F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N R E R I C H A R

D S T E R B A ; O L G

A S T E R B A , Debtors
,

PNC B A

N K , Appellant
,

v.

R I C H A R D S T E R B A A N D O L G A S T E R B A , Appellees

.

L I N D A S. G R

E E N , Chapter 7 Trustee, Real-party-in-interest

. No. 14-60061

B AP No. 13-1590

OPI NI ON

Appeal from the Ninth Circuit B ankruptcy

Appellate Panel Kurtz
, Dunn, and J ury , B ankruptcy J udg es, Presiding

Submitted October 18, 2016 * San F rancisco, California

F iled April 5, 2017

* T h e p an el u n an im o u sly f in d s th is case su itab le f

o r d ecisio n w ith o u t

o ral arg u m en t. S ee Fed . R. A pp . P . 3 4 (a)(2 )(C).I N R E S T E R B A 2

B efore: A. W allace Tashima and Milan D. Smith, J r., Circuit J udg es, and Edward R. Korman, * * District J udg e.

Opinion by

J udg e Korman; Concurrence by

J udg e Tashima

SUMMARY * * *

Bankruptcy

The panel reversed the B ankruptcy Appellate Panel’s reversal of t h e b a n kruptcy court’s ruling that a creditor’s claim was timely

.

The c reditor’s claim w as based o n a promissory n o t e on real pr o p e r t y in California. T h e claim w ould be barred by a four-y ea r California statute of limitations but not by a six

y ear Ohio statute of limitations. T he b ankruptcy court ruled that the Ohio statute of limitations applied because the promissory n ote stated that it would be g overned by the laws of Ohio.

The panel held that und e r f ederal common law, the contractual choice-of-law provision did n ot ex pressly include the statute o f limitations and therefore was silent on the issue. Under § 142 of th e Restatement ( Second) of Conflict o f

** T h e Ho n o rab le Ed w ard R. Ko rm an , Un ited States District J u d g e f or th e Eastern District o f

New Yo rk , sittin g b y

d esig n atio n

.

*** T h is su m m ary co n stitu

t es n o p art o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I N R E S T E R B A 3

L aws, the statute of limitations of the forum state, California, would g enerally apply

. Ex ceptional circumstances, however, directed the application of the O h i o statute of limitations because the u nique strictures of the B ankruptcy Code meant tha t , t h r o u gh no fault of the creditor, the only forum for its claim was the Northern District of California.

Concurri n g i n the judg ment, J udg e Tashima wrote that, under § 187 of the Restatement, the law of Ohio, t h e s t ate chosen by the parties, must be applied.

COUNSEL

Doug las B . Provencher and J anis H. Grattan, Provencher & F latt L L P, Santa Rosa, California, for Appellant.

Thomas P. Kelly

I I I
, Santa Rosa, California, for Appellees.I N R E S T E R B A 4

OP INION

KORMAN, District J udg e:

W h en it comes to conflicts of law, b ankruptcy is a bit of

an odd duck. The substantive focus is often on state law, as it alway s is in diversity cases. B ut where a federal court sitting in diversity applies the forum state’s choice-of-law rules—a straig htf orward policy that prevents the forum’s federal character f

r o m determining the outcome of disputes that a re really about state law—we h a v e held that in bankruptcy
, federal c hoice-of-law rules control which state’s law a pplies. Linds a y v. Beneficial Reinsurance Co. ( In re Lindsay ), 59 F .3d 942, 948 (9th Cir. 1995). 1

This case adds another wrin k l e: The dispute here arises
out o f a c l a u s e in a p r omissory note providing that it should be c onstrued according to O hio law. So we face two issues—one sounding in contract, the o t h e r in conflict o f laws. The f

irst is whether such a g eneral choice of law clause
encompasses issues relating to the statu t e o f limitations, o r whether the parties to a

n ag reement must select a limitations period ex p ressly if they want to do so at all? The second is, if the parties must s e lect a statute of limitations ex pressly a nd fail to d o so, how should a bankruptcy court determine which state’s limitations period applies?

