Sport Collectors Guild Incorporated v. United States Small Business Administration

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Sport Collectors Guild Incorporated, et al., No. CV-19-04573-PHX-MTL 10 Plaintiffs, ORDER 11 v. 12 United States Small Business Administration, et al., [13] Defendants. [14] 15 Before the Court are Motions to Dismiss Plaintiffs’ First Amended Complaint 16 filed by Defendant United States and Defendant Bank of America, N.A. (“Bank of 17 America”). (Docs. 22, 34).1 The motions are fully briefed. The Court did not hold oral 18 argument because the parties did not request it and because it would not significantly aid 19 in the decisional process. See Fed. R. Civ. P. 78(b) (court may decide motions without 20 oral hearing); LRCiv 7.2(f) (same). For the reasons expressed herein, the Court will 21 grant the Motions. 22 I. BACKGROUND 23 This case is about a loan, whether it should have been issued in the first place, and 24 what to do about it now. Defendants’ motions ask the Court to dismiss the case rather 25 than take up these issues. One defendant, Bank of America, argues that its alleged [26] 1 In addition to naming the United States, Plaintiffs name the United States Small 27 Business Administration as a party. An administrative “agency itself cannot be sued under the” Federal Tort Claims Act. F.D.I.C. v. Craft, 157 F.3d 697, 706 (9th Cir. 1998); 28 Kennedy v. U.S. Postal Serv., 145 F.3d 1077, 1078 (9th Cir. 1998). The Court will therefore dismiss the United States Small Business Administration as a party. 1 actions did not injure Plaintiffs. The United States is also a defendant. It argues that 2 Plaintiffs can’t sue the Government under these circumstances even assuming Plaintiffs’ 3 version of the facts is true. The Court now summarizes the facts that led to this case, 4 starting from the beginning. Cf. Julie Andrews, Do-Re-Mi (RCA Victor) (“Let’s start at 5 the very beginning. A very good place to start.”). 6 A. Obtaining and Defaulting on the Loan 7 Patrice Lagnier and her company, Sport Collectors Guild, Inc. (“Sport 8 Collectors”), are the plaintiffs in this case. (Doc. 19 at 3.) Plaintiffs originally had a line 9 of credit for Sport Collectors with a non-party bank. (Id. at 4.) According to Plaintiffs, 10 Bank of America approached them with an enticing deal for a business loan through a 11 Small Business Administration (“SBA”) program called SBAExpress. (Id. at 5.) That 12 loan, and the question of whether SBA and Bank of America breached their 13 responsibilities by allegedly issuing it when Plaintiffs were not eligible, give rise to the 14 merits of this dispute. 15 Plaintiffs contend that SBA policy prohibited them from obtaining a loan for three 16 reasons. First, one of the personal guarantors had a criminal history, which was disclosed 17 during the application process. Second, Plaintiffs could have obtained credit from a non18 federal source. Third, they already had an existing line of credit through another bank 19 that met their needs. (Id. at 5–6.) Any one of these factors, Plaintiffs argue, should have 20 caused Bank of America to not issue the loan and SBA to not guarantee the loan.2 21 Plaintiffs defaulted on the loan. (Id. at 8.) Bank of America then accelerated the 22 loan’s maturity date. (Id.) The bank took Plaintiffs to Arizona Superior Court to collect 23 on the loan. (Id. at 10.) Eventually, the Superior Court ordered the parties to arbitrate the 24 payment dispute. (Id. at 11.) Instead of doing that, Bank of America billed SBA, which 25 had guaranteed the loan. (Id. at 11-12.) The Department of the Treasury attempted to 26 collect from Plaintiffs, but eventually stopped because the debt was in dispute. (Id. at 15.) [27] 2 The parties dispute whether Plaintiffs were eligible for the loan. (Doc. 22 at 10–11.) 28 As explained in the legal standard section, however, on a Motion to Dismiss for Failure to State a Claim, the Court takes as true Plaintiffs’ factual allegations. 1 Once that happened, SBA billed Bank of America for the money the Government paid 2 the bank. (Id.; Doc. 41 at 6-7.) 3 B. Federal Litigation 4 After the debt collection proceedings, Plaintiffs filed a lawsuit against Bank of 5 America in Arizona state court. That case was removed to federal court. (16-CV-022296 PHX-ROS, “First Case”, Doc 1-2 at 2.)3 It involved the same loan at issue here. This 7 Court entered summary judgment in favor of Bank of America in the First Case. 8 Afterwards, Plaintiffs went back to SBA and filed an administrative claim 9 alleging a theory not decided in the First Case: negligent supervision of its employees and 10 of the relevant lending program. (Doc. 19 at 15; Doc. 22 at 8.) The Federal Tort Claims 11 Act (“FTCA”) requires that people injured by an administrative agency first file a claim 12 with the agency and exhaust that process before filing a lawsuit. McNeil v. United States, [13] 508 U.S. 106, 111 (1993). After the SBA denied relief, Plaintiffs filed suit in this case. 14 (Doc. 19 at 15.) 15 The United States then moved to dismiss the original complaint. (Doc. 15.) 