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U.S. Bank National Association v. Courthouse Crossing Acquisitions, LLC

Court of Appeals of Ohio, Second District, Montgomery

December 22, 2017


         Civil Appeal from Common Pleas Court Trial Court Case No. 2016-CV-5346

          JAMES P. BOTTI, Atty. Reg. No. 0023051, and JARED M. KLAUS, Atty. Reg. No. 0087780, Attorneys for Plaintiff-Appellee

          TAMI HART KIRBY, Atty. Reg. No. 0078473 Attorney for Plaintiff-Appellee

          ROBERT R. KRACHT, Atty. Reg. No. 0025574, CHARLES J. PAWLUKIEWICZ, Atty. Reg. No. 0011499, and NICHOLAS R. OLESKI, Atty. Reg. No. 0095808, Attorneys for Defendants-Appellants


          WELBAUM, J.

         {¶ 1} In this case, Defendants-Appellants, Courthouse Crossing Acquisitions, LLC and Schon C.C. Holdings (collectively, "Crossing") appeal from a summary judgment rendered in favor of Plaintiff-Appellee, U.S. Bank National Association, as Trustee for the Registered Holders of GE Commercial Mortgage Corporation, Commercial Mortgage Passthrough Certificates, Series 2006-C1, acting by and through Its Special Servicer, LNR Partners, LLC ("U.S. Bank"). Crossing contends that the trial court erred in granting summary judgment in favor of U.S. Bank because there are genuine issues of material fact concerning whether U.S. Bank is the holder of a promissory note, and with respect to how the original lender transferred the note to U.S. Bank.

         {¶ 2} We conclude that the trial court did not err in rendering summary judgment in favor of U.S. Bank. There were no genuine issues of material fact concerning whether the bank was the holder of the promissory note, or how the original lender transferred the note. In addition, Crossing was precluded from asserting alleged failure to comply with a services and pooling agreement that purportedly involved the note, because Crossing was a third party to the agreement. Accordingly, the judgment of the trial court will be affirmed.

         I. Facts and Course of Proceedings

          {¶ 3} In October 2016, U.S. Bank filed a foreclosure action against Courthouse Crossing Acquisition, LLC, Schon C.C. Holding, and the Montgomery County Treasurer. The complaint alleged that U.S. Bank held a $12, 700, 000 promissory note that Crossing had signed, as well as a mortgage and security agreement on premises located at 10 North Ludlow Street, Dayton, Ohio. In addition, the complaint alleged that U.S. Bank owned security interests in Crossing's personal property due to UCC-1 financing statements filed with the State of Ohio and Montgomery County, Ohio.

         {¶ 4} U.S. Bank also filed a motion for appointment of a receiver, which was granted in November 2016. Crossing has also appealed that decision. See U.S. Bank National Assn. v. Courthouse Crossing Acquisition LLC, 2d Dist. Montgomery No. 27331.

         {¶ 5} In November 2016, Crossing filed a motion to dismiss the complaint, based on alleged lack of jurisdiction. The trial court overruled this motion in January 2017. Subsequently, U.S. Bank filed a motion for summary judgment in March 2017. The motion was supported by the affidavit of Dmitry Sulsky, asset manager of LNR Partners, which was the special servicer for the loan held by U.S. Bank. On April 5, 2017, the trial court granted Crossing's motion for an extension of time under Civ.R. 56(F), and extended the time for responding to May 22, 2017. Crossing filed a brief in response to the summary judgment motion on May 22, 2017. The brief was supported by the affidavit of Crossing's counsel, who identified various documents obtained in discovery as well as excerpts from a form 8-K that had been filed with the Securities and Exchange Commission ("SEC").

         {¶ 6} In mid-June 2017, the trial court granted U.S. Bank's Motion for Summary Judgment. The court then filed a judgment entry issuing a foreclosure decree on July 29, 2017. This appeal followed.

         II. Alleged Error in Rendering Summary Judgment

         {¶ 7} Crossing's sole assignment of error states that:

The Trial Court Erred as a Matter of Law When It Granted U.S. Bank's Motion for Summary Judgment.

         {¶ 8} Under this assignment of error, Crossing contends that the trial court erred in rending summary judgment in favor of U.S. Bank because there were genuine issues of material fact concerning whether U.S. Bank is a holder of the Crossing promissory note. Crossing's argument is based on the existence of a Pooling and Servicing Agreement ("PSA") that pertained to the Series 2006-C1 Trust ("Trust").

