U.S. v. Peoples Household Furnishings, Inc.

• Decision Date: 02 May 1996
• Docket Number: No. 93-2360,93-2360
• Citation: 75 F.3d 252
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. PEOPLES HOUSEHOLD FURNISHINGS, INC., Defendant, Edward J. Holland, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 252

75 F.3d 252

64 USLW 2524

UNITED STATES of America, Plaintiff-Appellee, v. PEOPLES HOUSEHOLD FURNISHINGS, INC., Defendant, Edward J. Holland, Jr., Defendant-Appellant.

No. 93-2360.

United States Court of Appeals, Sixth Circuit.

Submitted June 5, 1995.

Decided Feb. 6, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied May 2, 1996.

Ellen Christensen (briefed), Jacqueline M. Hotz, Office of the U.S. Atty., Detroit, MI, for Plaintiff-Appellee.

Clarence B. Tucker, Sr. (briefed), Detroit, MI, for Defendant, Defendant-Appellant.

Before: NELSON and RYAN, Circuit Judges, and ECHOLS, District Judge. ^*

NELSON, J., writing for the court, delivered an opinion in which ECHOLS, D.J., concurred. RYAN, J., concurred in all but Part III of the opinion.

DAVID A. NELSON, Circuit Judge.

Michigan law establishes a ten-year limitations period for actions founded upon judgments. See Mich.Comp.Laws 600.5809(3). In the case at bar the United States, which in 1978 obtained a money judgment against defendant Edward Holland in the United States District Court for the Eastern District of Michigan, brought suit on the judgment in the same court 15 years later. Relying on United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940), where the Supreme Court held that the United States is not bound by state statutes of limitation insofar as claims acquired and asserted in a governmental capacity are concerned, the district court rejected a statute of limitations defense and granted judgment to the United States for the unpaid balance of the original judgment plus interest.

The claim on which the original judgment was based rested on an undertaking given by Mr. Holland in connection with a federal loan guaranty program administered by the Small Business Administration. On the facts presented, we conclude that the United States was acting in its governmental or sovereign capacity in acquiring the claim, reducing it to judgment, and later bringing suit on the judgment. We agree with the district court that the government's lawsuit was not time-barred, and we shall affirm the judgment appealed from.

I

Under a loan guaranty program designed to promote the training and hiring of members of racial minorities, as we are told in defendant Holland's brief, a minority-owned company called Peoples Household Furnishing, Inc., borrowed $350,000 from the Bank of the Commonwealth in 1970. The Small Business Administration--a government agency established by § 204 of the Small Business Act of 1953, 67 Stat. 233 (codified in 1958 at 15 U.S.C. § 633)--guaranteed 90 percent of the loan. The loan was also guaranteed by Mr. Holland. ¹

The loan was memorialized in a promissory note that apparently was subject to the terms of a financing agreement entered into between Peoples and the bank. The financing agreement, we are told, recited that it was governed by the laws of the State of Michigan. (The pertinent documents were not included in the record of the present case, and motions to expand the record were denied by the district court and by a panel of this court.)

The note went into default, and in 1971, pursuant to prior agreement, the bank assigned the note to the SBA. Accelerating the maturity of the note, SBA made demand upon Peoples and Mr. Holland for payment in full. The demand was not honored, so the assets of the corporation were liquidated at a public sale and credited against the balance due.

In December of 1973 the government brought a federal court suit against Peoples and Mr. Holland for the deficiency. Peoples received a discharge in bankruptcy before the case went to judgment, but in February of 1978 the district court entered judgment against Mr. Holland on his guaranty. The judgment, which included accrued interest, was for $435,486.99 plus costs of $125.26 and interest of six percent per annum from January 18, 1978. This court affirmed the judgment on appeal. (See the citation in n.1, supra.)

The government represents that entry of the judgment was followed by years of unsuccessful collection efforts. Mr. Holland represents that the government simply sat on its judgment, allowing interest to accrue. Whatever the facts may be in this regard, both sides agree that the judgment eventually became dormant. ²

In April of 1993 the government filed a complaint in federal district court alleging that there was an unpaid balance of $884,174.38 on the 1978 judgment. The complaint prayed for judgment in that amount, plus interest and a 10 percent surcharge under 28 U.S.C. § 3011. Mr. Holland moved for dismissal under Mich.Comp.Laws § 600.5809(3), which provides in pertinent part that "the period of limitations is 10 years for actions founded upon judgments or decrees rendered in a court of record of this state, or in a court of record of the United States ... from the time of the rendition of the judgment."

