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Released Opinions

March 9, 2016

On February 22, 2016, the Supreme Court of Georgia issued 12 opinions, of which two are within the scope of our coverage. Summaries of the cases and opinions are set forth below.

S15Q1445 PNC Bank, N.A. v. Smith, et al.

In a unanimous opinion by Justice Melton, the Supreme Court of Georgia responded to two questions of Georgia law certified to it by the U.S. District Court for the Northern District of Georgia relating to a lender’s ability to pursue a deficiency claim against the guarantors of a commercial obligation. Justice Nahmias joined the opinion in full, but concurred to express his “concern about where today’s decision may lead.”

The underlying case arose from the default of Hochston Town Center, LLC, on its obligation to PNC. The debt was guaranteed by Smith and others, and, after a foreclosure sale, PNC pursued them for the deficiency. PNC relied on language in the guarantee agreements in which the guarantors waived certain defenses to the claim, including any based on “’antideficiency law or any law which prevents [PNC] from bringing any action, including claim for deficiency against [the guarantors], before or after [PNC’s] completion of any foreclosure action….”

O.C.G.A. § 44-14-161 provides in part that, when real estate is sold on foreclosure, no action may be taken to obtain a deficiency judgment unless the party instituting the foreclosure   reports the action within 30 days of the sale and obtains judicial confirmation and approval. The first certified question asked whether compliance with § 44-14-161 is a condition precedent to the lender’s ability to pursue a guarantor for a deficiency after a foreclosure sale.

The Supreme Court held that compliance was a condition precedent.  In 1973, the court held that, for the purposes of § 44-14-161, sureties were to be treated as debtors and are entitled to receive notice of the confirmation proceedings and an opportunity to contest approval of the sale before being held responsible for any deficiency. The court reasoned that such notice to both debtors and sureties was consistent with the purpose of the confirmation statute, “to limit and abate deficiency judgments in suits and foreclosure proceedings on debts.” First Nat. Bank & Trust Co. v. Kunes, 288 Ga. 888, 889-91, 199 S.E. 2d 776 (1973). It followed Kunes to answer the first question.

The second certified question was whether a guarantor can waive the condition precedent in their guarantee agreements. The Supreme Court held that they can, pointing to the decisions of the Georgia Court of Appeals in HWA Properties, Inc. v. Community & Southern Bank, 322 Ga. App. 877, 746 S.E. 2d 609 (2013), and Community & Southern Bank v. DCB Investments, LLC, 328 Ga. App. 605, 760 S.E. 2d 210 (2014). The Supreme Court agreed, noting, “This result creates an appropriate balance between the statutory protections of the confirmation statute and the freedom of a guarantor to enter contracts deemed beneficial.”

In his concurring opinion, Justice Nahmias noted that Kunes was “a reasonable interpretation of “ § 44-14-161 that gave rise to a workable rule and is entitled to stare decisis effect given that it is now more than 40 years old. He agreed that judicial confirmation is a condition precedent to deficiency actions that guarantors can waive. Justice Nahmias noted, though, “Given Kunes equation of guarantors, sureties, and borrowers, it would seem to follow that borrowers too can waive the protections the confirmation statute affords them.” If so, “virtually every security deed in Georgia will include such a waiver, and the confirmation requirement of § 44-14-161 could become a dead letter.” Justice Nahmias suggested that, if borrowers are to be protected from deficiency claims and judgments, “the legislature should consider regulating or prohibiting such contractual waivers by borrowers (and perhaps guarantors as well).”

S15A1638 TDGA, LLC v. CBIRA, LLC, et al.

In a unanimous opinion by Justice Melton, the Supreme Court of Georgia held that, while sovereign immunity barred a quiet title action against agencies of the State of Georgia, O.C.G.A. §§ 23-3-60, et seq., provides a mechanism for quieting title against all potential claimants including the State. Justice Nahmias concurred in full, but wrote separately to “note that there is a second type of proceeding in rem to quiet title where the State or its agencies may have claims, as well as another argument that supports the Court’s conclusions.” Justice Blackwell joined in Justice Nahmias’ concurrence.

The dispute arose from TDGA’s attempt to vest title to property that it purchased from anther entity, which acquired it at a tax sale. TDGA followed the foreclosure proceedings set out in O.C.G.A. §§ 48-4-45, 46, providing notice to the Georgia agencies that held tax liens. After the foreclosure, TDGA filed a quiet title action naming the State agencies as parties; those agencies, which had not released their tax liens, invoked sovereign immunity. The trial court held that the suit was barred, relying on Ga. Dept. Nat’l Res. v. Ctr. for Sustainable Coast, 294 Ga. 593, 755 S.E. 2d 184 (2014).

The Supreme Court affirmed the trial court’s judgment. It noted that, “in the greatest general sense, the State and its agencies are immune from suit unless the legislature specifically states otherwise.” Given that “[n]either the statutory provisions regarding foreclosure of the right of redemption nor conventional quiet title actions contain an explicit waiver of sovereign immunity,” the State agencies were immune from TDGA’s quiet title action.

The court noted, however, that O.C.G.A. § 23-3-60, which operates in rem against the piece of property, does not constitute “an action against the State or any other person or entity.” In such an action, persons claiming an interest in the property, including State agencies, must affirmatively assert their claim. The court observed that this procedure solved a nettlesome problem: “[T]he State cannot assert title to otherwise privately held land simply by issuing an edict or imposing a lien that cannot be effectively challenged and impairs the marketability of the property. In rem quiet title actions, in which the property is the only defendant and sovereign immunity is not applicable, prevent this problem.”

In his concurring opinion, Justice Nahmias first pointed to the “little-known and now little- used Land Registration Law of 1917,” codified as part of the Property Code at O.C.G.A. §§ 44-2-40 to 44-2-253, instead of in the Equity Code.  The in rem action created by that law contains statutory language that is both “broad and expressly includes the State.” See O.C.G.A. § 44-2-83. Unlike conventional quiet title actions, the text of the Land Registration law makes it “apparent … that the General Assembly intended that any claims the State may have to the land at issue would be subject to adjudication by the court.”

Justice Nahmias noted further that the remedy created by O.C.G.A. §§ 23-1-60, -61, is “expressly in rem” and its scope operates “against all the world”, governing “all adverse claims” to the property. Even though the State is not specifically mentioned within the range of potential claimants, “interpreting the Quiet Title Act to exclude claims that the State raises or could raise would contradict the statute’s against-all-the-world scope and purpose.”


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