Victory Highway Village, Inc. v. Weaver

• Decision Date: 12 October 1979
• Docket Number: No. 4-78 Civ. 490.,4-78 Civ. 490.
• Citation: 480 F. Supp. 71
• Parties: VICTORY HIGHWAY VILLAGE, INC., a Minnesota Corporation, and James T. Dalton and Joanne A. Dalton, husband and wife, Plaintiffs, v. A. Vernon WEAVER, as Administrator of the Small Business Administration, Defendant.
• Court: U.S. District Court — District of Minnesota

480 F. Supp. 71

VICTORY HIGHWAY VILLAGE, INC., a Minnesota Corporation, and James T. Dalton and Joanne A. Dalton, husband and wife, Plaintiffs, v. A. Vernon WEAVER, as Administrator of the Small Business Administration, Defendant.

No. 4-78 Civ. 490.

United States District Court, D. Minnesota, Fourth Division.

October 12, 1979.

O'Neill, Burke & O'Neill, Ltd. by Joseph T. O'Neill, St. Paul, Minn., for plaintiffs.

Thorwald H. Anderson, Jr., U. S. Atty. by John M. Lee, Asst. U. S. Atty., Minneapolis, Minn., for defendant.

MEMORANDUM ORDER

ALSOP, District Judge.

This matter comes before the court upon the motion of the plaintiff for summary judgment pursuant to Rule 56 of the Fed.R. Civ.P. Briefs were submitted by both parties and oral argument was heard on the motion.

FACTUAL BACKGROUND

Plaintiff Victory Highway Village, Inc. is a Minnesota corporation with its principal office located in Mankato, Minnesota, where it owns and operates a mobile home park. James T. Dalton and Joanne A. Dalton are husband and wife, and James T. Dalton is the president of Victory Highway Village, Inc. Immediately adjacent to the property on which the mobile home park is located in Mankato was property owned by Dalton Motors, Inc., a Minnesota corporation, which owned and operated a Chrysler-Plymouth dealership for 25 years until May of 1977.

Defendant Small Business Administration (SBA) made three individual loans to Dalton Motors, Inc. for construction of a building on the premises owned by Dalton Motors, Inc. to house the Chrysler-Plymouth agency. The loans were as follows:

                October 6, 1972         $104,000
                October 6, 1972          508,000
                September 28, 1973        63,000
                

By terms of the various agreements, the $104,000 loan was a first priority, the $508,000 loan was a second priority, and the $63,000 loan was a third priority. The $508,000 loan was made by the SBA pursuant to 15 U.S.C.A. § 636(b)(3) and the other two loans were made pursuant to 15 U.S. C.A. § 636(a).

All three loans were secured by three separate mortgages on the real estate owned by Dalton Motors, Inc. In addition, the SBA obtained a guaranty on the $508,000 loan from the plaintiff Victory Highway Village, Inc. That guaranty was secured by a second mortgage on the property owned by plaintiff Victory Highway Village, Inc., which is presently being used for the mobile home park.

In addition to the guaranty and security given by Victory Highway Village, Inc., the SBA obtained three separate guaranties signed by James T. and Joanne A. Dalton as additional security for all three loans.

Dalton Motors, Inc. was unable to meet its payment schedules for the mortgages and defaults occurred. In June, 1977, the SBA initiated a mortgage foreclosure proceeding on all three mortgages given by Dalton Motors, Inc. On August 5, 1977, the sheriff's sale was held. The SBA was the successful bidder at the sale with a bid of $440,169.53. The SBA later sold the property for $465,000 pursuant to an auction held on December 28, 1978.

As of June 9, 1977, Dalton Motors, Inc. was indebted to the SBA in the total amount of $753,009. A deficiency balance remains after the real estate foreclosure as of February 13, 1979, in the sum of $342,999.74.

The procedures followed for purposes of effecting the foreclosure sale were those as set out in Minn.Stat., Chap. 580, which establishes a procedure allowing foreclosure of a mortgage by advertisement. In effecting the foreclosure, the SBA elected to grant a six-month redemption period pursuant to M.S.A. § 580.23, which provides in part as follows:

Subdivision 1. When lands have been sold in conformity with the preceding sections of this chapter the mortgagor, his personal representatives or assigns, within six months after such sale, except as otherwise provided in subdivision 2, may redeem such lands, as hereinafter provided, by paying the sum of money for which the same were sold, with interest from the time of sale at the rate provided to be paid on the mortgage debt, not to exceed eight percent per annum and, if no rate be provided in the mortgage, at the rate of six percent per annum, together with any further sums which may be payable pursuant to section 582.03. Where the redemption period is as provided in this subdivision the mortgagee, or his successors, assigns, or personal representatives, or any other purchaser so purchasing at the sheriff's sale shall by purchasing the property at the sheriff's sale thereby waive his right to a deficiency judgment against the mortgagor.

