Small Engine Shop, Inc. v. Concetta Cangelosi Cascio, Don HathawaySmall Engine Shop, Inc. v. Concetta Cangelosi Cascio, Don Hathaway
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Aрpellant, Small Engine Shop, has propelled us to confront a sizable issue arising under the Due Process Clause of the Fourteenth Amendment. A Louisiana statute allows “any person” to request actual notice in advance of the seizure of specific immovable property by filing the request in the mortgage records of the parish in which the property is located.
We must decide whether the State may, consistent with the Constitution, prospectively shift the entire burden of ensuring adequate notice to an interested property owner regardless of the circumstances. The district court, imputing such a purpose to Louisiana’s statute, held that the State may do so. We disagree. While the district court’s interpretation is seductive, we believe that due process requires more than the right to be heard on demand. Because we interpret the statute simply as a supplement to Louisiana’s preexisting constructive notice scheme in foreclosure actions, we reverse and remand for further proceedings. 1
In Part I, we discuss the facts and explicate the statutory scheme. Part II addresses an issue not raised by the parties: whether the judgment below is final. In Part III, we probe the relationships among the Louisiana statute, vested property rights and the Due Process Clause.
I.
Plaintiff-appellant Small Engine Shop, Inc. (“Small Engine”) is a Louisiana corporation. Small Engine owned a piece of improved land in Caddo Parish, Louisiana, and had assumed a mortgage on the land, upon which the mortgagee foreclosed after Small Engine apparently defaulted.
Sheriff Don Hathaway is the defendant-appellee. Hathaway effected the seizure and conducted the sale. The other defendants below were Roy A. and Concetta Cangеlosi Cascio, the foreclosing creditors, their attorney, S.V. Prunty, Jr., and Harold W. Longfellow, the buyer of the property at the foreclosure sale.
The Cascios owned the property in 1972. They conveyed the property to Wilbur Krouse in 1972 by a properly recorded deed. In return, the Cascios received cash and a note executed by Krouse to the order of any future holder. The note was secured by a mortgage, which was also properly recorded. Five conveyances of the property followed between 1973 and 1976. In each conveyance, the purchasing party assumed Krouse’s original mortgage. Each conveyance was properly recorded in the Caddo Parish Conveyance Registry. Small Engine purchased the property in 1980, assuming the mortgage, and the conveyance was properly recorded in the Cad-do Parish Conveyance Registry.
After Small Engine apparently defaulted, the Cascios, through their attorney Prunty, filed a petition seeking foreclosure on No
Krouse’s mortgage contains a confession of judgment. In Louisiana, a confession of judgment is contractual, and “effectively waives the right to a routine adversary hearing.” Buckner v. Carmack, 272 So.2d 326, 330 (La.1973), appeal dismissed, 417 U.S. 901, 94 S.Ct. 2594, 41 L.Ed.2d 207 (1974). Under Louisiana law, a mortgagee, in this case the Cascios, may foreclose on a mortgage containing a confession of judgment by executory process — an ex parte proceeding. La.Code Civ. P. art. 2631 (West 1961 & 1989 supp.). The mortgagee must file a petition to enforce the mortgage. In the petition, the mortgagee must request “seizure and sale of the property affected by the mortgage_” Id. art. 2634. The reviewing court, if it is satisfied that the executory petitioner is entitled to relief, “shall order the issuance of a writ of seizure and sale commanding the sheriff to seize and sell the property_” Id. art. 2638.
If the original mortgagor, in this case Krouse, has sold the property to a third party, the mortgagee may enforce the original mortgage directly against the property under the Louisiana scheme “without reference to any sale or alienation to the third person.... The third person who then owns and is in possession of the property need not be made a party to the proceeding.” Id. art. 2701. Small Engine is the “third person” within the meaning of the statute. In the civil law’s latinate locution, article 2701 creates a statutory pact de non aliendo for all mortgages containing a confession of judgment. See Davis Oil Co., 873 F.2d at 778.
