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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
01-MAY-2019
09:29 AM
IN THE SUPREME COURT OF THE STATE OF HAWAII
---o0o---
NATIONSTAR MORTGAGE LLC,
Respondent/Plaintiff-Appellee,
vs.
DANIEL KALEOALOHA KANAHELE and
THE ESTATE OF MARCUS C. KANAHELE et al.,
Petitioner/Defendant-Appellant.
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX; CIV. NO. 14-1-0584(2))
MAY 1, 2019
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY RECKTENWALD, C.J.
In 2006, Daniel Kaleoaloha Kanahele (Daniel) and his
brother, Marcus C. Kanahele (Marcus), co-signed a mortgage on
their property in order to obtain a $625,000 loan. While both
brothers executed the mortgage, Daniel was the promissory note’s
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(Note) sole signatory. Daniel defaulted on the loan in 2008, and
in 2014, Nationstar Mortgage, LLC (Nationstar) initiated this
foreclosure action.
After seventeen months of proceedings involving Daniel,
Marcus’s Estate, and Nationstar, the Circuit Court of the Second
Circuit granted Nationstar’s motion for summary judgment, and
issued final judgment in favor of Nationstar.1 On appeal, the
Intermediate Court of Appeals (ICA) vacated the judgment and
remanded the case for further proceedings. Although the ICA
ruled in Daniel’s favor by vacating the judgment, Daniel asks
this court to review the following additional issues, which he
contends were either incorrectly resolved or left unresolved by
the ICA:2
(1) Whether summary judgment is precluded where
contradictory declarations by [the]
representatives of [a] foreclosing party
undercut the trustworthiness of [its] offered
business records; and
(2) Whether a foreclosing plaintiff[,] who is not a
holder in due course[,] is subject to [a
defendant’s] affirmative defenses[.]
We hold that the ICA erred with respect to both of
those issues, and that Daniel would be prejudiced on remand
absent this court’s further review.
1
The Honorable Peter T. Cahill presided.
2
Daniel also asks this court to review whether the circuit court
abused its discretion in denying his motion to compel discovery to determine
whether Nationstar was the Note’s “holder” or “holder in due course.” Because
Nationstar conceded its status as “holder” in its answering brief to the ICA,
we need not resolve whether the circuit court abused its discretion in this
respect.
2
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Although the ICA correctly held that Nationstar had not
demonstrated standing to enforce Daniel’s Note under Bank of
America, N.A. v. Reyes-Toledo, 139 Hawaii 361, 390 P.3d 1248
(2017), and vacated the circuit court’s judgment on this basis,
we conclude that the ICA erred in holding that Nationstar’s
business records were trustworthy under the business records
exception to hearsay. See Hawaii Rules of Evidence (HRE) Rule
803(b)(6) (2002). In light of Nationstar’s failure to adequately
explain material discrepancies in its business records and its
presentation of contradictory declarations regarding which of
several versions of the Note was the “wet-ink” original, the ICA
should have vacated the circuit court’s order on this ground, as
well.
We also conclude that Daniel’s affirmative defenses
should have been addressed by the circuit court, given that
Nationstar, which neither pled nor proved its status as the
Note’s “holder in due course,” was simply the Note’s “holder.”
The ICA did not clarify this, despite the circuit court’s
inaccurate conclusion that “holders” were not subject to
obligors’ affirmative defenses. See Hawaii Revised Statutes
(HRS) § 490:3-305 (2008).
We therefore affirm the ICA’s Judgment on Appeal, but
correct its reasoning as set forth below, and remand the case for
further proceedings consistent with this opinion.
3
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I. BACKGROUND
A. Factual Background3
In 2002, Daniel and his younger brother, Marcus,
inherited their family home in Kīhei, Maui (“Kanahele home” or
“the property”). Daniel resided in the home, while Marcus lived
in Florida. Daniel agreed to provide Marcus with financial
assistance in 2006. Accordingly, the brothers contacted Linda
Austin (Austin), a mortgage broker with Maui Mortgage
Professionals, to assist them in obtaining a loan and in using
their home as collateral.
According to Daniel, the primary purpose of the loan
was to provide financial assistance to Marcus in his business
pursuits. Austin allegedly knew that Daniel, who had worked most
of his life as an unskilled worker, was unemployed at the time he
and his brother sought the loan. Despite this, Austin
represented to Daniel and his brother that because Daniel was the
owner-occupant of the property, he would qualify for the loan if
he provided his credit score, “without having to provide any
documentation regarding assets or income[.]”
Daniel executed a Note to Lehman Brothers Bank, FSB
(Lehman Brothers) for $625,000 on December 4, 2006, and was told
3
For the purposes of this section, we accept the facts asserted in
Daniel’s declarations as true, including Daniel’s statements explaining the
circumstances under which he obtained the loan. See Crichfield v. Grand
Wailea Co., 93 Hawaii 477, 483, 6 P.3d 349, 355 (2000) (explaining that, for
the purposes of summary judgment, the court “must view all of the evidence and
the inferences drawn therefrom in the light most favorable to the party
opposing the motion” and that any doubt should be resolved in favor of the
non-moving party). All other facts in this section were taken from the record
on appeal and are otherwise undisputed by the parties.
