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Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 

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,PUBLISH 

FILED 

(foited s,c~tes Cot~rt ~f Appeals 

J encb Ci~rnir 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FEB 2 0 1990 

ROBERT L I-IOECKER 

Clerk 

FEDERAL LAND BANK OF WICHITA, 

Plaintiff-Appellant, 

V. 

) 

) 

) 

) 

) 

) 

GLENN Z. FERGUSON; MARJORIE J. FERGUSON;) 

MIKE AHLBERG; EARLE. JONES; ALICE E. ) 

JONES, ) 

Defendants, 

) 

) 

) 

NINTH DISTRICT PRODUCTION CREDIT ) 

ASSOCIATION, formerly known as ) 

Southwest Production Credit Association,) 

Defendant-Cross-Appellant, 

UNITED STATES OF AMERICA, DEPARTMENT 

OF AGRICULTURE, by its agency Fa~mers 

Home Administration, 

Defendant-Appellee 

Cross-Appellee. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

Nos. 88-2542 

& 

88-2603 

APPEAL'FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. 87-F-616) 

Submitted on the briefs: 

Margaret L. Carey of Woodrow, Roushar & Carey, Montrose, Colorado, 

for Plaintiff-Appellant. 

John J. Fleming, Jr., Montrose, Colorado, for Defendant-Cross 

Appellant. 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 1 
Michael J. Norton, United States Attorney, Jessie A. Messenger, 

Special Assistant United States Attorney, Jerry R. Atencio; 

Assistant United States Attorney, Denver, Colorado~ for 

Defendant-Appellee-Cross-Appellee. 

Before MCKAY, TACHA, and EBEL, Circuit Judges. 

PER CURIAM. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of these appeals. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cases are therefore ordered 

submitted without oral argument. 

This is a consolidated appeal from a judgment of the district 

court establishing the priority of _two deed of trust liens held by 

defendant-appellee United States ex rel. Farmers Horne 

Administration (FrnHA) with respect to property owned by defendants 

Glenn and Marjorie Ferguson, who have not sought review of the 

district court's foreclosure order and have played no·role in this 

appeal. Plaintiff-appellant Federal Land Bank (FLB) and 

defendant-cross-appellant Ninth District Production Credit 

Association (PCA) jointly challenge the district court's 

determination that FLB's claim for foreclosure-related attorney's 

fees, to which a portion of PCA's lien interest is junior, is 

itself subordinate to the FrnHA liens. 

The parties' dispute is driven by a conflict between the 

priority schemes mandated by state and federal law. Specifically, 

2 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 2 
as explained in more detail below, this case requires an election 

between two source-of-law dependent outcomes: Under Colorado law, 

FLB's claim for fees would assume the priority of the (senior) 

lien with which it is associated, thereby taking precedence over 

FmHA's junior lien, while under federal first-in-time and 

choateness principles, FmHA's lien would take priority over FLB's 

fees claim because the latter state law claim was inchoate at the 

time the federal lien was estab~ished. 

Sometime after FLB's foreclosure action was removed to 

federal court, the parties submitted their priority dispute to the 

district court on a set of stipulated facts, from which we have 

culled the following pertinent details. In March of 1972, the 

Fergusons executed and delivered to FLB a promissory note secured 

by a contemporaneously recorded mortgage on the real property that 

is the subject of this action. Over the next several years, PCA 

and FmHA obtained from the Fergusons and recorded a number of 

deeds of trust on the same property. In accordance with the terms 

of a partial subordination agreement executed by these subsequent 

creditors in December of 1985, FmHA was left in a superior 

position as to all but a fraction of the debt secured by one deed 

of trust held by PCA. 

