Court Opinion

ID: 2824368
Source: CourtListenerOpinion
Date Created: 2015-08-11 04:44:02.868113+00
Date Added: 2024-06-11T11:31:13.337999
License: Public Domain

131 Nev., Advance Opinion 23
                         IN THE SUPREME COURT OF THE STATE OF NEVADA

                  MICHAEL A. MUNOZ AND SHERRY L.                         No. 63747
                  MUNOZ, HUSBAND AND WIFE,
                  Appellants,
                  vs.                                                         FILED
                  BRANCH BANKING AND TRUST
                  COMPANY, INC., A NORTH
                                                                              APR 3 0 2015
                  CAROLINA CORPORATION,
                  Respondent.

                              Appeal from a post-judgment deficiency judgment in a judicial
                  foreclosure action. Tenth Judicial District Court, Churchill County;
                  Thomas L. Stockard, Judge.
                              Affirmed.

                  Law Offices of John J. Gezelin and John J. Gezelin, Reno,
                  for Appellants.

                  Sylvester & Polednak, Ltd., and Jeffrey R. Sylvester and Allyson R. Noto,
                  Las Vegas,
                  for Respondent.

                  BEFORE THE COURT EN BANC.

                                                   OPINION

                  By the Court, SAITTA, J.:
                              Pursuant to the Supremacy Clause of the United States
                  Constitution, "state laws that conflict with federal law are without effect."
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                    Altria Grp., Inc. v. Good, 555 U.S. 70, 76 (2008) (internal quotations
                    omitted). One of the purposes of the federal Financial Institutions
                    Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub. L. No.
                    101-73, 103 Stat. 183 (codified as amended in scattered sections of 12
                    U.S.C.), is "to facilitate the purchase and assumption of failed banks as
                    opposed to their liquidation." FDIC v. Newhart, 892 F.2d 47, 49 (8th Cir.
                    1989).
                                At issue here is whether MRS 40.459(1)(c)'s limitation on the
                    amount of a deficiency judgment that a successor creditor can recover
                    conflicts with FIRREA's purpose of facilitating the transfer of the assets of
                    failed banks to other institutions. Because MRS 40.459(1)(c) limits the
                    value that a successor creditor can recover on a deficiency judgment, its
                    application to assets transferred by the Federal Deposit Insurance
                    Corporation (FDIC) frustrates the purpose of FIRREA. Therefore, we hold
                    that MRS 40.459(1)(c) is preempted by FIRREA to the extent that NRS
                    40.459(1)(c) limits deficiency judgments that may be obtained from loans
                    transferred by the FDIC.
                                   FACTUAL AND PROCEDURAL HISTORY
                                In 2007, appellants Michael A. and Sherry L. Munoz borrowed
                    money from Colonial Bank and granted Colonial Bank a security interest
                    in their real property. In 2009, the FDIC placed Colonial into receivership
                    and assigned the Munozes' loan to respondent Branch Banking and Trust
                    Company, Inc. (BB&T). In 2011, MRS 40.459(1)(c), which implements
                    certain limitations on the amount of a deficiency judgment that can be
                    recovered by an assignee creditor, became effective. 2011 Nev. Stat., ch.
                    311, §§ 5, 7, at 1743, 1748. In 2012, after the Munozes had defaulted on
                    their loan, BB&T instituted an action for a judicial foreclosure of the

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                   secured property, which the Munozes did not oppose. The property was
                   sold for less than the value of the outstanding loan at a sheriffs sale in
                   2013. BB&T then filed a motion seeking a deficiency judgment against
                   the Munozes for the remaining balance of the loan. Reasoning that NRS
                   40.459(1)(c) did not apply retroactively to the Munozes' loan, which was
                   originated and assigned before the statute's effective date, the district
                   court awarded a deficiency judgment to BB&T for the full deficiency
                   amount sought. In its order, the district court did not address whether
                   NRS 40.459(1)(c)'s present application was preempted by federal law. The
                   Munozes then filed the present appeal.
                                                   DISCUSSION
                                In addition to addressing whether NIBS 40.459(1)(c)'s
                   application in the present case was impermissibly retroactive, the parties
                   briefed several other issues, including whether this statute was preempted
                   by federal law. The Munozes argue that NRS 40.459(1)(c) is not
                   preempted by a conflict with federal law because it does not impair the
                   FDIC's ability to act as the receiver for a failed bank or to transfer a failed
                   bank's assets.
                               BB&T argues that the application of NRS 40.459(1)(c) to loans
                   acquired from the FDIC is preempted by FIRREA because NRS
                   40.459(1)(c) interferes with the FDIC's ability to assume and dispose of a
                   failed bank's assets.
                   Standard of review
                               "Whether state law is preempted by a federal statute or
                   regulation is a question of law, subject to our de novo review." Nanopierce
                   Techs., Inc. v. Depository Trust & Clearing Corp., 123 Nev. 362, 370, 168
P.3d 73, 79 (2007) (citation omitted). When reviewing a question of law,

