Resolution Trust Corp. v. Maplewood Investments

• Citation: 31 F.3d 1276
• Decision Date: 28 July 1994
• Docket Number: Nos. 93-1301,93-1346,s. 93-1301
• Parties: 24 UCC Rep.Serv.2d 119 RESOLUTION TRUST CORPORATION, as Conservator for Commonwealth Federal Savings Bank, Plaintiff-Appellee, v. MAPLEWOOD INVESTMENTS, A Virginia General Partnership; James D. Heatwole, Ruby A. Heatwole; Nathan H. Miller; Kimberly H. Miller, Defendants-Appellants. RESOLUTION TRUST CORPORATION, as Conservator for Commonwealth Federal Savings Bank, Plaintiff-Appellant, v. MAPLEWOOD INVESTMENTS, A Virginia General Partnership; James D. Heatwole, Ruby A. Heatwole; Nathan H. Miller; Kimberly H. Miller, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 1276

31 F.3d 1276

24 UCC Rep.Serv.2d 119

RESOLUTION TRUST CORPORATION, as Conservator for

Commonwealth Federal Savings Bank, Plaintiff-Appellee, v. MAPLEWOOD INVESTMENTS, A Virginia General Partnership;

James D. Heatwole, Ruby A. Heatwole; Nathan H.

Miller; Kimberly H. Miller,

Defendants-Appellants.

RESOLUTION TRUST CORPORATION, as Conservator for

Commonwealth Federal Savings Bank, Plaintiff-Appellant, v. MAPLEWOOD INVESTMENTS, A Virginia General Partnership;

James D. Heatwole, Ruby A. Heatwole; Nathan H.

Miller; Kimberly H. Miller, Defendants-Appellees.

Nos. 93-1301, 93-1346.

United States Court of Appeals Fourth Circuit.

Argued Oct. 26, 1993.

Decided July 28, 1994.

ARGUED: Charles F.B. McAleer, Jr., Hazel & Thomas, P.C., Alexandria, VA, for appellants. Steven Martin Gombos, Lowe & Associates, P.C., Alexandria, VA, for appellee.

ON BRIEF: Thomas C. Junker, Hazel & Thomas, P.C., Alexandria, VA, for appellants. Robert J. Lowe, Jr., Seth C. Berenzweig, Lowe & Associates, P.C., Alexandria, VA, for appellee.

Before MURNAGHAN and NIEMEYER, Circuit Judges, and KAUFMAN, Senior United States District Judge for the District of Maryland, sitting by designation.

Reversed and remanded by published opinion. Senior Judge KAUFMAN wrote the majority opinion, in which Judge MURNAGHAN concurred. Judge NIEMEYER wrote a dissenting opinion.

OPINION

FRANK A. KAUFMAN, Senior District Judge:

This case arises from a foreclosure sale of property posted to secure debt incurred by Maplewood Investments, a Virginia general partnership, and guaranteed by several individual debtors who were residents of Virginia. ¹ Maplewood contends that the sale of the property was improper because of a conflict of interests on the part of the trustee and its officers, and that, as a result, the Resolution Trust Corporation ("RTC"), successor in interest to the creditor-purchaser, is barred from obtaining a deficiency judgment for the outstanding debt from Maplewood. The district court rejected Maplewood's assertions of conflict and entered judgment in favor of the RTC, a decision from which Maplewood appeals. In so doing, the district court also held that the RTC was not a holder in due course and therefore, on that independent ground, was not entitled to victory below. The RTC cross-appeals that latter determination. For the reasons set forth infra, we disagree with the district court's holding with regard to the conflict-of-interests question but agree with that court in connection with the holder-in-due-course issue. Accordingly, we reverse the judgment below. ²

I.

On November 30, 1987, Maplewood executed a promissory note ("Note") in the amount of $365,250.00 in favor of Commonwealth Savings Bank of Virginia, F.S.B. ("Commonwealth"). The Note was individually guaranteed and also was secured by a Deed of Trust dated November 30, 1987, which was recorded as a first lien on three parcels of property in Prince William County, Virginia. On that date, the said real property was owned by Maplewood and zoned for commercial use. The trustee named under the Deed of Trust was Progressive Housing Service Corporation, a Virginia corporation ("Progressive"). At all times which are relevant in the within action, Progressive was a wholly owned subsidiary of Commonwealth. Charles W. Whittaker served as president of both Progressive and Commonwealth. Another officer of Progressive, John M. Tyler, Jr., was also the executive vice president of Commonwealth, and the counsel and registered agent for Progressive, Charles F. Sievers, served in that same capacity for Commonwealth.

