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                                                                Electronically Filed
                                                                Supreme Court
                                                                SCWC-XX-XXXXXXX
                                                                01-MAY-2019
                                                                09:29 AM




           IN THE SUPREME COURT OF THE STATE OF HAWAII

                                 ---o0o---


                       NATIONSTAR MORTGAGE LLC,
                    Respondent/Plaintiff-Appellee,

                                     vs.

                   DANIEL KALEOALOHA KANAHELE and
              THE ESTATE OF MARCUS C. KANAHELE et al.,
                   Petitioner/Defendant-Appellant.


                             SCWC-XX-XXXXXXX

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
             (CAAP-XX-XXXXXXX; CIV. NO. 14-1-0584(2))

                                MAY 1, 2019

 RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

             OPINION OF THE COURT BY RECKTENWALD, C.J.

          In 2006, Daniel Kaleoaloha Kanahele (Daniel) and his

brother, Marcus C. Kanahele (Marcus), co-signed a mortgage on

their property in order to obtain a $625,000 loan.             While both

brothers executed the mortgage, Daniel was the promissory note’s
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(Note) sole signatory.       Daniel defaulted on the loan in 2008, and

in 2014, Nationstar Mortgage, LLC (Nationstar) initiated this

foreclosure action.

            After seventeen months of proceedings involving Daniel,

Marcus’s Estate, and Nationstar, the Circuit Court of the Second

Circuit granted Nationstar’s motion for summary judgment, and

issued final judgment in favor of Nationstar.1            On appeal, the

Intermediate Court of Appeals (ICA) vacated the judgment and

remanded the case for further proceedings.            Although the ICA

ruled in Daniel’s favor by vacating the judgment, Daniel asks

this court to review the following additional issues, which he

contends were either incorrectly resolved or left unresolved by

the ICA:2

            (1)   Whether summary judgment is precluded where
                  contradictory declarations by [the]
                  representatives of [a] foreclosing party
                  undercut the trustworthiness of [its] offered
                  business records; and

            (2)   Whether a foreclosing plaintiff[,] who is not a
                  holder in due course[,] is subject to [a
                  defendant’s] affirmative defenses[.]

            We hold that the ICA erred with respect to both of

those issues, and that Daniel would be prejudiced on remand

absent this court’s further review.


     1
            The Honorable Peter T. Cahill presided.
      2
            Daniel also asks this court to review whether the circuit court
abused its discretion in denying his motion to compel discovery to determine
whether Nationstar was the Note’s “holder” or “holder in due course.” Because
Nationstar conceded its status as “holder” in its answering brief to the ICA,
we need not resolve whether the circuit court abused its discretion in this
respect.

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          Although the ICA correctly held that Nationstar had not

demonstrated standing to enforce Daniel’s Note under Bank of

America, N.A. v. Reyes-Toledo, 139 Hawaii 361, 390 P.3d 1248

(2017), and vacated the circuit court’s judgment on this basis,

we conclude that the ICA erred in holding that Nationstar’s

business records were trustworthy under the business records

exception to hearsay.      See Hawaii Rules of Evidence (HRE) Rule

803(b)(6) (2002).     In light of Nationstar’s failure to adequately

explain material discrepancies in its business records and its

presentation of contradictory declarations regarding which of

several versions of the Note was the “wet-ink” original, the ICA

should have vacated the circuit court’s order on this ground, as

well.

          We also conclude that Daniel’s affirmative defenses

should have been addressed by the circuit court, given that

Nationstar, which neither pled nor proved its status as the

Note’s “holder in due course,” was simply the Note’s “holder.”

The ICA did not clarify this, despite the circuit court’s

inaccurate conclusion that “holders” were not subject to

obligors’ affirmative defenses.        See Hawaii Revised Statutes

(HRS) § 490:3-305 (2008).

          We therefore affirm the ICA’s Judgment on Appeal, but

correct its reasoning as set forth below, and remand the case for

further proceedings consistent with this opinion.




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                               I. BACKGROUND

A.    Factual Background3

            In 2002, Daniel and his younger brother, Marcus,

inherited their family home in Kīhei, Maui (“Kanahele home” or

“the property”).     Daniel resided in the home, while Marcus lived

in Florida.    Daniel agreed to provide Marcus with financial

assistance in 2006.      Accordingly, the brothers contacted Linda

Austin (Austin), a mortgage broker with Maui Mortgage

Professionals, to assist them in obtaining a loan and in using

their home as collateral.

            According to Daniel, the primary purpose of the loan

was to provide financial assistance to Marcus in his business

pursuits.     Austin allegedly knew that Daniel, who had worked most

of his life as an unskilled worker, was unemployed at the time he

and his brother sought the loan.           Despite this, Austin

represented to Daniel and his brother that because Daniel was the

owner-occupant of the property, he would qualify for the loan if

he provided his credit score, “without having to provide any

documentation regarding assets or income[.]”

            Daniel executed a Note to Lehman Brothers Bank, FSB

(Lehman Brothers) for $625,000 on December 4, 2006, and was told

      3
            For the purposes of this section, we accept the facts asserted in
Daniel’s declarations as true, including Daniel’s statements explaining the
circumstances under which he obtained the loan. See Crichfield v. Grand
Wailea Co., 93 Hawaii 477, 483, 6 P.3d 349, 355 (2000) (explaining that, for
the purposes of summary judgment, the court “must view all of the evidence and
the inferences drawn therefrom in the light most favorable to the party
opposing the motion” and that any doubt should be resolved in favor of the
non-moving party). All other facts in this section were taken from the record
on appeal and are otherwise undisputed by the parties.