         {¶ 9} According to Crossing, the PSA required the Depositor (identified as GE Commercial Mortgage Corporation, or "GE") to assign various loans, including Crossing's loan, to the Trust. Crossing further notes that an entity called German American Capital Corporation ("GACC") "purportedly" sold Crossing's loan to GE. Crossing states that U.S. Bank failed to produce any evidence that the original lender, Deutsche Bank Mortgage Capital, LLC ("Deutsche"), sold its rights in the note and mortgage to GACC, so that GACC then had rights to sell to GE. Based on these alleged facts, Crossing argues that there are genuine issues of material fact concerning the chain of title. The trial court rejected this argument, noting that Crossing was not a party to the assignments of the notes and mortgage, and lacked standing to challenge their validity.

         {¶ 10} "A trial court may grant a moving party summary judgment pursuant to Civ. R. 56 if there are no genuine issues of material fact remaining to be litigated, the moving party is entitled to judgment as a matter of law, and reasonable minds can come to only one conclusion, and that conclusion is adverse to the nonmoving party, who is entitled to have the evidence construed most strongly in his favor." Smith v. Five Rivers MetroParks, 134 Ohio App.3d 754, 760, 732 N.E.2d 422 (2d Dist.1999), citing Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 375 N.E.2d 46 (1978). "We review decisions granting summary judgment de novo, which means that we apply the same standards as the trial court." (Citations omitted.) GNFH, Inc. v. W. Am. Ins. Co., 172 Ohio App.3d 127, 2007-Ohio-2722, 873 N.E.2d 345, ¶ 16 (2d Dist.).

         {¶ 11} When a mortgagor defaults, a mortgagee "may elect among separate and independent remedies to collect the debt secured by a mortgage." (Citations omitted.) Deutsche Bank Natl. Tr Co. v. Holden, 147 Ohio St.3d 85, 2016-Ohio-4603, 60 N.E.3d 1243, ¶ 21. These remedies include: (1) suits seeking personal judgments against mortgagors to recover amounts due on promissory notes, without resorting to the property that has been mortgaged; (2) actions to enforce mortgages, which are for the mortgagee's excusive benefit and for those claiming under the mortgagee; and (3) "based on the property interest created by the mortgagor's default on the mortgage, the mortgagee may bring a foreclosure action to cut off the mortgagor's right of redemption, determine the existence and extent of the mortgage lien, and have the mortgaged property sold for its satisfaction." (Citations omitted.) Id. at ¶ 22-24.

         {¶ 12} The case before us involves the third remedy, which is a foreclosure action asking that the property be sold. However, a " 'foreclosure proceeding is the enforcement of a debt obligation, ' * * * and the debt is established by the note." Id. at ¶ 27, quoting Wilborn v. Bank One Corp., 121 Ohio St.3d 546, 2009-Ohio-306, 906 N.E.2d 396, at ¶ 17. In Holden, the court concluded that a bank could proceed in foreclosure against a debtor who had been discharged from any obligation on a promissory note in bankruptcy proceedings, so long as the bank could prove that "it is the party entitled to enforce the note - regardless of whether it can obtain a personal judgment on it against the [obligors]." Holden at ¶ 27.

         {¶ 13} " To properly support a motion for summary judgment in a foreclosure action, a plaintiff must present evidentiary-quality materials showing: (1) the movant is the holder of the note and mortgage, or is a party entitled to enforce the instrument; (2) if the movant is not the original mortgagee, the chain of assignments and transfers; (3) the mortgagor is in default; (4) all conditions precedent have been met; and (5) the amount of principal and interest due.' " Nationstar Mtge., LLC. v. West, 2d Dist. Montgomery Nos. 25813, 25837, 2014-Ohio-735, ¶ 16, quoting Wright-Patt Credit Union, Inc. v. Byington, 6th Dist. Erie No. E-12-002, 2013-Ohio-3963, ¶ 10. (Other citations omitted.)

