Great Oak NC Lender, LLC v. Cornblum et al
MEMORANDUM OF DECISION AND ORDER granting 41 Motion to Alter or Amend Judgment; and vacating in part 39 Order of Dismissal entered 8/12/2013, with respect to denial of Great Oak's Motion to Intervene as moot. In all other respects, Order of Dismissal remains undisturbed. FURTHER ORDERED 30 Motion to Intervene is GRANTED and Great Oak NC Lender LLC shall file its Intervenor Complaint within 30 days of entry of this Order. Signed by District Judge Martin Reidinger on 10/31/13. (Pro se litigant served by US Mail.)(ejb) NEF Regenerated to US Court of Appeals on 10/31/2013 (ejb).
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
BRYSON CITY DIVISION
CIVIL CASE NO. 2:12-cv-00034-MR-DLH
ASSET HOLDING COMPANY 5, LLC, )
as assignee of UNITED COMMUNITY )
MARSHALL E. CORNBLUM, et al.,
DECISION AND ORDER
THIS MATTER is before the Court on Great Oak NC Lender LLC’s
Rule 59(e) Motion to Alter or Amend Judgment [Doc. 41].
The issue presented by this case is whether a $10.9 million
arbitration award entered on September 20, 2010 against Marshall E.
Cornblum, Madeline H. Cornblum, Michael Cornblum, Carolyn Cornblum,
and Longbranch Properties, LLC (collectively “Defendants”), based on the
Defendants’ default under twelve commercial loans (“the Cornblum
Loans”), is enforceable or, in the alternative, whether the Defendants are
liable for a deficiency balance under eleven of the original twelve loans that
This action was brought on August 17, 2012, by Asset Holding
Company 5, LLC (“AHC5”), the assignee of United Community Bank
(“UCB”), which was the original creditor who made the loans to the
Defendants. [Doc. 1]. The Defendants filed their Answer on October 9,
2012, and an Amended Answer on October 30, 2012. [Docs. 6, 7]. AHC5
filed a Motion for Judgment on the Pleadings on December 12, 2012, which
motion was fully briefed by January 7, 2013. [Docs. 15, 18, 21].
On May 20, 2013, the Defendants filed a Motion for Leave to file a
Second Amended Answer. [Doc. 22].
Briefing on that motion was
completed by June 12, 2013. [See Docs. 23, 24, 25].
On June 26, 2013, counsel for AHC5 moved to withdraw from the
case. [Doc. 28]. On June 28, 2013, the Court granted counsel’s motion
and directed AHC5 to retain new counsel within ten days. [Doc. 29]. The
order granting counsel's motion to withdraw advised AHC5 that failure to
retain new counsel within the stated time period would result in the
dismissal of AHCS’s case. [Id. at 1]. On July 1, 2013, nonparty Great Oak
NC Lender LLC (“Great Oak”) filed a motion for intervention as of right.
[Doc. 30]. Great Oak’s intervention motion was based on its recent
acquisition of a legal interest in the Cornblum Loans that are the subject of
these proceedings. [Id.].
On July 2, 2013, the Court extended the pretrial order deadline for
filing dispositive motions to August 1, 2013. [Doc. 33]. On July 18, 2013,
the Defendants filed their Response opposing Great Oak’s intervention
motion. [Doc. 34].
On July 25, 2013, the Court granted Great Oak an
extension of time, to August 13, 2013, in which to file its reply to the
Defendants’ response to the motion for intervention.
separate order, the Court also granted the parties a second extension of
the pretrial order deadline for filing dispositive motions, to September 1,
2013. [Doc. 38].
On August 12, 2013, the Court entered an Order dismissing this
action as a result of AHC5’s failure to retain new counsel in the ten-day
period ordered by the Court. [Doc. 39]. The Court further denied as moot
all other pending motions in the case, including Great Oak’s motion to
intervene. [Id. at 2].
RELEVANT FACTUAL BACKGROUND
In 2010, UCB assigned the Cornblum Loans and security instruments
which are the subject matter of this proceeding to AHC5. UCB extended a
loan to AHC5 for the purchase of the Cornblum Loans and security
instruments. UCB and AHC5 subsequently entered into a security
agreement (“Security Agreement”) with respect to this loan. Pursuant to
the Security Agreement, AHC5 granted UCB the right in the event of a
default to collect or otherwise enforce any of the “Collateral” identified in the
Agreement, and also appointed UCB as its attorney in fact effective upon
default by AHC of its obligations to UCB. The Collateral for the Security
Agreement between UCB and AHC included the Cornblum Loans, claims
arising out of those notes including any deficiency, property pledged as
security for those notes, which are the subject of the present proceeding,
and the proceeds of any of the foregoing. [Security Agreement, Doc. 31-1].
