Dupnik v. U.S.

• Decision Date: 11 January 1988
• Docket Number: No. 87-1774,87-1774
• Citation: 848 F.2d 1476
• Parties: Clarence W. DUPNIK, Sheriff of Pima County, Plaintiff, v. UNITED STATES of America, et al., Defendants, UNITED STATES of America; Small Business Administration, Cross- Claimant/Appellee, v. CENTURAS INVESTMENT COMPANY, INC., an Arizona corporation, Cross-Claim Defendant/Appellant, CENTURAS INVESTMENT COMPANY, INC., an Arizona corporation, Cross- Claimant/Appellant, v. UNITED STATES of America; Small Business Administration, Cross-Claim Defendant/Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1476

848 F.2d 1476

Clarence W. DUPNIK, Sheriff of Pima County, Plaintiff, v. UNITED STATES of America, et al., Defendants, UNITED STATES of America; Small Business Administration, Cross- Claimant/Appellee, v. CENTURAS INVESTMENT COMPANY, INC., an Arizona corporation, Cross-Claim Defendant/Appellant, CENTURAS INVESTMENT COMPANY, INC., an Arizona corporation, Cross- Claimant/Appellant, v. UNITED STATES of America; Small Business Administration, Cross-Claim Defendant/Appellee.

No. 87-1774.

United States Court of Appeals, Ninth Circuit.

Submitted Jan. 11, 1988. ^*

Decided June 3, 1988.

Patrick J. Farrell, Corey & Farrell, P.C., Tucson, Ariz., for cross-claim defendant/appellant.

James D. Whitney, Asst. U.S. Atty., Tucson, Ariz., for cross-claimant/appellee.

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

Before NOONAN and DAVID R. THOMPSON, Circuit Judges, and KELLEHER, District Judge. ^**

DAVID R. THOMPSON, Circuit Judge:

This case presents the issue whether the United States Small Business Administration ("SBA") must comply with an Arizona statute that requires lien creditors who wish to redeem property sold at foreclosure to file a notice of intent to redeem within six months of the foreclosure sale. See Ariz.Rev.Stat.Ann. Sec. 12-1284 (1982). ¹ It is undisputed that the applicable federal statute, 28 U.S.C. Sec. 2410, gives the government a right to redeem within one year of a foreclosure sale. Arizona law, however, voids redemption rights which are not preserved by a notice of intent to redeem given within six months of a foreclosure sale. See S & M Trust Co. v. Valley Lumber Co., 5 Ariz.App. 373, 375, 427 P.2d 354, 356 (1967). In the present case, real property on which the SBA held a junior lien was sold at a foreclosure sale which did not bring enough money to satisfy the SBA lien. The SBA believed that the property was worth more than the foreclosure sale proceeds. It gave notice of intent to redeem and tendered the redemption amount. The notice was given, and the The district court concluded that the SBA's tendered redemption was timely under federal law, and notwithstanding the SBA's failure to comply with the Arizona notice requirement, its lien was not extinguished and it was entitled to redeem the property. For the reasons expressed below, we reverse.

tender was made, more than eleven months, but less than one year, after the foreclosure sale.

I FACTS

In September 1976, Conduct-O-Tape Electronics Corporation borrowed $125,000 from Banco Internacional de Arizona ("the Bank"). David Kali, president and sole shareholder of Conduct-O-Tape, and his wife Janis guaranteed the loan and secured the guaranty by giving the Bank a second deed of trust on their home in Tucson. The SBA guaranteed repayment of ninety percent of the loan. By April 1978, Conduct-O-Tape was in default. Honoring its guaranty, the SBA bought the loan from the Bank, and acquired the Bank's second trust deed on the Kalis' home. The assignment was recorded.

Home Federal Savings & Loan Association ("Home Federal") held the first deed of trust on the Kalis' home. The Kalis defaulted on their obligation to Home Federal, and on June 21, 1985, Home Federal obtained a partial judgment and decree of foreclosure against the Kalis and the junior lienholders. This judgment stated that the SBA had the next highest lien, that the Kalis had six months to redeem their property, and that the SBA "shall have a redemption period of one year as provided by law." The redemption periods were to begin the day after the special execution sale of the property.

On September 5, 1985, the property was sold by the Pima County Sheriff at the special execution sale. ² On March 4, 1986, appellant Centuras Investment Company ("Centuras") became the owner of the interest in the property acquired by the purchaser at the execution sale. On August 13, 1986, the SBA filed a notice of intent to redeem and tendered the redemption amount to the sheriff.

