Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: June 16, 2011
Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 10-42479. Honorable Edward D. Jellen, Bankruptcy Judge, Presiding.
The Appellant argued Pro se.
Joshua Andrew del Castillo of Allen, Matkins, Leck, Gamble, Mallory & Natsis, LLP argued for the Appellee, One West Bank FSB.
Before: HOLLOWELL, PAPPAS, and JURY, Bankruptcy Judges.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Felipe Zulueta, Jr. (the Debtor) challenges whether Deutsche Bank National Trust Company, as Trustee of the IndyMac INDX Mortgage Loan Trust 2006-AR14, Mortgage Pass-Through Certificates, Series 2006-AR14 under the Pooling and Servicing Agreement dated October 1, 2006 (Deutsche Bank), through its purported servicing agent, OneWest Bank, FSB (OneWest) was the real party in interest with standing to file a proof of secured claim.
The bankruptcy court determined that Deutsche Bank established it was the holder of the Debtor's note and, therefore, had standing to file the proof of claim. For the reasons stated below, we AFFIRM.
I. FACTS
The Debtor filed a chapter 13 bankruptcy petition on March 8, 2010. On April 6, 2010, Deutsche Bank filed a proof of secured claim (Claim) in the amount of $686,250.87 for money loaned on real property. The Claim listed Deutsche Bank as the secured creditor and indicated payments should be made to OneWest.
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532. All " Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
The history of the loan, which serves as the basis of the Claim, is as follows. In 2006, the Debtor and Eloisa Maru Zulueta, Trustees of the Zulueta Family Trust, executed a promissory note in the amount of $560,000 in favor of IndyMac Bank FSB (IndyMac) (the Note). The Note has an endorsement-in-blank (the Endorsement). The Note is secured by a deed of trust on the Debtor's house in Brentwood, California (the Deed of Trust). Mortgage Electronic Registration Systems, Inc. (MERS) is the beneficiary and nominee for IndyMac on the Deed of Trust.
On October 1, 2006, IndyMac entered into a Pooling and Servicing Agreement (PSA) with Deutsche Bank, whereby IndyMac transferred the Note to Deutsche Bank. Section 3.01 of the PSA provided that IndyMac would service the Note. On April 30, 2008, MERS, as nominee for IndyMac, assigned the Deed of Trust to Deutsche Bank (the Assignment). Deutsche Bank recorded the Assignment on June 6, 2008.
In support of the Claim, Deutsche Bank attached a document listing the purported arrearages on the Note. Additionally, Deutsche Bank attached copies of: (1) the Note, (2) the Endorsement, which was undated and appeared as a separate document, (3) the Deed of Trust, and (4) the Assignment. The Debtor filed an objection to the Claim, contending that Deutsche Bank was not the real party in interest to assert the Claim (the Claim Objection).
In its response to the Claim Objection, Deutsche Bank contended that IndyMac assigned it the Deed of Trust pursuant to the PSA, and, because the Note included the Endorsement and OneWest, as Deutsche Bank's agent, had physical possession of the Note, Deutsche Bank was a holder of the Note under Cal. Comm. Code § 3201(b). To substantiate its contention, Deutsche Bank submitted a declaration by a OneWest employee, Champagne Williams, that stated OneWest was the servicer and holder of the Note (the Williams Declaration). A copy of the Assignment, Note, and Endorsement was attached to the Williams Declaration.
The Debtor filed a reply. Among the issues raised by the Debtor in his reply were:
(1) the documents provided in the Williams Declaration required authentication;
(2) OneWest was not the real party in interest and needed to submit proper documentation demonstrating its agency relationship with Deutsche Bank;
(3) the validity of the Endorsement was questionable because it had no identifying numbers and did not reference the Note;
(4) there was no indication that the Note was included in the PSA; and,
(5) an accounting was required since several months of payments were not accounted for in Deutsche Bank's arrearage calculation.
The bankruptcy court set an evidentiary hearing on the Claim Objection for November 3, 2010 (the Hearing). On November 1, 2010, Deutsche Bank filed an Evidentiary Hearing Brief along with a declaration from its counsel (the Chun Declaration). The Chun Declaration stated that in an effort to resolve the Claim Objection, the Debtor was provided with a copy of the PSA, as well as the accounting and application of the Debtor's payments on the Note. Furthermore, in response to the Debtor's concern regarding a lack of documentation establishing OneWest's relationship to Deutsche Bank, Chun stated he had emailed the Debtor a letter (the Letter), which allegedly had been previously sent to the Debtor in April 2009, that stated in part:
Effective on March 19, 2009, the servicing of your mortgage loan, that is, the right to collect payments from you, was assigned, sold or transferred from IndyMac Federal Bank, FSB to IndyMac Mortgage Services, a division of OneWest Bank, FSB.
