FILED
APR 06 2012
1
SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. WW-11-1362-HKiJu
)
6 TONI MARIE GRIFFIN, ) Bk. No. 11-13327
)
7 Debtor. )
______________________________)
8 )
PETER H. ARKISON, Chapter 7 )
9 Trustee, )
)
10 Appellant, )
)
11 v. ) M E M O R A N D U M1
)
12 TONIE MARIE GRIFFIN; US BANK )
NATIONAL ASSOCIATION, )
13 )
Appellees. )
14 ______________________________)
15 Argued and Submitted on March 23, 2012
at Seattle, Washington
16
Filed - April 6, 2012
17
Appeal from the United States Bankruptcy Court
18 for the Western District of Washington
19 Honorable Karen A. Overstreet, Bankruptcy Judge, Presiding
20
Appearances: Tuella O. Sykes, Esq. argued for Appellant Peter
21 H. Arkison, Chapter 7 Trustee. Joshua Schaer,
Esq. of Routh Crabtree Olsen, P.S. argued for
22 Appellee U.S. Bank National Association.
23
Before: HOLLOWELL, KIRSCHER and JURY, Bankruptcy Judges.
24
25
26 1
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1 Peter H. Arkison, the chapter 72 trustee (Trustee), appeals
2 the bankruptcy court’s order granting U.S. Bank National
3 Association as Trustee for the Certificateholders of Structured
4 Asset Mortgage Investments II Inc. Bear Sterns ALT-A Trust,
5 Mortgage Pass-Through Certificates, Series 2006-3 (U.S. Bank)
6 relief from the automatic stay under § 362(d). We AFFIRM.
7 I. FACTUAL BACKGROUND
8 In January 2006, the Debtor executed a $220,000 promissory
9 note in favor of CTX Mortgage Company, LLC (the Note). The Note
10 contains an endorsement in blank by CTX Mortgage Company, LLC.
11 The Note was secured by a deed of trust (Deed of Trust) on the
12 Debtor’s real property in Everett, Washington (the Property).
13 The Deed of Trust named Mortgage Electronic Registration Systems,
14 Inc. (MERS) as nominee for the lender, its successors, and
15 assigns. The Deed of Trust was recorded on January 27, 2006.
16 On March 24, 2011, the Debtor filed a voluntary chapter 7
17 bankruptcy petition. Not long after, on May 23, 2011, U.S. Bank
18 filed a motion for relief from the automatic stay in order to
19 proceed with its statutory remedies under the Note and Deed of
20 Trust (Stay Relief Motion).
21 U.S. Bank alleged that the amount due under the Note was
22 $232,061.94. Based on the Debtor’s own valuation of the Property
23 in her bankruptcy schedules at $200,000, U.S. Bank asserted that
24
25
2
Unless otherwise indicated, all chapter and section
26 references are to the Bankruptcy Code,
11 U.S.C. §§ 101-1532.
27 All “Rule” references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure
28 are referred to as “Civil Rules.”
-2-
1 there was no equity in the Property and the Property was not
2 necessary to an effective reorganization.
3 U.S. Bank supported its Stay Relief Motion with a
4 declaration from a supervisor at JP Morgan Chase Bank, N.A.
5 (JP Morgan), the servicer of the Note, personally familiar with
6 the loan records of U.S. Bank (the Declaration). The Declaration
7 stated that the Note was endorsed in blank and that U.S. Bank “is
8 now the Holder of the Original Promissory Note as that term is
9 defined by the Uniform Commercial Code.” Additionally, a “true
10 and correct copy of the indorsed Promissory Note [was] attached
11 as Exhibit A.” The copy of the attached Note included in
12 U.S. Bank’s Exhibit A had a small stamp on the top, stating: “We
13 hereby certify that this is a true & correct copy of the
14 original. CTX Mortgage Company, LLC” with someone’s initials
15 handwritten over the stamp. Also included with the Declaration
16 was a copy of the Deed of Trust.
17 The Trustee filed an objection to the Stay Relief Motion.
18 The Trustee was concerned that the original Note was not attached
19 to the declaration. His objection reads:
20 If U.S. Bank has the original Note, why was it not
attached to the Declaration?
21
If it does not have the original Note, why does the
22 Declaration say that it has it?
23 If it does not have the original Note, who does?
24 If it does not have the original Note, how does it have
standing to bring the [Stay Relief] Motion.
