United States v. Nixon, Civ. A. No. 4-72130.

• Decision Date: 18 June 1975
• Docket Number: Civ. A. No. 4-72130.
• Citation: 395 F. Supp. 395
• Parties: UNITED STATES of America, Plaintiff, v. Floyd S. NIXON, Jr., et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

395 F. Supp. 395

UNITED STATES of America, Plaintiff, v. Floyd S. NIXON, Jr., et al., Defendants.

Civ. A. No. 4-72130.

United States District Court, E. D. Michigan, S. D.

June 18, 1975.

Samuel J. Behringer, Jr., Asst. U. S. Atty., Detroit, Mich., for plaintiff.

Patrick J. Keating, Detroit, Mich., for defendants Nixons.

OPINION

RALPH M. FREEMAN, District Judge.

This matter is before the court on the motion of the defendants Floyd S. Nixon, Jr., and Marjorie J. Nixon to exempt the separate estate of Marjorie J. Nixon from liability in plaintiff's summary judgment. The plaintiff, United States, has previously brought a motion for summary judgment against the Nixons as guarantors on a promissory note. The Nixons have no objection to the granting of this motion but contend that the judgment should provide that it may only be satisfied out of the separate estate of Floyd S. Nixon or out of the property held jointly by Floyd and Marjorie Nixon. They contend that under Michigan law the separate estate of Marjorie Nixon is not liable for this joint obligation.

On June 14, 1973, the Fidelity Bank of Michigan executed a $385,000 loan to The Haycon Corporation. The Haycon Corporation executed a promissory note in this amount. Defendants Robert M. Bonus, Ruth W. Bonus, Floyd S. Nixon and Marjorie J. Nixon were guarantors of this loan. On January 11, 1974, The Haycon Corporation defaulted on its payments. The promissory note and guarantees were then assigned by the bank to the Small Business Administration (SBA), an agency of the United States, pursuant to an SBA guaranty agreement. The United States now seeks to recover the amount owing on the promissory note from the guarantors. A consent judgment has already been entered against the Bonuses. As indicated above, the only question presented is whether a judgment against the Nixons may be satisfied out of the separate estate of Marjorie Nixon.

The government apparently agrees that under Michigan law the sole and separate estate of a married woman is not liable for obligations incurred jointly by the husband and wife unless separate consideration has run to the wife's estate. See M.S.A. §§ 26.181-26.184 (M.C.L.A. §§ 557.51-557.54) The Married Women's Property Act and City Finance Co. v. Kloostra, 47 Mich. App. 276, 209 N.W.2d 498 (1973). However, the government contends that under a 6th Circuit case and a 1966 SBA regulation, this law is not applicable to the case at bar since this is a contract action involving the federal government. It also points out that it would be incorrect to characterize the loan transaction as one occurring entirely under the laws of Michigan because the executed guaranty document is entitled "Small Business Administration Guaranty" and bears the designation "SBA Loan No. GP 549313 10 00 DET." At the hearing on this motion the government also provided the court with a copy of a Personal Financial Statement which was signed by Mrs. Nixon and was submitted to the SBA for the purpose of inducing the SBA to grant the loan to The Haycon Corporation. Thus, argues the government, Marjorie Nixon cannot allege that she was without knowledge of the participation of the SBA.

A ruling on the issue before the court involves the consideration of (1) Sixth Circuit law; (2) the Supreme Court case of United States v. Yazell, 382 U.S. 341, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966); and (3) an SBA regulation found at 13 CFR 101.1(d)(1)-(4). For purposes of clarity, these will be discussed separately before an attempt is made to determine the proper conclusion to be drawn.

SIXTH CIRCUIT LAW

Three Sixth Circuit cases bear discussion: Fetter v. United States, 269 F.2d 467 (6th Cir. 1959); United States v. Helz, 314 F.2d 301 (6th Cir. 1963); and Harris v. Manufacturers National Bank of Detroit, 457 F.2d 631 (6th Cir. 1972) cert. denied 409 U.S. 885, 93 S.Ct. 118, 34 L.Ed.2d 142. The government relies on the Helz case while the defendants contend that the Fetter and Harris cases indicate present Sixth Circuit thinking on this subject.

