
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.                      __________   ________________________________                                         -14-                                          14
