364 F.3d 125 | 3rd Cir. | 2004
STAPLETON, Circuit Judges.
BECKER, Circuit Judge. This appeal in a diversity-based (Filed April 5, 2004) mortgage foreclosure action stemming from a default on a loan guaranteed by the U n i t e d S t a t e s S m a l l B u s i n e s s
ARCHIE JENNINGS, JR. (Argued) Administration (the “SB A”), which Archie Jennings, P.C. ultimately transferred to the plaintiffs in 8A&B Bjerge Gade foreclosure, UMLIC VP LLC (“UMLIC”), P.O. Box 442 the mortgages which secured the loans, Charlotte Amalie, St. Thomas, presents three important questions. First, USVI 00804 is the right to foreclose on a Virgin Islands
mortgage extinguished at the time the right Attorney for Appellants in No. 03-1239 to collect an in personam judgment expires? We conclude that it is not. Second, is an action brought by a
ROBERT L. KING (Argued) successor in interest of the United States Law Offices of Robert L. King (as UMLIC was) governed by federal Windward Passage Hotel limitations periods or state/territorial (here, P.O. Box 9768, Veterans Drive Virgin Islands) limitations periods? We Charlotte Amalie, St. Thomas, hold that federal law supplies the statute of USVI 00801 limitations in cases where the plaintiff is a successor in interest to the United States. I. Facts and Procedural History Third, is there a federal limitations period
A. The Loan applicable to mortgage foreclosure actions? Applying the maxim that “time The defendants in this case are the does not run against the sovereign,” and fee owners, respectively, of three parcels finding no federal statute to the contrary, of land on St. Thomas, and a variety of we conclude that there is not. We lienholders on those properties. Only the therefore affirm the District Court’s order fee owners are participating in this appeal, for a foreclosure sale and vacate the stay and we shall refer to them as the that this Court entered pending appeal. [1] defendants. They are Aretha Matthias and
the heirs of Wesley Matthias (Michael A. Matthias, Rosemarie Webster, Bruce W. [1] Some appellants also claimed that the Matthias, Elizabeth Olivacce, Laurie District Court erred in certain respects in Thomas, and Carrie Eddy); Carlton and computing the sum owing on the Elecia Parson; and Oswald Venzen. mortgages. Based on our independent Because the defendants rest their case examination of the entire record before primarily on statute of limitations grounds, the District Court, we conclude that these some chronology of the events is issues were not timely presented to the important. District Court—not in the pleadings, not Pursuant to a federal loan guarantee on counsel’s own initiative, and not even program for small businesses, a loan was in response to UMLIC’s motion for made on April 12, 1988 by Barclays Bank summary judgment. “As a general rule, PLC (“Barclays”) to Matthias Enterprises, we do not consider on appeal issues that a corporation run by the various were not raised before the district court.” defendants that owned and operated a Appalachian States Low-Level bakery and convenience store on St. Radioactive Waste Comm’n v. Pena , 126 Thomas. The loan carried an interest rate F.3d 193, 196 (3d Cir. 1997) (quoting of 2.75% above prime, variable quarterly. Tabron v. Grace , 6 F.3d 147, 153 n.2 (3d The principal amount of the loan was Cir. 1993)). There are exceptional $550,000, of which 85% was guaranteed circumstances that call for departure by the SBA. The loan was secured by the from this rule, see id. , but none are personal guarantees of Aretha and Wesley present here. Thus we hold these issues waived and will not address them.