25
26 The Trustee also took issue with the Declaration, stating
27 that it was generic and provided no information about what
28 records were reviewed, how the so-called “creditor” came into
-3-
1 possession of the Note, and, even, who the reference to the
2 “creditor” was. The Debtor did not object to the Stay Relief
3 Motion.
4 A hearing was held on the Stay Relief Motion on June 22,
5 2011 (Stay Relief Hearing). At the Stay Relief Hearing, the
6 Trustee again asserted his concern that U.S. Bank did not provide
7 the original Note.
8 The bankruptcy court reviewed the evidence and documentation
9 presented with the Stay Relief Motion and found that U.S. Bank
10 was entitled to relief from stay. In doing so, the bankruptcy
11 court noted that original notes were not required to be filed
12 with the bankruptcy court. The bankruptcy court entered its
13 order granting relief from the automatic stay under §362(d) on
14 June 23, 2011. The Trustee timely appealed.
15 II. JURISDICTION
16 The bankruptcy court had jurisdiction under
28 U.S.C. § 1334
17 and
28 U.S.C. § 157(b)(2)(G). We have jurisdiction under
18
28 U.S.C. § 158.
19 III. ISSUE
20 Did the bankruptcy court abuse its discretion when it
21 granted U.S. Bank relief from the automatic stay?
22 IV. STANDARDS OF REVIEW
23 We review a bankruptcy court’s order granting relief from
24 the automatic stay for an abuse of discretion. Gruntz v. County
25 of Los Angeles (In re Gruntz),
202 F.3d 1074, 1084 n.9 (9th Cir.
26 2000) (en banc); Edwards v. Wells Fargo Bank, N.A. (In re
27 Edwards),
454 B.R. 100, 104 (9th Cir. BAP 2011). A bankruptcy
28 court abuses its discretion if it bases a decision on an
-4-
1 incorrect legal rule, or if its application of the law was
2 illogical, implausible, or without support in inferences that may
3 be drawn from the facts in the record. United States v. Hinkson,
4
585 F.3d 1247, 1262 (9th Cir. 2009) (en banc); Ellsworth v.
5 Lifescape Med. Assocs., P.C. (In re Ellsworth),
455 B.R. 904, 914
6 (9th Cir. BAP 2011).
7 We review de novo whether a party has standing. Mayfield v.
8 United States,
599 F.3d 964, 970 (9th Cir. 2010); Veal v. Am.
9 Home Mortg. Servicing, Inc. (In re Veal),
450 B.R. 897, 906 (9th
10 Cir. BAP 2011). De novo review requires that we consider the
11 matter anew, as if it had not been heard before, and as if no
12 decision had been rendered previously. Dawson v. Marshall,
13
561 F.3d 930, 933 (9th Cir. 2009).
14 V. DISCUSSION
15 A. Standing
16 The Trustee argues that U.S. Bank lacks standing to file the
17 Stay Relief Motion because “U.S. Bank did not provide any
18 supporting documentation to prove that they were the actual
19 holder of the [N]ote,” entitled to enforce it. The crux of the
20 Trustee’s argument, only alluded to in his appellate brief, and
21 more fully honed at the appellate oral argument, is that
22 U.S. Bank merely provided a copy of a copy of the original Note,
23 which he argues was not enough to demonstrate its status as a
24 holder of the Note.3 For the reasons presented below, we
25
26 3
At the Stay Relief Hearing, the Trustee asserted that: “I
27 think this language [the stamped certification] says that
whatever this document is, which has been copied and copied and
28 (continued...)
-5-
1 conclude that U.S. Bank, even if it attached a copy of a copy of
2 the original Note, established its standing to file the Stay
3 Relief Motion.
4 In deciding whether to grant relief from the automatic stay,
5 a bankruptcy court is generally called upon to decide a limited
6 set of issues: the adequacy of protection for the creditor, the
7 debtor’s equity in the property and the property’s necessity to
8 an effective reorganization. In re Veal,
450 B.R. at 914 citing
9 Johnson v. Righetti (In re Johnson),
756 F.2d 738, 740 (9th Cir.
10 1985) (overruled on other grounds by Travelers Cas. & Sur. Co. v.