The Louisiana Code provides that the original mortgagor (Krouse’s estate, in this case) is entitled to actual notiсe of seizure of the property pursuant to the writ. La. Code Civ. P. Art. 2721. In addition, after seizure, the sheriff must “advertise the sale of the property....” Id. Art. 2722. The current owner of the property is not entitled to actual notice of the seizure under the statutory scheme. See id. Art. 2721, Official Revision Comments (“any requirement of service of seizure by the sheriff upon the person in possession of the property would destroy the efficacy of ex-ecutory process”). 2
A foreclosure sale extinguishes all inferi- or encumbrances on the property. Id. arts. 2724, 2376; see Davis Oil Co., 873 F.2d at 779. A sale also extinguishes the possessing third person’s ownership interest. Assuming, however, that the possessing third person in some way has received notice of the sheriff’s sale, she may prevent the sale’s effectuation. “When property sold or otherwise alienated by the original debtor or his legal successor has been seized or is about to be sold under executory process, a person who has acquired the property and assumed the indebtedness secured by the mortgage or privilege thereon may: (1) Pay the balance due on the indebtedness ... or (2) arrest the seizure and sale [of the property by injunction in certain circumstances].” La. Code Civ. P. art. 2702; see art. 1092.
In 1982, Louisiana enacted the “request notice” statute which lies at the core of this controversy. The statute provides that actual notice of seizure of immovable proper
A. Any person desiring to be notifiеd in the event specific immovable property is seized shall file a request for notice of seizure in the mortgage records of the parish where the immovable property is located. The request for notice of seizure shall state the legal description of the immovable property, the owner of the property, and the name and address of the person desiring notice of seizure. The person desiring notice of seizure shall pay the sum of ten dollars to the sheriff, for deposit in the sheriffs’ general fund, to defray the cost of providing the notice of seizure in the event said property is seized.
B. In the event of seizure of immovable property, the sheriff shall request from the clerk of сourt ... a mortgage certificate at least twenty-one days prior to the sheriff’s sale. The mortgage certificate shall include any requests for notice of seizure. Upon receipt of the mortgage certificate the sheriff shall notify, at least ten days prior to the sheriff’s sale, those persons requesting notice of the seizure. The notice of seizure shall be by certified mail or actual delivery and shall include the name and address of the seizing creditor, the method of seizure and the sum owed, and the date of the sheriff’s sale.
C. Neither the clerk of court or the sheriff, or any of their officers, agents or employees, shall be held liable if a reasonable attempt has been made to mail or deliver the notice to the address provided in the request.
D. The failure of the sheriff to notify a person requesting notice of seizure shall not affect the rights of the seizing creditor nor invalidate the sheriff‘s sale.
Small Engine filed its complaint on March 17, 1988 in the Western District of Louisiana, alleging under
In effect, the district court held that 13:3886 applies to any foreclosure action, regardless of the factual context, regardless of the nature of the property right subject to deprivation, and regardless of whether the responsible state actor, exercising reasonable diligence, may reasonably ascertain the identity of the owner of the property right subject to deprivation. Louisiana’s statutе, as construed by the district court, eliminates the circumstantial nature of a due process inquiry by prospectively shifting the entire burden of ensuring actual notice, in every case, to the owner of property subject to deprivation.
II.
We raise the question whether the judgment below is final for purposes of this appeal. F.R.Civ.P. 54(b). Although only appellee Hathaway, among the defen
Although only appellee Hathaway, among the defendants, appeared before us at oral argument, the record reflects that the other defendants had an opportunity to appear. Small Engine’s notice of appeal states that it is from the order “granting defendant’s Motion to Dismiss and dismissing plaintiff’s Complaint” (R. 118). Copies were sent to all parties in accordance with F.R.App.P. 3 on August 23, 1988 (R. 118). In addition, Small Engine mailed copies of its notice of appeal to Prunty, the Cascios’ attorney, and Longfellow on August 22, 1988 (R. 119). Since the district court’s judgment is final, and because Small Engine perfected its appeal, we may properly decide this case.
III.
