Ocwen Loan Servicing LLC v. Thompson et al

Filing 12

ORDER signed by Judge J P Stadtmueller on 1/7/14 AFFIRMING the final order of U S Bankruptcy Judge Susan V Kelley dated 3/18/13 (Docket #1-9, 79-83), disallowing Wells Fargo's proof of claim in the bankruptcy proceeding of debtor-appellees Dennis E Thompson and Pamela A Thompson; and, denying as moot 8 and 10 Appellant's Motions to Strike Appellees' Briefing. (cc: Appellees, all counsel)(nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
OCWEN LOAN SERVICING, LLC,
as servicer for Wells Fargo Bank, National
Association, successor by merger to Wells
Fargo Bank Minnesota, National Association,
solely in its capacity as Trustee for Provident
Bank Home Equity Loan Asset-Backed
Certificates, Series 2000-2,

Case No. 13-CV-487-JPS

Appellant,
v.
DENNIS E. THOMPSON and
PAMELA A. THOMPSON,

ORDER

Appellees.
Appellant Ocwen Loan Servicing, LLC (“Ocwen”), as servicer for
Wells Fargo Bank, National Association, successor by merger to Wells Fargo
Bank Minnesota, National Association, solely in its capacity as Trustee for
Provident Bank Home Equity Loan Asset-Backed Certificates, Series 2000-2
(“Wells Fargo”), appeals a final order of U.S. Bankruptcy Judge Susan V.
Kelley, dated March 18, 2013 (Docket #1-9, 79-83) (“Final Order”),
disallowing Wells Fargo’s proof of claim in the bankruptcy proceeding of
debtor-appellees, Dennis E. Thompson and Pamela A. Thompson (the
“Thompsons”).
1.

BACKGROUND
1.1

Overview

To recover money owed under the Thompsons’ home financing
adjustable rate note, dated April 14, 2000 (the “note”), a proof of claim was

filed in the bankruptcy court on Wells Fargo’s behalf on May 24, 2005.
(Docket #1-9, 79-80).1
On March 19, 2012, the Thompsons filed a pleading in their
bankruptcy proceedings that the bankruptcy court construed as an objection
to Wells Fargo’s proof of claim. (Id. at 79). Ultimately, on March 14, 2013, the
bankruptcy court held a final evidentiary hearing on the Thompsons’ claim
objection. (Id. at 80). The Final Order disallowing Wells Fargo’s proof of claim
for lack of standing was entered four days after that hearing. (Id. at 79).
1.2

Wells Fargo’s Proof of Claim

At the final evidentiary hearing, the disputed proof of claim was
found to consist of only: “the proof of claim form, a detailed accounting of
the amount due, [the note], a Mortgage, a Prepayment Rider and an
Adjustable Rider.” (Id. at 80). Moreover, the bankruptcy court found that the
note attached to the disputed proof of claim: (i) makes no mention of Wells
Fargo; (ii) is not endorsed in blank; and (iii) “[t]here is no endorsement or
allonge attached to the note.” (Id.).2
That constellation of documentation, the Thompsons argued, provides
no logical basis for Ocwen or Wells Fargo to prosecute the disputed proof of

1

The proof of claim was amended four times, however “[t]he only copies
of the underlying note and mortgage are attached to [the original claim].” (Docket
#1-9, 79, n.1).
2

The note itself is a curiosity: it is payable in the first instance to First
National Funding Group, but contains an endorsement (dated contemporaneously
with the note itself) stating “Pay to the Order of Provident Bank” which is signed
by a representative of Central States Mortgage Co. (Id., 80). However, nothing
evidences a transfer or endorsement of the note from First National to Central
States. (Id. at 80-81). Regardless, the Thompsons did not object to this particular
discontinuity. (Id. at 81).

