U.S. v. Rezzonico, Civ. 97-479-PCT-EHC.

• Citation: 32 F.Supp.2d 1112
• Decision Date: 06 July 1998
• Docket Number: No. Civ. 97-479-PCT-EHC.,Civ. 97-479-PCT-EHC.
• Parties: UNITED STATES of America, Plaintiff, v. louis E. REZZONICO and Phyllis I. Rezzonico, husband and wife, Defendants.
• Court: U.S. District Court — District of Arizona

Page 1112

32 F.Supp.2d 1112

UNITED STATES of America, Plaintiff, v. louis E. REZZONICO and Phyllis I. Rezzonico, husband and wife, Defendants.

No. Civ. 97-479-PCT-EHC.

United States District Court, D. Arizona.

July 6, 1998.

Harriet M. Bernick, Phoenix, AZ, Gerald S. Frank, United States Attorney, Tucson, AZ, for U.S.

John J. Dempsey, Aspey Watkins & Diesel PLLC, Flagstaff, AZ, for Defendants.

ORDER

CARROLL, District Judge.

Before the Court is a motion for reconsideration filed by the United States, acting on behalf of the Farmer's Home Administration ("FmHA"), pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. The United States asks the Court to set aside the December 30, 1997 judgment in this case based upon what it contends is legal error in the Court's December 24, 1997 order granting summary judgment for Defendants. For the reasons set forth herein, the Court will grant the motion for reconsideration and vacate its previous order.

I. Background

This is an action for deficiency judgment brought by the United States to recover the unpaid indebtedness on two promissory notes. After Defendants became delinquent in repaying their FmHA loans, the United States accelerated the debt and sold the property which secured the loans at a trustee sale.¹ The sale brought in $600,000, leaving $774,401.50 in unpaid principal and an additional $161,363.22 in interest due on the loans.²

On March 6, 1997, the United States, on behalf of FmHA, filed this deficiency action to recover the remaining unpaid debt. Defendants moved for summary judgment, arguing that the United States' action was barred by Ariz.Rev.Stat. § 33-814, Arizona's anti-deficiency statute, because the action was not brought within ninety days of the date of the trustee sale. The United States argued that the anti-deficiency statute did not apply to its deficiency action.

On the parties' cross-motions for summary judgment, the Court found that the anti-deficiency statute barred as untimely this action. The Court rejected each of the United States' reasons why the statute should not be applied against the Government and held that, by operation of Ariz.Stat.Rev. § 33-814(D), the United States had no right to recover the deficiency.³ Judgment was subsequently entered by the Clerk of Court on December 30, 1997.

The United States challenges the Court's dismissal of its action. It has filed both a motion for reconsideration and a notice of appeal.⁴ In its motion for reconsideration, the United States has put forth several arguments for granting it relief from judgment, the basic thrust of which is that the Court committed errors of law in applying the Arizona anti-deficiency law in this case.

The United States' motion to set aside judgment has been briefed and oral argument on the motion was held on June 15, 1998. After reconsidering the matter, the Court agrees with the Government that judgment for Defendants was erroneous.

II. Discussion

The Court is asked in this case to reconsider the effect of the Arizona anti-deficiency statute on an action brought to recover a deficiency following non-judicial foreclosure of two FmHA economic emergency loans. The Court's task is complicated by the absence of any guiding precedent from the Ninth Circuit addressing the impact of an anti-deficiency statute on "untimely" deficiency actions brought to recoup the outstanding balances of FmHA loans after a deed of trust sale.⁵

Arizona's anti-deficiency statute reads as follows:

If no action is maintained for a deficiency judgment within [ninety days of the trustee sale], the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist.

Ariz.Rev.Stat. § 33-814(D).

The Arizona anti-deficiency statute has been interpreted by the Arizona Court of Appeals and this District Court to be a statute of repose. Valley National Bank of Arizona v. Kohlhase, 182 Ariz. 436, 897 P.2d 738 (Ct.App.1995); Resolution Trust Corp. v. Olson, 768 F.Supp. 283 (D.Ariz.1991). Statutes of repose limit the time in which a cause of action may be brought. As contrasted with statutes of limitations, which extinguish the right to proceed with an accrued cause of action, statutes of repose extinguish the actual action. In other words, once a statute of repose has expired, a valid cause of action no longer exists. Unlike statutes of limitations, statutes of repose are ordinarily binding on the federal government. Olson, 768 F.Supp. at 285 (citing United States v. Hartford Accident and Indemnity Co., 460 F.2d 17 (9th Cir.1972), cert. denied, 409 U.S. 979, 93 S.Ct. 308, 34 L.Ed.2d 243 (1972)).

