Dernier v. U.S. Bank National Ass’n, No. 144-3-11 Wrcv (DiMauro, J., Jan. 26, 2015).
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]


                                                    STATE OF VERMONT

SUPERIOR COURT                                                                                           CIVIL DIVISION
Windsor Unit                                                                                     Docket No. 144-3-11 Wrcv


PETER DERNIER &
NICOLE DERNIER,
     Plaintiffs

v.

U.S. BANK NATIONAL ASS’N,
as Trustee for CSMC Mortgage-Backed
Pass-Through Certificates, Series 2006-3,
       Defendant


            OPINION AND ORDER RE: MOTION FOR SUMMARY JUDGMENT (#12)

        The Defendant, U.S. Bank National Association, has moved for summary judgment. The
Plaintiffs, Peter and Nicole Dernier, oppose the motion. Upon review of submitted briefs and
supporting statements of facts, the Defendant’s motion is denied.

                                                        Procedural History

        This is a declaratory judgment action between the Plaintiff homeowners and the
Defendant bank, filed by the Plaintiffs on March 23, 2011 and seeking a declaration of the
Defendant’s rights to enforce the Plaintiffs’ mortgage and promissory note. On October 20,
2011, the Plaintiffs moved for leave to file a second amended complaint. On June 12, 2012, the
court denied the Plaintiffs’ motion and granted the Defendant’s motion to dismiss. The Plaintiffs
appealed the dismissal to the Vermont Supreme Court as Dernier v. Mortgage Network, Inc.,
2013 VT 96, 195 Vt. 113. On appeal, the Court affirmed the court’s dismissal as to some issues
in the Plaintiffs’ second amended complaint and reversed and remanded as to others. It is now
before this court on remand.

        On December 1, 2014, the Defendant moved for summary judgment on the remaining
issues. On January 5, 2015, the Plaintiffs responded. This decision follows.

       The Defendant is represented by Andre D. Bouffard, Esq. The Plaintiff is represented by
Russell D. Barr, Esq.

                                                 Summary Judgment Standard

       Under Vermont Rule of Civil Procedure 56, summary judgment is appropriate “if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” V.R.C.P. 56(a). When ruling on a motion for summary
judgment, the court must take the evidence in a light most favorable to the party opposed to
summary judgment. Summary judgment must not be utilized as a substitute for a determination
on the merits of the claims if there is any evidence presented by the party opposed to summary
judgment that creates an issue of material fact. The trial court must not consider the relative
weight of the evidence. Fritzeen v. Trudell Consulting Engineers, Inc., 170 Vt. 632 (2000). It is
not the function of the trial court to make findings of fact in connection with a motion for
summary judgment even where the record appears to lean strongly in one direction. Booska v.
Hubbard Insurance Agency, Inc., 160 Vt. 305, 309 (1993). The court must resolve all doubts in
favor of the non-moving party. Dillon v. Champion Jog Bra, Inc., 175 Vt. 1 (2002). The court
must allow the non-moving party the benefit of all reasonable doubts and inferences. Foster &
Gridley v. Winner, 169 Vt. 621 (1999).

        In ruling on a motion for summary judgment, the court must regard all properly
supported allegations of fact presented by the party opposed to summary judgment as true.
Mellin v. Flood Brook Union School Dist., 173 Vt. 202 (2001). The party opposed to summary
judgment may not rest on the allegations in the pleadings to rebut credible documentary evidence
or affidavits. Gore v. Green Mountain Lakes, Inc. 140 Vt. 262 (1981). Where a witness gives
contradictory or internally inconsistent testimony the court will construe the testimony in a light
most favorable to the party opposed to summary judgment.

                                              Facts

       The factual basis for this order is derived from the Plaintiffs’ and the Defendant’s
statements of facts. Many of the facts alleged by both parties are not material to the dispute or
are material only to issues already disposed of by the Supreme Court. Accordingly, this is a
redacted recitation of facts.

       1. On October 7, 2005, Plaintiff Peter Dernier executed a promissory note for
          $245,250.00, naming Kittridge Mortgage Corporation as lender.

       2. There is a version of the promissory note that bears one indorsement, from Kittridge
          Mortgage Corporation to Mortgage Network, Inc. (Plaintiffs’ Exhibit A).

       3. There is a version of the promissory note that purportedly bears two indorsements,
          one from Kittridge Mortgage Corporation to Mortgage Network, Inc., and one from
          Mortgage Network, Inc. in blank. (Plaintiffs’ Exhibit 5).

       4. The alleged indorsement from Mortgage Network, Inc. in blank is an affixed stamp
          which reads:

                      Pay to the order of **
                      Without Recourse__________
                      Mortgage Network, Inc.
                      By:     Chad M. Goodwin
                              Pipeline Manager

       5. A signature is superimposed over the stamp.


                                           Page 2 of 5
           6. The authenticity of this signature is disputed. The Plaintiffs have supplied an affidavit
              of a Chad M. Goodwin, stating that he was an employee of Mortgage Network, Inc.
              from 2000 to 2013, and that the signature superimposed over the stamp is not his
              signature. The affidavit was subscribed and sworn before a notary public in the State
              of Maine. (Plaintiffs’ Exhibit U).

           7. There is, according to the Defendant, a version of the promissory note which bears a
              specific indorsement from Mortgage Network, Inc. to the Defendant rather than an
              indorsement in blank. This version of the promissory note was not attached to the
              motion and for that reason is disregarded by the court.1

           8. On October 7, 2005, the Plaintiffs also executed a mortgage deed to Kittridge
              Mortgage Corporation.

           9. The mortgage was assigned from Kittridge Mortgage Corporation to Mortgage
              Electronic Registration Systems, Inc., as nominee for Mortgage Network, Inc., and
              from Mortgage Electronic Registration Systems, Inc. to the Defendant, by August 5,
              2013 at the latest.

