US on Behalf of Small Business Admin. v. LaFrance, Civ. A. 86-553-CMW.

• Decision Date: 18 January 1990
• Docket Number: Civ. A. 86-553-CMW.
• Citation: 728 F. Supp. 1116
• Court: U.S. District Court — District of Delaware
• Parties: UNITED STATES of America, on Behalf of its Agency, The SMALL BUSINESS ADMINISTRATION, Plaintiff, v. Christine A. LaFRANCE, Defendant.

728 F. Supp. 1116

UNITED STATES of America, on Behalf of its Agency, The SMALL BUSINESS ADMINISTRATION, Plaintiff, v. Christine A. LaFRANCE, Defendant.

Civ. A. 86-553-CMW.

United States District Court, D. Delaware.

January 18, 1990.

William C. Carpenter, Jr., U.S. Atty., and Carolyn T. Greene, Asst. U.S. Atty., Wilmington, Del., for plaintiff.

John M. Bloxom, IV, of Bayard, Handelman & Murdoch, Wilmington, Del., for defendant.

OPINION

CALEB M. WRIGHT, Senior District Judge.

Plaintiff United States of America, on behalf of its agency, the Small Business Administration ("SBA"), brought suit in this Court on November 24, 1986, against Defendant Christine A. LaFrance. The United States sought a judgment in the amount of $37,209.10 plus interest, costs, and fees, for recovery of the unpaid balance of an SBA loan in default.

On April 28, 1989 both plaintiff United States and defendant LaFrance filed motions for summary judgment. Accordingly, the parties' cross motions for summary judgment are before the Court.

This Court has jurisdiction pursuant to 28 U.S.C. § 1345.

For the reasons which will be stated herein, the Court grants the defendant's motion for summary judgment in part and denies the defendant's motion in part, and grants the plaintiff's motion for summary judgment in part and denies the plaintiff's motion in part.

I. FACTS

Defendant LaFrance, jointly with her former husband, Joseph V. LaFrance, received a loan in the amount of $36,000 on about July 23, 1975, from the SBA through an assistance program for distressed mushroom farmers.¹ Defendant and her former husband executed and delivered a promissory note (the "note") to the SBA at about the same time. The note was secured by a perfected security interest in certain personal property of Joseph and Christine LaFrance and a subordination agreement executed by Southeast National Bank of Pennsylvania.² The terms of the note required monthly payments of interest for the period of July 23, 1975, through December 23, 1975, and thereafter, monthly installments of principal and interest.

The loan was paid through July of 1979. At some time after July 23, 1979, Joseph V. LaFrance abandoned his mushroom business and with it all of the personal property as security for the note. The United States took no action at this time by foreclosure, lien, or otherwise. Defendant and Joseph V. LaFrance were divorced by final decree of the Family Court of the State of Delaware on July 28, 1979.

On April 21, 1980, the United States changed the address for mailing correspondence regarding the loan. Apparently, future correspondence would be directed from defendant's former marital address at "Beechwood Drive, R.D. # 2, Kennett Square, Pennsylvania 19348", to defendant's then and now current residence at "4949 Mermaid Boulevard, Wilmington, Delaware 19808." On May 20, 1980, the United States advised Joseph V. LaFrance, by letter mailed to "Newark Road and Church Street, Toughkenamon, Pennsylvania 19374", that it was not receiving payments on the loan, and that Mr. LaFrance should immediately contact the SBA about this matter. The United States did not make any separate communication to defendant at this time.³

Acting under the subordination agreement, the Southeast National Bank informed the United States on about October 6, 1982, that a distribution from the Residual Marital Trust of James LaFrance was expected within one month to a year, and inquired as to whether the United States desired any of the proceeds. Communications between the SBA and the trustee/executor did not lead to any satisfactory solution.

Because the loan was then in default, the SBA accelerated the obligation and declared the full amount of the loan due as provided by the terms of the note. The SBA made this demand for payment by certified letter dated September 23, 1983; this letter was mailed to "Joseph & Christine LaFrance" at the Toughkenamon, Pennsylvania address. Defendant, however, was not informed of the substance of this letter until after the filing of the present suit. Defendant's first direct notice of the default of the loan and the SBA's corresponding demand of the full amount due came by letter to her Wilmington address from the United States Attorney for the District of Delaware, dated October 14, 1986.

