WBCMT 2006-C29 OFFICE 4250, LLC v. Chestnut Run Investors, LLC.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
WBCMT 2006-C29 OFFICE 4250, LLC, )
)
Plaintiff, )
)
) C.A. No. N14L-03-040 FWW
v. )
)
CHESTNUT RUN INVESTORS, LLC, )
)
Defendant. )
Submitted: July 10, 2015
Decided: July 30, 2015
Upon Plaintiff’s Motion for Summary Judgment
GRANTED.
OPINION AND ORDER
Matthew G. Summers, Esquire (argued) and Jessica C. Watt, Esquire, Ballard
Spahr LLP, 919 N. Market Street, 11th Floor, Wilmington, Delaware 19801-3034,
Attorneys for Plaintiff.
Benjamin J. Berger, Esquire and David B. Anthony, Esquire (argued), Berger
Harris LLP, 1105 N. Market Street, I.M. Pei Building, 11th Floor, Wilmington,
Delaware 19801, Attorneys for Defendant.
WHARTON, J.
I. INTRODUCTION
Before the Court is WBCMT 2006-C29 OFFICE 4250, LLC’s (“Plaintiff”)
Motion for Summary Judgment with regard to an action to foreclose on
commercial real property owned by Chestnut Run Investors, LLC (“Defendant”)
located at 4250 Lancaster Pike, Wilmington, Delaware 19720 (“Property”).
Plaintiff is not the original lender that received the mortgage and promissory note
but purports to have acquired an interest in enforcing the promissory note by a
series of alleged assignments. Plaintiff requests that the Court determine 1)
whether Plaintiff has the right to enforce the promissory note related to the
Property under Article 3 of the Uniform Commercial Code (“U.C.C.”); 2) whether
Defendant lacks standing to challenge the validity of the alleged assignments of the
promissory note to Plaintiff; and 3) whether Plaintiff is entitled to a judgment for
Plaintiff and in rem against the Property in the amount of $20,000,057.81 as of
February 11, 2014, plus interest from February 11, 2014 to June 8, 2015 in the
amount of $2,244,263.33, plus interest from June 8, 2015 to the date of entry of
judgment at the per diem rate of $4,646.51, plus interest from the date of judgment
to the date of payment, attorney’s fees and costs.
Applying Super. Ct. Civ. R. 56(c) to Plaintiff’s Motion for Summary
Judgment, the Court finds that 1) the factual record is clear that Plaintiff is entitled
to enforce the promissory note as a nonholder in possession of the instrument who
2
has the rights of a holder; 2) because the Court finds that Plaintiff is entitled to
enforce the promissory note, the Court need not address the merits of Plaintiff’s
argument that Defendant lacks standing to challenge the alleged assignments of the
promissory note; and 3) the undisputed facts support Plaintiff’s request for the
amount of the judgment. Therefore, Plaintiff’s Motion for Summary Judgment is
GRANTED.
II. FACTUAL AND PROCEDURAL CONTEXT
On November 2, 2006, in connection with the financing of the Property,
Wachovia Bank, N.A. (“Wachovia”), loaned Defendant $18,400,000.00 (the
“Loan”). 1 Defendant executed and delivered a promissory note (the “Note”),
pursuant to which Defendant promised to repay the Loan, and a Mortgage,
Security Agreement and Fixture Filing (“Mortgage”) which granted a first-priority
lien against the Property as security for the Loan.2 The Mortgage was recorded
with the New Castle County Recorder of Deeds (“Recorder of Deeds”) on
November 3, 2006 as Instrument No. 20061103-0104847.3 On or about November
10, 2006, the Note was delivered by counsel for Wachovia to Wells Fargo Bank,
N.A. (“Wells Fargo Bank”).4
1
See Vinton Dep., Ex. A to Pl.’s Opening Br., D.I. 27, 20: 7-15; 21:6-8.
2
See Pl.’s Opening Br. at Ex. B - Ex. C.
3
See id. at Ex. C.
4
See id. at Ex. F.
3
A. Alleged Loan Assignments
Between the time that the Note and Mortgage were executed and delivered
to Wells Fargo Bank and the commencement of this action, several documents
relating to the Mortgage and Note were executed by various entities. Specifically,
documents were executed by Wachovia to Wells Fargo Bank, N.A., as trustee for
the registered holders of Wachovia Bank Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2006-C29 (“Wells
Fargo”); Wells Fargo to Bank of America, N.A., as trustee for the registered
holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage
Pass-Through Certificates, Series 2006-C29 (“Bank of America”); Bank of
America to U.S. Bank National Association, as trustee for the registered holders of
Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-
Through Certificates, Series 2006-C29 (“U.S. Bank”); and U.S. Bank to Plaintiff.
The record contains the full text of the documents but, for purposes of this
Opinion, the Court finds it necessary to include only a brief summary of the
relevant excerpts from the various documents.
1. Wachovia to Wells Fargo
Wachovia executed a document titled “Assignment of Mortgage, Security
Agreement and Fixture Filing” that purported to assign the Mortgage to Wells
4
Fargo. 5 The document was recorded with the Recorder of Deeds as Instrument No.
