Walton Motor Sales, Inc. v. Ross

• Decision Date: 19 July 1984
• Docket Number: No. 82-8640,82-8640
• Citation: 736 F.2d 1449
• Parties: 39 UCC Rep.Serv. 1937 WALTON MOTOR SALES, INC., et al., Plaintiffs-Appellees, Cross-Appellants, v. F.H. ROSS, Jr., and Ernest Schleussener, Sr., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1449

736 F.2d 1449

39 UCC Rep.Serv. 1937

WALTON MOTOR SALES, INC., et al., Plaintiffs-Appellees Cross-Appellants, v. F.H. ROSS, Jr., and Ernest Schleussener, Sr. Defendants-Appellants, Cross-Appellees.

No. 82-8640.

United States Court of Appeals Eleventh Circuit.

July 19, 1984.

Paul W. Calhoun, Jr., Vidalia, Ga., for defendants-appellants, cross-appellees.

H. Jerome Strickland, Hubert C. Lovein, Jr., Macon, Ga., for plaintiffs-appellees, cross-appellants.

Appeals from the United States District Court for the Southern District of Georgia.

Before TJOFLAT and FAY, Circuit Judges, and WISDOM ^*, Senior Circuit Judge.

WISDOM, Senior Circuit Judge:

In this diversity case controlled by Georgia law, we are presented with a dispute between a creditor (the defendant, F.H. Ross) and a debtor (the corporate plaintiff, Walton Motor Sales, Inc. ¹ ) over the proceeds from the liquidation of the plaintiffs' business. The defendant held security interests in three tracts of real estate owned by the corporate plaintiff and in the personal property and inventory of that plaintiff. After a number of defaults on the part of the corporate plaintiff, Ross sold all of this property to satisfy the corporate plaintiff's indebtedness to him. Alleging that these sales produced a surplus of proceeds over debt, the plaintiffs brought suit. The district court found that a surplus resulted from the foreclosure sale of the real estate, but that a deficiency arose from the sales of personal property and inventory. The court subtracted the deficiency from the surplus and entered judgment in favor of the plaintiffs. Both the defendant and the plaintiffs appealed, attacking various aspects of the district court's decision.

The transactions in this case took place 15 to 20 years ago. This tired lawsuit has been in the courts for over thirteen years, a period of time that has witnessed the deaths of the principal individual plaintiff, one of the plaintiffs' attorneys, and the district judge to whom the case was originally assigned. ² The district court's judgment reflects a great deal of thought and effort. Nevertheless, we cannot affirm the judgment in all respects. We affirm in part, reverse in part, and remand with instructions to enter judgment for the plaintiffs in the amount of $55,205.84 plus interest.

I. FACTS

Walton Motor Sales, Inc. (Walton) was a car dealership located in Vidalia, Georgia. As a result both of direct lending from Ross to Walton and of Ross's assumption of Walton's debts to others, Walton became heavily indebted to Ross during the mid-1960s. To protect his extensions of credit, Ross obtained security interests in virtually all of Walton's business assets, including three tracts of real estate and the personal property and inventory of the corporate plaintiff. ³ Walton's car dealership and a bowling alley and roller skating rink that Walton operated were located on the land.

In addition to acquiring security interests in Walton's business assets, Ross took other steps to protect his position. On February 24, 1965, the individual plaintiffs pledged their stock in Walton to the defendant. On April 22, 1965, the parties executed an agreement entitled "Contract as to Fiscal and Credit Policy Controls". This agreement granted Ross "full, absolute, and complete control" over all fiscal affairs and credit policies of the corporate plaintiff. The contract also stated that, "should a default occur, either in this contract or those made contemporaneously herewith, [Ross] shall have the authority, right and option to immediately take full and complete possession, custody and control of ALL properties in possession of [Walton]".

Ross did not assert his rights under this contract until June 1968. At that time, after having made additional advances to Walton and having suffered consistent defaults on Walton's part, Ross took control of Walton Motor Sales. On June 27, Ross, voting the Walton shares that had been pledged to him, elected a new board of directors for the company. Ross elected himself Chairman of the Board. On July 2, the new board elected Ross president and demoted George Walton from president to vice-president. On August 14, the board elected Ernest Schleusener, a business associate of Ross, executive vice-president.

