Court Opinion

ID: 4354078
Source: CourtListenerOpinion
Date Created: 2018-12-24 17:31:39.894954+00
Date Added: 2024-06-11T11:38:25.935678
License: Public Domain

J-A25006-18

                                   2018 Pa. Super. 353

    MB FINANCIAL BANK                          :   IN THE SUPERIOR COURT OF
                                               :        PENNSYLVANIA
                       Appellant               :
                                               :
                                               :
                v.                             :
                                               :
                                               :
    LAWRENCE J. RAO, JR.                       :   No. 921 EDA 2018

              Appeal from the Order Entered February 14, 2018
     In the Court of Common Pleas of Philadelphia County Civil Division at
                             No(s): 150603452

BEFORE: PANELLA, J., DUBOW, J., and KUNSELMAN, J.

OPINION BY DUBOW, J.:                               FILED DECEMBER 24, 2018

         Appellant, MB Financial Bank (“MB Financial”), appeals from the

February 14, 2018 Order, which denied MB Financial’s Post-Trial Motion to

remove the Judgment of Nonsuit that the trial court entered in favor of

Appellee, Lawrence J. Rao, Jr., after a non-jury trial in this mortgage

foreclosure action.1 After careful review, we reverse and remand for a new

trial.

____________________________________________

1 Throughout the proceedings, the trial court has characterized its disposition
variously as a directed verdict, a finding, and a nonsuit. In light of MB
Financial filing a Post-Trial Motion, all of the parties’ agreeing that the
disposition was a nonsuit during the Post-Trial Motion oral argument, and the
trial court entering Judgment of Nonsuit, we construe the denial of the Post-
Trial Motion to be a denial of a Motion to Remove a Nonsuit and the final
disposition to be a Judgment of Nonsuit. See Pa.R.C.P. No. 227.1(a)
(explaining that a motion for post-trial relief replaces a motion to remove a
nonsuit following the decision of the judge in a trial without jury).
J-A25006-18

       The relevant factual and procedural background is as follows. Mr. Rao

is the record owner of a mortgaged property located at 1171 South Darien

Street, Philadelphia, PA 19147. On February 9, 2006, Mr. Rao executed a

promissory Note (“Note”) in favor of SunTrust Mortgage, Inc. (“SunTrust”),

for $228,000. To secure the Note, Mr. Rao executed a mortgage to Mortgage

Electronic Registration Systems, Inc. (“MERS”) as nominee for SunTrust. On

or around April 22, 2013, SunTrust discovered that the Note was missing from

their vault and David Van Aken, Vice President, executed a Lost Note Affidavit.

On May 13, 2015, MERS, as nominee for SunTrust, assigned the mortgage to

MB Financial.

       On June 25, 2015, MB Financial filed the instant in rem foreclosure

action against Mr. Rao due to Mr. Rao’s March 1, 2011 default on the

mortgage.     In addition to setting forth relevant information, including the

parties and date of the mortgage, its place of record, a specific averment of

default, an itemized statement of the amount due, and a demand for judgment

in rem, MB Financial also averred that MB Financial was in possession, either

“directly or through an agent,” of a “Lost Note Affidavit and has the right to

foreclose.” Complaint at ¶ 6.

       Mr. Rao filed an Answer with New Matter challenging MB Financial’s

standing to proceed with the matter based on MB Financial’s failure to have
____________________________________________

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legal possession of the Note, and, therefore, failure to have the right to

enforce the Note.

        On October 31, 2017, the trial court held a non-jury trial. At trial, MB

Financial presented testimony from Nancy Johnson, Assistant Vice President

and the Default Proceedings Officer for SunTrust.         By and through Ms.

Johnson’s testimony, MB Financial identified and introduced seven exhibits

during its case-in-chief, including: (1) the original Lost Note Affidavit with a

copy of the Note attached;2 (2) a certified copy of the Mortgage; (3) a certified

copy of the Assignment of Mortgage recorded on May 13, 2015; (4) the pre-

foreclosure notice dated July 14, 2011 sent to Mr. Rao; (5) the payment

history for the Mortgage; (6) the payoff/judgment figures; and (7) the Limited

Power of Attorney between Mr. Rao and SunTrust. When Mr. Rao objected to

the admission of the Lost Note Affidavit based on hearsay, the trial court

sustained the objection and precluded its admission into evidence. The trial

court also precluded from evidence the Limited Power of Attorney.            MB

Financial moved the remaining exhibits into evidence.

        Mr. Rao did not present any evidence and made an oral Motion for a

Nonsuit. After some discussion with the trial court regarding the difference

between a nonsuit and a directed verdict, Mr. Rao made an oral Motion for a

Directed Verdict. The trial court granted the Motion and made a finding in

favor of Mr. Rao.

