On September 9, 2016, the United States Court of Appeals for the Sixth Circuit issued a decision that parties in foreclosure proceedings should read carefully. In MSCI 2007-IQ16 Granville Retail, LLC v. UHA Corporation, LLC, Case No. 15-3524, the court addressed whether the sale of foreclosed property during the pendency of an appeal moots the appeal.  The court’s answer?  Yes, at least under the facts of this case.

Facts

MSCI obtains a judgment

Plaintiff MSCI 2007-IQ16 Granville Retail, LLC (“MSCI”) obtained summary judgment in this commercial foreclosure case that was filed in federal court because of diversity of citizenship between the parties and the fact that the four commercial properties at issue were located in three different counties.  The United States District Court for the Southern District of Ohio (the “District Court”) issued an in rem judgment entry and decree in foreclosure, finding that Defendant UHA Corporation, LLC (“UHA”) owed MSCI more than $13 million on the defaulted loan at issue.  UHA timely appealed, alleging a number of errors by the District Court.

The properties are sold

During the pendency of the appeal—because UHA failed to move for a stay of execution on the judgment in the District Court—the court-appointed special master placed the properties at issue up for sale. The properties were sold, and the sale and distributions were ultimately confirmed by the District Court.  Deeds to the properties were then executed and recorded.

The Sixth Circuit’s Analysis

Is there a final decision?

After merits briefing concluded, the Sixth Circuit requested supplemental briefing on whether the judgment entry and decree in foreclosure was a final decision within the meaning of 28 U.S.C. § 1291. The court concluded that it was, writing that “[b]ecause the judgment entry and decree determined the rights and obligations of the parties and lienholders; fixed a certain amount to be paid to MSCI that would be supplemented with future interest accrued, advances made, and other contractual obligations; and identified the property to be sold in satisfaction of that debt, it is a final decision.”  Accordingly, the court had appellate jurisdiction.

Is the appeal moot?

MSCI moved to dismiss the appeal as moot, arguing that the Sixth Circuit was powerless to grant any effectual relief to UHA. The court agreed that “[b]ecause UHA did not seek a stay, and MSCI enforced the judgment by selling the property and distributing the proceeds, satisfaction of the judgment renders this appeal moot.”  The court found that the version of Ohio Revised Code § 2329.45 in effect during the course of the litigation did not allow a restitution remedy for UHA because the cases interpreting that statute all presumed that the appellant at least sought a stay, whereas here UHA failed to move for a stay.  Moreover, the court reasoned, even if restitution was theoretically available to UHA, its debt to MSCI so far exceeded the appraised values of the foreclosed properties that any restitution award would simply be offset against the unpaid balance of the loan.

Accordingly, the Sixth Circuit granted MSCI’s motion to dismiss the appeal as moot, agreeing that it could no longer grant any effectual relief to UHA.

Takeaway

In this case of first impression, the Sixth Circuit joined its sister circuits—including the Fifth, Seventh, and Ninth Circuits—in finding that dismissal is appropriate where the property at issue is sold during the pendency of the appeal. The decision suggests that property owners facing an adverse judgment in foreclosure proceedings should at least move the trial court for a stay of execution on the judgment.  In fact, the court implied that simply moving for a stay—even where such a motion would be unsuccessful due to the property owner’s inability to post a supersedeas bond—may be enough to preserve the remedy of restitution afforded by Ohio law.