Connecticut Appeals

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Archives for February 2016

Defamatory Statement Must Be Specially Alleged

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The Connecticut Appellate Court concluded that a defamatory statement must be specially alleged in the complaint to be considered on summary judgment. In this Connecticut appeal, Stevens v. Carlton Hemming, to be officially released on February 23, 2016, defendants were appointed receiver of plaintiff’s oil company after he left unfulfilled hundreds of prepaid consumer heating oil contracts. Plaintiff filed a bankruptcy petition. “[D]efendants audited the business’ accounts and found instances where the plaintiff had apparently used corporate funds for personal expenses.” Defendants “filed a proof of claim in the bankruptcy court … alleging that the plaintiff had committed corporate waste.”

A newspaper “article quoted [defendant] as stating, ‘We have not done sufficient work yet to present it in court, but I don’t have any doubt that probably 99 percent would stand up, and that we’d probably find more.’ The plaintiff refer[red] to this statement as the ’99 percent comment.’ The article stated that Helming said that the business ‘paid the various amounts listed in the proof of claim over different periods, from one year to up to five years.’ The plaintiff refers to this as the ‘one to five year allegation.'”

“[P]laintiff filed a complaint against the defendants, in which he alleged that the 99 percent comment and the allegations in the proof of claim were defamatory. He did not plead that [defendant] defamed him by making the one to five year allegation.”

“[D]efendants moved for summary judgment on the grounds that [defendant]’s statements were absolutely privileged; the statements were opinions protected by the fair comment privilege; the allegedly improper statements were not defamatory as they did not ascribe any improper conduct to the plaintiff; and the allegedly unprivileged statements were substantially true.” Plaintiff opposed and defendants replied. Plaintiff then filed a sur-reply memorandum alleging that defendant had defamed him by making the one to five year allegation.

“The [trial] court granted the defendants’ motion for summary judgment in regard to the 99 percent comment on the grounds that it was an opinion on a matter of public concern protected by the first amendment, and was protected by the qualified privilege of fair comment.” The court did not consider the one to five year comment.

The Appellate Court affirmed.

Plaintiff’s Only Argument on Appeal

Plaintiff’s only claim on appeal was “that the trial court improperly declined to consider the one to five year allegation when it granted the defendants’ motion for summary judgment.”

Appellate Court Concludes Defamatory Statement Must be Specially Alleged

The Appellate Court concluded that the trial court properly declined to consider the one to five year comment because plaintiff did not allege it in his complaint. In response to plaintiff’s claim that the modern trend, which Connecticut follows, allows for a broad reading of pleadings, the court said: “This trend … is not a panacea for every instance where a party fails to adhere to the basic procedural requirements of pleading, especially in the context of a defamation complaint.” The court noted in a footnote that, “[a]lthough this court has not addressed the issue, we find persuasive the reasoning of various Superior Courts in requiring specificity in pleading defamation.”

The court ultimately concluded, as follows: “The trial court, in ruling on the defendants’ motion for summary judgment, was limited to the facts alleged in the complaint standing alone, which cannot fairly be read to encapsulate the one to five year allegation. Simple fairness requires that a defendant not be forced to defend against facts that are not clearly pleaded in a complaint. Thus, we conclude that the court did not err in declining to consider the plaintiff’s claim as to the one to five year allegation.”

 

City Can Demolish Building in Emergency

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demolished buildingA city can demolish a building in an emergency without paying compensation, according to a Connecticut appeal to be officially released on February 23, 2016.

The plaintiff in Edgewood Street Garden Apartments, LLC v. Hartford owned a building that was constructed in 1925. Plaintiff was renovating the building with the intent of leasing out apartments. On a Sunday in February 2011, the fire department responded to a report that the building’s roof had collapsed. A certified building inspector, who works in the city’s department of licenses and inspections, also responded to the report. The inspector “saw cracks at some areas in the sidewalls of the subject property and above two windows. He determined that the roof had collapsed, which was causing the cracks in the side walls as well as bowing of the walls, and he was concerned that due to the snow load on the roof, the building could come down at any minute, endangering the adjoining property.” The inspector informed plaintiff’s principals that he order the property immediately demolished. The principals wanted their structural engineer and insurance adjuster to inspect the property before demolition but there were unavailable on Sunday. The inspector declined to postpone demolition: the building was 75% demolished that Sunday.

“The plaintiff filed a six count complaint alleging the following: (1) denial of equal protection under § 1983; (2) denial of substantive due process under § 1983; (3) denial of procedural due process under §1983; (4) inverse condemnation under §1983; (5) inverse condemnation under the fifth amendment to the United States constitution; and (6) inverse condemnation under article first, § 11, of the Connecticut constitution.”

The trial court found for defendants on all six counts. Plaintiff appealed. The Appellate Court affirmed.

Plaintiff’s Main Arguments on Appeal

“On appeal, the plaintiff claims that the court erred when it (1) made various findings of fact that were unsupported by the evidence introduced at trial, (2) did not find that provisions of the municipal and state building codes that the defendant violated constituted a ‘policy’ supporting a claim of municipal liability under 42 U.S.C. § 1983, (3) concluded that the defendant’s actions did not constitute a taking of property for which the plaintiff was entitled to just compensation, (4) placed the burden of proof on the plaintiff, and (5) did not draw an inference in the plaintiff’s favor on account of the defendant’s failure to preserve evidence critical to the plaintiff’s case.”

Appellate Court Concludes City can Demolish Building in an Emergency

Plaintiff’s first argument essentially was that the trial court should have given certain evidence more weight than other evidence. The Appellate Court concluded that, although there may have been conflicting evidence as to some issues, the conflict did not render the trial court’s findings unsupported.

As to plaintiff’s second argument, the court noted that “‘it is not enough for a § 1983 plaintiff merely to identify conduct properly attributable to the municipality. The plaintiff must also demonstrate that, through its deliberate conduct, the municipality was the moving force behind the injury alleged.'” The state and city building codes, which gave the inspector discretion to demolish a building determined to be unsafe, do constitute a municipal policy in respect of such buildings. But, that policy itself was not unconstitutional because it was not the moving force behind the demolition of plaintiff’s building. Rather, the moving force was the inspector’s exercise of his discretion in favor of demolition.

“‘Where … a plaintiff claims that the municipality has not directly inflicted an injury, but nonetheless has caused an employee to do so, rigorous standards of culpability and causation must be applied to ensure that the municipality is not held liable solely for the actions of its employee.’ … ‘[W]here the policy relied upon is not itself unconstitutional, considerably more proof than [a] single incident [of unconstitutional activity] will be necessary in every case to establish both the requisite fault on the part of the municipality, and the causal connection between the ‘policy’ and the constitutional deprivation.'” The court concluded that “[b]ecause the identified municipal policy itself is not unconstitutional, the plaintiff was required to prove more than a single exercise of [the inspector’s] discretion to impose liability on the defendant.” The court rejected the claim because the incident involved only a single exercise of the inspector’s discretion.

