U.S. Bank Natl. Assn. v. George

[Cite as U.S. Bank Natl. Assn. v. George, 2016-Ohio-7788.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
U.S. Bank National Association, :
as Trustee, Successor in Interest to
Wachovia Bank, National Association as :
Trustee for Wells Fargo Asset Securities
Corporation, Mortgage Pass-Through : No. 14AP-817
Certificates, Series 2003-D, (C.P.C. No. 12CV-13226)
:
Plaintiff-Appellee, (REGULAR CALENDAR)
:
v.
:
Douglas K. George et al.,
:
Defendants-Appellants,
:
Westbury Homeowners'
Association, Inc. et al., :
Defendants-Appellees. :
D E C I S I O N
Rendered on November 17, 2016
On brief: Thompson Hine LLP, Scott A. King, and Terry W.
Posey, Jr., for appellee U.S. Bank National Association.
On brief: McGookey Law Offices, LLC, Daniel L.
McGookey, Kathryn M. Eyster, and Lauren E. McGookey,
for appellants.
ON MOTION FOR RECONSIDERATION
BRUNNER, J.
{¶ 1} Plaintiff-appellee, U.S. Bank National Association ("U.S. Bank"), as trustee,
successor in interest to Wachovia Bank, National Association ("Wachovia"), as trustee for
the Wells Fargo Asset Securities Corporation, mortgage pass-through certificates, series
2003-D (the "trust"), requests that we reconsider our decision issued December 3, 2015,
2
No. 14AP-817
reversing summary judgment by the Franklin County Court of Common Pleas in an action
filed against defendants-appellants, Douglas K. and Robin A. George, for the balance due
on a promissory note and to foreclose a mortgage against real property located at 7511
Windsor Drive, Dublin, Ohio 43016, which secured repayment of the note. For the
reasons stated in this decision, we overrule the motion for reconsideration.
I. FACTS AND PROCEDURAL HISTORY
{¶ 2} The crux of the motion for reconsideration is U.S. Bank's assertion that the
"[o]pinion did not address the evidence that U.S. Bank was a non-holder in possession
with the rights of a holder" and that because it did not do so, our decision contained
error. (Emphasis added.) (Dec. 14, 2015 Mot. for Recons. at 2.) We note from the record
that U.S. Bank argued the point in its brief but, on summary judgment before the trial
court, it argued standing generally and stated, "[p]laintiff contends that the right to
enforce the note * * * provides it with standing in the foreclosure case. A promissory note
is a negotiable instrument." (Mar. 18, 2014 Pl.'s Reply to Defs.' Memo. in Opp. to Mot. for
Summ. Jgmt. at 10.) It was more so the Georges in their memorandum contra summary
judgment who addressed U.S. Bank's late-emphasized contentions that they held standing
as a nonholder in possession with rights of a holder. In opposing summary judgment
before the trial court, the Georges cited and quoted from U.S. Bank, N.A. v. Coffey, 6th
Dist. No. E-11-026, 2012-Ohio-721, positing that U.S. Bank had to be either a holder of the
note or a nonholder with right of possession, and as such, they argued that U.S. Bank was
not a person entitled to enforce the note. (Mar. 7, 2014 Defs.' Memo. in Opp. to Pl.'s Mot.
for Summ. Jgmt. at 19.) We could question whether U.S. Bank's arguments in its brief on
its asserted standing as a nonholder in possession with rights of a holder can be the
subject of a motion for reconsideration. But, on a review of the record, we find that the
issue was tangentially argued before the trial court and we address the issue in this
decision on reconsideration.
{¶ 3} We have set forth the overall background facts of this case in detail in our
prior decision and refer to the details of that decision for a complete factual recitation.
U.S. Bank, N.A. v. George, 10th Dist. No. 14AP-817, 2015-Ohio-4957, ¶ 1-7 ("George I").
For clarity of discussion on our decision on U.S. Bank's motion for reconsideration, we
point to the facts salient to U.S. Bank's motion as they exist in paragraphs six and seven of
George I. The evidence documenting U.S. Bank's interest in the note for the Georges'
3
No. 14AP-817
debt that is secured by the mortgage on their property "is not identical to the note
attached to the complaint and the amended complaint * * *. In her affidavit, Jones
attested to this documentation by stating: 'Attached as exhibits hereto are copies of the
Note with any applicable indorsements and the Mortgage with any applicable
Assignments, a payment history and the demand letter, redacted solely to protect any
private, personal, financial information.' (Jones Affidavit, ¶ 9.)" Id. at ¶ 6.
{¶ 4} The copy of the note attached to Jones' affidavit contained the first
indorsement by M/I Financial Corp. ("M/I Financial") to Wells Fargo Home Mortgage,
Inc. ("WFHMI") but omitted the further indorsement to Wachovia and the allonge
bearing the indorsement to U.S. Bank. Attempting to correct the discrepancy, on
October 21, 2013, U.S. Bank filed a motion to incorporate in which its counsel stated that
"through inadvertence a full copy of the Promissory Note, which was attached to the
Complaint, was not attached to [U.S. Bank]'s Motion for Summary Judgment." According
to George I, U.S. Bank moved for an order "incorporating" the full copy. Id. at ¶ 7. The
motion to incorporate was granted by the trial court the same day it was filed. However,
while counsel stated that the full copy was attached to the motion to incorporate, the
supposed attachment is not in the record, and thus, nothing appears to have been
incorporated. Over the Georges' opposition, the trial court granted U.S. Bank's motion for
summary judgment.
{¶ 5} On appeal, the Georges asserted a single assignment of error:
The trial court erred in granting U.S. Bank's Motion for
Summary Judgment.
