IN THE DISTRICT COURT OF APPEAL OF FLORIDA, THIRD DISTRICT SANDRA P. CASTILLO, Appellant/Defendant, Third DCA Case No.: 3D11-2132 ys. L.T. No. 09-88614CA21 DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE FOR MORGAN STANLEY ABS CAPITAL | INC. TRUST 2006-HE7 MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-HE7, Appellee/Plaintiff. APPEAL FROM THE ELEVENTH JUDICIAL CIRCUIT COURT IN AND FOR MIAMI-DADE COUNTY, FLORIDA INITIAL BRIEF OF APPELLANT, SANDRA P. CASTILLO ROBERT R. JIMENEZ, ESQ. JIMENEZ, MILIAN & ASSOCIATES, PLLC 2025 SW 32 AVE, STE 110 MIAMI, FLORIDA 33145,TABLE OF CONTENTS TABLE OF CITATIONS STATEMENT OF THE CASE AND FACTS. QUESTIONS PRESENTED SUMMARY OF ARGUMENT ARGUMENT: I. THE LOWER TRIBUNAL ERRED IN DENYING APPELLANT’S MOTION FOR SUMMARY JUDGMENT BECAUSE, AS A MATTER OF LAW, A DEFENDANT HAS THE STANDING AND ABILITY TO CHALLENGE A PLAINTIFF TRUST’S STANDING TO FILE SUIT BY CONTESTING THE TRUST’S OWNERSHIP OF A NOTE AND MORTGAGE PURSUANT TO THE LIMITATIONS OUTLINED IN THE TRUST’S DOCUMENTS. BECAUSE THE TRUST CAN NOT TAKE OWNERSHIP OF A NOTE AND MORTGAGE OR HOLD THEM IN VIOLATION OF ITS TRUST DOCUMENTS, AND BECAUSE THE TRUSTEE OF THE TRUST CAN NOT COMMIT THE ULTRA VIRES ACT OF ENFORCING LOAN DOCUMENTS THAT ITS TRUST DOES NOT OWN, THE TRIAL COURT ERRED IN Page iiiDENYING APPELLANT’S MOTION FOR SUMMARY JUDGMENT AND IN GRANTING APPELLEE’S MOTION FOR SUMMARY JUDGMENT. . Asa matter of law, a trust cannot take ownership or hold a note and mortgage in violation of its trust documents. As a matter of law, the trustee of a trust cannot commit the ultra vires act _of enforcing loan documents that its trust does not own. CONCLUSION CERTIFICATE OF SERVICE CERTIFICATE OF COMPLIANCE 22 30 31 31TABLE OF CIT. Statutes Page Florida Statutes: Section 736.0815(1)(a) 26 Federal Statutes: 15 U.S.C.A. §77I(a)(2) 22 IRC §860A(a) 21 IRC §860A(b) 21 IRC §860F 21,22 Cases Armstrong v. Harris 773 So. 2d 7 (Fla. 2000) 5 General Development Corp. v. Kirk 251 So. 2d 284 (Fla. 2d DCA 1971) 9,10, 11, 15 Griley v. Marion Mortgage Co. 132 Fla. 299 (Fla. 1937) 26 In Re Burton's Estate 45 So. 2d 873 (Fla. 1950) 17 In Re Estate of Stillman 107 Misc. 2d 102 (Surr.Ct. N.Y. 1980) 25 In Re Robin Hayes 393 B.R. 259 (Bankr. Mass. 2008) 13In the Matter of James D. Dana 465 N.Y.S.2d 102 (N.Y. Sup. Ct. 1982) 17 In the Matter of the Application of Edward Cummings 184 N.Y.S. 404 (N.Y. App. Div. 1920) 17 Jackson v. State 572 So. 2d 31 (Fla. Sd DCA 1991) 7 Johns v. Gillian 134 Fla. 575 (Fla. 1938) 20, 27 Jones v. First National Bank in Fort Lauderdale 226 So. 2d 834, 835 (Fla. 4d DCA 1969) TF Kemp v. Paterson 6 N.Y.2d 40 (N.Y. 1959) a MacFarlane v. Firsi Nat'l Bank 203 So. 2d 57 (Fla. 3d DCA 1967) 28 Martin Properties, Inc. v. Florida Industries, etc., et al. 833 So. 2d 825 (Fla, 4d DCA 2002) 10, 11, 15 Muth v, AIU Insurance Company 982 So. 2d 749 (Fla. 4d DCA 2008) 17 Shaps v. Provident Life & Accident Insurance Company 826 So. 2d 250 (Fla. 2002) 16 Siegel v. Novak 920 So. 2d 89 (Fla. 4d DCA 2006) 16 Your Construction Center, Inc. v. Gross, ete. 316 So. 2d 596 (Fla. 4d DCA 1975) 12, 13, 15, 18Rules of Court Fla. R. Civ. P. 1.510(b) Other Authorities Florida Appellate Practice 148 (2nd ed. 1997) New York Civil Practice: EPTL P 7-2.4(2) (2011) NY. Est. Powers & Trusts Law, § 11-1.1(b) Restatement of the Law, Second, Trusts, §187 (1992 ed.) 17,23 23 25,26STATEMENT OF THE AND FA‘ The Appellant, Sandra P. Castillo (herein “Appellant”), an original Defendant below, perfected this appeal fom a Final Order of the Eleventh Judicial Circuit Court in and for Miami-Dade County, Florida, entered on July 28, 2011, a copy of which is attached to the Notice of Appeal filed on August 9, 2011 (R.349- 369.). The Final Judgment of Foreclosure was entered pursuant to a prior order issued on January 24, 2011 that awarded Appellee Deutsche Bank National Trust Company (herein referred to as “Appellee”), the original Plaintiff below, a final summary judgment (also attached to the Notice of Appeal at R.349-369.). This appeal also challenges, as reversible error, the denial of Appellant's Motion for Summary Judgment on November 22, 2010. Jd. The Orders were rendered by the Honorable Judge William Thomas, one of the judges of the Eleventh Judicial Circuit Court. The Appellee filed its Complaint to reform and foreclose a mortgage on December 1, 2009. The Appellee is the trustee of a New York common law trust, Morgan Stanley ABC Capital | Inc. Trust 2006-HE7 (herein the “Trust”, which it filed the instant suit on behalf of. Said Trust was created pursuant to Internal Revenue Codes 860A-860G for the purpose of constructing and selling mortgage backed securities as investments. (R.153-166.) See also, ARGUMENT, n.15,infra. As such, and pursuant to federal securities laws, a securities prospectus containing the material trust terms was filed for the Trust with the United States Securities and Exchange Commission. /d. Attached to the Complaint was a promissory note made payable to a lender not a party to the instant action (WMC Mortgage Corp.) and a mortgage instrument that listed Mortgage Electronic Registration Systems, Inc. as the mortgagee and nominee of the lender, WMC Mortgage Corp. (R.6-42.) Appellee pled in the Complaint that the subject promissory note was transferred to it and that it owned and held the note and mortgage. Jd. Appellant, via her Answer and Affirmative Defenses to the Complaint (R.146-152.), Memorandum in Opposition to Plaintiff's Motion For Summary Judgment (R.140-145.), and in an Affidavit (R.135-137.) denied that the Trust and/or the Appellee properly owned or held the note or mortgage (and that, as such, neither had standing to foreclose). On or about March 29, 2010, Appellee filed into evidence a copy of the note which contained a blank endorsement signed by the original lender. (R.83-88.) Subsequently, on July 14, 2010 and again on November 10, 2010, Appellant filed into evidence copies of the trust documents filed with the United States Securities and Exchange Commission. (R.153-166.) See also, ARGUMENT, n.15, infra, The instant case proceeded to the summary judgment stage with Appellee filing its Motion for Summary Judgment on May 10, 2010 (R.103-108.) and 2Appellant filing her Motion for Summary Judgment on August 16, 2010 (R.176- 184,). Appellant's Motion for Summary Judgment raised the issues