Cunningham v. Johnson , 241 F. App'x 913 ( 2007 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1133
HELEN M. CUNNINGHAM,
Plaintiff - Appellee,
versus
DAVID W. JOHNSON; DELORES B. JOHNSON, a/k/a
Delores B. Barros,
Defendants - Appellants.
---------------------------------------------
PARTA VALARTA, LLC,
Movant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (CA-99-72-1)
Argued: May 25, 2007 Decided: July 27, 2007
Before TRAXLER and KING, Circuit Judges, and T. S. ELLIS, III,
Senior United States District Judge for the Eastern District of
Virginia, sitting by designation.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: William Daniel Sullivan, TIGHE, PATTON, ARMSTRONG &
TEASDALE, P.L.L.C., Washington, D.C., for Appellants. Paul Stone
Richter, RICHTER, MILLER & FINN, Washington, D.C., for Appellee.
ON BRIEF: Thomas P. Miller, RICHTER, MILLER & FINN, Washington,
D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
David W. Johnson appeals the denial of his motion to vacate a
default judgment entered against him in the Eastern District of
Virginia. His wife, Delores B. Johnson, appeals the denial of her
motion to reconsider an award of summary judgment made against her
in the same case. These judgments arose from a suit on a $385,000
promissory note that the Johnsons executed in favor of Helen M.
Cunningham in 1991 (the “Note”), and the sum of each judgment was
computed by applying a computation of compound interest to the
principal amount of the Note. The Johnsons contend on appeal that
the Note actually provided for simple interest only, that the sums
of the judgments against them are thus erroneous, and that the
court therefore erred in denying their motions for relief from
those judgments. As explained below, the Johnsons are correct on
the interest computation issue, and we thus vacate and remand.
I.
A.
On July 25, 1991, David and Delores Johnson, in connection
with a purchase of real property, executed the Note, which
obligated them to pay Helen Cunningham the sum of $385,000 “with
interest until paid at the rate of 8.5 per centum per annum.” J.A.
3
15.1 The Note provided that “[s]aid principal and interest [were]
payable in monthly installments” of $4781.34, and specified that
“[i]f not sooner paid, said principal and interest shall be due and
payable in full Ten (10) years from date herein.” Id. In
addition, the Note provided that any late payment entitled
Cunningham to demand immediate payment of all outstanding principal
and interest, and that “[a]ny payment more than 15 days late shall
require an additional Four Percent (4%) late fee.” Id.
The Johnsons defaulted on the Note almost immediately, and
made no payments until March 7, 1996, when they paid Cunningham
$2000. Shortly thereafter, on April 9, 1996, the Johnsons made
another $2000 payment. As far as the record indicates, they have
paid Cunningham nothing since.
On January 11, 1999, Cunningham notified the Johnsons that she
was exercising her right to payment in full as a result of their
default. Shortly thereafter, on January 22, 1999, Cunningham
initiated this civil action against the Johnsons in Virginia’s
eastern district. On February 10, 1999, however, before the
Johnsons were served with the Complaint in Cunningham’s action,
Mrs. Johnson filed for bankruptcy, triggering an automatic stay of
Cunningham’s civil action against her. See 11 U.S.C. § 362(automatic stay in bankruptcy). Thus, when Mr. Johnson was served
1
Citations herein to “J.A. ___” refer to the contents of the
Joint Appendix filed by the parties in this appeal.
4
with process in this case on March 20, 1999, no such service was
made on Mrs. Johnson.
Mr. Johnson failed timely to respond to Cunningham’s
Complaint, and on April 14, 1999, Cunningham sought default
judgment against him. Cunningham’s declaration in support of
default judgment asserted that Mr. Johnson owed her the sum of
$753,516.06 on the Note. Cunningham’s declaration did not explain
how that sum had been computed, but she now concedes that it was
calculated by assessing compound interest on the amount owed on the
Note. On May 11, 1999, the district court entered a Default and
Judgment against Mr. Johnson, ordering that Cunningham recover the
sum of $757,173.12 — the request made in her April 14, 1999
declaration plus additional prejudgment interest — from him.