Id. at ¶ 1. We sustained this assignment for the reasons set forth in George I. The
Franklin County Clerk of Courts dispatched a notice regarding the entry of judgment
associated with the decision on December 3, 2015.
{¶ 6} On December 14, 2015, U.S. Bank filed a motion for reconsideration arguing
that we should reconsider certain aspects of George I.
II. MOTION FOR RECONSIDERATION
{¶ 7} A motion for reconsideration of a state court appellate decision is reviewed
for "whether the motion calls to the attention of the court an obvious error in its decision
or raises an issue for consideration that was either not considered at all or was not fully
4
No. 14AP-817
considered by the court when it should have been." Matthews v. Matthews, 5 Ohio
App.3d 140 (10th Dist.1981), paragraph two of the syllabus (construing App.R. 26).
{¶ 8} U.S. Bank argues that we did not address evidence that it was a nonholder
in possession with rights of a holder in George I. And specifically, U.S. Bank asserts that
the following evidence is undisputed: (1) on August 8, 2002, the Georges executed the
note and mortgage in favor of M/I Financial, citing the amended complaint and the
affidavit of Megan A. Jones at paragraph 3-4, attached to U.S. Bank's motion for summary
judgment, (2) on August 8, 2002, M/I Financial executed an assignment of mortgage to
WFHMI assigning the mortgage "together with the notes and indebtedness thereby
secured," citing exhibit D to the amended complaint, (3) on September 17, 2009, Wells
Fargo Bank, N.A., successor by merger with WFHMI, executed an assignment of the
mortgage to U.S. Bank, assigning the mortgage, "together with the Promissory Note
secured thereby and referred to therein, and all sums of money due," citing exhibit F to
the amended complaint, (4) at the time of filing the complaint through the dates of Jones'
affidavit, U.S. Bank alleges that, "directly or through an agent," it "had and has been in
possession of the Note," citing paragraph 5 of the Jones affidavit, and (5) the original note
was produced at a deposition of U.S. Bank's corporate representative, citing exhibit T to
the motion for summary judgment, the deposition of John McCray, at paragraph 32-33.
{¶ 9} U.S. Bank argues the Court's holding in George I that the evidence was
insufficient to show that U.S. Bank was a nonholder in possession and thereby was not
entitled to enforce its alleged interest in the note and mortgage, "ignored both the record
evidence and is legally incorrect." (Dec. 14, 2015 Memo. in Support of Mot. For Recons. at
5.) U.S. Bank went on to state in its motion that:
Under R.C. 1303.31(A)(2) , a "nonholder in possession of the
instrument who has the rights of a holder" can enforce the
instrument. Like holders, nonholders must have possession.
However, unlike holders (who need to only have possession),
nonholders must also have independent evidence of transfer
of the instrument by someone who had the right to transfer it.
R.C. 1303.22 .
(Emphasis sic.) Id. at 5-6.
{¶ 10} We agree with this statement of law, but, in applying it to the record, we
reject U.S. Bank's arguments that there was no material issue of fact that U.S. Bank was a
5
No. 14AP-817
party entitled to enforce the note on the basis that it was a "non-holder in possession with
the rights of a holder." Id. at 10. U.S. Bank requests that we adopt decisions from the
Eighth, Fifth, Twelfth and Second District Courts of Appeals that have "applied R.C.
1303.31(A)(2), finding that possession of the promissory note when combined with
evidence of a 'transfer' is sufficient to establish a party's status as a 'party entitled to
enforce,' under R.C. 1303.31." (Memo. in Support of Mot. for Recons. at 6.) Thereafter,
U.S. Bank cites R.C. 1303.22(B) containing language that, " '[t]ransfer of an instrument,
whether or not the transfer is a negotiation, vests in the transferee any right of the
transferor to enforce the instrument.' " Id. at 6-7. In reviewing U.S. Bank's arguments, we
find no basis to reverse our prior decision.
A. The Record
{¶ 11} U.S. Bank filed its complaint in the trial court as "U.S. Bank, National
Association, as Trustee, Successor in Interest to Wachovia Bank, National Association as
Trustee for the Wells Fargo Asset Securities Corporation, Mortgage Pass-Through
Certificates, Series 2003-D." (Oct. 19, 2012 Compl. at 1.) The original holder of the note
was M/I Financial who, on the date of its making (at the closing for the Georges' real
estate purchase of their home), indorsed the note to WFHMI. Thereafter, the note was
indorsed to Wachovia "[a]s Trustee under the pooling and servicing agreement dated * * *
February 26, 2003." (Ex. A at 5, Compl.) The allonge to the note was endorsed by Wells
Fargo Bank, N.A. as WFHMI's attorney in fact to U.S. Bank as "successor in interest to
Wachovia Bank * * * as trustee." (Emphasis omitted.) (Ex. A at 6, Compl.)
{¶ 12} That Wells Fargo Bank, N.A. was the survivor of a merger with WFHMI is
not established by the record. There is no certificate of merger between them appearing in
the record.1 See CitiMortgage, Inc. v. Guinther, 10th Dist. No. 12AP-654, 2013-Ohio-
4014, ¶ 16-20 (holding a merger certificate as sufficient evidence of a merger). The
Assignment of Mortgage, Jones' affidavit, Preliminary Judicial Report, and various
pleadings assert that Wells Fargo Bank, N.A. is the successor by merger to WFHMI, but
there is no evidentiary-quality material in the record such as a certificate of merger that
supports this. Nor does Jones in her affidavit establish personal knowledge of the merger.
