Court Opinion

ID: 2963612
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:12:59.747597+00
Date Added: 2024-06-11T15:01:29.501090
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 94-2288

                        FEDERAL DEPOSIT INSURANCE CORPORATION,

                                 Plaintiff, Appellee,

                                          v.

                      TORREFACCION CAFE CIALITOS, INC., ET AL.,

                               Defendants, Appellants.
                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                  [Hon. Carmen Consuelo Cerezo, U.S. District Judge]
                                                ___________________
                                 ____________________

                                        Before

                                Boudin, Circuit Judge,
                                        _____________

                           Campbell, Senior Circuit Judge,
                                     ____________________

                        and Schwarzer*, Senior District Judge.
                                        _____________________

                                 ____________________

            Gilberto  Mayo-Pagan  with whom  Mayo  &  Mayo was  on  brief  for
            ____________________             _____________
        appellants.
            Daniel  Glenn  Lonergan  ,  Counsel,    with  whom    Ann  DuRoss,
            _________________________                             ___________
        Assistant  General Counsel,  Colleen  B.  Bombardier, Senior  Counsel,
                                     _______________________
        Federal  Deposit Insurance  Corportion,  and  Jose  R.  Garcia  Perez,
        ______________________________________        ________________________
        Gonzalez,  Bennazar, Garcia-Arregui  &  Fullana,  were  on  brief  for
        _______________________________________________
        appellees.

                                 ____________________

                                   August 15, 1995
                                 ____________________

                            
        ____________________

        *Of the Northern District of California, sitting by designation.

                      CAMPBELL,  Senior  Circuit   Judge.    The  Federal
                                 _______________________

            Deposit Insurance Corporation ("FDIC") seeks to recover funds

            under  several  promissory  notes once  held  by  Girod Trust

            Company ("GTC"), a  failed Puerto Rico bank.   The defendants

            are  the debtor, co-debtor, sureties, and guarantors of those

            notes.   The  district court  denied  defendants' motion  for

            partial  summary judgment and  granted the FDIC's  motion for

            summary  judgment.  Defendants  now appeal, arguing  that the

            district court erred in  holding that the FDIC's  claims were

            not barred by  the statute of limitations.  We affirm in part

            and reverse in part.

                                          I.

                      The facts are  undisputed.  The defendants  in this

            case  are: (1) Torrefaccion  Cafe Cialitos ("TCC"),  a Puerto

            Rico company that processes and distributes coffee; (2) Pedro

            Maldonado-Rivera  (referred  to  by  the  district  court  as

            "Maldonado I"),  the president of  TCC; (3) Daisy  Ramirez de

            Arellano  ("Ramirez"), Maldonado I's  wife and an  officer of

            TCC; (4) the legal conjugal partnership formed by Maldonado I

            and Ramirez;  and  (5)  Pedro  Maldonado-Ramirez  ("Maldonado

            II"), TCC's vice president.  TCC  is the debtor for the  loan

            transactions  that are  at  the  center of  this  case.   The

            remaining  defendants  are  the  co-debtors,  sureties,   and

            guarantors of those loans.  

                                         -2-
                                          2

                      In  this  suit,  the  FDIC  seeks  to  collect  the

            principal  and interest  due from  the  following three  loan

            transactions:

                      1.   1977  Loan Transaction  ---  On May  27, 1977,
                           ______________________

            Maldonado I (personally and as president of TCC)  and Ramirez

            (personally)  executed a  loan agreement  in  favor of  Banco

            Financiero de Ahorro  de Ponce, under which  Banco Financiero

            agreed to lend TCC $230,000.  To evidence the loan, Maldonado

            I  (personally  and   as  president  of  TCC)   executed  two

            promissory notes: Note  I, for $70,000, due on  May 30, 1992,

            and Note II, for $160,000, due  on May 30, 1984.  To  further

            secure  payment of  the loan,  and  any other  TCC debt,  TCC

            executed a  pledge agreement delivering three bearer mortgage

            notes and a  chattel mortgage.  Maldonado I  and Ramirez also

            signed personal guaranties  for the loan.   The Farmers  Home

            Administration  guaranteed 90% of the loan.  GTC subsequently

            entered into  an agreement to  purchase the remaining  10% of

            the loan,  should TCC  default for a  term longer  than three

            consecutive months.    TCC defaulted  on  the loan,  and  GTC

            purchased the loan on January 10, 1979.

