ZULUETA Initial Brief

In Re: Felipe D. Zulueta Jr, Opening Brief of Appellant

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PRELIMINARY STATEMENT

In its recent November Oversight Report dated November 16, 2010, the

Congressional Oversight Panel specifically addressed the issues concerning the

consequence of the irregularities in the mortgage foreclosure process. In it, the

report states, “Clear and uncontested property rights are the foundation of the

housing market. If these rights fall into question, that foundation could collapse.

Borrowers may be unable to determine whether they are sending their monthly

payments to the right people. Judges may block any effort to foreclose, even in

cases where borrowers have failed to make regular payments. Multiple banks

may attempt to foreclose upon the same property.” Further, it states, “We, the

Congressional Oversight Panel emphasize that in no circumstances should

lenders or servicers foreclose on any homeowner except in full compliance with

the law”.

In light of the Congressional Oversight Panel’s findings of irregularities

in the mortgage foreclosure process and in view of the recent and prevalent

controversies that pertain to the accurateness and truthfulness of the documents

provided by lenders and servicers alleging ownership of homeowners’

Promissory Notes, it behooves the Court to require closer scrutiny of mortgage

documentation and not simply accept the word of the big banks and their


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servicers that whatever documents they produce need not be examined as

required by law.

In the context of Bankruptcy law, Debtors must have a fair opportunity to

contest standing and to challenge whatever facts Claimants may put forward in

seeking to establish their claim and have the forum to do so, as provided in

Section 502 of the Bankruptcy Code.

Debtor-Appellant sought this forum via an evidentiary hearing held on

November 3, 2010. With the expectation that Debtor would be able to fully

examine the evidence that Claimant had to prove its claim, the hearing turned

out to be short-lived, so short that it lasted for 8 minutes, without the Debtor

being able to authenticate any of the documents that Claimant was supposed to

have brought to the evidentiary hearing.

If Claimant is truly the real party in interest and can sufficiently produce

all the legal, original and proper documents to establish its Claim as well as

produce a qualified witness to substantiate its evidence, then the Bankruptcy

Court should have had no trouble in ascertaining these facts. Instead, the

Bankruptcy Court erred in disallowing the issue of standing to be heard during

the evidentiary hearing, as the transcript of the proceedings will bear.


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Further, no discussion of accounting was undertaken during the

evidentiary hearing that would have determined the allowable amount of the

claim on Debtor’s estate by Claimant.

This appeal is therefore brought before the BAP, in order that the Panel

may provide judicial oversight into the matters that arose in this instant case.

BASIS OF APPELLATE JURISDICTION

Debtor-Appellant, Felipe Zulueta Jr, is appealing the November 22, 2010

final Order issued by the Honorable Edward D. Jellen, overruling Debtor’s

Objection to Claim, Claim #1. This Honorable Bankruptcy Appellate Panel

(“BAP”) has jurisdiction of this appeal pursuant to 28 USC 158 (b) (1) which

provides that “The judicial council of a circuit shall establish a bankruptcy

appellate panel service composed of bankruptcy judges of the districts in the

circuit who are appointed by the judicial council in accordance with paragraph

(3), to hear and determine, with the consent of all the parties, appeals under

subsection (a)”.

Subsection (a) reads, “The district courts of the United States shall have

jurisdiction to hear appeals (1) from final judgments, orders, and decrees;


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STATEMENT OF ISSUES PRESENTED

1. Did the Bankruptcy Court err in overruling Debtor’s Objection to Claim #

1 by terminating the evidentiary hearing after 8 minutes of its start

without allowing Debtor a full and complete opportunity to contest

Claimant’s Standing to bring a claim?

2. Did the Bankruptcy Court err in not allowing Debtor the opportunity to

contest the amount of debt listed in Claimant’s proof of claim and to

determine enforceability of the claim as to the Claimant, given that the

debt is listed as contingent, unliquidated and disputed?

