N.E. Leasing, LLC v. Leonard Paoletta Trustee, et al.

The primary issue in this protracted
foreclosure litigation is the reasonableness of the trial
court's award of attorney's fees to a plaintiff in a foreclosure
action. Where the note, mortgage and guarantee
signed by the parties to be charged include indemnity
provisions for reasonable attorney's fees in the event
the lender incurs such fees to protect its interest in the
mortgaged property, including proceedings in bankruptcy,
the court properly awarded reasonable fees
where it found that the defense tactics were wholly
without merit, delayed the court and denied equity to
the opposing party, despite the size of the award, a
facially ‘‘large dollar amount.''

The defendants, Leonard Paoletta, individually and
in his capacity as trustee, and Nicholas E. Owen II
appeal from the deficiency judgment of the trial court.

On appeal, the defendants claim that the court improperly
(1) awarded every penny of the attorney's fees
requested by the plaintiff, N.E. Leasing, LLC, and (2)
awarded interest at the rate provided by the note rather
than at the statutory judgment rate.1 We affirm the judgment
of the trial court.

The defendants argue that the court, Doherty, J.,
abused its discretion in awarding the plaintiff approximately
$119,000 in attorney's fees to prosecute a routine
mortgage foreclosure.2 As Judge Doherty found: ‘‘What
began as a relatively routine foreclosure action evolved
into a protracted, acrimonious and inexcusably lengthy
and costly series of lawsuits and legal proceedings.''
Our review of the documents underlying the parties'
financial transaction and the procedural history of this
foreclosure action demonstrates that the court's findings
were not clearly erroneous. See Connecticut
National Bank v. Gager, 263 Conn. 321, 325, 820 A.2d
1004 (2003) (court's factual findings reviewed under
clearly erroneous standard).

By complaint returnable on October 31, 2000, the
plaintiff sought to foreclose the mortgage it held on
two parcels of real property in Stratford.3 The complaint
alleged that on July 6, 2000, Paoletta, who owned the
parcels of land in his capacity as trustee, executed a
note in which he promised to pay the plaintiff $297,000
with interest secured by a mortgage. On that same date,
Owen and Paoletta, in his individual capacity, guaranteed
the debt. Paoletta, as trustee, failed to pay the
obligation pursuant to the note and was in default. The
plaintiff provided the defendants written notice that
payment under the note was past due. The defendants
failed to pay the amount due, and the plaintiff exercised
its option to declare the entire balance of the note due.

The complaint also alleged that the defendants were
liable for any deficiency after foreclosure of the
mortgage.

Owen, appearing pro se, filed a general denial of
the complaint and alleged eight special defenses and a
counterclaim for damages, including pain, suffering and
emotional distress. Defaults for failure to appear and
failure to plead were entered against Paoletta.4 The
plaintiff deposed the defendants. Thereafter, the plaintiff
filed a motion for summary judgment of strict foreclosure
against the defendants. The plaintiff's counsel
appeared for the argument at short calendar, but the
defendants did not. Argument on the motion for summary
judgment was continued. The defendants did not
appear the second time the matter was on the short
calendar. On June 18, 2001, the court, Mottolese, J.,
granted the motion for summary judgment as to liability
only. The plaintiff filed a motion for a judgment of strict
foreclosure. Again, the defendants failed to appear for
argument on the motion. On July 16, 2001, Judge Mottolese
granted the motion for a judgment of strict foreclosure,
finding the total debt at that time to be $368,828,
including attorney's fees of $14,705. Judge Mottolese
awarded the plaintiff interest at the default rate of 17
percent. The first law day was set for August 21, 2001.

Notably, the defendants did not file an appeal from
the judgment of strict foreclosure rendered by Judge
Mottolese. See footnotes 1 and 2.

On July 18, 2001, Paoletta, in his capacity as trustee,
transferred his interest in the two parcels to two separate
limited liability companies (companies).5 Owen
was the principal of each of the companies. On August
1, 2001, the companies filed chapter 11 bankruptcy petitions
in federal court. The plaintiff filed motions for
relief from the bankruptcy stay, which the defendants
opposed. The Bankruptcy Court, Weil, J., denied the
motions for relief from the stay and entered orders
requiring the defendants to make certain payments to
the plaintiff. According to the plaintiff, the payments
never were made. In May, 2002, however, Judge Weil
modified the stay, and the plaintiff was able to proceed
with the foreclosure.

The plaintiff then filed a motion to open the judgment
of strict foreclosure for the purpose of having new law
days set. The defendants appeared at short calendar on
June 4, 2002, to object to the setting of new law days
and to request a foreclosure by sale rather than by strict
foreclosure. The defendants based their request for a
foreclosure by sale on the fact that Judge Weil found
that the value of the parcels was in excess of the debt.