According to the Motion to Intervene, AHC5 has defaulted on its
obligations under the loan from UCB. On June 26, 2013, under the power
of attorney granted UCB in the Security Agreement in the event of AHC5’s
default, UCB sold to Great Oak the Cornblum Loans, including all rights,
previously held by AHC5, to proceed to collect or otherwise enforce any
and all claims against the Defendants. By its motion to intervene, Great
Oak sought to step into the shoes of UCB and enforce UCB’s security
interests against AHC5 under the Security Agreement. [Doc. 31].
As a preliminary matter, the Defendants argue that Great Oak does
not have standing to bring a Rule 59(e) motion seeking reconsideration of
the Court’s Order denying Great Oak’s motion for intervention because
Great Oak is not a party to the action between AHC5 and the Defendants.
[Doc. 45 at 4-5]. While this latter statement may be technically true, Great
Oak was a party to the motion for intervention and therefore has standing
to file a Rule 59(e) motion with respect to the denial of its intervention
motion. See United States v. Manville Sales Corp., No. 88 C 630, 2005 WL
526695, at *1 (N.D. Ill. Mar. 2, 2005).
Accordingly, the Defendants’
argument that Great Oak lacks standing to assert the present motion is
Next, the Defendants argue that Great Oak’s filing of a Notice of
Appeal divested this Court of jurisdiction to decide the Rule 59(e) motion.
While the general rule is that the filing of a notice of appeal divests a district
court of jurisdiction, see Levin v. Alms and Assocs., Inc., 634 F.3d 260, 263
(4th Cir. 2011), the Federal Rules of Appellate Procedure explicitly
recognize an exception to this rule for Rule 59(e) motions, see Fed. R. App.
P. 4(a)(4)(B)(i) (“If a party files a notice of appeal after the court announces
or enters a judgment – but before it disposes of any motion listed in Rule
4(a)(4)(A) – the notice becomes effective to appeal a judgment or order, in
whole or in part, when the order disposing of the last such remaining
motion is entered.”); Fed. R. App. P. 4(a)(4)(A)(iv) (referencing Rule 59(e)
motions to alter or amend judgment).
The Fourth Circuit expressly
recognized the applicability of this exception to the present case in the
notice sent to this Court stating that Great Oak’s appeal would be held in
abeyance pending this Court’s ruling on the Rule 59(e) motion. [See Doc.
44]. The Defendants’ argument that the Court lacks jurisdiction to consider
Great Oak’s Rule 59(e) motion, therefore, is without merit.
Having determined that Great Oak has standing to seek the alteration
or amendment of the Court’s Order of Dismissal, at least to the extent that
it disposed of Great Oak’s intervention motion, and having determined that
the Court has jurisdiction despite the filing of the Notice of Appeal, the
Court now turns to the merits of Great Oak’s Rule 59(e) motion.
Rule 59(e) of the Federal Rules of Civil Procedure provides that a
judgment may be altered or amended in order: “(1) to accommodate an
intervening change in controlling law; (2) to account for new evidence not
available at trial; or (3) to correct a clear error of law or prevent manifest
injustice.” Pacific Ins. Co. v. American Nat’l Fire Ins. Co., 148 F.3d 396,
403 (4th Cir. 1998). The purpose of this Rule is to “permit[ ] a district court
to correct its own errors, sparing the parties and the appellate courts the
burden of unnecessary appellate proceedings.” Id. (citation and internal
quotation marks omitted).
Rule 59(e) motions, however, should not be
used “to raise arguments which could have been raised prior to the
issuance of the judgment, nor may they be used to argue a case under a
novel legal theory that the party had the ability to address in the first
instance.” Id. Ultimately, the decision to grant or deny a Rule 59(e) motion
is a matter within the Court’s discretion. See Robinson v. Wix Filtration
Corp. LLC, 599 F.3d 403, 407 (4th Cir. 2010).
Upon careful consideration of Great Oak’s motion, the Court
concludes that the Court’s denial of the intervention motion on the basis of
mootness was in error. The dismissal of the underlying lawsuit because of
ACH5’s procedural default did not eliminate the contested issue between
Great Oak and the Defendant as to whether Great Oak had established a
right to intervene. See DBSI/TRI IV Ltd. P’ship v. United States, 465 F.3d
1031, 1037 (9th Cir. 2006) (holding that dismissal of underlying lawsuit did
not moot appeal from denial of motion to intervene, noting that “the
intervention controversy is still alive”).
