FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES SMALL

BUSINESS ADMINISTRATION, an

agency of the government of the

United States of America,

Plaintiff-Appellee,

v.

MICHAEL D. BENSAL, an

individual,

Defendant-Appellant,

and

SUSAN J. BENSAL, as trustee of

the Edward D. Bensal Trust;

MICHAEL EDWARD BENSAL, an

individual; SOPHIA BENSAL, an

individual,

Defendants.

No. 14-17404

D.C. No.

3:13-cv-02263-WHO

OPINION

Appeal from the United States District Court

for the Northern District of California

William Horsley Orrick, District Judge, Presiding

Argued and Submitted December 12, 2016

San Francisco, California
2 SMALL BUS. ADMIN. V. BENSAL

Filed April 4, 2017

Before: Michael Daly Hawkins, Marsha S. Berzon,

and Mary H. Murguia, Circuit Judges.

Opinion by Judge Murguia

SUMMARY*

Federal Debt Collection Procedures Act 

The panel affirmed the district court’s judgment in favor

of the United States Small Business Administration (“SBA”)

in the SBA’s action seeking to satisfy a default judgment

assigned to SBA, arising after the default on a loan that SBA

guaranteed between a private bank and appellant Michael

Bensal’s company.

Michael Bensal did not accept an inheritance in his

deceased father’s trust, and instead signed a disclaimer,which

transferred his trust share to his children and prevented

creditors from accessing his trust share under California law.

The Federal Debt Collection Procedures Act

(“FDCPA”)’s “fraudulent transfer” provision allows the

federal government to void a fraudulent transfer by a debtor

owing a debt to the United States. The SBA sought to void

Bensal’s disclaimer under the FDCPA as a fraudulent transfer

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
SMALL BUS. ADMIN. V. BENSAL 3

that prevented SBA from collecting the debt Bensal owed on

the default judgment.

The panel held that the FDCPA displaced California’s

disclaimer law, California Probate Code § 283. The panel

concluded that Bensal’s disclaimer constituted a transfer of

property under the FDCPA, and California disclaimer law did

not operate to prevent the SBA from reaching Bensal’s trust

share.

The panel held that Bensal owed a “debt” to the United

States. The panel concluded that the portion of the default

judgment based on a second loan, which was guaranteed by

the SBA, was a “debt” within the meaning of the FDCPA.

COUNSEL

Brian D. Seibel (argued), Seibel & Finta LLP, Concord,

California, for Defendant-Appellant.

David M. Wiseblood (argued), San Francisco, California, for

Plaintiff-Appellee.
4 SMALL BUS. ADMIN. V. BENSAL

OPINION

MURGUIA, Circuit Judge:

This case requires us to interpret two provisions of the

Federal Debt Collection Procedures Act (“FDCPA”), which

Congress enacted “to create a comprehensive statutory

framework for the collection of debts owed to the United

States government.” United States v. Gianelli, 543 F.3d 1178,

1183 (9th Cir. 2008) (quoting H.R. Rep. No. 101-736, at 32

(1990)).

The United States Small Business Administration

(“SBA”) guaranteed a loan between a private bank and

Appellant Michael Bensal’s (“Bensal”) company, Bensal &

Coburn Investments LLC (“BCI”). After BCI defaulted on

the loan, the private bank sued BCI as the borrower and

Bensal as a personal guarantor. The private bank recovered a

default judgment and assigned that judgment to the SBA.

Several years later, Bensal inherited a share in his

deceased father’s trust. Bensal did not accept his inheritance;

instead, he signed a disclaimer, which legally passed his trust

share to his two children and prevented creditors from

accessing his trust share under California law. After Bensal

executed his disclaimer, the SBA filed a lawsuit seeking to

satisfy its default judgment. The district court held that:

(1) the SBA is allowed to recover from Bensal’s trust share

under the FDCPA despite contraryCalifornia law, and (2) the

default judgment was a debt within the meaning of the

FDCPA. We affirm.
SMALL BUS. ADMIN. V. BENSAL 5

BACKGROUND

In 1999, BCI sought to establish TransWorld Burgers, a

fast-food restaurant with an airline-inspired theme and decor.

To finance this operation, BCI took out two loans from

Millennium Bank (“Millennium”). In connection with the

second loan, but not the first, BCIsought a guaranty from the

SBA.