There is no dispute regarding the ordering of the parties' 

liens, which follows in a straightforward manner from the 

stipulated facts. The controversy concerns the place in that 

order to be accorded FLB's claim for 

based on the following provision 

senior, recorded mortgage: 

3 

attorney's 

included in 

fees, which is 

its admittedly 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 3 
Mortgagor hereby covenants and agrees with 

mortgagee as follows: to reimburse.mortgagee for all 

costs and expenses incurred by it in any suit to 

foreclose this mortgage, or in any suit in which 

mortgagee may be obliged to defend or protect its right 

or lien acquired hereunder, including all reasonable 

court costs, a reasonable attorney's fee where allowed 

by law, and other expenses; and such sum shall be 

secured hereby and included in any decree of 

foreclosure. 

In Colorado, when a lien is enforced through mortgage 

foreclosure proceedings, the foreclosing creditor may obtain 

attorney's fees up to the ten percent limit imposed by Colo. Rev. 

Stat. § 38-38-106. Bakers Park Mining & Milling Co. v. District 

Court, 662 P.2d 483, 485 (Colo. 1983). Furthermore, under Colo. 

Rev. Stat. §§ 38-37-142(2)(specifying rules governing written 

foreclosure sale bids), attorney's fees "allowable by the note or 

deed of trust" may be included in the foreclosing creditor's bid, 

i.e., they may be treated as part and parcel of the indebtedness 

secured by the creditor's lien that must be satisfied before 

additional proceeds, if any, from the sale are distributed to 

junior lienholders or the debtor. See, ~, San Miguel Basin 

State Bank v. Oliver, 748 P.2d 1342, 1344-46. (Colo. App. 

1987)(where foreclosing senior lienholder's bid exceeded aggregate 

amount of debt and recoverable attorney's fees, only the excess 

was to be applied to satisfy junior liens); see also Thirnrnig v. 

Segel, 3 P.2d 303, 304 (Colo. 193l)(affirming trial court's 

holding that, while after-advances on notes secured by earlier 

mortgage did not relate back for purposes of lien priority, 

creditor was entitled to senior position to extent of original 

indebtedness, interest, and attorney's fees provided for in 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 4 
mortgage). Accordingly, we recognize that viewed exclusively in 

terms of the applicable state law, FLB's claim for recoverable 

attorney's fees would be accorded the same senior priority to 

which its associated mortgage is clearly entitled. 

FmHA maintains, however, that this state priority scheme is 

partially overturned by federal first-in-time and choateness 

principles, which require placement of the lien held by FmHA ahead 

of FLB's fee clqim (and, consequently, also ahead of even that 

portion of PCA's junior (to FLB) lien not already subordinated to 

FmHA by their December, 1985, agreement). In support of its 

position, FmHA relies upon this court's holding in T. H. Rogers 

Lumber Co. v. Apel, 468 F.2d 14, 16-18 (10th Cir. 1972), that 

these federal principles, which were developed in a series of 

Supreme Court cases dealing with federal tax liens, also govern 

the prioritization of nontax, consensual federal liens (in T. H. 

Rogers, a mortgage held by FmHA). See also D.I.R. v. United 

States, 392 F.2d 307, 312-13 (10th Cir. 1968). Since FLB's fee 

claim was necessarily indeterminate as to amount -- and therefore 

inchoate -- at the time the FmHA lien attached, FmHA contends its 

lien is prior in time and prior in right to FLB's nonfederal claim 

for fees. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 

721 (1979)(for nonfederal lien to be choate, and therefore first 

in time, the "identity of the lienor, the property subject to the 

lien, and the amount of the lien [must be] established")(quoting 

United States v. City of New Britain, 347 U.S. 81, 84 (1954)); 

~,~,United States v. Equitable Life Assurance Soc., 384 

U.S. 323, 327-29 (1966); United States v. Pioneer Am. Ins. Co., 

5 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 5 
374 U.S. 84, 87-92 (1963); cf. Chevron U.S.A., Inc. v. May 

Oilfield Servs., Inc., 739 F.2d 498, 499 (10th Cir. 1984). The 

district court agreed, granting FmHA priority over FLB's fees 

claim on the basis of our T. H. Rogers decision. 