In Olson, this Court found that Arizona's anti-deficiency statute barred a deficiency action filed by the Resolution Trust Co. ("RTC") nearly six months after the trustee sale. The Court's previous order relied on the Olson decision. Having reconsidered its previous reasoning, the Court finds that Olson does not control the outcome of this case.

Two crucial factors distinguish Olson from the present case. First, the loan in Olson was a private loan. RTC brought the deficiency action as the conservator for the Sun State Savings and Loan Association. The loan in this case is a federal home loan authorized by the FmHA. Second, RTC is not a federal agency akin to the Department of Agriculture or the Veteran's Administration. Beyond determining Ariz.Rev.Stat. § 33-814(D) to be a statute of repose, the Olson decision offers little guidance in resolving the present dispute.

The present case is more analogous to the Ninth Circuit line of cases addressing deficiency actions for VA-guaranteed home loans. Each of these cases concerns the effect of a state anti-deficiency statute on the Government's right to collect on a deficiency judgment following non-judicial foreclosure of a federal loan.

The first of these cases is Whitehead v. Derwinski, 904 F.2d 1362 (9th Cir.1990), overruled by 987 F.2d 611 (1993). In Whitehead, the Court considered whether the Washington anti-deficiency statute, Wash. Rev.Code Ann. §§ 61.24.040, 61.24.100, barred the VA from bringing a deficiency action following nonjudicial foreclosure. Creditors in Washington can either pursue judicial foreclosure and obtain a deficiency judgment against the debtor for the remaining balance due on the loan, or seek nonjudicial foreclosure and forego collection of the deficiency. Washington's anti-deficiency statute bars the recovery of a deficiency action following non-judicial foreclosure; the proceeds of the foreclosure sale are deemed to satisfy the debtor's obligation in full. Wash.Rev.Code Ann. § 61.24.100.

The Whitehead court held that the Washington statute was consistent with the federal statutory and regulatory scheme, because the Government could have elected to bring a judicial foreclosure proceeding and thereby adequately protect its interests with respect to the deficiency. Whitehead, 904 F.2d at 1368-69. Because the Washington anti-deficiency law did not jeopardize federal interests, it was not preempted by federal law.⁶

The next case to be decided by the Ninth Circuit was Connelly v. Derwinski, supra. In Connelly, the court held that the Oregon anti-deficiency statute, which prohibited a deficiency judgment following both judicial or non-judicial foreclosure, was preempted by federal law. See Or.Rev.Stat. § 86.770(2). The material difference between the Oregon and Washington statutes was that Oregon law denied the Secretary of Veterans Affairs any recourse whatsoever against the defaulting veteran beyond foreclosure. Regardless whether the Secretary foreclosed judicially or non-judicially, Oregon law would not allow the Secretary to pursue a deficiency judgment.

The Ninth Circuit held that Oregon's anti-deficiency statute conflicted with the federal regulation's protection of the VA's right to proceed personally against the debtor. The court therefore concluded that federal law preempted application of the Oregon anti-deficiency statute. Connelly, 961 F.2d at 132.

Arizona's anti-deficiency statute next came under scrutiny by the Ninth Circuit. In Shepherd v. Derwinski, 961 F.2d 132 (9th Cir.1992), the Ninth Circuit affirmed the district court's ruling that Ariz.Rev.Stat. § 33-814, identical to the Oregon statute considered in Connelly, was preempted by the federal regulatory scheme, 38 C.F.R. § 36.4323(e), because the Arizona statute eliminated all possibility of recovery against the veteran.

The Ninth Circuit then revisited the issue one final time in Carter v. Derwinski, 987 F.2d 611 (9th Cir.1993). The Idaho anti-deficiency law considered in Carter barred claims for deficiency judgment unless a fair market value determination was sought within three months of foreclosure. Carter was filed more than ninety days following nonjudicial foreclosure and without a fair market determination having been sought. Regardless whether the VA sought to foreclose judicially or non-judicially, the Government's rights were seemingly protected under Idaho law so long as the fair value determination was sought in a timely manner.

The Ninth Circuit did not follow its earlier holding in Whitehead. Instead, the court overruled Whitehead, noting that the Whitehead standard forced federal agencies to choose between judicial foreclosure and complying with whatever additional procedural obligations the state may decide to impose on nonjudicial foreclosures. The court rejected this proposition outright:

[T]he imposition of such an artificially forced choice is inconsistent with federal law, which gives the VA the right to avail itself of both remedies.

Carter, 987 F.2d at 616.

Carter further noted that two other circuits had already rejected the reasoning in Whitehead. In Vail v. Derwinski, 946 F.2d 589 (8th Cir.1991), the Eighth Circuit held that:

... we cannot agree with the Whitehead premise that when the state provides dual...