U.S. BANK NATIONAL ASSOCIATION AS TRUSTEE SUCCESSOR IN INTEREST TO BANK OF AMERICA N.A. v. MORRIS BAYONNE ASSOCIATES I, LLC

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

U.S. BANK NATIONAL ASSOCIATION,

AS TRUSTEE SUCCESSOR IN INTEREST

TO BANK OF AMERICA, N.A., AS

TRUSTEE FOR THE REGISTERED HOLDERS

OF ML-CFC COMMERCIAL MORTGAGE TRUST

2007-6, COMMERCIAL MORTGAGE

PASS-THROUGH CERTIFICATES, SERIES

2007-6, by and through CW CAPITAL

ASSET MANAGEMENT LLC, as Special

Servicer,

Plaintiff-Respondent,

v.

MORRIS BAYONNE ASSOCIATES I, LLC,

MORRIS BAYONNE ASSOCIATES II, LLC,

MORRIS BAYONNE ASSOCIATES III,

LLC, JOSEPH D. MORRIS, and ROBERT MORRIS,

Defendants-Appellants,

and

STATE OF NEW JERSEY,

Defendant.

__________________________________________

Argued telephonically December 2, 2014 Decided September 9, 2015

Before Judges Sabatino and Leone.

On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. F-18842-12.

Robert J. McGuire argued the cause for appellants (Eckert Seamans Cherin & Mellott, LLC, attorneys; Mr. McGuire, of counsel and on the briefs).

Heather Deans Foley (Venable, LLP) of the Maryland bar, admitted pro hac vice, argued the cause for respondents (McCarter & English, LLP, and Ms. Foley, attorneys; Sheila E. Calello, of counsel and on the briefs; Jessica Macarone, on the brief).

PER CURIAM

In this mortgage foreclosure matter, defendants Morris Bayonne Associates I, LLC, Morris Bayonne Associates II, LLC, Morris Bayonne Associates III, LLC (together "the Morris LLCs"), Joseph D. Morris, and Robert Morris (collectively "defendants") appeal both from the June 7, 2013 order granting summary judgment to plaintiff U.S. Bank National Association (U.S. Bank), and from the December 13, 2013 final judgment for foreclosure. We affirm.

I.

On February 15, 2007, the Morris LLCs entered into a $17,000,000 loan agreement and executed a promissory note in favor of Countrywide Real Estate Finance, Inc. (Countrywide). The loan was to be used in relation to the Bayview Shops in Bayonne. That same day, the Morris LLCs executed a mortgage, an assignment of leases and rents, and a security agreement and fixture filing (collectively "the mortgage"), to secure repayment of the note. Joseph D. Morris and Robert Morris executed a guarantee of the loan. The mortgage was recorded on February 21, 2007 at the Hudson County Clerk's Office.

Subsequently, Countrywide assigned all of its interest in the loan to LaSalle Bank, National Association (LaSalle). Countrywide executed an allonge indorsing the note to LaSalle, an assignment of the mortgage, an assignment of the assignment of leases and rents, and an omnibus assignment. The assignments were recorded in the Hudson County Clerk's Office on September 11, 2007.

On June 30, 2008, LaSalle assigned all of its interest in the loan to U.S. Bank. LaSalle executed an allonge indorsing the note to U.S. Bank, an assignment of the mortgage, an assignment of the assignment of leases and rents, and an omnibus assignment. The assignments were recorded in the Hudson County Clerk's Office on March 31, 2009. It appears the allonge was not originally attached to the note; however, CWCapital Asset Management LLC (CWCAM), the special servicer for and authorized agent of U.S. Bank, contacted U.S. Bank on August 27, 2012, and obtained permission to attach the allonge to the note.

Defendants failed to make any payments after March 8, 2012, and defaulted under the terms of the note. Defendants also failed to maintain the tax escrow account and to pay real estate taxes to the City of Bayonne, as required by the loan documents. In May 2012, U.S. Bank, CWCAM, and defendants subsequently entered into a pre-negotiation agreement (PNA). In the PNA, defendants acknowledged that: U.S. Bank was the holder of the loan; they had defaulted; they desired to engage in discussions with U.S. Bank relating to the loan obligation; the loan documents were in "full force and effect and are binding;" and they held "no claim against [U.S. Bank], including . . . setoff, recoupment, estoppel, waiver, cancellation of instruments, rescission, novation or excuse of performance under the Loan Documents."

