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Knigge v. SunTrust Mortgage, Inc. (In re Knigge)

Knigge v. SunTrust Mortgage, Inc., No. 12-6026 (BAP 8th Cir. 2012)
The court held that, pursuant to the applicable provisions of Missouri's Uniform Commercial Code ("UCC"), SunTrust was a negotiable instrument and, therefore, Suntrust was allowed to enforce it and the corresponding deed of trust.
Procedural context:
The BAP affirmed the ruling of the bankruptcy court granting summary judgment in favor of SunTrust Mortgage, Inc. ("SunTrust"), and denying summary judgment to the Debtors on their adversary complaint that challenged SunTrust's standing to enforce a promissory note and deed of trust.
SunTrust had acquired a certain promissory note (the "Note") and deed of trust (the "Deed of Trust") previously executed by the Debtors, which provided SunTrust with a security interest in the Debtors' residence (the "Poperty"). In the Debtors' subequent chapter 13 filing, they listed SunTrust on Schedule D as a secured creditor with a mortgage on the Property. The Debtors' brought an adversary proceeding (which led to this appeal) against SunTrust, challenging SunTrust's standing to enforce the Note and Deed of Trust. Following SunTrust's objection to the Debtors' chapter 13 plan, the parties settled the objection through an agreed order. The agreed order modified the amount and interest rate of SunTrust's claim without a reservation of rights by the Debtors to contest SunTrust's standing, claim or lien. Prior to the current chapter 13 filing, the Debtors filed a previous chapter 13 case. In the previous case, the Debtors listed SunTrust as a secured creditor with a mortgage on the Property SunTrust's interests were addressed by two proceedings in the previous case. First the Debtors' confirmed plan acknowledges SunTrust's mortgage and provides that it is to be paid as a long-term debt and excepted from the Debtors' discharge. Second, SunTrust had sought stay relief, arguing that the Debtors' failed to make monthly payments. While the Debtors disputed the amount of the arrearage, they did not object to SunTrust's standing to enforce the Note. Further, the parties settled the stay relief motion through a stipulation and consent order which also did not contain a reservation of rights by the Debtors to contest SunTrust's standing, claim, or lien. The Debtors received a discharge in their previous case and the case was closed. In the current case, the Debtors argued that the Note was not negotiable because it ws not unconditional. They pointed to language in the Note which provided for the amount of the monthly payment and stated that that amount will be part of a larger monthly payment as provided for under the Deed of Trust. Thus, the Debtors argued that because one must look at a document other than the Note to determine the full amount owed by the Debtors, the Note was subject to or governed by the Deed of Trust. The BAP, however, found that the Note's reference to the Deed of Trust did not set forth additional amounts owed under the Note and that such language was nothing more than a reference to the Deed of Trust. Consequently, pursuant to the applicable provisions of Missouri's UCC, the Note was negotiable. The BAP then agreed with the Bankruptcy Court's conclusion that SunTrust was the "holder" of the Note, pursuant to applicable provisions of Missouri's UCC. In support of this conclusion, the BAP observed that the Note was endorsed by original lender and made payable to SunTrust. Further, the Note had an additional endorsement by SunTrust made in blank, and there was no allonge to the Note. Finally, the BAP found that SunTrust was in physical possession of the Note, having made the original available to Debtors' counsel for inspection and copying. Although the BAP found it sufficient to affirm the Bankruptcy Court's ruling based on the merits, the BAP also affirmed the Bankruptcy Court's application of judicial estoppel. In doing so, the BAP referred to a non-exclusive list of factors that are used to guide a court when determining whether to exercise its discretion to apply judicial estoppel: (1) a party's later position is clearly inconsistent with its earlier position; (2) the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in that later proceeding would create the perception that either the first or the second court was misled; and (3) the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on teh oppposing party if not estopped. Applying these factors, the BAP observed that in the Debtors' previous bankruptcy case, they admitted that SunTrust held a security interest when they (1) obtained confirmation of a chapter 13 plan which acknowledged SunTrust as the holder of a long-term secured mortgage debt; and (2) entered into consent orders with respect to SunTrust's stay relief motion, all without reserving the Debtors' rights to contest SunTrust's request for stay relief, and all without reserving the Debtors' rights to contest SunTrust's standing, claim, or lien. Further, the Debtors obtained a discharge in their previous case. Finally, the BAP observed, the Debtors continued to acknowledge SunTrust's interests as the holder of an enforceable secured claim in this case by settling SunTrust's objection to confirmation of their chapter 13 plan (again without reservation of rights) through an agreed order. The BAP concluded stating that it would not permit the Debtors to acknowledge SunTrust's lien when it was in their interest, and then change their position to contest SunTrust's position when that would provide them with an advantage in their adversary proceeding.
Kressel, Schermer, and Nail

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