Bank of New York Melon v. Bautista ( 2023 )

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
28-MAR-2023
07:46 AM
Dkt. 69 MO
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
THE BANK OF NEW YORK MELLON, AS INDENTURE TRUSTEE FOR
CERTIFICATE-HOLDERS CWABS ASSET-BACKED NOTES TRUST
2006-SD4, Plaintiff-Appellee,
v.
JOVEN D. BAUTISTA, COLLEEN BAUTISTA,
Defendants-Appellants,
and
JOHN DOES 1-20, JANE DOES 1-20, DOE CORPORATIONS 1-20,
DOE ENTITIES 1-20 AND DOE GOVERNMENTAL UNITS 1-20,
Defendants
APPEAL FROM THE CIRCUIT COURT OF THE FIFTH CIRCUIT
(CIVIL NO. 15-1-0110)
MEMORANDUM OPINION
(By: Wadsworth, Presiding Judge, Nakasone and McCullen, JJ.)
Defendants-Appellants Joven D. Bautista and Colleen
Bautista (Bautistas) appeal from the: (1) June 22, 2017 Order
Denying without Prejudice Defendants' Motion to Compel (Motion to
Compel) Plaintiff-Appellant The Bank of New York Mellon, as
Indenture Trustee for Certificateholders CWABS Asset-Backed Notes
Trust 2006-SD4's (BONYM) Responses to Defendants' First Request
for Answers to Interrogatories, First Request for Production of
Documents and Things, and First Request for Admissions to
Plaintiff Filed March 28, 2017 (Order Denying Motion to Compel);
(2) the August 2, 2017 Findings of Fact, Conclusions of Law and
Order Granting Plaintiff's Motion for Summary Judgment (MSJ) for
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Foreclosure against All Defendants and for Interlocutory Decree
of Foreclosure (Foreclosure Decree); and (3) the August 2, 2017
Judgment (Foreclosure Judgment), filed and entered by the Circuit
Court of the Fifth Circuit (Circuit Court).
On appeal, the Bautistas contend that the Circuit
Court: (1) erred by granting the MSJ by "erroneously
conclud[ing] that there was no genuine question of material fact
that [BONYM] was entitled to foreclos[ure]"; and (2) abused its
discretion by "denying [the Bautistas'] motion to compel
discovery because [the Bautistas] sought discovery of relevant
evidence."
We hold that the Circuit Court (1) erred in granting
summary judgment where the notices of default were inadmissible
and thus raised a genuine issue of material fact as to BONYM's
entitlement to foreclose; and (2) abused its discretion by
denying the Bautistas' motion to compel discovery as to prior
loan servicers.
I. BACKGROUND
On July 28, 2015, BONYM filed a complaint for mortgage
foreclosure (Complaint) against the Bautistas. The Complaint
alleged, among other things, that: on August 4, 2006, the
Bautistas executed a promissory note (Note) for $308,000.00
payable to Quick Loan Funding, payment of which was secured by a
mortgage (Mortgage) (collectively, the Loan) on real property
located at 3569 Makoa Street, Hanapēpē, Hawai#i 96716 (Property).
The Complaint further alleged that on May 24, 2007, the Mortgage
was assigned to Bank of New York as Trustee for the Noteholders
CWABS Inc. Asset-Backed Notes, Series 2006-SD4006-SD4 (BONY), and
on February 5, 2010, BONY assigned the Mortgage to BONYM; the
Bautistas defaulted under the payment terms of the Loan; that
following written notice to the Bautistas and their failure to
cure the default, BONYM exercised its option to accelerate the
Loan and declare the entire principal balance of the Mortgage and
Note immediately due and payable; and that BONYM was entitled to
foreclose the Mortgage and sell the Property.
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On May 25, 2016, BONYM moved for summary judgment.
BONYM's MSJ included a Declaration of Indebtedness and on Prior
Business Records signed by Alvin Denmon (Denmon), "as an
authorized representative of New Penn Financial, LLC d/b/a
Shellpoint Mortgage Servicing" (Shellpoint), which became the
servicing agent for BONYM on November 16, 2012. In the
Declaration (Denmon Declaration), Denmon declared that:
2. [Shellpoint] maintains records for the loan in its
capacity as [BONYM]'s servicer. As part of my job
responsibilities for [Shellpoint], I am familiar with the
type of records maintained by [Shellpoint] in connection
with the Loan.
. . . .
4. The information in this Declaration is taken from
[Shellpoint]'s business records. I have personal knowledge
of [Shellpoint]'s procedures for creating these records.
They are: (a) made at or near the time of the occurrence of
the matters recorded by persons with personal knowledge of
the information in the business record, or from information
transmitted by persons with personal knowledge; (b) kept in
the course of [Shellpoint]'s regularly conducted business
activities; and (c) created by [Shellpoint] as a regular
practice.
. . . .
13. [Shellpoint] became [BONYM]'s loan servicer for
the Loan being foreclosed in this action on 11-16-12.