On September 4, 2012, U.S. Bank commenced a commercial foreclosure action against defendants. Defendants filed an answer. On January 28, 2013, U.S. Bank filed a motion for summary judgment before Judge Hector R. Velazquez, asking the court to deem the matter uncontested and to return the case to the Office of Foreclosure. In support of the motion, U.S. Bank submitted affidavits and certifications (collectively "affidavits") of CWCAM employees Rakesh Patel and Hussain Burhani to demonstrate that U.S. Bank was the holder of the note.

Defendants opposed the motion. They challenged U.S. Bank's claimed ownership of the note and veracity of the affidavits. As a result, on March 22, 2013, the trial court granted an adjournment to afford defendants the opportunity to depose Patel or Burhani.

After deposing Burhani, defendants argued that discrepancies between Burhani's affidavits and his deposition testimony created genuine issues of material fact. The trial court disagreed, finding that U.S. Bank was "the valid holder of the note," and had "established a prima facie case for foreclosure." The court further found that defendants "failed to submit any evidence to show that there [were] material disputed factual issues that would preclude the entry of summary judgment." The court ruled that to defeat the motion for summary judgment, defendants "cannot simply rely on their denials, accusations, or upon the fact that discovery has yet to be taken."1 The trial court granted summary judgment and sent the case to the Office of Foreclosure as an uncontested matter.

On December 13, 2013, a final judgment for foreclosure was entered. Defendants were ordered to pay to U.S. Bank $18,710,449.77, including interest, costs, and fees, out of the sale of the mortgaged premises. The court further ordered that the property be sold at a public sale, which occurred on May 6, 2014. Defendants appeal.

II.

A trial court must grant a summary judgment motion 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 challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid.; see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). On appeal, we hew to that same summary judgment standard. Townsend v. Pierre, 221 N.J. 36, 59 (2015).

Defendant does not contest their execution of the loan documents, their subsequent default, or the availability of foreclosure after default. Instead, defendants contend there was a genuine issue of fact regarding U.S. Bank's ownership of the note. "'[A] party seeking to foreclose a mortgage must own or control the underlying debt'" at the time the forfeiture complaint was filed. Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011) (quoting Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 327-28 (Ch. Div. 2010)). If the plaintiff cannot establish ownership or control, it "lacks standing to proceed with the foreclosure action and the complaint must be dismissed." Ford, supra, 418 N.J. Super. at 597. "If a debt is evidenced by a negotiable instrument, such as the note executed by defendant," whether the plaintiff established ownership or control over the note "is governed by Article III of the Uniform Commercial Code (UCC), N.J.S.A. 12A:3-101 to -605, in particular N.J.S.A. 12A:3-301." Ibid.

Thus, U.S. Bank had to show it fell within one of the "three categories of persons entitled to enforce negotiable instruments" as described in N.J.S.A. 12A:3-301. Deutsche Bank Nat'l Trust Co. v. Mitchell, 422 N.J. Super. 214, 222-23 (App. Div. 2011). N.J.S.A. 12A:3-301 provides

"Person entitled to enforce" an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to [N.J.S.A.] 12A:3-309 or subsection d. of 12A:3-418. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Here, the trial court found U.S. Bank fell within the first category because it showed it was "'the holder of the note and the mortgage at the time the complaint was filed.'" Mitchell, supra, 422 N.J. Super. at 224-25 (citation omitted).2

In order for a person "other than the one to whom a negotiable instrument is made payable to become the 'holder,' there must be a 'negotiation.'" Ford, supra, 418 N.J. Super. at 598. Under N.J.S.A. 12A:3-201(a), "'[n]egotiation' means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder." N.J.S.A. 12A:3-201(b) provides that "if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder."

A.

The evidence U.S. Bank provided demonstrated that it was the holder of the note and thus fell within the first category of a person entitled to enforce a negotiable instrument under N.J.S.A. 12A:3-301. See Ford, supra, 418 N.J. Super. at 598. Because U.S. Bank has been able to establish that it possessed the allonge and the note at the time the forfeiture complaint was filed, the trial court was correct in concluding it had established a prima facie case for foreclosure.

U.S. Bank provided the allonge and the note, along with affidavits and certifications of two witnesses attesting to the authenticity of the documents as business records and detailing U.S. Bank's negotiation for LaSalle's transfer of possession and indorsement of the note. The allonge clearly indicates LaSalle indorsed the note making it payable to U.S. Bank. An allonge is "[a] slip of paper sometimes attached to a negotiable instrument for the purpose of receiving . . . indorsements." Bryan A. Garner, Black's Law Dictionary at 88 (9th ed. 2009). An indorsement is a signature "made on an instrument for the purposes of negotiating an instrument[.]" N.J.S.A. 12A:3-204(a). "For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument." Ibid. "An indorsement on an allonge is valid even though there is sufficient space on the instrument for an indorsement." N.J.S.A. 12A:3-204, Official Comment 1.