20070821-0074091 on August 21, 2007. 6 Wachovia also executed the undated
“Allonge” to the Note payable to Wells Fargo that is neither notarized nor made
under seal. 7 On February 3, 2015, Wachovia executed the “Corrective Allonge” to
the Note payable to Wells Fargo that is witnessed, notarized and made under seal
by Wells Fargo as successor by merger to Wachovia. 8 Wachovia executed a
document titled “Assignment of Note and Ancillary Security Documents” on
January 26, 2007. 9 The notarized document provides that
[Wachovia] does hereby transfer, assign, grant and
convey to [Wells Fargo]…all of the right, title, interest
and benefit of [Wachovia] in and to the following
documents…and does hereby grant and delegate to
[Wells Fargo]…any and all of the duties and obligations
of [Wachovia] under the following documents from and
after the date hereof:
a. The Note;… 10
2. Wells Fargo to Bank of America
Wells Fargo executed a document titled “Assignment of Mortgage, Security
Agreement and Fixture Filing” that purported to assign the Mortgage to Bank of
America. 11 The document was recorded by the Recorder of Deeds on August 19,
5
See id. at Ex. J.
6
See id.
7
See id. at Ex. I.
8
See id. at Ex. K.
9
See id. at Ex. H.
10
Id. at Ex. H ¶ 1.a.
11
See id. at Ex. N.
5
2009 as Instrument No. 20090819-0054590. 12 Wells Fargo also executed the
“Allonge” to the Note payable to Bank of America that is not dated, notarized or
made under seal.13 On February 12, 2015, Wells Fargo executed the “Corrective
Allonge” to the Note made payable to Bank of America. 14 The “Corrective
Allonge” is witnessed, notarized and sealed. 15 On March 31, 2009, Wells Fargo
executed a document titled “Omnibus Assignment” which provides that Wells
Fargo
transfers, assigns, delivers, sets-over and conveys to
Bank of America...all right, title and interest of [Wells
Fargo] in and to the [L]oan…including without limitation
all of [Wells Fargo’s] right, title and interest in any
claims, collateral, insurance policies, certificates of
deposit, letters of credit, escrow accounts, performance
bonds, demands, causes of action and any other collateral
arising out of and/or executed and/or delivered in or to or
with respect to the Loan, together with any other
documents or instruments executed and/or delivered in
connection with or otherwise related to the Loan. 16
3. Bank of America to U.S. Bank
Bank of America executed a document titled “Assignment of Mortgage,
Security Agreement and Fixture Filing” that purported to assign the Mortgage to
U.S. Bank on October 4, 2013.17 The Recorder of Deeds recorded the document as
12
See id. at Ex. N.
13
See id. at Ex. M.
14
See id. at Ex. O.
15
See id.
16
See id. at Ex. L.
17
See id. at Ex. R.
6
Instrument No. 20131021-0067018 on October 21, 2013. 18 On October 24, 2011,
Bank of America also executed the “Allonge” to the Note payable to U.S. Bank
that is neither sealed nor notarized.19 On March 31, 2015, Bank of America
executed the “Corrective Allonge” made payable to U.S. Bank.20 The “Corrective
Allonge” is witnessed, sealed and notarized. 21 On October 4, 2013, Bank of
America executed a document titled “Omnibus Assignment of Loan Documents”
that provides that Bank of America
grant[s], bargain[s], sell[s], assign[s], deliver[s],
convey[s], transfer[s] and set[s] over unto [U.S.
Bank]…all of [Bank of America’s] right, title and interest
in and to the Loan and obligations with respect to the
Loan, together with all rights, remedies, collateral,
instruments or other documents made or granted in favor
of [Bank of America] or its predecessors in interest in
connection with the Loan, including, without limitation:
(i) all right, title and interest in and to the Note;… 22
4. U.S. Bank to Plaintiff
U.S. Bank executed a document dated November 7, 2013 that is titled
“Assignment of Mortgage, Security Agreement and Fixture Filing and Other Loan
Documents” in which U.S. Bank purported to assign the Mortgage to Plaintiff. 23
The document was recorded by the Recorder of Deeds on November 19, 2013 as
18
See id.
19
See id. at Ex. Q.
20
See Def.’s Answering Br., D.I. 30, at Ex. 9.
21
See id.
22
See Pl.’s Opening Br., at Ex. P.
23
See id. at Ex. V.
7
Instrument No. 20131119-0072689.24 Additionally, on May 28, 2013, U.S. Bank
executed the “Allonge” to the Note payable to Plaintiff. 25 The “Allonge” is not
sealed or notarized. 26 On April 14, 2015, U.S. Bank executed the “Corrective
Allonge” to the Note payable to Plaintiff. 27 The “Corrective Allonge” is
witnessed, sealed and notarized. 28 On November 7, 2013, U.S. Bank executed an
“Omnibus Assignment of Loan Documents” which provides that U.S. Bank
grant[s], bargain[s], sell[s], assign[s], deliver[s],
convey[s], transfer[s] and set[s] over unto [Plaintiff]…all
of [U.S. Bank’s] right, title and interest in and to the
Loan and obligations with respect to the Loan, together
with all rights, remedies, collateral, instruments or other
documents made or granted in favor of [U.S. Bank] or its
predecessors in interest in connection with the Loan,
including, without limitation: (i) all right, title and
interest in and to the Note;…29
B. Physical Location and Custody of the Note
On or about November 10, 2006, the Note was delivered by counsel for
Wachovia to Wells Fargo Bank, N.A. (“Wells Fargo Bank”). 30 Wells Fargo Bank
stored the original Note at a Minneapolis, Minnesota facility beginning on
November 10, 2006 until May 2015 except when the Note was sent to LNR
Partners, LLC (“LNR”), a special servicer, in Miami Beach, Florida from June 25,
24
See id.