____________________________________________

2   The copy of the Note did not include a copy of the indorsement page.

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      On November 13, 2017, MB Financial filed a Post-Trial Motion.         On

February 14, 2018, after oral argument where the court refers to the October

31, 2017 disposition as a nonsuit, the trial court denied the Post-Trial Motion

and entered a Judgment of Nonsuit in favor of Mr. Rao and against MB

Financial.

      MB Financial filed a timely Notice of Appeal. Both MB Financial and the

trial court complied with Pa.R.A.P. 1925.

      MB Financial raises the following issues on appeal:

         1. Whether the Lost Note Affidavit constituted a business
            record pursuant to 42 Pa.C.S. § 6108 and the
            Pennsylvania Rules of Evidence and whether the [c]ourt
            properly ruled it and associated testimony inadmissible.

         2. Whether [MB Financial]’s witness at trial, Ms. Johnson,
            was competent to testify at trial as to matters including
            the Lost Note Affidavit and the other business records of
            SunTrust, the servicer of the loan.

         3. Whether [MB Financial] established at trial its right to a
            judgment in mortgage foreclosure as it had
            demonstrated (a) the existence of a mortgage in a
            specified amount securing a note; (b) that it held the
            Note at the time this action was commenced and/or had
            been assigned the Mortgage; (c) the defendant’s default;
            and (d) the amount of the debt.

         4. Whether [Mr. Rao]’s answer to the complaint contained
            only general denials of the material allegations of the
            complaint and, therefore, should have been construed as
            admissions requiring judgment in favor of [MB Financial].

         5. Whether the [c]ourt erroneously denied [MB Financial]’s
            post-trial motion for judgment or a new trial.

         6. Whether [MB Financial] having been assigned the
            Mortgage sufficiently established standing or whether it
            also had to prove it held the Note.

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          7. Whether, assuming it had to prove it held the Note, [MB
             Financial] was entitled to enforce the lost Note pursuant
             to the Lost Note Affidavit and 13 Pa.C.S. § 3309.

          8. Whether the Lost Note Affidavit, executed by the loan
             servicer [SunTrust], complied with 13 Pa.C.S. § 3309 and
             entitled [MB Financial] to enforce the Note.

          9. Whether the [c]ourt improperly sustained [Mr. Rao]’s
             objection to the question at trial: “Would [MB Financial]
             or SunTrust on its behalf indemnify [Mr. Rao] if another
             entity attempted to enforce the Note.”

Appellant’s Brief at 5 (reordered for ease of disposition).

      As an initial matter, the Rules of Civil Procedure provide, in relevant

part, that a trial court “may enter a nonsuit on any and all causes of action if,

at the close of the plaintiff’s case on liability, the plaintiff has failed to establish

a right to relief.” Pa.R.C.P. No. 230.1(a)(1). Entry of a nonsuit is proper “only

if the factfinder, viewing all the evidence in favor of the plaintiff, could not

reasonably conclude that the essential elements of a cause of action have

been established.” Billig v. Skvarla, 853 A.2d 1042, 1048 (Pa. Super. 2004)

(citation omitted). “When a nonsuit is entered, the lack of evidence to sustain

the action must be so clear that it admits no room for fair and reasonable

disagreement.”     Id.   A trial court can only grant a compulsory nonsuit “in

cases where it is clear that a cause of action has not been established and the

plaintiff must be given the benefit of all favorable evidence along with all

reasonable inferences of fact arising from that evidence, resolving any conflict

in the evidence in favor of the plaintiff.” Id.

      When considering a motion for a nonsuit, “issues of credibility and

the weight to be assigned to the evidence are not to be resolved by the

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trial judge, but must be left for the finder of fact to resolve at the close of

the evidence.” Tong-Summerford v. Abington Mem'l Hosp., 190 A.3d
631, 643 (Pa. Super. 2018) (citation omitted). Ultimately, “[a] motion for a

non-suit may be granted only where it is clear that no other conclusion could

be reached under the evidence presented.” Id.

      In its first two issues on appeal, MB Financial avers that the Lost Note

Affidavit constitutes a business record, pursuant to 42 Pa.C.S. § 6108 and the

Pennsylvania Rules of Evidence, and that Ms. Johnson, as custodian of records,

was competent to testify as to matters including the document. Appellant’s

Brief at 5. MB Financial argues that because the Lost Note Affidavit was a

business record, and therefore admissible hearsay, the trial court erred when

it precluded the Lost Note Affidavit from evidence, thus preventing MB

Financial from proving possession of the Note pursuant to 13 Pa.C.S. § 3309.

Id. at 23-25. We agree.