STANDARD OF APPELLATE REVIEW

Appellate courts generally apply de novo review to conclusions of

law. A bankruptcy court’s determination that a party has standing is a

legal conclusion subject to de novo review. Pershing Park Villas

Homeowners Assoc. v Unified Pac. Ins. Co., 219 F.3d 895, 900 (9th

Cir,

2000). De novo review requires that the BAP consider a matter anew, as if

no decisions had been previously rendered. United States v. Silverman,

861 F.2d 571, 576 (9th Cir. 1988).


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STATEMENT OF THE CASE

FACTUAL BACKGROUND

Debtor filed an Objection to Claim, Claim # 1, on May 5, 2010

(Designation of Record, Item # 7). The basis for the Claim stated that, Deutsche

Bank National Trust Company, as Trustee of the IndyMac INDX Mortgage

Loan Trust 2006-AR14, Mortgage Pass-Through Certificates, Series 2006-

AR14, under the Pooling and Servicing Agreement dated October 1, 2006 (the

“Claimant) is not the real party in interest.

In addition to Debtor’s stated basis for the Objection, Debtor disputed the

amounts listed in Claim # 1, including the non application of Debtor’s mortgage

payments and sought an accounting for all expenses listed by Claimant in their

Proof of Claim contained in Debtor’s Response to Claimant’s Response to

Debtor’s Objection to Claim (Designation of Record, Item # 14, page __)

The Court conducted an evidentiary hearing on the matter on November

3, 2010 (Designation of Record, Item # 15 & Item # 16).

No witnesses were provided by the Claimant.

The transcript of the evidentiary hearing shows that the hearing lasted for

a total of 8 minutes (Designation of Record, Item # 21).


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During the Hearing, the Bankruptcy Court overruled Debtor’s Objection

to Claim. The Court signed the Order Overruling the Objection on November

22, 2010 which was then entered into the docket on November 23, 2010,

(Designation of Record, Item # 26).

On November 8, 2010, the Court held a second Confirmation Hearing

(Designation of Record, Item # 22) at which time the Court dismissed the instant

case on the basis of the Debtor’s current Chapter 13 Plan being unfeasible.

On November 17, 2010, Debtor (prematurely) filed a Notice of Appeal

with the Court, appealing the Order Overruling the Objection to Claim entered

on November 23, 2010 (Designation of Record, Item # 24). This Notice of

Appeal was subsequently amended on December 7, 2010.

LEGAL ARGUMENT

POINT I

THE BANKRUPTCY COURT ERRED AS A MATTER OF LAW AND

FACT IN NOT ALLOWING DEBTOR TO FULLY EXAMINE AND

CONTEST THE EVIDENCE THAT CLAIMANT HAS STANDING TO

BRING A CLAIM

A. FAILURE TO ESTABLISH STANDING

The issue of standing involves both “constitutional limitations on federal

court jurisdiction and prudential limitations on its exercise.” Warth v Seldin,


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422 U.S. 490, 498 (1975). Constitutional standing concerns whether the

plaintiff’s personal stake in the lawsuit is sufficient to have a “case or

controversy” to which the federal judicial power may extend under the

Constitution’s Article III. Id, at 498-99; Pershing Park Villas, 219, F.3d at 899.

Additionally, the “prudential doctrine of standing has come to encompass

several judicially self-imposed limits on the exercise of federal jurisdiction.’”

Pershing Park Villas, 219 F.3d at 899. Such limits are the prohibition on third-

party standing and the requirement that suits be maintained by the real party in

interest. Gilmartin v. City of Tucson, 2006 WL 5917165, at *4 (D. Ariz. 2006).

Thus, prudential standing requires the plaintiff to assert its own claims

rather than the claims of another. The requirements of Fed. R. Civ. P. 17, made

applicable by Rule 9014, “generally falls within the prudential standing

doctrine.” In re Wilhelm, 407 B.R. at 398.

The party seeking to file a claim in any Federal Court “bears the burden

of demonstrating standing and must plead its components with specificity.”

Coyne v American Tobacco Company, 183 F.3d 488, 494 (6th Cir. 1999).