The SBA is a federal government agency that assists

small businesses by, among other things, guaranteeing

commercial loans from private banks. By providing its

guaranty that a commercial loan will be repaid, the SBA

eliminates some of the risk private lenders face and

encourages private lenders to extend more loans to small

businesses. 15 U.S.C. § 636(a) (“The [SBA] is empowered

. . . to make loans to any qualified small business . . . either

directly or in cooperation with banks or other financial

institutions through agreements to participate on an

immediate or deferred (guaranteed) basis.”); see also United

States v. Kimbell Foods, Inc., 440 U.S. 715, 719 n.3 (1979)

(noting that “[t]he SBA prefers to guarantee private loans

rather than to disburse funds directly”).

A. The SBA Guaranty and BCI’s Default

Over the course of several months, the parties signed

several documents as part of the SBA’s guaranty of the

second loan between BCI and Millennium. First, Millennium

submitted an application to the SBA for an SBA guaranty of

75% of a proposed $250,000 loan to BCI. In a signed

document (“SBA Authorization”), the SBA reduced the loan

amount to $175,000, but otherwise approved the bank’s

application, agreeing to guarantee up to 75% of the loan.
6 SMALL BUS. ADMIN. V. BENSAL

Next, BCI and Millennium executed a standard loan contract

(“Business Loan Agreement”), in which BCI borrowed

$175,000 from Millennium. BCIsigned a form (“SBA Note”)

acknowledging its second loan with Millennium, and Bensal

signed a form (“SBA Guaranty”) personally guaranteeing

repayment of the second loan if BCI defaulted. Both the SBA

Note and the SBA Guaranty appeared on SBA letterhead,

referenced the same SBA loan-identifying information, and

defined rights SBA held against Bensal and BCI.

In January 2000, BCI defaulted on its payment

obligations under both loans; some time before the default,

Millennium had assigned both loans to First Bank & Trust

(“FBT”). FBT filed suit in California state court and alleged,

among other claims, that BCI had breached the SBA Note

and Bensal had breached the SBA Guaranty. The state court

entered default judgment against BCI and Bensal in the

following sums: (1) $95,576.66 in principal and interest owed

on the first loan, (2) $140,905.63 in principal and interest

owed on the second loan, (3) $50,257.92 in attorney fees, and

(4) $902.50 in costs.

Because neither BCI nor Bensal satisfied the default

judgment, FBT requested that the SBA honor its guaranty of

the second loan. In 2005, the SBA negotiated a monetary

adjustment with FBT and ultimately paid $54,027.39 to

satisfy its obligations as a guarantor on the second loan. In

2011, FBT assigned to the SBA its right to collect the entire

amount owing on the default judgment (over $300,000) from

BCI and Bensal.
SMALL BUS. ADMIN. V. BENSAL 7

B. Bensal’s Inheritance and Disclaimer

In July 2011, Bensal’s father died, leaving behind the

Edward D. Bensal Trust (“EDB Trust”), which consisted of

cash and securities valued at $400,692.94. The trust

document awarded Bensal 40% of the EDB Trust. In October

2011, Bensal executed a “Disclaimer of Interest in Trust,”

which means he renounced—refused to accept—his 40%

share of the trust. The legal effect of the disclaimer under

California law was that Bensal’s trust share passed to his two

children. CAL. PROB. CODE § 282.

After Bensal executed the disclaimer, the SBA filed suit

in federal district court against the EDB Trust, Bensal, and

Bensal’s two children. The SBA sought to void Bensal’s

disclaimer under the FDCPA. In its complaint, the SBA

claimed that Bensal had fraudulently transferred his trust

share to his children by executing the disclaimer, thereby

preventing the SBA from collecting the debt Bensal owed on

the default judgment.

Bensal advanced two arguments in response. First, he

asserted that his disclaimer was not a fraudulent transfer

because the California Probate Code provides that “[a]

disclaimer is not a voidable transfer.” CAL. PROB. CODE

§ 283. Second, he maintained that the default judgment

assigned to the SBA was not a “debt” within the meaning of

the FDCPA.

