Midfirst Bank, SSB v. CW Haynes & Co., Inc.
| Decision Date | 03 October 1994 |
| Docket Number | Civ. A. No. 3:93-1862-17. |
| Citation | 893 F. Supp. 1304 |
| Court | U.S. District Court — District of South Carolina |
| Parties | MIDFIRST BANK, SSB, an Oklahoma Savings and Loan Association, as Agent for the Government National Mortgage Association, Plaintiff, v. C.W. HAYNES & COMPANY, INC. a South Carolina Corporation; and First Citizens Bank & Trust Company of South Carolina, a South Carolina Corporation, Defendants. |
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William H. Hensel, Richardson, Plowden, Grier & Howser, Columbia, SC, Richard B. Noulles, Gable & Gotwals, Tulsa, OK, for plaintiff.
Michael W. Tighe, Louis H. Lang, Callison, Tighe, Robinson & Anastasion, Columbia, SC, Dominic Sokolsky, Tulsa, OK, for defendants.
This action involves a dispute regarding the ownership of, and right to proceeds payable under, seventeen mortgage notes originally executed in favor of defendant C.W. Haynes & Company, Inc. ("Haynes") as mortgagee. The mortgage notes were secured by mortgages on the mortgagors' residences, all of which are located in South Carolina. Haynes sold the mortgage notes to Inland Mortgage Company ("Inland") who thereafter placed the mortgage notes in a "pool" of mortgage loans backing a security to be issued by Inland and guaranteed by the Government National Mortgage Association ("GNMA") under its mortgage backed securities program.
This action was initiated in the United States District Court for the northern District of Oklahoma and then transferred to this district where it was initially assigned to the Honorable Dennis Shedd. The case was thereafter transferred to the undersigned District Judge for a resolution of the cross motions for summary judgment that had been filed. The motions were extensively briefed by both sides and the court heard two and one-half hours of oral argument on September 17, 1994.
For the reasons discussed below, the plaintiff's motion for summary judgment is granted, and the defendants' motion for summary judgment is denied.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). It is well established that summary judgment should be granted "only when it is clear that there is no dispute concerning either the facts of the controversy or the inferences to be drawn from those facts." Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir.1987).
The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view the evidence before it and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). When the defendant is the moving party and the plaintiff has the ultimate burden of proof on an issue, the defendant must identify the parts of the record that demonstrate the plaintiff lacks sufficient evidence. The non-moving party, here the plaintiff, must then go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The essential facts in this case are uncontroverted. Prior to October, 1990, Haynes originated the 17 mortgage loans at issue in this case. Pursuant to a repurchase agreement, Haynes sold the mortgage notes to First-Citizens Bank & Trust Company of South Carolina ("First Citizens") pending Haynes' resale of them to a permanent investor. No assignment of these mortgages was recorded at this time. In early October Haynes agreed to sell the mortgage loans to Inland through a broker. Haynes then retrieved the original mortgage notes from First-Citizens, indorsed them, and sent them to Inland. Haynes also sent Inland copies of the assignment of each mortgage dated October 15, 1990 and stamped: "Certified True Copy of Original to be Filed for Recording Upon Funding."
Without paying Haynes for the mortgage loans, on October 25, 1990, Inland placed the mortgage loans in a pool of mortgages to obtain a Government National Mortgage Association ("GNMA") mortgage-backed security. On that same day, Inland sent the mortgage documents (indorsed in blank) to Bank of America, the document custodian, who then examined the documents and certified to GNMA that they complied with GNMA regulations. Included in the documents was an executed original Form HUD-11711B signed by an Inland officer certifying to GNMA that:
No mortgage in the referenced pool or loan package is now subject to any security agreement between the issuer and any creditor, and upon the release (delivery) of securities backed by the pool or loan package, only GNMA will have any ownership interest, other than nominal title, in and to the pooled mortgages.
The Custodial Agreement between Inland and Bank of America provided that Bank of America was to hold the mortgage notes on behalf of GNMA.
Inland and GNMA entered into a Guaranty Agreement which specified that it became effective on November 1, 1990, the "issue date" for the security. Pursuant to the Guaranty Agreement, Inland transferred and assigned to GNMA all of its right, title, and interest in and to the mortgages backing the security, effective on the date of the delivery of the GNMA guaranteed security. In return, GNMA guaranteed the timely payment of the principal and interest set forth in the security to be issued under the Guaranty Agreement.
On October 26, 1990, Chemical Bank (GNMA's agent for approving the issuance of GNMA guaranteed securities) received a list of the loans pooled, Inland's certification, Bank of America's certification, and the required forms. After approving issuance of the security, Chemical Bank prepared the security documents and released it to the Participants Trust Company (recipient of all book-entry GNMA securities) on November 9, 1990.
In late October, Gary Shepard, an employee at HUD's Tulsa, Oklahoma office, met with Gary Wilhite and Candy Cody, Inland employees. Wilhite and Cody told Shepard that they had been asked to certify false mortgagor payment histories on two or three loans submitted by Inland to HUD for FHA insurance. Shepard relayed this information to Steve Kottman with HUD's FHA Monitoring Division. Kottman scheduled an on-site Monitoring Division review of Inland for November 13-16, 1990. On November 13 or 14, 1990, Kottman learned that Inland was placing mortgage loans in GNMA pools without having paid for them. Consequently, on October 16, 1990, GNMA declared Inland in default.1
On December 27, 1990, GNMA directed Bank of America to turn over to GNMA all documents held by Bank of America under its custodial agreement with Inland. GNMA delivered these documents to Mid-First which services mortgage pools of defaulted GNMA issuers. GNMA assigned the mortgage loans to Mid-First for the purposes of collecting, receiving, and enforcing the mortgage loans for the benefit of GNMA.
Pursuant to the Guaranty Agreement, GNMA has made full and timely payment of all principal and interest payments due to the purchasers of the GNMA guaranteed security issued by Inland.
Haynes and First-Citizens obtained a judgment against Inland for $1,045,632.19 of which they have received $50,000. Mid-First commenced this suit claiming that it owns the mortgages and the proceeds payable thereunder. Haynes and Mid-First counter-claimed, asserting that they own the mortgages.
As will be seen, the date on which the security was delivered by GNMA is of significance in determining whether GNMA qualifies as a holder in due course of the mortgage notes. For this reason, before the court may properly address the substantive legal issues presented, it is necessary to decide a threshold evidentiary issue. Haynes argues that the records of Participants Trust Company ("PTC") (which establish the actual delivery date of the security as November 9, 1990), are inadmissible hearsay. Haynes asserts that the records of PTC are replications of information sent to it by Chemical Bank.
Federal Rule of Evidence 803(6) provides an exception to the hearsay rule for the following:
A ... record, or data compilation, in any form, of acts, events ... made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the ... record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.
Chemical Bank and PTC have a contractual arrangement whereby Chemical Bank provides PTC with the data shown on the transaction journal which is input for PTC by Chemical Bank's employees. Mr. Celifarco with PTC testified that PTC's computer records were based entirely on the records of Chemical Bank and that he did not know how Chemical Bank's computer records were produced. Mr. Celifarco's deposition reveals that PTC relies on the data in the ordinary course of its business, that the record was made at or near the time of the transaction, that the record was transmitted by a person with knowledge, and that it is the regular practice of PTC to make these records.
Mid-First argues that the transaction journal meets the requirements of Rule 803(6) regardless of whether it was prepared by a PTC employee or a Chemical Bank employee. Business records of an entity are admissible even though another entity made the records, and the...
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