Farmers Home Administration v. Muirhead

United States Court of Appeals,
Fifth Circuit.
No. 93-7414.
FARMERS HOME ADMINISTRATION, Etc., Plaintiff-Appellee,
v.
James I. MUIRHEAD, et al., Defendants.
James I. MUIRHEAD, et al., Defendants-Third Party Plaintiffs-
Appellants,
v.
SEA LANDS, INC., Third-Party Defendant-Appellee.
Jan. 24, 1995.
Appeal from the United States District Court for the Southern
District of Mississippi.
Before POLITZ, Chief Judge, JONES, Circuit Judge, and FULLAM*,
District Judge.
EDITH H. JONES, Circuit Judge:
The question in this case is whether the Farmers Home
Administration, a federal agency, may be barred by state statute
from enforcing its lien on Mississippi property, when the statutory
bar arises from FmHA's untimeliness. Consistent with other federal
courts of appeals, we hold that it may not be so barred. Unlike
those other courts, however, we consider this a problematic result.
During 1979 and 1980, the Muirhead defendants executed
promissory notes in favor of the Farmers Home Administration (FmHA)
that were secured by deeds of trust on properties located in
Mississippi. In April 1982, FmHA sent the Muirheads notices of
*
District Judge of the Eastern District of Pennsylvania,
sitting by designation.
1
acceleration declaring all of the promissory notes immediately due
and payable. A second notice of acceleration and demand for
payment was sent to the Muirheads in May 1985.
FmHA prepared to initiate foreclosure proceedings on the deeds
of trust in October 1991 and brought this action to reform one of
the deeds. The Muirheads answered and counterclaimed that under
Mississippi law, none of the liens was enforceable because the
statute of limitations had run on each of the underlying notes.
While this action was pending, the properties covered by the deeds
of trust—except for the property at issue in the reformation
action—were sold by FmHA at a foreclosure sale. As a result, the
Muirheads amended their counterclaim to set aside the sales.
The district court granted the government's motions to dismiss
the counterclaim and for summary judgment. The court concluded
that, while FmHA may have been time-barred by federal law, 28
U.S.C. § 2415(a) (1988), from bringing an action on the notes, the
government was not barred by limitations from bringing a
foreclosure action.1 We have reviewed the judgment of the district
1
Section 2415(a) provides in relevant part:
[E]very action for money damages brought by the United
States ... 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 right of action
accrues....
28 U.S.C. § 2415(a) (1988). For purposes of the motion to
dismiss and for summary judgment, the district court assumed
that the six-year limitations period had in fact run.
2
court and AFFIRM.2
Under a nationwide federal loan program like that of FmHA, it
is settled that federal law ultimately controls the government's
rights and responsibilities. United States v. Kimbell Foods, Inc.,
440 U.S. 715, 99 S. Ct. 1448, 59 L. Ed. 2d 711 (1979). Where no
specific federal statute or regulation governs the matter at hand,
federal courts must "fill the interstices of federal legislation
"according to their own standards.' " Id. at 727, 99 S.Ct. at 1458
(quoting Clearfield Trust Co. v. United States, 318 U.S. 363, 367,
63 S. Ct. 573, 575, 87 L. Ed. 838 (1943)). Normally, however,
"matters left unaddressed in such a scheme are presumably left
subject to the disposition provided by state law." O'Melveny &
Myers v. FDIC, --- U.S. ----, ----, 114 S. Ct. 2048, 2054, 129
L. Ed. 2d 67 (1994).
Applying these principles to determine whether FmHA's
foreclosure action against the Muirheads' property was barred by
state law is a matter of characterization. To the federal
government, the Muirheads' state law argument artfully dodges the
essential fact that they would impose a state time bar upon the
FmHA's remedy of foreclosure. A time bar, in the view of FmHA and
2
In reviewing a 12(b)(6) dismissal, the court accepts all
well pleaded averments as true, viewing them in the light most
favorable to the non-movant. See Cooper v. Sheriff, Lubbock
County, 929 F.2d 1078, 1082 (5th Cir.1991). The dismissal should
not be upheld unless it appears beyond doubt that the Muirheads
can prove no set of facts which would entitle them to relief.
See id. Since the Muirheads conceded below that the government's
motion for summary judgment on its complaint for reformation
should be granted if the court granted FmHA's motion to dismiss,
we appropriately focus our review on the 12(b)(6) dismissal of
the amended counterclaim.
3
other court decisions,3 is a statute of limitations. State
statutes of limitations do not, however, run against the federal
government. United States v. Summerlin, 310 U.S. 414, 416, 60
S. Ct. 1014, 1020, 84 L. Ed. 1283 (1939).4 This ancient prerequisite
of federal sovereignty constitutes a specific rule of decision that
renders nugatory the federal courts' duty to select a federal rule
or adopt state law as the rule of decision. See Kimbell Foods,
Inc., supra. In the terms of O'Melveny, supra, if this is a
statute of limitations case, there is no matter left unaddressed by
federal law that must be supplemented by a state rule of decision.
