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Deutsche Bank National Trust v. Moynihan

United States District Court, D. Massachusetts

September 19, 2017




         Pending before this court is a motion for summary judgment filed by plaintiff Deutsche Bank National Trust Company, as Trustee for IXIS 2006-HE3 (“DBNTC”), seeking to enforce a lost promissory note. (Docket Entry # 63). Defendant James P. Moynihan (“defendant”) opposes the motion. (Docket Entry # 73). After conducting a hearing on April 25, 2017, this court took the motion under advisement. (Docket Entry # 77).


         The parties' dispute arises out of a promissory note executed by defendant and secured by a mortgage on property in Lowell, Massachusetts, where defendant resides (“the property”). (Docket Entry # 1). The complaint sets out two counts against defendant and former defendant Durham Commercial Capital Corporation (“Durham”). (Docket Entry # 1, p. 8). Count One requests a declaratory judgment in favor of DBNTC against defendant establishing that DBNTC rightfully owns the note and is “entitled to immediate physical possession of the original [of the note].” (Docket Entry # 1, ¶ 40). Count Two requests a declaratory judgment in favor of DBNTC against defendant establishing that DBNTC, under section one of Massachusetts General Laws chapter 231A and section 3-301(iii) (“section 3-301”) of Massachusetts General Laws chapter 106 (“chapter 106”), is entitled to enforce the terms of the note and the mortgage granting DBNTC a security interest in the property and may exercise the “default remedies provided for in the mortgage including exercise of the statutory power of sale.” (Docket Entry # 1, ¶ 45). On August 22, 2016, DBNTC filed a notice voluntarily dismissing Durham from this action. (Docket Entry # 45).

         On March 2, 2017, DBNTC moved for summary judgment under Fed.R.Civ.P. 56 (“Rule 56”) based on three arguments. (Docket Entry ## 63, 64). DBNTC contends that it is entitled to enforce the note under chapter 106, sections 3-301 and 3-309. (Docket Entry # 64, p. 5). DBNTC also maintains that declaratory relief is warranted because defendant is judicially and collaterally estopped from challenging DBNTC's enforcement of the note. (Docket Entry # 64, pp. 10, 13). Defendant submits that DBNTC's motion should be denied because there is a genuine issue of material fact as to whether DBNTC ever had possession of the promissory note and if the note was even lost. (Docket Entry # 73, pp. 1, 8). Defendant also counters the judicial and collateral estoppel arguments made by DBNTC. (Docket Entry # 73, pp. 10-13).


         Summary judgment is designed to “‘pierce the boilerplate of the pleadings and assay the parties' proof in order to determine whether trial is actually required.'” Tobin v. Federal Express Corp., 775 F.3d 448, 450 (1st Cir. 2014) (quoting Wynne v. Tufts University School of Medicine, 976 F.2d 791, 794 (1st Cir. 1992)). It is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). It is inappropriate “if the record is sufficiently open-ended to permit a rational factfinder to resolve a material factual dispute in favor of either side.” Pierce v. Cotuit Fire District, 741 F.3d 295, 301 (1st Cir. 2014); see also Ruiz-Rosa v. Rullan, 485 F.3d 150, 155 (1st Cir. 2007) (applying same legal standard applied by district court when reviewing summary judgment ruling).

         “Genuine issues of fact are those that a factfinder could resolve in favor of the nonmovant, while material facts are those whose ‘existence or nonexistence has the potential to change the outcome of the suit.'” Green Mountain Realty Corp. v. Leonard, 750 F.3d 30, 38 (1st Cir. 2014) (quoting Tropigas de Puerto Rico, Inc. v. Certain Underwriters at Lloyd's of London, 673 F.3d 53, 56 (1st Cir. 2011)). The evidence is viewed “in the light most favorable to the non-moving party” and “all reasonable inferences” are drawn in his favor. Ahmed v. Johnson, 752 F.3d 490, 495 (1st Cir. 2014). In reviewing a summary judgment motion, a court may examine “all of the record materials on file, ” Geshke v. Crocs, Inc., 740 F.3d 74, 77 (1st Cir. 2014), “including depositions, documents, electronically stored information, affidavits or declarations . . . or other materials.” Fed.R.Civ.P. 56(c)(1); see Ahmed v. Johnson, 752 F.3d at 495. “Unsupported allegations and speculation, ” however, “do not demonstrate either entitlement to summary judgment or the existence of a genuine issue of material fact sufficient to defeat summary judgment.” Rivera-Colon v. Mills, 635 F.3d 9, 12 (1st Cir. 2011); see Serra v. Quantum Servicing, Corp., 747 F.3d 37, 39-40 (1st Cir. 2014) (“allegations of a merely speculative or conclusory nature are rightly disregarded”). Adhering to this framework, the record sets out the following facts.


