Wednesday, February 23, 2011

Summary Judgment Determining Deficiency Judgment Amount Reversed

In Southern Developers & Earthmoving, Inc. v. Caterpillar Financial Services Corporation [CAT] (2D09-6011 & 2D10-5669), the Second District reversed a summary final judgment "because CAT failed to prove the amount of the deficiency judgment to which it was entitled, summary judgment was improperly granted in its favor."

After CAT sold the foreclosed personal property, CAT "sought a deficiency judgment from Southern. In its answer, Southern specifically denied that the sale of the repossessed equipment had been done in a commercially reasonable manner, and it also raised this claim as an affirmative defense."
CAT subsequently filed a motion for summary judgment, in which it again asserted that it had sold the repossessed equipment in a commercially reasonable manner. In support of its motion, CAT filed the affidavit of a "Special Accounts Representative," who alleged that proper notice was given to Southern and Gill of both of the intended private sales and the subsequent Internet auction. The affidavit also authenticated the various sale notices that were sent to both Southern and Gill and alleged again that the sales were all commercially reasonable. However, neither the affidavit nor the motion provided any details of the sales transactions themselves. CAT did not file any of the contracts or purchase orders relating to the sales, and it submitted nothing to establish what amount it obtained for each piece of repossessed equipment. Further, neither CAT's motion nor its affidavit included any facts concerning the general practices and methodology of selling used equipment in the industrial earthmoving equipment industry.
The court discussed the legal issues as follows:
Under Article 9 of the Uniform Commercial Code, as codified in section 679.609(1), Florida Statutes (2006), a secured party, such as CAT, may take possession of collateral after a default by the debtor. The secured party then "may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing." § 679.610(1). However, if the secured party wishes to preserve its right to seek a deficiency judgment, the secured party is not at liberty to dispose of the repossessed collateral in any manner it wants. Instead, "[e]very aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable." § 679.610(2). This rule is in place " 'to protect the debtor, because [it] help[s] prevent the creditor from acquiring the collateral at less than its true value or unfairly understating its value so as to obtain an excessive deficiency judgment.' "....
If a secured party elects to repossess and resell its collateral, the debtor is liable for any deficiency remaining after the sale as a matter of law....However, the amount of the deficiency judgment to which the secured party is entitled is a matter of fact, not law. To establish entitlement to a deficiency judgment in a certain amount, the secured party must show that its disposition of the collateral was commercially reasonable but nevertheless resulted in the recovery of an amount less than the amount of the secured debt....Accordingly, if the debtor places the commercial reasonableness of the disposition of collateral "in issue," the secured party has the burden to establish that every aspect of that disposition was commercially reasonable....Alternatively, the secured party may concede that its disposition of the collateral was commercially unreasonable, introduce evidence to prove the fair market value of the collateral at the time of repossession, and allow the debtor an additional credit for the difference between the fair market value and the amount obtained by the secured party at the commercially unreasonable sale.
In this case, the court concluded that CAT conceded that the sale was not commercially reasonably at the summary judgment hearing. However, it did not give Southern notice that it would be making this concession nor did it establish the sale price was equal to the fair market value. Therefore, the judgment was reversed. Additionally, the trial court's order denying Southern leave to amend its answer was reversed. Finally, as the underlying judgment was reversed, the orer awarding attorneys fees was reversed.


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