Even though McCray insisted in his deposition that Wells Fargo Bank, N.A. was the
1 The Georges, in their memorandum in opposition to summary judgment, argued at length that summary
judgment should not be granted because Wells Fargo Bank, N.A. had failed to show evidence of a merger.
6
No. 14AP-817
successor to both WFHMI and Wachovia, he admitted that there were no documents in
the record to confirm this.
"[W]hen a merger between two companies occurs, one of
those companies ceases to exist: '[A] merger involves the
absorption of one company by another, the latter retaining its
own name and identity, and acquiring the assets, liabilities,
franchises and powers of the former. Of necessity, the
absorbed company ceases to exist as a separate business
entity.' " Acordia of Ohio, L.L.C. v. Fishel, 133 Ohio St.3d 345,
2012 Ohio 2297, ¶ 12, 978 N.E.2d 814 ("Acordia I"), quoting
Morris v. Invest. Life Ins. Co., 27 Ohio St.2d 26, 31, 272
N.E.2d 105 (1971). "[T]he absorbed company becomes a part
of the resulting company following merger [and] the merged
company has the ability to enforce * * * agreements as if the
resulting company had stepped in the shoes of the absorbed
company." Acordia of Ohio, L.L.C. v. Fishel, 133 Ohio St.3d
356, 2012 Ohio 4648, ¶ 7, 978 N.E.2d 823 ("Acordia II").
Moreover, "in accordance with R.C. 1701.82(A)(3) , all assets
and property, including employment contracts and
agreements, and every interest in the assets and property of
each constituent entity transfer through operation of law to
the resulting company postmerger." Acordia II at ¶ 3.
Fid. Tax, LLC v. Hall, 10th Dist. No. 12AP-923, 2013-Ohio-3165, ¶ 18; compare Guinther
at ¶ 18-19 with Beneficial Fin. I v. Gales, Franklin C.P. No. 14CVE-01-1799 (Oct. 2, 2015).
In the instance of a merger, in this case between WFHMI and Wells Fargo Bank, N.A., a
certificate of merger would help to prove the transfer of the right to enforce the Georges'
note in the entire chain of transfers from the original obligee to U.S. Bank. But the state of
the evidence in this case does not present a clear picture that U.S. Bank has the rights of a
holder.
{¶ 13} Even if McCray's testimony were sufficient evidence of the merger, which
we find that it was not, especially since U.S. Bank conceded in its reply on summary
judgment that McCray lacked personal knowledge, WFHMI had indorsed the Georges'
note to Wachovia as trustee under a pooling agreement before the date of the purported
merger between WFHMI and Wells Fargo Bank, N.A. (Pl.'s Reply to Defs.' Memo. in Opp.
to Mot. for Summ. Jgmt. at 6-7.) There was no evidence in the record (1) that Wells Fargo
Bank, N.A. was not bound by what WFHMI could have done regarding that transaction
and (2) of the effect of WFHMI's indorsement of the Georges' note to Wachovia as
7
No. 14AP-817
trustee; that is, whether WFHMI retained the ability to further negotiate and indorse the
note (and thus whether Wells Fargo Bank, N.A. had that power). And no evidence of the
terms of the pooling agreement appears in the record such that U.S. Bank could show it is
the holder of the Georges' note without the indorsement by the trustee Wachovia in favor
of U.S. Bank.
{¶ 14} U.S. Bank argued in its reply on summary judgment that the Georges lacked
standing "to challenge violations of the trust prospectus" and that "[c]ourts have
determined that pooling and servicing agreements concern mortgage loans, not
mortgages," citing Bank of N.Y. Mellon v. Baird, 2d Dist. No. 2012-CA-28, 2012-Ohio-
4975 (other citations omitted). We do not adhere to holdings that purport to prevent
foreclosure defendants from pointing out that a plaintiff's proof falls short of establishing
an entitlement to enforce.2 In having overruled LSF6 Mercury REO Invests. Trust Series
2008-1 v. Locke, 10th Dist. No. 11AP-757, 2012-Ohio-4499, in George I, we clarify this
point as part of our decision on U.S. Bank's motion for reconsideration. It is incumbent
on a party seeking to enforce a debt evidenced by a note and secured by a mortgage to
demonstrate with evidentiary-quality materials that it has standing in order to attain
2 An example of a holding we reject is:
[A] plaintiff mortgagor is not a party to, or beneficiary of, the agreement
that governs the trust to which the mortgagor's debt instrument has been
transferred and, therefore, does not have standing to challenge that
agreement. See, e.g., Nelson v. Bank of N.Y. Mellon, Civ. No. 12-1096
(SRN/SER), 2012 U.S. Dist. LEXIS 141277, 2012 WL 4511165, at *3 (D.
Minn. Oct. 1, 2012) ("Moreover, Plaintiffs were not parties to the pooling
and servicing agreements by which their notes were pooled into mortgage-
backed securities. They therefore do not have standing to challenge those
agreements.") (citation omitted); Anderson v. Countrywide Home Loans,
Civ. No. 10-2685 (MJD/JJG), 2011 U.S. Dist. LEXIS 45966, 2011 WL
1627945, at *4 (D. Minn. Apr. 8, 2011) ("Plaintiffs do not have standing to
challenge the validity of the assignment to the Trust because they are not
parties to the PSA."), Report and Recommendation adopted by 2011 U.S.
Dist. LEXIS 45957, 2011 WL 1630113, at *1 (D. Minn. Apr. 28, 2011);
Greene v. Home Loan Servs., Inc., Civ. No. 09-719 (DWF/JJK), 2010 U.S.
