Appellate Court Notes

Welcome to our Supreme and Appellate Court summary.  Here, I provide abbreviated summaries of decisions from the Connecticut appellate courts which highlight important issues and developments in Connecticut law, and provide practical practice pointers to litigants.  I have been summarizing these court decisions internally for our firm for more than 10 years, and providing relevant highlights to my municipal and insurance practice clients for almost as long.  It was suggested that a wider audience might appreciate brief summaries of recent rulings that condense often long and confusing decisions down to their basic elements.  These summaries are limited to the civil litigation decisions based on my own particular field of practice, so you will not find distillations of the many criminal and matrimonial law decisions on this page.  I may from time to time add commentary, and may even criticize a decision’s reasoning. Such commentary is solely my opinion . . . and when mistakes of trial counsel are highlighted because they triggered a particular outcome, I will try to be mindful of the adage . . . “There but for the grace of God . . ..”  I hope the reader finds these summaries helpful. – Edward P. McCreery

Posted June 2, 2014

  • AC35802 – Estate of Haburey v. Winchester

Widow was allowed to claim spousal benefits for deceased employee who worked at municipal sewage treatment facility.  Commissioner could have properly found that exposure to untreated sewage was the cause for the deceased worker contracting Legionnaire’s Disease.  It was proper for the widow to utilize Form 30c to make the claim for spousal benefits because, at the time of filing, there was no form that provided a space for a Dependent’s Claims.  That was rectified subsequently with the adoption of Form 30d in 2007.  Utilizing Form 30c satisfied the requirements of C.G.S. § 31-294(c).

This is not the same situation as if the spouse died during the pendency of the worker’s compensation claim.  In that event, the death would have triggered an obligation upon the dependent to file a new claim for spousal benefits.  Here the one and only claim was post-death.  Therefore, it could only have been for dependent benefits.

  • AC35539 – Citimortgage, Inc. v. Rey

Plaintiff commenced a residential foreclosure action, and the defendant filed a request for participation in the Court Foreclosure Mediation Program.  Several months later, the Court Foreclosure Mediator filed a Mediator’s Report, indicating that the matter had been settled for three catch-up payments over ninety days.  The property owner made the three catch-up payments, and thereafter, resumed regular monthly payments under the note.  Nonetheless, the plaintiff attempted to resume its judgment of strict foreclosure, prompting the defendant to file a counterclaim for breach of the forbearance agreement.  The lender moved to strike the counterclaim, asserting it did not relate to the making, validity or enforcement of the note.  The Trial Court granted the motion.  The Appellate Court reversed, saying the Trial Court utilized the incorrect test, which was a question of law triggering plenary review.  The proper test that should have been utilized in this scenario would have been the “transactional test” set forth in Practice Book § 10-10, which is a test to assess the appropriateness of counterclaims.  The decision calls into question the long line of decisions that have said counterclaims in a foreclosure are limited to the making, validity or enforcement of the note.  The decision holds those cases really meant that claims pertaining to transactions separate and distinct from the foreclosure complaint could not be raised.  A counterclaim to be viable in a foreclosure does not have to necessarily directly attack the making, validity or enforcement of the mortgage or note.  Rather, the counterclaim must have a sufficient relationship to the making, validity or enforcement of the note to meet the transaction test of Practice Book § 10-10.  Once the Trial Court properly utilizes the transaction test, its review of the decision whether to allow a counterclaim is subject to the abuse of discretion standard.  The decision concludes, however, that no remand is required to apply that test because it is clear that breaching the forbearance agreement directly implicates the plaintiff’s right in equity to pursue the foreclosure.  Therefore, the counterclaim should have been allowed.  A different result would have been mandated if the defendant were claiming a breach of a “side agreement” entered outside of the Court proceedings. 

  • AC35466 – Federal National Mortgage Assn. v. Bridgeport Portfolio, LLC

Plaintiff commenced a foreclosure of a $7.8 million mortgage on four commercial properties, with one count against the guarantor.  The defendants asserted a special defense that the plaintiff’s attempt to charge a pre-payment premium along with a default rate of interest was a violation of public policy.  The defendants claimed that the charges were a penalty in violation of public policy and/or liquidated damages disproportionate to the anticipated loss.  The Trial Court had held an evidentiary hearing where the plaintiff’s agent testified that the default rate of interest was intended to compensate the plaintiff for the additional cost of servicing the loan after default, and dealing with the higher risk of collection.  The agent also testified that the pre-payment penalty applied whether pre-payment of the loan was “voluntary” ….or “involuntary”…… as a result of a foreclosure, and that it was designed to make the lender whole who would not be earning future interest over the life of the loan.  [A key practice tip: They also had the witness testify how the interest was calculated under these two provisions.  This is exactly the type of testimony you need to sustain claiming both a pre-payment penalty and a default rate of interest.]  The Trial Court concluded that there was no legal or equitable reason to preclude the enhanced interest claims between sophisticated commercial parties on a complex deal where all sides had been represented by counsel.  Both the default rate of interest and pre-payment premiums were deemed enforceable.