The district court rejected both of Bensal’s arguments,

granted summary judgment in favor of the SBA, and ordered

the defendants to “transfer all property representing Bensal’s

trust share to the SBA in satisfaction of the portion of the

default judgment relating to the second loan.” At the time of
8 SMALL BUS. ADMIN. V. BENSAL

the district court’s summary judgment order, the amount

Bensal owed on the portion of the default judgment relating

to the second loan was over $300,000,

1 while the value of

Bensal’s trust share totaled $153,944.03. Bensal timely

appealed.

STANDARD OF REVIEW

This case involves only statutory interpretation, which we

review de novo. See Millard v. United Student Aid Funds,

Inc., 66 F.3d 252, 253 (9th Cir. 1995). We review a district

court’s grant of summary judgment de novo. Entrepreneur

Media v. Smith, 279 F.3d 1135, 1139–40 (9th Cir. 2002).

DISCUSSION

At the heart of this case lies the FDCPA’s “fraudulent

transfer” provision, which allows the federal government to

void a fraudulent transfer by a debtor owing a debt to the

United States.228 U.S.C. §§ 3301–3308. Specifically, the

FDCPA provides that

a transfer made or obligation incurred by a

debtor is fraudulent as to a debt to the United

States which arises before the transfer is made

or the obligation is incurred if—

1

In the default judgment issued in 2002, the state court determined

that BCI and Bensal owed $140,905.63 on the second loan. Since that

time, interest has accrued at a rate of 10% annually, bringing the total

amount owed on the second loan to over $300,000.

2 The SBA falls within the definition of the “United States” under the

FDCPA. 28 U.S.C. § 3002(15).
SMALL BUS. ADMIN. V. BENSAL 9

(1)(A) the debtor makes the transfer or incurs

the obligation without receiving a reasonably

equivalent value in exchange for the transfer

or obligation; and

(B) the debtor is insolvent at that time or the

debtor becomes insolvent as a result of the

transfer or obligation[.]

28 U.S.C. § 3304(a).

Based on the statutory language, the SBA must prove:

(1) the existence of a debt predating the transfer, (2) a transfer

of assets, (3) lack of equivalent value in exchange for the

transfer, and (4) the debtor’s insolvency at the time of

transfer. Neither party contests that the third and fourth

requirements are satisfied. Instead, the dispute centers on:

(1) whether Bensal’s disclaimer qualifies as a transfer of

property, and (2) whether the default judgment constitutes a

debt.

I. Whether Bensal’s Disclaimer is a Transfer of

Property

Bensal contends that California law, which expressly

states that “[a] disclaimer is not a voidable transfer,” controls

over the FDCPA and prevents the SBA from reaching the

EDB Trust assets. CAL. PROB. CODE § 283. We disagree and

hold that the FDCPA displaces California’s disclaimer law.

A. Preemption

“The SupremacyClause of the Constitution provides that

any state law conflicting with federal law is preempted by the
10 SMALL BUS. ADMIN. V. BENSAL

federal law and is without effect.” Nathan Kimmel, Inc. v.

DowElanco, 275 F.3d 1199, 1203 (9th Cir. 2002) (citing U.S.

Const. art. VI, cl. 2). Where a statute contains an express

preemption clause, we “focus on the plain wording of the

clause, which necessarily contains the best evidence of

Congress’ preemptive intent.” Chamber of Commerce of U.S.

v. Whiting, 563 U.S. 582, 594 (2011) (quoting CSX Transp.,

Inc. v. Easterwood, 507 U.S. 658, 664 (1993)) (internal

quotation marks omitted).

The FDCPA contains an express preemption clause,

which “preempt[s] State law to the extent such law is

inconsistent with a provision of [the statute].” 28 U.S.C

§ 3003(d). Echoing this preemption clause, federal

regulations provide:

No person, corporation, or organization that

applies for and receives any benefit or

assistance from SBA, or that offers any

assurance or security upon which SBA relies

for the granting of such benefit or assistance,

is entitled to claim or assert any local or state

law to defeat the obligation incurred in

obtaining or assuring such Federal benefit or

assistance.