With respect to plaintiff’s “taking” argument, the court noted that the demolition was a valid exercise of police power, which would require compensation only if “no reasonable use may be made of the property and it becomes of little or no value to the owner.” It concluded that “[t]here was no testimony or other evidence indicating that ‘’no reasonable use may be made of the [subject] property’; … such as evidence that the plaintiff was prevented from rebuilding. In light of the dearth of evidence tending to show that the defendant’s exercise of its police power was unreasonable or confiscatory, the trial court properly concluded that there was no taking when it ruled in the defendant’s favor on the plaintiff’s inverse condemnation claims in counts five and six.”

Plaintiff’s fourth argument was a contention that the Superior Court action was a substitute for the administrative hearing that it never received and the agency would have had the burden of proof in such a hearing. The court rejected this argument because there was no supporting authority for the “substitution” claim.

Plaintiff’s fifth argument was “that the court erred when it did not draw an inference in the plaintiff’s favor on account of the defendant’s failure to preserve evidence critical to the plaintiff’s case—namely, the defendant’s demolition of the building without taking any measurements or detailed photographs.” The court noted that “the trier of fact may [but is not obligated to] draw an inference from the intentional spoliation of evidence that the destroyed evidence would have been unfavorable to the party that destroyed it.” The court rejected the argument because “[t]here was sufficient evidence in the record, in the form of [the inspector’s] testimony regarding his predemolition assessment of the building and his determination that it posed an imminent danger, to support the court’s decision not to draw an adverse inference.”

Other Things to Note

In footnote 4, the court addressed the possibility that the appeal was moot. More specifically,”[w]e raised the issue of mootness to consider whether the [trial] court’s finding that the plaintiff failed to prove damages, which the plaintiff does not challenge, is an independent basis for the judgment, which would prevent this court from providing practical relief on appeal.” The court “conclude[d] that the [trial] court’s finding regarding damages did not independently support the judgment because proof of actual damages was not a necessary element of the plaintiff’s causes of action. Notwithstanding its failure to prove actual damages, the plaintiff could have prevailed and received nominal damages.”

Inverse Condemnation: Taking Parking Lot Takes Building

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parking lotA city inversely condemned a commercial building when it took the parking lot that served it, according to the Connecticut Appellate Court in Barton v. Norwalk, to be officially released on February 23, 2016.

In this appeal, plaintiff had purchased an office building in 1981. The city said the building had insufficient parking, so plaintiff constructed a lot across the street to serve it. Years later, the city condemned the parking lot in connection with its construction of a new police station. Plaintiff challenged the city’s just compensation for the lot, claiming that the “highest and best” use for the property was mixed development. Plaintiff also “twice tried to amend his pleadings in that case to add a claim for losses to [the commercial building] as a result of the taking of [the parking lot].” The city successfully objected to both amendments.  Superior Court found that the highest and best use was mixed development and awarded plaintiff additional compensation.

Plaintiff then commenced a separate action to recover for losses to the commercial building on a theory of inverse condemnation. “The [trial] court found that the lack of parking, caused by the taking of 65 South Main by eminent domain, ‘ha[d] substantially destroyed the [plaintiff’s] ability to operate the property as a leasable facility and enjoy even a modicum of financial success. The evidence shows the lack of parking, which the [city] initially insisted upon, reduced the . . . [property’s] chances of commercial success to negligible or nonexistent’ and amounted to ‘a substantial destruction of the [plaintiff’s] ability to enjoy or use the property . . . .’ As such, the plaintiff ‘proved [his] claim of inverse condemnation.'”

Defendant appealed. The Appellate Court affirmed.

City’s Main Arguments on Appeal

“The [city] appealed … , arguing that: (1) judicial estoppel barred the plaintiff’s recovery for losses to 70 South Main; and (2) in any case, the interference with the plaintiff’s use of [the commercial building] was not so substantial as to be an inverse condemnation.”

The thrust of the city’s judicial estoppel argument was that plaintiff had obtained additional compensation for the parking lot by asserting that its highest and best use was mixed development. Plaintiff could not now be heard to say that he needed it to be a parking lot.

Appellate Court Concludes Taking Parking Lot Inversely Condemned Building

The Appellate Court noted that “[t]ypically, judicial estoppel will apply if: 1) a party’s later position is clearly inconsistent with its earlier position; 2) the party’s former position has been adopted in some way by the court in the earlier proceeding; and 3) the party asserting the two positions would derive an unfair advantage against the party seeking estoppel.”

The court concluded that the first prong failed. Plaintiff’s “parking lot as mixed use” position in the first action was not “clearly inconsistent” with its “parking lot as parking lot” position in the second action because the law does not require the owner actually to put the property to its highest and best use. In other words, “highest and best use” determines just compensation. Actual use is irrelevant to just compensation.

Moreover, plaintiff’s claim that the best use for the parking lot, standing alone, was mixed development did not contradict his argument that the best use for the building and the lot, standing together, was as an office building with a parking lot to serve it.

The court also concluded that the third prong failed: “[T]he question is whether a party gained more by taking inconsistent positions than it would have by taking consistent positions…. [P]laintiff’s two positions allowed him to recover once for [the lot] and once for [the building], the same as if he had valued [the lot] as a parking lot instead of as a mixed use development. He gained no advantage, let alone an unfair one.” In other words, plaintiff was entitled to recover twice and did recover twice so he did not gain anything extra.

As to the city’s second argument on appeal, the court noted that “inverse condemnation requires either: (1) total destruction of the property’s economic value; or (2) substantial destruction of the owner’s ability to use and enjoy the property.” The facts showed substantial destruction. Plaintiff had been unable to lease roughly 90% of the building’s space because there was no parking. One tenant, a church, remained, at a below market rent, solely because the city allowed church members to park for free on city property. Plaintiff’s expert testified without contradiction that the land might be worth more than the land and building.

Other Things to Note

In the trial court, plaintiff claimed that he was entitled to offer of compromise interest because the city rejected his offer of compromise. “The court denied the plaintiff offer of compromise interest on the ground that he failed to meet two requirements of § 52-192a: (1) that a plaintiff offer to settle his action ‘for a sum certain’; and (2) that, after the defendant rejects the offer, the plaintiff recover ‘an amount equal to or greater than the sum certain’ he requested.”

Plaintiff cross-appealed. The Appellate Court concluded that plaintiff’s offer was not for a sum certain. It included not a certain dollar amount but an amount for fees and costs “up to $20,000” and permits and approvals to renovate the buildings. “Up to” is not a sum certain, nor is permits/approvals.

