Walter E. Heller and Co. v. O/S Sonny V.

• Decision Date: 16 May 1979
• Docket Number: No. 77-1217,77-1217
• Citation: 595 F.2d 968
• Parties: WALTER E. HELLER AND COMPANY, Plaintiff-Appellee, v. O/S SONNY V., her engines, nets, tackle, apparel and furniture, In Rem, Defendant, Vance Trawlers, Inc. and J. B. Vance, In Personam, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 968

595 F.2d 968

WALTER E. HELLER AND COMPANY, Plaintiff-Appellee, v. O/S SONNY V., her engines, nets, tackle, apparel and furniture, In Rem, Defendant Vance Trawlers, Inc. and J. B. Vance, In Personam Defendants-Appellants.

No. 77-1217.

United States Court of Appeals Fifth Circuit.

May 16, 1979.

Robert B. Benton, Jack D. Sanchez, Brownsville, Tex., for defendants-appellants.

Bennie E. Ray, Brownsville, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before WISDOM, COLEMAN and RONEY, Circuit Judges.

WISDOM, Circuit Judge:

Vance Trawlers, Inc., and J. B. Vance, defendants, appeal from judgments entered against them in an action on a promissory note and a preferred ship's mortgage on the O/S SONNY V. The plaintiff-appellee, Walter E. Heller and Company ("Heller"), foreclosed on the mortgage and purchased the SONNY V at an interlocutory judicial sale. The district court entered a summary judgment against J. B. Vance and a partial summary judgment against Vance Trawlers in the Company's deficiency suit on the promissory note, giving the defendants a credit in the amount of the purchase price at the judicial sale. The appellants protest that the trial court erred in measuring the offset by the sale price rather than by the fair market value of the ship. They also contend that the trial court erred in foreclosing trial on the issue whether the mortgage and note incorporated Texas usury law, that they were entitled to trial on the issue of allowable attorney's fees, and that there was no basis in the record for holding them liable for certain extension and late charges. We affirm the judgments in part and reverse them in part.

I.

In 1969 Vance Trawlers, Inc. and J. B. Vance executed in favor of B. G. Wylie a negotiable promissory note in the amount of $104,340 for the purchase of the O/S SONNY V. The note was secured by a preferred ship's mortgage on the SONNY V, executed the same day between Wylie and Vance Trawlers, Inc. Wylie assigned both note and mortgage to Walter E. Heller and Company, the appellee.

The promissory note is an "add on interest" note. Only $73,000.00 was actually advanced for the purchase of the SONNY V. The difference between the actual advance and the face amount of the note represented capitalized pre-maturity interest. The mortgage stated that the pre-maturity interest rate was zero. Interest after maturity was to be at the "highest lawful rate in the state wherein the homeport of the vessel is situated" (Texas). The note further provided that upon the necessity to resort to legal remedies for enforcement the holder would be entitled to "reasonable attorney fees (fifteen percent if not prohibited by law)". Both note and mortgage contained a clause, unmitigated by a savings clause, permitting the holder to accelerate all installments upon the nonpayment of any installment at its maturity.

The parties entered several extension agreements altering the payments schedule. Eventually the Vance interests became delinquent in their payments, and Heller filed an action in district court under the Preferred Ship's Mortgage Act, 46 U.S.C. § 911 Et seq., seeking foreclosure of the mortgage and recovery on the note, as well as fifteen percent of the outstanding principal and interest as reasonable attorney fees. Vance Trawlers' primary defense was a counterclaim that Heller had breached an agreement to refinance the balloon payment of $56,735.08.

J. B. Vance contended that Heller and Vance Trawlers had reached a novation, thus releasing him from any further liability on the promissory note. Both Vance and Vance Trawlers raised the further defense that the note was usurious, and both challenged Heller's claim to fifteen percent attorney fees. In March 1976 the district court entered an order for interlocutory sale of the SONNY V. The plaintiff Heller purchased the vessel for $35,000, and the district court confirmed the sale.

In early 1977 the district court granted Heller summary judgment against Vance and partial summary judgment against Vance Trawlers, Inc. The court ruled that no claim of usury could be sustained, that Heller was entitled to fifteen percent attorney fees, and that defendant J. B. Vance was personally liable for any deficiency. The defendants were given a credit of $35,000, the amount for which Heller purchased the vessel at the interlocutory sale. Vance's liability was fixed at $51,992.73 plus nine percent interest. The court granted Vance Trawlers leave to pursue its fraud and breach of contract counterclaim against Heller. Both defendants appeal.

II.