The Muirheads naturally resist the reduction of their position
3
United States v. Alvarado, 5 F.3d 1425, 1430 (11th
Cir.1993); Westnau Land Corp. v. United States Small Business
Admin., 1 F.3d 112, 115 (2d Cir.1993); United States v. Dos
Cabezas Corp., 995 F.2d 1486, 1490 (9th Cir.1993) (in dicta);
United States v. Ward, 985 F.2d 500, 502 (10th Cir.1993); but
see United States v. Thornburg, 835 F.Supp 543 (E.D.Cal.1993).
4
See also Guaranty Trust Co. v. U.S., 304 U.S. 126, 132, 58
S. Ct. 785, 788, 82 L. Ed. 1224 (1938); Board of Jackson Cty.
Comm'rs. v. U.S., 308 U.S. 343, 60 S. Ct. 285, 84 L. Ed. 313
(1939); United States v. John Hancock Mut. Life Ins. Co., 364
U.S. 301, 81 S. Ct. 1, 5 L. Ed. 2d 1 (1960); United States v.
California, --- U.S. ----, ----, 113 S. Ct. 1784, 1790-91, 123
L. Ed. 2d 528 (1993).
In U.S. v. California, supra, the Court noted that in
Summerlin and in Board of Comm'rs, the right at issue [that
was not barred by a state limitation statute] was obtained
or created by a federal statute, and in John Hancock, there
was a federal limitations period, and in each of those
cases, "the Government was proceeding in its sovereign
capacity." --- U.S. at ----, 113 S. Ct. at 1791. The Court
then states that, "whether in general a state-law action
brought by the United States is subject to a federal or
state statute of limitations is a difficult question." Id.
Because SBA's "state-law action" to foreclose arose from a
federal loan program and SBA was proceeding "as the
sovereign", the "difficult question" noted by the Court is
not present here.
4
to a statute of limitations question. To them, the FmHA's ability
to foreclose after the remedy on their underlying debt has been
time-barred presents an issue of substantive state property rights,
which flows from Mississippi's subscription to the lien theory of
mortgages. In Mississippi, as in several other states, "where a
debt is barred, the mortgage cannot be enforced." Musser v. First
National Bank of Corinth, 165 Miss. 873, 147 So. 783, 784 (1933).
The lien is incident to the debt and does not stand separately.
See GEORGE E. OSBORNE, HANDBOOK ON THE LAW OF MORTGAGES 608-12 (2d ed. 1970)
(discussing intricacies of "lien theory" and "title theory"). Many
other states, by contrast, have adhered to the title theory of
mortgages, which has evolved over the years to hold that a lien
does survive notwithstanding the expiration of the period for
recovery on the debt. Property law varies considerably from state
to state on this issue. Federal law ought to and does ordinarily
rely on state law to define the incidents of real property
ownership for purposes of implementing federal loan programs.
Foster v. United States, 221 Ct. Cl. 412, 607 F.2d 943, 948 (1979)
("[I]n determining the nature of the property rights created by a
conveyance ... courts have applied the law of the situs of the real
property involved"). The Muirheads conclude that, as O'Melveny put
it, the circumstances under which FmHA's foreclosure may be barred
by the expiration of the underlying debt do not constitute one of
the "unusual" cases in which judicial creation of a specific
"federal common law" rule "would be justified." --- U.S. at ----,
114 S. Ct. at 2055.
5
For several reasons, we concur in the government's
characterization of the case. First, while the lien extinction
argument advanced by the appellants has surface appeal, the statute
on which they must rely more clearly supports the government's
position. Found in chapter 15 of the Mississippi Code, entitled
"Limitations of Actions," § 15-1-21 provides in relevant part:
When a mortgage or deed of trust shall be given on real or
personal estate, or when a lien shall be given by law, to
secure the payment of a sum of money specified in any writing,
an action or suit or other proceedings shall not be brought or
had upon such lien, mortgage, or deed of trust to recover the
sum of money so secured except within the time that may be
allowed for the commencement of an action at law upon the
writing in which the sum of money secured by such lien,
mortgage, or deed of trust may be specified.
This statute reads like a statute of limitations: it forecloses an
action or proceedings to enforce a lien not brought within the time
for commencing a suit on the debt involved.