The court, Sheedy, J., granted the plaintiff's motion to
open the judgment of strict foreclosure and set a new
law day of July 2, 2002, but denied the request for
foreclosure by sale and expressed its policy concerns
with the defendants' request.6

The defendants thereafter filed a verified motion to
reopen the judgment rendered by Judge Sheedy to seek
a judgment of foreclosure by sale on the basis of the
argument they previously had made regarding the value
of the parcels. The defendants also objected to the
judgment of strict foreclosure, arguing that Judge Mottolese,
in fact, had rendered a judgment of foreclosure
by sale. On July 1, 2001, Judge Sheedy denied the motion
to reopen the judgment, finding that Judge Mottolese
had rendered a judgment of strict foreclosure and that
the original notice sent by the court clerk was in error.7

On the same day that Judge Sheedy denied their motion
to reopen the judgment of strict foreclosure, the defendants
filed an appeal in this court. The defendants stated
on the appeal form that they were appealing from the
‘‘granting of motion to reset law dates and denial of
motion to reopen judgment.'' In response, the plaintiff
filed a motion to dismiss the appeal8 and a motion to
terminate the stay of the foreclosure pending the
appeal.

Thereafter, the parties met with Judge Sheedy. The
plaintiff agreed to resolve the issue of the appeal by
stipulating to a foreclosure by sale in exchange for the
defendants' withdrawing the appeal and promising not
to hinder further the foreclosure sale. Judge Sheedy
opened the judgment, rendered judgment of foreclosure
by sale and set new law days, in part, on the basis of
the defendants' agreeing not to file further appeals or
other action to extend the sale date. The defendants
withdrew their appeal on August 13, 2002.

Two days before the sale date of October 19, 2002,9
Owen transferred ownership of the bankrupt companies
to a third limited liability company, Sniffens and
Hurd, LLC, which filed a petition for bankruptcy protection
in federal court. The plaintiff filed a motion for
emergency relief from the bankruptcy stay. The Bankruptcy
Court, Dabrowski, J., granted the motion for
relief on October 18, 2002, in time for the foreclosure
sale to be conducted. In granting the plaintiff's motion,
Judge Dabrowski stated: ‘‘[I]t appears to the court that
the debtor's principal has previously commenced in this
court at least two bankruptcy cases for an improper
purpose; that is, to obstruct, forestall and defeat [the
plaintiff's] legitimate efforts to enforce rights in real
property known as and numbered 555 Sniffens Lane
and 3146 Main Street, Stratford . . . .

‘‘Whereas, it is clear that the debtor through its principal
commenced the instant bankruptcy case for a singular
purpose; that is, to obstruct, forestall and defeat
[the plaintiff's] legitimate efforts to enforce its rights
in the properties, and that the bankruptcy case is an
extension of a prior abusive bankruptcy agenda, and is
attended by no legitimate purpose, and
‘‘Whereas, in view of the debtor's abusive agenda,
the debtor's principal's serial filings and abusive agenda
targeted at the properties, the absence of any legitimate
bankruptcy purpose identified with the instant case,
and the disruptive and wasteful effect of the conduct
of this case on the limited resources of this court, this
court has concluded that [the plaintiff's] efforts to
enforce rights concerning the properties should be permitted
to proceed to conclusion on their merits in accordance
with applicable state law without the further
obstruction of abusive bankruptcy activity.''10

The parcels were sold on October 19, 2002,11 and the
court, Thim, J., approved the sale on November 5, 2002.

In its report, the committee appointed to conduct the
foreclosure sale identified the following extraordinary
circumstances. ‘‘This was a complicated proceeding
due to needed Motion for Advice re: title search, title
problems found, problems obtaining search and
appraisal due to busy real estate [market] and purported
reputation of defendant, legal actions taken by defendant
to delay, constant attention required to file and
communication with [plaintiff's attorney] and with
defendant, and extremely active public response to
signs and ads.'' The committee requested and was
awarded fees of $13,488,88.12

Subsequently, the plaintiff filed a motion for a deficiency
judgment. In a memorandum of decision filed
September 18, 2003, Judge Doherty granted the plaintiff's
motion for a deficiency judgment, including attorney's
fees of $118,758.92, which sum included $14,705
in attorney's fees awarded by Judge Mottolese in July,
2001, that had not been paid. Judge Doherty later denied
the defendants' motion to reargue. The defendants
appealed.

