Court Opinion

ID: 4697300
Source: CourtListenerOpinion
Date Created: 2021-06-21 20:03:43.629898+00
Date Added: 2024-06-11T08:05:45.658168
License: Public Domain

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                                                         Electronically Filed
                                                         Supreme Court
                                                         SCWC-XX-XXXXXXX
                                                         21-JUN-2021
                                                         09:00 AM
                                                         Dkt. 25 OP

           IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

                              ---o0o---

                      U.S. BANK TRUST, N.A.,
         AS TRUSTEE FOR LSF9 MASTER PARTICIPATION TRUST,
                  Petitioner/Plaintiff-Appellee,

                                 vs.

PATRICK LOWELL VERHAGEN; PATRICK LOWELL VERHAGEN, TRUSTEE OF THE
 PATRICK LOWELL VERHAGEN REVOCABLE TRUST DATED OCTOBER 29, 1999
                 Respondent/Defendant-Appellant,

                                 and

                      WELLS FARGO BANK, N.A.,
                  Respondent/Defendant-Appellee.

                          SCWC-XX-XXXXXXX

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
            (CAAP-XX-XXXXXXX; CIVIL NO. 16-1-0147(1))

                           JUNE 21, 2021

  RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.

                OPINION OF THE COURT BY EDDINS, J.

     This case concerns the admissibility and evidentiary weight

of documents and declarations at issue in a foreclosure
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proceeding.   We consider: whether promissory notes are hearsay,

admissible only if they fall within an exception to the hearsay

rule; whether a copy of a promissory note is self-authenticating

under Hawai‘i Rules of Evidence (“HRE”) Rule 902(9); the scope

and limits of the business records exception to the hearsay

rule; and the evidentiary burden mortgagees must meet to

establish standing in the foreclosure context.

     We conclude that promissory notes are not hearsay, that

copies of promissory notes are not self-authenticating under HRE

Rule 902(9), and that, under the incorporated records doctrine,

business records may, in certain circumstances, be admissible

even absent testimony concerning the business practices or

records of their creator.    We also clarify the evidentiary

burden on mortgagees seeking to show their possession of a

promissory note at the time a foreclosure complaint was filed.

                            I.   BACKGROUND

     Patrick Verhagen (“Verhagen”) owned real estate in Lahaina

(the “Property”).   In September 2007, Verhagen executed a

$1,730,000.00 note (the “Note”) in favor of Washington Mutual

Bank, FA (“Washington Mutual”).        Verhagen secured the Note with

a mortgage on the Property.

     The mortgage was later assigned to U.S. Bank.       Caliber Home

Loans, Inc. (“Caliber”) is U.S. Bank’s current loan servicer.

JPMorgan Chase Bank, National Association (“JPMorgan Chase”)

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previously serviced the loan.

     Verhagen defaulted on the Note in February 2012.      He was

sent notice of the default in August 2014.     The notice provided

Verhagen thirty-five days to cure the default.      Verhagen did not

timely cure the default.

     On March 23, 2016, U.S. Bank filed a verified foreclosure

complaint in the Circuit Court of the Second Circuit (the

“circuit court”).

     The complaint was accompanied by a Verification to

Foreclosure Complaint by Julia Jackson, a Caliber employee.

Jackson said she was familiar with Caliber’s records and the

manner in which Caliber maintains those records.      She “verified”

and “confirmed” U.S. Bank’s possession of the original Note.

     On January 31, 2017, U.S. Bank filed a Motion for Summary

Judgment and Interlocutory Decree of Foreclosure (“MSJ”) against

Verhagen.

     In its MSJ, U.S. Bank argued it was entitled to summary

judgment against Verhagen because: (1) A loan had been made to

Verhagen; (2) Verhagen made, executed, and delivered the Note to

the lender; (3) Verhagen secured the Note with a mortgage on the

Property; (4) Verhagen is in default of the amounts due under

the Note; and (5) U.S. Bank. holds the Note and has standing to

foreclose against Verhagen.

     U.S. Bank supported its MSJ with a declaration (the

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“Salyers Declaration”) from Alyssa Salyers.      Salyers is a

foreclosure document specialist at Caliber.

     Salyers declared she was familiar with both Caliber’s

business records concerning the Note and the manner in which

Caliber maintains those records.       Salyers also declared she had

inspected a copy of the Note maintained by Caliber.      She

attached a “true and correct” copy of the Note to her

declaration.   She further declared that Caliber’s records

concerning the Note include records incorporated from the prior

loan servicer, JPMorgan Chase.    The records obtained from

JPMorgan Chase, Salyers declared, are “kept and maintained by

Caliber in the ordinary course of its business for the purpose

of maintaining an accounting of payments received, expenses

incurred, and amounts advanced with regard to the Subject Loan,

and such records are relied upon by Caliber in the regular

course of its business.”

     Verhagen’s opposition to U.S. Bank’s MSJ focused on U.S.

Bank’s failure to demonstrate its ownership and possession of

the Note at the time it filed suit.      Verhagen argued that this

evidentiary deficiency was fatal for U.S. Bank: without a

showing that it possessed the Note at the time it filed its

complaint, U.S. Bank could not establish standing under Bank of

America, N.A. v. Reyes-Toledo, 139 Hawaiʻi 361, 390 P.3d 1248

(2017).

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        We issued Reyes-Toledo on February 28, 2017: one month

before Verhagen’s March 31, 2017 opposition and one month after

U.S. Bank’s January 31, 2017 MSJ.         Reyes-Toledo held that in

order to establish standing, a foreclosing plaintiff must prove

“its entitlement to enforce the note at the commencement of the

proceedings.”      Id. at 369, 390 P.3d at 1256.

