In re: Linda Merritt

Filing

NOT PRECEDENTIAL OPINION Coram: CHAGARES, VANASKIE and FUENTES, Circuit Judges. Total Pages: 10. Judge: VANASKIE Authoring.

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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 16-1864
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In re: LINDA MERRITT a/k/a Lyn Merritt,
Appellant
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On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(E.D. Pa. Nos. 2-15-cv-04282 & 2-15-cv-04937)
District Judge: Honorable Gerald J. Pappert
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Submitted Under Third Circuit L.A.R. 34.1(a)
June 9, 2017
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Before: CHAGARES, VANASKIE, and FUENTES, Circuit Judges
(Filed: August 4, 2017)
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OPINION*
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VANASKIE, Circuit Judge.
Linda Merritt filed for chapter 13 bankruptcy protection following PNC Bank’s
successful foreclosure action upon her residential property. PNC submitted a proof of
claim which Merritt initially disputed via an adversary proceeding. Merritt accused PNC

*

This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.

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of fraud, abuse of process, and violations of the Real Estate Settlement Procedures Act
(RESPA), 12 U.S.C. §§ 2601–2617. After the Bankruptcy Court dismissed her adversary
action, Merritt filed an objection to PNC’s proof of claim on the docket of the main
bankruptcy case, asserting similar grounds. The Bankruptcy Court again rejected her
arguments and also denied reconsideration, and the District Court affirmed on review.
Merritt has now appealed the main case ruling on her objection to PNC’s proof of claim
to our Court.
Merritt’s appeal presents two issues: (1) whether PNC had standing to foreclose
and (2) whether PNC committed a fraud upon the Bankruptcy Court. On review, we find
that PNC did have standing to foreclose upon Merritt’s property both as the holder of the
note and as the servicer of the mortgage, regardless of whether PNC was the owner of the
note. PNC made a prima facie proof of claim, and Merritt failed to meet her burden to
produce evidence negating that claim. Similarly, we find that PNC’s redactions to the
note and mortgage it attached to its proof of claim were not a fraud upon the Bankruptcy
Court. In fact, that court acknowledged that it was not misled or deceived by PNC’s
conduct. Thus, we will affirm the District Court’s decision affirming the Bankruptcy
Court orders.
I.
Appellant-Debtor Linda Merritt owns improved residential property in
Coatesville, Pennsylvania, and resides on that property. Merritt executed and delivered a
note payable to National City Mortgage Co., as well as a mortgage granting National City

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a lien against the property to secure Merritt’s obligations under the note. AppelleeCreditor PNC Bank is a successor by merger to National City.
PNC commenced a foreclosure action in the Chester County Court of Common
Pleas, Case No. 2010-05953, on May 11, 2010. PNC’s foreclosure complaint stated that
it is the “legal holder” of the mortgage, (R. 145), and both the note and mortgage were
incorporated into the foreclosure complaint by reference to the recorded mortgage. The
Court of Common Pleas entered a default judgment against Merritt after she failed to
respond to the complaint. Merritt later sought to open the judgment, but her petition was
denied. Merritt’s subsequent appeal on the issue was dismissed for failure to prosecute.
Merritt commenced a chapter 13 bankruptcy case in the Bankruptcy Court on
October 21, 2011 by way of a voluntary petition for relief. PNC submitted a proof of
claim in the amount of $358,866.71. (R. 222.) The proof of claim listed arrears of
$86,790.27 as of the date that Merritt’s petition was filed. PNC attached a copy of the
note and mortgage to the proof of claim, but redacted certain information, including the
Freddie Mac loan identifier. (R. 229–49.) The note states that it is payable to National
City and the mortgage identifies National City as the lender. (Id.) PNC did not redact
the label stating that the form used for the note and mortgage is the “Fannie Mae/Freddie
Mac Uniform Instrument.” (Id.)
In response to the proof of claim, Merritt filed a complaint against PNC in the
Bankruptcy Court, initiating an adversary proceeding. This complaint asserted claims for
fraud, abuse of process, and violations of RESPA. In particular, Merritt argued that PNC
lacked standing to prosecute the foreclosure because it was not the owner of the note and
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mortgage and had misrepresented its status as owner of the note and mortgage to the
foreclosure court. Further, Merritt alleged that PNC had failed to inform her that the
servicer of her mortgage had changed from National City to PNC as a result of the
merger.
PNC moved to dismiss the adversary proceeding on the ground that it had not
represented itself as the owner of the note and mortgage, but rather as the holder of the
note and mortgage entitled to enforce the documents. The Bankruptcy Court agreed and
dismissed Merritt’s claims for fraud and violation of RESPA with prejudice. The Court
nonetheless granted leave to amend the abuse of process claim.
Merritt filed an amended complaint reasserting her abuse of process claim. The
claim alleged that PNC committed fraud by representing that it was the holder of the note
and mortgage in both the foreclosure action and bankruptcy case because Freddie Mac
was the owner of the mortgage. The Bankruptcy Court dismissed Merritt’s amended
complaint and denied two subsequent motions for reconsideration. Merritt did not appeal
to the District Court the dismissal of her adversary proceeding or the denial of her
reconsideration motions.
Notwithstanding the rejection of her claims in the adversary proceeding, Merritt
filed an objection to PNC’s proof of claim, once again asserting that PNC lacked standing
to file the proof of claim because Freddie Mac was the owner of the note and mortgage.
(R. 53–55.) Merritt, however, did admit in the claim objection that PNC is the mortgage
servicer. (R. 56.) PNC defended against the claim objection by again explaining that it
was the holder of the note and mortgage, that it was the servicer of the mortgage, and that
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Merritt’s claims were barred by res judicata and the Rooker-Feldman doctrine. (R. 62–
63.)
The Bankruptcy Court held a hearing to sort out the claim objection. Merritt
stated that the basis for the claim objection was that PNC was not the owner of the note
and mortgage, and that PNC had perpetrated a fraud on the Bankruptcy Court by
redacting the Freddie Mac loan identifier from the exhibits to the proof of claim. (R.
206–11.) The Bankruptcy Court issued an oral opinion overruling Merritt’s claim
objection, and later entered a corresponding order. (R. 211, 277.) The Bankruptcy Court
also denied a subsequent motion for reconsideration. (R. 265–76.)
Merritt filed a notice of appeal, which the District Court read as only appealing the
Bankruptcy Court’s denial of the motion for reconsideration. (R. 259 n.3.) The District
Court affirmed the Bankruptcy Court’s order denying Merritt’s motion for
reconsideration. (R. 264.) In doing so, it observed that there was no dispute that PNC
was the servicer of the mortgage. (R. 261.) Further, PNC was the holder of the note
because of its merger with National City. (R. 261–62.) For these reasons, PNC had
standing to file the proof of claim. The District Court also explained that Freddie Mac’s
ownership of the note was irrelevant to PNC’s standing to file a proof of claim as the
holder of the note. (R. 261.) As for Merritt’s fraud claim, the Bankruptcy Court clearly
stated on the record that it had not been misled by PNC’s redactions of the note and
mortgage, and the District Court observed that it did not believe that the Bankruptcy
Court erred when it concluded that PNC’s redactions were not misleading. (R. 262.)