25
See id. at Ex. U.
26
See id.
27
See id. at Ex. W.
28
See id.
29
See id. at Ex. T.
30
See id. at Ex. F.
8
2013 through July 10, 2013 and, again, in May 2015. 31 Wells Fargo Bank
remained the custodian of the Note at all relevant times. 32 As of the date of oral
argument, counsel for Plaintiff represented to the Court that he had physical
possession of the Note. 33
C. Plaintiff Commences Action and Calculates Payoff Amount.
Defendant has made no payment on account of the Loan since November 11,
2013. 34 By letter dated December 12, 2013, Plaintiff notified Defendant that
Defendant was in default and by letter dated February 4, 2014, Plaintiff accelerated
the Loan. 35 Section 1.5 of the Note provides the mechanism for performing and
verifying the calculation. 36 The document titled “Payoff Statement” reflects that,
as of February 11, 2014, the total amount to payoff the Loan was $20,000,057.81
(“Payoff Amount”).37 Paragraph 19 of the Amended Complaint provides a
31
See Solomon Dep., Ex. D to Pl.’s Opening Br., at 77:21-78:20; Pl.’s Opening Br. at Ex. G.
32
See Pl.’s Reply Br., D.I. 31, at Ex. OO:
Interrogatory No. 5: Identify the custodian of the Note when the
Allonge containing the name Vanessa A. Orta was executed.
Response: …[Plaintiff] states that at all times from November 10,
2006 through the commencement of the foreclosure action, Wells
Fargo Bank, N.A., 1015 10th Avenue SE, Minneapolis, Minnesota
55414, was custodian of the Note on behalf of [Plaintiff] and its
predecessors.
33
Plaintiff’s counsel brought the original Note to oral argument and Defendant does not dispute
that Plaintiff has physical possession of the original Note.
34
Vinton Dep., Ex. A to Pl.’s Opening Br., at 38: 21-23.
35
See Pl.’s Opening Br., at Ex. CC - DD.
36
See id. at Ex. B.
37
See id. at Ex. GG.
9
“detailed summary of the outstanding balance of the Obligations, as of February
11, 2014” in chart form and categorizes various components of the Payoff
Amount. 38 The chart lists, inter alia, $56,712.04 in “Misc. Fees and Charges.”39
The “Total Note Payoff” aggregating the categorized components of the Payoff
Amount contained in ¶ 19 of the Amended Complaint is $20,000,057.81. 40
Leah Solomon, Plaintiff’s 30(b)(6) witness (“30(b)(6) Witness”), testified
that she personally reviewed the underlying documents that Plaintiff relied upon in
categorizing certain expenses as “Misc. Charges and Fees” in ¶ 19 of the Amended
Complaint.41 The 30(b)(6) Witness testified that the amount that makes up the
“Misc. Charges and Fees” in the Amended Complaint should have been $4,000
38
Am. Compl., at ¶ 19.
39
See id.
40
Id.
41
See Solomon Dep., Ex. 12 to Def.’s Answering Br., at 118:3-119:14:
Q: Have you performed any review of the fees in the row
Miscellaneous Fees and Charges set forth in paragraph 19 of the
amended complaint?
A: I have…
Q: When you performed your review did you look at any
documents to aid you in your review of those fees?
A: Yes, I did. I looked at some invoices.
Q: And did the invoices that you reviewed…did you add them up?
A: Roughly, yes.
10
instead of $56,000 based upon the underlying invoices but that, despite the error,
the “Total Note Payoff” in the Amended Complaint was unaffected. 42
On June 8, 2015, Plaintiff filed the Motion for Summary Judgment.43 In
Plaintiff’s Motion, Plaintiff seeks to enforce its rights under Article 3 of the U.C.C.
and to obtain a judgment against Defendant. The parties appeared before the Court
for oral argument on July 10, 2015.
III. THE PARTIES’ CONTENTIONS
Plaintiff asserts that Delaware law permits a mortgagee or assignee of the
mortgagee’s interest to foreclose on a mortgage pursuant to 10 Del. C. § 5061.44
42
Id. at 119:15-23:
Q: And what was the rough total for those invoices?
A: About $4,000, not the $56,000 noted here, but the overall
payoff amount. I’m sorry, I am calling it the payoff amount, as
reflected in the last line of this box, was identical. I am referring to
the $20,000,057.81 number. It looks like somebody put a wrong
number in this box for Miscellaneous Fees and Charges but yet
arrived at the same total note payoff number.
43
D.I. 27.
44
See Pl.’s Opening Br. at 8-9:
Scire facias sur mortgage foreclosure actions are governed by 10
Del. C. § 5061(a), which provides, in pertinent part:
[U]pon breach [sic] the condition of a mortgage of real
estate by nonpayment of the mortgage money or
nonperformance of the condition stipulated in such
mortgage at the time and in the manner therein provided
the mortgagee, the mortgagee’s heirs, executors,
administrators, successors or assigns may, at any time
after the last day whereon the mortgage money ought to
have been paid or other conditions performed, sue out of
the Superior Court of the county wherein the mortgage
premises are situated a writ of scire facias.
