United States v. Tilleraas

• Decision Date: 27 March 1981
• Docket Number: No. C80-911.,C80-911.
• Citation: 538 F. Supp. 1
• Parties: UNITED STATES of America, Plaintiff, v. Elizabeth A. TILLERAAS, Defendant.
• Court: U.S. District Court — Northern District of Ohio

538 F. Supp. 1

UNITED STATES of America, Plaintiff, v. Elizabeth A. TILLERAAS, Defendant.

No. C80-911.

United States District Court, N. D. Ohio.

March 27, 1981.

Solomon Oliver, Asst. U. S. Atty., Cleveland, Ohio, for plaintiff.

John Duda, Cleveland, Ohio, for defendant.

MEMORANDUM AND ORDER

WILLIAM K. THOMAS, District Judge.

The United States brings this action under 28 U.S.C. § 1345¹ to recover the principal plus interest on a defaulted student loan insured by the government under the auspices of the Federally Insured Student Loan Program (FISLP) of the Higher Education Act of 1965 (the Act), 20 U.S.C. § 1071 et seq. Defendant has moved for summary judgment on the ground that there is no genuine issue of material fact, and as a matter of law the government's action is barred by the six-year statute of limitations set forth in 28 U.S.C. § 2415(a).

I.

The complaint alleges that the defendant executed three promissory notes, the last on October 5, 1970, in order to obtain an educational loan from the Dakota National Bank (DNB), which loan was repayable in installments. It is further alleged that the loan was insured by the government under the Act. It is alleged that the defendant defaulted on the loan when the indebtedness became due and that pursuant to 45 C.F.R. § 177.48, the government paid the DNB's insurance claim and was assigned title to the note. It is finally alleged that the government made a demand for payment in full and that "Defendant is indebted to Plaintiff, holder of said note, in the principal amount of $3,392.06,² plus interest at 7% per annum...." This action was commenced on June 14, 1980.

Both parties agree that the six-year limitations period of 28 U.S.C. § 2415(a)³ controls the timeliness of the government's action. Indeed it does. Federal law, not state law, governs the rights and liabilities of the government and the defendant under the Act. As stated in United States v. Scholnick, 606 F.2d 160, at 164 (6th Cir. 1979):

In any consideration of remedies available upon default of a federally held or insured loan, federal interest predominates over state interest. Citations omitted. This rule obtains because of an overriding federal interest in protecting the funds of the United States and in securing federal investments, thereby promoting the purposes of the National Housing Act or, here, the FISLP.

The date of defendant's initial default is calculated as follows. The note executed by defendant provides for repayment in "periodic installments."⁴ Even if, as defendant asserts, "no repayment schedule was ever set up in the present case," as a matter of law, this court applies the most lenient guidelines under the Act and federal regulations to defendant's note.

Under 45 C.F.R. § 177.507(b) and (d), defendant was entitled to take up to ten years to repay the loan from the start of the repayment period at minimum yearly installments of $360.00 per year. Under 20 U.S.C. § 1077(a)(2)(B), repayment must commence within a nine to twelve month "grace period" after a student ceases to carry one-half of a full-time academic workload. See 45 C.F.R. § 177.507. Defendant's note contains a twelve-month "grace period." In her affidavit, defendant states that she ceased to be enrolled in any educational institution on or about January 28, 1971. Thus, defendant's first installment payment was due on or about January 28, 1972. However, under 20 U.S.C. § 1080(e)(2)(B),

the term "default" includes only such defaults as have existed for ... (B) one hundred and eighty days in the case of a loan which is repayable in less frequent than monthly installments.

By this court's construction, defendant's note was repayable in yearly installments. Thus, at least as to the first installment, the defendant was in "default" under the Act one hundred and eighty days after January 28, 1972, or on or about July 27, 1972. The court must decide whether this date of "default" marks the accrual of the government's present cause of action.

II.

Defendant contends that the government's action accrued on the date she first defaulted on the loan, July 27, 1972. If so, the government's present action on the note was barred under 28 U.S.C. § 2415(a) after July 27, 1978.

