United States v. John W. Peckham ( 1995 )

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No. 95-1102
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United States of America, *
*
Plaintiff - Appellee, * Appeal from the United States
* District Court for the
v. * Southern District of Iowa.
*
John W. Peckham, *
*
Defendant - Appellant,*
*
M. Louise Peckham, *
*
Victor Edwards, *
*
Defendants. *
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Submitted: September 15, 1995
Filed: December 27, 1995
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Before RICHARD S. ARNOLD, Chief Judge, McMILLIAN and HANSEN, Circuit
Judges.
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HANSEN, Circuit Judge.
John W. Peckham appeals from the district court's1 denial of his
motion to alter or amend an order directing the United States Marshal to
reimburse the government from the proceeds of a foreclosure sale for real
estate taxes the government had advanced prior to the entry of the
foreclosure judgment. Peckham argues that the district court erred because
the foreclosure judgment did not specifically provide for reimbursement of
prior paid taxes. We affirm the order of the district court.
1
The Honorable Ronald E. Longstaff, United States District
Judge for the Southern District of Iowa.
I.
The following facts are undisputed. The United States of America,
acting through the Farmers Home Administration, made several loans to John
W. and M. Louise Peckham which were secured by a mortgage on the Peckhams'
real estate. When the Peckhams defaulted on the loans, the government
filed a complaint for foreclosure on the property. The parties negotiated
a settlement, which the district court finalized in a judgment and decree
of foreclosure on May 25, 1994. The judgment provided for the payment from
the proceeds of the ordered sale of the unpaid principal, accrued interest,
and costs of the litigation and of the execution sale.
A writ of execution was issued pursuant to the judgment, and the
United States Marshal sold the property. When the property sold for more
than the value of the encumbrances against it, John Peckham filed a motion
to compel the government to pay him the overplus. The government replied,
stating that Peckham was entitled to a lesser amount than he sought after
the government calculated its costs and interest, which included the
delinquent real estate taxes which the government had advanced the day
before the foreclosure judgment was entered. The district court entered
an order requiring payment to Peckham of an overplus of $34,138.53, as
calculated by the government.
Peckham then filed a motion to alter or amend the order, asserting
that he was entitled to a $65,541.96 overplus. Peckham contended that the
government was not entitled to the amount it had paid in real estate taxes
one day before the district court entered the foreclosure judgment.
Specifically, Peckham argued that the judgment did not provide for
reimbursement of real estate taxes paid prior to the judgment. He further
argued that the mortgage agreement itself, which did provide for
reimbursement of tax payments advanced by the mortgagee to protect its
interests, did
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not provide the court any authority, because under Iowa law the agreement
had merged into the judgment. The district court held a hearing on
Peckham's motion to alter or amend the order and found that the real estate
taxes were costs to which the government was entitled pursuant to the
foreclosure judgment and denied Peckham relief. Peckham appeals.
II.
We review a motion to alter or amend a judgment for an abuse of
discretion. See Creative Cookware, Inc. v. Northland Aluminum Prods., 678
F.2d 746, 751 n.12 (8th Cir. 1982) (citing 6A Moore's Federal Practice at
59.15(4)).
As a preliminary matter, we observe that "federal law governs
questions involving the rights of the United States arising under
nationwide federal programs." United States v. Kimbell Foods, Inc., 440
U.S. 715, 726 (1979). Under 28 U.S.C. § 2410(c), we apply "the local law
of the place where the court is situated" to determine the effect of a
foreclosure judgment on a mortgage held by the United States. Cf. Donovan
v. Farmers Home Admin., 19 F.3d 1267, 1268-70 (8th Cir. 1994) (applying
state law under § 2410(c) to determine the status of the government's
lien).
Peckham relies on the doctrine of merger, which is well-settled law
in Iowa. Under this doctrine, a mortgagee who obtains an in rem judgment
is limited to the terms of that judgment and cannot subsequently pursue an
in personam judgment on the underlying obligation. Farm Credit Bank of
Omaha v. Faught, 492 N.W.2d 422, 424 (Iowa 1992). "The doctrine of merger
is an aspect of res judicata which prevents relitigation of existing
judgments. . . . It serves to prevent the splitting of causes of action."
Brenton State Bank of Jefferson v. Tiffany, 440 N.W.2d 583, 585 (Iowa 1989)
(citations omitted).
