The LOMAS AND NETTLETON COMPANY, Plaintiff-Appellee, v. William E. WISELEY and Brenda S. Wiseley, Defendants, and Thomas P. Kasten, Intervening Defendant-Appellant.
No. 88-1452.
United States Court of Appeals, Seventh Circuit.
Argued Oct. 4, 1988. Decided Sept. 1, 1989.
Rehearing Denied Oct. 18, 1989.
884 F.2d 965
Finally, Taxpayers argue that even if we deny their request for another hearing, their cases should be remanded for Rule 155 computations. They allege, as an example, that the Commissioner “failed to back out all London option transactions from the Glicks’ 1976 return.” Reply Brief at 14. The Taxpayers’ argument is that they were denied a deduction for their losses due to London option trades in 1976 and that they should not, therefore, have been taxed for their gains. However, the duty of consistency applies here as it did on the virtually identical facts of the case of Herrington v. Commissioner, 854 F.2d 755 (5th Cir.1988), cert. denied, — U.S. —, 109 S.Ct. 2062, 104 L.Ed.2d 628 (1989).
The duty of consistency applies when there have been: “(1) a representation or report by the taxpayer; (2) on which the Commission has relied; and (3) an attempt by the taxpayer after the statute of limitations has run to change the previous representation or to recharacterize the situation in such a way as to harm the Commissioner.” Id. at 758. The Glicks, as part of the Lipschultz Petitioners, executed trades in 1975 through Rudolph Wolff & Co. on which they declared ordinary losses. See Motion to Sever, Regroup and Appoint Lead Counsel, Petitioners’ App. B1, pp. 3, 6 (showing that Glicks were part of Lipschultz Petitioner group which made trades in 1975 through Wolff) and Glass, 87 T.C. at 1144 (showing ordinary loss of representative Wolff petitioner in 1975).
The Glicks, like the Herringtons, had apparently deducted from their 1975 losses London market trades and also declared their 1976 capital gains. On April 2, 1980, when the Commissioner, in reliance on this characterization, issued to the Glicks a Notice of Deficiency for the year 1976, the statute of limitations had passed for 1975. See Motion to Vacate Entry of Decision, Petitioners’ App. C5, at ¶ 5. The Glicks now seek to recharacterize their 1976 capital gain as lacking substance so that it should be backed out along with the losses which the Commissioner and the Tax Court in Glass found nondeductible. However, the Glicks are estopped from now disavowing their earlier position that they had experienced actual capital gains by the duty of consistency doctrine. See Herrington, 854 F.2d at 758.
III. Conclusion.
Because the Taxpayers have not shown that their trading patterns differed in any significant way from those relied on by the Tax Court in Glass and by this court in Yosha and their transactions resulted in allegedly “ordinary losses” in year one and offsetting “capital gains,” if any, in the next and because their accounts were substantially zeroed out in each instance, we find that their due process rights were not denied when they were not granted a separate opportunity to develop the specific facts of their cases with regard to their intent to profit. In addition, they have failed to show that the Commissioner erred in computing the tax of the Glicks or of any other petitioner. Therefore, the decision of the Tax Court is affirmed in all respects.
Lori F. Kaplan, Murray J. Feiwell, J. Greg Easter, Feiwell & Associates, Indianapolis, Ind., for plaintiff-appellee.
David A. Brooks, Martin Bedrock, Knox, Ind., for defendants and intervening defendant-appellant.
MANION, Circuit Judge.
Thomas Kasten appeals the district court‘s order setting aside a foreclosure sale at which he purchased property. Kasten argues that the district court erred in setting aside the sale on the ground that the judgment creditor‘s attorney negligently failed to attend the sale and submit his client‘s bid. We reverse.
I.
The subject of this diversity action is a residential lot in Hammond, Indiana. The plaintiff-appellee, Lomas & Nettleton Company (“L & N“) held the mortgage on the property. Mortgagors William and Brenda Wiseley, who are not parties to this appeal, defaulted on the mortgage. L & N obtained a default judgment of foreclosure and the court issued an order that the property be sold at public sale.
John Million, local counsel for L & N in Monticello, Indiana, was to attend the sale and submit a bid on behalf of L & N. The sale took place at the scheduled date and time, September 8, 1987, at 12:00 noon, but Million did not appear. The intervening defendant-appellant, Thomas Kasten, apparently was the only bidder present and purchased the property for $1,000.
