In re: Toni Marie Griffin

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: April 6, 2012
• Docket: WW-11-1362-HKiJu
• Status: Unpublished

Opinion

FILED APR 06 2012 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. WW-11-1362-HKiJu ) 6 TONI MARIE GRIFFIN, ) Bk. No. 11-13327 ) 7 Debtor. ) ______________________________) 8 ) PETER H. ARKISON, Chapter 7 ) 9 Trustee, ) ) 10 Appellant, ) ) 11 v. ) M E M O R A N D U M1 ) 12 TONIE MARIE GRIFFIN; US BANK ) NATIONAL ASSOCIATION, ) 13 ) Appellees. ) 14 ______________________________) 15 Argued and Submitted on March 23, 2012 at Seattle, Washington 16 Filed - April 6, 2012 17 Appeal from the United States Bankruptcy Court 18 for the Western District of Washington 19 Honorable Karen A. Overstreet, Bankruptcy Judge, Presiding 20 Appearances: Tuella O. Sykes, Esq. argued for Appellant Peter 21 H. Arkison, Chapter 7 Trustee. Joshua Schaer, Esq. of Routh Crabtree Olsen, P.S. argued for 22 Appellee U.S. Bank National Association. 23 Before: HOLLOWELL, KIRSCHER and JURY, Bankruptcy Judges. 24 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. 1 Peter H. Arkison, the chapter 72 trustee (Trustee), appeals 2 the bankruptcy court’s order granting U.S. Bank National 3 Association as Trustee for the Certificateholders of Structured 4 Asset Mortgage Investments II Inc. Bear Sterns ALT-A Trust, 5 Mortgage Pass-Through Certificates, Series 2006-3 (U.S. Bank) 6 relief from the automatic stay under § 362(d). We AFFIRM. 7 I. FACTUAL BACKGROUND 8 In January 2006, the Debtor executed a $220,000 promissory 9 note in favor of CTX Mortgage Company, LLC (the Note). The Note 10 contains an endorsement in blank by CTX Mortgage Company, LLC. 11 The Note was secured by a deed of trust (Deed of Trust) on the 12 Debtor’s real property in Everett, Washington (the Property). 13 The Deed of Trust named Mortgage Electronic Registration Systems, 14 Inc. (MERS) as nominee for the lender, its successors, and 15 assigns. The Deed of Trust was recorded on January 27, 2006. 16 On March 24, 2011, the Debtor filed a voluntary chapter 7 17 bankruptcy petition. Not long after, on May 23, 2011, U.S. Bank 18 filed a motion for relief from the automatic stay in order to 19 proceed with its statutory remedies under the Note and Deed of 20 Trust (Stay Relief Motion). 21 U.S. Bank alleged that the amount due under the Note was 22 $232,061.94. Based on the Debtor’s own valuation of the Property 23 in her bankruptcy schedules at $200,000, U.S. Bank asserted that 24 25 2 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 27 All “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure 28 are referred to as “Civil Rules.”

-2- 1 there was no equity in the Property and the Property was not 2 necessary to an effective reorganization. 3 U.S. Bank supported its Stay Relief Motion with a 4 declaration from a supervisor at JP Morgan Chase Bank, N.A. 5 (JP Morgan), the servicer of the Note, personally familiar with 6 the loan records of U.S. Bank (the Declaration). The Declaration 7 stated that the Note was endorsed in blank and that U.S. Bank “is 8 now the Holder of the Original Promissory Note as that term is 9 defined by the Uniform Commercial Code.” Additionally, a “true 10 and correct copy of the indorsed Promissory Note [was] attached 11 as Exhibit A.” The copy of the attached Note included in 12 U.S. Bank’s Exhibit A had a small stamp on the top, stating: “We 13 hereby certify that this is a true & correct copy of the 14 original. CTX Mortgage Company, LLC” with someone’s initials 15 handwritten over the stamp. Also included with the Declaration 16 was a copy of the Deed of Trust. 17 The Trustee filed an objection to the Stay Relief Motion. 18 The Trustee was concerned that the original Note was not attached 19 to the declaration. His objection reads: 20 If U.S. Bank has the original Note, why was it not attached to the Declaration? 21 If it does not have the original Note, why does the 22 Declaration say that it has it? 23 If it does not have the original Note, who does? 24 If it does not have the original Note, how does it have standing to bring the [Stay Relief] Motion. 25 26 The Trustee also took issue with the Declaration, stating 27 that it was generic and provided no information about what 28 records were reviewed, how the so-called “creditor” came into

