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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Erkins v. Alaska Trustee, LLC (7/31/2015) sp-7025

Erkins v. Alaska Trustee, LLC (7/31/2015) sp-7025

         Notice:  This opinion is subject to correction before publication in the PACIFIC  REPORTER .  

         Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,  

         303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email  



GREGORY T. ERKINS,                                   )  

                                                     )        Supreme Court No. S-15297  

                  Appellant,                         )  

                                                     )        Superior Court No. 3AN-08-09144 CI  

         v.                                          )  

                                                     )        O P I N I O N  

ALASKA TRUSTEE, LLC,                                 )  

BANK OF NEW YORK                                     )       No. 7025 - July 31, 2015  

TRUST COMPANY, N.A., and                             )  

JP MORGAN CHASE BANK, N.A.,                          )  


                  Appellees.                         )  

_______________________________ )  

                  Appeal from the Superior Court of the State of Alaska, Third  

                  Judicial District, Anchorage, John Suddock, Judge.   

                  Appearances:   Gregory   T.   Erkins,   pro   se,   Anchorage,  

                  Appellant.  Nelson G. Page, Burr, Pease & Kurtz, Anchorage,  


                  for Appellees.   

                  Before:  Fabe, Chief Justice, Winfree, Stowers, Maassen, and  


                  Bolger, Justices.  

                  STOWERS, Justice.  


                  This is the second appeal filed by the debtor in this foreclosure case.  The  


debtor alleges that he was incapacitated when he entered into  the  loan contract and  

attempted to use this defense against a bank that was a subsequent purchaser of the note.  


In the first appeal we held that summary judgment had been improperly granted to the  


----------------------- Page 2-----------------------



bank.   On remand, the superior court granted summary judgment on different grounds,  


concluding that the bank was a holder in due course and thus immune from the debtor's  

incapacity defense.  We agree with the superior court and affirm.  



                     Because this is our second time reviewing the facts of this case, we confine  

our discussion to the facts relevant to this appeal.  

                     In March 2000 Gregory T. Erkins was injured in an automobile accident  


and began taking strong pain medication.  Erkins continued working sporadically while  


he was taking the medication.  In early October 2004 Erkins obtained an $80,000 loan  


from Ameriquest secured by a deed of trust on a property he owned in Anchorage.  This  

loan carried monthly payments of around $500.  Erkins negotiated the terms of this loan  


and signed the paperwork from his home - he was allegedly "unable to drive because  

of [the] pain medication."  Approximately four months later, in 2005, Erkins obtained  


a  second  loan  on  the  property,  also  from  Ameriquest,  this  time  in  the  amount  of  

$142,477.  Erkins alleges he was told that payments would remain around $500 per  

month, but the second loan actually carried  monthly payments of $962.30.  The deed of  


trust for the second loan was recorded in March 2005.  Erkins used part of the proceeds  

from the second loan to pay off the first loan.  

                     JPMorgan  Chase  Bank,  N.A.  purchased  the  loan  in  February  2005.  


JPMorgan's records reflect that the note was endorsed to JPMorgan as trustee,  and  

physical possession of the note was also transferred at that time.  A document titled  


"Assignment of Deed of Trust" reflects an assignment from Ameriquest to the Bank of  

New       York       Trust      Company,           N.A.       as    successor         to    JPMorgan          and      is    dated  

          1         Erkins v. Alaska Tr., LLC              , 265 P.3d 292, 294, 300 (Alaska 2011) (                    Erkins I).  

                                                                -2-                                                          7025

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February 28, 2005, but was not recorded until November 29, 2007, nearly three years  


later.  An assistant vice president for Wilshire Credit Corporation, the entity that serviced  


the loan for Bank of New York, declared in an affidavit that the loan was current when  

Wilshire began servicing it for Bank of New York in August 2005.  


                   Erkins paid his monthly payments in full and on time from the first payment  


in April 2005 until January 2007, when Wilshire notified Erkins that one of his checks  


had bounced.  Erkins refused to make any more payments until Wilshire lowered his  

payments to $500.  When Wilshire declined to do so, Erkins stopped making regular  


payments.  He continued making sporadic payments until July 2007, at which point he  


stopped altogether.  After the loan fell into delinquency, Bank of New York initiated  

foreclosure proceedings.  

