State Bank of Texas v. Patel

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 11-11268 ELEVENTH CIRCUIT
SEP 30, 2011
Non-Argument Calendar
JOHN LEY
________________________ CLERK
D.C. Docket No. 1:09-cv-01494-RLV
STATE BANK OF TEXAS,
llllllllllllllllllllllllllllllllllllllll Plaintiff -
llllllllllllllllllllllllllllllllllllllll Counter Defendant -
llllllllllllllllllllllllllllllllllllllll Appellee,
versus
MUKESH C. PATEL,
RAJESH C. PATEL,
llllllllllllllllllllllllllllllllllllllll Defendants -
llllllllllllllllllllllllllllllllllllllll Counter Claimants -
llllllllllllllllllllllllllllllllllllllll Appellants.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(September 30, 2011)
Before BARKETT, MARCUS and WILSON, Circuit Judges.
PER CURIAM:
The State Bank of Texas (“Bank”) brought this action against Mukesh and
Rajesh Patel, seeking a judgment against the Patels on their breach of guarantees
on Diplomat Construction Inc.’s (“Diplomat”) mortgage note. The Patels now
appeal the denial of their motion for judgment on the pleadings and the grant of
summary judgment in favor of the Bank. The Patels argue that the district court
erred in (1) determining that the Bank’s lawsuit was not a claim for a deficiency
judgment requiring judicial confirmation under O.C.G.A. § 44-14-161(a); (2)
finding that the Bank was entitled to judgment as a matter of law, despite the fact
that the Bank did not pierce each of the Patels’ affirmative defenses1; and (3)
granting the Bank judgment as a matter of law on the Patels’ counterclaim of
tortious interference. No reversible error has been shown; we affirm.2
Our review is de novo. Huff v. DeKalb Cnty., Ga., 516 F.3d 1273, 1277
(11th Cir. 2008). “Because federal jurisdiction over this matter is based on
diversity, [Georgia] law governs the determination of the issues on this appeal.”
State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1230 (11th Cir. 2004).
1
The Patels waived this error by not raising it before the district court. Access Now, Inc.
v. Sw. Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004).
2
Even if we were to agree with the Patels and dismiss the instant suit, the foreclosure
sale has since been confirmed. Thus, the Bank would be able to re-file suit and receive another
judgment against the Patels.
2
Summary judgment is proper when there is no genuine issue of material fact and
the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).
The facts are set out in the district court’s opinion:
On or about January 16, 2002, Diplomat borrowed
$10,500,000 from Integrity Bank (“Integrity”). In
conjunction with that loan, Diplomat executed a
promissory note payable to Integrity. The note was secured
by real property which included a hotel located in Fulton
County, Georgia. In its complaint, the plaintiff alleges that
the defendants personally guaranteed Diplomat’s
obligations under the loan.
On or about August 29, 2008, the Federal Deposit
Insurance Corporation (“FDIC”) took over Integrity. Later,
the FDIC . . . sold all of Integrity’s right, title, and interest
in the loan and the corresponding loan documents to the
[Bank]. On or about March 3, 2009, and after Diplomat had
failed to make payments under the loan for a period of
several months, the [Bank] notified Diplomat of its intent
to conduct a non-judicial foreclosure on April 7, 2009, of
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the hotel property securing the loan. Prior to the scheduled
non-judicial foreclosure, Diplomat filed bankruptcy. The
[Bank] alleges at the time the filing of Diplomat’s
bankruptcy that Diplomat and, in turn the defendants here,
who are alleged to be guarantors of Diplomat’s loan, owed
the [Bank] over ten million dollars.
The [Bank] alleges that because an automatic stay
was imposed by Diplomat’s bankruptcy filing that it could
not conduct the foreclosure. According to the [Bank], it
elected to file this suit on May 12, 2009, against the
defendants who allegedly serve as the guarantors of
Diplomat’s loan.
In November 2009, the bankruptcy court hearing
Diplomat’s bankruptcy case entered an order granting relief
from the automatic stay, which allowed the [Bank] to
exercise its state law and contractual rights and remedies.
