By Judge Pamela Pepper

click here for part II, click here for part III, click here for part IV, click here for part V, click here for part VI, click here for part VII, click here for part VIII

I.          Fact Pattern for the Hypotheticals

In Dick and Jane Debtor’s Chapter 13 case, ABC Mortgage Company files a motion for relief from stay, arguing that the Debtors have missed four (4) post-petition mortgage payments and therefore that ABC is not adequately protected.

The Debtors object.  They argue that ABC Mortgage Company isn’t a creditor of theirs.  The Debtors argue that an entity called First Mortgage Company issued the mortgage some eight years ago.  They have reviewed the documents ABC attached to its motion, and according to the Debtors, those documents show that movant ABC asserts that it is the trustee for some pooled trust called Confusing Old Bank Asset Loan Trust (“COBALT”).  The Debtors argue that there is no paperwork showing that First Mortgage properly transferred the mortgage to ABC or to COBALT.

Rather, the Debtors claim that the paperwork shows that after they filed their petition, MERS assigned the First Mortgage Company mortgage to ABC as trustee for COBALT, and that that assignment document was signed by an attorney in the office of ABC’s local counsel.  They also claim that there’s an allonge somewhere in the chain of assignment, endorsed in blank, that doesn’t appear to be attached to a note.

The Debtors believe that what really happened here is that after they filed their bankruptcy, ABC, realizing that it did not have standing, attempted to illegally securitize the mortgage loan to the COBALT secured trust.  Accordingly, they argue that ABC has no standing to ask you to lift the stay.

At about the same time, ABC files an objection to confirmation of the Debtors’ Chapter 13 plan, because that plan doesn’t propose to pay ABC’s arrears and does not propose to make post-petition mortgage payments to ABC.

The Debtors respond by filing an objection to ABC’s proof of claim, again arguing that ABC has no standing to file a claim in the Debtors’ bankruptcy.

Both parties have given the bankruptcy judge a headache.

II.        Hypotheticals Relating to Specific Issues

A.        “I Know It’s In Those Rules Somewhere . . . .”

III.       Concluding Thoughts

Most of us are grappling with some form of the standing argument relating to mortgage creditors.  Whether the argument arises in the context of a motion for relief from stay, an objection to confirmation, an objection to a claim or an adversary proceeding to determine the validity of a lien, it is vexing because of the multiple lawyers of problems it involves.

There are discovery issuesBhow can the complaining debtors obtain documents which are old, or which are in the possession of an entity halfway across the country, or which have been transferred 14 times, or which no longer exist in their original forms?

There are evidentiary issues, of the type discussed in these materials.

And on top of all of that, there are issues with regard to whether the documents, even if obtainable and admissible, do what they purport to doBwhether they were created in accordance with applicable state laws regarding the creation, perfection and transfer of property rights.

Hopefully these materials will assist you in working through some of the evidentiary issues.  As to the remaining issues, perhaps we’re all well advised to keep a bottle of Extra-Strength Tylenol handy!

1.         Hypothetical A

At the preliminary hearing on the motion for relief from stay, it becomes clear that the parties are not going to be able to reach any kind of agreement.  It also is clear that the bases for the Debtors’ objection to the motion for relief from stay, their objection to ABC’s proof of claim and their defense to ABC’s objection to confirmation all are the same: all are grounded in the Debtors’ position that ABC does not have a valid claim in the bankruptcy, and thus does not have standing to file a motion for relief, an objection to confirmation or a proof of claim.

Because the basic issue in all of these matters is the same, the bankruptcy judge schedules a single evidentiary hearing to hear the evidence, which will apply to all three matters. The  Debtors ask that the hearing be scheduled at least 90 days in the future, because they want to take discovery.

Counsel for ABC objects, arguing that there is no provision in the Federal Rules of Evidence which provides a basis for the Court to authorize the Debtors to take discovery outside of an adversary proceeding.

How should the judge rule?

a.         Resolution

Counsel for ABC is correct that there is no provision of the Federal Rules of Evidence providing a basis for allowing the Debtors (or ABC, for that matter) to take discovery.

The basis for the court’s authority to allow the parties to take discovery in these circumstances is the Federal Rules of Bankruptcy Procedure, not the Federal Rules of Evidence.

Fed. R. Bankr. P. 9014 governs contested matters.  A contested matter is a matter which (a) doesn’t fall among Rule 7001’s list of adversary proceedings and (b) involves at least two parties who are opposing each other with regard to the relief sought.  The 1983 Advisory Committee Note to Rule 9014 lists some contested matters, including motions for relief from the automatic stay.  Others (which are not, contrary to what Rule 9014(a) indicates, brought by motion) are objections to claims and objections to confirmation of Chapter 13 plans.