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Merritt now appeals the District Court’s decision affirming the Bankruptcy
Court’s denial of her motion for reconsideration.1
II.
The District Court reviewed the order of the Bankruptcy Court for abuse of
discretion after finding that Merritt appealed only from the order denying her motion for
reconsideration rather than the order denying her claim objection. (R. 260 n.5);
McDowell v. Philadelphia Hous. Auth., 423 F.3d 233, 238 (3d Cir. 2005). Merritt argues
that, under Cortez v. Trans Union, LLC, we
exercise appellate jurisdiction over “orders that are not specified in the
notice of appeal where: (1) there is a connection between the specified and
unspecified orders; (2) the intention to appeal the unspecified order is
apparent; and (3) the opposing party is not prejudiced and has a full
opportunity to brief the issues.”
617 F.3d 688, 695 n.2 (3d Cir. 2010) (quoting Polonski v. Trump Taj Mahal Assocs., 137
F.3d 139, 144 (3d Cir. 1998)). Accordingly, Merritt asserts that her appeal encompasses
the order overruling her objection to PNC’s proof of claim, which would require us to
review legal determinations de novo and factual determinations for clear error. We need
not decide whether Merritt properly brought before us the rejection of her objection to
PNC’s proof of claim because her arguments fail even under plenary review.
A.
The primary issue in this appeal is whether PNC had standing to file its proof of
claim. Merritt argues that PNC’s proof of claim is deficient because it was not filed with
1

The Bankruptcy Court had jurisdiction over this matter pursuant to 28 U.S.C. §§
157(a) and (b)(1). The District Court had jurisdiction pursuant to 28 U.S.C. § 158(a).
We have appellate jurisdiction under 28 U.S.C. § 1291.
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proper evidence that its security interest has been perfected. This argument is premised
on Merritt’s assertion that PNC is not the owner or holder of the note and mortgage, and
that Freddie Mac is the real owner and holder.
As the District Court explained, Merritt’s argument hinges on flawed logic. In
Merritt’s view, because Freddie Mac purchased the loan four years before the merger
between National City and PNC, Freddie Mac is both the owner and holder of the note
and mortgage. But the entity entitled to enforce a note need not be the “owner” of the
note. In re Walker, 466 B.R. 271, 280 (Bankr. E.D. Pa. 2012). The “holder” of a note—
the individual or entity “in possession of the note where the note is payable to the person
or is payable to the bearer”—is qualified to enforce the note. Id.; Hoffman v. Wells
Fargo Bank, N.A., No. 13-cv-5700, 2015 WL 3755207, at *3 (E.D. Pa. June 16, 2015).
Freddie Mac did not become the holder of the note simply by virtue of being the owner of
the note, nor did National City (and later PNC Bank by merger) lose its status as the
holder of the note following the sale. “Evidence that some other entity may be the
‘owner’ or an ‘investor’ in the Note is not relevant to this determination, as the entity
with the right to enforce the Note may well not be the entity entitled to receive the
economic benefits from payments received thereon.” PHH Mortg. Corp. v. Powell, 100
A.3d 611, 621 (Pa. Super. Ct. 2014). National City was the holder of the note even after
the sale to Freddie Mac, and PNC succeeded National City’s rights by way of merger.
“In Pennsylvania, it is the mortgage holder that has the right to pursue an action in
mortgage foreclosure.” In re Alcide, 450 B.R. 526, 538 (Bankr. E.D. Pa. 2011).