1 T h ere i s a circu it sp lit o n th is issu e. Co mp a re I n re Lin d sa y with Bia n co v. E r kin s (

In re Ga sto n & S

n o w ), 24 3 F .3 d 5 9 9
, 6 0 5

– 7 (2 d Cir. 2 0 0 1 ) (h o l d in g th at th e f o ru m s t ate’s c h o i c e- of

- law ru les ap ply i n th e

a b sen ce o f a stro n g f

ed eral i n terest), a n d Co mp lia n ce Ma rin e, I n c

. v

. Ca mp b ell (

In re Merritt Dred

g in g Co

., In c. ), 8 39 F.2 d 2 0 3
, 2 0 6 (4 th Cir. 1 9 8 8 ) (sam e).I N R E S T E R B A 5

BACK G ROUND

I n 2007, the Ster bas boug h t a condo in California. They
to o k o u t two loans secured by liens ag a inst the property , o f which National City B ank held the junior one. The Ste r b a s ’ promissory n ote to N ational City provided in relevant part tha t : “[ T ] he B ank is a national bank located in Ohio a nd B ank’s decision to make thi s L o a n

. . . was made in Ohio. Therefore, this Note shall be g overned by and con s t r u ed in accordance with

. . . t h e l aws of Ohio

. . . without r eg a rd to conflict of law principles.” L e ss than a y ear aft e r t he loans

were made, the Sterbas defaulted, the senior lender foreclosed, a

nd National City was left holdin g t he b ag for $42,000.

W h en the Sterbas filed for b ankruptcy in the Northern District of California in 2013, PNC Ba n k (National City ’s

successor in interest) filed a claim based on the 20 0 7 n o t e. The Sterbas o bjected, contending that the claim was barred b y California’s applicable f

o ur-y e ar statute of limitations. See C A L

. C O D E C I V

. P R

O C

. § 337. PNC, in turn , a r g ued that the claim was timely because the p romissory note’s ch o ice o f Ohio law incorporated Ohio’s six -y ear limitations period. See O H I O R E V

. C O D E § 1303.16.

The bankruptcy judg e ag r e e d that the p romissory n ote selected O hio’s six -y e ar limitations period, and overruled the St e r bas’ o bjection. T he B ankruptcy Appellate Panel reversed. PNC appeals from the B A P’s decision.

D ISCUSSION

Or d i narily
, when parties to an ag reement select the law they want to g overn an issue, federal courts will enforce thatI N R E S T E R B A 6

choice. See, e.g. , Flores v. Am. Seafoods Co.
, 3 35 F .3d 904, 916–19 (9th Cir. 2003). B ut w here a choice-of-law provision does not ex pressly include the statute of limitations, we have construed it as silent o n the issue. I n Des Brisay v. Goldfield Corp .—a federal securities case—we applied federal

common law to hold that a clause providing for a contract to “be g overned by and interpreted according to the laws of the [ Canadian ] p r o vince o f B r itish Columbia,” did not include the
statute of limitations. 637 F .2d 680, 682 (9th Cir. 1981). The contractual choice-of-law provision in this case, adopting Ohio law, is materially ide n tical to the one we construed in Des Brisay.

Our holding in Des Brisay was based on our recog nition that choice-of-law pro v i sions are c o ncerned mainly with substantive law, a

nd “g enerall y do not c ontemplate

. . . statutes of limitation,” which are “usually c onsidered” a matter of local procedure “related to judicial administration.” Id. (citing Restatement ( Second) of Conflict of L aws § 122
cmt. a). Unbound by the contractual choice-of-law provision,

we went on to hold that “[ t] he rule in f e d e ral securities actions is to apply the applicab l e l i m i tations p e riod of the
state i n w h i ch the federal c ourt sits. Ernst & Ernst v

. Hochfelder
, 425 U.S. 185, 2 1 0 n

. 29 (1976).” Id. (additional citations omitted). A s the c itation to Ernst & Ernst sug g ests, this holding w as based on the principle that where “no statute of limitations is provided for” a federal cause of action, “the law of limitati o n s of the forum State is followed.” E rnst & Ernst
, 425 U.S. at 210 n.29.

Unlike Des Brisay
, t h i s is not a federal securities case premised on an implied rig ht of action. Nor is this a case, like those arising under 42 U. S .C. § 1983, where Cong ress has created a r ig ht of action b ut remained silent as to theI N R E S T E R B A 7

applica b l e limitations period. The fact that Des B risay involved a suit under an implied rig h t of action allowed us, in the absence of an effective choice by the parties, to apply the simple, well-established rule that a federal rig ht of a ction for which no statute of limitation s is provided is subject to the limitations p eriod which the forum state applies to analog ous claims. W ilson v. Garcia , 471 U.S. 261, 266–67 (1985).