Defendants note that the allonge indorsing the note to U.S. Bank apparently was not originally attached to the note. However, prior to the filing of the forfeiture complaint, CWCSA sought and obtained permission from U.S. Bank to attach the allonge to the note. Defendants have not cited any binding authority that physical attachment of the allonge prior to the filing of the complaint is inadequate to indicate indorsement of a note. Indeed, at oral argument before us, defendants stated that an allonge does not need to be attached so long as it is properly authenticated. Here, the allonge clearly identified the promissory note issued to defendants, confirmed LaSalle was the prior holder and signatory, and indicated U.S. Bank as the new holder to which the note was now payable. In addition, the affidavits of Patel and Burhani both authenticated the loan documents, including the allonge.

B.

In addition, the evidence submitted demonstrated that U.S. Bank had been assigned the mortgage and related loan documents prior to filing the foreclosure complaint. Each mortgage assignment in the chain of title proffered by U.S. Bank was supported by the affidavits detailing when and how the assignments took place, and where the assignments were recorded in the Hudson County Clerk's office. The mortgage and other documents indicating the assignment of the note from LaSalle to U.S. Bank were recorded on March 31, 2009, before the filing of the complaint. As U.S. Bank accurately asserted, "proof of recording creates a presumption of delivery." Thorpe v. Floremoore Corp., 20 N.J. Super. 34, 37 (App. Div. 1952). Thus, U.S. Bank also established it had standing, pursuant to N.J.S.A. 46:9-9, by "present[ing] an authenticated assignment indicating that it was assigned the note before it filed the original complaint." Mitchell, supra, 422 N.J. Super. at 225.

C.

After U.S. Bank established a prima facie case, the burden shifted to defendants to present evidence of a genuine issue of material fact for trial. Brill, supra, 142 N.J. at 529. Under Rule 4:46-5

When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the pleading, but must respond by affidavits meeting the requirements of R. 1:6-6 or as otherwise provided in this rule and by R. 4:46-2(b), setting forth specific facts showing that there is a genuine issue for trial.

Defendants did not provide any evidence to defeat U.S. Bank's motion for summary judgment. They did not submit any affidavit or certifications in the summary judgment proceedings. They proffered no evidence that LaSalle had not assigned the note to U.S. Bank before the foreclosure action, or that LaSalle had assigned the note to any other entity.

D.

Instead, defendants challenge the court's reliance on the affidavits of Burhani and Patel. When reviewing a trial court's evidentiary rulings on a summary judgment motion, this court applies an abuse of discretion standard, and "'should uphold the . . . findings undergirding the trial court's decision if they are supported by adequate, substantial and credible evidence on the record.'" Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 384 (2010) (citation and internal quotation marks omitted). The trial court "must be guided by the applicable Rules of Evidence as well as by the overarching mandate of Rule 104." Id. at 385. A reviewing court should gauge "the evidentiary ruling under an abuse of discretion standard, and the legal conclusions undergirding the summary judgment motion itself on a plenary de novo basis." Ibid.

"A certification will support the grant of summary judgment only if the material facts alleged therein are based, as required by Rule 1:6-6, on 'personal knowledge.'" Ford, supra, 418 N.J. Super. at 599; see also Rule 4:46-2(c). Rule 1:6-6 states

If a motion is based on facts not appearing of record or not judicially noticeable, the court may hear it on affidavits made on personal knowledge, setting forth only facts which are admissible in evidence to which the affiant is competent to testify and which may have annexed thereto certified copies of all papers or parts thereof referred to therein. The court may direct the affiant to submit to cross-examination, or hear the matter wholly or partly on oral testimony or depositions.

In Patel's September 5, 2012 affidavit, signed the day after the filing of the foreclosure complaint, he discussed the history of the assignments for the note and loan, beginning with Countrywide and ending with U.S. Bank. Patel's affidavit also detailed the relevant dates for each assignment, explaining that each was recorded in the Hudson County Clerk's Office, and that true copies of each assignment were submitted as exhibits. Patel affirmed that U.S. Bank was the present holder of the loan and loan documents. Patel's affidavit also affirmed the authenticity of the allonge indorsing the note from LaSalle to U.S. Bank.

Patel's affidavit demonstrated familiarly with the loan, as his affidavit discussed the interest rates, rights of the lender, and the status of the debt, including the defaults. The affidavit stated that Patel came into this information through his role as vice president of CWCAM and through his personal involvement in the matter.

