Resolution Trust v. SOUTHWEST DEVELOPMENT

• Decision Date: 05 November 1992
• Docket Number: No. 91-325-CIV-5-BR.,91-325-CIV-5-BR.
• Citation: 807 F. Supp. 375
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: RESOLUTION TRUST CORPORATION, as Receiver of First Federal Savings Association of Raleigh, Plaintiff, v. SOUTHWEST DEVELOPMENT COMPANY, et al., Defendants.

807 F. Supp. 375

RESOLUTION TRUST CORPORATION, as Receiver of First Federal Savings Association of Raleigh, Plaintiff, v. SOUTHWEST DEVELOPMENT COMPANY, et al., Defendants.

No. 91-325-CIV-5-BR.

United States District Court, E.D. North Carolina, Raleigh Division.

November 5, 1992.

Mark C. Kirby, Raleigh, NC and M. LeAnn Nease, Brown & Bunch, Durham, NC, for plaintiff.

James M. Kimzey, McMillan, Kimzey & Smith, Raleigh, NC, Gordon C. Woodruff, Smithfield, NC, for defendants.

ORDER

BRITT, District Judge.

This matter is before the court on plaintiff's motion for partial summary judgment against the individual guarantor defendants pursuant to Rule 56 of the Federal Rules of Civil Procedure, and on defendants' motion for leave of court to amend their answer pursuant to Rule 15(a) of the Federal Rules of Civil Procedure. The motions have been fully briefed and are now ripe for ruling.

FACTS

Plaintiff, as conservator of First Federal Savings Association of Raleigh, filed this action seeking to recover a deficiency judgment against defendants for sums owing on a promissory note. On 30 December 1987, defendant Southwest Development Company, through its general partners, defendants Rumpole Corporation, Barrow-Safrit, Inc., and W.R. Henderson & Associates, Inc. executed a promissory note ("the note") to First Federal Savings and Loan Association of Raleigh (hereinafter "failed First Federal") secured by a deed of trust in certain lands described as Trailwood Forest Subdivision. Under the terms of the note, failed First Federal agreed to loan defendants $7,315,377 with interest while defendants agreed, in return, to pay back this amount in monthly installments. Also, on 30 December 1987, the individual guarantor defendants Herbert I. Cunningham, Joanne H. Cunningham, Mary Cooper Safrit, Robert W. Safrit, Passmore L. Barrow, III, Cynthia G. Barrow (hereinafter "individual guarantor defendants"), and the Hendersons¹ executed guaranty agreements to failed First Federal guaranteeing payment of the note. Defendant CB & S assigned certain properties as collateral on the note, and that assignment is not at issue regarding this motion for partial summary judgment.

On 4 January 1990, failed First Federal sent a certified letter to all individual guarantor defendants demanding payment in full on the note. No action was taken in response to the letter and as of this date the principal amount and interest owing on the note remain unpaid. Consequently, on 30 April 1990, a foreclosure sale was held on the Trailwood Forest property, which represented a portion of the collateral for the loan. Notice of the foreclosure was sent to the general partners of Southwest Development Company. However, it appears, and plaintiff does not dispute, that written notice of the foreclosure was not sent to the individual guarantor defendants. At the foreclosure sale, failed First Federal bid $3,500,000 which was the highest bid.

On 7 December 1990, the Office of Thrift Supervision ("OTS") declared failed First Federal insolvent and closed its operations. OTS then appointed Resolution Trust Corporation ("RTC") as its receiver, and authorized the issuance of a charter for a new association known as First Federal Savings Association of Raleigh ("new First Federal"). By virtue of this charter executed pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), new First Federal acquired all the assets and liabilities of the failed First Federal. Subsequently, RTC, as receiver of new First Federal, was substituted for RTC, as conservator of new First Federal as plaintiff in this action by this court's 7 May 1992 order.

As of 31 July 1992, the principal amount owing on the note plus interest and late charges, less net proceeds received was $4,985,677.86. The note accrues $1,309.79 interest per day. Thus, plaintiff seeks a deficiency of $4,985,677.86 plus interest to date and attorney's fees.

DISCUSSION

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

I. Plaintiff's Motion for Partial Summary Judgment Concerning the Individual Guarantor Defendants and Defendants' Motion for Leave of Court to Amend Their Answer

It is undisputed that Southwest Development Company, through its general partners, executed the note and that the individual guarantor defendants executed guaranty agreements. Also undisputed is the fact that the note is in default and past due. Thus, plaintiff asserts that since it has made out a prima facie case to recover from the individual guarantor defendants ("defendants") sums owing on the note, summary judgment is warranted in its favor. Defendants only contend that certain affirmative defenses exist which protect them from any liability on the note, or in the alternative, reduce their liability.

