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
___________________
whom Donald K. Stern,
_________________

United

States Attorney, with

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,
SELYA,

Circuit Judge.
Circuit Judge.
______________

Plaintiff-appellant

Frillz,

Inc., a

Massachusetts corporation,

seeks damages for

contract against

Philip Lader, in his

of

Small

the

federal

Business

plaintiff bases its suit on the

loan

guaranty commitment.

judgment for the SBA.

breach of

capacity as administrator

Administration

(SBA).

The

SBA's alleged refusal to honor a

The

district court

granted summary

We affirm.

I.
I.
__

Background
Background
__________

In February 1993,

proposed loan.

Frillz

Frillz asked the

SBA to guaranty

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,

for

an 80%

guaranty

of

the SBA

the loan.

authorization contained a clause

of

"evidence satisfactory

approved Frillz's

to it

The SBA's

application

loan

guaranty

requiring receipt by the Lender

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

[Frillz], which would warrant withholding or not

of

making any such

disbursement."

Frillz struggled

(February

in the

third quarter of

through April), losing $189,000.

fiscal 1993

In the next quarter,

however, its

operations returned

subsequently

concluded

financial

Lender's

that

picture

had

that

the

been

remedied.

satisfaction, the

it did

sufficiently

not

to profitability.

believe

adverse

SBA balked;

that

ameliorated.

disbursement of the loan must

the

And,

change

in

Frillz's

Notwithstanding

it informed

adverse

it

The Lender

the Lender

change

announced

the

had

been

that

any

have the approval of both

the SBA

and the Lender.

Frillz filed suit claiming that

its

agreement

that the

Lender

the SBA had reneged on

would have

sole

discretion to

determine whether there had been an uncorrected adverse change in

Frillz's

financial

condition.

judgment, the district

On

cross-motions

court concluded that,

under 15 U.S.C.

636(a)(6)

(1994), the SBA

determine

the financial security of a loan to any outsider.

Frillz, Inc. v.
_____________

Hence,

id.
___

Lader, 925
_____

could not

for summary

F. Supp.

delegate the

83, 88

authority to

(D. Mass.

1996).

the court entered judgment in the defendant's favor.

This appeal followed.

II.
II.
___

See
___

See
___

Analysis
Analysis
________

Summary

judgment is

appropriate

genuine issue as to any material fact

is

entitled to judgment as

is

no

and . . . the moving party

a matter of

district

"there

law."

Fed.

R. Civ. P.

court's grant

of summary

56(c).

Our review

judgment

is plenary, and in canvassing the record we indulge all

reasonable

of the

when

inferences in favor of the party opposing the motion.

See Garside v. Osco Drug, Inc., 895 F.2d 46, 48

___ _______
_______________

We are

not bound by

instead affirm

ground

the rationale

an entry of

F.3d 502, 504 (1st Cir. 1996).

Frillz

U.S.C.

record.

See
___

court but

may

any alternative

Hachikian v. FDIC, 96
_________
____

We follow that avenue here.

challenges the district court's holding that 15

636(a)(6)

than in-house

of the lower

summary judgment on

made manifest by the

(1st Cir. 1990).

precludes the

personnel

on several

Congress in 1981 repealed the

restricts the SBA's

SBA from

delegating to

grounds.

It

argues

other

that

language in section 636(a)(6) that

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

should

disputed portion

not

be

authority.

the

interpreted

of section 636(a)(6),

to

bar

delegation

that statute

of

the

SBA's

These questions are not without complication; indeed,

district court aptly described the task of answering them as

"somewhat pedantic

and unavoidably

ponderous."

Frillz,
______

925 F.

____________________

1We set
636(a)(6) as

out

in

the

Appendix

the text

of

it appeared before Congress amended

15

U.S.C.

it by enacting

the Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub. L. 9735,

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]
1985").
not
of

Frillz

claims that Congress thereby intended

only section 636(a)(6)(C) proper

15 U.S.C.

636(a)(6)

authority conferred
shall

repealed [as of] October 1,

by this

(which

to repeal

but also the last sentence

states

subparagraph on

in

part

that

"any

the Administration

be exercised solely by the Administration and shall not be

delegated

to

other

than

Administration

personnel").

This

sentence appears below section

letter

or numerical

compilers of
did

not

reference,

the code

comprise

636(a)(6)(C) without any

yet without

indentation.

apparently determined that

part

of

section

further

636(a)(6)(C),

The

this sentence
but

Frillz

We spare ourselves that difficulty, for the

record

disagrees.

