Bryant v. Bosco Credit Trust II Trust Series 2010-1

• Decision Date: 16 September 2020
• Docket Number: Civil Action No. 3:19-CV-1227-K
• Parties: John Wiley BRYANT and Janet Elizabeth Bryant, Appellants, v. BOSCO CREDIT TRUST II TRUST SERIES 2010-1, Appellee.
• Court: U.S. District Court — Northern District of Texas

621 B.R. 113

John Wiley BRYANT and Janet Elizabeth Bryant, Appellants,

v.BOSCO CREDIT TRUST II TRUST SERIES 2010-1, Appellee.

Civil Action No. 3:19-CV-1227-K

United States District Court, N.D. Texas, Dallas Division.

Signed September 16, 2020

Rosa R. Orenstein, Nathan M. Nichols, Orenstein Law Group PC, Dallas, TX, for Appellants.

Stephen Weikai Wu, Mackie Wolf Zientz & Mann PC, Dallas, TX, for Appellee.

MEMORANDUM OPINION AND ORDER

ED KINKEADE, UNITED STATES DISTRICT JUDGE

Appellants John Wiley Bryant and Janet Elizabeth Bryant appeal from two orders of the United States Bankruptcy Court for the Northern District of Texas, Dallas Division in Appellants’ Chapter 11 bankruptcy proceeding. The Court has carefully reviewed the parties’ briefing, the applicable law, and the appellate record. For the following reasons, the Court AFFIRMS the Bankruptcy Court's orders overruling Appellants’ Claim Objection to Appellee's Proof of Claim.

I. Factual and Procedural Background

On August 20, 1999, Appellants John Wiley Bryant and Janet Elizabeth Bryant (collectively, "Appellants") signed an original promissory note ("Original Note") for $99,590.02 in favor of Certified Funding Corporation ("CFC") on their homestead property. That same date, Appellants executed a Deed of Trust in favor of CFC. On November 8, 2008, Appellants executed a loan modification agreement ("Loan Modification") with Franklin Credit Management Corporation ("Franklin").

At some point, Appellants became delinquent on their payments. After learning of a foreclosure attempt, Appellants filed a Voluntary Petition for bankruptcy protection under Chapter 11 on February 6, 2017. A Proof of Claim ("Proof of Claim") was filed by Franklin, as servicer, on behalf of Appellee Bosco Credit II Trust Series 2010-1 ("Bosco"), as creditor, for a total amount of $157,518.33 based on the Original Note. Appellants filed a Claim Objection ultimately asserting four grounds:

(1) no documentation was submitted with the Proof of Claim to prove Bosco was the current owner of the debt;

(2) no sufficient documentation was submitted by Franklin either to Appellants or with the Proof of Claim to establish it had authority to act for Bosco;

(3) the Proof of Claim did not reflect all payments made by or credits due to Appellants; and

(4) if Bosco's Proof of Claim was determined to be secured, any amounts for post-petition interest and attorneys’ fees should be disallowed.

The Bankruptcy Court for the Northern District of Texas ("Bankruptcy Court") held a hearing on March 21, 2019 on Appellants’ Claim Objection. Both sides presented argument, evidence, and witnesses. On April 16, 2019, the Bankruptcy Court issued its Memorandum Opinion and Order in which it found:

(1) Bosco's Proof of Claim was entitled to prima facie validity, the presumption of which Appellants failed to rebut, therefore the Proof of Claim was allowed; (2) alternatively, even if the Proof of Claim was not entitled to prima facie validity, Bosco was entitled to enforce the Original Note as a nonholder in possession, which Appellants did not rebut;

(3) the Deed of Trust secured Bosco's claim;

(4) Franklin had authority as Bosco's servicer to file the Proof of Claim for Bosco; and

(5) Appellants’ objection to post-petition interest and attorneys’ fees was not ripe.

Appellate Record, Vol. 1, 6-14 (Doc. No. 2-1). For those reasons, the Bankruptcy Court overruled Appellants’ objection entirely and found Bosco's Proof of Claim was allowed as filed. On April 25, 2019, the Bankruptcy Court entered its Order Overruling [Appellants’] Amended Objection to Claim of Bosco Credit II Trust Series 2010-1 C/O Franklin Credit Management Corporation. Id. , 15-16.

Appellants filed their Notice of Appeal with this Court appealing both Bankruptcy Court orders that overruled their Claim Objection. The parties filed their respective appellate briefs which are currently before the Court.

II. Applicable Legal Standards

In an appeal from a bankruptcy court, the district court applies the same standard of review used by federal appellate courts. This Court reviews the bankruptcy court's factual findings for clear error, with proper deference to the bankruptcy court's opportunity to make credibility determinations. See In re Dennis , 330 F.3d 696, 701 (5th Cir. 2003). "A finding of fact is clearly erroneous only if ‘on the entire evidence, the court is left with the definite and firm conviction that a mistake has been committed.’ " Id. (quoting In re Perez , 954 F.2d 1026, 1027 (5th Cir. 1992) ). The Court reviews the bankruptcy court's conclusions of law de novo. In re Dennis , 330 F.3d at 701. The bankruptcy court's evidentiary rulings are reviewed under an abuse of discretion standard. In re Repine , 536 F.3d 512, 518 (5th Cir. 2008).

