FILED
JUN 08 2012
SUSAN M SPRAUL, CLERK
1 ORDERED PUBLISHED U.S. BKCY. APP. PANEL
O F TH E N IN TH C IR C U IT
2
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5
6 In re: ) BAP No. EW-11-1537-PaDH
)
7 ARNOLD JOHN ALLEN, JR. and ) Bk. No. 11-01152
KIMBERLY FAITH ALLEN, )
8 )
Debtors. )
9 ______________________________)
)
10 ARNOLD JOHN ALLEN, JR.; )
KIMBERLY FAITH ALLEN, )
11 )
Appellants, )
12 )
v. ) O P I N I O N
13 )
US BANK, NATIONAL ASSOCIATION,)
14 )
Appellee. )
15 ______________________________)
16 Argued and Submitted on May 16, 2012
at Pasadena, California
17
Filed - June 8, 2012
18 Ordered Published - June 14, 2012
19 Appeal from the United States Bankruptcy Court
for the Eastern District of Washington
20
Honorable Patricia C. Williams, Bankruptcy Judge, Presiding
21
22 Appearances: William Jeffrey Barnes argued for appellants Arnold
John Allen, Jr. and Kimberly Faith Allen; Ryan P.
23 McBride of Lane Powell, PC argued for appellee
US Bank, National Association.
24
25 Before: PAPPAS, DUNN and HOLLOWELL, Bankruptcy Judges.
26
27
28
1 PAPPAS, Bankruptcy Judge:
2
3 Chapter 131 debtors Arnold John Allen, Jr. and Kimberly Faith
4 Allen (the “Allens”) appeal the bankruptcy court’s order
5 overruling their objection to the claim of U.S. Bank, National
6 Association (“USB”). We AFFIRM.
7 FACTS
8 According to the documentary evidence admitted without
9 objection in the record of the bankruptcy court, the following
10 facts and transactions of relevance to this appeal occurred.
11 On April 24, 2006, the Allens executed a promissory note (the
12 “Note”) in the amount of $164,000 in favor of Dream House Mortgage
13 Corporation (“DHMC”). An endorsement in blank appears on the
14 third page of the Note, which reads, “Pay to the Order of; Without
15 Recourse, By [signed initial “J”] John C. Pointe, President, Dream
16 House Mortgage Corporation.” There is also an allonge attached to
17 the Note reciting substantially the same information, but with the
18 addition of a date, April 28, 2006.
19 The Note was secured by a recorded deed of trust (“DOT”)
20 executed by the Allens on their property in Newport, Washington
21 (the “Property”). In the DOT, Mortgage Electronic Registration
22 Systems, Inc. (“MERS”) is named as the grantee and nominee for
23 DHMC.
24 On May 31, 2006, the president of DHMC executed a “Lost Note
25 Affidavit and Agreement” (the “Lost Note Affidavit”). The Lost
26
1
Unless otherwise indicated, all chapter, section and rule
27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
28 Federal Rules of Civil Procedure are referred to as “Civil Rules.”
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1 Note Affidavit recites, among other things, that DHMC “was the
2 current holder of the indebtedness evidenced by the” Note; the
3 original Note had been lost, and attached to the allonge was a
4 photocopy of the original in its files; and pursuant to a Mortgage
5 Loan Sale Agreement (“MLSA”) dated May 3, 2002, DHMC had “assigned
6 all its rights, title and interest in and to the Mortgage Loan
7 identified below [the Loan]” to DLJ Mortgage Capital Inc. (“DLJ”).
8 On September 1, 2006, DLJ entered into a Pooling and
9 Servicing Agreement (“PSA”) that established the CSAB Mortgage-
10 Backed Pass-Through Certificates, Series 2006-1. The parties to
11 the PSA were Credit Suisse First Boston Mortgage Securities Corp.