                   In  July  2008  Erkins  filed  suit  against  Alaska  Trustee,  LLC,  Bank  of  



New York, and JPMorgan  in the superior court, alleging fraud and misrepresentation,  

among other claims.  In October, Bank of New York presented an offer to Erkins in the  

form of a "proposed forbearance agreement," which provided that it would stay the  


pending foreclosure proceedings if Erkins met certain conditions.   Erkins signed the  

forbearance agreement.  Bank of New York moved for summary judgment, arguing that  

Erkins  had  waived  his  claims  through  a  clause  in  the  forbearance  agreement.    The  


superior court granted summary judgment, ruling "that defendants [were] not liable for  

          2        We  refer  to  these  parties  collectively  as  "Bank  of  New  York"  for  

convenience.  Although Alaska Trustee is listed in the case caption, Erkins's claims  

center around Bank of New York and the enforceability of the note.  Alaska Trustee was  


the trustee during the non-judicial foreclosure of Erkins's home.  

          3        The foreclosure sale eventually occurred, but the date of the sale is not in  


the record.  Bank of New York now holds title.  

                                                             -3-                                                      7025

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any tort of Ameriquest" and that Erkins "released his claims in . . . the forbearance  




                    Erkins appealed, and we reversed in part, holding that although the superior  


court did not err in concluding that the "defendants could not be held liable for the  

alleged torts of Ameriquest," it had erred in granting summary judgment based on the  

                                   4                                                         5  

forbearance agreement.   We remanded for further proceedings.  

                    On  remand  Bank  of  New  York  deposed  Erkins.    It  again  moved  for  

summary judgment, submitting more evidence relating to the assignment of the note.  


Bank of New York expressly disavowed reliance on the forbearance agreement, which  


was the basis of its earlier summary judgment motion.  Instead, Bank of New York  


argued that it was a holder in due course and not subject to Erkins's incapacity defense.  


The superior court agreed and again granted summary judgment, concluding that Bank  


of New York was a holder in due course and immune from any incapacity defense that  

Erkins might have.  Erkins appeals, proceeding pro se.  



                    "We review the grant of a summary judgment motion de novo, affirming  


if the record presents no genuine issue of material fact and if the movant is entitled to  

judgment  as  a  matter  of  law.    All  reasonable  inferences  are  drawn  in  favor  of  the  


nonmovant  in  this  examination."     But  in  order  to  survive  summary  judgment,  the  

nonmoving party must do more than "rest upon the mere allegations or denials of [his]  

          4         Erkins I , 265 P.3d at 294.  

          5         Id. at 302.  

          6         Beegan v. State, Dep't of Transp. & Pub. Facilities ,   195   P.3d 134, 138  

(Alaska  2008) (footnote omitted) (citing Matanuska Elec. Ass'n v. Chugach Elec. Ass'n ,  

 152 P.3d 460, 465 (Alaska 2007)).  

                                                             -4-                                                       7025

----------------------- Page 5-----------------------


pleadings."   He must "set forth specific facts showing that there is a genuine issue for       



                     Erkins's briefing is undeveloped, but if we construe his arguments liberally  



because of his pro se status,  he argues that the superior court should not have granted 


summary judgment because there were material issues of fact that precluded the court  

from concluding that Bank of New York was a holder in due course.10  

           A.        Bank Of New York Is Immune From Erkins's Incapacity Defense.  

                     The superior court concluded that Bank of New York was a holder in due  


course and therefore immune from Erkins's incapacity defense.  "Holder in due course"  


is a classification for certain holders of negotiable instruments that enjoy heightened  


protection from defenses to repayment.                             Alaska Statute 45.03.302 defines a holder in  

due course, in relevant part, as a holder who takes an instrument in good faith, for value,  


without notice that the instrument is overdue, and without notice that any party has a  

           7         See Alaska Rule of Civil Procedure 56(e).  

           8         Id.  

           9         See  Espeland v. OneWest Bank, FSB ,  323 P.3d  2, 12                               n.36 (Alaska 2014).  

           10        Erkins  also  argues  that  in  Erkins  I  we  found  whether  the  forbearance  

agreement constituted constructive fraud to be a genuine issue of material fact such that  


it must be resolved by a jury.  But the superior court did not rely on the forbearance  

agreement when granting summary judgment the second time, so it is not relevant to this  


