FDIC v. Prince George Corp.

In 1985 Prince George Corporation (PGC) (defendant) formed a joint partnership with Prince George Joint Ventures (PGJV) to develop real estate in South Carolina. In November, PGJV executed a promissory note for $17,500,000 to develop a resort. The note was secured by a mortgage on the proposed resort and contained language limiting PGC’s liability for a deficiency judgment upon foreclosure. In July 1988, PGVC defaulted on the loan. The original lender also became insolvent, and the Federal Deposit Insurance Corporation (FDIC) took over. After several unsuccessful offers to settle the debt, PGJV and PGC filed suit against the FDIC in Texas, where the loan originated, to enjoin the FDIC from foreclosing on the property. The United States District Court for the Northern District of Texas (the Texas court) granted the FDIC’s summary-judgment motion and concurrently initiated foreclosure proceedings in the United States District Court for the District of South Carolina (the South Carolina court). PGC filed a motion to stay foreclosure and opposed the FDIC’s summary-judgment motion. The South Carolina court granted summary judgment to the FDIC and granted a decree of foreclosure based on res judicata of the Texas court’s order. The Texas court issued a final order against the remaining defendants, and PGC and PGVC continued to resist foreclosure by appealing the South Carolina court’s judgment. The South Carolina court affirmed its summary judgment. PGC filed a bankruptcy action against PGVC four days prior to the foreclosure sale, which consequently stayed the sale for 63 days. The stay was ultimately lifted, and the bankruptcy was dismissed. PGC did not file a bond to obtain the stay, and the sale took place with the FDIC having the high bid. The FDIC then filed a motion for deficiency stating that PGC’s bankruptcy action and resistance to foreclosure triggered the note’s recourse provisions. Specifically, the note provided there would be no limit to liability to the extent that PGC impaired the FDIC’s recourse rights by voluntarily becoming a party to another suit. The South Carolina court entered a deficiency judgment in favor of the FDIC but denied the FDIC’s request for deficiency based on the delay caused by PGC’s resistance to foreclosure. PGC appealed, asserting the bankruptcy was a statutory right and did not entitle the FDIC to a deficiency judgment. The FDIC cross-appealed regarding the issue of the deficiency arising from PGC’s delay.