11
Plaintiff contends that “[f]or purposes of conferring legal standing, ‘an assignment
of [sic] mortgage is valid when it is attested to by 1 credible witness and it operates
to convey all the rights and interest of the assignor.’” 45 Plaintiff asserts that “[t]he
Mortgage Assignments satisfy all of these conditions, as they expressly convey all
‘right, title, and interest’ in the Mortgage to [Plaintiff], and were attested to and
notarized.”46
Plaintiff asserts that it is a party entitled to enforce the Note under U.C.C.
Article 3 as adopted by both Delaware and Minnesota. 47 Plaintiff contends that the
Note is a negotiable instrument under Delaware and Minnesota law. 48 Plaintiff
asserts that under both Delaware and Minnesota law, “[a] person is entitled to
enforce an instrument under the U.C.C. if the person is: ‘(i) the holder of the
instrument, [or] (ii) a nonholder in possession of the instrument who has the rights
of a holder…’ 6 Del. C. § 3-301; Minn. Stat. 336.3-301.”49
Plaintiff first argues that it is the holder of the Note.50 Plaintiff contends
that, as the holder of the Note, it is entitled to enforce the Note because “(a) it is
and at all times has been in possession of the original executed Note; (b) through
See 10 Del. C. § 5061 (emphasis added).
45
Id. at 9 (quoting CitiMortgage, Inc. v. Bishop, 2013 WL 1143670, at *4, 6 (Del. Super. Mar. 4,
2013)).
46
Id. at 9.
47
Id. at 10.
48
Id. at 11.
49
Id.
50
Id.
12
the Original Allonges and the Corrective Allonges, the Note has been validly
indorsed to [Plaintiff]; and (c) through the Omnibus Assignment Agreements, the
Note has been assigned to [Plaintiff].” 51 Plaintiff argues that “all that is required
under Article 3 for an indorsement of an instrument is ‘a signature, other than that
of a signer as a maker’” 52 and that “there is no requirement that an indorsement be
witnessed or made under seal to prove a right to enforce.” 53
Plaintiff alternatively argues that, if the Court finds that Plaintiff is not a
holder of the Note, then Plaintiff is a nonholder in possession of the Note with
rights of a holder. 54 Plaintiff argues that physical possession of the Note delivered
with the proper intent to transfer the rights under the Note to Plaintiff gives
Plaintiff the right to enforce the Note. 55 Plaintiff contends that “the combination of
physical possession of the Note, the execution of the Corrective Allonges, and the
Omnibus Agreements incontrovertibly establish the [Plaintiff’s] right to enforce
the Note under Article 3.” 56
Next, Plaintiff argues that Defendant lacks standing to challenge the validity
of the Mortgage and Note assignments. 57 Plaintiff asserts that “[i]t is a long
standing principle of Delaware contract law that a person has no right to challenge
51
Id. at 11-12.
52
Id. at 12 (quoting 6 Del. C. § 3-204(a); Minn. Stat. § 336.3-204(a)).
53
Id.54
Id.55
Id. at 13.
56
Id. at 14.
57
Id.
13
a contract unless it is a party to or third party beneficiary of that contract.” 58
Plaintiff contends that the Court has applied this principle and determined that a
borrower “lacks standing to challenge the validity or enforceability of an
assignment of loans, loan documents, mortgages, and notes.59 Plaintiff asserts that
Defendant is neither a party to the Mortgage and Note assignments nor is a third
party beneficiary of the assignments and, therefore, lacks standing to challenge the
enforceability of the assignments. 60
Plaintiff requests that the Court “enter judgment for [Plaintiff] and in rem
against the Property in the amount of $20,000,057.81 as of February 11, 2014, plus
interest from February 11, 2015 to June 8, 2015, in the aggregate amount of
$2,244,263.33, plus interest from June 8, 2015 to the date of entry of judgment at
the per diem rate of $4,646.51, interest from the date of judgment to the date of
payment at the legal rate, attorney’s fees and costs.” 61 At oral argument, counsel
for Plaintiff acknowledged that the $56,712.04 “Misc. Fees and Charges”
component of the “Total Note Payoff” amount contained in ¶ 19 of the Amended
Complaint was inaccurate. Counsel represented to the Court that he had made a
clerical error in drafting the Amended Complaint in an attempt to lump together
certain fees but asserted that the error did not affect the amount of the “Total Note
58
Id.
59
Id. at 15.
60
Id. at 14-15.
61
Id. at 16.
14
Payoff.” Counsel argued that the Payoff Amount from the “Payoff Statement” and
the “Total Note Payoff” contained in the Amended Complaint are the same figure
and that the 30(b)(6) Witness, testified by deposition, to the accuracy of the
calculation of the “Payoff Amount.”
Defendant argues that Plaintiff has not met its threshold burden to show that
Plaintiff has standing to pursue the foreclosure action because Plaintiff is not the
holder or assignee of both the Mortgage and the Note. 62 Defendant argues that
Plaintiff is not a holder under Article 3 of the U.C.C. because the Allonges and
Corrective Allonges were not affixed to the Note at the time they were executed.63
Defendant contends that “[i]f an ‘endorsement’ on an allonge is not properly
‘affixed’ to the Note, the allonge is defective and does not transfer rights to the
instrument.”64 Defendant asserts that “[i]n order for the ‘endorsement’ to be
properly ‘affixed’ to the instrument, the allonge must be ‘physically attached to the
instruments’ in some way” 65 and that “[u]nder controlling Minnesota law,
‘[s]tapling an allonge to the instrument sufficiently affixes it to the instrument so
that it becomes ‘a part thereof.’’” 66 Defendant argues that because none of the
62
Def.’s Answering Br., at 9.