We note too, based upon the colloquy at oral argument, that it is lienholders who are not participating in highly doubtful that resolution of these this appeal) on the properties so far collateral matters in a manner favorable exceeds the probable foreclosure sale to defendants mortgagees would make a prices of the properties that the difference: It appears that the sum of the mortgagors have no chance of recovering liens (both UMLIC’s and those of junior a residue from the foreclosure sale. Matthias, Carlton and Elecia Parson, and instrument, and further to Oswald and Alice Venzen. [2] The secure the performance by Matthiases, Parsons, and Venzens secured the Borrower of the terms of their personal guarantees by granting the Loan Agreement and mortgages in favor of Barclays on their related loan documents own real property using the following executed of even date language: [3] herewith, and also to secure
any and all sums now or WITNESSETH, that to from time to time hereafter secure the guaranty of owing by Borrower and for payment by MATTHIAS which Borrower may be
E N T E R P R I S E S ,
liable, solely or jointly, the I N C OR P O R A TE D (the M o r t g a g o r [ i . e . , t h e “ B o r r o w e r ” ) o f a n Matthiases] hereby grants i n d e b t e d n e s s t o t h e and gives to the Mortgagee Mortgagee to be paid with a Second Priority Mortgage interest according to a in the principal sum of ONE certain promissory note (the
H U N D R E D F I F T Y
“Note”), bearing even date
THOUSAND DOLLARS
herewith, executed by $150,000.00 plus interest on Borrower pursuant to the [description of property terms of a certain Loan follows]. Agreement of even date herew ith betw een th e Judging from an SBA document B o r r o w e r a n d t h e captioned “Lend er’s Transcript of Mortgagee [i.e., Barclays] Account,” Matthias Enterprises defaulted (the “Loan Agreement”), the on the loan as early as the fall of 1988. terms of which are hereby Matthias Enterprises was certainly in made a part of this default when it filed a Chapter 11
bankruptcy petition in 1992. This petition was later converted to a Chapter 7 liquidation. Effective February 15, 1994 [2] The record suggests that Alice (less than six years from the time of Venzen no longer owns or resides on the default, under any reading), the SBA made parcel mortgaged by her and Oswald good on its guarantee and repurchased the Venzen. She is not a party on appeal. loan from Barclays, ending Barclays’ involvement. Through a series of [3] This language is taken from the note assignments in 1999 and 2000, the loans executed by the Matthiases, but the same came to rest with UM LIC, which, on April language, mutatis mutandis , was used in 28, 2000 advised the defendants that the the notes executed by the Parsons and by loan was in default. This proceeding the Venzens. followed. [4] held a hearing on what UMLIC’s counsel
styled as a “motion for summary judgment B. Foreclosure Proceedings in the of foreclosure.” The moving papers on District Court both sides were captioned as cross-motions UMLIC commenced this action in for summary judgment. On December 5, the District Court on June 1, 2001, seeking 2002, the District Court filed a a declaratory judgment of the amount memorandum opinion and order granting owed under the Matthias Enterprises note, summary judgment to UMLIC. On a judgment of foreclosure on the three December 20, 2002, the District Court properties, and an award of costs and entered a declaratory judgment and attorneys fees. Originally, UMLIC had ordered the U.S. Marshal to conduct a also sought an in personam judgment foreclosure sale of the properties. The against the Matthiases, Parsons, and defendants filed a notice of appeal, and Venzens (i.e., a deficiency judgment for moved the District Court to stay the sale. the amount owing on the notes but The District Court refused, but this Court unsatisfied by foreclosure on the granted the stay pending appeal. mortgages), but later amended its
The District Court of the Virgin complaint to drop those counts (apparently Islands had 28 U.S.C. § 1332 diversity because the statute of limitations had jurisdiction under 48 U.S.C. § 1612(a). clearly run on any in personam contract The plaintiff, UMLIC, is a citizen of North claims). Carolina, and none of the defendants are On June 4, 2002, the District Court citizens of North Carolina. The order of the District Court was entered on December 20, 2002. The defendants filed timely notices of appeal. This Court has [4] As part of its preparation to begin jurisdiction under 28 U.S.C. § 1291. foreclosure, UMLIC discovered that real Our review of a grant of summary property records showed that Barclays judgment is plenary. See Anderson v. had assigned its mortgage interest to Conrail , 297 F.3d 242, 246-47 (3d Cir. Treadstone Carribean Partners LLC 2002). Summary judgment must be (“Treadstone”). This seems to have been granted “if the pleadings, depositions, an error on Barclays’ part, since this answers to interrogatories, and admissions assignment was recorded after Barclays on file, together with the affidavits, if any, had transferred the loan to the SBA. For show that there is no genuine issue as to the reasons given by the District any material fact and that the moving party Court—which we need not revisit—even is entitled to judgment as a matter of law.” though Barclays’ transfer to the SBA was Fed. R. Civ. P. 56(c). In considering the not recorded, it was valid. To uncloud motion, “we must grant all reasonable the titles, Treadstone, the SBA, and inferences from the evidence to the non- UMLIC executed a series of corrective moving party.” Knabe v. Boury Corp. , assignments recorded May 29, 2001. 114 F.3d 407, 410 n.4 (3d Cir. 1997). The The strongest authority that the chronology recounted above is not in defendants cite for this proposition is an dispute. The only questions before us are Alaska case which held as they would have us hold. [6] Dworkin v. First National legal.
