U.S. Bank Trust, N.A. v. Verhagen

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Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
20-JUL-2020
08:02 AM
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
U.S. BANK TRUST, N.A., AS TRUSTEE FOR LSF9
MASTER PARTICIPATION Trust, Plaintiff-Appellee,
v.
PATRICK LOWELL VERHAGEN; PATRICK LOWELL VERHAGEN,
TRUSTEE OF THE PATRICK LOWELL VERHAGEN REVOCABLE
TRUST DATED OCTOBER 29, 1999, Defendants-Appellants,
and
WELLS FARGO BANK, N.A., Defendant-Appellee,
and
DOES 1 THROUGH 20, INCLUSIVE, Defendants
APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT
(CIVIL NO. 16-1-0147(1))
SUMMARY DISPOSITION ORDER
(By: Ginoza, Chief Judge, Chan and Hiraoka, JJ.)
Defendant-Appellant Patrick Lowell Verhagen
and Patrick Lowell Verhagen, Trustee of the Patrick Lowell
Verhagen Revocable Trust Dated October 29, 1999 (collectively
Verhagen) appeal from the Judgment entered on September 25, 2017,
by the Circuit Court of the Second Circuit (Circuit Court).1 The
Judgment was entered pursuant to the Circuit Court's "Findings of
Fact and Conclusions of Law; Order Granting Plaintiff's Motion
for Summary Judgment and for Interlocutory Decree of Foreclosure
Filed January 31, 2017" (Summary Judgment Order) also entered on
September 25, 2017.
1
The Honorable Rhonda I.L. Loo presided.
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On appeal, Verhagen argues the Circuit Court erred in
granting summary judgment in favor of Plaintiff-Appellee U.S.
Bank Trust, N.A., as Trustee for LFS9 Master Participation Trust
(U.S. Bank), when there were genuine issues of material fact as
to whether U.S. Bank had standing to bring a foreclosure action
against Verhagen.
Upon careful review of the record and the briefs
submitted by the parties and having given due consideration to
the arguments advanced and the issues raised by the parties, as
well as the relevant legal authorities, we resolve Verhagen's
points of error as follows, and we vacate and remand.
I. Background
In its "Verified Complaint to Foreclose Mortgage" filed
on March 23, 2016 (Verified Complaint), U.S. Bank alleged that
Patrick Verhagen executed and delivered an Adjustable Rate Note
(Note) dated September 24, 2007, to original lender Washington
Mutual Bank, F.A. (Washington Mutual). The Verified Complaint
further asserted that "[U.S. Bank] is the current holder of the
Note with standing to prosecute the instant action by virtue of
the blank indorsement to the Note, which thereby converted the
Note to a bearer instrument, and because [U.S. Bank] is in
possession of the indorsed in blank Note." The Verified
Complaint also asserted that the Note was secured by a Mortgage,
dated September 24, 2007, in favor of Washington Mutual, and that
the Mortgage was subsequently assigned to JP Morgan Chase Bank
(JPMorgan) via an assignment recorded on November 24, 2014, and
then assigned to U.S. Bank via an assignment recorded on July 31,
2015.2
Attached to the Verified Complaint is a "Verification
to Foreclosure Complaint" executed by Julia Jackson (Jackson), an
"Authorized Signatory" of Caliber Home Loans, Inc. (Caliber),
which "has the contractual right and responsibility to service
2
The Assignment of Mortgage recorded on November 24, 2014 states that
the Mortgage was assigned by the Federal Deposit Insurance Corporation, as
receiver of Washington Mutual, to JPMorgan.
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the Loan on behalf of [U.S. Bank]." Jackson's verification
states, in relevant part, that she reviewed the Verified
Complaint and "hereby confirm[s] the factual accuracy of the
statements contained therein to the best of my knowledge," that
she has "verified and hereby confirm[s] possession of the
original Note by Plaintiff," and that "[t]he Note is indorsed in
blank, which thereby converted the Note to a bearer instrument."
On January 31, 2017, U.S. Bank filed a motion for
summary judgment and attached, inter alia, a declaration by
Alyssa Salyers (Salyers), a "Foreclosure Document Specialist II"
employed by Caliber. Verhagen opposed the summary judgment
motion, asserting, inter alia, that U.S. Bank failed to establish
possession of the original Note when U.S. Bank filed the Verified
Complaint, and thus failed to establish standing under Bank of
Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361, 390 P.3d 1248
(2017)(Reyes-Toledo I). On September 25, 2017, the Circuit Court
entered the Summary Judgment Order and the Judgment, from which
Verhagen appealed.