In October, 1977, Dalton Motors, Inc. initiated a declaratory judgment action against the SBA claiming that M.S.A. § 580.23, subd. 1, granted the SBA a short six-month redemption period, but also required the SBA to waive its right to a deficiency judgment against Dalton Motors, Inc. In Dalton Motors, Inc. v. Weaver, 446 F.Supp. 711 (1978), Judge MacLaughlin agreed with the position of Dalton Motors, Inc. and held that the indebtedness represented by the notes and real estate mortgages executed by Dalton Motors, Inc. to the SBA were discharged once the SBA availed itself of the procedural advantages of foreclosure by advertisement under Minnesota law.

DALTON MOTORS CASE

The initial issue which the court must resolve is whether or not the doctrine of collateral estoppel applies in this case to prevent the SBA from challenging the conclusions reached by Judge MacLaughlin in the Dalton Motors case.

Collateral estoppel is appropriate where: (1) the issue was identical to one in a prior adjudication; (2) there was a final judgment on the merits; (3) the estopped party was a party or in privity with a party to the prior adjudication; and (4) the estopped party was given a full and fair opportunity to be heard on the adjudicated issue. Gerrard v. Larsen, 517 F.2d 1127 (8th Cir. 1975) and Oldham v. Pritchett, 599 F.2d 274 (8th Cir. 1979).

The court finds that the Gerrard factors are satisfied in this case and, accordingly, the SBA is estopped from challenging the conclusions reached by Judge MacLaughlin in the Dalton Motors case on issues which are presented in this case and which are identical to ones already decided by Judge MacLaughlin in the prior case. It appears to the court that the following two issues were decided by Judge MacLaughlin in the Dalton Motors case:

1. Federal law governs this factual situation, but the application of state law is the more desirable rule of federal law and state law should be adopted as the federal rule of decision;

2. The SBA waived its rights to collection of a deficiency judgment against the mortgagor, Dalton Motors, Inc., by its use of the summary foreclosure procedure authorized by Minn.Stat., Chap. 580, and the indebtedness of Dalton Motors, Inc. on the notes and mortgages in question was therefore discharged.

The court finds that the doctrine of collateral estoppel prevents the SBA from contesting either of the above issues previously decided by the court in the case of Dalton Motors, Inc. v. Weaver, 446 F.Supp. 711 (1978). However, the Dalton Motors case did not address the issue of the liability of the guarantors in the present situation, since only the mortgagor and the mortgagee were involved in the prior lawsuit. As a result, the doctrines of collateral estoppel and res judicata do not prevent the court from deciding the liability of the plaintiffs (guarantors) in this action.

MINNESOTA LAW

Since the more desirable rule of federal law is the application of state law, it is first necessary to turn to M.S.A. § 580.23, Subd. 1, in order to determine if this statute precludes the SBA from asserting its contractual claims against the plaintiff guarantors.

M.S.A. § 580.23 specifically provides that a mortgagee who purchases the property at the sheriff's sale waives his right to a deficiency judgment against the mortgagor.

Where there is no uncertainty or ambiguity in statutory language, the statute speaks for itself and there is no room for judicial construction. Arlanson v. Humphrey, 224 Minn. 49, 27 N.W.2d 819 (1947) and M.S.A. § 645.16.

It is clear from reading Subd. 1 of M.S.A. § 580.23 that the trade-off for utilizing the six-month redemption period is a waiver of the right to a deficiency judgment against the mortgagor. The statute provides for a waiver of right against the mortgagor only and does not provide for a waiver of right against any other parties; nor does the statute provide for a discharge of the debt which the mortgage secures.

It appears to the court that, had the Minnesota Legislature intended to include the release of guarantors or any party other than the mortgagor, it would have explicitly provided for such in the statute. For instance, the State of Alaska has an antideficiency statute which specifically protects the mortgagor, his surety or guarantor from liability for a deficiency judgment in a similar type of situation. Also, California has an anti-deficiency statute which prohibits a deficiency judgment without specifying what class of persons benefit by the provision. California courts have construed this as protecting only the purchaser or mortgagor and as not encompassing protection of the guarantors nor discharging the underlying obligation (even though the California statute is clearly broader than § 580.23). See Gottschalk v. Draper Companies, 23 Cal.App.3d 828, 100 Cal.Rptr. 434 (1972), Heckes v. Sapp, 229 Cal.App.2d 549, 40 Cal.Rptr. 485 (1964) and Miller v. Steward, 529 F.2d 310 (9th Cir. 1976).

As a result, the court concludes that a mortgagee who uses the summary foreclosure proceeding contained in M.S.A. § 580.23, Subd. 1, waives any right to obtain a deficiency judgment against the mortgagor, but is not precluded by § 580.23 from seeking a deficiency judgment against the guarantors.

Since M.S.A. § 580.23, Subd. 1, does not preclude the defendants from obtaining a deficiency judgment against the plaintiffs, as guarantors, it becomes necessary to determine if...