### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

No. 12

‐ 3648

I NLAND M ORTGAGE C APITAL C ORPORATION

, Plaintiff

‐ Appellee

,

v.

C HIVAS R ETAIL P ARTNERS

, LLC, et al

., Defendants

‐ Appellants

.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 11 C 6482

— Milton I. Shadur

, Judge

.

____________________

A RGUED S EPTEMBER 26, 2013

— D ECIDED J ANUARY 29, 2014

____________________

Before P OSNER

, M ANION

, and K ANNE

, Circuit Judges

.

P OSNER

, Circuit Judge

. Before us is the defendants’ appeal

in a diversity suit (governed by either Illinois or Georgia

law, or maybe both, as we’ll see) to enforce a written guaran

‐

ty. The district court granted summary judgment in favor of

the plaintiff and awarded $17 million in damages (we round

off all dollar figures to the nearest million).2 No. 12

‐ 3648

The plaintiff, Inland Mortgage Capital Corporation,

which the parties call IMCC, in 2007 agreed to lend a com

‐

pany named Harbins Crossing TC $60 million to buy a tract

of land in Georgia on which Harbins wanted to build a

shopping center anchored by a Wal

‐ Mart. In addition to the

usual security provided by the borrower, including a mort

‐

gage on the tract of land, IMCC obtained from defendant

Chivas Retail Partners, LLC, and others (also named as de

‐

fendants, but to simplify our opinion we’ll pretend that

Chivas is the only one), a loan guaranty agreement. Chivas

guaranteed “absolutely, unconditionally and irrevocably

... the full, complete and punctual observance, payment, and

performance and satisfaction of all of the obligations

... of

[Harbins] under the Loan Documents.” Critically, the guar

‐

anty agreement also provided that “if Lender [that is, IMCC]

forecloses on any real property collateral

... the amount of

the debt may be reduced only by the price for which that col

‐

lateral is sold at the foreclosure sale, even if the collateral is

worth more than the sale price ; and Lender may collect from

Guarantor [that is, Chivas] even if Lender, by foreclosing on the

real property collateral, has destroyed any rights Guarantor may

have to collect from Borrower or anyone else ” (emphasis added).

The agreement states that any dispute arising from it is to be

resolved under Illinois law.

Fourteen months after the loan agreement was signed,

Harbins defaulted (apparently because Wal

‐ Mart decided

not to open a store in the proposed shopping center). Thir

‐

teen months later IMCC foreclosed on its mortgage. The

foreclosure proceeding was nonjudicial; the mortgaged land

was auctioned off at a public foreclosure auction conducted

by the local sheriff after public notice of the auction. IMCC

made a credit bid (that is, a bid financed by money owed itNo. 12

‐ 3648 3

as a creditor, rather than a cash bid) for $7 million. That was

the only bid, so IMCC became the owner of the land.

IMCC then filed in a Georgia court a petition to confirm

that the auction had conformed to Georgia law. It did this

because, unless such a petition is granted, a mortgagee who

obtains property in a nonjudicial foreclosure sale can’t ob

‐

tain a deficiency judgment should the property turn out to

be worth less than the balance owed him on the mortgage.

Ga. Code § 44

‐ 14

‐ 161(a). And the court “shall not confirm

the sale [i.e., grant the petition] unless it is satisfied that the

property so sold brought its true market value on such fore

‐

closure sale.” § 44

‐ 14

‐ 161(b); see American Century Mortgage

Investors v. Strickland

, 227 S.E.2d 460, 462 (Ga. App. 1976);

Thompson v. Maslia

, 195 S.E.2d 238, 241–42 (Ga. App. 1972);

Walton Motor Sales, Inc. v. Ross

, 736 F.2d 1449, 1455 (11th Cir.

1984); Surety Managers, Inc. v. Stanford

, 633 F.2d 709, 710–11

(5th Cir. Unit B 1980).

At the close of a one

‐ day evidentiary hearing, the court in

which IMCC had filed its petition denied confirmation on

the ground that IMCC had not satisfied statutory require

‐

ments. No further explanation was offered but the parties

agree that the reason for the denial was that the court

thought the land worth more than $7 million. IMCC ap

‐ pealed, but the appellate court affirmed without an opinion.

So IMCC decided to invoke the guaranty agreement, and

when Chivas refused to honor it brought the present suit for

the difference between what it had paid for the land in the

foreclosure sale ($7 million, by writing off that amount of

Harbins’s debt to it in exchange for acquiring the land) and

the unpaid balance of the debt, including taxes, penalties,

and interest, totaling $24 million—hence $17 million, the4 No. 12

‐ 3648

amount the district court in Chicago, where the suit was

brought, awarded.

The Georgia statute, a bit of Southern populism left over

from the 1930s depression—the statute was enacted in 1935

and has not been materially changed since; see Thompson v.

Maslia

, supra

, 195 S.E.2d at 241–42; Davie v. Sheffield

, 180

S.E.2d 263, 264 (Ga. App. 1971)—is odd by modern stand

‐

ards in extinguishing the mortgagee’s right to any deficiency

judgment whatsoever no matter how slight the underpay

‐

ment for the land. (A bill to inter this legislative fossil is lan

‐ guishing in the Georgia legislature. See Ga. S.B. 106, 152d

General Assembly (2013–2014 Regular Session).) One might

think that if the land that IMCC acquired was worth $8 mil

‐

lion rather than $7 million, the deficiency judgment to which

it would be entitled would be $16 million rather than $17

million—not zero. But zero is the answer that Georgia gives

in such a case. Powers v. Wren

, 31 S.E.2d 713, 716–17 (Ga.