Dist. LEXIS 99222, 2010 WL 3749243, at *4 (D. Minn. Sept. 21, 2010)
("Even assuming this matter was adequately pleaded, which it was not,
Plaintiffs are not a party to the Pooling and Servicing Agreement and
therefore have no standing to challenge any purported breach of the rights
and obligations of that agreement.").
Rogers v. Bank of Am., N.A., D.Minn. No. 13-cv-1698 (July 1, 2014). See also, Bond v. Barrett Daffin
Frappier Turner & Engel, LLP, S.D.Tex. No. G-12-188 (Mar. 22, 2013), adopted by, motion granted by,
dismissed by Bond v. Barrett Daffin Frappier Turner & Engel, LLP, S.D.Tex. No. 3:12-cv-188 (Apr. 17,
2013).
8
No. 14AP-817
summary judgment in its favor. George I. Without evidentiary-quality materials
supporting the valid and continuous chain of transfers of the instrument on which relief is
based, there is no basis for a judgment. Here, U.S. Bank could not show that it was either
a holder or a nonholder with rights of possession because U.S. Bank has not shown a valid
and continuous chain of transfers linking it to the original obligee on the note.
{¶ 15} As we stated in George I, a valid transfer involves negotiation and
endorsement under the Uniform Commercial Code ("UCC").
Under Ohio law, the right to enforce a note cannot be
assigned; rather, the note must be negotiated in conformity
with Ohio's version of the Uniform Commercial Code. In re
Wells, 407 B.R. 873, 880 (N.D.Ohio 2009). See also HSBC
Bank USA, Natl. Assn. v. Surrarrer, 8th Dist. No. 100039,
2013-Ohio-5594, ¶ 17 (in order for one other than the payee
to enforce the note, the note must be negotiated to another
who then becomes the holder of the note). An attempt to
assign a note creates a claim to ownership, but does not
transfer the right to enforce the note. Wells at 880. An
assignment of a note may be by negotiation, pursuant to R.C.
1303.21 , or transfer pursuant to R.C. 1303.22 . "Negotiation"
requires transfer of possession of the instrument. R.C.
1303.21(A). The "transfer" of an instrument requires physical
delivery of the note "for the purpose of giving to the person
receiving delivery the right to enforce the instrument." R.C.
1303.22(A).
Wells Fargo Bank, N.A. v. Byers, 10th Dist. No. 13AP-767, 2014-Ohio-3303, ¶ 16. A
continuous chain of transfer shows a series of valid transfers between each and every
person entitled to enforce the note supported by evidentiary-quality proof for each person
so as not to break the chain.
{¶ 16} The Georges disputed that Wells Fargo Bank, N.A. was entitled to execute
the allonge and, thereby, disputed U.S. Bank as the note's holder, a material issue of fact
relating to U.S. Bank's standing. R.C. 1301.201(B)(21)(a) and former R.C.
1301.01(T)(1)(a) and (b). The issue of U.S. Bank's standing to bring the action was
9
No. 14AP-817
squarely addressed by both parties on summary judgment before the trial court.3 As we
stated in George I, Jones' affidavit was deficient. It did not specifically set forth the
transfers of the note and mortgage but, rather, addressed the transfers in the barest of
generalities with this language: " '[a]ttached as exhibits hereto are copies of the Note with
any applicable indorsements and the Mortgage with any applicable Assignments, * * *
redacted solely to protect any private, personal, financial information.' " George I at ¶ 6,
citing Jones' Aff. at ¶ 9. There existed in the record no certificate of merger, and the
testimony of McCray was not reliable evidence of such a merger. The record did not
support the authority of Wells Fargo Bank, N.A. to indorse the note indorsed to Wachovia
to U.S. Bank.
B. The Original Note
{¶ 17} U.S. Bank's contention that "the evidence was undisputed that U.S. Bank
had possession of the original Note" because it was putatively produced at deposition is
not established by our decision. (Memo. in Support of Mot. for Recons. at 7.) No
stipulations of the parties exist to support this assertion. What we did state in our
decision is that:
The trial court further relied on appellee's production of what
was represented as the original note at the Civ.R. 30(B)(6)
deposition of its representative, John McCray, with the
indorsements and allonges, as in the copies attached to its
pleadings. * * * A plaintiff moving for summary judgment in
a foreclosure action must submit evidentiary-quality
materials.
(Emphasis added.) George I at ¶ 17. At no point did we discuss in our decision whether
this evidence was disputed. Nor did we find in our de novo review that U.S. Bank had
possession of the original note. We cannot say whether the original note is in the record.
The affidavit of Jones identifying a note and mortgage is so oblique as to be nonspecific.
And there exists in the record unexplained discrepancies between the version of the note
attached to both the complaint and amended complaint and to Jones' affidavit in support
of the motion for summary judgment. The records custodian, McCray, at his deposition
had no knowledge of where the purported original note was kept. Nor could he testify to
3 "Plaintiff contends that the right to enforce the note * * * provides it with standing in the foreclosure case.
A promissory note is a negotiable instrument." (Pl.'s Reply to Defs.' Memo. in Opp. to Mot. for Summ. Jgmt.
at 10.)
10
No. 14AP-817
any semblance of a chain of custody as to how the purported original note came to be at
the deposition for his identification of it. He had no knowledge of when the allonge to the
note was made or how it came to be attached to what was purported to be the original
note. For U.S. Bank to state that our decision established that it was undisputed that U.S.
Bank had possession of the original note is not supported by either the record or the plain
language of our decision. It is a mischaracterization that, at best, pushes the envelope. It
would be impossible for the trial court or this Court to find from the record that (1) it is
undisputed that U.S. Bank had possession of the original note or that (2) U.S. Bank is a
holder of the Georges' note or a nonholder in possession with rights of a holder for the
purposes of granting summary judgment as U.S. Bank argues.
