Catjen, LLC v. Hunter Mill West, L.C. ( 2021 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-1790
CATJEN, LLC,
Plaintiff - Appellee,
v.
HUNTER MILL WEST, L.C.,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. Leonie M. Brinkema, District Judge. (1:18-cv-01546-LMB-JFA)
Submitted: April 29, 2021 Decided: July 8, 2021
Before KING, DIAZ, and QUATTLEBAUM, Circuit Judges.
Affirmed by unpublished per curiam opinion.
J. Chapman Petersen, David L. Amos, CHAP PETERSEN & ASSOCIATES, PLC,
Fairfax, Virginia, for Appellant. Nicholas M. DePalma, Christian R. Schreiber,
VENABLE LLP, Tysons, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Following protracted litigation in bankruptcy court and Virginia state courts, Catjen,
LLC (“Catjen”), commenced the instant action in federal district court seeking to recover
the outstanding balance on a $1 million note executed by Hunter Mill West, L.C.
(“HMW”), in favor of Catjen’s predecessor-in-interest, BDC Capital, LLC (“BDC”). Two
questions lie at the heart of this dispute: (1) whether, after the note matured, simple or
compound interest applied; and (2) whether, after the bankruptcy court issued its claims
order, the interest rate was determined by the federal rate or the rate provided in the note.
In granting summary judgment to Catjen, the district court concluded that interest
compounded at the note’s postjudgment rate. HMW appeals, and we affirm.
“We review de novo a district court’s grant or denial of a motion for summary
judgment, construing all facts and reasonable inferences therefrom in favor of the
nonmoving party.” CTB, Inc. v. Hog Slat, Inc., 954 F.3d 647, 658 (4th Cir. 2020).
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a).
In 2008, HMW executed a one-year note in favor of BDC, set to mature on
November 19, 2009. The note provided that, before maturity, interest accrued at a rate of
14%, compounded monthly; that, upon default, BDC could unilaterally increase the interest
rate by 10 points, to 24% (the “default interest rate”); and that, in the event that a court
entered judgment on the note against HMW, the judgment would bear interest at the default
interest rate of 24%. After HMW failed to satisfy its obligations under the note, BDC
2
placed HMW in default on September 24, 2010. Two years later, on November 9, 2012,
HMW filed for bankruptcy.
In a proof of claim filed in the bankruptcy court, BDC asserted that HMW owed
roughly $1.8 million on the note. HMW objected, maintaining that the debt was closer to
$1.5 million. In support of its argument, HMW submitted a spreadsheet, prepared by its
expert, that calculated the balance due from the note’s inception until the date of the
bankruptcy petition. Critically, HMW’s expert compounded interest throughout this entire
period. Following a hearing, the bankruptcy court sustained HMW’s objection and, aside
from one minor adjustment not pertinent here, adopted HMW’s calculations in full.
Accordingly, the bankruptcy court entered a claims order fixing BDC’s claim at
$1,504,998.55.
In the instant action, Catjen and HMW argue over what, if any, preclusive effect the
claims order has on the issue of compounding interest. Under the applicable state law,
[T]he proponent of issue preclusion must demonstrate that: (1) the parties to
the two proceedings, or their privies, be the same; (2) the factual issue sought
to be litigated must have been actually litigated in the prior action and must
have been essential to the prior judgment; and (3) the prior action must have
resulted in a valid, final judgment against the party sought to be precluded in
the present action.
Hately v. Watts, 917 F.3d 770, 778 (4th Cir. 2019) (footnote and internal quotation marks
omitted) (discussing Virginia law). Here, the parties disagree only on the second
element—specifically, whether the claims order conclusively established that interest
compounded after the note matured.
3
As noted above, the bankruptcy court used HMW’s own spreadsheet to determine
the amount due under the note, and those calculations included compounding interest from
the maturity date through the date of the bankruptcy petition. And given that the
application of compounding interest necessarily impacted the value of BDC’s claim as
recorded in the claims order, it stands to reason that this issue was necessary to the
bankruptcy court’s decision. For these reasons, we agree with the district court’s
determination that HMW is precluded from relitigating the issue of postmaturity
compounding interest. 1
HMW’s arguments to the contrary are not persuasive. First, HMW notes that the
spreadsheet’s calculations ended on the petition date, November 9, 2012; thus, according
to HMW, even assuming that the bankruptcy court adopted the spreadsheet’s calculations,
the claims order could be preclusive only through that date. But a bankruptcy court
necessarily decides the value of a claim “as of the date of the filing of the petition,” 11
U.S.C. § 502(b), so the fact that the spreadsheet ended on the petition date is
unilluminating. In any event, HMW’s argument presupposes that the petition date is
somehow relevant to the compounding interest issue, yet HMW identifies no legal or
1
HMW also seeks to invoke res judicata, relying on the bankruptcy court’s refusal
to allow BDC to charge late fees after the note matured. As relevant here, the bankruptcy
court determined that late fees were permissible only when monthly payments were due,
but that monthly payments ceased at maturity. From this, BDC extrapolates that
compounding interest—which the note allowed when a monthly payment was missed—
likewise could apply only until the note matured. But the bankruptcy court never
announced such a finding, and, moreover, the claims order’s incorporation of postmaturity
compounding interest belies this argument.