-3- 1 possession of the Note, and, even, who the reference to the 2 “creditor” was. The Debtor did not object to the Stay Relief 3 Motion. 4 A hearing was held on the Stay Relief Motion on June 22, 5 2011 (Stay Relief Hearing). At the Stay Relief Hearing, the 6 Trustee again asserted his concern that U.S. Bank did not provide 7 the original Note. 8 The bankruptcy court reviewed the evidence and documentation 9 presented with the Stay Relief Motion and found that U.S. Bank 10 was entitled to relief from stay. In doing so, the bankruptcy 11 court noted that original notes were not required to be filed 12 with the bankruptcy court. The bankruptcy court entered its 13 order granting relief from the automatic stay under §362(d) on 14 June 23, 2011. The Trustee timely appealed. 15 II. JURISDICTION 16 The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 17 and 28 U.S.C. § 157(b)(2)(G). We have jurisdiction under 18 28 U.S.C. § 158. 19 III. ISSUE 20 Did the bankruptcy court abuse its discretion when it 21 granted U.S. Bank relief from the automatic stay? 22 IV. STANDARDS OF REVIEW 23 We review a bankruptcy court’s order granting relief from 24 the automatic stay for an abuse of discretion. Gruntz v. County 25 of Los Angeles (In re Gruntz), 202 F.3d 1074, 1084 n.9 (9th Cir. 26 2000) (en banc); Edwards v. Wells Fargo Bank, N.A. (In re 27 Edwards), 454 B.R. 100, 104 (9th Cir. BAP 2011). A bankruptcy 28 court abuses its discretion if it bases a decision on an

-4- 1 incorrect legal rule, or if its application of the law was 2 illogical, implausible, or without support in inferences that may 3 be drawn from the facts in the record. United States v. Hinkson, 4 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc); Ellsworth v. 5 Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 914 6 (9th Cir. BAP 2011). 7 We review de novo whether a party has standing. Mayfield v. 8 United States, 599 F.3d 964, 970 (9th Cir. 2010); Veal v. Am. 9 Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 906 (9th 10 Cir. BAP 2011). De novo review requires that we consider the 11 matter anew, as if it had not been heard before, and as if no 12 decision had been rendered previously. Dawson v. Marshall, 13 561 F.3d 930, 933 (9th Cir. 2009). 14 V. DISCUSSION 15 A. Standing 16 The Trustee argues that U.S. Bank lacks standing to file the 17 Stay Relief Motion because “U.S. Bank did not provide any 18 supporting documentation to prove that they were the actual 19 holder of the [N]ote,” entitled to enforce it. The crux of the 20 Trustee’s argument, only alluded to in his appellate brief, and 21 more fully honed at the appellate oral argument, is that 22 U.S. Bank merely provided a copy of a copy of the original Note, 23 which he argues was not enough to demonstrate its status as a 24 holder of the Note.3 For the reasons presented below, we 25 26 3 At the Stay Relief Hearing, the Trustee asserted that: “I 27 think this language [the stamped certification] says that whatever this document is, which has been copied and copied and 28 (continued...)