{¶ 18} In fact, the trial court erroneously made findings in its summary judgment
decision that were based on a failure to construe the evidence in a light most favorable to
the Georges as is required by Civ. R. 56(C) and controlling law. The trial court stated,
"[i]n the case at hand, the Court finds that Plaintiff has presented evidence that it is in
possession of the Note. * * * Finally, as stated above, Defendants were presented with the
original Note * * * during the deposition of Mr. McCray." (Aug. 15, 2014 Decision
Granting Pl.'s Mot. for Summ. Jgmt. at 7-8.) As noted earlier, the evidence showed, and
even U.S. Bank conceded, that McCray lacked personal knowledge as a mere keeper of the
records. In George I at ¶ 8 and in previous decisions, we have held that this type of
factfinding on summary judgment is not permitted. Rather:
In ruling on a motion for summary judgment, the court must
resolve all doubts and construe the evidence in favor of the
nonmoving party. Pilz v. Ohio Dept. of Rehab. & Corr., 10th
Dist. No. 04AP-240, 2004-Ohio-4040, P 8. See also Hannah
v. Dayton Power & Light Co., 82 Ohio St.3d 482, 485, 1998
Ohio 408, 696 N.E.2d 1044 (1998) ("Even the inferences to be
drawn from the underlying facts contained in the
evidentiary materials, such as affidavits and depositions,
must be construed in a light most favorable to the party
opposing the motion.")
(Emphasis added.) Deutsche Bank Natl. Trust Co. v. Thomas, 10th Dist. No. 14AP-809,
2015-Ohio-4037, ¶ 8. U.S. Bank's arguments on the original note lack merit.
11
No. 14AP-817
C. Whether U.S. Bank was a Holder of the Note or Was a Nonholder in
Possession of the Note with the Rights of a Holder
{¶ 19} Regardless whether U.S. Bank was able to prove that it had possession of
the original note, for U.S. Bank to qualify as a "holder" of the note (and thereby be a
person entitled to enforce the instrument as set forth in R.C. 1303.31(A)(1)), it must have
both possession of the note, and the note must be indorsed either in blank to the bearer or
specifically to the one presenting it (U.S. Bank). See former R.C. 1303.01(T)(1)(a) and (b)
(2002) (currently set forth in R.C. 1301.201(B)(21)(a)). U.S. Bank urges that we adopt a
holding that essentially permits a transferee of a note to gain the rights of a holder without
negotiation or indorsement and without other circumstances that by operation of law
would affect a transfer of a note from one holder to another (such as a merger) and
otherwise without separate negotiation and indorsement. Thus, U.S. Bank argues that
indorsement is not necessary to qualify as a holder and that mere possession alone is all
that is needed to qualify as a holder under R.C. 1303.31(A)(2) and 1301.201(B)(21)(a).
{¶ 20} U.S. Bank states correctly the proposition that a person entitled to enforce
an instrument, in addition to being a holder, can be " 'a nonholder in possession of the
instrument who has the rights of a holder.' " (Emphasis added.) (Memo. in Support of
Mot. for Recons. at 5, citing R.C. 1303.31(A)(2).) However, we cannot adopt U.S. Bank's
argument that it somehow becomes a "holder" of the Georges' note by operation of R.C.
1303.22(A) and (B). R.C. 1303.22(A) defines when a "transfer" occurs ("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"). R.C. 1303.22(B) provides that "[t]ransfer of
an instrument, whether or not the transfer is a negotiation, vests in the transferee any
right of the transferor to enforce the instrument, including any right as a holder in due
course."
{¶ 21} It appears that U.S. Bank conflates "transferee" with "holder" to leap-frog
over holes in the chain of transfer that are not supported in the record by evidentiary-
quality materials. Under either R.C. 1303.22(A) or (B), a transferee gets only what the
transferor had to give, no matter the intention or purpose of the transferor. R.C.
1303.22(A) does not magically transform a note's "transfer" to "rights of a holder." This
is especially true, since R.C. 1303.22(B) limits the rights of the transferee to the rights
held by the transferor. Thus, if Wells Fargo Bank, N.A. was not a "holder" or a "person
12
No. 14AP-817
entitled to enforce" the Georges' note, neither is U.S. Bank. R.C. 1303.22(B). Even
looking to R.C. 1303.31(B), where a transferee may have wrongly received the note (such
as a transferor purporting to transfer "right to enforce" it under R.C. 1303.22(A)), we
must consider other provisions of the UCC, such as R.C. 1301.304, which requires that
"[e]very contract or duty within Chapters 1301., 1302., 1303., 1304., 1305., 1307., 1308.,
1309., and 1310. of the Revised Code imposes an obligation of good faith in its
performance and enforcement."4
{¶ 22} U.S. Bank claims it is a nonholder in possession with the rights of a holder
(R.C. 1303.31(A)(2)) by means of Wells Fargo Bank, N.A.'s transfer of the Georges' note to
it, also based on its previously asserted interpretation of R.C. 1303.22(A) and (B). Under
no set of facts evidenced by the record can we find as a matter of law that U.S. Bank is
either a holder or a person entitled to enforce the Georges' note. U.S. Bank did not show
with evidentiary-quality materials that Wells Fargo Bank, N.A., one of the note's
purported predecessors in interest, was either a holder or a person entitled to enforce the
Georges' note. R.C. 1301.201(B)(21) (and former R.C. 1301.01(T)(1)(a) and (b))
specifically define "holder" as "[t]he person in possession of a negotiable instrument that
is payable either to bearer or to an identified person that is the person in possession." No
certificate of merger appears in the record between WFHMI and Wells Fargo Bank, N.A.