One West Bank (“OWB”) as servicer of, Deutsche Bank National Trust

Company, as Trustee of the IndyMac INDX Mortgage Loan Trust 2006-AR14,

Mortgage Pass-Through Certificates, Series 2006-AR14 under the Pooling and

Servicing Agreement dated October 1, 2006 (“Deutsche”), states in its


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Evidentiary Hearing Brief (Designation of Record, Item # 19) that OWB has

standing because it has actual physical possession of the original Promissory

Note. OWB further states that as the Promissory Note is endorsed in blank,

negotiation of the Note is satisfied through mere possession. Cal Comm. Code §

3205 (b).

In the exhibits provided by OWB, the only evidence provided by OWB of

it’s purported possession of the note is a photocopy of the note with a blank

endorsement through the use of an allonge.

Federal Rules of Evidence provide that to prove the content of a writing,

the original is required. Fed. R. Evid. 1002. Duplicates are permitted 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.

Fed. R. Evid. 1003.

Debtor-Appellant has amply raised the issue that Claimant needs to

produce the original Promissory Note as contained in Debtor’s Response to One

West Bank’s Response to Debtor’s Objection to Claim (Designation of Record,

Item # 14, page __ of the Appendix) and that such original Promissory Note be

authenticated.

As the evidentiary hearing was abruptly terminated by the Bankruptcy

Court within 8 minutes of its start, Debtor-Appellant was not able to physically


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see and verify that OWB had the original Promissory Note at the hearing nor

was the original Promissory Note presented to the Court for verification, as the

transcript will bear.

As such, the Bankruptcy Court could not have established the issue of

standing by virtue of examining mere photocopy images of OWB’s documents.

B. One West Bank Has Not Demonstrated That It Is A Holder

Of The Note

1. If OWB is the holder of the Note, OWB would be a party injured by

the Debtor's failure to pay it, thereby satisfying the constitutional standing

requirement. OWB would also be the real party in interest under Fed. R. Civ. P.

17 because under the California UCC, the holder of a note has the right to

enforce it.

California Uniform Commercial Code 3205 (b) states, “If an indorsement

is made by the holder of an instrument and it is not a special indorsement, it is a

"blank indorsement." When indorsed in blank, an instrument becomes payable

to bearer and may be negotiated by transfer of possession alone until specially

indorsed”.

OWB has failed to demonstrate that it is the holder of the Note because,

while it claims to have possession of the Note, it failed to demonstrate that the


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Note is properly payable to OWB. In re Weisband, 427 B.R. 13 (Bankr. D.

Ariz, 2010).

2. Further, based on the photocopies provided by OWB of the Promissory

Note, it appears that the blank endorsement signed by a certain of Bruce Steiz

of IndyMac Bank, FSB was in the form of an allonge.

In an established case law rendered by the California Court of Appeals

that specifically addresses the use of allonges, the Court states clearly and in no

uncertain terms that “the majority view is that the law merchant permits the use

of an allonge only when there is no longer room on the negotiable instrument

itself to write an indorsement”. Pribus v Bush, 118 Cal. App. 3d 1003.

The Court further states, “We believe that inherent in the rationale

underlying the majority rule is the concern for preventing fraud. An allonge,

even though “so firmly affixed … as to become a part” of the instrument, may

be detached more easily than an indorsement on the instrument itself.

Additionally, a person’s signature, innocently made upon an innocuous

piece of paper, could be fraudulently attached to a negotiable instrument as a

purported indorsement. The majority rule, while not eliminating these methods

of fraud, certainly reduces the opportunities for their use.”

The purported assignment by allonge of Debtor’s promissory note by

IndyMac Bank, FSB to the current bearer was ineffective as an indorsement,


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since there was sufficient space on the note itself for the indorsement . There

having been no indorsement of the note, OWB, even if it could produce the

original Promissory Note is not a holder in due course and cannot enforce the

note.

