Monty v. U.S. Bank, N.A.
| Decision Date | 21 October 2015 |
| Docket Number | Case No. 5:15-cv-97 |
| Court | U.S. District Court — District of Vermont |
| Parties | PETER A. MONTY, JR. and LYNNE M. MONTY, Appellants, v. U.S. BANK, N.A., as Trustee for J.P. Morgan Mortgage Acquisition Trust 2006-CW, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., BANK OF AMERICA, N.A., and SELECT PORTFOLIO SERVICING, INC., Appellees. |
(Doc. 1)
Debtors Peter A. Monty, Jr. and Lynne M. Monty appeal an April 16, 2015 Adversary Proceeding Order from the United States Bankruptcy Court for the District of Vermont granting summary judgment to U.S. Bank, N.A., as Trustee for J.P. Morgan Mortgage Acquisition Trust 2006-CW ("U.S. Bank"). The Montys contend that the Bankruptcy Court erred when it concluded that U.S. Bank has authority to enforce a promissory note against them. Defendants-Appellees maintain that the Bankruptcy Court's ruling should be affirmed as supported by the undisputed factual record and by the applicable law.
The court heard oral argument on September 16, 2015. For the reasons stated below, the Bankruptcy Court's April 16, 2015 Order is AFFIRMED.
Factual Background
The Bankruptcy Court found the following facts to be undisputed for summary judgment purposes. (Doc. 2-21 at 4-5.) The Montys are the owners of real property in Hinesburg, Vermont. On April 11, 2006, seeking to refinance the loan on that property, the Montys executed an adjustable rate promissory note (the "Note") in the amount of $221,650 in favor of Countrywide Home Loans, Inc. ("Countrywide"). The Note is indorsed in blank byCountrywide. No date appears next to the Note's blank indorsement. (See id. at 7.) Also on April 11, 2006, the Montys executed a mortgage (the "Mortgage") granting Mortgage Electronic Registration Systems (MERS), as nominee for Countrywide and its successors and assigns, a lien on the Montys' interest in the Hinesburg property to secure the Montys' obligations under the Note.
On March 1, 2006, prior to the date of the Montys' refinance, Countrywide executed a Master Mortgage Loan Purchase and Servicing Agreement. In that agreement, Countrywide sold to J.P. Morgan Acquisition Corp. all of Countrywide's right, title and interest, excluding servicing rights, in and to certain loans, including future loans. The agreement provides that after the sale of the loans is completed, a "collateral file" containing documents related to each loan, including the original mortgage note, will be delivered to the designated custodian.
On July 1, 2006, J.P. Morgan Acceptance Corp. I (as depositor), J.P. Morgan Acquisition Corp. (as seller), and U.S. Bank, N.A. (as Trustee), executed a Pooling and Servicing Agreement (the "PSA") establishing a mortgage loan trust called the J.P. Morgan Acquisition Trust 2006-CW2 (the "Trust"). Under the PSA, Countrywide was identified as the originator, and Countrywide Home Loans Servicing LP was designated as the servicer of the loans subject to the PSA. Also under the PSA, Wells Fargo Bank is the master servicer and securities administrator. The PSA provides that the Note is to be indorsed in blank or to U.S. Bank, as Trustee.
On April 17, 2006, the original indorsed Note was transferred to the custody of Bank of New York Mellon f/k/a JP Morgan Chase, as the document custodian for the Trust. On April 27, 2009, Countrywide Home Loans Servicing LP changed its name to BAC Home Loans Servicing, LP, and on July 1, 2011, BAC Home Loans Servicing, LP merged with and into Bank of America, N.A.
On December 30, 2011, the Montys filed a petition for relief under Chapter 13 of the Bankruptcy Code. As of that date, Bank of New York Mellon possessed the original collateral file containing the original Note indorsed in blank. On December 3, 2012, the proof of claim was filed on behalf of U.S. Bank, as Trustee for the Trust. A copy of the Note was attached to the proof of claim. Currently, Select Portfolio Servicing, Inc. ("SPS") is in possession of the original collateral file, including the original Note, as servicer for Trustee U.S. Bank.
Procedural History
The Montys commenced the adversary proceeding in the Bankruptcy Court in February 2013, challenging the validity of U.S. Bank's proof of claim. (Doc. 2-2.) They argued that U.S. Bank lacked standing to enforce the mortgage debt because U.S. Bank was not the "holder" of the Note secured by the Mortgage.1 In response, Defendants filed a motion for summary judgment, maintaining that there were no material facts in dispute and that U.S. Bank was entitled to judgment as a matter of law. (Doc. 2-11.) Defendants supported their motion with, among other things, an August 22, 2014 affidavit signed by a Document Control Officer for SPS. (Id. at 15-18.) The Montys opposed the motion (Doc. 2-12), Defendants filed a reply (Doc. 2-14), and the parties filed a joint pretrial statement (Doc. 2-13).
