ABN AMRO MORTGAGE GROUP, INC. v. PRISTINE MORTGAGE, LLC ET AL.

2005 Ct. Sup. 12525, 40 CLR 46
No. CV 04-4005389Connecticut Superior Court Judicial District of Hartford at Hartford
September 8, 2005

[EDITOR’S NOTE: This case is unpublished as indicated by the issuing court.]

MEMORANDUM OF DECISION ON DEFENDANTS’ MOTIONS TO STRIKE
ROBERT SATTER, JUDGE TRIAL REFEREE.

Defendants Mark S. Chu, Pristine Mortgage Corporation, Pristine Mortgage, LLC, and defendants Alan Budkofsky and Budkofsky Appraisal Company, Inc. move to strike various counts of the plaintiff’s revised complaint.

1. As to Count One
The defendants Mark S. Chu, Pristine Mortgage Corporation, Pristine Mortgage, LLC (hereinafter referred to as “Pristine”) and defendants Alan Budkofsky and Budkofsky Appraisal Company, Inc. (hereinafter referred to as “Budkofsky”) move to strike Count One of the plaintiff’s complaint. That count alleges a conspiracy among all of the defendants to defraud the plaintiff. Specifically, allegation 12 of that count states that during the month of December 2002, the defendants “participated in an ongoing conspiracy to fraudulently obtain mortgage loan proceeds in connection with purchase and sale of the following property.” Allegation 13 alleges that defendant Chu “in furtherance of the conspiracy to fraudulently obtain mortgage loan proceeds” provided false employment information respecting the mortgage applicant, and allegations 17 18 state that Budkofsky “in furtherance of the conspiracy to fraudulently obtain mortgage loan proceeds” prepared false appraisals of the subject property.

It is well recognized that `the requisites of a civil CT Page 12526 conspiracy are: (1) a combination between two or more persons, (2) to do a criminal or an unlawful act or a lawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the scheme and in furtherance of the object, (4) which act results in damage to the plaintiff. Williams v. Maislen, 116 Conn. 433, 437 (1933); Marshak v. Marshak, 226 Conn. 652, 655 (1993); Macomber v. Travelers Property Casualty Company, 261 Conn. 620, 647 (2002).

Defendants assert that Count One fails to state a cause of action in civil conspiracy because there is no allegation that the defendants agreed to carry out the fraudulent scheme. However, the complaint does allege that the defendants “participated in a conspiracy.” Conspiracy is defined as “an agreement to perform together an illegal, wrongful or subversive act.” (American Heritage Dictionary of the English Language Third Edition 1996.)

Thus, the allegation that the defendants “participated in a conspiracy” connotes their agreeing together to perform illegal acts. The allegations specifying the acts done by the defendants “in furtherance of the conspiracy” further connotes their engaging in a common plan. In Findel v. Koos, Civil No. 01 0510859S, Judicial District of New Britain (March 11, 2002, Berger, J.), plaintiffs alleged that the defendants “conspired” to defraud the plaintiffs. The court held “this is sufficient to survive a motion to strike . . .”

This court concludes that the plaintiff has sufficiently stated a cause of action in civil conspiracy and denies the defendants’ motion to strike Count One.

2. As to Counts Two and Three
Defendant Budkofsky moves to strike Count Two of the complaint, which is based upon the conspiracy count and alleges a cause of action in CUTPA, and Pristine moves to strike Count Three, based upon the conspiracy count and alleges a violation of CUTPA.

As to these counts, the defendants argue that if the CT Page 12527 conspiracy count is stricken then the CUTPA count based upon it should also be stricken. The court finds that the conspiracy count is well-pleaded.

Budkofsky also asserts that CUTPA should not apply to appraisers because the appraisers are professionals, like healthcare providers and attorneys. Our Supreme Court has held that only the entrepreneurial aspects of the practice of medicine and law are covered by CUTPA. Hanes v. Yale-New Haven Hospital, 243 Conn. 17, 34 (1997) Beverly Hills Concepts, Inc. v. Schatz Schatz, Ribicoff Kotkin, 247 Conn. 48-79 (1998). However, our Appellate Court has specifically imposed CUTPA liability upon a real estate appraiser for the performance of professional service, such as preparing an appraisal report that was intentionally incorrect. Advanced Financial Services, Inc. v. Associated Appraisal Services, Inc., 79 Conn.App. 22 (2003). Thus, the plaintiff’s motion to strike Counts Two and Three is denied.

