instrument that is separate and distinct from the contract between the mortgagor and mortgagee, and, as such, § 49–1 should not extinguish the mortgagee's right to proceed against a guarantor if the mortgagee does not pursue a deficiency judgment against the mortgagor. In response, the guarantors argue that §§ 49–1 and 49–14 unambiguously provide that, upon the foreclosure of a mortgage, the only means of satisfying the mortgage debt when the security is inadequate to make the mortgagee whole is a deficiency judgment. Because the plaintiff sought relief against the guarantors in a manner that was not in conformance with that strictly construed statutory procedure, the guarantors contend that the Appellate Court properly reversed the judgment of damages against them. We agree with the plaintiff.

“A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no...