Sixteen days later, L & N moved under
Million testified that he had attended foreclosure sales before and was familiar with the procedure and aware that bidding would close at noon. Kasten‘s counsel asked him, “The only thing that kept you from attending the sale was the fact that you had clients in the office at the time?” Million responded, “Yeah, and I didn‘t kick ‘em out. I kept talking to ‘em.” He explained that he had been instructed to bid $30,000 for the lot, or if there was competitive bidding, to offer up to $33,233.64, the amount of the judgment.
On the basis of Million‘s testimony, the district court determined that the sale should be set aside. Kasten now appeals that order.
II.
On motion and on such terms as are just, the court may relieve a party or a party‘s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered ... (3) fraud ... (4) the judgment is void; (5) the judgment has been satisfied ... or (6) any other reason justifying relief from the operation of the judgment.
This court reviews a decision to grant or deny a Rule 60(b) motion only for abuse of discretion. North Central Illinois Laborers’ District Council v. S.J. Groves & Sons Co., Inc., 842 F.2d 164, 167 (7th Cir.1988). Such a decision stands unless the district court was “very far off base,” relying on “forbidden factors” or failing to take into account a relevant factor. Id. at 168 (quoting Tolliver v. Northrop Corp., 786 F.2d 316, 319 (7th Cir.1986)).
L & N‘s Rule 60(b) motion presented two grounds for relief: inadvertence or excusable neglect on the part of counsel (
With respect to the first issue, this court has stated frequently that
In justifying the error, the district court relied on Million‘s status as a “county seat lawyer,” finding that his failure to appear was excusable because “he simply had a client that he couldn‘t get—immediately get rid of without just walking out of an office. ... And it is a sole practitioner in a county seat town in north central Indiana.”2 S.J. Groves indicates that the
factors upon which the district court
Million testified that he had notice of the sale, planned to attend and simply became distracted and failed to realize the time. In S.J. Groves, counsel advanced an argument similar to Million‘s; that is, he became preoccupied with other work and neglected his responsibility to a particular client. S.J. Groves is not distinguishable from the case at bar; if anything, Million has offered even less justification for his error than did counsel in that case. If Million‘s oversight in this case can be termed “excusable,” it is difficult to conceive of what the distinction between simple negligence and excusable neglect might be. Million‘s own testimony offered no real excuse, beyond carelessness, for his failure to attend the sale.
At this juncture we note that L & N is apparently satisfied with its judgment. Rather, it is the proceeding to enforce the judgment—the foreclosure sale—that the court has set aside under Rule 60(b). Just as federal law, not state law, governs the grant or denial of a new trial, Wiedemann v. Galiano, 722 F.2d 335, 337 (7th Cir.1983), so too federal law applies in this 60(b) proceeding. See also General Foam Fabricators v. Tenneco Chemicals, Inc., 695 F.2d 281, 288 (7th Cir.1982). “The grounds and procedures for setting aside a federal judgment are entirely a matter of federal law, on which state law may be disregarded.” 11 Wright and Miller Federal Practice and Procedure § 2853. In an unusual circumstance involving a substantive right under state law, to have a judgment (and presumably a proceeding) reopened, “the federal court sitting in diversity will give effect to the state-created right.” Id.
One could argue that Indiana case law regarding setting aside sheriff‘s sales creates a “substantive” right under
Under Indiana law the trial court does have discretion in determining whether setting aside a sale is appropriate. Fox v. Jackson, 116 Ind.App. 390, 64 N.E.2d 799, 801 (1946). In this case, however, the court improperly relied upon Million‘s status as a small-town sole practitioner to excuse his mistake. S.J. Groves and Ellingsworth require more than a breakdown of internal office procedures or a careless oversight. The district court also expressed the view that the Seventh Circuit‘s law was not so rigid as to preclude relief when unjust enrichment would result. On the contrary, this court has commented that it would indeed be an abuse of discretion to grant relief on the basis of negligence. Western Transportation, 682 F.2d at 1236. To the extent that one party‘s benefiting from opposing counsel‘s error may be termed “unjust enrichment,” each of the cited cases
This point implicates L & N‘s second contention under
Here the district court did determine that the disparity between the value of the property and the sale price was so great as to shock the conscience. It made this determination, however, without receiving any evidence whatsoever of the property‘s value. It relied instead upon Million‘s statement that he was prepared to bid as high as $33,233.64. As counsel for L & N conceded at argument, however, this figure indicates little with respect to the value of the property. Million‘s affidavit indicates the company‘s concern with bidding in the judgment amount and obtaining title to the property, thereby paving the way for a claim to be filed with the Federal Housing Administration (the precise nature of this claim is not clarified).
