Federal Land Bank of Spokane v. L.R. Ranch Co., 89-35203

• Decision Date: 15 February 1991
• Docket Number: No. 89-35203,89-35203
• Citation: 926 F.2d 859
• Parties: The FEDERAL LAND BANK OF SPOKANE, a corporation, Plaintiff-Appellee, v. L.R. RANCH COMPANY, a Montana corporation, John Barnard Murnion and Loriene Murnion, husband and wife, William E. Murnion and Karen J. Murnion, husband and wife, John W. Murnion, Defendants-Appellants, and United States of America, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 859

926 F.2d 859

The FEDERAL LAND BANK OF SPOKANE, a corporation, Plaintiff-Appellee, v. L.R. RANCH COMPANY, a Montana corporation, John Barnard Murnion and Loriene Murnion, husband and wife, William E Murnion and Karen J. Murnion, husband and wife, John W Murnion, Defendants-Appellants and United States of America, Defendant.

No. 89-35203.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 13, 1990.

Decided Feb. 15, 1991.

Randy S. Laedeke, Billings, Mont., for defendants-appellants.

James N. Westwood, Miller, Nash, Wiener, Hager & Carlsen, Portland, Or., for plaintiff-appellee.

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

Before FLETCHER, FERGUSON and FERNANDEZ, Circuit Judges.

FLETCHER, Circuit Judge:

L.R. Ranch Company and five members of the Murnion family ¹ appeal the district court's denial of their motion to stay state law foreclosure proceedings ² based on provisions of the federal Agricultural Credit Act of 1987, 12 U.S.C. Sec. 2202 et seq. We lack jurisdiction to review the district court's order and therefore dismiss the appeal.

BACKGROUND

The Federal Land Bank of Spokane ("the bank") loaned $600,000 to the borrowers in January 1975. The loan was reamortized in June 1981. The bank commenced foreclosure on the mortgage in state court on September 3, 1986 after the borrowers had become more than two years and $217,000 in arrears. The parties had engaged in various litigation activities--e.g., removal of the foreclosure action to federal court, dismissal of the borrowers' counterclaims--before the Agricultural Credit Act of 1987 took effect on January 6, 1988.

On February 16, 1988, the bank sent a letter to the borrowers informing them of their right under the Act to apply for restructuring of their loan. ³ The letter instructed the borrowers to submit a list of specified materials within 45 days if they wished to pursue restructuring. Otherwise, the letter indicated, the bank would proceed with the foreclosure. The letter encouraged the borrowers to meet with their credit officer to discuss any questions about the loan's status or the restructuring process. There is some dispute, however, as to whether such a meeting was actually available to the borrowers.

The borrowers submitted an application for restructuring on March 28, 1988, one week before the April 4 deadline. The following day the bank sent the borrowers a letter stating that their application was incomplete and that they could have until April 14 to complete the missing information. The bank pointed out that the corporation's officers had not signed the application or balance sheet and that they did not include "all items specifically requested" in the February 16 letter. The bank did not in that letter and does not now specify precisely which items were lacking in the original application. The borrowers assert that the application was incomplete and unsigned due to the bank's failure to provide them with land valuations which they had requested previously and which they required in order to verify the contents of the application. The bank disputes when the borrowers initially requested that information and whether it is even necessary in order to complete the loan application form.

On April 13, the borrowers' lawyer requested additional time from the bank in order to complete the restructuring application. He also requested a loan history and all appraisals on the property made by the bank. ⁴ The bank denied the request for an extension of time but indicated that it would nevertheless consider any restructuring application submitted prior to summary judgment being granted in the foreclosure proceeding and that it would suspend the foreclosure action while the application was considered. The bank informed the borrowers, however, that an application which was submitted after the original deadline and was eventually denied would not be entitled to the credit review process provided by the Act.

The borrowers ultimately resubmitted a completed loan application on August 18, 1988. At approximately the same time, on August 24, the borrowers filed a motion to stay all foreclosure proceedings under 12 U.S.C. Sec. 2202a(b)(3). On September 2, the bank requested more specific information from the borrowers on two points of the restructuring application. On October 21, the bank informed the borrowers that it had not accepted what it termed the borrowers' "settlement proposal." Its stated reasons for rejecting the restructuring application were that 1) the earnings available for the debt service would not support the outstanding obligations; 2) the proposal did not provide sufficient return to the bank; and 3) the debts appeared to be misstated on the balance sheet. On November 1, the borrowers demanded a review of the bank decision. It appears that the bank never replied to that demand. In any event, the borrowers' application was not reviewed by a credit review committee pursuant to 12 U.S.C. Sec. 2202.

