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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Erkins v. Alaska Trustee, LLC (7/31/2015) sp-7025

Erkins v. Alaska Trustee, LLC (7/31/2015) sp-7025

         Notice:  This opinion is subject to correction before publication in the PACIFIC  REPORTER .  

         Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,  

         303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email  

                                                                                   

         corrections@akcourts.us.  



                   THE SUPREME COURT OF THE STATE OF ALASKA  



GREGORY T. ERKINS,                                   )  

                                                     )        Supreme Court No. S-15297  

                  Appellant,                         )  

                                                     )        Superior Court No. 3AN-08-09144 CI  

         v.                                          )  

                                                     )        O P I N I O N  

ALASKA TRUSTEE, LLC,                                 )  

BANK OF NEW YORK                                     )       No. 7025 - July 31, 2015  

TRUST COMPANY, N.A., and                             )  

JP MORGAN CHASE BANK, N.A.,                          )  

                                                     )  

                  Appellees.                         )  

_______________________________ )  



                  Appeal from the Superior Court of the State of Alaska, Third  

                  Judicial District, Anchorage, John Suddock, Judge.   



                  Appearances:   Gregory   T.   Erkins,   pro   se,   Anchorage,  

                  Appellant.  Nelson G. Page, Burr, Pease & Kurtz, Anchorage,  

                                                

                  for Appellees.   



                  Before:  Fabe, Chief Justice, Winfree, Stowers, Maassen, and  

                                              

                  Bolger, Justices.  



                  STOWERS, Justice.  



I.       INTRODUCTION  



                  This is the second appeal filed by the debtor in this foreclosure case.  The  

                                                                                                             



debtor alleges that he was incapacitated when he entered into  the  loan contract and  



attempted to use this defense against a bank that was a subsequent purchaser of the note.  

                                                                                       



In the first appeal we held that summary judgment had been improperly granted to the  

                                                                     


----------------------- Page 2-----------------------

         1  

                                                                                                      

bank.   On remand, the superior court granted summary judgment on different grounds,  



                                                                                 

concluding that the bank was a holder in due course and thus immune from the debtor's  



incapacity defense.  We agree with the superior court and affirm.  



II.       FACTS AND PROCEEDINGS  



                                                                                                   

                     Because this is our second time reviewing the facts of this case, we confine  



our discussion to the facts relevant to this appeal.  



                     In March 2000 Gregory T. Erkins was injured in an automobile accident  



                                              

and began taking strong pain medication.  Erkins continued working sporadically while  



                                                

he was taking the medication.  In early October 2004 Erkins obtained an $80,000 loan  



                                                                                             

from Ameriquest secured by a deed of trust on a property he owned in Anchorage.  This  



loan carried monthly payments of around $500.  Erkins negotiated the terms of this loan  



                                                                                                                 

and signed the paperwork from his home - he was allegedly "unable to drive because  



of [the] pain medication."  Approximately four months later, in 2005, Erkins obtained  



                                                            

a  second  loan  on  the  property,  also  from  Ameriquest,  this  time  in  the  amount  of  



$142,477.  Erkins alleges he was told that payments would remain around $500 per  



month, but the second loan actually carried  monthly payments of $962.30.  The deed of  



                                              

trust for the second loan was recorded in March 2005.  Erkins used part of the proceeds  



from the second loan to pay off the first loan.  



                     JPMorgan  Chase  Bank,  N.A.  purchased  the  loan  in  February  2005.  



                                                                                                                   

JPMorgan's records reflect that the note was endorsed to JPMorgan as trustee,  and  



physical possession of the note was also transferred at that time.  A document titled  



                                                                                     

"Assignment of Deed of Trust" reflects an assignment from Ameriquest to the Bank of  



New       York       Trust      Company,           N.A.       as    successor         to    JPMorgan          and      is    dated  



          1         Erkins v. Alaska Tr., LLC              , 265 P.3d 292, 294, 300 (Alaska 2011) (                    Erkins I).  



                                                                -2-                                                          7025
  


----------------------- Page 3-----------------------

February 28, 2005, but was not recorded until November 29, 2007, nearly three years  



                                                                                               

later.  An assistant vice president for Wilshire Credit Corporation, the entity that serviced  



                                                

the loan for Bank of New York, declared in an affidavit that the loan was current when  



Wilshire began servicing it for Bank of New York in August 2005.  