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that the documents would be sent to Marcus in Florida.              The Note

was secured by a mortgage, executed by the two brothers as

mortgagors, in favor of Mortgage Electronic Registration Systems,

Inc. (MERS) for Lehman Brothers.          The mortgage, which encumbered

the Kanahele home, was recorded in the Bureau of Conveyances.

           The loan went into default in 2008.           The mortgage was

assigned from MERS to Aurora Loan Services (Aurora) in 2009, and

in June of that year, Aurora mailed the brothers notices of

default.

           On August 14, 2012, Daniel sent Nationstar, the loan’s

servicer at the time, a Fair Debt Collection Practices Act

request.   By letter dated August 27, 2012, Nationstar’s customer

care specialist, Joyce Lawrence (Lawrence), responded that Wells

Fargo Bank owned the Note.       She also sent Daniel a copy of the

Note, which had two indorsements.          The Note was first indorsed

from Lehman Brothers to Lehman Brothers Holding, and second,

indorsed from Lehman Brothers Holding to Aurora.4


     4
           The indorsement stamps read as follows:

           Pay To The Order Of
           Lehman Brothers Holding Inc.
           Without Recourse
           Lehman Brothers Bank, FSB
           By: [signature]
           E. Todd Whittemore
           Vice President

           PAY TO THE ORDER OF
           AURORA LOAN SERVICES LLC
           WITHOUT RECOURSE
           LEHMAN BROTHERS HOLDING INC.
           BY: [signature]
           PAUL E. SVEEN
           AUTHORIZED SIGNATORY

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          The mortgage was subsequently assigned from Aurora to

Nationstar for unspecified “good and valuable consideration” on

September 20, 2012.     On an unspecified date, the Note was

indorsed from Aurora to blank, by Nationstar as Aurora’s

attorney-in-fact.

          Marcus died in 2013, having never signed the Note.

Daniel thus explained the unique circumstances of the loan and

mortgage as follows:

          It was only when the litigation began in this case
          [that] I learn[ed] that I was the only borrower – that
          my brother [had] never signed the [N]ote. As the
          mortgage stated us as “co-borrowers” on the signature
          lines of the mortgage, I had no idea that my brother
          was not a co-borrower. I was totally surprised and
          shocked to learn this.

          Suffice it to say, it had always been our practice to
          be co-borrowers when our family house was used as
          collateral, and it was our stated intention with Ms.
          Austin and the bank that we were going to be co-
          borrowers. I would never have agreed to the loan had
          I known that I was the sole borrower and that I would
          have been responsible for any “deficiency judgment[,]”
          the benefits of which went to my brother and his
          business and did not involve me.

          In other words, Daniel “would never have agreed” to

obtain the loan had he known he would be the Note’s sole

borrower, because the purpose of the loan was to benefit Marcus.




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B.    Procedural Background5

      1.    Circuit Court Proceedings

            a.    The Complaint

            Nationstar filed a Complaint to Foreclose against

Daniel, and Marcus’s Estate, on October 7, 2014, with the

following attachments:       (1) a copy of the Note; (2) a

verification attesting that the Note was the original; and (3) an

attorney affirmation attesting the same.

            Like the Note Nationstar had provided to Daniel in

2012, this Note also had two indorsements.            While the first

indorsement was identical to that of the Note that Daniel

received in 2012 – from Lehman Brothers to Lehman Brothers

Holding – the second was executed by Lehman Brothers Holding to

in-blank, rather than to Aurora.6

            The verification, executed by Jesslyn Williams


      5
            This case has a long and complicated procedural history. Because
many of the previous proceedings do not materially affect the analysis, we do
not address them in this opinion.
      6
            The indorsements read as follows:

            Pay To The Order Of
            Lehman Brothers Holding Inc.
            Without Recourse
            Lehman Brothers Bank, FSB
            By: [signature]
            E. Todd Whittemore
            Vice President

            PAY TO THE ORDER OF
            ___________________
            WITHOUT RECOURSE
            LEHMAN BROTHERS HOLDING INC.
            BY: [signature]
            PAUL E. SVEEN
            AUTHORIZED SIGNATORY


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(Williams), Nationstar’s assistant secretary, stated that:               (1)

Williams had personally reviewed the documents and records in

Nationstar’s possession related to the case for accuracy; (2) the

records and files she had reviewed were kept by Nationstar in its

ordinary course of business and were made at or near the time of

such acts; and (3) Nationstar possessed the original Note,

indorsed-in-blank.     Lloyd T. Workman (Workman), Nationstar’s

counsel at that time, also attested that the documents Nationstar

had submitted to the circuit court were accurate and that they

“contained no false statements of fact or law.”7

          b.     Nationstar’s First Motion for Summary Judgment and
                 Related Proceedings

          Nationstar filed its first Motion for Summary Judgment

on March 30, 2015, alleging that it had adequately established

its ability to foreclose on the Kanahele home.            Nationstar

attached the same Note to its Motion as it attached to its

Complaint, as well as a declaration by Demetrice Person (Person),

one of Nationstar’s document execution specialists.

     7
          In relevant part, Workman declared:

          Based upon the communications from Jesslyn Williams,
          as well as upon my own inspection and other reasonable
          inquiry under the circumstances, which included a
          review of copies of the loan documents and other
          communications with Plaintiff’s representatives, I
          affirm that, to the best of my knowledge, information,
          and belief, the Summons, Complaint, and other papers
          filed or submitted to this Court in this matter
          contain no false statements of fact or law, and that
          it is my belief based upon a good faith inquiry, that
          Plaintiff has legal standing to bring this foreclosure
          action. I understand my continuing obligation to
          amend this Affirmation in light of newly discovered
          material facts following its filing.