63
Id. at 12.
64
Id. at 13.
65
Id. at 14 (quoting Adams v. Madison Realty & Dev., Inc., 853 F.2d 163 (3d Cir. 1998)).
66
Id. (quoting NAB Asset Venture II, L.P. v. Lenertz, Inc., 1998 WL 422207, at *2 (Minn. App.
1998)).
15
Allonges or Corrective Allonges were affixed to the Note at the time of execution,
the Note was not properly endorsed. 67
Defendant did not address whether or not Plaintiff is a nonholder in
possession of the instrument with the rights of a holder in its submission to the
Court. However, for the first time, at oral argument Defendant challenged
Plaintiff’s status as a nonholder in possession of the instrument with the rights of a
holder under U.C.C. § 3-203. Defendant asserted that under § 3-203 of the U.C.C.,
to transfer a negotiable instrument, Plaintiff must show that there was intent to
deliver the Note and actual delivery of the Note. Defendant argued that actual
delivery of the Note was never accomplished because each of the prior alleged
holders, i.e., Wells Fargo, Bank of America and U.S. Bank, did not physically
deliver the Note to the subsequent alleged holder because the Note remained in the
same warehouse in Minneapolis, Minnesota except when it was temporarily sent to
LNR in Miami Beach, Florida.
Additionally, Defendant argues that it has standing to challenge the validity
of the alleged assignments of the Note because Plaintiff bears the initial burden of
showing that it is either a holder or nonholder in possession with the rights of a
holder.68 Defendant asserts that, under Minnesota law, Defendant has standing to
challenge whether an alleged holder or nonholder in possession with the rights of a
67
Id. at 14.
68
Id. at 11.
16
holder can enforce the Note.69 Defendant also argues that “Defendant’s standing to
challenge Plaintiff’s right to enforce the Note also follows as a matter of logic.” 70
Defendant explains that
[a]ssuming, arguendo, that Plaintiff was not required to
prove that it is the proper party to enforce a Note, nothing
would stop an unrelated third-party from also claiming at
some future time that it has the right to enforce the Note
against the Defendant…This would place Defendant in a
double-jeopardy situation where it could be liable to
another party for the sums under the Note even though
the collateral, i.e. the Property, had been foreclosed and
the loan was no longer secured. 71
Defendant also disputes the accuracy of the Payoff Amount because
Defendant asserts that there is nothing in the record to support the underlying
calculation of the Payoff Amount “other than the February 2014 Payoff
Statement.” 72 Defendant contends that the calculation used by Plaintiff to create
the “Payoff Statement” is complex and that “there is no way that Defendant or the
Court could use the information in the record to recalculate the prepayment
premium to verify its accuracy.” 73 Specifically, Defendant disputes the accuracy
of Plaintiff’s characterization of $56,712.04 as “Misc. Fees and Charges” in the
Amended Complaint. 74 Defendant contends that the record supports only $4,000
69
Id.
70
Id.
71
Id. at 11-12.
72
Id. at 14.
73
Id. at 14-15.
74
Id. at 15.
17
of the claimed “Misc. Charges and Fees” in ¶ 19 of the Amended Complaint based
upon the deposition testimony of the 30(b)(6) Witness and is otherwise “not
supported by invoices, receipts or other documents in the record.” 75 At oral
argument Defendant asserted that the 30(b)(6) Witness had no direct knowledge to
support the underlying calculation in the Payoff Statement and, therefore, a
genuine issue of fact exists such that the Plaintiff is not entitled to summary
judgment.
IV. STANDARD OF REVIEW
Super. Ct. Civ. R. 56(c) provides that summary judgment is appropriate
where there is “no genuine issue as to any material fact” and “the moving party is
entitled to a judgment as a matter of law.” When considering a motion for
summary judgment, the Court’s function is to examine the record to determine
whether genuine issues of material fact exist “but not to decide such issues.” 76 The
moving party bears the initial burden of demonstrating that the undisputed facts
support its claims or defenses.77 If the moving party meets its initial burden, then
the burden shifts to the non-moving party to demonstrate that there are material
issues of fact to be resolved by the ultimate fact-finder. 78 “It is not enough for the
opposing party merely to assert the existence of such a disputed issue of fact. The
75
Id.
76
Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99-100 (Del. 1992).
77
Moore v. Sizemore, 405 A.2d 679, 681 (Del. 1979).
78
Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
18
opponent to a motion for summary judgment ‘must do more than simply show that
there is some metaphysical doubt as to material facts.’” 79 Summary judgment will
be granted if, after viewing the record in the light most favorable to the non-
moving party, no genuine issues of material fact exist and the moving party is
entitled to judgment as a matter of law. 80
V. DISCUSSION
To have standing to bring a mortgage foreclosure action, Plaintiff must
establish by a preponderance of the evidence that it is the proper party to bring the
action. 81 Pursuant to 10 Del. C. § 5061(a),
upon breach of the condition of a mortgage of real estate
by nonpayment of the mortgage money or
nonperformance of the condition stipulated in such
mortgage at the time and in the manner therein provided
the mortgagee, the mortgagee's heirs, executors,
administrators, successors or assigns may, at any time
after the last day whereon the mortgage money ought to
have been paid or other conditions performed, sue out of
the Superior Court of the county wherein the mortgage
premises are situated a writ of scire facias upon such
mortgage.
