Business Litigation: 2010 in Review

JurisdictionConnecticut,United States
Publication year2021
CitationVol. 85 Pg. 131
Connecticut Bar Journal
Volume 85.


Connecticut Bar Journal
Volume 85, No. 2, Pg. 131
March 2011


By William J. O'Sullivan(fn*)

For Connecticut business litigators, 2010 was noteworthy in two respects. First, in a pair of Connecticut Supreme Court opinions-one for the majority, one in concurrence- Justice Peter T. Zarella pointedly challenged bench and bar to rethink well entrenched principles of business tort law. Second, a number of court decisions demonstrated how the practice of mortgage foreclosure law has struggled to keep up with changes in the mortgage industry, particularly the bundling and securitization of home mortgages. This article will discuss these developments, as well as other significant judicial opinions that were issued in 2010 in the realm of business law.

The first of the Justice Zarella cases, Naples v. Keystone Building and Development Corporation,(fn1) contains a useful discussion, in the majority opinion, about piercing corporate veils. Of greater interest are the disparate discussions, in the majority opinion and Justice Zarella's concurrence, about the plaintiffs claim under the Connecticut Unfair Trade Practices Act ("CUTPA").(fn2)

The majority's summary of the legal framework for evaluating a CUTPA claim consists largely of familiar language about the Federal Trade Commission's "cigarette rule,"(fn3) which the court has been citing for more than twenty-five years.(fn4) But in his concurrence, Justice Zarella takes the entire Supreme Court (himself included) to task for failing to stay abreast of evolving FTC law-namely, major policy statements and decisions issued by the FTC, and caselaw pertaining to the same-in construing CUTPA.(fn5) In failing to do so, Justice Zarella suggests, the court has not fulfilled CUTPA's mandate that "the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), as from time to time amended."(fn6)

Justice Zarella notes that the Naples case did not lend itself to a comprehensive review of CUTPA. However, his language can be construed as a clear warning that, when briefing a CUTPA claim, it may not suffice for an attorney to cut and paste from old briefs containing boilerplate "cigarette rule" language from decisions from the 1980s. Given the right case, the Connecticut Supreme Court seems open to a fresh analysis of the proper framework for a CUTPA claim.

The second of the Justice Zarella opinions of interest was issued in Stuart v. Stuart,(fn7) in which he wrote for a unanimous panel. The narrow holding in Stuart, in a significant issue of first impression, was that the standard of proof for a claim for treble damages under the civil theft statute(fn8) is by a preponderance of the evidence. In so ruling, the Supreme Court reversed the Appellate Court, which had held in the same case that the applicable standard is by "clear and convincing evidence."(fn9)

Much like Justice Zarella's concurrence in Naples, the Supreme Court's opinion in Stuart also contains a broad invitation to re-examine a seemingly settled area of the law-the requirement that a party prove common-law fraud by clear and convincing evidence. The court observed that "a review of our case law on the development of the standard of proof in fraud actions compels us to question the soundness of those prior decisions,(fn10) although we need not decide in the present case whether they should be overruled."(fn11) The court quoted at great length from its decision from 1991 in Kilduff v. Adams,(fn12) in which the court had considered, but dismissed as unpersuasive, the various rationales for requiring fraud to be proven by the higher standard.(fn13) Apparently the court continues to find that body of law unpersuasive, and accordingly was "loath to extend the application of the clear and convincing standard of proof further, to claims brought pursuant to § 52-564."(fn14) The court thus appears open to a wholesale examination of the "clear and convincing evidence" rule as applied to civil fraud cases.

In the realm of foreclosure law, several cases illustrate how attorneys and judges have lately been struggling with a basic question that used to have a simple answer: who has standing to foreclose? The issue arises from the relatively recent development of a vigorous secondary market for residential mortgages, in which they are repeatedly re-assigned and/or securitized. This raises the question of who owns, and thus has standing to foreclose, a given mortgage at a given time.

In a pair of decisions involving the same pro se defendant but different lenders and different properties, Deutsche Bank National Trust v. Bialobrzeski(fn15) and LaSalle Bank, National Association v. Bialobrzeski,(fn16) as well as a third case involving different parties, Equity One, Inc. v. Shivers,(fn17) the Appellate Court affirmed the principle that a foreclosing bank must prove that it had ownership of the promissory note at the time it commenced foreclosure. This requires evidence not only of the chain of title to the note, but of the date on which the foreclosing lender acquired ownership of the instrument. In all three of these cases, the trial court had denied the defendant's motion to dismiss without conducting an evidentiary hearing, and in all three cases, the Appellate Court ordered such a hearing after remand.

The Appellate Court emphasized that the critical inquiry is the date on which the lender acquired the note, not the date it took an assignment of the mortgage. Evidence of the latter would not suffice to meet the bank's evidentiary burden. The court reaffirmed the principle that "the mortgage follows the note."(fn18)

Another case relying upon that principle was Chase Home Finance, LLC v. Fequiere.(fn19) The borrower signed a note payable to BNC Mortgage, Inc., and a mortgage to MERS (Mortgage Electronic Registration Systems), Inc.(fn20) as nominee for BNC Mortgage, Inc., its successors and assigns. BNC Mortgage, Inc. endorsed the note in blank, and MERS assigned the mortgage to the plaintiff, U.S. Bank National Association, Trustee, a non-MERS member, by a mortgage assignment recorded on the land records. At the time of foreclosure, the plaintiff U.S. Bank was in possession of the note.

The defendant argued that the designation of MERS as mortgage 'nominee' for BNC Mortgage Inc. had not given MERS sufficient title to the mortgage to empower MERS to assign it to U.S. Bank. Thus, went the argument, the plaintiff lacked standing to foreclose.

The Appellate Court disagreed with the defendant, based on General Statutes Section 49-17, which allows the holder of a promissory note secured by a mortgage to foreclose even though the mortgage has not yet been assigned to him. The statute codifies the common-law rule that "the mortgage follows the note."(fn21) The note had been endorsed in blank by the originally obligee, and under General Statutes Section 42a-3-205(a), a note endorsed in blank "becomes payable to bearer and may be negotiated by...

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