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          Just like Williams had done in her verification, Person

attested that:    (1) she had personally reviewed the documents and

records in Nationstar’s possession related to Daniel’s case for

accuracy; (2) the records and files she had reviewed were kept by

Nationstar in its ordinary course of business and were made at or

near the time of such acts; and (3) Nationstar possessed the

original Note, which had two indorsements, one of which was

indorsed-in-blank.

          In his opposition memorandum, Daniel argued that

summary judgment would be inappropriate because:            (1) genuine

issues of material fact existed as to who owned the Note, in

light of Nationstar’s presentation of two different versions of

the Note; and (2) Nationstar, which had neither pled nor proven

its status as a “holder in due course,” had not yet addressed

Daniel’s affirmative defenses.

          c.     Nationstar’s Renewed Motion for Summary Judgment
                 and Related Proceedings

          Nationstar withdrew its first Motion for Summary

Judgment to “address [the] issues raised by Daniel,” and filed

its Renewed Motion for Summary Judgment on December 15, 2015.

Attached to Nationstar’s new motion was a Note with three

indorsements, rather than two, as well as two more declarations

affirming that this Note accurately reflected the original.                  Like

the Note presented to Daniel in 2012, the Note’s first

indorsement was from Lehman Brothers to Lehman Brothers Holding

and the second indorsement was from Lehman Brothers Holding to

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Aurora.   The Note’s third indorsement, however, had been indorsed

in-blank from Aurora, by Nationstar as Aurora’s attorney-in-

fact.8

          To support this version of the Note, Nationstar

submitted a declaration executed by Toni Vincent (Vincent), a

document execution specialist, which stated that:             (1) Vincent

had personally reviewed the documents and records in Nationstar’s

possession related to Daniel’s case including a “current copy of

the original Note,” which was indorsed-in-blank and attached to

Nationstar’s new motion; (2) the records and files were

incorporated and kept by Nationstar in its ordinary course of

business and verified for their accuracy; and (3) the Note was in

the possession of and ha[d] been maintained by Nationstar since


     8
          The indorsements read as follows:

          Pay To The Order Of
          Lehman Brothers Holding Inc.
          Without Recourse
          Lehman Brothers Bank, FSB
          By: [signature]
          E. Todd Whittemore
          Vice President

          PAY TO THE ORDER OF
          AURORA LOAN SERVICES LLC
          WITHOUT RECOURSE
          LEHMAN BROTHERS HOLDINGS INC.
          BY: [signature]
          PAUL E. SVEEN
          AUTHORIZED SIGNATORY

          Pay to the Order of
          ___________________
          Without Recourse
          Aurora Loan Services LLC by Nationstar
          Mortgage LLC Its Attorney-In-Fact
          By [signature]
          Assistant Secretary
          Julie Martinez

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before the commencement of th[e] case.”

          Vincent further declared that she had reviewed Person’s

declaration submitted with Nationstar’s first Motion for Summary

Judgment, had conferred with Person, and could confirm that

Person’s declaration was inaccurate because Person had not

followed Nationstar’s policies and procedures, had not personally

reviewed the “original ‘wet-ink’ Note,” and had attached an

outdated copy of the Note to the first motion that “did not

contain all of the indorsements currently set forth on the

original Note.”9    David Rosen, Nationstar’s counsel at the time,

     9
          In relevant part, Vincent’s declaration stated:

          15.    On March 10, 2015, Demetrice Person (“Person”),
                 a Document Execution Specialist at Nationstar,
                 executed a Declaration in Support of Plaintiff’s
                 Motion for Summary Judgment (“MSJ Declaration”)
                 which was filed in the above-captioned case on
                 March 30, 2015.

          16.    The MSJ Declaration included inaccurate
                 information regarding the Loan because Person
                 failed to comply with Nationstar’s Declaration
                 Policies and Procedures. Specifically, the MSJ
                 Declaration inaccurately stated that: (1) Person
                 “personally reviewed the original wet-ink [Note]
                 [sic] dated December 4, 2006"; and (2) “[a] true
                 and correct copy of the original Note is
                 attached [to the MSJ Declaration] as Exhibit A”.

          17.    In fact, Person did not review the original
                 “wet-ink” Note. Rather, Person reviewed an
                 outdated copy of the Note which did not contain
                 all of the indorsements currently set forth on
                 the original Note.

          18.    Also, the copy of the Note included as Exhibit A
                 as to the MSJ Declaration was not a true and
                 correct copy of the original Note. Again what
                 was provided was an outdated copy of the Note,
                 which did not contain all of the indorsements
                 currently set forth on the original Note.

          19.    My personal knowledge of these statements is
                                                                 (continued...)

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also attested via declaration that this Note, with its three

indorsements, was the “original ‘wet-ink’ Note.”

           Daniel then filed his own Motion for Summary Judgment,

raising similar arguments to those raised before.             Specifically,

Daniel contended that Nationstar had not “produced admissible

evidence establishing [the] elements of a remedy of

foreclosure[,]” and further, that it had not addressed Daniel’s

affirmative defenses.