Supp. at 86.

allows

us to

labyrinthine

reach

path:

the same

destination

the SBA official

guaranty lacked power under

by an

easier,

less

who approved Frillz's loan

existing SBA regulations to delegate

his authority further.2

capacity

suit

is

in

against a

effect a

federal

suit

official

against

the

in his

official

government.

See
___

American Policyholders Ins. Co. v. Nyacol Prods., Inc., 989 F.2d

________________________________
___________________
____________________

2The
sentence

question
of

of

whether

section 636(a)(6)

Congress
is

repealed

freighted

the

final

with uncertainty.

When one examines the content of section 636(a)(6) as it appeared

before

Congress amended it in

sentence fits
(C).

At

1981 through the

OBRA, the final

comfortably, in structural terms,

with subsection

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

for
used

energy measures;

sentence also

existing indebtedness.
final

and subsection (C)

to refinance indebtedness.

undesignated

sentence

subsection (C).

of

(B) with respect to loans

with respect

The first clause

dealt with

loans used

to loans

of the final

to refinance

It is thus reasonable to suggest that the

section

636(a)(6)

comprises

part

of

On the other hand, when Congress passed the OBRA, the final
sentence of section 636(a)(6) appeared as it does now:
three subsections, unindented.
of the

statute to have been

below the

It did not appear from

part of subsection (C);

the form

and, since

Congress specified only that subsection (C) was repealed, to hold

now that the

final undesignated sentence comprised

subsection would
federal
Maine,
_____

violate the

statutes are

Congresses assumed

principle that implied

disfavored.

75 F.3d 784, 790

part of that

See
___

repeals of

Passamaquoddy Tribe
___________________

(1st Cir. 1996).

that the final sentence

v.

Moreover, subsequent

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,
reprinted in 1992
_________ __

3992;

H.R. Rep.

U.S.C.C.A.N. 891,

reason would be hard-pressed

deleted in 1981.

No. 102-492,
892, and a

at 3

court for

to find that the sentence

Although we need not solve

(1992),

that

had been

this riddle today,

we hope that Congress will spare future courts and litigants from
choosing between
damaged statute

these two disagreeable interpretations

and clarify

whether it intends

sentence of section 636(a)(6) be preserved.

that the

of this

final

1256, 1259 (1st Cir.

seeking

to recover

1993).

We recently observed

against the

United States

that "parties

in an

action ex
__

contractu have the burden of demonstrating affirmatively that the

_________

agent

who purported to bind

to do

so."

the SBA

Hachikian, 96
_________

permit the head of

authorize officers and

the government had actual authority

F.3d at 505.

the agency

employees of the

granted to the agency by Congress.

The statutes governing

the

Administrator

SBA to exercise

See 15 U.S.C.
___

634(a).

to

powers

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

authorization

agreement

at

issue

here

(February

the loan

of

1993)

stipulated that various individuals in the SBA's employ had power

to

approve or

101.3-2, Pt. I

Ryan, as Chief

reject loans

up to

A(1)(b) (1993).

of the

This group

Finance Division, who

authorization in this case.

See id.
___ ___

extend disbursement periods and

loan authorizations.

$750,000.

See id. at
___ ___

See 13
___

C.F.R.

included Gordon J.

approved the

loan

Ryan also had the power to

to cancel, reinstate, and modify

(B).

But the regulations did

not grant

precise

Ryan any

power to

contrary, the

transfer his

regulations

"[t]he authority delegated herein may

at Pt. XI,

explicitly

to

the

admonished

that

not be redelegated."

Id.
___

A(1).

Frillz

SBA's

authority:

does not

authority must

be

dispute

that any

made pursuant

delegation of

to agency

the

regulations.

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

unremedied

Lender of whether Frillz had

adverse financial change

condition to which Ryan could (and

was merely

did) assent.

suffered an

a loan

term or

This is no more

than a play on words.

Granting the Lender the right to determine

the

loan guaranty

soundness

of

relinquishment of

any

regulatory

power.

Frillz

constitutes

significant

cannot circumvent the

authority sufficient

to permit

lack of

this delegation

simply by describing it as a term or condition of the loan.

This

conclusion is

bolstered

U.S.C.

634(b)(7), a statute

power to

"authorize participating

by the

language of

15

that grants the Administrator the

lending institutions, in

his

discretion pursuant

such actions on

determination

to regulations

his behalf,

of .

promulgated by him,

including, but not

. creditworthiness."

to take

limited to

The

the

Administrator

exercised this authority in promulgating regulations creating the

so-called

120.400

Preferred

et seq.
__ ____

apply here

Lenders Program

(1993).

(PLP).

Although section

Eastern Bank

was not

See
___

13

C.F.R.

