FYI: 9th Cir Holds Party With Pecuniary Interest Has Standing to Appeal BK Order

The U.S. Court of Appeals for the Ninth Circuit held that a party with a pecuniary interest affected by a bankruptcy court order satisfies the "person aggrieved" requirement for appellate standing even where the party fails to appear and object in the bankruptcy proceeding.

 

Accordingly, the Ninth Circuit reversed the district court's dismissal of the appeal for lack of standing and remanded the case.

 

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

 

The debtor in this action was an originator and servicer of residential mortgage loans ("Lender").  The Lender obtained funding for the loans through private investors.  In the event of a default, the Lender would initiate foreclosure proceedings, and if the Lender purchased the property at the foreclosure sale, then the Lender would create a limited liability company to hold title to the property.  The original loan investors would then get a membership interest in the newly created limited liability company.  

 

After a borrower defaulted on one such loan, the Lender formed a limited liability company ("Company") to hold title to the property.  The investors who provided money for the original loan exchanged their interest in the loan for membership interests in the Company.

 

The Company's operating agreement designated the Lender as manager of the Company. 

 

The Lender subsequently filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, which proceeding was later converted to a Chapter 7 proceeding.  The bankruptcy trustee ("Trustee") was given a deadline to assume the or reject the Lender's executory contracts, which included the Company's operating agreement. 

 

The Trustee did not assume the operating agreement by the deadline, but it subsequently filed an assumption motion ("Assumption Motion") asking the bankruptcy court to enter an order authorizing him to, among other things, assume the operating agreement.

 

The Trustee provided a notice of motion to the members ("Members") of the Company.  The notice stated that any response to the Assumption Motion was be served at least 14 days prior to the hearing date.  No one filed an opposition to the Assumption Motion, and none of the Members appeared at the hearing. 

 

As none of the Members filed an opposition or appeared at the hearing, the bankruptcy court granted the Assumption Motion as unopposed.  The transcript from the hearing made it clear that the court contemplated that the Trustee's counsel would draft an order for the court's signature. 

 

One week later, before the court had issued an order on the Assumption Motion, the Members filed an emergency motion for reconsideration and sought an expedited hearing on the motion.  The bankruptcy court denied the Members' application for an order setting a hearing on the emergency motion and ruled that the Members had not shown either that the oral ruling granting the Trustee's motion was manifest error or that they were likely to prevail on appeal.

 

The Members appealed to the district court, where the Trustee moved to dismiss on the ground that the Members lacked standing to appeal because they did not file an objection to the Assumption Motion or attend the hearing despite having received adequate notice.  The district court granted the Trustee's motion and dismissed the appeal for lack of standing.  The matter was then appealed to the Ninth Circuit.

 

On appeal, the Ninth Circuit explained that "[a]ll circuits, including this one, limit standing to appeal a bankruptcy court order to 'person[s] aggrieved' by the order."  A "person aggrieved" is someone who is "directly or adversely affected pecuniarily" by a bankruptcy court's order. 

 

The Ninth Circuit noted that in ruling that the Members lacked standing, the "district court relied . . . on Brady v. Andrew (In re Commercial Western Finance Corp.), 761 F.2d 1329, 1335 (9th Cir. 1985), which stated in dicta that 'attendance and objection' at the bankruptcy court proceedings 'should usually' be prerequisites to meeting the 'person aggrieved' bankruptcy standing rule." 

 

However, the Court further noted that "[t]his court's suggestion In re Commercial Western Finance Corp. (Commercial) that 'attendance and objection should usually be prerequisites to the person aggrieved standard' was not a holding and does not bind us." 

 

Next, the Ninth Circuit observed that other circuits courts that had addressed the issue disagreed regarding whether attendance and objection are prerequisites for satisfying the "person aggrieved" standing requirement. 

 

In determining that attendance and objections are not prerequisites for standing, the Ninth Circuit stated that "[b]ankruptcy standing concerns whether an individual is 'aggrieved,' not whether one makes that known to the bankruptcy court," and "one need not have attended and made objections at the hearing to be directly and adversely affected by a bankruptcy court's decision." 

 

Thus, "an appellant's failure to attend and object at a bankruptcy court hearing has no bearing on the question of whether that appellant has standing to appeal a bankruptcy court order." 

Instead, "[f]ailure to attend and object may result in waiver or forfeiture of the right to make certain arguments or object to certain claims, but it does not present a jurisdictional standing issue." 

 

As a result, the Members did not "waive[] their challenge to the propriety of the underlying Assumption Order, though the question of forfeiture is open for determination on remand." 

 

The Ninth Circuit concluded that "[b]ecause there is no question that [the Members'] pecuniary interests are directly and adversely affected by the bankruptcy court order in question, we reverse the district court's dismissal of the appeal for lack of standing.  We therefore remand the case to the district court" where the "court may consider whether [the Members] forfeited their opposition to the Assumption Motion and, if so, whether the bankruptcy court's granting of the Motion should be reviewed for plain error."