11 Pac. Gas & Elec. Co.,
549 U.S. 443 (2007)); Biggs v. Stovin
12 (In re Luz Int’l, Ltd.),
219 B.R. 837, 842 (9th Cir. BAP 1998)
13 (hearing on motions for relief from stay are intended to be
14 summary proceedings). The bankruptcy court’s decision to lift
15 the stay is merely a determination that the creditor’s claim is
16 sufficiently plausible to allow its prosecution elsewhere. See,
17
18 3
(...continued)
19 copied, is not the original note.” The bankruptcy court replied:
“It isn’t the original note. It’s clearly not the original note.
20 It’s a copy of – it should be a copy of the original note.” Hr’g
Tr. (June 22, 2011) at 5:17-24. Consequently, it appears the
21 issue of whether a copy of a copy of an original note satisfied
22 U.S. Bank’s burden of proof on standing was not clearly presented
to the bankruptcy court.
23 Arguably, the issue was also not clearly presented to this
Panel in the Trustee’s opening brief. There, the Trustee argued:
24
“the certification stating that the Note is a true and correct
25 copy of the original is signed by someone at CTX Mortgage.”
However, at oral argument, the Trustee’s counsel articulated his
26 argument. He conceded that a copy of an original note is
27 sufficient to show possession, but that here, “this is a copy of
a copy” and was, therefore, insufficient to establish that U.S.
28 Bank held the original Note.
-6-
1 e.g., Grella v. Salem Five Cent Sav. Bank,
42 F.3d 26, 31-2
2 (1st Cir. 1994). Therefore, a moving party need only present a
3 colorable claim to the property at issue. In re Edwards,
4
454 B.R. at 105; In re Veal,
450 B.R. at 914-15.
5 Nevertheless, standing is a threshold matter of
6 jurisdiction. In re Edwards,
454 B.R. at 104; In re Jacobson,
7
402 B.R. 359, 366 (Bankr. W.D. Wash. 2009). The issue of
8 standing involves both “constitutional limitations on federal
9 court jurisdiction and prudential limitations on its exercise.”
10 Warth v. Seldin,
422 U.S. 490, 498 (1975); In re Veal,
450 B.R.
11 at 906. Prudential standing is at issue in this appeal.4
12 Prudential standing requires the plaintiff to assert its own
13 claims rather than the claims of another. Dunmore v. United
14 States,
358 F.3d 1107, 1112 (9th Cir. 2004).
15 Motions for relief from stay are contested matters under
16 Rule 9014. Rule 9014(c) makes Civil Rule 17(a)(1) (incorporated
17 by Rule 7017) applicable to contested matters. In turn, Civil
18 Rule 17(a)(1) provides that “[a]n action must be prosecuted in
19 the name of the real party in interest.” Thus, to satisfy the
20 requirements of prudential standing and Civil Rule 17(a)(1), “the
21 action must be brought by the person who, according to the
22 governing substantive law, is entitled to enforce the right.”
23 6A Wright, Miller, Kane & Marcus, Fed. Prac. & Proc., Civ. ¶ 1543
24
4
25 Constitutional standing is satisfied because U.S. Bank
established the minimum requirement of injury in fact, causation
26 and redressability. The automatic stay’s prohibition on
27 U.S. Bank’s right to exercise its alleged remedies could be
redressed by obtaining relief from stay. See In re Veal,
28
450 B.R. at 906.
-7-
1 (3d ed. 2011); In re Veal,
450 B.R. at 908. A party without the
2 legal right to enforce an obligation under substantive law is not
3 a real party in interest. See Simon v. Hartford Life, Inc.,
4
546 F.3d 661, 664 (9th Cir. 2008); In re Jacobson,
402 B.R. at
5 367.
6 Because the Note is a negotiable instrument, its enforcement
7 is governed by Article 3 of Washington’s version of the Uniform
8 Commercial Code, WASH. REV. CODE (RCW) Title 62A.5 Under
9 Washington law, a note may be enforced by:
10 (I) the holder of the instrument;
(ii) a nonholder in possession of the instrument who
11 has the rights of the holder, or
(iii) a person not in possession of the instrument who
12 is entitled to enforce the instrument pursuant to
62A.3-309 or 62A.3-418(d).