The history of the first-in-time/choateness rule is set forth 

in numerous cases and need not be recounted in full here. See, 

~, Kimbell Foods, 440 U.S. at 721 n.8; Willow Creek Lumber Co. 

v. Porter County Plumbing & Heating, Inc., 572 F.2d 588, 590-91 

(7th Cir. 1978); Chicago Title Ins. Co. v. Sherred Village 

Assocs., 568 F.2d 217, 219-20, (1st Cir. 1978), vacated and 

remanded, 441 U.S. 901 (1979). We take up the story in the 

mid-1970's, prior to the Supreme Court's decision in Kimbell 

Foods. At that time, the circuits split into two general lines of 

authority on the issue whether this federal common law principle, 

rather than pertinent state law, provided the appropriate federal 

rule of decision with respect to the priority of consensual 

federal liens, just as it had earlier done with respect to federal 

tax liens. The First, Second, Fourth, and Seventh Circuits 

subscribed to the same approach this circuit followed in T. H. 

Rogers, while the Fifth and Ninth Circuits considered the 

first-in-time/choateness rule, then already substantially 

diminished in prominence by legislation in its inceptive area of 

federal tax collection, inapplicable to liens resulting from the 

government's voluntary extension of credit. See Willow Creek 

Lumber, 572 F.2d at 590-91; Chicago Title Ins. Co., 568 F.2d at 

220-21. In Kimbell Foods, the Supreme Court accepted review of 

two representative Fifth Circuit decisions and set about to 

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Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 6 
resolve this conflict. See generally Kimbell Foods, 440 U.S. at 

718-23, 723-25, and n.16. 

Following an extensive discussion of the considerations 

pertinent to the choice between adopting state law as the federal 

rule of decision or employing a uniform nationwide principle such 

as the first-in-time/choateness rule, see id. at 727-40, the Court 

announced its holding that "absent a congressional directive, the 

.relative priority of private liens and consensual liens arising 

from these Government [SBA and FmHA] lending programs is to be 

determined under nondiscriminatory state laws." Id. at 740. This 

rather broad pronouncement, which expressly excepts only 

discriminatory rules +rom the domain of appropriately adopted 

state lien priority law, evidences a general abandonment of the 

first-in-time/choateness rule outside the federal tax context. 

However, FmHA maintains that certain distinctions between Kimbell 

Foods and the case at bar, relating to the considerations 

underlying the former's ostensibly comprehensive holding, counsel 

against its application to the present circumstances. 

FmHA contends that Kimbell Foods is inapposite because the 

instant lien dispute concerns real property to which the Uniform 

Commercial Code, a source of state law adopted in Kimbell, does 

not apply. While Kimbell Foods certainly encourages adoption of 

UCC provisions, see Great Southwest Life Insurance Co. v. Frazier, 

860 F.2d 896, 899 (9th Cir. 1988), see also In re Murdock Machine 

& Engineering Co., 620 F.2d 767, 772-73 (10th Cir. 1980), it does 

not indicate that other sources of state law are unacceptable. 

Indeed, one of the two Fifth Circuit cases reviewed in Kimbell 

7 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 7 
Foods was vacated and remanded precisely because the state's 

mechanic's lien statute, which establishes priorities that fall 

outside the scope of the ucc, see u.c.c. § 9-104(c) and§ 9-310; 

In re Waller Creek, Ltd., 867 F.2d 228, 233 (5th Cir. 1989), had 

been passed over in favor of Model UCC provisions in the lower 

court's determination of the relative priorities of an FmHA 

security interest and a private repairman's lien. United States 

v. Crittenden, 563 F.2d 678, 683, 688-90 (5th Cir. 1977), vacated 

and remanded sub nom. United States v. Kimbell Foods, Inc., 440 

U.S. 715, 723-25, 740, on remand, 600 F.2d 478, 480 (5th Cir. 

1979); see also Chicago Title Ins. Co. v. Sherred Village Assocs., 

708 F.2d 804, 807, 810-11 (1st Cir. 1983)(also adopting state 

mechanic's lien law as federal rule of decision following remand 

by Supreme Court for reconsideration under Kimbell Foods). Courts 

have since relied upon Kimbell Foods for the adoption of local 

non-UCC law in various federal contexts. See, ~, Dupnik v. 