                                                                                               

                   Erkins paid his monthly payments in full and on time from the first payment  



                                                  

in April 2005 until January 2007, when Wilshire notified Erkins that one of his checks  



                                                                                               

had bounced.  Erkins refused to make any more payments until Wilshire lowered his  



payments to $500.  When Wilshire declined to do so, Erkins stopped making regular  



                       

payments.  He continued making sporadic payments until July 2007, at which point he  



                                                                 

stopped altogether.  After the loan fell into delinquency, Bank of New York initiated  



foreclosure proceedings.  



                   In  July  2008  Erkins  filed  suit  against  Alaska  Trustee,  LLC,  Bank  of  



                                      2 

                                                                        

New York, and JPMorgan  in the superior court, alleging fraud and misrepresentation,  



among other claims.  In October, Bank of New York presented an offer to Erkins in the  



form of a "proposed forbearance agreement," which provided that it would stay the  



                                                                                                3  

pending foreclosure proceedings if Erkins met certain conditions.   Erkins signed the  



forbearance agreement.  Bank of New York moved for summary judgment, arguing that  



Erkins  had  waived  his  claims  through  a  clause  in  the  forbearance  agreement.    The  



                                                                                                            

superior court granted summary judgment, ruling "that defendants [were] not liable for  



          2        We  refer  to  these  parties  collectively  as  "Bank  of  New  York"  for  



convenience.  Although Alaska Trustee is listed in the case caption, Erkins's claims  

center around Bank of New York and the enforceability of the note.  Alaska Trustee was  

                                         

the trustee during the non-judicial foreclosure of Erkins's home.  



          3        The foreclosure sale eventually occurred, but the date of the sale is not in  

                                                                                                            

the record.  Bank of New York now holds title.  



                                                             -3-                                                      7025
  


----------------------- Page 4-----------------------

any tort of Ameriquest" and that Erkins "released his claims in . . . the forbearance  



agreement."  



                               

                                                                               

                    Erkins appealed, and we reversed in part, holding that although the superior  



                                                       

court did not err in concluding that the "defendants could not be held liable for the  



alleged torts of Ameriquest," it had erred in granting summary judgment based on the  



                                   4                                                         5  

forbearance agreement.   We remanded for further proceedings.  



                    On  remand  Bank  of  New  York  deposed  Erkins.    It  again  moved  for  



summary judgment, submitting more evidence relating to the assignment of the note.  



                                                                              

Bank of New York expressly disavowed reliance on the forbearance agreement, which  



                                                                                                           

was the basis of its earlier summary judgment motion.  Instead, Bank of New York  



                                                                                   

argued that it was a holder in due course and not subject to Erkins's incapacity defense.  



                             

The superior court agreed and again granted summary judgment, concluding that Bank  



                                                                   

of New York was a holder in due course and immune from any incapacity defense that  



Erkins might have.  Erkins appeals, proceeding pro se.  



III.      STANDARD OF REVIEW  



                                                            

                    "We review the grant of a summary judgment motion de novo, affirming  



                                                                                  

if the record presents no genuine issue of material fact and if the movant is entitled to  



judgment  as  a  matter  of  law.    All  reasonable  inferences  are  drawn  in  favor  of  the  



                                                  6  

nonmovant  in  this  examination."     But  in  order  to  survive  summary  judgment,  the  



nonmoving party must do more than "rest upon the mere allegations or denials of [his]  



          4         Erkins I , 265 P.3d at 294.  



          5         Id. at 302.  



          6         Beegan v. State, Dep't of Transp. & Pub. Facilities ,   195   P.3d 134, 138  



(Alaska  2008) (footnote omitted) (citing Matanuska Elec. Ass'n v. Chugach Elec. Ass'n ,  

