US v. Molitor
| Decision Date | 13 April 1992 |
| Docket Number | No. 91-C-308-C.,91-C-308-C. |
| Citation | 157 BR 427 |
| Parties | UNITED STATES of America, Plaintiff, v. Eymard H. MOLITOR, Mary Molitor, Roger Eichman and A-G Co-Op. Creamery, Defendants. |
| Court | U.S. District Court — Western District of Wisconsin |
John B. Van Hollen, Asst. U.S. Atty., Madison, WI, for USA.
Mart W. Swenson, Laman & Swenson, Eau Claire, WI, for Eymard H. Molitor.
Terrence J. Byrne, Byrne, Goyke, Olsen, S.C., Wausau, WI, for Mary Molitor.
Roger Eichman, Trempealeau, WI, for Roger Eichman.
Lawrence J. Broeren, Kostner, Ward & Koslo, Arcadia, WI, for A-G Co-op. Creamery.
This civil action for foreclosure is before the court on the government's objections to the Report and Recommendation entered herein by the United States Magistrate Judge on March 20, 1992. The government challenges the magistrate judge's proposed conclusions that state law should be incorporated as the federal rule of decision in determining the rights of FmHA mortgagors and mortgagees and that under state law, defendants Eymard and Mary Molitor retain legal title to the property foreclosed upon that is protected by the automatic stay provisions of 11 U.S.C. § 362(a).
From the record, it appears that defendants Eymard and Mary Molitor executed or assumed certain promissory notes and assumption agreements that they delivered to the Farmers Home Administration. These notes and agreements were secured by security agreements covering certain personal property and by mortgages covering certain real estate.1 When defendants defaulted on the notes, plaintiff moved to foreclose defendants' right, title and interest in the real estate and personal property, and to bar defendants from "all rights and equity of redemption in the property except the statutory right to redeem provided for under State law." Complaint, prayer for relief, par. (c).
Defendants Eymard and Mary Molitor answered the complaint, asking that they be provided a one year statutory period of redemption. Subsequently, they reached an agreement with the United States Attorney, under which the Molitors would withdraw their answer and the United States would drop Count I of its complaint relating to personal property, and defer seeking confirmation of any sale of real property until after November 1, 1991. Default judgment was entered on May 30, 1991. In accordance with the request of the government, the period of redemption was set at sixty days from the date of the judgment.
The Molitors did not redeem the property and it was sold at public sale on December 18, 1991. A hearing on confirmation of sale was scheduled for January 29, 1992. Assistant United States Attorney J.B. Van Hollen appeared at the hearing and advised the court that the Molitors had filed bankruptcy proceedings. The parties were directed to brief the effect of the bankruptcy proceeding on the government's right to seek confirmation of the sale.
The government's motion to confirm the sale was referred to the magistrate judge, who recommended denial of the government's motion for confirmation of sale until the government secured relief from the automatic stay that became effective when the Molitors filed for bankruptcy.
OPINIONThe initial question is whether the question is controlled entirely by federal law, or whether state law supplies the law of decision. The magistrate judge concluded that state law should be used in this situation, and I agree. I realize that this holding conflicts with that of the other court in this district. See United States v. Weiss, 91-C-679-S, 1991 WL 504865 (W.D.Wis. Dec. 6, 1991). However, I find myself in disagreement with Judge Shabaz's conclusion. I believe he erred in relying on United States Victory Highway Village, Inc., 662 F.2d 488 (8th Cir.1981), which was based on a Ninth Circuit case, United States v. Stadium Apartments, Inc., 425 F.2d 358 (1970), that related to loans made under the National Housing Act, rather than the FmHA program. The Ninth Circuit has limited the holding in Victory Highway Village to NHA loans, and has held that state law should supply the law of decision for FmHA loans. See United States v. Ellis, 714 F.2d 953 (1983). The holding in Ellis conforms to the directives in United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979), for determining when state law should be adopted as the federal rule of decision: (1) Is the nature of the federal program such that a nationally uniform rule of law is necessary? (2) Would the application of the state rule frustrate specific objectives of the federal program? (3) would the application of a federal rule disrupt commercial relationships predicated on state law? Id. at 728-29, 99 S.Ct. at 1458-59. As the Court of Appeals for the Ninth Circuit concluded, it is not necessary to have a nationally uniform rule of law for FmHA loans; the application of state mortgage redemption periods will not frustrate any specific objectives of the program, but will enhance them, and will conform to commercial relationships within the state. Ellis, 714 F.2d at 955-56.