Bank of Fairbanks , 444 P.2d 777, 781-82 II. Discussion (Alaska 1968), acknowledged that opinion A. The Mortgage and the Personal was divided over whether a suit to recover Guarantee security could be maintained even after the statute had run on collection of the The defendants contend that the underlying debt. Authority is still divided mortgages are no more than security for today. See 55 Am. Jur. 2d Mortgages §§ their personal guarantees, and that, absent 680, 683 (2003). The Dworkin Court an ability to sue in contract for ultimately held that “the sounder result is enforcement of those guarantees, UMLIC reached by those authorities which hold cannot recover on the mortgages. Because that in the absence of a controlling statute the Virgin Islands statute of limitations for the foreclosure action is subject to the contract claims, 5 V.I. Code § 31(3)(A), same period of limitations as the and the federal statute of limitations for underlying debt.” 444 P.2d at 782. The contract claims, 28 U.S.C. § 2415(a), both only authority supplied by the Court was a provide for a six-year limitations period, discussion from a contemporary treatise on and the lawsuit was filed outside that real property that discussed the contrary period, the defendants assert that irrespective of which statute applies, a suit on the security for the guarantees (i.e., the
of decision. Second, it appears that a mortgages) is barred along with an in full analysis under United States v. personam suit on the guarantees. [5] Kimbell Foods, Inc. , 440 U.S. 715 (1979), would demonstrate either that Virgin Islands law applies of its own [5] The question whether federal or force, or that federal law applies but territorial law provides the statute of looks to local law to provide the rule of limitations—noted in the text—is but decision. one facet of a larger choice-of-law question here. One could well ask [6] It is not unreasonable to look to whether federal or territorial law governs decisions from Alaska in this case, a claim to relief on a mortgage granted because the limitations laws of the Virgin pursuant to a federal loan guarantee Islands were borrowed from Alaska’s program after suit on the principal laws. See James v. Henry , 157 F. Supp. obligation is barred . We do not address 226, 227 (D.V.I. 1957) (Maris, J.). Thus, this in detail, however, for two reasons. Alaska court decisions that postdate the First, the papers of both parties assume Virgin Islands’ adoption of Alaska law, that Virgin Islands law provides the rule while not binding, may be persuasive. a p p r o a c h , a n d p r o n o u n c e d i t mortgagee may proceed to “undesireable.” foreclose, either by action
for foreclosure, or by But there is an equally compelling advertisement pursuant to a rationale supporting decisions from reserved power of sale, jurisdictions that adopt the contrary being barred only from the rule—i.e., those that permit recovery on obtaining of a deficiency the mortgage even after the statute of judgment.” limitations has expired. It is this: “The time limit set for the c o m m e n c e men t of an Id. at 782 n.24 (quoting 3 R. Powell, The equitable action to foreclose Law of Real Property 461, at 682-83 is frequently longer than the (1967)). This persuasive logic undermines period prescribed for a law the position of the defendants. Accord action on debt and, in some Bank of Nova Scotia v. St. Croix Drive-In states, is unlimited except Theatre, Inc. , 552 F. Supp. 1244, 1251 by the rule of laches. This (D.V.I. 1982) (holding that “the law is difference interposes a clear that separate actions are available in p r o b l e m w h e r e t h e actions for debt and against a mortgage.”), mortgagee has permitted the aff’d on other grounds 728 F.2d 177 (3d time to run out within which Cir. 1984). he could bring an action
We reject the defendants’ argument upon the debt, yet wishes to and endorse the view adopted by the enforce his lien. Since the District Court in St. Croix Drive-In . [7] The debt is not usually regarded great benefit in using a mortgage on real as extinguished by any property as security is the certainty it passage of time, but only the affords: The property will not go away. remedy is barred by the The legal complement to the physical statute of limitations, there stability of real property is the long statute is no application here of the of limitations for actions on real property. rule applied in other Adopting the rule proposed by defendants situations, that the mortgage cannot stand independently of the obligation which it [7] This holding, of course, has no effect p u r p o r t s t o s e c u r e . on UMLIC’s inability to collect a Accordingly, it is generally deficiency judgment from the accepted that the lien is not defendants; as we have noted, such a thereby destroyed, and that, contract suit is clearly time-barred, and in the absence of a statute UMLIC has dismissed that cause of providing otherwise, the action. would sap real property in the Virgin apply to it as they would if the United Islands of its appeal as a security under States itself brought a foreclosure action. certain guarantee structures, and would We agree, and join every other appellate likely deter offshore real estate investment. court to consider the issue. Three cases in Moreov er, w e be lie ve that this particular command our attention: Tivoli interpretation is in line with the settled Ventures, Inc. v. Bumann , 870 P.2d 1244 expectations of parties that have entered (Colo. 1994); United States v. Thornburg , into transactions secured by mortgages on 82 F.3d 886 (9th Cir. 1996); and FDIC v. real property in the Virgin Islands. Bledsoe , 989 F.2d 805 (5th Cir. 1993).
