Court Opinion

ID: 9453156
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:04:42.893262+00
Date Added: 2024-06-11T17:33:32.328946
License: Public Domain

WISDOM, Circuit Judge
(dissenting):
I respectfully dissent.
I would affirm the summary judgment. With deference, I submit that there is no genuine issue as to any material fact relating to the existence of the debt and the amount of the unpaid balance. The questions the Court raises sua sponte are spirits from the vasty deep. Frederick did not call them. And they do not come at the Court’s call. For various reasons, the counterclaim should be dismissed.
I
The Government proved its claim by the following uncontested evidence: (1) the promissory note of the Frederick Dredging Company for $100,000, dated March 16, 1960, executed by Wallace G. Frederick, the defendant; (2) Frederick’s guaranty of the note; (3) a certified copy of the judgment rendered in United States v. Frederick Dredging Co., No. 8784, Western District of Louisiana, May 28,1962 against the Company in the principal sum of $97,654.74, plus $4,-073.04 accumulated interest as of March 15, 1962, plus advances for preservation and case of collateral in the amount of $968.81, plus additional (legal) interest at 5% per cent on the principal after March 15, 1962; minus the amount of the proceeds derived from the sale of the collateral; (4) and affidavit by Ben F. Jones, Chief of the Small Business Administration, Liquidation Section stating the net unpaid balance due on the judgment. Jones’s affidavit states also that no part of the debt has been paid except as fully credited. The judgment referred to recites that it is “with full recognition of the complainant’s special mortgage, lien and privilege” on certain items of property described in the judgment. It orders the United States Marshall to seize and sell these items “at public auction with appraisement, for cash, to the highest bidder”, the amount realized to be “credited pro tanto upon the amount of this judgment”, the unpaid balance to be “executory and enforceable, in accordance with law, against any property belonging to said defendant.”
Both parties agree that the judicial sale was held and that the Small Business Administration bought the property for $44,100. One of the questions the Court conjured up, however, was whether there was proof of the sale and of the amount realized.
Fed.R. Civ.P. 56(e), in part, provides:
“When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.”
Instead of filing counter-affidavits, as required by Rule 56(e), Frederick chose to rely upon the mere allegations in his pleadings. His original answer was in the form of a general denial. After the United States moved for summary judgment, Frederick filed an amended,answer and counterclaim. In this pleading, as the district court noted, “Frederick asserted no defense to the claim of the *491United States”. He did not question the accuracy of Jones’s figures showing the amount of the unpaid principal or the interest. He did not question that the property was sold in accordance with the judgment. His position is that the plaintiff was not entitled to recover, because collateral appraised at $299,000 was sold for the sum of $44,100. Before this Court, in his brief and argument, Frederick did not dispute the amount of the Government’s claim for principal and interest. In effect, the truth of the Government’s allegations is an essential element in his counterclaim.
II
Judge Connally properly dismissed the counterclaim, citing pertinent authority omitted in the following quotation from his opinion. I agree with him.
“In his answer Frederick asserted no defense to the claim of the United States, but filed a counterclaim seeking actual and exemplary damages in the total sum of $1,000,000, alleging “fraud and conspiracy” on the part of the United States marshal and an official of the SBA in connection with the seizure and sale of the equipment. The allegation of liability is in the most general terms. It is set out in the footnote in entirety. No facts tending to show fraud are alleged (as required by Rule 9(b) F.R.Civ.P.). The pleading seems subject only to the interpretation that fraud is inherent in any foreclosure sale where the property brings substantially less than the value at which it was appraised by the mortgagee. * * * The counterclaim of defendant is a set-off, based on a different (alleged) transaction, occurring at a different time and place, and neither supported or refuted by the evidence relating to plaintiff’s cause of action. The claim of the United States is purely contractual, based upon a writing executed March 16, 1960. To recover, plaintiff need only prove default of the maker of the note. The defendant’s counterclaim, to the contrary, sounds in tort, the tortious conduct allegedly having occurred July 25, 1962, in connection with the foreclosure sale.
But disregarding the question of waiver of immunity, the defendant may not assert the counterclaim for other reasons. Bearing in mind that the present action is one by the United States against an individual, wherein the defendant makes claim for a credit, defendant is precluded from making proof thereof under terms of § 2406 of Title 28, U.S.C.A., unless and until the claim has been presented to the General Accounting Office. There is no allegation that this has been done, and from conferences with counsel I am confident that it has not.
Finally, there is no allegation in the pleadings to show that the defendant, an individual and officer of the corporate mortgagor, has become the owner of any cause of action of the nature which he seeks to assert by way of counterclaim. If, in fact, there was any tortious conduct by government personnel in connection with the foreclosure sale of the collateral, it would seem that the cause of action to recover therefor would repose in the mortgagor, and would raise issues which should have been disposed of in the foreclosure suit. Nothing to the contrary is shown here.”