           11        AS 45.03.302; see also 2  JAMES J.  WHITE ,  ROBERT S.  SUMMERS &  ROBERT  


A. HILLMAN ,   UNIFORM  COMMERCIAL  CODE    18:1  (6th  ed.  2010);  U.C.C.    3-302  


                                                                  -5-                                                            7025

----------------------- Page 6-----------------------


defense to the payment of the instrument.                           After meeting the required criteria, these  


holders take the negotiable instrument free from many common defenses to enforcement  



of the instrument.             In essence, "the party able to attain the status of holder in due course  


qualifies as [a] [s]uperplaintiff."                  In theory, holder-in-due-course status facilitates the  


easy transfer of negotiable instruments:  "[a] party should be more willing to take a check  


from a seller when that party knows that he or she can be a holder in due course and  

thereby  take  the  check  free  from  the  [original]  buyer's  defenses  in  the  underlying  



                    A holder in due course is insulated from an incapacity defense only if the  



incapacity makes the contract voidable.                           If incapacity  is a condition that voids the  

          12        AS 45.03.302(a); see also AS 45.03.302(a)(2)(F) (providing that the holder  

must take without "notice that any party has a defense or claim in recoupment described  

in AS 45.03.305(a)," a section that lists lack of legal capacity and fraud).  

          13        A holder in due course is insulated from all disputes arising between the  

original  parties  to  the  note,  except  defenses  that  concern  fraud,  capacity,  infancy,  


illegality,  duress,  or  discharge  in  insolvency  proceedings.    See  AS  45.03.305(b),  

(a)(1)(B) (providing in part that, although a holder in due course is insulated from many  


defenses, its right to "enforce the obligation of a party to pay the instrument is subject  

to [lack of capacity]" when that lack of capacity "nullifies the obligation to the obligor").  


          14        2  WHITE ,   SUMMERS &  HILLMAN , supra note 11, at  18:1.  

          15        Id.  A buyer and a seller engage in an initial transaction with the buyer  

paying the seller by check.  Instead of depositing the check, the seller sells the check to  


a third party, who wishes to deposit the check.  The third party is much more likely to  


buy the check from the seller if it knows that the buyer who wrote the check in the initial  


transaction cannot raise any defenses against its enforcement.  



                    See AS 45.03.305(a)(1)(B) (listing "lack of legal capacity" as a defense if  

it "nullifies the obligation of the obligor); U.C.C.  3-305 & cmt. 1 (2002).  

                                                               -6-                                                         7025

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contract, the holder in due course is not insulated.                       Alaska Statute 45.03.302 is modeled  


on the Uniform Commercial Code, which explains that the "existence and effect [of  


                                                                         Thus,  when  state  law  "render[s]  the  

incapacity]  is  left  to  the  law  of  each  state."                                                    

obligation of the instrument entirely null and void, the defense may be asserted against  


a holder in due course.  If the effect is merely to render the obligation voidable at the  

                                                                     19   The question is whether, in Alaska,  


election of the obligor, the defense is cut off."  

incapacity results in a contract that is void or voidable.  Alaska's version of the Uniform  


Commercial Code is silent on this issue.  

                    1.       The effect of incapacity on the validity of a contract  

                    We have never squarely considered whether incapacity renders a contract  


void  or  merely  voidable,  and  no  provision  of  the  Alaska  Statutes  is  on  point.    The  


Restatement (Second) of Contracts  15 explains when a contract is voidable due to the  


contracting  party's  incompetence.    It  states  that  "[a]  person  incurs  only  voidable  


contractual duties by entering into a transaction if by reason of mental illness or defect  


(a) he is unable to understand in a reasonable manner the nature and consequences of the  


transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction  

                                                                                     20   The Restatement accords  


and the other party has reason to know of his condition."  

          17        AS 45.03.305(a)(1)(B); U.C.C.  3-305 & cmt. 1 (2002).  

          18        U.C.C.  3-305 & cmt. 1 (2002).  

          19       Id.  Alaska Statute 45.03.305 likewise explains that lack of legal capacity  

is a defense that may be used against a holder   in due course if the incapacity, "under  

other law, nullifies the obligation of the obligor."  See AS 45.03.305(a)(1)(B), (b).  

