Global Industries, Inc. v. Harris

• Decision Date: 22 May 1974
• Docket Number: No. C-74-259-A.,C-74-259-A.
• Citation: 376 F. Supp. 1379
• Parties: GLOBAL INDUSTRIES, INC., Plaintiff, v. J. Wesley HARRIS et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

376 F. Supp. 1379

GLOBAL INDUSTRIES, INC., Plaintiff, v. J. Wesley HARRIS et al., Defendants.

No. C-74-259-A.

United States District Court, N. D. Georgia, Atlanta Division.

May 22, 1974.

Hugh W. Gibert and Richard G. Garrett, Haas, Holland, Levison & Gibert, Atlanta, Ga., for plaintiff.

William R. Mellen and Arthur Gregory, McClain, Mellen, Bowling & Hickman, Atlanta, Ga., for defendants.

ORDER OF COURT

MOYE, District Judge.

Global Industries, Inc. (hereinafter "Global"), brings this action seeking an order permanently enjoining the abovenamed defendants from conducting an impending foreclosure sale of a tract of real property located in Bartow County, Georgia. Its federal cause of action is predicated on Sniadach-Fuentes¹ due process grounds, and the jurisdiction of this Court is invoked under 28 U.S.C. § 1331(a).² Under the same jurisdictional umbrella, plaintiff also attacks the attorney's fees provision of Ga.Code Ann. § 20-506 on due process and equal protection grounds.

The real property in question was purchased by the plaintiff on January 5, 1973. The property was conveyed to Global, which in turn executed a promissory note for $109,200 and deed to secure debt in favor of the sellers.

Relying on provisions in the note and security deed, defendants subsequently declared the plaintiff to be delinquent in making payments required by the note and began preparation for a foreclosure sale to be held in conformity with the procedure outlined in the deed to secure debt and Ga.Code Ann. § 67-1506. That sale was preliminarily enjoined pending the Court's decision on the merits of this controversy which is set forth below.

Compendious briefs filed by the parties have exhaustively treated every conceivable issue which might fairly be considered germane to resolution of the case. The Court has read with particular interest those portions dealing with the construction to be placed upon the waiver language in the promissory note and security deed, for it is that issue which is considered to be pivotal.

The power of sale found in the deed to secure debt recites that upon default of the grantor (Global), the grantee is empowered to sell the property in a manner prescribed therein.³ The procedure outlined is substantially identical to the one prescribed in Ga.Code Ann. § 67-1506. But the power of sale, plaintiff contends, does not authorize the grantee to unilaterally determine the existence of a default. Global acknowledges that it waived its right to insist that the defendants sell the property by means of judicial foreclosure but asserts that only a judicial declaration of default preceded by notice and a hearing can constitutionally serve to "trigger" the foreclosure mechanism.

The documents, when read individually and in conjunction with one another, do not lend themselves to such an interpretation. Examination of the aforementioned power of sale reveals that the grantee, as agent and attorney in fact of the grantor, is empowered to execute and deliver to the purchaser at the foreclosure sale a conveyance which may contain recitals as to the occurrence of default. The recitals are made binding and conclusive upon the grantor. The security deed also sets forth the procedures to be followed after default and provides that all other notice is waived by the grantor.

Several provisions contained in the promissory note dated January 5, 1973, lend further credence to the defendants' position. The note states, in pertinent part, that:

"Should any installment not be paid when due, or should the maker, or makers, hereof fail to comply with any of the terms or requirements of a security deed of even date herewith, . . . the entire unpaid principal sum evidenced by this note, with all accrued interest, shall, at the option of the holder, and without notice to the undersigned, become due and may be collected forthwith, time being of the essence of this contract."

This language is amplified in a succeeding section which provides that "each of the undersigned, . . . further waives demand, protest, notice of demand, protest and non-payment."