"When signatures are admitted or established, production of the instrument entitles a holder to recover on it unless defendant establishes a defense." N.C.Gen.Stat. § 25-3-307(2); see also, L. Harvey and Son Co. v. Jarmen, 76 N.C.App. 191, 333 S.E.2d 47, 52-53 (1985); Wolfe v. Eaker, 50 N.C.App. 144, 272 S.E.2d 781, 783 (1980), disc. rev. denied, 302 N.C. 222, 277 S.E.2d 69 (1981). If there is no genuine issue of material fact as to the essential elements of plaintiff's claim for sums owing on a promissory note, then as a matter of law, absent proof or non-waiver of a valid affirmative defense, plaintiff is entitled to judgment against defendants for sums which they owe under the note. Jarmen, 333 S.E.2d at 52-53; Wolfe, 272 S.E.2d at 783.

A. Defendants' Assertion of N.C.Gen. Stat. § 45-21.16 as An Affirmative Defense and Their Motion for Leave of Court to Amend The Answer to Include the Same.

First, defendants argue that since plaintiff failed to serve them with notice of the foreclosure sale as required under N.C.Gen.Stat. § 45-21.16(b)(2)² and since defendants did not waive this notice, they are not liable for any deficiency after the sale. In conjunction with this argument, defendants claim that the language in the guaranty agreements whereby defendants expressly waived "all other notices to which the defendants might be entitled", does not constitute a waiver of the failure-to-give-notice defense in view of N.C.Gen. Stat. § 45-21.16(f). This provision provides that: "In any case in which the original principal amount of indebtedness secured was one hundred thousand dollars ($100,000) or more, any person entitled to notice and hearing may only waive after default the right to notice and hearing by written instrument signed by such party." N.C.Gen.Stat. § 45-21.16(f). Because the waiver was made prior to any default and because the amount of indebtedness here is well over $100,000, defendants maintain that plaintiff's failure to give defendants notice of the foreclosure sale precludes this action by plaintiff to recover a deficiency judgment.

In response, plaintiff does not dispute that it did not give notice of the foreclosure to defendants. Rather, plaintiff argues that defendants are barred from relying on an unplead affirmative defense to defeat this motion for partial summary judgment. To explain, plaintiff contends that defendants have failed to comply with Rule 8(c) of the Federal Rules of Civil Procedure which requires a party to plead affirmatively "any ... matter constituting an avoidance or affirmative defense." Fed.R.Civ.P. 8(c). Because defendants have never raised this affirmative defense in their pleadings other than in their response to plaintiff's motion for summary judgment, plaintiff asserts that defendants' reliance on N.C.Gen.Stat. § 45-21.16 is improper under the Federal Rules of Civil Procedure in that it results in surprise and prejudice to plaintiff. Plaintiff therefore argues that regardless of whether defendants have contractually waived the § 45-21.16 defense in the guaranty agreements, defendants legally waived it by failing to timely raise the defense as required under Fed.R.Civ.P. 8(c). The court agrees with plaintiff's position.

From a review of relevant case law, it is clear that the defense set forth in § 45-21.16 constitutes an affirmative defense within the meaning of Rule 8(c). Whether a state statutory defense is an affirmative defense within the meaning of Rule 8(c) is determined by the substantive law of the state where the district court sits. Funding Systems Leasing Corp. v. Pugh, 530 F.2d 91, 95 (5th Cir.1976). While § 45-21.16 has not been addressed specifically, North Carolina courts have considered statutory bars to recovery as affirmative defenses. Roberts v. Heffner, 51 N.C.App. 646, 277 S.E.2d 446 (1981) (state statutory bar to recovery for failure to obtain general contractor's license required under N.C.Gen.Stat. § 87-1 is an affirmative defense). The test to determine whether a defense is an affirmative defense is whether the defense introduces new matter in an attempt to avoid plaintiff's claim, regardless of the truth or falsity of the allegations in the claim. Id. 277 S.E.2d at 448. Measured against this standard, the court finds that § 45-21.16, as defendants have employed it here, is an affirmative defense in that it injects an entirely new issue into the case with its purpose being to avoid all or part of plaintiff's claim for a deficiency judgment. As such, defendants' use of § 45-21.16 falls within the purview of Rule 8(c) and must be affirmatively alleged.

Having established that § 45-21.16 is an affirmative defense as defined under North Carolina law, the question thus arises whether defendants have waived this defense by failing to plead it in their answer. Generally, a failure to plead an affirmative defense at...