          20        RESTATEMENT (SECOND) OF CONTRACTS   15 (1981) (emphasis added).  

                                                             -7-                                                        7025

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with the majority rule among other jurisdictions.                              Adopting a rule that obligations  


arising during one party's incapacity may be voidable by the incapacitated party will best  


                                                                                                      Consequently, we  

account for the varying levels of incapacity that courts encounter. 


hold that a party's incapacity during formation of a contract may result in a voidable -  


not void - obligation.  Because incapacity results in a voidable contract under Alaska  

law,  if  Bank  of  New  York  is  a  holder  in  due  course,  then  it  is  immune  from  any  

incapacity defense Erkins might have.  

                    2.        Bank of New York's status as a holder in due course  


                    As explained in Erkins I , to be a holder in due course "appellee Bank of  


New York must have taken Erkins's note without knowledge of his incapacity or fraud  


defenses, and before the note was overdue or in default."                               Erkins attacks the third part  

          21        See 5 SAMUEL WILLISTON  &  RICHARD A.  LORD ,  A  TREATISE ON THE LAW  

OF  CONTRACTS   10:3 (4th ed. 2014) (noting that "[t]he vast majority of courts more  

commonly express the view that an incompetent person's transactions are voidable");  

Susanna L. Blumenthal, The Default Legal Person, 54 UCLA L. R 


                                                                                                EV . 1135, 1242 (2007)  

("The 'modern' rule, as declared by these courts, was that the contracts of lunatics were  


voidable in a proper case but not wholly void . . . .").  

          22        Moreover, "[e]volving understanding of mental illness and advances in  

medicine  have  shown  that  mental  capacity  can  vary  over  time  and  is  susceptible  to  


significant  improvement  with  treatment."    Hernandez  v.  Banks ,  65  A.3d  59,  70-71  


(D.C. 2013).  Thus, "having the choice of whether to follow through on a contract or  


avoid it can be very beneficial to a person who entered into the contract during a period  


of incapacity." Id.  at 71.  "If the contracts of mentally incapacitated persons are void,  

rather than voidable, their legal protection is the opposite of what it should be - [i]t  


would  be  a  handcuff  instead  of  a  shield."  Id.  (alteration  in  original)  (quoting  

Breckenridge's Heirs v. Ormsby , 24 Ky. (1 J.J. Marsh.) 236, 239 (Ky. 1829)) (internal  


quotation marks omitted).  

          23        Erkins I , 265 P.3d 292, 301 n.32 (Alaska 2011).  

                                                              -8-                                                        7025

----------------------- Page 9-----------------------

of this test.24  He argues that there is a genuine issue of material fact whether the note was           


assigned  to  Bank  of  New  York  before  it  was  overdue.                                      He  also  argues  that  the  


recordation date for the assignment of the deed of trust, November 29, 2007, is the best  

indicator of the date of assignment and on that date the note was in default.26  

                     But recordation is not required for the assignment of an instrument to be  


valid, and the recordation date for the deed of trust assignment does not raise a genuine  


                                                                                                 Thus, the date of the deed  

issue of material fact regarding when the note was assigned. 


of trust's recordation has no bearing on the date that the note was assigned and cannot  


be the most accurate evidence of when the assignment took place.  Erkins fails to raise  

           24        Erkins does not attack the transfer of the note from Ameriquest to Bank of           

New York, so we assume without deciding that Bank of New York is a proper holder of  

the instrument.  Erkins argued to the superior court that even if Bank of New York did  


not have actual notice of his incapacity, it should have been on notice of this possible  

defense due to Ameriquest's alleged publicly known bad practices.  We agree with the  

superior court that "Ameriquest's alleged improprieties with respect to other loans do not  


put Bank of New York on notice of specific defenses to the Erkins loan."  

           25        Erkins alleges that the "assignment [was] notarized [while] incomplete."  

We note that the superior court did not consider the assignment of the deed of trust  

submitted by Bank of New York because it was unauthenticated, so Erkins's arguments  


about it being "notarized incomplete" are not relevant.  



                     Erkins argues that the "best evidence" of the date of assignment is the date  


the assignment was recorded.  But because the parties are arguing over the occurrence  


of an event - when the note was transferred - and not the contents of a document, the  


concept of "best evidence" is inapplicable here.  See Alaska Rule of  Evidence 1002.  We  


will construe Erkins's argument as an argument that the date of recordation is the best  

indicator of when the note was assigned.  



