In re Dittmer

• Decision Date: 26 July 1988
• Docket Number: Adversary No. 87-7271.,Bankruptcy No. 87-70781
• Citation: 96 BR 154
• Parties: In re Robert G. DITTMER, Luella Dittmer, Debtors. Steven E. SIEBERS, Trustee, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Robert G. Dittmer and Luella Dittmer, Defendants.
• Court: U.S. Bankruptcy Court — Central District of Illinois

96 B.R. 154 (1988)

In re Robert G. DITTMER, Luella Dittmer, Debtors Steven E. SIEBERS, Trustee, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Robert G. Dittmer and Luella Dittmer, Defendants.

Bankruptcy No. 87-70781, Adversary No. 87-7271.

United States Bankruptcy Court, C.D. Illinois.

July 26, 1988.

Steven E. Siebers, Quincy, Ill., Trustee.

Dennis W. Gorman, Quincy, Ill., for FDIC.

Thomas W. O'Neal, Carthage, Ill., Hubert Staff, Quincy, Ill., for Dittmer.

OPINION

LARRY L. LESSEN, Chief Judge.

This matter is before the Court on the FDIC's Motion For Entry of Additional Findings of Fact and To Alter and Amend Judgment.

The FDIC asks the Court to enter additional findings of fact and/or conclusions of law to the effect that 1) the FDIC is an agency of the United States, 2) the FDIC acquired a lien or security interest in the and to the Debtors' equipment, livestock, crops, feed, seed and other supplies as assignee pursuant to 12 U.S.C., Sec. 1823(c), as evidenced by, inter alia, the purchase and Assumption Agreement, Contract of Sale and the Order of the Eighth Judicial Circuit, Adams County, Illinois, approving the sale and transfer, 3) the rights of the FDIC as to the specific assets are governed by federal law, not state law, 4) the FDIC, as an agency of the United States, is not required to perfect its interest in the assets under Article 9 of the Uniform Commercial Code, or any other state law, and 5) the FDIC holds a perfected lien or security interest in and to the assets pursuant to federal law.

It is undisputed that the FDIC is an agency of the United States. It is further undisputed that the FDIC in its corporate capacity acquired a lien as assignee in assets of the Debtor as claimed. The Court grants the FDIC's motion as to the entry of these findings of fact.

The dispute between the parties centers on the remaining findings or conclusions sought by the FDIC, having to do with whether the FDIC's lien is perfected. If, as the FDIC asserts, the Illinois Commercial Code provision requiring filing of a continuation statement to perfect such a lien does not apply to the FDIC, then the FDIC holds a perfected lien and consequently prevails. If, on the other hand, the state law does apply, then, as the Court has already held, the FDIC's failure to comply with that provision leaves the FDIC with an unperfected lien, meaning the Trustee prevails.

In cases involving the rights of the United States arising under nationwide federal programs, federal law governs. United States v. Kimbell Foods, 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979). However, in giving content to "federal law," federal courts are "to fill the interstices of federal legislation `according to their own standards.'" Id. at 727, 99 S.Ct. at 1458 (quoting Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 575, 87 L.Ed. 838 (1943). In determining whether to adopt state law as the federal rule of decision, federal courts are to consider: 1) whether there exists Congressional directive to the contrary; 2) whether there is a need for a nationally uniform body of law; 3) whether application of state law would frustrate specific objectives of the federal program; and 4) the extent to which application of a federal rule would disrupt commercial relationships predicated on state law. Id. 440 U.S. at 728-729, 99 S.Ct. at 1458-1459.

In the absence of ready-made federal common law, and in light of the general reluctance to displace state law without explicit statutory or constitutional direction to do so, the presumption is that state law is adequate and should be adopted by the federal court as the rule of decision. See United States v. Kimbell Foods, supra at 740, 99 S.Ct. at 1464-1465; FDIC v. Braemoor Associates, 686 F.2d 550, 554 (7th Cir.1982); Powers v. United States Postal Service, 671 F.2d 1041, 1045 (7th Cir.1982); Warner v. FDIC, 605 F.Supp. 521, 526 (S.D.Ohio 1984), rev'd on other grounds 798 F.2d 167 (6th Cir.1986).