Defendant does not challenge the assignment of the Mortgage but challenges
whether the Note was validly assigned. Therefore, the Court’s discussion is
limited to whether Plaintiff may enforce the Note, whether Defendant has standing
79
Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct.
1348, 1356, 89 L.Ed.2d 538 (1986)).
80
Merrill, 606 A.2d at 99-100.
81
CitiMortgage, Inc. v. Bishop, 2013 WL 1143670, at *4 (Del. Super. Jan. 9, 2013).
19
to challenge Plaintiff’s foreclosure action and whether there is a genuine issue of
fact as to the amount of the judgment Plaintiff requests.82
A. The Factual Record is Undisputed that Plaintiff is Entitled to
Enforce the Note Under Article 3 of the U.C.C. Because Plaintiff
is a Non-Holder in Possession with the Rights of a Holder.
Pursuant to Article 3 of the U.C.C. as adopted in both Delaware and
Minnesota, a promissory note is a negotiable instrument. 83 A party is entitled to
enforce a negotiable instrument when the party is “(i) the holder of the instrument,
[or] (ii) a nonholder in possession of the instrument who has the rights of a
holder…”84 A holder is a “person in possession of a negotiable instrument either
as the bearer or to the indentified person that is the person in possession.” 85 The
Comment to U.C.C. § 3-201(b)(21)(A) provides that “[a] nonholder in possession
of an instrument includes a person that acquired rights of a holder by subrogation
or under Section 3-203(a) [of the U.C.C.].” 86
Section 3-203(a) of the U.C.C. provides that “(a) An instrument is
transferred when it is delivered by a person other than its issuer for the purpose of
giving to the person receiving delivery the right to enforce the instrument.” 87
82
Plaintiff and Defendant both assert that Minnesota substantive law applies to the issue of the
validity of the Allonges and Corrective Allonges; however, because, for reasons stated herein
infra, the Court need not decide whether to apply Delaware or Minnesota law.
83
6 Del. C. § 3-104; Minn. Stat. 336.3-104.
84
6 Del. C. § 3-301; Minn. Stat. 336.3-301.
85
6 Del. C. § 1-201(b)(21)(A); Minn. Stat. 336.1-201(b)(21)(A).
86
6 Del. C. § 3-301 cmt.; Minn. Stat. 336.3-301 cmt.
87
6 Del. C. § 3-203(a); Minn. Stat. 336.3-203(a).
20
Comment 1 to U.C.C. § 3-203 instructs that “[a]n instrument is a reified right to
payment. The right is represented by the instrument itself. The right to payment is
transferred by delivery of possession of the instrument ‘by a person other than its
issuer for the purpose of giving to the person receiving delivery the right to enforce
the instrument.’” 88 Therefore, to enforce the rights under the Note, Plaintiff must
show that Plaintiff has physical possession of the Note, that the intent in
transferring physical possession of the Note to Plaintiff was to deliver the right to
enforce the instrument to Plaintiff and that actual delivery of the Note to Plaintiff
was accomplished. 89
The Court finds that the uncontroverted facts indicate that Plaintiff is a
nonholder in possession of the Note with rights of a holder. Plaintiff physically
possesses the Note,90 the intent in transferring the Note to Plaintiff was to deliver
the right to enforce the Note and the Note was actually delivered to Plaintiff. The
executed documents supporting each of the four alleged assignments of the Note,91
whether defective or not, were intended to transfer the Note “for the purpose of
giving to the person receiving delivery the right to enforce the instrument.” 92
88
6 Del. C. § 3-203 cmt. 1; Minn. Stat. 336.3-203 cmt. 1.
89
6 Del. C. § 3-203(a); Minn. Stat. § 336.3-203(a).
90
See supra note 33.
91
The four alleged assignments are: from Wachovia to Wells Fargo; from Wells Fargo to Bank
of America; from Bank of America to U.S. Bank; and from U.S. Bank to Plaintiff.
92
6 Del. C. § 3-203(a); Minn. Stat. § 336.3-203(a).
21
All four of the alleged assignments of the Note include three attempts,
whether valid or invalid, by each alleged assignor93 to assign the right to enforce
the Note to a subsequent entity: the execution of an Allonge, the execution of a
Corrected Allonge, and the execution of an omnibus assignment of rights. The
executed Allonges and Corrective Allonges indicate that the Note is payable to a
subsequent entity without recourse.94 Additionally, each alleged assignor executed
an omnibus assignment of rights document that includes language of the alleged
assignor’s intent to relinquish all rights under the Note to the subsequent entity. 95
Moreover, Defendant has failed to identify any facts in the record that would
negate the alleged assignors’ intent as set forth in the plain language of the
documents. Therefore, there is no genuine dispute that each alleged assignment
was accompanied by the intent to give the subsequent entity the right to enforce the
Note.