                     See U.C.C.  3-203 (2002) (requirements for transfer of an instrument);  

AS 45.03.201 (requirements for negotiation); AS 45.03.203 (transfer of instrument);  


AS 40.17.080 (recording gives notice to subsequent purchasers); AS 34.20.130 (listing  


the assignment of the beneficial interest under a deed of trust as a instrument that may  

be recorded); see, e.g., 66 AM  JUR .  2D Records & Recording Laws   50 (2015).  

                                                                  -9-                                                           7025

----------------------- Page 10-----------------------

any other argument or present any other evidence that the assignment took place after the       

loan went into default.  As the superior court pointed out, Erkins could have conducted                 

discovery and submitted evidence to counter Bank of New York's evidence, but he did                                     


                        At summary judgment the superior court had before it two uncontested  

affidavits, both submitted by Bank of New York.  One affidavit declared that Bank of  


New York was the owner of the note in August 2005 when the servicing rights to the  

loan were transferred from Ameriquest to Wilshire Credit Corporation as servicer for  


Bank  of  New  York.                       And  the  other  declared  that  the  note  was  transferred  from  


Ameriquest to Bank of New  York in February 2005, shortly after it was originated.  


Erkins did not provide any evidence to dispute these affidavits, and as they were the only  


evidence relevant to when the assignment actually occurred, the superior court did not  


err in concluding that the note was assigned in February 2005, before it went into default.  


                        The undisputed evidence establishes that Bank of New York is a holder in  

due course.  Contrary to Erkins's arguments, the Bank took the note before the note had  


gone into default.  The superior court did not err by granting summary judgment on these  


            B.          Erkins  Has  Failed  To  Raise  A  Genuine  Issue  Of  Material  Fact  

                        Regarding His Other Claims.  


                        In Erkins I we held that the superior court did not err in concluding that "the  


defendants could not be held liable for the alleged torts of Ameriquest."                                                                Here, the  

superior  court  granted  summary  judgment  on  the  remainder  of  Erkins's  claims  -  

intentional and negligent infliction of emotional distress, breach of the implied covenant  

of good f  aith an          d f  air dealing,  and v            arious claims relating to Alaska Trustee - because  

            28          Erkins I, 265 P.3d at 294.  

                                                                          -10-                                                                         7025  

----------------------- Page 11-----------------------


Erkins failed to provide any evidence to support these claims, aside from the allegations  

in his complaint.  

                    Erkins alleged negligent and intentional infliction of emotional distress, but  


failed to provide any evidence that he was actually emotionally distressed by any party's  



conduct in this case.            He alleged that Bank of New York breached the implied covenant  

of good faith and fair dealing, but he provided no evidence of subjective bad faith or  


                                                                             And he alleged that Alaska Trustee  

objective unreasonableness by Bank of New York. 



was liable for various torts,              but never presented any evidence that Alaska Trustee had  

any connection to Ameriquest or that the foreclosure was conducted improperly.  In  

order to survive summary judgment, Erkins was required to "set forth specific facts  


showing that there is a genuine issue for trial."    He failed to do this.  The superior court  

correctly granted summary judgment on the remainder of Erkins's claims.  

          29        The bar for establishing an infliction of emotional distress claim is set very  

high on the level of emotional stress required:  "a plaintiff may recover for only 'severe'  


or 'serious' emotional distress," which may be shown by "neuroses, psychoses, chronic  


depression, phobia, and shock." Chizmar v. Mackie, 896 P.2d 196, 204 (Alaska 1995)  

(quoting Lejeune v. Rayne Branch Hosp. , 556 So. 2d 559, 570 (La. 1990)) (internal  


quotation marks omitted).  



                    Demonstrating a breach of the covenant of good faith and fair dealing has  


both subjective and objective elements: the subjective element requires that the conduct  


or decision be made in bad faith, and the objective element requires that the party act in  


a manner that a reasonable person would think unfair. McConnell v. State, Dep't of  

Health & Soc. Servs. , 991 P.2d 178, 184 (Alaska 1999).  

          31        Erkins argued:  "[1] Trustee has a duty to investigate the assignments to it[;]  

[2] Trustee failed to investigate the actions of the Beneficiary and of their agents and  

employees[;] [and 3] Trustee has acted in concert with Beneficiary in this matter."  

          32        Alaska R. Civ. P. 56(e).  

                                                             -11-                                                       7025

----------------------- Page 12-----------------------


             We AFFIRM the superior court in all respects.  

                                        -12-                                   7025

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