Orlando Residence, Ltd. v. Nelson

• Decision Date: 07 April 2014
• Docket Number: No. 13-1402,13-1402
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: ORLANDO RESIDENCE, LTD., Plaintiff - Appellee, and FIRST REAL ESTATE DEVELOPMENT CORPORATION, as Receiver for Loan, Plaintiffs, v. KENNETH E. NELSON, Defendant - Appellant, and HILTON HEAD HOTEL INVESTORS; WALLACE H. HUSTAD; MITCHELL A. ANDERSON; ALBERICI/DENVER; CLELAND CONSTRUCTION COMPANY; PARRISH PLUMBING COMPANY; BAILEY SPECIALITIES; B&B CONTRACTING COMPANY; CROSS COUNTRY CABINET & MILLWORK; NOLAND COMPANY; GRINNELL CORPORATION; EASTERN TECHNOLOGIES; GRAYBAR ELECTRIC COMPANY; HOWARD B. JONES & SONS; CAPITOL MATERIALS; DOVER ELECTRIC COMPANY; MCCONNELL & ASSOCIATES; CAMERON & BARKLEY COMPANY; SOUTH CAROLINA TAX COMMISSION, Defendants, and SANWA BUSINESS CREDIT CORPORATION, Defendant and Third-Party Plaintiff, v. RUTH HUSTAD, Third Party Defendant.

ORLANDO RESIDENCE, LTD., Plaintiff - Appellee,andFIRST REAL ESTATE DEVELOPMENT CORPORATION, as Receiver for Loan, Plaintiffs, v. KENNETH E. NELSON, Defendant - Appellant,and HILTON HEAD HOTEL INVESTORS; WALLACE H. HUSTAD; MITCHELL A.

ANDERSON; ALBERICI/DENVER; CLELAND CONSTRUCTION COMPANY;

PARRISH PLUMBING COMPANY; BAILEY SPECIALITIES; B&B

CONTRACTING COMPANY; CROSS COUNTRY CABINET & MILLWORK;

NOLAND COMPANY; GRINNELL CORPORATION; EASTERN TECHNOLOGIES;

GRAYBAR ELECTRIC COMPANY; HOWARD B. JONES & SONS; CAPITOL

MATERIALS; DOVER ELECTRIC COMPANY; MCCONNELL & ASSOCIATES;

CAMERON & BARKLEY COMPANY; SOUTH CAROLINA TAX COMMISSION, Defendants,and SANWA BUSINESS CREDIT CORPORATION, Defendant and Third-Party Plaintiff, v. RUTH HUSTAD, Third Party Defendant.

No. 13-1402

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: January 28, 2014

Decided: April 7, 2014

UNPUBLISHED

CORPORATION; RESOLUTION TRUST

Citadel Federal Savings andAppeal from the United States District Court for the District of South Carolina, at Beaufort. David C. Norton, District Judge. (9:89-cv-00662-DCN)

Before DUNCAN and FLOYD, Circuit Judges, and DAVIS, Senior Circuit Judge.

Affirmed by unpublished opinion. Senior Judge Davis wrote the opinion, in which Judge Duncan joined. Judge Floyd wrote a separate opinion dissenting in part.

ARGUED: Gary Andrew Ahrens, MICHAEL, BEST & FRIEDRICH LLP, Milwaukee, Wisconsin, for Appellant. Eugene N. Bulso, Jr., LEADER, BULSO & NOLAN, PLC, Nashville, Tennessee, for Appellee. ON BRIEF: Joseph Louis Olson, MICHAEL BEST & FRIEDRICH LLP, Milwaukee, Wisconsin, for Appellant. Paul J. Krog, LEADER, BULSO & NOLAN, PLC, Nashville, Tennessee, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

DAVIS, Senior Circuit Judge:

Appellant Kenneth Nelson appeals the district court's entry of a four million dollar judgment against him based on his knowing, intelligent and voluntary execution of a confession of judgment. The principal issue presented, among others, is whether, under the circumstances shown in the record, the district court's 1993 order conditionally dismissing this action effectively terminated the case such that the court lacked the power to enter a judgment against Nelson nearly twenty years later. The district court ruled that it had the power to entertain the request for judgment and we discern no error of law or abuse of discretion. Accordingly, we affirm.

I.

A.

In December 1986, Nelson guaranteed a real estate construction loan for more than $7 million made to his limited liability company, Hilton Head Hotel Investors (HHHI).¹ In August 1988, upon HHHI's default, the lender, Independence Federal Bank ("the Bank") filed this suit in South Carolina state court against HHHI and the guarantors; the defendants removed the caseto federal court. The Bank's appointed receiver, Resolution Trust Corporation (RTC), was later substituted as plaintiff.

In due course, the district court entered summary judgment allowing a foreclosure of the liens securing the indebtedness. After an interlocutory appeal to this Court by defendants was withdrawn, the claims against the guarantors was set for trial in June 1993. On July 13, 1993, however, the parties having notified the district court that a settlement had been achieved, the court entered an order conditionally dismissing the case. The order stated in part:

The court having been advised by counsel for the parties that the above action has been settled:

IT IS ORDERED that this action is hereby dismissed without costs and without prejudice to the right, upon good cause shown within ninety (90) days, to reopen the action if settlement is not consummated.