Additionally, actual delivery of the Note by the alleged assignors to the
subsequent entities was accomplished. Defendant argues that there are no facts in
the record to support a finding that each alleged assignor accomplished actual
delivery of the Note. However, the record is clear that, at all relevant times, Wells
Fargo was the custodian of the Note even when the Note was physically sent to
93
Wachovia, Wells Fargo, Bank of America and U.S. Bank.
94
See supra Parts II.A.1-4.
95
See id.
22
LNR in Miami Beach, Florida. 96 As the custodian of the Note, upon the
completion of each alleged assignment, Wells Fargo would have had the obligation
to actually deliver the Note to the subsequent custodian. In this case, Wells Fargo
would have had the obligation to actually deliver the Note to itself. Because Wells
Fargo remained the custodian of the Note at all times, the undisputed factual record
shows that actual delivery of the Note was accomplished. Based upon the reasons
aforementioned, it is undisputed that Plaintiff is a nonholder in possession of the
Note with the rights of a holder and may enforce the Note under Article 3 of the
U.C.C.
The Court need not address whether Plaintiff is also a holder under § 3-301
because the Court has found that the factual record indicates that Plaintiff is a
nonholder in possession of the Note with the rights of a holder. Section 3-301 is
written in the disjunctive so that satisfying one of the definitions of a “person
entitled to enforce” is sufficient.97 However, the Court has reservations regarding
the merits of Defendant’s claim that the Allonges and Corrective Allonges are
defective because they were not properly “affixed” to the Note at the time of
96
See supra note 32.
97
6 Del. C. § 3-301 and Minn. Stat. 336.3-301 provide that a
“[p]erson entitled to enforce” an instrument means (i) the holder of
the instrument, (ii) a nonholder in possession of the instrument
who has the rights of a holder, or (iii) a person not in possession of
the instrument who is entitled to enforce the instrument pursuant to
Section 3-309 or 3-418(d).
23
execution. Section 3-204(a)(i) of the U.C.C. provides that an “endorsement” is “a
signature, other than that of a signer as maker, drawer, or acceptor, that alone or
accompanied by other words is made on an instrument for the purpose of (i)
negotiating the instrument.” 98 The section further instructs that “[f]or the purpose
of determining whether a signature is made on an instrument, a paper affixed to the
instrument is a part of the instrument.”99
Neither the statute nor the comments to the statute address when the
executed paper shall be affixed to the document and do not expressly preclude the
paper from being affixed to the Note at some later time after execution.
Furthermore, Defendant’s reliance upon Minnesota case law that interprets a prior
version of the statute does not clarify the timing question. Therefore, the Court is
unconvinced of the merits of Defendant’s argument that the Allonges and
Corrective Allonges are defective because they were not affixed to the Note
contemporaneous to execution. Nonetheless, despite its skepticism, the Court need
not resolve the issue regarding the validity of the Allonges and Corrective
Allonges for purposes of this Motion because the Court has already determined
that Plaintiff is a nonholder in possession of the Note with the rights of a holder
and is a person entitled to enforce the Note.
98
6 Del. C. § 3-204(a)(1) and Minn. Stat. 336.3-204(a)(1).
99
Id.
24
B. Whether Defendant Has Standing to Challenge the Action is
Inapposite to Resolving Plaintiff’s Motion.
This Court has held that mortgagors lack standing to challenge the
assignment of loan documents where the mortgagor is not a party to or intended
third-party beneficiary of the assignment under contract theory. 100 On several
recent occasions, the Delaware Supreme Court has declined to address the issue. 101
100
See JP Morgan Chase Bank v. Smith, 2014 WL 7466729, at *4 (Del. Super. Sept. 8,
2014)(“Defendants lack standing to contest the validity of the assignment of the note to
[p]laintiff because the [d]efendants are non-parties to the assignment and do not qualify as third-
party beneficiaries.”); BAC Home Loans Servicing, LP v. Albertson, 2014 WL 637659, at *4
(Del. Super. Feb. 10, 2014)(“Under Delaware contract law, a nonparty to a contract generally has
no rights relating to [the contract] unless he or she is a third-party beneficiary to the contract.
In order to qualify as a third-party beneficiary, a party must be an intended
beneficiary. If a third-party happens to benefit from the performance of the contract indirectly,
the third person has no rights under the contract. This contract law principle is consistent with
Bishop's statement that a debtor is not a party to a mortgage assignment, is not a third-party
beneficiary to the assignment, and cannot show legal harm as a result of the assignment.”);
CitiMortgage, Inc. v. Bishop, 2013 WL 1143670, at *4 (Del. Super. Mar. 4, 2013)(“Defendants'
challenge to the validity of the mortgage is further diluted by their status as non-parties to the
assignment and by recent federal court decisions that the Court finds persuasive on this matter
which indicate that a mortgage-debtor lacks standing to challenge the validity of an
assignment…”).
101
See Bendfeldt v. HSBC Mortgage Corp. (USA), 2014 WL 4978666, at *1 (Del. Oct. 7,
2014)(“As a preliminary matter, we assume without deciding that the [m]ortgagors had standing
to challenge the assignments in this case. The issue of whether and, if so, when mortgagors have
standing to challenge an assignment is an important one that we need not and therefore do not
reach to decide this appeal because the [m]ortgagors' challenge is without merit.”); Albertson v.