Rather than an implied cause of a c tion under federal law, this case involves a common-law action o n a promissory note, for which both Ohio an d California have statutorily prescribed a statu t e o f limitations. So while Des B risay resolves the contractual issue in this case, it does not dispose of the conflicts-of-law p roblem t h a t r esults. Under these circumstances, the applicable rule is p rescribed by § 142 o f the Restatement (Second) o f Conflic t o f L aws, which addresses conflicts between statutes of limitation.

F ederal choice-of-law rules in the Ninth C i r c uit follow the Restatement (Second) o f Conflict o f L aws, see Liberty Tool, & M fg. ( In re Vortex Fishing Systems ), 277 F .3d 1057, 1069 (9th Cir. 2001 )
, a s a “source of g eneral choice-of-law principles,” and “an approp r i ate starting point for a pply ing federal common law in this area.” Harris v. P o lskie Linie Lotnicze
, 820 F .2d 1000, 1003 ( 9th Cir. 1987). More recently
, in Flores v

. American Seafoods Co.
, we observed that we only “consider[ ed] the principles stated in [ the] Restatement (Second) of Conflict of L aws § 187 to the ex tent we conclude

. . . that they are persuasive.” 335 F .3d 904, 919 (9th Cir. 2 003). W e have directly a d opted § 142, the particular provision of the Second Restatement applicable here.

The 1971 v ersion of § 142 provides th a t “ ( 1 ) An action will not be maintained if it i s barred by the statute o fI N R E S T E R B A 8

limitations of the forum, including a provision borrowing the
statute of limitations of another state.” The 1988 version o f § 142 i s s i m i larly w orded, ex c ept that it provides a limited
carve-out for “ex ceptional c ircumstances.” Specifically a nd in relevant p a rt, it reads as follows: “ [I ] n g eneral, unless the exceptional circumstances of the case make such a result unreasonable

. . . The forum will apply its own sta t u t e o f limitations barring the claim.” (emphasis added).

T h e Second Restatement’s p reference for the for u m state’s statute of limitations, in cases where it has the shorter limitations period, is based on the policy that “[ a] state has a substantial interest in preventing the prosecution in its courts of claims which it d eems to be ‘stale.’” § 142, cmt. f (1988). 2 I n the ordinary case, t hat interest is treated as controlling because vindicating it imposes no r eal prejudice on the timebarred party

—dismissal of a claim as barred by the statute o f limitations g enerally “does not c onstitute a judg men t on the merits,” and following such a dismissal “t he plaintiff will usually remain free to sue” in a state w i t h a more g enerous limitations period. Id. B ut w here a countervailing interest

ex ists such that “under the special circumstances of the case

2 W e p ass o v er th e f

act th at, u n d er th e circu m stan ces o f th is case, Calif o rn ia h a s n o in terest in b arrin g P NC’ s claim

. Calif o rn ia law w ou ld allo w th e p arties to select th eir o w n lim itatio n s p erio d
, ev en i f th ey w an ted

o n e lo n g er th an th at p rescrib ed b y th e Calif o rn ia Leg islatu

re. S ee ABF Ca p i t a l C o r p

. v. Berg la ss , 3 0 Cal. Rp tr. 3 d 5 8 8
, 5 9 4 (Cal. A pp

. 2 0 0 5 ). Calif o rn ia’ s w i llin g n ess to d o so su g g ests th at it is n o t co n cern ed as m u ch

w ith p rev en tin g th e p ro secu tio n o f stale claim s as it is w ith v in dicatin g th e in terest o f co n tractin g p arties in s eein g t h eir ag reem en t s en f

o rced

. In d eed
, Calif o rn ia h as ad o p t ed § 1 8 7 o f th e S eco n d Restatem en t, w h ich b ro ad ly

en f o rces “ [t]h e law o f th e state ch o sen b y th e p arties to g o v e r n t h e i r

co n tractu al rig h ts an d d u ties.” S ee Ned llo yd Lin es B.V. v. S

u p erio r Co u rt , 8 3 4 P .2 d 1 1 4 8 , 1 1 5 0

– 5 1 (Cal. 1 9 92 ).I N R E S T E R B A 9

dismissal

. . . would b e unjust,” the f orum (here, California) will apply another state’s long er statute of limitations. I d

.