On appeal, it was first held that the guarantor had standing to participate in the appeal, even though judgment on the count against the guarantor was held in abeyance.  The guarantor had standing because he will be bound by the amount of the debt found in the strict foreclosure judgment. 

The Defendants also claimed that imposing both a default rate of interest and a pre-payment penalty together, results in an objectionable penalty to the defendants and a gross windfall to the plaintiff, such that it should be deemed prohibited by public policy.  The Appellate Court disagreed, noting that the defendants cited no case law for their argument, and that these clauses were found in a written contract between sophisticated commercial parties.  This is not a case where the damages upon default could be easily determined, nor did it amount to an improper double recovery.  The Defendants failed to rebut the presumption of validity ascribed to bargained-for terms.  No evidence was presented that the imposition of both clauses was at odds with common practice in the commercial lending industry, or that the combined default rate was outside of commercially acceptable rates.  The loan documents themselves recited that the inclusion of the pre-payment premium allowed for otherwise more favorable terms to the borrowers that they would not have otherwise received.  The Court said it declined to remake the contract so that the borrowers could receive the benefit of the loan terms, but not also be subject to the consequences of the loan terms.  The Court ended with a blunt statement that it was not against Connecticut’s Public Policy to enforce both a pre-payment penalty and a default rate of interest against a sophisticated commercial party.

Footnote Number 10 notes that the Court should sparingly apply the doctrine of finding agreements contrary to public policy because competent persons should have the utmost liberty of entering into their own voluntary agreements which should enforced by the Courts.

  • AC35462 – Palkimas v. State Farm Fire & Casualty Co.

Denial of insurance coverage claim for sewage backup into residential home due to the failure to file a proof of loss was upheld.  When coverage was denied due to the failure to file the proof of loss, the plaintiff sued the insurance company.  The Trial Court properly granted summary judgment to the insurer, due to the failure of the plaintiff to comply with the condition precedent to coverage by not filing a proof of loss.  A proof of loss must be filed before an insured may sue an insurance company for denial of a claim.  The decision adds that, absent a prohibition in the policy, the insured can file its proof of loss late, in which event, the insurer must show some prejudice to the belatedly submitted proof.  Here, however, the defendant simply never submitted a proof of loss.

  • AC35791 – Wells Fargo Bank, N.A. v. Tarzia

In this foreclosure action, the defendant denied that the plaintiff was the holder and owner of the note and mortgage debt.  The Trial Court subsequently granted summary judgment to the lender as to liability only.  The defendant then moved for judgment of strict foreclosure, and the defendant objected, claiming there was no such thing as “summary judgment as to liability only” in the context of a foreclosure.  The Trial Court rejected the claim and entered judgment of strict foreclosure.  On appeal, the plaintiff challenged whether the plaintiff was the owner of the debt.  The Court recited prior case law for the proposition that mere possession of the note establishes a prima facie case against the maker that the holder is the proper owner, and the burden switches to the maker to prove contrary facts.  The lack of a challenge by the defendant to the proper holding of the note by the plaintiff entitled the plaintiff to summary judgment.  The Appellate Court went on to say that yes, indeed, a Trial Court may grant summary judgment as to liability only in a foreclosure action.

  • AC35483 – Lynwood Place, LLC v. Sandy Hook Hydro, LLC

Landlord entered into a thirty-year lease with the tenant to operate a hydroelectric turbine in the basement of an old factory.  Annual rent was to be $1,500 and additional rent of 6% of the increase in yearly operating expenses of the entire property.  A dispute arose over the additional rent, and the dispute continued for the next six years when the plaintiff finally served the defendant with a notice to quit for failure to pay additional rent from 2007 through 2010.  The defendant asserted a defense to the summary process action of laches, claiming that the defendant had “accepted” the rent that had been tendered as both the base rent and an amount for the additional rent over the last five years. 

The Trial Court rejected the laches special defense on the grounds that the landlord testified that he had made multiple attempts to collect the additional rent by submittal of several detailed itemized bills.  On appeal, the Appellate Court refused to review the factual determination that the defendant had not paid the rent owed.  Although the tenant claimed the contract was ambiguous as to the amount of the additional rent owed, the tenant’s complaints would not be heard when it at least admitted it had not paid the 6% increased operating costs.  Further, commercial contracts made between sophisticated commercial parties with the advice of counsel after extensive negotiations shall enjoy a presumption of definiteness.

Next, the decision held that although laches may be raised as an equitable defense in a summary process action, both elements of it must be proven.  First, there must be an inexcusable delay, and secondly, it must have prejudiced the defendants.  Mere lapse of time is not enough for a laches defense.  Here, the delay in initiating summary process was excusable because the parties had been engaged in continuous negotiations to try to resolve their dispute.

The facts and holdings of any case may be redacted, paraphrased or condensed for ease of reading.  No summary can be an exact rendering of any decision, however, so interested readers are referred to the full decisions.  The docket number of each case is a hyperlink to the Connecticut Judicial Department online slip opinion.  

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