Federal Financial Co. v. Gerard

• Decision Date: 12 January 1998
• Docket Number: No. 39642-1-I,39642-1-I
• Citation: 90 Wn.App. 169,949 P.2d 412
• Court: Washington Court of Appeals
• Parties: FEDERAL FINANCIAL COMPANY, Appellant, v. Donald S. GERARD and Jane Doe Gerard, husband and wife and the marital community composed thereof, Respondents.

Page 169

90 Wn.App. 169

949 P.2d 412

FEDERAL FINANCIAL COMPANY, Appellant, v. Donald S. GERARD and Jane Doe Gerard, husband and wife and the marital community composed thereof, Respondents.

No. 39642-1-I.

Court of Appeals of Washington Division 1.

Jan. 12, 1998.

John R. Crickman, Friday Harbor, for Appellant.

Charles Richard Lonergan, Jr., Siderius Lonergan & Crowley, Seattle, for Respondents.

COX, Judge.

May the assignee of a promissory note formerly held by the Federal Deposit Insurance Corporation (FDIC) as a receiver use the extended statute of limitations of federal law when suing on the note? We hold that under Washington law, the assignment of the note carries with it the right to use the extended statute of limitations provided by federal law. Accordingly, we reverse the trial court's summary dismissal of the action and remand for further proceedings.

Donald S. Gerard executed a promissory note dated March 21, 1989, in the face amount of $22,725 in favor of Emerald City Bank. The note matured by its terms on June 21, 1989. Gerard failed to pay the obligation when due.

On July 2, 1993, the Washington state supervisor of banking closed Emerald City Bank for the purpose of liquidation. On that same date, the supervisor appointed the FDIC the receiver of the failed bank. In November 1994, the FDIC assigned for value the Gerard note to Federal Financial Company (FFC), the current holder.

On August 8, 1995, FFC commenced this action against Gerard to recover the obligation evidenced by the note. Gerard asserted as an affirmative defense Washington's six-year statute of limitations on written instruments, citing RCW 4.16.040(1). For purposes of our analysis and because the parties do not dispute the point, we assume the parties intended to refer to RCW 62A.3-118. That is the statute of limitations applicable to negotiable instruments. Both RCW 4.16.040(1) and RCW 62A.3-118 have terms of six years. Thus, both state statutes would have run in June 1995, six years from the date of maturity of the Gerard note.

FFC moved for summary judgment. It took the position that its action on the Gerard note was governed by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) ¹ limitations period, 12 U.S.C. § 1821(d)(14). Gerard opposed the motion and sought dismissal of the action on the basis of the Washington statute of limitations. The court denied FFC's summary judgment motion and granted Gerard's motion to dismiss.

FFC appeals.

I. STATUTE OF LIMITATIONS

FFC contends that the court erred by concluding that 12 U.S.C. § 1821(d)(14) does not apply to assignees of the FDIC. It first argues that extending the FIRREA limitations period to assignees of the FDIC is in accord with the common law of assignments. Secondly, according to FFC, such an extension supports the underlying policy of FIRREA. It argues that this latter approach is in accord with the decisions of the vast majority of state and federal courts that have considered the question. We agree that application of the federal statute is consistent with the Washington law of assignment of notes. We need not address the other arguments and decline to do so.

In reviewing an order granting summary judgment, we engage in the same inquiry as the trial court. ² CR 56(c) permits a trial court to grant summary judgment if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Neither party identified below an issue of material fact for purposes of this motion. Thus, the trial court decided the issue as one purely of law.

The trial court considered the substantial case authority presented by both sides. It appears from our review of the record that Gerard moved to dismiss the action in response to FFC's motion for summary judgment. ³ By dismissing the action, the court appears to have treated the matter as one of cross-motions for summary judgment.

The starting point of our analysis is the federal statute on which FFC relies. FIRREA states, in relevant part, that:

14) Statute of limitations for actions brought by [FDIC when acting as] conservator or receiver

(A) In general

Notwithstanding any provision of any contract, the applicable statute of limitations with regard to any action brought by the Corporation [i.e., the FDIC] as conservator or receiver shall be--

(i) in the case of any contract claim, the longer of--

(I) the 6-year period beginning on the date the claim accrues; or

(II) the period applicable under State law....[ ⁴

FIRREA does not differ from the Washington limitations period in length--both are six years. Rather, the difference is in when the claim accrues.