         In a quitclaim deed dated August 28, 2003 and recorded at the Middlesex North Registry of Deeds, defendant acquired the property located at 619-621 Stevens Street in Lowell, Massachusetts. (Docket Entry # 65-2). Defendant, as borrower, executed the promissory note dated May 1, 2006 in favor of New Century Mortgage Corporation (“New Century”), as lender, in the original principal amount of $360, 000. (Docket Entry # 65-3). The note was payable “to the order of, without recourse New Century Mortgage Corporation.” (Docket Entry # 65-3, p. 7).[1]Above the printed name “New Century Mortgage Corporation” was a blank signature line. (Docket Entry # 65-3, p. 7). Defendant was the only borrower on the note. (Docket Entry # 65-3, p. 6). The note expressly allows “the Lender” to transfer the note and states that, “The Lender or anyone who takes [the note] by transfer and who is entitled to receive payments under [the note] is called the ‘Note Holder.'” (Docket Entry # 65-3, p. 2).

         Defendant agreed to make monthly payments of $2, 703.90 on the first day of each month starting on June 1, 2006. (Docket Entry # 65-3, pp. 2-3). The note dictated that the monthly payments applied to interest before principal. (Docket Entry # 65-3, p. 2). The note further contained a flexible, index-based interest rate that adjusted every six months after the first day of May 2008. (Docket Entry # 65-3). The interest rate on the principal would range between 9.013% and 10.513% at the first adjustment date and would not drop below 9.013% nor exceed 16.013%. (Docket Entry # 65-3, p. 4). The note also stated that defendant would default if he failed to make the monthly payments in full. (Docket Entry # 65-3, p. 5). As stated in the note, the “Note Holder may enforce its rights under this [n]ote against each [borrower] individually or against all of [the borrowers] together.” (Docket Entry # 65-3, p. 5). The note was “governed by federal law and the law of the jurisdiction in which the property encumbered by the Security Instrument . . . is located[, ]” i.e., Massachusetts.[2] (Docket Entry # 65-3, p. 6).

         On May 1, 2006, to secure the repayment and other obligations contained in the note, defendant granted a mortgage encumbering the property to New Century. (Docket Entry # 65-4). Like the quitclaim deed, the mortgage is recorded at the Middlesex North Registry of Deeds. (Docket Entry # 65-4). The mortgage provides notice to defendant that “one or more changes of the Loan Servicer [might occur] unrelated to a sale of the [note]” during the life of the mortgage. (Docket Entry # 65-4, pp. 11-12). Under the terms of the mortgage, defendant conveyed and granted New Century and its “successors and assigns” the “power of sale.” (Docket Entry # 65-4, pp. 3, 13).

         Separately, New Century entered into a Mortgage Loan Purchase and Servicing Agreement (“MLPSA”) with NC Capital Corporation (“NC Capital”) dated December 1, 1998. (Docket Entry # 65-7). The MLPSA allowed New Century to sell NC Capital pools of mortgage loans determined by the parties to the agreement. (Docket Entry # 65-7, p. 5). The MLPSA also contained a mortgage loan document delivery procedure: “[T]he Company shall . . ., at least four (4) Business Days prior to the Closing Date, deliver and release to the Custodian those Mortgage Loan Documents as required by the Custodial Agreement with respect to each Mortgage Loan . . .. The Custodian shall certify receipt of all such Mortgage Loan Documents . . ..” (Docket Entry # 65-7, p. 20).

