Silverman v. Eastrich Multiple Investor Fund, L.P.

• Decision Date: 28 March 1995
• Docket Number: No. 94-1783,94-1783
• Parties: Janice SILVERMAN, Appellant, v. EASTRICH MULTIPLE INVESTOR FUND, L.P.
• Court: U.S. Court of Appeals — Third Circuit

Page 28

51 F.3d 28

63 USLW 2611

Janice SILVERMAN, Appellant, v. EASTRICH MULTIPLE INVESTOR FUND, L.P.

No. 94-1783.

United States Court of Appeals Third Circuit.

Argued Feb. 2, 1995.

Decided March 28, 1995.

Neil E. Jokelson (argued), Neil E. Jokelson & Associates, P.C., Philadelphia, PA, for appellant.

Thomas J. Elliott (argued), Elliott Reihner Siedzikowski North & Egan, P.C., Blue Bell, PA, for appellee.

Before: SCIRICA, ROTH, and SAROKIN, Circuit Judges.

OPINION OF THE COURT

SAROKIN, Circuit Judge:

Plaintiff Janice Silverman appeals the dismissal of her complaint claiming violations of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C.A. Sec. 1691 et seq., and the denial of her motion for declaratory and injunctive relief. Plaintiff alleges that she was required to guaranty a loan for the benefit of her spouse in violation of the ECOA. Assuming, without deciding, that plaintiff's right to initiate an action for damages based upon such alleged violation is barred by the statute of limitations, no such bar exists to asserting such violation as a defense to efforts to collect on said guaranty. Plaintiff did not forfeit her right to raise such defense merely by her failure to institute an independent action to assert it. Accordingly, we reverse the district court's dismissal of plaintiff's complaint and denial of declaratory and injunctive relief and remand for further proceedings for the reasons hereinafter set forth.

I. Facts and Procedural History

In February of 1986, Hunt's Pier Associates ("Hunt's Pier"), a New Jersey general partnership, borrowed $10,000,000 (the "Loan") from Atlantic Financial Federal ("Atlantic"). Atlantic required all Hunt's Pier partners to guaranty the repayment individually jointly, and severally. Plaintiff, one of the partners' wives, was required to sign the Guaranty Agreement ("Guaranty").

In January of 1990, Atlantic was declared insolvent, and the Resolution Trust Corporation ("RTC") took control of the Loan. Hunt's Pier defaulted and ultimately filed a voluntary bankruptcy petition under Chapter 11 of the United States Bankruptcy Code on October 23, 1991. The RTC approved and supported the Third Amended Plan of Reorganization ("Reorganization Plan" or "Plan"), and in February of 1993, the bankruptcy court confirmed it. The Plan extended the payment period upon the Loan, expressly leaving the Guaranty intact.

Eastrich Multiple Investor Fund, L.P. ("Eastrich") subsequently acquired the RTC's right, title, and interest in the Loan. On April 21, 1994, Eastrich confessed judgment against the Loan's guarantors, including plaintiff, in state court.

On May 9, 1994, plaintiff filed suit in federal court, alleging Atlantic and Eastrich violated her rights under the ECOA: (1) Atlantic, by requiring her signature on the Guaranty although she allegedly had no other connection to the transaction and (2) Eastrich, by instituting state collection proceedings against her. In Count II of her complaint, plaintiff alleged the Reorganization Plan altered the Guaranty to her detriment and without securing her approval, which should have resulted in discharge of her guaranty.

Silverman moved for injunctive relief in federal court, ¹ requesting Eastrich be enjoined from executing on the $10,000,000 state court confession of judgment against her. In addition to her claims against Atlantic and Eastrich, she also argued that the RTC violated the ECOA and its implementing regulations by approving the Reorganization Plan and failing to reevaluate the legality of her obligation under the Guaranty. Eastrich filed a motion to dismiss plaintiff's complaint for failure to state a claim. On July 13, 1994, the district court denied injunctive and declaratory relief and granted Eastrich's motion to dismiss. Plaintiff filed a timely notice of appeal.

II. Jurisdiction and Standard of Review

The district court exercised jurisdiction under 28 U.S.C. Sec. 1331. This court has jurisdiction over the district court's final judgment pursuant to 28 U.S.C. Sec. 1291.

We have plenary review of the district court's dismissal of the complaint. Moore v. Tartler, 986 F.2d 682, 685 (3d Cir.1993). We review the denial of injunctive and declaratory relief for abuse of discretion, and in making this determination we will exercise plenary review over the district court's conclusions of law. Natural Resources Defense Council, Inc. v. Texaco Refining & Marketing, Inc., 906 F.2d 934, 937 (3d Cir.1990); United States v. Pennsylvania, Dep't of Envtl. Resources, 923 F.2d 1071, 1073 (3d Cir.1991).

