____________

No. 95-2898

____________

Bank of America National Trust *

and Savings Association, as *

Trustee for Farmer Mac *

Agricultural Real Estate Trust, *

Series 1992-2, *

*

Appellant, *

*

v. *

*

Bobby T. Shirley; Patricia E. *

Shirley, Shirley AG Service, *

Inc., * Appeal from the United States

* District Court for the

Appellees. * Southern District of Iowa

*

------------- *

*

Equitable Life Assurance *

Society of the United States; *

Western Farm Credit Bank; *

Federal Agricultural Mortgage *

Corporation; Iowa Bankers *

Association, *

*

Amicus Curiae. *

____________

 Submitted: December 11, 1995

 Filed: September 25, 1996

____________

Before McMILLIAN, JOHN R. GIBSON and BEAM, Circuit Judges.

____________

McMILLIAN, Circuit Judge.

Bank of America National Trust & Savings Association (BOA),

as trustee for the Farmer Mac Agricultural Real Estate Trust,

Series 1992-2, appeals from a final order entered in the District

Court for the Southern District of Iowa granting partial summary
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judgment in favor of Bobby T. Shirley, Patricia Shirley and Shirley

Ag-Service, Inc. (appellees). Bank of America National Trust &

Savings Ass’n v. Shirley, No. 1-93-CV-100033 (S.D. Iowa May 19,

1994) (order granting partial summary judgment). For reversal BOA

argues the district court erred in (1) construing Iowa Code Ann.

§ 535.9(2) (West 1987) to bar enforcement of a contractual

prohibition against prepayment and (2) holding Iowa Code Ann.

§ 535.9(2) was not expressly preempted by federal law. For the

reasons discussed below, we hold federal law expressly preempts the

state law and accordingly reverse the order of the district court.

The following statement of facts is taken in large part from

the district court’s order granting partial summary judgment. The

material facts are not disputed. In December 1990 appellees

borrowed $3 million which they promised to repay pursuant to a

schedule set forth in a promissory note payable to 3 Rivers

Investment, Inc. (3 Rivers). The loan was secured by a mortgage on

several parcels of agricultural land. The note provided for an

initial interest-only payment and then semi-annual payments of

interest and principal in the amount of $175,560.76, over a term of

15 years, beginning on July 1, 1991, and ending on January 1, 2006.

The promissory note included the following prohibition against

prepayment, set forth in capital letters above the signature line:

PAYMENTS IN EXCESS OF THE PAYMENTS PROVIDED FOR IN THIS NOTE ARE

NOT PERMITTED. 

3 Rivers then sold the loan to Prudential Insurance Co. and

Prudential Agricultural Credit, Inc. (together Prudential).

Prudential provided the funds that were distributed to appellees.

After performing an updated appraisal of the mortgaged property,

Prudential pooled the loan with other agricultural loans and sold

the pool into the “secondary market” pursuant to the Federal

Agricultural Mortgage Corp. program (Farmer Mac), and assigned it
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to BOA as trustee for Farmer Mac Agricultural Real Estate Trust,

Series 1992-2. As a result, BOA owns the loan in its capacity as
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trustee for the holders of certain securities (certificate holders)

pursuant to the pooling and servicing agreement between Prudential

and BOA. Farmer Mac guarantees payment to the senior certificate

holders. 

In late June 1993 appellees contacted Prudential and asked for

a “pay-off figure” so they could prepay the note. Prudential

advised appellees that the note did not permit prepayments.

Appellees responded that they had the right to prepay the note,

regardless of the note’s express terms, pursuant to Iowa Code Ann.

§ 535.9(2), which provides in pertinent part:

Whenever a borrower under a loan prepays part

or all of the outstanding balance of the loan the

lender shall not receive an amount in payment of

interest which is greater than the amount

determined by applying the rate of interest agreed

upon by the lender and the borrower to the unpaid

balance of the loan for a period of time during

which the borrower had the use of the money loaned;

and the lender shall not impose any penalty or

other charge in addition to the amount of interest

due as a result of the repayment of that loan at a

date earlier than is required by the terms of the

loan agreement.

In September 1993 BOA filed an action seeking declaratory

judgment that Iowa Code Ann. § 535.9(2) did not make the

no-prepayment term unenforceable. BOA argued that the state

statute precluded penalties for prepayment but did not preclude

prohibitions against prepayment, and, if the state statute did bar

prohibitions against prepayment, federal law (Title VIII of the

Farm Credit Act, 12 U.S.C. § 2279aa-12(d)) preempted the state

statute. The parties filed cross-motions for summary judgment.

