Court Opinion

ID: 3180802
Source: CourtListenerOpinion
Date Created: 2016-02-26 18:18:14.932179+00
Date Added: 2024-06-11T09:52:56.002783
License: Public Domain

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING
                      MOTION AND, IF FILED, DETERMINED

                                             IN THE DISTRICT COURT OF APPEAL

                                             OF FLORIDA

                                             SECOND DISTRICT

NGOC T. PHAN,                                )
                                             )
             Appellant,                      )
                                             )
v.                                           )      Case No. 2D14-3364
                                             )
DEUTSCHE BANK NATIONAL TRUST                 )
COMPANY, AS TRUSTEE FOR FIRST                )
FRANKLIN MORTGAGE LOAN TRUST                 )
2006-FF11,                                   )
                                             )
             Appellee.                       )
                                             )

Opinion filed February 26, 2016.

Appeal from the Circuit Court for Pinellas
County; Ray E. Ulmer, Jr., Judge.

Heather Cherepkai, Peter Ticktin, Josh
Bleil, and Kendrick Almaguer of The
Ticktin Law Group, P.A., Deerfield
Beach, for Appellant.

Donna L. Eng, Michael K. Winston, and
Dean A. Morande of Carlton Fields
Jorden Burt, P.A., West Palm Beach,
for Appellee.

LUCAS, Judge.
              Ngoc Phan appeals the final judgment of foreclosure entered in favor of

Deutsche Bank. Finding no error, we affirm the judgment in all respects. We write to

address one of Deutsche Bank's arguments for affirmance in order to explain the effect

an agency relationship may have for proving standing in foreclosure proceedings.

                                             I.

              Deutsche Bank initiated a foreclosure action against Ms. Phan on April 28,

2009, alleging she had failed to make her loan payments on her Pinellas County home

since January 1, 2009. Ms. Phan denied the Bank's allegations and raised, as an

affirmative defense, that Deutsche Bank did not have standing at the time it filed its

foreclosure lawsuit.

              At trial, Ms. Phan developed this defense further. She argued that

Deutsche Bank lacked standing because it was not the holder of her note when it filed

its complaint. The testimony presented by a Wells Fargo representative, Deborah

Kavalary, confirmed that Wells Fargo had possession of Ms. Phan's original note at the

time Deutsche Bank filed its lawsuit. Ms. Kavalary testified that Wells Fargo was the

authorized servicer of Ms. Phan's loan. According to Ms. Phan, this evidence

demonstrated Deutsche Bank's lack of standing, because Deutsche Bank did not

actually possess her note at the time the foreclosure action commenced.

              However, Ms. Kavalary also testified that Wells Fargo, in addition to

servicing Ms. Phan's loan, was an agent of Deutsche Bank:

              PLAINTIFF: All right. I want to go back to the relationship
              between Wells Fargo and the trust. Can you explain that to
              the Court. What is Well Fargo's role with the plaintiff,
              Deutsche Bank?

              MS. KAVALARY: We are the servicer.

                                           -2-
             PLAINTIFF: Would you be considered an agent of the
             plaintiff?

             MS. KAVALARY: Yes.

                    ....

             PLAINTIFF: Based on your records, what date did Wells
             Fargo acquire the note?

             MS. KAVALARY: It was in early 2006. I would need the
             exact date from the image viewer. It was in 2006.

             PLAINTIFF: So you-all had physical possession of the note
             in 2006?

             MS. KAVALRY: Correct.

                    ....

             PLAINTIFF: And as an agent of the plaintiff, are you
             authorized to hold the note for them?

             MS. KAVALARY: Yes.

             Ms. Phan never objected to this testimony. Nor did she dispute, either

below or on appeal, Wells Fargo's assertion that it had an agency relationship with

Deutsche Bank. As we will explain, that agency relationship between Wells Fargo and

Deutsche Bank could expand the reach of Deutsche Bank's possession of Ms. Phan's

note to include its agent, Wells Fargo's, possession.