We begin our constitutional inquiry with two observations. First, it is uncontested that Small Engine’s property interest falls within the ambit of the Fourteenth Amendment’s Due Process Clause. Second, we note that Louisiana’s civil law focuses on the in rem notare of the executory proceeding. Where due process rights are concerned, however, the in rem/in person-am distinction is not clearly demarcated. Property rights are personal rights, just as liberty rights are personal rights. Mullane v. Central Hanover Bank & Trust, 339 U.S. 306, 70 S.Ct. 652, 656, 94 L.Ed. 865 (1950); Mennonite, 103 S.Ct. at 2710 n. 3.
A.
Due process may be an evasive concept in particular circumstances. Yet its boundaries lie in sharp silhouette against the background of rights protected by the Clause. “Many controversies have raged about the cryptic and abstract words of the Due Process Clause but there can be no doubt that at a minimum they require that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of the case.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 656-57, 94 L.Ed. 865 (1950) (Jackson, J.). Adequate notice ensures the opportunity to be heard — the value at the core of the DUE PROCESS CLAUSE, the roots of which lie in the soil of Runnymede. “[W]hen notice is a person’s due, process which is a mere gesture is not due process.” Mullane, 70 S.Ct. at 657.
Mullane remains our trusted guide. “Mullane ... established that state action affecting property must generally be accompаnied by notification of that action: ‘An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ ” Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 108 S.Ct. 1340, 1344, 99 L.Ed.2d 565 (1988). “In the years since Mullane the Court has adhered to these principles, balancing the ‘interest of the State’ and ‘the individual interest sought to be protected by the Fourteenth Amendment.’ Ibid. The focus is on the reasonableness of the balance, and, as Mul-lane itself made clear, whether a particular method of notice is reasonable depends on the particular circumstances.” Id. 108 S.Ct. at 1344.
Our inquiry is not open-ended, for the Suprеme Court has articulated a standard allocating the burdens of notice in this due process context. An owner of property subject to deprivation by state action is entitled to means as certain as mail to
In Mennonite, the Mennonite Board оf Missions held a mortgage on real property located in Indiana executed by Moore, the property owner. Moore failed to pay taxes on the property. Pursuant to Indiana law, the county sold the property to appellee Richard Adams at a tax sale. Moore continued to make payments to Mennonite after the sale, however, so Mennonite did not learn of the sale until the statutory redemption period had expired. At this point, Moore still owed Mennonite over $8,000.00. Adams sued to quiet title. Mennonite “contended that it had not received constitutionally adequate notice of the pending tax sale and of the opportunity to redeem the propеrty following the tax sale.” 103 S.Ct. at 2709.
Relying on Mullane, 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950), the Supreme Court agreed with Mennonite, stating that “unless the mortgagee is not reasonably identifiable, constructive notice alone does not satisfy the mandate of Mullane.” Id. 103 S.Ct. at 2711.
Personal service or mailed notice is required even though sophisticated creditors have means at their disposal to discover whether property taxes have not been paid and whether tax sale proceedings are likely to be initiated. In the first place, a mortgage need not involve a complex commercial transaction among knowledgeable parties, and it may well be the least sophisticated creditor whose security interest is threatened by a tax sale. More importantly, a party’s ability to take steps to safeguard its interests does not relieve the State of its constitutional obligation. It is true that particularly extensive efforts to provide notice may often be required when the State is aware of a party’s inexperience or incompetence. But it does not follow that the State may forgo even the relatively modest administrative burden of providing notice by mail to parties who are particularly resourceful. Notice by mail or other means as certain to ensure actual notice is a minimum constitutional precondition to a proceeding which will adversely affect the liberty or property interests of any party, whether unlettеred or well versed in commercial practice, if its name and address are reasonably ascertainable.
Id. at 2712 (emphasis in original). As we have noted, Mennonite requires the responsible state actor to make “reasonably diligent” efforts to ascertain the identity of the property owner. Id. at 2711 n. 4.