4
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that the documents would be sent to Marcus in Florida. The Note
was secured by a mortgage, executed by the two brothers as
mortgagors, in favor of Mortgage Electronic Registration Systems,
Inc. (MERS) for Lehman Brothers. The mortgage, which encumbered
the Kanahele home, was recorded in the Bureau of Conveyances.
The loan went into default in 2008. The mortgage was
assigned from MERS to Aurora Loan Services (Aurora) in 2009, and
in June of that year, Aurora mailed the brothers notices of
default.
On August 14, 2012, Daniel sent Nationstar, the loan’s
servicer at the time, a Fair Debt Collection Practices Act
request. By letter dated August 27, 2012, Nationstar’s customer
care specialist, Joyce Lawrence (Lawrence), responded that Wells
Fargo Bank owned the Note. She also sent Daniel a copy of the
Note, which had two indorsements. The Note was first indorsed
from Lehman Brothers to Lehman Brothers Holding, and second,
indorsed from Lehman Brothers Holding to Aurora.4
4
The indorsement stamps read as follows:
Pay To The Order Of
Lehman Brothers Holding Inc.
Without Recourse
Lehman Brothers Bank, FSB
By: [signature]
E. Todd Whittemore
Vice President
PAY TO THE ORDER OF
AURORA LOAN SERVICES LLC
WITHOUT RECOURSE
LEHMAN BROTHERS HOLDING INC.
BY: [signature]
PAUL E. SVEEN
AUTHORIZED SIGNATORY
5
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The mortgage was subsequently assigned from Aurora to
Nationstar for unspecified “good and valuable consideration” on
September 20, 2012. On an unspecified date, the Note was
indorsed from Aurora to blank, by Nationstar as Aurora’s
attorney-in-fact.
Marcus died in 2013, having never signed the Note.
Daniel thus explained the unique circumstances of the loan and
mortgage as follows:
It was only when the litigation began in this case
[that] I learn[ed] that I was the only borrower – that
my brother [had] never signed the [N]ote. As the
mortgage stated us as “co-borrowers” on the signature
lines of the mortgage, I had no idea that my brother
was not a co-borrower. I was totally surprised and
shocked to learn this.
Suffice it to say, it had always been our practice to
be co-borrowers when our family house was used as
collateral, and it was our stated intention with Ms.
Austin and the bank that we were going to be co-
borrowers. I would never have agreed to the loan had
I known that I was the sole borrower and that I would
have been responsible for any “deficiency judgment[,]”
the benefits of which went to my brother and his
business and did not involve me.
In other words, Daniel “would never have agreed” to
obtain the loan had he known he would be the Note’s sole
borrower, because the purpose of the loan was to benefit Marcus.
6
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B. Procedural Background5
1. Circuit Court Proceedings
a. The Complaint
Nationstar filed a Complaint to Foreclose against
Daniel, and Marcus’s Estate, on October 7, 2014, with the
following attachments: (1) a copy of the Note; (2) a
verification attesting that the Note was the original; and (3) an
attorney affirmation attesting the same.
Like the Note Nationstar had provided to Daniel in
2012, this Note also had two indorsements. While the first
indorsement was identical to that of the Note that Daniel
received in 2012 – from Lehman Brothers to Lehman Brothers
Holding – the second was executed by Lehman Brothers Holding to
in-blank, rather than to Aurora.6
The verification, executed by Jesslyn Williams
5
This case has a long and complicated procedural history. Because
many of the previous proceedings do not materially affect the analysis, we do
not address them in this opinion.
6
The indorsements read as follows:
Pay To The Order Of
Lehman Brothers Holding Inc.
Without Recourse
Lehman Brothers Bank, FSB
By: [signature]
E. Todd Whittemore
Vice President
PAY TO THE ORDER OF
___________________
WITHOUT RECOURSE
LEHMAN BROTHERS HOLDING INC.
BY: [signature]
PAUL E. SVEEN
AUTHORIZED SIGNATORY
7
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(Williams), Nationstar’s assistant secretary, stated that: (1)
Williams had personally reviewed the documents and records in
Nationstar’s possession related to the case for accuracy; (2) the
records and files she had reviewed were kept by Nationstar in its
ordinary course of business and were made at or near the time of
such acts; and (3) Nationstar possessed the original Note,
indorsed-in-blank. Lloyd T. Workman (Workman), Nationstar’s
counsel at that time, also attested that the documents Nationstar
had submitted to the circuit court were accurate and that they
“contained no false statements of fact or law.”7
b. Nationstar’s First Motion for Summary Judgment and
Related Proceedings
Nationstar filed its first Motion for Summary Judgment
on March 30, 2015, alleging that it had adequately established
its ability to foreclose on the Kanahele home. Nationstar
attached the same Note to its Motion as it attached to its
Complaint, as well as a declaration by Demetrice Person (Person),
one of Nationstar’s document execution specialists.
7
In relevant part, Workman declared:
Based upon the communications from Jesslyn Williams,
as well as upon my own inspection and other reasonable
inquiry under the circumstances, which included a
review of copies of the loan documents and other
communications with Plaintiff’s representatives, I
affirm that, to the best of my knowledge, information,
and belief, the Summons, Complaint, and other papers
filed or submitted to this Court in this matter
contain no false statements of fact or law, and that
it is my belief based upon a good faith inquiry, that
Plaintiff has legal standing to bring this foreclosure
action. I understand my continuing obligation to
amend this Affirmation in light of newly discovered
material facts following its filing.
