United States v. Ruth G. Thornburg Michael D. Thornburg David Jean Thornburg Kathy Ann Northington

Citations: 82 F.3d 886; 96 Cal. Daily Op. Serv. 3129; 1996 U.S. App. LEXIS 10178; 1996 WL 221638Docket: 94-16927

Court: Court of Appeals for the Ninth Circuit; May 3, 1996; Federal Appellate Court

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The United States Court of Appeals for the Ninth Circuit reviewed an appeal from the United States against Ruth G. Thornburg and others regarding a breach of personal guaranty and mortgage foreclosure. The district court ruled in favor of the Thornburgs after the United States conceded that its action to enforce the personal guaranty was barred by the federal statute of limitations. The United States contended that the district court wrongly applied state law to bar the mortgage foreclosure, arguing that such laws do not apply to federal claims. 

Key facts include the execution of a $500,000 promissory note by Thornburg Lumber Co., guaranteed by the SBA, with a personal guaranty and mortgage by Ruth and Pete Thornburg. After defaulting on the loan in 1980, the SBA paid the Bank and subsequently reassigned the note and guaranty multiple times between the Bank and the SBA. The SBA demanded payment in 1985, followed by Ruth Thornburg's bankruptcy filing in 1986. After the bankruptcy dismissal in 1988, the SBA renewed its demand in 1992, leading to the United States filing a complaint seeking enforcement of the guaranty and mortgage foreclosure in June 1992. Jurisdiction was established under 28 U.S.C. § 1345 and 15 U.S.C. § 634(b)(1). The appeals court ultimately found that the district court erred in applying state lien expiration laws to the United States' foreclosure action.

After the Thornburgs answered the complaint, the United States sought summary judgment, which the Thornburgs opposed, claiming the statute of limitations for enforcing their personal guaranty had expired. The district court found genuine disputes of fact regarding the applicability of the federal statute of limitations under 28 U.S.C. § 2415(a), which could prevent the United States from collecting on the guaranty. The court also noted that if the federal statute barred collection, then Oklahoma and California laws would similarly bar foreclosure on the associated Mortgage, as liens cannot be enforced after the statute of limitations for the underlying debt has expired.

Following the court's denial of summary judgment, the parties agreed that the United States' claim was indeed barred by 28 U.S.C. § 2415(a), leading to a final judgment in favor of the Thornburgs. The Thornburgs contended on appeal that the right to enforce their guaranty and foreclose on the Mortgage had expired while the Bank possessed the guaranty. They argued that the Bank's right to enforce the guaranty began in April 1980 and expired four years later under California law, or by April 1985 under Oklahoma law.

The Thornburgs maintained that when the Bank reassigned the guaranty to the SBA in August 1985, the SBA could not enforce it or foreclose the Mortgage due to the prior expiration of the Bank’s rights under state law. It is established that state statutes of limitation are significant for assessing a claim's viability when a federal agency acquires it; if the state limitation has expired before acquisition, the claim is not revived by the transfer.

The appellate court typically does not consider issues raised for the first time on appeal, but it may do so if the matter is a legal question and the opposing party faces no prejudice. The question of whether the federal limitation period continued after the SBA reassigned the Note and guaranty to the Bank is a legal issue that the court decided to address, as the United States had already argued this point in its reply brief.

The United States asserts that its right to enforce the Note and the Thornburgs' personal guaranty remains valid and did not expire under state law due to the May 18, 1984 reassignment to the Bank for collection purposes. The argument is supported by the position that the state statute of limitations ceased to apply after the assignment of these documents to the SBA on December 12, 1980. 

Legal precedents indicate that the applicability of section 2415(a), the six-year federal statute of limitations, is unaffected by such assignments. Notably, no decisions have specifically addressed whether this statute applies when the federal government assigns a debt for collection without selling its rights. However, most federal and state courts that have considered similar situations concluded that assignees of the federal government can invoke the six-year statute. 

In FDIC v. Bledsoe, the Fifth Circuit upheld this principle, ruling that since section 2415(a) does not address the rights of assignees, it is appropriate to apply the common law that allows an assignee to inherit the assignor's rights regarding the statute of limitations. Similar rulings were made in cases such as Tivoli Ventures, Inc. v. Bumann, Jon Luce Builder, Inc. v. First Gibraltar Bank, and others, affirming that assignees are entitled to the six-year limitation period when collecting debts originally owed to the federal government. 

In Mountain States Fin. Resources Corp., the argument that Oklahoma's five-year statute of limitations should apply was rejected, establishing that the assignee retains the six-year limitation period. The California Court of Appeal in White v. Moriarty also reversed a lower court decision, confirming that assignees of the federal government benefit from the federal statute of limitations in recovering loans.