 152 P.3d 460, 465 (Alaska 2007)).  



                                                             -4-                                                       7025
  


----------------------- Page 5-----------------------

                  7  

pleadings."   He must "set forth specific facts showing that there is a genuine issue for       

trial."8  



IV.        DISCUSSION  



                     Erkins's briefing is undeveloped, but if we construe his arguments liberally  

                                                     



                                            9 

because of his pro se status,  he argues that the superior court should not have granted 

                   



summary judgment because there were material issues of fact that precluded the court  

from concluding that Bank of New York was a holder in due course.10  



           A.        Bank Of New York Is Immune From Erkins's Incapacity Defense.  



                     The superior court concluded that Bank of New York was a holder in due  

                                                    



course and therefore immune from Erkins's incapacity defense.  "Holder in due course"  

            



is a classification for certain holders of negotiable instruments that enjoy heightened  



                                                              11  

protection from defenses to repayment.                             Alaska Statute 45.03.302 defines a holder in  



due course, in relevant part, as a holder who takes an instrument in good faith, for value,  

                                     



without notice that the instrument is overdue, and without notice that any party has a  



           7         See Alaska Rule of Civil Procedure 56(e).  



           8         Id.  



           9         See  Espeland v. OneWest Bank, FSB ,  323 P.3d  2, 12                               n.36 (Alaska 2014).  



           10        Erkins  also  argues  that  in  Erkins  I  we  found  whether  the  forbearance  



agreement constituted constructive fraud to be a genuine issue of material fact such that  

                                                                  

it must be resolved by a jury.  But the superior court did not rely on the forbearance  

agreement when granting summary judgment the second time, so it is not relevant to this  

appeal.  



           11        AS 45.03.302; see also 2  JAMES J.  WHITE ,  ROBERT S.  SUMMERS &  ROBERT  



      

A. HILLMAN ,   UNIFORM  COMMERCIAL  CODE    18:1  (6th  ed.  2010);  U.C.C.    3-302  

(2002).  



                                                                  -5-                                                            7025
  


----------------------- Page 6-----------------------

                                                                12  

defense to the payment of the instrument.                           After meeting the required criteria, these  



                                                                 

holders take the negotiable instrument free from many common defenses to enforcement  



                           13 

                                                                                                      

of the instrument.             In essence, "the party able to attain the status of holder in due course  



                                                 14  

qualifies as [a] [s]uperplaintiff."                  In theory, holder-in-due-course status facilitates the  



                         

easy transfer of negotiable instruments:  "[a] party should be more willing to take a check  



                                                                 

from a seller when that party knows that he or she can be a holder in due course and  



thereby  take  the  check  free  from  the  [original]  buyer's  defenses  in  the  underlying  

transaction."15  



                                    

                    A holder in due course is insulated from an incapacity defense only if the  



                                                              16  

                                                                                        

incapacity makes the contract voidable.                           If incapacity  is a condition that voids the  



          12        AS 45.03.302(a); see also AS 45.03.302(a)(2)(F) (providing that the holder  



must take without "notice that any party has a defense or claim in recoupment described  

in AS 45.03.305(a)," a section that lists lack of legal capacity and fraud).  



          13        A holder in due course is insulated from all disputes arising between the  



original  parties  to  the  note,  except  defenses  that  concern  fraud,  capacity,  infancy,  

                                                                                                       

illegality,  duress,  or  discharge  in  insolvency  proceedings.    See  AS  45.03.305(b),  

(a)(1)(B) (providing in part that, although a holder in due course is insulated from many  

                                           

defenses, its right to "enforce the obligation of a party to pay the instrument is subject  

to [lack of capacity]" when that lack of capacity "nullifies the obligation to the obligor").  

                                                                                                            



          14        2  WHITE ,   SUMMERS &  HILLMAN , supra note 11, at  18:1.  



          15        Id.  A buyer and a seller engage in an initial transaction with the buyer  



paying the seller by check.  Instead of depositing the check, the seller sells the check to  

                                                                                                          

a third party, who wishes to deposit the check.  The third party is much more likely to  

                                                                                 

buy the check from the seller if it knows that the buyer who wrote the check in the initial  

                                                                                          

transaction cannot raise any defenses against its enforcement.  