12 (“Credit Suisse”), the Depositor; DLJ, the Seller; Wells Fargo
13 Bank N.A. (“Wells Fargo”) as Servicer, Master Servicer and Trust
14 Administrator; Washington Mutual Mortgage Securities Corp.
15 (“WaMu”) as Servicer; Select Portfolio Servicing, Inc. [later
16 known as America’s Servicing Co.](“ASC”) as Servicer; and USB as
17 Trustee. The PSA provided for the transfer of the Note from DLJ
18 to USB as Trustee under the PSA. To implement this transaction,
19 DLJ first transferred the Note to Credit Suisse, the Depositor,
20 and then Credit Suisse assigned the Note to USB, the Trustee.
21 Section 201(a) of the PSA provides in part:
22 [Credit Suisse] hereby sells, transfers, assigns,
delivers, sets over and otherwise conveys to [USB] for
23 the benefit of the Certificateholders and the
Certificate Insurer, without recourse, [Credit Suisse’s]
24 right, title and interest in and to (a) the Mortgage
Loans listed in the Mortgage Loan Schedule [“MLS”].
25
26
27
28
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1 The MLS2 attached to the PSA lists the Property, identified by the
2 owner “Allen,” and the same address listed in the Allens’
3 bankruptcy schedules.
4 “Mortgage Loans” is a defined term in the PSA Article I; the
5 term includes “related Mortgage Notes.” Section 201(d) of the PSA
6 provides that, “It is the express intent of the parties to this
7 Agreement that the conveyance of the Mortgage Loans by [Credit
8 Suisse] to [USB] be construed as a sale of the Mortgage Loans by
9 [Credit Suisse] to [USB].” In addition, the PSA states in
10 § 12.04(a) that:
11 It is the express intent of [Credit Suisse], [DLJ],
[Wells Fargo, WaMu], and [USB] that (I) the conveyance
12 by [DLJ] of the Mortgage Loans to [Credit Suisse]
pursuant to the Assignment and Assumption Agreement and
13 (v) the conveyance by [Credit Suisse] to [USB] as
provided for in Section 2.01 of each of [DLJ’s] and
14 [Credit Suisse’s] right, title and interest in the
Mortgage Loans be, and be construed as, an absolute sale
15 and assignment by [DLJ] to [Credit Suisse] and by
[Credit Suisse] to [USB].
16
17 PSA §§ 201(b)(I) and 206 confirm the actual delivery and
18 receipt of the Lost Note Affidavit from DLJ to Credit Suisse, and
19 to USB. PSA §§ 3.01-3.03 provide that Wells Fargo and ASC have
20 authority to service, administer, enforce and foreclose the
21 Mortgage Loans to protect the interests of the trust “in the same
22 manner as it protects its own interests in mortgage loans in its
23 own portfolio[.]” The PSA was signed by officers of each of the
24 parties.
25
26 2
“MLSA” should not be confused with the similar acronym,
“MLS.” The Mortgage Loan Service Agreement (MLSA) was an
27 agreement dated May 3, 2002, between DHMC and DLJ regarding
assignment of mortgage loans from DHMC to DLJ. The Mortgage Loan
28 Schedule (MLS) was the list of mortgage loans included in the PSA.
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1 The Allens filed a petition for relief under chapter 13 on
2 March 9, 2011. Their schedules listed no secured creditors, the
3 value of the Property as $180,000, and total unsecured debt of
4 $358,072.31. Two days later, the Allens filed a proposed
5 chapter 13 plan which did not provide for any payment to secured
6 creditors.
7 Wells Fargo filed a secured proof of claim in the Allens’
8 bankruptcy case on March 31, 2011 in the amount of $204,526.95
9 (the “Wells Fargo Claim”). The Allens objected to the Wells Fargo
10 Claim, arguing that Wells Fargo was not the lender, that the
11 allonge was not attached to the Note that was attached to the
12 Wells Fargo claim, and consequently, appeared to have been created
13 after the Note, and that Wells Fargo had not established that it
14 was holder of the Note entitled to enforce the Note or the DOT.