14. I have been in the mortgage loan servicing
industry for 8 years. Based upon my occupational
experience, I know that loan servicers follow an industry
wide standard on how to keep and maintain business records
on the loan services performed in their portfolio which
recordkeeping is part of the regularly conducted activity of
loan servicers. . . .
. . . .
21. The prior loan servicer for this mortgage loan
was Bank of America ("Prior Servicer") [(BOA)].
22. Upon becoming [BONYM]'s loan servicer,
[Shellpoint] took custody and control of loan documents and
business records of [BOA] and incorporated all such records
into the business records of [Shellpoint].
23. Before [BOA]'s records were incorporated into
[Shellpoint]'s own business records, it conducted an
independent check into [BOA]'s records and found them in
keeping with industry wide loan servicing standards and only
integrated them into [Shellpoint]'s own business records
after finding [BOA]'s records were made as part of a
regularly conducted activity, met industry standards and
determined to be trustworthy.
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24. In peforming its services to [BONYM],
[Shellpoint] relies upon the accuracy of [BOA]'s records . .
. .
25. [BOA]'s records are regularly used and relied
upon by [Shellpoint] . . . .
. . . .
27. [Shellpoint] did review and determine [BOA]'s
business records were trustworthy otherwise it would not
have incorporated it into its own records[.]
(Emphases added).
On May 31, 2016, BONYM was served with the Bautistas'
First Request for Answers to Interrogatories; First Request for
Production of Documents and Things; and First Request for
Admissions (Discovery Requests).
On September 6, 2016, the Bautistas filed an opposition
to the MSJ, disputing: (1) BONYM's entitlement to foreclose
because BONYM failed to respond to discovery requests pertaining
to the validity of a notice of default allegedly issued to the
Bautistas by Countrywide Home Loans, Inc. (Countrywide), servicer
of the Loan, on December 4, 2006 (2006 Countrywide Default
Notice), and (2) whether BONYM had physical possession of the
Note.
On September 9, 2016, BONYM filed a reply requesting a
continuance of the hearing to respond to, inter alia, the
Bautistas' Discovery Requests. The hearing was continued to
January 25, 2017.
On January 3, 2017, BONYM filed a Supplemental
Declaration in support of its MSJ. Tracy A. Sirmans (Sirmans),
an employee of Shellpoint, signed the Declaration (First Sirmans
Declaration), which stated:
2. . . . I have personal knowledge of the facts and
matters stated herein based on my review of the business
records described below.
. . . .
4. In the regular performance of my job functions, I
have access to and am familiar with [BONYM]'s records and
documents relating to this case (the "Records"), including
Shellpoint's business records relating to the servicing of
the Loan. . . .
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. . . .
5. The Shellpoint Records document transactions
relating to the Loan and were made and are maintained in the
regular course of Shellpoint's business consistent with
Shellpoint's regular practices, which require that records
documenting transactions relating to serviced mortgage loans
be made at or near the time of the transactions documented
by a person with knowledge of the transactions or from
information transmitted by such a person.
6. Upon becoming [BONYM]'s loan servicer, Shellpoint
took custody and control of loan documents and business
records of the prior servicer, [BOA], and incorporated all
such records into the business records of Shellpoint.
(Emphases added). Sirmans attached Notices of Intent to
Accelerate Indebtedness and Foreclose dated November 25, 2013,
purportedly issued by Resurgent Mortgage Servicing, a Division of
Resurgent Capital Services, L.P. (Resurgent), advising the
Bautistas of their default under the terms of the Note and
Mortgage for failure to make payments as of August 1, 2007 (2013
Resurgent Default Notices).1
On January 11, 2017, BONYM served responses to the
Bautistas's first discovery requests. On January 17, 2017, the
Bautistas served their second discovery requests. The parties
stipulated to continue the MSJ hearing to March 8, 2017.
On February 28, 2017, the Bautistas filed a
supplemental memorandum in opposition to the MSJ, requesting a
continuance pursuant to Hawai#i Rules of Civil Procedure (HRCP)
Rule 56(f)2 because BONYM had not responded to their second
discovery requests, the Bautistas were pursuing loan
1
The 2013 Resurgent Default Notices consisted of separate,
identical notices, one addressed to Joven D. Bautista, and the other addressed
to Colleen Bautista.
2
HRCP Rule 56(f) provides:
When affidavits are unavailable. Should it
appear from the affidavits of a party opposing the
motion that the party cannot for reasons stated
present by affidavit facts essential to justify the
party's opposition, the court may refuse the
application for judgment or may order a continuance to
permit affidavits to be obtained or depositions to be
taken or discovery to be had or may make such other
order as is just.
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modification, and the notices of default attached to the
declarations were inadmissible.
On March 1, 2017, BONYM served responses to the
Bautistas' second discovery requests.
On March 3, 2017, BONYM filed a supplemental memorandum
in support of the MSJ, which included a Declaration of Counsel
Re: Standing (Stone Declaration), executed by BONYM's counsel
Peter T. Stone of TMLF Hawaii, LLLC (TMLF Hawaii). Attorney
Stone declared that TMLF Hawaii was in possession of the original
Note as of April 24, 2015; "had possession of the original Note
more than three months before the [July 28, 2015] Complaint was
filed"; and had "continuous possession of the Note since April
24, 2015" through the date of the Stone Declaration (i.e., March
3, 2017). The Stone Declaration referred to an attached Exhibit
"8," a copy of a "Bailee Letter acknowledging our receipt of the
Note from Shellpoint on April 24, 2015."