The first of the three cases decided was Fetter v. United States, supra. In this case the United States was the owner, by assignment, of notes executed by Albert and Mary Louise Fetter as husband and wife. The notes were Title I, Federal Housing Administration notes. Prior to the filing of suit on the notes, Albert Fetter was discharged in bankruptcy. He pled this discharge as a defense and the wife contended that her separate property was not liable because of the Married Women's Property Act. The district court had granted judgment to the United States, which judgment could only be satisfied out of property owned by the Fetters as tenants by the entireties. The Fetters appealed.

The issue before the court was whether Albert Fetter's discharge in bankruptcy precluded an adjudication of liability against him. Under Michigan law, the discharge did not preclude the subsequent rendition of a joint judgment against husband and wife which could be satisfied out of property held by them as tenants by the entireties. The Sixth Circuit held that it would have been bound by this Michigan law if jurisdiction were founded on diversity, but that it was not so bound because jurisdiction existed by virtue of the fact that the United States was the plaintiff (28 U.S.C. § 1345). It concluded that, by the terms of the Bankruptcy Act, Albert Fetter's several and joint obligations had been discharged and that no judgment could be entered against him or his wife. The following statements demonstrate the court's reasoning which led to this result:

The obligations sued on in this action are each a joint and several promise to pay on the part of the husband and wife. Under disability of coverture, the wife may validly create a joint liability with her husband that will subject their joint property to creditors' remedies for such joint obligations. Section 26.181-26.184, Michigan Statutes Annotated, supra. It is, therefore, apparent that the husband had a joint and several liability on the notes, but that the wife was capable only of having incurred a joint liability. If the husband's joint and several liability has been discharged by his proceeding in bankruptcy, that discharge prevents judgment not only against the husband but against the wife. Such is the reasoning in the case of Phillips v. Krakower, 4 Cir., 46 F.2d 764, 765, where it is said, "(A)lthough the bankruptcy proceeding has brought no interest in the estate by entireties into court for the benefit of the creditors of Phillips, his discharge in bankruptcy will remove that entire property beyond the reach of creditors entitled to subject it to their claims." See also Lockwood v. Exchange Bank, 190 U.S. 294, 23 S.Ct. 751, 47 L.Ed. 1061, referred to in the Phillips case, holding that in federal court the bankruptcy statute controls, although admittedly an entirely different result would be reached under state law.

(269 F.2d at 471) (Emphasis added)

Thus, although the court recognized that it was not bound by Michigan law, it nevertheless referred to Michigan law in explaining why no judgment against the wife was permissible. The defendants rely on this language as indicating that the Sixth Circuit applied the Michigan Married Women's Property Act as federal law. However, it is not at all clear that the issue of the wife's separate liability was before the court or that the court intended to adopt Michigan law as the defendants suggest.

Some light is shed on this question by reference to the court's decision, four years later, in United States v. Helz, supra. In Helz, Mary Helz and her husband executed two notes to a bank to secure a loan. Prior to the making of the loan, the Helz's had executed credit applications on Federal Housing Administration forms which stated that "this application is submitted to obtain credit under the terms of Title I of the National Housing Act." The notes were defaulted and assigned to the United States (FHA).

Prior to suit being brought against Mary Helz on the note, her husband was discharged in bankruptcy. Relying on the Fetter case, the defendant moved to dismiss the case and the district court so ordered. The Sixth Circuit reversed. With regard to the Fetter case, the following statements are pertinent:

The Government concedes that under Michigan law, which was involved in the Fetter case, no judgment on the notes could be entered against appellee, a married woman. The Fetter case settles this case should it be that Michigan law applies, but the Government presents in this case a question that was not raised or decided in the Fetter case.

The basic contention of the Government is that the relief sought should be governed by federal law and that the federal law should be determined by the Court, under the circumstances here presented, as requiring a judgment to be entered against appellee.

(314 F.2d at 302) (Emphasis added)

The Court agreed. As this was not a diversity case, the court was not bound by state law. Absent an applicable federal statute, the court could fashion a rule. In so doing, the court could adopt the state law or fashion the governing rule by its own standards. "In cases affecting government money and the credit of the government, the authorities set up the principle that federal law should apply." (314 F.2d at 303) The court thus concluded that Michigan law did not apply "and that in fashioning such federal law we rule that the old common law defense of coverture to an action on a note executed by a married woman under the National Housing Act, is not a valid defense." (314 F.2d at 303).

Thus, in Helz, the 6th Circuit specifically rejected the proposition that the Michigan law at issue here be applied as federal law in a suit such as the one at bar. However, the defendants contend that Helz deviated from the principles applied in Fetter and further argue that the court returned to these principles in the 1972 case of Harris v....