        The circuit court granted U.S. Bank’s motion.         Verhagen

appealed.      The ICA remanded the case to the circuit court to

allow U.S. Bank to supplement the record in light of Reyes-

Toledo and another case, U.S. Bank N.A. v. Mattos, 140 Hawai‘i

26, 398 P.3d 615 (2017). 1 Mattos was issued after U.S. Bank

submitted its proposed forms for the foreclosure judgment (May

17, 2017) but before the court entered judgment (September 25,

2017).      In Mattos, we held that the employee of a plaintiff

1     U.S. Bank’s motion for remand came after it had, following a procedure
described in Life of the Land v. Ariyoshi, 57 Haw. 249, 553 P.2d 464 (1976),
asked the circuit court to indicate how it was inclined to rule on a motion
to ratify the foreclosure judgment. Verhagen neither opposed the substance
of the motion U.S. Bank presented to the circuit court nor appeared at the
related hearing. Verhagen did, however, file jurisdictional objections to
U.S. Bank’s proposed order granting the motion to ratify.

      Notwithstanding Verhagen’s jurisdictional objections, on July 27, 2018,
the circuit court indicated its inclination to grant U.S. Bank’s motion to
ratify. Confusingly, though it lacked jurisdiction to adjudicate the motion,
the circuit court styled itself as “granting” the motion to ratify. As the
ICA noted in its order granting U.S. Bank’s motion for temporary remand, the
circuit court should have indicated its inclination to grant the motion
rather than purporting to actually grant it. See Life of the Land, 57 Haw.
at 251, 553 P.2d at 466 (“Accordingly, we consider that the procedure for
motions under Rule 60(b), H.R.C.P., may and should be consistent with that
for motions under Rule 33, H.R.Cr.P., where an appeal is pending in this
court. Jurisdiction is in this court while the appeal is pending, in both
instances. Nevertheless, the motion may be made and considered in the
circuit court. If that court indicates that it will grant the motion, the
appellant may then move in this court for a remand of the case.”)

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bank’s loan servicer was not a “qualified witness” in relation

to the bank’s records where the employee did not testify to

familiarity with the bank’s record-keeping system or to the loan

servicer’s incorporation of the bank’s records.           Id. at 33, 398

P.3d at 622.

     On remand, U.S. Bank moved for ratification of the circuit

court’s prior judgment.       Verhagen filed jurisdictional

objections to the circuit court’s consideration of the motion

but did not substantively oppose the motion to ratify.             U.S.

Bank’s motion was accompanied by a supplemental declaration from

Melinda Patterson (the “Patterson Declaration”).            Patterson

stated she was a Caliber employee and was familiar with both

Caliber’s books and records concerning the Note and the manner

in which Caliber maintains its books and records.            Patterson’s

declaration provided additional testimony concerning Caliber’s

incorporation of prior loan servicers’ records.           Patterson

declared:

            Caliber’s records include and incorporate records for the
            Loan obtained from [JPMorgan Chase] (“Prior Servicer”), the
            prior loan servicer for the Loan. The records obtained by
            Caliber from the Prior Servicer are kept and maintained by
            Caliber in the ordinary course of its business for the
            purpose of maintaining an accounting of payments received,
            expenses incurred, and amounts advanced with regard to the
            Loan, and such records are relied upon by Caliber in the
            regular course of its business. The information regarding
            the Loan transferred to Caliber from the Prior Servicer has
            been validated in many ways, including but not limited to,
            going through a due diligence phase, review of hard copy
            documents, and review of the payment history and accounting
            of other fees, costs, and expenses charged to the Loan by
            Prior Servicer. It is Caliber’s regular practice, after
            these phases are complete, to receive records from prior

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           servicers and integrate these records into Caliber’s
           business records at the time of acquisition. Once
           integrated, Caliber maintains and relies on these business
           records in the ordinary course of its mortgage loan
           servicing business.

     Patterson also declared that, based on her review of

Caliber’s business records, U.S. Bank possessed the Note on

March 23, 2016, when it filed its complaint against Verhagen:

           Plaintiff, or its agent on Plaintiff’s behalf, was in
           possession of the original wet-ink, indorsed in blank Note
           when the above-captioned foreclosure action was commenced
           on March 23, 2016 and since [that time]. . . .

           My personal knowledge of these statements is derived from
           my having inspected Caliber’s business records.
           Specifically, I researched Caliber’s business records,
           which includes “Certification” [sic] executed by Caliber
           employee, Jennifer Martin. The “Certification” contained
           in Caliber’s business records evidence [sic] that the
           original wet ink, indorsed in blank Note was in Caliber’s
           possession on Plaintiff’s behalf on February 9, 2016.
           Further, the “Certification” contained in Caliber’s
           business records indicates that the original wet-ink Note
           was indorsed in blank no later than February 9, 2016, as
           the original wet-ink Note was electronically scanned and
           uploaded to Caliber’s business records on or before
           February 9, 2016 and the scanned copy of the original wet-
           ink Note that was uploaded to Caliber’s business records on
           or before February 9, 2016 contains a blank indorsement on
           page 6 of the Note.

Patterson attached a copy of Jennifer Martin’s Certification to

her declaration.

     Patterson also declared that there was an attorney’s bailee

letter agreement in Caliber’s business records.           The letter was

dated December 9, 2016.      Patterson declared that Caliber sent

the letter 2 to U.S. Bank’s legal counsel on or around that date

2 The bailee letter attached to Patterson’s declaration documented

transmission of the original Note from Caliber to U.S. Bank’s foreclosure
counsel. At the bottom of the letter there was a signed December 16, 2016
acknowledgement from a representative of U.S. Bank’s legal counsel
recognizing receipt of the original Note.

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along with the wet-ink indorsed-in-blank Note.         Verhagen did not

object to the admission of Patterson’s testimony.

     On October 8, 2018, the circuit court filed amended

findings of fact (“FOFs”) and conclusions of law (“COLs”).