On December 14, 2009, the [Bank] filed a complaint for
the appointment of a receiver in this court. In the
receivership case, the [Bank] requested the appointment of
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a receiver with the authority to market and sell the hotel
property securing Diplomat’s loan. Despite Diplomat’s
opposition, this court held that a receivership was
unnecessary and that the [Bank] should be allowed to
conduct a non-judicial foreclosure of its interest in the
hotel property securing Diplomat’s loan.
Pending the [Bank]’s foreclosure sale of the hotel
property, this court entered an order staying this suit. On
April 6, 2010, the [Bank] conducted a non-judicial
foreclosure sale of the hotel property, and on May 3, 2010,
the [Bank] filed its verified report of non-judicial
foreclosure sale and petition for confirmation of
non-judicial sale in the Superior Court of Fulton County,
Georgia.
Because this case was stayed for an extended period
of time, this court lifted the stay in this matter on October
26, 2010, and permitted the [Bank] to a file reply brief in
support of its motion for summary judgment. Prior to the
court’s decision to lift the stay in this suit, the defendants
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argued for the first time that this suit violates O.C.G.A. §
44-14-161(a).
The district court then went on to consider the merits of the parties’
motions.
Motion for Judgment on the Pleadings
The Patels argue that the district court should have dismissed the Bank’s
complaint with prejudice for failure to state a claim because it failed to satisfy a
condition precedent to suit. Specifically, the Patels contend that the Bank
improperly sued them for breach of guarantees before it confirmed the foreclosure
sale it conducted on the collateral securing the loan, in violation of O.C.G.A. § 44-
14-161(a). The district court disagreed with the Patels, finding § 44-14-161(a)
inapplicable because the action was filed before the non-judicial foreclosure sale
and because the Bank was not pursuing a “deficiency” against the Patels as the
term is defined in § 44-14-161. Thus, the court denied the Patels’ motion.
On appeal, the Patels argue that the district court erred by finding that the
Bank’s lawsuit was not a deficiency judgment. Instead, the Patels note that
Georgia courts define a “deficiency judgment” as “‘a judgment for that part of a
debt secured by a mortgage not realized from a sale of the mortgaged property.’”
6
Se. Timberlands, Inc. v. Haiseal Timber, Inc., 479 S.E.2d 443, 445 (Ga. App.
1996) (quoting Hill v. Moye, 471 S.E.2d 910, 912 (Ga. App. 1996)). The Patels
urge us to look to the substance of the action, not its form, to determine whether
the action sought a deficiency judgment.
The Bank contends that because it had yet to foreclose on the property, and
thus had no deficiency to recover, the suit was not a deficiency action. The Bank
asserts that § 14-44-161(a) did not bar it from first suing the Patels on their
guarantees and then, eleven months later, conducting a non-judicial foreclosure
sale of the collateral. The Bank asserts that § 14-44-161(a) requires a creditor who
has already sold real estate in a non-judicial foreclosure to wait for confirmation
before pursuing a deficiency judgment. Indeed, in all of the cases the Patels cite,
there had actually been a foreclosure sale, pre-suit, which left a deficiency. See,
e.g., Archer Capital Fund v. TKW Partners, LLC, No. 1:08-CV-2747-TWT, at *1
(N.D. Ga. July 27, 2009); Redman Indus., Inc. v. Tower Prop., Inc., 517 F. Supp.
144, 149 (N.D. Ga. 1981); Haiseal Timber, 479 S.E.2d at 445 (explaining the
pending action was a deficiency action because “Haiseal filed this action only after
the property Southeast pledged as security did not bring at the foreclosure sale the
amount owed on the note”); Hill, 471 S.E.2d at 912 (explaining that the suit
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sought a “deficiency judgment because the property they pledged did not bring at a
foreclosure sale the amount of the debt owed.”).
