In re: Richard Sterba and Olga Sterba
NC-13-1590-KuDJu
| 9th Cir. BAP | Aug 27, 2014Background
- In 2007, Richard and Olga Sterba purchased a Santa Rosa condo and financed with a $340,000 Bank of America loan (first deed of trust) and a $42,000 National City Bank loan (second deed of trust).
- National City Bank later became part of PNC Bank; Bank of America foreclosed in 2009, extinguishing National City’s junior lien.
- The Sterbas filed for bankruptcy in 2013; PNC filed a proof of claim based on the $42,000 note.
- The Sterbas objected, arguing California’s four-year limitation for written-instrument claims (Cal. Code Civ. Proc. § 337) barred PNC’s claim.
- The note contains a choice-of-law provision selecting Ohio law for the loan, including Ohio’s six-year limitations period for promissory notes (Ohio Rev. Code § 1303.16).
- The bankruptcy court applied Ohio law and overruled the Sterbas’ objection; the Sterbas appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which choice-of-law rules govern? | Sterbas contend California rules apply as the forum of bankruptcy. | PNC argues federal choice-of-law rules apply in bankruptcy, using Restatement-based analysis. | Federal choice-of-law rules apply. |
| Does a contractual choice-of-law provision govern statute-of-limitations conflicts? | Des Brisay-like rule prevents applying a contract clause to limitations periods. | Contractual clause governs, selecting Ohio law for limitations. | Contractual choice-of-law provisions can govern limitations conflicts under federal rules. |
| Which state's statute of limitations controls here? | California four-year limit should apply to the note. | Ohio six-year limit applies due to the note’s choice of law. | Ohio six-year limitations period applies. |
Key Cases Cited
- In re Vortex Fishing Sys., Inc., 277 F.3d 1057 (9th Cir. 2002) (federal choice-of-law rules apply in bankruptcy)
- Lindsay v. Beneficial Reinsurance Co. (In re Lindsay), 59 F.3d 942 (9th Cir. 1995) (federal choice-of-law rules govern in federal question cases)
- Des Brisay v. Goldfield Corp., 637 F.2d 680 (9th Cir. 1981) (standard contract clause generally does not cover limitations periods)
- Berger v. AXA Network LLC, 459 F.3d 804 (7th Cir. 2006) (notes that not all modern circuits apply Restatement 142 to limitations)
- ABF Capital Corp. v. Osley, 414 F.3d 1061 (9th Cir. 2005) (California has no fundamental policy against applying foreign statutes)
- State Oil Co. v. Khan, 522 U.S. 3 (S. Ct. 1997) (Supreme Court on choice-of-law policy components)