Nantahala Village, Inc., In re

• Citation: 976 F.2d 876
• Decision Date: 02 October 1992
• Docket Number: No. 91-2057,91-2057
• Parties: , 23 Bankr.Ct.Dec. 1025, Bankr. L. Rep. P 74,944, 18 UCC Rep.Serv.2d 1027 In re NANTAHALA VILLAGE, INCORPORATED, a North Carolina Corporation, Debtor. NANTAHALA VILLAGE, INCORPORATED, a North Carolina Corporation, Plaintiff-Appellant, v. NCNB NATIONAL BANK OF FLORIDA, a National Banking Association, Defendant-Appellee. and Fred H. Moody, Jr., Trustee, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 876

976 F.2d 876

61 USLW 2281, 23 Bankr.Ct.Dec. 1025,

Bankr. L. Rep. P 74,944,

18 UCC Rep.Serv.2d 1027

In re NANTAHALA VILLAGE, INCORPORATED, a North Carolina

Corporation, Debtor.

NANTAHALA VILLAGE, INCORPORATED, a North Carolina

Corporation, Plaintiff-Appellant, v. NCNB NATIONAL BANK OF FLORIDA, a National Banking

Association, Defendant-Appellee.

and

Fred H. Moody, Jr., Trustee, Defendant.

No. 91-2057.

United States Court of Appeals, Fourth Circuit.

Argued June 1, 1992.

Decided Oct. 2, 1992.

Daniel Sears Dearing, Tallahassee, Fla., argued, for plaintiff-appellant.

Peter J. Covington, Smith, Helms, Mulliss & Moore, Charlotte, N.C., argued (Robert H. Pryor, on brief), for defendant-appellee.

Before SPROUSE and HAMILTON, Circuit Judges, and TILLEY, United States District Judge for the Middle District of North Carolina, sitting by designation.

OPINION

SPROUSE, Circuit Judge:

In the underlying action, which involved a dispute over loan transactions, Nantahala Village, Inc. ("Nantahala") demanded compensatory and punitive damages ¹ from NCNB National Bank of Florida ² ("NCNB") for alleged (1) breach of a contract to lend money, (2) breach of the common-law duty of good faith, (3) breach of the duty of good faith imposed by the Uniform Commercial Code, (4) unfair and deceptive business practices, and (5) fraud. After referral of the case from the district court to the bankruptcy court, the bankruptcy court made proposed findings of fact and conclusions of law and recommended summary judgment in favor of the defendant NCNB on each count. The district court adopted the bankruptcy court's proposed findings and conclusions, and granted summary judgment to NCNB. Nantahala appeals, and we affirm.

I

Nantahala is a North Carolina corporation that owns and operates a resort in western North Carolina. Robert Riedel, a Florida resident, is the president and principal shareholder of Nantahala. In 1986, Nantahala approached NCNB to obtain a loan to renovate the property and to refinance a preceding debt. In August 1986, the parties agreed to a $1.4 million loan to be paid over fifteen years. In return, NCNB received a deed of trust on the resort and a security interest in certain personal property located at the resort. Riedel and his wife personally agreed to guarantee payment of the debt to NCNB. The promissory note, the deed of trust, the security agreement, and the loan guaranty agreement were all executed in Florida.

Before 1986 Riedel had made several loans to Nantahala for its off-season operating expenses. In this connection, he had obtained short-term financing from NCNB. In 1987 Riedel personally obtained a $175,000 line of credit from NCNB to provide for Nantahala's off-season needs. This was secured by 9,000 shares of Riedel's NCNB stock, worth $468,000. The documents were also executed in Florida.

In August 1988, because Nantahala was having difficulty meeting its obligation, the parties modified the terms of the promissory note. A new promissory note was executed for $1.2 million, and NCNB again received a deed of trust on the resort and a security interest in Nantahala's personal property. Nantahala was to continue to make monthly interest payments to NCNB, but was to pay the entire principal on demand or by August 1, 1989. The Continuing and Unconditional Guaranty executed by Riedel contained a "dragnet clause" giving NCNB "a lien upon, security title to and a security interest in all property of [Riedel] now or at any time hereafter in the possession of Bank in any capacity whatsoever."

In March 1989, when Riedel's outstanding debt under his line of credit was already at the $175,000 ceiling, Riedel requested an advance above the ceiling. NCNB refused. Nantahala failed to make the March and April 1989 payments due under the terms of the modified loan. In June 1989 Riedel again requested an advance above his line of credit to pay his mortgage interest payments and to meet other Nantahala capital requirements. NCNB refused, sold Riedel's NCNB stock to satisfy the existing line-of-credit obligations, and placed the balance of the proceeds remaining after satisfaction of Riedel's obligations in a collateral account as additional security on Nantahala's loan.