of: 1) whether a defendant has the ability to challenge a plaintiff trust’s standing by contesting its ownership of instruments pursuant to the limitations outlined in the trust documents; 2) whether a trust can take ownership and hold a note and mortgage in violation of its trust documents; and 3) whether the trustee of the trust can commit the ultra vires act of enforcing loan documents that its trust does not own. On October 25, 2010, his Honor, Judge William Thomas, ordered that both summary judgment motions be heard before him, and a special set cross-summary judgment hearing was scheduled for November 22, 2010. (R.190.) Despite the fact that the Appellee never disputed any of the facts alleged in Appellant's Motion for Summary Judgment that the trust terms and documents had been violated (ARGUMENT, n.18, infra), the trial court denied Appellant’s Motion. In so doing, the trial court in essence held that a defendant cannot challenge a plaintiff trust’s standing by contesting the trust’s non-ownership of instruments stemming from a violation of the terms regulating the trust. All the parties present at the November 22" hearing, as well as the Judge, overlooked that Appellee’s Motion for Summary Judgment was also supposed to have been argued and ruled upon (but was not). (R.223, 224.) As such, a follow up hearing on January 24, 2011 regarding Appellee's Motion for Summary 3Judgment was set, and the Court entered summary judgment in favor of Appellee at the hearing. (R.349-369.) See also, ARGUMENT, n.1, infra. An appeal was filed two days later, but said appeal was dismissed by this Honorable Court as premature. (R.274-276.) On July 28, 2011, the trial court entered a Final Judgment of Foreclosure, and the instant appeal followed. (R.349-369.)QUESTIONS PRESENTED 1, WHETHER A DEFENDANT IN A FORECLOSURE CASE HAS THE ABILITY TO CHALLENGE A PLAINTIFF TRUST’S STANDING BY CONTESTING THE TRUST’S OWNERSHIP OF THE NOTE AND MORTGAGE PURSUANT TO THE LIMITATIONS OUTLINED IN THE TRUST’S DOCUMENTS. 2. WHETHER A TRUST CAN TAKE OWNERSHIP OR HOLD A NOTE AND MORTGAGE IN VIOLATION OF ITS TRUST DOCUMENTS. 3. WHETHER THE TRUSTEE OF A TRUST CAN COMMIT THE ULTRA VIRES ACT OF ENFORCING LOAN DOCUMENTS THAT ITS TRUST DOES NOT OWN.SUMMARY OF ARGUMENT On summary judgment, the trial court improperly held that Appellant could not challenge Appellee’s standing to file suit in the instant case by contesting the Trusts’s ownership of the note and mortgage through the vessel of the limitations outlined in the Trust’s own documents. Florida law is clear that Appellant actually does have the ability to so challenge because standing is based upon having a sufficient interest in the outcome of litigation, not privity of contract. Case law also dictates that a defendant has the right to challenge a trust’s ownership of a note and mortgage in a foreclosure case as a means of contesting the trust’s standing to file suit. The trial court also erred when it denied Appellant’s Motion for Summary Judgment and granted Appellee’s motion because, as a matter of law, a trust cannot take ownership of a note and mortgage or hold it in violation of its trust documents. It is elementary trust law that a trust’s founding document controls the limitations that must be adhered to by a trustee and its trust. New York and Florida law --both applicable in the instant case-- agree that, because the relevant note and mortgage were not properly transferred to the Trust at issue, the trust documents were violated and the Trust does not own the subject instruments. As such, the Trust and its Trustee (Appellee) never had standing to file the instant case to begin with.Furthermore, a trustee cannot commit the improper and ultra vires act of enforcing loan documents that its trust does not own, especially when (as in the instant case) the trust terms themselves mandate that the trustee does not have the ability or discretion to maintain possession of an improperly transferred note or mortgage. Trustee actions which contravene trust instruments are void as a matter of New York and even Florida law. Thusly, because the note and mortgage were never properly transferred to the Trust, and because the Trust and Appellee Trustee must follow their trust documents, the Trust does not own and cannot enforce the subject loan documents and has no standing in the instant case.ARGUMENT 1. THE LOWER TRIBUNAL ERRED IN DENYING APPELLANT'S MOTION FOR SUMMARY JUDGMENT BECAUSE, AS A MATTER OF LAW, A DEFENDANT HAS THE STANDING AND ABILITY TO CHALLENGE A PLAINTIFF TRUST’S STANDING TO FILE SUIT BY CONTESTING THE TRUST’S OWNERSHIP OF A NOTE AND MORTGAGE PURSUANT TO THE LIMITATIONS OUTLINED IN THE TRUST*S DOCUMENTS. Although in its order denying Appellant's Motion for Summary Judgment (R.225-257.)' the trial court did not crystalize its precise jurisprudential motive, it is clear from the November 22 hearing transcript (R. 223.) that the trial court incorrectly rejected the Appellant’s legal ability to challenge the Appellce’s standing with relation to whether the trust documents have been violated.” Indeed, because the evidence and the record clearly show that the trust documents and trust terms have been violated --a factual allegation never rebutted by Appellee below-- there would have been no other way for the trial court to deny Appellant's Motion ' The trial court entered an order denying Appellant’s Defensive Motion for Summary Judgment on November 22, 2010. The Index Record on Appeal does not reflect the order. Instead, said Index states “Plaintiff’'s And Defendant’s Cross- Motions For Summary Judgment” at pages 225-257 and with the date of January 25, 2011. The Index Record on Appeal also does not reflect the Final Judgment of Foreclosure on July 28, 2011 or the order granting Plaintiff's Motion for Summary Judgment on January 24, 2011. Said documents were, however, attached to the Notice of Appeal (R.349-369.). * Pages 4 and 5 of the transcript (R.195, 196.) showcases that the trial court judge's first question at the November 22" hearing regarded the ability of the Appellant to challenge standing by pointing out violation of the trust documents. The judge asked the following: “What is that -- please forgive the vernacular of this—- but what is it any of your business whether or not the trust is basically taking property and holding it...in contradiction to their own trust documents?” 