FYI: 2nd Cir Holds "Habit and Routine Practice" and Photocopies Properly Admitted Into Evidence in TILA, Common Law Fraud Action

The U.S. Court of Appeals for the Second Circuit recently affirmed a district court's denial of a borrower's post-verdict motions following the trial of federal Truth In Lending Act and common law fraud allegations.

 

In so ruling, the Second Circuit held that:

 

(1) the trial court properly admitted "habit and routine practice" evidence, over the borrower's objection that this evidence was actually inadmissible "propensity evidence;" and

 

(2) the trial court properly admitted photocopies of various loan documents into evidence, over the borrower's objections of lack of authentication and the "best evidence" rule;

 

A copy of the opinion is available at:  Link to Opinion

 

A borrower sued her lender and two affiliated companies, alleging violations of the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. (TILA), and common law fraud. The borrower had been solicited for a mortgage loan in November of 2004 to refinance two existing mortgage loans. A meeting took place at JFK Airport, at which the borrower claims she signed blank pieces of paper, but the lender claimed she signed loan documents for a $504,000 mortgage, which was later foreclosed.

 

At the trial, the lender defendants introduced evidence showing that the borrower signed loan documents and the jury returned a verdict in defendants' favor. The borrower moved for judgment as a matter of law pursuant to Fed. R. Civ. P. 50 or, alternatively, for a new trial under Fed. R. Civ. P. 59. The district court denied the motion, and the borrower appealed.

 

The Second Circuit first addressed the district court's evidentiary rulings.

 

One of the defendants' witnesses testified that he met with the borrower at JFK, denied that he asked her to sign blank sheets of paper, said that he handled more than one thousand such closings, and explained the typical or routine procedure followed, which included a short explanation of each document.

 

The borrower argued that this testimony about how closings were routinely conducted constituted inadmissible propensity evidence under Fed. R. Civ. P. 404(a) because it was offered to prove that he acted in conformity with that practice on the day in question.

 

The Court disagreed, reasoning that evidence of a person's character or character trait, barred under Rule 404(a), was not the same thing as evidence of habit or routine, which is admissible under Rule 406. "Character may be thought of as 'a generalized description of one's disposition,' while habit 'is more specific': '[i]t describes one's regular response to a repeated specific situation.'"

 

Because the witness' testimony that he had conducted more than a thousand closings like the plaintiff's and that he always showed the borrowers at his closings each document and explained it before signing was "the sort of 'regular response to a repeated specific situation' contemplated by Rule 406," the Court found that the district court did not abuse its discretion in admitting the testimony.

 

The Second Circuit then turned to the borrower's argument that the district judge erroneously admitted copies of the loan documents into evidence in violation of Rule 802's rule against hearsay. The district court admitted 34 loan documents, only 3 of which were originals -- the note, mortgage and adjustable rate rider.

 

The Appellate Court again disagreed with the borrower, holding that this argument "is easily rejected" because "[t]he rule against hearsay bars introduction of an out-of-court statement only if it is offered to prove the truth of what it asserts. … Defendants offered the loan documents not to demonstrate the truth of any assertions contained therein, but for either of two permissible purposes. The first was to show the [borrower] entered into the loan agreement." The "second purpose was simply to show that [borrower] had received the disclosures that TILA mandates. The presence of [borrower's] signature on the pages containing those disclosures achieved that end quite apart from the truth of what the documents asserted."

 

The Second Circuit explained that the borrower's "argument in fact concerns authentication, not hearsay."  The Court held that the lender defendants' photocopied loan documents met the low threshold of Rule 901, which is "satisfied if sufficient proof has been introduced so that a reasonable juror could find in favor of authenticity or identification." Several witnesses testified that the "documents were what defendants claimed they were (that is, true copies of originals signed by [borrower], rather than fakes)." The Court found that "[t]his evidence easily cleared the hurdle of Rule 901(a)."

 

The Second Circuit also rejected the borrower's argument that the admission of photocopies violated the so-called "best evidence" rule, reasoning that while Federal Rule of Evidence 1002 requires an original in order to prove the content of a writing, there are "a handful of exceptions," including when the original is unavailable because it has been lost or destroyed, as long as it was not done by the proponent in bad faith.

 

The Appellate Court concluded that the district court acted well within its discretion in admitting the photocopies, because three witnesses testified that the originals were sent to prior counsel, who returned only a few originals, such that it was reasonable to conclude they had been lost or destroyed without any bad faith on lender defendants' part.

 

Turning to the borrower's Rule 50 and Rule 59 post-trial motions, the Second Circuit found that the borrower "failed to seek judgment as a matter of law under Rule 50(a) before the case was submitted to the jury; thus, as the District Court correctly ruled, her motion could properly have been granted only if necessary 'to prevent manifest injustice.'"

 

The Second Circuit had "no trouble concluding that [borrower's] Rule 50 arguments fail" because the testimony from the three witnesses, "together with the loan documents, was more than adequate to warrant the jury in finding for defendants on the case's central issue—that is, whether [borrower] had actually signed a loan agreement at JFK."

