Weems v. McCloud

• Decision Date: 25 June 1980
• Docket Number: Nos. 78-1540,78-1541,s. 78-1540
• Citation: 619 F.2d 1081
• Parties: Kyle R. WEEMS, Trustee in Bankruptcy for Hamilton Mortgage Corporation, and the Federal Deposit Insurance Corporation, Liquidator for the Hamilton National Bank of Chattanooga, Plaintiffs-Appellees, v. Walter J. McCLOUD, II et al., Defendants, Walter J. McCloud, II, and Charles S. Wilder, Jr., Defendants-Appellants. Kyle R. WEEMS, Trustee in Bankruptcy for Hamilton Mortgage Corporation, and the Federal Deposit Insurance Corporation, Liquidator for the Hamilton National Bank of Chattanooga, Plaintiffs-Appellees Cross-Appellants, v. Walter J. McCLOUD II, et al., Defendants, Walter J. McCLOUD, II, and Charles S. Wilder, Jr., Defendants-Appellants Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1081

619 F.2d 1081

Kyle R. WEEMS, Trustee in Bankruptcy for Hamilton Mortgage

Corporation, and the Federal Deposit Insurance

Corporation, Liquidator for the Hamilton

National Bank of Chattanooga, Plaintiffs-Appellees, v. Walter J. McCLOUD, II et al., Defendants, Walter J. McCloud, II, and Charles S. Wilder, Jr.,

Defendants-Appellants.

Kyle R. WEEMS, Trustee in Bankruptcy for Hamilton Mortgage

Corporation, and the Federal Deposit Insurance Corporation, Liquidator for the Hamilton National Bank of Chattanooga, Plaintiffs-Appellees Cross-Appellants, v. Walter J. McCLOUD II, et al., Defendants, Walter J. McCLOUD, II, and Charles S. Wilder, Jr.,

Defendants-Appellants Cross-Appellees.

Nos. 78-1540, 78-1541.

United States Court of Appeals Fifth Circuit.

June 25, 1980.

Randall L. Hughes, Charles R. O'Kelley, Jr., Atlanta, Ga., for defendants-appellants.

Johnson & Montgomery, Albert S. Johnson, Harmon W. Caldwell, Jr., Atlanta, Ga., for plaintiffs-appellees.

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

Before GEE, TJOFLAT and ANDERSON, Circuit Judges.

R. LANIER ANDERSON, III, Circuit Judge:

This is a consolidation of two cases involving two separate tracts of land located in Gwinnett County, Georgia. Plaintiffs-appellees, Weems and The Federal Deposit Insurance Corporation (FDIC) sought confirmation of the nonjudicial sale of each tract of land conducted pursuant to a power of sale contained in security deeds they held as successors in interest respectively to Hamilton Mortgage Corporation and The Hamilton National Bank of Chattanooga. In each case, the court below denied confirmation of the sales but granted Weems and the FDIC permission to resell the property. Defendants-appellants, McCloud and Wilder, bring this appeal with respect to the grant of permission to resell arguing (1) that subject matter jurisdiction does not obtain, (2) that the court below improperly struck proffered defenses, (3) that the court improperly struck counterclaims, and (4) that the court improperly denied McCloud and Wilder a jury trial. Weems and the FDIC have brought a cross-appeal only with respect to case No. 78-1541, arguing that the trial court improperly denied confirmation because the record demonstrates the effective bid price exceeded the fair market value of the property. In each case, we affirm the trial court's decision in part and reverse in part. ¹

In 1973, McCloud, C. L. Flake, Jr., ² and Wilder executed two notes to Hamilton Mortgage Corporation, each note secured by a tract of land in Gwinnett County, Georgia. ³ In 1974, these notes and their accompanying security deeds were modified to increase the indebtedness. ⁴ In 1975, Hamilton Mortgage transferred a 60.08% interest in these notes and security deeds to The Hamilton National Bank of Chattanooga ("Bank"). The Bank was declared insolvent in February, 1976, by the Comptroller of the Currency and the FDIC was appointed receiver. The FDIC was subsequently made liquidator of the Bank. Hamilton Mortgage was adjudicated bankrupt in March, 1976, at which time Weems was appointed as trustee. After McCloud, Flake and Wilder defaulted on the two notes, Weems, as trustee, and the FDIC, as liquidator, pursuant to a power of sale contained in each security deed, advertised the two tracts for sale and conducted nonjudicial foreclosure sales of the property by public outcry on the steps of the Gwinnett County Courthouse. Weems and the FDIC were high bidders at the auction. ⁵ Subsequent to the sale, Weems and the FDIC timely filed a Report of Sale Under Power in federal district court, requesting that the sales be confirmed. Confirmation is necessary under Georgia law for any subsequent deficiency action. After a hearing on the merits, the district court denied confirmation of the sales, but granted Weems and the FDIC permission to resell the two tracts of land.

I. Subject Matter Jurisdiction.

In their Report to the district court, Weems and the FDIC alleged jurisdiction pursuant to 12 U.S.C.A. § 1819 (West 1969). ⁶ The pertinent part of this statute states that the FDIC shall have power,

To sue and be sued, complain and defend, in any court of law or equity, State or Federal. All suits of a civil nature at common law or in equity to which the (FDIC) shall be a party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction thereof, without regard to the amount in controversy . . . .