These amended FOFs and COLs addressed U.S. Bank’s compliance

with Reyes-Toledo.    The circuit court found U.S. Bank possessed

the indorsed-in-blank Note at the time it sued Verhagen:

          [Amended FOF 8]   At the time the Complaint was filed,
          PLAINTIFF, or its agent on PLAINTIFF’s behalf, was in
          possession of the original indorsed in blank Note. As
          evidence of this, the Verification filed with the
          Complaint, which was executed by Julia Jackson (an employee
          of Caliber Home Loans, Inc.) (“Servicer”), PLAINTIFF’S loan
          servicer, stated that Jackson had “verified and hereby
          confirm[ed] possession of the original Note by Plaintiff .
          . . [and that] [t]he Note is indorsed in blank . . ..”
          Verification to Complaint, at ¶¶ 7-8; see Nationstar
          Mortgage, LLC v. Ruth C. Alejandro, et al., CAAP XX-XXXXXXX
          (March 23, 2017) (Summary Disposition Order) (discussing
          how similar verification established possession of note
          when case was commenced as required by Reyes-Toledo).
          Further, together with the Motion to Ratify, filed on June
          18, 2018, PLAINTIFF submitted a further Declaration of
          Melinda Patterson (who was also an employee of Servicer),
          which provided additional evidence that: (i) Servicer had
          authority to act on behalf of PLAINTIFF and had been
          servicing the subject loan since prior to the filing of the
          Complaint (see Patterson Decl. at ¶¶ 3 and 6); and (ii)
          Servicer had been in possession of the original indorsed in
          blank Note since at least February 9, 2016, and through
          approximately December 9, 2016, when the original indorsed
          in blank Note was transmitted to PLAINTIFF’S counsel of
          record in this case to hold on PLAINTIFF’S behalf while the
          foreclosure action was being prosecuted (see Patterson
          Decl. at ¶ 8; Prather Declaration submitted with
          PLAINTIFF’S Reply Memorandum in Support of its Motion for
          Summary Judgment, filed April 3, 2016).

     The circuit court further found that U.S. Bank had

possessed the Note since the filing of the complaint:

          [Amended FOF 11]   As a result, PLAINTIFF, its agent on
          PLAINTIFF’s behalf, or PLAINTIFF’S counsel on PLAINTIFF’S
          behalf, has been and remains in possession of the original
          indorsed in blank Note since before this foreclosure action

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            was commenced on March 23, 2016, and through the present.
            No evidence to the contrary was presented to the Court.

     The circuit court’s amended FOFs also considered the

admissibility of the loan documents U.S. Bank submitted in

support of its MSJ:

            [Amended FOF 10]   Further, the evidence establishing
            PLAINTIFF’S standing is admissible because the various
            declarants established their personal knowledge of the
            statements made and/or that the statements made were
            derived from the business records of the declarant’s
            employer, and not some other entity. See U.S. Bank, N.A.
            v. Mattos, 140 Haw. 26, 32-33, 398 P.3d 615, 621-622 (S.
            Ct. 2017) (foreclosing plaintiff must establish standing
            through admissible evidence; servicer could not testify to
            records of plaintiff without establishing familiarity with
            plaintiff’s record keeping system) . . . .

     The circuit court also addressed U.S. Bank’s standing:

            [Amended COL 2]   PLAINTIFF had standing to bring this
            action and has standing at present because PLAINTIFF, its
            agent on PLAINTIFF’S behalf, or PLAINTIFF’S counsel on
            PLAINTIFF’S behalf, has been and remains in possession of
            the original indorsed in blank Note since before this
            foreclosure action was commenced on March 23, 2016, and
            through the present.

     Following the entry of the circuit court’s amended

judgment, order, and FOFs and COLs, U.S. Bank filed an amended

answering brief in the ICA.       In its brief, U.S. Bank argued

that: (1) loan documents maintained by Caliber but created by

prior loan servicers were admissible as “incorporated records”

under the business records exception to the hearsay rule; and

(2) declarations U.S. Bank submitted in support of its MSJ

showed it possessed the Note at the time it filed the complaint

and, in doing so, established U.S. Bank’s standing to sue

Verhagen.

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        On October 2, 2020, the ICA issued an Amended SDO 3 vacating

the circuit court’s October 8, 2018, Amended Judgment and the

Amended Findings of Fact and Conclusions of Law; Amended Order

Granting Plaintiff's Motion for Summary Judgment and for

Interlocutory Decree of Foreclosure.         U.S. Bank v. Verhagen,

CAAP-XX-XXXXXXX (App. Oct. 2, 2020) (SDO).

        The ICA ruled that U.S. Bank lacked standing because it had

not established it possessed the Note at the time it filed the

foreclosure action.       See Reyes-Toledo, 139 Hawaiʻi at 368, 390

P.3d at 1255 (holding that to establish standing a foreclosing

plaintiff must establish entitlement to enforce the subject note

at the time the action was commenced).

        The ICA reached this conclusion after determining that the

copies of the Note U.S. Bank submitted in support of its MSJ

3     The ICA initially issued a summary disposition order (the “SDO”)
vacating the circuit court’s September 25, 2017 Judgment and Findings of Fact
and Conclusions of Law; Order Granting Plaintiff’s Motion for Summary
Judgment and for Interlocutory Decree of Foreclosure Filed January 31, 2017.
U.S. Bank moved the ICA to reconsider its SDO. In addition to making several
legal arguments about why the ICA should reconsider the SDO, U.S. Bank’s
motion for reconsideration highlighted the fact that the ICA’s SDO did not
address or acknowledge the circuit court’s October 8, 2020 Amended Judgment
and Amended Findings of Fact and Conclusions of Law; Order Granting
Plaintiff’s Motion for Summary Judgment and for Interlocutory Decree of
Foreclosure Filed January 31, 2017. On October 2, 2020, the ICA issued a
two-paragraph order granting in part U.S. Bank’s motion for reconsideration.
The order granted the motion only to the extent it concerned the ICA’s
failure to address the October 8, 2018 Amended Judgment and the Amended
Findings of Fact and Conclusions of Law; Amended Order Granting Plaintiff's
Motion for Summary Judgment and for Interlocutory Decree of Foreclosure. The
ICA rejected all of U.S. Bank’s substantive legal arguments concerning the
need for reconsideration. It issued its Amended SDO that same day, October
2, 2020.