No evidence appears in the record of Wells Fargo Bank, N.A.'s authority to negotiate
(evidenced by indorsement of) the Georges' note from the Wachovia trust it had been
indorsed to by WFHMI before its merger with Wells Fargo Bank, N.A. There is
insufficient evidence in the record to support a finding that Wells Fargo, N.A. was a
"person entitled to enforce"5 the Georges' note, as a holder, or as a nonholder in
possession of the instrument who has the rights of a holder or otherwise. R.C. 1303.31(A).
{¶ 23} U.S. Bank further requests this Court to adopt its interpretation of R.C.
1303.22(A) and (B) in support of its claim that it gains the rights of a holder simply by a
4 R.C. 1301.304 applies to R.C. Chapter 1303, because R.C. 1303.01(D) acknowledges that, "[i]n addition,
Chapter 1301. of the Revised Code contains general definitions and general principles of construction and
interpretation applicable throughout this chapter."
5 R.C. 1303.31(A) defines a "[p]erson entitled to enforce" a negotiable instrument as a "holder," a
"nonholder in possession of the instrument who has the rights of a holder" or "[a] person not in possession
of the instrument who is entitled to enforce the instrument" because the instrument has been destroyed or
wrongfully executed by mistake, even if the person is not the owner of the instrument or is in wrongful
possession of the instrument. R.C. 1303.31(B).
13
No. 14AP-817
transfer—without negotiation and indorsement—of what is purported to be the Georges'
original note based on Wells Fargo Bank, N.A.'s purported status as a person entitled to
enforce the Georges' note. Were we to adopt U.S. Bank's argument, based on its
interpretation and application of R.C. 1303.22(A) and (B), the result would be to
eviscerate the Georges' and others' ability to challenge any transfers of the note and
mortgage in defense of an action to enforce a note and a foreclosure action in equity. Such
an interpretation misapplies the application of the UCC to the negotiation of the
instruments at issue. U.S. Bank's argument that Wells Fargo Bank, N.A.'s transfer to it did
not require negotiation and that the simple act of a physical transfer suffices to make U.S.
Bank a nonholder in possession with rights of a holder, is not supported by the record or
the UCC. If an instrument is payable to bearer, it may be negotiated by transfer of
possession alone. But the record is clear that the Georges' note is not a bearer note.
{¶ 24} Under U.S. Bank's theory, negotiation and indorsement no longer matter.
But under this theory, neither would the Uniform Commercial Code. Yet, U.S. Bank
argues UCC definitions support its contention that no negotiation is needed of the
Georges' note by Wells Fargo Bank, N.A. to U.S. Bank (even though it is not a bearer
note), arguing the definition of "parties." R.C. 1303.31(A)(2). "Parties" under the UCC are
persons that have "engaged in a transaction or made an agreement subject to Chapters
1301., 1302., 1303., 1304., 1305., 1307., 1308., 1309., and 1310. of the Revised Code."
R.C. 1301.201(B)(26). U.S. Bank uses the UCC on the one hand to exempt it from
negotiation of the Georges' note but ignores cardinal rules of Article 3 of the UCC on
entitlement to enforce a note. Simple transfer does not make one a holder or nonholder
in possession with rights of a holder status unless the note is a bearer note. In the face of
uncontroverted evidence that the Georges' note is not a bearer note, U.S. Bank's argument
fails.
{¶ 25} The UCC provides that, "[u]nless otherwise agreed, if an instrument is
transferred for value the transferee has a specifically enforceable right to the unqualified
indorsement of the transferor, but negotiation of the instrument does not occur until the
indorsement is made by the transferor." (Emphasis added.) R.C. 1303.22(C). There is
no evidence in the record that the transfer of the Georges' note between Wells Fargo
Bank, N.A. and U.S. Bank was not for value or that there was an agreement otherwise
14
No. 14AP-817
between U.S. Bank and Wells Fargo Bank, N.A. dispensing with it. There is no evidence in
the record that prior transfers of the note were not for value or that there was an
agreement otherwise between the transferring parties. Absent such evidence, there is a
specifically enforceable right of indorsement by the transferor for the subsequent
possessor to be entitled to enforce the note. And R.C. 1303.22(C) specifies that
negotiation occurs upon indorsement. No indorsements appear as between WFHMI and
Wells Fargo Bank, N.A. Even assuming their merger would dispense with the
requirement of negotiation and transfer, there is insufficient evidence of the merger.
Because WFHMI negotiated and indorsed the Georges' note to the Wachovia trust before
the alleged merger of WFHMI and Wells Fargo Bank, N.A., the evidence is insufficient to
support Wells Fargo Bank, N.A.'s status as a person entitled to enforce the Georges' note
or as a person entitled to negotiate and indorse it to U.S. Bank.
{¶ 26} Whether or not U.S. Bank proved it had possession of the original note, it
acknowledges that it also had to establish that it was either a holder of the note or a
nonholder in possession with rights of a holder. In attempting to meet its legal burden
under UCC Article 3 (R.C. Chapter 1303, and only UCC Article 3 is properly addressed by
the parties, there being no relevance here of UCC Article 9) to show its right to enforce the
note, U.S. Bank did not provide evidentiary-quality materials to the trial court to establish
its status of being either a holder or a person in possession of the note having the rights of
a holder. Summary judgment should not have been granted.