8for Summary Judgment unless it held that Appellant did not have the ability to challenge the standing of the Appellee and the Trust. ‘The trial court thus committed reversible error as Florida law is clear that Appellant can contest standing by engaging in the aforementioned legal challenge. As such, the standard of review in the instant appeal is de novo.’ In its reply to Appellant’s affirmative defenses, Appellee stated that “the borrower is not a party nor a third party beneficiary of this [trust] contract. ‘Therefore, the borrower has no standing to attack whether or not the provisions of the agreement were met or whether there have been any violations.” (R.170, para. 5.) However, as Appellant pointed out at the November 22 hearing and as evinced in the transcript (R.223.), “the [Appellant] is not claiming any rights under the trust documents. The [Appellant] is utilizing her Florida law given right to challenge the standing of the [Appellee]...” Indeed, it is well settled law in Florida that both standing and ownership of notes and mortgages can be challenged as Appellant has set forth, In General Development Corp. v. Kirk, 281 So. 2d 284 (Fla. 2d DCA 1971), the Second District Court of Appeal analyzed and explained precisely what constitutes ? See Armstrong v. Harris, 773 So. 2d 7 (Fla. 2000) (stating that “the standard of review for a pure question of law is de novo” and also citing to Florida Appellate Practice 148 (2nd ed. 1997) (stating that “Summary judgments present a classic example of the type of decisions that are subject to the de novo standard of review”). 2:the concept of standing. “Standing is, in the final analysis, that sufficient interest in the outcome of litigation which will warrant the court's entertaining it. It is beyond doubt that standing is, in most states, no longer determined by first determining some abstract question such as privity.” The Second District Court further elaborated that “it is not “privity” but a legitimate interest warranting invocation of the judicial power of the state which ought to determine standing...” Interestingly, the Second District Court's explanation in General Development Corp.’ was the foundation for a subsequent Fourth District Court decision that is precisely on point with/to the instant issue. In Martin Properties, Inc. v. Florida Industries Investment Corp., et al., 833 So. 2d 825 (Fla. 4d DCA 2002), the appellant, Martin Properties. . Inc. (herein “MPT"), appealed a trial court order that denied it standing to challenge an assignment of the equity redemption regarding property that MPI had been the high bidder for at a mortgage foreclosure sale. Florida Industries Investment Corp. (herein “FIIC”) had assigned its equitable right of redemption to VOSR Industries, and the trial court ruled that MPI did not have standing to challenge said assignment. The Fourth District Court of Appeal reversed and rejected the trial court’s holding that “MPI had no standing to challenge the validity of the assignment because MPI was “I. 10neither a patty to it nor a third party beneficiary of it.” “That”, the Fourth District Court pointed out, “is not the test.” Relying on and quoting from the Second District Court's opinion in General Development Corp.,) the Fourth District Court of Appeal held that “if...the assignment of the equity of redemption was not valid, MPI, as the successful bidder at the foreclosure sale, will own the property. This is sufficient to give MPI standing.”* In the instant case, the applicability and relevance of the aforementioned precedents is obvious. The issue in Martin Properties, Inc. concerning MPI's standing to challenge the assignment is analogous to the instant issue of whether Appellant has standing to challenge the Trust’s non-ownership (and thus standing) of the corresponding Note and Mortgage given the undisputed trust violations. Just as with MPI and the assignment, Appellant is not a party to the trust documents and not a third party beneficiary thereof. However, and as the Fourth District Court pointed out, “that is not the test.” Rather, having a “sufficient interest in the outcome of the litigation” --not “privity”-- is the standard. By that token, there can * 251 So, 2d 284, 286 (Fla. 2d DCA 1971). © The Fourth District Court of Appeals in Martin Properties, Inc., 833 So. 2d at 827, quoted the Second District Court's explanation on standing in General Development Corp. that “Standing is, in the final analysis, that sufficient interest in the outcome of litigation which will warrant the court's entertaining it. It is beyond doubt that standing is, in most states, no longer determined by first determining some abstract question such as “privity. 1be no doubt that Appellant has the ability to utilize violations of the trust documents/terms as a mechanism to challenge the standing of the Appellee to bring the instant foreclosure case, as well as to challenge the ownership interests of the Trust in the Note and Mortgage.” It is difficult to conceive of a greater interest in the outcome of this litigation than that of Appellant, who will lose her residential homestead should Appellee succeed in the instant action. Furthermore, precedent exists which clearly dictates that, in cases such as this involving a foreclosure by a trust, a defendant has the right to challenge the trust’s ownership of the note and mortgage. In Your Construction Center, Inc. v. Gross, as Trusiee of Dominion Mortgage and Realty Trust, 316 So. 2d $96 (Fla. 4d DCA 1975), the instant issue of consideration was decided. Your Construction regarded a plaintiff trustee of a Massachusetts business trust which brought a foreclosure action pursuant to a note and mortgage. The trial court had previously denied the appellants’ motion to dismiss, which the Fourth District Court of Appeal affirmed due to the fact that the subject instruments specifically listed the trustee as the sole payee.° However, the Fourth District Court went on to explain that when a plaintiff files a complaint, 7 Succinctly, Appellant clearly has the standing to, in this fashion, challenge the ‘Appellee’s standing to bring the foreclosure action. “The Fourth District Court held that “where a note and mortgage are executed naming as payee one trustee to this sort of foreign trust, and not more, that trustee is entitled to maintain an action on the note and mortgage and to discharge the obligation.” 