      We review challenges to the trial court’s evidentiary rulings for an abuse

of discretion.   U.S. Bank, N.A. v. Pautenis, 118 A.3d 386, 391–92 (Pa.

Super. 2015). “[D]ecisions on admissibility are within the sound discretion of

the trial court and will not be overturned absent an abuse of discretion or

misapplication of law. In addition, for a ruling on evidence to constitute

reversible error, it must have been harmful or prejudicial to the complaining

party.” Id. (citation omitted).

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      The Pennsylvania Rules of Evidence define “hearsay” as an out of court

statement offered in court for the truth of the matter asserted. Pa.R.E.

801(c).   A      writing   constitutes   a   “statement”   as   defined   by Rule

801(a). See Pa.R.E. 801(a). Generally, hearsay is inadmissible at trial unless

it falls under an exception provided by the Rules. Pa.R.E. 802. One such

exception is contained in Rule 803(6), which permits the admission of a

recorded act, event or condition if:

      (A) the record was made at or near the time by--or from
      information transmitted by--someone with knowledge;

      (B) the record was kept in the course of a regularly conducted
      activity of a “business”, which term includes business, institution,
      association, profession, occupation, and calling of every kind,
      whether or not conducted for profit;

      (C) making the record was a regular practice of that activity;

      (D) all these conditions are shown by the testimony of the
      custodian or another qualified witness, or by a certification that
      complies with Rule 902(11) or (12) or with a statute permitting
      certification; and

      (E) the opponent does not show that the source of information or
      other circumstances indicate a lack of trustworthiness.

Pa.R.E. 803(6).

      Further, the Uniform Business Records as Evidence Act states, in

relevant part:

      A record of an act, condition or event shall, insofar as relevant, be
      competent evidence if the custodian or other qualified witness
      testifies to its identity and the mode of its preparation, and if it
      was made in the regular course of business at or near the time of
      the act, condition or event, and if, in the opinion of the tribunal,
      the sources of information, method and time of preparation were
      such as to justify its admission

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42 Pa.C.S. § 6108(b).

      This Court has explained: “Rule 803(6) requires the proponent of

documentary     evidence   to   establish   circumstantial   trustworthiness.”

Commonwealth Financial Systems, Inc. v. Smith, 15 A.3d 492, 499 (Pa.

Super. 2011).   “In evaluating the trustworthiness of business records, the

court will look to the sources of the information therein, method and time of

preparation, and the qualifications of the custodial witness.”     Sycamore

Restaurant Group, LLC v. Stampfi Hartke Associates, LLC, 174 A.3d 651,

658 (Pa. Super. 2017). For purposes of Rule 803(6), a qualified witness need

not have personal knowledge, but the witness “must be able to provide

sufficient information relating to the preparation and maintenance of the

records to justify a presumption of trustworthiness[.]” Keystone Dedicated

Logistics, LLC v. JGB Enterprises, Inc., 77 A.3d 1, 13 (Pa. Super. 2013)

(citation and quotation marks omitted). “As long as the authenticating witness

can provide sufficient information relating to the preparation and maintenance

of the records to justify a presumption of trustworthiness for the business

records of a company, a sufficient basis is provided to offset the hearsay

character of the evidence.” Pautenis, supra at 401 (citation omitted).

      As stated above, during its case-in-chief, MB Financial identified and

introduced a Lost Note Affidavit into evidence, which the trial court precluded

despite MB Financial’s argument that the trial court should admit the

document as a business record. MB Financial presented testimony from Ms.

Johnson, who testified that she was an Assistant Vice President and a Default

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Proceedings Officer for SunTrust and that she has worked at SunTrust for

approximately twenty-six years in varying capacities. N.T. Trial, 10/31/17, at

14. Ms. Johnson explained her job duties and identified herself as a custodian

of records. See id. at 14, 20, 42. Ms. Johnson testified that SunTrust was

the original lender and current servicer of the loan in question. Id. at 15.

When MB Financial asked Ms. Johnson about the Lost Note Affidavit, she

testified that it was made at or near the time of the events depicted therein,

was kept in the regular course of SunTrust’s activity for the loan, and that it

was SunTrust’s regular practice to make such documents in the event of losing

a note. Id. at 19-22. Mr. Rao cross-examined Ms. Johnson about the location

of the Note, the steps SunTrust took to locate the Note, and whether she knew

the affiant of the Lost Note Affidavit. Id. at 41-52.

      Our review of the record indicates that MB Financial presented testimony

from an authenticating witness that SunTrust created the Lost Note Affidavit

at or near the time that SunTrust discovered that the Note was lost, SunTrust

maintained the Lost Note Affidavit in the course of regularly conducted

activity, and creating a Lost Note Affidavit was a regular practice upon

discovery of a lost note. Accordingly, it qualifies as a business record. See

Pa.R.E. 803(A)-(D); 42 Pa.C.S. § 6108(b).

