U.S. v. Dos Cabezas Corp.

• Decision Date: 21 June 1993
• Docket Number: No. 91-16324,91-16324
• Citation: 995 F.2d 1486
• Parties: Bankr. L. Rep. P 75,305 UNITED STATES of America, Plaintiff-Appellant, v. DOS CABEZAS CORP., an Arizona corporation; State of Arizona Department of Economic Security, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1486

995 F.2d 1486

Bankr. L. Rep. P 75,305

UNITED STATES of America, Plaintiff-Appellant, v. DOS CABEZAS CORP., an Arizona corporation; State of Arizona

Department of Economic Security, et al.,

Defendants-Appellees.

No. 91-16324.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 5, 1992.

Decided June 21, 1993.

Robert S. Greenspan and Steve Frank, Asst. Attys. Gen., Civil Div., Washington, DC, for plaintiff-appellant.

J. Michael Jimmerson and Lowell E. Rothschild, Mesch, Clark & Rothschild, Tucson, AZ, Robert S. Segelbaum, Asst. Atty. Gen., Economic Security Div., Phoenix, AZ, for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before: SNEED, ALARCON, and CANBY, Circuit Judges.

CANBY, Circuit Judge:

The United States appeals the district court's ruling that, in an action brought by the United States for a deficiency judgment on a promissory note that was secured by a deed of trust, the United States is subject to a six-year limitations period. In addition the United States challenges the district court's determination that, because the government's cause of action accrued on the date the defendant defaulted on the obligation, rather than on the date that the government accelerated the date payment was due, the government's action to recover a deficiency judgment is time-barred.

We affirm the district court's judgment.

BACKGROUND

The issues in this case revolve around the timing of the events giving rise to the government's cause of action. In May 1979, defendants-appellees Dos Cabezas Corporation (the Corporation) and six individuals received from the Farmers Home Administration four emergency installment loans. The Corporation and the six individuals evidenced these loans by signing promissory notes and the Corporation executed a deed of trust, which the individuals acknowledged, conveying several parcels of real estate to secure the loans.

Under the terms of the loan agreement, payments were due in periodic installments beginning on January 1, 1980. The deed of trust provided that should the borrowers default in performance of their obligations the government could at its option "declare the entire amount unpaid under the note and any indebtedness to the government hereby secured immediately due and payable, ... and ... bring an action to foreclose this instrument, obtain a deficiency judgment, or enforce any other remedy provided by law." The promissory notes contained similar acceleration clauses.

The Corporation failed to make timely payments on any of the notes. In April 1981, fifteen months after the Corporation defaulted, the Farmers Home Administration accelerated the debts and demanded full payment within fifteen days. Eight days later, the Corporation, but not the individual defendants, filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. As a result, an automatic stay went into effect, precluding the government from bringing a foreclosure action against the Corporation. 11 U.S.C. § 362(a)(4) (1993). In January 1982, the government requested relief from the stay and permission to proceed with its foreclosure and default remedies under the deed of trust. The bankruptcy court granted the government's request two months later.

In November 1983, and in the spring of 1987, the Federal District Court for North Dakota entered orders in a nationwide class action enjoining the Farmers Home Administration from accelerating or foreclosing on its loans. Coleman v. Block, 580 F.Supp. 192 (D.N.D.1983); Coleman v. Block, 663 F.Supp. 1315 (D.N.D.1987), vacated as moot, 864 F.2d 604 (8th Cir.1988), cert. denied sub nom. Coleman v. Yeutter, 493 U.S. 953, 110 S.Ct. 364, 107 L.Ed.2d 351 (1989). The injunctions remained in effect for a total of 21.5 months.

The government brought an action against the Corporation and the six individuals in October 1989, seeking to foreclose on the deed of trust and requesting the court to retain jurisdiction so that the government could bring an action against the individual defendants in the case of a deficiency. The parties stipulated to the foreclosure and about one year later the district court entered a partial judgment, ordering foreclosure of the property in the deed of trust and providing that the issue of the individual The individual defendants moved to dismiss the government's subsequent action for a deficiency judgment. According to the individual defendants, the government's cause of action accrued on the date of the first nonpayment under the notes, January 1, 1980, and was therefore time-barred under either Arizona's six-year statute of limitations or the six-year limitations period provided in 28 U.S.C. § 2415(a). The government maintained that because foreclosure actions in which the United States is the plaintiff are not subject to a limitations period, the action was not time-barred. Alternatively, the government argued, even if the action were subject to a six-year limitations period, the action was timely because the claim accrued on the date the loans were accelerated and the 21.5 month Coleman injunctions plus the 10.5 month bankruptcy stay gave the government an additional thirty-two months in which to file its claim.