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claim. (Id. at 121). By elucidating this gross deficiency, the Thompsons were
deemed to have “overcome the presumptive validity of the [disputed proof
of] claim under Bankruptcy Rule 3001(f), and the burden of proof shifted to
Ocwen.” (Id. at 80 and 122).
In response, Ocwen produced at the hearing “an August 22, 2002
allonge to the note signed by Provident that states ‘Pay to the Order of Wells
Fargo Bank Minnesota, NA.’” (Id. at 81 and 122). Having ascertained that no
allonge formed part of the disputed proof of claim, the bankruptcy court
solicited testimony or other evidence from Ocwen to “‘connect the dots’”
between the proffered allonge and the note. (Id. at 83 and 123).
Prior to the final evidentiary hearing, the bankruptcy court directed
the parties to file a list of witnesses and copies of proposed exhibits. (Id. at
80). In response to that directive, Ocwen identified a representative for
testimony, but none was present at the final evidentiary hearing. (Id.). Left
in the lurch, counsel for Ocwen took the position that the allonge was selfauthenticating commercial paper within the meaning of Federal Rule of
Evidence 902(9). (Id. at 81, 122-123). Against the backdrop set forth above, the
bankruptcy court rejected that argument. (Docket #1-9, 124). The Final Order
adopted the same conclusion, reasoning that: (i) although Federal Rule of
Evidence 902(9) requires no extrinsic evidence of authenticity in order to
admit commercial paper, a signature on it, and related documents, it does so
only “to the extent allowed by general commercial law”; (ii) general commercial
law is understood to refer to the UCC; and (iii) Wis. Stat. § 403.308 (forming
part of Wisconsin’s adopted version of the UCC) affords only a rebuttable
presumption of authenticity which the Thompsons overcame, thereby
shifting the burden of proof back to Ocwen. (Docket #1-9, 81-82).
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In a last-ditch effort to redeem the disputed proof of claim at the final
evidentiary hearing, Ocwen attempted to establish standing by presenting
certified copies of certain state court foreclosure proceedings. (Id. at 80-83).
With regard to that documentation, the bankruptcy court observed as
follows:
These pleadings show that in 2002, Provident, not Wells Fargo,
filed a foreclosure suit and obtained a judgment. Three years
later, shortly before the Debtors filed their Chapter 13 case, the
attorneys for Provident filed a bare bones petition stating that
Provident had been wrongly named as the plaintiff, and that
Wells Fargo Bank Minnesota, National Association, solely in its
capacity as Trustee, should be substituted. The same day the
petition was filed, without any notice to the Debtors and
lacking any documentary evidence that Wells Fargo was the
proper plaintiff, the Circuit Court for Milwaukee County
entered an order substituting Wells Fargo as the plaintiff. The
appeal period had not expired from this order when the
Debtors filed their Chapter 13 petition, and the foreclosure case
has been stayed ever since.
(Docket #1-9, 82-83).
Against that factual backdrop, the bankruptcy court reasoned:
While the Debtors may be estopped from challenging
Provident’s standing based on the certified copy of the
foreclosure judgment, this Court will not grant Wells Fargo
standing to prosecute the proof of claim based on an ex parte
order that was still appealable when this bankruptcy was filed.
If Wells Fargo truly had standing to act as plaintiff in the
foreclosure case, presumably it could have attached evidence
of that fact to the proof of claim. Instead, the copy of the note
attached to the claim (and introduced at other points in these
proceedings) contains no allonge, is not endorsed in blank, and
is not payable to Wells Fargo.
(Id. at 83).

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2.

JURISDICTION
Ocwen submits that 28 U.S.C. § 158(a)(1) provides this Court

jurisdiction over this appeal. Based on its own independent review of the
record, the Court finds that the Final Order was indeed final within the
meaning of Section 158(a)(1). (Docket #1-9, 83 and 116-117). Therefore, the
Court is obliged to conclude that jurisdiction exists to entertain this appeal.
3.

STANDARD OF REVIEW
In the course of a district court's decision to affirm, modify or
reverse an order of the bankruptcy court, “[f]indings of
fact…shall not be set aside unless clearly erroneous, and due
regard shall be given to the opportunity of the bankruptcy
court to judge the credibility of the witnesses.” Fed. R. Bankr.
P. 8013. Thus, a bankruptcy court's factual findings cannot be
disturbed “simply because [the district court] is convinced it
would have decided the case differently.” In re Weber, 892 F.2d
534, 538 (7th Cir. 1989) (quoting Anderson v. City of Bessemer
City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)).
Both questions of law and mixed questions of law and fact,
however, are reviewed de novo. See In re Ebbler Furniture and
Appliances, Inc., 804 F.2d 87, 89 (7th Cir. 1986).

Mungo v. Taylor, 355 F.3d 969, 974 (7th Cir. 2004).
4.

