Fleisher v. Se. Agcredit, FLCA

• Decision Date: 07 March 2013
• Docket Number: No. 2010–CA–01594–COA.,2010–CA–01594–COA.
• Citation: 108 So.3d 948
• Parties: David E. FLEISHER, Appellant/Cross–Appellee v. SOUTHERN AGCREDIT, FLCA f/k/a Land Bank South, FLCA, Appellee/Cross–Appellant.
• Court: Mississippi Court of Appeals

108 So.3d 948

David E. FLEISHER, Appellant/Cross–Appellee

v.SOUTHERN AGCREDIT, FLCA f/k/a Land Bank South, FLCA, Appellee/Cross–Appellant.

No. 2010–CA–01594–COA.

Court of Appeals of Mississippi.

April 10, 2012.

Rehearing Denied Aug. 7, 2012.

Certiorari Granted Nov. 15, 2012.

Certiorari Dismissed March 7, 2013.

Nicholas Van Wiser, Biloxi, Dawn Elizabeth Larsh Norris, Dana Carl Matthews, attorneys for appellant.

Jeffrey Monroe Williams, Matthew Robert Dowd, Jackson, attorneys for appellee.

EN BANC.

FAIR, J., for the Court:

¶ 1. In February 2009, Southern AgCredit filed a complaint in the Stone County Circuit Court against David Fleisher, seeking judgments on four loans that were in default. Following discovery, both parties moved for summary judgment. The trial court granted partial summary judgment to Southern AgCredit. The court found that Fleisher had personally guaranteed the loans, but a fact question still existed as to the amounts owed under the loans. Fleisher's motion was denied.

¶ 2. In June 2010, a bench trial was held on the issue of whether the value of the properties was sufficient to satisfy the loans held by Southern AgCredit. The trial court found it was not, and Fleisher owed Southern AgCredit a deficiency of $351,300.75 on three of the four loans. The court did not make a ruling on the fourth loan because it was in bankruptcy and under the protection of the automatic stay.

¶ 3. Fleisher now appeals, asserting Southern AgCredit did not meet its burden of proof to establish a deficiency judgment. Southern AgCredit cross-appeals, contending that the trial court erred in not holding Fleisher personally liable for the entire amount of the fourth loan. We affirm on Fleisher's direct appeal. However,we find Southern AgCredit's cross-appeal meritorious, so we remand the case to the circuit court for a determination of the amount due under the final guaranty.

FACTS

¶ 4. After Hurricane Katrina struck the Mississippi Gulf Coast in 2005, Fleisher, William M. Adkinson, Lee F. Kennedy, and Robert T. Windham sought to purchase and develop certain tracts of land in the devastated areas. The four men formed a total of twenty-one limited liability companies and named them Mississippi Investors I–XXI. The lawsuit filed by Southern AgCredit that is the issue of this appeal involved four of these LLCs–Mississippi Investors VII, VIII, X, and XIV (MS VII, MS VIII, MS X, and MS XIV). Each investor owned different Florida companies, and each Florida company was a member of the four LLCs.

¶ 5. In 2006, Southern AgCredit issued loans to MS VII, VIII, X, and XIV. The loans were secured by deeds of trust on the land that was purchased. Fleisher, Adkinson, Kennedy, and Windham each signed personal guaranties on the loans. The guaranties stated that each individual was liable for 140% of his 25% ownership interest in the LLCs. Sometime after the loans were closed, Fleisher and Kennedy sold their interests in the four LLCs to Adkinson. However, they were still bound by their personal guaranties on the loans.

¶ 6. Between June and September 2006, Southern AgCredit obtained appraisals for each of the properties. Michael Elliot (Michael), a Mississippi certified general real estate appraiser, performed the appraisals. Michael was an employee of and senior appraiser for Southern AgCredit. Joe Mallard assisted with the appraisals. Mallard was a registered forester and loan officer at Southern AgCredit. Mallard performed timber cruises for each of the properties and prepared a detailed evaluation of the value of the timber. The timber value was included as part of the appraised value of each property. A second appraisal was performed by Michael in March 2008. Mallard did not participate in this appraisal. The revised appraisals did not include any value for timber.

¶ 7. By August 2008, all of the loans were in default. Southern AgCredit filed suit in the Stone County Circuit Court against Fleisher, Adkinson, Kennedy, and Windham seeking to recover on the loans pursuant to the personal guaranties. Southern AgCredit also sought to recover attorney's fees and costs in the amount of $80,448.92.

¶ 8. The four LLCs eventually filed for bankruptcy. MS VII, X, and XIV failed to make adequate protection payments on the loans. The bankruptcy court lifted the automatic stay on these three properties, which allowed Southern AgCredit to start foreclosure proceedings. The automatic stay on MS VIII was not lifted because a plan of reorganization had been proposed. In January 2010, a foreclosure auction was held to sell the properties securing the loans for MS VII, X, and XIV. Southern AgCredit was the sole bidder and purchased each piece of property.