The United States commenced this action on November 24, 1986.⁴

II. STANDARD OF REVIEW

Summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." F.R.C.P. 56(c) ("Rule 56"). A court reviewing a summary judgment motion "must view all facts, and any reasonable inference from those facts, in the light most favorable to the party opposing summary judgment." Wilmington Housing Authority v. Pan Builders, Inc., 665 F.Supp. 351, 353 (D.Del. 1987) (citing Adickes v. Kress Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970)). The movant bears the burden of demonstrating the absence of any genuine issues of material fact by the record properly before the court, regardless of which party would have the burden of persuasion at trial. Chipollini v. Spencer Gifts, Inc., 814 F.2d 893, 896 (3d Cir.) (en banc), cert. dismissed, 483 U.S. 1052, 108 S.Ct. 26, 97 L.Ed.2d 815 (1987). See also 1 Moore's Federal Practice 1989 Rules Pamphlet (Federal Judiciary Edition) § 56.313.

III. DISCUSSION

Initially, the Court notes that the defendant admits that the loan is in default. Defendant's Answering Brief In Opposition to Plaintiff's Motion For Summary Judgment ("D.A.B.") at 3. Defendant asserts, however, that the genuine issue of material fact in dispute in this case relates to "the amount which, subject to the defenses set forth in Defendant's Answer, remains outstanding on the indebtedness underlying Plaintiff's cause of action." Id. Defendant, in support of her own motion for summary judgment, raises various affirmative defenses which she contends reduce or completely bar the United States' claim. For convenience, the Court first will address defendant's affirmative defenses.

A. Statute of Limitations

Defendant argues that the United States' claim is barred by the applicable statute of limitations. Opening Brief In Support Of Motion For Summary Judgment In Favor Of Defendant Christine A. LaFrance And Against Plaintiff, United States Of America ("D.O.B.") at 8-11. This defense is actually two-pronged in that defendant first maintains that the statute of limitations precludes recovery of amounts (installments) required to have been paid before November 24, 1980. D.O.B. at 8-9. Defendant further submits that the statute of limitations forestalls an action for the entire debt because the United States accelerated the balance of the loan prior to November 24, 1980. D.O.B. at 9-11. As discussed more fully below, the Court concludes that the United States may not recover for installments required to have been paid before November 24, 1980, but defendant is liable for all unpaid installments and interest due thereafter.

1. Applicable Law

Both parties assert, and the Court agrees, that the governing statute of limitations is set forth in 28 U.S.C. § 2415(a). See United States v. Kurtz, 525 F.Supp. 734, 740 (E.D.Pa.), aff'd, 688 F.2d 827 (3d Cir.1981), cert. denied, 459 U.S. 991, 103 S.Ct. 347, 74 L.Ed.2d 387 (1982). Section 2415(a) provides in pertinent part:

Every action for money damages brought by the United States or an officer 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 cause of action accrues....

It is necessary, therefore, for the Court to identify precisely when the United States' cause of action accrued within the meaning of section 2415(a). This determination is to be made in accordance with federal law. United States v. Cardinal, 452 F.Supp. 542, 544 (D.Vt.1978).

In a suit involving a note in default, a cause of action does not accrue on mere default — a "breach of condition stated in an optional acceleration clause permits the holder to treat the entire debt as due, but the maturity date does not accelerate until he so treats it." United States v. Cardinal, 452 F.Supp. 542, 547 (D.Vt.1978) (emphasis original). See also United States v. Gilmore, 698 F.2d 1095, 1097 (10th Cir. 1983) (SBA cause of action did not accrue until demand for entire amount was made); United States v. Rollinson, 629 F.Supp. 581, 584 (D.D.C.1986) (SBA's right to accelerate was optional and thus cause of action was not recognized until demand made), aff'd, 866 F.2d 1463 (D.C.Cir.), cert. denied, ___ U.S. ___, 110 S.Ct. 71, 107 L.Ed.2d 37 (1989); United States v. Nehl, 599 F.Supp. 324, 326 (D.South Dakota 1984) (default alone does not trigger optional acceleration clause). To analyze what type of conduct by the note holder represents a demand for the entire amount due, "the general rule is that the exercise of the option must be made in a manner so clear and unequivocal as to leave no doubt as to the holder's intention and to appraise the maker effectively of the fact that the option has been exercised." American Jet Leasing v. Flight America, Inc., 537 F.Supp. 745, 748-49 (W.D.Va.1982). See also 11 Am. Jur.2d Bills and Notes § 296.

One noteworthy qualification to the "demand rule" is that "when a debtor's obligation is payable in installments, the general rule is that the period for the statute of limitations begins to run on each installment from the time it falls due in the absence of acceleration." United States v. Myers, 308 F.Supp. 859, 862 (D.Md.1970). See also United States v. Tilleraas, 538 F.Supp. 1, 4-5 (N.D.Ohio 1981) (applying rule in student loan default proceeding), aff'd, 709 F.2d 1088 (6th Cir.1983); 12 Am. Jur.2d Bills and Notes, § 1047 ("default does not ipso facto start the running of the statute as to the entire debt but only as to the installment or interest which is in...