Th e application o f § 142 compels the conclusion that California’s shorter statute of limitations does not apply h ere, because this case presents the sort of “ex ceptional circumstances” under which the 1988 version of the Second Restatement looks past the law of the forum, and a p p l i e s a long er f oreig n limitations p e r iod. The Restatement, to be
sure, does not provide an ex haustive or technical definition o f

an ex ceptional circumstance. Ne vertheless, the comment to the 1 9 88 version of § 142 makes clear that the present case

comes within that categ o ry

. I ndeed, t his case is on all fours with the Restatem e n t ’ s only ex a mple of what would constitute such a “special,” “unjust” circumstance: “[ W ] h en throug h no fau l t o f the p laintiff an alternative forum is not available as, for ex ample, where jurisdic t i o n c ould not be obtained over the defendant in any [ other] state . . . .” Id.

Here—ex actly as the comment describes—the u n i q ue strictures of the bankruptcy code mean that, throug h no fault

o f PNC’s, there is no forum for its claim other t h a n t h e Northern District of California. This is n o t a case filed voluntarily in Cali f

o rnia, in which a dismissal on statute o f limitations g rounds would b e with o u t prejudice to bring ing the same claim in Ohio. See Mid-Century Ins. Co. v. Superior Court
, 41 Cal. Rptr. 3d 8 33, 83 7 ( C a l. App. 2006). Rather,

once the Sterbas declared b ankruptcy
, PNC was oblig ated to bring all its claims in the district where th e S t e r b a s filed. Under these c ircumstances, to reject PNC’s claim a s timebarred w o u l d be the functional equivalent of a dismissal on the m e r i t s

. Wh e r e a

n o ther jurisdiction—National City ’s home

s t ate o f O hio—would hear the c laim, and has a substa n t i al interest in its r esolution, disallowing it by mechanicalI N R E S T E R B A 10

adoption of California’s statute of limit a tions w ould be wholly unreasonable. W e hold that under these ex ceptional circumstances, the bankruptcy c o urt was correct to a pply Ohio’s six -y ear statut e o f limitations and overrule the Sterbas’ objection to PNC’s claim.

Des Brisay ’s decision to rely on the 1971 version of § 122 of the Second Restatement, to hold that an ag r e e m ent

se lecting a statute of limitations must do so ex pressly
, does
not bind us to apply the 1971 version of § 142—which is identical to th e 1988 version, with the ex ception of the

narrow carve-out for “ex ceptional circumstances” on which

we b ase our decision. There is clear Ninth Circuit p recedent adopting the 1 988 version of § 142. I n Huynh v. Chase Manhattan B ank
, a federal-question c a s e w here the underly ing rig hts at stake (in d e p o sits held by American banks in Vietnam) were not created by fed e r a l law, we h eld that “[ f] ederal common law f ollows the approach outlined in the Restatement (Second) of Conflict of L aws,” and that

“ [a ]c c o r ding ly
, barring exceptional c ir c u m s t a n c e s ” w e w o u l d select a statute of limitations by following the approach outlined in the 1988 version of § 142. 465 F .3d 992, 9 97 (9th Cir. 2006) ( emphasis added). W hile th e panel in Huynh eventually applied the stat u t e of limitations dictated by a straig htforward application of § 1 4 2
, i t did so only a fter

ex p ressly determining that such e x ceptional ci r c umstances were not in fact present. See id. at 1005.

Moreover, Des Brisay d id not rely on e i t h e r the 1971 o r 1988 version of § 142. Rather, because it was decided in 1981, it relied on the comment to the 1971 version of § 122, the tex t of which provides that a c ourt w ill g enerally apply its local law “prescribing how litig ation shall be conducted,” a nd does not s p ecifically address the statute of limitations. TheI N R E S T E R B A 11

comment to which Des Br isay cites, h owever, does point to the statute o f limitations as an ex ample of a rule “ p r imarily

concern [ i n g] judicial administration,” w ith respect to which “the forum will usually a p p l y i ts own rule.” § 122 cmt. a (1971) (citing § 142) (emphasis added).

W e need not take issue with this aspe c t o f Des Brisay ’s analy sis, because it merely provided the basis for its holding that c ontractual choice-of-law provisions “g enerally ” do not i nclude the statute of limitations. See 637 F .2d at 6 82. E v e n if we had not already decided the question in Huynh
, nothing in D e s Brisay would require us to apply the 1971 version o f § 142. Moreover, the difference between the 1971 a nd 1988 versions of § 142 is not sig nificant. The 1 988 version simply
creates a v ery narrow ex ception to the g eneral rule— essentially unchang ed from 1971—that the law of the forum
go v e rns issues relating to the statute o f limitations. Th u s , even if w e were f

orced b y precedent to apply t h e 1971 version of § 142, adopting the kind of narrow ex ception to the
g eneral rule that now appears in the 1988 versi o n w ould hardly create an “irreconcilable con f l i ct,” Atonio v. W

ards Cove Packing Co., Inc.
, 810 F .2d 1477, 1478–79 ( 9 t h C i r. 1987) (en banc), or threaten t h e “ uniformity of the court’s decisions,” F ed. R. App. P. 35(a)(1), and we would not have to g o en banc to do so.

