U.S. v. Gordon

• Decision Date: 28 February 1996
• Docket Number: D,No. 464,464
• Citation: 78 F.3d 781
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Vivian GORDON and Carl C. Gordon, Defendants-Appellants. ocket 94-6290.
• Court: U.S. Court of Appeals — Second Circuit

Page 781

78 F.3d 781

UNITED STATES of America, Plaintiff-Appellee, v. Vivian GORDON and Carl C. Gordon, Defendants-Appellants.

No. 464, Docket 94-6290.

United States Court of Appeals, Second Circuit.

Argued Nov. 1, 1995.

Decided Feb. 28, 1996.

Michael J. Silverstein, Deutsch & Spring, New York City, for defendants-appellants.

Kathleen M. Reidy, Assistant United States Attorney, New York City (Mary Jo White, United States Attorney, Southern District of New York, Steven M. Haber, Assistant United States Attorney, of counsel), for plaintiff-appellee.

Before: LUMBARD, ALTIMARI, and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Guarantors appeal from a summary judgment of the United States District Court for the Southern District of New York (Shirley Wohl Kram, J.). The district court held them liable for a defaulted government loan after rejecting, as a matter of law, their statute of limitations defense. On appeal, the guarantors renew their contention that (1) most of the government's claim was time-barred as a matter of law under 28 U.S.C. § 2415(a), and add that (2) material disputes of fact precluded summary judgment on the rest of the claim. We disagree on both counts, and affirm.

I.

In December, 1979, the Economic Development Administration of the U.S. Department of Commerce ("EDA") agreed to lend Tableau Company, Inc. ("Tableau"), a lamp manufacturer, up to $700,000. In January, Tableau executed and delivered a promissory note to the EDA for up to $700,000, which was secured by: a mortgage on Tableau's Brooklyn, New York premises; a lien on Tableau's machinery, equipment, furniture, and fixtures; and a personal guaranty signed by Tableau's president, Carl C. Gordon, and his wife, Vivian.

Under the note, Tableau had to pay monthly installments of interest from March 4, 1980 through January 4, 1981; thereafter Tableau had to pay monthly installments of both principal and interest until January 4, 1990, when the loan would be repaid in full. Failure to pay any installment of principal or interest was an "event of default," upon which the EDA could accelerate all unpaid principal and interest.

The Gordons' guaranty, which was separate from the note, provided that:

In order to induce the United States of America, Economic Development Administration (hereinafter called "Lender"), to make a loan or loans to Tableau Company, Inc. (hereinafter called the "Debtor"), the undersigned hereby unconditionally guarantees to Lender, its successors and assigns, the due and punctual payment when due, whether by acceleration or otherwise in accordance with the terms thereof, of the principal of and interest on and all other sums payable, or stated to be payable, with respect to the Note of the Debtor.

In addition:

In case the Debtor shall fail to pay all or any part of the Liabilities when due, whether by acceleration or otherwise, according to the terms of said Note, the undersigned, immediately upon the written demand of Lender, will pay to Lender the amount due and unpaid by the Debtor as aforesaid, in like manner as if such amount constituted the direct and primary obligation of the undersigned.

The EDA disbursed $250,000 the day the guaranty was executed. Two months later, Tableau missed the first interest payment due under the note. Approximately three weeks later, the EDA lent Tableau another $150,000. Tableau missed all its monthly payments, and, indeed, made no installment payments on the loan.

According to Carl Gordon, on or about October 30, 1980, EDA Financial Analyst Leonard S. Richter met with him and other Tableau representatives to discuss the problem. Richter allegedly denied Tableau's request for another loan disbursement, stating that the Tableau loan was now "terminated and the entire balance due and owing" to the United States.

Tableau closed up shop soon thereafter, and its financial difficulties only deepened. In November, 1980, it turned over its machinery and equipment to a creditor; it is disputed whether this happened with the EDA's permission. In September, 1982, the City of New York initiated tax foreclosure proceedings against Tableau's Brooklyn premises, and took title thereto, subject to the EDA mortgage.

On June 15, 1984, the EDA sent a letter to the Gordons, as guarantors, informing them of Tableau's default. The letter also accelerated the debt due under the note, and demanded payment from them under the guaranty of all unpaid principal and accrued interest--roughly $560,000. The letter asked the Gordons to "mak[e] a good faith, reasonable offer of settlement." Apparently, they never responded. Over two years later, on October 21, 1986, the EDA again demanded payment of the unpaid principal and accrued interest; the tab now exceeded $650,000. The Gordons did not respond to this demand letter, either.