On March 14, 2017, the MSJ hearing was continued to
June 21, 2017.
On March 28, 2017, the Bautistas filed their Motion to
Compel, arguing that improper objections raised by BONYM had
prevented the Bautistas from obtaining (1) information to confirm
whether BONYM had standing to enforce the Note; (2) discovery as
to prior servicers; and (3) responses regarding the authenticity
and validity of Note indorsements — — all of which were
purportedly necessary to defend against BONYM's MSJ. In
opposition, BONYM argued, inter alia, that the Bautistas were
seeking discovery for purposes of delay and the information
sought in the first and second discovery requests was not
relevant to defending against the MSJ.
The Circuit Court heard the Bautistas' Motion to Compel
on May 2, 2017. The Circuit Court denied the motion without
prejudice, concluding that the Bautistas sought to compel
discovery that was not relevant and was premature.
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On May 24, 2017, BONYM filed a second supplemental
declaration in support of the MSJ. The declaration by Sirmans
(Second Sirmans Declaration) stated:
2. . . . I have personal knowledge of the facts and
matters stated herein based on my review of the business
records described below. . . .
3. This Supplemental Declaration incorporates by
reference the statements made and exhibits referred to in
the [Indebtedness Declaration] and other declarations filed
in support of Plaintiff's Motion.
4. In the regular performance of my job functions, I
have access to and am familiar with [BONYM]'s records and
documents relating to this case (the "Records"), including
Shellpoint's business records relating to the servicing of
the Loan (the "Shellpoint Records"). In making this
Supplemental Declaration, I relied upon the Records.
. . . .
19. On or about 10/01/2013, Shellpoint acquired
Resurgent . . . .
20. Effective 3/1/2014, Resurgent became a
subservicer of Shellpoint.
(Emphases added).
On May 30, 2017, in further support of its MSJ, BONYM
filed a supplemental memorandum and declaration (Santellan
Declaration) by The Mortgage Law Firm, PLC (TMLF CA) employee and
Note custodian, Gina Santellan (Santellan). Santellan declared
that she executed a Bailee Letter Agreement (Bailee Letter),
attached as Exhibit "19" to her declaration, that confirmed
receipt of the original Note by TMLF CA on April 24, 2015.3
On June 7, 2017, the Bautistas filed a supplemental
memorandum in opposition, arguing that the copy of the notice of
default attached thereto was inadmissible as lacking sufficient
foundation; the Bautistas were pursuing loan modification; and
the Stone Declaration contradicts the Santellan Declaration.
At the June 21, 2017 MSJ hearing, the Circuit Court
granted the MSJ stating that there was no genuine issue as to any
material facts and all factors for entitlement to foreclose were
3
The Bailee Letter attached to the Stone Declaration and the Bailee
Letter attached to the Santellan Declaration are identical.
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met pursuant to Bank of Honolulu, N.A. v. Anderson, 3 Haw. App.
545, 551, 654 P.2d 1370, 1375 (1982).4
On June 22, 2017, the Circuit Court filed its Order
Denying Motion to Compel.
On August 2, 2017, the Circuit Court entered the
Foreclosure Decree and its accompanying Foreclosure Judgment.
The Foreclosure Decree further instructed that "no action shall
be taken by BONYM to enforce this Order for a period of 30 days,"
for the Bautistas to clarify the status of their loan
modification.
The Bautistas timely appealed.
II. STANDARD OF REVIEW
A. Summary Judgment
"An award of summary judgment is reviewed de novo and
'is appropriate where there is no genuine issue as to the
material fact and the moving party is entitled to judgment as a
matter of law.'" U.S. Bank N.A. v. Mattos, 140 Hawai#i 26, 30,
398 P.3d 615, 619 (2017) (quoting French v. Haw. Pizza Hut, Inc.,
105 Hawai#i 462, 466, 99 P.3d 1046, 1050 (2004)). It is
well-established that:
[S]ummary 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 as to any
material fact and that the moving party is entitled to
judgment as a matter of law. A fact is material if
proof of that fact would have the effect of
establishing or refuting one of the essential elements
of a cause of action or defense asserted by the
parties. The evidence must be viewed in the light
most favorable to the non-moving party. In other
words, we must view all of the evidence and inferences
drawn therefrom in the light most favorable to the
party opposing the motion.
Ibbetson v. Kaiawe, 143 Hawai#i 1, 10–11, 422 P.3d 1, 10–11
(2018) (brackets in original) (quoting Kahale v. City & Cnty. of
4
Under Anderson, to prove entitlement to the foreclosure remedy, a
movant must prove: "(1) the existence of the Agreement, (2) the terms of the
Agreement, (3) default by [Defendant] under the terms of the Agreement, and
(4) the giving of the cancellation notice and recordation of an affidavit to
such effect." 3 Haw. App. at 551, 654 P.2d at 1375 (citations omitted).
