Lender who assigned its interest in a note prior to filing replevin action for collateral securing the note had its action dismissed for lack of standing despite attempted substitution of assignee as plaintiff. Ion Bank v. J.C.C. Custom Homes, LLC, 189 Conn.App. 30 (2019).
By: Kevin Braun (Morgan Lewis)
Ion Bank (the “Original Lender”) filed an action of replevin against J.C.C. Custom Homes, LLC (“J.C.C.”), Rock On Excavation Services, LLC (together with J.C.C., the “Borrower”), John C. Ciappetta and Dawn E. Ciappeta (together with John C. Ciapetta, the “Guarantors”), in connection with a default on a commercial promissory note for collateral securing the note. Original Lender, one day prior to filing the action of replevin, assigned its interest in the promissory note to Nutmeg Financial Holdings, LLC (the “Assignee”). The Borrower and the Guarantors argued that because the Original Lender had assigned its interest in the note prior to filing the replevin, the Original Lender lacked the standing to bring the action and therefore that the court lacked subject matter jurisdiction over the action.
The Original Lender initiated the action of replevin on July 1, 2016 by service of process on the Borrower and the Guarantors, one day after assigning its interest to the Assignee. The return date on the writ was August 9, 2016. On August 17, 2016, the Original Lender filed a pleading entitled “Plaintiff’s Amended Complaint”, attaching an amended prejudgment writ of replevin substituting the Assignee as the named plaintiff. On October 14, 2016, the Borrower and the Guarantors filed a motion to dismiss the action for lack of subject matter jurisdiction because of the Original Lender’s assignment of its interest in the promissory note to the Assignee.
The trial court rendered a decision in favor of the Borrower and the Guarantors, dismissing the action. The court held that (1) the Original Lender did not have standing to maintain the action on behalf of its assignee because it had given up its interest in the note prior to filing the action, and therefore lacked subject matter jurisdiction to commence the suit and (2) the amendment to the Original Lender’s complaint was insufficient to substitute the Assignee for the Original Lender because it was not a properly filed motion for substitution. The Original Lender appealed.
On appeal, the Court upheld the dismissal. The Court reasoned that in order for a substitution to be effectuated, a filing must direct the court to take action, and that the Court can then use its discretion to consider whether that action should be taken. In the case of substitution of a plaintiff, the Court will consider whether the substitution is being used to correct a technical or circumstantial defect in the pleading, or for adding counts that could have been included in the original complaint. In this case, the Original Lender’s amended complaint simply substituted the Assignee as the plaintiff. It neither directed the court to take action, nor called upon the Court’s discretion to determine whether the filing was made to correct a technical or circumstantial defect in the pleading, so the Court held that the amended complaint was not sufficient to substitute the Assignee as the plaintiff.
The Court further reasoned that the Original Lender had the burden of alleging facts sufficient to establish a specific, personal and legal interest in the property subject to the replevin action, and it could not do that because it had transferred its interest to the Assignee prior to filing the complaint. For these reasons, the Court upheld the dismissal of the case for lack of standing of the Original Lender and lack of subject matter jurisdiction of the Court.