8
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Just like Williams had done in her verification, Person
attested that: (1) she had personally reviewed the documents and
records in Nationstar’s possession related to Daniel’s case for
accuracy; (2) the records and files she had reviewed were kept by
Nationstar in its ordinary course of business and were made at or
near the time of such acts; and (3) Nationstar possessed the
original Note, which had two indorsements, one of which was
indorsed-in-blank.
In his opposition memorandum, Daniel argued that
summary judgment would be inappropriate because: (1) genuine
issues of material fact existed as to who owned the Note, in
light of Nationstar’s presentation of two different versions of
the Note; and (2) Nationstar, which had neither pled nor proven
its status as a “holder in due course,” had not yet addressed
Daniel’s affirmative defenses.
c. Nationstar’s Renewed Motion for Summary Judgment
and Related Proceedings
Nationstar withdrew its first Motion for Summary
Judgment to “address [the] issues raised by Daniel,” and filed
its Renewed Motion for Summary Judgment on December 15, 2015.
Attached to Nationstar’s new motion was a Note with three
indorsements, rather than two, as well as two more declarations
affirming that this Note accurately reflected the original. Like
the Note presented to Daniel in 2012, the Note’s first
indorsement was from Lehman Brothers to Lehman Brothers Holding
and the second indorsement was from Lehman Brothers Holding to
9
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Aurora. The Note’s third indorsement, however, had been indorsed
in-blank from Aurora, by Nationstar as Aurora’s attorney-in-
fact.8
To support this version of the Note, Nationstar
submitted a declaration executed by Toni Vincent (Vincent), a
document execution specialist, which stated that: (1) Vincent
had personally reviewed the documents and records in Nationstar’s
possession related to Daniel’s case including a “current copy of
the original Note,” which was indorsed-in-blank and attached to
Nationstar’s new motion; (2) the records and files were
incorporated and kept by Nationstar in its ordinary course of
business and verified for their accuracy; and (3) the Note was in
the possession of and ha[d] been maintained by Nationstar since
8
The indorsements read as follows:
Pay To The Order Of
Lehman Brothers Holding Inc.
Without Recourse
Lehman Brothers Bank, FSB
By: [signature]
E. Todd Whittemore
Vice President
PAY TO THE ORDER OF
AURORA LOAN SERVICES LLC
WITHOUT RECOURSE
LEHMAN BROTHERS HOLDINGS INC.
BY: [signature]
PAUL E. SVEEN
AUTHORIZED SIGNATORY
Pay to the Order of
___________________
Without Recourse
Aurora Loan Services LLC by Nationstar
Mortgage LLC Its Attorney-In-Fact
By [signature]
Assistant Secretary
Julie Martinez
10
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before the commencement of th[e] case.”
Vincent further declared that she had reviewed Person’s
declaration submitted with Nationstar’s first Motion for Summary
Judgment, had conferred with Person, and could confirm that
Person’s declaration was inaccurate because Person had not
followed Nationstar’s policies and procedures, had not personally
reviewed the “original ‘wet-ink’ Note,” and had attached an
outdated copy of the Note to the first motion that “did not
contain all of the indorsements currently set forth on the
original Note.”9 David Rosen, Nationstar’s counsel at the time,
9
In relevant part, Vincent’s declaration stated:
15. On March 10, 2015, Demetrice Person (“Person”),
a Document Execution Specialist at Nationstar,
executed a Declaration in Support of Plaintiff’s
Motion for Summary Judgment (“MSJ Declaration”)
which was filed in the above-captioned case on
March 30, 2015.
16. The MSJ Declaration included inaccurate
information regarding the Loan because Person
failed to comply with Nationstar’s Declaration
Policies and Procedures. Specifically, the MSJ
Declaration inaccurately stated that: (1) Person
“personally reviewed the original wet-ink [Note]
[sic] dated December 4, 2006"; and (2) “[a] true
and correct copy of the original Note is
attached [to the MSJ Declaration] as Exhibit A”.
17. In fact, Person did not review the original
“wet-ink” Note. Rather, Person reviewed an
outdated copy of the Note which did not contain
all of the indorsements currently set forth on
the original Note.
18. Also, the copy of the Note included as Exhibit A
as to the MSJ Declaration was not a true and
correct copy of the original Note. Again what
was provided was an outdated copy of the Note,
which did not contain all of the indorsements
currently set forth on the original Note.
19. My personal knowledge of these statements is
(continued...)
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also attested via declaration that this Note, with its three
indorsements, was the “original ‘wet-ink’ Note.”
Daniel then filed his own Motion for Summary Judgment,
raising similar arguments to those raised before. Specifically,
Daniel contended that Nationstar had not “produced admissible
evidence establishing [the] elements of a remedy of
foreclosure[,]” and further, that it had not addressed Daniel’s
affirmative defenses.
On March 14, 2016, the circuit court issued findings of
fact and conclusions of law, entered an order granting
Nationstar’s Renewed Motion for Summary Judgment, and entered
final judgment in Nationstar’s favor. The circuit court
concluded that Nationstar, as “holder” of Daniel’s Note, had
adequately proven its ability to foreclose on the mortgage.