           On March 14, 2016, the circuit court issued findings of

fact and conclusions of law, entered an order granting

Nationstar’s Renewed Motion for Summary Judgment, and entered

final judgment in Nationstar’s favor.          The circuit court

concluded that Nationstar, as “holder” of Daniel’s Note, had

adequately proven its ability to foreclose on the mortgage.


     9
      (...continued)
                 derived from my having inspected a copy of the
                 MSJ Declaration, the Exhibits thereto, a current
                 copy of the original Note, and my having
                 conferred with Person regarding this matter.

           20.   I, in my role as manager at Nationstar, am
                 responsible for managing Person. As such, I can
                 confirm that after Nationstar discovered that
                 the MSJ Declaration contained inaccurate
                 information, Nationstar: (1) re-trained Person
                 on Nationstar’s Declaration Policies &
                 Procedures to ensure that Person understands
                 what she must do to verify the accuracy of
                 information contained in a declaration and to
                 verify that the exhibits to a declaration are
                 true and correct copies of said documents; and
                 (2) conducted an audit of the work Person
                 completed in the 90 days immediately prior to
                 discovering the inaccuracies contained in the
                 MSJ Declaration to ensure that no other mistakes
                 were made by Person.

     (emphases in original).

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      2.    ICA Proceedings

            On appeal, Daniel argued that summary judgment was

improper in light of the untrustworthiness of Nationstar’s

business records and Nationstar’s failure to address Daniel’s

affirmative defenses when it was “holder” of the Note.

Nationstar, on the other hand, despite conceding its status as

“holder,” rather than “holder in due course,” denied that its

business records were untrustworthy, and further claimed that

Daniel’s affirmative defenses lacked merit.10            As such,

Nationstar argued that summary judgment was proper.

            The ICA’s memorandum opinion vacated the circuit

court’s final judgment and remanded the case for further

proceedings.     Despite rejecting Daniel’s argument that the Note

with three indorsements lacked indicia of trustworthiness for

admissibility under HRE Rule 803(b)(6), the ICA concluded that

Nationstar had not established its standing to enforce the Note

under Reyes-Toleldo, 139 Hawaii 361, 390 P.3d 1248.

            As a preliminary matter, the ICA concluded that

Nationstar’s business records were admissible under HRE Rule

803(b)(6).     After examining HRE Rule 803(b)(6) and its

commentary, Vincent’s declaration, and this court’s rulings in

U.S. Bank N.A. v. Mattos, 140 Hawaii 26, 398 P.3d 615 (2017),



      10
            Specifically, Nationstar stated in its Answering Brief that “Mr.
Kanahele ignores the fact that Nationstar denied it was a holder in due course
but stated that it [was] the holder of the Note. As discussed above,
Nationstar’s status as a “holder in due course” is not at issue[.]” (emphasis
in original).

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and Wells Fargo Bank, N.A. v. Behrendt, 142 Hawaii 37, 414 P.3d

89 (2018), the ICA also concluded that Nationstar’s business

records were trustworthy.

          According to the ICA, Person’s declaration had no

impact on the third Note’s admissibility, despite contradicting

Vincent’s declaration.      The ICA explained that while Person’s

“inaccurate declaration” may have bore on her own credibility, it

did “not necessarily [bear] on the reliability” of Nationstar’s

record-keeping system or business records, which the court

explained, was the “focus” of the trustworthiness requirement.

          The ICA further explained that Nationstar’s business

records were trustworthy under Mattos, 140 Hawaii 26, 398 P.3d

615, and Behrendt, 142 Hawaii 37, 414 P.3d 89, because unlike

the declarants in those cases, here, Vincent provided enough

information in her declaration to establish herself as a

qualified witness of Nationstar’s business records.             More

specifically, the ICA found that unlike the declarations in

Mattos and Behrendt, Vincent’s declaration established that:

          Nationstar (1) received the loan documents, including
          the Note, from prior loan servicers and incorporated
          them into its records; and (2) that once integrated
          Nationstar “relie[d] on these business records in the
          ordinary course of its mortgage loan servicing
          business.” And as stated above, Vincent provided
          additional facts sufficient to establish the
          trustworthiness of the documents attached to her
          declaration.

          The ICA concluded the trustworthiness requirement had

also been satisfied given that Nationstar did not rely on

Person’s declaration to establish the elements of its claim, and
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given Vincent’s explanation that her declaration was submitted to

correct Person’s misstatements and the misinformation presented

in Nationstar’s previous motion for summary judgment.              The ICA

also concluded that Nationstar’s 2012 letter, which indicated

that Wells Fargo owned the Note, was inapposite because the

“issue [here] [was] whether Nationstar was the holder at the time

of the filing of the Complaint, not the identity of the owner two

years ago.”

          Regardless, the ICA found that Nationstar had not

adequately established standing to foreclose under the

requirements of Reyes-Toledo, 139 Hawaii 361, 390 P.3d 1248.

The ICA pointed out that, as in Reyes-Toledo,

          the copy of the Note attached to the Vincent
          declaration and the Renewed Motion for Summary
          Judgment [did] not reflect the date of the blank
          indorsement. . . . Although Vincent declared that
          “the Note was in the possession of and ha[d] been
          maintained by Nationstar since before the commencement
          of this case,” she did not attest that the Note was
          indorsed-in-blank prior to the commencement of this
          case or that the copy attached reflect[ed] the
          indorsements as they existed when the Complaint was
          filed.

          Consequently, the ICA vacated the circuit court’s order

and judgment, and declared that on remand, in order to have

standing to enforce the Note, Nationstar would have to show that

it possessed the Note prior to commencing its action against

Daniel in 2014.    The ICA did not address Daniel’s affirmative

defenses, and also did not address Nationstar’s acknowledgment,

in its appellate briefing, of its status as “holder” of the Note.