CONCLUSION

The judg e ment of the B ankruptcy Appel late Panel is R E V E R S ED
, a

nd the case is REMANDED to the bankruptcy court for further proceeding s consistent w ith this opinion.I N R E S T E R B A 12

TASHI MA, Circuit J udg e, concurring in the judg ment:

Althoug h the majority reaches the correct result, it g e ts there by an unnecessarily circuitous r oute. B ecause I believe there is a more direct r o u t e, that is not only shorter, but preferable, I

concur in the judg ment only

.

The promissory note at i s s u e in this case c ontains the following choice-of-law provision:

[ T] his Note shall be g overn e d by a nd construed in accordanc e with

. . . the laws o f Ohio, to th e ex tent Ohio laws are not preempted by federal laws o r reg ulations, and without regard to conflict of law principles. 1

(Emphasis added.) The question we should be ask i n g ourselves is whether there is a ny v alid r eason why the parties’ choice-of-law should not be honored? As the majority
recog niz es, Maj. O p. at 4 & 7, because this is a federal question c ase, federal choice-of-law rules, which g enerally follow the Restatement (Second) of Conflict of L aws (“Restatement”), apply

. See Libert y T o o l & Mfg. v. Vortex Fishing S ys., Inc. ( I n r e V ortex Fishing Sys., Inc.)
, 277 F .3d 1057, 1069 (9th Cir. 2001).

1 T h e m aj o rity co m

p letely ig n ores th is italicized p h rase in its an aly sis,

n o tin g o n ly t

h at “ [t]h e co n tractu al ch o ice- of

- law p ro v isio n in th is case, ad o p tin g Oh io l aw , i s m aterially id en tical to th e o n e w e co n s tru ed in Des Brisa y .” Maj

. Op

. at 6

. B u

t, o f co u rse, th e c h o ice- o f

- law p ro v i sio n at issu e in Des Brisa

y d id n ot in clu d e a p ro v isio n lik e o r co m

p arab le to th e italicized p h rase q u o te d i n t h e t ex t , ab o v e. S ee Des Brisa

y v. Go ld f ield Co rp ., 6 3 7 F.2 d 6 8 0 , 6 8 2 (9 th Cir. 1 9 8 1 ).I N R E S T E R B A 13

I n turn, § 187 of the Restatement p r ovides that “[ t] he law of the state chosen by the parti e s

. . . will b e applied

. . . . ” W e have consistently honored the parties’ choic e -of-law, including provisions of similar import to the ital i c i z ed provision in this case th at t he chosen law applies “without
reg ard to conflict o f law principles.” See, e.g.
, Mortensen v. Bresnan Comm’cns, LLC
, 722 F .3d 115 1
, 1 1 55 (9th Cir. 2013) (apply

ing New York law “wit h o u t reg ard to New York’s c hoice o f law p rinciples” (footnote omitted)); FukuBonsai, Inc. v. E.I. DuPont de Nemours & C o

. , 1 87 F .3d 1031, 1033 n .3 (9th Cir. 1 999) (app l y i n g Delaware law “without g iving e ffect to the conflict of laws or choice of law provisions thereof”); id. at 1034 (“it is ag reed that Delaware law applies”) (B o ochever, J ., dissenting ).

Under this line of cases and § 187, there is no reason not t o g ive effect to the parties’ choice-of-law, which inclu d e d their choice of the Ohio statute of limitations. That c hoice

was made by inclusion of the phrase “without re ga rd to conflict of law principles,” which, in this case, means without
reg ard to a

ny analy sis that would otherw i s e be called for under § 142 of the Restateme n t

. T h us, the majority ’s

ex tended analy sis o f how § 142 should be applied in this case contravenes the parties’ choice-of-law that the Ohio statute o f limitations shoul d a p p l y , “without reg ard to conflict o f law principles.”

F or these reasons, I c o n c u r in the judg ment REVERSING the judg ment of the B AP and REMANDING for further proceeding s.