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were inadmissible hearsay.     None of the declarations U.S. Bank

submitted were from a declarant familiar with the record-keeping

practices of Washington Mutual, the entity that purportedly

created the Note.   As such, the ICA ruled, there was not an

adequate foundation for the admission of the Note under the

“business records” exception to the hearsay rule.

     In reaching this conclusion, the ICA cited Mattos’s

quotation of State v. Fitzwater, 122 Hawaiʻi 354, 227 P.3d 520

(2010), for the proposition that an employee of a business that

received records from another business may be qualified to

establish a foundation for their admission under HRE Rule

803(b)(6):

          A person can be a “qualified witness” who can authenticate
          a document as a record of regularly conducted activity
          under HRE Rule 803(b)(6) or its federal counterpart even if
          he or she is not an employee of the business that created
          the document, or has no direct, personal knowledge of how
          the document was created. As one leading commentator has
          noted:

                The phrase “other qualified witness” is given a
                very broad interpretation. The witness need
                only have enough familiarity with the record-
                keeping system of the business in question to
                explain how the record came into existence in
                the ordinary course of business. The witness
                need not have personal knowledge of the actual
                creation of the documents or have personally
                assembled the records. In fact, the witness
                need not even be an employee of the record-
                keeping entity as long as the witness
                understands the entity's record-keeping system.

                There is no requirement that the records have
                been prepared by the entity that has custody of
                them, as long as they were created in the
                regular course of some entity's business.

                The sufficiency of the foundation evidence
                depends in part on the nature of the documents

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                  at issue. Documents that are “standard records
                  of the type regularly maintained by firms in a
                  particular industry may require less by way of
                  foundation testimony than less conventional
                  documents proffered for admission as business
                  records.”

Verhagen, SDO at 7-8 (quoting Mattos, 140 Hawaiʻi at 32, 398 P.3d

at 621) (cleaned up).

       The ICA also cited Behrendt’s discussion of the testimony

necessary to support the admission of incorporated records:

            The court in Mattos held that a witness may be qualified to
            provide the testimony required by HRE Rule 803(b)(6) even
            if the witness is not employed by the business that created
            the document or lacks direct, personal knowledge of how the
            document was created. Id. “There is no requirement that
            the records have been prepared by the entity that has
            custody of them, as long as they were created in the
            regular course of some entity's business.” Id. (quoting
            State v. Fitzwater, 122 Hawaiʻi 354, 366, 227 P.3d 520, 532
            (2010)). The witness, however, must have enough
            familiarity with the record-keeping system of the business
            that created the record to explain how the record was
            generated in the ordinary course of business. Id.

           Records received from another business and incorporated
           into the receiving business’ records may in some
           circumstances be regarded as “created” by the receiving
           business. Id. Incorporated records are admissible under
           HRE Rule 803(b)(6) when a custodian or qualified witness
           testifies that the documents were incorporated and kept in
           the normal course of business, that the incorporating
           business typically relies upon the accuracy of the contents
           of the documents, and the circumstances otherwise indicate
           the trustworthiness of the document. See id.; Fitzwater,
           122 Hawaiʻi at 367-68, 227 P.3d at 533-34.

Verhagen, SDO at 8 (quoting 142 Hawai‘i at 45-46, 414 P.3d at 97-

98).

       The ICA then turned to explaining why the Jackson

verification, Salyers declaration, and supplemental Patterson

declaration each failed to establish the declarant’s

qualifications to authenticate the Note as a business record

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under HRE Rule 803(b)(6).

        Jackson’s verification — which described her familiarity

with Caliber’s records and record-keeping system 4 — did not

qualify her as an “other qualified witness” for purposes of

admitting the Note under HRE Rule 803(b)(6) because it did not

demonstrate that she had “enough familiarity with the record-

keeping system of the business that created [the Note] to

explain how [it] was generated in the ordinary course of

business.”      Verhagen, SDO at 9 (alterations added) (quoting

Behrendt, 142 Hawai‘i at 45, 414 P.3d at 97).

        Salyers’ declaration 5 was similarly deficient.          Because

4       Specifically, Jackson stated:

              I have access to and am familiar with Caliber’s books and
              records regarding the Loan, including Caliber’s servicing
              records and copies of the applicable loan documents. I am
              familiar with the manner in which Caliber maintains its
              books and records, including computer records relating to
              the servicing of the Loan. Caliber’s records are made at
              or near the time of the occurrence of the matters set forth
              in such records, by an employee or representative with
              knowledge of the acts or events recorded. Such records are
              obtained, kept and maintained by Caliber in the regular
              course of Caliber’s business. Caliber relies on such
              records in the ordinary course of its business.

5       Salyers declared, in relevant part:

              I have access to and am familiar with Caliber’s books and
              records regarding the Loan, including Caliber’s servicing
              records and copies of the applicable loan documents. I am
              familiar with the manner in which Caliber maintains its
              books and records, including computer records relating to
              the servicing of the Loan. Caliber’s records are made at
              or near the time of the occurrence of the matters set forth
              in such records, by an employee or representative with
              knowledge of the acts or events recorded. Such records are
              obtained, kept and maintained by Caliber in the regular
              course of Caliber's business. Caliber relies on such
              records in the ordinary course of its business. Caliber’s

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Salyers did not attest to being familiar with “the record-

keeping system of Washington Mutual or JPMorgan [Chase]” Salyers

was not a “qualified witness” for the admission of the Note

under HRE Rule 803(b)(6).