The district court granted partial summary judgment in favor of

appellees. The district court construed Iowa Code Ann. § 535.9(2)

to prohibit prepayment penalties in the form of interest or other
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finance charges as well as contractual terms that prevent borrowers

from prepaying any portion of the loan. The district court
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reasoned that the complete prohibition against prepayment is in

effect a penalty of the most extreme kind. For this reason, the

district court held that the promissory note term prohibiting

prepayment was unenforceable. Slip op. at A-6 to A-9 (pagination

as reproduced in addendum to Brief for Appellant), citing Los

Quatros, Inc. v. State Farm Life Insurance Co., 110 N.M. 750, 800

P.2d 184 (1990), and Naumburg v. Pattison, 103 N.M. 649, 711 P.2d

1387 (1985). Accord Groseclose v. Rum, 860 S.W.2d 554 (Tex. Ct.

App. 1993) (statute providing that prepayment charge or penalty may

not be collected on loan construed to mean that a provision barring

prepayment is a “penalty”). The district court also held that

federal law, 12 U.S.C. § 2279aa-12(d), did not apply because the

loan was not made by an “originator or certified facility.” Slip

op. at A-10. The district court found that the loan was

"originated" by 3 Rivers, which is not an “originator or certified

facility” under Farmer Mac, and not by Prudential, which is both an

“originator,” 12 U.S.C. § 2279aa(7), and a “certified facility,”

id. § 2279aa(3)(A). Slip op. at A-10. 

Appellees had filed a counterclaim and third-party complaint

against Prudential. Appellees dismissed their claims without

prejudice, and both sides filed motions for entry of final

judgment. The district court entered final judgment in favor of

appellees and this appeal followed. 

We review a grant of summary judgment de novo. The question

before the district court, and this court on appeal, is whether the

record, when viewed in the light most favorable to the non-moving

party, shows that there is no genuine issue as to any material fact

and that the moving party is entitled to judgment as a matter of

law. Fed. R. Civ. P. 56(c); see, e.g., Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 249-50 (1986); Get Away Club, Inc. v. Coleman, 969 F.2d
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664, 666 (8th Cir. 1992); St. Paul Fire & Marine Insurance Co. v.

FDIC, 968 F.2d 695, 699 (8th Cir. 1992). Where the unresolved
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issues are primarily legal rather than factual, summary judgment is

particularly appropriate. E.g., Crain v. Board of Police

Commissioners, 920 F.2d 1402, 1405-06 (8th Cir. 1990). We agree

with the district court that the only issues presented are

questions of law; unlike the district court, however, we hold the

federal law expressly preempts the state statute. 

BOA first argues that the district court erroneously construed

Iowa Code Ann. § 535.9(2) to bar enforcement of contractual terms

prohibiting prepayment. BOA argues that the plain language of the

state statute indicates that the statute does not apply to the

right to prepay but only provides that lenders cannot enforce any

prepayment penalties. In other words, BOA argues the state statute

does not grant borrowers a right to prepay; rather, the state

statute addresses the rights of borrowers and lenders when a right

to prepay exists. BOA argues that the state statute does not

address whether or in what circumstances a borrower may prepay; it

merely bars enforcement of any penalties for prepayment. Moreover,

BOA argues that a right to prepay should not be inferred from the

silence in § 535.9(2). BOA contrasts § 535.9(2) with the state

legislature’s express provision of a right to prepay granted for

real estate loans made by savings and loans in § 534.21(10) (now

repealed) or by credit unions in § 533.16(11). 

BOA also argues that construing Iowa Code Ann. § 535.9(2) to

grant borrowers a right to prepay is inconsistent with Iowa case

law. BOA argues that, for more than 100 years, Iowa has followed

the common law “perfect tender in time” rule under which lenders do

not have to accept prepayment and can enforce the payment schedules

set forth in promissory notes. Anderson v. Haskell, 45 Iowa 45

(1876). BOA further argues that the Iowa Supreme Court reaffirmed

the perfect tender in time rule in 1981, after the state
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legislature enacted Iowa Code Ann. § 535.9(2). Lett v. Grummer,

300 N.W.2d 147, 150 (Iowa 1981) (decision does not mention the

statute). 
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We need not decide this difficult question of state law

because we hold that federal law expressly preempts application of

Iowa Code Ann. § 535.9(2) to agricultural loans made by an

originator or certified facility guaranteed by Farmer Mac. Whether

or not Iowa Code Ann. § 535.9(2) merely bars enforcement of

contractual terms that prohibit borrowers from prepaying any

portion of their loans as unlawful penalties or affirmatively

grants borrowers the right to prepay is irrelevant when considering

whether the state law is preempted.

