Court of Appeals of Missouri, Western District, Third Division
NORTHSTAR EDUCATION FINANCE, INC D/B/A TOTAL HIGHER EDUCATION (T.H.E.), Respondent,
SAMUEL L. SCROGGIE, Appellant.
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
H. Newton, Presiding Judge
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.
Scroggie took out student loans under a "T.H.E. Loan
Program" while attending Thomas M. Cooley Law School
from 1998 through 2001. 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
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. 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.
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.
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.
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. 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.
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.
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.
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.
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
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
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,
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?
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. ...