Michael Kelley v. US Bank N.A. ( 2021 )

RENDERED: JUNE 11, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2019-CA-1227-MR
MICHAEL KELLEY AND TAMARA
KELLEY APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
v. HONORABLE BRIAN C. EDWARDS, JUDGE
ACTION NO. 08-CI-002675
US BANK N.A. AND LEGAL
RECOVERIES INC. APPELLEES
OPINION
AFFIRMING
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BEFORE: CALDWELL, JONES, AND TAYLOR, JUDGES.
JONES, JUDGE: Michael and Tamara Kelley (the Kelleys) appeal from the
Jefferson Circuit Court’s order dated July 19, 2019, granting a judgment and an
order of sale in favor of U.S. Bank, N.A. Having reviewed the record and being
otherwise sufficiently advised, we affirm.
I. BACKGROUND
This foreclosure case has a long and complex procedural history.
While some details are not relevant to the issues before us today, a general
overview is in order. On March 7, 2008, U.S. Bank, N.A. (U.S. Bank) filed a civil
action against the Kelleys, alleging default on a promissory note in the original
principal amount of $127,000.00. The note was secured by a mortgage on the
Kelleys’ residence known as 5207 Jenny June Drive, Louisville, Kentucky 40213
(the property). U.S. Bank sought a judgment and an order directing the master
commissioner to conduct a foreclosure sale on the property. U.S. Bank also joined
Legal Recoveries Inc. (Legal Recoveries) as a defendant as Legal Recoveries
claimed an interest in the property by virtue of a judgment lien previously filed
against the Kelleys.1
Initially, the Kelleys did not answer the complaint, and the trial court
entered a final judgment and order of sale on October 29, 2008. The sale was
ultimately withdrawn as the Kelleys attempted to obtain a loan modification to
bring their mortgage current. On March 7, 2011, the Kelleys filed an answer to the
complaint and a counterclaim. In their counterclaim, the Kelleys alleged that U.S.
1
Though nominally a party to this appeal, Legal Recoveries released its judgment lien during the
pendency of the case below. It has not taken a position in this appeal and did not actively litigate
in the trial court.
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Bank violated the Kentucky Consumer Protection Act, KRS2 367.110 et seq., by
not allowing them to modify their note and mortgage and by accepting mortgage
payments during the foreclosure process. In their answer, the Kelleys denied that
U.S. Bank was the holder of the note and mortgage at the time the complaint was
filed. They admitted, however, that their mortgage payments were not current.
On October 18, 2018, U.S. Bank moved for summary judgment on the
counterclaim asserted by the Kelleys. The Kelleys responded on November 12,
2018, arguing, inter alia, that U.S. Bank had not proven it was the holder of the
mortgage or note, and therefore had no standing to seek summary judgment as to
the Kelleys’ counterclaim. The trial court granted U.S. Bank’s summary judgment
motion on February 21, 2019. The Kelleys do not challenge that judgment in the
instant appeal.
On May 31, 2019, U.S. Bank filed a motion for summary judgment on
their own affirmative claims as well as an order of sale. Based on the record
below, it appears the motion was filed electronically, and a paper copy mailed to
the Kelleys’ counsel at 455 Starks Building, Suite 600, Louisville, Kentucky
40202. The motion for judgment and order of sale was referred to the master
commissioner of Jefferson County (the master commissioner) on June 3, 2019. On
July 5, 2019, the master commissioner issued a report recommending U.S. Bank’s
2
Kentucky Revised Statutes.
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motion for summary judgment and order of sale be granted. The report further
recommended that “[i]f no objections are filed within 10 days from the date of
service by the Clerk, as prescribed by CR[3] 53.05, [the trial court was to] sign
tendered judgment as amended.”
The report of the master commissioner was mailed to the Kelleys’
counsel at the Starks Building address on July 5, 2019, marked undeliverable due
to an improper address by the U.S. postal service on July 13, 2019, and returned to
the circuit court clerk’s office on July 15, 2019.
The trial court adopted the master commissioner’s report on July 19,
2019, entering a judgment and order of sale. As with the master commissioner’s
report, a copy of the entered judgment and order of sale mailed to the Kelleys’
counsel at the Stark building address from the circuit court clerk was marked
undeliverable on July 25, 2019. The undeliverable envelope was returned to the
clerk of the circuit court on July 30, 2019. It appears that the Kelleys’ counsel
moved from his office in the Starks Building some time in 2018. Filings with the
circuit court clerk in November of 2019 reference counsel’s address as “222 S.
First Street, Suite 305, Louisville, KY 40202”; however, it does not appear that
counsel filed a formal notification of change of address with the circuit court.
3
Kentucky Rules of Civil Procedure.
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Despite the lack of delivery of the judgment, the Kelleys did timely
file their notice of appeal on August 14, 2020. This appeal followed.