Title VIII of the Farm Credit Act, 12 U.S.C. § 2279aa-12(d),

at the time of the district court's decision, provided in pertinent

part:

Any provision of the Constitution or law of any

State which expressly limits the rate or amount of

interest, discount points, finance charges or other

charges that may be charged, taken, received, or

reserved by agricultural lenders or certified

facilities shall not apply to any agricultural loan

made by an originator or a certified facility in

accordance with this [subchapter] that is included

in a pool for which [Farmer Mac] has provided a

guarantee.

BOA argues that this subsection is not limited to preemption of

state usury laws (the subsection heading is “state usury laws

superseded”) and preempts all state statutes that limit any charges

or otherwise limit the amount of interest that a lender can

receive. BOA argues that the Iowa statute in question expressly

limits interest penalties that an agricultural lender can assess

and, by granting borrowers the right to prepay, prevents lenders
 The Federal Agricultural Mortgage Corp. (Farmer Mac) filed a 1

brief as amicus curiae in support of BOA on this issue. Farmer Mac

argues that Title VIII of the Farm Credit Act prohibits application

of the state statute to appellees’ loan. For this reason Farmer

Mac takes no position on whether the district court correctly

construed the Iowa statute to bar prepayment. Farmer Mac thus

argues the term barring prepayment is enforceable. Farmer Mac also

agrees with BOA that, contrary to the district court’s finding,

Prudential was an “originator” of the loan and that the loan was

made in accordance with the Farmer Mac program.

Equitable Life Assurance Society/ Western Farm Credit Bank and

the Iowa Bankers Association also filed amicus briefs in support of

BOA.

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from collecting the amount of interest agreed to by the parties.1

The district court did not decide the preemption issue because

it held that federal law, 12 U.S.C. § 2279aa-12(d), did not apply

to appellees' loan. Slip op. at A-10. The district court found

that the loan was originated by 3 Rivers, which is not an

“originator or certified facility” under Farmer Mac, and not by

Prudential, which is both an “originator,” 12 U.S.C. § 2279aa(7),

and a “certified facility,” id. § 2279aa(3)(A). 

As discussed below, we hold that the federal law applies and

that the federal law expressly preempted the state statute. 

Congress’ intent is the touchstone of our

analysis of whether [the federal law] preempts the

[state statute]. Congress’ intent may be

“explicitly stated in the statute’s language or

implicitly contained in its structure and purpose.”

When Congress has not spoken expressly, a state law

is preempted if it conflicts with federal law or if

federal law “occupies a legislative field,”

indicating that Congress intended to leave no room

for the states to supplement the federal law. 

When Congress has spoken expressly, however,

the preemptive scope of a federal law is governed
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entirely by the express language. “When Congress

has considered the issue of pre-emption and has

included in the enacted legislation a provision

explicitly addressing that issue, and when that

provision provides a ‘reliable
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indicium of congressional intent with respect to

state authority,’ ‘there is no need to infer

congressional intent to pre-empt state laws from

the substantive provisions’ of the legislation.”

Weber v. Heaney, 995 F.2d 872, 875 (8th Cir. 1993) (citations

omitted). 

Although § 2279aa-12(d) did not contain the term “preempt,”

it plainly provided that a state law “which expressly limits the

rate or amount of interest, discount points, finance charges or

other charges . . . shall not apply to any agricultural loan made

by an originator or a certified facility in accordance with this

[subchapter] that is included in a pool for which [Farmer Mac] has

provided a guarantee.” (Emphasis added.) The subsection heading

even included the term “superseded.” We think § 2279aa-12(d) was

an explicit statement by Congress of its intent to preempt state

law. Our task is therefore to identify the domain expressly

pre-empted by § 2279aa-12(d). Freightliner Corp. v. Myrick, 115

S. Ct. 1483, 1488 (1995). 

In the present case, the question is whether Iowa Code Ann.