OWB cannot overcome the problems with the allonge by its physical

possession of the Note because while the Note was endorsed in blank, the

indorsement was not on the Note itself as required under California law. As a

result, because OWB failed to meet its burden of demonstrating that the

Endorsement was proper, it has failed to demonstrate that it is the holder of the

Note.

C. ONE WEST BANK HAS PRODUCED CONFLICTING

DOCUMENTS AS TO WHO IS THE PROPER CLAIMANT

AND REAL PARTY IN INTEREST

The Proof of Claim, Claim # 1, shows the Claimant as Deutsche Bank

National Trust Company, as Trustee of the IndyMac INDX Mortgage Loan

Trust 2006-AR14, Mortgage Pass-Through Certificates, Series 2006-AR14

under the Pooling and Servicing Agreement dated October 1, 2006

(“Deutsche”).

One West Bank (“OWB”) fails to show anything on the record that it is

authorized to act in behalf of Deutsche, as Claimant. Instead it asserts that it is


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in possession of Debtor’s Promissory Note, while completely failing to provide

any explanation as to how it came to possess Debtor’s Promissory Note in the

absence of a clear chain of title of the Note.

OWB offers the Pooling and Servicing Agreement (“PSA”), (Designation

of Record, Item # 45, under Exhibit E) to establish its authority as servicer of

Debtor’s Promissory Note.

Upon close examination of the PSA, there is no direct evidence that

Debtor’s Mortgage Loan was even deposited into the Deutsche Trust. The page

entitled “Schedule I, Mortgage Loan Schedule” is empty (Designation of

Record, Item # 19, page ___ ) and does not list any mortgage loan as entered

into the Trust. The PSA is simply a complex explanation of the intentions of the

parties to the Agreement, but it does not clearly establish that the Debtor’s

Promissory Note was included in the transaction.

Secondly, the Assignment of Deed of Trust by MERS directly to

Deutsche, does not provide OWB or Deutsche with standing as it directly

contradicts the prescription of the PSA. The PSA has very strict and narrow

guidelines to require all Mortgage Loans to be sold under true sale accounting

rules in order for the eventual Trust to avail of specific tax benefits accorded

through the securitization process (Designation of Record, Item #19, page ___ ).


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The PSA specifies that the Mortgage Loans be first sold by IndyMac

Bank, FSB to a IndyMac MBS, Inc, who will then form the Deutsche Trust

where the Mortgage Loans were to be deposited (Designation of Record, Item #

19, page _____ ).

Mortgage Electronic Registration Systems (“MERS”) in the Assignment

of Deed of Trust (“DOT”), violated these provisions by the PSA, in that it

assigned the DOT directly to Deutsche instead of following the chain of title

prescribed in the PSA. It is for this reason that the MERS Assignment is

defective at best and fraudulent at worst, since its action put the significant tax

benefits of the Trust at risk.

OWB states that it and/or Deutsche has standing to bring the Claim as the

assignee of MERS. In this case, MERS is named in the Deed of Trust (“DOT”)

as a beneficiary, solely as the "nominee" of IndyMac Bank, FSB, holding only

"legal title" to the interests granted to IndyMac Bank, FSB under the DOT. A

number of cases have held that such language confers no economic benefit on

MERS. See, e.g., In re Sheridan, 2009 Bankr. LEXIS 552, 2009 WL 631355, *4

(Bankr. D. Idaho 2009); In re Mitchell, 2009 Bankr. LEXIS 876, 2009 WL

1044368, *3-4 (Bankr. D. Nev. 2009); In re Jacobson, 402 B.R. 359, 367

(Bankr. W.D. Wash. 2009). As noted by the Sheridan court, MERS "collect[s]

no money from [d]ebtors under the [n]ote, nor will it realize the value of the


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[p]roperty through foreclosure of the [d]eed of [t]rust in the event the [n]ote is

not paid." 2009 Bankr. LEXIS 552, 2009 WL 631355 at *4.