 

 

 

 

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 (5th DCA) Holds Mortgagee Without Standing Must Pay Prevailing Borrower's Fees

The District Court of Appeal for the Fifth District of Florida (5^th DCA) recently denied a motion to reconsider an order awarding appellate attorney's fees to borrowers who were the prevailing party on appeal, reversing judgment of foreclosure entered in favor of the mortgagee.

 

Distinguishing contrary rulings from a different Florida appellate court, the 5^th DCA upheld its prior order awarding the borrowers' attorneys' fees pursuant to Fla. Stat. Section 57.105 and the terms of the subject mortgage, despite its conclusion that the mortgagee lacked standing when it filed the foreclosure complaint, as the mortgagee nonetheless was a party to the mortgage contract by virtue of an assignment and indorsement of the mortgage and note.

 

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

 

Two borrowers ("Borrowers") appealed a judgment of foreclosure entered by a trial court in favor of a mortgagee ("Mortgagee") that alleged it was the holder of a promissory note executed by the Borrowers (the "Note") and secured by a mortgage to real property (the "Subject Mortgage").

 

On appeal, the 5th DCA concluded that the Mortgagee lacked standing when it filed suit, and failed to prove that it or anyone acting on its behalf provided the Borrowers with notice of default and intent to accelerate.

 

Accordingly, because of the Mortgagee's lack of standing, along with its failure to prove compliance with a condition precedent, the Appellate Court reversed the judgment in favor of the Mortgagee and instructed the trial court to involuntarily dismiss the case. Thus, the Borrower appellants were prevailing parties.

 

Like most mortgages, the Subject Mortgage at issue provided that only the lender is entitled to recover its litigation and appellate attorney's fees incurred in successful collection or foreclosure actions. However, by operation of law, Fla. Stat. Section 57.105(7) transforms a unilateral right into a reciprocal right so that all parties to the contract are entitled to recover attorney's fees upon prevailing. HFC Collection Ctr., Inc. v. Alexander, 190 So. 3d 1114, 1116 (Fla. 5th DCA 2016); see also Fla. Cmty. Bank v. Red Rd. Residential, LLC, 197 So. 3d 1112, 1115 (Fla. 3d DCA 2016) ("[B]y operation of law, section 57.105(7) bestows on the other party to the contract [—the borrower—]t he same entitlement to prevailing party fees.").

 

In order to obtain prevailing party fees pursuant to section 57.105(7), the moving party must prove three requirements: 1) the contract provides for prevailing party fees, 2) both the movant and opponent are parties to that contract, and 3) the movant prevailed. See Nationstar Mortg. LLC v. Glass, 219 So. 3d 896, 898 (Fla. 4th DCA 2017) (en banc); Fla. Cmty. Bank, 197 So. 3d at 1115.

 

Here, because the Subject Mortgage contained the prevailing party fee provisions, the Mortgagee was joined as a party to the Subject Mortgage contract by virtue of an assignment of the Subject Mortgage and indorsement of the Note, and the Borrowers prevailed on appeal.  Therefore, the 5th DCA awarded the Borrowers their attorneys' fees and expenses on appeal. 

 

The Mortgagee moved for rehearing, certification of conflict, and reconsideration of the Order awarding the Borrowers their appellate fees.

 

On rehearing, the Appellate Court acknowledged that section 57.105(7) cannot support an award of fees in favor of parties who are strangers to the contract or where a contract never existed, nor can it be employed to impose fees on a non-party to the contract.  See Fla. Cmty. Bank, 197 So. 3d at 1115 (defendant whose signature was forged on mortgage cannot recover fees; not party to the contract); Bank of N.Y. Mellon v. Mestre, 159 So. 3d 953, 956–57 (Fla. 5th DCA 2015) (defendants not entitled to fees where their signatures were forged on mortgage being foreclosed because not parties to contract); Bank of N.Y. Mellon Tr. Co. v. Fitzgerald, 215 So. 3d 116, 121 (Fla. 3d DCA 2017) (defendant borrowers not entitled to fees under section 57.105(7) after proving mortgage never assigned and note never delivered to plaintiff); HFC Collection Ctr., Inc., 190 So. 3d at 1117 (defendant not entitled to fees under section 57.105(7) after proving that her credit card agreement and debt were never assigned to plaintiff).

 

On rehearing, the Mortgagee cited recent decisions from the District Court of Appeal of the State of Florida, Fourth District ("4th DCA"), to support its proposition that its lack of standing automatically precluded application of Fla. Stat. section 57.105(7).

