Opinion ID: 2156112
Heading Depth: 1
Heading Rank: 10

Heading: Counterclaim for Deficiency Judgment

Text: Finally, the Railans contend that the trial court erred in denying their claim for a deficiency judgment in the amount of $150,000, the difference between the face amount due on the note and the purchase price for which they acquired the Tandoor property at foreclosure. The Railans argue on appeal that, as noteholders, they were entitled to a deficiency judgment. We first must address a procedural point. The parties had agreed that the trial court should decide the landlord-tenant and deficiency judgment claim based on the jury's verdict, and the trial court did so, denying the deficiency judgment because the Katyals had prevailed. The Katyals contend that the Railans' counsel waived the opportunity to press their claim for a deficiency judgment after the jury returned its verdict. Again, in the post-trial motion the Railans presented no evidence in support of their counterclaim for a deficiency judgment, choosing, instead, to press the claim for possession in the landlord-tenant action. On appeal, the Railans abandon their arguments concerning the action for possession (the Katyals left the premises), but raise the issue of the deficiency judgment. Even if we give the Railans the benefit of the doubt because their counsel's concession was based on the premise that they had lost on the jury verdicts (which we partially reverse today), we do not believe that the law compels a deficiency judgment in this case where the jury found that Mr. Railan's fraudulent conduct injured the Katyals by causing the foreclosure of their property. As we do not disturb that verdict, under these circumstances, Mr. Railan should not be permitted to collect the deficiency judgment which would result from his wrongful conduct in foreclosing on the property. We are not persuaded by the argument that, having chosen to pursue a claim for contract damages against the Railans, rather than seek specific performance to avoid foreclosure, the Katyals have affirmed their obligations to the Railans under the note. The parties have cited no case directly on point and we have found none in this jurisdiction. The Railans premise their argument on the proposition that [f]or a wrongful foreclosure, the borrower has alternative and inconsistent remedies, an action at law for damages or an action in equity to set aside the wrongful foreclosure. National Life Ins. Co. v. Silverman, 147 U.S.App.D.C. 56, 62-63, 454 F.2d 899 (D.C.1971), quoted in Johnson v. Fairfax Village Condo. IV Unit Owners Ass'n, 641 A.2d 495, 507-08 n. 25 (D.C.1994). Those cases, however, consider the issue in terms of whether the claimant is entitled to a jury trial once an election of remedies has been made. They do not address the issue before us. The Railans also rely on Cusimano v. First Md. Sav. & Loan, Inc., 639 A.2d 553, 556 (D.C.1994), in support of the claim for a deficiency judgment. As the Katyals correctly note, however, Cusimano did not consider the propriety of entering a deficiency judgment in favor of a party who had been found to have fraudulently foreclosed, rather the court in Cusimano addressed contract interpretation issues in the context of a party who had lawfully foreclosed. More instructive, although also not directly on point, is United Secs. Corp. v. Franklin, 180 A.2d 505, 510 (D.C.1962), in which the trial court had entered judgment for fraud in favor of a defrauded party to a contract and a deficiency judgment in favor of the defrauding party who sued to enforce the contract. The defrauding party appealed, claiming that the two judgments were inconsistent, and argued that the defrauded party, by its conduct, had affirmed the contract. The defrauded party did not appeal and the issue of the propriety of the deficiency judgment vel non was not before the court. On appeal, the court held that on the assumption that the defrauded party had affirmed the contract, such affirmance or ratification only precluded [it] from subsequently seeking rescission of the contract and required it to perform according to its terms. Id. at 510. The court further held that having affirmed the contract, the defrauded party could nonetheless sue in tort for fraud, finding no inconsistency between affirmance and an action in tort for fraud in the inducement [of the contract]. Id. The appeal before us is complicated by the fact that it involves two different contracts: the oral contract that the Katyals alleged existed between them and the Railans in the event that the Railans purchased the bank note which they sought to enforce, and the note that the Railans purchased from the bank. We have rejected the former as violative of the statute of frauds. [18] Further, the Railans deny the existence of the contract that the Katyals alleged. Instead, the Railans' claim for a deficiency judgment arises under the Katyals' promissory note to the bank, which the Railans purchased and which they are seeking to enforce. As the Railans argue in defending the fraud claim, the right to foreclose under the note was independent of their separate negotiations with the Katyals and they succeeded to that right upon their purchase of the note from the bank. Although there is no question that the Katyals signed the note and would be liable for a deficiency if the bank had lawfully foreclosed, under the circumstances of this case, we consider it appropriate to consider the connection between Mr. Railan's fraud and the foreclosure that led to the deficiency. As the court stated in United Secs. Corp., [s]ince it was [the noteholder's] wrongful act which prevented further performance by [the obligors] under the contract, to require them to pay the total finance charge would unfairly penalize them and confer a benefit on the [fraudulent noteholder]. Id. at 511-12. We apply the same reasoning here, which is consistent with other situations in which we have denied a wrongdoer the benefit of wrongful action. [19] We are cognizant, however, that there is no evidence linking Dr. Railan to her husband's fraud. The record does not establish the manner in which the Railans owned the note, and whether their interests are separate or severable. We therefore remand to the trial court for a determination of this issue and a disposition appropriate to their respective interests and liability.