12they must allege that they are the owner and holder of the note and mortgage in question. “Should defendants have any allegation to the contrary they may join issue on it, and obtain adjudication as to the ownership.” (Emphasis Added.) Any one of the three previously referenced cases, even standing alone, convincingly demonstrates that the trial court erred in its ruling below that the Appellant did not have the ability to challenge the Appellee’s (and Trust’s) standing by contesting its ownership of instruments pursuant to the limitations outlined in the trust documents. Although Florida law is abundantly clear, it is of note that Florida is not alone in its position that trust law violations can be used by a defendant to bring to light a plaintiff trust's lack of standing in a foreclosure case. Indeed, the trust documents under which Appellee functions as trustee have already been utilized by a debtor in another state as part of the inquiry as to whether this same Appellee has standing in a foreclosure matter. In the case of In Re Robin Hayes, 393 B.R. 259 (Bankr. Mass. 2008), Appellee Deutsche Bank National Trust Company, in that case as trustee of Argent Mortgage Securities, Inc. Asset-Backed Pass Through Certificates Series 2004- W11," sought relief from a stay of the Chapter 13 bankruptcy of the debtor. In her ° Id, at $97. '° Ih the case of In Re Robin Hayes, the United States Bankruptcy Court for the District of Massachusetts stated that “Deutsche Bank is a party to a Pooling and Service Agreement [“PSA”], dated as of October 1, 2004. The Depositor under the Pooling and Service Agreement, namely the seller of pass-through certificates 13Objection to Appellee’s motion for relief from stay, the Debtor raised an issue of ‘Appellee’s standing to seek the relief it sought. The specific issue for the Bankruptcy Court to consider was whether Appellee Deutsche Bank National Trust Company successfully traced the identity of the various holders and servicers of the mortgage from the original holder to itself. The court held that Appellee failed to do so, and it noted that Appellee “failed to prove that the mortgage executed by the Debtor and her mother in favor of Argent Mortgage Company, LLC was ever assigned to an entity by that name or to Argent Securities Inc., the Depositor under the PSA [pooling and servicing agreement].”"" While the court in Jn Re Robin Hayes held that Appellee lacked standing for various reasons, it is clear that the court looked to the trust documents in its attempt to determine the standing of Appellee Deutsche Bank National Trust reflecting beneficial ownership interests in certain real estate mortgage investment conduits, is Argent Securities Inc., not Argent Mortgage Securities, Inc. Under the Pooling and Service Agreement, the Trustee of the Trust Fund, consisting of a segregated pool of assets comprised of mortgage loans and certain other related assets, is Deutsche Bank National Trust Company.” " Tn footnote 7 of the opinion in Jn Re Robin Hayes, the court pointed out that “Deutsche Bank noted that Argent Mortgage Company, LLC was identified as an “Originator” in the PSA. Deutsche Bank failed to explain the relationship between Argent Securities Inc. and Argent Mortgage Company, LLC, in its capacity as an originator, and Argent Securities Inc.’s ownership of pass-through certificates backed by the mortgage originated by Argent Mortgage Company, LLC remains unclear, Deutsche Bank failed in its burden to explain the relationship and how it affects its standing.Company to file its motion for relief from stay.'? Although said opinion is merely persuasive upon Florida courts, it is an example of how Florida law --embodied in the precedents set forth above in the cases of General Development Corp., Martin Properties, Inc., and Your Construction Center, Inc.-- should be applied to the instant situation on appeal. Thusly, it is clear that the trial court erred in not allowing Appellant to contest Appellee and the Trust’s standing through a challenge based upon the limitations in the trust documents. Il. BECAUSE THE TRUST CAN NOT TAKE OWNERSHIP OF A NOTE AND MORTGAGE OR HOLD THEM IN VIOLATION OF ITS TRUST DOCUMENTS, AND BECAUSE THE TRUSTEE OF THE TRUST CAN NOT COMMIT THE ULTRA VIRES ACT OF ENFORCING LOAN DOCUMENTS THAT ITS TRUST DOES NOT OWN, THE TRIAL COURT ERRED IN DENYING APPELLANT’S MOTION FOR SUMMARY JUDGMENT AND IN GRANTING APPELLEE’S MOTION FOR SUMMARY JUDGMENT. ‘As mentioned above, although in its order denying Appellant’s Motion for Summary Judgment (R.225-257.)"> the trial court did not crystalize its exact ™ The court went on to state that “moreover, Deutsche Bank failed to submit any evidence that the November 3, 2004 mortgage was included in the PSA or was subject to Section 2.09 of the PSA as neither Schedule 1 to the PSA nor a Mortgage Loan Schedule attached to a Subsequent Transfer Instrument were submitted into evidence. Thus...the Court finds that Deutsche Bank failed to adequately trace the loan from the original holder, Argent Mortgage Company, LLC, to it.” ' See n.l, supra. 15reasoning as to why it rejected Appellant’s legal arguments, it is clear that the court erred because a trust and a trustee cannot violate trust law. Under Florida's choice of law rules, the doctrine of /ex /oci contractus instructs that, in the absence of a contractual provision specifying governing law, a contract is governed by law of the state in which the contract is made.”"* In the instant case, Florida law is clear that because the Morgan Stanley ABS Capital I Inc. Trust 2006-HE7 is a New York common law trust (R.153-166.)'°, substantive New York trust law applies.’ ™ See Shaps v. Provident Life & Accident Insurance Company, 826 So. 2d 250 (Fla. 2002) (also stating that “this Court has held that under lex /oci coniractus, the law of the jurisdiction where the contract was executed governs substantive issues regarding the contract”). '’ "The Notice of Filing with attachments indicated by the Index Record on Appeal with a date of July 14, 2010 contained a relevant Securities Prospectus in electronic format on a data compact disc. Said documentation shows that the Trust is a New York common law trust (which was never rebutted by Appellee). The same Securities Prospectus was filed in paper format attached to another Notice of Filing on November 10, 2010. The Index Record on Appeal does not list the November 10" Notice of Filing. "© See Siegel v. Novak, 920 So. 2d 89 (Fla. 4d DCA 2006) (holding that substantive New York trust law applied to a challenge of distributions from the trust because New York bore the most significant relationship to the trust given the fact that, at the time the challenged distributions took place, the trust was a New York trust governed by New York law). In Siegel, the Fourth District Court of Appeal also outlined that “generally, when confronted by a choice of law problem, a court will apply foreign law when it deals with the substance of the case and will apply the forum’s law to matters of procedure.” Henceforth, standing issues in the instant case should be determined with reference to Florida law while substantive trust law issues should be decided by New York law. 16A. As a matter of law, a trust cannot take ownership or hold a note and mortgage in violation of its trust documents. It is basic trust law that a trust’s founding document controls what rules and regulations must be adhered to by the trustee and the trust. Both Florida and New ‘York law are identical in this regard.'” "7 See Jones v. First National Bank in Fort Lauderdale, 226 So.2d 834, 835 (Fla. 4th DCA 1969) (stating that “the duties, powers and liabilities of executors and trustees are ordinarily fixed by the terms of the will and trust agreement. . . . For instance, the trust itself, whatever it be, constitutes the charter of the trustee’s power and duties. From the trust, the trustee derives the rule of his conduct, the extent and limit of his authority, the measure of his obligation”.). See also, In the Matter of James D. Dana, 465 N.Y.S.2d 102 (N.Y. Sup. Ct. 1982) (voiding a transaction that violated a trust document and upholding the trust); y York Civil Practice: EPTL P 7-2.4(2) (Article 7, entitled “Trusts”; Part 2, entitled “Rules Governing Trustees”; stating that “a cardinal principle of the law of trusts is that the instrument under which the trustee acts is the charter of his rights and he must act in administering the trust in accordance with its terms"); Jn the Maiter of the Application of Edward Cummings, 184 N.Y.S. 404 (N.Y. App. Div. 1920) (holding and stating that “trusts are sacred and that trustees cannot violate the express terms thereof, if such terms are incorporated in the instrument creating the trust”). 17In the instant case, it is undisputed'® that the trust documents and material trust terms are contained within the Trust’s Securities Prospectus’” filed electronically online with the United States Securities and Exchange Commission.” The Securities Prospectus contains the relevant trust terms from all pooling and servicing agreements and any and all other trust documents relevant to and stemming from the Morgan Stanley ABS Capital | Inc, Trust 2006-HE7. If any of the trust terms pertaining to the Note and Mortgage at issue were violated, the 'S Appellee’s argument below was never that the trust terms were not violated or that they were not in front of the trial court. Rather, Appellee’s position was that such things were irrelevant. At no time did the Appellee deny or file any document in opposition to any factual allegations contained within Appellant's Defensive Motion for Summary Judgment (which itself required no supporting affidavits pursuant to Fla.R.Civ.P. 1.510(b)), and thusly there can be no dispute that the material trust terms are contained within the Securities Prospectus. See Jn Re Burton's Estate, 45 So. 2d 873 (Fla. 1950) (stating that statements made in an appellate brief that have no support in the record cannot be considered on appeal); Jackson v. State, 572 So. 2d 31 (Fla. Sd DCA 1991). See also, Muth v, AIU Insurance Company, 982 So. 2d 749 (Fla. 4d DCA 2008) (affirming the trial court’s refusal to allow a plaintiff, who previously filed nothing in opposition to the defendant's summary judgment motion, to submit counter-affidavits and evidence on rehearing). '? See n.15, supra. ? At the hearing on Appellant’s Motion for Summary Judgment on November 22™, Appellant, on page 12 of the hearing transcript (R.203.), stated to the trial court judge that “the prospectus, prospectus supplement...incorporate all the material trust terms; things from the pooling and servicing agreement, trust agreement, all of it. It’s all here. These are the trust documents.” See also, R.202, 204. 18Trust would not be able to own or hold the Note and Mortgage (which is the basic requirement in Florida to pursue or maintain a foreclosure action”'). The Securities Prospectus describes in detail a chain of ownership that the corresponding Note and Mortgage must have been subjected to in order for the Trust to become the owner of said instruments. In a section within the Securities Prospectus entitled “Assignment of the Mortgage Loans”, the required chain of ownership is outlined as follows: Pursuant to mortgage loan purchase and _—_ warranties agreements...WMC...sold the mortgage loans, without recourse, to MSMC [Morgan Stanley Mortgage Capital Inc.], and MSMC will sell and convey the mortgage loans....on...the close of business on the cut- off-date, without recourse, to the depositor [Morgan Stanley ABS Capital I Inc.] on the closing date. Pursuant to the pooling and servicing agreement, the depositor will sell, without recourse, to the trust, all right, title and interest in and to each mortgage loan...the close of business on the cut-off date. (R.153-166,).” The Securities Prospectus goes on to further stipulate the exact requirements for the Note and Mortgage to be transferred and deposited into the Trust. In a section entitled “Delivery of Mortgage Loan Documents”, the Securities Prospectus provides that 7 See Your Construction Center, Inc. v. Gross, as Trustee of Dominion Mortgage and Realty Trust, 316 So. 24 596 (Fla. 4d DCA 1975). See fn.15, supra. 19In connection with the transfer and assignment of each mortgage loan to the trust, the depositor will cause to be delivered to (i) Wells Fargo Bank, National Association, as custodian on behalf of the trustee with respect to the WMC mortgage loans...on or before the closing date, the following documents with respect to each mortgage loan which constitute the mortgage file: (a) the original mortgage note, endorsed without recourse in blank by the last endorsee, including all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee...(d) the mortgage assignment(s)...showing a complete chain of assignment from the originator of the related mortgage loan to the last endorsee. (Emphasis Added.) (R.153-166,)? Showcasing that the trust terms have been violated is the fact that, in direct contravention of the trust requirements spelled out immediately above, the only endorsement that exists on the original note is a blank endorsement. (R.83-88.). If the trust terms had been complied with, the original note would show three endorsements: one from the original lender (WMC Mortgage Corp.), one from the sponsor (Morgan Stanley Mortgage Capital Inc.), and one from the depositor (Morgan Stanley ABS Capital I Inc.). Two of the three endorsements are missing, and as such the Trust did not become the owner or holder of the Note because the trust terms clearly mandate the presence of all three endorsements. Furthermore, the mortgage assignment required by the trust terms evincing the mandatory chain of ownership is also a missing instrument that was never produced, filed, or recorded by Appellee or the Trust. While it may or may not be * Td. 20the case that Florida law itself does not require an assignment of mortgage upon evidence of a transferred debt,”* because the above referenced trust terms require it, the absence of the assignment demonstrating the complete chain of assignment from the originator to the depositor is another trust violation. Therefore, because the trust terms and documents have been violated, the Trust cannot and does not own or hold the Note and Morigage as a matter of New York 2s law25 Indeed, because the Trust is a Real Estate Mortgage Investment Conduit (herein “REMIC”), the inclusion of a loan in the trust corpus that was not properly transferred to the Trust as of the closing date outlined in the trust documents” would subject the Trust to greater tax liability pursuant to the Internal Revenue Code (herein “IRC”).”” Because the Trust elected to be treated as a REMIC for tax purposes,” any taxable gains on the loans properly transferred and deposited into the Trust (it is unknown if any have been) would be or are “passed through” the Trust and directly to investors (thus avoiding double taxation).”” However, the IRC also mandates * See Johns v. Gillian, 134 Fla. 575 (Fla. 1938). 25 See n.17, supra. °6 The closing date of the Trust is October 31, 2006. (R.153-166.). See also, n.15, supra. 2” See IRC §860A-860G. ?* See n.15, supra. ? See IRC §860A(a) and (b). Subsection (a) of IRC §860A, entitled “General rule”, states that “except as otherwise provided in this part, a REMIC shall not be subject to taxation under this subtitle (and shall not be treated as a corporation, 21certain requirements for the REMIC tax election to be maintained by the Trust.” It is these IRC requirements that forced the Trust to be designed with the framework set forth above (which is why the trust terms describe in great detail exactly which types of loans can be accepted into the Trust, what the processes were for adequate transfers of the loans to the Trust, and what the procedures for curing any defects were). Thusly, the trust terms are substantive and not merely a formality, and because the trust terms were filed with the United States Securities and Exchange Commission in relation with the offering for sale of investment certificates, any argument by Appellee that the trust terms did not have to be followed could be partnership, or trust for purposes of this subtitle). Subsection (b) of said IRC, entitled “Income taxable to holders”, states that “the income of any REMIC shall be taxable to the holders of interests in such REMIC as provided in this part.” *°IRC § 860F, entitled “Other rules”, states as follows: a) 100 percent tax on prohibited transactions (1) Tax imposed There is hereby imposed for cach taxable year of a REMIC a tax equal to 100 percent of the net income derived from prohibited transactions. 2) Prohibited transaction For purposes of this part, the term “prohibited transaction” means— (A) Disposition of qualified mortgage The disposition of any qualified mortgage transferred to the REMIC other than a disposition pursuant to— (i) the substitution of a qualified replacement mortgage for a qualified mortgage (or the repurchase in lieu of substitution of a defective obligation), (ii) a disposition incident to the foreclosure, default, or imminent default of the mortgage, (iii) the bankruptcy or insolvency of the REMIC, or (iv) a qualified liquidation. (B) Income from nonpermitted assets The receipt of any income attributable to any asset which is neither a qualified mortgage nor a permitted investment. 22construed as an admission of securities fraud pursuant to Section 12(2) of the Securities Act of 1933 (15 U.S.C.A. §771(a)(2))." B. Asa matter of law, the trustee of a trust cannot commit the ultra vires act of enforcing loan documents that its trust docs not own. It is axiomatic that a trustee is limited in its conduct by the specifications of the trust documents and terms it serves under.” Similar to the prior discussion conceming the inability of a trust to violate its own trust documents, a trustee may also not, as a matter of law, engage in any conduct that contravenes the mandates of the trust documents. Once more, both Florida and New York law are in harmony on these points. The law in New York regarding acts of trustees in contravention of trust makes clear that “if the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is vyoid.”” (Emphasis added.) Again, such an act is not “voidable” but, rather, is *! Section 12(2) of the Securities Act of 1933 (15 U.S.C.A. §771(a)(2)) imposes civil liability against a seller or offeror of securities if the seller or offeror has made a misrepresentation or has omitted material information in or from a prospectus or oral statement in connection with a sale. * See Kemp v. Paterson, 6 N.Y.2d 40 (N.Y. 1959) (holding that termination of a trust, along with transferring the entire corpus to a beneficiary was not authorized by the trust and not within the scope of the power granted to the trustee). See also, 1.33, 0.35, infra. % See NY CLS EPTL § 7-2.4 (2011). 