     According to the ICA, even the supplemental Patterson

declaration failed “to establish under Mattos and Behrendt that

[Patterson] is a custodian of records or a qualified witness for

purposes of admitting the Note as evidence pursuant to HRE Rule

803(b)(6).”   Verhagen, SDO at 10.

     In its December 28, 2020 certiorari application, U.S. Bank

presented the following questions:

     (1) “To obtain summary judgment, is a foreclosing creditor

in possession of the original note required to authenticate the

note through HRE 803(b)(6), or is the note admissible under HRE

902?”;

     (2) “Is the issue of standing based on possession of the

promissory note distinct from the issue of admissibility of loan

records, such that a lender can satisfy the possession

requirement with a declaration that affirms pre-filing

          records include and incorporate records for the Subject
          Loan obtained from JPMorgan Chase Bank, N.A. (“Prior
          Servicer”), the prior loan servicer for the Subject Loan.
          The records obtained by Caliber from the Prior Servicer are
          kept and maintained by Caliber in the ordinary course of
          its business for the purpose of maintaining an accounting
          of payments received, expenses incurred, and amounts
          advanced with regard to the Subject Loan, and such records
          are relied upon by Caliber in the regular course of its
          business.

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possession of the note based upon personal knowledge and

corroborating records of the custodian, irrespective of the

declarant’s foundation to admit the note as a business record

under HRE 803(b)(6)?”; and

     (3) “Did the debtor waive his right to dispute the Amended

Judgment by failing to oppose Petitioner’s Motion to Ratify and

the resulting Amended Order?”

                           II.   DISCUSSION

A.   The Note is not hearsay

     The Note is not hearsay.

     Out of court statements with independent legal

significance, like verbal acts, are not hearsay since “[i]f the

significance of an offered statement lies solely in the fact

that it was made, no issue is raised as to the truth of anything

asserted.”    Fed. R. Evid. 802(c) cmt.   See State v. Villena, 140

Hawaiʻi 370, 378, 400 P.3d 571, 579 (2017) (“It is well-settled

that statements of independent legal significance are not

hearsay.”).

     Contractual documents have independent legal significance.

See State v. Salavea, 147 Hawaiʻi 564, 577 n.13, 465 P.3d 1011,

1024 n.13 (2020) (citing Island Directory Co. v. Iva’s Kinimaka

Enters., Inc., 10 Haw. App. 15, 21-22, 859 P.2d 935, 939 (1993),

and describing it as “holding that statements that constitute

the offer, acceptance, or terms of a contract are not hearsay

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because the making of such statements are in themselves

relevant[.]”).

     Promissory notes are a subspecies of written contracts

because they record the terms of an agreement between lender and

borrower.   See Remington Investments, Inc. v. Hamedani, 64 Cal.

Rptr. 2d 376, 382 (Cal. Ct. App. 1997) (explaining “[t]he

Promissory Note document itself is not a business record as that

term is used in the law of hearsay, but rather is an operative

contractual document admissible merely upon adequate evidence of

authenticity”).   Since the Note has independent legal

significance as evidence of the written contract between

Verhagen and the Note’s holder, it is not hearsay.      Because the

Note is not hearsay, it does not need to meet the business

records exception to be admissible.

B.   Copies of the Note submitted by U.S. Bank are not self-
     authenticating under HRE Rule 902(9)

     Though the original Note is self-authenticating under HRE

Rule 902(9), the copies of the Note U.S. Bank submitted in

support of its MSJ are not.

     Even non-hearsay evidence must be authenticated.      “The

requirement of authentication or identification as a condition

precedent to admissibility is satisfied by evidence sufficient

to support a finding that the matter in question is what its

proponent claims.”   HRE Rule 901.    Under HRE Rule 902, however,

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“[e]xtrinsic evidence of authenticity as a condition precedent

to admissibility” is not needed with respect to “[c]ommercial

paper, signatures thereon, and documents relating thereto to the

extent provided by general commercial law.”           HRE Rule 902(9).

      Hawai‘i’s generally applicable commercial law is the Hawaiʻi

Uniform Commercial Code (the “U.C.C.”).          Under Article 3 of the

U.C.C.:

            In an action with respect to an instrument, the
            authenticity of, and authority to make, each signature on
            the instrument is admitted unless specifically denied in
            the pleadings. If the validity of a signature is denied in
            the pleadings, the burden of establishing validity is on
            the person claiming validity, but the signature is
            presumed[6] to be authentic and authorized unless the action
            is to enforce the liability of the purported signer and the
            signer is dead or incompetent at the time of trial of the
            issue of validity of the signature.

Hawai‘i Revised Statutes (“HRS”) § 490:3-308(a) (2008).

Promissory notes like the one Verhagen signed are negotiable

instruments under the U.C.C.        See HRS § 490:3-104; see also Bank

of New York Mellon v. Spielman, 146 Hawaiʻi 205, 457 P.3d 844

(App. 2020) (characterizing a promissory note as a “negotiable

instrument” under Article 3 of Hawaiʻi’s U.C.C.).            As such, the

original Note is self-authenticating commercial paper under HRE

Rule 902(9).

      HRE 902(9) does not specify whether it applies to

6     Article 3 of the U.C.C. provides that, “[w]henever this chapter creates
a ‘presumption’ with respect to a fact, or provides that a fact is
‘presumed’, the trier of fact shall find the existence of the fact unless
evidence is introduced that supports a finding of its nonexistence.” HRS §
490:1-206.

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photocopies of commercial paper or only to original commercial

paper.   At least one court has found that photocopies of

commercial paper are not self-authenticating.     See United States

v. Brandell, 35 M.J. 369, 371 (C.M.A. 1992) (holding that

photocopies of checks are not “self-authenticating ‘commercial

paper’ within the meaning of Mil.R.Evid. Rule 902(9),” which is

identical to HRE Rule 902(9)).    We, however, have not addressed

whether photocopies of commercial paper are self-authenticating

under HRE Rule 902(9).

