Frederick v. United States

• Decision Date: 18 December 1967
• Docket Number: No. 22782.,22782.
• Citation: 386 F.2d 481
• Parties: Wallace G. FREDERICK, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

386 F.2d 481 (1967)

Wallace G. FREDERICK, Appellant, v. UNITED STATES of America, Appellee.

No. 22782.

United States Court of Appeals Fifth Circuit.

September 19, 1967.

Rehearing Denied December 18, 1967.

O. F. Jones, III, Victoria, Tex., for appellant.

James R. Gough, John Forshay, Jr., Asst. U. S. Attys., Houston, Tex., for appellee.

Before WISDOM, COLEMAN and GODBOLD, Circuit Judges.

GODBOLD, Circuit Judge:

The trial court granted summary judgment for the plaintiff, the United States, and dismissed defendant's counterclaim. We reverse.

The suit arose out of a $100,000 loan made by the Small Business Administration (SBA) on March 16, 1960, to Frederick Dredging Company, Inc. ("the company" or "the corporation"). The debt was evidenced by a note executed for the corporation by Wallace G. Frederick (hereinafter "Frederick") as president; the note was not executed by Frederick individually. As security the corporation gave a mortgage on real estate located in Alabama and various personal property.¹ Frederick, individually, signed the usual SBA guaranty form, guaranteeing punctual payment of the note when due and agreeing that upon failure of the company to pay the note, whether due by acceleration or otherwise, he would, upon written demand of SBA, pay SBA the amount due and unpaid. As security for performance of the guaranty Frederick assigned to SBA life insurance with a cash surrender value of approximately $4,000.

The corporation became delinquent, and on March 16, 1962, SBA declared the note in default and accelerated. The United States then filed suit in the District Court for the Western District of Louisiana, against the company only.² On May 28, 1962, default judgment was entered against the company for a total of $102,720.69, consisting of a principal sum of $97,654.74, accumulated interest as of March 15, 1962, of $4,073,04, advances of $986.81 for preservation and care of collateral, interest of $7.10 as of March 15, 1962, on advances made for preservation of collateral, plus interest after March 15, 1962, at 5½% per annum on the principal amount until paid. The judgment recited that it was "with full recognition of complainant's special mortgage, lien and privilege upon the following described property," then listed various items of personal property including a dredge and a tug. The judgment directed that the described property be seized and sold by the United States Marshal for the Western District of Louisiana, "at public auction with appraisement, for cash, to the highest bidder," and the amount realized be credited pro tanto on the amount of the judgment and if not sufficient to discharge the judgment the unpaid balance would be enforceable against any property of the defendant.

On February 4, 1964, the United States began the present action. First it sued, on the note itself, in the United States District Court for the Southern District of Texas against "Wallace G. Frederick, d/b/a Frederick Dredging Company, Inc.," as alleged maker. The complaint recited execution of the note by the named defendant and default thereon, and claimed unpaid principal and interest of $44,759.13, plus interest from default on October 1, 1962, until paid.

Subsequently a First Amended Complaint was filed,³ and attached as exhibits were a copy of the note and the guaranty; this pleading set out a claim on the guaranty against Frederick in his individual capacity, alleging that although requested he had failed and refused to pay the remaining principal and interest due on the note in accordance with his guaranty, to plaintiff's damage in the amount of $44,759.13, plus interest at 5½% per annum from date of default, to wit, October 1, 1962. Judgment was prayed against Frederick alone for said sum, with interest from the date of default.⁴

Plaintiff moved for summary judgment. The motion was submitted on the basis of the First Amended Complaint to which the note and guaranty were attached, additional exhibits (to the motion) consisting of a certified copy of the Louisiana judgment and an affidavit of an employee of SBA,⁵ interrogatories and answers thereto (none of which is here material, except in one minor respect indicated below), and the sworn First Amended Answer and Counterclaim of Frederick.

Pursuant to Rule 54(b) the Court granted summary judgment for the United States on its claim but held the action could proceed as to Frederick's counterclaim.