The government, on the other hand, advances a two-fold argument. Although acknowledging that the defendant first defaulted on her loan in late July 1972, the government contends that the limitations period was tolled under 28 U.S.C. § 2416(c) "by reason of the defendant's failure to notify the creditor the DNB of her change of address thereby preventing the plaintiff from commencing action." In addition, the government asserts that its cause of action accrued, not upon defendant's default, but rather "on or about July 30, 1974" when "the Office of Education paid the insurance claim filed by the lender under the insurance provisions of the Act."⁵ If its right of action did not accrue until July 30, 1974, the government's action is timely under 28 U.S.C. § 2415(a).

A.

The tolling provision of 28 U.S.C. § 2416(c) provides:

For purposes of computing the limitations periods established in section 2415, there shall be excluded all periods during which—

* * * * * *

(c) facts material to the right of action are not known and reasonably could not be known by an official of the United States charged with the responsibility to act in the circumstances.

It is asserted that defendant did not inform her lender, the DNB, or the government, which became a holder of the note on July 30, 1974, of a change in her address when she married and moved to Cleveland, Ohio. As a result, the government claims that it was unable "to obtain a current address for defendant until May 10, 1979, as indicated on Government Exhibit C...." It is argued that under section 2416(c) the government is entitled to exclude from the running of the statute of limitations "that period of time from July 30, 1974 to May 10, 1979 during which the defendant's exact whereabouts were unknown" because "the defendant effectively prevented the plaintiff from pursuing the matter...."

Section 2416(c) tolls the six-year statute of limitations on a contract claim brought by the government where the person sued, fraudulently conceals from the government a fact "material to the right of action." The legislative history of section 2416(c) makes this point clear.

The committee understands that the principal application of this exclusion will probably be in connection with fraud situations. An example would be where the affirmative act of the wrongdoer has served to conceal the fraudulent act. This type of exclusion is to be found in the law of many states in both fraud and tort limitations. The material facts that are not known must go to the very essence of the right of action.

1966 U.S.Code Cong. and Admin.News pp. 2502, 2507-08. (Emphasis added.)

It is, however, unnecessary to determine in this case whether the tolling provision in section 2416(c) is limited to cases of fraudulent concealment. This court agrees with defendant that knowledge of the whereabouts of a student debtor under the Act is not a "fact material to the right of action" under section 2416(c).

The essence of the government's right of action, as framed in the complaint, is the contractual obligation expressed by the terms of the note and the defendant's alleged breach of that obligation to repay. The government certainly had knowledge of that breach no later than when it paid the insurance claim of the DNB. The government could have commenced its action at that time by suing the defendant at her last known place of residence. Under Fed.R.Civ.P. 4, an action is commenced by the filing of a complaint, even if service for some reason cannot be completed until a later date. See United States v. Wahl, 583 F.2d 285 (6th Cir. 1978). The knowledge of defendant's "exact whereabouts" is not material to the government's cause of action. Therefore, the government's ignorance of her whereabouts did not toll its action under section 2416(c).

B.

The court will now consider whether the government's right of action accrued, (1) when defendant first defaulted on the note on July 27, 1972, or (2) on July 30, 1974, when the government asserts the right of action arose upon its payment of DNB's insurance claim under 28 U.S.C. § 1080(a).

Defendant cites United States v. Dold, 462 F.Supp. 801 (S.D.S.D.1978) and United States v. Cardinal, 452 F.Supp. 542 (D.Vt. 1978), both actions where the limitations period under section 2415(a) was at issue. Dold was an action on a defaulted student loan under the FISLP. Although the court held that the government's action was not barred by section 2415(a), it was determined, without discussion or citation of authority, that the limitations period "began to run when the defendant defaulted on her loan." Id. at 805.

In Cardinal, the government sought to recover on a defaulted home improvement loan insured by the Federal Housing Administration. The court rejected both the government's contention that its cause of action accrued when it paid the lender's insurance claim and defendant's argument that the action accrued when she first defaulted on the loan. Instead, the court held that the government's action accrued on the date its assignor, the original lender, invoked the note's acceleration clause and demanded payment of the unpaid balance due. 452 F.Supp. at 547-48.

Contrary to defendant's contention, it is concluded that the entire unpaid balance of the note did not become due and owing when she first defaulted under the Act on July 27, 1972. The note executed by defendant provides for repayment in "periodic installments." It also contains an optional acceleration clause which any holder can exercise upon default. Where a note provides for repayment in installments, "each installment is a distinct cause of action and the statute of limitations begins to run against each installment from the time it matures or...