The Court is fully aware that waivers of constitutional rights may not be implied. Fuentes v. Shevin, supra. And were the meaning that the defendants ascribe to the documents merely lurking in the interstices of the language, a contrary result might obtain. The import of the above-quoted provisions is clear, however. The defendants are authorized to conduct a foreclosure sale in the manner set forth in the security deed without having first to resort to judicial process, whenever they deem the plaintiff to be in default. Any other interpretation would frustrate the intent of the parties as expressed by their written agreements. Both the note and the security deed recite that time is of the essence. The obvious advantage of the waiver provisions to the creditor is to free him from cumbersome and time-consuming foreclosure procedures. Undeniably, there is potential for abuse attendant to any such grant of authority, but by the terms of the agreement it is incumbent upon the debtor to initiate injunctive proceedings should he feel that foreclosure has been undertaken erroneously or in bad faith.⁴

Michael Thevis, Chairman of the Board of Global, has testified by affidavit that he did not understand or intend that such a power be conferred upon the holders of the security deed. The thrust of Thevis's statement is that any waiver of the right to notice and a hearing which might be found in the instruments was not knowingly and intelligently made. Fuentes v. Shevin, supra; D. H. Overmyer Co. v. Frick Co., 405 U. S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972); Gonzalez v. County of Hidalgo, 489 F.2d 1043 (5th Cir. 1973).

Consonant with the Overmyer opinion, this Court recognizes the well-settled presumption against waiver of fundamental rights and will assume arguendo that waivers in a civil contest must be as closely scrutinized as those in criminal cases. Nevertheless, it is undisputed that the documents which this Court construes to constitute a waiver of any due process rights the plaintiff might otherwise have had, were executed by Global with the advice of counsel. In fact, the closing was held in the offices of Global's attorneys, and the defendants were not represented at the closing. Furthermore, the documents were presented and presumably prepared by counsel for Global. Under these circumstances, the Court does not feel that the plaintiff can later be heard to disclaim knowledge of their purport and meaning.

Global does not contend, nor would the facts support a finding, that a disparity of bargaining power existed or that the contractual provisions under consideration resulted from overreaching. The plaintiff has failed to demonstrate that the security deed and note constitute other than a contractual arrangement whereby it agreed to waive judicial process prior to foreclosure. That agreement would stand as a product of the parties' freedom to contract even in the absence of the challenged code section and would survive a declaration of that statute's unconstitutionality. See Adams v. Southern California First Nat'l Bank, 492 F.2d 324 (9th Cir. 1973).

The Court also notes that the plaintiff must establish as a factual predicate to any claim under the due process clause of the Fourteenth Amendment a significant degree of state involvement in the action(s) complained of. E. g., Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972); Reitman v. Mulkey, 387 U. S. 369, 87 S.Ct. 1627, 18 L.Ed.2d 830 (1967); Burton v. Wilmington Parking Authority, 365 U.S. 715, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961); Bond v. Dentzer, 494 F.2d 302 (2d Cir. 1974). Whether the state has sufficiently interjected itself into the challenged conduct must be determined by weighing the facts and circumstances of each particular case. Burton v. Wilmington Parking Authority, supra.

Global points to Ga.Code Ann. § 67-1506 as providing the requisite state action in this case.⁵ That statute, to be sure, regulates the manner in which foreclosure sales under powers contained in security deeds are conducted. But the creditor's power of sale is derived from the parties' contractual undertaking rather than from the statute. As Chief Judge Smith of this district recently observed:

"Section 67-1506, however, unlike the personal property foreclosure acts, does not itself create any rights in creditors. Rather, its terms are limiting. . . .

"Thus, the legislative mandate sets minimal requirements for the exercise of any contractual power of sale contained in security instruments. In this sense, it may be deemed protective of consumer interests. The statute does not come into operation unless there already exists a power of sale contained in a deed to secure debt, mortgage, or other lien contract. It does not direct that a power of sale be employed; it merely specifies the minimal procedures to be employed once the parties have entered into a contractual relation."

Law v. United States Dept. of Agriculture, 366 F.Supp. 1233, 1238 (N.D.Ga. 1973). See also Ruff v. Lee,⁶ 230 Ga. 426, 432, 197 S.E.2d 376 (1973), Gunter, J., concurring.

Thus, as noted above, the parties' right privately to agree to the remedy of nonjudicial foreclosure exists independently of the statute. The statute does not deprive a debtor of any preexisting rights or entitlements. Bond v. Dentzer, supra at 307; Adams v. Southern Calif. First Nat'l Bank, supra at 333.

The Court finds little significance in the fact that a clerk may perform the ministerial act of recording the deed under power evidencing sale⁷ or that the courts of the State of Georgia may enforce the agreement the parties have made.⁸ Were those factors considered determinative, every private agreement between citizens would be imbued with state action. Nor does the statutory requirement that the foreclosure sale take place on the courthouse steps approach the...