Kim v. JP Morgan Chase Bank N.A. (In re Kim)
| Decision Date | 28 April 2020 |
| Docket Number | No. 18-1186,18-1186 |
| Parties | In re: ALEXANDER N. KIM; LAURA J. FOSTER, Debtors. ALEXANDER N. KIM; LAURA J. FOSTER, Appellants, v. JP MORGAN CHASE BANK N.A.; DOUGLAS E. LARSON, Chapter 7 Trustee, Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
(D. Colo.)
ORDER AND JUDGMENT*Before HOLMES, MURPHY, and PHILLIPS, Circuit Judges.
Seeking a substantial windfall, Alexander Kim and Laura Foster, a married couple, argue that JP Morgan Chase Bank cannot enforce a promissory note that Kim signed in return for a $2,000,000 loan. Their lone reason: the original promissory note is nowhereto be found. During Kim and Foster's bankruptcy proceedings, the bankruptcy judge sided with Chase, concluding that Chase could enforce the promissory note, even though the original is lost, because Chase had satisfied the elements of Colorado's lost-instrument statute. Agreeing that Chase can enforce the promissory note under the lost-instrument statute, we hold that Chase presented admissible evidence in the bankruptcy proceedings to show that it constructively possessed the original promissory note when it was lost, that it had the right to enforce the promissory note at that time, and that Chase did not transfer the promissory note to its attorney. Accordingly, we affirm the bankruptcy court's dismissal of Kim and Foster's objection to Chase's proof of claim.
On February 22, 2008, Kim obtained a $2,000,000 construction loan from Washington Mutual Bank so that he and Foster could construct a 10,000 square-foot building with an on-site commercial kitchen for their catering business in Carbondale, Colorado. Kim signed a promissory note (Note), pledging to pay $2,000,000 plus interest to Washington Mutual, and he and Foster executed a deed of trust covering the business's property (except the water rights) to secure the Note. Washington Mutual indorsed the Note in blank, meaning Washington Mutual'sindorsement did not identify a specific person "to whom it ma[de] the instrument payable." Colo. Rev. Stat. Ann. § 4-3-205(a)-(b) (West 2020).1
In 2008, in the midst of the housing-market crash that spurred the Great Recession, Washington Mutual failed, leading the Office of Thrift Supervision to shutter it. The Office of Thrift Supervision appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver of Washington Mutual and its assets.
On September 25, 2008, Chase and the FDIC agreed to a Purchase and Assumption Agreement through which Chase would purchase "certain assets" that Washington Mutual held. App. vol. 3 at 745. Section 3.3 of the Purchase and Assumption Agreement requires that conveyances under the agreement "be made, as necessary, by receiver's deed or receiver's bill of sale." App. vol. 8 at 1968 (capitalization removed). Through the Purchase and Assumption Agreement, Chase alleges that it "purchased all of [Washington Mutual's] mortgage loans," including Kim's Note. Appellee Chase's Answer Br. 4 (). Kim and Foster dispute whether Chase purchased the Note, asserting that no evidence shows that the FDIC ever executed a receiver's deed or a receiver's bill of sale.
Whatever the case, Chase eventually sent Kim and Foster notice that it "was [now] the servicer" for the Note. App. vol. 3 at 745. Kim and Foster then began sending Chase checks that were made payable to Washington Mutual.
Like Washington Mutual, Kim and Foster began experiencing financial difficulties of their own, and on September 21, 2010, they filed for bankruptcy under Chapter 11 of the Bankruptcy Code. See 11 U.S.C. §§ 1101-1195 (2018). Around this time, they defaulted on the Note. On November 12, 2010, Chase filed in the bankruptcy case a proof of claim,2 which Chase amended on February 27, 2013. The bankruptcy court then converted the bankruptcy into a Chapter 7 Bankruptcy, see 11 U.S.C. §§ 701-784 (2018), a conversion that Kim and Foster attribute to "numerous errors by [the] initial bankruptcy attorneys." Appellants' Opening Br. 8.3
With new counsel in place, on March 5 and 12, 2014, Kim and Foster sent letters to Chase requesting to see the original Note. Chase did not immediately respond. Instead, on March 28, 2014, Chase filed a motion with the District Court of Eagle County, Colorado, seeking to foreclose under the deed of trust and sell Kim and Foster's property.