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Honolulu, 104 Hawai#i 341, 344, 90 P.3d 233, 236 (2004)). In
addition,
[t]he burden is on the party moving for summary
judgment (moving party) to show the absence of any
genuine issue as to all material facts, which, under
applicable principles of substantive law, entitles the
moving party to judgment as a matter of law. This
burden has two components.
First, the moving party has the burden of producing
support for its claim that: (1) no genuine issue of
material fact exists with respect to the essential
elements of the claim or defense which the motion
seeks to establish or which the motion questions; and
(2) based on the undisputed facts, it is entitled to
summary judgment as a matter of law. Only when the
moving party satisfies its initial burden of
production does the burden shift to the non-moving
party to respond to the motion for summary judgment
and demonstrate specific facts, as opposed to general
allegations, that present a genuine issue worthy of
trial.
Second, the moving party bears the ultimate burden of
persuasion. This burden always remains with the
moving party and requires the moving party to convince
the court that no genuine issue of material fact
exists and that the moving party is entitled to
summary judgment as a matter of law.
Mattos, 140 Hawai#i at 30, 398 P.3d at 619 (quoting French, 105
Hawai#i at 470, 99 P.3d at 1054).
B. Motion to Compel Discovery
The [HRCP] reflect a basic philosophy that a party to
a civil action should be entitled to the disclosure of all
relevant information in the possession of another person
prior to trial, unless the information is privileged.
However, the extent to which discovery is permitted under
Rule 26 is subject to considerable latitude and the
discretion of the trial court. Thus, the exercise of such
discretion will not be disturbed in the absence of a clear
abuse of discretion that results in substantial prejudice to
a party. Accordingly, the applicable standard of review on
a trial court's ruling on a motion to compel discovery,
brought pursuant to HRCP Rule 26, is abuse of discretion.
Anastasi v. Fid. Nat. Title Ins. Co., 137 Hawai#i 104, 111–12,
366 P.3d 160, 167–68 (2016) (quoting Hac v. Univ. of Hawai#i, 102
Hawai#i 92, 100–01, 73 P.3d 46, 54–55 (2003)).
III. DISCUSSION
In their first point of error, the Bautistas contend
that the MSJ was erroneously granted because (1) the Circuit
Court erroneously admitted into evidence notices of default based
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on testimony from unqualified witnesses; (2) the Circuit Court
erroneously concluded that BONYM had possession of the Note and
thus had standing to commence the foreclosure action; and (3) the
Circuit Court erroneously ruled on the MSJ and violated
HRS § 454M-5.5(k)5 because BONYM was reviewing the Bautistas'
pending loan modification at the time. We conclude that BONYM
established standing, but the default notices were inadmissible;
and we do not reach the Bautistas' third argument.
A. The Circuit Court did not err in concluding
that BONYM had standing when it filed the
complaint.
The Bautistas argue that the Circuit Court "wrongly
resolved . . . contradictory evidence" in BONYM's favor regarding
which law firm entity, in Hawai#i or California, had possession
of the Note at the time the Complaint was filed, and that the
Santellan Declaration contained inadmissible hearsay. The
Bautistas' arguments are without merit.
Under Hawai#i law, a foreclosing party "'must
demonstrate that all conditions precedent to foreclosure under
the note and mortgage are satisfied and that all steps required
by statute have been strictly complied with'" to prove
entitlement to foreclose. Wells Fargo Bank, N.A. v. Behrendt,
142 Hawai#i 37, 41, 414 P.3d 89, 93 (2018) (quoting Bank of Am.,
N.A. v. Reyes-Toledo, 139 Hawai#i 361, 367, 390 P.3d 1248, 1254
(2017)). Typically, this requires that the plaintiff "prove the
existence of an agreement, the terms of the agreement, a default
by the mortgagor under the terms of the agreement, and giving of
the cancellation notice." Reyes-Toledo, 139 Hawai#i at 367,
5
HRS § 454M-5.5 (2015), entitled "Residential mortgage loan
delinquencies and loss mitigation efforts" states in pertinent part:
(k) A mortgage servicer shall avoid taking steps to
foreclose or to refer a borrower to foreclosure if the
borrower has requested and is being considered for a loss
mitigation option or if the borrower is in a trial or
permanent loan modification and is not more than thirty days
in default under the loan modification agreement.
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390 P.3d at 1254; Anderson, 3 Haw. App. at 551, 654 P.2d at 1375
(citing 55 Am. Jur. 2d Mortgages § 554 (1971); 3 R. Powell, Real
Property ¶ 463 (1981)). To establish standing, "a foreclosing
plaintiff must necessarily prove its entitlement to enforce the
note as it is the default on the note that gives rise to the
action." Reyes-Toledo, 139 Hawai#i at 368, 390 P.3d at 1255;6
see also Mattos, 140 Hawai#i at 33, 398 P.3d at 622 (defining
"person entitled to enforce the note"). This means "a
foreclosing plaintiff must establish its standing to bring a
lawsuit at the commencement of the proceeding, not merely at the
summary judgment stage." Deutsche Bank Nat'l Tr. Co. as Tr. for
Morgan Stanley ABS Cap. I Inc. Tr. 2006-NC4 v. Yata, No.
