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ANDR BIROTTE JR. United States Attorney LEON W. WEIDMAN Assistant United States Attorney Chief, Civil Division MATTHEW P. LANE (Cal. Bar No. 265845) Assistant United States Attorney Federal Building, Suite 7516 300 North Los Angeles Street Los Angeles, California 90012 Telephone: (213) 894-3148 Facsimile: (213) 894-7819 E-mail: Matthew.Lane@usdoj.gov Attorneys for Federal Defendant United States Small Business Administration UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION LAURA MOLINA, Plaintiff, [Fed. R. Civ. P. 12(b)(1)] v. BBCN BANK AS SUCCESSOR FOR INNOVATIVE BANK, U.S. SMALL BUSINESS ADMINISTRATION, Defendants. Hearing Date: July 22, 2013 Hearing Time: 10:00 a.m. Courtroom: 5 Federal Courthouse 312 North Spring St. Los Angeles, CA 90012 Honorable Christina A. Snyder Case No. CV 12-10992 CAS (SHx)

UNITED STATES SMALL BUSINESS ADMINISTRATIONS NOTICE OF MOTION AND MOTION TO DISMISS; AND MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF

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PLEASE TAKE NOTICE that on Monday, July 22, 2013, at 10:00 a.m., or as soon thereafter as the parties may be heard, Federal Defendant United States Small Business Administration (SBA) will and hereby does move for an Order dismissing Plaintiffs Complaint in the above-captioned action. The hearing will take place before the Honorable Christina A. Snyder, in her courtroom located at the Federal Courthouse, Courtroom 5, 312 North Spring Street, Los Angeles, California 90012. This Motion is brought pursuant to Rule 12(b)(1) on the grounds that this Court lacks subject matter jurisdiction over such claims. This Motion is based on this Notice of Motion and Motion, the attached Memorandum of Points and Authorities, the pleadings and filings herein, and such further oral argument as may take place at the time of the hearing. This motion is made following the conference of counsel pursuant to L.R. 73 which took place on May 22, 2013. DATED: June 21, 2013. Respectfully submitted, ANDR BIROTTE JR. United States Attorney LEON W. WEIDMAN Assistant United States Attorney Chief, Civil Division /s/ MATTHEW P. LANE Assistant United States Attorney Attorneys for Federal Defendant U.S. Small Business Administration