9
(...continued)
derived from my having inspected a copy of the
MSJ Declaration, the Exhibits thereto, a current
copy of the original Note, and my having
conferred with Person regarding this matter.
20. I, in my role as manager at Nationstar, am
responsible for managing Person. As such, I can
confirm that after Nationstar discovered that
the MSJ Declaration contained inaccurate
information, Nationstar: (1) re-trained Person
on Nationstar’s Declaration Policies &
Procedures to ensure that Person understands
what she must do to verify the accuracy of
information contained in a declaration and to
verify that the exhibits to a declaration are
true and correct copies of said documents; and
(2) conducted an audit of the work Person
completed in the 90 days immediately prior to
discovering the inaccuracies contained in the
MSJ Declaration to ensure that no other mistakes
were made by Person.
(emphases in original).
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2. ICA Proceedings
On appeal, Daniel argued that summary judgment was
improper in light of the untrustworthiness of Nationstar’s
business records and Nationstar’s failure to address Daniel’s
affirmative defenses when it was “holder” of the Note.
Nationstar, on the other hand, despite conceding its status as
“holder,” rather than “holder in due course,” denied that its
business records were untrustworthy, and further claimed that
Daniel’s affirmative defenses lacked merit.10 As such,
Nationstar argued that summary judgment was proper.
The ICA’s memorandum opinion vacated the circuit
court’s final judgment and remanded the case for further
proceedings. Despite rejecting Daniel’s argument that the Note
with three indorsements lacked indicia of trustworthiness for
admissibility under HRE Rule 803(b)(6), the ICA concluded that
Nationstar had not established its standing to enforce the Note
under Reyes-Toleldo, 139 Hawaii 361, 390 P.3d 1248.
As a preliminary matter, the ICA concluded that
Nationstar’s business records were admissible under HRE Rule
803(b)(6). After examining HRE Rule 803(b)(6) and its
commentary, Vincent’s declaration, and this court’s rulings in
U.S. Bank N.A. v. Mattos, 140 Hawaii 26, 398 P.3d 615 (2017),
10
Specifically, Nationstar stated in its Answering Brief that “Mr.
Kanahele ignores the fact that Nationstar denied it was a holder in due course
but stated that it [was] the holder of the Note. As discussed above,
Nationstar’s status as a “holder in due course” is not at issue[.]” (emphasis
in original).
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and Wells Fargo Bank, N.A. v. Behrendt, 142 Hawaii 37, 414 P.3d
89 (2018), the ICA also concluded that Nationstar’s business
records were trustworthy.
According to the ICA, Person’s declaration had no
impact on the third Note’s admissibility, despite contradicting
Vincent’s declaration. The ICA explained that while Person’s
“inaccurate declaration” may have bore on her own credibility, it
did “not necessarily [bear] on the reliability” of Nationstar’s
record-keeping system or business records, which the court
explained, was the “focus” of the trustworthiness requirement.
The ICA further explained that Nationstar’s business
records were trustworthy under Mattos, 140 Hawaii 26, 398 P.3d
615, and Behrendt, 142 Hawaii 37, 414 P.3d 89, because unlike
the declarants in those cases, here, Vincent provided enough
information in her declaration to establish herself as a
qualified witness of Nationstar’s business records. More
specifically, the ICA found that unlike the declarations in
Mattos and Behrendt, Vincent’s declaration established that:
Nationstar (1) received the loan documents, including
the Note, from prior loan servicers and incorporated
them into its records; and (2) that once integrated
Nationstar “relie[d] on these business records in the
ordinary course of its mortgage loan servicing
business.” And as stated above, Vincent provided
additional facts sufficient to establish the
trustworthiness of the documents attached to her
declaration.
The ICA concluded the trustworthiness requirement had
also been satisfied given that Nationstar did not rely on
Person’s declaration to establish the elements of its claim, and
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given Vincent’s explanation that her declaration was submitted to
correct Person’s misstatements and the misinformation presented
in Nationstar’s previous motion for summary judgment. The ICA
also concluded that Nationstar’s 2012 letter, which indicated
that Wells Fargo owned the Note, was inapposite because the
“issue [here] [was] whether Nationstar was the holder at the time
of the filing of the Complaint, not the identity of the owner two
years ago.”
Regardless, the ICA found that Nationstar had not
adequately established standing to foreclose under the
requirements of Reyes-Toledo, 139 Hawaii 361, 390 P.3d 1248.
The ICA pointed out that, as in Reyes-Toledo,
the copy of the Note attached to the Vincent
declaration and the Renewed Motion for Summary
Judgment [did] not reflect the date of the blank
indorsement. . . . Although Vincent declared that
“the Note was in the possession of and ha[d] been
maintained by Nationstar since before the commencement
of this case,” she did not attest that the Note was
indorsed-in-blank prior to the commencement of this
case or that the copy attached reflect[ed] the
indorsements as they existed when the Complaint was
filed.
Consequently, the ICA vacated the circuit court’s order
and judgment, and declared that on remand, in order to have
standing to enforce the Note, Nationstar would have to show that
it possessed the Note prior to commencing its action against
Daniel in 2014. The ICA did not address Daniel’s affirmative
defenses, and also did not address Nationstar’s acknowledgment,
in its appellate briefing, of its status as “holder” of the Note.