           10. The Defendant, directly or through its agents, has possession of the note and
               mortgage.

           11. Mortgage Network, Inc. has disclaimed its interest, if any, in the Plaintiffs’ mortgage
               loan.

                                                      Discussion

       As noted, this case was previously appealed to the Vermont Supreme Court as Dernier v.
Mortgage Network, Inc. On remand, the sole question before this court is whether the Defendant
presently lacks the right to enforce the Plaintiffs’ promissory note because the note was stolen.

       Promissory notes are governed by the Uniform Commercial Code as adopted in Vermont,
codified as Title 9A of the Vermont Statutes. Generally, a person is entitled to enforce a
negotiable instrument if they have possession of the instrument and the instrument is payable to
them. 9A V.S.A. § 3-301. In the case of a bearer instrument, transfer of possession of the
instrument, whether voluntary or involuntary, is sufficient by itself to constitute a negotiation
making the transferee a holder entitled to enforce the instrument. § 3-201.

        For the purposes of this motion, the Plaintiffs do not challenge the Defendant’s actual
possession of the note, though of course, the Defendant would have to prove possession of the
note in order to enforce it at any further proceeding. Rather, the Plaintiffs allege that the
instrument was not properly negotiated to the Defendant because the indorsement in blank
affixed to the note is a forgery. Essentially, the Plaintiffs rely on § 3-305(c), which states that “an
obligor is not obliged to pay the instrument if the person seeking enforcement of the instrument


1
    The discussion below would be no different even if this alleged version of the note were considered.


                                                      Page 3 of 5
does not have the rights of a holder in due course and the obligor proves that the instrument is a
lost or stolen instrument.” § 3-305(c). On summary judgment, this court therefore looks to
whether the Plaintiffs have offered sufficient evidence to prove that the instrument is a lost or
stolen instrument.2

        Although Vermont’s § 3-305(c) adopts the language of the Uniform Commercial Code
without alteration, there is surprisingly little guidance on this particular clause from any
jurisdiction. In Mbaku v. Bank of America, the District of Colorado cited this section only to
place the burden of proof on the party resisting enforcement to prove that a note is lost or stolen.
Mbaku v. Bank of America, Docket No. 12-cv-00190-PAB-KLM, 2014 WL 4099313, at *7 (D.
Colo. Aug. 20, 20140). In Sepehry-Fard v. MB Financial Services, the Northern District of
California cited this clause only to reject its application on standing grounds. Sepehry-Fard v.
MB Financial Services, Docket No. C 13-02784 JSW, 2014 WL 122436, at *4 (N.D. Cal. Jan.
13, 2014). The remaining cases either refer to § 3-305(c) in passing or deal with the more
complicated issue of whether an obligor is a holder in due course. Accordingly, the court’s
application of § 3-305(c) to this context is a matter of first impression in the truest sense.

        As an initial matter, the court notes that the official comment’s only reference to this
clause of § 3-305(c) illustrates a completely different situation. Namely, the official comment
states that “[t]he last sentence of subsection (c) allows the issuer of an instrument such as a
cashier’s check to refuse payment in the rare case in which the issuer can prove that the
instrument is a lost or stolen instrument and the person seeking enforcement does not have rights
of a holder in due course.” § 3-305(c), official comment at 4. Nevertheless, because the language
of the statute itself is broad, the court concludes for the clause can apply to this case.

        The question, then, is whether the Plaintiffs can sufficiently show that the note was lost
or stolen so as to survive summary judgment. The court concludes that the Plaintiffs have made
such a showing.

        Although the Plaintiffs have offered no direct evidence that the note was stolen, they
have offered the affidavit of a Chad M. Goodwin, swearing that he is a former employee of
Mortgage Network, Inc. and that the signature on the indorsement is not his own. Taken in the
light most favorable to the Plaintiffs, a finder of fact could conclude that the indorsement was
forged, and that, therefore, the note is not a bearer instrument. Further, a finder of fact could infer
that because the indorsment was forged, the Defendant’s possession of the note is wrongful. In
such an eventuality, Mortgage Network, Inc. would have the right to enforce the note, not the
Defendants.

       In opposition, the Defendant has offered a reasonable argument for enforcement
notwithstanding the allegedly irregular indorsement. It is true that, under § 3-403, an
unauthorized or forged signature is nevertheless good “as the signature of the unauthorized


2
  The Defendant could also ultimately prevail by showing that they are a holder in due course. However, the
Plaintiffs allege that the Defendant has refused to disclose through the discovery process any evidence regarding
their negotiation for the Plaintiffs’ note. Accordingly, the court assumes for the purposes of this motion that the
Defendant is not a holder in due course.


                                                  Page 4 of 5
signer,” and thus, so long as the forger was another agent of Mortgage Network, Inc., the
indorsement in blank would still be valid. § 3-403(a). It is also true that a forged signature “can
be ratified for all purposes of [Article 3].” § 3-403(a). However, the standard for summary
judgment is clear that “summary judgment is improper where the evidence is subject to
conflicting interpretations, regardless of a judge’s perceptions of the comparative plausibility of
facts offered by either party or the likelihood that a party might prevail at trial.” Provost v.
Fletcher Allen Health Care, Inc., 2005 VT 115, ¶ 15, 179 Vt. 545. Accordingly, the Defendant’s
motion for summary judgment must be denied in favor of a trial on the merits.

                                              Order

       The Defendant’s motion for summary judgment is DENIED.

       Dated at Woodstock, Vermont, this ___ day of January, 2015.



                                                                    ________________________
                                                                    Judge Theresa S. DiMauro
                                                                    Superior Court Judge




                                           Page 5 of 5
