United States District Court, D. Colorado
In re ALEXANDER N. KIM and LAURA J. FOSTER, Debtors.
JP MORGAN CHASE BANK, N.A., ALEXANDER N. KIM and LAURA J. FOSTER, Appellants, and DOUGLAS E. LARSON, Trustee, Appellees.
A. BRIMMER UNITED STATES DISTRICT JUDGE
an appeal by debtors Alexander N. Kim and Laura J. Foster
(“debtors”) from the November 15, 2016 order
[Docket No. 7-15 at 172-182] of the United States Bankruptcy
Court for the District of Colorado (the “bankruptcy
court”). The Court's jurisdiction is based on 28
U.S.C. § 158(a).
own real property located at 69 Vista High Drive, Carbondale,
CO 81623 (“the Property”). R. V at 808, p. 167,
ll. 12-14. On February 22, 2008, debtor Kim executed
a note in the amount of $2, 000, 000 (“the Note”)
payable to Washington Mutual Bank, FA (“Washington
Mutual”). See Docket No. 14-1. The note was
secured by the Property through a Deed of Trust, which was
recorded in Eagle County, Colorado on February 29, 2008. R.
IV at 293, ¶ 2-3. Washington Mutual later endorsed the
Note in blank. See Docket No. 10-1 at 27.
to these bankruptcy proceedings, Washington Mutual was closed
by the Office of Thrift Supervision and the FDIC was
appointed as receiver over Washington Mutual. Id. at
294, ¶ 6. JP Morgan Chase Bank, N.A.
(“Chase”) purchased the Note and associated loan
through a Purchase and Assumption Agreement
(“PAA”) with the FDIC. Id., ¶ 7.
Chase claims that the FDIC transferred the Note to Chase in
the summer of 2009. See R. V at 737, p. 96, ll.
4-11; id. at 758-59, pp. 117-118, ll. 19-25, 1-18.
September 21, 2010, debtors filed for bankruptcy under
Chapter 11. See R. I at 4-6. On November 12, 2010,
Chase filed a proof of claim. Docket No. 10-1. Chase filed an
amended proof of claim on February 27, 2013. Docket No. 10-2.
Chase attached a copy of the Note to the proof of claim filed
on November 12, 2010. See Docket No. 10-1 at 24.
9, 2013, the bankruptcy court ordered that debtors' case
be converted to a Chapter 7 bankruptcy. See R. I at
87. Chase subsequently received relief from the automatic
stay to foreclose on the Property. See R. II at
14-15. In 2014, Chase initiated foreclosure proceedings
against the Property. R. IV at 294, ¶ 18. In the 2014
foreclosure proceedings, Chase filed a qualified holder
statement pursuant to Colo. Rev. Stat. §
38-38-101(1)(b)(II). See Docket No. 14-4. Chase
claims that, during the 2014 foreclosure proceedings, its
counsel discovered that the original note was missing.
See Docket Nos. 10-13, 10-14, 10-15, 10-16. On July
29, 2014, Chase withdrew its motion for an order authorizing
sale. Docket No. 11-1. On November 11, 2015, Chase acquired a
lost instrument bond in the amount of $3, 000, 000. Docket
No. 14-2; R. V at 802-803, pp. 161-162, ll. 17-25, 1-10.
September 3, 2015, debtors filed an objection to Chase's
claim in the bankruptcy proceedings. See R. III at
129-133. Debtors argued that Chase's claim is barred
because Chase was not in possession of the Note. Id.
at 132, ¶ 12. On June 21, 2010, the bankruptcy court
held a two-day evidentiary hearing on debtors' objection
to Chase's claim and on debtors' request for
attorney's fees and costs as a sanction for Chase's
conduct in the bankruptcy proceedings. See R. V
the hearing, the bankruptcy court, in a written order, found
that (1) the Note is lost; (2) pursuant to Section 4-3-309 of
the Colorado Uniform Commercial Code, Colo. Rev. Stat. §
4-3-309, Chase was in possession of the original Note and was
entitled to enforce it when the Note was lost; and (3) under
the Colorado foreclosure statutes, the lost instrument bond
that Chase posted provided debtors adequate protection from
being required to pay twice on the Note. See R. VI
November 29, 2016, debtors filed a timely notice of appeal.