13 C.F.R. § 101.106(d) (emphasis added). When Bensal

signed the SBA Guaranty, in which he personally guaranteed

the second loan, he agreed to a provision that tracks the

language of the regulation: “As to this Guarantee, Guarantor

may not claim or assert any local or state law against SBA to

deny any obligation, defeat any claim of SBA, or preempt

federal law.”
SMALL BUS. ADMIN. V. BENSAL 11

The state law at issue here is California Probate Code

§ 283, which provides that “[a] disclaimer is not a voidable

transfer.” This law directly conflicts with the FDCPA, which

defines “transfer” in such a way as to include Bensal’s

disclaimer. The FDCPA defines “transfer” as “every mode

. . . of disposing of or parting with an asset or an interest in an

asset. . . .” 28 U.S.C. § 3301(6) (emphasis added). “‘Asset’

means property of a debtor. . . .” Id. § 3301(2) (emphasis

added). The term “property” is defined as

any present or future interest, whether legal or

equitable, in real, personal (including choses

in action), or mixed property, tangible or

intangible, vested or contingent, wherever

located and however held (including

communitypropertyand property held in trust

. . . .

Id. § 3002(12) (emphasis added). Based on the plain language

of the FDCPA, Bensal’s disclaimer of the trust property

qualifies as a transfer of property because Bensal “disposed

of” a “present or future interest” in his 40% share of

“property held in trust” by executing a disclaimer that

channelled the trust share to his children.

Under the FDCPA, Bensal’s disclaimer is a transfer of

property that can be voided, 28 U.S.C. § 3304(a), but under

the California Probate Code “[a] disclaimer is not a voidable

transfer.” CAL. PROB. CODE § 283. It seems quite clear that

California law is inconsistent with the FDCPA and must give

way to the federal statute in light of the express preemption

clause.
12 SMALL BUS. ADMIN. V. BENSAL

B. Supreme Court Precedent

Even aside from the preemption clause, our conclusion

that the FDCPA controls over California disclaimer law also

finds support in the Supreme Court’s decision in Drye v.

United States, 528 U.S. 49 (1999). Bensal argues that Drye is

inapplicable to the facts of this case and urges us instead to

apply the holding of In re Costas, 555 F.3d 790 (9th Cir.

2009). Because both Drye and Costas addressed state

disclaimer laws that are virtually identical to the California

law at issue here, these two cases are best discussed in

tandem.

In Drye, the debtor, who owed a substantial tax debt to

the federal government, inherited his mother’s estate.

528 U.S. at 52. Soon after being named sole heir, the debtor

disclaimed his interest in the estate, which then passed by

operation of Arkansas state law to his daughter. Id. Upon

learning of the debtor’s inheritance, the Internal Revenue

Service (“IRS”) filed a notice of federal tax lien, but the

debtor argued that Arkansas inheritance law disallowed

creditors from reaching disclaimed property. Id. at 53. The

Supreme Court rejected this argument and explained,

The question whether a state-law right

constitutes “property” or “rights to property”

is a matter of federal law. We look initially to

state law to determine what rights the

taxpayer has in the property the Government

seeks to reach, then to federal law to

determine whether the taxpayer’s state-
SMALL BUS. ADMIN. V. BENSAL 13

delineated rights qualify as “property” or

“rights to property” within the compass of the

federal . . . legislation.

Id. at 58 (internal citation and quotation marks omitted). The

Court then looked to state law and noted that Arkansas gave

the debtor a choice: he could either “receive the entire value

of his mother’s estate,” or choose to “channel that value to his

daughter.” Id. at 61. Based on this choice, the Court

concluded that the debtor held a “control rein” over his

inheritance and, therefore, possessed “property” within the

meaning of the federal tax lien statute. Id. at 61. Ultimately,

the Drye court concluded that state law did not bar the IRS

from recovering against the debtor’s trust share. Id.

In Costas, we addressed a nearlyidentical state disclaimer

statute in the context of bankruptcy law and arrived at a

different result. The debtor in Costas received a share in her

father’s trust upon his death in 2002; shortly thereafter, she

executed a disclaimer under Arizona law to relinquish her

interest, which passed the trust share to her children. 555 F.3d

at 791–92. A few weeks later, the debtor filed for bankruptcy,

and the Chapter 7 bankruptcy trustee sought to void the

disclaimer under the bankruptcy code’s fraudulent transfer

provision. Id. at 792. The debtor argued that under Arizona

law, creditors were prohibited from reaching disclaimed

property; in response, the trustee invoked Drye for the

proposition that Arizona disclaimer law does not control over

federal law. Id. at 792–93. We distinguished Drye both

factually and legally. Id. at 795–97.

