U.S. Bank National Association as Trustee for CSMC Mortgage Loan Trust 2006-7 v. Compton

*** NOT FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER *** Electronically Filed Supreme Court SCWC-XX-XXXXXXX 09-JUL-2021 01:34 PM Dkt. 68 SO SCWC-XX-XXXXXXX IN THE SUPREME COURT OF THE STATE OF HAWAI‘I U.S. BANK NATIONAL ASSOCIATION AS TRUSTEE FOR CSMC MORTGAGE LOAN TRUST 2006-7, Petitioner/Plaintiff-Appellee, vs. WATOSHINA LYNN COMPTON, Respondent/Defendant-Appellant, and GABI A. BENGIS; RON SERLE; DEPARTMENT OF TAXATION – STATE OF HAWAI‘I, Respondents/Defendants-Appellees. CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-XX-XXXXXXX; CIVIL NO. 17-1-0025(3)) SUMMARY DISPOSITION ORDER (By: Recktenwald, C.J., Nakayama, McKenna, Wilson, and Eddins, JJ.) This appeal arises from U.S. Bank National Association as Trustee for CSMC Mortgage Loan Trust 2006-7’s (“U.S. Bank”) motion for summary judgment and interlocutory decree of foreclosure (“MSJ”) against Watoshina Lynn Compton (“Compton”). U.S. Bank initiated foreclosure proceedings against Compton in January 2017. In February 2018, U.S. Bank moved for summary *** NOT FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER *** judgment. U.S. Bank supported its MSJ with loan documents, including a promissory note (the “Note”) executed by Compton in favor of Countrywide Home Loans, Inc. (“Countrywide”). Two declarations also supported U.S. Bank’s MSJ. Carol Davis, an employee of Nationstar Mortgage LLC, U.S. Bank’s loan servicer, prepared one; Gina Santellan, a custodian of records for U.S. Bank’s counsel wrote the other. The circuit court granted U.S. Bank’s motion. It entered judgment for U.S. Bank. Compton appealed. On appeal, Compton argued that because U.S. Bank had not established its possession of the Note at the time it filed its complaint, the circuit court had erred in concluding U.S. Bank had standing to sue. The ICA agreed. It ruled that because neither Davis nor Santellan could speak to the record-keeping practices of the Note’s creator, Countrywide, the Note could not be admitted under the business records exception to the hearsay rule. Given the inadmissibility of the Note, the ICA concluded, U.S. Bank was not entitled to summary judgment: there was a “genuine issue of material fact as to whether U.S. Bank had standing to initiate this foreclosure action when it was commenced.” On certiorari, U.S. Bank presents two questions: (1) “To introduce a promissory note into evidence, must a creditor satisfy the business records exception to the hearsay rule?” and (2) “If a party incorporates a third party’s records into its 2 *** NOT FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER *** own, must it present testimony about the third party’s record- keeping in order to satisfy the business records exception?” We answered these questions in U.S. Bank v. Verhagen, SCWC- XX-XXXXXXX (Haw. June 21, 2021). As we explained in Verhagen, promissory notes are not hearsay because they have independent legal significance. Here, U.S. Bank presented the Note to establish Compton’s legal obligation to the Note’s holder. The Note was therefore not hearsay and need not fall within an exception to the hearsay rule to be admissible. Our opinion in Verhagen also explained that under the incorporated records doctrine, the foundation for the admission of business records incorporated into the records of a receiving business can, in certain cases, be established by testimony from a custodian or other witness qualified to testify about the record-keeping practices of the incorporating business. The ICA thus erred in ruling that the Note was inadmissible absent testimony about its creator’s record-keeping systems. Accordingly, we hold the ICA erred in reversing the circuit court’s grant of summary judgment to U.S. Bank. We vacate the ICA’s memorandum opinion and judgment on appeal. We remand this matter to the circuit court for a determination of whether U.S. Bank has submitted admissible evidence that collectively shows it is entitled to summary judgment against Compton. In making 3 *** NOT FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER *** this determination, the circuit court shall apply the incorporated records doctrine as outlined in State v. Behrendt, 124 Hawai‘i 90, 237 P.3d 1156 (2010), and clarified in Verhagen. DATED: Honolulu, Hawai‘i, July 9, 2021. Jade Lynne Ching, /s/ Mark E. Recktenwald (David A. Nakashima, Ryan B. Kasten, Alan M. Hurst, and /s/ Paula A. Nakayama Justin D. Balser on the briefs) /s/ Sabrina S. McKenna for petitioner /s/ Michael D. Wilson Matthew K. Yoshida, (Keith M. Kiuchi on the briefs) /s/ Todd W. Eddins for respondent Patricia J. McHenry, for Amicus Curiae Federal Housing Finance Agency Crystal K. Rose and Adrian L. Lavarias for Amicus Curiae Mortgage Bankers Association and Mortgage Bankers Association of Hawaii 4