Commonwealth subsequently notified Maplewood and the individual guarantors of default under the Note by a letter dated February 7, 1991. In a subsequent letter dated May 24, 1991, Sievers informed Maplewood of Commonwealth's intent to foreclose upon the property, and on June 7, 1991, the property was sold by the trustee to Commonwealth for $277,300, or approximately 70 percent of Maplewood's indebtedness, leaving a deficiency of approximately $118,803.60 owed by Maplewood and the guarantors. Apparently, Commonwealth, employing its standard practice to set a percentage of outstanding indebtedness as the amount it would bid, determined prior to the sale to offer approximately 70% of the debt owed and so informed Maplewood. Maplewood contends that the amount paid for the property fell substantially below the property's fair market value. Sievers, acting on behalf of Commonwealth and Progressive, conducted the sale. Prior to the sale, Whittaker apparently discussed with unidentified persons the amount Commonwealth would bid for the property.

Although Whittaker did not attend the sale, he seems to have acted at various times on behalf of Progressive as trustee of the property. The record also indicates that Whittaker discussed the amount to be bid with Sievers and Tyler, among others, although Judge Ellis, who conducted the bench trial below, declined to find that the latter two individuals participated in any such discussions. ³ At the sale, Tyler bid the pre-determined amount and purchased the land for Commonwealth. Sievers accepted the bid.

Approximately nine months after the sale, on March 6, 1992, Commonwealth brought suit against Maplewood and the guarantors in the Circuit Court of Prince William County, Virginia, seeking a deficiency judgment in the remaining amount of the outstanding debt upon the promissory note. Shortly thereafter, on April 3, 1992, the Director of the Office of Thrift Supervision ("OTS") closed Commonwealth and appointed the RTC as Receiver for Commonwealth. The OTS created and chartered a new federal mutual savings association known as Commonwealth Federal Savings Bank ("Association"), with the RTC as Conservator. Also on April 3, 1992, the RTC, in its capacity as Receiver, entered into a purchase and assumption agreement ⁴ with the RTC Conservator pursuant to which certain assets and liabilities of Commonwealth were transferred to the Association, including the Note which is the subject of this federal action. The RTC Conservator succeeded to all right, title and interest in the Note pursuant to 12 U.S.C. Sec. 1821(d)(2)(A). ⁵

The RTC Conservator filed a Notice of Substitution in the Prince William County court on July 2, 1992, replacing the former plaintiff Commonwealth as successor-in-interest in that state court proceeding, and then removed the case to the United States District Court for the Eastern District of Virginia. On November 6, 1992, U.S. Senior District Judge Albert V. Bryan, Jr., sitting in that federal district court, granted the RTC's motion for summary judgment as to liability but reserved for trial the determination as to whether the RTC was entitled to any portion of the claimed deficiency. Judge Bryan, in so doing, however, rejected the RTC's contention that it was entitled to be treated as a holder in due course with regard to the Note. U.S. District Judge T.S. Ellis, III, who conducted a bench trial on December 9, 1992, entered judgment on January 12, 1993, for the RTC in the amount of $143,643.24. ⁶ Maplewood filed a motion pursuant to Fed.R.Civ.P. 52(b), asking the trial court to amend its findings of fact and conclusions of law. Judge Ellis granted that motion with regard to several of the proposed findings of fact and denied it as to the rest of the requested findings and as to certain proffered conclusions of law. Judge Ellis, in so ruling, reaffirmed his prior conclusion that the foreclosure sale complied with Virginia law, even in the light of the additional findings, and left undisturbed Judge Bryan's determination denying to the RTC holder-in-due-course status. Judge Ellis subsequently denied Maplewood's motion for any further reconsideration. Maplewood filed its notice of appeal to this Court, and the RTC filed its notice of cross-appeal. Both appeals were timely filed. ⁷

II.

We are confronted with a number of issues in the within case. Initially, we must determine whether Judge Ellis was correct in rejecting Maplewood's conflict-of-interests defense. If he was correct in so doing, the judgment below in favor of the RTC would stand without this Court reaching the holder-in-due-course issues. However, if Judge Ellis wrongly rejected the conflict-of-interests assertions by Maplewood, we then must reach and decide a number of quite difficult questions. In so doing, we must ascertain against what type of holder and/or instrument the conflict-of-interests defense may be maintained successfully; whether the Note is non-negotiable and/or if the RTC qualifies as the equivalent of a holder in due course; and, finally, whether the involvement of a federal remedial agency such as the RTC, under the circumstances of this case, should lead us to accord the RTC what amounts to holder-in-due-course status and consequent immunity from the conflict defense.

III.

Maplewood asserts various grounds upon which it claims this appellate Court should reverse Judge Ellis in connection with his rejection of the conflict-of-interests defense. Although Judge Ellis did consider the alleged conflict as a factor in ascertaining the fairness of the price paid for the property, in the end he decided that the price was fair and that the foreclosure sale was conducted properly. Maplewood contests those rulings and also claims, inter alia, that the sale suffered from procedural deficiencies other than the alleged conflict on the part of the trustee, including inadequate advertisement of the impending sale and the presence at the foreclosure sale of only one bidder. All of those purported deficiencies stem from, or are closely related to, the allegations of conflict of interests on the part of the trustee, Progressive, and particularly its officers and counsel.

As to inadequate advertisement, paragraph 19 of the Deed of Trust requires notice of a foreclosure sale to be published "once a week for two successive weeks in a newspaper having...