Cerceo v. Shmidheiser ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JOHN MICHAEL CERCEO; U.S. ROUTE
29, MADISON PROJECT, INCORPORATED,
Plaintiffs-Appellants,
No. 96-1781
v.
WILLIAM E. SHMIDHEISER, III,
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Virginia, at Charlottesville.
James H. Michael, Jr., Senior District Judge.
(CA-96-6-3-C, CK-95-680-6)
Argued: May 7, 1997
Decided: June 10, 1997
Before RUSSELL and HALL, Circuit Judges, and
TRAXLER, United States District Judge for the
District of South Carolina, sitting by designation.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Roy David Bradley, Madison, Virginia, for Appellants.
Kevin Philip Oddo, FLIPPIN, DENSMORE, MORSE, RUTHER-
FORD & JESSEE, Roanoke, Virginia, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Appellants J. Michael Cerceo ("Cerceo") and U.S. Route 29, Madi-
son Project, Incorporated ("U.S. Route 29") (collectively "Appel-
lants"), appeal the district court's conclusions that Appellee William
E. Shmidheiser, III ("Shmidheiser"), as trustee under a deed of trust
for U.S. Route 29, breached a fiduciary duty owed to U.S. Route 29
and inadequately advertised a foreclosure sale of real property mort-
gaged by U.S. Route 29. Like the bankruptcy and district courts, we
conclude that Shmidheiser breached no fiduciary duty and properly
conducted the foreclosure sale. Consequently, we affirm the judgment
of the district court.
I.
In 1989, Cerceo and Walter Simonson ("Simonson") were share-
holders of U.S. Route 29, which purchased 266 acres of real property
("the property") in Madison County, Virginia, by securing a $650,000
loan from Dominion Farm Loan Corporation ("DFLC"), the predeces-
sor in interest to Dominion Bank ("Dominion Bank"). U.S. Route 29
borrowed an additional $250,000 from DFLC for working capital, and
both loans were secured by first and second deeds of trust on the
property in favor of DFLC and by personal guarantees of Cerceo and
Simonson.
By May 1992, U.S. Route 29 defaulted on the loans, thereby
prompting Dominion Bank to mediate an agreement by which Cerceo
and Simonson would divide the property. Under Dominion Bank's
tutelage, Simonson acquired 170 acres of the property by satisfying
half of the debt to Dominion Bank and abjuring his interest in U.S.
Route 29 in favor of Cerceo. For his part, Cerceo paid Dominion
Bank an additional $78,000 and executed a promissory note in favor
of Dominion Bank for $400,000 subject to the two deeds of trust. This
2
promissory note was secured by a lien on production inventory of
Cerceo's winery, Misty Mountain Vineyards ("Misty Mountain"),
which had executed a deed of trust on its real property in favor of
Second Bank and Trust of Culpeper ("Second Bank") in exchange for
a $465,000 loan. U.S. Route 29, through Cerceo, retained the remain-
ing 91 acres of the property, which was zoned for commercial use.
The year 1992 was not a banner year for Cerceo. By November
1992, Cerceo defaulted on the $400,000 promissory note executed in
favor of Dominion Bank; subsequently, Misty Mountain defaulted on
the $465,000 loan from Second Bank and thereafter filed a bank-
ruptcy petition, thereby frustrating Second Bank's attempt to fore-
close on the winery realty. Thus, Cerceo, U.S. Route 29, and Misty
Mountain were in financial straits.
During Misty Mountain's bankruptcy proceeding, First Union
National Bank of Virginia ("First Union") purchased the $400,000
promissory note that Cerceo executed in favor of Dominion Bank;
moreover, First Union attempted to enforce the rights under the prom-
issory note by intervening in Misty Mountain's bankruptcy proceed-
ing to prohibit Misty Mountain from applying the proceeds of the sale
of its inventory to satisfy any other creditors other than First Union.
Attempting to salvage Misty Mountain's failing fortunes, Cerceo suc-
cessfully negotiated for the use of Misty Mountain's cash collateral
in exchange for granting First Union a junior lien on the winery
realty. Thereafter, Shmidheiser, while counsel for First Union, was
appointed trustee on the U.S. Route 29 deeds of trust.