The district court held — and appellee Hathaway contends — that consistent with
Mennonite,
Louisiana’s request notice provision,
Indiana Code § 6-1.1-24-4.2 (1982), added in 1980, provides for notice by certified mail to any mortgagee of real property which is subject to tax sale proceedings, if the mortgagee has annually requested such notice and has agreed to pay a fee, not to exceed $10, to cover the cost of sending notice. Because the events in question in this case occurred before the 1980 amendment, the constitutionality of the amendment is not before us.
103 S.Ct. at 2708 n. 2. 6
Under the view adopted by the district court, Louisiana’s statute constitutionally
Alternatively, one may contend that the request notice statute simply acts as a supplement to notice by publication, allowing otherwise unascertainable parties to make themselves known. A panel of this Circuit adopted this latter view after the district court’s judgment in this case. Davis Oil Co., 873 F.2d at 787-89.
The district court’s reading of the Louisiana statute is alluring. Property owners are presumed to have “knowledge of relevant statutory provisions affecting the control or disposition of their property.” Texaco, Inc. v. Short, 454 U.S. 516, 102 S.Ct. 781, 793, 70 L.Ed.2d 738 (1982); accord North Laramie Land Co. v. Hoffman, 268 U.S. 276, 45 S.Ct. 491, 494, 69 L.Ed. 953 (1925); cf. Lambert v. California, 355 U.S. 225, 78 S.Ct. 240, 2 L.Ed.2d 228 (1958). 7 According to the district court, the request notice statute “is a reasоnable restriction placed on [an] individual’s property right to further a legitimate state objective in providing for a uniform and orderly method by which to notify interested parties prior to seizure of immovable property.” Memorandum Opinion (R. 116). Thus, the statute, the reasoning goes, prospectively and legitimately shifts the entire burden of ensuring actual notice to the property owner subject to deprivation.
As we have stated, the state interest/individual interest balance in a due process inquiry finds its abstract expression in Mennonite’s standard: whether the identity of the owner of property subject to deprivation is reasonably ascertainable by the exercise of the responsible state actоr’s reasonably diligent efforts. Mennonite, 103 S.Ct. at 2711-12; Pope, 108 S.Ct. at 1347-48. The content of “reasonable diligence” will vary in different circumstances. The type of property interest or type of recording system involved may bear on the “reasonable diligence” analysis. For example, the identity of a severed estate owner may be significantly more difficult to discern than the identity of the surface owner. A foreclosing creditor’s reasonable diligence may not uncover the identity of a mineral interest owner. In such a case, the foreclosing creditor is not obligated to provide actual notice of the foreclosure proceedings to the mineral interest owner. Davis Oil Co., 873 F.2d 774, 788-91 (5th Cir.1989).
Given
Mennonite
and
Pope,
the argument that
We do not believe the circumstantial nature of a due process inquiry emphasized by the Supreme Court is compatible with the district court’s equation. Facts matter, and factual matrices differ. As the district court interpreted the Louisiana statute, the entire content of state actors’ reasonable diligence in every case from here to eternity finds its equivalent in this single expression of legislative power. Runnymede’s legacy cannot countenance this result in the face of Mennonite.
Under the district court’s approach,
B.
We hold that
Short, Locke and Pope all concern legislative enactments burdening the enjoyment of a vested property right. In Locke, the Court addressed the State’s ability to affect vested property rights through legislation:
Even with respect to vested property rights, a legislature generally has thе power to impose new regulatory constraints on the way in which those rights are used, or to condition their continued retention on performance of certain affirmative duties. As long as the constraint or duty is a reasonable restriction designed to further legitimate legislative objectives, the legislature acts within its powers in imposing such new constraints or duties. ‘Legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations.’
