Oglethorpe Co. v. United States

• Decision Date: 08 July 1977
• Docket Number: No. 228-74.,228-74.
• Citation: 558 F.2d 590
• Parties: The OGLETHORPE COMPANY, the Peachtree-Chamblee Company and the Golf Club Company v. The UNITED STATES.
• Court: U.S. Claims Court

558 F.2d 590

The OGLETHORPE COMPANY, the Peachtree-Chamblee Company and the Golf Club Company v. The UNITED STATES.

No. 228-74.

United States Court of Claims.

July 8, 1977.

Emil T. Bayko, Chicago, Ill., atty. of record for plaintiff. Richard H. Appert, New York City, Donald T. MacNaughton, White & Case, Washington, D.C., and John J. Czyzewski, Fairfax, Va., of counsel.

Dorothy R. Burakreis, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant.

Before COWEN and SKELTON, Senior Judges, and KUNZIG, Judge.

KUNZIG, Judge.

This case, before the court on cross-motions for summary judgment, presents a challenge by the Oglethorpe Company, the Peachtree-Chamblee Company, and The Golf Club Company (plaintiffs) to the sale and purchase of their properties by the Secretary of the Department of Housing and Urban Development (HUD) at foreclosure sale. Plaintiffs are defaulting mortgagors on Federal Housing Administration (FHA) insured mortgages claiming the difference between the price HUD paid for the properties at foreclosure sale and the fair market value of the properties. They present three alternative grounds for relief: (1) that the foreclosure sale was materially defective under Georgia law; (2) that under Georgia law they have the right to recover the difference between the sale price and fair market value; and (3) that the foreclosure sale constituted a taking without just compensation in violation of the Fifth Amendment. Upon careful consideration of all issues raised by plaintiffs, we hold for the Government.

In 1948 plaintiffs mortgaged apartment house projects which they owned in Georgia. Prudential Insurance Company (Prudential) was the mortgagee, and the mortgages were insured by FHA. In 1968, after several debt rescheduling arrangements and other modifications, plaintiffs defaulted on the mortgages. Prudential, in order to collect the mortgage insurance, assigned the deeds securing the mortgages to HUD.¹ Defendant then proceeded to foreclose on the mortgages, following, it believed, applicable Georgia procedure for sheriff's sales² and the power of sale provision contained in paragraph eleven of the mortgages.

Prior to sale, defendant published separate Notices of Sale in the DeKalb County New Era³ on September 5, 1968 and weekly thereafter through September 26, 1968, for each of the three properties. The Notices stated that the realty and personalty separately described (as required by Georgia law, see Hinson v. First Nat'l Bank in Waycross, 221 Ga. 408, 144 S.E.2d 765 (1965)) would be sold at public auction "by the Secretary of HUD, or his attorney, before the Courthouse door in Decatur, DeKalb County, Georgia, between the legal hours of sale on the first Tuesday in October, 1968."

As the U.S. Attorney was reading the notice of sale on the morning of the appointed Tuesday, he was served at the Courthouse steps by plaintiffs' temporary restraining order (TRO) enjoining the sale. Defendant immediately acted to remove the suit from the local county court, where the TRO was obtained, to federal district court. Still on the same appointed Tuesday (October 1, 1968), the district court vacated the TRO and the sale was conducted that afternoon at 3 PM, admittedly within the legal hours of sale. Defendant was the only bidder. It purchased the property from itself at a price equal to about ninety percent (90%) of the outstanding indebtedness of the mortgages.

On October 17, 1968, defendant brought suit to "confirm" the sales, as required by Georgia law in order for a creditor to sue his debtor for any deficiency resulting from a resale. Ga.Code Ann. §§ 67-1503, 67-1504. The federal district court refused to confirm the sales on the ground that the sale price of the properties "was considerably less than true market value." But the court in its discretion also refused to order a resale, in effect securing title in the Government. The district court decision was affirmed on appeal by the Fifth Circuit, United States v. Golf Club Co., Civ. No. 12163, 12164, 12165 (N.D.Ga., Dec. 31, 1969) aff'd 435 F.2d 9 (5th Cir. 1970).

On October 21, 1968, plaintiffs filed suit in federal district court to set aside the sales on the ground that the bidding on the sales was "chilled." The district court refused plaintiffs' request, saying that any "chilling" that had occurred was due to plaintiffs' own action in obtaining a TRO. This decision was also affirmed on appeal by the Fifth Circuit. Oglethorpe Co. v. Weaver, Civ. No. 12131 (N.D.Ga., March 28, 1969), aff'd 420 F.2d 696 (5th Cir. 1970).