ANALYSIS
Ocwen presents four issues on appeal. (Docket #-1-8). The Court will

address each in turn.
4.1

Rooker-Feldman

Ocwen argues that the Rooker-Feldman doctrine divested the
bankruptcy court of jurisdiction to enter the Final Order. (Docket # 1-8, 1).
The Rooker–Feldman doctrine holds that the lower federal
courts lack subject-matter jurisdiction over actions that seek
review of state-court judgments; only the United States
Supreme Court has authority to review state judgments. See
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Skinner v. Switzer, ––– U.S. ––––, 131 S.Ct. 1289, 1297, 179
L.Ed.2d 233 (2011); Crawford v. Countrywide Home Loans, Inc.,
647 F.3d 642, 645 (7th Cir. 2011). Rooker–Feldman is a “narrow
doctrine, ‘confined to cases brought by state-court losers
complaining of injuries caused by state-court judgments
rendered before the district court proceedings commenced and
inviting district court review and rejection of those
judgments.’” Kelley v. Med–1 Solutions, LLC, 548 F.3d 600, 603
(7th Cir. 2008) (quoting Lance v. Dennis, 546 U.S. 459, 464, 126
S.Ct. 1198, 163 L.Ed.2d 1059 (2006)). Stated differently, RookerFeldman is only concerned with “situations in which the state
court’s decision is the source of the harm that the federal suit
is designed to redress.” Simmons v. Gillepsie, 712 F.3d 1041,
1043, No. 12-3381, 2013 W: 1110872, at *2 (7th Cir. Mar. 19,
2013).
Dookeran v. County of Cook, Ill., 719 F.3d 570, 574-575 (7th Cir. 2013).
Here, the Thompsons’ bankruptcy petition does not itself seek review
of a state-court judgment, rather they (like other petitioners seeking
bankruptcy protection) generally seek “a new opportunity in life with a clear
field for future effort, unhampered by the pressure and discouragement of
preexisting debt.” Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699,
78 L.Ed. 1230 (1934). Here, Ocwen submits no evidence that the Thompsons’
bankruptcy petition complains of any injury other than general misfortune.
To the extent Ocwen seeks to frame its claim within the Thompsons’
bankruptcy proceeding as a “case” within the meaning of Lance, this
argument fails as well because Wells Fargo (on whose behalf Ocwen acts)
seeks to enforce a state court judgment, not collaterally attack it.
With the benefit of the foregoing analysis, the Court is obliged to
conclude that the Rooker-Feldman doctrine did not divest the bankruptcy
court of jurisdiction to address Wells Fargo’s proof of claim within the
Thompsons’ bankruptcy proceeding.
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4.2

Judicial Estoppel

Ocwen contends that, regardless of Rooker-Feldman, the bankruptcy
court erred in not applying the doctrine of judicial estoppel to the
Thompson’s objection to Wells Fargo’s proof of claim given that the
Milwaukee County Circuit Court entered an order in 2005 substituting Wells
Fargo as the plaintiff in the foreclosure proceeding that resulted in a 2002
judgment in favor of Provident Bank (and against the Thompsons).
In New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808, 149
L.Ed.2d 968 (2001), the Supreme Court observed that the
standard for invoking judicial estoppel is “not reducible to any
general formulation of principle,” but recognized three factors
that “typically inform the decision whether to apply the
doctrine in a particular case.” Id. at 750, 121 S.Ct. 1808 (internal
quotation omitted). Those factors are first, that “a party's later
position must be clearly inconsistent with its earlier position;”
second, that “the party has succeeded in persuading a court to
accept that party's earlier position, so that judicial acceptance
of an inconsistent position in a later proceeding would create
the perception that either the first or second court was misled;”
and third, that “the party seeking to assert an inconsistent
position would derive an unfair advantage or impose an unfair
detriment on the opposing party if not estopped.” Id. at 750–51,
121 S.Ct. 1808 (internal quotations omitted).
In re Knight-Celotex, LLC, 695 F.3d 714, 721-722 (7th Cir. 2012).
Here, the bankruptcy court found as a matter of fact that the 2005
substitution order was entered by the Milwaukee County Circuit Court
“[t]he same day [Provident’s] petition was filed” notwithstanding the
absence of “any notice to the Debtors” and a dearth of “documentary
evidence that Wells Fargo was the proper plaintiff” in the foreclosure
proceeding. (Docket #1-9, 82-83). Applying the three-factor test enumerated
in New Hampshire to those facts, it is plainly apparent that the doctrine of
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judicial estoppel is inapplicable to the Thompsons’ objection to Wells Fargo’s
proof of claim because: (i) the 2005 substitution order was entered ex parte
(i.e., the Thompsons took no “earlier position”); (ii) there is no evidence that
the Thompsons received notice of that order before they filed for bankruptcy
on May 31st, 2005 (approximately one month after the 2005 substitution
order was entered); and (iii) moreover, the bankruptcy petition had the effect
of staying the foreclosure proceedings. (Docket #1-9, 127-128).
In conclusion, for the reasons set forth above, the Court finds no error
in the bankruptcy court’s decision to “not grant Wells Fargo standing to
prosecute the proof of claim based on an ex parte order that was still
appealable when this bankruptcy was filed.” (Docket #1-9, 83).
4.3

