Citibank, N. A. v. Data Lease Financial Corp.

• Decision Date: 18 May 1981
• Docket Number: No. 79-1560,79-1560
• Parties: CITIBANK, N. A., Plaintiff-Appellee, v. DATA LEASE FINANCIAL CORPORATION, Defendant-Appellant. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 333

645 F.2d 333

CITIBANK, N. A., Plaintiff-Appellee, v. DATA LEASE FINANCIAL CORPORATION, Defendant-Appellant.

No. 79-1560.

United States Court of Appeals, Fifth Circuit.

Unit B

May 18, 1981.

Edna L. Caruso, West Palm Beach, Fla., Robert M. Sondak, Miami, Fla., for defendant-appellant.

Smathers & Thompson, John H. Schulte, Miami, Fla., William Brooke Pennell, New York City, for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before GODBOLD, Chief Judge, and TJOFLAT and VANCE, Circuit Judges.

GODBOLD, Chief Judge:

We consider in this diversity case whether an order authorizing a pre-judgment sale of collateral was a final order from which an appeal could have been taken, and we conclude that it was. We also find that the district court had jurisdiction to enter the order of sale and that the later order confirming the sale was not an abuse of discretion.

Appellee Citibank brought this action in federal court in Florida to foreclose its security interest in 870,000 shares of stock in Miami National Bank (approximately 80% of the total outstanding shares) owned by appellant Data Lease. The district court granted Citibank's motion for pre-judgment sale of the collateral based upon these determinations: that the Bank was in a seriously unsound financial condition and was drastically in need of an immediate infusion of capital; that a sale of the collateral was inevitable; that an immediate sale was in the best interests of all concerned; and that the rights of both Citibank and Data Lease were adequately protected by the order of sale. No appeal was taken from this order.

A sale was held at which Citibank, the only bidder, purchased the stock for $3,000,000. The district court confirmed the sale. Data Lease pursued this appeal from the order confirming the sale, ¹ contending that the district court erred in directing sale of the collateral prior to final judgment and that the court was without power to order a sale of at least some of the stock (which Data Lease had previously been directed by a state court to convey to a third party). Citibank contends that the order directing the sale was a final, appealable order and that Data Lease cannot now challenge the propriety of that order. Alternatively Citibank argues that the order of sale was proper.

After this case was argued in this court, Citibank filed a motion to dismiss the appeal as moot on the ground that the stock has been sold to a third party. Citibank argues that because Data Lease failed to obtain a stay or supersedeas of the district court's sale and confirmation orders, Citibank was entitled to and did rely on those orders as final in selling the stock. Relying on American Grain Association v. Lee-Vac, Ltd., 630 F.2d 245 (5th Cir. 1980), it asserts that the intervening rights of the third party purchaser preclude this court from granting substantial relief to Data Lease and that the appeal is therefore moot. We disagree.

Citibank's reliance on Lee-Vac is misplaced. That case was an appeal from an order in a bankruptcy proceeding governed by Rule 805 of the Rules of Bankruptcy Procedure, which provides in pertinent part that "(u)nless an order approving a sale of property ... is stayed pending appeal, the sale to a good faith purchaser ... shall not be affected by the reversal or modification of such order on appeal, whether or not the purchaser ... knows of the pendency of the appeal." By contrast the instant case is a diversity action, and the nature of the rights created by the orders of sale and confirmation is determined by the law of Florida. Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). It is to that law we must turn to determine whether the subsequent sale vested the third party purchaser with rights that would not be affected by a reversal of either the sale or the confirmation order.

Under the law of Florida a good faith purchaser at a judicial sale who is not a party to the proceedings leading up to the sale is not affected by a subsequent reversal of the order of sale on non-jurisdictional grounds. Garvin v. Watkins, 29 Fla. 151, 10 So. 818 (1892). A reversal of the order of sale on jurisdictional grounds will defeat the title of even such a purchaser, however. Id. A party or his privy who purchases at a judicial sale, on the other hand, is charged with notice of any defects in the proceedings, and his title will thus be defeated by a reversal on any ground. Johnson v. McKinnon, 54 Fla. 221, 45 So. 23 (1907). The effect of reversal on the title of a grantee of a party purchaser is somewhat less clear. A reversal on jurisdictional grounds defeats the grantee's title at least where the jurisdictional defect is apparent from the record or where the grantee has notice of the facts giving rise to the defect. Klinger v. Milton Holding Co., 136 Fla. 50, 186 So. 526 (1939); Smetal Corp. v. West Lake Investment Co., 126 Fla. 595, 172 So. 58 (1937). We have found no Florida authority indicating the effect of a reversal on non-jurisdictional grounds on the title of a party purchaser's grantee. Turning to cases from other jurisdictions, however, the clear weight of authority is that in the absence of a statute to the contrary the reversal on appeal of an order directing a sale of property defeats the title of one who obtained the property from a party who purchased it at the judicial sale, regardless of the ground for reversal. This rule is based upon the general principle that one ordinarily cannot convey a better title than he himself has. Because the party purchaser's title is defeasible his grantee's title is also defeasible. See DiNola v. Allison, 143 Cal. 106, 76 P. 976 (1904); Marks v. Cowles, 61 Ala. 299 (1878); and cases discussed therein. Because a reversal by this court of either of the district court's orders would defeat Citibank's purchaser's title and entitle Data Lease to possession of the stock, no aspect of this appeal is moot.