The ICA’s Judgment on Appeal was entered on September 25, 2018.
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                         II. STANDARDS OF REVIEW

A.   Summary Judgment

            This court reviews “the circuit court's grant or denial

of summary judgment de novo.”         Querubin v. Thronas, 107 Hawaii

48, 56, 109 P.3d 689, 697 (2005) (citation omitted).

Accordingly, “summary judgment is appropriate if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue of material fact and the moving party is entitled

to a judgment as a matter of law.”         Iddings v. Mee-Lee, 82

Hawaii 1, 5, 919 P.2d 263, 267 (1996);          see also Hawaii Rules of

Civil Procedure (HRCP) Rule 56(c) (2000).11

            On a motion for summary judgment, “a ‘genuine issue as

to any [material] fact’ . . . [in] a conflict in the affidavits

as to a particular matter must be of such a nature that it would

affect the result.”      Richards v. Midkiff, 48 Haw. 32, 39, 396

P.2d 49, 54 (1964) (citation omitted).           Furthermore,

“[a]ffidavits in support of a summary judgment motion [must be]

scrutinized to determine whether the facts they aver are

admissible at trial and are made on the personal knowledge of the

affiant.”    Adams v. CDM Media USA, Inc., 135 Hawaii 1, 28, 346



     11
            HRCP Rule 56(c) provides, in relevant part:

     The judgment sought shall be rendered forthwith if the pleadings,
     depositions, answers to interrogatories, and admissions on file,
     together with the affidavits, if any, show that there is no
     genuine issue as to any material fact and that the moving party is
     entitled to a judgment as a matter of law.

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P.3d 70, 97 (2015) (internal quotation marks omitted) (quoting

Miller v. Manuel, 9 Haw. App. 56, 66, 828 P.2d 286, 292 (1991)).

            In reviewing a circuit court’s grant or denial of a

motion for summary judgment, the appellate court “must view all

of the evidence and the inferences drawn therefrom in the light

most favorable to the party opposing the motion” and any doubt

should be resolved in favor of the non-moving party.              Crichfield

v. Grand Wailea Co., 93 Hawaii 477, 483, 6 P.3d 349, 355 (2000)

(internal quotation marks, brackets, and citation omitted).

            Similarly,

            [A] party moving for summary judgment is not entitled
            to a judgment merely because the facts he offers
            appear more plausible than those tendered in
            opposition or because it appears that the adversary is
            unlikely to prevail at trial. This is true even
            though both parties move for summary judgment.
            Therefore, if the evidence presented on the motion is
            subject to conflicting interpretations, or reasonable
            men might differ as to its significance, summary
            judgment is improper.

Makila Land Co., LLC v. Kapu, 114 Hawaii 56, 67, 156 P.3d 482,

493 (App. 2006) (citation omitted).

B.    The Admissibility of Evidence under HRE Rule 803(b)(6)

            “Where admissibility of evidence is determined by

application of the hearsay rule, there can only be one correct

result, and the appropriate standard for appellate review is the

right/wrong standard.”       State v. Fitzwater, 122 Hawaii 354, 362,

227 P.3d 520, 528 (2010) (internal quotation marks and citation

omitted).    Thus, we review the admissibility of business records

under HRE Rule 803(b)(6) pursuant to the right/wrong standard.

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However, when “the trial court [] base[s] its ruling [of

admissibility] on the ‘judgment call’ of whether the sources of

information or other circumstances [related to the records]

indicate[] a lack of trustworthiness,” we review for abuse of

discretion.    State v. Jhun, 83 Hawaii 472, 477 n.4, 927 P.2d

1355, 1360 n.4 (1996).

C.    Statutory Interpretation

            The interpretation of a statute is a question of law

that appellate courts review de novo.           Sierra Club v. Dep’t of

Transp., 120 Hawaii 181, 197, 202 P.3d 1226, 1242 (2009).

“[W]here the terms of a statute are plain, unambiguous[,] and

explicit, . . . our sole duty is to give effect to the statute’s

plain and obvious meaning.”          Bhakta v. Cnty. of Maui, 109 Hawaii

198, 208, 124 P.3d 943, 953 (2005) (internal quotation marks and

citation omitted).

                              III.    DISCUSSION

A.    The ICA Erred in Concluding that Nationstar’s Third Note
      was Admissible Under HRE Rule 803(b)(6) Because the Sources
      of Information and Other Circumstances Surrounding the Note
      Indicated the Note’s Lack of Trustworthiness

            HRE Rule 803(b)(6) provides that the following are not

excluded by the hearsay rule:

           A memorandum, report, record, or data compilation, in
           any form, of acts, events, conditions, opinions, or
           diagnoses, made in the course of a regularly conducted
           activity, at or near the time of the acts, events,
           conditions, opinions, or diagnoses, as shown by the
           testimony of the custodian or other qualified witness,
           or by certification that complies with rule 902(11) or
           a statute permitting certification, unless the sources
           of information or other circumstances indicate lack of
           trustworthiness.

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(emphasis added).

           The commentary to HRE Rule 803(b)(6) further provides

that:

          The hallmark of reliability in this area is not the
          nature of the business or activity but rather its
          “regularity and continuity which produce habits of
          precision, [the] actual experience of [the] business
          in relying upon [the records], [and the] duty to make
          an accurate record as part of a continuing job or
          occupation.” A further safeguard is that preliminary
          determination of the trustworthiness of such records
          is discretionary with the courts.