 

Issuing State’s Law Governs Child Support Duration

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issuing-state-law-governs-child-support-durationThe issuing state’s law governs child support duration where a party seeks to modify the child support order in another state. The Connecticut Supreme Court reached this conclusion in Studer v. Studer to be officially released on February 23, 2016.

In this Connecticut appeal, plaintiff and defendant were divorced in Florida in 2002. The Florida judgment “provided that the defendant would pay child support until the child ‘reaches the age of [eighteen], become[s] emancipated, marries, dies, or otherwise becomes self-supporting’ or ‘until [the] age [of nineteen] or graduation from high school whichever occurs first, if a child reaches the age of [eighteen] and is still in high school and reasonably expected to graduate prior to the age of [nineteen].’ Both parties were aware that the child was autistic at the time of the dissolution and the Florida judgment specifically referenced the child’s condition.”

The parties and the child moved to Connecticut. In 2003, defendant domesticated the Florida judgment in Connecticut and moved to modify child support and alimony. The Connecticut court granted the motion.

In 2010, plaintiff moved for postmajority support, claiming that the child would not graduate from high school until after her 21st birthday because of her autism. “Applying Florida law, the [Connecticut] court granted the plaintiff’s motion for postmajority support and ordered the defendant to continue paying child support until the child’s high school graduation ….”

In 2013, before the child graduated from high school, plaintiff moved to extend child support indefinitely beyond the child’s high school graduation. “The trial court concluded that under General Statutes § 46b-71, Florida law controlled the duration of the defendant’s child support obligation and ordered the defendant to pay child support indefinitely.”

Defendant appealed. The Connecticut Supreme Court affirmed.

Defendant’s Main Argument on Appeal

Florida allows postmajority support in cases like this; Connecticut law does not. Defendant’s main argument was that the 2010 postmajority support order, issued by the Connecticut court, became the operative support order rendering all further support considerations subject to Connecticut law.

Supreme Court Concludes Issuing State’s Law Governs Child Support Duration

The Supreme Court thoroughly discussed all of the arguments and counter-arguments but to me the decision came down to one simple thing: The Uniform Interstate Family Support Act provides that the issuing state’s law governs child support duration. More specifically, one section of the act, CGS §46b-213q(d), “provides in relevant part: ‘In a proceeding to modify a child support order, the law of the state that is determined to have issued the initial controlling order governs the duration of the obligation of support. . . ‘” (Supreme Court’s emphasis).

The term ‘‘initial controlling order’’ is not defined in § 46b-213q, nor is it defined in the provision setting forth the definitions used within the act, General Statutes (Rev. to 2013) § 46b-212a. ‘‘In the absence of a definition of terms in the statute itself, [w]e may presume . . . that the legis- lature intended [a word] to have its ordinary meaning in the English language, as gleaned from the context of its use. . . . Under such circumstances, it is appropriate to look to the common understanding of the term as expressed in a dictionary.’’

The court considered a number of dictionary definitions of “initial.” The court concluded: “Using the definition of ‘initial’ indicates that the legislature and the drafters of the uniform act intended for the first state that issues a child support order to control the duration of the child support obligation.”

Accordingly, because it is undisputed that the Florida judgment was rendered before any of the Connecticut orders, the initial controlling order in the present case is the Florida judgment and, therefore, Florida law governs the duration of the defendant’s child support obligation. Furthermore, the parties in the present case do not dispute that Florida law provides for support for adult disabled children.

In reaching this conclusion, the court quoted a Washington Supreme Court decision, as follows: “Child support orders are frequently modified as children grow older or when circumstances change. . . . If the [uniform act] ceased to apply after the first modification, the reference to the state that issued the initial controlling order would be superfluous.’’

The court also noted that if “initial controlling order” did not refer to the first child support order issued in the case, there would be incentive to forum shop, which is something the Act was intended to prevent.

Other Things to Note

In footnote 8, the court noted that at oral argument plaintiff agreed that the Uniform Interstate Family Support Act applied and CGS § 46b-71 did not. For this reason, the court didn’t consider § 46b-71.

About the Photo

I’ve used it before. Seems appropriate for child support and custody issues.

State Can Charge MERS Higher Recording Fees

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clerk's recordsThe state can charge MERS higher recording fees than other mortgagees according to the Connecticut Supreme Court decision in MERSCORP Holdings, Inc. v. Malloy, to be officially released on February 23, 2016.

In this Connecticut Appeal, MERS attacked the constitutionality of amendments to Connecticut’s recording statutes which require mortgage nominees to pay higher recording fees than other mortgagees. More specifically, mortgage nominees must pay about three times more to record a mortgage, assignment of mortgage or release of mortgage.

In the trial court, MERS claimed that that the statutes as amended “violate the equal protection, due process, and takings provisions of the federal and state constitutions, the federal dormant commerce clause, and the federal prohibition against bills of attainder. The plaintiffs further alleged that enforcement of the statutes violates 42 U.S.C. § 1983.”

The trial court granted the state’s motion for summary judgment on all counts and entered judgment accordingly. MERS appealed. The Supreme Court affirmed.

Genesis of the Amendments Charging MERS Higher Recording Fees

The secondary mortgage market created MERS, or Mortgage Electronic Registration Systems, Inc., to address a costly administrative headache. Generally, a mortgagee records its mortgage to tell the world that it has an interest in the property. When a mortgage loan is sold, the new mortgagee wants to record a mortgage assignment to tell the world that the old mortgagee is out and the new mortgagee is in. When the loan is paid off, the borrower wants the mortgagee to record a release of mortgage to tell the world there is no more mortgage interest in the property. There’s  municipality a recording fee every time anything is recorded.

When mortgage securitizations started gaining popularity in the 1980s, mortgage loans began to change hands frequently and in large quantities. That meant the loan buyers wanted to record an assignment for every loan purchased, which in turn meant a number of things: (i) seller had to sign, with necessary formality to be recorded, an assignment for each loan sold; (ii) buyer had to get the assignment to the proper recording office for each loan purchased; and (iii) someone had to pay the recording fee to record each assignment. When dealing with hundreds or thousands of loans at at time, these things were a pain in the neck administratively, not to mention expensive in both time and money.

Enter MERS. If you’re a member, as most secondary mortgage market participants are, you can record your mortgage in the name of MERS as the nominee for you and your successors and assigns. If you sell the loan to another member, you tell MERS, who keeps track of which member owns which loan. As long as the loan stays with a MERS member, there is no need to record an assignment. In short, MERS is the record mortgagee for every mortgage of every one of its members.