We briefly discuss each of them. We also think the rule we adopt is superior because it can be applied In Tivoli Ventures , the question uniformly to this situation, and to the arose in the context of whether an assignee situation where a mortgage stands alone could sue on the U nited States’ without a personal guarantee, while the (unexpired) cause of action, or was limited rule that defendants propose cannot. See to an antecedent (and now-expired) cause Hilpert v. Commissioner , 151 F.2d 929, of action. There, the FDIC as receiver of 932 (5th Cir. 1945). Finally, the Virgin a failed bank had assigned to a private Islands Legislature is free to overrule by party a note held by the bank. The parties statute this part of our decision. Indeed, did not dispute that the FDIC’s cause of one treatise notes that the rule barring action accrued only when the bank was foreclosure when the statute of limitations placed in receivership, not when the note has run on the secured note is “frequently first came overdue, hence the FDIC’s the result of express statutory provision.” claim expired later. The private party sued 55 Am. Jur. 2d Mortgages § 683 (2003). to collect on the note, and was met with Thus we conclude that UMLIC may the argument that the action was barred by foreclose on the mortgages irrespective of Colorado’s six-year limitations period, whether it may sue in personam to enforce which started to run from the date the note the defendants’ personal guarantees. was overdue. The private party plaintiff
argued that as the assignee of the FDIC, it B. Federal Versus Virgin Island was entitled to the six-year limitations Limitations Period period in 28 U.S.C. § 2415 that started to Having settled that mortgage run from the time the bank was put into foreclosure is an independent action under receivership. The Colorado Supreme Virgin Islands law, we must determine the Court agreed, holding that the private- statute of limitations applicable to such an party assignee of the FDIC stood in the action when it is brought by an assignee of shoes of the United States. the United States. UMLIC claims that an
Like the case before us, Thornburg assignee stands in the shoes of the involved the guarantor-mortgagor’s assignor— here the United States—and liability when a corporation defaulted on thus that the federal limitations periods an SBA-backed loan. The guarantee and UMLIC. mortgage were first assigned to a private
Bledsoe ’s facts are between Tivoli party, and then assigned back to the SBA Ventures and Thornburg . Like Tivoli which brought the case. The mortgagor Ventures , Bledsoe involved a note that first argued that the state statute of limitations came to the United States as receiver (the ran out on the note while it was in the FSLIC) in an S&L insolvency. The note hands of the private party, and thus that the was assigned to a private party (unlike action by the SBA was time barred as well Thornburg , this seems to have been a true because a transfer (back) to the United sale, and not a consignment) and then (via States cannot revive a time-barred cause of another insolvency) back to the United action. See FDIC v. Hinkson , 848 F.2d States as receiver. Like Thornburg , the 432, 434 (3d Cir. 1998) (“If the state defendant asserted that the four-year state statute of limitations has expired before statute of limitations ran on the note while the government acquires a claim, it is not it was in private hands, and could not revived by transfer to a federal agency.”). [8] thereafter be resuscitated by transfer to the The Court of Appeals for the Ninth Circuit United States. The Court of Appeals for held that the federal statute applied. After the Fifth Circuit held that the six-year discussing (and approving) cases that hold federal statute applied to the note while it that an assignee of the United States stands was in the hands of the assignee of the in the shoes of the United States, the United States, and thus concluded that the Thornburg Court ultimately rested its cause of action had not expired. holding on the fact that the assignment to the private party was only for collection Thornburg lists as adhering to this purposes (referred to by some courts as a rule a number of state courts and federal “consignment”), and the United States district courts, in addition to the Courts of never divested itself of the note. See Appeal for the Fifth and Ninth Circuits; it Thornburg , 82 F.3d at 891-92. This may notes only one contrary decision, Wamco, make Thornburg a more compelling case III, Ltd. v. First Piedmont Mortgage Corp. , for application of federal limitations law 856 F. Supp. 1076 (E.D. Va. 1994). See than this case, because in the case before Thornburg 82 F.3d at 890-91. Since 1996, us now, title to the mortgage has passed to when Thornburg was decided, the Court of
