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Usx Corp. v. Champlin

decided: May 31, 1993.


Appeals from the United States District Court for the Western District of Louisiana. D.C. DOCKET NUMBER 90-CV-1745 (Consol. w/ 92-0091). JUDGE Richard T. Haik, Sr.

Before Wisdom,*fn* Garwood, and Higginbotham, Circuit Judges.

Author: Higginbotham

HIGGINBOTHAM, Circuit Judge:

This appeal comes from the trial of two cases consolidated for trial. The first case was a suit for declaratory judgment by USX Corporation against H.H. Champlin and the FDIC to declare Champlin's remedy as the holder of a second mortgage extinguished when USX foreclosed its first mortgage without giving Champlin notice. Champlin had not requested notice under a Louisiana statutory procedure nor contracted for notice in subordinating his mortgage to the first position of USX. The second is a suit by Gladstone Development Corporation against USX for specific performance of a contract for the sale of the property USX acquired in the foreclosure sale. The district court ruled that the foreclosure sale was constitutionally deficient, did not extinguish the mortgages, and ordered a resale by private auction. The court denied Gladstone's claim for specific performance. We affirm.


In 1985, H.H. Champlin obtained a mortgage on the Tiffany Plaza Shopping Center located in Vermilion Parish, Louisiana, to secure a debt of $959,712.85. Champlin later assigned the debt due him to Republic Bank in Oklahoma City to secure his debt to the Bank.*fn1 In December 1986, Paramount Investment Properties, Ltd. purchased the Shopping Center and refinanced its debt. As part of the refinancing transaction, USX and Landmark Savings Bank acquired a $3.8 million mortgage on the Shopping Center, and for a fee of $50,000 Champlin agreed to subordinate his mortgage to the USX mortgage. The subordination agreement did not require USX to notify Champlin or the Republic Bank in the event of foreclosure.

Paramount did not meet its obligations under the refinancing arrangement, and in late 1988 USX started foreclosure proceedings in Louisiana state court. A foreclosure sale was held on February 22, 1989. USX gave no notice to Champlin or the FDIC of the foreclosure proceeding or the sale. The parties agree that the foreclosure complied with Louisiana law, because no notice was required in the absence of a request for notice of seizure, a request no one made. See La. R.S. 13:3886.*fn2

At the time of the foreclosure sale, the balance due on the Champlin mortgage was $1,331,308. The FDIC had the Shopping Center appraised in September 1988, six months before the sale, at $2,250,000. The Shopping Center was appraised for $3,500,000 in the foreclosure proceeding, and the balance owed on the USX mortgage at that time was $4,031,936. USX successfully bid with a credit against the USX note and mortgage of $2,450,000, 70% of the appraised value.

Following the foreclosure sale, USX contracted to sell the Shopping Center to Gladstone. The contract provided for a purchase price of $3,500,000, $525,000 in cash, with $50,000 in earnest money. USX financed the balance of $2,975,000. The agreement provided for closing on June 20, 1990 unless the parties agreed otherwise.

As required by the contract, Gladstone furnished USX with a commitment of title insurance. As a prerequisite for insurance, the commitment required the cancellation of record of the Champlin mortgage and a release from Champlin. USX attempted to secure the required waiver from Mr. Champlin and the FDIC and ultimately filed this suit for a declaratory judgment to resolve the issues attending the failure to give notice.

The initial closing date was extended numerous times until July 20, 1991. The parties did not agree to any further extensions. On July 15, 1991, Gladstone notified USX that it wished to close the transaction and proposed that should USX be unable to cancel the Champlin mortgage before closing, Gladstone would accept a bond or similar indemnification to give USX additional time to do so. On July 16, 1991, USX advised Gladstone that the Champlin matter had not been resolved and would not be resolved before the July 20th closing date. USX stated that it had no obligation to clear the Champlin mortgage and that under the contract, Gladstone had the choice of either purchasing the Shopping Center subject to the Champlin mortgage or terminating the agreement. Gladstone continued to insist that USX had a duty to satisfy the mortgage and refused to take title. USX therefore concluded that the agreement was terminated and returned Gladstone's $50,000 deposit. Gladstone's suit against USX for specific performance followed.

In the consolidated trial, the district court held: (1) Champlin and FDIC's Fourteenth Amendment due process right to notice was violated, (2) Champlin and FDIC were not injured because there was no equity in the property above the first mortgage, (3) both the USX mortgage and the Champlin mortgage survived the sale, and (4) the property should be resold at private auction at which USX, Champlin, and others could bid.

The court also refused to order specific performance of the USX-Gladstone contract, finding that under the agreement USX had no duty to cure the title objection, that Gladstone could have purchased the property or terminated the agreement, and that Gladstone's failure to ...

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