                defendants' liability would be determined in subsequent motions.   The Farmers Home Administration sold the property in January 1991
                

The district court issued an order granting the defendants' motion for summary judgment and barring the deficiency action. According to the district court, in the absence of a federal statute of limitations, the Arizona statute of limitations for foreclosure actions would apply. Without ruling definitively on whether the automatic stay tolled the limitations period applicable to the government's cause of action against the individual defendants, the district court concluded that the government's action was not timely filed.

ISSUES ON APPEAL

This case presents several novel questions of law. Foremost is the question of what, if any, limitations period applies to an action for a post-foreclosure deficiency judgment in which the United States is the plaintiff. If we determine that the action is subject to the six-year statute of limitations, then we must decide at what date the government's cause of action accrued, the date of default or the date of acceleration. In addition, we must decide whether the stay issued in the corporate bankruptcy proceedings tolled the limitations period applicable to the government's action against the individual debtors.

DISCUSSION

I. THE LIMITATIONS PERIOD

No federal statute imposes a limitations period specifically on actions for post-foreclosure deficiency judgments brought by the United States. Nor have the courts resolved what, if any, limitations period should apply. In the absence of a federal statute expressly imposing or adopting one, the United States is not bound by any limitations period. United States v. Summerlin, 310 U.S. 414, 416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283 (1939). When a statute does limit the time in which the government may bring a cause of action, moreover, the court strictly construes the statute in favor of the government. Badaracco v. Commissioner, 464 U.S. 386, 391, 104 S.Ct. 756, 760, 78 L.Ed.2d 549 (1984); Federal Deposit Ins. Corp. v. Former Officers & Directors of Metro Bank, 884 F.2d 1304, 1309 (9th Cir.1989), cert. denied sub nom., Lee v. F.D.I.C., 496 U.S. 936, 110 S.Ct. 3215, 110 L.Ed.2d 662 (1990). These rules protect public rights from injury or losses incurred through the negligence of public officers. Guaranty Trust Co. v. United States, 304 U.S. 126, 132, 58 S.Ct. 785, 788, 82 L.Ed. 1224 (1938) (citation omitted).

Federal law does, however, limit to six years after the right of action accrues the time in which the government may bring a suit for money damages founded on a contract. 28 U.S.C. § 2415(a) (1978 & Supp.1992). Actions brought by the United States "to establish title to, or the right of possession of, real or personal property" are exempt from the limitations period. Id. § 2415(c). In applying these provisions, the courts have drawn a distinction between actions for contract damages and actions to foreclose on mortgages and deeds of trust, holding that the power of sale contained in a mortgage or deed of trust survives regardless of whether the statute of limitations has extinguished the underlying obligation. United States v. Freidus, 769 F.Supp. 1266 1273 (S.D.N.Y.1991). ¹ We agree with the reasoning of these courts. The government's suit to foreclose on the deed of trust constituted an action to "establish title to, or right of possession of, real or personal property." 28 U.S.C. § 2415(c); Curry, 679 F.Supp. at 969-71; accord Freidus, 769 F.Supp. at 1273; Copper, 709 F.Supp. at 908; Gerrard, 656 F.Supp. at 574. The foreclosure action itself was not subject to any limitations period.

This determination, however, does not resolve the question of whether a statute of limitations cuts off the time in which the United States may bring an action to recover a deficiency judgment following foreclosure on a deed of trust. The government asserts that the individual defendants' liability for the deficiency arises not from the promissory notes but, rather, from the deed of trust itself, which provides that in the event of a default the government has the right to bring an action to foreclose and obtain a deficiency judgment. Therefore, the government argues, because obtaining a deficiency judgment is "an incident of foreclosure," and because foreclosure actions are not subject to a limitations period, no statute of limitations should apply.

We disagree with both the starting point and ending point of the government's argument. A deficiency following foreclosure is neither meaningful nor measurable without reference to the underlying debt. It is that obligation, arising from contract, that is being enforced when a...