The problem for the state is that it was missing out on recording fees for all those loan transfers between MERS members. So, the legislature raised recording charges for a nominee of a mortgagee to record a mortgage, a mortgage assignment and release of mortgage. In doing so, the legislature defined “nominee of a mortgagee.” MERS is the only entity that meets the definition.

MERS’ Main Arguments on Appeal

MERS claimed that the statutes as amended violated (i) the equal protection clauses of the state and federal constitutions; and (ii) the dormant commerce clause of the federal constitution.

No Equal Protection Violation

The Supreme Court rejected plaintiff’s equal protection arguments. It noted that the parties agreed that the legislature imposed higher fees on MERS “simply to raise additional revenues, either to compensate for fees allegedly lost as a result of the MERS business model or, more generally, to help balance the state’s budget.” Since raising revenue is a quintessential legitimate governmental purpose, the analysis shifted to the question of whether “the legislature had a rational basis for imposing higher recording fees on nominees such as MERS than on other mortgagees.”

The court perceived at least two rational bases for the legislature charging MERS more. First, the legislature reasonably could have  concluded that MERS was in a better position than smaller mortgagees to bear the financial burden of increased fees. Second, the legislature reasonably could  have raised the recording charges for MERS to compensate for the decreased number of recordings MERS engenders.

MERS had four counter-arguments, all of which the court rejected. First, MERS argued that “there is no evidence in the record to support the contention that assignments are recorded less frequently for MERS loans than for other mortgagees’ loans.” The court noted that “under the rational basis test, our review is not limited to theories that the state has documented at trial or that have been subject to judicial fact-finding. Rather, courts may consider—and it is the plaintiffs who must debunk— any rationale that might plausibly have motivated the legislature.” In any event, “it cannot be seriously suggested that the MERS model might not result in fewer recordings in the public land records, with concomitant cost savings to MERS and its users.” The evidence showed that fewer recordings and member cost-savings were paramount considerations for the MERS model.

Second, MERS argued that “there is no legal requirement that assignments be recorded in the public land records[.]” I assume this to mean that, since recording isn’t mandatory, it’s unfair to charge MERS more than others for the same benefit. The court called this argument a “red herring.” MERS’ own literature shows that MERS considered recording a necessity.  As a practical matter, recording is necessary “if the holder is to perfect its security interest and to avoid potentially costly gaps in the chain of title.”

Third, MERS argued that “even if town clerks do perform fewer recording duties with respect to MERS loans than non-MERS loans, there is no reason to compensate town clerks for lost recording revenues because they already save the costs associated with not having to record assignments of MERS loans, or, put differently, clerks are not entitled to payment for services that they do not perform[.]” The court gave three reasons for rejecting this argument: (i) Recording fees cover not only the marginal cost of physically recording a document but also things like the clerk’s salaries, facilities and technological requirements; (ii) “The principal service provided [by the clerk], and the principal value to the recording party” is not the act of recording but the perpetual maintenance of a record of the transaction; and (iii) In addition to compensating the clerk for lost revenue, higher recording charges force MERS to pay for a portion of the benefit its members receive through the MERS system.

Lastly, MERS argued that “even if town clerks have lost recording fees under the MERS system, there is no rational relationship between those losses and the fees imposed under [the amendments].” This argument stems from the fact that the town clerks don’t retain the entirety of the recording charge. The court noted that “the legislature reasonably could have concluded that only a handful of Connecticut towns still hew to the traditional model under which financially independent clerks’ offices retain the recording fees they collect, and that, in most cases, such fees are now paid into a town’s general revenues…. Accordingly, a falloff in recording fees will adversely impact municipal budgets and potentially result in a heightened need for local community support by the state.”

No Dormant Commerce Clause Violation

The court noted that the federal constitution’s commerce clause gives Congress the power to regulate inter-state commerce. “[T]he United States Supreme Court has] consistently held this language to contain a further, negative command, known as the dormant [c]ommerce [c]lause, prohibiting certain state [regulation] even when Congress has failed to legislate on the subject…. [T]he dormant [c]ommerce [c]lause precludes [s]tates from discriminat[ing] between transactions on the basis of some interstate element. . . . This means, among other things, that a [s]tate may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the [s]tate. . . . Nor may a [s]tate impose a tax [that] discriminates against inter- state commerce either by providing a direct commercial advantage to local business, or by subjecting interstate commerce to the burden of multiple taxation.”

Even though recording is a purely local activity, MERS has a national membership that participates in a national secondary mortgage market. The court found this sufficient to implicate the dormant commerce clause.

Saving the court from having to decipher a “quagmire” of United States Supreme Court precedent as to the standard to apply, the parties agreed that “their dispute boils down to the question of whether two central criteria … are satisfied. First, a state user fee or tax is presumed to violate the dormant commerce clause if it facially discriminates against interstate commerce…. Second, a fee or tax that is facially neutral nevertheless may offend the dormant commerce clause if it has the practical effect of imposing a burden on interstate commerce that is disproportionate to the legitimate benefits.”

The court concluded that there was no facial discrimination for four reasons: (i) There is no indication that charging MERS higher fees “reflected an invidious discrimination against out-of-state interests, or an effort to favor Connecticut-based financial companies”; (ii) “[T]he legislature’s apparent intent was not to impose higher recording fees on residential mortgage transactions with a national character but, rather, merely to indicate that the higher fees are directed at MERS and any other mortgage nominees that may develop virtual recording systems to facilitate transactions in the secondary mortgage market”; (iii) “[T]he United States Supreme Court has explained that ‘a fundamental element of dormant [c]ommerce [c]lause jurisprudence [is] the principle that any notion of discrimination assumes a comparison of substantially similar entities” and MERS is not substantially similar to any other entity; and (iv) “[E]ven if we believed that the statutes in question discriminated against interstate commerce, we would conclude, for reasons discussed [earlier] in … this opinion, that there is no constitutional violation because such discrimination advances a legitimate local purpose.”

The court also concluded that the statutes placed no undue burden on MERS. Without the increased charges, MERS gets a benefit but doesn’t have to pay for it like other mortgagees. More specifically, MERS members get the protections afforded by recorded mortgage but don’t pay to transfer those protections when the mortgage loan is transferred on the secondary mortgage market because they don’t have to record anything. Non-MERS mortgagees have to pay to record an assignment to continue that protection when they sell, or buy, a mortgage loan on that market.