                      2.   1979 Loan  Transaction ---  On March  5, 1979,
                           ______________________

            TCC executed  a loan agreement  in favor of GTC,  under which

            GTC loaned TCC  $110,000.  To evidence the  loan, Maldonado I

            (as president  of TCC)  executed two  promissory notes:  Note

            III, for $35,000 and Note IV, for $75,000.   Final payment on

                                         -3-
                                          3

            Note III was due March 5, 1986; final payment for Note IV was

            due March 5, 1981.   To secure payment of the loan, Maldonado

            I  (as  president   of  TCC)  executed  a   pledge  agreement

            delivering  one  bearer  mortgage note.    Later,  to further

            secure  the loan, Maldonado  (personally and as  president of

            TCC)  and  Ramirez  (personally)  executed  a  second  pledge

            agreement delivering another bearer mortgage note.  Maldonado

            I and Ramirez also signed personal guaranties for the loan.

                      3.   1981  Line of  Credit ---  On  April 3,  1981,
                           _____________________

            Maldonados I and  II (personally, and as TCC's  president and

            vice president)  executed an open-end  credit agreement  with

            GTC, under which GTC  extended to TCC a line of  credit of up

            to $250,000, to  be disbursed as cash advances  or credits to

            its  checking  account.    Maldonados  I  and  II executed  a

            continuing guaranty without collateral, jointly and severally

            guaranteeing to the bank the punctual payment of TCC's debts.

            Under  the  line  of credit,  sixteen  promissory  notes were

            executed in 1981 and 1982, with payment due throughout 1982.

                      On July  31, 1984,  TCC  petitioned for  bankruptcy

            under  chapter 11.   In  the petition,  GTC was  listed among

            TCC's  creditors.   On  August  16,  1984, GTC  was  declared

            insolvent, and the FDIC was appointed its receiver, acquiring

            the assets giving  rise to the claims in this case.  On April

            11, 1986, the TCC  bankruptcy case was dismissed.  On May 10,

            1991,  the  FDIC  brought  this  action  to  collect  on  the

                                         -4-
                                          4

            promissory notes  it had  acquired from GTC.   TCC  moved for

            summary  judgment,  arguing that  the limitations  period for

            collection  on the  promissory notes had  expired.   The FDIC

            opposed  the motion  and  filed its  own  motion for  summary

            judgment, which the district court granted.

                                         II.

                      Under  Puerto  Rico  law,  actions  to  collect  on

            commercial  promissory notes  are  subject  to a  limitations

            period of three years from the note's date of maturity.  P.R.

            Laws Ann. tit. 10,   1908.   The running of this  limitations

            period,  however, is  interrupted "by  suit  or any  judicial

            proceeding brought against the debtor,"  P.R. Laws Ann.  tit.

            10,    1903, including bankruptcy  proceedings.  See  FDIC v.
                                                             ___  ____

            Barrera, 595 F. Supp. 894,  901 (D. P.R. 1984).  Puerto  Rico
            _______

            law  further provides  that interruption  of the  limitations

            period  "in joint obligations equally benefits or injures all

            the creditors  or debtors," P.R.  Laws Ann. tit. 31,    5304,

            and an interruption "against the principal debtor by suit for

            debt shall also lie against his surety."  P.R. Laws Ann. tit.

            31,   5305.  

                      Federal  law  establishes  an  additional  six-year

            limitations period for  suits brought by the  FDIC to collect

            on  assets it  acquires as  receiver  of a  failed bank.   12

            U.S.C.    1821  (d)(14)(A) (1988  &  Supp. 1995)  ("FIRREA").

            Thus, if  the state limitations  period has not yet  run when

                                         -5-
                                          5

            the FDIC steps in, the federal limitations period will apply.

            The  period begins  to run  upon appointment  of the  FDIC as

            receiver or  accrual of the  action, whichever is later.   12

            U.S.C.    1821 (d)(14)(B).   The  federal limitations  period

            does not, however, operate to extend claims that have already

            lapsed under the state limitations period before the FDIC has

            acquired them.  See, e.g., Barrera, 595 F. Supp. at 898.
                            ___  ____  _______