 

In Nationstar Mortg. LLC v. Glass, the 4th DCA broadly stated that "[a] party that prevails on its argument that dismissal is required because the plaintiff lacked standing to sue upon the [mortgage] contract cannot recover fees based upon a [fee] provision in that same contract." Glass, 219 So. 3d at 899.  A more recent decision from the 4th DCA, Christiana Trust v. Rushlow, cited Glass in reversing the trial court's award of attorney's fees to the borrower defendant pursuant to section 57.105(7) after finding that plaintiff mortgagee lacked standing "both at the initiation of suit and at trial." Christiana Trust v. Rushlow, 231 So. 3d 558, 559 (Fla. 4th DCA 2017).

 

However, the 5th DCA found Glass and Rushlow to be distinguishable from the facts at bar, as the Glass opinion did not disclose whether there was or was not any contractual relationship between those parties or whether the plaintiff had standing at the time of trial, and Rushlow appeared consistent with the aforementioned cases wherein section 57.105(7) did not apply because no contract existed between the parties.

 

Having concluded that both the Borrower and Mortgagee were contractual parties to the Subject Mortgage, the 5th DCA found no conflict between its decision and the 4th DCA's in Rushlow, and accordingly, denied the Mortgagee's motion for rehearing, certification and reconsideration.

 

 

 

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 (2nd DCA) Holds HELOC Instrument Not Self-Authenticating Article 3 Note

The District Court of Appeal for the Second District of Florida ("2nd DCA") recently affirmed an order involuntary dismissing an action to foreclose a second mortgage which secured a home equity line of credit.

 

In so ruling, the Appellate Court upheld the trial court's holding that the promissory note for the relevant home equity line of credit was not admissible into evidence because it was nonnegotiable, and thus, not a self-authenticating instrument.

 

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

 

A lender bank ("Bank") filed a complaint to foreclose a second mortgage to real property (the "Foreclosure Action") which secured a home equity line of credit ("HELOC") obtained by husband and wife borrowers ("Borrowers").

 

The Foreclosure Action proceeded to a nonjury trial, where the Bank moved to admit the promissory note which evidenced the HELOC (the "HELOC Note") into evidence.  The Borrowers objected on the basis that the HELOC Note was non-negotiable and thus, not a self-authenticating instrument. 

 

The trial court sustained the Borrowers' objection and also declined to admit the HELOC mortgage into evidence, explaining that the second mortgage "has no legal significance without a note."

 

With no note or mortgage admitted into the evidence, the Borrowers moved to involuntarily dismiss the case due to the lack of evidence to support foreclosure.  The trial court agreed that the Bank failed to establish a prima facie case on its HELOC cause of action and dismissed the case.  The instant appeal followed.

 

As you may recall, although Florida law requires the authentication of a document prior to its admission into evidence  (see § 90.901, Fla. Stat. (2012)), there are a number of recognized exceptions to the authentication requirement.  See Fla. Stat. § 90.902(8) ("Commercial papers and signatures thereon and documents relating to them [are self-authenticating], to the extent provided in the Uniform Commercial Code").

The Bank argued that the HELOC Note should have been admitted into evidence as a self-authenticating negotiable interest, citing long-standing Florida law.  HSBC Bank USA, Nat'l Ass'n v. Buset, 43 Fla. L. Weekly D305, 306 (Fla. 3d DCA Feb. 7, 2018) ("for over a century . . . the Florida Supreme Court has held [promissory notes secured by a mortgage] are negotiable instruments. And every District Court of Appeal in Florida has affirmed this principle").

 

The 2nd DCA rejected this argument, agreeing with the trial court that the HELOC Note was not a self-authenticating negotiable instrument because:

 

1.  By its own terms, the note established a "credit limit" of up to $40,000 from which the Borrowers could "request an advance . . . at any time";

 

2. The HELOC note provided that "[a]ll advances and other obligations . . . will reduce your available credit"; and

 

3.  The HELOC established "[t]he maximum amount of borrowing power extended to a borrower by a given lender, to be drawn upon by the borrower as needed," and thus was not an unconditional promise to pay a fixed amount of money.  See Line of Credit, Black's Law Dictionary, 949 (8th ed. 1999); § 673.1041(1), Fla. Stat. (2012) (a "negotiable instrument" is "an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or "order.")

 

Moreover, the 2^nd DCA noted, its conclusion was consistent with a recent decision from the Fifth District Court of Appeals for the State of Florida, where the appellate court there held that a series of credit agreements, first for a credit line of up to $30,000, and second to modify the line up to $90,000, were "nonnegotiable instrument[s] because [they were] not for a fixed sum." Chuchian v. Situs Invs., LLC, 219 So. 3d 992, 993 (Fla. 5th DCA 2017).

 

Accordingly, because the HELOC Note was not self-authenticating, the 2^nd DCA held that trial court did not err in sustaining the Borrowers' objection to its admission into evidence, and affirmed the involuntary dismissal of the Foreclosure Action. 

  

 

 

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

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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