15 USB filed an amended proof of claim on June 7, 2011 (the “USB
16 Claim”) in its capacity as Trustee under the PSA. On June 22,
17 2011, USB filed a response to the Allens’ claim objection, noting
18 that the Wells Fargo claim had been filed by Wells Fargo acting in
19 its capacity as Servicer. USB described the history of the Note
20 and DOT transactions, explaining that the Note had been lost, that
21 USB had standing to file a proof of claim as a “person entitled to
22 enforce the Note,” and pointing out that any issues regarding the
23 allonge were immaterial because an endorsement in blank appeared
24 on the face of the Note.
25 The Allens objected again, this time to the USB claim, now
26 challenging the “chain of possession” showing transfer of the Note
27 from DHMC to USB.
28 The bankruptcy court conducted a hearing on the Allens’
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1 objection to the USB claim on August 30, 2011. Both the Allens
2 and USB were represented by counsel who were heard. Early in the
3 hearing, the parties agreed to admit all of the documentary
4 evidence offered by USB, including, among others documents, copies
5 of the Assignment of Deed of Trust, the Note, the Lost Note
6 Affidavit, the DOT, the PSA, and the MLS. During the hearing,
7 counsel for USB presented to the bankruptcy court the original
8 Lost Note Affidavit, with a copy of the Note attached to it, and
9 the original DOT. Tr. Hr’g 46:23–25, August 30, 2011. The court
10 verified that the documents had been signed, and that the DOT bore
11 a recording stamp. Counsel for the Allens acknowledged that she
12 had reviewed the original documents presented by USB, and did not
13 object to their admission into evidence. The bankruptcy court
14 took issues raised by the Allens’ objection to the USB claim under
15 submission.
16 On September 15, 2011, the bankruptcy court entered a
17 “Memorandum Decision Re: Debtors’ Amended Objection to U.S. Bank
18 National Association’s Amended Proof of Claim.” In its decision,
19 the court decided that USB’s “Amended Proof of Claim is a valid
20 claim.” Among the bankruptcy court’s findings and conclusions
21 were that:
22 - The Lost Note Affidavit satisfied the requirements of
23 applicable state law, RCW 62A.3-309, and therefore constituted an
24 acceptable substitute for the original Note.
25 - The endorsement in blank on the face of the Note complied
26 with the applicable requirements of the Bankruptcy Code to
27 evidence transfer, and therefore, the allonge was superfluous.
28 - The contents of the Lost Note Affidavit demonstrated that
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1 the transfer from DHMC to DLJ included the right to enforce the
2 Note, and that such right could thereafter be transferred by DLJ
3 to another.
4 - There was no evidence to indicate, or from which it could
5 be inferred, that the transfer of the Note by DLJ was a transfer
6 of less than all rights under the Note.
7 In summary, the bankruptcy court stated:
8 The Court finds that the Lost Note Affidavit is
sufficient to replace the original Promissory Note. The
9 endorsement in blank on the face of the Note was legally
sufficient pursuant to RCW 62A.3-204. Wells Fargo d/b/a
10 [ASC] is the agent of U.S. Bank and would have standing
to file the claim so long as U.S. Bank is the person
11 entitled to enforce the Note. The transfer of the Note
from Dream House to DLJ was for the purpose of enforcing
12 the Note. The evidence introduced by U.S. Bank
satisfies its burden of demonstrating that it is the
13 person entitled to enforce the Note. Therefore, U.S.
Bank and/or [ASC] has standing to file the Proof of
14 Claim. Debtor’s Amended Objection (Docket No. 49) is
OVERRULED. The Amended Proof of Claim filed on June 7,
15 2011 is proof of a valid claim.
16 The bankruptcy court entered an Order overruling the Allens’
17 objection to the USB claim on September 15, 2011. The Allens
18 filed a timely notice of appeal.
19 JURISDICTION
20 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
21 and 157(b)(2)(B). The Panel has jurisdiction under 28 U.S.C.
22 § 158.
23 ISSUES
24 Whether the bankruptcy court erred overruling the Allens’
25 objection to the USB claim.
26 STANDARD OF REVIEW
27 “An order overruling a claim objection can raise legal issues
28 (such as the proper construction of statutes and rules) which we
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1 review de novo, as well as factual issues (such as whether the
2 facts establish compliance with particular statutes or rules),
3 which we review for clear error.” Veal v. Am. Home Mortg.
