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United States v. Dos Cabezas Corp.

filed: June 21, 1993.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,
v.
DOS CABEZAS CORP., AN ARIZONA CORPORATION; STATE OF ARIZONA DEPARTMENT OF ECONOMIC SECURITY, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the District of Arizona. D.C. No. CV-89-00574-RMB. Richard M. Bilby, Chief Judge, Presiding.

Before: Joseph T. Sneed, Arthur L. Alarcon, and William C. Canby, Jr., Circuit Judges Opinion by Judge Canby.

Author: Canby

CANBY, Circuit Judge:

The United States appeals the district court's ruling that, in an action brought by the United States for a deficiency judgment on a promissory note that was secured by a deed of trust, the United States is subject to a six-year limitations period. In addition the United States challenges the district court's determination that, because the government's cause of action accrued on the date the defendant defaulted on the obligation, rather than on the date that the government accelerated the date payment was due, the government's action to recover a deficiency judgment is time-barred.

We affirm the district court's judgment.

BACKGROUND

The issues in this case revolve around the timing of the events giving rise to the government's cause of action. In May 1979, defendants-appellees Dos Cabezas Corporation (the Corporation) and six individuals received from the Farmers Home Administration four emergency installment loans. The Corporation and the six individuals evidenced these loans by signing promissory notes and the Corporation executed a deed of trust, which the individuals acknowledged, conveying several parcels of real estate to secure the loans.

Under the terms of the loan agreement, payments were due in periodic installments beginning on January 1, 1980. The deed of trust provided that should the borrowers default in performance of their obligations the government could at its option "declare the entire amount unpaid under the note and any indebtedness to the government hereby secured immediately due and payable, . . . and . . . bring an action to foreclose this instrument, obtain a deficiency judgment, or enforce any other remedy provided by law." The promissory notes contained similar acceleration clauses.

The Corporation failed to make timely payments on any of the notes. In April 1981, fifteen months after the Corporation defaulted, the Farmers Home Administration accelerated the debts and demanded full payment within fifteen days. Eight days later, the Corporation, but not the individual defendants, filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. As a result, an automatic stay went into effect, precluding the government from bringing a foreclosure action against the Corporation. 11 U.S.C. § 362(a)(4) (1993). In January 1982, the government requested relief from the stay and permission to proceed with its foreclosure and default remedies under the deed of trust. The bankruptcy court granted the government's request two months later.

In November 1983, and in the spring of 1987, the Federal District Court for North Dakota entered orders in a nationwide class action enjoining the Farmers Home Administration from accelerating or foreclosing on its loans. Coleman v. Block, 580 F. Supp. 192 (D.N.D. 1983); Coleman v. Block, 663 F. Supp. 1315 (D.N.D 1987), vacated as moot, 864 F.2d 604 (8th Cir. 1988), cert. denied sub nom. Coleman v. Yeutter, 493 U.S. 953, 107 L. Ed. 2d 351, 110 S. Ct. 364 (1989). The injunctions remained in effect for a total of 20.5 months.

The government brought an action against the Corporation and the six individuals in October 1989, seeking to foreclose on the deed of trust and requesting the court to retain jurisdiction so that the government could bring an action against the individual defendants in the case of a deficiency. The parties stipulated to the foreclosure and about one year later the district court entered a partial judgment, ordering foreclosure of the property in the deed of trust and providing that the issue of the individual defendants' liability would be determined in subsequent motions. The Farmers Home Administration sold the property in January 1991.

The individual defendants moved to dismiss the government's subsequent action for a deficiency judgment. According to the individual defendants, the government's cause of action accrued on the date of the first nonpayment under the notes, January 1, 1980, and was therefore time-barred under either Arizona's six-year statute of limitations or the six-year limitations period provided in 28 U.S.C. § 2415 (a). The government maintained that because foreclosure actions in which the United States is the plaintiff are not subject to a limitations period, the action was not time-barred. Alternatively, the government argued, even if the action were subject to a six-year limitations period, the action was timely because the claim accrued on the date the loans were accelerated and the 21.5 month Coleman injunctions plus the 10.5 month bankruptcy stay gave the government an additional thirty-two months in which to file its claim.

The district court issued an order granting the defendants' motion for summary judgment and barring the deficiency action. According to the district court, in the absence of a federal statute of limitations, the Arizona statute of limitations for foreclosure actions would apply. Without ruling definitively on whether the automatic stay tolled the limitations period applicable to the government's cause of action against ...


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