Van Leeuwen v. Bank of America et al
Filing
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MEMORANDUM DECISION AND ORDER - The appeal is DENIED and the bankruptcy courts decision is AFFIRMED. Signed by Judge Robert J. Shelby on 9/23/2015. (jds)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
IN RE: MICHAEL J. VAN LEEUWEN,
Debtor/Appellant,
MEMORANDUM DECISION AND
ORDER
v.
BANK OF AMERICA N.A.,
Case No. 2:14-cv-00703
Creditor/Appellee.
Judge Robert J. Shelby
On September 17, 2014, in a bankruptcy proceeding in the District of Utah, an order
issued granting Appellee Bank of America, N.A.’s Motion for Relief from an Automatic Stay.
Appellant Michael Van Leeuwen appeals from that order to this court under 28 U.S.C. § 158(a)(b).
For the reasons stated below, the court affirms the bankruptcy court’s decision.
BACKGROUND
Mr. Van Leeuwen filed a Chapter 7 bankruptcy petition on May 21, 2014. In re Michael
J. Van Leeuwen, Bankr. No. 14-25295 (2014). On June 3, 2014, Bank of America filed a Motion
for Relief from Automatic Stay to allow for foreclosure on a note and Deed of Trust associated
with real property in Salt Lake City, Utah (the Property). (In re Michael J. Van Leeuwen, Dkt.
13.) Mr. Van Leeuwen opposed the motion.
Bank of America based its motion on its possession of a facially valid security interest.
At an evidentiary hearing on September 3, 2014, Bank of America’s counsel submitted to the
bankruptcy court both the note and the Deed of Trust. The note was “blank-indorsed”—meaning
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it was made payable to the bearer. No objection was made to the admission of this evidence,
though Mr. Van Leeuwen’s counsel stated that he and his client would like “an opportunity to at
least determine the authenticity of this, quote ‘original note’.” (In re Michael J. Van Leeuwen,
Dkt. 48, Transcript of Evidentiary Hr’g. at 4, 11.) At the close of the hearing, the bankruptcy
court concluded that “the bank has shown… a colorable claim” meeting the legal burden for
relief from the stay. (In re Michael J. Van Leeuwen, Dkt. 48, Transcript of Evidentiary Hr’g. at
47.) On September 17, 2014, the bankruptcy court issued a final order granting Bank of
America’s motion. (In re Michael J. Van Leeuwen, Dkt. 38.)
Van Leeuwen appeals that order to this court. He raises two issues: whether the order
was correct and proper, in light of the evidence presented; and what weight should be given to
the evidence offered by Bank of America’s counsel at the September 3 evidentiary hearing.
STANDARD OF REVIEW
Federal district courts enjoy jurisdiction over bankruptcy court appeals. 28 U.S.C. §
158(a). “The bankruptcy court's decision whether to grant relief from stay is reviewed for an
abuse of discretion.” In re Miller, 666 F.3d 1255, 1260 (10th Cir. 2012). This court reviews
questions of law de novo, and any factual findings made by the bankruptcy court for clear error.
In re Utah Aircraft Alliance, 342 B.R. 327, 331 (B.A.P. 10th Cir. 2006). Evidentiary rulings are
reviewed “for an abuse of discretion, considering the record as a whole.” United States v.
Ledford, 443 F.3d 702, 707 (10th Cir. 2005).
“At a stay hearing, the court merely determines whether the movant has a colorable
claim, i.e., a facially valid security interest. It then should consider whether the objector has
raised a colorable defense that, not merely offsets the movant’s claim, but actually would defeat
the movant’s claim.” In re Utah Aircraft Alliance, 342 B.R. 327, 332 (B.A.P. 10th Cir. 2006).
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Relief from a stay is not a final ruling on the enforceability of the claimed security interest. “If a
court finds that [a colorable claim] exist[s], this is not a determination of the validity of those
claims, but merely a grant of permission from the court allowing that creditor to litigate its
substantive claims elsewhere without violating the automatic stay.” Grella v. Salem Five Cent
Savings Bank, 42 F.3d 26, 33-34 (1st Cir. 1994).
