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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