4 Servicing, Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP
5 2011). We review de novo whether a party has standing. Mayfield
6 v. United States, 599 F.3d 964, 970 (9th Cir. 2010); In re Veal,
7 450 B.R. at 906.
8 De novo review is independent, with no deference given to the
9 trial court’s conclusion. Barclay v. Mackenzie (In re AFI
10 Holding, Inc.), 525 F.3d 700, 702 (9th Cir. 2008). Review under
11 the clearly erroneous standard is significantly deferential,
12 requiring a “definite and firm conviction that a mistake has been
13 committed.” Easley v. Cromartie, 532 U.S. 234, 242 (2001).
14 DISCUSSION
15 Although the Allens did not list any secured debt for the
16 Property in their bankruptcy schedules, they have not disputed
17 that they executed the Note and DOT in connection with a home
18 mortgage loan, that they owe over $200,000 on that loan, or that
19 some entity holds a secured claim in the bankruptcy case on
20 account of that loan. The sole issue presented in this appeal is
21 whether USB is that creditor.
22 The Allens have generally characterized that inquiry as one
23 of standing; they allege that USB has failed to demonstrate it has
24 standing to assert the claim in the bankruptcy case.3 The
25
3
26 The issue of standing involves both “constitutional
limitations on federal-court jurisdiction and prudential
27 limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498
(1975); In re Veal, 450 B.R. at 906. Only prudential standing is
28 (continued...)
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1 bankruptcy court disagreed.
2 Our opinion in In re Veal provides a comprehensive
3 examination of standing in the context of a mortgage loan claim in
4 a bankruptcy case and of the rights of parties entitled to enforce
5 a promissory note. 450 B.R. at 902. As explained in that
6 decision, a “person entitled to enforce the note,” as defined in
7 U.C.C. § 3-301, has the requisite standing to file a proof of
8 claim in a bankruptcy case. Id. Washington’s version of this
9 U.C.C. provision is RCW 62A.3-301,4 which lists three ways in
10
3
11 (...continued)
at issue in this appeal, which requires that a party assert only
12 its own claim rather than the claims of another. Dunmore v.
United States, 358 F.3d 1107, 1112 (9th Cir. 2004).
13 In addition, claim objections are contested matters under
Rule 9014. Rule 9014(c) makes Civil Rule 17(a)(1) (incorporated
14 by Rule 7017) applicable to contested matters. Civil
Rule 17(a)(1) provides that “[a]n action must be prosecuted in the
15 name of the real party in interest.” To satisfy the requirements
of prudential standing and Civil Rule 17(a)(1), “the action must
16 be brought by the person who, according to the governing
substantive law, is entitled to enforce the right.” 6A Wright,
17 Miller, Kane & Marcus, FED . PRAC . & PROC . ¶ 1543 (3d ed. 2010);
In re Veal, 450 B.R. at 908. A party without the legal right to
18 enforce an obligation under substantive law is not a real party in
interest. See Simon v. Hartford Life, Inc., 546 F.3d 661, 664
19 (9th Cir. 2008); In re Veal, 450 B.R. at 908 (“The modern function
of the rule . . . is simply to protect the defendant against a
20 subsequent action by the party actually entitled to recover, and
to insure generally that the judgment will have its proper effect
21 as res judicata.”).
4
22 For the purpose of determining who is entitled to enforce a
note, “the forum state’s choice of law rules determine which
23 state’s substantive law applies.” In re Veal, 450 B.R. at 920
n.41. Washington’s choice of law statute provides that in the
24 absence of an agreement stating which law governs, Washington’s
version of the Uniform Commercial Code applies to transactions
25 bearing a “reasonable relation” to the state. See RCW 62A.1-105.
The Allens reside at the Property which is located in Washington,
26 and USB does not dispute that Washington law governs. To the
extent that we are called upon to construe Washington state law,
27 the Washington Supreme Court instructs that: “In interpreting a
statute, our primary objective is to ascertain the legislative
28 (continued...)