Appeals for the Tenth Circuit has joined this group. See UMLIC-Nine Corp. v. [8] Hinkson does not apply here because Lipan Springs Dev. Corp. , 168 F.3d 1173 the earliest date of default was late 1988, (10th Cir. 1999). We too now join the and the note was transferred to the SBA majority view. in early 1994, a period of less than six In view of the thorough discussions years. No party proposes as pertinent to in Tivoli Ventures , Bledsoe , and this case any statute of limitations, Thornburg , we simply summarize what we federal or Virgin Islands, shorter than six regard as the best doctrinal and public years. policy reasons for the rule that the assignee limitations period (or preempt any existing of the United States stands in the shoes of state limitations period). Rather it seems the United States and is entitled to rely on to clarify that the other subsections of § the limitations periods prescribed by 2415—w hich we shall come to federal law. Doctrinally, an assignee stood shortly—do not extend to certain actions in the shoes of the assignor at common involving real property. That said, we do law, and the Uniform Commercial Code not think § 2415(c) applies to this action. provides that “[t]ransfer of an instrument
At common law, a mortgage was . . . vests in the transferee any right of the “title to . . . real . . . property,” § 2415(c), transferor to enforce the instrument.” because under the common law, a UCC § 3-203(b). Moreover, the mortgage granted an estate in land. See Restatement (Second) of Contracts § 336 Black’s Law Dictionary 1009-10 (6th ed. cmt. b, ex. 3 explains that “A lends money 1990): to B and assigns his right to C. C’s right is barred by the Statute of Limitations when Mortgage. . . . At common A’s right would have been.” We see no law, an estate created by a reason that the inverse should not hold as conveyance absolute in its well. In public policy terms, affording form, but intended to secure assignees of the United States the same the performance of some rights as the United States is desirable act, such as the payment of because it improves the marketability of money . . . and to become instruments held by the United States, void if the act is performed thereby giving the United States greater . . . . The mortgage operates flexibility in monetizing its claims. as a conveyance of the legal
title to the mortgagee, but C. The Applicable Federal Limitations such title is subject to Period defeasance on payment of Having settled that federal law the debt . . . . should govern the limitations period in this The Virgin Islands, however, is a “lien case, the question now becomes what that theory” jurisdiction. See BA Props. v. limitations period is. We start with 28 Gov’t of V.I. , 299 F.3d 207, 218-20 (3d U.S.C. § 2415(c), which concerns Cir. 2002) (citing Royal Bank of Canada v. “action[s] to establish . . . title to . . . real . Clarke , 373 F. Supp. 599, 601 (D.V.I. . . property.” That section provides: 1974)); see also 28 V.I. Code § 290 (“A “Nothing herein shall be deemed to limit mortgage of real property shall not be the time for bringing an action to establish deemed a conveyance so as to enable the the title to, or right of possession of, real owner of the mortgage to recover or personal property.” At the threshold, possession of the real property without a we note that the literal language of § foreclosure and sale according to law, and 2415(c) does not affirmatively establish a a judgment thereon.”). As Black’s Law Dictionary explains, “in many . . . states, a upon any contract express or mortgage is regarded as a mere lien, and implied in law or fact, shall not as creating a title or estate. It is a be barred unles s the pledge or security of particular property complaint is filed within six for the payment of a debt . . . but is not years after the right of now regarded as a conveyance in effect.” action accrues or within one Black’s Law Dictionary at 1010 (citations year after final decisions omitted). have been rendered in