On June 17, 2004, after Mrs. Johnson’s bankruptcy stay had
been lifted, Cunningham filed an Amended Complaint against her in
this case, again seeking to recover on the Note. (Mrs. Johnson had
been denied a discharge in bankruptcy and thus remained obligated
to Cunningham.) Then, on September 28, 2004, Cunningham sought
summary judgment and an award of $321,013.23 in her action against
Mrs. Johnson. The amount of this request was computed by beginning
with the $757,132.12 Cunningham had asserted as due on the Note as
of May 11, 1999 — the date the default judgment was entered
against Mr. Johnson — subtracting certain payments that the
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Johnsons had made since that date, and adding further compound
interest.
On November 12, 2004, the district court conducted a hearing
on Cunningham’s summary judgment motion. At this hearing, Mrs.
Johnson acknowledged that summary judgment was warranted, but
contested Cunningham’s calculation of interest on the Note.
Specifically, Mrs. Johnson maintained that the Note provided for
simple interest only, and that the Amended Complaint and summary
judgment motion, which sought a sum computed on the basis of
compound interest, overstated Mrs. Johnson’s liability to
Cunningham. On November 30, 2004, the court entered an Order
awarding summary judgment to Cunningham and against Mrs. Johnson in
the sum of $321,263.23, the full amount Cunningham had sought.
This Order explained that “[t]he Court has reviewed Plaintiff’s
calculations and determined that they are correct and accurate.”
J.A. 117.
On December 9, 2004, Mr. and Mrs. Johnson together submitted
a post-judgment motion to the district court, in which they
maintained that the Note provided for simple interest only (the
“Post-Judgment Motion”). The Post-Judgment Motion requested that
the court reduce the judgment against Mrs. Johnson to a sum
calculated using simple, rather than compound, interest, and sought
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to have the Declaratory Judgment against Mr. Johnson vacated.2 In
a two-sentence Order of January 18, 2005, the court denied both
aspects of the Post-Judgment Motion (the “Post-Judgment Order”).
In the Post-Judgment Order, the court explained that it was “of the
opinion that the 11/30/04 [summary judgment] and 5/11/99 [default
judgment] rulings were correct,” and that the defendants’ Post-
Judgment Motion should therefore be denied. J.A. 147.
Mr. and Mrs. Johnson have appealed the denial of their Post-
Judgment Motion, and we possess jurisdiction pursuant to 28 U.S.C.
§ 1291.
B.
We review for abuse of discretion a district court’s ruling on
a motion to alter or amend a judgment pursuant to Rule 59(e). See
Bogart v. Chapell, 396 F.3d 548, 555 (4th Cir. 2005). Likewise, a
district court’s ruling on a Rule 60(b) motion for relief from
judgment is subject to abuse of discretion review. See Browder v.
Dir., Dep’t of Corr., 434 U.S. 257, 263 n.7 (1978). A district
court necessarily abuses its discretion if it makes a ruling based
on an erroneous view of the law or a clearly erroneous factual
2
The Post-Judgment Motion failed to invoke any specific
authority for the relief it requested. Mrs. Johnson’s motion for
a reduction in the judgment against her, however, is best
characterized as a motion to alter or amend the judgment pursuant
to Rule 59(e) of the Federal Rules of Civil Procedure. Mr.
Johnson’s motion to vacate the default judgment is best viewed as
a motion for relief from judgment under Rule 60(b).
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premise. See Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 405
(1990).
II.
The Johnsons contend that the district court abused its
discretion in denying their Post-Judgment Motion because its ruling
in that regard rested on an erroneous legal conclusion: that the
sums of the judgments against them were correct. According to the
Johnsons, the judgments against them were in fact incorrect,
because they were based on a compound interest computation, while
the Note allowed for simple interest only. Cunningham concedes, as
she must, that the judgments against the Johnsons were computed by
compounding interest on the Note. Thus, if the Note actually
allowed only simple interest (as the Johnsons contend), then the
basis of the Post-Judgment Order — that the judgments against the
Johnsons were correct — was an erroneous premise, and the court
abused its discretion in denying the Post-Judgment Motion.