SCWC-XX-XXXXXXX, 2023 WL 2420976, at *14 (Haw. Mar. 9, 2023)
(quoting U.S. Bank Tr., N.A. as Tr. for LSF9 Master Participation
Tr. v. Verhagen, 149 Hawai'i 315, 327, 489 P.3d 419, 431
(2021)).7 In the mortgage foreclosure context, "the requirement
of standing overlaps with a plaintiff's burden of proving its
6
In Reyes-Toledo, the supreme court held that summary judgment was
improperly granted where a material factual dispute remained as to whether the
foreclosing bank "possessed the Note at the time of the filing of the
complaint," which raised the issue of whether the bank "had standing to
foreclose on the Property at the time it brought the foreclosure action."
139 Hawai#i at 370, 390 P.3d at 1257.
7
In Verhagen, the supreme court held that the lender U.S. Bank had
standing where it established possession of the note by laying adequate
foundation for the admission of the loan servicer's records, which included a
bailee letter showing that the loan servicer sent the note to U.S. Bank's
counsel six weeks before the filing of the complaint. Id. at 328, 489 P.3d at
432.
In Yata, the supreme court held that the lender Deutsche Bank did
not have standing because it did not demonstrate that it had possession of the
note at the time of filing the complaint, where the declarations by employees
of the servicing agent were insufficient to establish the admissibility of the
loan documents; and that even if the evidence were admissible, the
certification of possession of the promissory note predated the filing of the
complaint by nine months. 2023 WL 2420976, at *12-15. The supreme court
noted that: "[a]n older certification, and a correspondingly larger gap
between the certification's date and that of the complaint, would leave more
room for a 'genuine issue' as to whether" Deutsche Bank actually possessed the
note when it filed its complaint. Id. at *15 (internal quotation marks
omitted). The court also noted that Deutsche Bank's counsel filed a
declaration that the note was currently being held at the counsel's office,
but counsel did not bring the original endorsed note to the hearing, thus
providing no documentary evidence demonstrating that Deutsche Bank had
possession of the note. Id.
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entitlement to enforce the subject promissory note" under HRS §
490:3-301.8 Verhagen, 149 Hawai#i at 327, 489 P.3d at 431
(citation omitted).
Here, the evidence presented to the Circuit Court
established BONYM's standing to enforce the Note when the
July 28, 2015 Complaint was filed. The Stone Declaration stated
that pursuant to the April 24, 2015 Bailee Letter attached as an
exhibit, the law firm TMLF Hawaii, as counsel for BONYM, received
the original Note on April 24, 2015, and had continuous
possession of the Note through the date of the Stone Declaration
(i.e., March 3, 2017). The Stone Declaration also attached an
Attorney Affirmation pursuant to HRS § 667-17 (2012)9 that was
filed with the July 28, 2015 Complaint, and identified the Bailee
Letter and Attorney Affirmation as records "kept in the course of
the law firm's regularly conducted law business activities[.]"
The Santellan Declaration established that she was employed by
TMLF CA as "the custodian of original loan records of foreclosing
mortgagees"; her duties included "taking possession of original
loan documents of foreclosing mortgagees represented by both TMLF
CA for the foreclosure of the clients' California properties and
[TMLF Hawaii] for the foreclosure of the clients' Hawaii
properties"; and BONYM and its loan servicer Shellpoint were both
clients of TMLF CA and TMLF Hawaii. For Hawai#i foreclosures, it
was Santellan's duty to transmit to TMLF Hawaii "immediately upon
its request" the original loan documents as may be needed. The
Santellan Declaration stated that she personally executed the
8
HRS § 490:3-301 (2008) defines "[p]erson entitled to enforce" as
"holder of the instrument[.]" A "holder" includes the "person in possession
of a negotiable instrument that is payable . . . to bearer . . . ."
HRS § 490:1-201 (2008).
9
HRS § 667-17 provides, in relevant part:
Attorney affirmation in judicial foreclosure.
Any attorney who files on behalf of a mortgagee
seeking to foreclose on a residential property under
this part shall sign and submit an affirmation that
the attorney has verified the accuracy of the
documents submitted, under penalty of perjury and
subject to applicable rules of professional conduct.
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Bailee Letter, acknowledging receipt and possession of the
original Note on April 24, 2015. The Santellan Declaration
attached a copy of the same Bailee Letter that was attached to
the Stone Declaration, as well as a copy of the original Note,
and stated that these records were "kept in the course of the law
firm's regularly conducted law business activities[.]"
Thus, the evidence presented to the Circuit Court
established that BONYM was in possession of the original Note
through its agent, i.e., its counsel, at the time the Complaint
was filed. See Bank of Am., N.A. v. Anderson, No.
CAAP-XX-XXXXXXX, 2017 WL 122998, at *5 (App. 2017) (mem.)
(citation omitted) (holding that the foreclosing party was a
holder of a note where its agent was in possession of the note).