Considering the relevant factors enunciated in Kimbell-Congressional directive to the contrary, need for a uniform body of law, potential for frustration of specific objectives of the federal program, and extent to which a federal rule would disrupt commercial relationships predicated on state law—the Court concludes that the FDIC has not overcome the presumption that state law should apply in this case.

There is no Congressional directive contrary to the UCC provision requiring proper filing of a continuation statement.

The Uniform Commercial Code, as enacted in Illinois, is close to being a nationally uniform body of law. Adopted with minor variations by all of the states except Louisiana, the UCC is designed to meet the need for uniform standards within the context of commercial relationships. Thus, application of the UCC provision requiring the proper filing of a continuation statement would in no way interfere with national uniformity in the FDIC's operation. Rather, use of the UCC would appear to be a handy way to establish ready-made essentially uniform law in the implementation of a federal program, as long as such use would not frustrate specific objectives of the program.

The FDIC has presented no persuasive evidence as to how application of the UCC-required filing of a continuation statement would hinder its operation. Indeed, in this case the FDIC did file two continuation statements regarding the Debtors' assets; the problem arose in that the statements filed failed to comply with the requirements pertaining to assignees. The FDIC's acts in filing reflect both its awareness of the UCC provision and its ability to comply therewith. These acts further reflect the FDIC's own understanding that it falls within the scope of this filing provision. Counsel for the FDIC maintained in oral argument that these FDIC attempts at compliance should be considered "surplusage," and that requiring FDIC counsel to keep abreast of recording requirements of the different states would be a costly proposition. As in Kimbell, supra, "the agency's own operating practices belies its assertion that a federal rule of priority is needed to avoid the administrative burdens created by disparate state commercial rules." Kimbell 440 U.S. at 732, 99 S.Ct. at 1460. Moreover, the FDIC is required by federal statute to operate within the constraints of state law when acting in its capacity as receiver, see 12 U.S.C. Secs. 1819, 1821(e), suggesting that any claim by the FDIC of unfamiliarity with state laws is disingenuous. Requiring the FDIC to file proper continuation statements would neither be unduly burdensome nor hinder FDIC operations.

The Court has already touched on the extent to which a second set of federal rules as to priority would disrupt commercial relationships predicated on state law. "In structuring financial transactions, businessmen depend on state commercial law to provide the stability essential for reliable evaluation of the risks involved." Kimbell 440 U.S. at 739, 99 S.Ct. at 1464. "When it is not necessary to have a national rule, it is necessary not to have one. Lenders (as in Kimbell), landlords (as in Powers) and superintendents of schools (as here) learn the set of rules governing their conduct, and they are entitled to assume that the rules apply consistently." Morgan v. South Bend Community School, 797 F.2d 471, 476 (7th Cir.1986). General creditors are entitled to the same assumption. Application of an "FDIC rule" different from that imposed on other creditors, entitling the FDIC to a perfected interest despite its failure to file a proper continuation statement, would work a disservice on other creditors.

Since there is no ready-made body of federal common law at hand, since the UCC as enacted by Illinois provides an essentially uniform body of law, since with respect to application of the filing provision at issue there is no frustration of FDIC objectives, and since to hold otherwise would disrupt well-established commercial rules, the Court holds that the FDIC is bound by the Illinois Commercial Code provision requiring the filing of a proper continuation statement. See Ill.Rev.Stat.1985 Ch. 26 Sec. 9-403(3).

The FDIC relies on United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940), asserting that the United States, and the FDIC as an agency thereof, cannot be deprived of its property rights due solely to the application of state laws. In Summerlin, the Supreme Court held that a state statute of limitations in probate matters could not defeat a claim of the Federal Housing Administrator as assignee against a decedent's estate. Id. However, the holding in Summerlin does not purport to exempt the United States and its agencies absolutely from application of state law affecting property rights. Indeed, the Supreme Court in Summerlin stated:

The State Court treated this case as in the same category as one of `the statutes proving for conveyancing and marketing negotiable instruments, and conducting other business relations.\' But this is not a case relating to the application of the law merchant as to the transfer of negotiable paper and

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