The Bank of New York Mellon v. Shrewsbury ( 2018 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
The Bank of New York Mellon )
FKA The Bank of New York, as )
Trustee for the Certificateholders )
of CWMBS, Inc., CHL Mortgage )
Pass-Through Trust 2007-9, )
Mortgage Pass-Through )
Certificates, Series 2007-9, )
)
Plaintiff(s), )
)
v. ) C.A. No. N15L-03-108 CLS
)
J.M. Shrewsbury aka J. Michael )
Shrewsbury and Kathy )
Shrewsbury, The United States of )
America, )
)
Defendants. )
Date Submitted: September 12, 2018
Date Decided: October 12, 2018
On Plaintiff The Bank of New York Mellon’s Motion for Summary Judgment.
DENIED.
OPINION
Melanie J. Thompson, Esquire, Orlans PC, 1201 N. Orange St, Wilmington,
Delaware 19801. Attorney for Plaintiff.
Cynthia L. Carroll, Esquire, Cynthia L. Carroll, P.A., 262 Chapman Road, Newark,
Delaware 19702. Attorney for Defendants.
Scott, J.
The issue presented to the Court is whether in a scire facias sur mortgage
action Plaintiff has shown it has the right to enforce the mortgage and associated
promissory note when Defendants have raised issues as to the validity of the
assignment of the mortgage and the note as well as questions as to the authenticity
of the note in possession of the Plaintiff.
Background
On May 15, 2007, J.M. Shrewsbury signed a promissory note in favor of
Countrywide Home Loans, Inc. in the amount of $653,553.26. At the same time,
J.M. Shrewsbury and Kathy Shrewsbury granted a mortgage to secure the debt upon
the property they owned at 9 Barnesdale Drive, Middletown, Delaware (the
property). The Mortgagee was Mortgage Electronic Registration Systems, Inc.
(MERS) acting solely as nominee for Countrywide Home Loans.
On June 6, 2011, MERS assigned all of its interest to The Bank as Trustee for
the Certificateholders of CWMBS, Inc., CHL Mortgage Pass Through Trust 2007–
9, Mortgage Pass–Through Certificates, Series 2007–9. The assigned mortgage was
filed and recorded in the real property records of New Castle County, Delaware.
In July of 2010, the Shrewsburys stopped making payments on the mortgage.
On March 20, 2015, Plaintiff filed a scire facias sur mortgage complaint against
Defendants seeking foreclosure of Plaintiff’s interest in the Property. Defendants
argued that The Bank did not show that it held the note as well as the mortgage, and
therefore was not a proper party entitled to enforce the note.
2
The Supreme Court overturned Summary Judgment in favor of The Bank
holding, “a question of fact existed which should have resulted in denial of The
Bank's Motion for Summary Judgment until it showed that it had the right to enforce
the note.”1
The Supreme Court determined the Shrewsburys provided a valid plea in
avoidance in that The Bank was not entitled to foreclose on the mortgage because it
was not a party entitled to enforce the underlying obligation.2 The Supreme Court
held, “if the holder of the mortgage is not the one entitled to enforce the underlying
debt (“mortgage money”), the mortgage holder suffers no injury by the mortgagor's
nonperformance.” The Court determined Summary Judgment was improper where
The Bank has not produced the note, claimed to be the holder of the note, or claimed
to be entitled to enforce the note.3
Standard of Review
The Court may grant summary judgment if “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to summary judgment as a matter of law.”4 The moving party bears
1
Shrewsbury, at 478.
2
Shrewsbury, at 478.
3
Id.
4
Super. Ct. Civ. R. 56(c); Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991).
3
the initial burden of showing that no material issues of fact are present.5 Once such
a showing is made, the burden shifts to the non-moving party to demonstrate that
there are material issues of fact in dispute.6 In considering a motion for summary
judgment, the Court must view the record in a light most favorable to the non-
moving party.7 The Court will not grant summary judgment if it seems desirable to
inquire more thoroughly into the facts in order to clarify the application of the law.8
Discussion
Under the Delaware Uniform Commercial Code (DUCC) a promissory note
is a negotiable instrument because it is a promise to pay a specific amount.9 Under
DUCC negotiation is a “transfer of possession, whether voluntary or involuntary,
[of]10 an instrument by a person other than the issuer to a person who thereby
5
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
6
Id. at 681.
7
Burkhart, 602 A.2d at 59.
8
Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962); Phillip-Postle v. BJ Prods.,
Inc., 2006 WL 1720073, at *1 (Del. Super. Ct. Apr. 26, 2006).
9
6 Del. C. § 3-104 (e).
10
Changing the conjunction ‘or’ as written in the statute to the preposition ‘of’
clarifies the language of the statute and comports with the legislative intent when
adopting changes to Article 3 of the Uniform Commercial Code. The Legislature in
adopted amendments to the UCC noting “These amendments have been proposed
by the American Law Institute, the National Conference of Commissioners on
Uniform State Laws and the Permanent Editorial Board of the Uniform Commercial
Code. They have been studied and approved by the Uniform Commercial Code
Committee of the Commercial Law Section of the Delaware State Bar Association.
See; Synopsis, Senate Bill No. 39 (June 25, 1995).