Although I look to state law to determine the period of redemption, doing so does not affect defendants' right of redemption. As the magistrate judge pointed out, defendants failed to move to vacate the default judgment that limited their redemption period to sixty days, and are bound by that judgment.
Defendants have no right of redemption in this case. However, they do retain legal title to their property until judicial confirmation of the sale has taken place. That interest is of little actual value to the Molitors, but it did pass into the bankruptcy estate once the Molitors filed for bankruptcy and it is protected by the automatic stay. Therefore, it is necessary for the government to seek relief in the bankruptcy court before proceeding with the hearing on the confirmation of sale.
The government places heavy weight on an Illinois case, Matter of Tynan, 773 F.2d 177 (7th Cir.1985). In that case, however, the court of appeals held only that the bankruptcy court could not extend the period of redemption more than 60 days beyond the commencement of bankruptcy proceedings. 11 U.S.C. § 108(b). The Molitors are not arguing that they should have additional time in which to try to redeem their real estate. Their opportunity for doing so expired before they filed the bankruptcy proceeding. Their only argument is that the United States cannot force them to turn over legal title to their property until and unless it secures relief from the automatic stay.
The United States (and others) may wonder why the Molitors should be forcing the government to go through the bankruptcy proceeding when doing so can provide no benefit to the Molitors and only create extra expense for the government. The only answer is that the Bankruptcy Code admits of no end runs around the provisions of the automatic stay. Like any other litigant, the United States must proceed according to those provisions.
IT IS ORDERED that the conclusions of law proposed by the United States Magistrate Judge in the March 20, 1992 Report and Recommendation are ADOPTED as the court's own and his recommendation is accepted. FURTHER, IT IS ORDERED that plaintiff's motion for confirmation of sale is DENIED until plaintiff has sought relief from the automatic stay provision that protects the Molitors' legal title to their real property.
The government has moved for confirmation of sale in the above-entitled foreclosure action. Judgment of foreclosure and sale on defendants' property was entered on May, 30, 1991. Defendants' property was sold to a third party on December 18, 1991. Defendant Eymard H. Molitor filed for bankruptcy on January 23, 1992. Molitor contends that the confirmation of sale should be stayed under 11 U.S.C. § 362.
For the reasons stated below, I am recommending that this court deny the government's motion to confirm, at least until the automatic stay in bankruptcy court is disposed of in some fashion.
Section 362(a) provides that a petition for bankruptcy operates as a stay of all proceedings to recover claims against a petitioning debtor. 11 U.S.C. § 362(a) (1979 & Supp.1991). Molitor argues that he still has a redemption right under Wisconsin law and thus, the confirmation of sale must be stayed under § 362(a). In the alternative, Molitor contends that the "confirmation of the sale" is, in itself, a proceeding to which § 362(a) applies.
The government argues that because defendant had no right to redeem after the entry of judgment of foreclosure, the property did not pass into the bankruptcy estate, and thus was not subject to § 362(a). The government maintains that defendants' reliance on Wisconsin law on redemption rights is incorrect because federal law controls decisions involving the government's rights under federal programs. United States v. Kimball Foods, Inc., 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979).
The first question is whether state law or federal law controls the redemption/confirmation question. As discussed below, I believe that state law controls.
The foreclosure action in this case involves the rights of the United States under the Farmers Home Administration (FmHA) Program. In United States v. Kimball Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711, the Supreme Court acknowledged that federal law applies to cases in which the government is asserting or foreclosing a lien, but articulated a three-prong test for determining whether state laws should be adopted as the federal rule of decision. Id. at 726, 99 S.Ct. at 1457. The test asks the following questions: (1) Is the nature of the federal program such that a nationally-uniform rule of law is needed? (2) Would the application of the state rule frustrate specific objectives of the federal program? (3) Would the...
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