II. STANDARD OF REVIEW
Summary judgment is appropriate “if the pleadings, depositions,
answers to interrogatories, stipulations, 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.” CR 56.03. “An
appellate court’s role in reviewing a summary judgment is to determine whether
the trial court erred in finding no genuine issue of material fact exists and the
moving party was entitled to judgment as a matter of law.” Feltner v. PJ
Operations, LLC, 568 S.W.3d 1, 3 (Ky. App. 2018) (citations omitted). “A grant
of summary judgment is reviewed de novo because factual findings are not at
issue.” Id.III. ANALYSIS
U.S. Bank argues that, pursuant to CR 53.05(2), the Kelleys waived
their right to appeal the judgment and order of sale by failing to object to the
master commissioner’s report within ten days of service. Indeed, CR 53.05(2)
provides that “[w]ithin 10 days after being served with notice of the filing of the
[master commissioner’s] report any party may serve written objections thereto
upon the other parties.”
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The Kentucky Supreme Court has held that despite the permissive
language of CR 53.05(2), objections to the master commissioner’s report are
necessary to preserve claims of error from the trial court’s adoption of the report.
See Eiland v. Ferrell, 937 S.W.2d 713, 716 (Ky. 1997). The Court explained that
if this rule were not recognized, “appeals would be taken from trial court
judgments adopting commissioner’s reports without the trial court ever having
been apprised of any disagreement with the report.” Id. The Kentucky’s Supreme
Court’s concerns have proven well-founded, as that is exactly what occurred in the
instant case.
The Kelleys argue that the Eiland rule should not apply here as their
counsel did not receive a copy of the master commissioner’s report. This creates a
conundrum. While the record is clear that the Kelleys’ counsel did not receive a
copy of the report, it is equally clear that no notice of a change of address was ever
filed in the trial court and that documents sent to counsel for the Kelleys by the
circuit court clerk were returned as undeliverable several times prior to the entry of
the master commissioner’s report.
Nonetheless, based on a close reading of the Kentucky Rules of Civil
Procedure, enforcement of the Eiland rule would be improper in this case. CR
53.05(1) requires the circuit court clerk to “forthwith serve the [master
commissioner’s] report upon all parties who have appeared in the action.” Under
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CR 53.05(2), a party may file objections to a master commissioner’s report within
ten days of service. CR 5.02(1) describes what constitutes service of a document
required to be served under the Civil Rules. Generally:
[S]ervice upon the attorney . . . shall be made by
delivering a copy to the attorney . . . or by mailing it to
the last known address of such person; or, if no address is
known, by leaving it with the clerk of the court. Service
is complete upon mailing unless the serving party has
reason to know that it did not reach the person to be
served.
Id.The master commissioner’s report was returned to the circuit court
clerk as undeliverable on July 15, 2019, ten days after it was purportedly served.
The trial court did not adopt the recommendation to enter the judgment and order
of sale until July 19, 2019. By this time, the circuit court clerk had reason to know
that the report did not reach counsel for the Kelleys. Thus, there was not proper
service under CR 5.02(2) as required by CR 53.05(1).
Unlike the failure to timely file a motion under CR 59 or a notice of
appeal, the failure to file objections under CR 53.05(2) does not create a
jurisdictional question for this Court to consider. A trial court is within its
discretion to consider objections filed outside of the ten-day window provided by
CR 53.05, and findings made based on untimely objections may still be reviewed
by this Court. Hunter v. Hunter, 127 S.W.3d 656, 663 (Ky. App. 2003). Even if
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no objections are filed, a trial court could adopt some or all of a master
commissioner’s findings or ignore them entirely.
We hold that because the Kelleys were not served within the meaning
of CR 5.02(1), the Eiland rule does not apply in this case. Upon learning that the
master commissioner’s order was returned to the Court, the trial court should have
directed the clerk of court to re-serve the order, reopening the objection period.
Since this did not occur, we cannot conclude that the Kelleys’ failure to file
objections is fatal in this insistence, and we will review the substance of their
arguments notwithstanding their failure to object.
The Kelleys raise two issues on appeal. Both concern their contention
that U.S. Bank is not a real party in interest under CR 17.01 and therefore not
entitled to enforce the note and mortgage. The Kelleys do not dispute, nor have
they ever disputed, that they are in default on their mortgage obligations.
As an initial matter, the Kelleys argue that U.S. Bank was not the
holder of the promissory note when the litigation was filed. While they made this
argument on several occasions in the trial court, we can discern no evidence in the
record that supports this contention. U.S. Bank attached a copy of the note and an
allonge to the note to its complaint. While the note was originally made to
“Mortgage Lenders Network USA, Inc.,” the allonge shows a series of endorsed
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assignments, the last of which shows that the note was to be paid to the order of
“U.S. Bank National Association as Trustee.”
In support of its motion for judgment and order of sale filed May 31,
2019, U.S. Bank attached an affidavit of Keoviseth Seung (Seung), an employee of
Wells Fargo Bank, N.A. (Wells Fargo). Seung’s affidavit indicates Wells Fargo
was servicing the loan for U.S. Bank. Seung attached to his affidavit a copy of the
note and allonge and swore to their authenticity. The note and allonge attached to
the affidavit are identical to those attached to U.S. Bank’s complaint filed over
eleven years earlier. In those eleven intervening years, the Kelleys did not offer
any evidence that the note was not what it purported to be, only conjecture.