In July 1989 Nantahala requested another modification of the loan, and the parties entered into negotiations. Negotiations broke down, however, and NCNB instituted foreclosure proceedings against Nantahala in superior court in Swain County, North Carolina. On March 18, 1990, the superior court entered an order allowing the trustee to foreclose on Nantahala's property. Nantahala then brought this action against NCNB on April 6, 1990, also in Swain County Superior Court. NCNB removed the action to the United States District Court for the Western District of North Carolina, based on diversity jurisdiction. On June 29, 1990, after the district court ordered that the property be sold, Nantahala filed a petition in the United States Bankruptcy Court for the Western District of North Carolina for reorganization under Chapter 11 of the Bankruptcy Act. ³ On August 29, 1990, NCNB "removed" ⁴ the district court action to the bankruptcy court as an adversary proceeding, under 28 U.S.C. § 1452 and Bankruptcy Rule 9027.

The bankruptcy court lifted the automatic stay, allowing this case to go forward. (In the meantime, it ordered Nantahala's property to be sold.) NCNB moved for summary judgment and Nantahala did not respond to or oppose NCNB's motion, failing to submit responsive affidavits or briefs. On February 6, 1991, the bankruptcy court entered proposed findings of fact and conclusions of law and recommended that the district court grant NCNB's motion for summary judgment. Nantahala did not object to the proposed findings and conclusions. On March 4, 1991, the district court adopted the bankruptcy court's recommendation and granted NCNB's motion for summary judgment. Nantahala brings this appeal.

II

We are initially presented with NCNB's argument that Nantahala, by not objecting to the bankruptcy court's recommendations, waived its right to appeal the district court's resolution of those issues. Bankruptcy Rule 9033 provides:

(a) In non-core proceedings heard pursuant to 28 U.S.C. § 157(c)(1), the bankruptcy judge shall file proposed findings of fact and conclusions of law. The clerk shall serve forthwith copies on all parties by mail....

(b) Within 10 days after being served with a copy of the proposed findings of fact and conclusions of law a party may serve and file with the clerk written objections which identify the specific proposed findings or conclusions objected to and state the grounds for such objection....

Bankr.R. 9033, 11 U.S.C. We have not previously considered whether failing to file written objections within the ten-day period deprives the losing party of its right to appeal from the district court's holding on the proposed findings of fact and conclusions of law. However, in United States v. Schronce, 727 F.2d 91 (4th Cir.), cert. denied, 467 U.S. 1208, 104 S.Ct. 2395, 81 L.Ed.2d 352 (1984), we interpreted a similar provision of the Federal Magistrates Act. ⁵ The Magistrates Act provides in part:

(B) [A] judge may ... designate a magistrate to conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed findings of fact and recommendations for the disposition, by a judge of the court, of any [of several motions, including a motion for summary judgment]....

(C) [T]he magistrate shall file his proposed findings and recommendations under subparagraph (B) with the court and a copy shall forthwith be mailed to all parties.

Within ten days after being served with a copy, any party may serve and file written objections to such proposed findings and recommendations as provided by rules of court....

28 U.S.C. § 636(b)(1). ⁶

In Schronce we held that this ten-day written-objections requirement provided by section 636(b)(1) is mandatory. Schronce, 727 F.2d at 94. The language of Bankruptcy Rule 9033(b) is nearly identical to that of Federal Rule of Civil Procedure 72(b). Indeed, the drafters of Rule 9033(b) indicated that the rule "is derived from Rule 72(b) F.R.Civ.P. which governs objections to a recommended disposition by a magistrate." Bankr.R. 9033(b) advisory committee notes.

In interpreting the ten-day written-objections portion of section 636(b)(1) as mandatory, Schronce interpreted a statutory enactment of Congress. Bankruptcy Rule 9033, of course, found its place in the scheme of judicial enforcement through the rulemaking process with the ultimate approval of Congress. We see no real interpretative problem presented by this legislative nuance, however. Both Rule 9033(b) and the Magistrates Act are the result of efforts to facilitate the judicial work of the district court by providing for preliminary consideration and recommended resolution by judicial tribunals within the district court family. In our view, the rationale for the procedures are tellingly similar. The drafters' note to Rule 9033, as well as common sense, counsel that a bankruptcy court's proposed resolution should be given the same effect as a magistrate's proposed resolution as far as an adversely affected party's responsibilities are concerned. See 1 Collier on Bankruptcy 3-55 (Lawrence P. King ed., 15th ed. 1988). Assistance to a district court by a bankruptcy court not only lessens the burden on a district court's docket but also reduces the time required to process controversies within the bankruptcy court. This implicates the same basic underlying purpose identified in Schronce--the expedition of judicial business by diversifying the judicial workload. In Schronce, we said:

We do not believe ... that the Act can be interpreted to permit a party, such as Schronce, to ignore his right to file objections with the district court without imperiling his right to raise the objections in the circuit court of appeals....