BONYM established that there were no genuine issues of material
fact that it was the holder of the original Note at the time the
complaint was filed, and that it had standing to enforce the
Note. See Reyes-Toledo, 139 Hawai#i at 367, 390 P.3d at 1254(citations omitted). The Circuit Court's conclusion in this
regard was not erroneous. See Mattos, 140 Hawai#i at 30,
398 P.3d at 619.
B. The Circuit Court erred in concluding that
there was no genuine issue of material fact
as to whether notice of default was given to
the Bautistas.
The Bautistas contend that there were genuine issues of
material fact as to whether they were given a proper notice of
default before BONYM commenced this action. In particular, the
Bautistas argue that BONYM's declarants did not lay the necessary
foundation to properly admit the 2006 Countrywide Default Notice
and the 2013 Resurgent Default Notices into evidence. As to the
2006 Countrywide Default Notice, the Bautistas argue that BONYM
presented no testimony from a witness who was familiar enough
with the record-keeping system of Countrywide to explain how the
record was generated in the ordinary course of business or who
indicated that Countrywide's records were received by Shellpoint
and incorporated into its records. As to the 2013 Resurgent
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Default Notices, the Bautistas similarly argue that BONYM
presented no testimony from a witness who was familiar with
Resurgent's record-keeping system or who indicated that
Resurgent's records were incorporated into Shellpoint's records.
The Bautistas' contentions have merit.
Under HRCP Rule 56(e) and Rules of the Circuit Courts
of the State of Hawai#i Rule 7(g), "'a declaration in support of
a summary judgment motion must be based on personal knowledge,
contain facts that would be admissible in evidence, and show that
the declarant is competent to testify as to the matters contained
within the declaration.'" Behrendt, 142 Hawai#i at 44, 414 P.3d
at 96 (quoting Mattos, 140 Hawai#i at 30, 398 P.3d at 619).
Inadmissible evidence "cannot serve as a basis for awarding or
denying summary judgment." Id. (internal quotation marks and
citation omitted).
An incorporated record is admissible in the absence of
testimony regarding its creation if the following three
conditions are satisfied:
Incorporated records are admissible under HRE Rule 803(b)(6)
when a custodian or qualified witness testifies that [(1)]
the documents were incorporated and kept in the normal
course of business, [(2)] that the incorporating business
typically relies upon the accuracy of the contents of the
documents, and [(3)] the circumstances otherwise indicate
the trustworthiness of the document.
Id. at 45, 414 P.3d at 97 (citations omitted). Further,
"evidence that a business has incorporated and relied on a record
created by another organization speaks directly to that record's
reliability. When accompanied by testimony about other
circumstances that also indicate the record's trustworthiness,
such evidence is an acceptable substitute for testimony
concerning a record's actual creation." Verhagen, 149 Hawai#i at
326, 489 P.3d at 430.
Here, BONYM submitted the 2006 Countrywide Default
Notice and the 2013 Resurgent Default Notices to the Circuit
Court as evidence that the Bautistas were given notice of
default. It appears that BONYM sought to authenticate the 2006
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Countrywide Default Notice as a record of a regularly conducted
business activity under HRE Rule 803(b)(6) through the Denmon
Declaration and the 2016 Sirmans Declaration. It appears that
BONYM sought to authenticate the 2013 Resurgent Default Notices
as business records through the 2016 Sirmans Declaration and the
2017 Sirmans Declaration.
1. 2006 Countrywide Default Notice: the
Denmon Declaration and the 2016 Sirmans
Declaration
The record reflects that the Countrywide Default Notice
was purportedly issued in 2006 by Countrywide. However, the
Denmon Declaration and the 2016 Sirmans Declaration do not
mention Countrywide. Rather, the Denmon Declaration identifies
Denmon as "an authorized representative" of Shellpoint, familiar
with the type of records maintained by Shellpoint in connection
with the Loan. Similarly, the 2016 Sirmans Declaration
identifies Sirmans as a foreclosure litigation specialist of
Shellpoint, familiar with Shellpoint's business records relating
to the servicing of the Loan. Further, the Denmon Declaration
and the 2016 Sirmans Declaration state that upon becoming BONYM's
loan servicer, Shellpoint incorporated the records of the prior
servicer, BOA, into Shellpoint's records. Neither Declaration
indicates that Shellpoint incorporated the records of Countrywide
into Shellpoint's records, through BOA's records or otherwise;
and neither Declaration addresses the remaining criteria in
Behrendt for the admission of incorporated business records
created by Countrywide.
As a result, BONYM presented no testimony from a
witness who had "enough familiarity with the record-keeping
system of the business that created the [Countrywide Default
Notice, i.e., Countrywide,] to explain how the record was
generated in the ordinary course of business." Behrendt,
142 Hawai#i at 45, 414 P.3d at 97. In addition, BONYM presented
no evidence that records created by Countrywide, such as the
Countrywide Default Notice, were incorporated into Shellpoint's
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records. Accordingly, BONYM did not lay the necessary foundation
under Behrendt to admit the Countrywide Default Notice. See id.;
see also Verhagen, 149 Hawai#i at 326, 489 P.3d at 430.