Ross attempted briefly and unsuccessfully to resuscitate the plaintiffs' failing business. With the participation of George Walton, Ross and Schleusener operated the dealership for approximately six months. By the end of the year, however, Ross decided to liquidate the business. ⁴ On January 18, 1969, the individual plaintiffs executed an agreement acknowledging the defendant's right to foreclose on all security agreements held by him. Most of Walton's existing inventory of new and used cars had been sold between November 1968 and February 1969. Ross sold all of the remaining inventory and personal property (excluding certain items of equipment, such as the bowling alley and skating rink equipment) in a public auction on February 5. William Darby, an attorney acting as "mutual trustee" for Ross and Walton, auctioned off the three tracts of real estate and the remaining items of equipment on March 4. Acting in accordance with Georgia statutory procedure, ⁵ Darby later obtained a state court's confirmation and approval of the real estate foreclosure sale.

The plaintiffs filed suit against Ross and Schleusener on April 8, 1971. The complaint alleged that the proceeds from the liquidation of Walton Motor Sales exceeded the amount of the debts secured by the property sold, and that Ross was liable to the plaintiffs for the resulting surplus. The complaint also charged Ross and Schleusener with illegally seizing control of the plaintiffs' business and maliciously destroying that business. Ross counterclaimed for alleged deficiencies from the sale of Walton's assets.

On June 27, 1973, the district court entered an order granting partial summary judgments to both the plaintiffs and the defendants. The court ruled that Ross owed Walton a surplus from the real estate foreclosure sale, but that an accounting would be necessary to determine the amount owed. The court then held that Walton was liable to Ross for a deficiency resulting from the sales of inventory and personal property; as with the surplus, however, an accounting would be necessary to determine the amount of the deficiency. The court granted summary judgment to the defendants with respect to the allegation of intentional destruction of the plaintiffs' business. Order on Motions for Summary Judgment, S.D. Ga. June 27, 1983, 2 Record 477.

After the death of the trial judge, the case was reassigned to another district judge, who referred it to a special master. The special master reviewed the record and issued two orders resolving the parties' factual and legal contentions. Report of Special Master for Accounting and Computation, S.D. Ga. Feb. 19, 1982, 3 Record 899; Supplement to Report of Special Master for Accounting and Computation, S.D. Ga. June 24, 1982, 3 Record 936. The special master determined that the surplus from the real estate foreclosure sale amounted to $236,815.33 and that the total deficiency from the sales of personal property and inventory came to $149,574.12. ⁶ The district court adopted all of the factual findings and legal conclusions of the special master, ⁷ offset the surplus by the deficiency, and entered judgment for the plaintiffs for $87,241.21. Order for Entry of Judgment, S.D. Ga. Sept. 21, 1982, 3 Record 941. Both Ross and the plaintiffs have appealed that judgment.

II. ISSUES ON APPEAL

The defendant alleges that the district court committed three errors. First, Ross contends that the court erred legally and factually in reaching its determination concerning the amount of the proceeds from the real estate foreclosure sale. Second, Ross contends that the court erred in deciding that the defendant did not pay Darby a trustee's fee for his work in arranging and conducting that foreclosure sale. Third, Ross contends that the court erred in holding that he could not recover payments made on Walton's behalf under the authority of the "Contract as to Fiscal and Credit Policy Controls". We reject the first two contentions and accept the third.

The plaintiffs allege two errors in the district court's judgment. First, the plaintiffs argue that the court should have awarded them prejudgment interest on all or part of the surplus from the real estate foreclosure sale. Second, the plaintiffs assert that the defendant did not account for his disposition of Walton's personal property and inventory in sufficient detail to recover a deficiency judgment on the sale of those assets. We reject the first argument and accept the second.

III. ANALYSIS

A. Proceeds from the Real Estate Foreclosure Sale

A major issue at trial concerned the amount of the proceeds from the real estate foreclosure sale conducted on March 4, 1969. The plaintiffs contended that the three tracts of land sold for $597,672.16 and that various items of equipment ⁸ located within buildings on the land sold separately for $61,000, thus bringing the total proceeds from the sale to $658,672.16. Ross argued that the equipment was sold along with the tracts of land and, therefore, that any proceeds from the sale of the equipment were included in the $597,672.16 bid on the land. The district court resolved this issue in favor of the plaintiffs. The defendant now mounts two arguments to attack that holding. We do not find either argument persuasive, and we affirm the district court's holding.

Ross asserts that the judicial confirmation of the foreclosure sale operates as res judicata to bar the plaintiffs from litigating the amount of the proceeds from that sale. Georgia law requires judicial approval of foreclosure sales of real estate as a condition precedent to any action for a deficiency judgment. Off. Code Ga. Ann. Sec. 44-14-161(a) (1982). Before...