The Letter itself is not included in the record on appeal, nor is it included on the bankruptcy court docket as an attachment to any of OneWest's pleadings or to the Chun Declaration.
The Debtor and OneWest attended the Hearing. OneWest stated its attendance at the Hearing was in its capacity as the servicing agent for Deutsche Bank. OneWest presented to the bankruptcy court the Note, the Deed of Trust, the PSA, the Assignment, the Letter, and the Williams Declaration. See Hr'g Tr. (Nov. 3, 2010) at 5-6.
Because Deutsche Bank and OneWest were represented by the same attorney, the Debtor specifically asked at the Hearing whether Mr. Chun had appeared on behalf of OneWest or Deutsche Bank. Mr. Chun replied that he was representing OneWest, " the servicing agent for Deutsche Bank." See Hr'g Tr. (Nov. 3, 2010) at 4.
We assume that the documents were admitted as evidence. In its written decision, the bankruptcy court stated that " Deutsche Bank made an offer of proof, which the court accepted . . . ." An offer of proof may be used to persuade the court to admit evidence; it consists of the evidence itself, an explanation of the purpose for which it is offered, and an argument supporting its admissibility. Black's Law Dictionary, (9th ed.) 2009.
The bankruptcy court issued a written decision on November 9, 2010, overruling the Claim Objection. The bankruptcy court determined that Deutsche Bank was a holder of the Note because (1) the Deed of Trust and Note were assigned to Deutsche Bank, (2) Deutsche Bank, through the PSA, had a servicing arrangement with IndyMac, who subsequently transferred the servicing of the Note to OneWest (as evidenced by the Letter), and (3) Deutsche Bank (through its agent, OneWest) brought the original Note and Deed of Trust to the hearing. Therefore, it determined that Deutsche Bank was the holder of the Note with standing to file the Claim. On November 23, 2010, the bankruptcy court entered its Order Denying the Claim Objection. The Debtor timely appealed.
On November 29, 2010, the bankruptcy court dismissed the Debtor's bankruptcy case because the Debtor was unable to confirm a feasible chapter 13 plan. The bankruptcy court also granted the Debtor a stay pending appeal, staying the dismissal of the case as long as the Debtor made monthly payments on the Note to Deutsche Bank's counsel and made monthly payments sufficient to fund a plan to the chapter 13 bankruptcy trustee.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(B). We note that the bankruptcy court granted the Debtor a stay of the dismissal of his chapter 13 case pending appeal, and therefore, the appeal is not moot. Even if the Debtor defaults on his monthly payments to Deutsche Bank's counsel or the trustee, and the case is dismissed, we conclude the appeal is still not moot. The Ninth Circuit has held that " the allowance or disallowance of 'a claim in bankruptcy is binding and conclusive on all parties or their privies, and being in the nature of a final judgment, furnishes a basis for a plea of res judicata.'" Bevan v. Socal Commc'ns Sites, LLC (In re Bevan), 327 F.3d 994, 997 (9th Cir. 2003) quoting Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525, 529 (9th Cir. 1998). Because the bankruptcy court, in a claim objection proceeding, makes a substantive ruling that binds the parties in all other proceedings and may finally adjudicate the parties' underlying rights, an affirmance by us could have preclusive effect if the Debtor subsequently challenged the validity of the Claim. Id . As a result, if we were to reverse, we would be able to provide the Debtor effective relief. See People of Village of Gambell v. Babbitt, 999 F.2d 403, 406 (9th Cir. 1993) (if there is a present controversy as to which effective relief can be granted, then the appeal is not moot). Consequently, we have jurisdiction under 28 U.S.C. § 158.
III. ISSUE
Did the bankruptcy court err in overruling the Claim Objection?
IV. STANDARDS OF REVIEW
We review de novo whether a party has standing. Dunmore v. United States, 358 F.3d 1107, 1111 (9th Cir. 2004); Kronemyer v. Am. Contrs. Indem. Co. (In re Kronemyer), 405 B.R. 915, 918 (9th Cir. BAP 2009). De novo review requires that we consider a matter anew, as if it had not been heard before, and as if no decision had been rendered previously. United States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988).
V. DISCUSSION
Throughout this case, Deutsche Bank and OneWest have acted almost as one interchangeable entity in their pleadings regarding the Claim. It is not surprising, therefore, that the Debtor was confused by the relationship between the two. The same attorney represented both entities. The Claim was filed by Deutsche Bank but directed that payments be made to OneWest. Additionally, the response to the Claim Objection was submitted by Deutsche Bank but referred to the Claim as being held by " the Secured Creditor, " defined as " [Deutsche Bank] and the servicing agent [OneWest]." It contended that " [OneWest] properly filed [the Claim]" because OneWest was the holder of the Note.
