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Northstar Education Finance, Inc. v. Scroggie

Court of Appeals of Missouri, Western District, Third Division

April 30, 2019


          Appeal from the Circuit Court of Nodaway County, Missouri Honorable Rebecca Spencer, Judge

          Before: Thomas H. Newton, Presiding Judge, Anthony Rex Gabbert, and Edward R. Ardini, Judges


          Thomas H. Newton, Presiding Judge

         Mr. Samuel L. Scroggie appeals a Nodaway County Circuit Court judgment awarding damages to NorthStar Education Finance, Inc. (NEF) on its petition to recover the balance of defaulted 1998-2001 student loans. He challenges court rulings admitting certain evidence, NEF's standing to bring the petition, and the court's award of attorney fees to NEF. We affirm.[1]

          Mr. Scroggie took out student loans under a "T.H.E. Loan Program" while attending Thomas M. Cooley Law School from 1998 through 2001.[2] The total amount he borrowed under this program was $20, 800. He made payments on the promissory notes to NEF's loan servicer Great Lakes Educational Loan Servicing Corp. (Great Lakes) until 2014, at times under a hardship payment plan, and then defaulted. NEF d/b/a Total Higher Education (T.H.E.) Loan Program sought to collect the balance and ultimately filed a petition against Mr. Scroggie seeking $11, 425.64, interest, and attorney fees. Mr. Scroggie filed a pro se answer, counter-petition, and affirmative defenses, including lack of standing, characterizing NEF as a debt collector and challenging the validity of the assignments among various entities for the rights to collect on the debt transferred. NEF filed a motion to dismiss the counter-claim, and the circuit court sustained the motion.

         The case was tried in January 2018, and Mr. Scroggie made numerous objections on hearsay and foundation grounds to exhibits, challenged here, that established the debt, traced the history of the loan assignments, and accounted for his payments. The witness through whom NEF introduced the exhibits was its current CFO Mr. Charles Osborne, who was part of the T.H.E. Loan Program's creation and served on the board of directors of each of the NEF-related entities to which Mr. Scroggie's loans were assigned.[3] The court found Mr. "Osborne's testimony credible and competent to authenticate the exhibits as business records." According to the court, NEF demonstrated its standing to bring the petition as each transfer was proved by clear and convincing evidence; it also found that Mr. Scroggie owed the balance of the loans, as well as interest and attorney fees. It awarded NEF a total of $15, 089.36. Mr. Scroggie timely filed this appeal pro se.

         Legal Analysis

         Four of the five points relied on challenge the trial court's evidentiary rulings. We review a trial court's decisions admitting or excluding evidence for an abuse of discretion. Fed. Nat'l Mortg. Ass'n v. Bostwick, 414 S.W.3d 521, 524 (Mo. App. W.D. 2013). "[A]bsent clear abuse of discretion, its action will not be grounds for reversal." Cox v. Kansas City Chiefs Football Club, Inc., 473 S.W.3d 107, 114 (Mo. banc 2015) (citation omitted). "A ruling constitutes an abuse of discretion when it is clearly against the logic of the circumstances then before the court and is so unreasonable and arbitrary that it shocks the sense of justice and indicates a lack of careful, deliberate consideration." Id. (citation omitted). While one of the points challenges the trial court's ruling on NEF's standing, which should be addressed at the outset, we consider the first two points in order as predicates for establishing the admissibility of the documents that Mr. Scroggie contends in point three lacked the requisites to establish standing.

         In the first point, Mr. Scroggie argues that the trial court erred in admitting his loan applications/promissory notes-Exhibits 1A, 2A, and 3A-into evidence because they were hearsay and inadmissible as business records in that Mr. Osborne was not competent to testify about documents prepared by other business entities. Relying primarily on CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. banc 2012), Mr. Scroggie argues that NEF could not demonstrate evidence of the debt because the "lenders" on the loans were University National Bank or PNC Bank, and Mr. Osborne lacked competence to authenticate the documents because he had neither been an officer of these banks nor had he been employed by them.

