Deep Keel, LLC v. Atl. Private Equity Grp., LLC

• Citation: 413 S.C. 58,773 S.E.2d 607
• Decision Date: 17 June 2015
• Docket Number: Appellate Case No. 2013–002281.,No. 5320.,5320.
• Court: Court of Appeals of South Carolina
• Parties: DEEP KEEL, LLC, Respondent, v. ATLANTIC PRIVATE EQUITY GROUP, LLC, Terry L. Rohlfing, Jerry T. Caldwell, and Bluffton Village Town Center Property Owners' Association, Inc., Defendants, Of Whom Atlantic Private Equity Group, LLC, Terry L. Rohlfing, and Jerry T. Caldwell are the Appellants.

413 S.C. 58

773 S.E.2d 607

DEEP KEEL, LLC, Respondent

v. ATLANTIC PRIVATE EQUITY GROUP, LLC, Terry L. Rohlfing, Jerry T. Caldwell, and Bluffton Village Town Center Property Owners' Association, Inc., DefendantsOf Whom Atlantic Private Equity Group, LLC, Terry L. Rohlfing, and Jerry T. Caldwell are the Appellants.

Appellate Case No. 2013–002281.

No. 5320.

Court of Appeals of South Carolina.

Heard April 16, 2015.

Decided June 17, 2015.

Keating L. Simons, III, Simons & Dean, of Charleston, for appellants.

Charles S. Altman and Meredith L. Coker, Altman & Coker, LLC, both of Charleston, for respondent.

Opinion

FEW, C.J.

Atlantic Private Equity Group, LLC defaulted on a promissory note personally guaranteed by Terry L. Rohlfing and Jerry T. Caldwell. The master-inequity ordered foreclosure of the mortgage securing the note and entered a deficiency judgment against Atlantic. On appeal, Atlantic challenges the master's admission of evidence on authentication and hearsay grounds. We affirm the judgment of foreclosure because we find the loan documents upon which the judgment was based were properly admitted into evidence. However, we reverse the deficiency judgment because the testimony of the amount remaining due on the note was hearsay. In addition, we vacate the master's finding that Rohlfing and Caldwell were liable on the guaranties because the finding was outside the scope of the order of reference. We remand for further proceedings.

I. Facts and Procedural History

On March 27, 2008, Atlantic executed a promissory note to Community First Bank for a commercial loan in the amount of $2,000,000. The note was secured by a mortgage on two parcels of real estate in Beaufort County. Rohlfing and Caldwell executed personal guaranties to ensure payment of the note. When Atlantic defaulted, Community First brought a foreclosure action against Atlantic and breach of guaranty claims against Rohlfing and Caldwell. It sought deficiency judgments against all three. While the action was pending, Community First merged with Crescent Bank and became known as CresCom Bank, which later assigned the loan to the respondent, Deep Keel, LLC.

Atlantic, Rohlfing, and Caldwell filed a joint answer in which they admitted Community First made a loan to Atlantic, the loan was secured by a mortgage, and “not all monthly payments have been timely made.” However, they denied Deep Keel was entitled to foreclosure or a deficiency judgment.

The circuit court referred the case to the master “for the purposes of adjudicating the foreclosure action.” The order of reference provided that upon resolution “of the foreclosure action, this case is to be returned to the Circuit Court for final hearing and disposition as to any issues triable by jury against [Rohlfing and Caldwell].” At the beginning of the foreclosure hearing, the master acknowledged Deep Keel's breach of guaranty claims against Rohlfing and Caldwell “would be heard in a separate action.”

To support its claim for foreclosure, Deep Keel offered into evidence six documents (the “loan documents”) through its sole member—Scott Bynum—to establish the existence and terms of the loan. Atlantic objected, arguing the loan documents were inadmissible because (1) Deep Keel failed to authenticate them and (2) they contained hearsay to which no exception applied. The master overruled the objections and admitted the loan documents.

Deep Keel attempted to establish the amount remaining due on the loan through Bynum's testimony. The testimony was based on documentation Bynum received from CresCom Bank at the time the loan was assigned, but Deep Keel did not offer those documents into evidence. Atlantic objected on hearsay grounds, and the master overruled its objection.

The master ordered foreclosure of the mortgage, found there was $1,655,027 remaining due on the note, and granted Deep Keel a deficiency judgment against Atlantic.¹ Although the master returned the case to the circuit court as the order of reference directed, the foreclosure order included a finding that Rohlfing and Caldwell “executed and delivered ... personal Guaranties” and were “liable for a limited principal amount of $350,000.”

II. Admission of Loan Documents

Atlantic disputes the admissibility of the loan documents, which include (1) a promissory note; (2) a mortgage; (3) an assignment of leases, rents, and profits;² (4) a loan modification agreement dated April 2009; (5) a loan modification agreement dated May 2010; and (6) a partial release of mortgage and assignment of leases, rents, and profits. Atlantic argues Deep Keel failed to properly authenticate these loan documents, and they contained inadmissible hearsay. We address these two arguments separately.