II. Discussion
In order to establish a right to foreclose, the
foreclosing plaintiff must establish standing, or entitlement to
enforce the subject note, at the time the action was commenced.
Reyes-Toledo, 139 Hawai#i at 367-70, 390 P.3d at 1254-57. As
expressed by the Hawai#i Supreme Court,
a foreclosing plaintiff must 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," as well as prove
entitlement to enforce the defaulted upon note.
Bank of America, N.A. v. Reyes-Toledo, 143 Hawai#i 249, 263-64,
428 P.3d 761, 775-76 (2018) (quoting Reyes-Toledo I, 139 Hawai#i
at 367-68, 390 P.3d at 1254-55) (format altered).
Moreover, 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 to the matters contained within
the declaration. Wells Fargo Bank, N.A. v. Behrendt, 142 Hawai#i
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37, 44, 414 P.3d 89, 96 (2018) (citing U.S. Bank N.A. v. Mattos,
140 Hawai#i 26, 30, 398 P.3d 615, 619 (2017); Hawai#i Rules of
Civil Procedure Rule 56(e); Rules of the Circuit Courts of the
State of Hawai#i Rule 7(g)). Inadmissible evidence "cannot serve
as a basis for awarding or denying summary judgment." Id.
(quoting Haw. Cmty. Fed. Credit Union v. Keka, 94 Hawai#i 213,
221, 11 P.3d 1, 9 (2000)).
In the context of foreclosures, the Hawai#i Supreme
Court has addressed whether an employee of a business that
receives records from another business can be a "qualified
witness" to establish a sufficient foundation for admission of
such records under Hawaii Rules of Evidence (HRE) Rule
803(b)(6).3 Mattos, 140 Hawai#i at 30-33, 398 P.3d at 619-622;
Behrendt, 142 Hawai#i 37, 44-46, 414 P.3d 89, 96-98; Nationstar
Mortgage LLC v. Kanahele, 144 Hawai#i 394, 402-404, 443 P.3d 86,
94-96 (2019). In Mattos, the Hawai#i Supreme Court relied on the
analysis in State v. Fitzwater, 122 Hawai#i 354, 365-66, 227 P.3d
520, 531-32 (2010), stating:
Fitzwater addressed the admissibility of business documents
authenticated by an employee of another business, stating:
A person can be a "qualified witness" who can
authenticate a document as a record of regularly
conducted activity under HRE Rule 803(b)(6) or its
federal counterpart even if he or she is not an
3
HRE Rule 803(b)(6) states:
Rule 803 Hearsay exceptions; availability of
declarant immaterial. The following are not excluded
by the hearsay rule, even though the declarant is
available as a witness:
. . . .
(b) Other exceptions.
(6) Records of regularly conducted activity. A
memorandum, report, record, or data
compilation, in any form, of acts, events,
conditions, opinions, or diagnoses, made in
the course of a regularly conducted
activity, at or near the time of the acts,
events, conditions, opinions, or diagnoses,
as shown by the testimony of the custodian
or other qualified witness[.]
(Emphasis added).
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employee of the business that created the document, or
has no direct, personal knowledge of how the document
was created. As one leading commentator has noted:
... [sic] The phrase "other qualified witness" is
given a very broad interpretation. The witness need
only have enough familiarity with the record-keeping
system of the business in question to explain how the
record came into existence in the ordinary course of
business. The witness need not have personal
knowledge of the actual creation of the documents or
have personally assembled the records. In fact, the
witness need not even be an employee of the
record-keeping entity as long as the witness
understands the entity's record-keeping system.
There is no requirement that the records have been
prepared by the entity that has custody of them, as
long as they were created in the regular course of
some entity's business.
The sufficiency of the foundation evidence depends in
part on the nature of the documents at issue.
Documents that are "standard records of the type
regularly maintained by firms in a particular industry
may require less by way of foundation testimony than
less conventional documents proffered for admission as
business records."
Thus, an employee of a business that receives records
from another business can be a qualified witness who
can establish a sufficient foundation for their
admission as records of the receiving business under
HRE Rule 803(b)(6).
Mattos, 140 Hawai#i at 32, 398 P.3d at 621 (quoting Fitzwater,
122 Hawai#i at 366, 227 P.3d at 532).
Subsequently, as further explained in Behrendt:
The court in Mattos held that a witness may be qualified to
provide the testimony required by HRE Rule 803(b)(6) even if
the witness is not employed by the business that created the
document or lacks direct, personal knowledge of how the
document was created. Id. "There is no requirement that
the records have been prepared by the entity that has
custody of them, as long as they were created in the regular
course of some entity's business." Id. (quoting State v.