         CACH involved litigation instituted by a debt collector allegedly assigned an outstanding credit card debt owed by Mr. Jon Askew. Id. at 60. The company offered exhibits during trial purporting to be evidence of Mr. Askew's credit card account and sought to have them admitted as business records under section 490.680.[4] Id. Over objection, the court allowed a records custodian employed by CACH's owner to testify as to documents allegedly transferring or selling the accounts in a series of transactions leading to CACH through several unrelated entities. Id. at 60-61. Finding that CACH had purchased and been assigned all rights to collect Mr. Askew's debt, the trial court awarded CACH more than $6, 000. Id. at 61. The Missouri Supreme Court reversed, concluding "that CACH failed to demonstrate that it had standing to pursue the collection of the money allegedly owed on [Mr.] Askew's credit card account." Id. at 65. The court made this determination by finding that CACH failed to produce any competent evidence of an assignment in the chain of title between two specific companies, neither of which employed the records custodian whose testimony was used to lay the foundation for admitting the documents making those assignments. Id. at 64. According to the court, section 490.680 requires that a records custodian or qualified witness lay the foundation for a business record. Id. That witness "must have sufficient knowledge of the business operation and methods of keeping records of the business to give the records probity." Id. (citation omitted). That knowledge is insufficient, according to our supreme court, where a records custodian of one business testifies that a document prepared by another business merely appears in the files of the business that did not create the record, or where the witness is familiar generally with how records are prepared in an industry. Id. at 63-64. This case is distinguishable given Mr. Osborne's particularized and exhaustive knowledge about the process involved in making and documenting student loans under the T.H.E. Loan Program, which made the loans extended to Mr. Scroggie.

         Mr. Osborne testified that he was on the board of directors of an NEF predecessor when it created the T.H.E. Loan Program in coordination with educational leaders in Minnesota who had been asked by the U.S. Department of Education to start a new loan-guarantee corporation following the Higher Education Assistance Foundation's bankruptcy. The company, then known as NorthStar Guarantee, was "in the business of accepting documents from various schools and - and processing them for the federally[ ]guaranteed portion of student loans." The company "would provide both documentation and . . . would be reviewing documentation that was to substantiate the federally[ ]guaranteed loans and actually processing that guarantee." According to Mr. Osborne, NorthStar Guarantee then began in 1997 to go into the business of originating loans, both federally guaranteed and private, and securitizing them by issuing bonds to fund the loans. NorthStar Guarantee divided into a Division A and a Division B, which was an independent entity that NEF succeeded in 2001. Mr. Osborne was a director of Division B and of NEF, a nonprofit organization. He testified that, after a student would apply for a loan on a form with the designation "T.H.E. Loan Program" at the top, the loan would be processed by NEF's predecessor or NEF which would direct the funding bank-University National Bank, PNC, or First Union National Bank-to release the funds that NEF's predecessor or NEF would immediately reimburse. This process was used so loans could be made by federally chartered banks across state lines. While documents in the chain of title among NEF entities included a bill of sale from the funding bank, the bill of sale was a document that NEF's predecessors had created, according to Mr. Osborne. At no time did the original loan application/promissory note leave the possession of NEF entities or NEF.

         As to Exhibits 1A, 2A, and 3A, Mr. Osborne testified that he was familiar with the documents and how they were maintained in the ordinary course of business for nonlitigation purposes. He explained how a student would obtain the application form in a student loan aid office, complete it, and give it to a school official who would certify attendance and the amount of tuition. The form would be mailed to the Post Office box designated at the top of the form for the T.H.E. Loan Program, the address in Minnesota for NEF, and then NEF's predecessor or NEF would approve disbursement of the loan request or would underwrite the loan. Mr. Osborne testified that NEF was not in the business of purchasing defaulted loans to collect on them. Mr. Osborne was qualified to lay a foundation for Exhibits 1A, 2A, and 3A. The evidence clearly showed that NEF or its predecessor created the loan program and the loan applications/promissory notes, processed the loans, and maintained possession of the notes when Mr. Osborne served as a director of NEF's predecessor or NEF and Mr. Scroggie applied for his loans. He had sufficient knowledge of the business operation and methods of keeping records of the business to authenticate the documents. The trial court did not abuse its discretion in admitting the promissory notes. This point is denied.