Self-Authentication Under FRE 902(9)

At the final evidentiary hearing, Ocwen sought to redeem Wells
Fargo’s disputed proof of claim (which lacked any endorsement in favor of
Wells Fargo or in blank) by offering into evidence “an August 22, 2002
allonge to the note signed by Provident that states ‘Pay to the Order of Wells
Fargo Bank Minnesota, NA.’” (Id. at 81 and 122).
Having ascertained that no allonge formed part of the disputed proof
of claim, the bankruptcy court solicited testimony or other evidence from
Ocwen to “‘connect the dots’” or, in other words, to reconcile the discrepancy
between the proof of claim note (sans allonge) and the proffered note
(coupled with the disputed allonge). (Docket #1-9, 80-83 and 124). In
response, Ocwen produced no testimony and relied on the disputed allonge
itself. (Id. at 80 and 124). The disputed allonge, Ocwen argued, selfauthenticates under Federal Rule of Evidence (“FRE”) 902(9) (providing that
no extrinsic evidence of authenticity is required to admit “[c]ommercial
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paper, a signature on it, and related documents, to the extent allowed by
general commercial law.”).
The Final Order rejects that argument reasoning that: (i) although FRE
902(9) requires no extrinsic evidence of authenticity in order to admit
commercial paper, a signature on it, and related documents, it does so only
“to the extent allowed by general commercial law” (“Step One”); (ii) general
commercial law is understood to refer to the UCC3 (“Step Two”); and (iii)
Wis. Stat. § 403.308 (forming part of Wisconsin’s adopted version of the UCC)
affords only a rebuttable presumption of authenticity which the Thompsons
overcame, thereby shifting the burden of proof back to Ocwen (“Step
Three”). (Docket #1-9, 81-82); FRE 902(9) (Westlaw 2013) (emphasis added).
In this appeal, Ocwen argues that self-authentication is axiomatic
under FRE 902(9), ignoring completely Step Three of the bankruptcy court’s
analysis (which begins, but does not end, at FRE 902(9)). (Docket #5, 17-18);
(Docket #8, 7-8).
Although this Court finds no error in Steps One and Two of the
bankruptcy court’s reasoning, the Court is obliged to find that the citation in
Step Three (Wis. Stat. § 403.308) is plainly inapposite because that section
pertains to disputes about the validity of a signature, whereas the Thompsons
based their objection on the absence of an endorsement from Provident to Wells
Fargo.
Notwithstanding the bankruptcy court's error in Step Three of its
analysis, this Court finds that the bankruptcy court's ultimate conclusion—
“the disputed allonge on its own cannot confer standing on Wells

3

31 Fed. Prac. & Proc. Evid. § 7143(9) (1st ed.) (Westlaw).

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Fargo”—can be sustained without reaching beyond Step One: FRE 902(9).
FRE 902 embodies a pragmatic recognition that the odds of certain
documentation (including commercial paper) being doctored (or otherwise
inauthentic) is sufficiently low that the authenticity of such documentation
generally need not be proven by extrinsic evidence.
But here, faced with two materially different versions of the same
negotiable instrument (one sans allonge and the other purportedly modified
by an allonge), this Court is obliged to concur that application of FRE 902(9)
to the latter would be overly mechanistic.
However, even if each version of the note self-authenticates under
FRE 902(9), without testimony or other evidence from Ocwen to “‘connect
the dots’” between the disputed allonge and the note, the evidentiary record
contained only equally-probable “authentic” versions of the note
countervailing one another. Against that evidentiary backdrop, the
bankruptcy court committed no error in finding insufficient evidence to
confer standing on Ocwen to prosecute the disputed proof of claim.
4.4