      Moreover,   the   opponent,   Mr.    Rao,   did   not   show   a   “lack   of

trustworthiness.” See Pa.R.E. 803(E). The cross-examination of Ms. Johnson

challenged the contents of the Lost Note Affidavit, rather than the preparation

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and maintenance of the Lost Note Affidavit. As stated above, this Court has

recently held “[a]s long as the authenticating witness can provide sufficient

information relating to the preparation and maintenance of the records to

justify a presumption of trustworthiness for the business records of a

company, a sufficient basis is provided to offset the hearsay character of the

evidence.” Pautenis, supra at 401; see also Pa.R.E. 803(6)(E).

      Having found that the Lost Note Affidavit qualifies as a business record,

and an exception to the rule against hearsay, we must next determine whether

its preclusion constitutes reversible error, that is, was it harmful or prejudicial

to MB Financial. See Pautenis, supra at 391-92. We conclude that it was.

      A   person   foreclosing   on   a    mortgage   must   own     or   hold   the

note. CitiMortgage, Inc. v. Barbezat, 131 A.3d 65, 68 (Pa. Super. 2016).

The Pennsylvania Uniform Commercial Code (PUCC), 13 Pa.C.S. § 1101, et

seq., governs the note. See JP Morgan Chase Bank, NA. v. Murray, 63
A.3d 1258, 1263 (Pa. Super. 2013).          Section 3309 specifically deals with

enforcement of a lost note and provides:

      § 3309. Enforcement             of   lost,   destroyed    or   stolen
      instrument

      (a) Enforcement.--A person not in possession of an instrument
      is entitled to enforce the instrument if:

      (1) the person was in possession of the instrument and entitled to
      enforce it when loss of possession occurred;

      (2) the loss of possession was not the result of a transfer by the
      person or a lawful seizure; and

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      (3) the person cannot reasonably obtain possession of the
      instrument because the instrument was destroyed, its
      whereabouts cannot be determined or it is in the wrongful
      possession of an unknown person or a person that cannot be found
      or is not amenable to service of process.

      (b) Proof.--A person seeking enforcement of an instrument
      under subsection (a) must prove the terms of the instrument and
      the person's right to enforce the instrument. If that proof is made,
      section 3308 (relating to proof of signatures and status as holder
      in due course) applies to the case as if the person seeking
      enforcement had produced the instrument. The court may not
      enter judgment in favor of the person seeking enforcement unless
      it finds that the person required to pay the instrument is
      adequately protected against loss that might occur by reason of a
      claim by another person to enforce the instrument. Adequate
      protection may be provided by any reasonable means.

13 Pa.C.S. § 3309.

      In this case, MB Financial was not in possession of the Note. The PUCC

provides that an entity or person not in possession of the instrument, or note,

is entitled to enforce the note if the entity or person meets the requirements

of Section 3309. MB Financial identified and introduced the Lost Note Affidavit

under Section 3309 to prove that it was entitled to enforce the Note, a

prerequisite to foreclose on the Mortgage. Accordingly, when the trial court

precluded the Lost Note Affidavit, MB Financial could no longer prove a prima

facie case for mortgage foreclosure. Thus, the trial court’s preclusion of the

Lost Note Affidavit was undoubtedly harmful and prejudicial to MB Financial.

      In conclusion, we find that MB Financial established that the Lost Note

Affidavit qualified as a business record, and therefore was admissible under

an exception to the rule against hearsay, as provided in Pa.R.E. 803(6) and

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42 Pa.C.S. § 6108(b). Accordingly, the trial court abused its discretion and

committed reversible error when it precluded the Lost Note Affidavit from

evidence.     We decline to analyze whether the contents of the Lost Note

Affidavit comply with the sufficiency requirements of 13 Pa.C.S. § 3309, and

our decision is limited to the admissibility of the document as an exception to

hearsay under Pa.R.E. 803(6). Accordingly, we reverse the Order and remand

this case for a new trial.3

       Order reversed.         Case remanded for a new trial.       Jurisdiction

relinquished.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 12/24/18

____________________________________________

3 In light of our disposition, we decline to address MB Financial’s remaining
issues. We note, however, that MB Financial misstates the law when it asserts
that ownership of the Mortgage, without possession of the note, is sufficient
to confer standing to foreclose. Our case law is clear that a person foreclosing
on a mortgage must own or hold the note. CitiMortgage, Inc. v.
Barbezat, 131 A.3d 65, 68 (Pa. Super. 2016).

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