II ANALYSIS

Federal law is the source of the SBA's right to redeem the property at issue in this case. See 28 U.S.C. Sec. 2410; United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-28, 99 S.Ct. 1448, 1457-58, 59 L.Ed.2d 711 (1979); United States v. MacKenzie, 510 F.2d 39, 40-41 (9th Cir.1975) (en banc). The relevant portions of section 2410 are set out in the margin. ³ Section 2410 establishes the SBA's right to redeem within one year. The statute does not qualify the government's one-year right of redemption, but it also does not offer any Our analysis of whether section 2410 and the Arizona notice requirement should both apply in this case follows a two-step process. First, we must determine whether section 2410 demonstrates a clear congressional intent to override the Arizona notice requirement. See United States v. John Hancock Mut. Life Ins. Co., 364 U.S. 301, 304-05, 81 S.Ct. 1, 3-4, 5 L.Ed.2d 1 (1960). If Congress clearly expressed such an intent, our inquiry is over and the state statute must fall because federal law is supreme. See U.S. Const. art. VI, cl. 2. If we conclude that the federal statute does not clearly indicate an intent to preempt the state notice requirement, then we must formulate an appropriate federal rule, either by adopting the state law as the governing federal law or by formulating a uniform federal rule to apply throughout the nation. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 728-29, 99 S.Ct. 1448, 1458-59, 59 L.Ed.2d 711 (1979).

detail regarding how the SBA might exercise this right.

A. Congressional Intent to Preempt

The SBA's position is that federal and state law directly conflict in this case and that the SBA, therefore, appropriately was permitted to redeem. The SBA argues that section 2410 gives it the unconditional right to redeem within one year and that Arizona's six-month notice requirement is preempted by the statute's clearly unconditional language: "The United States shall have one year from the date of sale within which to redeem." 28 U.S.C. Sec. 2410(c) (emphasis added). As did the district court, the SBA relies on United States v. Brosnan, 363 U.S. 237, 80 S.Ct. 1108, 4 L.Ed.2d 1192 (1960), and United States v. John Hancock Mut. Life Ins. Co., 364 U.S. 301, 81 S.Ct. 1, 5 L.Ed.2d 1 (1960).

In Brosnan, the Court stated: "Under Sec. 2410, a judicial sale is to have the same effect as it would have under local law.... [T]he Government is guaranteed a one-year right to redeem if the plaintiff proceeds under Sec. 2410...." Brosnan, 363 U.S. at 246, 80 S.Ct. at 1114. The Court held that private parties holding defaulted mortgages on property could satisfy those mortgages by using state procedures to extinguish more junior federal tax liens, even though the United States was not included as a party. See id. at 242, 80 S.Ct. at 1111. Brosnan favored the local interests represented by state law, but the Court emphasized that its conclusion "would not, of course, withstand a congressional direction to the contrary." Id.

In Brosnan, the Court found no congressional direction regarding the applicability of local laws. The Court rejected the government's argument that section 2410 evidenced a congressional intent to have uniform federal rules govern federal liens. It stated that section 2410 "evidence[s] no intent to exclude otherwise available state procedures. [Its] only apparent purpose is to lift the bar of sovereign immunity which had theretofore been considered to work a particular injustice to private lienors." Id. at 246, 80 S.Ct. at 1114. Brosnan, therefore, does not support the SBA's argument that Congress intended section 2410 to establish a right of redemption that could be pursued with disregard for state law procedures.

In United States v. John Hancock Mut. Life Ins. Co., 364 U.S. 301, 81 S.Ct. 1, 5 L.Ed.2d 1 (1960), the Court held that section 2410 preempted a Kansas statute that gave the mortgagor an exclusive right of redemption within one year of the foreclosure sale. Id. at 304-09, 81 S.Ct. at 3-6 (1960). Kansas law and section 2410 could not coexist. The Kansas statute's exclusivity provision could not be reconciled with the government right established in section 2410.

Arizona law gives a lien creditor in the position of the SBA five days in which to redeem foreclosed property, following the expiration of the time for redemption by the judgment debtor. See Ariz.Rev.Stat.Ann. Sec. 12-1282(C) (1982). Under John Hancock, this five-day period of redemption conflicts with the government's one-year right of redemption under 28 U.S.C. Sec. 2410(c). If this were the conflict at issue in this case, John Hancock would control. In the present case, however, the government's Three substantial factors indicate that the language of section 2410 does not reveal a congressional intent to preempt state notice requirements. First, Congress failed to include any notice provisions in section 2410. Ordinarily, a complete system of redemption would contain some protection, such as a notice system, for the rights of other lien creditors. It is a fair implication that Congress's silence indicates its consent to state notice requirements, which establish a procedure that can integrate rights created under state and federal law. See United States v. Standard Oil Co., 332 U.S. 301, 309, 67 S.Ct. 1604, 1609, 91 L.Ed. 2067 (1947).

one-year period of redemption does not conflict with Arizona's requirement that notice of intent to redeem must be given within six months of a foreclosure sale. Therefore, John Hancock does not mandate the preemption result the SBA suggests.

Second, a finding of federal preemption is disfavored: "Preemption of state law by federal statute or regulation is not favored 'in the absence of persuasive reasons--either that the nature of the related subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.' " Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S....