But Million testified that he did not know what the property was worth. Even though the hearing was specifically concerning the value of the property (alleged unjust enrichment), L & N showed up with no appraisal, no witness familiar with the property, and not even a witness to proclaim that the amount of the judgment (Million‘s proposed bid) was commensurate to the value (former or present) of the real estate.
The problem here is that the total judgment may have included amounts other than the value of the real estate. The evidence before the district court discloses nothing about how the underlying judgment—the amount of Million‘s anticipated bid—was calculated. There was a mortgage, but under Indiana law (depending on the language in the mortgage) a presigned mortgage could possibly secure after acquired debt from such things as unspecified future advances, including business loans, credit card charges, installment loans, and even overdrafts. See, e.g., Citizens Bank and Trust Co. v. Gibson, 490 N.E.2d 728, 730 (Ind.1986); Merchants National Bank v. H.L.C. Enterprises, Inc., 441 N.E.2d 509, 513 (Ind.App.1982). So-called “dragnet clauses” or open-ended mortgages can secure debt that has no relevance to the value of the underlying real estate. Thus, Million‘s proposed bid, relayed to him by the mortgage company, is insufficient by itself to upset a valid foreclosure sale when there is no actual proof that the successful bidder was “enriched,” much less unjustly enriched. For all the court knew, the real estate could have been abandoned, in a state of disrepair, or even fire-damaged.
The mortgage company was in complete control of this proceeding. It obtained the judgment, and it obviously requested the statutory sale. It hired an attorney to show up at the sale to bid. When he negligently failed to show, the company
pleaded unjust enrichment under
L & N cites other cases in which sales have been set aside because the price realized was too low in relation to the value of the property. Aside from the fact that the record here contains no evidence of actual value, the equitable considerations here are not the same as in a case where a bank bids well below its mortgage judgment, thus creating a deficiency which the debtor still owes. The debtors aren‘t even parties here. Frequently when a foreclosure defendant seeks to set a sale aside, the judgment is usually by default and the mortgagor likely is unable to afford counsel. See Arnold, 496 N.E.2d at 66 (DeBruler, J., dissenting). L & N is not a deficiency debtor seeking to avoid overpaying its debt; it is a represented party—a financial institution experienced in foreclosures—whose loss could have been avoided but for its own counsel‘s carelessness.4 Admittedly, the low price realized at the sale has likely created a loss which someone, probably the mortgage company, will have to bear. The question in this equitable proceeding, however, is whether that loss was incurred unfairly so as to shock the court‘s sense of justice and right.5
Furthermore, aside from the fact that L & N has not proved “enrichment” by proving value received, it has not shown the Wiseleys unjustly obtained the property. A public sale was legally noticed. A member of the public showed up and submitted a successful bid. The mortgage company negligently missed the sale that it initiated. The only injustice here would be to deny the successful bidder what he legally purchased.
L & N seems to base its argument on the belief that a windfall (assuming, although lacking evidence, that there was one) is in itself unfair. It argues that the sale should be set aside because the loss it stands to suffer is so great. This argument cuts both ways, however; the possibility that a substantial loss might occur also highlights the lack of care exhibited by L & N‘s counsel in missing the sale. See Western Transportation, 682 F.2d at 1236 (care required depends in part upon the expected benefit or loss). The equities of a case involving negligence do not favor one whose own error caused his loss. Newhouse, 532 N.E.2d at 28.
These equities also should extend to the integrity of the sale. A judicial sale must have a high degree of significance and finality associated with it. Prospective bidders will be discouraged from placing bids
at these sales if what they were told was a winning bid could be later negated by the statement of a lawyer that his client would have bid more had he attended the sale.
III.
The district court based its decision primarily on two considerations: first, that Million‘s failure to attend the sale was excusable; second, that disparity between value and price realized was so great that the resulting unjust enrichment shocks the conscience. Although the district court has discretion in determining the validity of judicial sales, he abused his discretion in this case. While we can share his sympathy for a small-town lawyer distracted by a crowded calendar, in the context of a
VACATED AND REMANDED.
CUDAHY, Circuit Judge, dissenting.
While conceding, at least arguendo, the merit of the majority‘s discussion of “excusable neglect,” I cannot accept the other, and necessary, branch of its argument. As the majority notes, the district court determined that the disparity between the value of the property and the sale price was so great as to shock the conscience. A willing and informed buyer was ready to pay $33,233.64 in exchange for title to the property. The majority suggests possible reasons why this bid ceiling might have reflected special considerations. But a bid in hand seems to me more probative than several appraisals in the bush. It at least creates a presumption of gross discrepancy between “value” and the $1000 actually received at the sale. The fact that $33,233.64 was loaned against the property does not suggest to me that it was likely worth only $1000. Before our concluding that the Lomas & Nettleton bid was totally non-probative, I think it was up to Kasten to provide a persuasive reason why this is the case. On the record before us, this has not been done.