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1 which a person may acquire “person entitled to enforce the note”
2 status:
3 “Person entitled to enforce” an instrument means (i) the
holder of the instrument, (ii) a nonholder in possession
4 of the instrument who has the rights of a holder, or
(iii) a person not in possession of the instrument who
5 is entitled to enforce the instrument pursuant to
RCW 62A.3-309 or 62A.3-418(d). A person may be a person
6 entitled to enforce the instrument even though the
person is not the owner of the instrument or is in
7 wrongful possession of the instrument.
8 RCW 62A.3-301. This statute, in turn, refers to RCW 62A.3-309,
9 the provision applicable to lost notes, which provides:
10 (a) A person not in possession of an instrument is
entitled to enforce the instrument if (i) the person was
11 in possession of the instrument and entitled to enforce
it when loss of possession occurred, (ii) the loss of
12 possession was not the result of a transfer by the
person or a lawful seizure, and (iii) the person cannot
13 reasonably obtain possession of the instrument because
the instrument was destroyed, its whereabouts cannot be
14 determined, or it is in the wrongful possession of an
unknown person or a person that cannot be found or is
15 not amenable to service of process.
16 (b) A person seeking enforcement of an instrument under
subsection (a) must prove the terms of the instrument
17 and the person’s right to enforce the instrument. If
that proof is made, RCW 62A.3-308 applies to the case as
18 if the person seeking enforcement had produced the
instrument[.]
19
20 RCW 62A.3-309.
21 The plain meaning of RCW 62A.3-309(a) is that a person no
22 longer in possession of an instrument is nonetheless entitled to
23
24
4
(...continued)
25 body’s intent. If a statute’s meaning is plain on its face, the
court must give effect to that plain meaning as an expression of
26 legislative intent.” Dowler v. Clover Park Sch. Dist. No. 400,
258 P.3d 676, 682 (Wash. 2011) (citation omitted). Neither party
27 has suggested that the applicable Washington U.C.C. provisions are
in any way ambiguous, so we assign those provisions their plain
28 meaning.
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1 enforce it if that person was in possession and entitled to
2 enforce it when the loss of possession occurred. Subsection (b)
3 requires a proponent under subsection (a) to prove the terms of
4 the instrument, e.g., via a Lost Note Affidavit. As the
5 bankruptcy court correctly reasoned, the questions that arise in
6 this case are: (1) did the Lost Note Affidavit constitute adequate
7 proof of the terms of the Note under RCW 62A.3-309; and (2) could
8 an assignee of a lost promissory note enforce the note based on
9 the Lost Note Affidavit. The court noted that there was no
10 Washington case law interpreting RCW 62A.3-309, and our own
11 research confirms that. But the bankruptcy court did refer to
12 cases from other courts in states with comparable U.C.C.
13 provisions where a Lost Note Affidavit was used as a substitute
14 for a lost promissory note, and holding that rights under a lost
15 note may be assigned.
16 For example, according to the holding in Bobby D. Assocs. v.
17 DiMarcantonio, 751 A.2d 673, 676 (Pa. Super. Ct. 2000), the
18 assignee of a lost promissory note may enforce the note through a
19 Lost Note Affidavit. And the Alabama Supreme Court decided in
20 Atl. Nat’l Trust, LLC v. McNamee, 984 So. 2d 375 (Ala. 2007) that
21 a valid assignment gives the assignee the same rights, benefits,
22 and remedies that the assignor possesses, such that the assignee
23 simply steps into the shoes of the assignor. Applying this law in
24 the context of a lost, destroyed, or stolen promissory note, if
25 the assignor of a promissory note was entitled, when the assignor
26 owned the note, to enforce the note under Ala. Code § 7-3-309, the
27 assignee of the promissory note steps into the assignor’s shoes
28 and acquires the right to enforce the promissory note under
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1 § 7-3-309. Id. at 378.