Next, the court noted that “[t]he United States Supreme Court also has suggested that, in gauging the burdens imposed on interstate commerce, a reviewing court should consider whether, if every state were to adopt the challenged policy, the result would be to ‘place interstate commerce at a disadvantage as compared with commerce intrastate.'” In this regard, the court concluded, as follows:

In the present case, even if every state were to charge $106 extra to record MERS-listed mortgages in its corresponding land records, there is nothing in the record to suggest that those higher fees, taken together, would unduly burden interstate commerce. There is no indication that higher recording fees would so overshadow the benefits of participation in a national electronic registration system that borrowers and lenders would opt not to participate in MERS or that the vitality of the secondary mortgage market would be compromised. The parties have agreed that higher fees have not resulted in a loss of MERS business within this state, and there is no reason to believe the outcome would differ elsewhere, or nationally. Nor is there any evidence of (1) what share of the estimated $5.4 million that the state will receive in additional annual recording fees will be borne by MERS and its members, and how that amount compares to the annual profits on their residential mortgage lending business in Connecticut, (2) what share of the increased fees will be borne by borrowers, and what impact those fees will have on their total closing costs, or (3) what cost savings MERS, its members, and borrowers in MERS-related transactions have achieved as a result of the MERS system. We are mindful in this regard of the United States Supreme Court’s recent guidance that the judiciary is particularly ill-suited to making the sorts of complex predictions and subtle cost-benefit calculations necessary to assess whether a particular tax scheme is unduly burdensome.

Other Things to Note

In footnote 8, the court noted that “plaintiffs also contend that the amendments to [the statutes] were motivated by an impermissible desire to punish MERS for its business model. The trial court rejected this allegation, and we find no support for it in the legislative history. Even if it were true, however, the outcome of our analysis would be no different. As long as the challenged distinction is rationally related to some legitimate public purpose that conceivably may have motivated the legislature, it is irrelevant whether certain legislators also may have been motivated by animus toward the plaintiffs.”

In footnote 13, the court said: “It might also be argued that, insofar as the state’s purpose in imposing higher recording fees on MERS-listed mortgages is to prevent a competitor in the mortgage recording business from free riding on its public recording system, the state acts as a market participant—as well as a regulator— with respect to MERS and, therefore, is immune from challenge under the dormant commerce clause.”

Buyer Loses his Deposit

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house-for-sale-signA buyer loses his deposit when he declines a mortgage contingency clause and then doesn’t obtain financing that he likes, according to a Connecticut Appellate Court opinion to be officially released on February 16, 2016.

In Tsiropoulos v. Radigan, plaintiff entered into a contract to buy defendant’s residential property. He made a $30,000 deposit but not have a mortgage contingency clause. When he didn’t get the financing he wanted, he told defendant he couldn’t close and encouraged her to sell the property to someone else. Three weeks later defendant did just that, for $4,000 more than plaintiff was going to pay. Plaintiff demanded his deposit back. Defendant declined to return it, relying on the liquidated damages provision of the contract. The liquidated damages provision said that seller gets to keep the deposit if buyer is unwilling or unable to perform.

Plaintiff commenced an action for breach of contract and unjust enrichment. Defendant asserted the special defense of wilful termination, among others, and a counterclaim to retain the deposit.

The trial court found that the liquidated damages clause was enforceable and rejected defendant’s breach of contract and unjust enrichment claims. The trial court also found that plaintiff wilfully breached the agreement and ordered that defendant keep the $30,000 deposit. Plaintiff appealed. The Appellate Court affirmed.

Plaintiff’s Main Arguments on Appeal

Plaintiff claimed that the trial court erred in finding (i) the liquidated damages clause enforceable; (ii) plaintiff wilfully terminated the contract; and (iii) defendant was not unjustly enriched.

Appellate Court Concludes Buyer Loses his Deposit

The Appellate Court noted that a liquidated damages clause is not an unenforceable penalty “if three conditions are satisfied: (1) The damage which was to be expected as a result of the breach of the contract was uncertain in amount or difficult to prove; (2) there was an intent on the part of the parties to liquidate damages in advance; and (3) the amount stipulated was reasonable in the sense that it was not greatly disproportionate to the amount of the damage which, as the parties looked forward, seemed to be the presumable loss which would be sustained by the contractee in the event of a breach of the contract.”

The court concluded that the liquidated damages clause met the three conditions. In doing so, it rejected plaintiff’s argument that defendant was not damaged because she promptly sold the property, and for $4,000 more than plaintiff was going to pay.

As to willfulness of the breach, the Appellate Court noted that “[t]he contemporary view is that the court must consider not only the deliberateness of the breach, but also other factors in determining whether to apply the court’s equitable jurisdiction. . . . These factors include, among others, the degree of innocence of the breach, the amount of the detriment to the breaching party and the amount of the benefit conferred upon the nonbreaching party.”

The court rejected plaintiff’s argument that he terminated the contract because he couldn’t obtain financing, which was not wilful on his part. The court concluded that plaintiff’s wilfulness didn’t derive from not obtaining financing. Rather, plaintiff “wilfully waived a financial contingency [i.e., the mortgage contingency clause] that put not only him, but also the defendant, at financial risk.” In other words, plaintiff wilfully assumed the risk that he would lose his deposit if he didn’t get the financing he wanted and that’s exactly what happened.

The Appellate Court didn’t say much about plaintiff’s final argument that defendant was unjustly enriched. It noted that “[i]t was the plaintiff’s burden to ‘demonstrate that the property could, at the time of [his] breach, have been resold at a price sufficiently higher than [the] contract price to obviate any loss of profits and to compensate the seller for any incidental and consequential damages.'” The Appellate Court couldn’t say that the trial court’s conclusion that defendant was not unjustly enriched was clearly erroneous.

Other Things to Note

Defendant claimed her attorney’s fees pursuant to a contract provision and the trial court awarded them. The parties stipulated to the amount of $20,000.

About the Photo

It’s for a property in Georgia — that’s not haunted.

No Absolute Right to Withdraw and Restart an Action

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cameraA plaintiff has no absolute right to withdraw and restart an action. The Connecticut Appellate Court reached this conclusion, and spoke about some other interesting procedural topics, in Palumbo v. Barbadimos, to be officially released on February 16, 2016.

Plaintiff commenced a tort action. Defendant answered and plaintiff replied to the special defenses. After the time to claim a jury expired, plaintiff attempted to withdraw its reply to the special defenses. Defendant objected, arguing that the withdrawal really was an attempt to start a new clock for a jury claim. Plaintiff failed to meet the substance of that argument. The trial court sustained defendant’s objection.

Plaintiff commenced a new action on a nearly identical complaint and withdrew the original action. Plaintiff’s counsel said in an email to defense counsel that “I am going to withdraw the case. [The defendant] has been served with a new writ. I did want a jury and your objection was sustained.” Defendant moved to restore the original action to the docket and attached the email to its memorandum in support. Defendant requested oral argument, which the court granted.

