USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
_________________________
No. 96-1785
FRILLZ, INC.,
Plaintiff, Appellant,
v.
PHILIP LADER, AS ADMINISTRATOR OF THE
UNITED STATES SMALL BUSINESS ADMINISTRATION,
Defendant, Appellee.
_________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge] ___________________
_________________________
Before
Selya and Stahl, Circuit Judges, ______________
and Woodlock,* District Judge. ______________
_________________________
Evans J. Carter, with whom Hargraves, Karb, Wilcox & Galvani _______________ _________________________________
were on brief, for appellant.
Susan M. Poswistilo, Assistant United States Attorney, with ___________________
whom Donald K. Stern, United States Attorney, and Glenn P. _________________ _________
Harris, Office of General Counsel, Small Business Administration, ______
were on brief, for appellee.
_________________________
January 21, 1997
_________________________
______________
*Of the District of Massachusetts, sitting by designation.
SELYA, Circuit Judge. Plaintiff-appellant Frillz, SELYA, Circuit Judge. ______________
Inc., a Massachusetts corporation, seeks damages for breach of
contract against Philip Lader, in his capacity as administrator
of the federal Small Business Administration (SBA). The
plaintiff bases its suit on the SBA's alleged refusal to honor a
loan guaranty commitment. The district court granted summary
judgment for the SBA. We affirm.
I. I. __
Background Background __________
In February 1993, Frillz asked the SBA to guaranty a
proposed loan. Frillz contemplated that the loan would be made
by Eastern Bank (the Lender) in the principal amount of $612,000.
Of this amount approximately $240,000 would be used to retire
indebtedness owed to Fleet Bank, and the balance would be used to
expand Frillz's retail operations from fourteen to seventeen
stores.
In due course, the SBA approved Frillz's application
for an 80% guaranty of the loan. The SBA's loan guaranty
authorization contained a clause requiring receipt by the Lender
of "evidence satisfactory to it in its sole discretion, that
there has been no unremedied adverse change since the date of the
Application . . . in the financial or any other conditions of
[Frillz], which would warrant withholding or not making any such
disbursement."
Frillz struggled in the third quarter of fiscal 1993
(February through April), losing $189,000. In the next quarter,
2
however, its operations returned to profitability. The Lender
subsequently concluded that the adverse change in Frillz's
financial picture had been remedied. Notwithstanding the
Lender's satisfaction, the SBA balked; it informed the Lender
that it did not believe that the adverse change had been
sufficiently ameliorated. And, it announced that any
disbursement of the loan must have the approval of both the SBA
and the Lender.
Frillz filed suit claiming that the SBA had reneged on
its agreement that the Lender would have sole discretion to
determine whether there had been an uncorrected adverse change in
Frillz's financial condition. On cross-motions for summary
judgment, the district court concluded that, under 15 U.S.C.
636(a)(6) (1994), the SBA could not delegate the authority to
determine the financial security of a loan to any outsider. See ___
Frillz, Inc. v. Lader, 925 F. Supp. 83, 88 (D. Mass. 1996). _____________ _____
Hence, the court entered judgment in the defendant's favor. See ___
id. This appeal followed. ___
II. II. ___
Analysis Analysis ________
Summary judgment is appropriate when "there is no
genuine issue as to any material fact and . . . the moving party
is entitled to judgment as a matter of law." Fed. R. Civ. P.
56(c). Our review of the district court's grant of summary
judgment is plenary, and in canvassing the record we indulge all
reasonable inferences in favor of the party opposing the motion.
3
See Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990). ___ _______ _______________
We are not bound by the rationale of the lower court but may
instead affirm an entry of summary judgment on any alternative
ground made manifest by the record. See Hachikian v. FDIC, 96 ___ _________ ____
F.3d 502, 504 (1st Cir. 1996). We follow that avenue here.
Frillz challenges the district court's holding that 15
U.S.C. 636(a)(6) precludes the SBA from delegating to other
than in-house personnel on several grounds. It argues that
Congress in 1981 repealed the language in section 636(a)(6) that
restricts the SBA's power to delegate, and thus that there is no
statutory impediment to the SBA's delegation of authority to the
Lender.1 Alternatively, it asserts that even if Congress did not
repeal the disputed portion of section 636(a)(6), that statute
should not be interpreted to bar delegation of the SBA's
authority. These questions are not without complication; indeed,
the district court aptly described the task of answering them as
"somewhat pedantic and unavoidably ponderous." Frillz, 925 F. ______
____________________
1We set out in the Appendix the text of 15 U.S.C.