         In 2006, NC Capital entered into a Third Amended and Restated Mortgage Loan Purchase and Warranties Agreement with IXIS Real Estate Capital, Inc. (“IXIS”) dated April 1, 2006. (Docket Entry # 65-8). IXIS entered into an Unaffiliated Seller's Agreement (“USA”) with Morgan Stanley ABS Capital I Inc. (“Morgan Stanley”) as depositor on September 1, 2006, effective September 29, 2006. (Docket Entry # 65-9). The USA vested ownership of each mortgage loan and each related note in Morgan Stanley upon the sale of the mortgage loans. (Docket Entry # 65-9, pp. 6-7). The USA also provided that:

The contents of any Mortgage File in the possession of the Unaffiliated Seller [IXIS] at any time after such sale, and any principal and interest due . . . and received by or on behalf of the Unaffiliated Seller, shall be held in trust by the Unaffiliated Seller for the benefit of the Depositor [Morgan Stanley] . . ..

(Docket Entry # 65-9, p. 7).

         Meanwhile, Morgan Stanley entered into a Pooling and Service Agreement (“the PSA”) on September 1, 2006 with IXIS, as unaffiliated seller, and DBNTC, as trustee and custodian, establishing IXIS Real Estate Capital Trust 2006-HE3 (“Trust 2006-HE3”) effective September 29, 2006. (Docket Entry # 65-10, pp. 1, 31). The PSA also identified Saxon Mortgage Services, Inc. (“Saxon”) as a loan servicer. (Docket Entry # 65-10). Section 2.01(a) of the PSA conveyed all of Morgan Stanley's rights, title, and interest in the “Trust Fund, ” which the PSA defines as the “Mortgage Loans” in the “Mortgage Loan Schedule, ” to DBNTC as trustee. (Docket Entry # 65-10, pp. 54, 73, 74). The “Moynihan” loan on the property at “619-621 Stevens Street” was one of the loans included in the Mortgage Loan Schedule. (Docket Entry 65-1, ¶ 11) (Docket Entry # 65-12). As stated in the PSA, upon the sale of the “Mortgage Loans” to DBNTC, it obtained ownership and possession of the note or of the note held “in trust” for the benefit of DBNTC.[3] (Docket Entry # 65-9, § 2.01(b). Section 2.01(b) further states that, “In connection with the transfer and assignment of each Mortgage Loan, the Unaffiliated Seller has delivered or caused to be delivered to the Custodian . . . the original Mortgage Note bearing all intervening endorsements evidencing a complete chain of assignment from the originator to the related Originator . . ..” (Docket Entry # 65-10, pp. 74-75). DBNTC therefore obtained possession of the original note from Morgan Stanley pursuant to the PSA and attached schedule, which included the Moynihan loan. (Docket Entry # 65-1, ¶¶ 10, 11) (Docket Entry # 65-10, pp. 54, 73, 74) (Docket Entry # 65-12). Pursuant to section 2.08(h) of the PSA, Morgan Stanley warranted that it had good title and sole ownership of the mortgage loans, free of any interest of any other person. (Docket Entry # 65-10, p. 89).

         According to the note possession history record, DBNTC received the collateral file[4] containing the original promissory note on May 12, 2006. (Docket Entry # 65-17). DBNTC therefore had possession of the note endorsed in blank as of May 12, 2006. (Docket Entry # 65-17). (Docket Entry # 65-1, ¶ 13). Any discrepancy between the date DBNTC acquired possession of the note as evidenced by the note possession history (May 12, 2006) or as evidenced by the PSA and Mortgage Loan Schedule (September 29, 2006) does not create an issue of material fact because under either scenario, DBNTC had possession of the original note no later than September 29, 2006, prior to the time of loss. (Docket Entry # 65-1, ¶¶ 10, 11) (Docket Entry # 65-10, pp. 31, 54, 74) (Docket Entry # 65-12) (Docket Entry # 65-17).

         Before January 1, 2008, defendant defaulted on his monthly payments. (Docket Entry # 24-2). By affidavit, defendant states that after granting the mortgage to New Century in 2006, he made a number of monthly mortgage payments to New Century “[f]rom 2006 to 2008.”[5] (Docket Entry # 73-4, p. 1). On June 19, 2008, defendant filed for bankruptcy in the United States Bankruptcy Court for the District of Massachusetts (“the bankruptcy court”). (Docket Entry # 65-14). In the voluntary bankruptcy petition, defendant expressly stated that he intended to surrender the property to the creditor, Saxon. (Docket Entry # 65-14, p. 36). On October 7, 2008, the bankruptcy court granted defendant a chapter seven discharge from his legal obligation to pay the property debt. (Docket Entry # 65-15).