R. VI at 185-187. Debtors raise eight issues on appeal,
Docket No. 18 at 7-9; however, many of the issues raised by
debtors overlap. Debtors' issues fall into two
categories: (1) the bankruptcy court's factual findings
were not supported by the evidence; and (2) the bankruptcy
court's legal rulings were improper. Id.
STANDARD OF REVIEW
may appeal the “final judgments, orders, and
decrees” of a bankruptcy court to either the district
court or a bankruptcy appellate panel. 28 U.S.C. §§
158(a), (c)(1). The Court reviews the bankruptcy court's
legal determinations de novo. See In re Baldwin, 593
F.3d 1155, 1159 (10th Cir. 2010). The Court also
reviews de novo mixed questions of law and fact that
primarily involve legal issues. See In re Wes Dor
Inc., 996 F.2d 237 (10th Cir. 1993). The bankruptcy
court's factual findings, including findings regarding
credibility, are reviewed for clear error. See DSC
Nat'l Props., LLC v. Johnson (In re Johnson), 477
B.R. 156, 168 (B.A.P. 10th Cir. 2012); In re
Baldwin, 593 F.3d at 1159; Rinehart, Blair, &
Mask v. Sharp (In re Sharp), 361 B.R. 559, 564-65
(B.A.P. 10th Cir. 2007). The reviewing court must defer to
the facts found by the bankruptcy court “unless it is
without factual support in the record or, after examining all
the evidence, we are left with a definite and firm conviction
that a mistake has been made.” In re Johnson,
477 B.R. at 168 (quotations omitted). If, however, a
“lower court's factual findings are premised on
improper legal standards or on proper ones improperly
applied, they are not entitled to the protection of the
clearly erroneous standard, but are subject to de
novo review.” Id.
bankruptcy code describes a “claim” as a
“right to payment, whether or not such right is . . .
disputed, [or] undisputed.” 11 U.S.C. § 101(5)(A).
“W ithin the context of a bankruptcy proceeding, state
law governs the determination of property rights.”
Miller v. Deutsche Bank Nat'l Trust Co. (In re
Miller), 666 F.3d 1255, 1262 (10th Cir. 2012) (quoting
In re Mims, 438 B.R. 52, 56 (Bankr. S.D.N.Y. 2010)).
Accordingly, to determine whether Chase has a valid claim,
the Court considers Colorado law, in particular the Colorado
Uniform Commercial Code (“Colorado UCC”).
Colorado law, an instrument that is “payable to an
identified person may become payable to bearer if it is
indorsed in blank pursuant to [Colo. Rev. Stat.] §
4-3-205(b).” Colo. Rev. Stat. § 4-3-109(c).
Section 205(b) provides that, when an instrument is indorsed
in blank, “an instrument becomes payable to bearer and
may be negotiated by transfer of possession alone until
specially indorsed.” Colo. Rev. Stat. §
undisputed that the Note is endorsed in blank. See
Docket No. 10-1 at 27; see also R. VI at 175
(bankruptcy court noting same). The dispute in this case
centers on the fact that Chase is not in possession of the
Note. The bankruptcy court found that Chase's claim was
allowed based on Colorado's lost instrument statute. The
lost instrument statute provides:
(a) A person not in possession of an instrument is entitled
to enforce the instrument if (i) the person was in possession
of the instrument and entitled to enforce it when loss of
possession occurred, (ii) the loss of possession was not the
result of a transfer by the person or a lawful seizure, and
(iii) 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) A person seeking enforcement of an instrument under
subsection (a) of this section must prove the terms of the
instrument and the person's right to enforce the
instrument. If that proof is made, section 4-3-308 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.
Colo. Rev. Stat. § 4-3-309.
order to enforce a claim under the lost instrument statute,
Chase is required to prove the elements of the statute by
“clear and convincing evidence.” Gooch v.
Rodewald, 432 P.2d 755, 756 (Colo. 1967) (quoting
Walker v. Drogmund, 74 P.2d 1235 (Colo. 1937)).
Debtors argue that the bankruptcy court erred when it found