U.S. v. Frisk, 80-4583

• Citation: 675 F.2d 1079
• Decision Date: 30 April 1982
• Docket Number: No. 80-4583,80-4583
• Parties: 3 Ed. Law Rep. 884 UNITED STATES of America, Plaintiff-Appellee, v. Richard M. FRISK, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1079

675 F.2d 1079

3 Ed. Law Rep. 884

UNITED STATES of America, Plaintiff-Appellee, v. Richard M. FRISK, Defendant-Appellant.

No. 80-4583.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 12, 1982.

Decided April 30, 1982.

Richard M. Frisk, Walnut Creek, Cal., for defendant-appellant.

Harold Burton Jenkins, Washington D. C., argued, for plaintiff-appellee; Michael D'Amelio, Asst. U. S. Atty., San Francisco, Cal., on brief.

Appeal from the United States District Court for the Northern District of California.

Before FARRIS, FERGUSON and NELSON, Circuit Judges.

PER CURIAM:

Richard M. Frisk, the co-obligor on his son's federally insured student loan, defaulted along with his son on the note. Pursuant to the provisions of the Federal Insured Student Loan Program, the lending institution assigned the note to the United States and the Government discharged Frisk's obligation. The Government brought suit on the note and Frisk defended by alleging that the suit was barred by the applicable six-year statute of limitations. The district court, 530 F.Supp. 238, concluded that the action was not time-barred and granted the Government's motion for summary judgment. We affirm.

I. FACTS

On October 26, 1970, Frisk's son, Jerome, received a $1,000 student loan from the Bank of America under the Federal Insured Student Loan Program (FISLP). ¹ The loan was co-signed by Frisk. The loan terms provided that repayment of principal and interest was to be made over a period beginning nine months after the date on which the maker (Jerome) ceased to carry at least one-half the normal full-time academic work load. Jerome graduated on June 4, 1972.

In addition to the minimum nine-month grace period provided for in the note and mandated by 20 U.S.C. § 1077(a)(2)(B) (1976) ² the statute provides for an additional 120-day grace period before the borrower is deemed to be in default. 20 U.S.C. § 1080(e)(2) (1976). Consequently, the final grace period ended on July 2, 1973 and, in accordance with the loan terms, the first monthly installment was due and payable on July 25, 1973.

After Jerome defaulted on his obligation to the lender, the Government paid the lender's insurance claim on March 28, 1974 pursuant to 20 U.S.C. § 1080(a) (1976 & Supp.1977). Upon payment of the claim, the Government became subrogated to the rights of the lender and the lender assigned all of its rights in the note to the Government. ³ 20 U.S.C. § 1080(b) (1976).

On March 18, 1980, the Government filed an action against Frisk to recover the unpaid principal balance plus accrued interest in the total amount of $1,396.67. In his answer and subsequent cross-motion for summary judgment, Frisk alleged that the Government's action was barred by the applicable six-year statute of limitations contained in 28 U.S.C. § 2415(a) (1976 & Supp.1977). ⁴ In its motion for summary judgment, the Government argued that its cause of action was not time-barred.

The United States Magistrate granted summary judgment for Frisk after concluding that the Government's cause of action accrued and the statute of limitations started running on the day of default, July 2, 1973. ⁵ Because the Government's complaint was not filed until March 18, 1980, more than six years after its cause of action accrued, the magistrate held that the Government's action was barred by the statute of limitations.

The Government appealed the magistrate's decision to the district court, arguing that its cause of action did not accrue so as to trigger the running of the statute of limitations until March 28, 1974, the date it paid the lender and the lender assigned it the note. The district court held that the relationship between the Government and Frisk was analogous to that of principal and guarantor or surety. Therefore, the court concluded that the Government's cause of action did not accrue and the statute of limitations did not commence running until the Government paid Frisk's obligation. Because the Government's complaint was filed within six years after it discharged Frisk's obligation to the lender, the district court held that the action was not time-barred, reversed the magistrate's order, and granted summary judgment to the Government.

II. Statute of Limitations

The only issue before us is whether the Government's complaint was filed within six years after its cause of action accrued. The resolution of this question turns on whether the Government is limited to the rights of an assignee, in which case its cause of action accrued on the day of default and was consequently barred by the statute of limitations, or whether the Government may also assert its rights as a surety or guarantor, ⁶ in which case its cause of action accrued on the date it paid the lender and was therefore brought before the statute of limitations expired. ⁷

In arguing that the Government's suit was barred by the statute of limitations, Frisk contends that the Government is limited to the rights of an assignee and that its cause of action accrued on the day he defaulted on the loan. In support of this contention Frisk relies on 20 U.S.C. § 1080(b) (1976) which provides that upon payment of the lender's claim the Government becomes subrogated for all of the lender's rights and is entitled to an assignment of the note. As a subrogated assignee, the Government stands in the shoes of the insured lender and possesses only those rights against the borrower that the lender could have asserted. See Guaranty Trust Co. v. United States, 304 U.S. 126, 141, 58 S.Ct. 785, 793, 82 L.Ed. 1224 (1937); Hercules, Inc. v. Stevens Shipping Co., 629 F.2d 418, 422 (5th Cir. 1980). Thus, as an assignee of the lender's rights, the Government's cause of action on the note for breach of contract accrued at the same time the lender's did-the day of default.

The Government argues that it is not limited to bringing a direct action on the note merely as an assignee of the lender, but that it may also rely on its common law right as a surety and bring an action against the principal for reimbursement. As a surety seeking reimbursement, the Government contends that its cause of action accrued on the date it paid the lender and was therefore brought within the six-year statute of limitations.

The action is not barred by the statute of limitations. Although § 1080(b) subrogates the Government to the rights of the lender and entitles it to an assignment of the note, we do not interpret this section as limiting the Government to the rights of an assignee or precluding it from asserting any other rights it might have against a debtor in default on a federally insured student loan. Under the FISLP, the Commissioner of Education is empowered to enforce "any right, title, claim, lien, or demand, however acquired...." 20 U.S.C. § 1082(a)(6) (1976) (emphasis added). We therefore hold that 20 U.S.C. § 1080(b) (1976) does not preclude the Government from asserting its common law right as a surety or guarantor for reimbursement from the principal.

We are not persuaded by Frisk's argument that treating the Government as a surety or guarantor allows the Government to extend the six-year statute of limitations in contravention of congressional intent or permits the Government unilaterally to choose an indefinite time to file suit. As a surety or guarantor, the Government must still bring its action for reimbursement within six years after it pays the lender. Under 20 U.S.C. § 1080(a) (1976 & Supp.1977) the lending institution must "promptly" notify the Secretary of HEW that the borrower has defaulted and the Secretary must...