III. Discussion

The ECOA provides that it is unlawful "for any creditor to discriminate against any [credit] applicant with respect to any aspect of a credit transaction on the basis of ... marital status." 15 U.S.C.A. Sec. 1691(a)(1). The Board of Governors of the Federal Reserve System (the "Board"), charged with making and implementing regulations, provided in pertinent part in Regulation B:

Except as provided in this paragraph, a creditor shall not require the signature of an applicant's spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor's standards of creditworthiness for the amount and terms of the credit requested.

12 C.F.R. Sec. 202.7(d).

A. Standing

Eastrich argues plaintiff lacks standing to assert a violation of the ECOA. Section 1691(a) of the ECOA prohibits creditors from discriminating against any "applicant." An earlier version of Regulation B had defined an applicant as

any person who requests or has received an extension of credit from a creditor, and includes any person who is or may be contractually liable regarding an extension of credit other than a guarantor, surety, endorser, or similar party.

12 C.F.R. Sec. 202.2(e) (1985) (emphasis added). In a subsequent amendment, the definition was revised to include guarantors as "applicants."

The parties' dispute on this issue stems from the two dates provided in the amendment:

The revised regulation and official staff commentary will become effective December 16, 1985. However, creditors have the option of continuing to comply with the Board's current regulation and existing interpretations, which remain in effect, until October 1, 1986.

Revision of Regulation B, 50 Fed.Reg. 48,018 (1985). Eastrich contends that the revised definition should be interpreted as effective from the mandatory compliance date, October 1, 1986, leaving Silverman without standing. Eastrich relies upon Boatmen's First National Bank v. Koger, in which the court applied the mandatory compliance date as the effective date and ruled the guarantor thereby lacked standing. 784 F.Supp. 815 (D.Kan.1992); see also Mayes v. Chrysler Credit Corporation, 37 F.3d 9 (1st Cir.1994) (adopting, without discussion, effective date of October 1, 1986).

The district court declined to follow Koger, noting the Koger court did not discuss or even mention the December 16, 1985 date. If October 1, 1986 is the effective date, then the December 16, 1985 date is unmoored to any purpose. In effect, the Koger decision renders this latter date entirely superfluous. This violates a basic tenet of statutory construction, equally applicable to regulatory construction, that a statute "should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant, and so that one section will not destroy another unless the provision is the result of obvious mistake or error." 2A Norman J. Singer, Sutherland, Statutes and Statutory Construction, Sec. 46.06, at 119-20 (5th ed. 1992).

The Board's discussion of the revised Regulation B supports the district court's interpretation of the effective date. The mandatory compliance date should not be misconstrued as the effective date of the revisions. The prior version of Part 202 was redesignated as Part 202a, and the Board repeatedly referred to the "new [revised] Part 202" as effective on December 16, 1985. ² The Board specifically commented that several revisions may necessitate "operational changes," and the October 1, 1986 date offered creditors a grace period to implement such changes. 50 Fed.Reg. 48,018. However, the Board deemed expansion of the term "applicant" as a "substantive" change not requiring modification of procedures. Id. The district court emphasized the fact that the ECOA has from its inception prohibited requiring spousal guaranties. Hence, conferring standing upon guarantors places no additional requirements upon creditors, which accords with the Board's commentary, and thus the expanded definition of "applicant" was immediately effective as of December 16, 1985.

B. Statute of Limitations

The statute of limitations for bringing an ECOA claim is two years from the date of an alleged violation. The district court concluded that the statute of limitations had run on the initial alleged violation and that the failure to release her from the Guaranty during the bankruptcy proceedings, as well as the institution of collection proceedings against her, did not constitute new violations of the ECOA, each with its own two-year limitations period. We need not reach those issues because we conclude that the alleged violation is not barred as a defense.

C. Right of Recoupment

There are numerous circumstances under which a guarantor may institute an action to declare his or her guaranty void and seek damages or other relief. The expiration of the statute of limitations calculated from the execution of said guaranty may bar the institution of such independent action. No such bar exists, however, to the utilization of such grounds as a defense.

A guarantor may have the right to challenge a loan as usurious or on other recognized grounds. See, e.g., McCarthy v. First Nat'l Bank, 223 U.S. 493, 498, 32 S.Ct. 240, 240-41, 56 L.Ed. 523 (1911) ("As to the defense [that a contract is usurious], there is no statute of limitations. ...