It is a longstanding principle of Virginia law that compound
interest is allowed on a promissory note only if the note so
provides; if the note makes no provision as to whether the interest
due thereon is simple or compound, only simple interest may be
assessed. See Blanchard v. Dominion Nat’l Bank, 108 S.E. 649, 651
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(Va. 1921).3 Cunningham does not challenge this proposition, nor
does she dispute the fact that the Note failed to make any express
provision for compound interest. Rather, she asserts — without
support or explanation — that the monthly payment schedule
established in the Note implicitly demonstrates that interest was
to be compounded, because the interest on promissory notes that
call for monthly payments is “always” of the compound variety.
Appellant’s Br. 24.
In fact, however, the Note’s payment schedule called for the
Johnsons to pay only simple interest. Each month, the scheduled
payment of $4781.34 would have paid the interest that accrued that
month plus a portion of the principal, leaving only the remaining
principal as the basis for the next month’s assessment of
interest.4 Consequently, had the Johnsons adhered to the Note’s
3
In their briefs, the parties cursorily discuss the
possibility that District of Columbia law, rather than Virginia
law, may govern this dispute. They agree, however, that the
question of which jurisdiction’s law applies is immaterial to this
appeal, because both allow only simple interest on a promissory
note that fails to otherwise provide. See Giant Food, Inc. v. Jack
I. Bender & Sons, 399 A.2d 1293, 1304 (D.C. 1979).
4
The interest accrued in the Note’s first month was
approximately $2727.08. (This sum is calculated by multiplying the
initial principal of $385,000 by (.085/12), with (.085/12)
representing one month’s interest at an annual interest rate of
8.5%.) And, had the Johnsons complied with the Note’s schedule of
payments, the interest accrued in each succeeding month would have
been less than that accrued the month before, as a consequence of
the diminishing principal. Thus, the monthly payment of $4781.34
would have been more than sufficient to pay the interest due in
each month of the Note’s scheduled ten-year term.
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schedule, they would have paid interest on principal only (that is,
simple interest), rather than interest on interest (compound
interest). Cunningham’s cryptic assertion that the Note’s schedule
of payments somehow implies a compound interest term is thus
misconceived.
Nor does a compound interest provision, either express or
implied, appear in the Note’s specification of the consequences of
a default by the Johnsons. Rather, the Note included only these
two provisions relating to default: First, a default by the
Johnsons would entitle Cunningham to demand immediate payment in
full of the balance owed her. Second, if the Johnsons were more
than fifteen days late with an installment payment, they would be
obliged to pay a late fee of four percent of the sum that was past
due. In light of these two expressly specified consequences of
default, the Note’s failure to provide for compound interest as an
additional incident of late payment is especially conspicuous, and
difficult to reconcile with Cunningham’s position.
In sum, the Note made no provision, express or implied, for
interest to be compounded. Thus, pursuant to the applicable legal
principles, the Johnsons were obligated to pay only simple interest
on the Note’s principal amount. The premise of the district
court’s denial of the Post-Judgment Motion — that the judgments
against the Johnsons, the sums of which were based on compound
interest, were correct — was therefore legally erroneous, and the
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court’s ruling in that regard constituted an abuse of discretion.
Accordingly, we are obliged to vacate the Post-Judgment Order and
remand. On remand, the court should exercise its discretion over
the Post-Judgment Motion in light of our determination that the
Note allowed for simple interest only, and that the sums of the
judgments against the Johnsons were therefore incorrect.
III.
Pursuant to the foregoing, we vacate the district court’s
denial of the Post-Judgment Motion and remand for such other and
further proceedings as may be appropriate.
VACATED AND REMANDED
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