          16  

                                                                                                               

                    See AS 45.03.305(a)(1)(B) (listing "lack of legal capacity" as a defense if  

it "nullifies the obligation of the obligor); U.C.C.  3-305 & cmt. 1 (2002).  



                                                               -6-                                                         7025
  


----------------------- Page 7-----------------------

                                                                       17 

                                                          

contract, the holder in due course is not insulated.                       Alaska Statute 45.03.302 is modeled  



                                                                                     

on the Uniform Commercial Code, which explains that the "existence and effect [of  



                                                                   18  

                                                                         Thus,  when  state  law  "render[s]  the  

incapacity]  is  left  to  the  law  of  each  state."                                                    



obligation of the instrument entirely null and void, the defense may be asserted against  

                                                              



a holder in due course.  If the effect is merely to render the obligation voidable at the  

                                                                     19   The question is whether, in Alaska,  

                                                                                                   

election of the obligor, the defense is cut off."  



incapacity results in a contract that is void or voidable.  Alaska's version of the Uniform  

                                                                                                              



Commercial Code is silent on this issue.  



                    1.       The effect of incapacity on the validity of a contract  



                    We have never squarely considered whether incapacity renders a contract  



                                        

void  or  merely  voidable,  and  no  provision  of  the  Alaska  Statutes  is  on  point.    The  



                                                                                                                        

Restatement (Second) of Contracts  15 explains when a contract is voidable due to the  



                   

contracting  party's  incompetence.    It  states  that  "[a]  person  incurs  only  voidable  



                                                                                                                   

contractual duties by entering into a transaction if by reason of mental illness or defect  



                                                                                                                        

(a) he is unable to understand in a reasonable manner the nature and consequences of the  



                                                      

transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction  

                                                                                     20   The Restatement accords  

                                                                                                 

and the other party has reason to know of his condition."  



          17        AS 45.03.305(a)(1)(B); U.C.C.  3-305 & cmt. 1 (2002).  



          18        U.C.C.  3-305 & cmt. 1 (2002).  



          19       Id.  Alaska Statute 45.03.305 likewise explains that lack of legal capacity  



is a defense that may be used against a holder   in due course if the incapacity, "under  

other law, nullifies the obligation of the obligor."  See AS 45.03.305(a)(1)(B), (b).  



          20        RESTATEMENT (SECOND) OF CONTRACTS   15 (1981) (emphasis added).  



                                                             -7-                                                        7025
  


----------------------- Page 8-----------------------

                                                                          21  

with the majority rule among other jurisdictions.                              Adopting a rule that obligations  



                                                                                    

arising during one party's incapacity may be voidable by the incapacitated party will best  



                                                                                                 22  

                                                                                                      Consequently, we  

account for the varying levels of incapacity that courts encounter. 



                                                                                                          

hold that a party's incapacity during formation of a contract may result in a voidable -  



                                                                                                 

not void - obligation.  Because incapacity results in a voidable contract under Alaska  



law,  if  Bank  of  New  York  is  a  holder  in  due  course,  then  it  is  immune  from  any  



incapacity defense Erkins might have.  



                    2.        Bank of New York's status as a holder in due course  



                                                               

                    As explained in Erkins I , to be a holder in due course "appellee Bank of  



                                                                                                     

New York must have taken Erkins's note without knowledge of his incapacity or fraud  



                                                                                    23  

defenses, and before the note was overdue or in default."                               Erkins attacks the third part  



          21        See 5 SAMUEL WILLISTON  &  RICHARD A.  LORD ,  A  TREATISE ON THE LAW  



OF  CONTRACTS   10:3 (4th ed. 2014) (noting that "[t]he vast majority of courts more  

commonly express the view that an incompetent person's transactions are voidable");  

Susanna L. Blumenthal, The Default Legal Person, 54 UCLA L. R 

                                                                                                      

                                                                                                EV . 1135, 1242 (2007)  

("The 'modern' rule, as declared by these courts, was that the contracts of lunatics were  

                                                       

voidable in a proper case but not wholly void . . . .").  