The ICA’s Judgment on Appeal was entered on September 25, 2018.
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II. STANDARDS OF REVIEW
A. Summary Judgment
This court reviews “the circuit court's grant or denial
of summary judgment de novo.” Querubin v. Thronas, 107 Hawaii
48, 56, 109 P.3d 689, 697 (2005) (citation omitted).
Accordingly, “summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue of material fact and the moving party is entitled
to a judgment as a matter of law.” Iddings v. Mee-Lee, 82
Hawaii 1, 5, 919 P.2d 263, 267 (1996); see also Hawaii Rules of
Civil Procedure (HRCP) Rule 56(c) (2000).11
On a motion for summary judgment, “a ‘genuine issue as
to any [material] fact’ . . . [in] a conflict in the affidavits
as to a particular matter must be of such a nature that it would
affect the result.” Richards v. Midkiff, 48 Haw. 32, 39, 396
P.2d 49, 54 (1964) (citation omitted). Furthermore,
“[a]ffidavits in support of a summary judgment motion [must be]
scrutinized to determine whether the facts they aver are
admissible at trial and are made on the personal knowledge of the
affiant.” Adams v. CDM Media USA, Inc., 135 Hawaii 1, 28, 346
11
HRCP Rule 56(c) provides, in relevant part:
The judgment sought shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.
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P.3d 70, 97 (2015) (internal quotation marks omitted) (quoting
Miller v. Manuel, 9 Haw. App. 56, 66, 828 P.2d 286, 292 (1991)).
In reviewing a circuit court’s grant or denial of a
motion for summary judgment, the appellate court “must view all
of the evidence and the inferences drawn therefrom in the light
most favorable to the party opposing the motion” and any doubt
should be resolved in favor of the non-moving party. Crichfield
v. Grand Wailea Co., 93 Hawaii 477, 483, 6 P.3d 349, 355 (2000)
(internal quotation marks, brackets, and citation omitted).
Similarly,
[A] party moving for summary judgment is not entitled
to a judgment merely because the facts he offers
appear more plausible than those tendered in
opposition or because it appears that the adversary is
unlikely to prevail at trial. This is true even
though both parties move for summary judgment.
Therefore, if the evidence presented on the motion is
subject to conflicting interpretations, or reasonable
men might differ as to its significance, summary
judgment is improper.
Makila Land Co., LLC v. Kapu, 114 Hawaii 56, 67, 156 P.3d 482,
493 (App. 2006) (citation omitted).
B. The Admissibility of Evidence under HRE Rule 803(b)(6)
“Where admissibility of evidence is determined by
application of the hearsay rule, there can only be one correct
result, and the appropriate standard for appellate review is the
right/wrong standard.” State v. Fitzwater, 122 Hawaii 354, 362,
227 P.3d 520, 528 (2010) (internal quotation marks and citation
omitted). Thus, we review the admissibility of business records
under HRE Rule 803(b)(6) pursuant to the right/wrong standard.
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However, when “the trial court [] base[s] its ruling [of
admissibility] on the ‘judgment call’ of whether the sources of
information or other circumstances [related to the records]
indicate[] a lack of trustworthiness,” we review for abuse of
discretion. State v. Jhun, 83 Hawaii 472, 477 n.4, 927 P.2d
1355, 1360 n.4 (1996).
C. Statutory Interpretation
The interpretation of a statute is a question of law
that appellate courts review de novo. Sierra Club v. Dep’t of
Transp., 120 Hawaii 181, 197, 202 P.3d 1226, 1242 (2009).
“[W]here the terms of a statute are plain, unambiguous[,] and
explicit, . . . our sole duty is to give effect to the statute’s
plain and obvious meaning.” Bhakta v. Cnty. of Maui, 109 Hawaii
198, 208, 124 P.3d 943, 953 (2005) (internal quotation marks and
citation omitted).
III. DISCUSSION
A. The ICA Erred in Concluding that Nationstar’s Third Note
was Admissible Under HRE Rule 803(b)(6) Because the Sources
of Information and Other Circumstances Surrounding the Note
Indicated the Note’s Lack of Trustworthiness
HRE Rule 803(b)(6) provides that the following are not
excluded by the hearsay rule:
A memorandum, report, record, or data compilation, in
any form, of acts, events, conditions, opinions, or
diagnoses, made in the course of a regularly conducted
activity, at or near the time of the acts, events,
conditions, opinions, or diagnoses, as shown by the
testimony of the custodian or other qualified witness,
or by certification that complies with rule 902(11) or
a statute permitting certification, unless the sources
of information or other circumstances indicate lack of
trustworthiness.
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(emphasis added).
The commentary to HRE Rule 803(b)(6) further provides
that:
The hallmark of reliability in this area is not the
nature of the business or activity but rather its
“regularity and continuity which produce habits of
precision, [the] actual experience of [the] business
in relying upon [the records], [and the] duty to make
an accurate record as part of a continuing job or
occupation.” A further safeguard is that preliminary
determination of the trustworthiness of such records
is discretionary with the courts.
(emphasis added).