23inherently “void’“* Furthermore, “the authority of the trustee is subject to any limitations imposed by the trust instrument.”** In the instant case, Appellee claimed at the November 22" hearing, as well as in several of its pleadings, that it could foreclosure by virtue of the fact that it was in possession of the original Note, which, as discussed above, was never transferred into the Trust. However, the trust document spells out the exact actions Appellee was required to take if it ever found itself in possession of loan documents that were improperly transferred in violation of the trust terms. In the section entitled “Delivery of Mortgage Loan Documents”,” the trustee has the obligation, pursuant to the trust terms, to “review, or cause to be reviewed, cach mortgage file within ninety days after the closing date” of the Trust. The trust terms clearly dictate that within the review period, the trustee (Appellee) has the obligation to cure the defect or remove the defective loan documents from the Trust. The exact language is as follows: If the trustee. ..during the process of reviewing the mortgage files, finds any document constituting a part of a mortgage file that is not executed, has not been received or is unrelated to the mortgage loans, or that any mortgage loan does not conform to the requirements above...the trustee or the applicable custodian, as applicable, is required to note such deficiency in the required trustee or custodian certification delivered to the applicable responsible party, the servicer and the depositor. The applicable responsible Mig. * See N.Y. Est. Powers & Trusts Law, § 11-1.1(b), para. (8). 3 See n.15, supra. 4party will be required to cause to be remedied a material defect in a document constituting part of a mortgage file of which it is so notified by the trustee...If, however...the applicable responsible party has not caused the Gefect to be remedied, the applicable responsible party will be required to either (a) substitute a Substitute Mortgage Loan for the defective mortgage loan....or (b) repurchase the defective mortgage loan. ‘As the quoted trust language makes abundantly clear, the trust terms do not accord Appellee the ability or the discretion to maintain possession of an improperly transferred note or mortgage. As such, the action of Appellee in failing to expel the defectively transferred Note and Mortgage in the instant case contravenes the trust terms and is an improper/void action that New York law condemns. As previously explained, the IRC mandates that any non-qualifying assets transferred to the Trust could cause it to lose its REMIC tax status (giving rise to double taxation), and this is precisely why the trustee is not afforded the discretion to maintain possession of loan documents that contravene the trust terms. New York law is clear that only when a trustee is accorded discretion by its trust may the trustee exercise its own discretion in taking an action not specified by the trust terms (and even then it must do so reasonably). In the absence of such discretion --as in the instant case-- the trustee may not act in contravention to the mandates of the trust. See In re Estate of Stillman, 107 Misc. 2d 102 (Surr.Ct. 25N.Y. 1980) (holding that trustees misconstrued the testator’s will and therefore abused so-called absolute and uncontrolled discretion). In In re Estate of Stillman, the court stated that, in the case, “the paramount consideration. .. [regarded]... the basic intention of the testator concerning invasions and whether the trustees have deviated from the testator’s plan.” The New York court outlined that “if discretion is conferred upon the trustee in the exercise of a power, the court will not interfere unless the trustee in exercising or failing to exercise the power acts dishonestly, or with an improper even though not a dishonest motive, or fails to use his judgment, or acts beyond the bounds of a reasonable judgment.” The court cited to the Restatement of the Law, Second, Trusts, §187 (1992 ed.), which explains that “the exercise of a [trustee] power is discretionary except to the extent to which its exercise is required by the terms of the trust or by the principles of law applicable to the duties of trustees.” (Emphasis added.) The Restatement of the Law, Second, Trusts (1992 ed.) also explains in §185 that “where by the terms of the trust it is provided that in the administration of the trust the trustee shall do certain acts if he is directed by another person to do them, it is ordinarily his duty to comply with such directions and he is ordinarily liable if he fails to do so. So also, where by the terms of the trust it is provided that the trustee shall not do certain acts without the direction or consent of another, it is ordinarily his duty not to do such acts without such 26direction or consent.” While New York trust law is what should be applied to Appellee’s Trust (and Appellec’s actions), it is of note that Florida law is of the same position.*” Despite the fact that the trust terms clearly order Appellee to not be in possession of an improperly transferred set of loan documents, and despite the fact that New York trust law is clear that Appellee has no ability to proceed in contravention to the trust terms, at the November 22™ oral argument the Appellee insisted that it had the right to successfully pursue a Florida foreclosure action by virtue of the fact that it had possession of the original Note. (R.212.) Appellee’s argument should have been rejected by the trial court. First, Appellee’s argument at summary judgment that it could foreclose was premised upon Florida’s Uniform Commercial Code (herein “UCC”’) as well as a variety of case law the entirety of which is distinguishable and inapplicable. Yet, the provisions of Florida's UCC (and the case law which relies upon it) cited by Appellee in the record do not contemplate the existence of an external constraint upon the ability to enforce a negotiable instrument (such as the limitations imposed 3” See Griley v. Marion Mortgage Co., 132 Fla. 299 (Fla. 1937) (holding that that appellant mortgagee could not foreclose on a mortgage issued by appellee mortgagor because appellee trustee did not have the authority to execute the mortgage). See also, Florida Statutes Section 736.0815(1)(a), entitled “General powers of trustee”, which states that “a trustee, without authorization by the court, may, except as limited or restricted by this code, exercise. ..powers conferred by the terms of the trust.” 