BAC Home Loans Servicing, LP, 2014 WL 4952362, at *2 (Del. Oct. 1, 2014)(“As to the instant
case, we assume without deciding that the Albertsons had standing to challenge the assignment
at issue. The issue of whether and, if so, when mortgagors have standing is an important one that
we need not and therefore do not reach to decide this appeal because the Albertsons' claims
substantively lack merit.”); Deutsche Bank Nat. Trust Co. v. Moss, 2014 WL 2918227, at *4
(June 24, 2014)(“Deutsche Bank made other colorable legal arguments below in opposition to
Moss's summary judgment motion that were never considered by the Superior Court. These
include arguments that Moss lacked standing to challenge the assignment of the
mortgage…Deutsche Bank has asked us to consider these legal arguments and to reverse the
Superior Court on legal grounds, but we decline the invitation to address important issues of
law…”).
25
Defendant asserts that Minnesota law controls this issue and that “[u]nder
Minnesota law, a borrower has standing to challenge whether an alleged holder or
non-holder has the lawful right to enforce the instrument.” 102 However, the case
that Defendant relies upon, NAB Asset Venture II, LP v. Lenertz, Inc., 1998 WL
42207 (Minn. App. 1998), does not explicitly support Defendant’s argument. In
Lenertz, the Court of Appeals of Minnesota entertained argument from a borrower
that the plaintiff “failed to prove the necessary elements of its claim to enforce lost,
stolen, or destroyed instruments under Minn. Stat. § 336.3.3-309(a).” Therefore,
the authority does not directly address the issue of Defendant’s standing to
challenge Plaintiff’s status as a holder or nonholder in possession of the Note with
rights of a holder. Because the Court has already determined that the record is
clear that Plaintiff is a nonholder in possession with rights of a holder,103 the Court
declines to reach the issue of whether or not Defendant has standing.
C. There is No Genuine Dispute Concerning the Amount of the
Judgment Requested by Plaintiff.
Super. Ct. Civ. R. 30(b)(6) provides, in part, that
A party may in the party's notice name as the deponent a
public or private corporation or a partnership or
association or governmental agency and describe with
reasonable particularity the matters on which
examination is requested. The organization so named
shall designate one or more officers, directors, or
102
Def.’s Answering Br., at 11.
103
See supra Part V.A.
26
managing agents, or other persons who consent to testify
on its behalf, and may set forth, for each person
designated, the matters on which the person will testify.
The persons so designated shall testify as to matters
known or reasonably available to the organization.
Under Delaware law “a witness may not testify to a matter unless evidence is
introduced sufficient to support a finding that he has personal knowledge of the
matter.”104 Therefore, the Court limits the deposition testimony it considers on
summary judgment to that which the Court is satisfied that the witness has personal
knowledge.105
Plaintiff’s 30(b)(6) Witness testified that she personally reviewed the
underlying documents that Plaintiff relied upon in categorizing certain expenses as
“Misc. Charges and Fees” in ¶ 19 of the Amended Complaint. 106 The 30(b)(6)
Witness testified that the amount that makes up the “Misc. Charges and Fees” in
the Amended Complaint should have been $4,000 instead of $56,000 based upon
the underlying invoices but that, despite the error, the “Total Note Payoff” in the
Amended Complaint was unaffected.107 Therefore, the Court is satisfied that the
30(b)(6) Witness has personal knowledge regarding the “Misc. Charges and Fees”
and that the “extra” $52,000 is not included in the total Payoff Amount.
104
CNH Industrical Am. LLC v. Am. Cas. Co. of Reading, 2015 WL 1242650, at *3 (Del. Super.
Mar. 10, 2015)(quoting Del. R. Evid. 602)).
105
See id. (The Court struck portions of the Super. Ct. Civ. R. 30(b)(6) witness’ affidavit where
the witness testified to facts that occurred prior to his employment at the company and
involvement with the case).
106
See supra note 41.
107
See supra note 42.
27
Because Plaintiff has demonstrated that the amount of the judgment
requested is supported by the record, the burden shifts to Defendant to raise a
genuine issue of material fact. Defendant has presented no credible facts that
undermine the accuracy of the Payoff Amount contained in the “Payoff
Statement.” Section 1.5 of the Note provides the mechanism for performing and
verifying the calculation. 108 Defendant merely asserts that the underlying
calculation cannot be easily verified due to its complexity. However, Defendant
has not brought forth facts that show, for example, that Plaintiff did not follow the
calculation set forth in § 1.5 of the Note, that Plaintiff used inaccurate information
to complete the calculation or that Plaintiff made some particular error when
completing the calculation. Defendant’s bald allegation that the calculation is too
complex to verify without any factual support demonstrating some particular error
in the calculation is insufficient to establish that a genuine issue of material fact
exists.109 Therefore, Plaintiff is entitled to summary judgment in the amount
requested.
VI. CONCLUSION
The Court finds that there is no genuine dispute that Plaintiff is entitled to
enforce the Note under Article 3 of the U.C.C. and that Plaintiff may commence a
foreclosure action against the Property under 10 Del. C. § 5061(a). Additionally,
108
See Pl.’s Opening Br., at Ex. B.
109
See Brzoska, 668 A.2d at 1364.
28
the Court finds that there is no genuine dispute regarding the amount of the
judgment Plaintiff requests. Therefore, Plaintiff’s Motion for Summary Judgment
is GRANTED.
IT IS SO ORDERED.
_______________________
/s/Ferris W. Wharton, Judge
29