Federal Land Bank of Spokane v. L.R. Ranch Co.

Citations: 926 F.2d 859; 1991 WL 17280Docket: No. 89-35203

Court: Court of Appeals for the Ninth Circuit; February 14, 1991; Federal Appellate Court

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L.R. Ranch Company and five members of the Murnion family appealed the district court’s denial of their motion to stay state law foreclosure proceedings, invoking the Agricultural Credit Act of 1987. However, the Circuit Court determined it lacked jurisdiction to review the district court’s order and dismissed the appeal. 

Background reveals that in January 1975, the Federal Land Bank of Spokane loaned $600,000 to the borrowers, which was reamortized in June 1981. The bank initiated foreclosure proceedings on September 3, 1986, after the borrowers fell over two years and $217,000 behind on payments. Various litigation activities transpired before the Agricultural Credit Act took effect on January 6, 1988. 

On February 16, 1988, the bank notified the borrowers of their right to apply for loan restructuring under the Act, requesting specific materials within 45 days. The bank encouraged a meeting with a credit officer, though the availability of such a meeting is disputed. The borrowers submitted an incomplete application on March 28, 1988, just before the deadline, leading to further communication from the bank regarding missing information. The bank did not specify which items were lacking, while the borrowers contended that incomplete information was due to the bank’s failure to provide requested land valuations. 

On April 13, 1988, the borrowers’ attorney sought additional time and requested loan history and property appraisals, which the bank denied but indicated it would consider timely restructuring applications. The borrowers resubmitted their application on August 18, 1988, and filed a motion to stay foreclosure proceedings shortly thereafter. The bank subsequently requested more details on the application and later rejected the restructuring proposal, citing insufficient debt service earnings, inadequate returns to the bank, and misstated debts on the balance sheet as reasons for the rejection.

On November 1, the borrowers requested a review of a bank decision, to which the bank did not respond. Their application was not reviewed by a credit committee as required under 12 U.S.C. 2202. On March 9, 1989, the district court denied their motion to stay foreclosure proceedings, ruling that the borrowers waived their review rights by failing to submit a complete application within the stipulated timeframe. The borrowers are appealing this decision, arguing their application was timely and that the bank did not fulfill its obligations under 12 U.S.C. 2202a regarding loan restructuring.

The jurisdiction to review the district court’s order is questioned, with the borrowers claiming jurisdiction under 28 U.S.C. 1291 or 28 U.S.C. 1292(a)(1). The appealability under 28 U.S.C. 1291 is analyzed through the collateral order doctrine, which allows for exceptions to the final judgment rule if the order (1) conclusively determines a disputed question, (2) resolves an important issue separate from the case's merits, and (3) is effectively unreviewable post-final judgment. The current order does not terminate litigation but continues it, thus not fitting this exception.

The analysis then shifts to the borrowers' reliance on 12 U.S.C. 2202a(b)(3), which prohibits foreclosure while a loan is under consideration for restructuring. It is unclear if the borrowers are asserting this provision as a defense against foreclosure or seeking to enforce it against the bank. If used as a defense, the denial of the stay is not appealable under the collateral order rule. If they seek to enforce it, they are barred by precedent from the Harper case, which indicates that borrowers lack a private right of action to enforce the Agricultural Credit Act of 1987, as the statute is directed at qualified lenders rather than binding state or federal courts.

2202a(b)(3) is identified as a 'mandatory statutory stay' provision, which prohibits lenders from starting or continuing foreclosure proceedings until they have completed any pending loan restructuring considerations. However, neither this provision nor any other part of the Act indicates that it applies directly to state court foreclosure actions or that borrowers can enforce it in that context. The borrowers do not reference any Montana laws that would integrate this federal statute into state foreclosure processes. In the case of Harper, the court declined to recognize a private right of action that would allow borrowers to use federal law to halt state foreclosure actions, affirming that Congress intended for the Act's administrative remedies to be the sole recourse for borrowers. The court emphasized that foreclosure proceedings are primarily governed by state law. While Montana law may allow borrowers to use noncompliance with restructuring rights as a defense in foreclosure cases, the specific implications of such noncompliance under the Agricultural Credit Act are state law issues. Borrowers may assert the bank's failure to comply with 2202a(b)(3) and other requirements as a defense, but they cannot directly enforce this provision in state court or through a private right of action in federal court. If the bank wins the foreclosure case, borrowers can appeal, raising questions about compliance with specific provisions of the Act and the bank's adherence to its regulations. The court concludes that it lacks jurisdiction to review the district court's order under 28 U.S.C. § 1291 due to the nature of the issues, and notes that jurisdiction for appeals under § 1292(a)(1) is limited to injunctions or orders with significant consequences, which do not apply in this instance due to the Gulfstream ruling that abolished the Enelow-Ettelson doctrine.

The denial of the stay in the foreclosure proceeding is questioned as it may not constitute an order that effectively denies an injunction. The borrowers have not demonstrated that serious or irreparable harm would result from this denial. Foreclosure without restructuring opportunities as provided by the Agricultural Credit Act can only occur through the very process the borrowers seek to halt, where they would have the chance to argue their case for restructuring. If entitled to restructuring, the district court or appellate court will ensure this occurs following the final judgment. The only potential injury to the borrowers is the cost associated with the foreclosure process, which is not deemed serious or irreparable. As such, the court lacks jurisdiction to review the district's denial of the stay, leading to the dismissal of the appeal.

The case, a state law foreclosure, is in federal court due to the United States being a defendant. The bank's decision to apply the Act to loans in foreclosure, despite claims to the contrary, is not under review in this appeal. The borrowers assert they were denied access to relevant materials prior to receiving appraisals and loan history in mid-1988. Jurisdiction for appeals from district courts is outlined under Section 1291, except where direct Supreme Court review is possible. The potential to invoke 2202a(b)(3) as a stay provision could have made the denial appealable, but the issue is now moot with foreclosure proceedings moving forward. Both parties agree that Montana recognizes a bank's failure to comply with the Act or related regulations as a viable equitable defense, although the Montana Supreme Court has not ruled on this, referencing a similar North Dakota ruling as precedent.

Three federal district court decisions in Montana have upheld the Overboe rule, which allows a limited scope defense based on noncompliance with restructuring provisions under Montana state law. The cases involved are Farm Credit Bank of Spokane v. Debuf, Farm Credit Bank of Spokane v. Nilsen, and Farm Credit Bank of Spokane v. Parsons. According to the Overboe rule, courts assess whether the creditor adequately considered the borrower's qualifications for restructuring and if the bank acted in an arbitrary, capricious, unreasonable, or unconscionable manner when deciding against granting restructuring or forbearance. The term 'defense' indicates that borrowers cannot halt the foreclosure process solely based on the bank's noncompliance; instead, this noncompliance will be factored into the foreclosure proceedings. Additionally, Section 1292(a)(1) grants appellate courts jurisdiction over appeals concerning interlocutory orders related to injunctions. Borrowers seeking to appeal may apply for a stay of judgment to prevent harm from enforcement before the appeal is resolved, as outlined in Fed.R. App. P. 8.