636(a)(6) as it appeared before Congress amended it by enacting
the Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub. L. 97-
35, 1910, 95 Stat. 778 (stating inter alia that section _____ ____
636(a)(6)(C), which Congress described as "[s]ection[] 7(a)(6)(C)
. . . of the Small Business Act [is] repealed [as of] October 1,
1985"). Frillz claims that Congress thereby intended to repeal
not only section 636(a)(6)(C) proper but also the last sentence
of 15 U.S.C. 636(a)(6) (which states in part that "any
authority conferred by this subparagraph on the Administration
shall be exercised solely by the Administration and shall not be
delegated to other than Administration personnel"). This
sentence appears below section 636(a)(6)(C) without any further
letter or numerical reference, yet without indentation. The
compilers of the code apparently determined that this sentence
did not comprise part of section 636(a)(6)(C), but Frillz
disagrees.
4
Supp. at 86. We spare ourselves that difficulty, for the record
allows us to reach the same destination by an easier, less
labyrinthine path: the SBA official who approved Frillz's loan
guaranty lacked power under existing SBA regulations to delegate
his authority further.2
A suit against a federal official in his official
capacity is in effect a suit against the government. See ___
American Policyholders Ins. Co. v. Nyacol Prods., Inc., 989 F.2d ________________________________ ___________________
____________________
2The question of whether Congress repealed the final
sentence of section 636(a)(6) is freighted with uncertainty.
When one examines the content of section 636(a)(6) as it appeared
before Congress amended it in 1981 through the OBRA, the final
sentence fits comfortably, in structural terms, with subsection
(C). At that time, section 636(a)(6) began by stating that SBA
loans must be "of such sound value or so secured as reasonably to
assure repayment," and subsections (A), (B), and (C) each limited
this requirement: subsection (A) with respect to loans to assist
any handicapped individual; subsection (B) with respect to loans
for energy measures; and subsection (C) with respect to loans
used to refinance indebtedness. The first clause of the final
undesignated sentence also dealt with loans used to refinance
existing indebtedness. It is thus reasonable to suggest that the
final sentence of section 636(a)(6) comprises a part of
subsection (C).
On the other hand, when Congress passed the OBRA, the final
sentence of section 636(a)(6) appeared as it does now: below the
three subsections, unindented. It did not appear from the form
of the statute to have been part of subsection (C); and, since
Congress specified only that subsection (C) was repealed, to hold
now that the final undesignated sentence comprised part of that
subsection would violate the principle that implied repeals of
federal statutes are disfavored. See Passamaquoddy Tribe v. ___ ___________________
Maine, 75 F.3d 784, 790 (1st Cir. 1996). Moreover, subsequent _____
Congresses assumed that the final sentence survived the repeal,
see, e.g., H.R. Rep. No. 101-667, at 15 (1990), reprinted in 1990 ___ ____ _________ __
U.S.C.C.A.N. 3990, 3992; H.R. Rep. No. 102-492, at 3 (1992),
reprinted in 1992 U.S.C.C.A.N. 891, 892, and a court for that _________ __
reason would be hard-pressed to find that the sentence had been
deleted in 1981. Although we need not solve this riddle today,
we hope that Congress will spare future courts and litigants from
choosing between these two disagreeable interpretations of this
damaged statute and clarify whether it intends that the final
sentence of section 636(a)(6) be preserved.
5
1256, 1259 (1st Cir. 1993). We recently observed that "parties
seeking to recover against the United States in an action ex __
contractu have the burden of demonstrating affirmatively that the _________
agent who purported to bind the government had actual authority
to do so." Hachikian, 96 F.3d at 505. The statutes governing _________
the SBA permit the head of the agency the Administrator to
authorize officers and employees of the SBA to exercise powers
granted to the agency by Congress. See 15 U.S.C. 634(a). Such ___
delegations are made through agency regulations. See Chevron ___ _______
U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. ___________ ________________________________________
837, 843-44 (1984).
The regulations in effect when the SBA signed the loan
authorization agreement at issue here (February of 1993)
stipulated that various individuals in the SBA's employ had power
to approve or reject loans up to $750,000. See 13 C.F.R. ___
101.3-2, Pt. I A(1)(b) (1993). This group included Gordon J.
Ryan, as Chief of the Finance Division, who approved the loan
authorization in this case. See id. Ryan also had the power to ___ ___
extend disbursement periods and to cancel, reinstate, and modify
loan authorizations. See id. at (B). But the regulations did ___ ___
not grant Ryan any power to transfer his authority: to the
precise contrary, the regulations explicitly admonished that
"[t]he authority delegated herein may not be redelegated." Id. ___
at Pt. XI, A(1).
Frillz does not dispute that any delegation of the
SBA's authority must be made pursuant to agency regulations.
6
Instead, it argues that because the Chief of the Finance Division
was authorized to approve loans up to $750,000, he was also
empowered to set the terms and conditions of such loans, and that
a determination by the Lender of whether Frillz had suffered an
unremedied adverse financial change was merely a loan term or
condition to which Ryan could (and did) assent. This is no more
than a play on words. Granting the Lender the right to determine
the soundness of a loan guaranty constitutes a significant
relinquishment of power. Frillz cannot circumvent the lack of
any regulatory authority sufficient to permit this delegation
simply by describing it as a term or condition of the loan.