During the state-foreclosure proceedings, Kim and Foster served discovery requests on Chase, demanding that Chase produce the original Note. Chase opposed those discovery requests and filed a motion to strike discovery. At a second status conference, Chase admitted that as of June 10, 2014, it "was not currently in possession of the original [Washington Mutual] Note." App. vol. 3 at 746. Chase never produced the original Note at further state proceedings and eventually filed a motion to withdraw its earlier motion seeking foreclosure.
The case then returned to the bankruptcy court, where Kim and Foster filed a motion for examination under Federal Rule of Bankruptcy Procedure 2004. This motion allows an examination into "the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor's estate, or to the debtor's right to a discharge." Fed. R. Bankr. P. 2004(b). Kim and Foster claimed a right to discharge Chase's claim, so they served subpoenas on Chase and sought production of the original Note.
On July 6, 2015, Chase produced thousands of document pages but did not provide the original Note. On July 30, 2015, the bankruptcy court entered an order setting the matter for a hearing and ordered Chase to bring the original Note. At thehearing, Chase failed to produce the Note and admitted that it was not in possession of the original.
At the bankruptcy judge's invitation, Kim and Foster filed a motion for sanctions, and they also filed an objection to Chase's proof of claim. Chase opposed the objection, arguing that even though the Note was lost, Chase was still a holder entitled to enforce the Note. Before ruling on these matters, the bankruptcy court held a two-day evidentiary hearing.
On June 21 and 22, 2016, the bankruptcy court heard the parties' evidence. The key witness was a "mortgage banking research officer," Marilyn Lea. App. vol. 7 at 1785:24-25.
Lea testified that, as a mortgage-banking research officer, she "review[ed] loans that are in litigation." Id. at 1786:1-2. She explained that she had reviewed Chase's business records and that she had oftentimes testified in Chase's legal proceedings. Though she did not actively manage customer-service accounts, she was "very familiar with their processes and [had] been trained in [them]." Id. at 1786:8-15. At the time of the hearing, Lea had been working for Chase for over seven years.
Lea testified that even though she was primarily involved with Chase's litigation matters, she had personally "create[d] a few" business records for them. Id. at 1787:25-1788:2. She stated that she would "pull summaries and reports out of the business records" and "make notations" in a computer system about "appearancesthat are coming up." Id. at 1788:3-6. She also stated that she "review[ed] Chase's business records on an ongoing basis every day." Id. at 1793:10-14.
Lea admitted that Chase no longer possessed the original Note. She testified that Chase had sent the Note to its foreclosure counsel to commence foreclosure proceedings against Kim and Foster. Even though Chase usually would have required its counsel to sign and return a bailee's letter establishing that he was holding the original Note, Lea conceded that Chase had no such letter in its business records. She explained that Chase had not implemented its practice of requiring bailee's letters "until after this original note was sent out." Id. at 1789:2-3.
Kim and Foster's counsel then asked Lea about the Purchase and Assumption Agreement, specifically, whether Chase held in its business records the "receiver's deed or bill of sale" that the Purchase and Assumption Agreement required when the FDIC conveyed certain assets to Chase. Id. at 1790:4-19. She testified that such a deed or bill was not in Chase's system, although Chase did have the assignment of a deed of trust.
Lea knew little about the original Note: she had never handled it or spoken with Chase's foreclosure counsel about it. Nonetheless, through Lea, the bankruptcy judge admitted under Federal Rule of Evidence 803(6) numerous exhibits concerning the Note, with the following limiting instruction: "[They are] admitted as a business record contained in the records of Chase Bank and establish[] that and nothing further." Id. at 1832:25-1833:1.
After the two-day evidentiary hearing, the bankruptcy court issued a written order, which apparently rested on only Lea's testimony and two exhibits that the parties had introduced.4 First, the court relied on Exhibit L and Lea's testimony about Exhibit L to determine that Chase had possessed the original Note in September 2009. Second, the court may have relied on Exhibit M and Lea's testimony about Exhibit M to find that Chase had lost the Note "sometime after the May 12, 2010 transmission of the original documents to Chase's prior attorney." App. vol. 5 at 1127 n.23.
Exhibit L is a print-out of a screenshot of the Note's scanned first page. It contains computer data showing that it had been scanned into Chase's system on September 17, 2009. The computer data on the print-out shows that the owner was "WAMU" (Washington Mutual). The Note itself shows that the borrower (Kim) promised to pay the lender (Washington Mutual) $2,000,000, plus interest. Lea testified that the print-out proved ...
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