D. Transfer of the Note through Transfer of the Mortgage
{¶ 27} Because the language in at least one of M/I Financial's two separate
documents assigning the mortgage to WFHMI also included assignment of its rights in
the note to WFHMI, with assignment thereafter being made to U.S. Bank by "Wells Fargo
Bank, N.A. successor by merger to Wells Fargo Home Mortgage, Inc.," U.S. Bank argues it
is a nonholder in possession of the note with the rights of a holder by virtue of the
mortgage language. (Ex. E, Compl.) Thus U.S. Bank argues that the chain of assignments
of the mortgage resulted in assignment of the note. The Georges counter that Wells Fargo
Bank, N.A. had no authority to assign the mortgage on behalf of WFHMI based on
analogous arguments relating to the similar assignment of the note. U.S. Bank states that,
for the purposes of R.C. 1303.31(A)(2), "there did not need to be any indorsements of the
Note, but only evidence showing that U.S. Bank had possession of the Note and that M/I
15
No. 14AP-817
[Financial] and WFHMI transferred their rights [to the mortgage] to [U.S. Bank]."
(Emphasis sic.) (Memo. in Support of Mot. for Recons. at 7.) The UCC Article 3 analysis
we applied to the Georges' note applies to the Georges' mortgage as well. The evidence is
insufficient to support U.S. Bank's argument that the transfer of the mortgage occurred in
conformity with the UCC.
{¶ 28} Not only is the evidence insufficient to support U.S. Bank's argument, but
recent case law from the Supreme Court of Ohio precludes this argument as a matter of
law. In Deutsche Bank Natl. Trust Co. v. Holden, __ Ohio St.3d __, 2016-Ohio-4603, the
plaintiff in foreclosure argued similarly that, under the law, assignment of the mortgage
resulted in assignment of the note. As the Supreme Court stated in its decision:
The bank urges the court to adopt the approach of the
Restatement of the Law 3d , Property (Mortgages) and hold
that the right to enforce the note also follows from the
assignment of the mortgage securing it.
Id. at ¶ 16. The Supreme Court declined to adopt this, holding instead that "[w]e have
long recognized that an action for a personal judgment on a promissory note and an
action to enforce mortgage covenants are 'separate and distinct' remedies." Id. at ¶ 25,
citing Carr v. Home Owners Loan Corp., 148 Ohio St. 1 (1947). Speaking further, the
Supreme Court specifically negated that argument and specifically related it to standing.
Parties and courts have seized upon that "failed to establish an
interest in the note or mortgage" statement in [Fed. Home
Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-
Ohio-5017] as establishing that a plaintiff in a foreclosure
action must have an interest in either the note or the
mortgage at the time of filing in order to establish standing.
However, the "or" statement in Schwartzwald was a
description of the particular facts in that case rather than a
statement about the requisites of standing.
Holden at ¶ 31. Accordingly, in accord with the Supreme Court's decision in Holden, we
deny U.S. Bank's argument that the assignment of the mortgage affected the assignment
of the note.
16
No. 14AP-817
E. Whether the Court Properly Considered Whether U.S. Bank Was a
Nonholder in Possession with the Rights of a Holder
{¶ 29} U.S. Bank argues on reconsideration that the Georges "never argued that
U.S. Bank could not qualify as a nonholder in possession" and that "the evidence shows
that U.S. Bank was a nonholder in possession." (Memo. in Support of Mot. for Recons. at
10.) A nonholder in possession must have the rights of a holder. R.C. 1303.31(A)(2). In
sections D and E of their appellate brief, the Georges argued that U.S. Bank needed to
show that it had the rights of a holder, having failed to show evidence of the merger and
the terms of the trust. The Georges also argued, citing Coffey at ¶ 10, that U.S. Bank had
not demonstrated that it had obtained the right to enforce their note either as a holder or
a nonholder in possession. In fact, the Georges' argument before the trial court on this
point was even more specific than was U.S. Bank's. (Defs.' Memo. in Opp. to Pl.'s Mot. for
Summ. Jgmt. at 19.) U.S. Bank's argument in this vein lacks merit.
{¶ 30} Having reviewed U.S. Bank's motion for reconsideration, the Georges'
response, and U.S. Bank's reply, we remain unconvinced that we made an obvious error
or failed to fully consider an issue that should have been considered. Our decision in
George I did not establish that it was undisputed that U.S. Bank had the Georges' original
note. U.S. Bank's evidence fell short of proving that it was a nonholder in possession with
the rights of a holder such as would entitle it to summary judgment on the Georges' note
and mortgage. Moreover, U.S. Bank's conflicting evidence submitted on motion for
summary judgment as compared with its prior evidence in the record created a genuine
issue of a material fact—its standing to file suit on the note in the first instance, and to
thereafter seek its remedy on the mortgage in equity. The trial court erred in granting
summary judgment on the note and in foreclosure on the mortgage. U.S. Bank is not
entitled to summary judgment as to either.
III. CONCLUSION
{¶ 31} We overrule U.S. Bank's motion for reconsideration.
Motion for reconsideration denied.
HORTON, J., concurs.
DORRIAN, P.J., concurs in judgment only.
17
No. 14AP-817
DORRIAN, P.J., concurring in judgment only.
{¶ 32} I concur in judgment only with the majority's denial of reconsideration
because I believe that U.S. Bank waived the sole issue that it now argues on
reconsideration. Additionally, I respectfully write separately to disagree with certain
analyses contained in the majority opinion on reconsideration not necessary for
resolution of the issue raised.
{¶ 33} In order to recover on summary judgment, U.S. Bank had to prove that it
was the person entitled to enforce the Georges' note. Deutsche Bank Natl. Trust Co. v.