A. Authentication

A party offering evidence must meet “[t]he requirement of authentication ... as a condition precedent to admissibility.” Rule 901(a), SCRE. The authentication requirement “is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims.” Id. “[T]he burden to authenticate ... is not high” and requires only that the proponent “offer[ ] a satisfactory foundation from which the jury could reasonably find that the evidence is authentic.”

United States v. Hassan, 742 F.3d 104, 133 (4th Cir.2014) (decided under Fed.R.Evid. 901(a)³ ); see also 29A Am. Jur. 2d Evidence § 1045 (2008) (“The authentication requirement does not demand that the proponent of ... evidence conclusively demonstrate [its] genuineness....”).

We find Deep Keel offered evidence sufficient to authenticate the loan documents. First, Bynum's testimony complied with Rule 901(b)(1), SCRE, which provides that evidence may be authenticated by a witness with knowledge who testifies that an item “is what it is claimed to be.” Bynum testified he agreed to purchase a note from CresCom Bank, he examined the loan documents while negotiating the agreement, and the loan documents offered in evidence were the ones he examined and later received pursuant to this transaction. This testimony authenticated the loan documents because it was sufficient to support a finding that they were the documents Deep Keel claimed them to be—the note, mortgage, and assignment of leases executed by Atlantic in 2008 when it borrowed the money from Community First; the two loan modification agreements “modify[ing] the original note”; and a partial release of the security interests granted through the mortgage and assignment of leases. See Rule 901(a).

Atlantic argues, however, Bynum was not a witness with knowledge under Rule 901(b)(1) because he did not know “when, how, or by whom the documents were prepared, how they came to be in the possession of CresCom Bank, or how they were maintained by that bank.” The authentication requirement does not demand this degree of proof. See Hassan, 742 F.3d at 133. Bynum's testimony demonstrated he had personal knowledge that the loan documents admitted into evidence were the same ones CresCom Bank provided to him when Deep Keel purchased the asset the loan documents represent—the 2008 note, as modified, with security interests.

This is sufficient evidence to meet the Rule 901(a) requirement of authentication.

Second, Deep Keel authenticated the loan documents under Rule 901(b)(4), SCRE, which provides that evidence may be authenticated based on “[a]ppearance, contents, substance, internal patterns, or other distinctive characteristics, taken in conjunction with circumstances.” The note the master admitted into evidence (1) names Atlantic as the “Borrower”/“Mortgagor” and Community First as the “Lender,” (2) states $2,000,000 as the amount of the loan, (3) provides the date of execution—March 27, 2008, and (4) recites a specific “loan number” of 145003387. The mortgage—which was recorded in the public record⁴ —contains the same information, including the loan number. The specific and distinctive information on the face of the note, considered in connection with the mortgage, is sufficient to support a finding that the note was the one Atlantic executed in 2008. See Kershaw Cnty. Bd. of Educ. v. U.S. Gypsum Co., 302 S.C. 390, 398, 396 S.E.2d 369, 373–74 (1990) (finding admission proper under “the principle articulated in Fed. R. Evidence 901(b)(4) ” where “[a]n examination of the[ ] documents establishes that [they] relate to the same subject, are internally consistent, [and] often refer to or answer each other”);⁵ 59A C.J.S. Mortgages § 991 (2009) (stating when promissory notes “correspond on their face with those recited in the mortgage, no further proof of their execution [or] their identity is required until defendant presents countervailing evidence”); 59A C.J.S. Mortgages § 987 (2009) (stating a note “is admissible when sufficiently identified as the one recited or referred to in the mortgage” (footnote omitted)). The remaining loan documents each refer to the note and mortgage and, importantly, (1) name Atlantic and Community First as the parties to the transaction, (2) state the same principal amount of the loan—$2,000,000, (3) specifically reference the date March 27, 2008, and (4) recite the same loan number found on the note and mortgage. These facts are sufficient to support a finding that the loan documents were the documents Deep Keel claimed them to be. See Rule 901(a).

Third, we find the first five loan documents—excluding the partial release—are self-authenticating under Rule 902(9), SCRE, which provides, “Extrinsic evidence of authenticity as a condition precedent to admissibility is not required with respect to ... [c]ommercial paper, signatures thereon, and documents relating thereto to the extent provided by general commercial law.” The note is commercial paper, and the other four loan documents are either commercial paper themselves or “documents relating thereto.”⁶ Id. Each of the five documents bears the signature of Terry L. Rohlfing.

The “general commercial law” of South Carolina includes our Uniform Commercial Code, see S.C.Code Ann. §...