Locke, 105 S.Ct. at 1797 (citations omitted). In Locke, as in Short, the enactment of the valid statute provided the complainants
with all the process that [was] their constitutional due. In altering substantive rights through enactment of rules of general applicability, a legislature generally provides constitutionally adequate process simply by enacting the statute, publishing it, and, to the extent the statute regulates private conduct, affording those within the statute’s reach a reasonable opportunity both to familiarize themselves with the general requirements imposed and to comply with those requirements. Short, 454 U.S. at 532, 102 S.Ct. at 793; see also Anderson National Bank v. Luckett, 321 U.S. 233, 243, 64 S.Ct. 599, 604, 88 L.Ed. 692 (1944); North Laramie Land Co. v. Hoffman, 268 U.S. 276, 283, 45 S.Ct. 491, 494, 69 L.Ed. 953 (1925).
Locke, 105 S.Ct. at 1799-1800.
Appellee Hathaway conflates the substantive regulation of property interests with the procedural safeguards that regulate the deprivation of those interests. Neither Locke nor Short is inconsistent with the principle that the process guaranteed by the Constitution, as it relates to one’s opportunity to be heard before the ultimate deprivation of a property right, must be determined independent from the effect on the property right by a legislative еnactment. “[A]ny other conclusion would allow the State to destroy at will virtually any State-created property interest.” Logan v. Zimmerman Brush Co., 455 U.S. 422, 102 S.Ct. 1148, 1156, 71 L.Ed.2d 265 (1982); Cleveland Board of Education v. Loudermill, 470 U.S. 532, 105 S.Ct. 1487, 1493, 84 L.Ed.2d 494 (1985) (“The categories of substance and procedure are distinct. Were the rule to be otherwise, the [Due Process] Clause would be reduced to a mere tautology”); see Davis Oil Co., 873 F.2d at 782-787.
The statute at issue in this case, as interpreted by the district court, simply concerns Louisiana’s allocation of the burden of pre-deprivation actual notice in foreclosure actions. Unlike the statutes in
Locke
and
Short,
We recognize, however, that
In Short, the State of Indiana enacted a Mineral Lapse Act to remedy uncertainties in titles created by stale and abandoned mineral interests, and to encourage the productive use of land and the exploitation of energy and other mineral resources. 102 S.Ct. at 789. In Locke, Congress enacted a “federal recording system to rid federal lands of stale mining claims and to provide federal land managers with up-to-date information that allows them to make informed land management decisions.” 105 S.Ct. at 1789. Locke and Short thus concern pervasive land use problems that justified the state action burdening property owners.
Under Mullane, 70 S.Ct. 652, Mennonite, 103 S.Ct. 2706, and Pope, 108 S.Ct. 1340, the burden of pre-deprivation notice depends upon the circumstances surrounding particular property interests. Reasonable diligence in one context may become impossibility in the next. While new recording systems may introduce desirable efficiencies consistent with the due process clause, we cannot sanction the sweeping scheme constituted by the Louisiana statute as construed by the court below. In short, reallocation оf procedural notice burdens in avoidance of Mennonite falls short of the state interests justifying the legislation in Locke and Short.
Short’s sweep is limited for another significant reason. Justice Stevens was careful in Short to distinguish between the effect of a properly-enacted, self-executing burden on one’s property right, “and a subsequent judicial determination that a particular lapse did in fact occur.” 102 S.Ct. at 794.
It is undisputed that before judgment could be entered in a quiet title action that would determine conclusively that a mineral interest has reverted to the surface owner, the full procedural protections of the due process clause — including notice reasonably calculated to reach all interested parties and a prior opportunity to be heard — must be provided.
Id.
at 794. Issues of fact, then, if raised and proven by a mineral interest owner in a
Short
context, may prevent the ultimate loss of her mineral interest even after the statute has worked its effect.