applicable administrative The implication of all this is that an proceedings required by action to foreclose on a mortgage in the c o n tr a c t o r b y l a w , Virgin Islands would not be “an action to whichever is later. . . . establish the title to . . . real . . . property” under § 2415(c), because Virgin Islands Every Court of Appeals to consider the law would recognize no interest in real question whether § 2415(a) sets a property from the mortgage. [9] Since § limitations period on mortgage foreclosure 2415(c) does not apply to this action, we actions has concluded that it does not. next consider whether the six-year This has been the consistent result in both limitations period provided in § 2415(a) lien theory and title theory jurisdictions, applies. Our inquiry is guided by the rule and has held irrespective of how the court of construction that “[s]tatutes of has interpreted § 2415(c). See Westnau limitations sought to be applied to bar Land Corp. v. SBA , 1 F.3d 112, 114-16 (2d rights of the Government, must receive a Cir. 1993) (§ 2415(a) does not apply) strict construction in favor of the (citing cases); FmHA v. Muirhead , 42 F.3d G o v e r n m e n t . ” B a d a r a c c o v . 964 (5th Cir. 1995) (neither § 2415(a) nor Commissioner , 464 U.S. 386, 391 (1984) (c) applies); United States v. Omdahl , 104 (quoting E.I. Dupont de Nemours & Co. v. F.3d 1143, 1145-46 (9th Cir. 1997) (“§ Davis , 264 U.S. 456, 462 (1924)). 2415(c) applies to a mortgage foreclosure
action”); United States v. Ward , 985 F.2d Section 2415(a) provides: 500 (10th Cir. 1993) (Oklahoma is a lien (a) [Subject to exceptions theory state; § 2415(a) does not apply); not pertinent here,] every United States v. Alvarado , 5 F.3d 1425, action for money damages 1429 (11th Cir. 1993) (§ 2415(a) does not brought by the United States apply). or an officer or agency
We join these courts in holding that thereof which is founded § 2415(a) does not apply to mortgage foreclosure actions. Two related rationales—one or both of which is present [9] We express no view on the in each of the cases cited above—convince applicability of § 2415(c) in a title theory us of this. First, foreclosure was a jurisdiction. historically equitable remedy. Since § UMLIC’s action, and the District Court 2415(a) speaks in terms of “damages,” a was correct to rule again st the defendants. [10] traditionally legal remedy, foreclosure actions are not encompassed by § 2415(a).
The order of foreclosure will be Second, foreclosure is an in rem affirmed, and the stay will be vacated. proceeding, and money damages are not acquired through in rem proceedings.
Since no party contends that any of the other limitations periods in other [10] We note that the use of a federal subsections of § 2415 apply, we are left limitations period in federal lending with the result that there is no federally transactions has been subject to forceful provided statute of limitations for criticism. In Muirhead , Judge Edith mortgage foreclosure actions. Like the Jones wrote: Muirhead , Alvarado , Westnau , and Ward [W]e are troubled by Courts, we turn to federal common law to the federal government’s fill the gap. insistence that it may enforce ancient mortgages
The gap is filled by what the Court outstanding in numerous, of Appeals for the Tenth Circuit long-lived and often characterized as: default-prone federal [t]he maxim, time does not lending programs run against the sovereign, essentially forever. The combined with the principle continued existence of that the United States is not these mortgages may cloud bound by a statute of titles to property all over limitations unless Congress the country, and in so has explicitly expressed one, doing will engender United States v. John confusion, higher real Hancock Mut. Life Ins. Co. , property transaction costs,
364 U.S. 301 (1960)
and commercial instability. If federal agencies simply
Ward , 985 F.2d at 502; see also United conformed their lending States v. Kimbell Foods, Inc. , 440 U.S. practices to the dictates of 715, 725 (1979) (federal law governs state law, as every private issues involving the rights of the United lender must, they would act States arising under nationwide federal more promptly upon programs, though absent Congressional defaulted mortgages and directives to the contrary, state law can would not prejudice the provide the federal rule of decision). Thus alienability of reality [sic]. there is no statute of limitations on Muirhead , 42 F.3d at 967.