Plaintiff didn’t file a written response. At oral argument, plaintiff took the position that it was her case and she could withdraw it. The trial court gave plaintiff an opportunity to submit a written response. She did but it essentially was limited to an assertion that CGS § 52-80 was dispositive. The statute permits a plaintiff to “withdraw any action … before the commencement of a hearing on the merits thereof.”

The trial court denied the motion to restore. Defendant appealed and moved for an articulation, which the trial court provided. “According to the court, the defendant had failed to establish that he had any vested right in a bench trial. The court relied, at least in part, on the fact that even if a plaintiff fails to claim a case to the jury docket, the trial court nevertheless retains discretionary authority to place the case on the jury docket ‘at any time.’” The trial court relied on CGS § 52-215, which provides that “any … case [properly triable to a jury] may at any time be entered in the docket as a jury case … by order of court.” The trial court also relied on “the broad nature of a plaintiff’s right to withdraw an action pursuant to § 52-80.”

The Appellate Court reversed.

Defendant’s Main Argument on Appeal

Defendant argued that the trial court had abused its discretion in denying the motion to restore because it allowed plaintiff to avoid the consequence of failing to timely claim a jury trial and circumvented the court’s order sustaining defendant’s objection to plaintiff’s motion to withdraw its reply to the special defenses.

Appellate Court Concludes there is No Absolute Right to Withdraw and Restart an Action

The Appellate Court began its analysis by noting that it “often has used, without further explication, the phrase ‘absolute and unconditional’ to describe a plaintiff’s right under § 52-80 to withdraw an action before a hearing on the merits has occurred.” This, however, means “only that, prior to a hearing on the merits, the withdrawal of an action does not require the permission of the court.” From other precedent it is “clear that the right of withdrawal may be trumped in certain circumstances by another party’s right to restore the case to the docket.”

When does the right to restore the case to the docket trump the right of withdrawal? The Appellate Court explained, as follows:

It is important that we take this opportunity to clarify that the broad authority granted to a plaintiff pursuant to § 52-80 to unilaterally withdraw an action prior to a hearing on the merits does not automatically extend to the plaintiff the additional right to commence an essentially identical action following that withdrawal if the primary purpose for doing so is to undermine an order of the court rendered in the prior litigation or if the withdrawal and subsequent refiling implicates a substantial right that vested in another party to the litigation and that likely will be jeopardized should the plaintiff proceed with the new action…. In either instance, if seasonably requested by the defendant or other third party, the court should exercise its discretion to restore the original action to the docket.

The court then addressed whether defendant had acquired some right in the original action that he would lose if he had to defend the second action. The court concluded defendant had acquired such a right, as follows:

Having failed to comply with either of the time periods set out in § 52-215 [for claiming a jury], the plaintiff waived her right to unilaterally claim her original action to the jury docket…. At that time, the defendant acquired the right to have the parties’ dispute decided by the trial court. Although that right was subject to divestment by the trial court should it choose to exercise its own discretion to order a jury trial, the decision to do so was outside the control of the plaintiff and was never requested in this case. It is reasonable to infer from the defendant’s choice not to exercise his own right to claim the matter to the jury docket that he perceived some advantage to proceeding with a bench trial and that a divestment of that right by the plaintiff’s actions would prejudice him.

The court described the prejudice defendant would suffer, this way:

The defendant’s interest in having the original action restored to the docket and tried before the court rather than having to proceed with the inevitable jury trial in the second action is a substantial one. If the defendant is forced to defend the second action, he undoubtedly will incur additional expenses in the form of attorney’s fees, costs and other expenses necessary to get the pleadings closed in that action. Moreover, it is undis- puted that because of the right to individual voir dire in this state, significant additional expenditures of time and money would be involved in the selection of a jury.

Other Things to Note

In footnote 9, the Appellate Court noted it “previously has indicated that in the absence of some seasonable objection by the opposing party to exhibits attached to a motion before the trial court for adjudication, the trial court properly may consider the attached exhibits in reaching its decision, even if the exhibits were not formally introduced into evidence by the moving party.” Attaching unauthenticated documents to motion papers is a widespread practice in Connecticut, unlike every other jurisdiction where I’ve ever filed a motion or opposition (off the top of my head that’s New York, New Jersey, California and Texas, not to mention federal courts). I guess it’s no different than trial: If you have a legitimate authenticity beef, it’s worth raising. If not, and you do raise it, all you really do is get the judge mad at you.

In footnote 12, the Appellate Court declined to limit its holding to cases where plaintiff commenced a new action: “It is important to note, however, that even in cases that have been withdrawn outright, with no new action filed, circumstances may arise in which the court may restore an action to the docket, not for the purpose of forcing a plaintiff to litigate a cause of action that was withdrawn as of right, but to protect important interests of parties to the litigation.”

In footnote 13, the court declined to limit its holding to cases where the defendant had a “vested right” that would be lost in the second action: “We do not purport to decide whether other circumstances might arise that would trigger the court’s authority to restore a voluntarily withdrawn action to the docket. For example, even in the absence of a vested right, a party may be significantly prejudiced by the withdrawal or the withdrawal may have an adverse effect on the due administration of justice.”

In footnote 15, the court noted: “General Statutes § 52-212a, which provides that civil judgments may only be opened or set aside within four months of the date they were rendered, is applicable not only to the opening of a case that has proceeded to judgment but also to the restoration of a withdrawn case” (internal quotes omitted).

About the Photo

It’s a camera lens and has nothing to do with the case. I just liked it.

Child’s Uninsured Medical Expenses were not “Unreimbursed”

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eye

The Connecticut Appellate Court concluded that a child’s uninsured medical expenses were not “unreimbursed” for purposes of a child support order where someone other than a parent paid them. In Schull v. Schull, the parties were under court orders to share equally all of their minor children’s unreimbursed medical expenses. Their son had an eye disorder. Plaintiff wanted him to have an experimental surgery that was not covered by her insurance, at a cost of nearly $56,000. Defendant was concerned over the surgery’s experimental nature and cost. Plaintiff said her father would pay for it as a gift to the son.

The son had the surgery when he was 17. Plaintiff’s father paid for it in full. Plaintiff never asked defendant to pay anything.

After the son graduated from high school and turned 18, defendant moved to terminate child support. Plaintiff did not contest termination and did not claim any arrearage.

Nearly a year later, plaintiff filed a motion for contempt, claiming that defendant filed to comply with the court’s orders that he pay 50% of the son’s unreimbursed medical expenses. She claimed that the money from her father was a loan to her, not a gift to the son. The trial court found her testimony “dubious” and noted that plaintiff did not present any evidence of a loan or that she was paying it back. The court gave her two months to submit that evidence. If she met that condition, defendant would be obliged to pay $25 per month towards his putative $28,000 obligation.

