Summary
finding that “the transfer of funds” in a transaction was “a legal fiction, ” when “the transaction . . . was not the sale of the vessel for an amount of money, but the cancellation of a debt owed in exchange for the property, ” because “instead of accepting cash in satisfaction of the mortgagor's debt, the purchasing mortgagee agrees to offset that debt by receipt of the property itself”
Summary of this case from Lutz Surgical Partners v. Aetna, Inc.Opinion
Civil Action No. 04-683 Section "L" (5).
September 7, 2004
ORDER REASONS
Before the Court is the Motion of Plaintiff to Confirm Sale and Set Commission. The matter was heard with oral argument on September 1, 2004. Having considered the memoranda filed by the parties, the applicable law, and the argument of counsel, the Court hereby GRANTS IN PART and DENIES IN PART the Plaintiff's Motion as detailed below.
I. Background
The dispute in this case involves the commission owed to the United States Marshal Service ("Marshal") for performance of a vessel seizure and sale. On March 15, 2004, Plaintiff sought the aid of this Court in seizing the Defendant vessel as satisfaction of a ship mortgage owed it by the Defendant in the amount of $514,941. The seizure was effected in accordance with Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims. Subsequently, on May 6, 2004, the vessel was sold at auction by the Marshal. Plaintiff was the sole bidder and, entered a credit bid in the amount of $75,000.
The Marshal set its commission at $7,665, based upon the appraised value of the vessel, $510,000. Plaintiff refused to pay the commission, contending that the proper commission was $1,140, based upon the amount of the credit bid, $75,000. Plaintiff now moves to confirm the sale and set the Marshal's commission at $1,140.
II. Analysis
The Marshal is entitled by statute to a commission for seizing and selling property. 28 U.S.C. § 1921(c)(1). The statute provides a formula for calculating the appropriate commission for such services. Section 1921(c)(1) provides:
The United States Marshals Service shall collect a commission of 3 percent of the first $1000 collected and 1 1/2 percent on the excess of any sum over $1,000, for seizing or levying property (including seizures in admiralty), disposing of such property by sale, setoff, or otherwise, and receiving and paying over money, except that the amount of commission shall be within the range set by the Attorney General.
The federal regulations supplementing § 1921 explain that the Marshal's commission "shall apply to all judicially ordered sales and/or execution sales, including but not limited to all private mortgage foreclosure sales." 28 C.F.R. § 0.114(h). This section further provides that the commission range "shall not be less than $100.00 and shall not exceed $50,000." 28 C.F.R. § 0.114(h).
In addition, the Department of Justice has issued an interpretative regulation, which addresses the calculation of the commission where a foreclosing mortgagee, in an effort to avoid paying the Marshal's commission, makes a credit bid for a "nominal" amount. That regulation provides:
D. Credit bid. A credit bid submitted by judgment creditor constitutes "receipt and pay over of money" within the meaning of 28 U.S.C. § 1921. Thus, a judgment creditor will generally be liable for paying the U.S. Marshal's statutory commission when a credit bid is submitted at a USMS sale. In some cases (commonly in private mortgage foreclosure actions), a judgment creditor may submit a credit bid of a nominal sum, such as $1.00, in an attempt to avoid payment of the U.S. Marshal's commission. In such a case, the U.S. Marshal's commission should be calculated on the basis of the amount of the judgment lien or, if established the appraised value of the property under levy, whichever is smaller. For example, if a creditor holding a $1 million dollar judgment directs the U.S. Marshal to execute a levy on a parcel of real estate worth $500,000.00 and the judgment creditor submits a credit bid of "$1.00 plus costs," the U.S. Marshal commission should be based on $500,000.00, which amounts to $7,515.00.
Department of Justice Interpretative Regulations, "Fees, Expenses, and Commissions" 6-4(D). (Attached as Ex. 2 to Marshal's Opposition, Rec. Doc. No. 10).
Plaintiff states that the transaction that took place on May 6, 2004, was a sale, and the purchase price of $75,000 does not qualify as a nominal sum. Thus, the commission should be based on the amount of the bid. The Marshal claims that the transaction was a setoff of the debt owed to the Plaintiff. As such, the Marshal claims that the commission should be calculated on the lesser of the judgment lien extinguished by the sale ($514,941) or the appraised value of the vessel ($510,000).