J.A. 49. A July 14, 1993 entry in the district court's docket states: "case closed."

A few months later, at the parties' request, the court reopened the case, although the docket contains no formal order "re-opening" the case. Then, on October 14, 1993, the court entered a second order conditionally dismissing the case, stating in part:

On July 13, 1993, this Court entered an order dismissing this case without costs after being advised by counsel that this matter had been settled. The court was also advised that one of the terms of the settlement was the completion of the previouslyordered sale of the real and personal property which is the subject of this action. The Court is now advised that the parties have been unable to complete the documentation of the settlement but that the parties are endeavoring to do so as expeditiously as possible.

IT IS THEREFORE ORDERED that this action is hereby dismissed, upon good cause shown, and the right to reopen the action if settlement is not consummated is to be held open for an additional period of time not to exceed December 31, 1993. It is the Court's expectation that the settlement will be consummated within this period and the property which is the subject of this action will have been sold by that time at public auction as previously ordered by the Court.

J.A. 50-51.

On the basis of the above October 14, 1993 order, Nelson contends that the case finally terminated as of the December 31, 1993 deadline set forth therein. Indeed, as Nelson contends, and as the district court found, no party formally moved to re-open the case before the December 31 deadline. Nevertheless, RTC did file, on or about December 23, 1993, a so-called "Motion to Clarify," in which it sought certain rulings from the district court related to the impending auction of the real and personal property at issue in the case. Thereafter, over the course of several months in 1994, the district court conducted at least one hearing and it ruled on a number of issues regarding the foreclosure sale. The sale of the subject property at the foreclosure auction in mid-1994 garnered three million dollarsand the court confirmed the report of sale by order entered on July 5, 1994.

In November 1994, well after confirmation of the foreclosure auction, the parties finally executed a comprehensive Settlement Agreement. The Settlement Agreement stated, in part, that as of June 1, 1993, HHHI owed RTC principal and interest on promissory notes in the amount of $14,495,949.81. As a part of the settlement, Nelson and Hustad (the sole members of HHHI) each agreed to make installment payments to RTC totaling $80,000 over the course of two years. To secure their performance, Nelson and Hustad each signed a confession of judgment in the amount of $4 million. Specifically, the parties agreed that if either Nelson or Hustad, respectively, missed a payment, RTC could file the relevant confession of judgment with the district court and obtain judgments thereon. On the other hand, if Nelson and Hustad made all of the promised payments, the confessions of judgment would be delivered to their attorneys.

Thereafter, for the nearly seventeen years from November 1994 through September 2011, no activity of consequence occurred before the district court.² The district court never entered afinal order or judgment as contemplated by Federal Rules of Civil Procedure 54 and 58 after the foreclosure sale and the parties' execution of the Settlement Agreement. The Settlement Agreement was never presented to the court or embodied in a court order.

B.

The dormancy of the case ended on September 19, 2011, during the pendency of other litigation in other courts between the parties, as described infra n.3. Appellee Orlando Residence, Ltd., asserting its status as a judgment creditor of Nelson and identifying itself as the owner of Nelson's confession of judgment, filed a motion for substitution to replace RTC as plaintiff, and for the entry of Nelson's confession of judgment.³

Nelson did not oppose ORL's motion for substitution, and the district court granted the motion. The court also entered the confession of judgment. The next day, on October 18, 2011, Nelson filed a motion to strike the confession of judgment. A few weeks later, ORL filed a motion to enter judgment, which Nelson opposed. After full briefing on a host of issues, the district court held a hearing on December 14, 2011.

On August 15, 2012, the district court entered an order directing the clerk to enter judgment against Nelson in favor of ORL for four million dollars and the clerk entered judgment on that date. Nelson timely moved to alter, amend, vacate, and dismiss pursuant to Federal Rules of Civil Procedure 59(e), 12(b)(1) and 12(h)(3), and in the alternative for relief from judgment pursuant to Rule 60(b).

On March 15, 2013, the district court denied Nelson's post-judgment motions, finding, among other things, that its October 1993 dismissal order did not deprive the court of the power to enter judgment on the confession of judgment that it found Nelson had executed knowingly, intelligently and voluntarily. Orlando Residence, Ltd. v. Hilton Head Hotel Investors, No. 9:89-cv-0662, 2013 WL 1103027 (D.S.C. Mar. 15, 2013). The court also rejected Nelson's numerous arguments for relief under Rule 60(b) regarding limitations, the amount of judgment, and personal jurisdiction. Id. Nelson timely appealed.

II.

As he did before the district court, Nelson advances a myriad of arguments in support of his assertion that the judgment entered against him must be vacated. His overarching assertion is straightforward: the district court lacked the power to enter judgment against him because, no party having moved to reopen the case as of December 31, 1993, the court's October 14, 1993 conditional dismissal effectively terminated the action on that date and thereby deprived the district court of all power over the case, save the exercise of limited, ancillary jurisdiction, such as supplementary proceedings under Federal Rule of Civil Procedure 69. Nelson further avers that although a rightful owner of the confession of judgment might be able to institute a new action against him in a proper court,his defenses to such an action foreclose relief and, in any event, require a plenary proceeding consonant...