         {¶ 14} U.S. Bank presented such materials, by authenticating the various documents attached to the complaint. The promissory note, which is dated February 23, 2006, was originally entered into by Deutsche and Crossing. It required Crossing to pay Deutsche and Deutsche's "successors and/or assigns" $12, 700, 000. Doc. #51, March 20, 2017 Sulsky Affidavit, Ex. 1, Promissory Note, p. 1. The payments were to be made in various installments, with the balance of the "principal sum and all accrued and unpaid interest" to be paid on March 1, 2016. Id

         {¶ 15} The promissory note also referenced an open-end leasehold mortgage and security agreement which was being used to secure the obligations evidenced in the promissory note. Id. at p. 2. Consistently, the mortgage and security agreement referenced the promissory note. See Sulsky Affidavit, ¶ 6-7 and Ex. 2 attached to the affidavit, p. 2.

         {¶ 16} Another Sulsky affidavit, attached to U.S. Bank's motion for appointment of a receiver, stated that U.S. Bank was the owner and holder of the promissory note, the mortgage and security agreement, and an assignment of rents and leases that were attached to the Complaint and that Crossing had executed on February 23, 2006, to secure the $12, 700, 000 loan. October 7, 2016 Affidavit of Dmitry Sulsky, ¶ 2-3, attached to Doc. #7 in 2d Dist. Montgomery App. Case No. 27331, and identifying the copies of the note and mortgage attached to the Complaint.[1]

         {¶ 17} Sulsky further stated in his summary judgment affidavit that after the note was delivered to Deutsche, it was first assigned and transferred by Deutsche to LaSalle Bank National Association ("LaSalle"), as trustee for the Trust, pursuant to an allonge that was attached to the note. Doc. #51, March 20, 2017 Sulsky Affidavit, ¶ 4-5. LaSalle then assigned and transferred the note to Wells Fargo Bank, N.A ("Wells Fargo"), as trustee for the Trust, again through an allonge. Id. at ¶ 5. Finally, Wells Fargo assigned and transferred the note to U.S. Bank, through an allonge. Id. Copies of the note and the allonges were attached both to the complaint and summary judgment motion, and the note was in U.S. Bank's possession at these times.

         {¶ 18} Sulsky further stated that the original mortgage for the Crossing property was recorded on February 24, 2006, with the Montgomery County, Ohio Recorder's Office. March 20, 2017 Sulsky Affidavit, ¶ 7, and Ex. 2 to the Sulsky Affidavit. Consistent with the above assignments and transfers of the note, Deutsche assigned the mortgage to LaSalle; LaSalle then assigned the mortgage to Wells Fargo; and finally, Wells Fargo assigned the mortgage to U.S. Bank. These assignments were recorded, respectively, on April 10, 2006, July 22, 2008, and October 8, 2009, and were attached to the Complaint and to Sulsky's affidavit. March 20, 2017 Sulsky Affidavit, ¶ 8; Complaint, Exs. C-E; Sulsky Affidavit, Exs. 3-5.

         {¶ 19} The UCC-1 financing statements, which were also assigned and transferred, with the final transfer being to U.S. Bank, were identified and attached both to the Complaint and to Sulsky's affidavit. March 20, 2017 Sulsky Affidavit, ¶10-15; Complaint, Ex. F; Sulsky Affidavit, Ex. 6.

         {¶ 20} In the case before us, no one disputes that the promissory note was a negotiable instrument. Under R.C. 1303.31(A), the parties entitled to enforce a negotiable instrument are: "(1) The holder of the instrument; (2) A nonholder in possession of the instrument who has the rights of a holder; (3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 1303.38 or division (D) of section 1303.58 of the Revised Code."

         {¶ 21} A "holder" " 'means either of the following: (a) If the instrument is payable to the bearer, a person who is in possession of the instrument; (b) If the instrument is payable to an identified person, the identified person when in possession of the instrument.' " Flagstar Bank, F.S.B. v. Richison, 3d Dist. Union No. 14-12-01, 2012-Ohio-3198, ¶ 15, quoting R.C. 1301.01(T)(1)(a) and (b).[2] In this case, U.S. Bank was a "holder, " because it was in possession of a negotiable instrument that was made payable to an identified person (U.S. Bank).

         {¶ 22} Crossing concedes that U.S. Bank is in possession of the original note and allonges. Crossing Brief, p. 7. However, Crossing contends that U.S. Bank is not entitled to enforce the note because of defects in the chain of title. In this regard, Crossing relies on the fact that the "Note and Mortgage were purportedly part of a securitization whereby New York investment bankers and commercial banks pooled together large numbers of commercial mortgage loans, where the loans were to be sold to a depositor, and this depositor was to then deposit the mortgage loans in the common law trust * * *." (Emphasis added.) Id. at p.9.