ANALYSIS
I. Relief from Stay
In this case, Bank of America has produced a facially valid security interest in the
Property, and Van Leeuwen has not raised a colorable defense that would defeat Bank of
America’s claim.
A. Colorable Claim
At the hearing, Bank of America need only have presented a note that was facially valid.
Bank of America met this light burden when its counsel submitted to the court a blank-indorsed
note.
“When indorsed in blank, an instrument becomes payable to bearer and may be
negotiated by transfer of possession alone until specially indorsed.” UTAH CODE ANN. § 70A–3–
205(2). “If an instrument is payable to bearer, it may be negotiated by transfer of possession
alone.” Id. § 70A–3–201(2). The holder of a note that is indorsed in blank is entitled to enforce
the note. See id. § 70A–3–301. Bank of America thus presented a facially valid security interest
in the Property.
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B. Defenses
1. Possession of Note
The next question is whether Mr. Van Leeuwen has presented a defense that would defeat
Bank of America’s colorable claim.
Mr. Van Leeuwen argues that a possessor of a note “must prove chain of possession” to
enforce the note. Mr. Van Leeuwen contends that “Utah law is interested in how rights are
acquired,” and directs the court to UTAH CODE ANN. § 70A-3-203, comment 2, of Utah’s version
of the Uniform Commercial Code. (Dkt. 7, p. 10.) This language does not support Mr.
Leeuwen’s argument. Under Utah law, possession of the blank-indorsed note alone is sufficient
to make the instrument payable to the bearer. UTAH CODE ANN. § 70A-3-201(2); § 70A-3205(2); §70A-3-301. The Utah Court of Appeals has confirmed that under Utah law possession
of such a note is sufficient to entitle the holder to its enforcement. Commonwealth Property
Advocates LLC v. JP Morgan Chase Bank, 278 P.3d 618, 619–20 (Utah Ct. App. 2012). This is
likely so even if Bank of America is “in wrongful possession of the instrument” because “[a]
person [may be] entitled to enforce the instrument even though he is not the owner of the
instrument.” UTAH CODE ANN. §70A-3-301. This does not defeat Bank of America’s colorable
claim.
Mr. Van Leeuwen asserts another defense based on a letter he received in 2011 explicitly
stating Bank of America did not own the note. But the argument advanced relating to the letter
assumes that possession of a blank-indorsed note is insufficient to allow a holder to enforce it, an
idea unsupported under Utah law, as discussed above. Further, the 2011 letter does not reflect
the series of events that led BAC Home Loans Servicing, LP to merge with Bank of America.
The original lender identified on the note was Intermountain Mortgage Company. The note was
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then indorsed to Countrywide Bank, National Association (“Countrywide”). Countrywide
merged with Bank of America effective April 27, 2009. Countrywide Home Loans Servicing LP
changed its name to BAC Home Loans, LP effective April 27, 2009, and merged with Bank of
America on July 1, 2011. Therefore, the 2011 correspondence establishes nothing respecting
Bank of America’s present interest in the note, or its ability to enforce the note.
Mr. Van Leeuwen also disputes that the note presented was original, arguing that it did
not contain “indents” from his signature. It is likely that Mr. Van Leeuwen has waived this
argument on appeal because of a failure to make a contemporaneous objection during the
September 2014 evidentiary hearing. At most, counsel there stated that he and his client would
like “an opportunity to at least determine the authenticity of this, quote ‘original note’.” (In re
Michael J. Van Leeuwen, Dkt. 48, Transcript of Evidentiary Hr’g. at 4, 11). This was not a
formal objection to the note’s admission into evidence, however, and the court offered no
evidentiary ruling in response. On appeal, the court “does not consider an issue not passed upon
below.” Fisher v. Oklahoma Healthcare Authority, 335 F.3d 1175, 1186 (10th Cir. 2003)
(quoting Walker v. Mather, 959 F.2d 894, 896 (10th Cir.1992)).