The defendants have articulated their reviewable
claim as follows: ‘‘State law governing awards of attorney's
fees imposes the requirement that they be reasonable.
The plaintiff foreclosed on two vacant lots against
pro se defendants. Did the trial court err by awarding
every penny of the $118,758.92 sought by the plaintiff?''
Our resolution of this claim is governed by the manner
by which the plaintiff is legally entitled to attorney's
fees. Attorney's fees in foreclosure actions may be
awarded pursuant to General Statutes § 52-249 (a) or,
as in this case, pursuant to contract. See Atlantic Mortgage
& Investment Corp. v. Stephenson, 86 Conn. App.
126, 131–32, 860 A.2d 751 (2004).

The court found that the mortgage deed provides for
the award of costs, expenses and reasonable attorney's
fees if the plaintiff shall appear in, defend or bring an
action to protect its interest in the mortgaged parcels.
The deed also provides expressly that the plaintiff is
entitled to fees it incurs in protecting its interest in the
parcels in a bankruptcy proceeding. The court found
legal authority to award attorney's fees to the plaintiff
for the bankruptcy proceeding in Hartford Federal Savings
& Loan Assn. v. Tucker, 196 Conn. 172, 491 A.2d
1084, cert. denied, 474 U.S. 920, 106 S. Ct. 250, 88 L.
Ed. 2d 258 (1985). ‘‘[A]lthough federal bankruptcy proceedings
do not impinge directly on valid security interests,
[our Supreme Court is] not prepared to say that
such proceedings are necessarily so remote from the
interests of a mortgagee that the defendant, without
any evidentiary showing, can avoid responsibility for
such costs.'' (Internal quotation marks omitted.) Id.,
182.

‘‘We construe a contract in accordance with what we
conclude to be the understanding and intention of the
parties as determined from the language used by them
interpreted in the light of the situation of the parties
and the circumstances connected with the transaction.
. . . The intention of the parties manifested by their
words and acts is essential to determine the meaning
and terms of the contract and that intention may be
gathered from all such permissible, pertinent facts and
circumstances.'' (Internal quotation marks omitted.)
Poole v. Waterbury, 266 Conn. 68, 97, 831 A.2d 211
(2003), quoting Blatt v. Star Paper Co., 160 Conn. 193,
202–203, 276 A.2d 786 (1970); accord Imperial Casualty
& Indemnity Co. v. State, 246 Conn. 313, 327, 714
A.2d 1230 (1998).

The open end mortgage deed and security agreement
signed by Paoletta as trustee, the mortgage note also
signed by Paoletta as trustee and the guarantee signed
by Paoletta individually and by Owen all contain indemnity
provisions applicable to the issue of attorney's fees
the defendants are obligated to pay with respect to the
foreclosure as well as the bankruptcy proceedings. The
open end mortgage deed and security agreement contains
provisions, among others, for transfer or encumbrance
of the mortgaged property and waiver of
statutory rights.13 The mortgage note contains, among
others, an indemnity provision.14 The joint and several
full guaranty of payment also contains provisions applicable
to the issue of attorney's fees.15

Although the language in all of the documents is
relevant, we will focus our attention on the relevant
language in the note, by example, to resolve the defendants'
claim on appeal. The note provides in relevant
part: ‘‘4. Anything in this Note, the Mortgage or any of
the Other Security Documents to the contrary notwithstanding,
the Maker shall indemnify and hold the Payee
harmless and defend the Payee at the Maker's sole cost
and expense against any loss of liability, cost or expense
(including, without limitation, reasonable attorneys'
fees and disbursements of the Payee's counsel, whether
in-house staff, retained firms or otherwise), and all
claims, actions, procedures and suits arising out of or
in connection with . . . (iii) any and all lawful action
that may be taken by the Payee in connection with
the enforcement of the provisions of this Note, the
Mortgage or any of the Other Loan Documents, whether
or not suit is filed in connection with the same, or in
connection with the Maker, any guarantor of all or any
portion of the Debt and/or any partner, joint venturer
or shareholder thereof becoming subject of a voluntary
or involuntary federal or state bankruptcy, insolvency
or similar proceeding. All sums expended by the Payee
on account of any of the foregoing shall be reimbursable
on demand, and until reimbursed by the Maker pursuant
hereto, shall be deemed additional principal evidence
hereby secured by the Mortgagee and the other Security
Documents and shall bear interest at the default interest
rate hereinbelow set forth.'' (Emphasis added.)

‘‘Where a contract provides for the payment of attorney's
fees by a defaulting party, those fees are recoverable
solely as a contract right. Litton Industries Credit
Corporation v. Catanuto, 175 Conn. 69, 76, 394 A.2d
191 (1978). Therefore, the language of the note governs
the award of fees, and we need not consider General
Statutes § 52-249 (allowance of reasonable attorney's
fees in a foreclosure action). Such ‘attorney's fees
incurred' language has been interpreted by our Supreme
Court in Storm Associates, Inc. v. Baumgold, 186 Conn.
237, 245–46, 440 A.2d 306 (1982), as permitting recovery
‘upon the presentation of an attorney's bill, so long as
that bill is not unreasonable upon its face and has not
been shown to be unreasonable by countervailing evidence
or by the exercise of the trier's own expert judgment.'
'' Connecticut National Bank v. N.E. Owen II,
Inc., 22 Conn. App. 468, 476–77, 578 A.2d 655 (1990).