I’m going to pause the factual recitation here. Think of it like an aside in a play. At $25 a month, it would take defendant more than 91 years to pay his share. Clearly, the judge was telling plaintiff to let it go. She didn’t.

Instead of submitting the evidence the judge requested, plaintiff filed a motion to reargue, which the court denied. She later filed a motion to open on the basis of fraud. She alleged that defendant had misrepresented his assets in his financial affidavit and could pay more than $25 per month. She still didn’t submit the evidence the court requested. By the time the court considered the motion to open, the evidence deadline had passed.  Instead of denying it outright on that basis, the trial court found no probable cause to believe there was a fraud and denied the motion.

Plaintiff appealed. The Appellate Court affirmed.

Plaintiff’s Main Argument on Appeal

Plaintiff argued that the support orders unconditionally obligated defendant to pay 50% of the son’s unreimbursed medical expenses. Therefore, the trial court improperly conditioned defendant’s payment obligation on proof that plaintiff’s father had loaned plaintiff the money to pay for the surgery and she was paying it back.

Appellate Court Concludes Child’s Uninsured Medical Expenses were not “Unreimbursed”

The Appellate Court noted that the support orders did not define “unreimbursed medical expenses.” But the child support guideline regulations consider unreimbursed medical expenses to be those “not covered by insurance or reimbursed in any other manner” (my emphasis). Since plaintiff failed to prove that she was obliged to repay her father, the surgery expenses were not unreimbursed even though they weren’t reimbursed by insurance. They were reimbursed in another manner — namely by plaintiff’s father’s gift to the son.

The court concluded that defendant didn’t have any obligation to reimburse plaintiff. “To hold otherwise would give [plaintiff] a windfall; she would have no obligation to pay her 50 percent share of the medical expenses, and, at the same time, the defendant would be responsible to give to her his 50 percent share.”

Appellate Court Concludes Plaintiff’s Other Arguments were Moot

Plaintiff also argued that $25 a month was too small a payment and the trial court should have granted her motion to open the judgment on the basis of fraud.

The Appellate Court concluded these arguments were moot because plaintiff missed the deadline for submitting the “proof of loan” evidence (and in fact never submitted any). In other words, the size of the monthly payment and defendant’s ability to pay more were moot because plaintiff’s failure to submit the evidence meant defendant didn’t have to pay anything.

Other Things to Note

The Appellate Court observed that the trial court’s conditional order of payments, including plaintiff’s evidence deadline, was an order related to child support. Under Practice Book § 61-11(c), plaintiff’s motion to open did not automatically stay the conditional order, which means it did not stay  plaintiff’s evidence deadline. So, while plaintiff’s motion to open did extend her time to appeal the order, it did not extend her time to comply with the order.

In footnote 2 of the opinion, the court noted that defendant did not file an appeal brief but his attorney asked to be heard at oral argument. The Appellate Court rejected the request because Practice Book § 70-4 says you can’t argue if you didn’t file a brief or join in someone else’s.

In footnote 12, the court cautioned that not every gift would be considered a reimbursement by other means. For example, “if the plaintiff had established that her father simply had given her a gift of $50,000, untethered to her son’s medical expenses, and that the plaintiff then chose to use those funds to pay the medical expenses, then that gift would not be considered a reimbursement of medical expenses.”

About the Photo

The son had an eye condition called aniridia, which is an absence of the iris. The American Association for Pediatric Ophthalmology and Strabismus describes it in detail here.

Nonsuit for Untimely Sanction Payment Reversed

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MarsNonsuit for untimely sanction payment reversed in a Connecticut Appellate Court decision to be officially released on February 9, 2016.

In Herrick v. The Monkey Farm Cafe, LLC, plaintiff sought recovery for injuries he sustained in a fight outside defendants’ bar. Defendants filed a request to revise the complaint. The trial court overruled plaintiff’s objection and ordered plaintiff to revise its complaint. “During the ensuing year, the plaintiff filed seven revised complaints and/or motions to amend the revised complaints. Following the plaintiff’s first four attempts to revise, the defendants filed a motion for nonsuit … claim[ing] that the plaintiff had failed to comply with the court’s … order to revise his complaint.”

At the hearing on the motion for nonsuit, defendants’ counsel asked the trial court for a $2,700 sanction against plaintiff representing defendants’ attorney’s fees in dealing with plaintiff’s ever-changing complaint. The trial court awarded $500 in attorney’s fees but did not set a payment deadline. Plaintiff’s counsel said it would be paid by the end of the week.

Two months later, defendants filed another motion for nonsuit, because they had not received the payment. Plaintiff explained that his attorney had mailed a $500 check but defendants’ counsel apparently had not received it. “The objection also stated that the plaintiff’s counsel had paid the sanction that day, rectifying the initial mailing error, by ordering a money order for the $500 and mailing it overnight, via Federal Express, to the defendants’ counsel. The plaintiff attached the receipt for a $500 money order paid to the firm of the defendants’ counsel to his written objection.”

The trial court overruled the objection and nonsuited plaintiff. “Although counsel had already paid the sanction prior to the judgment of nonsuit, the court noted that ‘[i]f the plaintiff can produce something which proves that the $500 ordered by the court was paid (or attempted to be paid) promptly, the court will reconsider [its] ruling.'” Plaintiff moved for reconsideration. He submitted his attorney’s affidavit, which explained that the attorney obtained a bank check and mailed it eight days after the court’s original order. The affidavit included supporting documentation from plaintiff’s attorney’s bank showing that the bank wrote the check but it never was deposited.

“Notwithstanding this information, the court denied the motion for reconsideration.”

Plaintiff appealed. The Appellate Court reversed.

Arguments on Appeal

“On appeal, the plaintiff claim[ed] that the trial court abused its discretion by rendering a judgment of nonsuit against him for the failure of his counsel to pay the underlying sanction. Specifically, the plaintiff argue[d] that his counsel made a good faith effort to comply with the court’s order and that the judgment of nonsuit was a disproportionate response to his counsel’s failure, promptly, to effectuate the payment of $500 to the defendants’ counsel.”

Appellate Court’s Conclusion

The Appellate Court concluded “that the judgment of nonsuit disproportionately punished the plaintiff for his counsel’s untimeliness in complying with its sanction order.” The Appellate Court noted that the trial court “did not find the failures of the plaintiff’s counsel to be wilful or contemptuous. Nor did the court find that counsel’s failures showed a deliberate and repeated disregard for the court’s authority. Such findings often will support such a harsh response from the court as a judgment by nonsuit…. Additionally, we are not insensitive to the apparent harshness of any decision by a court that may be perceived as punishing the client for the transgressions of his or her attorney.”