Recognizing that the only hope of remaining financially afloat was
to sell the realty U.S. Route 29 and Misty Mountain held, Cerceo was
elated to discover that Disney, Incorporated, entertained ideas of
developing an amusement park near the 91-acre parcel and the winery
property. Unfortunately, however, Disney abandoned its schemes;
consequently, the value of the properties plummeted. Seeking to
enforce their rights as creditors, First Union and Second Bank
attempted to foreclose on both parcels of realty. As junior lienor, First
Union proposed an aggressive marketing strategy that would foment
interest in the winery, gain momentum, and culminate in a handsome
sale price. Likewise, Cerceo shared this sentiment in an effort to sal-
vage his failing businesses and avoid, if possible, any deficiency judg-
3
ment. In this connection, Cerceo hired marketing consultants Woltz
& Associates ("Woltz") to plan a sales strategy. Accordingly, First
Union and Cerceo sought a delay in foreclosure. Conversely, as senior
creditor that would likely be wholly satisfied, Second Bank contem-
plated a quick sale without resorting to protracted marketing strate-
gies.
According to Cerceo, on February 20, 1995, one week prior to the
foreclosure sale of the winery property, First Union advised him that
if U.S. Route 29 would avoid filing bankruptcy, which would inter-
fere with First Union's liquidation plans for the 91-acre parcel, First
Union would seek to enjoin Second Bank's foreclosure sale. Taken
with the proposal, Cerceo agreed, provided that First Union would
engage Woltz to sell not only the winery property, but also the 91-
acre parcel. First Union proved amenable to this scheme, so, joining
forces, Cerceo and First Union successfully moved the bankruptcy
court to enjoin Second Bank's foreclosure sale of the winery property.
Despite their plans, First Union subsequently advised Cerceo that
Shmidheiser dispensed with Woltz and elected to conduct the foreclo-
sure sale of the 91-acre parcel himself. Accordingly, Shmidheiser
advertised the sale of that parcel each week for four consecutive
weeks in The Madison County Eagle, a local newspaper of general
circulation. Responding to the advertisement, a handful of putative
purchasers appeared for the foreclosure sale, and that parcel was sold
for $250,000.
Galled by this turn of events, U.S. Route 29 filed a bankruptcy
petition in April 1995, and in May of that year, Shmidheiser filed a
suit in state court seeking a deficiency judgment in an amount repre-
senting the difference between the $250,000 sale price and the bal-
ance on the $400,000 promissory note. Shmidheiser's suit prompted
Cerceo to file suit in state court against Shmidheiser, asserting a claim
of breach of fiduciary duty. Cerceo's state suit was removed to the
bankruptcy court, and after the parties stipulated to certain facts, the
bankruptcy court tried the issues of the breach of fiduciary duty, the
propriety of the foreclosure sale, and the sale price of the realty.
Shmidheiser prevailed in the bankruptcy court. Specifically, the bank-
ruptcy court concluded that Shmidheiser breached no fiduciary duty.
See Va. Code Ann. § 26-58 (Michie 1995). Also, the bankruptcy court
4
held that Shmidheiser complied with Virginia law regarding adver-
tisement of the foreclosure sale, see Va. Code Ann. § 55-59.2A2
(Michie 1995), and finally that the sales price was not so outrageously
deficient as to shock the judicial conscience.
The Appellants appealed to the district court only the issues of the
propriety of the foreclosure sale and the breach of fiduciary duty. The
district court affirmed, holding that Shmidheiser breached no fidu-
ciary duty and properly conducted the foreclosure sale. Unsuccessful
in the district court, the Appellants appeal to us, challenging these two
conclusions and attempting to assert a variety of contentions that were
never raised in the bankruptcy or district courts or were not preserved
for appeal to or from the district court.
II.