     HRE Rule 1003 is central to our analysis on this issue.       It

provides: “[a] duplicate is admissible to the same extent as an

original unless (1) a genuine question is raised as to the

authenticity of the original, or (2) in the circumstances it

would be unfair to admit the duplicate in lieu of the original.”

HRE Rule 1003.

     Here, and indeed in all foreclosure cases where a mortgagee

introduces a copy of a promissory note to establish standing, we

conclude that it would be unfair to treat duplicates of

promissory notes as self-authenticating under HRE Rule 902(9).

     The policy considerations that justify HRE Rule 902(9)’s

special treatment of commercial paper do not apply in the

context of duplicate promissory notes.     An original note is

particularly trustworthy because it allows for the direct

inspection of all its inscriptions.    But it is impossible to

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definitively match a copy of a given note’s frontside with a

copy of the same note’s backside. 7          Moreover, limiting HRE Rule

902(9) to original commercial papers makes sense given the

mismatch between the significance of original commercial paper

and copies thereof in everyday life: “[b]anks do not treat

copies of checks and notes like originals,” and under the

U.C.C., the “enforcement of a negotiable instrument by a person

who does not possess the original instrument [is permitted] only

under very limited circumstances.”           31 Charles Alan Wright,

Arthur R. Miller & Victor J. Gold, Federal Practice and

Procedure § 7143(9) (1st ed. 2000 & Supp. 2021).

        Accordingly, we hold that while original promissory notes

are self-authenticating under HRE Rule 902(9), duplicates like

those submitted by U.S. Bank in support of its MSJ are not self-

authenticating and are only admissible if they are authenticated

by extrinsic evidence.           See HRE Rule 901.

7   As one treatise explained:

              [A] copy may not reveal all the information bearing on
              authenticity that is contained on an original. For example,
              a check that has been deposited and processed through the
              banking system has information that is contained on both its
              front and back. While both the front and back can be copied,
              often there is nothing about a copy of a given front and a
              given back that shows they match. Further, the bank imprints
              on the back of a check may not be clear on a copy.

31 Charles Alan Wright, Arthur R. Miller & Victor J. Gold, Federal Practice
and Procedure § 7143(9) (1st ed. 2000 & Supp. 2021).

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C.   U.S. Bank properly authenticated the copies of the Note it
     submitted in support of its MSJ

     The copies of the Note U.S. Bank submitted in support of

its MSJ are not self-authenticating commercial paper.      They are

still admissible, however, if there is “evidence sufficient to

support a finding” that they are what U.S. Bank claims they are.

See HRE Rule 901(a).   Testimony of a witness with personal

knowledge of a document may establish the foundation necessary

for its admission.   HRE Rule 901(b)(1).

     Salyers and Patterson’s testimony establishes an adequate

foundation for the copies’ admission.     Both Salyers and

Patterson declared under penalty of perjury that they had

inspected a copy of the Note maintained by Caliber.      They both

declared that “true and correct” copies of the Note they

inspected were attached to their declarations.      U.S. Bank has

thus adequately authenticated these copies of the Note.

D.   The ICA erred in its application of the incorporated
     records doctrine

     In its Amended SDO, the ICA held that the Note was

inadmissible because it was not authenticated by testimony from

a witness with personal knowledge of the record-keeping systems

of Washington Mutual or JPMorgan Chase.     Leaving aside the fact

that the Note is not hearsay, the ICA’s holding relies on a

conspicuous misreading of our incorporated records doctrine.

     Though hearsay is generally inadmissible, HRE Rule

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803(b)(6) establishes a hearsay exception for “records of

regularly conducted activity.”      It provides:

          A memorandum, report, record, or data compilation, in any
          form, of acts, events, conditions, opinions, or diagnoses,
          made in the course of a regularly conducted activity, at or
          near the time of the acts, events, conditions, opinions, or
          diagnoses, as shown by the testimony of the custodian or
          other qualified witness, or by certification that complies
          with rule 902(11) or a statute permitting certification,
          unless the sources of information or other circumstances
          indicate lack of trustworthiness.

HRE Rule 803(b)(6).

     Our incorporated records doctrine clarifies the application

of this exception to documents that were created by one entity

but which are maintained in the records of another.          We

introduced this rule in Fitzwater, 122 Hawaiʻi 354, 227 P.3d 520.

In Fitzwater, we explained: “when an entity incorporates records

prepared by another entity into its own records, they are

admissible as business records of the incorporating entity

provided that it relies on the records, there are other indicia

of reliability, and the requirements of HRE Rule 803(b)(6) are

otherwise satisfied.”    Id. at 367–68, 227 P.3d at 533–34

(emphasis added).

     We affirmed this holding in Behrendt, explaining that

“[r]ecords received from another business and incorporated into

the receiving business’ records may in some circumstances be

regarded as ‘created’ by the receiving business.”          142 Hawaiʻi at

45, 414 P.3d at 97.    The clear implication of this language is

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that when a record is treated as “created” by the receiving

business, a person is qualified to authenticate it if the person

has “enough familiarity with the record-keeping system of the

business that ‘created’ the record,” i.e., the receiving or

incorporating business.     Accordingly, a person may be qualified

to authenticate an incorporated record even if the person lacks

familiarity with the records or record-keeping practices of the

entity that actually created the record.

     In Behrendt, we identified the circumstances in which it is

appropriate to treat an incorporated record as “created” by the

receiving business:

          Incorporated records are admissible under HRE Rule
          803(b)(6) when a custodian or qualified witness testifies
          that [1] the documents were incorporated and kept in the
          normal course of business, [2] that the incorporating
          business typically relies upon the accuracy of the contents
          of the documents, and [3] the circumstances otherwise
          indicate the trustworthiness of the document.