¶ 9. Fleisher does not dispute that he is liable under the personal guaranties. Fleisher's argument is that he owes nothing to Southern AgCredit because the fair market value of the properties exceeded the amounts owed on the loans when the properties were sold. The trial court disagreed with Fleisher and awarded Southern AgCredit a deficiency judgment. The trial court found the deficiencies on the loans were as follows: MS VII-$299,068; MS X-$326,766.25; and MS XIV-$377,882.17. According to his personal guaranty, Fleisher was responsible for 140% of his 25% share in each of the LLCs. Thus, the amounts owed by Fleisher were determined to be as follows: MS VII-$104,673.80; MS X-$114,368.19; and MS XIV-$132,258.76. The total judgment against Fleisher was $351,300.75. In making these calculations, the trial court took into account the discrepancies between the 2006 and 2008 appraisals. Also, Fleisher was ordered to pay court costs and post-judgment interest of 8% per annum.

¶ 10. In addition to the award given by the trial court, Southern AgCredit sought the full balance of the MS VIII loan because no foreclosure sale had taken place. The balance on this loan was $3,150,000. The trial court found that any judgment regarding MS VIII would be premature because a reorganization plan was pending in the bankruptcy court.

STANDARD OF REVIEW

¶ 11. An appellate court affords a circuit court judge sitting without a jury the same deference as a chancellor. City of Jackson v. Perry, 764 So.2d 373, 376 (¶ 9) (Miss.2000). That is, after reviewing the entire record, we will affirm if the judge's findings of fact are supported by substantial, credible evidence and are not manifestly wrong or clearly erroneous. Id. Errors of law are reviewed de novo. Id.

DISCUSSION

1. On Direct Appeal by Fleisher

¶ 12. Fleisher argues he owes no deficiencies on the loans because Southern AgCredit failed to prove the foreclosure sales were just and equitable.

¶ 13. To be entitled to a deficiency judgment, Southern AgCredit bore the burden of proving that it had “endeavored to collect the indebtedness out of the land.” Hartman v. McInnis, 996 So.2d 704, 711 (¶ 22) (Miss.2007) (citing Lake Hillsdale Estates, Inc. v. Galloway, 473 So.2d 461, 466 (Miss.1985)). An additional burden is imposed because Southern AgCredit was the mortgagee and purchased the property at the foreclosure sale. “Where the foreclosing creditor buys at foreclosure, it must give the debtor fair credit for the commercially reasonable value of the collateral.” Id. at (¶ 23) (citation omitted). “To determine the adequacy of the purchase price in satisfying the debt, the mortgagee must establish the fair market value of the property.” Id. (citation omitted). The fair market value is to be determined by the trier of fact, and the appellate court will respect the trial court's findings when they are supported by reasonable evidence in the record and are not manifestly wrong. Id.

¶ 14. The only issue at trial was whether a deficiency was owed on the loans. Two witnesses testified: Benjamin Elliot for Southern AgCredit and Adkinson for Fleisher. Elliott was a licensed real estate appraiser and the chief operations and risk management officer for Southern AgCredit. Elliott was not involved in making the loans, but he was responsible for servicing them. The most recent appraisals were done in 2008. The 2008 appraisals concluded that MS VII had a fair market value of $5,954,600; MS X had a fair market value of $1,334,600; and MS XIV had a fair market value of $2,204,600.

¶ 15. Elliott testified that the value of the properties had not changed from 2008 to 2010. He based this on reports and market information relied on by Southern AgCredit and his opinion that the overall market values in the area had not changed. Although timber cruises were performed in 2006, the 2008 appraisals do not reflect any timber values. As to MS VII and X, Elliott testified that no separate timber appraisal was done in 2008 because a significant amount of timber had been cut and the remaining timber was either not mature or undesirable. As to MS XIV, Elliott did not know whether the timber had been cut since 2006, but he believed the land was more for recreational use than for timber production. Elliott testified the deficiency after the foreclosure sale was $2,349,836.42. In determining this amount, Elliott subtracted the foreclosure price from the total amount owed on the loans. At the time of trial, all three properties were for sale. The properties were listed for more than was paid at the foreclosure auction. Southern AgCredit's attempt to sell the properties included putting up “for sale” signs. Limited inquiries and no offers had been received.

¶ 16. Adkinson was a land developer and had worked in the real estate and construction business for forty-five years. Adkinson testified the LLCs had taken steps to begin developing the properties, such as making down payments, paying interest, having utilities installed, installing roads, obtaining permits, and paying engineering fees. He testified the LLCs spent $33,000,000 above the loan amounts on these efforts. Adkinson believed the properties were worth two to five times the values given by Southern AgCredit. He based this on his...