Fitzwater, 122 Hawai#i 354, 366, 227 P.3d 520, 532 (2010)).
The witness, however, must have enough familiarity with the
record-keeping system of the business that created the
record to explain how the record was generated in the
ordinary course of business. Id.
Records received from another business and incorporated into
the receiving business' records may in some circumstances be
regarded as "created" by the receiving business. Id.
Incorporated records are admissible under HRE Rule 803(b)(6)
when a custodian or qualified witness testifies that the
documents were incorporated and kept in the normal course of
business, that the incorporating business typically relies
upon the accuracy of the contents of the documents, and the
circumstances otherwise indicate the trustworthiness of the
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document. See id.; Fitzwater, 122 Hawai#i at 367-68, 227
P.3d at 533-34.
142 Hawai#i at 45-46, 414 P.3d at 97-98 (emphasis added).
Here, neither the verification by Jackson, the
declaration by Salyers, nor the supplemental declaration by
Patterson, contain the necessary foundation to support admission
of the Note under Mattos, Behrendt or Kanahele to establish that
U.S. Bank had possession of the Note when it commenced this
foreclosure action, as required by Reyes-Toledo I.
In her verification, which was attached to the Verified
Complaint, Jackson asserted "I have verified and hereby confirm
possession of the original Note by [U.S. Bank][,]" and that "the
Note is indorsed in blank[.]" However, Jackson does not
establish she is a qualified witness under HRE Rule 803(b)(6) for
admission of the Note. In terms of her qualifications to admit
the Note, Jackson's verification states only that she is
"employed as a[n] Authorized Signatory by [Caliber], and that:
2. I have access to and am familiar with Caliber's
books and records regarding the Loan, including Caliber's
servicing records and copies of the applicable loan
documents. I am familiar with the manner in which Caliber
maintains its books and records, including computer records
relating to the servicing of the Loan. Caliber's records
are made at or near the time of the occurrence of the
matters set forth in such records, by an employee or
representative with knowledge of the acts or events
recorded. Such records are obtained, kept and maintained by
Caliber in the regular course of Caliber's business.
Caliber relies on such records in the ordinary course of its
business.
Jackson's verification does not state that she is a custodian of
records for Caliber. Further, her verification does not
demonstrate that she has "enough familiarity with the
record-keeping system of the business that created the record to
explain how the record was generated in the ordinary course of
business." Behrendt, 142 Hawai#i at 45, 414 P.3d at 97; Mattos,
140 Hawai#i at 32-33, 398 P.3d at 621-22. Thus, Jackson's
verification fails to establish that she is a "qualified witness"
for purposes of admitting the Note under the HRE Rule 803(b)(6).
The Salyers Declaration, attached in support of U.S.
Bank's summary judgment motion, likewise does not establish that
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Salyers is a custodian of records for Caliber or a qualified
witness with regards to admitting the Note. Salyers, a
"Foreclosure Document Specialist II" employed by Caliber, attests
in pertinent part:
2. I have access to and am familiar with Caliber's
books and records regarding the Loan, including Caliber's
servicing records and copies of the applicable loan
documents. I am familiar with the manner in which Caliber
maintains its books and records, including computer records
relating to the servicing of the Loan. Caliber's records
are made at or near the time of the occurrence of the
matters set forth in such records, by an employee or
representative with knowledge of the acts or events
recorded. Such records are obtained, kept and maintained by
Caliber in the regular course of Caliber's business.
Caliber relies on such records in the ordinary course of its
business. Caliber's records include and incorporate records
for the Subject Loan obtained from JPMorgan Chase Bank, N.A.
("Prior Servicer"), the prior loan servicer for the Subject
Loan. The records obtained by Caliber from the Prior
Servicer are kept and maintained by Caliber in the ordinary
course of its business for the purpose of maintaining an
accounting of payments received, expenses incurred, and
amounts advanced with regard to the Subject Loan, and such
records are relied upon by Caliber in the regular course of
its business.
However, Salyers does not attest to being familiar with the
record-keeping system of Washington Mutual or JP Morgan. See
Behrendt, 142 Hawai#i at 45-46, 414 P.3d at 97-98; Mattos, 140
Hawai#i at 32-33, 398 P.3d at 621-22.
Finally, even the Supplemental Declaration by Melinda
Patterson (Patterson), an "Authorized Officer" employed by
Caliber, fails to establish under Mattos and Behrendt that she is
a custodian of records or a qualified witness for purposes of
admitting the Note as evidence pursuant to HRE Rule 803(b)(6).