The ICA concluded that Nationstar’s Note with three
indorsements bore the requisite indicia of trustworthiness as
required under Mattos and Behrendt because Vincent’s declaration
established “that [(1)] Nationstar [] received the loan
documents, including the Note, from prior loan servicers and
incorporated them into its records; [] (2) that once
integrated[,] Nationstar ‘relie[d] on th[o]se business records in
the ordinary course of its mortgage loan servicing business[,]’”
and that “Vincent provided additional facts sufficient to
establish the trustworthiness of the documents attached to her
declaration.”
While satisfying the requirements of Mattos and
Behrendt is necessary to lay a foundation for admissibility under
HRE Rule 803(b)(6) with regard to being a qualified witness who
may testify as to the reliability of the records at issue, these
requirements are not sufficient to show trustworthiness on their
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own when the totality of circumstances indicate the opposite.
In light of Vincent’s declaration, the conflicting
attestations of Williams, Workman, and Person, and Nationstar’s
failure to explain Lawrence’s 2012 assertion that Wells Fargo
owned the Note, the indicia of trustworthiness required for the
Note’s admissibility under HRE Rule 803(b)(6) were not present,
despite the fact that Vincent may have been a qualified witness
with respect to the records under Mattos and Behrendt.
Furthermore, in Hawaii, an affidavit submitted by a
party in support of a motion for summary judgment must be based
on the affiant’s personal knowledge. Adams, 135 Hawaii at 28,
346 P.3d at 97. In other words, the affidavit must adequately
reflect that the affiant (1) perceived the event about which they
testified; and (2) had a present recollection of that perception.
See id.; HRE Rule 602 (1992);12 HRCP Rule 56(e).13 Affidavits
12
The commentary to HRE Rule 602 (personal knowledge) provides in relevant
part:
This rule, which is identical with Fed. R. Evid. 602,
restates the traditional common-law rule barring a
witness from testifying to facts of which he has no
direct personal knowledge. See McCormick § § 10, 11.
“Personal knowledge,” for purposes of this rule, means
that the witness perceived the event about which he
testifies and that he has a present recollection of
that perception. The personal knowledge requirement
should not be confused with the hearsay ban, see Rule
802 infra.
In fact, the requirements of Rule 602 apply to a
hearsay statement admitted under any of the hearsay
exception rules, 802.1, 803, and 804 infra, in that
admissibility of a hearsay statement is predicated on
the foundation requirement of the witness' personal
knowledge of the making of the statement itself.
Evidence of personal knowledge is a general foundation
(continued...)
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that state ultimate or conclusory facts or conclusions of law may
not be used to support a motion for summary judgment. Adams, 135
Hawaii at 30, 346 P.3d at 99 (citation omitted).
Here, Vincent’s declaration was not based on personal
knowledge. Vincent attested that Person’s declaration “included
inaccurate information regarding the loan because Person failed
to comply with Nationstar’s Declaration Policies and Procedures,”
that Person “reviewed an outdated copy of the Note,” rather than
the “original wet-ink Note,” and that Vincent’s “personal
knowledge of these statements was derived from [] having
inspected a copy of [Person’s declaration], the Exhibits thereto,
(...continued)
requirement for admissibility of all evidence, subject
to Rule 703 relating to expert witnesses.
(emphasis added).
13
HRCP Rule 56 (Summary judgment) provides in relevant part:
(e) Form of Affidavits; Further Testimony; Defense
Required. Supporting and opposing affidavits shall be
made on personal knowledge, shall set forth such facts
as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify
to the matters stated therein. Sworn or certified
copies of all papers or parts thereof referred to in
an affidavit shall be attached thereto or served
therewith. The court may permit affidavits to be
supplemented or opposed by depositions, answers to
interrogatories, or further affidavits. When a motion
for summary judgment is made and supported as provided
in this rule, an adverse party may not rest upon the
mere allegations or denials of the adverse party’s
pleading, but the adverse party’s response, by
affidavit or as otherwise provided in this rule, must
set forth specific facts showing that there is a
genuine issue for trial. If the adverse party does
not so respond, summary judgment, if appropriate,
shall be entered against the adverse party.
(emphases added).
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a current copy of the original Note, and [] having conferred with
Person[.]”
It is clear that Vincent did not personally observe
Person reviewing the “outdated copy of the Note” or Person’s
failure to review the “the original wet-ink Note.” Rather,
Vincent based her statement that Person “reviewed an outdated
copy of the Note” on communications she had with Person.14 “Were
we to dilute the requirement that affidavits be based on personal
knowledge, it [would] be all [too] easy to come up with hearsay
affidavits effectively undermining the entire summary judgment
process.” Midland Funding, LLC v. Trahan, 110 So.3d 1154, 1157-
58 (La. Ct. App. 2013) (citation omitted).
Given that Vincent’s attestation to Person’s errors
was not based on Vincent’s personal knowledge, those portions of
her declaration should not have been relied upon by the circuit
court in ruling on Nationstar’s Renewed Motion for Summary
Judgment. Furthermore, without those portions, the declaration
merely attested, based on Vincent’s own review of Nationstar’s
documents, that the Note attached to her declaration was “the
current copy of the original Note[.]” This, however, was in
direct conflict with Person’s declaration, which stated that the
version of the Note that she attested to was “the current copy of
the original Note[,]” as well as the attestations of Williams and
14
Person’s statements to Vincent would appear to be inadmissible
hearsay. However, because Daniel did not object to the admission of Vincent’s
declaration on this ground, we do not address this issue further.
