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Reliance on unadmitted exhibit was error

Where the bankruptcy court relied on an exhibit that was not admitted into evidence in sustaining the debtor’s objection to claims filed by the appellant, and its error was not harmless, its decision was vacated.

Background

On July 10, 2018, appellee filed a Chapter 7 bankruptcy petition with the bankruptcy court. Thereafter, appellant filed the five claims against appellee’s bankruptcy estate—claim numbers 3-3, 4-3, 5-3, 6-3 and 7-3. Appellee objected to each of those claims.

Following an evidentiary hearing, the bankruptcy court overruled appellee’s objection to claim number 4-3 and sustained his objection to claim numbers 3-3, 5-3, 6-3 and 7-3. Appellant then appealed the bankruptcy court’s determinations as to claim numbers 3-3, 6-3 and 7-3.

Notary

Appellant contends that the bankruptcy court erred when it rejected documents that appear to have signed by the appellee before a notary. The Virginia Supreme Court has indicated that a notary acknowledgment could be impeached under certain circumstances for “fraud or nonappearance.”

Here, based on this court’s de novo review of the record, it is not readily apparent whether the bankruptcy court considered and applied this legal standard. The bankruptcy court did not expressly provide the standard that it applied to the notarized documents except to say that it gave “no weight” to the documents notarized by Ms. Melby and thereby “decline[d] to conclude that any of the signatures on the photocopied documents [that] she acknowledged were genuine.”

Appellee argues that “chancellors sitting in courts of equity . . . are not forbidden from examining and scrutinizing documents simply because they purport to contain notary acknowledgments.” Appellee’s argument misses the point.

To be sure, the standard is not that a notary acknowledgement is absolved from any and all review, but the fact remains that in Virginia, there is a certain manner in which courts are to review notary acknowledged documents, and it appears that that framework applies to the documents in question here. As such, this court remands this matter to the bankruptcy court with the instruction that it apply the proper standard and consider how the evidence presented fits within that framework.

Evidence

Appellant further argues the bankruptcy court erred by relying upon a document that was not entered into evidence. The appellee argues any error was harmless because the report was “merely cumulative of other evidence presented at trial.” The court disagrees. The court identifies at least two instances where the bankruptcy court cited to the report and the record contains no other support for those conclusions.

Appellee nevertheless argues that because appellant did not object to the admissibility of the report at the summary judgment stage, “it was not error for the Bankruptcy Court’s Memorandum Opinion to include references to that report following” the evidentiary hearing. Implicit in appellee’s argument is the notion that failure to object to a document’s admissibility at the summary judgment stage is a waiver of the objection at a later proceeding— say, for example, at a trial.

Yet, appellee cites to no authority to support that position, and the court is also unaware of any such authority. Because the court cannot find that the bankruptcy court’s error in considering these extrinsic facts was harmless, this court remands this case for further judicial review of the facts presented at the evidentiary hearing in accordance with this court’s guidance as set forth above

Bankruptcy court’s judgment as to appellee’s objections to appellant’s claims reversed and remanded.

Summit Community Bank v. David, Case No. 1:20-cv-00137, March 31, 2021. EDVA at Alexandria (Alston). VLW 021-3-157. 15 pp.