1944); Turpin v. North American Acceptance Corp.

, 166 S.E.2d

588, 592 (Ga. App. 1969); Craig Pendergrast & Sara LeClerc,

“Georgia Foreclosure Confirmation Proceedings in Today’s

Recessionary Real Estate World,” 16 Ga. Bar J.

, No. 4, Dec.

2010, at 11, 14. Otherwise the failure of the Georgia courts in

this case to venture any estimate of the value of the land in

question would be inexplicable.

Chivas argues that the $17 million awarded IMCC by the

federal district court in Chicago is a deficiency judgment,

and that the Georgia courts have determined that because

the land is worth more than $7 million IMCC is not entitled

to a deficiency judgment. But IMCC is not seeking a defi

‐ ciency judgment. Such a judgment is sought against a bor

‐

rower, usually and in this case a mortgagor. The borrower,No. 12

‐ 3648 5

the mortgagor, is Harbins. Harbins is not a defendant in this

suit; Chivas, the guarantor, is. By virtue of the Georgia

judgment, IMCC can’t obtain a deficiency judgment, which

is to say can’t sue Harbins for the balance of Harbins’s debt

to it. But there is nothing to prevent it from suing the guar

‐

antor. “Failure to obtain confirmation of a sale does not op

‐

erate to extinguish the remaining debt” and thus “does not

estop a creditor from pursuing other contractual security on

the debt.” Taylor v. Thompson

, 282 S.E.2d 157, 158 (Ga. App.

1981); see also cases cited in that opinion and HWA Proper

‐

ties, Inc. v. Community & Southern Bank

, 746 S.E.2d 609, 615–

16 (Ga. App. 2013). The purpose of a loan guaranty is to

make the lender whole if the borrower is unable to repay the

loan in full. The fact that the Georgia courts have prevented

IMCC from obtaining full repayment by its debtor (the bor

‐ rower) is what triggered Chivas’s liability to IMCC as guar

‐

antor of the debt.

Chivas argues that the district court’s award of damages

gives IMCC a windfall. The Georgia courts have determined

that the land is worth more than $7 million. Suppose it’s

worth $10 million. Then the award of damages will result in

IMCC’s recovering a total of $27 million ($10 million + $17

million) when it’s actually owed only $24 million. Of course

all we know is that the land is worth (or so at least the Geor

‐ gia courts have ruled) more than $7 million. We don’t know

how much more. There is no evidence of the land’s value in

the record. It could be only $7,000,001. Chivas could have

offered evidence of the actual value of the land in the district

court, but it didn’t. Actually that would have been a waste of

everyone’s time. For remember that the guaranty agreement

guarantees IMCC the difference between what it pays for the

land and the unpaid balance of the loan to Harbins, even if6 No. 12

‐ 3648

the land is worth more than what IMCC paid for it. The

guaranty agreement couldn’t be clearer. Nor is there any ar

‐

gument that the agreement is unconscionable or otherwise

unlawful, even though it indeed has built into it the possibil

‐ ity of a windfall. Chivas concedes that if IMCC had sued it to

enforce the guaranty without first seeking confirmation in

Georgia, it would have no defense; the guaranty agreement

is lawful under Georgia law as well as Illinois law, HWA

Properties, Inc. v. Community & Southern Bank

, supra

, 746

S.E.2d at 617; Taylor v. Thompson

, supra

, 282 S.E.2d at 158,

though remember that the agreement states that disputes

arising under it are to be resolved in accordance with Illinois

law.

Chivas argues that IMCC should be collaterally estopped

to sue it, for the unpaid balance of the loan to Harbins, by

the judgment of the Georgia courts that barred it from seek

‐ ing a deficiency judgment. But that repeats the argument, in

another guise, that the suit against Chivas seeks a deficiency

judgment. It doesn’t. Chivas can plead collateral estoppel

successfully only on the issue actually litigated in and decid

‐

ed by the Georgia courts in the confirmation action: namely

whether the property is worth more than $7 million. See Al

‐

exander v. Weems

, 277 S.E.2d 793, 794 (Ga. App. 1981); Walton

Motor Sales, Inc. v. Ross

, supra

, 736 F.2d at 1455. But IMCC’s

suit is based on the guaranty, not on the confirmation; and in

that suit the value of the land, as distinct from what IMCC

paid for it, is irrelevant.

Chivas’s defense if accepted would incite the beneficiary

of a guaranty to sue the guarantor first, rather than the debt

‐

or, because if the beneficiary lost a suit against a debtor the

guaranty would (were Chivas’s defense accepted) be downNo. 12

‐ 3648 7

the drain. To avoid that risk the creditor would bypass the

debtor and sue the guarantor. Guaranties would no longer

back up creditors; instead they would give debtors a free

pass.

What a topsy

‐ turvy world the defense rightly rejected by

the district court would create!

A FFIRMED

.