U.S. for and on Behalf of Small Business Admin. v. Torres

• Decision Date: 17 April 1998
• Docket Number: Nos. 96-2477,s. 96-2477
• Citation: 142 F.3d 962
• Parties: UNITED STATES of America, for and on Behalf of SMALL BUSINESS ADMINISTRATION, Plaintiff-Appellee, v. Rosee TORRES, et al., Defendants-Appellants. & 96-2671.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 962

142 F.3d 962

UNITED STATES of America, for and on Behalf of SMALL BUSINESS ADMINISTRATION, Plaintiff-Appellee, v. Rosee TORRES, et al., Defendants-Appellants.

Nos. 96-2477 & 96-2671.

United States Court of Appeals Seventh Circuit.

Submitted Feb. 11, 1997.

Decided April 17, 1998.

Thomas P. Walsh, Joan C. Laser, Office of the U.S. Attorney, Civil Division, Chicago, IL, for Plaintiff-Appellee in No. 96-2477.

Thomas P. Walsh, Office of the U.S. Attorney, Civil Division, Chicago, IL, for Plaintiff-Appellee in No. 96-2671.

Martin J. Wilson, Chicago, IL, for Defendants-Appellants in No. 96-2477.

Martin J. Wilson, Gregory R. LaPapa, Chicago, IL, for Defendants-Appellants in No. 96-2671.

Before COFFEY, MANION, and KANNE, Circuit Judges.

COFFEY, Circuit Judge.

On May 20, 1993, the United States filed a mortgage foreclosure action against the defendants-appellants Rosee and Noel Torres, their daughter, Elisa Torres, and Rosee Torres's business, Legal Secretarial Services (collectively, "the Torreses"), arising out of Rosee Torres's alleged default on a 1984 Small Business Administration ("SBA") loan secured by a mortgage on property owned by Noel and Rosee Torres. The Torreses argued that, at the time the SBA loan was completed, the property mortgaged as security for the loan was in fact owned by a minor's spendthrift trust. Both parties filed summary judgment motions in the foreclosure action and on April 16, 1996, the district court granted the SBA's motion, finding that the defendants had failed to raise any genuine issue of material fact. In addition, the court found Rosee Torres in civil contempt for intentionally misdating a trial document in an attempt to deceive the court into believing that the SBA had knowledge of the spendthrift trust's existence, and ordered Torres to pay $1,125 in attorney's fees as sanction for the misrepresentation. The Torreses appeal the court's rulings in granting the SBA's motion and the finding of Rosee in civil contempt. We affirm.

I. BACKGROUND

Rosee Torres applied to the SBA for a small business loan, and on December 16, 1983, she was notified that she had been approved for a $100,000 loan, with a mortgage on her home to be used as collateral. Rosee and her husband, Noel, met with Susan Marchini ("Marchini"), the SBA representative responsible for the loan, on January 18, 1984. Marchini examined Noel and Rosee Torres' identification, and requested that they review the loan documents for truth and accuracy. An affidavit of ownership stated that Noel and Rosee Torres were the "record owner(s) and holder(s) of fee simple title" of their residence. ¹ The mortgage form, a twenty-eight inch long SBA single-sheet paper document printed on both sides, also stated that Noel and Rosee Torres were the sole owners of their residence. ² Marchini testified that after she witnessed both Rosee and Noel Torres sign the mortgage, she gave them an unsigned, undated copy, and retained possession of the original mortgage document.

Because Rosee failed to make monthly payments on the loan in a timely fashion, in August of 1987, the SBA accelerated the maturity of the loan note and declared the entire balance due and payable. ³ In May of 1993, the SBA filed a routine foreclosure on the mortgage that secured the loan. The Torreses answered the foreclosure action and asserted that the SBA could not foreclose because title to the property had been previously transferred to an unrecorded spendthrift trust that was established in 1974 for their daughter, Elisa. ⁴

The Torreses contended before the trial court that the SBA knew of the existence of the alleged trust at the time the loan was created. They offered the following several theories that imputed such knowledge. Initially, the Torreses attached to their answer what appeared to be an unsigned, undated copy of the mortgage provided to Noel and Rosee Torres at the closing. This copy of the mortgage, which the Torreses claimed to be the draft they received during the meeting with Marchini, surprisingly did not bear the signature of Noel Torres (as did the original, according to Marchini), but rather bore only the signature of Rosee Torres, and, more important, was dated prior to the date of the January 18, 1984, loan closing. Further, this copy of the mortgage contained Rosee Torres's handwritten references to Elisa Torres's spendthrift trust, in an attempt to demonstrate, according to the Torreses, that the SBA had knowledge of the existence of the trust. The Torreses' answer contained allegations that the SBA had, in providing documents to the court, substituted three of the four pages of the mortgage, all of which, according to the Torreses, originally contained references to the spendthrift trust. The Torreses also contended that the SBA had forged Noel Torres's signature on the draft the SBA provided to the court.