Accordingly, the Court will grant
Great Oak’s Rule 59(e) motion and vacate that part of the Order of
Dismissal denying Great Oak’s motion to intervene as moot so that the
motion can be considered on its merits.
Under Rule 24(a)(2) of the Federal Rules of Civil Procedure, “a
district court must permit intervention as a matter of right if the movant can
demonstrate ‘(1) an interest in the subject matter of the action; (2) that the
protection of this interest would be impaired because of the action; and (3)
that the applicant's interest is not adequately represented by existing
parties to the litigation.’” Stuart v. Huff, 706 F.3d 345, 349 (4th Cir. 2013)
(quoting Teague v. Bakker, 931 F.2d 259, 260-61 (4th Cir. 1991)). The
decision to allow or deny an intervention motion is a matter within the
district court’s discretion. See In re Sierra Club, 945 F.2d 776, 779 (4th Cir.
The Court concludes that all of these elements are met here. Great
Oak has an interest in the subject matter of this action by reason of the
security agreement between UCB and AHC and the default by AHC on its
payment obligations to UCB. Further, an adverse determination in this
action would practically impair or impede Great Oak’s ability to protect that
interest. Finally, Great Oak’s interests are not adequately represented by
existing parties to the action because AHC5 has been dismissed for failure
to retain substitute counsel as ordered by the Court. Thus, AHC5 cannot
represent any interests in this action, much less the interest of Great Oak.
Even if AHC5 remained a party to the action, the interests of Great Oak
and AHC5 would be adverse due to AHC5’s default to UCB.
The Defendants contend that Great Oak’s motion should be
dismissed outright because it was not accompanied with a pleading setting
out the claim for which intervention is sought. [Doc. 34 at 2]. While Rule
24(a)(2) does require a motion to intervene to be accompanied by a
pleading setting out the claim or defense for which intervention is sought,
the failure to attach such a pleading is not necessarily fatal. The Fourth
Circuit has stated that such defects may be disregarded so long as they do
not prejudice the non-moving party. See Spring Constr. v. Harris, 614 F.2d
374, 376-77 (4th Cir. 1980) (“Although some cases have held that
intervention should be denied when the moving party fails to comply strictly
with the requirements of Rule 24(c), the proper approach is to disregard
non-prejudicial technical defects.”). While the better practice would have
been for Great Oak to file a proposed pleading with its motion, the motion
to intervene makes clear that Great Oak’s claims are identical to those
asserted by AHC5 and that by intervening in the action Great Oak seeks to
“step into the shoes” of AHC5 as the new owner of the Cornblum loans.
See Diagnostic Devices, Inc. v. Tiadoc Tech. Corp., 257 F.R.D. 96, 101
(W.D.N.C. 2009) (“Although the proposed intervenors have not attached a
pleading setting out the claim or defense for which intervention is sought,
the motion itself makes it quite clear that [the plaintiff’s] request for
injunctive relief in the amended complaint is the claim that concerns the
proposed intervenors. To the extent that the rule requires that the pleading
be attached to the motion to intervene, such omission may easily be
resolved.”). Further, to the extent that any ambiguity remains as to the
relief sought by Great Oak’s intervention motion, Great Oak subsequently
submitted in support of its Rule 59(e) motion an Amended Motion to
Intervene, along with a proposed Intervenor Complaint.
Defendants cannot claim to be prejudiced by Great Oak’s technical error.
The Defendants further object to Great Oak’s intervention motion on
the grounds that the motion was not timely and that Great Oak does not
have an interest in the subject matter of the action. [Doc. 34 at 3]. As
discussed above, however, Great Oak’s interest in this matter arises from
its acquisition of the Cornblum Loans. Moreover, Great Oak filed its motion
to intervene just days after acquiring the instruments giving rise to its
claims against the Defendant and before the Order dismissing the
underlying action based on AHC5’s failure to retain substitute counsel.
Accordingly, the Defendants’ arguments opposing Great Oak’s intervention
are without merit.
IT IS, THEREFORE, ORDERED that Great Oak NC Lender LLC’s
Rule 59(e) Motion to Alter or Amend Judgment [Doc. 41] is GRANTED, and
the Order of Dismissal entered August 12, 2013 [Doc. 39] is VACATED IN
PART with respect to the denial of Great Oak’s Motion to Intervene as
moot. In all other respects, the Order of Dismissal remains undisturbed.
IT IS FURTHER ORDERED that the Motion to Intervene [Doc. 30] is
GRANTED, and Great Oak NC Lender LLC shall file its Intervenor
Complaint within thirty (30) days of the entry of this Order.
IT IS SO ORDERED.
Signed: October 31, 2013
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