Plaintiffs then brought another suit against the Government (again in federal district court) seeking (1) to reinstate title in themselves and (2) to prevent defendant from disposing of the property. Plaintiffs alleged an unconstitutional taking of property. The federal district court again refused plaintiffs' requests, saying that Oglethorpe Co. v. Weaver had disposed of all the issues brought in this second suit, and, therefore, dismissed on the grounds of res judicata. Oglethorpe Co. v. United States, Civ. No. 16546 (N.D.Ga., Oct. 20, 1972).

After the conclusion of all these suits, plaintiffs were left, it appears, with but one avenue of possible relief — resort to the Court of Claims. They availed themselves of this avenue in June 1974, when a petition was filed seeking the difference between the purchase price paid by defendant and the fair market value of the properties.

Plaintiffs present three principal arguments to the court. First, they claim that the original sale of the properties was materially defective. Second, they take the position that defendant breached the mortgage contract by failing to sell the properties at fair market value. With regard to this argument, plaintiffs explain that Georgia law allowing recovery from the mortgagee-seller of the difference between fair market value and the sale price should prevail over Federal law which prohibits HUD from bidding more than the amount of the indebtedness for property at a foreclosure sale. 12 U.S.C. § 1713(k) (1970).⁴ As a final argument, plaintiffs put forward a Fifth Amendment⁵ taking theory, claiming that defendant by purchasing the properties at less than fair market value, has "taken" the properties without just compensation.

Defendant counters each of plaintiffs' positions in turn. First, defendant states that plaintiffs' claim of "material defects" in the original sale is barred by res judicata. Next the Government asserts that Federal law controls the amount that it can pay for properties at foreclosure sale and that under Federal law, plaintiffs have no claim. Finally, defendant takes the position that plaintiffs' "Fifth Amendment taking" argument is wholly without merit.

We agree with defendant on each point and, therefore, hold against plaintiffs, dismissing their petition.

Turning first to plaintiffs' claim of "material defects" in the sale of the properties, we find that the Government closely tracked the requirements for sheriff's sales set forth in the Georgia laws. Ga.Code Ann. §§ 37-607, XX-XXXX-XX, XX-XXXX-XX. Even with plaintiffs' delaying TRO, the sale was still conducted within the legal hours on the proper day. Any "chilling" effect was caused by plaintiffs' own action, not those of defendant.

This case, as Oglethorpe Co. v. United States, supra, "appears to be a classic example for the application of res judicata," and therefore barred by the decision in Oglethorpe Co. v. Weaver, supra. The same parties and issues are present before this court as were before the district court in Oglethorpe Co. v. Weaver. It is not the function of this court to relitigate issues already fully aired before another court of competent jurisdiction. Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 92 L.Ed. 898 (1948).

As to issues concerning procedural defects in the sale not decided in Oglethorpe Co. v. Weaver, res judicata also bars their litigation in this lawsuit. Plaintiffs have had their day in court; they had their opportunity to raise all pertinent matters. In the instant case, we can find no factual issues that should not have been brought before the district court in Oglethorpe Co. v. Weaver. Commissioner v. Sunnen, supra; McConnell v. Travelers Indemnity Co., 346 F.2d 219, 222 (5th Cir. 1965); Oglethorpe Co. v. United States, supra.

We hold plaintiffs' "material defects" claim totally barred by res judicata.

Next we focus on the central issue of the case: whether federal or state law governs plaintiffs' rights following the foreclosure sale. Plaintiffs claim that Georgia law controls by the terms of the mortgage contracts and gives plaintiffs the right to recover the difference between the sale price and the fair market value from the Government as the seller of the properties. In this case, the difference could be as much as $3.0 million.

To evidence Georgia law, plaintiffs rely on cases such as Buckhead Doctors Bldg., Inc. v. Oxford Finance Co., Inc., 115 Ga.App. 534, 154 S.E.2d 760 (1967) and Langley v. Stone, 112 Ga.App. 237, 144 S.E.2d 627 (1965). We need not decide whether plaintiffs' statement of Georgia law is correct. By the statutes and case law of that State, plaintiffs, in another setting, may have the right to recover the difference between the sale price and the fair or "true" market value from the vendor of the property. See Aaron v. Life Ins. Co. of Ga., 138 Ga.App. 286, 226 S.E.2d 96 (1976) (For a discussion equating "fair" and "true" market value, see the special concurrence of Judge Clark, 226 S.E.2d at 97-98).

But the instant case does not present the usual situation of an aggrieved Georgia mortgagor suing a private mortgagee for damages. It is a suit against the Federal Government. The issue, therefore, is whether the Federal Government is subject to Georgia law under the circumstances of this case.

In the case at bar it is clear that the federal interest...