In July of 1993 the district court denied the motion to dismiss and granted summary judgment to the government. ³ Mr. Holland moved for reconsideration, asserting a defense of laches in addition to his statute of limitations defense. The district court denied the motion for reconsideration, and this appeal followed.

II

The ancient rule quod nullum tempus occurit regi--"that the sovereign is exempt from the consequences of its laches, and from the operation of statutes of limitations"--has enjoyed continuing vitality for centuries. Guaranty Trust Co. of New York v. United States, 304 U.S. 126, 132, 58 S.Ct. 785, 788, 82 L.Ed. 1224 (1938). Citing Blackstone, Mr. Justice Story noted nearly 175 years ago that the reason for the rule was sometimes asserted to be that "the king is always busied for the public good, and, therefore, has not leisure to assert his right within the time limited to subjects." United States v. Hoar, 26 F.Cas. 329, 330 (Cir.Crt.D.Mass.1821). This rather quaint rationale did not strike Story as persuasive: "The true reason," he said, ".... is to be found in the great public policy of preserving the public rights, revenues, and property from injury and loss, by the negligence of public officers." Id. Accord, United States v. Weintraub, 613 F.2d 612, 618 (6th Cir.1979), cert. denied, 447 U.S. 905, 100 S.Ct. 2987, 64 L.Ed.2d 854 (1980). See also United States v. Kirkpatrick, 22 U.S. (9 Wheat.) 720, 735, 6 L.Ed. 199 (1824) (Story, J.) ("The government can transact its business only through its agents; and its fiscal operations are so various, and its agencies so numerous and scattered, that the utmost vigilance would not save the public from the most serious losses, if the doctrine of laches can be applied to its transactions").

In Custer v. McCutcheon, 283 U.S. 514, 51 S.Ct. 530, 75 L.Ed. 1239 (1931), the Supreme Court held that where a state statute authorized the issuance of writs of execution within five years after the entry of judgment, the United States could not levy execution in that state on a judgment entered in favor of the United States more than five years before the levy. But noting that "[t]he time limited for issuing executions is, strictly speaking, not a statute of limitations," the Court was at pains to point out that the government "is not precluded from bringing an action upon the judgment...." Id. at 519, 51 S.Ct. at 532.

United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940), on which the district court relied in the case at bar, did not involve an action upon a judgment. In other respects, however, the facts of that case were similar to those in the case at bar. The defendant in Summerlin was the administratrix of the estate of one J.F. Andrew. Mr. Andrew had executed a promissory note under the National Housing Act, 48 Stat. 1246, and following a default the note had been assigned to the Federal Housing Administrator. After Mr. Andrew's death the administratrix gave notice by publication that creditors of the estate had eight months, as provided by state statute, to file proof of their claims. The FHA filed its claim 11 months later, and the state supreme court--treating the statute as "a statute of non claims" rather than a statute of limitations--held the claim void. United States v. Summerlin, 140 Fla. 475, 477, 191 So. 842, 843 (1939). The Supreme Court of the United States reversed this judgment.

Chief Justice Hughes, speaking for a unanimous court in Summerlin, declared it to be "well settled that the United States is not bound by state statutes of limitation or subject to the defense of laches in enforcing its rights." 310 U.S. at 416, 60 S.Ct. at 1020. Insofar as the state statute purported to invalidate the claim of the United States, the statute "transgressed the limits of state power." Id. at 417, 60 S.Ct. at 1021. This was so because, in the words of the Court,

"When the United States becomes entitled to a claim, acting in its governmental capacity and asserts its claim in that right, it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement." Id.

And because the claim had been acquired by the FHA on behalf of the United States through operations under the National Housing Act, the Court implicitly held, the United States was asserting the claim "in its governmental capacity."

The Supreme Court distinguished Summerlin, but did not question its continued validity, in United States v. California, 507 U.S. 746, 113 S.Ct. 1784, 123 L.Ed.2d 528 (1993). There the United States had retained a private contractor to manage oil drilling operations on government land. The contractor was to be compensated through reimbursement of its costs plus a fixed fee. The State of California assessed sales and use taxes against the contractor on property purchased by it, and the taxes were paid under protest with funds advanced by the federal government. After the state statute of limitations on tax refund suits had run, the United States filed a...