We first state our standard of review. After stipulating to certain
facts, the parties tried the case to the bankruptcy court. In such a pro-
cedural posture, we review the bankruptcy court's method of fact
finding for clear error, but we exercise plenary review over its legal
conclusions. See In re Morris Communications NC, Inc., 914 F.2d
458, 467 (4th Cir. 1990). The Appellants' persuading us that the
bankruptcy court erred is a weighty burden indeed because "[i]n
reviewing factual findings, our scope of review is particularly circum-
scribed, being limited to determining whether the facts as found by
the [trial] court are clearly erroneous." See Jiminez v. Mary Washing-
ton College, 57 F.3d 369, 378 (4th Cir.), cert. denied, 116 S. Ct. 380(1995). Thus, "[f]acts are conclusive on appeal . . . unless they are
plainly wrong." Id. Precedent prohibits our substituting our judgment
for that of the bankruptcy court, and the force of this precept pre-
cludes reversal here unless we are "`left with the definite and firm
conviction that a mistake has been committed.'" Id. (quoting United
States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). Of
course, as an appellate court, we are not so bound with respect to the
bankruptcy court's legal conclusions, but may freely review them. See
In re Tudor Assocs. II, 20 F.3d 115, 119 (4th Cir. 1994). Guided by
this procedural standard, we address the Appellants' contentions.
A.
We quickly dispatch the Appellants' initial challenges to the dis-
trict court's judgment. The Appellants attempt to assert here numer-
5
ous challenges that were not raised in the bankruptcy or district courts
or were not preserved for appeal from either of the lower courts.
Absent plain error, see Singer v. Dungan, 45 F.3d 823, 827-28 (4th
Cir. 1995), exceptional circumstances, see United States v. One 1971
Mercedes Benz, 542 F.2d 912, 915 (4th Cir. 1976), or a fundamental
miscarriage of justice, see Bakker v. Grutman , 942 F.2d 236, 242 (4th
Cir. 1991), we shall not address issues raised for the first time on
appeal, see Singleton v. Wulff, 428 U.S. 106, 120 (1976). We have
repeatedly adhered to this precept. See, e.g. , Estate of Altobelli v.
International Business Mach. Corp., 77 F.3d 78, 81 n* (4th Cir. 1996)
(declining to consider if a divorce decree was a qualified domestic
relations order under ERISA because the issue was not raised in the
district court); Hughes v. Bedsole, 48 F.3d 1376, 1388 n.14 (4th Cir.
1995) (declining to consider a discrimination claim because it was
raised for the first time on appeal), cert. denied, 116 S. Ct. 190(1995). Similarly, reviewing courts decline to address issues raised in
the trial proceedings, but not preserved for appeal. See One 1971
Mercedes Benz, 542 F.2d at 915. Again, precedent counsels us to
decline to review such challenges. See, e.g., United States v. Borden,
10 F.3d 1058, 1063 (4th Cir. 1993) (refusing to consider the validity
of an indictment on appeal because the issue was not properly pre-
served for appeal); Buffington v. Baltimore County, Md., 913 F.2d
113, 121 (4th Cir. 1990) (explaining that the applicability of the
defense of qualified immunity would not be considered on appeal for
want of proper preservation in the district court); see also Hagan v.
McNallen (In re McNallen), 62 F.3d 619, 625 (4th Cir. 1995)
(explaining in connection with a bankruptcy discharge proceeding
that appellate courts will not entertain claims if they are procedurally
defaulted). Application of these principles compels us to decline con-
sidering the Appellants' numerous arguments that were either not
raised initially or preserved for appeal. Thus, we proceed to analyze
the breach of fiduciary duty and the adequacy of the advertisement of
the foreclosure sale.
B.
Observing that Shmidheiser is counsel for First Union and trustee
under the deeds of trust, the Appellants posit that he breached his duty
to act as a fiduciary for both First Union and U.S. Route 29. Accord-
ing to the Appellants, Shmidheiser can be either counsel to First
6
Union or trustee under the deeds of trust, but he cannot serve in both
capacities without violating his fiduciary duty. We conclude that Vir-
ginia statutory law forecloses this position.
Virginia law provides that a trustee under a deed of trust is a fidu-
ciary for both the debtor and the creditor, and in this dual capacity,
the trustee must act impartially respecting these two competing inter-
ests. See Whitlow v. Mountain Trust Bank, 207 S.E.2d 837, 840 (Va.
