Opposition Brief — Cerceo v. Shmidheiser

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Supreme Court, U.S. |

F IkLE OD

( 7 OCT 27 1997

No. 97-624 a

In The

Supreme Court of the United States

October Term, 1997

JOHN MICHAEL CERCEO, et al., |

Petitioners,

VS.

WILLIAM E. SHMIDHEISER, III,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Fourth Circuit

RESPONDENT?’S BRIEF IN OPPOSITION

KEVIN P. ODDO

Counsel of Record

FLIPPIN, DENSMORE, MORSE,

RUTHERFORD & JESSEE

Attorneys for Respondent

300 First Campbell Square

Drawer 1200

Roanoke, Virginia 24006

(540) 510-3000

72307 uz

Be nices, inc. v

(800) 3 APPEAL « (800) 5 APPEAL « (800) BRIEF 21

OPINIONS BELOW

The per curiam opinion of the court of appeals (Pet. App. 1 -

App. 11) is unpublished, but the judgment is noted at 114 F.3d

1175 (Table). The opinions of the district court and of the bankruptcy

court are unreported.

STATEMENT OF THE CASE

This action to set aside a foreclosure sale presents questions

of state law — whether the respondent trustee advertised a

foreclosure sale in accordance with a Virginia statute, and whether

the trustee breached a fiduciary duty under Virginia law by

simultaneously serving as trustee and as counsel for a creditor.

In March, 1995, J. Michael Cerceo and U.S. Rt. 29, Madison

Project, Inc. (U.S. Rt. 29) filed suit against William E. Shmidheiser,

III in the Circuit Court of Madison County, Virginia. After U.S.

Rt. 29 filed bankruptcy, the case was removed to the United States

Bankruptcy Court for the Western District of Virginia.

The gravamen of the complaint was that Shmidheiser, in his

capacity as trustee under a deed of trust on property owned by U.S.

Rt. 29, had not advertised a foreclosure sale of the property in

accordance with Virginia law, and that as a result the property was

sold for an inadequate price. In addition, plaintiffs alleged that

Shmidheiser breached a fiduciary duty under Virginia law by serving

as both trustee and as counsel for First Union, one of U.S. Rt. 29’s

creditors.

In October, 1996, the case was tried in the bankruptcy court,

which ruled in favor of Shmidheiser on all issues. Petitioners

appealed to the district court, which affirmed in a detailed

memorandum opinion. The district court ruled that the petitioners

had not properly preserved for appeal issues relating to the adequacy

of the price; that Shmidheiser advertised the foreclosure sale in the

manner prescribed in Virginia Code § 55-59.2; and that Virginia

Code § 26-58 permitted Shmidheiser to act simultaneously as trustee

and as counsel for a creditor.

The United States Court of Appeals for the Fourth Circuit

affirmed the rulings below. The court agreed that petitioners were

precluded from asserting on appeal issues not raised in the

bankruptcy or district courts, as well as issues not preserved for

appeal from either of the lower courts. (Pet. App. 7). The court also

agreed that the Virginia statutes at issue plainly did not support

petitioners’ claims of improper advertising and breach of fiduciary

duty. (Pet. App. 8-10). The Petition for Certiorari followed.

REASONS FOR DENYING THE WRIT

The petition fails to present any compelling reasons to justify

granting the writ. It is not asserted, nor could it be, that the decision

of the court of appeals is in conflict with that of another court of

appeals, or that an important federal constitutional or statutory

question is at issue. Instead, the petition merely alleges that Virginia

law was misapplied and that the factual findings made below were

wrong. Review by this Court is not warranted under these

circumstances.

1. Although couched in terms of Virginia “common law”, the

first question presented by petitioners is simply this: in Virginia, is

a trustee under a deed of trust also permitted to act as counsel for a

creditor of the grantor? The answer to this question is found in

Virginia Code § 26-58, which provides as follows:

The mere fact that a trustee in a deed of trust to secure

a debt due to a corporation is ... counsel to the

corporation, does not disqualify him from exercising

the powers conferred by the trust deed nor does it

render voidable a sale by such trustee .. . 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 (1995).

The uncontradicted evidence at trial was that Shmidheiser did

not participate in First Union’s decision as to the amount to bid at

the foreclosure sale. (J.A. 426).' In fact, First Union never even bid

at the sale. Moreover, there was no evidence suggesting that

Shmidheiser was partial to First Union in any way regarding the

sale. These factual findings were not clearly erroneous, and the

courts below properly held that there was no breach of fiduciary

duty by Shmidheiser.

Petitioners’ argument that they were not represented by counsel

at the time of the sale is wrong. The record below is replete with

communications between Shmidheiser and counsel for the

petitioners during the months leading up to the sale. (J.A. 414).

Counsel was informed at every stage of the process, and no

objections were ever stated to Shmidheiser regarding any matter

related to the sale. Indeed, petitioners admittedly were told weeks

before the sale that the sale would be conducted by Shmidheiser

(J.A. 27), but raised no objection until this litigation commenced.

(J.A. 423).

Petitioners’ suggestion that Shmidheiser breached his duty by

not properly advertising the foreclosure sale has no merit. Under

Virginia Code § 55-59.2, a trustee must advertise a foreclosure

sale once a week for four successive weeks in a newspaper having

a general circulation in the city or county wherein the property to

be sold lies. The deed of trust contained the same requirement. It

was conceded below by petitioners that Shmidheiser complied with

1. References to (J.A. __) are to the Joint Appendix in the Court of

Appeals.

this requirement. (J.A. 355C). Under Virginia law, nothing more

was required. Kriesel v. Berkshire Assocs., 452 F.2d 491, 493 (4th

Cir. 1971). Even if petitioners’ argument was not foreclosed by

statute, the evidence established that Shmidheiser conducted

additional advertising beyond that contemplated by § 55-59.2 (J.A.

423-24), thereby satisfying any additional requirements sought by

petitioners.

In sum, petitioners’ disagreement with the result below

regarding the breach of fiduciary duty and advertising issues is

factbound and does not warrant further review.

2. Petitioners’ assertion that the decision of the court of appeals

conflicts with that in Resolution Trust Corp. v. Maplewood

Investments, 31 F.3d 1276 (4th Cir. 1994), not only is wrong but

presents issues which were never raised at trial or preserved for

appeal from the bankruptcy court to the district court.

In Resolution Trust Corp., the court held that a conflict of

interest existed where the trustee participated in the formulation of

the bid by the sole bidder at the foreclosure sale. Jd. at 1282-83.

As stated, such action violates Virginia Code § 26-58 and renders

the sale voidable. There was no evidence of similar conduct by

Shmidheiser; in fact, the evidence conclusively established the

contrary. (J.A. 426).

Relying on Resolution Trust Corp., petitioners advance a holder

in due course argument under Virginia Code § 8.3A-302. This

argument, like many others advanced in the court of appeals, was

not made at trial or on appeal to the district court. Therefore, in

accordance with well established principles, the court of appeals

declined to consider it. (Pet. App. 7-8). See United States v. One

1971 Mercedes Benz 2-Door Coupe, 542 F.2d 912, 915 (4th Cir.

1976). This decision was a plainly correct application of settled

law and need not be reviewed by this Court.

CONCLUSION

Y For the foregoing reasons, the petition should be denied.

Respectfully submitted,