On the basis of the language in the note and the law
of this jurisdiction, Judge Doherty properly concluded
that the efforts of the plaintiff's counsel to protect the
plaintiff's interest in the parcels, including the bankruptcy
proceedings, were proper. See Atlantic Mortgage&
Investment Corp. v. Stephenson, supra, 86 Conn.
App. 132–35 (mortgage contract providing for attorney's
fees extended to zoning action to protect mortgagee's
interest in real property).

Our next step is to determine whether the amount
of the fees awarded by Judge Doherty was reasonable.

Our Supreme Court has held ‘‘that there is an undisputed
requirement that the reasonableness of attorney's
fees and costs must be proven by an appropriate evidentiary
showing. . . . [It also has] noted that courts
have a general knowledge of what would be reasonable
compensation for services which are fairly stated and
described . . . .'' (Citations omitted; emphasis in original;
internal quotation marks omitted.) Smith v. Snyder,
267 Conn. 456, 471, 839 A.2d 589 (2004). ‘‘Even though
a court may employ its own general knowledge in
assessing the reasonableness of a claim for attorney's
fees, [our Supreme Court] also [has] emphasized that
no award for an attorney's fee may be made when
the evidence is insufficient.'' (Internal quotation marks
omitted.) Id., 472.

‘‘Accordingly, when a court is presented with a claim
for attorney's fees, the proponent must present to the
court at the time of trial or, in the case of a default
judgment, at the hearing in damages, a statement of the
fees requested and a description of services rendered.

Such a rule leaves no doubt about the burden on the
party claiming attorney's fees and affords the opposing
party an opportunity to challenge the amount requested
at the appropriate time.

‘‘[This] holding . . . does not limit the trial court's
ability to assess the reasonableness of the fees
requested using any number of factors, including its
general knowledge of the case, sworn affidavits or other
testimony, itemized bills, and the like. . . . [T]he value
[of reasonable attorney's fees] is based upon many considerations.
. . .

‘‘In addition, as a matter of good policy, [this] holding
. . . establishes a paradigm within which all parties
must act when pursuing a claim for attorney's fees.

Perhaps, even more importantly, [this] holding eliminates
the undesirable burden imposed upon the courts
when a party seeks an award of attorney's fees predicated
solely upon a bare request for such fees. Parties
must supply the court with a description of the nature
and extent of the fees sought, to which the court may
apply its knowledge and experience in determining the
reasonableness of the fees requested.'' (Citations omitted;
internal quotation marks omitted.) Id., 479–80.

In his memorandum of decision, Judge Doherty
recited the procedural history of this case. He quoted
from Judge Dawbrowski's order dismissing the third
bankruptcy petition. At the hearing on the motion for
a deficiency judgment, the plaintiff submitted the affidavits
regarding its request for attorney's fees, contemporaneous
billing records and the testimony of one of the
partners of the law firm representing the plaintiff. Judge
Doherty found that the defendants strenuously objected
to the amount of attorney's fees requested and suggested
that the sum of $3000 was more in keeping with
attorney's fees ordinarily awarded in foreclosure
actions. The court found this baseline recommendation
to be without merit whatsoever. See footnote 12.

The court considered the extensive materials submitted
by the plaintiff's counsel to document the time spent
on the legal proceedings, supplemented by the partner's
testimony. The court found the fees requested to be
reasonable and proper. In response to the defendants'
claim that much of the time billed for was in excess of
the time required for a ‘‘normal'' foreclosure, the court
further found that the additional time and effort
expended by the plaintiff's attorney was necessitated
by the defendants' efforts ‘‘to obstruct, forestall and
defeat'' the plaintiff's attempt to foreclose the mortgage
on the two subject parcels. The fees and charges were
fair and equitable.

We have reviewed the evidence before the court,
including the affidavits, billing records and the testimony
of one of the partners in the firm representing the
plaintiff and conclude that there was sufficient evidence
before the court to determine the reasonableness of
the fees. The record also demonstrates that the defendants
got what they bargained for when they entered
into the mortgage transaction. The size of the fee is the
result of the defendants' unreasonable defense tactics.

The plaintiff cannot be faulted for having retained counsel
with considerable depth and breadth of expertise
to protect its financial interest as needed.

The judgment is affirmed.

* * *