3. As to Count Six
In Count Six, the plaintiff alleges that defendant Budkofsky breached a fiduciary duty owed to it. Allegation 16 of this Count reads as follows:

“The defendants (Budkofsky) maintained a fiduciary relationship with the plaintiff informed by the following components:
a. Alan Budkofsky obtained and held himself out as holding a license to serve as a certified general real estate appraiser;
b. Alan Budkofsky in performing the acts and services of a certified general real estate appraiser expressly agreed to conform to the minimum standards identified by the USPAP which was adopted by the Appraisal Standards Board of the Appraisal Foundation (as that is identified in Section 20-504-2 of Connecticut’s Real Estate Appraisal Regulations) in effect at the time of carrying out his appraisal services;
c. Alan Budkofsky carried out his appraisal for the CT Page 12528 primary purpose of providing evidence that the collateral value of the appraised property was sufficient to avoid loss on the loans ultimately advanced by the plaintiff in the eventuality that borrower was unable to repay the loan;
d. Alan Budkofsky carried out the appraisal knowing that his services as a certified general real estate appraiser was primarily intended to protect the mortgage lender from avoidable losses, due to borrower insolvency.

Allegation 11 of Count Four, incorporated by reference into Count Six, states, “The defendant appraisal company knew, at the time it prepared and submitted the subject appraisal that it was going to be materially relied upon by the plaintiff ABN Amro.”

Budkofsky contends that these allegations do not state facts on the basis of which a fiduciary relationship can be found to exist between Budkofsky and the plaintiff.

At the outset of the analysis of this issue, it is important to note that there is no allegation in the complaint that the plaintiff hired Budkofsky or that Budkofsky acted as an agent of the plaintiff. Thus, the naked question is presented of whether or not an independent appraiser, not hired by the bank but knowing his appraisal was rendered to influence the bank in making the loan, owes a fiduciary duty to the bank to submit an honest appraisal.

Our law is clear that “a fiduciary or confidential relationship is characterized by a unique degree of trust and competence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other.” Konover Developnent Corp. v. Zeller, 228 Conn. 206, 219 (1994). However, our courts have recognized that “fiduciaries appear in various forms.” Id.,
p; 222, and “have carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations.” Harper v. Adametz, 142 Conn. 218, 218, 225 (1955).

Our courts have refused to recognize a fiduciary relationship where the parties were either dealing at arms length, thereby lacking a relationship of dominance and dependence, or the parties were not engaged in a relationship of special trust and confidence. Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 39 (2000). CT Page 12529

The significance of the establishment of a fiduciary relationship is twofold. First, the burden of proving fair dealing shifts to the fiduciary. Secondly, the standard of proof for establishing fair dealing is not the ordinary standard of fair preponderance of evidence but requires proof of clear and convincing evidence. Dunham v. Dunham, 204 Conn. 303, 322 (1987).

Real estate appraisers are licensed in the state of Connecticut. Conn. Gen. Stat. § 20-500, et seq.; they are required to take an examination; they are required to “comply with generally accepted standards of professional appraisal practice as described in the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Standards Board of the Appraisal Foundation pursuant to Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act, 12 USC 1811 (1989). C.G.S. § 20-504. The Uniform Standards of Professional Appraisal Practices, 2005 Edition, sets forth specific principles appraisers must comply with in performing their professional duties. The Uniform Standards also contain the following ethics rule:

“1. An appraiser must perform assignments ethically and competently, . . . An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.”

Section 3.6 of the Code of Ethics of the American Society of Appraisers provides:

It frequently happens that an appraisal report is given by the client to third parties for their use. These third parties may or may not be known to the appraiser but, regardless of this fact, they have as much right to rely on the validity and objectivity of the appraiser’s finding as does the client for the specific stated purpose of the intended use for which the appraisal was originally made. Members of the Society recognize their fiduciary responsibility to those parties, other than the client, who made use of their reports.

There is no Connecticut case on whether or not a real estate appraiser has a fiduciary relationship with a bank when the appraiser is not hired by and is not the agent of the bank. In the California case of Gay v. Broder, 109 Cal.App.3d 66 (1980), 167 Cal.Rptr. 123, the court held that an appraiser hired by the Veterans Administration, paid for by the CT Page 12530 mortgage applicant, did not owe a duty of reasonable care to the applicant for a negligent appraisal because there was no privity between the appraiser and the applicant. However, in the Iowa case of Larson v. United Federal Savings Loan Association of Des Moines, 300 N.W.2d 281
(1981), the court upheld a jury verdict in favor of a homeowner against the bank for negligent appraisal by the bank’s appraiser of a home purchased by the owner on the ground that the appraiser could reasonably have known that its appraisal would be relied upon by the purchaser.

Obviously, the duty to exercise reasonable care differs from the existence of a fiduciary relationship that requires a “unique degree of trust and competence between the parties.” Dunham v. Dunham, supra, 322. The latter requires superior knowledge, skill and expertise and either the duty to represent the interest of another or a dominant position creating a relationship of dependency, High-Ho Tower, Inc. v. Com-Tronics, Inc., supra, 39.