A proof of claim that complies with Federal Rule of Bankruptcy Procedure 3001 "shall constitute prima facie evidence of the validity and amount of the claim." FED. R. BANKR. P. 3001(f) ; accord In re O'Connor , 153 F.3d 258, 260 (5th Cir. 1998). A party objecting to the claim must present "evidence of equal or greater probative force to that of the proof of claim to refute some aspect of the proof of claim." In re Gulley , 436 B.R. 878, 893 (Bankr. N.D. Tex. 2010) ; see In re O'Connor , 153 F.3d at 260. If the objecting party succeeds in satisfying its burden, the burden then shifts to the claimant whichever party would have the burden of proof respecting the claim outside the bankruptcy will bear that burden in bankruptcy. In re Armstrong , 320 B.R. 97, 102-03 (Bankr. N.D. Tex. 2005) ; accord In re O'Connor , 153 F.3d at 260 ; In re Gulley , 436 B.R. at 893.

III. Issues on Appeal

Appellants raise five issues on appeal. First, Appellants argue the Bankruptcy Court erred by applying the wrong legal standard in determining that Franklin had standing to submit the Proof of Claim for Bosco. Second, Appellants contend the Bankruptcy Court erred in overruling Appellants’ Claim Objection and allowing the Proof of Claim because the evidence of the debt attached thereto was not the debt alleged to be owed to Bosco. Next, Appellants argue the Bankruptcy Court erred in finding Bosco's Proof of Claim was secured because there was no evidence that Bosco was the owner of the Note. In their fourth argument, Appellants contend the Bankruptcy Court erred in allowing Bosco's post-petition interest and attorneys’ fees because no such evidence was presented. Finally, Appellants assert the Bankruptcy Court abused its discretion in allowing a custodian of records for Franklin to testify when no such witness had been identified by Bosco and the witness was not a custodian of records for Bosco.

A. Franklin's Standing to File Proof of Claim for Bosco

Appellants contend the Bankruptcy Court erred in applying the wrong legal standard in determining Franklin, as servicer, had standing to file the claim for Bosco, the creditor. Appellants argue that that Bosco did not prove it was entitled to enforce the Original Note and also that Bosco failed to prove Franklin was its servicer so to establish Franklin had standing to file Bosco's Proof of Claim. Bosco contends that it was entitled to enforce the Original Note and that it did provide evidence of its servicing relationship with Franklin, thereby establishing Franklin had standing to file Bosco's Proof of Claim.

In their brief, Appellants state that the Bankruptcy Court relied upon the following in finding Franklin had standing to file Bosco's Proof of Claim: (1) "Ms. Holt's status as a lawyer for Franklin"; (2) "Ms. D'Elia’s testimony that Bosco authorized Franklin to service [Appellants’] loan and ‘to file the Claim on Bosco's behalf’ "; and (3) " Gulley v. Countrywide Home Loans, Inc. , 436 B.R. 878, 892 (Bankr. N.D. Tex. 2010) for the proposition that a note servicer is not required to show its agency status in order to file a proof of claim." Citing a Ninth Circuit opinion, Appellants contend that "[a] purported servicer of a note must show that it is an authorized agent of an entity that has the right to enforce the note." Applying this standard, Appellants submit a two-pronged attack on the Bankruptcy Court's finding that Franklin had standing. First, Appellants claim there is a complete of lack of evidence of Bosco's right to enforce the Original Note or even the Loan Modification. Next, Appellants contend that Bosco did not prove Franklin was its authorized agent.

The Court turns first to the argument that there was no evidence Bosco had the right to enforce the Original Note (or Loan Modification). The Bankruptcy Court found Bosco's Proof of Claim was entitled to prima facie validity and that Appellants did not meet their burden of rebutting this presumption. Although Appellants claim to have "successfully rebutted any prima facie evidence of the Claim," they fail to identify the rebuttal evidence they presented which satisfied their burden of presenting evidence "at least equal in probative force to that offered by the proof of claim and which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency." In re Leverett , 378 B.R. 793, 799 (Bankr. E.D. Tex. 2007). Appellants did not sufficiently rebut the presumption of prima facie validity, so the burden did not shift back to Bosco to prove its claim. Therefore, Bosco has a right to payment under the Proof of Claim as filed on the Original Note.

Even so, the Bankruptcy Court also found, in the alternative, that Bosco met its burden to establish its right to enforce the Original Note as a nonholder in possession. Texas law clearly provides that a party may prove it is entitled to enforce an instrument even if it is not "a nonholder in possession of the instrument who has the rights of a holder." TEX. BUS. & COM. CODE § 3.301 ; see Manley v. Wachovia Small Bus. Capital , 349 S.W.3d 233, 240 (Tex. App.—Dallas 2011). This includes a party "that acquired rights of a holder ... under Section 3.203(a)."...