2 The Fifth Circuit applied the Louisiana U.C.C. in Caddo
3 Parish-Villas S., Ltd. v. Beal Bank, S.S.B. (In re Caddo Parish-
4 Villas S., Ltd.), 250 F.3d 300, 302 (5th Cir. 2001). The trial
5 court had been given an affidavit and other evidence as proof of
6 the contents of the original note. As the assignee of a note,
7 plaintiff stood in the shoes of the assignor and obtained all the
8 rights, title, and interest that the assignor had at the time of
9 the assignment. This would include the right of enforceability
10 under La. Rev. Stat. Ann. § 10:3-309.
11 These states’ versions of U.C.C. § 3-309 — RCW 62A.3-309(a),
12 13 Pa. Cons. Stat. § 3309(a), Ala. Code § 7-3-309, and La. Rev.
13 Stat. Ann. § 10:3-309 — are virtually indistinguishable, and we
14 have found no case law in those states inconsistent with the cited
15 cases.
16 The Allens challenge reliance upon these cases as
17 inconsistent with In re Weisband, 427 B.R. 13 (Bankr. D. Ariz.
18 2010). The bankruptcy court in In re Weisband indeed held that an
19 allonge attached to a Note would not be sufficient to transfer the
20 Note because an indorsement in blank must appear on the face of
21 the note and not on an attached page. But as the bankruptcy court
22 noted, that holding is of no moment in this case, since here the
23 allonge was superfluous because the Note contained an endorsement
24 in blank on its face. As the court explained, RCW 62A.3-204
25 provides:
26 (a) “Indorsement” means a signature, other than that of
a signer as maker, drawer, or acceptor, that alone or
27 accompanied by other words is made on an instrument for
the purpose of (i) negotiating the instrument,
28 (ii) restricting payment of the instrument, or
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1 (iii) incurring indorser’s liability on the instrument,
but regardless of the intent of the signer, a signature
2 and its accompanying words is an indorsement unless the
accompanying words, terms of the instrument, place of
3 the signature, or other circumstances unambiguously
indicate that the signature was made for a purpose other
4 than indorsement. For the purpose of determining
whether a signature is made on an instrument, a paper
5 affixed to the instrument is a part of the instrument. .
. .
6 (c) For the purpose of determining whether the
transferee of an instrument is a holder, an indorsement
7 that transfers a security interest in the instrument is
effective as an unqualified indorsement of the
8 instrument.
9 Based on its analysis of available law, the bankruptcy court
10 determined that the Lost Note Affidavit, with the endorsement in
11 blank appearing on its face, was sufficient to replace the
12 original Note. We find no error in this conclusion. Once it was
13 established that the Note was endorsed in blank, the Note became a
14 bearer instrument:
15 Special indorsement; blank indorsement; anomalous
indorsement . . . . (b) If an indorsement is made by
16 the holder of an instrument and it is not a special
indorsement, it is a “blank indorsement.” When indorsed
17 in blank, an instrument becomes payable to bearer and
may be negotiated by transfer of possession alone until
18 specially indorsed.
19 RCW 62A.3-205; Pequignot v. Deutsche Bank Nat’l Trust Co. (In re
20 Pequignot), 2010 WL 3605326, at *3 (W.D. Wash. 2010).
21 It is uncontested that USB presented the Lost Note Affidavit
22 and the copy of the original Note, endorsed in blank, at the
23 hearing on August 30, 2011. As a bearer instrument, the Note was
24 negotiable by transfer of possession alone. RCW 62A.3-201(a)
25 (“Negotiation” means a transfer of possession, whether voluntary
26 or involuntary, of an instrument by a person other than the issuer
27 to a person who thereby becomes its holder.). The bankruptcy
28 court found, and counsel for the Allens agreed, that the Note was
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1 authentic and admissible in evidence, and was in the possession of
2 USB. That the Lost Note Affidavit with a copy of the original
3 Note endorsed in blank was in the possession of USB and physically
4 presented to the bankruptcy court, standing alone, gave USB status
5 of a holder and a “person entitled to enforce” the instrument and,
6 consequently, the real party in interest for purposes of filing a
7 proof of claim. In re Veal, 450 B.R. at 920.