The requirement in our statutes that appraisers not only meet Connecticut certification requirements but also national standards of Uniform Standards of Professional Appraisal Practice, issued by the Appraisal Standards Board of the Appraisal Foundation pursuant to Title XI of FIRREA, indicates that appraisers are going to be relied upon not only by a person who may have retained them but also by banks all over the country that purchase mortgages in the national secondary mortgage market. This court can take judicial notice of this market because when sitting on the foreclosure calendar, it recognizes that over half of the mortgages foreclosed upon have been assigned at least once and often several times. The initial appraisal is central to the marketability of these mortgages on the national secondary mortgage market. Connecticut real estate appraisers know that and have placed upon them an enormous obligation to make accurate appraisals.

In this case, the plaintiff alleges that Budkofsky’s appraisal was submitted to it for the purpose of inducing the plaintiff to make the mortgage and that Budkofsky knew that the bank would rely upon it for that purpose.

Moreover, the high professional and ethical standards imposed upon appraisers by our statutes, incorporating by reference those of the Appraisal Standards Board of the Appraisal Foundation pursuant to Title XI of FIRREA, establish appraisers as professionals of superior expertise and create a justifiable dependency that provide the basis for the existence of a fiduciary relationship.

In deciding this motion to strike, the court must construe the CT Page 12531 complaint in favor of the plaintiff, “assume the truth of both the specific factual allegations and any facts fairly provable there under,” and “read the allegations broadly, rather than narrowly.” Craig v. Driscoll, 262 Conn. 312, 321 (2003). This court is further mindful of the Supreme Court’s injunction to be flexible in identifying situations in which fiduciary relationships may arise.

As a consequence this court concludes it is improvident to grant the motion to strike this count but, rather, to leave the question to a trial when all the complexities of the relationship between the parties can be presented and on the basis of all the evidence, the trier can make the determination. See Winter v. Nationwide Mutual Inc. Co., et al., No. 0049205, Judicial District of Litchfield (May 24, 1990, Picket, J.) (1 Conn. L. Rptr. 668) 1990 Conn.Super.Lexis 231.

On that basis, the motion to strike Count Six is denied.

4. As to Count Seven
In Count Seven plaintiff alleges that Pristine was a broker in the mortgage transaction and maintained a fiduciary relationship to the plaintiff. Pristine moves to strike this count on the grounds that the complaint fails to allege facts establishing such a relationship.

Of course, a mortgage broker has a fiduciary relationship with his client. Kurtz v. Farrington, 104 Conn. 257, 269 (1926). No Connecticut cases, however, hold that an independent mortgage broker has such a relationship with a lending institution. The broker stands in a different relationship with the bank than the appraiser. The broker is acting at arms length with the bank to induce the bank to finance the broker’s client’s purchase of real estate. The broker and the bank each have a business interest in effectuating the transaction, the broker getting a commission from his client and the bank giving a mortgage. Hi-Ho Tower, Inc. v. Com-Tronics, Inc., supra, 38-39. No unique degree of trust and competence exists between the parties. The court concludes no fiduciary relationship exists.

As a consequence, the court grants the motion to strike count seven of the complaint.

5. As to Count Eight
Count eight alleges that as a consequence of the fiduciary relationship between the plaintiff and Pristine that Pristine violated CUTPA. Since the court concludes that Pristine does not have a fiduciary CT Page 12532 responsibility to the plaintiff, the court grants the motion to strike Count Eight.

6. As to Count Nine
The complaint alleges that by virtue of the fiduciary relationship between the plaintiff and Budkofsky, Budkofsky breached his fiduciary responsibilities in violation of CUTPA. Since the court has found that Budkofsky did have a fiduciary relationship with the bank, the court denies motion to strike this count.

7. As to Count Ten
Plaintiff alleges in Count Ten of the complaint that Budkofsky, by submitting a false appraisal and receiving fees and commissions based upon the inflated appraisal, is guilty of civil theft in violation of Conn. Gen. Stat. § 52-564. Budkofsky moves to strike this count on the ground that the commissions or fees realized by Budkofsky were never the property of the plaintiff and so Budkofsky could not have stolen them from the plaintiff in violation of that statute. Conn. Gen. Stat. § 52-564
provides “Any person who steals any property of another . . . shall pay the owner treble damages.” (Emphasis added.) Since the plaintiff has not alleged that Budkofsky’s commissions or fees were ever the plaintiff’s property, the plaintiff has failed to allege a cause of action under Conn. Gen. Stat. § 52-564. As a consequence, the motion to strike count ten of the complaint is granted.

Based upon the foregoing, the court grants the motion to strike Counts Seven, Eight and Ten, and denies the motion to strike Counts One, Two, Three, Six and Nine.

BY THE COURT

Robert Satter, JTR CT Page 12533