United States, 848 F.2d 1476, 1478-79, 1481-84 (9th Cir. 1988); 

Pearlstein v. SBA, 719 F.2d 1169, 1176-77 (D.C. Cir. 1983); United 

States v. S.K.A. Assocs., Inc., 600 F.2d 513, 515-16 (5th Cir. 

1979). 

The emphasis placed by FmHA on its asserted need for 

uniformity in its loan transactions is simply not borne out by the 

pertinent authorities. The Supreme Court flatly dismissed this 

consideration in Kimbell Foods: 

Thus, the agencies' [SBA's and FmHA's] own 

operating practices belie their assertion that a federal 

rule of priority is needed to avoid the administrative 

burdens created by disparate state commercial rules. 

8 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 8 
The programs already conform to each State's commercial 

standards. By using local lending offices and employees 

who are familiar with the law of their respective 

localities, the agencies function effectively without 

uniform procedures and legal rules. 

Since there is no indication that variant state 

priority schemes would burden current methods of loan 

processing, we conclude that considerations of 

administrative convenience do not warrant adoption of a 

uniform federal law. 

440 U.S. at 732, 733 (footnote omitted). Other decisions, 

rendered both before and after Kimbell Foods, have also expressly 

discounted the necessity for uniform treatment of FmHA loans. 

See,~, United States v. Spears, 859 F.2d 284, 290 (3d Cir. 

1988); United States v. Tugwell, 779 F.2d 5, 7 (4th Cir. 1985); 

United States v. Chappell Livestock Auction, Inc., 523 F.2d 840, 

841 (8th Cir. 1975). 

Finally, FmHA argues that whatever state statutory law may 

properly be employed as the federal rule of decision with respect 

to lien priorities, Kimbell Foods does not contemplate the 

adoption of state decisional law for such purposes. Again, 

however, the broad holding in Kimbell Foods contains no 

qualification in this respect, and FmHA has not cited a single 

authority. imposing such a limitation. Indeed, a number of cases 

from various courts, including this circuit, illustrate the 

adoption of state common law principles as federal rules of 

decision under the Kimbell Foods analysis. See,~, Sierra Club 

v. Hodel, 848 F.2d 1068, 1079, 1081-84 and n.12 (10th Cir. 1988); 

FDIC v. Palermo, 815 F.2d 1329, 1334-35 (10th Cir. 1987); Mardan 

Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1457-58, 1460-63 (9th 

9 

Appellate Case: 88-2542 Document: 010110190841 Date Filed: 02/20/1990 Page: 9 
Cir. 1986); Georgia Power Co. v. Sanders, 617 F.2d 1112, 1115 n.4, 

1121 n.13 (5th Cir. 1980), cert. denied, 450 U.S. 936 (1981); cf. 

City of Evansville v. Kentucky Liquid Recycling, Inc., 604 F.2d 

1008, 1021 n.43 (7th Cir. 1979)(in federal action for damages 

caused by discharge of contaminants into interstate waterway, 

"[a]lthough federal common law controls, federal statutes as well 

as state statutes and common law are nevertheless highly 

relevant"), cert. denied, 444 U.S. 1025 (1980). 

Accordingly, we hold that Kimbell Foods requires adoption of 

the principles of Colorado lien priority law discussed earlier, 

which place FmHA in a junior position both as to FLB's mortgage 

lien and FLB's associated fees claim. The contrary result reached 

by the district court in reliance upon our earlier decision in 

T. H. Rogers cannot stand. 1 

The judgment of the United States District Court for the 

District of Colorado is REVERSED and the causes REMANDED for 

further proceedings consistent with this opinion. 

1 The entire court has reviewed and given its en bane approval 

to the present reassessment and divergent disposition of the 

common issues first addressed by another panel of this court in 

T. H. Rogers. See generally United States v. Taylor, 828 F.2d 

630, 633 (10th Cir. 1987). 

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