4
factual basis—nor do we discern any—for concluding that the filing of its bankruptcy
petition altered its obligations under the note.
Next, HMW contends that the claims order is not preclusive because BDC’s own
submissions during the bankruptcy proceedings assumed that a simple interest rate of 14%
applied after the petition date. But the bankruptcy court declined to adopt BDC’s
calculations; thus, they were not essential to the court’s judgment. HMW also asserts that
the bankruptcy court did not explicitly indicate whether it had relied on the spreadsheet.
However, given that the court sustained HMW’s objection and, but for one deviation, fully
adopted HMW’s calculations, we are satisfied that the court made clear its reliance on the
spreadsheet.
Finally, HMW maintains that the spreadsheet’s use of compounding interest was
based on a mistaken formula. And because, in some instances, a party is not estopped from
correcting its previously erroneous position on a question of law—such as the
interpretation of a contract—HMW insists that it should be able to correct this error going
forward. In support of this argument, HMW attempts to equate res judicata with the
doctrine of judicial estoppel, which “prohibits a party from taking inconsistent positions
within a single action.” CVAS 2, LLC v. City of Fredericksburg, 766 S.E.2d 912, 919 n.5
(Va. 2015) (internal quotation marks omitted). As HMW points out, judicial estoppel does
not prevent a party “who has taken an erroneous position on a question of law . . . from
later taking the correct position, provided [the party’s] adversary has suffered no harm or
prejudice by reason of the change.” Lofton Ridge, LLC v. Norfolk S. Ry. Co., 601 S.E.2d
5648, 651 (Va. 2004) (internal quotation marks omitted). Thus, HMW reasons that, because
judicial estoppel does not apply, neither should res judicata.
This argument, however, fundamentally misunderstands the doctrine of judicial
estoppel. First, judicial estoppel is inapplicable not because of the exception on which
HMW relies, but because the doctrine is limited to instances in which the inconsistent
positions are taken within the same action. Obviously, the instant proceedings are not the
same as those that occurred in the bankruptcy court. Second, and more to the point, res
judicata and judicial estoppel simply are not equivalent doctrines: whereas res judicata
seeks to “promot[e] finality and judicial economy,” Providence Hall Assocs. Ltd. P’ship v.
Wells Fargo Bank, N.A., 816 F.3d 273, 279 (4th Cir. 2016), judicial estoppel is a doctrine
“of fair play” designed to prevent a party from “talk[ing] through both sides of his mouth,”
Wooten v. Bank of Am., N.A., 777 S.E.2d 848, 850 (Va. 2015). Thus, HMW cannot use the
inapplicability of judicial estoppel to evade the application of res judicata.
In sum, we conclude that the claims order is preclusive as to the appropriate method
for calculating interest after the note matured. Consequently, we affirm the district court’s
decision to bar HMW from relitigating this issue. 2
Turning to the rate of interest, HMW argues that the federal rate, 28 U.S.C.
§ 1961(a), should apply to the amount owed under the claims order. Under § 1961(a), the
federal interest rate “shall be allowed on any money judgment in a civil case recovered in
2
As a result, we do not reach HMW’s argument based on the plain language of the
note.
6
a district court.” 28 U.S.C. § 1961(a). However, although “§ 1961 provides a standard
rate of post-judgment interest, the parties are free to stipulate a different rate, consistent
with state usury and other applicable laws.” Hymel v. UNC, Inc., 994 F.2d 260, 266 (5th
Cir. 1993) (internal quotation marks omitted); see FCS Advisors, Inc. v. Fair Fin. Co., 605
F.3d 144, 147 (2d Cir. 2010) (“[P]arties are free to agree to a different post-judgment
interest rate by contract, provided that they do so through clear, unambiguous and
unequivocal language.” (internal quotation marks omitted)); Soc’y of Lloyd’s v. Reinhart,
402 F.3d 982, 1004 (10th Cir. 2005) (“[P]arties may contract to, and agree upon, a post-
judgment interest at a rate other than that specified in § 1961.”).
Here, the note clearly stipulated that, following entry of judgment, interest would
accrue at a rate of 24%. Thus, assuming without deciding that the claims order is a money
judgment governed by § 1961, we conclude that the terms of the note supplanted the federal
interest rate. 3
Accordingly, we grant the parties’ joint motion to submit this case on the briefs and
affirm the district court’s judgment. We dispense with oral argument because the facts and
legal contentions are adequately presented in the materials before this court and argument
would not aid the decisional process.
AFFIRMED
We find that HMW has waived its remaining claims—including those based on
3
Fed. R. Bankr. P. 9024 and Catjen’s alleged failure to mitigate—by not advancing them in
its summary judgment briefing. See Cox v. SNAP, Inc., 859 F.3d 304, 308 n.2 (4th Cir.
2017).
7