When the SBA brought to the Torreses' attention the fact that the mortgage document actually consisted of a single sheet of paper folded over, with printed material on both sides, rather than four separate pages, which made the alleged substitution an impossibility, the Torreses shifted strategy and argued that James Dall, the SBA attorney during the loan closing, promised to transfer the handwritten comments regarding the trust to the original. ⁵ Rosee contended that since she did not have a private attorney at the closing, Dall in effect improperly represented both parties: Noel and Rosee Torres, and the SBA. The Torreses accused Jody Adler, another SBA attorney who worked on the Torreses' litigation, of participating in the 1984 loan transaction and having actual knowledge of the existence of the trust. In support of this proposition, the Torreses submitted a page from the 1985-1986 Sullivan's Law Directory which reflected Adler's employment with the SBA. Rosee Torres had written "1984 Sullivan's Law Directory" at the top of the page to show that Adler was employed by the SBA at the time of the loan. ⁶ In fact, Adler did not commence employment with the SBA until September 16, 1985, long after the creation of the loan.

On April 16, 1996, the district court issued an order granting the SBA's motion for summary judgment. Shortly thereafter, Rosee claimed that both Dall and Adler had represented the Torreses in private practice before their employment with the SBA. As a result, according to Torres, both had actual knowledge of the existence of the spendthrift trust. The coincidence arose, according to Rosee, because Dall managed and represented the trust while employed at the First National Bank of Chicago, prior to his employment with the SBA. Rosee further contended that after joining the SBA, Dall was assigned Noel and Rosee Torres' loan application, and realizing his conflict of interest, referred the trust to Adler, who was at that time in private practice. An affidavit from Rosee Torres specifically provides that Adler continued to represent the trust until she joined the SBA in 1984, when she began working as co-counsel with Dall. However, because Adler did not join the SBA until September of 1985, obviously she could not have been co-counsel with Dall. Further, the record reflects that Dall and Adler never worked at the SBA at the same time, and never knew each other.

On May 21, 1996, the court denied the Torreses' motion to vacate or reconsider, and entered a rule to show cause order as to why Rosee Torres should not be held in contempt of court for filing an incorrectly dated document from Sullivan's Law Directory in support of the motion. The order was followed by a judgment of foreclosure and sale.

On June 25, 1996, the district court found Rosee Torres in civil contempt of court for intentionally filing the incorrectly dated document, and on July 19, 1996, the court ordered Torres to pay $1,125 in attorney's fees to SBA's counsel.

II. ISSUES

On appeal, the defendants argue that the district court lacked jurisdiction over this action because it was time-barred and the defendants were not proper parties. They also assert that the district judge erred, alleging that genuine issues of material fact existed warranting a trial, and further that the SBA had knowledge of the spendthrift trust at the time of the loan. They also assert that other issues of material fact are raised by their other defenses, which include racial and ethnic discrimination on the part of the SBA, personal bankruptcy, violations of the statute of frauds by the SBA, and forgery. Lastly, the Torreses claim that the trial judge abused his discretion in finding Rosee Torres in civil contempt for submitting to the court a misrepresented document.

III. DISCUSSION

A. Jurisdiction

Initially, the defendants argue that the district court did not have subject-matter jurisdiction over this matter. However, pursuant to 28 U.S.C. § 1345, the trial court has jurisdiction because the United States was suing to foreclose on a mortgage securing a defaulted SBA loan. Generally, district courts have original jurisdiction over suits brought by the United States to foreclose mortgages on realty situated within the district. See Garden Homes, Inc. v. United States, 200 F.2d 299, 300 (1st Cir.1953). "Except as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States, or by any agency or officer thereof expressly authorized to sue by Act of Congress." 28 U.S.C. § 1345.

The defendants also contend that the court lacked jurisdiction because both Illinois statutes of limitation, providing ten years for written contracts, 735 Ill. Comp. Stat. Ann. 5 /13-206, and five years for partially oral contracts, 735 Ill. Comp. Stat. Ann. 5 /13-205, had expired prior to the filing of the Government's complaint. We hold, however, that this action is not time-barred "because state statutes of limitations are inapplicable to actions filed by the federal...