16 According to Plaintiffs, previously undisclosed documents attached to that motion were 17 the smoking gun, revealing that Bank of America – rather than the SBA – now has 18 administrative control over the loan. (Doc. 41 at 10–11.) Thus, Plaintiffs amended their 19 complaint and added Bank of America as a Defendant. (Doc. 19.) The motion to dismiss 20 the original complaint became moot. (Doc. 38.) 21 The First Amended Complaint makes three basic allegations: (1) SBA employees 22 negligently and wrongfully issued the SBAExpress loan number for Plaintiffs’ loan; 23 (2) SBA employees negligently failed to conduct annual loan reviews for several years; 24 and (3) Bank of America fraudulently induced Plaintiffs to execute the SBAExpress loan 25 agreement. (Doc. 19 at 16–19.) The United States and Bank of America filed the [27] 3 As public records, the Court may, and does, take judicial notice of the existence of the 28 First Case without converting the Motion to Dismiss into a motion for summary judgment. See Lee v. City of Los Angeles, 250 F.3d 668, 689-90 (9th Cir. 2001). 1 pending Motions to Dismiss Plaintiffs’ First Amended Complaint. (Doc. 22 and Doc. 34, 2 respectively.) 3 II. LEGAL STANDARD 4 A complaint that fails to allege facts sufficient to establish Article III standing 5 requires dismissal for lack of subject-matter jurisdiction under Federal Rule of Civil 6 Procedure 12(b)(1). Maya v. Centex Corp., 658 F.3d 1060, 1067 (9th Cir. 2011). To 7 have standing for relief under Article III, a plaintiff must, among other things, show that 8 “he is under threat of suffering ‘injury in fact’ that is concrete and particularized; the 9 threat must be actual and imminent, not conjectural or hypothetical . . . .” Summers v. 10 Earth Island Inst., 555 U.S. 488, 493 (2009). 11 Now to the standard for a 12(b)(6) motion. A complaint must set forth a “short 12 and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. 13 Civ. P. 8(a)(2). “To survive a motion to dismiss, a complaint must contain sufficient 14 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 15 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 16 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that 17 allows the court to draw the reasonable inference that the defendant is liable for the 18 misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556 ). Only if 19 the complaint fails to state a cognizable legal theory or fails to provide sufficient facts to 20 support a claim is dismissal appropriate. Shroyer v. New Cingular Wireless Serv’s, Inc., [21] 622 F.3d 1035, 1041 (9th Cir. 2010). In deciding a Rule 12(b)(6) motion, the Court must 22 take all allegations of material fact as true and construe them in the light most favorable 23 to the nonmoving party. Marcus v. Holder, 574 F.3d 1182, 1184 (9th Cir. 2009) (citation 24 omitted). However, courts “are not bound to accept as true a legal conclusion couched as 25 a factual allegation.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 26 265, 286 (1986)). 27 / / / 28 / / / 1 III. DISCUSSION 2 Plaintiffs have asserted three causes of action in this case. Two are negligence 3 claims against the United States. They allege that the Government was negligent in both 4 wrongfully issuing a SBAExpress loan number and in failing to conduct annual reviews 5 of Plaintiffs’ loan as allegedly required by SBA rules. In a third cause of action, 6 Plaintiffs allege that Bank of America fraudulently induced Plaintiffs to obtain a loan 7 despite their ineligibility. The Court will address both Bank of America’s standing 8 argument and the United States’ argument that Plaintiffs have failed to state a claim. 9 A. Fraudulent Inducement Claim 10 Bank of America argues that Plaintiffs do not have standing because they have not 11 alleged a cognizable injury. (Doc. 34 at 5-7.) “To establish standing under Article III of 12 the Constitution, a plaintiff must demonstrate (1) that he or she suffered an injury in fact 13 that is concrete, particularized, and actual or imminent, (2) that the injury was caused by 14 the defendant, and (3) that the injury would likely be redressed by the requested judicial 15 relief.” Thole v. U. S. Bank N.A, ___ U.S. ___, 140 S. Ct. 1615, 1618 (2020). 16 Plaintiffs requested a loan. They received it. Whether the loan should have been 17 issued is beside the point, according to Bank of America. (Doc. 34 at 6-7.) Plaintiffs 18 respond by arguing that if they had received the loan they requested, Bank of America 19 “would have complied with SBA’s rules and made good efforts to work out a payment 20 plan [] that would serve the best interests of Plaintiffs and SBA.” (Doc. 41 at 13.) 21 Further, Plaintiffs say they chose to apply for an SBA loan “based on [Bank of 22 America]’s promise that it would comply with SBA’s rules and regulations that protect 23 small business borrowers from lender fraud and abuse . . . .” (Id. at 2.) 24 These arguments fail. Regardless of whether Bank of America was obliged to 25 follow SBA regulations, Plaintiffs cannot enforce that obligation. This is because 26 Plaintiffs are not parties to the agreement between Bank of America and SBA concerning 27 how the loan program is to be administered. (Doc. 34 at 6.) Conjecture about whether 28 SBA policy would have caused Bank of America to show greater leniency when 1 Plaintiffs defaulted on their loan is not sufficient to state a concrete injury, a core 2 requirement for Article III standing. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 3 (1992). 4 B. Negligence Claims Under the Federal Tort Claims Act 5 Plaintiffs allege that the United States was negligent in two ways. First, it 6 improperly issued an SBAExpress loan number for Plaintiffs’ loan. (Doc. 19 at 16-17.) 7 Second, for years SBA didn’t follow its own policy to conduct annual loan reviews, 8 which allegedly should have caught the improperly issued loan.4 (Id. at 17–18.) 9 According to Plaintiffs, these acts and omissions violate of certain federal statutes, 10 regulations and procedures that govern it. The violations are critical, Plaintiffs argue, 11 because violating a statutory or regulatory provision can cause someone to be liable 12 under California’s negligence per se doctrine.5 (Doc. 42 at 14.) This, in turn, would give 13 rise to liability under the FTCA which says that the United States may be liable for state14 law torts of federal employees “in the same manner and to the same extent as a private 15 individual under like circumstances” according to the law of the state where the 16 misconduct occurred. 28 U.S.C. §§ 2674 , 1346(b)(1); FDIC v. Meyer, 510 U.S. 471 , 477 17 (1994). 18 The United States argues that even if the SBA employees had violated the 19 agency’s governing laws, Plaintiffs’ claims must be dismissed because: (1) the FTCA 20 does not create a private right of action for such violations and (2) the doctrine of 21 negligence per se is an evidentiary presumption, not an independent cause of action. 22 (Doc. 22 at 2, 8; Doc. 45 at 2.) A Ninth Circuit decision supports the Government’s 23 view. In Delta Savings Bank v. United States, 265 F.3d 1017 (9th Cir. 2001), cert. 24 denied, 534 U.S. 1082 (2002), the plaintiffs argued that the FTCA waives sovereign 25 immunity for negligence per se claims arising from violations of federal law. Id. at 1025. 26 4 Plaintiffs do not cite to the specific source of the alleged annual review requirement, (Doc. 19 at 9, 11, 17–18; Doc. 42 at 1), and the United States argues that such a 27 requirement does not exist. (Doc. 22 at 11–12.) 5 The first time Plaintiffs argue that the alleged misconduct occurred in California was in 28 Plaintiffs’ response to the pending Motion to Dismiss, and Plaintiffs did not provide specific factual allegations to support this conclusory statement. (Doc. 42 at 2, 14.) 1 The court called the argument “an attempt to do an ‘end around’ the local law 2 requirements of the FTCA.” Id. at 1026. The court held that “[t]o bring suit under the 3 FTCA based on negligence per se, a duty must be identified, and this duty cannot spring 4 from a federal law.” Id. Instead, the legal duty “must arise from state statutory or 5 decisional law.” Id. See also Love v. United States, 60 F.3d 642, 644 (9th Cir. 1995) 6 (citation omitted) (“The breach of a duty created by federal law is not, by itself, 7 actionable under the FTCA.”). 8 The existence of a legal duty is a threshold question. Without a duty under state 9 law, an action for negligence cannot be maintained. Gipson v. Kasey, 150 P.3d 228 , 230 10 (Ariz. 2007); Muchhala v. United States, 532 F. Supp. 2d 1215, 1230 (E.D. Cal. 2007). 11 Here, Plaintiffs have not expressed an alternate theory to establish that Plaintiffs were 12 owed a legal duty under the laws of either Arizona or California. Accordingly, they have 13 failed to establish the state-law duty necessary to bring either of their negligence claims 14 under the FTCA. The Court will dismiss these causes of action for failure to state a 15 claim. 16 IV. CONCLUSION 17 The Court finds that Plaintiffs do not have standing to raise their fraudulent 18 inducement claim against Bank of America. Further, Plaintiffs have failed to show that 19 SBA employees, if private actors, would have owed a duty under state law to 20 independently review Plaintiffs’ eligibility before issuing a loan number or to annually 21 review guaranteed loans. Because these findings are dispositive, the Court does not 22 express an opinion regarding the remaining issues raised by the parties. 23 Accordingly, 24 IT IS ORDERED granting Defendant Bank of America’s Motion to Dismiss the 25 fraudulent inducement claim for lack of standing. (Doc. 34.) 26 IT IS FURTHER ORDERED granting Defendant United States’ Motion to 27 Dismiss the negligence claims for failure to state a plausible claim for relief under the 28 FTCA. (Doc. 22.) 1 IT IS FURTHER ORDERED dismissing the United States Small Business || Administration as a party. 3 IT IS FURTHER ORDERED granting Plaintiffs leave to file an amended complaint by July 31, 2020. 5 IT IS FINALLY ORDERED that the Clerk of Court shall not enter judgment at 6|| this time. Should Plaintiffs not amend their complaint by July 31, 2020, the Clerk of || Court shall enter judgment and terminate this case. 8 Dated this 17th day of July, 2020. [9] Wichal T. Hburde i Michael T. Liburdi 12 United States District Judge [28] -8-