Short
envisions such a contest as a separate due process issue from the process due in the enactment of the statute. In this case, the sheriffs sale, pursuant to a judicially-executed writ of seizure and sale, is a final act which has deprived Small Engine of property under the district court’s interpretation of
Appellee Hathaway also argues that the “privatе interest affected in this case was the ownership of a corporation which did not pay its assumed obligation, and which, therefore, presumably knew that it was risking foreclosure.” Brief for Appellee at 9. We recognize that “It is the part of common prudence for all those who have any interest in [a thing], to guard that interest....” Mullane, 70 S.Ct. at 658, quoting Chief Justice Marshall’s opinion in The Mary, 9 Cranch 126, 144, 3 L.Ed. 678 (1815). Small Engine’s equitable position may be weaker than that of the plaintiff trust beneficiaries in Mullane, 70 S.Ct. 652, or the mortgagee adversely affected by the tax sale in Mennonite, 103 S.Ct. 2706. Mennonite’s dictates, however, govern “a proceeding which will adversely affect the liberty or property interests of any party.” Id. at 2712. Moreover, “a party’s ability to take steps to safeguard its interests does not relieve the State of its constitutional obligation.” Id.
Most important, the statute, аs interpreted by the district court, sweeps far beyond those whose appeals to equity may appear to be weak, and it is the scope of the statute with which we are solely concerned, not whether Small Engine presses its case with unclean hands. Whether Small Engine’s possible failures in self-catalysis bear on Mennonite’s “reasonable diligence” command in this context is not a question we face today.
IV.
We hold that
We cannot determine from the record whether the exercise of reasonable diligence would have uncovered the identity of Small Engine before the sheriff’s sale occurred in this case. We leave this determinative factual inquiry to the district court on remand. Pope, 108 S.Ct. at 1348. Nor do we consider the relationship, for purposes of a state action determination, between the appellee, Sheriff Hathaway, and the other defendants who did not appear before us on appeal. We do not determine the proper allocation of notification responsibility between the sheriff and the foreclosing creditors. If necessary, the district court on remаnd should consider this issue. 10
REVERSED AND REMANDED.
Notes
. Our interpretation of
In another case, the district court, as it makes clear in its opinion below, held that
. But see Bonner v. B-W Utilities,
452 F.Supp. 1295, 1302 (W.D.La.1978) (“When property owned by a third possessor is secured by an
in rem
mortgage ... service of notice ... upon the original debtors accomplishes nothing. The original mortgagor has no stake in the proceedings. ... [W]here his name and address are known to the seizing creditor it is a denial of due process not to direct some form of notice of the judicial proceedings to the property owner in addition to general publication”).
Bonner
predates by four years the request notice statute at the heart of this dispute.
. For a useful discussion of the Louisiana statutory scheme in this context, see M.H. Rubin & E.K. Carter, Notice of Seizure in Mortgage Foreclosurеs and Tax Sale Proceedings: The Ramifications of Mennonite, 48 La.L.Rev. 535 (1988); see also Davis Oil Co., 873 F.2d at 777-79.
. Apart from its claim to actual notice, Small Engine does not attack the executory process scheme or the utilization of the process by the Cascios and Sheriff Hathaway in this case.
. La.Code Civ.P. art. 2721, as we discuss above, requires actual notice of the sheriffs sale to the original mortgagor — in this case, Krouse’s estate — sifter the judicial issuance of the writ of seizure and sale.
. After the Court decided
Mennonite,
Indiana deleted the request notice provision in the stat
ute.
. Small Engine also contends, in effect, that its case falls under the protection of
Lambert,
which held that individuals may indeed sometimes justify their ignorance of the law. 78 S.Ct. at 243;
but see id.
at 245 (Frankfurter, J., dissenting) (“I feel confident that the present decision will turn out to be an isolated deviation from the strong current of precedents — a derelict on the waters of the law”). We note that Small Engine purchased the property in 1980, and
. A Louisiana appellate court has held that the view of 13:3886 adopted by the district court in this case is consistent with the Due Process Clause of the Fourteenth Amendment.
Bankers Life Co. v. Shost,
518 So.2d 563, 569 (La.App. 5th Cir.1987). While we respect the view of the Louisiana court, we cannot accept its conclusion, and we are not bound, of course, by a state court‘s determination of a state statute’s validity under the federal constitution.
. Because Small Engine did not request notice under
. Nor do we determine today the proper content of the phrase “actual notice.” See Weigner v. City of New York, 852 F.2d 646 (2d Cir.1988).