§ 535.9(2) is a state law which “expressly limits the rate or

amount of interest, discount points, finance charges or other

charges.” In our view, Iowa Code Ann. § 535.9(2) clearly falls

within the domain expressly preempted by § 2279aa–12(d). Our

reading of the scope of § 2279aa-12(d) was confirmed by its

amendment in 1996. Leaving the sub-section heading the same,

Congress struck subsection (d) and replaced it with the following:

A provision of the Constitution or law of any State

shall not apply to an agricultural loan made by an

originator or a certified facility in accordance with

this title for sale to the Corporation or to a certified

facility for inclusion in a pool for which the
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Corporation has provided, or has committed to provide, a

guarantee, if the loan, not later than 180 days after the

date the loan was made, is sold to the Corporation or
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included in a pool for which the Corporation

has provided a guarantee, if the provision-- 

(1) limits the rate or amount of

interest, discount points, finance charges, or

other charges that may be charged, taken,

received, or reserved by an agricultural

lender or a certified facility; or 

(2) limits or prohibits a prepayment

penalty (either fixed or declining), yield

maintenance, or make-whole payment that may be

charged, taken, or received by an agricultural

lender or a certified facility in connection

with the full or partial payment of the

principal amount due on a loan by a borrower

in advance of the scheduled date for the

payment under the terms of the loan, otherwise

known as a prepayment of the loan principal.

Farm Credit System Reform Act of 1996, § 112, 1996 U.S.C.C.A.N.

(106 Stat.) 162, 165-66 (to be codified at 12 U.S.C.

§ 2279aa-12(d)) (effective Feb. 10, 1996). Thus, the version of

§ 2279aa-12(d) now in effect expressly refers to state laws which

limit or prohibit prepayment penalties. Cf. Smiley v. Citibank

(South Dakota), N.A., 116 S. Ct. 1730, 1733-35 (1996) (deferring to

regulation interpreting statutory term “interest” to include credit

card late-payment fees). 

As noted above, the district court held § 2279aa-12(d) did not

apply to appellees’ loan because 3 Rivers closed the loan and

3 Rivers was not an originator or a certified facility. We do not

agree. Section 2279aa-12(d) applies to any loan that is “made by

an originator or a certified facility in accordance with this

[subchapter] that is included in a pool for which [Farmer Mac] has

provided a guarantee.” (The 1996 amendment applies to any loan

“made by an originator or a certified facility in accordance with

this title for sale to the Corporation or to a certified facility

for inclusion in a pool for which the Corporation has provided, or
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has committed to provide, a guarantee.”) It is undisputed that the

loan was originally closed by 3 Rivers and that 3 Rivers was not an
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originator or a certified facility. It is also undisputed that the

loan was “included in a pool for which [Farmer Mac] has provided a

guarantee.” However, we think 3 Rivers’s status is irrelevant.

Rather, it is Prudential’s status that is dispositive, at least for

purposes of the Farmer Mac loan program. 

Prudential is an originator and a certified facility. Title

12 U.S.C. § 2279aa(7) provides that “[t]he term ‘originator’ means

any . . . entity that originates and services agricultural mortgage

loans.” However, the statute does not define “originates.” Farmer

Mac has interpreted the term “originates” to include causing the

performance of an updated appraisal or reappraisal of an existing

loan, “regardless of the identity of the entity in whose name the

loan was originally closed.” Federal Agricultural Mortgage Corp.,

Securities Guide §§ 3.38(e), 4.6(e) (1990). Under this definition,

an originator can be an entity (e.g., Prudential) that purchases an

“existing loan” from another entity that actually closed the loan

(e.g., 3 Rivers) and performs an updated appraisal or reappraisal

of an existing loan. “Existing loans” are qualified loans for

which the most recent appraisal (excluding an updated appraisal or

reappraisal) precedes the application for a Farmer Mac Guarantee by

more than 180 days. Id. at 4. Appellees’ loan was an “existing

loan” because the original appraisal was performed on July 12,

1990, approximately 5 months before the loan closed in December

1990. Prudential’s application for a Farmer Mac Guarantee was

dated May 31, 1992. Thus, in accordance with the definition of

“existing loan,” the original appraisal on appellees’ loan preceded

the application for a Farmer Mac Guarantee by more than 180 days.

Prudential caused an updated appraisal of the loan to be performed

on May 1, 1992, so that the loan could be pooled in accordance with

the requirements of the Securities Guide. Because appellees’ loan

was an existing loan and Prudential caused an updated appraisal to
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be performed, Prudential is deemed to be the originator of the

loan, even though 3 Rivers originally closed the loan. For this
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reason, appellees’ loan was “made by an originator or certified

facility in accordance with” Title VIII, that is, Prudential.

In sum, we hold that 12 U.S.C. § 2279aa-12(a) expressly

preempts application of Iowa Code Ann. § 535.9(2) to agricultural

loans made by an originator or certified facility guaranteed by

Farmer Mac. Accordingly, we reverse the order of the district

court granting partial summary judgment in favor of appellees.

A true copy.

Attest:

 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.