          22        Moreover, "[e]volving understanding of mental illness and advances in  



medicine  have  shown  that  mental  capacity  can  vary  over  time  and  is  susceptible  to  

                                   

significant  improvement  with  treatment."    Hernandez  v.  Banks ,  65  A.3d  59,  70-71  

                                       

(D.C. 2013).  Thus, "having the choice of whether to follow through on a contract or  

                                

avoid it can be very beneficial to a person who entered into the contract during a period  

                                                    

of incapacity." Id.  at 71.  "If the contracts of mentally incapacitated persons are void,  

rather than voidable, their legal protection is the opposite of what it should be - [i]t  

                                                                                                        

would  be  a  handcuff  instead  of  a  shield."  Id.  (alteration  in  original)  (quoting  

Breckenridge's Heirs v. Ormsby , 24 Ky. (1 J.J. Marsh.) 236, 239 (Ky. 1829)) (internal  

                                                        

quotation marks omitted).  



          23        Erkins I , 265 P.3d 292, 301 n.32 (Alaska 2011).  



                                                              -8-                                                        7025
  


----------------------- Page 9-----------------------

of this test.24  He argues that there is a genuine issue of material fact whether the note was           



                                                                                           25  

assigned  to  Bank  of  New  York  before  it  was  overdue.                                      He  also  argues  that  the  



                                                                                        

recordation date for the assignment of the deed of trust, November 29, 2007, is the best  

indicator of the date of assignment and on that date the note was in default.26  



                     But recordation is not required for the assignment of an instrument to be  



                                                             

valid, and the recordation date for the deed of trust assignment does not raise a genuine  



                                                                                             27 

                                                                                                 Thus, the date of the deed  

issue of material fact regarding when the note was assigned. 



                                                                                    

of trust's recordation has no bearing on the date that the note was assigned and cannot  



                                                                                                           

be the most accurate evidence of when the assignment took place.  Erkins fails to raise  



           24        Erkins does not attack the transfer of the note from Ameriquest to Bank of           



New York, so we assume without deciding that Bank of New York is a proper holder of  

the instrument.  Erkins argued to the superior court that even if Bank of New York did  

                                                           

not have actual notice of his incapacity, it should have been on notice of this possible  

defense due to Ameriquest's alleged publicly known bad practices.  We agree with the  

superior court that "Ameriquest's alleged improprieties with respect to other loans do not  

                                                                                                                       

put Bank of New York on notice of specific defenses to the Erkins loan."  



           25        Erkins alleges that the "assignment [was] notarized [while] incomplete."  



We note that the superior court did not consider the assignment of the deed of trust  

submitted by Bank of New York because it was unauthenticated, so Erkins's arguments  

                                                     

about it being "notarized incomplete" are not relevant.  



           26  

                                                                                                                             

                     Erkins argues that the "best evidence" of the date of assignment is the date  

                                                                                       

the assignment was recorded.  But because the parties are arguing over the occurrence  

                                                                            

of an event - when the note was transferred - and not the contents of a document, the  

                                                                                                      

concept of "best evidence" is inapplicable here.  See Alaska Rule of  Evidence 1002.  We  

                                                                             

will construe Erkins's argument as an argument that the date of recordation is the best  

indicator of when the note was assigned.  



           27  

                                                                                                                

                     See U.C.C.  3-203 (2002) (requirements for transfer of an instrument);  

AS 45.03.201 (requirements for negotiation); AS 45.03.203 (transfer of instrument);  

                                                             

AS 40.17.080 (recording gives notice to subsequent purchasers); AS 34.20.130 (listing  

                                                                              

the assignment of the beneficial interest under a deed of trust as a instrument that may  

be recorded); see, e.g., 66 AM  JUR .  2D Records & Recording Laws   50 (2015).  



                                                                  -9-                                                           7025
  


----------------------- Page 10-----------------------

any other argument or present any other evidence that the assignment took place after the       



loan went into default.  As the superior court pointed out, Erkins could have conducted                 



discovery and submitted evidence to counter Bank of New York's evidence, but he did                                     



not.  