8 The Allens, as noted above, did not deny that they were
9 obligated under the terms of the Note, nor did they object to the
10 admission of the Assignment of Deed of Trust, the Note, the Lost
11 Note Affidavit, the DOT, the PSA, the MLS and the declaration of
12 Beverly DeCarlo, vice president for loan documentation of Wells
13 Fargo. Indeed, the Allens failed to submit any declaratory or
14 documentary evidence to the bankruptcy court at all. Instead, the
15 focus of the Allens’ objection to USB’s status as a holder of the
16 Note consisted solely of their challenge to the chain of
17 possession of the Note:
18 [USB] is not a person entitled to enforce the Note as
(a) it failed to prove that the Debtors’ mortgage loan
19 was even within the inventory of DHMC at the time of the
alleged conveyance thereof to DLJ; (b) the MLSA which
20 was the alleged source of the authority for the transfer
from DHMC to DLJ was never introduced into evidence;
21 (c) there was no evidence of actual delivery of the
Debtors’ mortgage loan to [USB]; and (d) there is a
22 factual finding that the DOT was never assigned to [USB]
as required by the PSA to which [USB] was a party, which
23 it was bound by, and which it agreed to in terms of the
manner by which mortgage loans were to be conveyed to
24 the Trust. Thus, the bankruptcy court’s decision was
clear error and must thus be reversed and vacated.
25
26 The Allens’ Op. Br. at 18.
27 None of these allegations is supported by the record. On the
28 contrary, the bankruptcy court examined each allegation and, based
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1 on the evidence, ruled against the Allens. As the court
2 explained:
3 1. The Allens’ first allegation: “[USB] is not a person
4 entitled to enforce the Note as (a) it failed to prove that the
5 Debtors’ mortgage loan was even within the inventory of DHMC at
6 the time of the alleged conveyance thereof to DLJ[.]” In its
7 Memorandum, the bankruptcy court cited to ¶ 1 of the Lost Note
8 Affidavit, which recites, “[i]immediately prior to the assignment
9 by the Seller [DHMC] of its interest in such Mortgage Loan to the
10 Purchaser [DLJ], the Seller [DHMC] was the current holder of the
11 indebtedness evidenced by the Mortgage Note.” A copy of the Note
12 was attached to and incorporated in the Lost Note Affidavit. The
13 Lost Note Affidavit was executed and sworn by John C. Pointe,
14 president of DHMC, and constitutes evidence that the original note
15 was in the possession (or in the Allens’ term, in the “inventory”)
16 of DHMC at the time of the conveyance to DLJ. The Allens provide
17 no evidence to the contrary.
18 2. The Allens second allegation: “[USB] is not a person
19 entitled to enforce the Note as . . . (b) the MLSA which was the
20 alleged source of the authority for the transfer from DHMC to DLJ
21 was never introduced into evidence[.]” The “phantom” MLSA is a
22 recurring theme of the Allens’ arguments, even though the
23 bankruptcy court clearly disposed of this contention in its
24 Memorandum:
25 Even though the [conveyance from DHMC to DLJ] took place
four years after the underlying transaction [the MLSA],
26 the [Lost Note Affidavit] introduced into evidence
acknowledges and recites that all rights under the Note
27 have been transferred to DLJ. This satisfies the burden
of producing evidence that the purpose of the transfer
28 was to enforce the Note as “all right[s]” and “all
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1 interest” must necessarily include the right to enforce
[the definition of a “holder”]. At a minimum, this
2 evidence shifts the burden of producing evidence to the
Debtors to produce evidence casting doubt upon the
3 recitations in the agreement.