The text of the original reads: (a) “Negotiation” means a transfer of possession,
whether voluntary or involuntary, of an instrument by a person other than the issuer
4
becomes its holder.”11 “If an instrument is payable to an identified person,
negotiation requires transfer of possession of the instrument and its indorsement by
the holder.”12 A note is transferred when a party who is not the issuer delivers the
note to another for the purpose of giving the transferee the right to enforce the note,
including any rights as a holder in due course.13 When a note is transferred any right
the transferor had to enforce the instrument vests in the transferee.14
A “Person entitled to enforce” a negotiable instrument includes (ii) a
nonholder in possession of the instrument who has the rights of a holder. 15 A
nonholder in possession of an instrument includes a person that acquired rights of a
holder […]under Section 3-203(a) and any other person who under applicable law
is a successor to the holder or otherwise acquires the holder's rights.16 When an
instrument is indorsed in blank, the instrument becomes payable to bearer and may
be negotiated by transfer of possession alone.17
As a promissory note is a negotiable instrument, a holder of a note can freely
transfer it through negotiation to another party, and the receiving party has the right
to a person who thereby becomes its holder. § 3-201.Negotiation., U.C.C. Text § 3-
201
11
6 Del. C. § 3-201.
12
Id.
13
6 Del. C. § 3-203 (a).
14
6 Del. C. § 3-203 (b).
15
6 Del. C. § 3-301.
16
6 Del. C. § 3-301, (Uniform Commercial Code comment).
17
6 Del. C. § 3-205.
5
to enforce the note against the maker. The assignment of a note falls within the
principals of contract law and as such “if a debtor is not a party to a transfer, not a
third party beneficiary, or cannot show it sustained some type of legal harm as a
result of the transfer, it does not have standing to challenge the transfer or
enforcement of the note.”18
At this time, The Bank has produced a note, claimed to be the holder of the
note and as such they are entitled to enforce the note. However, the Shrewsburys
argue defects in the assignment of the mortgage and note sufficient to preclude
summary judgment.
The same contract principals apply to the validity of mortgage transfers
involving MERS. This Court has previously examined the relationship of MERS and
assignments of mortgages and notes. In Toelle v. Greenpoint Mortgage Funding,
Inc. the Court explained:
When mortgage loans are initially placed, member lenders will retain the
underlying notes, but can arrange for MERS to be designated as the mortgagee on
the mortgages backing the notes. This allows lenders to freely transfer their notes to
other members of MERS via an assignment, without having to subsequently record
the transfer of their interests in the mortgages backing the notes.19
18
Toelle v. Greenpoint Mortgage Funding, Inc., 2015 WL 5158276, at *3 (Del.
Super. 2015).
19
Toelle v. Greenpoint Mortgage Funding, Inc., 2015 WL 5158276, at *4 (Del.
Super. 2015).
6
As MERS acts as an agent for lenders it can be difficult for mortgagors to
identify the entity that actually controls the debt associated with the mortgage.20
This difficulty, however, does not invalidate an otherwise valid transfer of the Note
and mortgage under Delaware law.
In CitiMortgage, Inc. v. Bishop, this Court held that under contract law the
debtor is not a party to the mortgage assignment, is not a third party beneficiary to
the assignment and cannot show a legal harm as a result of the assignment. 21 The
debtor has no rights relating to a contract unless they are a third party intentional
beneficiary.22 Without a showing that a party was an intentional, and not incidental
beneficiary, a party has no rights to contest an assignment where no harm has
resulted directly from the assignment.23
The Shrewsburys have failed to make more than a conclusory allegation of
harm suffered as a result of the mortgage assignment. They have not shown they
were more than incidental beneficiaries to the assignment of the mortgage and Note
from Countrywide to The Bank and therefore have failed to show they have standing
to contest the validity of the assignment.
20
Id.
21
CitiMortgage, Inc. v. Bishop, 2013 WL 1143670 (Del. Super. 2013).
22
Id. at *5.
23
Id.
7
The Shewsburys’ final argument is one Court of Chancery recently addressed
in Tabb v. Bank of New York Mellon.24 In a factually similar situation, plaintiffs
challenged the authenticity of the note in possession of the lender. Then Master in
Chancery, now Vice Chancellor Zurn reviewed perceived inconsistencies among
different photocopies of the note, the collateral file, documents detailing the chain
of custody, and the note itself. Only after this review did Master Zurn determine the
note in question to be authentic. Such is the case before the Court. Questions have
been raised as to the authenticity of the Note in possession of The Bank that must be
answered before summary judgment may be granted.
Conclusion
The Shrewsburys’ arguments that the assignment of the mortgage and the
Note was defective is not compelling. Notes are negotiable instruments, freely
transferable through negotiation between parties. Without a showing that the maker
of the note was a third party beneficiary of the assignment or somehow harmed by
the assignment the Shrewsburys lack standing to challenge the validity of the
transfers. The same is true of the mortgage.
As to questions of authenticity of the Note in the possession The Bank, there
are still questions that remain to be answered. These questions preclude entry of
summary judgment until they can be answered.
24
Tabb v. Bank of New York Mellon, 2018 WL 4042634 (Del. Ch. 2018).
8
For the foregoing reasons, Plaintiff’s Motion for Summary Judgment is
DENIED.
IT IS SO ORDERED.
/s/ Calvin L. Scott
Judge Calvin L. Scott, Jr.
9