Ill
Frederick’s belatedly dreamt-up counterclaim could not affect the Government’s claim except as a set-off. Frederick charges that the Small Business Administration entered into a fraudulent conspiracy with the United States Marshal in 1962 to sell for $44,100 property worth $299,000 in 1960. He wants the difference, $255,000, plus $750,000 more for damages.
If contrived for delay, Frederick’s scheme succeeded. If contrived to cloud the summary judgment issue by creating a collateral dispute, the scheme succeeded. Frederick’s dream-child was not mentioned in his original answer or in his answer to the plaintiff’s motion to strike the *492defendant’s answer. It came only after the United States filed its motion for summary judgment. It saw its first light three years after the foreclosure and sale. It rests on misleading allegations, demonstrably false, which Frederick unquestionably knew were false and misleading.
Throughout its opinion the Court appears to have in mind possibilities which could occur only in a common law summary foreclosure. Unlike many states, Louisiana law allows only judicial foreclosures, thereby reducing the opportunity for chicanery and unfairness to the mortgagor. In Louisiana, the mortgagee has no control over the seizure and sale of mortgaged property. And the law determines what is a minimum fair price after a fair appraisal. The appraisal is made by two appraisers, one appointed by the debtor and the other by the seizing creditor. LSA-R.S. 13:4363-65; LSA-C.C.P. 2331-2343. The property must be advertised. The sale must bring two-thirds of the appraised value at the first offering. The marshal’s return, the advertisement, the appraisal, the proces verbal of the sale, the act of judicial sale, and other pertinent documents are filed in the record. The district court has custody of the property seized and conducts the sale of the property through the United States Marshal or the Civil Sheriff (in state cases).
If Frederick had any legitimate complaint based on alleged irregularities or on the unfairness of the judicial sale, that complaint should have been lodged with the United States District Court in charge of the sale. Of course that would have embarrassed Frederick, for he was well aware of the exact property to be sold and what it was worth. The company of which he was president was served. And he participated in the appraisal. Directly or through an agent, he approved the appraisal of the property.
There is a very good reason why the property sold in 1962 brought much less than the appraised value of the property mortgaged in 1960: The items of property seized and sold in 1962 were only a few more than half of the items mortgaged in 1960. This fact sticks out like a sore thumb when the list of items included in the act of mortgage is laid down next to the list of property included in the district court’s judgment ordering the sale. Dredge No. 1 and the tender and machine shop equipment and other items subject to the mortgage were not sold at the judicial sale. Obviously, they were not on the Company’s premises when and where the rest of the property was seized. This, Frederick must have known.
I assume that the property not included in the judicial sale was not missing, but legitimately outside of the jurisdiction of this court. I assume too, that at some later date, perhaps without the advantages of a judicial sale, this property was summarily foreclosed on and sold. The point is that Frederick patently attempted to deceive the Court by stating that all of the mortgaged property was sold for $U,100 and that he knew nothing about it until his attorneys in this case informed him of the facts. He alleged:
“It is shown to the Court that the debt in question and which the writ of execution and sale were for the purpose of paying was made upon the basis of an appraisal of the market value of said equipment foreclosed upon which appraisal, in the approximate amount of $299,000.00 was accepted by the Small Business Administration as the fair value of the equipment pledged. It is accordingly shown to the Court that the purchase by the Small Business Administration of said equipment for the sum of $44,100.00 is unconscionable and tainted with fraud, that said purchase is void because of the fraud and conspiracy of the United States Marshal and the Small Business Administration official, and that the counter-plaintiff herein has been damaged in the amount of $255,125.00, for which he prays recovery * * *.
It is shown to the Court that Counter-plaintiff was not fully appraised of *493the fraud and conspiracy until his attorneys began checking into the terms of the sale of the assets in question and the circumstances of the foreclosure and as a result Plaintiff did not discover the fraud and conspiracy of the agents and employees of the various Governmental Agencies until January, 1965.”
IV
Frederick’s counterclaim rests solely on the false assumption that fraud must be inferred whenever the proceeds of a foreclosure sale fall far short of the appraised value of the property for purposes of a mortgage loan. I say “solely” because, as Judge Connally correctly pointed out, Frederick did not purport to allege any circumstances tending to show fraud except the differences in the two amounts. I say “false assumption” because, as this case demonstrates, on the face of the papers, (1) the property sold was not all of the property mortgaged; (2) the property sold brought two-thirds of an appraised value agreed to by Frederick; (3) the sale was a judicial sale conducted by the United States District Court and entitled to a presumption of validity, in the absence of any contention that the sale failed to meet the legal requirements of a judicial sale.
Frederick’s counterclaim therefore should be dismissed. Among other reasons, he has failed to state a cause of action with the particularity required of fraud claims by Fed.R.Civ.P. 9(b).