(emphasis added).

           The ICA concluded that Nationstar’s Note with three

indorsements bore the requisite indicia of trustworthiness as

required under Mattos and Behrendt because Vincent’s declaration

established “that [(1)] Nationstar [] received the loan

documents, including the Note, from prior loan servicers and

incorporated them into its records; [] (2) that once

integrated[,] Nationstar ‘relie[d] on th[o]se business records in

the ordinary course of its mortgage loan servicing business[,]’”

and that “Vincent provided additional facts sufficient to

establish the trustworthiness of the documents attached to her

declaration.”

           While satisfying the requirements of Mattos and

Behrendt is necessary to lay a foundation for admissibility under

HRE Rule 803(b)(6) with regard to being a qualified witness who

may testify as to the reliability of the records at issue, these

requirements are not sufficient to show trustworthiness on their

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own when the totality of circumstances indicate the opposite.

               In light of Vincent’s declaration, the conflicting

attestations of Williams, Workman, and Person, and Nationstar’s

failure to explain Lawrence’s 2012 assertion that Wells Fargo

owned the Note, the indicia of trustworthiness required for the

Note’s admissibility under HRE Rule 803(b)(6) were not present,

despite the fact that Vincent may have been a qualified witness

with respect to the records under Mattos and Behrendt.

               Furthermore, in Hawaii, an affidavit submitted by a

party in support of a motion for summary judgment must be based

on the affiant’s personal knowledge.             Adams, 135 Hawaii at 28,

346 P.3d at 97.        In other words, the affidavit must adequately

reflect that the affiant (1) perceived the event about which they

testified; and (2) had a present recollection of that perception.

See id.; HRE Rule 602 (1992);12 HRCP Rule 56(e).13               Affidavits


12
        The commentary to HRE Rule 602 (personal knowledge) provides in relevant
part:

              This rule, which is identical with Fed. R. Evid. 602,
              restates the traditional common-law rule barring a
              witness from testifying to facts of which he has no
              direct personal knowledge. See McCormick § § 10, 11.
              “Personal knowledge,” for purposes of this rule, means
              that the witness perceived the event about which he
              testifies and that he has a present recollection of
              that perception. The personal knowledge requirement
              should not be confused with the hearsay ban, see Rule
              802 infra.

              In fact, the requirements of Rule 602 apply to a
              hearsay statement admitted under any of the hearsay
              exception rules, 802.1, 803, and 804 infra, in that
              admissibility of a hearsay statement is predicated on
              the foundation requirement of the witness' personal
              knowledge of the making of the statement itself.
              Evidence of personal knowledge is a general foundation
                                                                  (continued...)
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that state ultimate or conclusory facts or conclusions of law may

not be used to support a motion for summary judgment.               Adams, 135

Hawaii at 30, 346 P.3d at 99 (citation omitted).

             Here, Vincent’s declaration was not based on personal

knowledge.    Vincent attested that Person’s declaration “included

inaccurate information regarding the loan because Person failed

to comply with Nationstar’s Declaration Policies and Procedures,”

that Person “reviewed an outdated copy of the Note,” rather than

the “original wet-ink Note,” and that Vincent’s “personal

knowledge of these statements was derived from [] having

inspected a copy of [Person’s declaration], the Exhibits thereto,


(...continued)
           requirement for admissibility of all evidence, subject
           to Rule 703 relating to expert witnesses.

      (emphasis added).
     13
           HRCP Rule 56 (Summary judgment) provides in relevant part:

     (e)   Form of Affidavits; Further Testimony; Defense
           Required. Supporting and opposing affidavits shall be
           made on personal knowledge, shall set forth such facts
           as would be admissible in evidence, and shall show
           affirmatively that the affiant is competent to testify
           to the matters stated therein. Sworn or certified
           copies of all papers or parts thereof referred to in
           an affidavit shall be attached thereto or served
           therewith. The court may permit affidavits to be
           supplemented or opposed by depositions, answers to
           interrogatories, or further affidavits. When a motion
           for summary judgment is made and supported as provided
           in this rule, an adverse party may not rest upon the
           mere allegations or denials of the adverse party’s
           pleading, but the adverse party’s response, by
           affidavit or as otherwise provided in this rule, must
           set forth specific facts showing that there is a
           genuine issue for trial. If the adverse party does
           not so respond, summary judgment, if appropriate,
           shall be entered against the adverse party.

     (emphases added).


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a current copy of the original Note, and [] having conferred with

Person[.]”

             It is clear that Vincent did not personally observe

Person reviewing the “outdated copy of the Note” or Person’s

failure to review the “the original wet-ink Note.”              Rather,

Vincent based her statement that Person “reviewed an outdated

copy of the Note” on communications she had with Person.14                “Were

we to dilute the requirement that affidavits be based on personal

knowledge, it [would] be all [too] easy to come up with hearsay

affidavits effectively undermining the entire summary judgment

process.”    Midland Funding, LLC v. Trahan, 110 So.3d 1154, 1157-

58 (La. Ct. App. 2013) (citation omitted).

             Given that Vincent’s attestation to Person’s errors

was not based on Vincent’s personal knowledge, those portions of

her declaration should not have been relied upon by the circuit

court in ruling on Nationstar’s Renewed Motion for Summary

Judgment.    Furthermore, without those portions, the declaration

merely attested, based on Vincent’s own review of Nationstar’s

documents, that the Note attached to her declaration was “the

current copy of the original Note[.]”           This, however, was in

direct conflict with Person’s declaration, which stated that the

version of the Note that she attested to was “the current copy of

the original Note[,]” as well as the attestations of Williams and



      14
            Person’s statements to Vincent would appear to be inadmissible
hearsay. However, because Daniel did not object to the admission of Vincent’s
declaration on this ground, we do not address this issue further.