Even if an objection was properly made to the bankruptcy court, admission of the note
into evidence was not an abuse of discretion. “Commercial paper, a signature on it, and related
documents” are “self-authenticating” and require “no extrinsic evidence of authenticity to be
admitted…to the extent allowed by general commercial law.” FED. R. EVID. 902(9). Relevant
Utah law is in accord, providing that “[i]n an action with respect to an instrument, the
authenticity of…each signature on the instrument is admitted unless specifically denied in the
pleadings. If the validity of the signature is denied in the pleadings, the burden of establishing
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validity is on the person claiming validity.” UTAH CODE ANN. § 70A-3-308. The note in
question was self-authenticating, and admitting it into evidence was not an abuse of discretion.
2. Statute of Limitations
Mr. Van Leeuwen’s next defense against Bank of America’s claim is that the statute of
limitations to enforce the note has run. Mr. Van Leeuwen argues that at least seven years have
passed since he made any payments on the loan in question. (Dkt. 7, p. 9.) Though he cites no
authority, Mr. Van Leeuwen suggests that under Utah law Bank of America must bring an action
on a writing within six years of the latest default.
It is not clear that a defense based on the statute of limitations was properly raised before
the bankruptcy court. At most, Mr. Van Leeuwen’s counsel stated during the evidentiary hearing
that “Bank of America has [not] been in any way diligent in representing and presenting its claim
against Van Leeuwen.” (In re Michael J. Van Leeuwen, Dkt. 48, p. 4.) It is difficult to construe
this statement to raise a statute of limitations defense, and a reviewing court “generally will not
consider issues on appeal that were not presented below.” In re C.W. Min. Co., 740 F.3d 548,
557 (10th Cir. 2014).
Assuming the statute of limitations defense was properly raised before the bankruptcy
court, and was not waived, the defense fails. “[A]n action to enforce the obligation of a party to
pay a note payable at a definite time must be commenced within six years after the due date or
dates stated in the note or, if a due date is accelerated, within six years after the accelerated due
date.” UTAH CODE ANN. § 70A-3-118. The note in question was due on January 31, 2036, and
was accelerated on February 23, 2012. Six years have not passed from either date, and the
statute of limitations has not run.
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II. Counsel as Witness
Mr. Van Leeuwen separately appeals the issue of whether evidence introduced by Bank of
America’s counsel should be excluded because counsel’s testimony was inadmissible. Mr. Van
Leewuen argues that counsel violated rules of professional conduct by appearing as a witness,
that counsel’s testimony was the basis for introducing the evidence, and that the testimony
should be discounted and the evidence excluded.
Mr. Van Leeuwen has not established that Bank of America’s counsel testified or
appeared as a witness, and it is hardly clear that the rules of professional conduct are implicated.
But even if counsel appeared or testified improperly, the Federal Rules of Evidence govern the
admission of evidence in bankruptcy court evidentiary hearings, not the Utah Rules of
Professional Conduct. FED. R. BANKR. P. 9017 (“The Federal Rules of Evidence and Rules
43, 44 and 44.1 F.R.Civ.P. apply in cases under the Code.”); FED R. EVID. 1101(A) (“These rules
apply to proceedings before…United States bankruptcy and magistrate judges.”). Mr. Van
Leeuwen has cited no authority for excluding evidence based on a purported violation of the
Utah Rules of Professional Conduct. There is no basis for finding evidence inadmissible on
these grounds, and accepting the note into evidence was not an abuse of discretion.
CONCLUSION
Mr. Van Leeuwen has failed to establish that the bankruptcy court abused its discretion
when granting Bank of America’s motion for relief from the stay. His appeal is therefore
DENIED and the bankruptcy court’s decision is AFFIRMED.
SO ORDERED this 23rd day of September, 2015.
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BY THE COURT:
__________________________
ROBERT J. SHELBY
United States District Judge
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