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Workman. The ICA thus erred in concluding that Vincent’s
declaration was more credible than any other, and that, on this
basis, summary judgment was appropriate.
We clarify, however, that not all mistakes, or
allegations of mistake, in a company’s business records will
render that company’s record-keeping practices untrustworthy, and
therefore render their records inadmissible. In State v. Forman,
the ICA held that “the vague testimony that [a company] ‘kept bad
paperwork,’ without more, [did] not warrant a conclusion that the
company’s records as a whole were untrustworthy[,]” and further,
that the “application of the business records rule” could not be
avoided on the basis “that a regular practice is occasionally
broken.” 125 Hawaii 417, 424-25, 263 P.3d 127, 134-35 (App.
2011) (citing United States v. McGill, 953 F.2d 10, 15 (1st Cir.
1992) (explaining that to hold otherwise, the business records
rule would be “swallowed up by an exception for less-than-perfect
business practices”)). Unlike in Forman, however, Daniel did not
make bald allegations of Nationstar’s “bad paperwork” practices,
but rather, pointed to specific, material contradictions that
Nationstar either did not address, or addressed inadequately.
If, in fact, the Note with three indorsements was the
true and correct version of the Note, then Person should have
submitted a new declaration in support of Nationstar’s Renewed
Motion for Summary Judgment, acknowledging that for the purposes
of her first declaration, she had reviewed an “outdated copy of
the Note” rather than the “original wet-ink Note.” These
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statements, from Person, rather than from Vincent, would have
demonstrated the requisite personal knowledge as required for
affidavits submitted to support summary judgment motions.
Nationstar incorrectly points to Cordeiro v. Burns, 7
Haw. App. 463, 776 P.2d 411 (1989), to support its contention
that Person’s and Vincent’s declarations were consistent with
each other, rather than in conflict. This reliance is misplaced,
however, because in Cordeiro, Burns himself explained why his
statements, which on their face seemed contradictory, were not.
Id. at 470, 776 P.2d at 417. In other words, Burns offered a
plausible explanation for why he gave inconsistent statements
based on his own personal knowledge. Id. Presumably, Person
could have done the same. As such, Person should have been the
one to explain why her first declaration was incorrect, if
indeed, it was.
In sum, despite the fact that Vincent constituted a
qualified witness under Mattos and Behrendt, the Note with three
indorsements was not admissible as a business record under HRE
Rule 803(b)(6) because the circumstances surrounding the Note
indicated a lack of trustworthiness. Nationstar could have
avoided this problem if its prior affiants had submitted new
affidavits explaining why and how they had erred before, and
further, if Nationstar had addressed why it had stated that the
Note belonged to Wells Fargo in 2012. Nationstar, however, did
neither. Accordingly, Nationstar’s motion for summary judgment
should have been denied, not only on the ground of standing, but
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also on the basis of trustworthiness.
B. If Nationstar Establishes its Standing to Enforce the Note
on Remand, it will be Required to Address Daniel’s
Affirmative Defenses as the Note’s “holder”
The circuit court concluded that Daniel could not
assert his affirmative defenses against “the people who are now
holder” of the Note.15 The circuit court, however,
mischaracterized the law by extending the legal protections
afforded to “holders in due course” to “holders.” We clarify
that unless a foreclosing party can establish itself as a “holder
in due course,” it will be considered a “holder” subject to all
of an opposing party’s affirmative defenses.
Pursuant to HRS § 490:3-302 (2008), in order to be
considered a “holder in due course,” a foreclosing party must
demonstrate that:
(1) The instrument when issued or negotiated to the
holder [did] not bear such apparent evidence of
forgery or alteration or [was] not otherwise so
irregular or incomplete as to call into question its
authenticity; and
(2) The holder took the instrument (i) for value, (ii)
in good faith, (iii) without notice that the
instrument [was] overdue or ha[d] been dishonored or
that there [was] an uncured default with respect to
payment of another instrument issued as part of the
same series, (iv) without notice that the instrument
contain[ed] an unauthorized signature or ha[d] been
altered, (v) without notice of any claim to the
instrument described in section 490:3-306, and (vi)
without notice that any party ha[d] a defense or claim
in recoupment described in section 490:3-305(a).
HRS § 490:3-302(a).
15
Daniel’s affirmative defenses, raised before the circuit court,
included, inter alia, fraud in the inducement, unconscionability, and mistake.
