It could be called a tale of two judges. Or, a battle of law versus equity.
The Appellate Court case of Hartford v. McKeever resulted in markedly different results in the trial and appeals court, highlighting the two main strains of the Anglo-American legal process. It contrasts the rigid "black letter" law, and its kinder, gentler counterpart the principles of equity, which arose 500 years ago as an antidote to the harsh rigidity of the law courts.
At the same time, it illustrates the challenges and potential liability cities face in providing loans for urban redevelopment. And it highlights the added complications in these modern financial times when bundled debt is sold as an investment tool.
This case begins in 1983, when Brian McKeever borrowed $143,065 from the city of Hartford to fix up a 12-unit apartment building on Hamilton Street. The money was part of a $10 million, 15-year urban renewal effort administered by the Hartford's Community Development Corporation (CDC), which sold bonds and approved loans to developers. The actual funds were paid out by State Street Bank of Connecticut. In legal terms, the bank was trustee for the bondholders, and the CDC assigned (or transferred) McKeever's mortgage and note to the bank as collateral for the loan, along with a third document.
This third piece of collateral, to help insure that the borrowers didn't default, was an "assignment of rents." Under it, McKeever's right to collect rental payments was dependent on his loan payments to the bank being current. If he fell behind, payments from tenants or rent supplement money from the federal government would go directly to the bank to make the mortgage payments.
About five years after taking out the loan, McKeever fell behind and State Street Bank began collecting the rents directly. McKeever wanted to know how close those rent payments were to paying his mortgage. He suspected that enough rent money coming in was enough to cover his loan, but he says he was rebuffed in his attempts to get accountings from the city of Hartford, the CDC or State Street Bank.
In 1998, the 15-year bonding process ended and State Street paid out everything owed to the bondholders. It still had McKeever's "assignment of rents" document, however, for which it had no further use. It transferred that document to the city of Hartford for $1 in 2001. Hartford, believing it was still owed money on the loan, continued collecting rents form McKeever's tenants.
In fact, Hartford, thinking it was seriously underpaid, began foreclosure proceedings against the Hamilton Street apartment. Outraged, McKeever retained Bristol attorney Christopher M. Reeves, of Furey, Donovan, Tracy & Daly.
They went on the offensive, firing back with a five-count counterclaim. They said Hartford and State Street had wrongfully seized McKeever's rents above and beyond what was due on the loan. McKeever sought an accounting, and alleged violations of the state fair debt collection act, unfair trade practice law, and various breaches of contract.
In 2001, then-Hartford Corporation Counsel John Rose hired attorney Edward Taimen, of the Hartford financial litigation boutique Sabia Taimen. Under Taimen's prodding, a new accounting showed that Hartford had collected $17,000 too much. The city offered to give that money back to McKeever, drop its foreclosure action and call it a day. McKeever, however, wanted the full $195,909 he believed was overcharged by State Street Bank and Hartford for all those years his rents were being diverted. They went to court.