                                            II.

                                            A.

             We begin with the underlying premise of Ms. Phan's argument concerning

standing. We have held that a plaintiff's standing to maintain a foreclosure cause of

action must be rooted at the time it files its complaint. See, e.g., Country Place Cmty.

                                           -3-
Ass'n v. J.P. Morgan Mortg. Acquisition Corp., 51 So. 3d 1176, 1179 (Fla. 2d DCA

2010) ("Because J.P. Morgan did not own or possess the note and mortgage when it

filed its lawsuit, it lacked standing to maintain the foreclosure action."). In the context of

mortgage foreclosure claims, a plaintiff's standing often turns on whether it was the

lawful holder of a borrower's underlying promissory note. See Wells Fargo Bank, N.A.

v. Morcom, 125 So. 3d 320, 321-22 (Fla. 5th DCA 2013) (reversing summary judgment

entered in favor of Morcom and remanding for further proceedings, finding that the note

endorsed in blank conveyed standing to Wells Fargo); Dixon v. Express Equity Lending

Grp., 125 So. 3d 965, 967-68 (Fla. 4th DCA 2013) (reversing a final judgment of

foreclosure where the holder of the note was a third party and not the plaintiff); Lyttle v.

BankUnited, 115 So. 3d 425, 425-26 (Fla. 5th DCA 2013) (reversing a final summary

judgment of foreclosure where material questions of fact existed as to whether the

plaintiff was the owner and holder of the note).

             The requirement of holding a note as proof of standing derives from the

Florida Uniform Commercial Code. See § 673.3011(1), Fla. Stat. (2008) ("The term

'person entitled to enforce' an instrument means: the holder of the instrument[.]"). To

hold a note under the Uniform Commercial Code ordinarily connotes possession of the

document itself. See § 671.201(21)(a), Fla. Stat. (2008) (" 'Holder' means: The person

in possession of a negotiable instrument that is payable either to bearer or to an

identified person that is the person in possession[.]"); St. Clair v. U.S. Bank Nat'l Ass'n,

173 So. 3d 1045, 1046 (Fla. 2d DCA 2015).1 Thus, in order for a plaintiff to claim

              1
               Because Ms. Phan's note was indorsed in blank, we are not concerned
with the frequently litigated subject of whether or not Deutsche Bank was a holder in
due course of her note.

                                             -4-
standing based upon a note indorsed in blank, the plaintiff must show that it had lawful

possession of the original note indorsed in blank at the time the lawsuit was filed. Focht

v. Wells Fargo Bank, N.A., 124 So. 3d 308, 310 (Fla. 2d DCA 2013); McClean v. JP

Morgan Chase Bank Nat'l Ass'n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). Under the

law, without the requisite proof of possession at the time a foreclosure action is

commenced, the plaintiff's status as the holder of the note—and, hence, its authority to

enforce the note in foreclosure—remains unproven, and its complaint untenable. See

Focht, 124 So. 3d at 310-11.

              In the case at bar, Ms. Phan claims that Deutsche Bank was not the

holder of her note when it filed its foreclosure lawsuit because it did not possess her

note at that time. Ms. Phan was correct, to a point: Deutsche Bank did not have direct

possession of her note at the time it filed its lawsuit. That alone, however, was not

dispositive to the issue of its standing. While it is true that Deutsche Bank never had

direct possession of the note, as we will explain next, it did have constructive

possession of the note when its foreclosure complaint was filed—by virtue of its agent

Wells Fargo's possession.

                                            B.

              An agent may, within the scope of its agency, hold property on its

principal's behalf. Cf. Francis Reynolds, English Private Law § 9.23, at 621 (Andrew

Burrows ed., 3d ed. 2013) ("An agent may hold goods for his principal as bailee . . . .").