Second, to the extent the Muirheads concede that federal law,
28 U.S.C. § 2415(a), prescribes the limitation period for suit on
FmHA's debt, even as to the application of § 15-1-21 they
inferentially concede that some general federal law bears upon the
limitation period governing the agency's action to foreclose its
mortgage. Absent a specific federal limitation,5 the thus-far
unwavering federal rule exempting the federal government from
statutes of limitations other than those enacted by Congress
readily steps into this breach.
Third, every federal appellate court that has addressed
5
28 U.S.C. § 2415(c) does not apply to actions to foreclose
mortgages.
6
whether there is a time bar on federal agencies' pursuit of real
property foreclosure actions has agreed with the FmHA's position
and has concluded that no such bar exists. Supra n. 3. This
includes one decision, not analyzed by appellants, originating from
Oklahoma, a lien theory state. United States v. Ward, 985 F.2d 500
(10th Cir.1993).
Consequently, as the Muirheads must rely on an unabashed state
statute of limitations, while venerable federal caselaw and the
uniform rule among the circuit courts of appeals hold that no state
limitations period, and specifically none governing foreclosures,
is effective against the federal government, their appeal cannot
succeed.
But although present authority compels acceptance of FmHA's
position, we are troubled by the federal government's insistence
that it may enforce ancient mortgages outstanding in numerous,
long-lived and often default-prone federal lending programs
essentially forever. The continued existence of these mortgages
may cloud titles to property all over the country, and in so doing
will engender confusion, higher real property transaction costs,
and commercial instability. If federal agencies simply conformed
their lending practices to the dictates of state law, as every
private lender must, they would act more promptly upon defaulted
mortgages and would not prejudice the alienability of reality.
The government's central proposition—that limitations may not
run against the sovereign—seems quite inappropriate in the context
of federal loan programs. In Kimbell Foods, supra, the Supreme
7
Court devised a three-part test for determining when a federal rule
of decision should supplant state law in cases involving federal
loans. Courts must consider whether uniform national
administration of the federal program is necessary, whether use of
a state law rule will frustrate the federal objective, and whether
a federal common law rule might disrupt commercial expectations
founded upon state law. In Kimbell Foods, the pleas by FmHA and
SBA for "uniformity", "protecting the federal fisc," and "ease of
administration" were unanimously rejected in favor of maintaining
stability and predictability in local commercial law. The Supreme
Court understood that superimposing on state commercial law special
federal rules to govern lien priorities arising from federal loan
programs would become hopelessly complex and would ultimately have
adverse economic effects.
Similarly, in United States v. Yazell, 382 U.S. 341, 86 S. Ct.
500, 15 L. Ed. 2d 404 (1966), the Court recognized an important
federal policy to preserve the integrity of state family law and
property relationships, which it held must prevail over SBA's
desire for agency-favoring federal common law rules of decision.
Yazell commented, in regard to the SBA loan program, that there was
no specific need for uniformity, no problem in complying with state
law, and in fact, SBA's compliance manual already carefully
conformed its loans to the requirements of state law. 382 U.S. at
357, 86 S.Ct. at 509.6 Most recently, in O'Melveny, the Court
6
Surely the national interest in maintaining the consistency
of state real property law is as great as the policy at stake in
Yazell, and the inconvenience to SBA or FmHA of fully and timely
8
seems to suggest that only when there is outright conflict between
federal law and state law regarding a federal regulatory scheme
must state law be displaced. --- U.S. at ----, 114 S. Ct. at 2055.
Apart from the Summerlin principle, there is, as clearly evident in
Kimbell and Yazell, no ground for conflict between state and
federal rules of decision regarding the enforceability of
government-backed mortgages.
Contrary to the commercial realism prominent in all of these
cases, the ancient attribute of sovereignty asserted by the federal
government is far more appropriate to essential sovereign functions
than to the federal government's role as a lender to veterans,
small business owners, farmers, and disaster victims among others.
That the attribute is ancient does not make it sensibly applicable
to the government's role in commercial transactions. In fact,
doing away with limitations periods on a significant number of
mortgage foreclosures takes a giant step backwards from the
standpoint of public policy concerns for fairness and economic
efficiency. Nearly every state has enacted laws to prevent the
disruption of commerce in real property caused by the existence of
ancient mortgages.7 In short, Summerlin and related cases ought to
be reconsidered insofar as they hold that state statutes of
limitations may not be applied to the government's real property
complying with state law is just as small.
7
See GEORGE E. OSBORNE, HANDBOOK ON THE LAW OF MORTGAGES 621-23 (2d
ed. 1970) (describing emerging trend of states to create "ancient
mortgage" statutes allowing one to merely check the record and
refer to a calendar to determine whether a very old mortgage
continues to cloud title).
9
foreclosure actions arising from federal loan programs.
Alternatively, Congress should amend 28 U.S.C. § 2415 expressly to
so provide.
For the foregoing reasons, the judgment of the district court
is AFFIRMED.
10