-5- 1 conclude that U.S. Bank, even if it attached a copy of a copy of 2 the original Note, established its standing to file the Stay 3 Relief Motion. 4 In deciding whether to grant relief from the automatic stay, 5 a bankruptcy court is generally called upon to decide a limited 6 set of issues: the adequacy of protection for the creditor, the 7 debtor’s equity in the property and the property’s necessity to 8 an effective reorganization. In re Veal, 450 B.R. at 914 citing 9 Johnson v. Righetti (In re Johnson), 756 F.2d 738, 740 (9th Cir. 10 1985) (overruled on other grounds by Travelers Cas. & Sur. Co. v. 11 Pac. Gas & Elec. Co., 549 U.S. 443 (2007)); Biggs v. Stovin 12 (In re Luz Int’l, Ltd.), 219 B.R. 837, 842 (9th Cir. BAP 1998) 13 (hearing on motions for relief from stay are intended to be 14 summary proceedings). The bankruptcy court’s decision to lift 15 the stay is merely a determination that the creditor’s claim is 16 sufficiently plausible to allow its prosecution elsewhere. See, 17 18 3 (...continued) 19 copied, is not the original note.” The bankruptcy court replied: “It isn’t the original note. It’s clearly not the original note. 20 It’s a copy of – it should be a copy of the original note.” Hr’g Tr. (June 22, 2011) at 5:17-24. Consequently, it appears the 21 issue of whether a copy of a copy of an original note satisfied 22 U.S. Bank’s burden of proof on standing was not clearly presented to the bankruptcy court. 23 Arguably, the issue was also not clearly presented to this Panel in the Trustee’s opening brief. There, the Trustee argued: 24 “the certification stating that the Note is a true and correct 25 copy of the original is signed by someone at CTX Mortgage.” However, at oral argument, the Trustee’s counsel articulated his 26 argument. He conceded that a copy of an original note is 27 sufficient to show possession, but that here, “this is a copy of a copy” and was, therefore, insufficient to establish that U.S. 28 Bank held the original Note.

-6- 1 e.g., Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 31-2 2 (1st Cir. 1994). Therefore, a moving party need only present a 3 colorable claim to the property at issue. In re Edwards, 4 454 B.R. at 105; In re Veal, 450 B.R. at 914-15. 5 Nevertheless, standing is a threshold matter of 6 jurisdiction. In re Edwards, 454 B.R. at 104; In re Jacobson, 7 402 B.R. 359, 366 (Bankr. W.D. Wash. 2009). The issue of 8 standing involves both “constitutional limitations on federal 9 court jurisdiction and prudential limitations on its exercise.” 10 Warth v. Seldin, 422 U.S. 490, 498 (1975); In re Veal, 450 B.R. 11 at 906. Prudential standing is at issue in this appeal.4 12 Prudential standing requires the plaintiff to assert its own 13 claims rather than the claims of another. Dunmore v. United 14 States, 358 F.3d 1107, 1112 (9th Cir. 2004). 15 Motions for relief from stay are contested matters under 16 Rule 9014. Rule 9014(c) makes Civil Rule 17(a)(1) (incorporated 17 by Rule 7017) applicable to contested matters. In turn, Civil 18 Rule 17(a)(1) provides that “[a]n action must be prosecuted in 19 the name of the real party in interest.” Thus, to satisfy the 20 requirements of prudential standing and Civil Rule 17(a)(1), “the 21 action must be brought by the person who, according to the 22 governing substantive law, is entitled to enforce the right.” 23 6A Wright, Miller, Kane & Marcus, Fed. Prac. & Proc., Civ. ¶ 1543 24 4 25 Constitutional standing is satisfied because U.S. Bank established the minimum requirement of injury in fact, causation 26 and redressability. The automatic stay’s prohibition on 27 U.S. Bank’s right to exercise its alleged remedies could be redressed by obtaining relief from stay. See In re Veal, 28 450 B.R. at 906.

-7- 1 (3d ed. 2011); In re Veal, 450 B.R. at 908. A party without the 2 legal right to enforce an obligation under substantive law is not 3 a real party in interest. See Simon v. Hartford Life, Inc., 4 546 F.3d 661, 664 (9th Cir. 2008); In re Jacobson, 402 B.R. at 5 367. 6 Because the Note is a negotiable instrument, its enforcement 7 is governed by Article 3 of Washington’s version of the Uniform 8 Commercial Code, WASH. REV. CODE (RCW) Title 62A.5 Under 9 Washington law, a note may be enforced by: 10 (I) the holder of the instrument; (ii) a nonholder in possession of the instrument who 11 has the rights of the holder, or (iii) a person not in possession of the instrument who 12 is entitled to enforce the instrument pursuant to 62A.3-309 or 62A.3-418(d). 13 14 RCW 62A.3-301; Pequignot v. Deutsche Bank Nat’l Trust Co. (In re 15 Pequignot), 2010 WL 3605326 *3 (W.D. Wash. Sept. 10, 2010). 16 To qualify as a holder of the instrument, one must be in 17 possession of the instrument that is either properly endorsed or 18 payable to the person in possession of it.6 RCW 62A.1-201(20), 19 20 5 For the purpose of determining who is entitled to enforce a note, “the forum state’s choice of law rules determine which 21 state’s substantive law applies.” In re Veal, 450 B.R. at 921 22 n.41. Washington’s choice of law statute provides that in the absence of an agreement stating which law governs, Washington’s 23 version of the Uniform Commercial Code applies to transactions 24 bearing a “reasonable relation” to the state. See RCW 62A.1-105. Because the Note provided no specific governing law and the 25 Debtor resides in Washington, Washington state governs the analysis. 26 6 27 Under RCW 62A.1-201(20), a “holder,” means the person in possession of a negotiable instrument that is payable either to 28 (continued...)