 

The Appellate Court likewise found no error in the district court's denial of the borrower's Rule 59 motion for a new trial, reasoning that the district judge correctly restrained herself from second-guessing the jury's decision on the witnesses' credibility.

 

Accordingly, the district court's judgment was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Fla App Ct (4th DCA) Holds Foreclosure Invalid as Mortgagee Did Not Meet Its Burden to Prove Standing

The District Court of Appeal of the State of Florida, Fourth District, recently reversed summary judgment of foreclosure in favor of a mortgagee, holding that the plaintiff mortgagee failed to satisfy its heightened burden of proving the absence of any genuine issue of material fact on the issue of standing applicable because the motion for summary judgment was filed before the defendant answered the complaint, and the plaintiff mortgagee was on notice at the time that the defendant was contesting standing.

 

A copy of the opinion is available at: http://www.4dca.org/opinions/Dec.%202015/12-09-15/4D13-3467.op.pdf

 

A homeowners association (HOA) foreclosed its claim of lien against a homeowner, and a third party company acquired title after it was the highest bidder at the foreclosure sale.

 

Before the certificate of title was issued in the HOA's foreclosure action, a mortgagee filed a mortgage foreclosure action against the subject property. The mortgagee's foreclosure complaint alleged that the plaintiff was the servicer for a trustee bank "to whom the note is specifically endorsed."

 

The note, a copy of which was attached to the complaint, contained two undated special  endorsements, one from the original lender to a non-party and the other from that non-party to the trustee bank for whom the plaintiff was the servicing agent.

 

The company that acquired title of the subject property in the HOA's lien foreclosure action moved to intervene as the owner of the property in the mortgage foreclosure action, and also moved to dismiss the complaint. The foreclosure buyer's motion to dismiss argued among other things that the plaintiff servicer lacked standing to sue. The trial court granted the motion to intervene, but never ruled on the motion to dismiss.

 

A second servicer was later substituted for the first servicer as plaintiff in mortgage foreclosure action.  The new servicer moved for summary judgment, attaching to the motion several affidavits, one of which contained the statement that the plaintiff "holds the promissory note." In response, the foreclosure buyer filed an affidavit contesting standing.

 

At the hearing on the plaintiff servicer's motion for summary judgment, the plaintiff servicer filed the original note and mortgage. The foreclosure buyer argued that plaintiff servicer had not met its heightened burden of proof applicable when a motion for summary judgment is filed before the non-movant filed its answer to the complaint, and also failed to show that there did not exist and genuine issue of a material fact.

 

In response, plaintiff servicer argued that it had standing because it was substituted as the plaintiff for the first servicer, the note was endorsed to the loan owner for whom the plaintiff servicer had a power of attorney.

 

However, the second servicer did not introduce any affidavit or other evidence reflecting its status as attorney in fact or servicer for the loan owner. The trial court nevertheless granted the plaintiff servicer's motion for summary judgment and entered a final judgment in plaintiff servicer's favor. The foreclosure buyer moved for rehearing, which was denied, and it appealed.

 

The Appellate Court began its analysis by explaining that under Florida Rule of Civil Procedure 1.510(c), "[s]ummary judgment is appropriate only where 'there is no genuine issue of material fact and if the moving party is entitled to a judgment as a matter of law.'" … The burden is on the moving party to 'show conclusively the absence of any genuine issue of material fact and the court must draw every possible inference in favor of the party against whom a summary judgment is sought. … Notably, 'a plaintiff who moves for summary judgment before a defendant files an answer has a 'difficult burden.'"

 

In this situation, "the plaintiff must not only establish that no genuine issue of material fact is present in the record as it stands, but also that the defendant could not raise any genuine issues of material fact if the defendant were permitted to answer the complaint."

 

The Appellate Court agreed with the foreclosure buyer that the plaintiff servicer failed to show that no answer that it might file would present a genuine issue of material fact on the issue of standing, relying on its 2012 decision in Dominko v. Wells Fargo Bank, N.A., which held that "it was error to enter summary judgment in favor of the bank where it had 'failed to meet its burden [to] show that no answer which the [homeowner] might file could present a genuine issue of fact.'"

 

The Appellate Court reasoned that in the case at bar, as in Dominko, when the plaintiff servicer moved for summary judgment, the foreclosure buyer had not yet answered the complaint.

 

In addition, the homeowner in Dominko had moved for summary judgment, challenging the mortgagee's compliance with the pre-suit notice requirement, whereas the foreclosure buyer in the case at bar had filed a motion to dismiss and an affidavit opposing the motion for summary judgment challenging standing.

 

Finally, the Appellate Court noted that, like in Dominko, the record reflected that the plaintiff servicer failed to meet its burden of proof by filing "sufficient summary judgment evidence regarding its standing to file suit."

 

Thus, the final summary judgment in the plaintiff servicer's favor was reversed and the case remanded for further proceedings.

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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