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                  "[we] will affirm the order of the district court if it reached the correct
                  result, albeit for different reasons."       Rosenstein v. Steele, 103 Nev. 571,
                  575, 747 P.2d 230, 233 (1987).
                  A state law that conflicts with federal law is preempted and without effect
                              The preemption doctrine is rooted in the Supremacy Clause of
                  the United States Constitution, which provides:
                                    This Constitution, and the Laws of the
                              United States which shall be made in Pursuance
                              thereof; and all Treaties made, or which shall be
                              made, under the Authority of the United States,
                              shall be the supreme Law of the Land; and the
                              Judges in every State shall be bound thereby, any
                              Thing in the Constitution or Laws of any State to
                              the Contrary notwithstanding.
                  U.S. Const. art. VI, cl. 2. Thus, "state laws that conflict with federal law
                  are without effect."   Altria Grp., 555 U.S. at 76 (internal quotations
                  omitted).
                              One situation in which federal law can preempt a state law is
                  where a direct conflict between federal and state law exists.       See Boyle v.
                  United Techs. Corp., 487 U.S. 500, 504 (1988). This occurs when the state
                  law "frustrates the purpose of the national legislation, or impairs the
                  efficiencies of [the] agencies of the Federal government to discharge the
                  duties for the performance of which they were created."            McClellan v.
                  Chipman, 164 U.S. 347, 357 (1896) (internal quotations omitted); see also
                  Malone v. White Motor Corp., 435 U.S. 497, 504 (1978) (observing that
                  state and local laws which frustrate federal law are preempted);
                  Nanopierce Techs., 123 Nev. at 375, 168 P.3d at 82 (holding that conflict
                  preemption occurs when a state law frustrates a federal law's purpose).

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                FIRREA serves to facilitate the sale of a failed bank's assets
                               "Congress enacted WIRREAl to enable the federal
                government to respond swiftly and effectively to the declining financial
                condition of the nation's banks and savings institutions."       Schettler v.
                RalRon Capital Corp., 128 Nev. Adv. Op. No. 20, 275 P.3d 933, 936 (2012)
                (alteration in original) (quoting Henderson v. Bank of New England, 986
F.2d 319, 320 (9th Cir. 1993)). Under FIRREA, "[wthen the FDIC is
                appointed receiver of a failed financial institution, it immediately becomes
                the receiver of all of that institution's assets, including promissory notes
                that are in default." James J. Boteler, Protecting the American Taxpayers:
                Assigning the FDIC's Six Year Statute of Limitations to Third Party
                Purchasers, 24 Tex. Tech L. Rev. 1169, 1172 (1993) (citation omitted).
                When acting as a receiver for a failed bank, "[t] he FDIC's essential duty is
                to convert all of the institution's assets to cash to cover the insured
                depositors."    Id.   One method of this is a purchase and assumption
                agreement, where "the FDIC tries to arrange for a solvent bank to
                purchase the assets of the failed bank so as to avoid any interruption and
                loss to the depositors." Id.; see also Newhart, 892 F.2d at 49 (observing
                that one of FIRREA's purposes "is to facilitate the purchase and
                assumption of failed banks as opposed to their liquidation").
                               To assist the FDIC in carrying out this duty, federal law
                provides special status to the FDIC's assignees so as to maintain the value
                of the assets they receive from the FDIC.     See, e.g., FDIC v. Bledsoe, 989
F.2d 805, 809-11 (5th Cir. 1993) (providing that FDIC assignees share the
                FDIC's statutory "super" holder-in-due-course status and are entitled to
                the benefit of a six-year statute of limitations under FIRREA rather than
                any shorter state statute of limitations); see also Campbell Leasing, Inc. v.