-8- 1 62A.1-201(5), RCW 62A.3-205(b). Accordingly, in order to be 2 entitled to enforce the Note, U.S. Bank had the burden of proving 3 that (1) it had possession of the Note; and (2) the Note was 4 validly endorsed. See Summers v. Earth Island Inst., 555 U.S. 5 488, 493 (2009) (the movant bears the burden of showing that he 6 has standing for each type of relief sought); Hasso v. Mozsgai 7 (In re La Sierra Fin. Servs., Inc.), 290 B.R. 718, 726 (9th Cir. 8 BAP 2002) (same). 9 An endorsement is a signature made on an instrument for the 10 purpose of negotiating the instrument. RCW 62A.3-204(a). An 11 endorsement in blank is an endorsement that is not payable to an 12 identified person. RCW 62A.3-205. Thus, an instrument endorsed 13 in blank becomes payable to bearer and any person who possesses 14 the instrument becomes its holder. RCW 62A.3-205(b)7; In re 15 Pequignot, 2010 WL 3605326 at *3. 16 U.S. Bank provided a copy of the Note demonstrating that the 17 Note was endorsed in blank. The Declaration stated the same. 18 The Trustee does not challenge the validity of the Note’s 19 endorsement. He only challenges whether U.S. Bank was actually 20 21 6 (...continued) 22 bearer or to an identified person that is the person in possession. 23 RCW 62A.1-201(5): “Bearer” means the person in possession of 24 an instrument, document of title, or certificated security payable to bearer or indorsed in blank. 25 7 RCW 62A.3-205(b) provides: “If an indorsement is made by 26 the holder of an instrument and it is not a special indorsement, 27 it is a ‘blank indorsement.’ When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by 28 transfer of possession alone until specially indorsed.”

-9- 1 in possession of the Note because it did not provide the original 2 Note, or a copy of the original Note, but a copy of a copy of the 3 original Note, with its Stay Relief Motion. 4 U.S. Bank submitted the Declaration to prove that it held 5 the Note. A supervisor at JP Morgan, with knowledge of the 6 maintenance of U.S. Bank’s business and loan records, stated that 7 U.S Bank “is now the Holder of the Original Promissory Note as 8 that term is defined by the Uniform Commercial Code. . . . A 9 true and correct copy of the indorsed Promissory Note is attached 10 as Exhibit A.” 11 At the Stay Relief Hearing, the bankruptcy court noted the 12 language of the Declaration and asked the Trustee, “what more do 13 you think he needs to put in the declaration? The promissory 14 note is attached.” Hr’g Tr. (June 22, 2011) at 4:22-23. The 15 Trustee responded: 16 I don’t see that it’s saying this is the original note. This is a copy of the 17 original note. 18 THE COURT: I always get copies of the original notes. [The creditor] cannot file the original note 19 with the Court. 20 THE TRUSTEE: I understand. But what I’m saying is, is there – where, in fact, is the original note? 21 22 Hr’g Tr. (June 22, 2011) at 5:12-18. 23 The Trustee has not made any legal or evidentiary argument 24 as to why a copy (or even a copy of a copy) of the original Note 25 should not have been allowed to support U.S. Bank’s Stay Relief 26 Motion. The Trustee also presents no evidence or argument that 27 another entity could possess the Note or that U.S. Bank does not 28 hold the Note. Nor does he challenge the contents of the Note,