“[A] party opposing a properly supported motion for summary
judgment motion cannot defeat it without presenting at least some affirmative
evidence showing that there is a genuine issue of material fact for trial.” Steelvest,
Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 482 (Ky. 1991). It may not
rely on mere allegations. In their brief, the Kelleys now contend that U.S. Bank
did not have possession of the note at the time the complaint was filed. They offer
no evidence of this. The Kelleys had eleven years between the filing of the
complaint and the entry of a judgment and order of sale to conduct discovery in an
effort to refute U.S. Bank’s contention that it held the note. Among other things,
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they could have requested that U.S. Bank produce the original note it claimed to
possess.
The Kelleys next contend U.S. Bank did not hold the mortgage when
the complaint was filed. An assignment of mortgage to U.S. Bank was filed in the
court below on June 16, 2008, some 90 days after the complaint. Unlike the
Kelleys’ argument concerning the note, it is not clear whether this argument was
preserved for appellate review. Nonetheless we will briefly address the issue.
Under Kentucky law, it is well settled that the “transfer of a
promissory note effects a transfer of an equitable interest in any corresponding
mortgage.” Higgins v. BAC Home Loans Servicing, LP, 793 F. 3d 688, 691 (6th
Cir. 2015) (citing Drinkard v. George, 237 Ky. 560, 36 S.W.2d 56, 57 (1930)). In
Kentucky, it is the transfer of a negotiable instrument, not the assignment of a
mortgage, which transfers enforcement rights to a real party in interest. Stevenson
v. Bank of America, 359 S.W.3d 466, 470 (Ky. App. 2011).
This Court addressed the identical argument made by the Kelleys
concerning the mortgage in Stevenson. There, the lender (BAC) filed a foreclosure
complaint on November 6, 2009. Id. at 467. When the borrower (Stevenson)
questioned whether the lender was the real party in interest, the lender filed an
assignment of mortgage dated November 10, 2009, and recorded November 12,
2009, into the trial court’s record. Id. Stevenson argued on appeal that BAC was
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not a real party in interest because the mortgage assignment was executed and filed
after filing the complaint. We held:
Contrary to Stevenson’s contention, the assignment of
mortgage was not the document which transferred
enforcement rights on the note to BAC, and the date of
its execution is immaterial to the case at bar. Pursuant to
KRS 355.3-201(2), “negotiation” means “a transfer of
possession, whether voluntary or involuntary, of an
instrument by a person other than the issuer to a person
who thereby becomes its holder. . . . If an instrument is
payable by bearer, it may be negotiated by transfer of
possession alone.” Stevenson fails to comprehend that
when the note was endorsed in blank it became a bearer
instrument and no assignment was necessarily required to
transfer the right to collect and enforce the note. Mere
possession of the original note was sufficient. Because
BAC was lawfully in possession of the original note,
clearly it was entitled to enforce the obligations secured
thereby and was the real party in interest in the litigation
below. Any argument to the contrary is wholly without
merit. The trial court did not err.
Stevenson, 359 S.W.3d at 470. The date of the assignment of the mortgage to U.S.
Bank was therefore immaterial to whether it was the real party in interest in this
litigation. By virtue of its status as the holder of the note, it was entitled to enforce
the mortgage. The Kelleys’ argument concerning the mortgage is unavailing.
We are mindful that the trial court did not address the merits of U.S.
Bank’s motion for judgment and order of sale in writing, as no objections were
made to the report of the master commissioner. The record is silent as to whether
the trial court merely signed off on the master commissioner’s report or made an
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independent decision based on previous arguments of the parties. Nonetheless,
“[i]t is the rule in this jurisdiction that the judgment of a lower court can be
affirmed for any reason in the record.” Goetz v. Asset Acceptance, LLC, 513
S.W.3d 342, 344-45 (Ky. App. 2016) (internal quotation marks and citations
omitted). “If an appellate court is aware of a reason to affirm the lower court’s
decision, it must do so, even if on different grounds.” Mark D. Dean, P.S.C. v.
Commonwealth Bank & Trust Co., 434 S.W.3d 489, 496 (Ky. 2014). Based on our
review of the trial court record and the arguments advanced by the Kelleys in this
Court, we believe there were no issues of material fact before the trial court and
that U.S. Bank was entitled to judgment as a matter of law.
III. CONCLUSION
For the reasons set forth above, we affirm the Jefferson Circuit
Court’s judgment and order of sale.
CALDWELL, JUDGE, CONCURS.
TAYLOR, JUDGE, CONCURS IN RESULT ONLY.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE US BANK,
N.A.:
Ryan Fenwick
Louisville, Kentucky Reid S. Manley
Birmingham, Alabama
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