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                     FDIC, 901 F.2d 1244, 1249 (5th Cir. 1990) (holding that "the FDIC and
                     subsequent note holders enjoy holder in due course status whether or not
                     they satisfy the technical requirements of state law"); Bell & Murphy &
                     Assocs., Inc. v. Interfirst Bank Gateway, NA, 894 F.2d 750, 754 (5th Cir.
                     1990) (holding that protections provided to the FDIC from claims or
                     defenses based on unrecorded side agreements extend to private assignees
                     of the FDIC).
                                 If a state statute limits the market for assets transferred by
                     the FDIC, it conflicts with FIRREA because it "would have a deleterious
                     effect on the FDIC's ability to protect the assets of failed banks." Newhart,
892 F.2d at 50; see also Bledsoe, 989 F.2d at 811 (holding that FDIC
                     assignees are afforded a six-year statute of limitations under FIRREA
                     rather than any shorter state statute of limitations, because the shorter
                     state statute of limitations would limit the value of the assets the FDIC is
                     to assign); Fall v. Keasler, No. C 90 20643 SW (ARB), 1991 WL 340182, at
                     *4 (N.D. Cal. Dec. 18, 1991) ("The FDIC can only make frill use of the
                     market in discharging its statutory responsibilities if the market
                     purchasers have the same rights to pursue actions against recalcitrant
                     debtors as does the FDIC."). Thus, state laws that limit the private
                     market for assets of failed banks held by the FDIC conflict with FIRREA
                     and are preempted.
                     NRS 40.459(1)(c) is preempted by its conflict with FIRREA
                                 NRS 40.459(1)(c) limits the amount an assignee creditor may
                     recover on a deficiency judgment to the amount that it paid to acquire the
                     interest in the secured debt less the amount of the secured property's
                     actual value. Specifically, the statute provides that

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                                 the amount by which the amount of the
                                 consideration paid for that right [to obtain the
                                 deficiency judgment] exceeds the fair market value
                                 of the property sold at the time of sale or the
                                 amount for which the property was actually sold,
                                 whichever is greater, with interest from the date
                                 of sale and reasonable costs,
                    shall be the amount of a deficiency judgment. NRS 40.459(1)(c).
                                 Since the statute limits a successor creditor's recovery to no
                    more than it paid for a loan, NRS 40.459(1)(c) prevents a creditor from
                    realizing a profit on its purchase of a debt from an assignor creditor.     See
                    Id.   This statute makes it less likely that a rational creditor would
                    purchase such a loan. Therefore, NRS 40.459(1)(c)'s application to failed
                    banks' assets held by the FDIC would limit the private market for such
                    assets by making it more difficult for the FDIC to dispose of these assets.
                    Thus, the application of NRS 40.459(1)(c) to assets transferred by the
                    FDIC would frustrate the purpose of FIRREA and directly conflict with
                    this federal statutory scheme. Consequently, NRS 40.459(1)(c) is
                    preempted by FIRREA as to assets transferred by the FDIC and is without
                    effect in this case. See Altria Grp., 555 U.S. at 76.
                                                   CONCLUSION
                                Although the district court found that NRS 40.459(1)(c) does
                    not apply to BB&T's application for a deficiency judgment for a different
                    reason than the one stated above, it reached the correct result in
                    concluding that NRS 40.459(1)(c) did not shield the Munozes from
                    deficiency judgment liability. Since "[we] will affirm the order of the
                    district court if it reached the correct result, albeit for different reasons,"
                    Rosenstein v. Steele, 103 Nev. 571, 575, 747 P.2d 230, 233 (1987), we

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                    affirm the district court's order on the grounds that conflict preemption
                    prevents NRS 40.459(1)(c)'s application in the present case.'

                                                         Saitta

                    We concur:

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                    Gibbons

                                                    J.

                          'Since NRS 40.459(1)(c)'s application in the present case is
                    preempted by its conflict with FIRREA, we do not reach the other issues
                    raised, including whether: (1) NRS 40.459(1)(c)'s application in the present
                    case would be retroactive, (2) this statute's application in the present case
                    violates the Contracts Clause of the United States or Nevada
                    Constitutions, or (3) the FDIC is a person within the meaning of NRS
                    40.459(1)(c).

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