Disallowance of Ocwen’s Proof of Claim

Ocwen’s fourth “ground” of appeal—a generalized grievance that
“the Bankruptcy Court erred in disallowing Ocwen’s proofs of claim”
(Docket #1-8, 1)—was not expounded upon until briefing and so effectively
served as a placeholder in Appellant’s “Statement of the Issues on Appeal”
docketed with this Court. Regardless, because the arguments Ocwen makes
under this heading are meritless, the Court will address each briefly.
4.4.1

Nonholder in Possession

Ocwen contends that Wells Fargo had standing to prosecute the
disputed proof of claim by virtue of being “a nonholder in possession of the

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[note] who has the rights of a holder” (within the meaning of Wis. Stat.
§ 403.301). (Docket #5, 18-21). To support this bald legal conclusion, Ocwen
reasons (buried in a footnote, no less) that “Wells Fargo is a nonholder in
possession of the note with the rights of a holder because there is a missing
endorsement on the original note” from First National to Central States.
(Docket #5, 21, n.2); see also, footnote 2, supra. Ocwen’s perplexing
proposition is (perhaps unsurprisingly) not supported by a single citation to
Wisconsin law. Moreover, this Court finds nothing in the record to suggest
that this argument was put before the bankruptcy court at the final
evidentiary hearing.
Against that backdrop, this Court finds no basis to endorse Ocwen’s
unsubstantiated (and ostensibly belated) argument regarding a nonholder in
possession.
4.4.2

Claim Preclusion

This Court must next turn to Wisconsin preclusion law because
“‘Congress has specifically required all federal courts to give preclusive effect
to state-court judgments whenever the courts of the State from which the
judgments emerged would do so.’” Hayes v. City of Chicago, 670 F.3d 810, 813
(7th Cir. 2012) (citations omitted).
In Wisconsin, the doctrine of claim preclusion has three
elements: “(1) identity between the parties or their privies in
the prior and present suits; (2) prior litigation resulted in a final
judgment on the merits by a court with jurisdiction; and (3)
identity of the causes of action in the two suits.”
Kruckenberg v. Harvey, 279 Wis.2d 520, 531 (Wis. Sup. Ct.).
This Court finds no error in the bankruptcy court’s refusal to apply
the doctrine of claim preclusion to the Thompsons’ objection to Wells Fargo’s

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proof of claim because Ocwen fails on the first element of Wisconsin’s test.
The first element was not proven because: (a) the Thompsons’ counterparty
differed in the foreclosure action on the merits (Provident4) from the
bankruptcy proceeding (Wells Fargo); and (b) the disputed allonge does not
establish privity between Provident and Wells Fargo. See Section 4.3 supra.5
5.

Conclusion
With the benefit of the foregoing analysis, this Court is obliged to

affirm the Final Order.6
Accordingly,
IT IS ORDERED that the final order of U.S. Bankruptcy Judge Susan
V. Kelley, dated March 18, 2013 (Docket #1-9, 79-83), disallowing Wells
Fargo’s proof of claim in the bankruptcy proceeding of debtor-appellees,
Dennis E. Thompson and Pamela A. Thompson, be and the same is hereby
AFFIRMED; and

4

As noted in Section 4.2, supra: (i) the 2005 order substituting Wells Fargo
as the plaintiff in Provident’s foreclosure action was entered ex parte; (ii) there is no
evidence that the Thompsons received notice of that order before they filed for
bankruptcy on May 31, 2005 (approximately one month after the 2005 substitution
order was entered); and (iii) moreover, the bankruptcy petition had the effect of
staying the foreclosure proceedings. (Docket #1-9, 127-128).
5

Moreover, it appears that the sum total of Ocwen’s claim preclusion
argument before the bankruptcy court in the final evidentiary hearing was merely
an offhanded bald legal conclusion that counsel did not expressly attempt to
substantiate with any evidence or legal authority whatsoever. See (Docket #1-9,
126).
6

The Thompsons’ briefing in this appeal (Docket #s 7 and 9) grossly fails to
conform to the strictures set forth in Fed. R. Bankr. P. 8010(a)(2). However, because
this appeal is resolved without the benefit of that briefing, Ocwen’s motions to
strike (Docket #s 8 and 10) will be denied as moot.

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IT IS FURTHER ORDERED that Appellant’s motions to strike
Appellees’ briefing (Docket #s 8 and 10) be and the same are hereby DENIED
as moot.
The Clerk of the Court is directed to enter judgment accordingly.
Dated at Milwaukee, Wisconsin, this 7th day of January, 2013.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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