Patel also submitted a March 18, 2013 certification which stated he had been responsible for "collection of the loan at issue in this case" since April 2012. Patel's certification made clear that he had personal knowledge of U.S. Bank's business records and had reviewed the loan documents. He affirmed that his affidavit "was based on [his] personal involvement in this matter since April 2012 and [his] review of the Lender's business records."

Thus, Patel's personal knowledge enabled him to authenticate the loan documents and to confirm that the note and mortgage were transferred to U.S. Bank before the foreclosure complaint was filed.

Burhani's January 7, 2013 affidavit stated that he had been involved with the loan since October 26, 2012. Burhani's affidavit incorporated the history of the loan from Patel's affidavit. Burhani's affidavit added details about defendants' default. In a March 4, 2013 supplemental affidavit, Burhani repeated the allegations made in Patel's affidavit, and similarly stated that U.S. Bank had been in possession of the note since at least the filing of the complaint.

In Burhani's affidavit, he stated he was "required to have, and [did] have, personal knowledge of how and where the Lender's business records are maintained and of how to access those business records[.]" He further stated

[t]he Lender's records include, among other things, promissory notes which evidence the terms of the loans, mortgages which evidence a borrower's agreement to secure payment of the loans with certain real property, guarantees which evidence a guarantor's agreement to pay the loan, and documents evidencing the assignment of loans into the present lender[.]

As "an Associate with the Special Servicer authorized to act on behalf of the Lender in connection with the Loan," Burhani swore he had "access to and ha[d] reviewed these business records with respect to the Loan."

Defendants do not directly challenge the facts contained in the affidavits of Patel and Burhani regarding the loan and the assignments. Instead, defendants take issue with the fact that Burhani, and not Patel, was produced for deposition. At the March 22, 2013 hearing, defendants questioned the validity of Patel's assertions and requested time to depose him. The trial court gave defendants time to depose either Patel or Burhani. When U.S. Bank noted that Patel was overseas on assignment for months, the court stated that U.S. Bank had "to produce a witness" to be deposed. Because Patel was out of the country, Burhani was deposed instead. Defendants did not thereafter request additional time to depose Patel, and did not ask the trial court to find U.S. Bank's production of Burhani was in bad faith.

Instead, defendants argued that Burhani's April 12, 2013 deposition contained two revelations that should have precluded summary judgment. First, Burhani testified he only saw the original note on April 11, 2013, while preparing for his deposition, undermined the assertion in his affidavit that he had personal knowledge of the loan and loan documents. Second, Burhani was unaware until April 11, 2013, that the allonge was not initially attached to the note when it was transferred from LaSalle to U.S. Bank, and that the allonge was affixed to the note by CWCAM after the documents came into U.S. Bank s possession. We do not find these disparities sufficient to make it an abuse of discretion for the trial court to consider Burhani's affidavits.

Defendants also complained that, in Burhani's affidavit, he claimed he had personal knowledge of how "the Lender s" business records were maintained, but in his deposition he testified that he had no knowledge of how U.S. Bank creates and maintains its business records. However, in Burhani's second supplemental affidavit, dated May 20, 2013, he explained that while he did "not have personal knowledge regarding how the business records of [U.S. Bank] are maintained," he did "have knowledge as to how CWCAM, as Special Servicer to the Trust and [his] employer, is the current custodian of the original loan documents." Burhani attested that he had "reviewed the scanned originals of the relevant loan documents at issue in this matter, after they were put into CWCAM's secure online database and reviewed for accuracy." Burhani affirmed "[t]his included the Note and the Mortgage that are the subject of this action." He added that he "also reviewed the hard copy originals prior to [his] deposition."

The trial court found that Burhani's knowledge was sufficient. We agree. Our foreclosure rules require that

[t]he affidavit shall be made either by an employee of the plaintiff, if the plaintiff services the mortgage, on the affiant's knowledge of the plaintiff's business records kept in the regular course of business, or by an employee of the plaintiff's mortgage loan servicer, on the affiant's knowledge of the mortgage loan servicer's business records kept in the regular course of business.

[R. 4:64-2(c).]

Where, as here, the mortgage was serviced not by U.S. Bank but by its mortgage loan servicer, CWCAM, it was sufficient that Burhani and Patel, employed by CWCAM, attested to their "knowledge of the mortgage loan servicer's business records kept in the regular course of business." Ibid. Those are the records Burhani reviewed, as explicitly stated in his second supplemental affidavit. Though Burhani's initial affidavits should have made clear that he was reviewing the loan documents held in the regular course of business by the mortgage loan servicer, rather than the "Lender," that corrected error was not sufficient to preclude the trial court from considering Burhani's affidavits.