4 In short, the bankruptcy court found that the missing MLSA was not
5 essential in determining if possession of the Note and authority
6 to enforce its provisions was conveyed from DHMC to DLJ. The
7 court found that, based on the evidence in the Lost Note
8 Affidavit, the Note was conveyed to DLJ with authority to enforce
9 it, thus making DLJ a holder by negotiation of the Note. Again,
10 the bankruptcy court correctly observed that the Allens had
11 produced no evidence casting doubt upon the recitations in the
12 Lost Note Affidavit.
13 3. “[USB] is not a person entitled to enforce the Note as
14 . . . (c) there was no evidence of actual delivery of the Debtors’
15 mortgage loan to [USB][.]” Relying on the PSA, which was admitted
16 into evidence without objection by the Allens, in its Memorandum,
17 the bankruptcy court stated,
18 Section 2.01(b)(i)(A) of the PSA recites that delivery
of each original Note or a Lost Note Affidavit has
19 occurred. Section 2.01(d) reiterates that the intent of
the PSA is to convey and sell the Mortgage Loans. In
20 Section 2.06, U.S. Bank acknowledges the assignment and
delivery of the Mortgage Loans. There is no evidence
21 which indicates or from which it could be inferred that
the transfer of this Note by DLJ [to Credit Suisse to
22 USB] was a transfer of less than all rights held in the
Note.
23
24 In other words, the sole evidence presented to the bankruptcy
25 court was that the Note was conveyed and delivered, with the right
26 to enforce the Note intact, from DLJ to Credit Suisse to USB. The
27 Allens provided no contrary evidence.
28 4. Finally: “[USB] is not a person entitled to enforce the
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1 Note as . . . (d) there is a factual finding [by the bankruptcy
2 court] that the DOT was never assigned to [USB] as required by the
3 PSA to which [USB] was a party[.]” The Allens take this factual
4 finding out of context. The complete statement in the factual
5 section of the bankruptcy court’s Memorandum reads:
6 No assignment of the Deed of Trust has occurred. Under
Washington law, the person entitled to enforce the
7 obligation secured by the Deed of Trust is entitled to
foreclose. The determination of the identity of the
8 “person entitled to enforce” the Note will therefore
determine the identity of the entity entitled to
9 foreclose the Deed of Trust.
10 By this statement, the bankruptcy court is explaining that, in
11 this setting, the DOT, which was not directly conveyed by the PSA,
12 is unimportant. As noted by the court, the critical issue for
13 claim purposes of judging allowance of a claim is who is the
14 “person entitled to enforce the Note” (i.e., the holder of the
15 Note). In this respect, the bankruptcy court is correct that an
16 assignment of the DOT is not relevant because under Washington
17 law, the security for an obligation follows the debt.
18 RCW 61.24.005(2) (“’Beneficiary’ means the holder of the
19 instrument or document evidencing the obligations secured by the
20 deed of trust, excluding persons holding the same as security for
21 a different obligation.”); Mutual Sec. Fin. v. Unite, 847 P.2d 4,
22 6 (Wash. Ct. App. 1993) (“the promissory note was secured by the
23 deed of trust . . . and . . . assignment of the note . . . carried
24 with it the deed of trust”).
25 In summary, USB established by documented, probative evidence
26 that it was holder of the Note by negotiation from DHMC to DLJ to
27 Credit Suisse to USB. In contrast, the Allens provided no
28 evidence whatsoever to challenge the physical transfer of the Note
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1 with its rights intact. Indeed, at the hearing, counsel for the
2 Allens consented to the admission of all the USB supporting
3 documents, and instead argued that the evidence should be given
4 little weight. But weighing of evidence is within the “broad
5 discretion” of the trial court. Carijano v. Occidental Petroleum
6 Corp., 643 F.3d 1216, 1225 (9th Cir. 2011); Hagans v. Andrus,
7 651 F.2d 622, 627 (9th Cir. 1981) (“Of course, the evaluation and
8 weighing of evidence is within the discretion of the [trial]
9 judge.”). Here, the bankruptcy court did not abuse its discretion
10 in weighing the evidence when it ruled in favor of the only side
11 presenting evidence.
12 Because the bankruptcy court found that the evidence proved
13 that USB was a holder of the Note, its determination that USB was
14 a “person entitled to enforce the Note” will not be disturbed.
15 CONCLUSION
16 We AFFIRM the bankruptcy court’s order overruling the Allens’
17 objection to the USB claim.
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