27upon trusts and their trustees by trust law). Indeed, case law and supporting materials Appellee cited in opposition to Appellant's position make it clear that they presuppose the absence of a contingency or external force that would prevent the vesting of legal title°* Further still, the record on appeal contains admissions by Appellee that, even under Appellee’s own theory and argument, the UCC only provides a presumption of ownership that, if rebutted by Appellant, would defeat Appellee’s position.” See Johns v. Gillian, 134 Fla. 575 (Fla. 1938). In Johns, which Appellee heavily relied upon in establishing its position at the November 22” hearing, the Florida Supreme Court stated that “any form of assignment of a mortgage, which transfers the real and beneficial interest in the securities unconditionally to the assignee, will entitle him to maintain an action for foreclosure. Or if there had been no written assignment, the intended assignee would be entitled to foreclose in equity upon proof of his purchase of the debt.” (Emphasis added.) Therefore, the decision in Johns clearly works against Appellee as the explicit intention in the trust documents was to not allow for the transfer of a note to the Trust which does not comply with the specific transfer requirements. The opinion also undermines Appellee’s position because Appellee obviously cannot prove the purchase of the debt given that the trust terms were violated. * (R.191-224.), Appellee made three distinct and separate admissions at the November 22” summary judgment hearing regarding the ability of Appellant to rebut the presumption of the subject Note’s enforceability and ownership by Appellee (despite Appellee’s own UCC argument). First, on page 23 of the transcript (R.214.), Appellee, concerning blank endorsements, stated that “any signature [on the endorsement] would be indicia of intent to transfer, and the burden is on the defendant to rebut that presumption.” Secondly, on page 25 of the transcript (R.216.), Appellee opined that “the holder of a negotiable instrument is presumed the owner of the negotiable instrument. The burden is on the defendant to demonstrate something to the contrary.” Finally, Appellee stated on page 26 of the transcript (R.217.) that “the physical transfer of the note can raise upon the Plaintiff entitlement to [foreclose] the mortgage. It is their burden, Your Honor, to show something to rebut that [p]resumption.” Appellee made the aforementioned 28Interestingly, even the very act of filing the instant foreclosure suit is an ultra vires and yoid action by Appellee because, as mentioned above, the trust document clearly instructs Appellee to not maintain possession of any improperly transferred loan documents out of fear of losing the Trust’s REMIC tax status."® Therefore, by logical extension, the trust terms preclude Appellee from filing a foreclosure case based upon an instrument that violates the Trust, while, simultaneously, Florida law precludes Appellee from having standing as a result of the same trust violations. Clearly, the trial court orders in the instant case granting Appellee’s Motion for Summary Judgment, entering a Final Judgment of Foreclosure, and denying Appellant’s Defensive Motion for Summary Judgment should be reversed. statements without realizing that Appellant, by sworn affidavit (R.135-137.), through a memorandum in opposition to Appellee’s Motion for Summary Judgment (R.140-145.), and through her defensive summary judgment motion (R.176-184,), did rebut all of the presumptions that Appellee discussed (if they even exist). However, Appellant does not concede Appellee’s position regarding the existence of the presumptions, and Appellant’s purpose in bringing to light the presumption issue is to evince the contradictions and fallacies in Appellee’s own UCC argument. *® See MacFarlane v. First Nat'l Bank, 203 So. 2d 57 (Fla. 3d DCA 1967) (stating that “if the method for the exercise of...{a trust power]...is set out in the trust agreement, then the power must be exercised in strict conformity to its terms”). 29CONCL The lower tribunal erred in granting Appellee’s Motion for Final Summary Judgment, and by subsequently entering a Final Judgment of Foreclosure. It also erred by denying Appellant’s Defensive Motion for Summary Judgment. As mentioned, the trial court improperly held that Appellant could not challenge Appellee’s standing by contesting the Trust’s ownership of the note and mortgage via the limitations in the Trust's documents. Without question, Florida law does indeed accord a foreclosure defendant that ability against a trust. Furthermore, because the Trust in the instant case never received a proper transfer of the subject Joan documents, it does not own the instruments and cannot hold them. Further still, because of the limitations and mandates outlined in the trust documents, the Trust cannot enforce the note and mortgage and has no standing to file suit, rendering its Trustee (the Appellee) unable to bring a foreclosure action. The Final Judgment of Foreclosure, the order granting Appellee’s Motion for Final Summary Judgment, and the order denying Appellant’s Defensive Motion for Summary Judgment should all be reversed, and this matter should be remanded to the lower court with instructions to enter an order granting Appellant’s Defensive Motion for Summary Judgment. Respectfully Submitted this 8 day Oct bee r1 i. 30CERTIFICATE OF SERVICE THE UNDERSIGNED HEREBY CERTIFIES that a true and correct copy of the foregoing Initial Brief of Appellant, Sandra P. Castillo, has been delivered by U.S. Mail to Smith, Hiatt & Diaz, P.A., P.O. Box 11438, Fort Lauderdale, Florida 33339-1438, this 13 aay of. Othrbegr 11, Jimenez, Milian & Associates, P.L.L.C. ‘pert R. Jimenez, Esq., Florida Bar No.: 72020 2025 SW 32™ Ave Suite 110 Miami, FL 33145 Telephone: 786.282.1314 Fax: 305.441.0688 ‘Counsel For: Appellant Sandra P. Castillo CERTIFICATE OF COMPLIANCE THE UNDERSIGNED HEREBY CERTIFIES that the Initial Brief of Appellant, Sandra P. Castillo, complies with the font requirements set forth in Rule 9.210(a)(2), Fla. R. App. P.; to wit, Times New Roman 14-point font. rt R. Jimenez, E: 31