2. 2013 Resurgent Default Notices: the
2016 Sirmans Declaration and the 2017
Sirmans Declaration
The record reflects that the Resurgent Default Notices
were issued in 2013 by Resurgent. However, the 2016 Sirmans
Declaration does not mention Resurgent, and, as relevant here,
the 2017 Sirmans Declaration states only that in 2013, Shellpoint
acquired Resurgent, and Resurgent became a subservicer of
Shellpoint.
BONYM argues that the 2017 Sirmans Declaration
"contains both testimony by Sirmans and attached exhibits that
establish Resurgent's records are a part of Shellpoint's business
records." BONYM directs this court to Exhibit 17 of the 2017
Sirmans Declaration, which is a Notice of Transfer of Servicing
from Resurgent to Shellpoint.
Exhibit 17, along with Paragraphs 19 and 20 of the 2017
Sirmans Declaration indicate that, in 2013, Shellpoint acquired
Resurgent, and Resurgent became a subservicer of Shellpoint.
However, nothing in the Declaration indicates that Shellpoint
actually incorporated the records of Resurgent, kept the
documents in the normal course of business, and relied on the
records. See Behrendt, 142 Hawai#i at 45, 414 P.3d at 97.
Similarly, nothing in the Declaration indicates the
trustworthiness of Resurgent's records. See Verhagen,
149 Hawai#i at 326, 489 P.3d at 430 (stating that loan servicer's
testimony that it "reviewed hard copies of the [incorporated]
documents, engaged in a 'due diligence' process, and reviewed
payment history and accounting associated with the loan" was
evidence indicating the trustworthiness of the documents); see
also Behrendt, 142 Hawai#i at 45, 414 P.3d at 97. The record
thus reflects that BONYM did not lay an adequate foundation under
Behrendt for the admission of the 2013 Resurgent Default Notices.
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For the reasons set forth above, we conclude that the
Circuit Court erred by admitting the 2006 Countrywide Default
Notice and the 2013 Resurgent Default Notices into evidence.
Without admissible evidence that a notice of default was
delivered to the Bautistas, there was a genuine issue of material
fact as to BONYM's entitlement to foreclose. See Reyes-Toledo,
139 Hawai#i at 367, 390 P.3d at 1254; Anderson, 3 Haw. App. at
551, 654 P.2d at 1375. The Circuit Court erred in granting
summary judgment. See Mattos, 140 Hawai#i at 30, 398 P.3d at
619.
C. The Circuit Court abused its discretion in
denying the Motion to Compel.
The Bautistas contend that the Circuit Court abused its
discretion in not permitting, and characterizing as "not
relevant" and "premature," (1) discovery aimed at ascertaining
the Loan's prior servicers; and (2) discovery as to whether the
Note indorsements were authentic and valid. The Bautistas argue
that the Circuit Court's denial of their motion to compel
"substantially prejudiced" their ability to defend the MSJ. The
first contention has merit.
1. Discovery as to prior servicers was
relevant.
"Parties may obtain discovery regarding any matter, not
privileged, which is relevant to the subject matter involved in
the pending action. . . ." HRCP Rule 26(b)(1)(A). The Bautistas
propounded discovery to investigate purported material
discrepancies in the record concerning which entity serviced the
Bautistas's Loan, citing Bank of New York Mellon v. Lemay,
137 Hawai#i 30, 34, 364 P.3d 928, 932 (App. 2015) for the
proposition that "documents establishing . . . the servicer of
the loan" are "relevant to defending [defendant's] interest in
the property under HRCP Rule 26(b)(1)(A)." Factually, Lemay is
distinguishable because the party requesting discovery was an
intervening third-party purchaser seeking to establish
plaintiff's standing to enforce the note, id. at 32, 364 P.3d at
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930, not mortgagors like the Bautistas. However, in Lemay, this
court recognized that the denial of the intervenor's motion to
compel precluded it "from defending against the MSJ by denying
discovery that may have led to the existence of genuine issues of
material fact" and that under HRCP Rule 26(b)(1)(A), the
intervenor was permitted to seek discovery of information
relevant to defending its interest in the property. Id. at 35,
364 P.3d at 933. Here, in light of our determination supra
regarding the inadmissibility of the default notices based on the
records of prior loan servicers, the Bautistas are similarly
entitled to seek discovery related to the prior loan servicers,
which is relevant to the Bautistas' interests in defending
against the MSJ. See id. The Circuit Court abused its
discretion by denying the Bautistas' Motion to Compel with regard
to the prior loan servicers. See Anastasi, 137 Hawai#i at
111-12, 366 P.3d at 167-68.
2. The denial of discovery regarding the
Note indorsements was not an abuse of
discretion.
The Bautistas propounded discovery to ascertain,
pursuant to HRS § 490:3-308(a) (2008),10 the validity of Note
indorsements by and/or to Countrywide, Quick Loan Funding, and
BONYM,11 and pertaining to any purported sale of the Loan amongst
these entities. The Circuit Court denied this discovery.