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The commentary to HRS § 490:3-302 further provides
that “[t]he primary importance of the concept of holder in due
course is with respect to [the] assertion of defenses or claims
in recoupment (Section 3-305)16 and of claims to the instrument
16
HRS § 490:3-305 (Defense and claims in recoupment) provides in relevant
part:
(a) Except as stated in subsection (b), the right to
enforce the obligation of a party to pay the
instrument is subject to the following:
(1) A defense of the obligor based on (i)
infancy of the obligor to the extent it is
a defense to a simple contract, (ii)
duress, lack of legal capacity, or
illegality of the transaction which, under
other law, nullifies the obligation of the
obligor, (iii) fraud that induced the
obligor to sign the instrument with
neither knowledge nor reasonable
opportunity to learn of its character or
its essential terms, or (iv) discharge of
the obligor in insolvency proceedings;
(2) A defense of the obligor stated in another
section of this article or a defense of
the obligor that would be available if the
person entitled to enforce the instrument
were enforcing a right to payment under a
simple contract; and
(3) A claim in recoupment of the obligor
against the original payee of the
instrument if the claim arose from the
transaction that gave rise to the
instrument; but the claim of the obligor
may be asserted against a transferee of
the instrument only to reduce the amount
owing on the instrument at the time the
action is brought.
(b) The right of a holder in due course to enforce
the obligation of a party to pay the instrument
is subject to defenses of the obligor stated in
subsection (a)(1), but is not subject to
defenses of the obligor stated in subsection
(a)(2) or claims in recoupment stated in
subsection (a)(3) against a person other than
the holder.
(continued...)
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(Section 3-306).”17 With respect to defenses and claims in
recoupment, “[i]f a defense or claim in recoupment is proved,”
the plaintiff’s right to payment is subject to that defense or
claim, “except to the extent the plaintiff proves that [it] has
rights of a holder in due course which are not subject to [that]
defense or claim.” HRS § 490:3-308(b) (2008); Reyes-Toledo, 139
Hawaii at 367, 390 P.3d at 1254 (acknowledging HRS § 490:3-308
and its commentary). “Until proof of a defense or claim in
recoupment is made, the issue as to whether the plaintiff has
rights of a holder in due course does not arise.” HRS § 490:3-
308 cmt. 2.
Pursuant to HRS § 490:3-305, “holders in due course,”
like “holders,” are subject to an obligor’s “real defenses”18
against an instrument, which include: (1) infancy; (2) duress,
lack of legal capacity, or illegality of the transaction; (3)
(...continued)
(emphases added).
17
HRS § 490:3-306 (2008) (Claims to an instrument) provides:
A person taking an instrument, other than a person
having rights of a holder in due course, is subject to
a claim of a property or possessory right in the
instrument or its proceeds, including a claim to
rescind a negotiation and to recover the instrument or
its proceeds. A person having rights of a holder in
due course takes free of the claim of the instrument.
(emphasis added).
18
A “real defense” is “good against any possible claimant,”
including holders and holders in due course. Black’s Law Dictionary 512 (10th
ed. 2014). In contrast, a “personal defense” is “[a]n ordinary defense in a
contract action . . . that the maker or drawer of a negotiable instrument is
precluded from raising against a person who has the rights of a holder in due
course.” Id.
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fraud that induced the obligor to sign the instrument without
knowing its terms and without reasonable opportunity to find them
out; and (4) discharge of the obligor through insolvency
proceedings. See HRS § 490:3-305(a)(1); see also HRS § 490:3-305
cmt. 1 (explaining that subsection (a)(1) pertains to “real
defenses”).
Unlike “holders,” however, “holders in due course” are
not subject to an obligor’s “personal defenses,” when those
defenses are against the original obligee. HRS § 490:3-
305(a)(2)-(3); White, Summers, & Hillman, Uniform Commercial Code
§ 18:29 (6th ed. 2010).19 In other words, one of the advantages
of being a “holder in due course” is the special protection it
provides against an obligor’s personal defenses against another.
In conclusion, if Nationstar can prove on remand that
it possessed the Note with three indorsements prior to filing its
Complaint, it will establish its standing to enforce the Note
under Reyes-Toledo. However, Nationstar conceded its status as
19
White, Summers, and Hillman explain:
The defenses of the obligor can be summed up neatly as
follows: [they are] all defenses provided elsewhere in
Article 3 and all defenses that would be available to
the obligor against a person who was attempting to
enforce the instrument as a simple contract, that is
to say, at common law. By tradition, the defenses
from which a holder in due course takes free are
called “personal defenses” and include[, inter alia,]
failure or lack of consideration, breach of warranty,
unconscionability, and garden variety fraud (fraud in
the inducement). Recall that a holder in due course
does not necessarily take free of all “personal”
defenses. Rather, the holder in due course is sure to
take free only of the personal defenses that do not
arise from his own behavior.
White, Summers, and Hillman, Uniform Commercial Code § 18:29 (6th ed. 2010).
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“holder” (rather than as “holder in due course”) of Daniel’s Note
in its ICA briefing. As a “holder,” it will be required on
remand to respond to Daniel’s affirmative defenses that were
personal in nature. Lastly, if the case proceeds to trial,
discovery should be permitted to the extent that it may help
Daniel develop his defenses.
IV. CONCLUSION
We affirm the ICA’s September 25, 2018 Judgment on
Appeal, which vacated the circuit court’s March 14, 2016 Judgment
on Foreclosure Decree and remanded the case for further
proceedings, subject to the clarifications set forth above.
Lance D. Collins /s/ Mark E. Recktenwald
(Bianca K. Isaki with
him on the briefs) /s/ Paula A. Nakayama
for petitioner
/s/ Sabrina S. McKenna
David A. Nakashima
for respondent /s/ Richard W. Pollack
/s/ Michael D. Wilson
29