We address first Heller's contention that the district court's Amended Judgment and Partial Summary Judgment order is not appealable. 28 U.S.C. § 1291 gives this Court jurisdiction of appeals from final decisions of the district courts. An order that does not determine all the rights and liabilities of all the parties to the litigation is not an appealable, final decision unless the district court, under Rule 54(b) of the Federal Rules of Civil Procedure, directs the entry of judgment and expressly determines that there is "no just reason for delay." E. g., Capuano v. Bridges, 5 Cir. 1973, 483 F.2d 57; Bailey v. Rowan Drilling Co., 5 Cir. 1971, 441 F.2d 57. See generally 10 C. Wright & A. Miller, Federal Practice and Procedure, §§ 2653-2660 (1973). The district court's order in this case, which did not adjudicate Vance Trawlers' counterclaim against Heller, is such an interlocutory order. Although the court directed the entry of the judgments against both defendants, it did not make an express determination of "no just reason for delay" as required by Rule 54(b). The order is therefore not a final decision appealable under section 1291.

Section 1291, however, is not the sole basis of appellate jurisdiction. Heller's suit against the Vance interests is brought under the Preferred Ship's Mortgage Act, 46 U.S.C. §§ 951, 954. Both the foreclosure and the deficiency actions were within the admiralty jurisdiction of the district court. ¹ 28 U.S.C. § 1292(a)(3) gives this Court jurisdiction of appeals from the district court's "(i)nterlocutory decrees . . . determining the rights and liabilities of the parties to admiralty cases in which appeals from final decrees are allowed." Appeals lie from such decrees without the necessity for Rule 54(b) certification. O'Donnell v. Latham, 5 Cir. 1976, 525 F.2d 650 (1976); Caradelis v. Refineria Panama, S. A., 5 Cir. 1967, 384 F.2d 589; 7B J. Moore, Federal Practice P 1292 at JC-429 (2d ed. 1978). The term "interlocutory decrees" in section 1292(a)(3) is broadly interpreted. "In general, it may be said that whenever an order dismisses a claim for relief on the merits it is appealable under § 1292(a)(3)." 9 J. Moore, Federal Practice P 110.19(3) at 210 (2d ed. 1975); See, e. g., Bergeron v. Elliott, 5 Cir. 1972, 466 F.2d 514; Crews v. Arundel Corp., 5 Cir. 1967, 386 F.2d 528. The order granting summary judgment against J. B. Vance fully disposes of Heller's claims against that defendant. The partial summary judgment similarly determines Heller's entire claim against Vance Trawlers, Inc., leaving only the latter's counterclaim to be adjudicated. Thus, the district court's order is an interlocutory decree appealable under § 1292(a)(3).

III.

The district court, in determining deficiency liability, gave the plaintiffs a credit or offset in the amount of the public sale price of the vessel. The plaintiffs contend that the district court erred in granting Heller summary judgment as to the amount of deficiency liability without affording them the opportunity to prove that the fair value of the O/S SONNY V exceeded the price paid by Heller as purchaser at the interlocutory sale.

In reviewing the district court's treatment of the offset issue, we must apply federal law. "The Ship Mortgage Act, when read together with the statutes delineating the judicial sale procedure in the federal courts forms a comprehensive procedure for the foreclosure of a preferred ship's mortgage, the sale of the vessel and any resulting deficiency adjudged against the debtor In personam." J. Ray McDermott & Co., Inc. v. Vessel Morning Star, 5 Cir. 1972, 457 F.2d 815, 818 (en banc). Questions concerning deficiency judgment and judicial sale procedures are therefore governed by federal law. Id. See also Bollinger & Boyd Barge Serv., Inc. v. M/V Captain Claude Bass, 5 Cir. 1978, 576 F.2d 595.

Generally, "the amount realized on sale is an automatic determination of the amount to be applied upon the debt and the mortgage debtor, apart from statutes, most of them depression-born, is entitled to recover the balance." G. Osborne, Handbook on the Law of Mortgages § 333 at 699 (2d ed. 1970) (footnote omitted). The judicial sale price, however, is not always conclusive. "Under the federal rule, a 'fair value' offset may be allowed under proper circumstances where the equity of the circumstances requires it." United States v. Caprice, 1974, D.N.J., 427 F.Supp. 1031, 1033. See also Bollinger & Boyd Barge Serv., Inc. v. M/V Captain Claude Bass, 5 Cir. 1978, 576 F.2d 595; United States v. Wells, 5 Cir. 1968, 403 F.2d 596, 598.

The fairness of the public sale price of a vessel is therefore left to the equitable discretion of the district court. J. Ray McDermott & Co., Inc. v. The Vessel Morning Star, 457 F.2d at 819. The reported federal case law provides little guidance as to the parameters of that discretion when a defendant in a deficiency action seeks a credit in excess of the judicial sale price. Mere inadequacy of price, it is often said, is not a sufficient basis for denying confirmation of a sale or for setting aside a sale in bankruptcy. See generally 4B Collier on Bankruptcy P 70.98 (14th ed. 1978). A foreclosure sale may be set aside only if the inadequacy of the sales price is so gross as to shock the conscience. E. g., United States v. Wells, 5...