13
14 RCW 62A.3-301; Pequignot v. Deutsche Bank Nat’l Trust Co. (In re
15 Pequignot),
2010 WL 3605326 *3 (W.D. Wash. Sept. 10, 2010).
16 To qualify as a holder of the instrument, one must be in
17 possession of the instrument that is either properly endorsed or
18 payable to the person in possession of it.6 RCW 62A.1-201(20),
19
20 5
For the purpose of determining who is entitled to enforce
a note, “the forum state’s choice of law rules determine which
21
state’s substantive law applies.” In re Veal,
450 B.R. at 921
22 n.41. Washington’s choice of law statute provides that in the
absence of an agreement stating which law governs, Washington’s
23 version of the Uniform Commercial Code applies to transactions
24 bearing a “reasonable relation” to the state. See RCW 62A.1-105.
Because the Note provided no specific governing law and the
25 Debtor resides in Washington, Washington state governs the
analysis.
26
6
27 Under RCW 62A.1-201(20), a “holder,” means the person in
possession of a negotiable instrument that is payable either to
28 (continued...)
-8-
1 62A.1-201(5), RCW 62A.3-205(b). Accordingly, in order to be
2 entitled to enforce the Note, U.S. Bank had the burden of proving
3 that (1) it had possession of the Note; and (2) the Note was
4 validly endorsed. See Summers v. Earth Island Inst.,
555 U.S.
5 488, 493 (2009) (the movant bears the burden of showing that he
6 has standing for each type of relief sought); Hasso v. Mozsgai
7 (In re La Sierra Fin. Servs., Inc.),
290 B.R. 718, 726 (9th Cir.
8 BAP 2002) (same).
9 An endorsement is a signature made on an instrument for the
10 purpose of negotiating the instrument. RCW 62A.3-204(a). An
11 endorsement in blank is an endorsement that is not payable to an
12 identified person. RCW 62A.3-205. Thus, an instrument endorsed
13 in blank becomes payable to bearer and any person who possesses
14 the instrument becomes its holder. RCW 62A.3-205(b)7; In re
15 Pequignot,
2010 WL 3605326 at *3.
16 U.S. Bank provided a copy of the Note demonstrating that the
17 Note was endorsed in blank. The Declaration stated the same.
18 The Trustee does not challenge the validity of the Note’s
19 endorsement. He only challenges whether U.S. Bank was actually
20
21 6
(...continued)
22 bearer or to an identified person that is the person in
possession.
23 RCW 62A.1-201(5): “Bearer” means the person in possession of
24 an instrument, document of title, or certificated security
payable to bearer or indorsed in blank.
25
7
RCW 62A.3-205(b) provides: “If an indorsement is made by
26 the holder of an instrument and it is not a special indorsement,
27 it is a ‘blank indorsement.’ When indorsed in blank, an
instrument becomes payable to bearer and may be negotiated by
28 transfer of possession alone until specially indorsed.”
-9-
1 in possession of the Note because it did not provide the original
2 Note, or a copy of the original Note, but a copy of a copy of the
3 original Note, with its Stay Relief Motion.
4 U.S. Bank submitted the Declaration to prove that it held
5 the Note. A supervisor at JP Morgan, with knowledge of the
6 maintenance of U.S. Bank’s business and loan records, stated that
7 U.S Bank “is now the Holder of the Original Promissory Note as
8 that term is defined by the Uniform Commercial Code. . . . A
9 true and correct copy of the indorsed Promissory Note is attached
10 as Exhibit A.”
11 At the Stay Relief Hearing, the bankruptcy court noted the
12 language of the Declaration and asked the Trustee, “what more do
13 you think he needs to put in the declaration? The promissory
14 note is attached.” Hr’g Tr. (June 22, 2011) at 4:22-23. The
15 Trustee responded:
16 I don’t see that it’s saying this is the
original note. This is a copy of the
17 original note.
18 THE COURT: I always get copies of the original notes.
[The creditor] cannot file the original note
19 with the Court.
20 THE TRUSTEE: I understand. But what I’m saying is, is
there – where, in fact, is the original note?
21
22 Hr’g Tr. (June 22, 2011) at 5:12-18.
23 The Trustee has not made any legal or evidentiary argument
24 as to why a copy (or even a copy of a copy) of the original Note
25 should not have been allowed to support U.S. Bank’s Stay Relief
26 Motion. The Trustee also presents no evidence or argument that
27 another entity could possess the Note or that U.S. Bank does not
28 hold the Note. Nor does he challenge the contents of the Note,
-10-
1 such as whether the endorsement was proper. He argues only that
2 the original Note must be provided to prove U.S. Bank’s
3 possession.