This conclusion is bolstered by the language of 15
U.S.C. 634(b)(7), a statute that grants the Administrator the
power to "authorize participating lending institutions, in his
discretion pursuant to regulations promulgated by him, to take
such actions on his behalf, including, but not limited to the
determination of . . . creditworthiness." The Administrator
exercised this authority in promulgating regulations creating the
so-called Preferred Lenders Program (PLP). See 13 C.F.R. ___
120.400 et seq. (1993). Although section 634(b)(7) does not __ ____
apply here Eastern Bank was not a member of the PLP it
strongly suggests that any delegation of the right to determine a ___
prospective borrower's financial stability must be made pursuant
to agency regulations. Otherwise, the cited portion of section
634(b)(7) would be superfluous.
We hold, then, that because the Chief of the Finance
7
Division had no authority to delegate to the Lender the
determination of whether Frillz had suffered an unremedied
adverse change in its financial condition, the government cannot
be bound by that stipulation in the loan guaranty authorization.
Frillz has a fallback position: it invites us to
remand this case to the district court so that it may pursue an
equitable estoppel claim against the SBA. We decline the
invitation. The doctrine of equitable estoppel in its
traditional incarnation does not apply against the federal
government. See, e.g., OPM v. Richmond, 496 U.S. 414, 419 ___ ____ ___ ________
(1990); United States v. Ven-Fuel, Inc., 758 F.2d 741, 761 (1st _____________ ______________
Cir. 1985); see also Heckler v. Community Health Servs., 467 U.S. ___ ____ _______ _______________________
51, 67 (1984) (Rehnquist, J., concurring) (noting that the
Supreme Court has never upheld an estoppel claim against the
government). A party seeking to invoke equitable estoppel
against the federal government at a minimum "must have reasonably
relied on some `affirmative misconduct' attributable to the
sovereign." Ven-Fuel, 758 F.2d at 761. Passing the point that ________
even such reliance may be insufficient, see id. at 761 n.14, ___ ___
there is absolutely no evidence of affirmative misconduct by the
SBA which might arguably be sufficient to support an estoppel
claim against the government in this case. See Hachikian, 96 ___ _________
F.3d at 506 n.3 (noting that equitable estoppel is generally
inapplicable to the federal government when its employees induce
reliance by their unauthorized actions).
III. III. ____
8
Conclusion Conclusion __________
We need go no further. The Chief of the Finance
Division lacked authority to delegate the determination of
whether Frillz continued to suffer from the effects of an adverse
financial change. Consequently, Frillz cannot rely on that
portion of the loan authorization agreement as the basis for a
breach of contract claim against the government. It follows
inexorably, as night follows day, that the district court did not
err in granting summary judgment in the defendant's favor.
Affirmed. ________
9
APPENDIX APPENDIX ________
"The Administration is empowered . . . to make loans for
plant acquisition, construction, conversion, or expansion,
including the acquisition of land, material, supplies, equipment,
and working capital, and to make loans to any qualified small
business concern . . . for purposes of this Act. Such financings
may be made either directly or in cooperation with banks or other
financial institutions through agreements to participate on an
immediate or deferred (guaranteed) basis. These powers shall be
subject, however, to the following restrictions, limitations, and
provisions:
* * *
(6) All loans made under this subsection shall be of
such sound value or so secured as reasonably to assure
repayment: Provided, however, That ________ _______
(A) for loans to assist any public or private
organization or to assist any handicapped individual as
provided in paragraph (10) of this subsection any
reasonable doubt shall be resolved in favor of the
applicant;
(B) recognizing that greater risk may be
associated with loans for energy measures as provided
in paragraph (12) of this subsection, factors in
determining `sound value' shall include, but not be
limited to, quality of the product or service;
technical qualifications of the applicant or his
employees; sales projections; and the financial status
of the business concern: Provided further, That such ________ _______
status need not be as sound as that required for
general loans under this subsection; and
(C) the Administration shall not decline to
participate in a loan on a deferred basis under this
subsection solely because such loan will be used to
refinance all or any part of the existing indebtedness
of a small business concern, unless the Administration
determines that
(i) the holder of such existing indebtedness
is in a position likely to sustain a loss if such
refinancing is not provided, and
(ii) if the Administration provides such
refinancing through an agreement to participate on
a deferred basis, it will be in a position likely
to sustain part or all of any loss which would
have otherwise been sustained by the holder of the
original indebtedness: Provided further, That the ________ _______
Administration may decline to approve such
refinancing if it determines that the loan will
not benefit the small business concern.
10
On that portion of the loan used to refinance existing
indebtedness held by a bank or other lending institution,
the Administration shall limit the amount of deferred
participation to 80 per centum of the amount of the loan at
the time of disbursement: Provided further, That any ________ _______
authority conferred by this subparagraph on the
Administration shall be exercised solely by the
Administration and shall not be delegated to other than
Administration personnel."
15 U.S.C.S. 636(a)(6) (Law. Co-op. 1984).
11