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Merritt, in her reply brief, argues that the copy of the note and mortgage that PNC
attached to its proof of claim is not enough to establish that it is the holder of those
documents. However, we accord prima facie validity to a proof of claim, and the burdens
shift as follows:
Initially, the claimant must allege facts sufficient to support the claim. If
the averments in his filed claim meet this standard of sufficiency, it is
“prima facie” valid. In other words, a claim that alleges facts sufficient to
support a legal liability to the claimant satisfies the claimant’s initial
obligation to go forward. The burden of going forward then shifts to the
objector to produce evidence sufficient to negate the prima facie validity of
the filed claim. It is often said that the objector must produce evidence
equal in force to the prima facie case. In practice, the objector must
produce evidence which, if believed, would refute at least one of the
allegations that is essential to the claim’s legal sufficiency. If the objector
produces sufficient evidence to negate one or more of the sworn facts in the
proof of claim, the burden reverts to the claimant to prove the validity of
the claim by a preponderance of the evidence. The burden of persuasion is
always on the claimant.
In re Allegheny Int’l, Inc., 954 F.2d 167, 173–74 (3d Cir. 1992) (citations omitted).
PNC’s averments are prima facie valid, and the burden to produce evidence negating the
claim rests with Merritt. As we have explained, Merritt’s evidence that Freddie Mac is
the owner of the note and mortgage does not negate the assertion that PNC remains the
holder of the note and mortgage.
Further, in the context of a proof of claim, “the authority of a servicer to file a
proof of claim is expressly authorized by the rules of court.” Alcide, 450 B.R. at 537 n.22
(citing Fed. R. Bankr. P. 3001(b)); see also Greer v. O’Dell, 305 F.3d 1297, 1302–03
(11th Cir. 2002); In re Densmore, 445 B.R. 307, 311 (Bankr. D. Vt. 2011); In re
Minbatiwalla, 424 B.R. 104, 109 (Bankr. S.D.N.Y. 2010). Here, Merritt has conceded
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that PNC is the servicer of the mortgage. (R. 208; Merritt Br. at 1 (“PNC is merely the
servicer of the mortgage”).) Merritt now argues that Alcide and the other cases require
some evidence that the servicer acts within its scope of authority as the mortgage holder’s
agent. Even if PNC was not the holder, Alcide recognized that, while the right to pursue
foreclosure proceedings resides with the mortgage holder, the servicer may pursue such
an action if “acting within its authority as the mortgage holder’s agent.” 450 B.R. at 538.
While PNC has not submitted a servicing agreement, PNC was permitted by the
foreclosure court to pursue foreclosure proceedings, evidencing its status as a “party in
interest” capable of also filing a proof of claim. Merritt’s argument that PNC lacked
standing to enforce the note and mortgage was rejected by the foreclosure court when
Merritt petitioned to open the judgment after her default, and was again rejected by the
Bankruptcy Court in dismissing her adversary proceeding. Additionally, as we have
explained, PNC presented a prima facie proof of claim, and the burden is on Merritt to
produce evidence negating that claim, not on PNC to produce a servicing agreement.
Merritt did not present any evidence that called into question PNC’s authority to seek
foreclosure as the servicer of the mortgage.
B.
We further agree with the Bankruptcy Court and District Court that the redactions
made to the note and mortgage submitted by PNC were not a fraud upon the court. The
standard of proof for such an assertion requires: “(1) an intentional fraud; (2) by an
officer of the court; (3) which is directed at the court itself; and (4) in fact deceives the
court.” Herring v. United States, 424 F.3d 384, 386 (3d Cir. 2005). Even if there had
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been evidence of an intentional fraud by PNC’s counsel, the Bankruptcy Court itself
rejected Merritt’s assertion, making clear on the record that it was not deceived. (R. 209–
10.) Like the District Court, we will not second-guess the Bankruptcy Court’s own
determination of whether it had been deceived, and thus Merritt’s assertion of fraud
necessarily fails.2
III.
For the foregoing reasons, we will affirm the District Court’s Order affirming the
Bankruptcy Court’s decisions to overrule Merritt’s objections to PNC’s proof of claim
and to deny her motion for reconsideration.

Because we conclude that the District Court’s rejection of Merritt’s arguments
withstands plenary review, we need not address PNC’s assertion that res judicata or the
Rooker-Feldman doctrine bar Merritt’s claims.
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