142 Hawaiʻi at 45, 414 P.3d at 97.      If each of these three

conditions is satisfied, an incorporated record is admissible

even in the absence of testimony concerning its actual creation.

This is because evidence that a business has incorporated and

relied on a record created by another organization speaks

directly to that record’s reliability.        When accompanied by

testimony about other circumstances that also indicate the

record’s trustworthiness, such evidence is an acceptable

substitute for testimony concerning a record’s actual creation.

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     Immediately before our discussion of the incorporated

records doctrine in Behrendt, we addressed a slightly different

situation: the case where a business has custody of another

entity’s records but has not actually incorporated those records

into its own.   In that situation, we explained, a witness need

not be employed by the entity that created the documents to

provide the testimony required by HRE Rule 803(b)(6).      But the

witness does need to have “enough familiarity with the record-

keeping system of the business that created the record to

explain how the record was generated in the ordinary course of

business.”   Id. at 45, 414 P.3d at 97.

     In its SDO, the ICA incorrectly applied this standard to

Caliber’s incorporated records.    It ignored the fact that the

records created by JPMorgan Chase were incorporated into

Caliber’s own records and were not merely in Caliber’s custody.

In determining whether the records incorporated from JPMorgan

Chase were admissible under HRE Rule 803(b)(6), the ICA should

have considered whether there was testimony from a Caliber

custodian or witness qualified to testify about Caliber’s

records that: (1) Caliber incorporated and kept the documents in

the normal course of business; (2) Caliber typically relies upon

the accuracy of the contents of the documents; and (3) the

circumstances otherwise indicate the trustworthiness of the

documents.   See id. at 45, 414 P.3d at 97.

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        Patterson and Salyers 8 both testified that JPMorgan Chase’s

records were incorporated into Caliber’s own and kept and

maintained by Caliber in the ordinary course of its business.

They both further testified that Caliber used and relied on the

incorporated records in the regular course of its loan servicing

business.      The first two requirements for the admission of

incorporated records are thus satisfied.

        Salyers’ testimony does not describe any circumstances that

otherwise indicate the trustworthiness of the documents Caliber

incorporated from JPMorgan Chase.           But Patterson’s does.

Patterson declared that:

              The information regarding the Loan transferred to Caliber
              from the Prior Servicer has been validated in many ways,
              including, but not limited to, going through a due
              diligence phase, review of hard copy documents, and review
              of the payment history and accounting of other fees, costs,
              and expenses charged to the Loan by Prior Servicer.

Though scant, this testimony establishes circumstances

indicating the trustworthiness of Caliber’s incorporated

records.      It is evidence that before incorporating JPMorgan

Chase’s documents, Caliber reviewed hard copies of the

8     Both Patterson and Salyers are knowledgeable about Caliber’s record
keeping system and can describe Caliber’s incorporation of JPMorgan Chase’s
documents. They are thus “other qualified witnesses” who can authenticate
Caliber’s records of regularly conducted activity under HRE Rule 803(b)(6).
See Fitzwater, 122 Hawai‘i at 366, 227 P.3d at 532 (2010) (“The phrase ‘other
qualified witness’ is given a very broad interpretation. The witness need
only have enough familiarity with the record-keeping system of the business
in question to explain how the record came into existence in the ordinary
course of business.” (cleaned up))

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documents, engaged in a “due diligence” process, and reviewed

the payment history and accounting associated with the loan.

JPMorgan Chase’s documents were not, in other words,

uncritically incorporated into Caliber’s own.           They were vetted

by Caliber.      This pre-incorporation vetting, however nebulously

described by Patterson’s testimony, is a circumstance that

indicates the trustworthiness of the documents.

        Patterson’s testimony thus satisfies each of the three

criteria in Behrendt.       The ICA should have held that Caliber’s

incorporated records, as authenticated by Salyers 9 and

Patterson’s testimony, were admissible under HRE Rule 803(b)(6).

E.      The evidence, taken together, shows U.S. Bank had standing
        at the time it filed suit

        Having addressed the admissibility of copies of the Note

and Caliber’s incorporated records, we are left with an

evidentiary issue: has U.S. Bank established its standing to sue

Verhagen?

         In Reyes-Toledo, we held that a foreclosing plaintiff must

establish its standing to bring a lawsuit at the commencement of

the proceeding, not merely at the summary judgment stage.             139

9 Salyers’ testimony contributes to the authentication of records Caliber
incorporated from JPMorgan Chase by describing: (1) Caliber’s incorporation
of those records in the normal course of its business; and (2) Caliber’s
reliance on those records. Salyers’ testimony standing alone, however, would
be insufficient to establish that Caliber’s incorporated records are
admissible under HRE Rule 803(b)(6). This is because Salyers’ testimony does
not describe any other circumstances, beyond mere incorporation and reliance,
that indicate the incorporated records’ trustworthiness.

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Hawaiʻi 361, 369, 390 P.3d 1248, 1256.       In the mortgage

foreclosure context, we noted, the requirement of standing

overlaps with a plaintiff’s burden of proving its entitlement to

enforce the subject promissory note.       Id. at 367, 390 P.3d at

1254.

     Whether a party is entitled to enforce a promissory note is

determined by application of HRS § 490:3-301, which provides:

          “Person entitled to enforce” an instrument means (i) the
          holder of the instrument, (ii) a nonholder in possession of
          the instrument who has the rights of a holder, or (iii) a
          person not in possession of the instrument who is entitled
          to enforce the instrument pursuant to section 490:3-309 or
          490:3-418(d). 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.