-10- 1 such as whether the endorsement was proper. He argues only that 2 the original Note must be provided to prove U.S. Bank’s 3 possession. 4 However, the policy underlying the requirement of producing 5 original documents is “to secure accurate information from the 6 contents of material writings.” Kenneth S. Broun, 2 MCCORMICK ON

7 EVIDENCE § 236 (6th ed. 2009). Copying and producing a duplicate 8 of the original is sufficient to fulfil that policy. Id. Thus, 9 the general substitution of duplicates for originals is allowed 10 “unless there is a good reason to require the original.” Id. 11 “A duplicate is admissible to the same extent as an original 12 unless (1) a genuine question is raised as to the authenticity of 13 the original or (2) in the circumstances it would be unfair to 14 admit the duplicate in lieu of the original.” Fed. R. Evid. 15 1003. Because the Trustee is not arguing that the original Note 16 is required to prove any inaccuracies of content, only that it is 17 required to show who owns it, he has not presented a genuine 18 question as to the Note’s authenticity such that the original 19 would be required. Put another way, the fact of possession is 20 not demonstrated by the content of the writings in the original 21 Note. The fact of possession, here, was established by the 22 Declaration’s statement that U.S. Bank holds the Note. See, 23 e.g., Theros v. First Am. Title Ins. Co., 2011 WL 462564 *2 (W.D. 24 Wash. Feb. 3, 2011). Beyond simply asserting that the 25 Declaration was generic, the Trustee offered no legal argument as 26 to why the Declaration could not be relied on to support 27 U.S. Bank’s claim that it possessed the Note. 28

-11- 1 The bankruptcy court determined that the Declaration and 2 copy of the Note provided an adequate verification that U.S. Bank 3 possessed the Note, which was endorsed in blank. Id.; In re 4 Pequignot, 2010 WL 3605326 at *3. Therefore, it determined that 5 U.S. Bank established, for purposes of stay relief, that it was a 6 holder of the Note, entitled to prosecute its Stay Relief Motion. 7 We perceive no error in that determination. 8 B. Stay Relief 9 Stay relief may be granted “for cause,” including the lack 10 of adequate protection of an interest in property or, with 11 respect to property, if: (A) the debtor does not have an equity 12 in such property; and (B) such property is not necessary to an 13 effective reorganization.” 11 U.S.C. § 362(d)(1) and (2). 14 As provided in § 362(g), the party opposing relief from the 15 stay has the burden of proof on all issues other than the 16 debtor’s equity in a property. Thus, once a movant establishes 17 that there is no equity in a property, it is the burden of the 18 party opposing the motion to establish that the collateral at 19 issue is necessary to an effective reorganization. 11 U.S.C. 20 § 362(g); Jordan v. Kroneberger (In re Jordan), 392 B.R. 428, 450 21 n.40 (Bankr. D. Idaho 2008). 22 Equity, for purposes of § 362(d)(2)(A), is the difference 23 between the value of the property and all the encumbrances on it. 24 Sun Valley Newspapers, Inc. v. Sun World Corp. (In re Sun Valley 25 Newspapers, Inc.), 171 B.R. 71, 75 (9th Cir. BAP 1994) (citing 26 Stewart v. Gurley, 745 F.2d 1194, 1196 (9th Cir. 1984)). 27 The Debtor listed the Property as having a value of $200,000 28 with two secured claims against it totaling over $240,000. The

-12- 1 Trustee has not contested the value of the Property, and 2 therefore, concedes there is no equity in the Property. 3 Furthermore, since the case is a chapter 7 bankruptcy, there is 4 no contention that the Property is necessary for an effective 5 reorganization. 6 As the bankruptcy court found, “the creditor is owed 7 $232,000 against an undisputed value of $200,000, so there is no 8 equity.” Hr’g Tr. (June 22, 2011) at 7:19-21. The bankruptcy 9 court’s findings supporting stay relief were not illogical, 10 implausible, or unsupported by the record. Accordingly, we 11 conclude that the bankruptcy court did not abuse its discretion 12 in granting U.S. Bank relief from the automatic stay. 13 VI. CONCLUSION 14 For the foregoing reasons, we AFFIRM the bankruptcy court’s 15 order granting U.S. Bank relief from the automatic stay. 16 17 18 19 20 21 22 23 24 25 26 27 28

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