The arguments that the Debtor made to the bankruptcy court challenging the standing of either Deutsche Bank or OneWest to file the Claim are, on appeal, focused almost exclusively on OneWest, not only in its purported capacity as Deutsche Bank's agent, but as the purported holder of the Note.
A. Standing
The issue of standing involves both " constitutional limitations on federal court jurisdiction and prudential limitations on its exercise." Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). Only prudential standing is at issue in this appeal. Prudential standing requires the plaintiff to assert its own claims rather than the claims of another. Dunmore v. United States, 358 F.3d 1107, 1112 (9th Cir. 2004).
Claim objections are contested matters under Rule 9014. Rule 9014(c) makes Fed.R.Civ.P. 17(a)(1) (Civil Rule 17(a)(1)) (incorporated by Rule 7017) applicable to contested matters. Civil Rule 17(a)(1) provides that " [a]n action must be prosecuted in the name of the real party in interest." To satisfy the requirements of prudential standing and Civil Rule 17(a)(1), " the action must be brought by the person who, according to the governing substantive law, is entitled to enforce the right." 6A Wright, Miller, Kane & Marcus, Fed. Prac. & Proc. ¶ 1543 (3d ed. 2010); Veal v. Am. Home Mortg. Serv., Inc. (In re Veal), 450 B.R. 897, 908 (9th Cir. BAP 2011). A party without the legal right to enforce an obligation under substantive law is not a real party in interest. See Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir. 2008); In re Aniel, 427 B.R. 811, 815 (Bankr. N.D. Cal. 2010).
The requirement of prudential standing addresses the concern that the maker of a note pays the correct party and will not have to pay that amount again to another party. In re Veal, 450 B.R. at 908-910. " The modern function of the rule . . . is simply to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the judgment will have its proper effect as res judicata." Id . at 908 (internal citations omitted).
B. Right To Enforce The Note
Because the Note is a negotiable instrument, its enforcement is governed by Article 3 of California's version of the Uniform Commercial Code, Cal. Comm. Code (CCC) § 1101-16104. Under California law, a note may be enforced by:
State law determines the validity of creditors' claims in bankruptcy. Grogan v. Garner, 498 U.S. 279, 283, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). In California, § 3301 of the Commercial Code governs who is entitled to enforce a note. In re Aniel, 427 B.R. at 815.
(1) a holder of the instrument (CCC § § 3301, 1201(b)(21));
(2) a person who is in possession of the instrument who has the rights of a holder by subrogation or transfer (CCC § § 3301, 3302(a)); or,
(3) a person who previously had the ability to enforce the note, but it was lost, destroyed, or stolen (CCC § § 3301, 3309).
To qualify as a holder of the instrument, one must be in possession of the instrument that is either properly endorsed or payable to the person in possession of it. CCC § 1201(b)(21), (b)(5). Accordingly, in order to be entitled to enforce the Note for purposes of defeating the Debtor's objection to its Claim, Deutsche Bank had the burden of proving that (1) it (or its agent) had possession of the Note; and (2) the Note was validly endorsed. See Summers v. Earth Island Inst., 555 U.S. 488, 129 S.Ct. 1142, 173 L.Ed.2d 1 (2009) (the movant bears the burden of showing that he has standing for each type of relief sought); Hasso v. Mozsgai (In re La Sierra Fin. Servs., Inc.), 290 B.R. 718, 726 (9th Cir. BAP 2002) (same).
CCC § 1201(b)(21): " Holder, " means:
The bankruptcy court found that Deutsche Bank was the holder of the Note. That finding was entwined with a finding that OneWest was Deutsche Bank's agent and the servicer of the Note under the PSA. On appeal, the Debtor argues that OneWest does not have prudential standing even though it possessed the Note because the Endorsement was invalid, OneWest never demonstrated it was authorized to act on behalf of Deutsche Bank, and OneWest did not provide documentation of how it came to possess the Note.
After reviewing the evidence in the record, we agree with the Debtor that OneWest did not prove it was Deutsche Bank's agent. However, for the reasons explained below, we nevertheless conclude that the requirement of prudential standing was satisfied.
1. Possession
OneWest appeared at the Hearing as " the servicing agent for Deutsche Bank." Hr'g Tr. (Nov. 3, 2010) at 4:14-15. To evidence its agency relationship with Deutsche Bank, OneWest presented Section 3.01 of the PSA, which provided that IndyMac would service the Note for Deutsche Bank, the Letter, and the Williams Declaration.