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Workman.   The ICA thus erred in concluding that Vincent’s

declaration was more credible than any other, and that, on this

basis, summary judgment was appropriate.

           We clarify, however, that not all mistakes, or

allegations of mistake, in a company’s business records will

render that company’s record-keeping practices untrustworthy, and

therefore render their records inadmissible.           In State v. Forman,

the ICA held that “the vague testimony that [a company] ‘kept bad

paperwork,’ without more, [did] not warrant a conclusion that the

company’s records as a whole were untrustworthy[,]” and further,

that the “application of the business records rule” could not be

avoided on the basis “that a regular practice is occasionally

broken.”   125 Hawaii 417, 424-25, 263 P.3d 127, 134-35 (App.

2011) (citing United States v. McGill, 953 F.2d 10, 15 (1st Cir.

1992) (explaining that to hold otherwise, the business records

rule would be “swallowed up by an exception for less-than-perfect

business practices”)).      Unlike in Forman, however, Daniel did not

make bald allegations of Nationstar’s “bad paperwork” practices,

but rather, pointed to specific, material contradictions that

Nationstar either did not address, or addressed inadequately.

           If, in fact, the Note with three indorsements was the

true and correct version of the Note, then Person should have

submitted a new declaration in support of Nationstar’s Renewed

Motion for Summary Judgment, acknowledging that for the purposes

of her first declaration, she had reviewed an “outdated copy of

the Note” rather than the “original wet-ink Note.”             These
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statements, from Person, rather than from Vincent, would have

demonstrated the requisite personal knowledge as required for

affidavits submitted to support summary judgment motions.

           Nationstar incorrectly points to Cordeiro v. Burns, 7

Haw. App. 463, 776 P.2d 411 (1989), to support its contention

that Person’s and Vincent’s declarations were consistent with

each other, rather than in conflict.         This reliance is misplaced,

however, because in Cordeiro, Burns himself explained why his

statements, which on their face seemed contradictory, were not.

Id. at 470, 776 P.2d at 417.       In other words, Burns offered a

plausible explanation for why he gave inconsistent statements

based on his own personal knowledge.         Id.    Presumably, Person

could have done the same.       As such, Person should have been the

one to explain why her first declaration was incorrect, if

indeed, it was.

           In sum, despite the fact that Vincent constituted a

qualified witness under Mattos and Behrendt, the Note with three

indorsements was not admissible as a business record under HRE

Rule 803(b)(6) because the circumstances surrounding the Note

indicated a lack of trustworthiness.         Nationstar could have

avoided this problem if its prior affiants had submitted new

affidavits explaining why and how they had erred before, and

further, if Nationstar had addressed why it had stated that the

Note belonged to Wells Fargo in 2012.          Nationstar, however, did

neither.   Accordingly, Nationstar’s motion for summary judgment

should have been denied, not only on the ground of standing, but
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also on the basis of trustworthiness.

B.     If Nationstar Establishes its Standing to Enforce the Note
       on Remand, it will be Required to Address Daniel’s
       Affirmative Defenses as the Note’s “holder”

            The circuit court concluded that Daniel could not

assert his affirmative defenses against “the people who are now

holder” of the Note.15      The circuit court, however,

mischaracterized the law by extending the legal protections

afforded to “holders in due course” to “holders.”              We clarify

that unless a foreclosing party can establish itself as a “holder

in due course,” it will be considered a “holder” subject to all

of an opposing party’s affirmative defenses.

            Pursuant to HRS § 490:3-302 (2008), in order to be

considered a “holder in due course,” a foreclosing party must

demonstrate that:

            (1) The instrument when issued or negotiated to the
            holder [did] not bear such apparent evidence of
            forgery or alteration or [was] not otherwise so
            irregular or incomplete as to call into question its
            authenticity; and

            (2) The holder took the instrument (i) for value, (ii)
            in good faith, (iii) without notice that the
            instrument [was] overdue or ha[d] been dishonored or
            that there [was] an uncured default with respect to
            payment of another instrument issued as part of the
            same series, (iv) without notice that the instrument
            contain[ed] an unauthorized signature or ha[d] been
            altered, (v) without notice of any claim to the
            instrument described in section 490:3-306, and (vi)
            without notice that any party ha[d] a defense or claim
            in recoupment described in section 490:3-305(a).

HRS § 490:3-302(a).


      15
            Daniel’s affirmative defenses, raised before the circuit court,
included, inter alia, fraud in the inducement, unconscionability, and mistake.
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               The commentary to HRS § 490:3-302 further provides

that “[t]he primary importance of the concept of holder in due

course is with respect to [the] assertion of defenses or claims

in recoupment (Section 3-305)16 and of claims to the instrument

16
        HRS § 490:3-305 (Defense and claims in recoupment) provides in relevant
part:

              (a)    Except as stated in subsection (b), the right to
                     enforce the obligation of a party to pay the
                     instrument is subject to the following:

                     (1)   A defense of the obligor based on (i)
                           infancy of the obligor to the extent it is
                           a defense to a simple contract, (ii)
                           duress, lack of legal capacity, or
                           illegality of the transaction which, under
                           other law, nullifies the obligation of the
                           obligor, (iii) fraud that induced the
                           obligor to sign the instrument with
                           neither knowledge nor reasonable
                           opportunity to learn of its character or
                           its essential terms, or (iv) discharge of
                           the obligor in insolvency proceedings;

                     (2)   A defense of the obligor stated in another
                           section of this article or a defense of
                           the obligor that would be available if the
                           person entitled to enforce the instrument
                           were enforcing a right to payment under a
                           simple contract; and

                     (3)   A claim in recoupment of the obligor
                           against the original payee of the
                           instrument if the claim arose from the
                           transaction that gave rise to the
                           instrument; but the claim of the obligor
                           may be asserted against a transferee of
                           the instrument only to reduce the amount
                           owing on the instrument at the time the
                           action is brought.