Holden, __ Ohio St.3d __, 2016-Ohio-4603, ¶ 2, 26-27, 33, 35. The Georges argued on
appeal that U.S. Bank failed to meet this burden. In response, U.S. Bank contended that it
qualified as the person entitled to enforce the Georges' note because either (1) it was the
holder of the note, or (2) it was "[a] nonholder in possession of the [note] who ha[d] the
rights of a holder." See R.C. 1303.31(A)(1) and (2). We held that, due to the existence of
genuine issues of material fact regarding which version of the note introduced by U.S.
Bank was the Georges' original note, U.S. Bank could not establish that it had status as
either the holder of the note or a nonholder in possession with the rights of a holder
(hereinafter "nonholder in possession"). U.S. Bank Natl. Assn. v. George, 10th Dist. No.
14AP-817, 2015-Ohio-4957, ¶ 16, 28, 33-34.
{¶ 34} Now, on reconsideration, U.S. Bank asserts that our decision did not fully
consider the evidence that it met the criteria necessary for it to qualify as a nonholder in
possession. This assertion does not provide a basis for reconsideration. U.S. Bank's
argument that it is a nonholder in possession deserves no consideration because U.S.
Bank waived that argument by not raising it before the trial court.
{¶ 35} As I pointed out in my separate opinion in George, a party who fails to raise
an argument in the trial court waives his or her right to raise that argument on appeal. Id.
at ¶ 43, fn. 9 (Dorrian, J., concurring in judgment only), citing Niskanen v. Giant Eagle,
Inc., 122 Ohio St.3d 486, 2009-Ohio-3626, ¶ 34. Consistent with my prior position, I
disagree with the majority's conclusion that U.S. Bank raised the argument below. Before
the trial court, U.S. Bank premised its right to enforce the Georges' note only on its
supposed status as the holder of that note. In their memorandum in opposition to
summary judgment, the Georges challenged U.S. Bank's proof that it qualified as a holder.
18
No. 14AP-817
Additionally, the Georges sua sponte attacked U.S. Bank's ability to prove that it was a
nonholder in possession. Despite this attack, U.S. Bank raised no contrary argument in
its reply brief. U.S. Bank, therefore, waived the argument that it qualified as a nonholder
in possession, and consideration of the same on appeal was neither warranted nor
necessary. Likewise, the waived argument does not present a reason for this court to
grant U.S. Bank reconsideration.
{¶ 36} Notwithstanding my conclusion that the issue is waived, I write this
separate concurrence, in part, to disagree with a section of the majority opinion on
reconsideration that I find particularly troubling in light of prior analyses by this court
and well-reasoned precedent from other courts. That section begins with the statement
that this court does not adhere to holdings that prevent homeowners from pointing out
that a bank's evidence fails to establish entitlement to enforce the note. (See majority
opinion on reconsideration at ¶ 14.) A footnote following this statement sets forth an
example of a holding, supposedly rejected by this court, that the majority concludes
prevents homeowners from pointing out a bank's evidence fails to establish entitlement to
enforce a note. In short, the holding rejected by the majority provides that when a
homeowner is not a party to, or beneficiary of, an agreement that governs the trust that
includes the homeowner's note, the homeowner does not have standing to challenge that
agreement.
{¶ 37} I disagree with the majority's assessment of the effect of the holding. A
homeowner's lack of standing to challenge a trust agreement (also known as a pooling and
servicing agreement or PSA) does not impede the homeowner from attacking a bank's
entitlement to enforce the note. Statutes—not trust agreements—set forth the criteria a
bank must prove to demonstrate that it is the person entitled to enforce the note. See R.C.
1301.201(B)(21); 1303.21; 1303.22; 1303.31. Consequently, whether a trust agreement is
valid, and whether the bank complied with the trust agreement, have no relevance in the
determination of whether the bank is the person entitled to enforce the note. Deutsche
Bank Natl. Trust Co. v. Sopp, 10th Dist. No. 14AP-343, 2016-Ohio-1402, ¶ 19; Logansport
Savs. Bank, FSB v. Shope, 10th Dist. No. 15AP-148, 2016-Ohio-278, ¶ 17-18. Contrary to
the implication in the majority opinion on reconsideration, the rejected holding does not
19
No. 14AP-817
prevent homeowners from pointing out that, under the law, a bank's evidence fails to
establish that it is the person entitled to enforce the note.
{¶ 38} Furthermore, the majority's rejection of the cited holding contravenes well-
reasoned law. See Dauenhauer v. Bank of N.Y. Mellon, 562 Fed.Appx. 473, 480 (6th
Cir.2014) ("Courts have consistently rejected borrowers' requests to have mortgage
assignments and foreclosures invalidated due to non-compliance with Pooling and
Servicing Agreement provisions, based on borrowers' lack of standing."); U.S. Bank Natl.
Assn. v. Aguilar-Crow, 7th Dist. No. 15 MA 0113, 2016-Ohio-5391, ¶ 67 ("Various courts
have concluded a debtor lacks 'standing' to challenge whether the transfer of the mortgage
loan to the trust complied with the pooling and servicing agreement."); HSBC Bank USA
Natl. Assocs. v. Sherman, 1st Dist. No. C-120302, 2013-Ohio-4220, ¶ 21 ("But [the
homeowner] is not a beneficiary under the PSA and has no right to claim that [the bank]
failed to comply with the terms of the PSA.").
{¶ 39} Finally, I note that the rejection of the cited holding is not necessary for
resolution of the sole issue raised on reconsideration. See George at ¶ 44 (Dorrian, J.,
concurring in judgment only).
{¶ 40} In sum, I agree that this court should deny U.S. Bank's application for
reconsideration, but for a different reason than the majority. Therefore, I respectfully
concur in judgment only.
____________________