Under Washington law, the claim accrues when the note matures. Here, that date is June 21, 1989. Thus, the Washington statute of limitations expired on June 21, 1995. This was six years after the maturity of the Gerard note and prior to this action.

In contrast, under FIRREA, the limitations period accrues on the later of:

(i) the date of the appointment of the Corporation as conservator or receiver; or

(ii) the date on which the cause of action accrues.[ ⁵

The FDIC was appointed receiver for the failed bank on July 2, 1993. Thus, the FIRREA limitations period will not run until July 2, 1999, six years after the FDIC was appointed as receiver of the failed bank.

FIRREA is silent on the question of the applicability of its limitations period to assignees of the FDIC. By its express terms, the statute speaks only to its applicability to the "[FDIC] as conservator or receiver." ⁶ The threshold issue is whether we should apply federal or state law to determine if the FIRREA limitations period applies here, when FIRREA makes no express reference to assignees of a note formerly held by the FDIC. The recent case of O'Melveny & Myers v. F.D.I.C. ⁷ supplies an answer to this question.

There, the FDIC, as receiver, sued the law firm of O'Melveny & Myers, former counsel to a failed savings and loan association in California. The action was based on allegations that the firm had committed malpractice and breached its fiduciary duties in connection with public offerings for two real estate syndications. The firm raised defenses under California law that the knowledge of the S & L's officers was imputed to the S & L and, thus, the FDIC. According to the firm, the FDIC was estopped from bringing the action because it stood in the shoes of the failed S & L.

The FDIC argued that FIRREA requires the promulgation of federal common law for this and other issues because of the high federal interest in the area of regulating financial institutions. ⁸ A unanimous United States Supreme Court disagreed.

The Court first noted that cases requiring federal common law rules of decision are " 'few and restricted.' " ⁹ It further noted that such cases are "limited to situations where there is a 'significant conflict between some federal policy or interest and the use of state law.' " ¹⁰ The Court held that the desire for uniformity of law throughout the nation on the questions before it, the possible depletion of the deposit insurance fund, or disservice to the federal program of insurance were insufficient reasons for the court to create a federal rule of decision in that case. According to the Court, the proper law to decide the questions raised by the defenses was the law of California.

Here, we consider a different section of FIRREA, the same statute that was at issue in O'Melveny. The section of FIRREA that is before us is silent on the question of what effect, if any, the statute has on assignees of a note formerly held by the FDIC. Should federal law supply the answer to this question?

We hold that state law, not federal law, should decide the question. The O'Melveny Court rejected substantially similar arguments to those that FFC advances here. There, the Court said that FIRREA does not require promulgation of federal common law because of the high federal interest in the area of regulating financial institutions. ¹¹ Here, FFC essentially argues that the choice of the federal statute of limitations would promote the underlying purposes of FIRREA by promoting free marketability from the FDIC of notes formerly held by failed financial institutions. While such a choice might promote the underlying purposes of FIRREA, we think this argument is indistinguishable from that rejected in O'Melveny. In short, promotion of a purpose of FIRREA does not alone justify the choice of federal law to decide the question of what statute of limitations should apply in this case. Rather, state law applies.

Having determined that Washington law applies, we must decide what specific law controls. Gerard argues that applying Washington law necessarily means that FFC's action is subject to the state limitations period. FFC argues that the common law of assignments requires the application of the federal limitations period. We agree with FFC's conclusion, but we reach it by a different route than that argued by FFC.

A note is a negotiable instrument under the Uniform Commercial Code. ¹² Accordingly, we look to the Code to determine the rights of an assignee of a note. Those rights are defined in RCW 62A.3-203(b), which provides as follows:

Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.[ ¹³

According to the official comments to this provision, its apparent purpose is to promote a free market for instruments. There is one stated exception to that policy, where "fraud or illegality affecting the instrument" is involved. This exception does not...