First, we noted a factual distinction based on the timing

of the disclaimer in the two cases. The debtor in Drye

executed his disclaimer after the government already had a
14 SMALL BUS. ADMIN. V. BENSAL

pre-existing interest in his property; therefore, “[a]pplication

of the state law . . . would have stripped the government of

[its] interest.” Id. at 796. In contrast, the debtor in Costas

executed her disclaimer before filing for bankruptcy,meaning

that the bankruptcy estate did not have any prior interest in

the disclaimed property and “the state law did not operate to

defeat any pre-existing interests.” Id. We explained that Drye

is more analogous to post-petition disclaimers (i.e., where the

debtor executes a disclaimer after filing for bankruptcy)

because in those situations “courts have generally included

disclaimed property in the estate, reasoning that the right to

disclaim itself belongs to the estate as of the time of filing.”

Id. In short, we concluded that when a debtor executes a

disclaimer after a debt has already been accrued, then a state

disclaimer law does not control.

Next, we noted differences in the purpose and structure of

the federal tax lien statute and the bankruptcy code. As to

purpose, we explained that the federal tax lien statute is

primarily concerned with collection of federal debts, which

“justifies the extraordinary priority accorded” to the federal

government and “contrasts sharply with the policy of

bankruptcy law, which largely respects substantive state law

rights.” Id. at 796–97. We also highlighted a structural

dissimilarity between the two statutes, explaining that the

federal tax lien statute recognizes “only a narrow range of

[property] exemptions, none ofwhich mention[] disclaimers,”

whereas the bankruptcy code’s property “exemptions are . . .

quite broad, allowing a debtor to take advantage of all

available state law exemptions.” Id. at 797 (citing 11 U.S.C.

§ 522).

Ultimately, we “refuse[d] to extend [Drye’s] logic to the

bankruptcy context” in the Costas decision. Id. Unlike
SMALL BUS. ADMIN. V. BENSAL 15

Costas, however, this case presents a situation that factually

and legally fits within the Drye framework.

First, the IRS in Drye and the SBA here both had a preexisting interest in the disclaimed propertybecause the debtor

in each case executed a disclaimer after the debt had already

accrued. Id. at 796. In contrast, the trustee in Costas had no

prior interest in the debtor’s disclaimed property, because the

disclaimer there occurred before the debtor filed for

bankruptcy. Id. This factual distinction is crucial, as we

recognized in Costas, because “[a]pplication of the state law

[disclaimer] would . . . strip[] the government of [its preexisting] interest.” Id.

Next, the purpose of the FDCPA is more similar to the

federal tax lien statute at issue in Drye than the bankruptcy

code involved in Costas. Much like the federal tax lien

statute, the FDCPA is primarily concerned with the collection

of federal debt, as it was enacted to “create a comprehensive

statutory framework for the collection of debts owed to the

United States government.” Gianelli, 543 F.3d at 1183

(quoting H.R. Rep. No. 101-736, at 32 (1990)). This purpose

is also reflected in the legislative history of the FDCPA,

which reveals that Congress’ goal was to

bring an end to the present situation whereby

a crazy patchwork of laws in the 50 states

dictate the debt collection remedies available

to [the federal government] in collecting

Federal debts. It would provide consistent and

fair creditors’ rights to the Government

regardless of the state of residence of the

debtor and eliminate the preferences certain
16 SMALL BUS. ADMIN. V. BENSAL

state laws presently confer on Federal debtors

who just happen to live in states which are

regarded as notorious ‘debtors havens.’

H.R. Rep. No. 101-825 (1990).

The FDCPA does share the bankruptcy code’s extensive

list of property exemptions. See 28 U.S.C. § 3014(a)(1)

(expressly incorporating the bankruptcy code’s property

exemptions into the FDCPA). This single, shared feature

between the FDCPA and the bankruptcy code, however, is

dwarfed by the significant parallels between the FDCPA and

the federal tax lien statute. More importantly, we

acknowledged in Costas that despite the bankruptcy code’s

extensive property exemptions, if the facts there had been

more similar to the facts here (i.e., a disclaimer after the

bankruptcy estate “gain[ed an] interest in the right to

disclaim”) the state disclaimer law would not have prevented

creditors from accessing the disclaimed property. In re

Costas, 555 F.3d at 796. The considerable similarity between

the federal tax lien statute and the FDCPA supports extending

the reasoning in Drye to the present case. See Exp. Imp. Bank

of U.S. v. Asia Pulp & Paper Co., 609 F.3d 111, 117 (2d Cir.

