Eleventh Circuit Rules Commission for U.S. Marshals at Public Sale Is Percentage of Amount Received at Sale

The issue presented in Redus Florida Commercial v. College Station Retail Center, No. 13-10418 (Dec. 19, 2014) is what does the United States Marshal Service (“USMS”) collect when it auctions property at a public judicial sale and the winning bid is an arguably nominal bid made by a judgment creditor.

Redus Florida Commercial, LLC (“Redus”) filed a foreclosure complaint against Joseph E. Zagame and Jane C. Zagame in the U.S. District Court for the Middle District of Florida. After a year of litigation, the parties reached a foreclosure agreement, and the district court granted the parties’ Motion for Entry of Final Judgment of Foreclosure. The court found that Redus held a valid and enforceable mortgage lien of $11,832,307.14 on the Zagames’ property, and it ordered the USMS to sell the property at public sale to the highest bidder to satisfy Redus’ judgment. The court allowed Redus to bid on credit at the sale.

Per 28 U.S.C. § 1921(c)(1), the USMS is entitled to a commission for administering foreclosure sales on behalf of private litigants. §1921(c)(1) dictates that the commission should be calculated as a percentage of the amount “collected” at auction. When a judgment creditor bought the property with a “nominal” bid, however, the USMS’s policy at the time was to calculate its commission based upon the lesser of the amount of the creditor’s judgment or, if established, the appraised value of the property.

At the auction for the Zagames’ property, Redus was the only bidder and it won the property with a bid of $100. The USMS claimed that Redus’ bid was nominal, and that, therefore, per the USMS policy, the USMS was entitled to a percentage of the amount of Redus’ judgment, which was approximately $11.8 million. Thus, the USMS claimed, it was entitled to a commission of $50,000. Redus disputed the USMS’s calculation and argued that § 1921(c)(1) granted the USMS a commission only of the amount collected, which in this case was $100. The district court agreed with the USMS’s calculation and thus awarded the USMS a commission of $50,000. Redus appealed.

The Eleventh Circuit reversed, holding that the amount collected is the high bid that the USMS accepts at auction. The court based its holding on the plain meaning of § 1921(c)(1), which entitles the USMS to a percentage of the amount “collected . . . for seizing or levying on property (including seizures in admiralty), disposing of such property by sale, setoff, or otherwise, and receiving and paying over money.” The court ruled that neither the amount of the judgment nor the appraised value of the property—the calculation values proposed by the USMS—could be considered the amount “collected” in a public judicial sale. The only amount that the USMS collected, the court continued, was the amount that it received at the auction, which was $100. The court justified this ruling in part by reference to evidence that many Marshals in the past had calculated the USMS commission based upon the amount that was actually received at sale.

The court also approached the issue from a policy perspective, noting that Congress’s purposes in awarding commissions to Marshals for the public sale of property were to incentivize hard work and to align the Marshals’ interests with those of its employer, Congress. The court reasoned that Congress, by allowing the USMS to receive a commission for administering foreclosure sales, aimed to protect the judgment debtor from crippling debt. To the extent that the USMS can drive up the price of a piece of property at a foreclosure sale by stoking competitive bidding, the USMS can alleviate the debtor of some of her debt and also extract a higher commission.

If the USMS were allowed to calculate its commission based on the amount of the judgment or the appraised value of the property, the Court continued, then the USMS would have no incentive to encourage competitive bidding because, even if there were competitive bidding, there would be nothing to stop the USMS from deeming the highest bid “nominal” and calculating its commission based on the higher value either of the amount of the judgment or the appraised value of the property. If the USMS has no incentive to encourage competitive bidding, it has no incentive to protect debtors. Therefore, the court concluded, calculating the USMS’s commission based on the amount that was actually received at the sale rather than on the amount of the judgment or the appraised value of the property advances Congress’s purpose in enacting §1921(c)(1).

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