4 However, the policy underlying the requirement of producing
5 original documents is “to secure accurate information from the
6 contents of material writings.” Kenneth S. Broun, 2 MCCORMICK ON
7 EVIDENCE § 236 (6th ed. 2009). Copying and producing a duplicate
8 of the original is sufficient to fulfil that policy. Id. Thus,
9 the general substitution of duplicates for originals is allowed
10 “unless there is a good reason to require the original.” Id.
11 “A duplicate is admissible to the same extent as an original
12 unless (1) a genuine question is raised as to the authenticity of
13 the original or (2) in the circumstances it would be unfair to
14 admit the duplicate in lieu of the original.” Fed. R. Evid.
15 1003. Because the Trustee is not arguing that the original Note
16 is required to prove any inaccuracies of content, only that it is
17 required to show who owns it, he has not presented a genuine
18 question as to the Note’s authenticity such that the original
19 would be required. Put another way, the fact of possession is
20 not demonstrated by the content of the writings in the original
21 Note. The fact of possession, here, was established by the
22 Declaration’s statement that U.S. Bank holds the Note. See,
23 e.g., Theros v. First Am. Title Ins. Co.,
2011 WL 462564 *2 (W.D.
24 Wash. Feb. 3, 2011). Beyond simply asserting that the
25 Declaration was generic, the Trustee offered no legal argument as
26 to why the Declaration could not be relied on to support
27 U.S. Bank’s claim that it possessed the Note.
28
-11-
1 The bankruptcy court determined that the Declaration and
2 copy of the Note provided an adequate verification that U.S. Bank
3 possessed the Note, which was endorsed in blank. Id.; In re
4 Pequignot,
2010 WL 3605326 at *3. Therefore, it determined that
5 U.S. Bank established, for purposes of stay relief, that it was a
6 holder of the Note, entitled to prosecute its Stay Relief Motion.
7 We perceive no error in that determination.
8 B. Stay Relief
9 Stay relief may be granted “for cause,” including the lack
10 of adequate protection of an interest in property or, with
11 respect to property, if: (A) the debtor does not have an equity
12 in such property; and (B) such property is not necessary to an
13 effective reorganization.”
11 U.S.C. § 362(d)(1) and (2).
14 As provided in § 362(g), the party opposing relief from the
15 stay has the burden of proof on all issues other than the
16 debtor’s equity in a property. Thus, once a movant establishes
17 that there is no equity in a property, it is the burden of the
18 party opposing the motion to establish that the collateral at
19 issue is necessary to an effective reorganization. 11 U.S.C.
20 § 362(g); Jordan v. Kroneberger (In re Jordan),
392 B.R. 428, 450
21 n.40 (Bankr. D. Idaho 2008).
22 Equity, for purposes of § 362(d)(2)(A), is the difference
23 between the value of the property and all the encumbrances on it.
24 Sun Valley Newspapers, Inc. v. Sun World Corp. (In re Sun Valley
25 Newspapers, Inc.),
171 B.R. 71, 75 (9th Cir. BAP 1994) (citing
26 Stewart v. Gurley,
745 F.2d 1194, 1196 (9th Cir. 1984)).
27 The Debtor listed the Property as having a value of $200,000
28 with two secured claims against it totaling over $240,000. The
-12-
1 Trustee has not contested the value of the Property, and
2 therefore, concedes there is no equity in the Property.
3 Furthermore, since the case is a chapter 7 bankruptcy, there is
4 no contention that the Property is necessary for an effective
5 reorganization.
6 As the bankruptcy court found, “the creditor is owed
7 $232,000 against an undisputed value of $200,000, so there is no
8 equity.” Hr’g Tr. (June 22, 2011) at 7:19-21. The bankruptcy
9 court’s findings supporting stay relief were not illogical,
10 implausible, or unsupported by the record. Accordingly, we
11 conclude that the bankruptcy court did not abuse its discretion
12 in granting U.S. Bank relief from the automatic stay.
13 VI. CONCLUSION
14 For the foregoing reasons, we AFFIRM the bankruptcy court’s
15 order granting U.S. Bank relief from the automatic stay.
16
17
18
19
20
21
22
23
24
25
26
27
28
-13-