                        At summary judgment the superior court had before it two uncontested  



affidavits, both submitted by Bank of New York.  One affidavit declared that Bank of  



                                                                                        

New York was the owner of the note in August 2005 when the servicing rights to the  



loan were transferred from Ameriquest to Wilshire Credit Corporation as servicer for  



                                                     

Bank  of  New  York.                       And  the  other  declared  that  the  note  was  transferred  from  



                                                                 

Ameriquest to Bank of New  York in February 2005, shortly after it was originated.  



                                                                                                                                    

Erkins did not provide any evidence to dispute these affidavits, and as they were the only  



                                                                                                                                               

evidence relevant to when the assignment actually occurred, the superior court did not  



                                                                                                   

err in concluding that the note was assigned in February 2005, before it went into default.  



                                                                                                                                            

                        The undisputed evidence establishes that Bank of New York is a holder in  



due course.  Contrary to Erkins's arguments, the Bank took the note before the note had  



                                                                                                                            

gone into default.  The superior court did not err by granting summary judgment on these  



grounds.  



            B.          Erkins  Has  Failed  To  Raise  A  Genuine  Issue  Of  Material  Fact  

                        Regarding His Other Claims.  



                                                  

                        In Erkins I we held that the superior court did not err in concluding that "the  



                                                                                                                                    28  

defendants could not be held liable for the alleged torts of Ameriquest."                                                                Here, the  



superior  court  granted  summary  judgment  on  the  remainder  of  Erkins's  claims  -  



intentional and negligent infliction of emotional distress, breach of the implied covenant  



of good f  aith an          d f  air dealing,  and v            arious claims relating to Alaska Trustee - because  



            28          Erkins I, 265 P.3d at 294.  



                                                                          -10-                                                                         7025  


----------------------- Page 11-----------------------

                                                        

Erkins failed to provide any evidence to support these claims, aside from the allegations  



in his complaint.  



                    Erkins alleged negligent and intentional infliction of emotional distress, but  



                                                              

failed to provide any evidence that he was actually emotionally distressed by any party's  



                             29  

                                                                            

conduct in this case.            He alleged that Bank of New York breached the implied covenant  



of good faith and fair dealing, but he provided no evidence of subjective bad faith or  



                                                                         30 

                                                                             And he alleged that Alaska Trustee  

objective unreasonableness by Bank of New York. 



                                        31 

                                                                                                    

was liable for various torts,              but never presented any evidence that Alaska Trustee had  



any connection to Ameriquest or that the foreclosure was conducted improperly.  In  



order to survive summary judgment, Erkins was required to "set forth specific facts  



                                                                   32  

showing that there is a genuine issue for trial."    He failed to do this.  The superior court  



correctly granted summary judgment on the remainder of Erkins's claims.  



          29        The bar for establishing an infliction of emotional distress claim is set very  



high on the level of emotional stress required:  "a plaintiff may recover for only 'severe'  

                                                      

or 'serious' emotional distress," which may be shown by "neuroses, psychoses, chronic  

                                                                                    

depression, phobia, and shock." Chizmar v. Mackie, 896 P.2d 196, 204 (Alaska 1995)  

(quoting Lejeune v. Rayne Branch Hosp. , 556 So. 2d 559, 570 (La. 1990)) (internal  

                                

quotation marks omitted).  



          30  

                                                                                            

                    Demonstrating a breach of the covenant of good faith and fair dealing has  

                                                                                                                

both subjective and objective elements: the subjective element requires that the conduct  

                                                                                                    

or decision be made in bad faith, and the objective element requires that the party act in  

                                                                                                      

a manner that a reasonable person would think unfair. McConnell v. State, Dep't of  

Health & Soc. Servs. , 991 P.2d 178, 184 (Alaska 1999).  



          31        Erkins argued:  "[1] Trustee has a duty to investigate the assignments to it[;]  



[2] Trustee failed to investigate the actions of the Beneficiary and of their agents and  

employees[;] [and 3] Trustee has acted in concert with Beneficiary in this matter."  



          32        Alaska R. Civ. P. 56(e).  



                                                             -11-                                                       7025
  


----------------------- Page 12-----------------------

V.     CONCLUSION  



             We AFFIRM the superior court in all respects.  



                                        -12-                                   7025
  

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