Patterson attests, in pertinent part:
2. I have access to and am familiar with Caliber's
books and records regarding the Loan, including Caliber's
servicing records and copies of the applicable loan
documents. I am familiar with the manner in which Caliber
maintains its books and records, including computer records
relating to the servicing of the Loan. Caliber's records
are made at or near the time of the occurrence of the
matters set forth in such records, by an employee or
representative with knowledge of the acts or events
recorded. Such records are obtained, kept and maintained by
Caliber in the regular course of Caliber's business.
Caliber relies on such records in the ordinary course of its
business. Caliber's records include and incorporate records
for the Loan obtained from JPMorgan Chase Bank, N.A. ("Prior
Servicer"), the prior loan servicer for the Loan. The
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records obtained by Caliber from the Prior Servicer are kept
and maintained by Caliber in the ordinary course of its
business for the purpose of maintaining an accounting of
payments received, expenses incurred, and amounts advanced
with regard to the Loan, and such records are relied upon by
Caliber in the regular course of its business. The
information regarding the Loan transferred to Caliber from
the Prior Servicer has been validated in many ways,
including, but not limited to, going through a due diligence
phase, review of hard copy documents, and review of the
payment history and accounting of other fees, costs, and
expenses charged to the Loan by Prior Servicer. It is
Caliber's regular practice, after these phases are complete,
to receive records from prior servicers and integrate these
records into Caliber's business records at the time of
acquisition. Once integrated, Caliber maintains and relies
on these business records in the ordinary course of its
mortgage loan servicing business.
Like Jackson and Salyers, Patterson does not attest to being
familiar with the record-keeping system of JP Morgan (the prior
servicer) or Washington Mutual (which purportedly created and
indorsed the Note in blank).
Without the required foundation for admission of the
Note, Patterson's assertion that U.S. Bank, or its counsel
Aldridge Pite, LLP (Aldridge Pite), was in possession of the
original Note when this action was filed does not meet the
requirements under Reyes-Toledo I, Mattos, or Behrendt. Further,
Patterson's reliance on an "Attorney's Bailee Letter Agreement"
(Attorney Bailee Letter) signed by Caliber "Authorized
Signatory," Jennifer Williams, and a representative from Aldridge
Pite, is similarly unhelpful in establishing the requirements
under Reyes-Toledo I. As noted, there is not sufficient basis to
admit the Note, and further, the Attorney Bailee Letter was
executed approximately nine months after U.S. Bank commenced the
foreclosure action.
In light of the admissible evidence in the record, U.S.
Bank failed to demonstrate that it was in possession of the
original, blank indorsed Note at the time this action was
commenced. We need not address Verhagen's other arguments,
including his contention that the blank indorsement on the Note
by Cynthia A. Riley was fraudulent.
Viewing the facts and inferences in the light most
favorable to Verhagen, as we must for purposes of reviewing a
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summary judgment ruling, Reyes-Toledo, 139 Hawai#i at 371, 390
P.3d at 1258, there is a genuine issue of material fact as to
whether U.S. Bank had standing and was entitled to enforce the
subject Note when this foreclosure action was commenced. Thus,
under Reyes-Toledo I, Mattos and Behrendt, U.S. Bank has not met
its initial burden to show that it was entitled to summary
judgment for the decree of foreclosure.
III. Conclusion
Based on the foregoing, the Judgment and the "Findings
of Fact and Conclusions of Law; Order Granting Plaintiff's Motion
for Summary Judgment and for Interlocutory Decree of Foreclosure
Filed January 31, 2017," both entered on September 25, 2017, by
the Circuit Court of the Second Circuit, are vacated. This case
is remanded to the Circuit Court for further proceedings.4
DATED: Honolulu, Hawai#i, July 20, 2020.
On the briefs: /s/ Lisa M. Ginoza
Chief Judge
Gary Victor Dubin,
Frederick J. Arensmeyer, /s/ Derrick H.M. Chan
for Defendants-Appellants. Associate Judge
David B. Rosen, /s/ Keith K. Hiraoka
David E. McAllister, Associate Judge
Justin S. Moyer,
for Plaintiff-Appellee.
4
On remand, the parties may need to address the Hawai #i Supreme
Court's "Order Regarding Foreclosure or Non-Judicial Foreclosure Related
Actions: Certification of Compliance With the Coronavirus Aid, Relief, and
Economic Security Act in Foreclosures," issued on June 26, 2020.
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