         In an assignment dated November 11, 2008 and effective May 7, 2008, New Century transferred the mortgage to DBNTC, as trustee, in care of Saxon as servicer. (Docket Entry # 1-5, p. 2). The assignment states that, “New Century Mortgage Corporation . . . FOR GOOD AND VALUABLE CONSIDERATION RECEIVED, hereby grants, assigns and transfers to Deutsche Bank National Trust Company, as Trustee for IXIS 2006-HE3 . . . All of the right, title, and interest that said New Century Mortgage Corporation has . . ..” (Docket Entry # 1-5, p. 2). The assignment was recorded at the Middlesex North Registry of Deeds. (Docket Entry # 1-5, p. 2). Sometime in 2008 after the transfer of the mortgage, defendant contacted Saxon by telephone and spoke to an unidentified individual. (Docket Entry # 73-4). Defendant asked the individual for a copy of the promissory note. (Docket Entry # 73-4). The Saxon official was unable to locate a copy and did not know who held the note.[6] (Docket Entry # 73-4).

         Effective April 16, 2010, Ocwen Loan Servicing, LLC (“Ocwen”) obtained the servicing rights for the loan from Saxon. (Docket Entry # 65-6). Ocwen's obligations as DBNTC's servicer included:

sending statements or coupons to the borrower to facilitate payment, collecting payments from the borrower and making scheduled disbursements of principal and interest accounts making disbursements from such account[s] to pay real estate taxes and or hazard insurance premiums due in connection with the [p]roperty and to perform other usual and customary residential loan servicing functions.

(Docket Entry # 24, ¶ 3). In a document dated May 21, 2010, DBNTC granted a limited power of attorney (“the LPOA”) to Ocwen. (Docket Entry # 65-13). The LPOA was recorded at the Middlesex North Registry of Deeds. (Docket Entry # 65-13). The LPOA authorized Ocwen to execute various documents on behalf of DBNTC regarding foreclosure proceedings for loans held by DBNTC. In relevant part, the LPOA states that:

Deutsche Bank National Trust Company . . . hereby constitutes and appoints Ocwen Loan Servicing LLC. As Servicer . . . the Trustee's true and lawful Attorney-in-Fact, in the Trustee's name, place and stead and for the Trustee's benefit, in connection with all mortgage loans serviced by the Servicer pursuant to the Agreements solely for the purpose of performing such acts and executing such documents in the name of the Trustee necessary and appropriate to effectuate the following enumerated transactions in respect of any of the mortgages or deeds of trust . . . and promissory notes secured thereby (the “Mortgage Notes”) for which the undersigned is acting as Trustee for various certificate holders . . ..

(Docket Entry # 65-13, p. 2) (emphasis added). The LPOA enumerated transactions Ocwen was allowed to carry out on behalf of DBNTC, including, “With respect to a Mortgage or Deed of Trust, the foreclosure, the taking of a deed in lieu of foreclosure, or the completion of judicial or non-judicial foreclosure or termination, cancellation or rescission of any such foreclosure . . ..” (Docket Entry # 65-13, p. 3).

         On August 16, 2010, defendant filed a complaint in the Massachusetts Land Court Department of the Trial Court (“the land court”) seeking a determination that DBNTC did not hold the mortgage encumbering the property. (Docket Entry # 1-6). During this proceeding, Ablitt Scofield, P.C. (“Ablitt”), a law firm located in Woburn, Massachusetts, represented DBNTC. (Docket Entry ## 65-16, 65-19).

         On or about July 20, 2011, DBNTC released the collateral file containing the note to Ocwen. (Docket Entry # 65-1, ¶ 13) (Docket Entry # 65-17).[7] On or about August 16, 2011, Ocwen returned the file, which contained the original of the note to DBNTC. (Docket Entry # 65-17). On October 18, 2011, DBNTC again gave the file containing the original of the note to Ocwen. Ocwen received the file on November 3, 2011. (Docket Entry # 65-1, ¶ 13) (Docket Entry # 65-17) (Docket Entry # 65-20, pp. 1-3, 13). On or about November 21, 2011, Ocwen, DBNTC's servicer, gave the original of the note to Ablitt as an attachment to an attorney bailee letter in order to commence and proceed with foreclosure of the property. (Docket Entry # 65-1, ¶¶ 13, 14) (Docket Entry ## 65-17, 65-18) (Docket Entry # 65-20, pp. 1-3, 14-15). The attorney bailee letter states that, “By signing this letter agreement below where indicated, you [Ablitt] confirm that you are currently holding Documents on behalf of the Servicer [Ocwen] and the Owner [DBNTC], and shall only act in accordance with either the Servicer's or the Owner's instructions with regard to the Documents.” (Docket Entry # 65-20, p. 17).