         In the second point, Mr. Scroggie claims that the trial court erred in admitting Exhibits 1B, 2B, and 3B into evidence because they were hearsay and inadmissible as business records in that Mr. Osborne was not competent to testify about documents prepared by other business entities. The B series of documents included the wire reports documenting the amounts disbursed to Mr. Scroggie, bills of sale and blanket endorsements, and other transfers and assignments between NEF financing entities through 2003, which Mr. Osborne testified were business records created and maintained in the ordinary course of NEF's business organization. On cross- examination, he testified that these records are maintained in an NEF storeroom.

         Starting with Exhibit 1B, which related to the loan for which Mr. Scroggie applied in 1999, Mr. Osborne testified about the process by which the documents were created as follows:

This is the - After the disbursing of the - The process that occurred using this exhibit is that the underwriting would be completed by NorthStar, NorthStar would authorize the disbursement. Typically schools would receive tuition at two different dates, so although the plaintiff or the individual would apply for one loan, there would be two different disbursements under the loan. The instructions for that disbursement would go from NorthStar to, in this case, University National Bank, and University National Bank would send the money to the school. Then on that very same day, the - NorthStar, through its own financing, would effectively reimburse University National Bank the monies for that loan.
And you're going to go through the - the following pages, which have the actual disbursement instructions, in this case, to the detailed activity report for 12/30 - well, this is - the 12/30/1999 for $3, 000. You can see Mr. Scroggie's name there on the activity report. This is one of the disbursements made under this original promissory note.
Q. And going - turning to the fourth page, which is a transfer agreement, purports to be a transfer agreement between NorthStar THE Funding, LLC and NorthStar THE Funding II, LLC, is that correct?
A. Correct. Two of our subsidiaries using the financing of these loans. In 2001, these were used as collateral in a financing, and they had to be transferred through these organizations effectively to ensure the trustees that there were no other prior claims or liens on the loans. And you can see that's signed by Mr. Thornton, who is an officer of THE Funding, LLC and of both organizations, both I and II.
Behind that is an actual - Mr. Scroggie's loan is identified specifically with a token number, and we - with a redacted page, we have provided the identification - specific identification of this loan within the group of loans that were transferred for collateral.
Q. What was the rest of the chain of assignment, as it's been termed?
A. This was a - The bill of -
Q. All right, Mr. Osborne, turning further, you see a bill of sale, assignment and assumption of liabilities. It is a - purports to be between NorthStar Guarantee, Division B, and [NEF], which is the entity which you are the CFO for, correct?
A. And all of these other entities too.
Q. Yes. So can you walk us through this transfer as well?
A. Yes. This is the final transfer. Division B, which was the origination branch of the - of NorthStar Guarantee, upon [NEF] receiving its tax-exampt status, all the assets. All the liabilities of NorthStar Guarantee were transferred into [NEF], and that's - this is the document that does that.
But I want - If I may, I need to correct one thing I just said, because I pointed to this pile. I am not an officer of PNC, First Union National Bank, or University National Bank.
Q. But you were an officer of the entity with which - from which those loans were transferred?
A. Correct.

         As to Exhibit 2B, which related to the loan for which Mr. Scroggie applied in 2000, Mr. Osborne testified about the process by which the documents were created as follows:

This is the disbursement record for the first part of the loan. It was an $8, 000 loan. The first half was $4, 000 and the $160 was the origination fee that was reimbursed at that time as well, and that 160 is retained, and the net amount to the school is 4, 000. ...

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