10
HRS § 490:3-308(a) provides, in pertinent part:
Proof of signatures and status as holder in due
course. (a) In an action with respect to an
instrument, the authenticity of, and authority to
make, each signature on the instrument is admitted
unless specifically denied in the pleadings. If the
validity of a signature is denied in the pleadings,
the burden of establishing validity is on the person
claiming validity, but the signature is presumed to be
authentic and authorized[.]
11
In their Motion to Compel, the Bautistas sought discovery
regarding BONYM's claims that Quick Loan Funding "subsequently endorsed the
Note to [Countrywide], which in turn endorsed the Note in blank." The
Bautistas disputed the authenticity and validity of two indorsement signatures
on the Note: (1) a special indorsement by Quick Loan Funding to Countrywide;
and (2) a subsequent indorsement-in-blank by Countrywide.
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The Bautistas contend that the denial of this discovery
"prevented them from obtaining evidence to establish a recognized
defense," citing HRS § 490:3-308(a). Under this section, the
Bautistas assert that they "were permitted to question the
validity of both endorsements as a defense to [BONYM]'s
enforcement of the Note."
HRS § 490:3-308(a) provides that: "[i]n an action with
respect to an instrument, the authenticity of, and authority to
make, each signature on the instrument is admitted unless
specifically denied in the pleadings." (Emphasis added). The
statute contains a presumption that each signature is authentic
and authorized unless a party specifically denies it in the
pleadings and introduces evidence "which would support a finding
that the signature is forged or unauthorized." In re Tyrell,
528 B.R. 790, 794 n.11 (Bankr. D. Haw. 2015) (quoting HRS §
490:3-308, cmt. 1). The Uniform Commercial Code Comment to the
statute explains that: "In the absence of such specific denial
the signature stands admitted, and is not in issue. Nothing in
this section is intended, however, to prevent amendment of the
pleadings in a proper case." HRS § 490:3-308 cmt.
Here, the Bautistas do not dispute that their pleading
omitted the specific denial required under HRS § 490:3-308(a) to
put at issue any signature that the Bautistas claimed was not
authentic or authorized. Id. They claim, however, that they
"could have moved to amend their Answer had [BONYM] given
inculpatory responses" to the discovery requests. This claim is
unpersuasive because it relies on the possibility of an amended
answer, which in turn, relies on the possibility of receiving
"inculpatory responses" from BONYM. The Bautistas' argument is
similar to the speculative challenges rejected by the Tyrell
court,12 as follows:
12
In Tyrell, the bankruptcy court determined that the lender
established it was entitled to enforce the subject note via a declaration
stating that it was in possession of the original note and presenting what
appeared to be the original, wet-ink version at the hearing. 528 B.R. at 794.
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The debtors presented no evidence to contradict BOA's
proof. Instead, the debtor speculated that some of
the endorsements on the note are not genuine. But
speculation is not sufficient to create a genuine
dispute of fact. Under the Uniform Commercial Code,
the signatures on the note are presumed authentic
unless a party denies it in the pleadings and
introduces evidence "which would support a finding
that the signature is forged or unauthorized." The
burden of proving the authenticity of the signatures
does not shift to the party seeking to enforce the
instrument unless and until the opposing party makes
an adequate showing that the signatures are not
authentic.
528 B.R. at 794 (footnotes omitted).
"[T]he extent to which discovery is permitted under
Rule 26 is subject to considerable latitude and the discretion of
the trial court." Anastasi, 137 Hawai#i at 111-12, 366 P.3d at
167-68 (citation omitted). We conclude here that the statutory
presumption in HRS § 490:3-308(a) applies, because the Bautistas'
answer did not specifically deny the authenticity of, or
authorization for, any indorsement, so as to put its authenticity
or authorization at issue. Thus, the Circuit Court did not abuse
its discretion in denying the Motion to Compel with respect to
the indorsements. See id.
IV. CONCLUSION
For the foregoing reasons, we (1) vacate in part and
affirm in part the June 22, 2017 Order Denying without Prejudice
Defendants' Motion to Compel Plaintiff-Appellant The Bank of New
York Mellon, as Indenture Trustee for Certificateholders CWABS
Asset-Backed Notes Trust 2006-SD4's Responses to Defendants'
First Request for Answers to Interrogatories, First Request for
Production of Documents and Things, and First Request for
Admissions to Plaintiff Filed March 28, 2017; (2) vacate the
August 2, 2017 Findings of Fact, Conclusions of Law and Order
Granting Plaintiff's Motion for Summary Judgment for Foreclosure
against All Defendants and for Interlocutory Decree of
Foreclosure; and (3) vacate the August 2, 2017 Judgment. We
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remand for further proceedings consistent with this Memorandum
Opinion.
DATED: Honolulu, Hawai#i, March 28, 2023.
On the briefs:
/s/ Clyde J. Wadsworth
Van-Alan H. Shima, Presiding Judge
(Affinity Law Group),
for Defendants-Appellants. /s/ Karen T. Nakasone
Associate Judge
Charles R. Prather,
(TMLF Hawaii LLLC), /s/ Sonja M.P. McCullen
for Plaintiff-Appellee. Associate Judge
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