3
We disagree with Peckham's assertion that the doctrine of merger
applies to this case. This case does not involve a creditor splitting
causes of action. The government did not pursue a separate, in personam
suit against the Peckhams after obtaining an in rem judgment; rather, the
government contested the Peckhams' calculations on the amount of overplus
due to them under the foreclosure judgment from the sale of the property.
The district court did not render a second judgment on the underlying debt
after entering an in rem judgment on the mortgage; rather, it interpreted
the original in rem judgment to include the real estate taxes as
reimbursable costs of the Marshal's sale. Thus, the question here is not
whether the debt merged into the judgment, thus precluding a second
judgment, but whether the district court abused its discretion in
determining that the advanced real estate taxes were costs reimbursable
under the foreclosure judgment. See United States v. Heasley, 283 F.2d
422, 426-27 (8th Cir. 1960) ("[T]he rule in federal courts is well settled
that the matter of confirming a judicial sale rests in the sound judicial
discretion of the trial court and this discretion will not be disturbed on
appeal except in cases of its abuse.").
After carefully reviewing the record and the parties' briefs, we find
no abuse of discretion. Peckham contends that the language of the judgment
did not grant the court authority to order reimbursement, noting that the
judgment does not specifically provide for the reimbursement of prejudgment
costs and that the itemized award does not include real estate taxes. We
believe, however, that the judgment contains language supporting the
district court's decision. The judgment states that the Marshal's Service
is to deduct the costs of the sale and then bring the remaining proceeds
into court to satisfy the interest and the plaintiff's judgment. In our
view, the government paid the real estate taxes as a cost incurred in
preparation for the Marshal's sale. Because the Marshal had authority per
the judgment to pay
4
these as costs of sale, the district court did not abuse its discretion in
ordering payment.
Furthermore, the record indicates that neither the government nor the
Peckhams intended the settlement--which was finalized in the judgment--to
preclude the government from recovering all of its costs. In fact, Peckham
concedes that at the time the judgment was entered, he had no idea the
government had already paid the delinquent taxes. Thus, he assumed that
the government would incur any costs to facilitate the sale after the
judgment was entered and that those costs would be reimbursed from the
proceeds of the sale. It was, of course, reasonable for the parties to
believe the settlement provided for the government's reimbursement of
costs, because the parties had explicitly agreed to this in the mortgage
agreement. Looking at this record, the district court had ample evidence
from which to conclude that the settlement which became the final judgment
contemplated distribution of sale proceeds only after all of the
government's costs of sale had been reimbursed.
Peckham argues that to affirm the district court's decision would be
to circumvent Iowa's merger doctrine by effectively granting an in personam
judgment to the government after it had formerly obtained an in rem
judgment. As explained above, we view the court's decision as an
application of the original judgment, not a grant of a separate, in
personam judgment. However, even if we were to accept Peckham's view,
Peckham's argument would not carry the day.
The application of the merger doctrine "is limited to equitable
concerns" and "will not be carried any further than the ends of justice
require." Brenton State Bank of Jefferson, 440 N.W.2d at 586. In this
case, the Peckhams received under the district court's order exactly what
was due to them. Had the government not advanced the taxes, the Peckhams
would not have received any more than the court's order allowed them in
this case,
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because potential buyers would have reduced their bids to reflect that the
property was being sold subject to the taxes. Thus, a reduced amount of
initial overplus would have been available for distribution, but the final
amount due the Peckhams would have been the same amount as the court
finally ordered to be distributed to them. Simply stated, applying the
merger doctrine to preclude the government from recapturing its advanced
costs and thereby bestowing on the Peckhams a real windfall to which they
are not entitled would not further the ends of justice. Accordingly, we
do not believe the Supreme Court of Iowa would extend the doctrine of
merger to the facts of this case. Cf. id. at 587-88 (noting that an
application of the merger doctrine would result in the debtors receiving
a considerable windfall at the expense of creditors).2
We have considered Peckham's remaining arguments and find them to be
without merit. For the reasons stated above, we find no abuse of
discretion in the district court's determination that the taxes were costs
of the sale under the foreclosure judgment. Accordingly, we affirm the
order of the district court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
2
Peckham contends that in Faught, 492 N.W.2d at 425, the
Supreme Court of Iowa was unimpressed by a mortgagee's argument
that application of the merger doctrine would result in a windfall
to the mortgagor. A close reading of the case reveals, however,
that the court was unimpressed because the alleged windfall was an
illusion.
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