On March 9, 1989, the district court denied the borrowers' motion for a stay of the foreclosure proceedings. The district court found that the borrowers had waived their review rights by not filing a complete application either within 45 days of receiving the bank's initial notice or before the bank's extended deadline. The borrowers appeal the district court's order denying the stay, claiming that their application should not have been considered untimely and that the bank has not met its obligations to pursue restructuring with the defendants under 12 U.S.C. Sec. 2202a.

DISCUSSION

We consider as a threshold matter whether we have jurisdiction to review the district court's order. The borrowers assert that we have jurisdiction over the appeal under either 28 U.S.C. Sec. 1291 or 28 U.S.C. Sec. 1292(a)(1).

We first address the question of whether the collateral order doctrine permits review under 28 U.S.C. Sec. 1291. ⁵ "[A]s a general rule a district court's decision is appealable under that section only when the decision 'ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.' " Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 275, 108 S.Ct. 1133, 1136, 99 L.Ed.2d 296 (1988), quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633, 89 L.Ed. 911 (1945). The order in this case has no such effect. Indeed, just as in Gulfstream, the effect of the challenged order is to continue the litigation in the district court, not to terminate it. However, the "collateral order doctrine" initially articulated in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949) and reiterated in Gulfstream provides a narrow exception to the "final judgment rule."

In Gulfstream the Court rearticulated the "three-pronged test to determine whether an order that does not finally resolve a litigation is nonetheless appealable under Sec. 1291." 485 U.S. at 276, 108 S.Ct. at 1137. To come under the "collateral order exception," the challenged order must (1) "conclusively determine the disputed question"; (2) "resolve an important issue completely separate from the merits of the action"; and (3) "be effectively unreviewable on appeal from a final judgment." Id. (internal quotations omitted). Although Gulfstream addresses the threshold question of appealability, it inevitably requires us to telescope ahead to the underlying issue so that we can assess whether it is "important ... completely separate ... [and] effectively unreviewable on appeal from a final judgment." We thus turn to an analysis of the substantive provision underlying the borrowers' request for a stay, 12 U.S.C. Sec. 2202a(b)(3), and the manner in which the borrowers attempt to invoke it.

Section 2202a(b)(3) provides that

No qualified lender may foreclose or continue any foreclosure proceeding with respect to any distressed loan before the lender has completed any pending consideration of the loan for restructuring under this section.

It is not entirely clear whether the borrowers seek to assert the bank's failure to comply with the mandate of Sec. 2202a(b)(3) as an equitable defense to the foreclosure proceeding, or whether they seek to enforce the section affirmatively against the bank. To the extent that they seek to assert noncompliance with Sec. 2202a(b)(3) as a defense, the denial of the stay is not appealable under the collateral order rule because it is neither completely separate from the merits of the action nor effectively unreviewable on appeal. To the extent that the borrowers seek affirmatively to enforce the provisions of Sec. 2202a(b)(3) by means of the motion for a stay, they are precluded from doing so based on the rationale underlying this circuit's holding in Harper v. Federal Land Bank, 878 F.2d 1172 (9th Cir.1989) (borrowers have no private right of action to enforce the Agricultural Credit Act of 1987), and based on the language of the section itself, which does not purport to bind state courts (or federal courts sitting in diversity), but is directed to qualified lenders. ⁶

The borrowers characterize Sec. 2202a(b)(3) as a "mandatory statutory stay" provision. While we agree that its language clearly prohibits lenders from initiating or continuing foreclosure proceedings before they have "completed any pending consideration of the loan for restructuring," neither the section itself nor any other section of the Act suggests that it operates directly on a state court foreclosure proceeding or that a borrower can enforce the provision in that setting. Nor do the borrowers cite any provisions of Montana law that would allow or require importation of the requirements of a federal statute directed at a federal agency into state foreclosure actions.

In Harper we refused to imply a private right of action under the Act that would permit borrowers to file federal actions to enjoin state foreclosure proceedings. W...