An order confirming a judicial sale of property is a final order from which an appeal may be taken pursuant to 28 U.S.C. § 1291. ² Sage v. Central R. R., 96 U.S. 712, 24 L.Ed. 641 (1878); Godchaux v. Morris, 121 F. 482 (5th Cir. 1903). Cf. U. S. v. "A" Manufacturing Co., 541 F.2d 504 (5th Cir. 1976). Citibank argues that the order of sale was itself a final order and that Data Lease waived its right to challenge that order by failing to appeal from it. We directed the parties to submit supplemental briefs on this issue, and we now conclude that Citibank is correct and that we are limited to a review of the order confirming the sale and a determination whether the district court had jurisdiction to order the sale.

Data Lease contends that the order of sale was not a final order from which an immediate appeal could be taken and that the order of sale and the confirmation order, taken together, constitute a mandatory preliminary injunction appealable under 28 U.S.C. § 1292(a)(1). ³ Data Lease appears to argue in the alternative that each of the orders was a preliminary injunction appealable under § 1292(a), and it relies on the principle that a party's failure to appeal from an interlocutory order appealable as of right under § 1292(a) does not prevent review of that order upon a later appeal. See Caradelis v. Refineria Panama, S. A., 384 F.2d 589 (5th Cir. 1967); Gloria Steamship Co. v. Smith, 376 F.2d 46 (5th Cir. 1967); Victor Talking Machine Co. v. George, 105 F.2d 697 (3d Cir.), cert. denied 308 U.S. 611, 60 S.Ct. 176, 84 L.Ed. 511 (1939).

In Ray v. Law, 7 U.S. (3 Cranch) 179, 179-80, 2 L.Ed. 404, 404 (1805), Chief Justice Marshall stated that

(t)he act of Congress points out the mode in which we are to exercise our appellate jurisdiction, and only authorizes an appeal or writ of error on a final judgment or decree.... The Court, however, is of opinion, that a decree for a sale under a mortgage is such a final decree as may be appealed from.

Not all orders contemplating a judicial sale are final and appealable. An immediate appeal may not be taken from an order determining that, if a debt is not paid, a party has a right to sale of specified property if the order neither determined the amount of the debt nor ordered a sale, Burlington, C. R. & N. Ry. v. Simmons, 123 U.S. 52, 8 S.Ct. 58, 31 L.Ed. 73 (1887); from an order directing transfer of property to a receiver but not directing an immediate sale, Grant v. Phoenix Mutual Life Ins. Co., 106 U.S. (16 Otto) 429, 1 S.Ct. 414, 27 L.Ed. 237 (1882); or from an order directing a sale of property but not determining the amount of an unliquidated claim or the specific property to be sold, North Carolina R. R. v. Swasey, 90 U.S. (23 Wall.) 405, 23 L.Ed. 136 (1875). But an order in a foreclosure proceeding that directs the immediate sale of specified property is in all respects a final order for purposes of appeal. First National Bank v. Shedd, 121 U.S. 74, 7 S.Ct. 807, 30 L.Ed. 877 (1887); Sage v. Central R R., 93 U.S. 412, 23 L.Ed. 933 (1876); Bronson v. LaCrosse & M. R. R., 67 U.S. (2 Black) 524, 17 L.Ed. 359 (1863); Whiting v. Bank of the United States, 38 U.S. (13 Pet.) 6, 10 L.Ed. 33 (1839).

In Whiting heirs of the defendant in a foreclosure action brought a bill of review challenging the order of foreclosure and sale. The bill was timely if measured from the date of the confirmation order but untimely if measured from the date of the order of sale. The Court ruled that the bill could not raise asserted errors in the foreclosure proceedings because the order of foreclosure and sale was final and could be reviewed only upon an appeal from the order or by a bill of review that was timely with respect to the sale order. Later cases have consistently recognized that review of an order directing a sale of property may be had only upon an appeal taken from the order of sale and not upon an appeal from the subsequent confirmation. See, e. g., Leadville Coal...