                      Applying these various statutory provisions to this

            case, the district court  held that the FDIC's  claims, based

            on the three  loan transactions, were all timely  filed.  The

            court found that the three-year  limitations period of   1908

            applied to  the three loans, commencing on  the maturity date

            of each  loan: May 30, 1992 for the  1977 loan; March 5, 1986

            for  the 1979  loan; throughout  1982  for the  1981 line  of

            credit.  In calculating the  maturity dates of the loans, the

            court looked  to the date when  the final payment was  due on

            each  loan transaction  as  a whole,  not  to the  individual

            maturity  dates  of  the underlying  promissory  notes.   For

            example, although  Note IV  of the 1979  loan had  a maturity

            date of March 5, 1981, the district court considered the note

            part of  a single loan transaction, with  an overall maturity

            date of March 5, 1986.1

                                
            ____________________

            1.   With  respect   to   Note   IV,   the   district   court
            alternatively found that, even if the later maturity date did
            not  control and  the claim  based on  Note IV  was therefore
            untimely (since  the  bankruptcy proceeding  began more  than
            three years later), it was  revived through TCC's listing  of

                                         -6-
                                          6

                      The court then found that TCC's bankruptcy petition

            was  a  "judicial proceeding"  under     1903, and  that  the

            limitations periods  for the claims against TCC  on all three

            loans  were tolled as of July 1984.  The court further found,

            pursuant to     5304 and 5305, that the  tolling also applied

            for suits against TCC's co-debtors, guarantors, and sureties.

            Finally,  the court found  that, once the  FDIC was appointed

            receiver in  August 1984,  the FIRREA's  six-year limitations

            period came into effect, since the claims had not yet lapsed.

            Under  12 U.S.C.   1821, the court held, FIRREA's limitations

            period began to run  in April 1986 at the earliest,  when TCC

            emerged from bankruptcy  and the FDIC's  claims accrued.   As

            the suit  was filed within six years, in  May of 1991, it was

            timely.                      III.

                      On appeal, defendants argue that the district court

            erred in holding:  (1) that the bankruptcy  proceeding tolled

            the running  of the limitations period for claims against the

            co-debtors, sureties, and guarantors arising from Note II and

            the notes  underlying the 1981  line of credit; and  (2) that

            the claims  against all  defendants based on  Note IV  of the

            1979  loan transaction were  timely filed.   Defendants state

            that they  do not appeal  from the district  court's decision

            regarding the claims based on Note  I and Note III.  As  this

                                
            ____________________

            the claim in  the bankruptcy filing.  P.R. Laws Ann. tit. 10,
             1903.

                                         -7-
                                          7

            is an appeal from a  summary judgment, we review the district

            court's decision de novo.  See Pagano v. Frank, 983 F.2d 343,
                             _______   ___ ______    _____

            347 (1st Cir. 1993).  Thus, we will affirm a grant of summary

            judgment if there are no  genuine issues of material fact and

            the moving party is entitled to  judgment as a matter of law.

            Fed R. Civ. P. 56(c).

            A.   Tolling of Limitations Period
                 _____________________________

                      Defendants   argue   first   that,   although   the

            bankruptcy proceeding may have tolled  the limitations period

            for suits against the debtor TCC, it did not toll the statute

            of limitations for suits against co-debtors, guarantors,  and

            sureties as well.  This  is so, defendants argue, because the

            automatic  stay  provision  of the  federal  bankruptcy code,

            found in 11 U.S.C.   362, preempts    5304 and 5305 of Puerto

            Rico's  commercial code.   Defendants  argue  that, under  11

            U.S.C.   362,  a bankruptcy  proceeding automatically  stays,

            and therefore tolls  the statute of limitations  for, actions

            against debtors  but not against  co-debtors, guarantors,  or

            sureties.  See Austin v. Unarco Indus., Inc., 705 F.2d 1, 4-5
                       ___ ______    ___________________

            (1st Cir.),  cert. dismissed, 463  U.S. 1247 (1983).   To the
                         _______________

            extent they toll the limitations period for suits against co-

            debtors, guarantors, and sureties,  defendants argue,    5304

            and  5305 conflict  with  the bankruptcy  code  and are  thus

            preempted.

                                         -8-
                                          8

                      If      5304  and 5305  are  preempted,  defendants

            argue, then the  claims against  co-debtors, guarantors,  and

            sureties  based  on   Note  II2  and  the   promissory  notes

            underlying  the 1981  letter  of credit  are  untimely.   For

            example, the  promissory notes  underlying the  1981 line  of

            credit all had maturity dates in 1982.  The FDIC acquired the

            notes  in August of  1984, before the  three-year limitations

            period had  lapsed.  However,  if the limitations  period for

            suits against the  co-debtors, guarantors,  and sureties  was

            not tolled by  the bankruptcy proceedings, then  the six-year

            FIRREA  limitations period began  running in August  of 1984,

            when the  FDIC acquired the  assets, not April of  1986, when

            TCC emerged from  bankruptcy.  As the claims  against the co-

            debtors,  guarantors, and sureties  were filed more  than six

            years later in 1991, the claims would be untimely.