The Bankruptcy Court issued an Order making preliminary findings as to the scope of the issues. (Doc. 2-15.) Specifically, the Bankruptcy Court identified two issues for resolution of the Montys' "standing" claim: (1) whether the transferor was a "holder" entitled under the Vermont Uniform Commercial Code to enforce the Note on the date of the Montys' petition; and (2) whether U.S. Bank was entitled to enforce the Note on the date it filed a proof of claim. (Id. at 4.) The Bankruptcy Court invited the parties to supplement their filings to focus on those two issues. (Id.) Defendants subsequently filed a supplemental memorandum of law and supplemental statement of undisputed facts (Doc. 2-17 at 1-12), accompanied by a January 9, 2015 affidavit signed by Suzanne Johnstone (another Document Control Officer for SPS) (id. at 13-17), as well as several exhibits. The Montys filed a response, asserting that Ms. Johnstone's affidavit raised additional issues of material fact. (Doc. 2-18.) The parties also filedadditional supplemental memorandums. (Docs. 2-19; 2-20.) The Montys did not present any evidence in any of their filings opposing summary judgment.2
The Bankruptcy Court granted summary judgment to U.S. Bank in an Order dated April 16, 2015. (Doc. 2-21.) The Bankruptcy Court concluded that there were no disputes of material fact as to any of the issues bearing on U.S. Bank's ability to enforce the Note. (Id. at 6-9.) The Bankruptcy Court specifically concluded that any dispute over whether the Montys' loan was transferred pursuant to the March 1, 2006 PSA was not material because the Defendant's manner of obtaining possession of the Note is not material, so long as the Defendant had possession of the indorsed Note as of the petition date. (Id. at 6.) This appeal followed.
Analysis
Under 28 U.S.C. § 158(a)(1), "district courts . . . have jurisdiction to hear appeals . . . from final judgments, orders, and decrees" of bankruptcy courts. "Under Federal Rule of Civil Procedure 56, applicable in adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, a court 'shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'" In re Kran, 760 F.3d 206, 209 (2d Cir. 2014). "[W]here a party relies on affidavits or deposition testimony to establish facts, the statements 'must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.'" DiStiso v. Cook, 691 F.3d 226, 230 (2d Cir. 2012) (quoting Fed. R. Civ. P. 56(c)(4)). The district court "review[s] the bankruptcy court's findings of fact for clear error and its conclusions of law de novo." Id. (alteration in original) (quoting In re Cacioli, 463 F.3d 229, 234 (2d Cir. 2006)).
On appeal, the parties do not dispute the standard for establishing the right to enforce a promissory note. As the Bankruptcy Court observed, the Bankruptcy Code does not specify the requirements for enforcing a promissory note. (Doc. 2-21 at 4.) "In the absence of specific requirements in the Code, bankruptcy courts look to applicable nonbankruptcy law, usually state law." (Id.)
Vermont's version of the Uniform Commercial Code (UCC) applies to instruments like promissory notes, and describes a "[p]erson entitled to enforce" an instrument in pertinent part as "the holder of the instrument." 9A V.S.A. § 3-301. A "holder" is defined in relevant part as "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession." Id. § 1-201(21)(A). As the Bankruptcy Court summarized: "In the context of bankruptcy, a party must demonstrate it was a holder on the date of the bankruptcy petition in order to be entitled to file a proof of claim alleging a secured claim in real property . . . ." (Doc. 2-21 at 4.)3
On appeal, the Montys argue that the Bankruptcy Court "erred when it relied on Defendant's Affidavit, without more, to grant Defendants' Motion for Summary Judgment and determine that the Note was in possession of claimant on the date the petition was filed [December 30, 2011] and that it had, in fact, been indorsed on the date the petition was filed." (See Doc. 3 at 8.) The Montys acknowledge that Defendants supplied the affidavits of SPS document control officers asserting that the Montys' loan was deposited into the Trust.4 And on the issue of whether the Note was indorsed prior to the December 30, 2011 petition, the Montys acknowledge that Ms. Johnstone states in her January 9, 2015 affidavit that she had reviewed the loan records for the Monty Loan (including a "Bank of America Home Loan Instance Summary"), which showed "that the original indorsed note was transferred to the custody of Bank of New York Mellon f/k/a JP Morgan Chase on April 17, 2006 as the document custodian for the Trust." (Doc. 2-17 ...
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