In Wamco, III, Ltd. v. First Piedmont Mortgage Corp., the court ruled that rights under 12 U.S.C. § 1821(d)(14)(A) are personal to the assignor and do not extend to assignees of the Resolution Trust Corporation (RTC). The court's interpretation focused on the statute's language, indicating its application only to RTC actions as a conservator or receiver. The current case does not involve a bank's asset assignment by the RTC or a statute specific to such actions. The analysis from Bledsoe was referenced, noting that Congress did not alter the common law principle that an assignee inherits the statute of limitations from its assignor. In this case, the SBA assigned the Note and the Thornburgs' personal guaranty to the Bank solely for collection, which is a compelling scenario for applying the common law rule. The United States retained its right to pursue collection, and the Bank acted as a surrogate. The assignment was deemed conditional, with the Bank holding the proceeds in trust for the SBA. The Thornburgs argued that the assignment lacked explicit collection language; however, the court maintained that an absolute assignment can still be for collection purposes. Thus, the right to enforce the Note and guaranty remained valid under Oklahoma and California law during the Bank's collection efforts. The applicable six-year statute of limitations was in place for actions filed by the Bank on behalf of the United States. The Thornburgs did not move to dismiss the appeal based on jurisdiction, but raised a question about whether the mortgage was reassigned back to the SBA, which could impact the SBA's standing to pursue the action.

The mortgage document's physical transmission to the SBA on August 19, 1985, does not impact the United States' standing to foreclose, as the Bank reassigned the Note and the Thornburgs' personal guaranty to the SBA. Under California and Oklahoma law, the assignment of the debt includes the accompanying Mortgage. A chattel mortgage is tied to the debt it secures, meaning the Bank's potential failure to deliver the mortgage document does not hinder the United States' foreclosure rights.

The district court dismissed the action, concluding that the U.S. was barred from foreclosure due to the expiration of the federal statute of limitations on recovering damages from the Note and guaranty, referencing Oklahoma and California laws stating that a mortgage cannot be enforced after the limitations period on the underlying debt has lapsed. 

The central issue on appeal is whether the U.S. can foreclose despite being barred from collecting damages under section 2415(a). The U.S. contends that state lien laws do not apply, as they effectively act as state statutes of limitations. The Supreme Court has ruled that the U.S. is only subject to limitations periods explicitly established by Congress and is not bound by state statutes of limitations. The question of the applicability of state lien expiration laws in U.S. foreclosure actions is novel in this circuit but has been resolved favorably for the U.S. by the Fifth and Tenth Circuits, allowing foreclosure even after the limitations for seeking damages has expired.

In *Farmers Home Admin. v. Muirhead*, the Fifth Circuit ruled that a federal agency could foreclose a mortgage despite the expiration of the state’s six-year limitation period for seeking damages due to nonpayment. The court determined that the state lien expiration law, which resembles a statute of limitations, cannot be applied against the federal government, which is exempt from state limitations laws. In *United States v. Ward*, the Tenth Circuit similarly held that the United States retains the right to foreclose on a mortgage even after the limitation period for filing an action for damages has lapsed, noting that several district courts have found no statute of limitations applicable for federal foreclosure actions. 

The Thornburgs' argument that *United States v. Kimbell Foods, Inc.* supports their position was deemed incorrect. In *Kimbell Foods*, the Supreme Court addressed the prioritization of liens under a federal program but established that federal law governs the rights of the United States unless Congress has left gaps that would require reliance on state law. The Supreme Court indicated that state law may apply only in situations with little need for uniform federal law, which does not pertain to federal foreclosure rights. 

Section 2415(a) restricts the United States from pursuing monetary damages after six years but does not restrict actions to establish title or possession of property, as outlined in Section 2415(c), which applies to foreclosure actions. Thus, the court concluded that the United States is not barred from foreclosing on a mortgage even if the collection of monetary damages is limited by the six-year statute. 

The judgment of the district court was vacated, confirming that the right to seek damages did not expire while the documents were assigned for collection, and the state’s lien expiration law is not applicable to federal foreclosure actions. Each party was ordered to bear their own costs. Notably, Pete Thornburg was not a party to the action, having passed away prior to its initiation.

28 U.S.C. § 1345 grants district courts original jurisdiction over civil actions initiated by the United States or its authorized agencies, unless specified otherwise by Congress. Under 15 U.S.C. § 634(b)(1), the Small Business Administration's administrator can sue in any U.S. district court, with jurisdiction established regardless of the amount in controversy. According to 28 U.S.C. § 2415(a), actions for money damages by the U.S. based on contracts must be filed within six years of the action accruing, subject to limitations in § 2416. California law allows a four-year statute of limitations for contract actions (Cal. Code Civ. Proc. § 337), while Oklahoma law sets a five-year limit (Okla. Stat. tit. 12, § 95). Both states extinguish liens after the statute of limitations for the underlying debt lapses (Cal. Civ. Code § 2911; Okla. Stat. tit. 42, § 23). Additionally, Section 1821(d)(14)(A) specifies that for claims brought by a conservator or receiver, the statute of limitations for contract claims is either the six-year federal period or the applicable state law period, whichever is longer.