Because MERS has no financial interest in the Note, it will suffer no

injury if the Note is not paid and will realize no benefit if the DOT is

foreclosed. Accordingly, MERS cannot satisfy the requirements of

constitutional standing. Deutsche, as MERS' assignee of the DOT, "stands in

the shoes" of the assignor, taking only those rights and remedies the assignor

would have had. Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson,

Trust No. 3496, 187 Ariz. 301, 304, 928 P.2d 725 (Ct. App. 1996) citing Van

Waters & Rogers v. Interchange Res., Inc., 14 Ariz. App. 414, 417, 484 P.2d 26

(1971); In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007). Because

Deutsche is MERS' assignee, it cannot satisfy the requirements of constitutional

standing either nor can OWB.

POINT II

THE BANKRUPTCY COURT ERRED IN NOT ALLOWING DEBTOR

TO EXAMINE AND CONTEST THE ACCOUNTING OF AMOUNTS

CONTAINED IN THE PROOF OF CLAIM

A. THERE WAS NO WITNESS TESTIMONY AND NO

DOCUMENTARY EVIDENCE PRESENTED AT THE

EVIDENTIARY HEARING SHOWING DEBTOR’S

MORTGAGE PAYMENTS WERE PROPERLY CREDITED

TO HIS LOAN ACCOUNT


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One West Bank did not produce any documentary evidence nor qualified

witness to establish that Debtor’s mortgage payments from October 2008 to

March 2009 were properly credited to Debtor’s loan account.

A proof of claim executed and filed in accordance with § 501 of the

Bankruptcy Code and applicable Bankruptcy Rules constitutes prima facie

evidence of the amount and validity of the claim. Upon objection to the claim

and admission of probative evidence sufficient to rebut the prima facie validity

of the claim, the burden shifts to the claimant who bears the ultimate burden of

persuasion with respect to the amount and validity of its claim.

In the instant case, Debtor has filed a timely objection to claim and

submitted probative evidence through its Objection to One West Bank’s

Response to Debtor’s Objection to Claim (Designation of Record, Item # 14). In

said Objection, Debtor incorporated an exhibit E, showing unapplied mortgage

payments to the claim. In doing so, the burden has therefore shifted to Claimant

to prove the validity of its claim. Without the testimony of a witness and the

opportunity to examine the Claimant’s accounting for excessive fees and

unapplied mortgage payments, the abrupt and shortened evidentiary hearing did

not afford Debtor the ability to contest and confront the submissions of OWB.

While OWB’s Counsel tries to paint a picture of presumptive acceptance

by Debtor of his oral explanation of how Debtor’s payments have been credited


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to Debtor’s loan account in his Declaration in Support of Evidentiary Hearing

(Designation of Record, Item # 19), OWB Counsel should not mistake Debtor’s

courtesy of thanking him for the explanation as acceptance of said explanation.

The controlling issue is whether OWB has any documentary evidence to support

their assertions that Debtor’s mortgage payments have been properly applied.

CONCLUSION

For the foregoing reasons, Debtor respectfully requests the Bankruptcy

Appellate Panel to reverse the Order of the Bankruptcy Court, overruling the Debtor’s

Objection to Claim, Claim # 1 and disallow the Claim in its entirety.

Signed by: __________________________________

Felipe D. Zulueta Jr, Debtor & Appellant

Date: January 17, 2011


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CERTIFICATE OF SERVICE

On January 19, 2011, I served the foregoing OPENING BRIEF OF APPELLANT on the

following entity/individual by depositing true copies thereof in the United States mail in Oakland,

California, enclosed in a sealed envelope, with postage paid, Certified Mail with Return Receipt,

address as follows:

Joseph Chun, Esq.

McCarthy & Holthus, LLP

1770 Fourth Avenue

San Diego, CA 92101

I declare under penalty of perjury under the laws of the United Stated of America that the

foregoing is true and correct.

/S/ _________________________________

Felipe D. Zulueta Jr, Debtor & Appellant

ZULUETA Initial Brief

Documents

Transcript of ZULUETA Initial Brief