FDIC v. Torrefaccion Cafe

• Court: Court of Appeals for the First Circuit
• Decided: August 15, 1995
• Docket: 94-2288
• Status: Published

Opinion

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.  


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                                          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


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                                          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


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                                          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


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                                          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



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                                          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.


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                                          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,


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                                          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


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                                          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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