In 1987, the City of New York sold the Tableau premises to the New York City Public Development Corporation, which, a year later, paid the EDA $150,000 to release the mortgage lien. The EDA used this money to offset some of the Tableau debt. The Gordons failed to pay the balance of the debt, and on June 13, 1990, almost six years after the first demand letter, and over ten years after Tableau's first default, the government sued the Gordons on the guaranty.

In their answer to the government's complaint, the Gordons conceded that Tableau defaulted on the note as early as March, 1980, but asserted a statute of limitations defense. Some three years later, the parties filed cross-motions for summary judgment. The only issue was the timeliness of the government's suit: the parties agreed that the six-year limitations period on government contract claims set forth in 28 U.S.C. § 2415(a) controlled, but disagreed as to when the period of limitations began to run.

The Gordons contended below that the six-year period began to run on October 30, 1980, when the EDA allegedly first accelerated the loan, making the entire suit--commenced in June, 1990--untimely. Alternatively, the Gordons argued that § 2415(a) at least barred the government from recovering those unpaid installments due and payable more then six years before this suit began, since each missed payment was a separate default under the note (and, by implication, under the guaranty), triggering its own limitations period.

The government countered that, under the guaranty, the Gordons were liable for Tableau's defaults only upon written demand. Accordingly, the government contended that § 2415(a)'s limitations period began running on June 15, 1984, when the EDA made its first written demand on the Gordons for payment of the accelerated debt. Since the government commenced suit within six years of the written demand, the government argued that its suit was timely.

The district court agreed with the government in an unpublished opinion. The court cautioned, however, that where, as here, a guaranty expressly conditions liability on a written demand for payment, the government must make its demand within a reasonable time after default. Noting that the Gordons had not shown any prejudice from whatever delay there was, the court entered judgment for the government. This appeal followed.

II.

We review de novo a district court's grant of summary judgment to determine whether, viewing the evidence in the light most favorable to the nonmoving party, there is a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. See Buttry v. General Signal Corp., 68 F.3d 1488, 1492 (2d Cir.1995). The Gordons renew their argument below that (1) the government, as a matter of law, cannot recover those installments Tableau failed to pay that were due more than six years before this suit began. They add an argument that (2) there were material questions of fact concerning (a) when the EDA accelerated the note and (b) the reasonableness of the government's delay in making a written demand. We are not persuaded.

Under 28 U.S.C. § 2415(a),

[E]very action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues....

This limitations period governs an action by the government for money damages under a guaranty. See, e.g., United States v. Culver, 958 F.2d 39, 41 (4th Cir.1991). And, the six-year period starts to run when the "right of action" against the guarantor accrues. Cf. Crown Coat Front Co. v. United States, 386 U.S. 503, 510-11, 87 S.Ct. 1177, 1181-82, 18 L.Ed.2d 256 (1967) (under 28 U.S.C. § 2401(a), which limits "right[s] of action" against the government, "[o]ur initial inquiry is ... when the right of the contractor in this case to bring suit in [federal court] first accrued").

To determine when the government could first have sued the Gordons under the guaranty, we must look to the guaranty itself. See, e.g., id. at 510-12, 87 S.Ct. at 1181-1183 (reviewing contract to determine when contractor's right of action thereunder accrued against the government). The guaranty expressly included a demand (written) provision: if Tableau defaulted on the note, the Gordons, as guarantors, had to pay "immediately upon the written demand of" the EDA whatever amount Tableau owed (whether by acceleration or otherwise).

Like the Eighth and Ninth Circuits, which have considered guaranties containing identical language, we construe this demand provision as a condition precedent to the Gordons' liability under the guaranty. United States v. Gottlieb, 948 F.2d 1128, 1129-30 (9th Cir.1991); United States v. Vanornum, 912 F.2d 1023, 1026-27 (8th Cir.1990); see 3A Arthur L. Corbin, Corbin on Contracts § 643, at 75, 78 (1960). The Gordons concede that a written demand was a condition precedent to the government's right to maintain an action under the guaranty. Because the government could not sue, i.e., had no...