2010) (extending the Drye analysis from the federal tax lien

statute to the FDCPA context).

Applying the analytical framework set forth in Drye, we

look “to state law to determine what rights the [debtor] has in

the property the Government seeks to reach, then to federal

law to determine whether the [debtor’s] state-delineated

rights qualify as ‘property’ or ‘rights to property’ within the

compass of the [FDCPA].” 528 U.S. at 58. To determine what

rights Bensal possessed in his 40% share of the EDB Trust,

we must turn to the California disclaimer law at issue here,
SMALL BUS. ADMIN. V. BENSAL 17

which is virtually indistinguishable from the Arkansas

disclaimer law addressed in Drye. Both statutes allow a

beneficiary to channel inherited property to his children and

expressly prohibit creditors from reaching disclaimed

property. Compare CAL. PROB. CODE § 282–83 with Drye,

528 U.S. at 53. In light of the nearly identical disclaimer

statutes, the Supreme Court’s holding in Drye mandates a

single outcome here: “[Bensal] had the unqualified right to

receive the . . . value of his [father’s] estate . . . or to channel

that value to his [children]. The control rein he held under

state law . . . rendered the inheritance ‘property’ or ‘rights to

property’ belonging to him within the meaning of [the

FDCPA].” Drye, 528 U.S. at 61.

Therefore, we conclude that Bensal’s disclaimer

constitutes a transfer of property under the FDCPA, and

California disclaimer law does not operate to prevent the

SBA from reaching Bensal’s trust share.

II. Whether Bensal Owes a “Debt” to the United States

The second disputed issue is whether the state court

default judgment assigned to the SBA constitutes a “debt”

within the meaning of the FDCPA. The FDCPA defines a

“debt” as follows:

(A) an amount that is owing to the United

States on account of a direct loan, or loan

insured or guaranteed, by the United States; or

(B) an amount that is owing to the United

States on account of a fee, duty, lease, rent,

service, sale of real or personal property,

overpayment, fine, assessment, penalty,
18 SMALL BUS. ADMIN. V. BENSAL

restitution, damages, interest, tax, bail bond

forfeiture, reimbursement, recovery of a cost

incurred by the United States, or other source

of indebtedness to the United States, but that

is not owing under the terms of a contract

originally entered into by only persons other

than the United States.

28 U.S.C. § 3002(3). Because the statute is written in the

disjunctive, an amount owed constitutes a “debt” as long as

it satisfies either subsection (A) or subsection (B). We hold

that the default judgment assigned to the SBA is a debt under

subsection (B), and therefore we need not address subsection

(A).

Subsection (B) contains a broad definition of “debt” that

encompasses a wide array of financial obligations as well as

a catch-all provision for any “other source of indebtedness to

the United States.” Id. § 3002(3)(B). The expansive definition

of “debt” set forth in subsection (B) is, however, cabined by

limiting language that excludes any amount “owing under the

terms of a contract originally entered into by only persons

other than the United States.” Id.

Neither party disputes that a default judgment falls within

the catch-all provision because it qualifies as an “other source

of indebtedness to the United States.” Id. The only question

before us, then, is whether the limiting language prevents the

default judgment from qualifying as a debt under subsection

(B); that is, whether the default judgment involves a debt

“owing under the terms of a contract originally entered into

by only persons other than the United States.”
SMALL BUS. ADMIN. V. BENSAL 19

The Fifth Circuit has issued an instructive opinion

interpreting the limiting language of subsection (B). Sobranes

Recovery Pool I, LLC v. Todd & Hughes Const. Corp.,

509 F.3d 216 (5th Cir. 2007). In Sobranes, the Federal

Deposit Insurance Corporation (“FDIC”), a United States

agency, acquired the assets of a failing private bank in

receivership. Id. at 218. Among those assets was a loan

originally entered into between the defunct bank and a private

borrower, who had defaulted. Id. Shortly after acquiring the

bank’s assets, the FDIC brought suit against the defaulting

borrower and secured a judgment. Id. At issue before the

Fifth Circuit was whether the FDIC’s judgment constituted a

“debt” under subsection (B). Id. at 223. The Fifth Circuit

explained,

The subpart (B) limitation is directly

applicable to this case: the note underlying the

FDIC’s judgment was originally entered into

by only private parties. Thus, even though a

judgment obtained by the government can fall

within the scope of subpart (B), the final

clause prevents the judgment here from being

an FDCPA debt. . . . The judgment does not

create an obligation between the debtor and

holder that is independent of the note. That is,

the note establishes the rights and liabilities

of the parties, what is owed and to whom. . . .