                      We  find  defendants'  preemption  argument  to  be

            without merit.  The provisions of the federal bankruptcy code

            preempt  only  those state  laws  that are  in  conflict with

            federal  law.   See Stellwagen  v.  Clum, 245  U.S. 605,  613
                            ___ __________      ____

            (1918).   True,    362 automatically  stays only  suits filed

            against  debtors  and  not suits  against  that  debtor's co-

            debtors, guarantors, or  sureties.  Austin, 705  F.2d at 4-5.
                                                ______

                                
            ____________________

            2.   Although defendants do  not explicitly refer to  Note II
            in  their argument, the argument based on the 1981 promissory
            notes  is equally  applicable to  Note II.   We  consider the
            argument as applied to Note II,  since the result is, in  any
            event, the same.

                                         -9-
                                          9

            But this does not indicate  an inconsistency with    5304 and

            5305.  Nothing in the decisions construing   362 to stay only

            suits against  debtors implies  that    362 precludes  states
                                                        _________

            from themselves staying suits against co-debtors, guarantors,

            and sureties.  These decisions hold  only that   362 does not
                                                                 ________

            itself stay, nor  require the staying of, such  actions.  See
            ___________                                               ___

            Austin, 705 F.2d at 5 (recognizing that circumstances may, in
            ______

            some  cases,  warrant  a stay  against  co-debtors  as well).

            Furthermore,  these  cases deal  with stays,  not limitations
                                                  _____

            periods; thus,  even if  a creditor may  proceed against  co-

            debtors, guarantors,  or sureties  during the  pendency of  a

            bankruptcy  proceeding, nothing  bars a state  from extending

            the  limitations  period  for such  suits  under  state law.3
                 ___________________

            Puerto  Rico is still free to  extend the limitations period,

            under its own laws, for actions against co-debtors, sureties,

            and guarantors, as it has done under    5304 and 5305.

                      There  is no conflict between such an extension and

            the purpose  behind    362.  By  staying actions  against the

            debtor during bankruptcy,   362  gives the debtor a degree of

            breathing  room,  relieving  it  of  financial  pressure  and

            allowing it to attempt repayment of  its debts or to adopt  a

                                
            ____________________

            3.   For the  same reason, defendants'  reliance upon  Camara
                                                                   ______
            Insular v. Anadon, 83 P.R.R. 360,  365-66 (1961) and Santiago
            _______    ______                                    ________
            v. Ares, 25 P.R.R. 446,  448 (1917) is misplaced, as both  of
               ____
            those  cases  deal   only  with  the  impact   of  bankruptcy
            proceedings on the liability  of co-debtors, guarantors,  and
                               _________
            sureties, not upon  the limitations period for  bringing such
            claims. 

                                         -10-
                                          10

            reorganization plan.   See  S. Rep. No.  989, 95th  Cong., 2d
                                   ___

            Sess.  54-55  (1978), reprinted  in  1978  U.S.C.C.A.N. 5787,
                                  _____________

            5840-41.  In tolling the limitations period for suits against

            co-debtors, guarantors, and sureties during the pendency of a

            bankruptcy proceeding against the debtor,    5304 and 5305 do

            not impinge  upon this  breathing room  or otherwise  detract

            from the protection offered the debtor by   362. 

                      As there is  no conflict,    5304 and  5305 are not

            preempted and serve  to extend the limitations  period during

            bankruptcy   proceedings   for  suits   against   co-debtors,

            guarantors, and sureties.  See  Barrera, 595 F. Supp. at 901;
                                       ___  _______

            FDIC v. Marco Discount House, 575 F. Supp. 730, 732 (D.  P.R.
            ____    ____________________

            1983).  Accordingly,  the district court correctly  held that

            the  FDIC's claims  against the  co-debtors, guarantors,  and

            sureties  did  not accrue  until  April  of  1986,  when  the

            bankruptcy case  was  dismissed.   As the  claims were  filed

            within FIRREA's six-year limitations period, they are timely.