The affidavits of Patel and Burhani established that the loan documents fell under the business records exception. N.J.R.E. 803(c)(6). Pursuant to N.J.R.E. 803(c)(6)

A statement contained in a writing or other record of acts, events, conditions, and, subject to Rule 808, opinions or diagnoses, made at or near the time of observation by a person with actual knowledge or from information supplied by such a person, if the writing or other record was made in the regular course of business and it was the regular practice of that business to make it, unless the sources of information or the method, purpose or circumstances of preparation indicate that it is not trustworthy.

"The purpose of the business records exception is to 'broaden the area of admissibility of relevant evidence where there is necessity and sufficient guarantee of trustworthiness.'" Liptak v. Rite Aid, Inc., 289 N.J. Super. 199, 219 (App. Div. 1996) (citation omitted). Our Supreme Court has established that

[i]n order to qualify under the business record exception to the hearsay rule, the proponent must satisfy three conditions

"First, the writing must be made in the regular course of business. Second, it must be prepared within a short time of the act, condition or event being described. Finally, the source of the information and the method and circumstances of the preparation of the writing [37] must justify allowing it into evidence."

[State v. Sweet, 195 N.J. 357, 370 (2008) (quoting State v. Matulewicz, 101 N.J. 27, 29 (1985)), cert. denied, 557 U.S. 934, 129 S. Ct. 2858, 174 L. Ed. 2d 601 (2009).]

"There is no requirement that the foundation witness [certifying that a record is a business record must] possess any personal knowledge of the act or event recorded." New Century Fin. Servs., Inc. v. Oughla, 437 N.J. Super. 299, 326 (App. Div.) (emphasis added), certif. denied, 218 N.J. 531 (2014). Acknowledging that "computers had 'become part of everyday life,'" this court has previously accepted the testimony of a witness who could "'demonstrate that the computer [business] record is what [he] claims,'" that he "'is sufficiently familiar with the record system used,'" and that he "'can establish that it was the regular practice of that business to make the record.'" Id. at 326 (quotingHahnemann Univ. Hosp. v. Dudnick, 292 N.J. Super. 11, 18 (App. Div. 1996)). This court further held that

an employee of a successor bank could certify on summary judgment to the loan history printouts of transactions of its predecessor because the employee's position rendered him sufficiently familiar with the record system used to allow him to establish that it was the regular practice of the predecessor bank to make the record.

[Id. at 326-27 (citing Garden State Bank v. Graef, 341 N.J. Super. 241, 245 (App. Div. 2001)).]

Both Patel and Burhani reviewed documents "kept in the normal course of business," not documents "prepared in anticipation of litigation." See id. at 308 n.3. Although Burhani was unable to answer specific questions regarding the assignment of the loan, he was familiar with the computer system that maintained CWCAM's files. Pursuant to Oughla, he was not required to have particular knowledge of each assignment and the history of the loan.

Given Burhani's less extensive knowledge of the loan, we understand defendants' concern that U.S. Bank produced Burhani rather than Patel for deposition. However, Patel was overseas for an extended period, and the trial court did not find that U.S. Bank acted in bad faith in producing the more available Burhani. Again, defendants did not seek additional time to depose Patel. Instead, they chose to make an incorrect argument that Burhani's basis of knowledge was insufficient.

Importantly, defendants failed to proffer any evidence contradicting the assignment of the loan documented in the properly admitted loan documents and affirmed in the affidavits of Patel and Burhani. "[C]onclusory claims" without explanation and "[b]ald assertions are not capable of . . . defeating summary judgment." Ridge at Back Brook, LLC v. Klenert, 437 N.J. Super. 90, 97-98 (App. Div. 2014). The trial court properly accepted the loan documents as business records and the affidavits as authenticating the assignments. Together they proved that U.S. Bank was the holder of the note and mortgage when the foreclosure complaint was filed.3

Affirmed.

1 The trial court also found that defendants were estopped by the PNA from arguing that U.S. Bank was not the holder of the note or lacked standing.

2 In a footnote, U.S. Bank contends that it also fell within the second category as "a nonholder in possession of the instrument who has the rights of a holder." N.J.S.A. 12A:3-301. We need not reach this contention.

3 U.S. Bank further argues defendants are estopped from challenging its ownership of the promissory note and loan because defendants acknowledged U.S. Bank's ownership in the PNA, and waived any defenses to foreclosure litigation. We decline to address this argument, as we find U.S. Bank's ownership was sufficiently established through the documents and the affidavits and certifications of the witnesses.