1974). As a corollary, "a trustee must refrain from placing himself in
a position where his personal interest conflicts with the interests of
those for whom he acts as fiduciary." Id. Thus, Shmidheiser must act
impartially regarding First Union and the Appellants. Virginia law
provides further, however, in relevant part, that:
The mere fact that a trustee in a deed of trust to secure a
debt due to a corporation is a stockholder, member,
employee, officer or director of, or counsel to, the corpora-
tion, does not disqualify him from exercising the powers
conferred by the trust deed nor does it render voidable a sale
by such trustee in the exercise of the powers conferred on
him by the trust deed so long as he did not participate in the
corporation's decision as to the amount to be bid at the sale
of the trust property. . . .
Va. Code Ann. § 26-58 (Michie 1995). Section 26-58, therefore,
expressly contemplates that a trustee under a deed of trust may serve
in the dual capacity as Shmidheiser served here, provided that Shmid-
heiser did not participate in the formulation of the bid at the foreclo-
sure sale, and the record in this case supports no such inference; this
conclusion is even more salient because First Union was not the suc-
cessful purchaser at the foreclosure sale. Accordingly, we conclude
that Shmidheiser breached no fiduciary duty owed to the Appellants
given that section 26-58 explicitly provides that counsel for a creditor
corporation may serve as a trustee under a deed of trust and that a
foreclosure sale under such circumstances is valid unless the trustee
participates in formulating the foreclosure sale bid.
C.
The Appellants next contend that Shmidheiser improperly con-
ducted the foreclosure sale. The gravamen of this contention is that
7
Shmidheiser's advertising the foreclosure sale was inadequate
because he only advertised the sale in The Madison Eagle, the local
newspaper, rather than a newspaper of greater circulation such as The
Richmond Times-Dispatch or The Washington Post. Again, we find
that Virginia statutory law and our own precedent belie this argument.
Respecting the advertising of foreclosure sales, Virginia law pro-
vides in relevant part:
Advertisement of sale by a trustee or trustees in execution
of a deed of trust shall be in a newspaper having a general
circulation in the city or county wherein the property to be
sold, or any portion thereof, lies . . . .
....
If the deed of trust does not provide for the number of publi-
cations of such newspaper advertisement, the trustee shall
advertise once a week for four successive weeks . . . .
Va. Code Ann. § 55-59.2A2 (Michie 1995). In the instant suit, the
deed of trust did not prescribe the method of advertising, so, relying
on section 55-59.2A2, Shmidheiser advertised the foreclosure sale
once per week for four consecutive weeks in the local newspaper, as
the statute mandates. Accordingly, Shmidheiser followed the letter of
the law, and he cannot be faulted for his strict compliance. In addi-
tion, circuit precedent eschews the very contention that the Appellants
advance. In Kriesel v. Berkshire Associates, 452 F.2d 491 (4th Cir.
1971), we explained that a trustee under a Virginia deed of trust need
do no more than fulfill his statutory obligations with regard to adver-
tising a foreclosure sale:
[The trustee] did all by way of the place, manner and dura-
tion of advertising and all other steps to effect the sale that
the Virginia law requires of a trustee. [The debtor's] argu-
ment is simply that [the trustee] should have done more in
the way of advertising . . . . We think the argument mani-
festly lacking in merit . . . there is simply no evidence that
the property was not properly advertised and sold at a prop-
erly conducted sale.
8
Id. at 493. Having complied with the statutory provisions regarding
advertising, we conclude that Shmidheiser properly conducted the
foreclosure sale.
III.
We decline to address matters being raised for the first instance on
appeal or not properly preserved for appeal, and thus, the Appellants'
challenges that attempt to circumvent these rules are not considered.
Regarding the breach of fiduciary duty claim, we hold that Shmid-
heiser breached no fiduciary duty; rather, he acted in accordance with
Virginia law. Similarly, with respect to the propriety of advertising
the foreclosure sale, we hold that Shmidheiser properly advertised the
foreclosure sale; hence, he need do no more. The judgment of the dis-
trict court is, therefore, affirmed.1
AFFIRMED
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1 Shmidheiser moved to strike portions of the Joint Appendix from con-
sideration. This issue was not advanced at oral argument, and given our
disposition, the motion is largely irrelevant. Regardless, we deny the
motion.
9