              (b)    The right of a holder in due course to enforce
                     the obligation of a party to pay the instrument
                     is subject to defenses of the obligor stated in
                     subsection (a)(1), but is not subject to
                     defenses of the obligor stated in subsection
                     (a)(2) or claims in recoupment stated in
                     subsection (a)(3) against a person other than
                     the holder.

                                                                  (continued...)
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(Section 3-306).”17     With respect to defenses and claims in

recoupment, “[i]f a defense or claim in recoupment is proved,”

the plaintiff’s right to payment is subject to that defense or

claim, “except to the extent the plaintiff proves that [it] has

rights of a holder in due course which are not subject to [that]

defense or claim.”      HRS § 490:3-308(b) (2008); Reyes-Toledo, 139

Hawaii at 367, 390 P.3d at 1254 (acknowledging HRS § 490:3-308

and its commentary).      “Until proof of a defense or claim in

recoupment is made, the issue as to whether the plaintiff has

rights of a holder in due course does not arise.”              HRS § 490:3-

308 cmt. 2.

            Pursuant to HRS § 490:3-305, “holders in due course,”

like “holders,” are subject to an obligor’s “real defenses”18

against an instrument, which include:           (1) infancy; (2) duress,

lack of legal capacity, or illegality of the transaction; (3)


(...continued)
           (emphases added).

     17
           HRS § 490:3-306 (2008) (Claims to an instrument) provides:

           A person taking an instrument, other than a person
           having rights of a holder in due course, is subject to
           a claim of a property or possessory right in the
           instrument or its proceeds, including a claim to
           rescind a negotiation and to recover the instrument or
           its proceeds. A person having rights of a holder in
           due course takes free of the claim of the instrument.

           (emphasis added).
      18
            A “real defense” is “good against any possible claimant,”
including holders and holders in due course. Black’s Law Dictionary 512 (10th
ed. 2014). In contrast, a “personal defense” is “[a]n ordinary defense in a
contract action . . . that the maker or drawer of a negotiable instrument is
precluded from raising against a person who has the rights of a holder in due
course.” Id.
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fraud that induced the obligor to sign the instrument without

knowing its terms and without reasonable opportunity to find them

out; and (4) discharge of the obligor through insolvency

proceedings.    See HRS § 490:3-305(a)(1); see also HRS § 490:3-305

cmt. 1 (explaining that subsection (a)(1) pertains to “real

defenses”).

            Unlike “holders,” however, “holders in due course” are

not subject to an obligor’s “personal defenses,” when those

defenses are against the original obligee.            HRS § 490:3-

305(a)(2)-(3); White, Summers, & Hillman, Uniform Commercial Code

§ 18:29 (6th ed. 2010).19       In other words, one of the advantages

of being a “holder in due course” is the special protection it

provides against an obligor’s personal defenses against another.

            In conclusion, if Nationstar can prove on remand that

it possessed the Note with three indorsements prior to filing its

Complaint, it will establish its standing to enforce the Note

under Reyes-Toledo.      However, Nationstar conceded its status as

      19
            White, Summers, and Hillman explain:

            The defenses of the obligor can be summed up neatly as
            follows: [they are] all defenses provided elsewhere in
            Article 3 and all defenses that would be available to
            the obligor against a person who was attempting to
            enforce the instrument as a simple contract, that is
            to say, at common law. By tradition, the defenses
            from which a holder in due course takes free are
            called “personal defenses” and include[, inter alia,]
            failure or lack of consideration, breach of warranty,
            unconscionability, and garden variety fraud (fraud in
            the inducement). Recall that a holder in due course
            does not necessarily take free of all “personal”
            defenses. Rather, the holder in due course is sure to
            take free only of the personal defenses that do not
            arise from his own behavior.

White, Summers, and Hillman, Uniform Commercial Code § 18:29 (6th ed. 2010).
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“holder” (rather than as “holder in due course”) of Daniel’s Note

in its ICA briefing.     As a “holder,” it will be required on

remand to respond to Daniel’s affirmative defenses that were

personal in nature.     Lastly, if the case proceeds to trial,

discovery should be permitted to the extent that it may help

Daniel develop his defenses.

                             IV.   CONCLUSION

           We affirm the ICA’s September 25, 2018 Judgment on

Appeal, which vacated the circuit court’s March 14, 2016 Judgment

on Foreclosure Decree and remanded the case for further

proceedings, subject to the clarifications set forth above.

Lance D. Collins                          /s/ Mark E. Recktenwald
(Bianca K. Isaki with
him on the briefs)                        /s/ Paula A. Nakayama
for petitioner
                                          /s/ Sabrina S. McKenna
David A. Nakashima
for respondent                            /s/ Richard W. Pollack

                                          /s/ Michael D. Wilson




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