The Letter that referred to the transfer of the servicing role from IndyMac to OneWest was not included in the record. Without the Letter, we cannot determine by whom it was sent or what information regarding the purported transfer of servicing rights was provided with the Letter. At most, the Letter was notice to the Debtor of a change in servicers. Standing alone, it does not constitute admissible evidence of an agency relationship between OneWest and Deutsche Bank.
Furthermore, as a general rule, the fact of agency cannot be proved by the declaration of the agent alone. Kast v. Miller & Lux, 159 Cal. 723, 727-28, 115 P. 932 (1911). While the declarations of a principal are admissible to prove the agency relationship, declarations of an agent are not admissible to prove the fact of his agency or the extent of his powers of agency. Howell v. Courtesy Chevrolet, Inc., 16 Cal.App.3d 391, 401, 94 Cal.Rptr. 33 (Cal.Ct.App. 1971). There must be either some other competent evidence establishing the fact of agency, or, the agent's testimony as a witness in order to prove his authorization. Stewart v. Workmen's Comp. Appeals Bd., 264 Cal.App.2d 947, 952, 71 Cal.Rptr. 20 (Ct. App. 1968).
OneWest did not present a servicing agreement between it and Deutsche Bank. There was no declaration or testimony from Deutsche Bank that confirmed OneWest was authorized to act as the servicing agent for Deutsche Bank with respect to the Note. There was no declaration, testimony or documentation from IndyMac establishing its relationship with OneWest. OneWest did not provide witness testimony regarding its role as the servicer for Deutsche Bank. As a result, the agency relationship between OneWest and Deutsche Bank was not established.
Nevertheless, because OneWest appeared at the Hearing with the original Note in its possession, endorsed-in-blank, it was the holder of the Note under CCC § 1201(b). The Debtor asserts, however, that the Endorsement was invalid, which precluded OneWest from being a holder entitled to enforce the Note under CCC § 3301.
2. Endorsement
An endorsement is a signature made on an instrument for the purpose of negotiating the instrument. CCC § 3204(a). An endorsement-in-blank is an endorsement that is not payable to an identified person. CCC § 3205(b). Thus, an instrument endorsed-in-blank becomes payable to bearer and any person who possesses the instrument becomes its holder. In re Aniel, 427 B.R. at 815-16.
The Debtor argues that the Endorsement is invalid because the Endorsement appeared on a separate paper, or allonge, that did not reference the Note. The Debtor asserts that the use of an allonge is appropriate only when there is no longer room on the negotiable instrument itself to write an endorsement. See Pribus v. Bush, 118 Cal.App.3d 1003, 1008, 173 Cal.Rptr. 747 (Ct. App. 1981). At oral argument before the Panel, OneWest explained that the Endorsement was on the back of the Note; however, because only one-sided documents may be uploaded onto the electronic docketing system, it appeared in the record as being on a separate page. An endorsement on an allonge is valid even though there is sufficient space on the instrument for an endorsement as long as the allonge is affixed or attached to the note such that it becomes part of the instrument. CCC § 3204 cmt. 1; § 3204(a). Because the Endorsement was on the Note itself, it was valid.
A party in physical possession of an endorsed-in-blank note qualifies as a holder of a note under CCC § 1201(b). Because OneWest appeared at the Hearing with possession of the endorsed-in-blank Note, it was a holder of the Note entitled to enforce it.
As we noted above, the reason behind the prudential standing requirement is to ensure that " if a maker makes a payment to a 'person entitled to enforce, ' the obligation is satisfied on a dollar for dollar basis, and the maker never has to pay that amount again." In re Veal, 450 B.R. at 910. It is immaterial that there was insufficient evidence in the record to establish the agency relationship between OneWest and Deutsche Bank because the Debtor's payments to OneWest (as directed by the Claim) discharge his obligation to Deutsche Bank under the Note. See id. at 910, 912. Therefore, " so long as the maker's obligation is discharged by payment, the maker should be indifferent as to whether the 'person entitled to enforce' the note satisfies his obligations, under the law of agency, to the ultimate owners of the note." Id . at 912 n.27.
At oral argument on appeal, the Debtor stated he was making any arrearage payments on the Note to the trustee and was paying OneWest monthly payments under the Note. He stated that the basis of his Claim Objection was a matter of wanting to know to whom he should make payments. Indeed, the purpose of a prudential standing challenge is to ensure that a debtor pays the right party. In this case, the Debtor may rely on OneWest's status as a holder of the Note.
VI. CONCLUSION
For the reasons given above, we AFFIRM.
(A) 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; or (B) the person in possession of a document of title if the goods are deliverable either to bearer or to the order of the person in possession.
CCC § 1201(b)(5): " Bearer" means a person in possession of a negotiable instrument, document of title, or certificated security that is payable to bearer or endorsed in blank.