Whether the price realized at a sheriff‘s sale is so inadequate as to “shock the conscience” of the court supervising the sale is obviously a highly discretionary judgment, which depends on the particular circumstances surrounding the sale in question. The Indiana courts have stressed that, when ruling on a petition to set aside a sheriff‘s sale, “the [trial] court has wide discretion to avoid ‘hardship and sacrifice.‘” Michigan Mortgage Corp. v. Oakley, 68 Ohio App.2d 83, 426 N.E.2d 1195, 1196 (1980) (noting that court had discovered only one reported case in which a trial court‘s ruling on a petition to set aside a foreclosure sale had been reversed for
abuse of discretion),
The majority chides Lomas & Nettleton for neglecting to present evidence of the property‘s “actual value” to the district court. Apparently the majority views this defect as fatal to Lomas & Nettleton‘s case, and sufficient to support a finding that Judge Sharp abused his discretion by invalidating the sheriff‘s sale. I believe that Indiana law is exactly the opposite of the majority‘s holding—under Indiana law, evidence of the “actual” fair market value of the property may be irrelevant to the issues involved here. Instead, the only way a party can establish that the price realized at a sheriff‘s sale is inadequate is by presenting evidence of what that party intended to bid if he or she had attended the sale.
In Indiana, the issue in a proceeding to set aside a sheriff‘s sale is not how the price at the sheriff‘s sale compares to the “fair market value” of the property, considered in the abstract. Instead, the relevant comparison is between the price realized and the price that could have been attained at a proper sheriff‘s sale but for the non-attendance of the party petitioning to set aside the sale. Thus, not only was the evidence Lomas & Nettleton presented about its contemplated bid relevant; it was the only evidence it could have offered to establish the inadequacy of the sale price.
For example, in Fox v. Jackson, 116 Ind.App. 390, 64 N.E.2d 799 (1946), the party seeking to set aside the sale did exactly what the majority faults Lomas & Nettleton for failing to do—the petitioner presented evidence of the “actual” fair market value of the property ($6,000), and argued that the price realized at the sheriff‘s sale ($3,000) was grossly inadequate. The court held that the petitioner had failed to present competent evidence to establish a price disparity justifying equitable relief.
The evidence would support the belief that the property had a market value of something over $6000, but the test of adequacy of price is not what the property is worth, but what it will bring at a fair sheriff‘s sale, which is, of course, a forced sale. No witness expressed an opinion as to what price the property would bring at a forced sale, but the court was entitled to believe that such a price might be substantially less than the fair market value.
Id. at 394, 64 N.E.2d at 801 (emphasis added; citation omitted).1 In the present case, Lomas & Nettleton presented the sort of evidence found lacking in Fox—evidence of what an “actual” bidder who had planned to attend the sheriff‘s sale was willing to pay. Yet the majority now finds that this evidence too is inadequate. I cannot agree with the majority that Lomas & Nettleton failed to offer proper evidence to establish that the sheriff‘s sale produced a grossly inadequate price.
Contrary to the majority, therefore, I conclude that Lomas & Nettleton presented evidence that was fully competent to establish what the price would have been at a fair sheriff‘s sale. In the present case, in which the price paid at the sheriff‘s sale was at most one-thirtieth of the amount which could have been realized at a proper sale, Lomas & Nettleton has clearly shown a price disparity which, in the district
court‘s discretion, could be found to “shock
Apparently, the majority holds that the lack of an appraisal defeats Lomas & Nettleton‘s claim as a matter of law. In the face of the bid Lomas & Nettleton was prepared to make, this is not a prudent rule. Indiana law affords much more leeway to the court supervising a sheriff‘s sale. As the Indiana Supreme Court has recognized, “[t]he purpose of the [sheriff‘s] sale is not to afford some stranger an opportunity to make off with the property of the judgment defendant” for a pittance, Home Owners’ Loan Corp. v. Braxtan, 220 Ind. 587, 592, 44 N.E.2d 989, 991 (1942); instead, the sale is intended to realize the highest practicable price in satisfaction of debts which are in default. By reversing the district court‘s judgment in this case, the majority renders the sheriff‘s sale as arbitrary and capricious as a lottery, whereby those lucky enough to be in attendance may take advantage of the careless mistakes of others more interested in the property. Judge Sharp was entirely justified in finding a discrepancy which shocks the conscience. Therefore, I respectfully dissent.