The subpart (B) limitation captures this

relationship and applies it where the United

States was not a party to the underlying

contract.

Id. at 223–24 (emphasis added). The court looked beyond

mere labels to the actual source of the debt in the default
20 SMALL BUS. ADMIN. V. BENSAL

judgment and determined whether the United States was

originally a party to the underlying contracts.

We find this to be a sensible approach that comports with

the statutory language and purpose of the FDCPA. For

instance, the FDCPA provides procedures allowing the

government “to recover a judgment on a debt,” which

indicates that the focus should be on the source of the debt.

28 U.S.C. § 3001(a)(1) (emphasis added). Moreover, the

House report accompanying the FDCPA states, “‘Debt’ is

defined broadly to include amounts owing to the United

States on account of a direct loan or loan insured or

guaranteed by the United State [sic] as well as other amounts

originally due the United States.” H.R. Rep. No. 101-736

(emphasis added). Additionally, during legislative discussion

preceding the enactment of the FDCPA, one representative

explained that “[t]he definition of ‘debt’ was carefullywritten

to make clear that the act will not apply to obligations which

begin as purely private loan or contract obligations.”

136 Cong. Rec. H13288-02, H13288 (1990) (statement of

Rep. Brooks). Overall, the language, purpose, and legislative

history of the FDCPA suggest that the statute was intended to

reach debt arising from transactions in which the federal

government was originally a party.

Applying the Sobranes approach, we look to the contracts

underlying the default judgment to determine whether the

SBA was originally a party. The default judgment here stems

from FBT’s lawsuit against BCI and Bensal, alleging breach

of the SBA Note and the SBA Guaranty. Both of these

documents were inextricably part of a larger, four-party

transaction between the SBA, Millennium, BCI, and Bensal.

In fact, the sole reason BCI and Bensal were required to sign

the SBA Note and SBA Guaranty, respectively, was to secure
SMALL BUS. ADMIN. V. BENSAL 21

the SBA’s guarantee of the second loan. Moreover, both the

SBA Note and the SBA Guaranty appeared on SBA

letterhead, referenced the same loan-identifying information,

and defined rights held by the SBA against Bensal and BCI.

Finally, the form and substance of the SBA Note and SBA

Guaranty derive from the overarching SBA Authorization, in

which the SBA set forth its terms for the overall transaction.

Based on the underlying contracts, then, it appears the SBA

was a party to the original transaction.

Our conclusion that the SBA was a party also finds

support in the statutory authority delegated to the SBA by

Congress. When guaranteeing a loan, the SBA can “authorize

participating lending institutions to take actions relating to

loan servicing on behalf of the [SBA], including . . . loan

monitoring, collection, and liquidation.” 15 U.S.C.

§ 634(b)(7) (emphasis added). Even though the SBA can

authorize others to service a loan, the SBA remains a party to

the loan and retains the power to take over the loan servicing,

liquidation, collection, or related litigation activities. See id.;

13 C.F.R. § 120.535(d). The SBA also has statutory authority

to “pursue to final collection, by way of compromise or

otherwise, all claims against third parties assigned to the

[SBA] in connection with loans made by [it].” See 15 U.S.C.

§ 634(b)(4) (emphasis added).

Bensal advances several arguments in support of his

position that the default judgment was not a debt under the

FDCPA. First, Bensal points out that the FDCPA defines

“judgment” as “a judgment, order, or decree entered in favor

of the United States in a court and arising from a civil or

criminal proceeding regarding a debt.” 28 U.S.C. § 3002(8)

(emphasis added). Seizing on this language, Bensal argues

that the default judgment at issue here falls outside the
22 SMALL BUS. ADMIN. V. BENSAL

purview of the FDCPA because it was not “entered in favor

of the United States”; rather, it was entered in favor of FBT,

a private lender. But § 3002(3)(B), which allows the federal

government to recover any “other source of indebtedness to

the United States,” does not use the term “judgment,” and so

is not limited to the statutory definition of that term.