         On December 30, 2011, the land court entered a judgment that, “by virtue of the assignment of the mortgage dated November 11, 2008, . . . DBNTC is the current record holder of the Mortgage, entitled to exercise the power of sale contained in the Mortgage.” (Docket Entry # 1-6, p. 3). The judgment also declared that DBNTC “may exercise the power of sale contained in the Mortgage to foreclose it without regard to whether or not DBNTC is the current holder of the Note.” (Docket Entry # 1-6, p. 3).

         Sometime in 2011, Ablitt began having cash-flow issues. (Docket Entry # 73-1, p. 22). On or about November 7, 2012, Ablitt entered into a factoring agreement entitled “Nonrecourse Receivables Purchase Contract and Security Agreement” (“the factoring agreement”) with a previous lender, Durham. (Docket Entry # 73-1, pp. 22, 25). Under the factoring agreement, Durham agreed to purchase certain receivables of Ablitt's “in full amount of advances . . . not exceed[ing] $1, 200, 000.” (Docket Entry # 73-1, p. 26). In the factoring agreement, Ablitt also gave Durham a security interest in Ablitt's accounts, “‘promissory notes, chattel paper' . . . [and] ‘general intangibles.'” (Docket Entry # 73-1, p. 27). DBNTC alleged in its complaint that the security interest included “custody and control over [Ablitt]'s assets, files, records, electronically stored data, hard drives and/or case management systems, not otherwise identified and retrieved by [Ablitt]'s former clients.” (Docket Entry # 1, ¶ 35). The complaint also alleges that Durham “obtained and retained” the note.[8] (Docket Entry # 1, ¶ 36). Ablitt continued to deteriorate in 2013 and early 2014. (Docket Entry # 73-1, p. 23). As a result, Durham began to exert a level of managerial control over Ablitt's affairs, culminating in a firm name change to Connolly, Geaney, Ablitt and Willard, P.C. (“CGAW”). (Docket Entry # 65-19) (Docket Entry # 73-1, p. 26). Sometime in late July or August 2014, CGAW ceased operations. (Docket Entry # 73-1, p. 23).

         On or about September 3, 2014, three or more creditors of CGAW filed on CGAW's behalf an involuntary chapter seven bankruptcy petition in the bankruptcy court (“CGAW bankruptcy proceeding”). (Docket Entry # 73-1, p. 5). CGAW never returned the original of the note to DBNTC or Ocwen. (Docket Entry # 65-17) (Docket Entry # 65-20, ¶ 6). In a separate suit initiated by Ocwen against CGAW and Durham in the United States District Court for the Southern District of Florida, West Palm Beach Division, Durham filed a crossclaim on September 15, 2014 against Ablitt for breach of the factoring agreement and a counterclaim against Ocwen for failure to pay accounts. (Docket Entry # 73-2, pp. 1-13). On August 7, 2015, Ocwen renewed a motion for contempt against Durham for not furnishing documents related to receivable accounts in the CGAW bankruptcy proceeding. (Docket Entry # 73-1, pp. 2-21).

         On September 12, 2016, Ocwen, as servicer of DBNTC, executed a lost note affidavit. (Docket Entry # 65-20). Therein, M. Johnson, Ocwen's authorized signer, attests that, based on his personal knowledge and servicing records kept in the course of Ocwen's regularly conducted business, DBNTC had possession of the note when the loss of possession occurred. (Docket Entry # 65-20, ¶¶ 1-2, 5). The affidavit further states that, despite a diligent search on April 1, 2016, “the original Note could not be located and” DBNTC “cannot reasonably obtain possession of the original Note.” (Docket Entry # 65-20, ¶ 6). The affidavit also states that, “The original Note has been ...

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