McCloud and Wilder contend that a Georgia confirmation proceeding is a summary proceeding with such peculiar characteristics that it does not come within the scope of "suits of a civil nature at common law or in equity" as that phrase is used in § 1819. Because this is a question of first impression for this Court, a careful description of the nature of a Georgia confirmation is in order. ⁷

Under Georgia law, a creditor is not required to obtain confirmation of a nonjudicial sale, but such sales must be confirmed by a court before the creditor may sue the debtor for any deficiency resulting from the sale. Ga.Code Ann. §§ 67-1503 05 (Supp.1979). ⁸ These statutes were enacted in 1935 to remedy the abuse resulting during the depression when many mortgagors were forced into bankruptcy because of deficiency judgments obtained after nonjudicial foreclosure sales in which mortgagees acquired the property at nominal or depressed bids. Thompson v. Maslia, 127 Ga.App. 758, 195 S.E.2d 238 (1972). The obvious purpose of these statutes is to protect debtors from deficiency judgments when the forced sale of their property brings less than fair market value.

A confirmation proceeding begins with a report of the sale to the judge of the superior court of the county where the land lies. Ga.Code Ann. § 67-1503. This is a court of general jurisdiction, Ga.Const. Art. VI, Sec. IV, Par. III; Ga.Code Ann. § 2-3303; and is the court with exclusive jurisdiction in cases of divorce, in criminal cases where the offender is subject to loss of life or confinement, in cases respecting titles to land, and in equity cases. Ga.Const. Art. VI, Sec. IV, Par. I; Ga.Code Ann. § 2-3301. The requirement that the report of the sale shall be made to the judge of the superior court of the county in which the land lies has been held to be a venue requirement which may be waived by the debtor, and not a jurisdictional requirement. Grizzle v. Federal Land Bank of Columbia, 145 Ga.App. 385, 244 S.E.2d 362 (1978). The Georgia Court of Appeals at one time held that confirmations brought in federal district court did not comply with the requirement that confirmation be brought in the county where the land lies, and that accordingly, confirmations brought in federal district courts would not be honored in subsequent deficiency actions in state court. Windland Company v. FDIC, 151 Ga.App. 742, 261 S.E.2d 407 (1979). The Georgia Supreme Court has only recently reversed this holding, FDIC v. Windland Company, 245 Ga. 194, 264 S.E.2d 11 (1980), clearly ruling that confirmation proceedings conducted in federal district courts comply with § 67-1503 for the purposes of deficiency suits later brought in state courts.

A confirmation proceeding is summary in nature. The mortgagee initiates a confirmation not by filing a complaint with the clerk of the court, but rather by reporting the sale within 30 days directly to the appropriate judge. Dukes v. Ralston Purina Company, 127 Ga.App. 696, 194 S.E.2d 630 (1972). Only a five-day notice of the confirmation hearing need be given the debtor. There is no requirement that a debtor be given notice of the hearing, but any debtor not given timely notice may not be held liable in any subsequent deficiency action. First National Bank & Trust Company v. Kunes, 230 Ga. 888, 199 S.E.2d 776 (1973). While the debtor is not required to file an answer to the mortgagee's report, he is permitted to raise objections. Wall v. Federal Land Bank of Columbia, 240 Ga. 236, 240 S.E.2d 76 (1977). Typically, debtors in Georgia have responded with answers to the report. In keeping with a confirmation's summary nature, the statutes specify the issues the court may consider. Section 67-1504 indicates that the court must receive evidence concerning the true market value of the property sold, and Section 67-1505 provides that the court is to pass as well on the legality of the notice, advertisement, and regularity of the sale. In applying these statutes, the Georgia courts have stated that the duty of the court is "to test the fairness of the technical procedure of the actual sale and to insure that the sale has brought at least the true market value of the property." Jones v. Hamilton Mortgage Corp., 140 Ga.App. 490, 231 S.E.2d 491 (1977). Later cases have limited the inquiry concerning fairness of the technical procedure to issues relating to whether the bidding was chilled or whether the bid price was below market value. Shantha v. West Georgia National Bank, 145 Ga.App. 712, 244 S.E.2d 643 (1978); Keever v. General Electric Credit Corporation of Georgia, 141 Ga.App. 864, 234 S.E.2d 696 (1977). ⁹ A debtor may raise defenses which relate to the true market value or the specified issues of fairness in the technical procedures. The debtor may not raise counterclaims or ask for any alleged excess resulting from the sale. Peachtree Mortgage Corporation v. First National Bank of Atlanta, 143 Ga.App. 17, 237 S.E.2d 416 (1977). Nor may the debtor raise the issue of the existence of a default, ¹⁰ the amount of the debt, or the existence of any side agreement which could have been the basis of an injunction preventing the foreclosure sale. Hamilton Mortgage Corporation v. Bowles, 142 Ga.App. 882, 237 S.E.2d 198 (1977); Jones v. Hamilton Mortgage Corp., supra.

Although a confirmation is summary in nature, it is necessary that a hearing be held. Lewis v. First National Bank of Atlanta, 141 Ga.App. 338, 233 S.E.2d...