In such instances, it is said that the principal, who both owns the property held by the

agent and bears authority to direct the agent's actions concerning that property, has

constructive possession of the property. See Deakter v. Menendez, 830 So. 2d 124,

                                           -5-
128 (Fla. 3d DCA 2002) (holding that if a principal's agent had physical custody of an

original note when it was lost, and the principal had the power to exercise control over it,

then the principal had constructive possession of the note and standing to file a

complaint for breach of the lost note); Bush v. Belenke, 381 So. 2d 315, 316 (Fla. 3d

DCA 1980) (noting that constructive possession exists where a person "has such

control over the property that he may deliver the possession of it, if he so desires, as for

example, where the agent holds property for his principal"); see also Locks v. N. Towne

Nat'l Bank of Rockford, 451 N.E.2d 19, 21 (Ill. App. Ct. 1983) ("[A] principal's

constructive possession through his agent's physical possession may render the

principal a holder of commercial paper."); Utica Nat'l. Bank & Trust Co. v. Associated

Producers Co., 622 P.2d 1061, 1065 n.15 (Okla. 1980) ("In a principal-and-agent

relationship all funds collected for the principal, minus proper deduction due the agent,

remain, at all times, in the constructive possession of the principal.").

              We have not found a published Florida court decision that applies the

principle of constructive possession to establish standing in the context of a residential

mortgage foreclosure case. But we see no reason why such an established axiom of

agency law would not be apt. Several courts from our sister states have held that a

principal can establish its standing to foreclose a mortgage through its agent's

possession of a promissory note. See, e.g., Midfirst Bank, SSB v. C.W. Haynes & Co.,

Inc., 893 F. Supp. 1304, 1314 (D.S.C. 1994) (holding that under the UCC "constructive

possession exists when an authorized agent of the owner holds [a] note on behalf of the

owner"); In re Phillips, 491 B.R. 255, 261-62 (Bankr. D. Nev. 2013) (finding that an

agent could hold a note on behalf of a principal under the UCC to confer standing on the

                                            -6-
principal to enforce the note); Billingsley v. Kelly, 274 A.2d 113, 118 (Md. 1971)

(observing that the concept of constructive possession of a note applied under the

UCC); Lazidis v. Goidl, 564 S.W.2d 453, 455 (Tex. App. 1978) (holding that in a

summary judgment proceeding on a note, plaintiff showed that it was the owner and

holder of the note where the plaintiff's agent had physical possession of the note).

              Legal commentators on the Uniform Commercial Code have reached the

same conclusion: an agent's possession of property for its principal makes the principal

a holder of that property. See Lary Lawrence, Lawrence's Anderson on the Uniform

Commercial Code § 1–201:265 (3d ed. 2012) ("As the UCC does not define 'delivery' or

'possession,' the non-UCC concept of delivery to an agent whose principal then has

constructive possession remains in force, because not displaced. Such possession

required to qualify a person as a 'holder' may be a constructive possession by delivery

to another on that person's behalf. Thus, a person is a 'holder' of a negotiable

instrument when it is in the physical possession of his or her agent." (footnotes

omitted)); Restatement (Third) of Agency § 8.12 cmt. b (Am. Law Inst. 2006) ("An

agent's possession or control of property on behalf of a principal is tantamount for many

purposes to possession or control by the principal. . . . [including the] definition of

'holder' of [an] instrument and document of title [under the UCC § 1–201(b)(21)]."); 1

Ronald A. Anderson, Anderson on the Uniform Commercial Code § 1–201:265 (3d ed.

1981) ("[The] . . . possession required to qualify a person as a 'holder' may be a

constructive possession by delivery to another on that person's behalf. Thus, a person

is a 'holder' of a negotiable instrument when it is in the physical possession of his or her

agent.").

                                            -7-
              In sum, an agent may hold commercial paper on behalf of its principal,

and when it does, the principal constructively possesses the commercial paper.

Therefore, where an agent holds a mortgage note on behalf of its principal, the principal

has constructive possession of the note and standing to file a complaint for foreclosure

as a holder under section 673.3011(1).

                                             C.