“[T]he failure of the plaintiff’s counsel to pay the sanction timely, an indiscretion uniquely counsel’s and unrelated to the merits of the case, resulted in the plaintiff’s disenfranchisement from
court, a punishment that was disproportionate to counsel’s failure of timely compliance.”

Impact

Do your best to avoid sanctions. If you can’t, pay on time. It’s not worth the trouble.

About the Photo

Sometimes I can’t understand how some things happen in court. On those occasions, I say, “I must be from Mars.”

Standing is Slippery Subject Matter

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standing is slippery subject matterStanding is slippery subject matter, as made clear in the Connecticut Appellate Court’s decision in R.S. Silver Enterprises, Inc. v. Pascarella, to be officially released on February 9, 2016.

The essence of this dispute was that plaintiff, a real estate brokerage, invested $1,250,000 in defendant’s real estate project in exchange for a share of the project’s profits. Plaintiff later transferred its brokerage assets to a new company and ceased operating. Apparently, plaintiff’s principal later realized that defendant never paid plaintiff any share of profits. Plaintiff sought and obtained reinstatement as a corporation from the Secretary of State. It then sued defendant for breach of contract, breach of fiduciary duty and an accounting.

Defendant asserted twenty-two special defenses, including two that called plaintiff’s standing into question. The twenty-first special defense challenged plaintiff’s standing with a claim that plaintiff had assigned its rights under the contract it claimed defendant breached when it transferred its brokerage assets to the new company. The sixth special defense challenged standing on the ground that the Secretary of State should not have reinstated plaintiff as a corporation.

On plaintiff’s motion to strike, the trial court struck the twenty-first and sixth special defenses, and eighteen others. The case was tried to the court, who ultimately (more on that later) found for plaintiff on the breach of contract claim and awarded damages.

Defendant appealed. The Appellate Court remanded to the trial court for determination of the twenty-first special defense, presumably because it implicated standing. The Appellate Court retained jurisdiction over defendant’s other claims pending the trial court’s decision. The trial court conducted an evidentiary hearing and determined that plaintiff had not assigned its interest in the contract it had with defendant.

Because the trial court rejected the twenty-first special defense, the case returned to the Appellate Court for review of that determination as well as defendant’s other claims on appeal.

The Appellate Court affirmed.

Arguments on Appeal

Defendant maintained that plaintiff lacked standing because it had assigned its contract interest to the new company and “lacked the legal capacity to bring this action because it should have been
barred from reinstatement as a Connecticut corporation before this action was commenced.”

Defendant also argued that the trial court should not have struck its second and fourth special defenses which alleged that public policy precluded plaintiff from pursuing this matter because plaintiff (i) obtained reinstatement through a fraud on the Commissioner of Revenue Services; and (ii) engaged in bankruptcy fraud when it entered into the contract at issue and thus had unclean hands.

Defendant also argued that the trial court’s judgment was ‘‘ineffective because it was issued 966 days after the completion of trial in violation of . . . General Statutes § 51-183b [which requires a court to issue a decision on a matter heard by it within 120 days from the date of the end of the proceeding].’’

Appellate Court’s Conclusions

The Appellate Court agreed with trial court that the contract pursuant to which plaintiff transferred assets to the new company unambiguously transferred only brokerage assets. Plaintiff’s interest under the contract with defendant was not a brokerage asset and was not listed in the schedule of assets transferred. So, plaintiff still owned the contract interest.

Next, defendant based its “lack of legal capacity” argument on its claim that plaintiff obtained corporate reinstatement from the Secretary of State through a fraud on the Commissioner of Revenue Services. The court noted that defendant already had brought a separate action on this fraud issue against the Commissioner of Revenue Services, the Secretary of State and plaintiff. The trial court in that separate action dismissed it, finding that defendant did not have standing to challenge plaintiff’s reinstatement because defendant was not aggrieved by plaintiff’s reinstatement. Aggrievement is an element of standing. The Appellate Court affirmed and the Supreme Court denied certification. Since defendant did not have standing to raise the issue in a separate action, it did not have standing to raise it as a defense in this action.

The court rejected defendant’s first public policy argument for the same reason: defendant lacked standing to challenge plaintiff’s reinstatement. The court also rejected defendant’s bankruptcy fraud-unclean hands public policy argument. Fleshing it out a bit more, defendant’s  claim was that plaintiff was in bankruptcy when it invested with defendant and had promised the investment funds to its creditors as part of the bankruptcy. The court first noted that the special defense said nothing about unclean hands. Even if defendant’s allegations could be read as asserting that defense, the unclean hands must have some relation to the activities at issue in the instant case. The possibility that the investment funds should have gone to plaintiff’s creditors does not change the fact that the investment funds actually went to defendant. If plaintiff’s hands were unclean, they were unclean as to its bankruptcy creditors, not as to defendant.

The Appellate Court agreed with the trial court’s conclusion as to defendant’s “timeliness of decision” argument.  As its decision deadline approached after the trail and post-trial briefing, the trial court had asked for an extension of its time to decide. All parties consented and no party placed any limitation on its consent. The trial court found for plaintiff on the breach of contract claim but only as to liability. It reserved decision on the accounting claim because it was unclear whether plaintiff, having prevailed on the breach of contract claim, still wanted an accounting. It also reserved decision on the amount of damages for the breach of contract claim because the amount could be affected by an accounting if there was going to be one. The court asked the parties to submit additional briefing on those issues, which they did. Defendant later initiated motion practice essentially claiming that its consent was to a “reasonable” extension and the court had taken too long. The trial court denied the motions on the ground that defendant’s unconditional consent to the court’s requested extension was a waiver of any time limit on the court’s decision. The trial court ultimately issued a final judgment denying the accounting claim and awarding damages on the breach of contract claim.

Impact

This decision tells me that standing is slippery subject matter. First on my list of things that confuse me is that it is well-settled that standing is an aspect of subject matter jurisdiction, which cannot be waived. The law also is clear that plaintiff has the burden of proof on standing. For these reasons, a defendant does not have to raise lack of standing as a special defense. Though I didn’t mention it above, the court ascribed the burden of proof on the standing issue to defendant. It seems to me that plaintiff should have had that burden. It probably would not have changed the outcome but I like to have clarity.

Next, the reinstatement question is really one of capacity to sue. It seems to me that if plaintiff obtained its capacity to sue (i.e., corporate reinstatement) through fraud, it never really obtained capacity to sue. If a plaintiff who lacks capacity to sue also lacks standing, the court’s focus should have been on whether plaintiff lacked capacity to bring the instant action, not on whether defendant lacked standing to raise the issue as a plaintiff in a separate action. In other words, defendant’s aggrievement, or lack of it, is irrelevant to whether plaintiff lacks standing.

Lastly, if you don’t want the court to have as much time as it wants to decide something, you have to limit your consent to an extension of time.