A. The Motion for Summary Judgment

In his sworn First Amended Answer and Counterclaim defendant denied that the United States was entitled to recover the sum of $44,759.13 with interest at 5½% per annum from October 1, 1962. As grounds for the denial he set out that on or about July 25, 1962, the United States Marshal for the Western District of Louisiana levied under a writ of execution upon property mortgaged to SBA and sold the same to an agent of the SBA for $44,100, that the property foreclosed on had been appraised for approximately $299,000 when the loan was made, and said amount was then accepted by SBA as the fair market value thereof. Frederick charged that the purchase for $44,100 was "unconscionable and tainted with fraud" and that the purchase was void because of fraud and conspiracy of the Marshal and SBA. On the basis of the same allegations Frederick counterclaimed for damages against the United States.

The matters before the Court on the motion did not remove all material issues of disputed fact. Frederick admitted the note was due and payable and that he executed the guaranty. What is missing is proof by plaintiff of the amount of damages to which it is entitled. While defendant's pleadings could have been more artful it is plain he was denying under oath that he owed the sum sued for. Detailed allegation of operative facts, which were also asserted as the basis of a counterclaim, did not eliminate Frederick's denial. If the sworn Answer did nothing else it clearly put in issue the statement in the SBA affidavit that no part of the debt had been paid except as fully credited.

To recover, whether by summary judgment or trial on material issues, the government must prove the amount due and unpaid on the note and hence due by the guarantor, unless the amount is admitted (and here it was not). The United States claimed $44,759.13 with interest from October 1, 1962, which as best we can tell, though this is not clear, is asserted as the date of default on the guaranty as opposed to default on the note. Even if we assume that effect is to be given the Louisiana judgment as judicially establishing the amount of, and the elements of, the principal's indebtedness so as to be binding on Frederick,⁶ there is no explanation of how the total of $102,720.67 awarded was reduced to alleged unpaid principal of $44,759.13, as of December 15, 1964. It is not possible to tell how the interest of $6,429.58 referred to in the affidavit was calculated or from what date, and whether it included all, some, or none of the interest of $4,073.04 awarded by the court in Louisiana; this is especially confusing because the Louisiana suit claimed acceleration arising from default on March 16, 1962, and the Texas suit claims default on October 1, 1962.^6a There was no information of what had happened concerning the advances for preservation of collateral (and interest thereon) awarded in the Louisiana judgment.⁷ Of course, the major factual deficiency was that nothing was stated concerning payment on the debt after it was reduced to judgment except the conclusionary statement in paragraph 4 of the affidavit that nothing had been paid except what had been fully credited — the form, date, amount and source of such payments were unrevealed, as well as whether the "payments" referred to were payments before judgment, realizations on security after judgment, or both. Presumably at least part of the credits arose from a sale which the Marshal was authorized by the judgment to hold. But authority to make a sale is not proof that the sale occurred, or of the amount of or application of the proceeds. The only facts before the Court of the proceeds of a sale consist of the statement in defendant's First Amended Answer, that the sale was for $44,100 and was to SBA. Applying this amount to the total of the Louisiana judgment leaves a balance of $58,620.69. Applying it solely to the principal recited in the judgment, leaves a principal balance of $53,554.24. And, as set out above, it is not possible to follow the calculations of interest. Even without the denial by Frederick we are unable to see how summary judgment could be entered for a liquidated amount with any assurance of its correctness, considering the confusing and conflicting figures.⁸

The United States asserts that Frederick is making a collateral attack on the Louisiana judgment and that the burden was on him to put in the present record all the record of the Louisiana suit. This misses the mark. In the first place the evidentiary effect, if any, of the Louisiana judgment against Frederick depends on a showing by the government of more than it has here shown about the Louisiana case. Second, the guarantor's obligation is to pay only what is unpaid. The United States sued for such net amount, the amount was denied under oath, and the United States has not proved the net amount. It cannot shift to Frederick responsibility for its offering a part only of the Louisiana record, which part, to the extent it has any evidentiary effect against Frederick, shows only the gross amount of the principal's debt and nothing as to the net unpaid balance.

We conclude that the summary judgment was erroneously granted.

B. The Counterclaim

After the grant of summary judgment the United States moved to dismiss the counterclaim, asserting sovereign immunity, and alternatively moved to transfer the cause to the Western District of Louisiana. The counterclaim was then limited by the defendant to an amount not in excess of the...