            B.   Note IV
                 _______

                      Defendants  argue  that,  even  if  the  bankruptcy

            proceeding did  toll the  statute of  limitations for  claims

            against co-debtors, guarantors, and sureties, the claim based

            on Note IV ($75,000) supporting the 1979 loan transaction was

            nevertheless  untimely.    Defendants  point   out  that  the

            maturity  date on  the Note  was March  5, 1981.    Under the

            three-year  limitations period, the claim expired on March 5,

                                         -11-
                                          11

            1984,  several months  before the  bankruptcy proceeding  was

            instituted and before the FDIC acquired the note.  Thus, they

            argue, neither the  tolling provisions under Puerto  Rico law

            nor the six-year  limitations period under FIRREA  apply, and

            the claim is untimely.4  

                      The FDIC argues that  the district court  correctly

            found that Note IV was  not a separate loan, but  merely part

            of a single, 1979 loan  transaction.  Thus, the maturity date

            for the  Note was actually  the maturity date for  the entire

            loan, March 5, 1986, and not March 5, 1981.  In  reaching its

            conclusion, the district  court pointed in particular  to the

            fact that both  Note III and  Note IV were  part of a  single

            loan agreement,  that there was  only one application  to the

            FHA for  the loan and  guarantee stating the total  amount of

            $110,000, and that there was only one guarantee for the total

            amount of the  loan.  The FDIC argues that  defendants do not

            expressly contest  this finding on appeal, and that it should

            therefore be affirmed.  Since the maturity date was 1986, the

            limitations period had not run  by the time the FDIC acquired

            the loan.

                                
            ____________________

            4.   Defendants also argue  that the district court  erred in
            concluding that TCC's  listing of the Note  in its bankruptcy
            schedules served to  revive the  claim under  P.R. Laws  Ann.
            tit. 10,    1903.   Evidently recognizing  that the  case law
            appears to support defendants' argument, see FDIC v. Cardona,
                                                     ___ ____    _______
            723  F.2d 132, 137 (1st Cir. 1983), the FDIC does not contest
            this  argument on  appeal, relying  instead  on the  district
            court's alternate ground for the result.

                                         -12-
                                          12

                      While it is true that defendants have not expressly

            contested  the district court's conclusion on this ground, we

            find  that  the  defendants  have  implicitly  contested  the

            district court's  finding by consistently  discussing Note IV

            as a separate claim and by calculating the timeliness of that

            claim from Note IV's date of maturity.  We  further hold that

            defendants' argument  has merit.   We see no legal  basis for

            treating  the  two  promissory notes  as  a  single  loan for

            statute of limitations  purposes.  The three-year  statute of

            limitations  applies, by its  terms, to commercial promissory

            notes.  See P.R. Laws Ann. tit. 10,   1908, ("Actions arising
                    ___

            from drafts shall extinguish three years after maturity . . .
                                                           ________

            .  A  similar rule  shall be applied  to commercial bills  of

            exchange and promissory notes . . . ." (emphasis added)); see
                         ________________                             ___

            also Barrera, 595 F. Supp.  at 898; Marco Discount House, 575
            ____ _______                        ____________________

            F. Supp. at 731.  In this case, the 1979 loan transaction was

            supported  by two separate promissory notes with two separate

            maturity  dates: March  5, 1981 and  March 5, 1986.   Under a

            straightforward application  of the statute,  the limitations

            periods for  suits based  on the two  Notes began  running at

            different times.  

                      We  see no legal  basis for importing  the maturity

            date of Note  III into Note IV despite  the separate maturity

            date on  the face of  Note IV.  The  fact that the  two notes

            happened  to  be  part  of  the  same "loan  transaction"  is

                                         -13-
                                          13

            immaterial  for statute  of limitations  purposes, since  the

            operative  legal   documents  were   the  notes   themselves.

            Accordingly,  the limitations period for claims based on Note

            IV  expired three  years after  maturity, on  March 5,  1984,

            before it could  be interrupted by the  bankruptcy proceeding

            and  before the  FDIC acquired  the note.   The  FDIC's claim

            based on that note is therefore untimely.

                                         IV.

                      We  affirm  the district  court's holding  that the

            FDIC's claims  on Note  I, Note II,  Note III, and  the notes

            underlying  the line  of credit  were all  timely filed,  but

            reverse the  district court's holding that the  claim on Note

            IV was  timely filed.  We remand to  the district court for a

            recalculation  of  the  judgment  amount  in  light  of  this

            decision.

                      So ordered.  Each party to bear its own costs.
                      __________   ________________________________

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                                          14