Rule 9014(c) provides that certain of the rules governing adversary proceedingsBFed. R. Bankr. P. 7001-7087Balso apply in contested matters.  In particular, Rule 9014(c) provides that Fed. R. Bankr. P. 7026, “Duty to Disclose; General Provisions Governing Discovery,” applies in contested matters.  There are exceptions:

Rule 7026(a)(1)(A), which requires mandatory disclosure of certain information, does not apply in contested matters.  Nor does Rule 7026(a)(2), which governs disclosures regarding expert testimony, or Rule 7026(f), requiring the parties to meet before the scheduling conference.  This does not mean that, in a particularly complex case, the court cannot require the attorneys to follow these rules.  They are not, however, automatically applicable in contested matters unless the bankruptcy judge says they are.

This combined evidentiary hearing on the motion for relief from stay, the objection to confirmation and the objection to claim constitutes a hearing in a “contested matter.”  Accordingly, Fed. R. Bankr. P. 7026, which mandates a duty to disclose certain information and lays out the guidelines for discovery, applies.

b.         Useful Odds and Ends

Handy Rule 7026 Provisions to Keep in Mind:

Rules 7028-7032, which govern the taking of depositions, are applicable in contested matters.

Rule 7033, which governs interrogatories, applies.  Remember that the rule limits a party to 25 written interrogatories (including subparts), unless the court orders otherwise, and gives the other side 30 days to respondBagain, unless the court orders otherwise.

Rules 7036, which governs requests for admission, applies to contested matters.  Remember that the rule deems a matter admitted unless, within 30 days after being served with the request for admission, the recipient serves a written answer or objection.  The court can make that time longer or shorter.

The Key Take-Away:

Procedures governing how the parties go about obtaining the evidence they want to present are governed by the Federal Rules of Bankruptcy Procedure and the Federal Rules of Civil Procedure, not the Federal Rules of Evidence.  The Federal Rules of Evidence govern what evidence is and isn’t admissible, not how the parties go about getting it.

On May 1, 2014, President Obama nominated Pepper to serve as a United States District Judge of the United States District Court for the Eastern District of Wisconsin, to the seat vacated by Judge Charles N. Clevert Jr. On November 20, 2014 the Senate voted 95-0 in favor of final confirmation and she received her judicial commission on December 8, 2014.

Pamela Pepper received her Bachelor of Speech in theater from Northwestern University in Evanston, Illinois, and her J.D. from Cornell Law School in Ithaca, New York. While at Cornell Law, she was co-winner of the Sutherland Moot Court cup, a notes editor on the Cornell Law Review, and a teaching assistant. After graduating law school, she clerked for the late Frank M. Johnson, Jr. on the Eleventh Circuit Court of Appeals in Montgomery, Alabama. In 1990, she joined the United States Attorney’s Office for the Northern District of Illinois, and moved to the U.S. Attorney’s Office for the Eastern District of Wisconsin in 1994. In 1997, she left government practice, and spent eight years as a solo criminal defense practitioner. She represented clients at the investigative, pre-trial, trial, appellate and post-conviction stages in federal courts in the Eastern and Western Districts of Wisconsin, the Northern District of Illinois, and the Seventh Circuit Court of Appeals, as well as in state courts in southeastern Wisconsin. Pepper holds a graduate certificate in dispute resolution from Marquette University’s graduate school, and has taught as an adjunct professor at Marquette Law School in the areas of legal writing and law practice management. She was appointed to the bankruptcy bench for the Eastern District of Wisconsin by the Seventh Circuit on July 5, 2005. She has been chief judge of the Eastern District of Wisconsin since July 1, 2010.

Pam is a former secretary and former chair of the Board of Governors of the State Bar of Wisconsin, and currently serves on the State Bar’s Bench/Bar Committee. She is past treasurer, and a current member, of the Association for Women Lawyers. She served on the board of Federal Defender Services of Wisconsin from its inception until her appointment to the bench, and on the board of the State Public Defender of Wisconsin for two years. She is a former president of the Milwaukee Bar Association, and currently co-chairs its Bankruptcy Bench/Bar Committee. Until her appointment to the bench, she was general editor of the Seventh Circuit Bar Association’s newsletter, The Circuit Rider, and continues to contribute articles occasionally. She is an ex-officio member of the board of directors of the Eastern District of Wisconsin Bar Association. She is a member of the NACTT Academy for Consumer Bankruptcy Education. She is a member of the American Bankruptcy Institute and serves as the co-chair and Education Director of its Consumer Bankruptcy Committee. She belongs to the National Conference of Bankruptcy Judges, serving as the Seventh Circuit’s governor on the NCBJ’s Board of Governors, as well as sitting on the 2010 and 2011 national conference education committees. She is an associate editor of the American Bankruptcy Law Journal. She is the bankruptcy judge representative on the Human Resources Advisory Council of the Administrative Office of U.S. Courts, and an occasional program presenter for the Federal Judicial Center.