         {¶ 23} As an initial point, "purported" facts are not facts for purposes of summary judgment. In opposing summary judgment, Crossing submitted only the affidavit of its attorney, who identified various documents and photos of documents he had obtained. Some documents, including a copy of an unsigned allonge, were obtained when the attorney reviewed U.S. Bank's trust file. Other documents were excerpts from "Form 8-K related to GE Commercial Mortgage Corporation, Series 2006-C1 from the Securities Exchange Commission." Doc. #57, Affidavit of Nicholas R. Oleski, ¶ 4.[3] The excerpts included parts of a Pooling and Services Agreement and a Mortgage Loan Purchase and Sale Agreement between GE and GACC. Id. at ¶ 5-6, referring to Exs. F and G.

         {¶ 24} Ex. E is designated by Oleski's affidavit as the SEC certification page, but it contains some additional pages. One of these pages is entitled "Current Report" and is dated March 23, 2006. The report indicates that on March 23, 2006, a series of mortgage-based pass-through certificates were issued based on a PSA that was dated March 1, 2006. The parties to the PSA were GE, Wachovia Bank, National Association, LNR Partners, Inc., and LaSalle Bank, National Association. These parties were designated, respectively, as the depositor or registrant, the servicer, the special servicer, and trustee.

         {¶ 25} According to the report, the certificates "evidence in the aggregate the entire beneficial interest in a trust fund * * * consisting primarily of 145 commercial or multifamily mortgage loans * * * having an aggregate principal balance as of the Cut-Off Date of approximately $1, 608, 803, 744." Ex. E, p. 4, Item 8.01. Among the properties listed in the Mortgage Loan Schedule for the Series 2006-C1 Trust is Courthouse Crossing, 10 Ludlow Street. See Ex. G attached to the Oleski Affidavit, Mortgage Loan and Purchase Agreement, and Ex. A attached to the Mortgage Loan and Purchase Agreement, p.1.

         {¶ 26} The point of Crossing's argument is that the chain of title is defective because it does not include the entities mentioned in the PSA and does not follow the chain of assignments that the PSA contemplates. One might glean from this a variety of possibilities, including that the registrant (GE) may have incorrectly represented assets that were not actually in the fund at the time of the SEC submission; that the entities involved may not have complied with the PSA and may not have transferred the assets into the fund as required by the document; that the loans were not actually transferred into the trust yet, but were later transferred; or that the loans had been conveyed at some point to the trust.

         {¶ 27} None of the materials submitted by Crossing offer any illumination concerning these possibilities, or perhaps others, except two letters. The first is a letter dated February 28, 2006, from Deutsche (the original lender) to LaSalle, sending LaSalle the original promissory note for the Crossing loan. The second is a letter dated May 15, 2006, from a legal assistant for Deutsche to LaSalle, transmitting the necessary assignments for the Crossing loan documents, including the mortgage, assignment of rents, and UCC-3 filings. These documents indicate a direct transmission of the pertinent materials, including the promissory note, from Deutsche to LaSalle, all of which supports U.S. Bank's position concerning the transfer of the promissory note. And, there is nothing indicating otherwise.

         {¶ 28} As was noted, the trial court rejected Crossing's argument based on existing authority in this district. See Doc. #61, Decision, Order and Entry Granting Plaintiffs Motion for Summary Judgment, p. 9 and fn. 26, citing Bank of New York Mellon v. Clancy, 2d Dist. Montgomery No. 25823, 2014-Ohio-1975.

         {¶ 29} In Clancy, the party challenging the validity of a note and mortgage argued that the mortgage had been conveyed in violation of a trust. Id. at ¶ 10. We concluded that "even if the mortgage had been conveyed in violation of the trust, courts in Ohio have held that 'because a debtor is not a party to the assignment of a note and mortgage, the debtor lacks standing to challenge their validity.' " Id. at ¶ 33, quoting Deutsche Bank Natl. Trust Co. v. Whiteman, 10th Dist. Franklin No. 12AP-536, 2013-Ohio-1636, ¶ 16; which in turn, cited LSF6 Mercury REO Invests. Trust Series 2008-1 c/o Vericrest Fin., Inc. v. Locke, 10th Dist. Franklin No. 11AP-757, 2012-Ohio-4499, ¶ 28-29. We also cited Bank of ...

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