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From Banking and Finance Law Daily, November 3, 2014

FDIC deficiency action not barred by Nevada’s statute of repose

By Lisa M. Goolik, J.D.

The Supreme Court of Nevada has determined that the Financial Institutions Reform, Recovery, and Enforcement Act, which extends the statute of limitations for the Federal Deposit Insurance Corporation when it is acting in its capacity as a failed institution's conservator or receiver, expressly preempts any shorter state statutory time limitation, regardless of whether the state statute is a statute of limitations or repose. As a result, the FDIC’s action seeking a deficiency judgment against a guarantor of a loan, filed after six months but within six years of the sale of the real property that secured the loan, was not time barred under Nevada’s statute of repose (FDIC, as receiver for Community Bank of Nevada v. Rhodes, Oct. 30, 2014, Saitta, Judge).

Background. In 2005, Community Bank of Nevada loaned $2,625,000 to Tropicana Durango Ltd., of which James M. Rhodes was a general partner, under a promissory note secured by a deed of trust encumbering a piece of Tropicana Durango's real property. Additionally, Rhodes executed an agreement guaranteeing the repayment of Tropicana Durango's debt to Community Bank.

In August 2009, the Nevada Financial Institutions Division closed and took possession of Community Bank and appointed the FDIC as receiver. At the time, Tropicana Durango was already in default on its 2005 loan. In November 2009, the FDIC held a trustee's sale for the real property that was secured by the deed of trust.

In February 2011, the FDIC filed a suit for a deficiency judgment against Rhodes to recover the money still owed on the loan after the trustee's sale. The FDIC contended that its deficiency judgment action was timely because FIRREA permitted it to bring the action within six years of the date on which it could first bring its deficiency judgment claim, which was the date of the trustee's sale.

Rhodes responded that Nevada’s statute of repose, NRS 40.455(1), imposes a six-month time limitation for deficiency judgments, which started from the date of the trustee's sale, barring the FDIC's complaint. Rhodes contended that FIRREA could not elongate the time to file an action that was otherwise barred by a state statute of repose.

FIRREA. Under FIRREA, the FDIC acts as a “conservator or receiver” for failed financial institutions. FIRREA also extends the time period for the FDIC, in its capacity as conservator or receiver, to bring a contract claim, such as an action for a deficiency judgment, that has otherwise been barred by a state statutory time limitation, providing that “any action brought by [the FDIC] as conservator or receiver shall be: (i) in the case of any contract claim, the longer of: (I) the 6-year period beginning on the date the claim accrues; or (II) the period applicable under State law…” (12 U.S.C. §1821(d)).

Nevada law provides for a shorter limitation for deficiency judgment actions under NRS 40.455. In accordance with the provision, a judgment creditor or the beneficiary of the deed of trust must bring an action for a deficiency judgment within six months after the date of a foreclosure sale or trustee's sale.

Clear mandate. Whether a federal law preempts a conflicting state law is a matter of congressional intent, stated the court. Because there is a strong presumption that federal law does not supersede state law in areas that states generally regulate, the intent to preempt state law must be "clear and manifest."

Rhodes argued that FIRREA did not expressly preempt the Nevada statute because section 1821(d) includes the phrase “statute of limitations” and omits the phrase “statute of repose.” A statute of limitations prohibits a suit after a period of time that follows the accrual of the cause of action, while a statute of repose bars a cause of action after a specified period of time, regardless of when the cause of action was discovered or a recoverable injury occurred.

The court concluded that the plain meaning of the section “clearly and manifestly” mandated that its six-year time limitation governs the timeliness of an action for a deficiency brought by the FDIC in its capacity as receiver, if that time limitation is longer than the period applicable under state law, regardless of whether the state statute is a statute of limitations or repose. Section 1821(d) uses the broad phrase “period applicable under State law” to identify what is preempted, the court noted. In the context of the statute, the court determined that the plain meaning of the phrase conveys the intent to preempt any applicable state time limitation, including state statutes of repose. Accordingly, it made no difference whether the Nevada law was a statute of limitations or repose, said the court, only that it was a “period applicable under State law" that is shorter than the FDIC extender statute's six-year time limitation.

Thus, because the FDIC filed its deficiency judgment action within FIRREA's six-year time limitation, the FDIC's action was timely.

Dissenting opinion. In a dissenting opinion, three members of the court concluded that the FDIC failed to preserve its preemption argument by failing to raise the argument before the district court. In addition, the justices argued that section 1821(d) does not preempt state statutes of repose but “is best interpreted to reference only statutes of limitations.” The FDIC extender statute extends the time period for “any action” to be brought, presupposing that a cause of action exists. Statutes of repose, they noted, are not related to the existence of any cause of action.

The case number is No. 59309.

Attorneys: Michael B. Wixom and Katie M. Weber (Smith Larsen & Wixom) for the Federal Deposit Insurance Corporation, as receiver for Community Bank of Nevada. Nicholas J. Santoro and Jason D. Smith (Santoro Whitmire) for James M. Rhodes.

Companies: Community Bank of Nevada; Tropicana Durango Ltd.

MainStory: TopStory DepositInsurance NevadaNews Receiverships

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