Though Plaintiff seeks to classify the transaction as a sale, the transaction "walks and talks like a setoff" in satisfaction of a private mortgage. Caterpillar Financial Servs. Corp. v. Mr. C II, 2003 WL 22038378, *2 (E.D.La. Aug. 19, 2003). In Caterpillar, the court analyzed the totality of the circumstances and found that, as opposed to a sale, the transaction at issue was not the sale of the vessel for an amount of money, but the cancellation of a debt owed in exchange for the property. Id. In such a case, the transfer of funds is a legal fiction, and "instead of accepting cash in satisfaction of the mortgagor's debt, the purchasing mortgagee agrees to offset that debt by receipt of the property itself." State Mutual Life Assurance Co. of Amer. v. North Hotel Associates, 1991 WL 114600, *3 (E.D.Pa., June 20, 1991).
In State Mutual Life, the court stated that in the case of a setoff, to determine the appropriate way to calculate the Marshal's commission, a court should analyze what is actually being "collected," as that term is used in § 1921. Id. at * 3. Because no funds are actually transferred in the case of a setoff, the State Mutual Life court looked to the extent to which the mortgagor's debt became extinguished by the mortgagee's purchase as reflective of the value of what is actually collected. Id. The court found that it could not conclude that "Congress would have preferred the court to base the Marshal's commission on a nominal, inconsequential sale price when a substantial setoff has occurred." Id at *4.
In this case, the Court finds that the transaction that took place was a setoff and agrees with the reasoning in both the Caterpillar and State Mutual Life cases. The Plaintiff had a mortgage in the amount of $514,941, but entered a credit bid of only $75,000. As is typical in mortgage foreclosures, the Plaintiff received ownership of the vessel in exchange for its credit bid and, in turn, extinguished the mortgagor's debt. However, as no other bidders were present and no funds were being transferred, the purpose of the credit bid was formalistic, except to the extent that the bid sets the Marshal's commission. In other words, the practical purpose of the bid was to set the Marshal's commission. From this perspective, the Court must determine if the bid was for a nominal sum. To make this determination, the Court must consider the totality of the circumstances, that is, consider the bid in its context. See Caterpillar Financial Servs. Corp, 2003 WL 22038378 at *2.
The Plaintiff argues that $75,000 is not a nominal sum. During arguments, the Plaintiff maintained that "nominal" is impliedly defined by the $100-$50,000 range established in the federal regulations. 28 C.F.R. § 0.114(h). According to the Plaintiff, as the regulations set forth a minimum and maximum range, anything within that range is not nominal. As the commission on $75,000 ($1,140) falls within the range, Plaintiff argues that it is not nominal. As such, the Plaintiff claims that, as a matter of law, it did not make a nominal bid. Thus, Plaintiff asks the Court to apply the formula contained in § 1921(c)(1) and base the Marshal's commission on its bid of $75,000.
The Court does not disagree with Plaintiff that, as a general proposition, $75,000 is not a nominal sum. Indeed, $75,000 is more than the annual wage made by the average American worker. However, whether or not a credit bid constitutes a "nominal sum" is contextual and specific to the facts of each case. In the present case, the Court finds that $75,000 is a nominal sum when compared to the value of the vessel ($510,000) and the amount of the mortgage ($514,941). While there is no bright-line rule regarding when a bid is nominal, the Court finds that based upon the specific circumstances of this case, the bid has no relation to the value of the thing exchanged in the transaction. The amount of the bid was chosen by the Plaintiff, the sole bidder, to manipulate the Marshal's commission. In this context, the bid is inconsequential, or nominal, and, as such, should not be used as a basis for calculating the Marshal's commission.
According to the Department of Justice's interpretative regulation addressing credit bids, when a nominal sum has been bid, the appropriate basis for calculating the Marshal's commission is the lesser of the judgment lien or the appraised value of the property. The judgment lien is $514,941 and, according to the Marshal, the appraised value of the property is $510,000. As such, the appropriate basis for calculating the commission is the appraised value of the property, $510,000. Thus, the Marshal's commission is $7,665.
This result is in keeping with the policy underlying § 1921, which was adopted to ensure that the Marshal receive adequate compensation for services rendered to private litigants in conducting a judicial sale. State Mutual Life, 1991 WL 114600 at 4 (citing Hill v. Whitlock Oil Servs., Inc., 450 F.2d 170 (6th Cir. 1987)).
III. Conclusion
For the foregoing reasons, the Court hereby GRANTS IN PART and DENIES IN PART the Motion of the Plaintiff to Confirm Sale and Set Commission. The Court GRANTS the Motion to the extent that the Plaintiff asks the Court to confirm the sale, but DENIES the Motion to the extent that the Plaintiff asks the Court to set the commission at $1,140, an amount based upon the credit bid.
IT IS ORDERED that the amount of the Marshal's commission shall be set at $7,665, based upon the appraised value of the vessel, $510,000.