              Applying this principle, we now turn our attention to the evidence

presented below that Deutsche Bank constructively held the note through its agent,

Wells Fargo, so that it had standing at the time it filed its foreclosure complaint against

Ms. Phan.

              In Florida, both standing to foreclose and the existence of an agency

relationship must be demonstrated by competent, substantial evidence. See Stone v.

BankUnited, 115 So. 3d 411, 413 (Fla. 2d DCA 2013) (concluding that BankUnited

presented competent, substantial evidence that it had standing to foreclose); McCabe v.

Howard, 281 So. 2d 362, 363 (Fla. 2d DCA 1973) ("The existence of an agency

[relationship] may be shown by any substantial evidence, either direct or circumstantial."

(citing Fin. Fire & Cas. Co. v. Southmost Vegetable Co-op Ass'n, 212 So. 2d 69 (Fla. 3d

DCA 1968); Smith v. Texas, 149 So. 585 (Fla. 1933))).

              At the trial, Ms. Kavalary testified and provided documentary evidence that

Wells Fargo held Ms. Phan's note on behalf of Deutsche Bank, its principal, at the time

Deutsche Bank filed the complaint. And it was clear from the evidence that Wells Fargo

serviced the note for the benefit of Deutsche Bank. It can also be reasonably inferred

from the proceeding itself that Wells Fargo was Deutsche Bank's agent as it produced

                                            -8-
both Ms. Kavalary and the record evidence at Deutsche Bank's behest throughout the

course of the proceedings below.

              Had the point been argued, this quantum of evidence might have fallen

short of proving an agency relationship, because, as some courts have held, an agency

relationship cannot ordinarily be proven solely through the statements of the purported

agent. See, e.g., Bellaire Sec. Corp. v. Brown, 168 So. 625, 636 (Fla. 1936) ("[T]he

authority of an agent cannot be established merely by proof of its own declarations

made to a third party, in the absence of the principal."); Orange Belt Ry. Co. v. Cox, 33
So. 403, 404 (Fla. 1902) ("The authority of the alleged agent was denied by the

company, and the plaintiff was permitted, over the objection of defendant, in

establishing such agency, to testify to representations made by Sweetapple that he was

such agent. This was error, as agency cannot be so proven."); but see Rhodes v.

Edward K. Tryon Co., 182 So. 301 (Fla. 1938) (holding that an alleged agent is

competent to prove his or her own authority through testimony and parol evidence).

However, that argument was never raised. See Hentze v. Denys, 88 So. 3d 307, 310

(Fla. 1st DCA 2012) (recognizing the principle that for an issue to be cognizable on

appeal, it must be raised in the proceedings below). In the absence of any objection or

argument to the contrary, we are satisfied that the record below supported a finding that

an agency relationship existed between Wells Fargo and Deutsche Bank. See, e.g.,

Deakter, 830 So. 2d at 128 (holding that the trial court erred in granting summary

judgment for the debtor where the principal swore under oath that he did not assign or

transfer the note but rather placed it into the physical possession of his agent before it

was destroyed, and the debtor offered no evidence in rebuttal); In re Phillips, 491 B.R.

                                            -9-
at 262, 264 (finding that Seterus, Inc., was Fannie Mae's agent by virtue of industry

customs, an agreement that Seterus, Inc., would service Fannie Mae's note, and the

absence of any rebuttal evidence); Lazidis, 564 S.W.2d at 454-55 (finding that

testimonial affidavits were sufficient to show that a relative and attorney were, at

separate times, the agents of the principal).

                                             III.

              We hold that a plaintiff may demonstrate by competent, substantial

evidence its standing to foreclose a mortgage under section 637.0311 where it has

constructive possession of a mortgage note through its agent at the time it files a

complaint for foreclosure. Under the facts of this case, Deutsche Bank met that burden.

The final judgment of foreclosure is, therefore, affirmed.

              Affirmed.

WALLACE and CRENSHAW, JJ., Concur.

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