Next, Bensal contends that his financial obligation on the

second note was merely a “guaranty” not a “loan,” and

therefore it cannot constitute a “debt” under the FDCPA.

However, Bensal fails to provide any legal support for the

proposition that a “guarantor,” as opposed to a “direct

borrower,” somehow falls outside the purview of the FDCPA.

As explained above, the SBA is authorized to “pursue to final

collection . . . all claims against third parties assigned to the

[SBA] in connection with loans made by [it].” See id.

§ 634(b)(4) (emphasis added). The claim against Bensal is a

claim against a third party in connection with a loan

guaranteed by the SBA, and therefore falls within the SBA’s

statutory authority.

In fact, Bensal’s proposed rule—that a “guaranty” does

not qualify as a “debt” under the FDCPA—would lead to

disastrous practical consequences.The SBA requires personal

guarantees from individuals who own at least 20% of or hold

significant management positions in any business seeking a

direct loan or guarantee. 13 C.F.R. § 120.160 (a) (“Holders of

at least a 20 percent ownership interest generally must

guarantee the loan.”); see also Collateral, SMALL BUSINESS

ADMINISTRATION (last visited Jan. 20, 2017),

https://www.sba.gov/loans-grants/get-ready-apply/checkyour-credit/collateral (“For all SBA loans, personal

guaranties are required from every owner of 20 percent or

more of the business, as well as from other individuals who
SMALL BUS. ADMIN. V. BENSAL 23

hold key management positions.”).3 These personal

guarantees provide an additional level of financial security,

allowing the SBA to extend and guarantee more loans to

small businesses. Bensal’s argument would eliminate the

SBA’s ability to recover from personal guarantors, which

would undermine the financial viability of the small business

loan program. This argument is legally unsupported and

practically untenable.

Bensal also contends that the SBA would be receiving a

windfall if allowed to recover the entire amount owed on the

default judgment when the SBA only paid a fraction of that

sum ($54,027.39) to satisfy its guaranty obligations. This

argument fails because, as explained above, the SBA is

authorized to pursue or delegate collection of guaranteed

loans. 15 U.S.C. § 634(b)(7). An entirely separate provision

addresses the SBA’s rights after it has paid an amount to

satisfy its guaranty obligations: “In the event the [SBA] pays

a claim under a guarantee . . . , it shall be subrogated fully to

the rights satisfied by such payment.” 15 U.S.C.

§ 634(g)(5)(A). By including these two separate provisions,

Congress intended to grant two separate authorizations, one

allowing the SBA to collect on a loan that it has guaranteed

and another allowing the SBA to recover an amount that it

has paid as a guarantor. Thus, the mere fact that the SBA did

not pay the full amount it now seeks to recover does not

somehow bar this action.

Finally, Bensal argues that the SBA improperly seeks to

enforce the entire default judgment, even though only a

3

“It is appropriate to take judicial notice of this information, as it was

made publicly available by government entities.” Daniels-Hall v. Nat'l

Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010).
24 SMALL BUS. ADMIN. V. BENSAL

portion of the judgment concerned the SBA’s guarantee of

the second loan. This argument is unpersuasive based purely

on the numbers here. As of January 31, 2013, the total value

of Bensal’s share in the EDB Trust was at least $153,944.30.

The amount Bensal owes as a guarantor on the second loan is

over $300,000 ($140,905.63 plus 10% interest accruing from

December 12, 2002). Therefore, it does not matter that the

default judgment also encompasses the first loan because the

amount owed to the SBA on the second loan by itself exceeds

the value of Bensal’s share in the EDB Trust.4

CONCLUSION

In sum, we hold that the SBA is allowed to reach Bensal’s

trust share because the FDCPA displaces California’s

disclaimer law. We also conclude that the portion of the

default judgment based on the second loan, which was

guaranteed by the SBA, is a debt within the meaning of the

FDCPA.

AFFIRMED.

4 Bensal also argues that claimpreclusion and issue preclusion bar the

present action because the SBA’s claim is based on the second loan,

which is now merged in the state-court judgment and barred from relitigation. This argument fails because the SBA is not attempting under a

federal statute to re-litigate any issues previously adjudicated in the state

court action; rather, the SBA filed suit to void a fraudulent transfer—an

issue not implicated in the state court litigation.