We agree with the Bank. Section 14-44-161(a) provides: “When any real
estate is sold on foreclosure, without legal process, and under powers contained in
security deeds, mortgages, or other lien contracts and at the sale the real estate
does not bring the amount of the debt secured by the deed, mortgage, or contract,”
the person instituting the foreclosure proceedings must first get confirmation of
the sale before they can try to obtain a deficiency judgment. The plain language of
§ 14-44-161(a) requires that the collateral actually be sold at foreclosure before
the protections of the statute are triggered. And in the instant case, at the time the
Bank filed suit on the guarantees, the Bank had no deficiency to recover because
the Bank had not conducted a non-judicial sale of Diplomat’s
property—Diplomat’s pending bankruptcy precluded it from doing so.
We also recognize that under Georgia law, secured creditors are not put to
an election of remedies in deciding whether to sue on a note or foreclose on
collateral. Brown v. Rooks, 242 S.E.2d 128, 129 (Ga. 1978) (per curiam); River
Farm, LLC v. SunTrust Bank, 699 S.E.2d 771, 772 (Ga. App. 2010); Jamison v.
Button Gwinnett Sav. Bank, 419 S.E.2d 91, 91–92 (Ga. App. 1992). Thus, the
Bank was within its rights to first pursue its contractual remedies against the
8
Patels (the guarantors), and the Bank’s later sale of the collateral did not transform
the underlying suit into one that was void ab initio. As we stated previously, the
suit was not one to collect a “deficiency” because there was no deficiency to
collect at the time it was filed. Accordingly, the district court properly denied the
Patels’ motion for judgment on the pleadings.
Tortious Interference Claims
Next, the Patels argue that the Bank was not entitled to summary judgment
on their tortious interference counterclaim. Essentially, the basis of their claim
was that the Bank’s “attempts to enforce the guarantees against [the Patels] by
filing [the guaranty action] has caused third-party lenders not to enter into
business relations with them.” But the district court held these allegations did not
give rise to an actionable claim for tortious interference with business relations.
The Patels now argue that the district court improperly construed their tortious
interference counterclaim. Rather than challenge the lawsuit, the Patels argue that
they were alleging that the Bank tortiously interfered with Diplomat’s efforts to
purchase the FDIC’s interest in the note. The Patels assert that, although the
lawsuit had been harmful, it was the negative publicity in the business community
surrounding the calling in of the guarantees, well before the lawsuit was filed, that
caused the problems with Diplomat’s lenders.
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A viable tortious interference with business relations counterclaim requires
proof that the counterclaim defendant “(1) acted improperly and without privilege,
(2) acted purposely and maliciously with the intent to injure, (3) induced a third
party or parties not to enter into or continue a business relationship with the
[counterclaimants], and (4) caused [the counterclaimants] financial injury.” See
Camp v. Eichelkraut, 539 S.E.2d 588, 592 (Ga. App. 2000).
Under Georgia law, the Bank’s actions in pursuing the guaranty action
cannot be considered improper or without privilege. See BKBJ P’ship v.
Moseman, 644 S.E.2d 874, 866 (Ga. App. 2007) (“[A] claim for tortious
interference with contractual relations cannot be predicated upon an allegedly
improper filing of a lawsuit.” (citing Phillips v. MacDougald, 464 S.E.2d 390, 395
(Ga. App. 1995)). Although the Patels now try to re-characterize their tortious
interference claim, they did recognize that “at its core, the . . . counterclaim is
based on [the] Bank’s decision to accelerate the Diplomat Loan and call in the
guarantees—and of the fallout associated with that decision.” And Rajesh Patel
testified in his deposition that the lawsuit was causing problems with their lenders.
Simply put, the Bank’s attempts to enforce the guarantees against the Patels, by
“calling in the guarantees” and by filing the guaranty action, cannot form the basis
of a tortious interference claim. Accordingly, because we may affirm for any
10
ground supported in the record, Lucas v. W.W. Grainger, Inc., 257 F.3d 1249,
1256 (11th Cir. 2001), we affirm the judgment of the district court.
AFFIRMED.
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