634(b)(7) does

a member

of the

PLP

not

it

strongly suggests that any delegation of the right to determine a

___

prospective borrower's financial stability

to agency regulations.

must be made pursuant

Otherwise, the cited portion of

section

634(b)(7) would be superfluous.

We

hold, then, that

because the Chief

of the Finance

Division

had

no

authority

determination

of

whether

adverse change in its

to

delegate

Frillz

had

to

the

suffered

Lender

an

the

unremedied

financial condition, the government cannot

be bound by that stipulation in the loan guaranty authorization.

Frillz has

remand this case

fallback position:

to the district court so that

it invites

us

to

it may pursue an

equitable

estoppel

invitation.

The

traditional

claim

doctrine

incarnation

government.

See,
___

against

(1990); United States v.

_____________

of

does

e.g.,
____

the

equitable

not

OPM v.
___

SBA.

apply

We

estoppel

against

Richmond,
________

decline

in

the

496 U.S.

its

federal

414,

Ven-Fuel, Inc., 758 F.2d 741,

______________

the

419

761 (1st

Cir. 1985); see also Heckler v. Community Health Servs., 467 U.S.
___ ____ _______
_______________________

51,

67

(1984)

(Rehnquist,

Supreme Court

has

government).

J., concurring)

never upheld

party

an estoppel

seeking to

invoke

(noting

that

the

claim against

the

equitable

estoppel

against the federal government at a minimum "must have reasonably

relied

on

sovereign."

even

some

`affirmative

Ven-Fuel, 758 F.2d

________

such reliance

may be

misconduct' attributable

at 761.

Passing the

insufficient, see
___

id. at
___

to

the

point that

761 n.14,

there is absolutely no evidence

SBA which

might arguably be

claim against the

F.3d at

506

of affirmative misconduct by the

sufficient to

government in

n.3 (noting

inapplicable to the federal

support an

this case.

that equitable

estoppel

See Hachikian,
___ _________

estoppel is

96

generally

government when its employees induce

reliance by their unauthorized actions).

III.
III.
____

Conclusion
Conclusion
__________

We

Division

need go

lacked

no

authority

further.

to

The

Chief of

delegate

the

the

Finance

determination

of

whether Frillz continued to suffer from the effects of an adverse

financial

portion

breach

change.

Consequently,

of the loan authorization

of

contract claim

Frillz

cannot

agreement as the

against the

government.

rely on

that

basis for a

It follows

inexorably, as night follows day, that the district court did not

err in granting summary judgment in the defendant's favor.

Affirmed.
________

APPENDIX
APPENDIX
________

"The Administration is
plant

acquisition,

empowered .

construction,

. . to

conversion,

make loans
or

for

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
immediate or

through agreements

to participate

deferred (guaranteed) basis.

on an

These powers shall be

subject, however, to the following restrictions, limitations, and

provisions:

(6) All

loans made under

such sound

value

repayment:

Provided, however, That

________ _______
(A)

or so

this subsection shall

secured

for loans

to

as reasonably

assist any

to

public or

be of

assure

private

organization or to assist any handicapped individual as

provided

in

reasonable

paragraph

(10) of

doubt shall

be

this

subsection

any

favor of

the

resolved in

applicant;
(B)

recognizing

that

associated with loans

in

paragraph

(12)

determining `sound
limited

to,

technical

risk

for energy measures as

of

this

value'

quality

of

qualifications

employees;

greater

may

be

provided

subsection,

factors

in

shall include,

but not

be

the
of

product
the

or

applicant

service;
or

his

sales projections; and the financial status

of the

business concern:

status

need

not be

as

Provided
________
sound

as

further, That such

_______
that required

for

general loans under this subsection; and

(C)

the

participate
subsection

Administration
in a loan

of

not

on a deferred

solely because

refinance all or any

shall

decline

to

basis under this

such loan

will be

used to

part of the existing indebtedness

a small business concern, unless the Administration

determines that
(i) the holder
is

of such existing indebtedness

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
to

sustain part

or all

of any loss

likely

which would

have otherwise been sustained by the holder of the

original indebtedness:
Administration
refinancing if

may

Provided further, That the

________ _______
decline

to

approve

such

it determines that

the loan

will

not benefit the small business concern.

10

On

that

portion of

indebtedness held
the

the

by a

Administration

loan used
bank or other

shall

limit

participation to 80 per centum of

the

time

authority

of

disbursement:

conferred

to

by

Administration

shall

Administration

and shall

the

be
not

amount

of

further,
_______

deferred

That

any

on

the

by

the

to other

than

subparagraph

exercised

solely

be delegated

Administration personnel."

15 U.S.C.S.

lending institution,

the amount of the loan at

Provided
________
this

refinance existing

636(a)(6) (Law. Co-op. 1984).

11