M & I Marshall & Ilsley Bank v. Sunrise Farms Development, LLC
737 F.3d 1198
8th Cir.2013Background
- M&I Marshall & Ilsley Bank loaned Sunrise Farms (and guarantors) funds beginning in 2005; Sunrise Farms defaulted in 2009.
- The Bank foreclosed non-judicially and purchased the property at the foreclosure sale.
- The Bank sued for a deficiency (outstanding debt minus sale proceeds); Sunrise Farms counterclaimed to set aside the foreclosure sale.
- The district court stayed the case pending the Missouri Supreme Court’s decision in Fischer, then granted summary judgment for the Bank but computed the deficiency using fair market value rather than the foreclosure sale price.
- The Bank appealed the deficiency calculation.
- The Eighth Circuit reversed and remanded, holding Missouri law requires measuring deficiencies by debt minus foreclosure sale price absent equitable grounds to set aside the sale.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper measure of a post-foreclosure deficiency | Bank: deficiency = unpaid debt − foreclosure sale price | Sunrise: court should measure deficiency by unpaid debt − fair market value (adopt Restatement approach) | Missouri law requires using foreclosure sale price unless sale set aside for fraud/unfair dealing/mistake; district court erred using FMV |
| Effect of Fischer v. Frichtel on existing common-law rule | Bank: Fischer affirmed Missouri common-law rule | Sunrise: Fischer signaled readiness to adopt Restatement and left uncertainty to permit new approach | Fischer reaffirmed the common-law rule; no clear indication Missouri Supreme Court would change it |
| Whether district court could predict overruling of Missouri precedent | Bank: must follow Missouri Supreme Court’s clear precedent | Sunrise: district court may predict state supreme court would change rule on right facts | Court: federal court cannot ignore unambiguous state-law precedent; must apply it unless clear evidence of change |
| Validity of foreclosure sale and its preclusive effect | Bank: sale was upheld and not appealed; therefore sale price is conclusive for deficiency | Sunrise: challenged the sale’s validity (but did not successfully preserve appeal) | Law of the case applies; sale stands and sale price governs deficiency calculation |
Key Cases Cited
- Drannek Realty Co. v. Nathan Frank, Inc., 139 S.W.2d 926 (Mo. 1940) (articulated rule that deficiency is debt minus foreclosure sale price unless sale set aside for fraud/unfair dealing/mistake)
- First Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216 (Mo. banc 2012) (Missouri Supreme Court affirmed use of foreclosure sale price to measure deficiencies and declined to adopt Restatement approach)
- Evans v. Eno, 903 S.W.2d 258 (Mo. App. 1995) (recognizes foreclosure sale price as conclusive if sale fairly conducted)
- Lindell Trust Co. v. Lieberman, 825 S.W.2d 358 (Mo. App. 1992) (deficiency suit is based on foreclosure sale price while sale stands)
- Regional Inv. Co. v. Willis, 572 S.W.2d 191 (Mo. App. 1978) (sale price generally measures deficiency if sale was fair)
- Frontenac Bank v. T.R. Hughes, Inc., 404 S.W.3d 272 (Mo. App. 2012) (applied Fischer to credit foreclosure sale amounts in deficiency calculation)