     U.S. Bank maintains that, at the time it initiated suit, it

was entitled to enforce the Note because it held the indorsed-

in-blank Note.   U.S. Bank supports this claim with the following

evidence: (1) Jennifer Martin’s February 9, 2016, certification

certifying, under penalty of perjury, that at 12:51 p.m. on

February 9, 2016, she personally verified Caliber’s possession

of the original Note and attaching an indorsed-in-blank copy of

the Note; (2) a bailee letter dated December 9, 2016,

establishing that Caliber sent the Note to U.S. Bank’s counsel

at that time; and (3) Patterson’s sworn testimony that, based on

her review of Caliber’s records, and her knowledge of how those

records are made and maintained in the ordinary course of

business, “Plaintiff, or its agent on Plaintiff’s behalf, was in

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possession of the original wet-ink, indorsed in blank Note when

the [Verhagen] foreclosure action was commenced on March 23,

2016, and since.”

     The ICA held that this evidence was insufficient to

establish U.S. Bank’s standing on the day it filed suit since

“the Certification does not certify possession of the original

Note by U.S. Bank at the time the Verified Complaint was filed,

and the Attorney Bailee Letter was executed approximately nine

months after U.S. Bank commenced the foreclosure action.”        As

U.S. Bank observes, the implication of this holding is that only

evidence gathered on the day the complaint was filed would be

sufficient to establish a foreclosing plaintiff possessed the

subject promissory note at the time of filing.      This is not, and

should not be, the standard.

     U.S. Bank’s briefing raises a compelling question: if the

Note wasn’t in Caliber’s possession between February 9, 2016,

and December 9th of the same year, where did it go?      Here,

Patterson testified that based on her knowledge of Caliber’s

records and record-keeping practices, U.S. Bank had actual or

constructive possession of the Note at the time it filed the

complaint.   Such testimony, standing alone and uncorroborated by

documentary evidence, would be insufficient to establish U.S.

Bank possessed the Note when it filed the complaint.      Here,

however, there is admissible documentary evidence showing that

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U.S. Bank possessed the Note both a mere six weeks before the

filing of the complaint and at the time of summary judgment.

Collectively, the evidence presented by U.S. Bank thus

establishes the bank’s possession of the Note on the day the

complaint was filed. 10

      Of course, a defendant may counter this inference of

possession at the time of filing with evidence setting forth

“specific facts showing that there is a genuine issue” as to

whether the plaintiff actually possessed the subject note at the

time it filed suit.      See Hawaiʻi R. Civ. Pro. Rule 56(e).         But

that has not happened here.       Verhagen has not offered any

evidence undermining Patterson’s testimony that Caliber

possessed the Note on March 23, 2016.          And he has not offered

any evidence that the Note left U.S. Bank’s custody in the ten

months between Martin’s certification and the bailee letter.

Nor has he offered any evidence contradicting or calling into

question Martin’s certification.          Accordingly, U.S. Bank’s

evidence establishes that the bank possessed the Note, indorsed

in blank, 11 at the time it initiated suit.         The bank thus has

10    We reach this conclusion in part because Martin’s certification pre-
dates the filing of the complaint by less than two months. An older
certification, and a correspondingly larger gap between the certification’s
date and that of the complaint, would leave more room for a “genuine issue”
as to whether U.S. Bank actually possessed the Note when it sued Verhagen.

11    Importantly, where, as here, standing is based on possession of a Note
indorsed in blank, the admissible evidence must also show that the blank
indorsement occurred before the initiation of the suit. See HSBC Bank USA,
Nat’l Ass’n v. Moore, CAAP-XX-XXXXXXX, 2018 WL 1887197 (Haw. App. Apr. 20,

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standing to foreclose against Verhagen under Reyes-Toledo.

      The evidence that the Note existed, that Verhagen was in

default under its terms, and that Verhagen received the

necessary notice of his default is undisputed.           There is no

genuine issue as to the Note’s existence, Verhagen’s default

under its terms, or Verhagen’s receipt of the necessary notice.

U.S. Bank is entitled to summary judgment and the ICA erred in

reversing the circuit court’s grant of summary judgment to U.S.

Bank.

F.    Verhagen waived his objections to U.S. Bank’s motion to
      ratify

      “Issues not properly raised on appeal will be deemed to be

waived.”    Pele Defense Fund v. Paty, 73 Haw. 578, 613, 837 P.2d

1247, 1268 (1992).      Verhagen had an opportunity to oppose U.S.

Bank’s motion to ratify but he did not do so.           As such, he has

waived his objections to that motion.         Regardless, the ICA did

not err in considering whether the Patterson declaration was

admissible or sufficient to establish U.S. Bank’s entitlement to

summary judgment. 12

2018). Here, this requirement is satisfied because the copy of the Note
attached to Martin’s certification and authenticated by Patterson’s testimony
is indorsed in blank.

12Even when a motion for summary judgment is wholly unopposed, the motion
should only be granted when the moving party submits facts establishing there
are no genuine issues of material fact and that it is entitled to summary
judgment as a matter of law. See Arakaki v. SCD-Olanani Corp., 110 Hawai‘i 1,
7-8, 129 P.3d 504, 510-11 (2006). As the ICA explained in its Amended SDO,
its evaluation of whether or not U.S. Bank has met its burden on summary
judgment is not constrained by Verhagen’s failure to object to certain

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                              III. CONCLUSION

      We vacate the ICA’s October 28, 2020, judgment on appeal

and October 2, 2020, amended summary disposition order and

affirm the circuit court’s October 8, 2018, amended judgment and

amended order granting plaintiff’s motion for summary judgment

and for interlocutory decree of foreclosure.

Paul Alston,                                /s/ Mark E. Recktenwald
(David B. Rosen, David E.
McAllister, Justin S. Moyer,                /s/ Paula A. Nakayama
and Madisson L. Heinze,
                                            /s/ Sabrina S. McKenna
on the briefs)
for petitioner                              /s/ Michael D. Wilson
Keith M. Kiuchi,                            /s/ Todd W. Eddins
for respondent

Patricia J. McHenry,
for Amicus Curiae
Federal Housing Finance Agency

evidence at the circuit court level.

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