Federal Deposit Insurance v. Torrefaccion Cafe Cialitos, Inc.

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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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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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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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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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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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.

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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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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.

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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.

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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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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.

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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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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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