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MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Laura Molina (Plaintiff), proceeding pro se, brings this action against BBCN Bank (BBCN) alleging that its predecessor, Innovative Bank, acted fraudulently and/or negligently in servicing her $5,000 loan. Plaintiff also seeks a declaratory judgment that the United States Small Business Administration (SBA) denied Plaintiff her due process rights by processing Plaintiffs loan for guaranty purchase after it was placed in default status. Plaintiff also seeks an injunction against the SBA to issue a post-purchase review of Plaintiffs default. However, the Small Business Act expressly prohibits the injunctive relief that Plaintiff seeks and, the SBAs decision to honor the guaranty is a non-reviewable discretionary action. Accordingly, this Court lacks subject matter jurisdiction over Plaintiffs claims against the SBA. II. STATEMENT OF FACTS On or about May 3, 2007, Plaintiff received a $5,000 small business loan (7(a) loan)1 from BBCNs predecessor, Innovative Bank. Amended Complaint (AC), 10. Plaintiff paid the $72.00 monthly payment for approximately nineteen months. Id. at 11. Plaintiff, however, stopped making payments on the loan once her magazine business ceased to exist. Id. Thereafter, Plaintiff claims that she entered into a temporary voluntary Deferment Arrangement with Innovative Bank. Id. However, at the end of the deferment period, Plaintiff claims that Innovative Bank automatically withdrew $37.92 in interest plus a late fee on the loan combined with the May 1st loan payment, [which] overdrew Ms. Molinas credit union account. Id. In response, Plaintiff filed a complaint with the California Department of Financial Institutions (CDFI). Id. at 12. The term 7(a) loan, comes from Section 7(a) of the Small Business Act of 1953, as amended. See 15 U.S.C. 636(a).
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Plaintiff claims that she and Innovative Bank thereafter attempted to resolve their disagreement but, ultimately, Innovative Bank put the loan into a 60 days past due status when [Plaintiff claims] it should have been no more than 30 days late. Id. at 12. On September 4, 2009, Innovative Bank sent Plaintiff a Final Notice Before Action that stated, please forward your past due payments to us within 10 days of the date of this letter in order to avoid default on your note. Id. at 14. (emphasis in original). Plaintiff claims that when she eventually contacted Innovative Bank to attempt to rectify her situation, Innovative Bank responded that the loan was already in default and the bank did not have to accept payment. Id. On October 9, 2009, Innovative Bank processed the SBA-guaranteed portion of Plaintiffs loan for purchase by the SBA. Id. at 16. Shortly thereafter, Plaintiff filed another complaint against Innovative Bank with the CDFI. Id. at 18. Plaintiff also retained legal counsel to negotiate with Innovative Bank. Id. However, Plaintiff fired her lawyer and filed a California State Bar complaint against him because she claims that he failed to follow up as promised. Id. Plaintiffs loan was charged off on November 27, 2009. Id. Plaintiff claims that BBCN continues to report her loan as charged off to Experian. Id. at 23. From September 2009 to the present, Plaintiff contacted various SBA offices, including the Fresno and Little Rock SBA Commercial Loan Service Centers and the SBA Office of Inspector General (OIG), to complain about the manner in which Innovative Bank serviced her loan. Id. at 15, 17, 19-20, 22. Plaintiff claims that, on November 11, 2009, an SBA Loan Specialist emailed Plaintiff, stating, after a thorough review of all of your submitted documents and with my conversations with the bank, I have determined that no evidence exists to indicate that Innovative Bank has not serviced your loan in accordance with SBA servicing rules. Id. at 17. (emphasis in original). Plaintiff continued to contact the OIG regarding her complaints against Innovative Bank. Id. at 19-20, 22. Plaintiff also claims that she filed a Freedom of Information Act (FOIA) request . 2

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Id. at 22. However, Plaintiff claims that her FOIA request was denied because the OIG was currently investigating Innovative Bank.2 Id. As relief against the SBA, Plaintiff seeks to have the Court review the actions of the [SBA] and find by Declaratory Judgment that the SBA, in their decision to process the plaintiffs loan for guaranty purchase and failure to review that decision in a timely manner, denied the plaintiff due process of law. Id. at 13:23-27. Plaintiff also seeks to [e]njoin the SBA to assist plaintiff by administrating [sic] a post-purchase review in the matter of plaintiffs 7(a) loan default. Id. at 14:8-9. III. ARGUMENT A. Plaintiffs Action Should Be Dismissed For Lack of Subject Matter Jurisdiction Because the SBA Has Not Waived Its Sovereign Immunity As It Relates to Plaintiffs Claims. A district court must dismiss an action if the court lacks jurisdiction over the subject matter of the suit. Fed R. Civ. P. 12(h)(3). The party seeking to invoke federal jurisdiction bears the burden of establishing that jurisdiction exists. Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986). Thus, [w]hen subject matter jurisdiction is challenged under Federal Rule of Civil Procedure 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion. Tosco Corp. v. Cmtys. for a Better Envt, 236 F.3d 495, 499 (9th Cir. 2001). Under a Rule 12(b)(1) motion, a claim must be dismissed for lack of subject matter jurisdiction brought against a party that enjoys sovereign immunity. See Balser v. Dept of Justice, 327 F.3d 903, 908 (9th Cir. 2003). Under the doctrine Plaintiff cites Federal Deposit Insurance Corp. v. Hong, et al., CV-12-2658, a Northern District of California case wherein the FDIC, as receiver for Innovative Bank, alleges fraud and negligence against a number of Innovative Bank employees for approving high risk loans without performing sufficient due diligence. However, the allegations made in that pending litigation appear to be wholly distinct from Plaintiffs allegations against Innovative Bank in this case.
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of sovereign immunity, [t]he United Statesis immune from suit save as it consents to be sued, and the terms of its consent to be sued in any court define that courts jurisdiction to entertain the suit. United States v. Sherwood, 312 U.S. 584, 586 (1941) (internal citations omitted). Evidence of the governments consent must be unequivocal and may not be implied. Blue v. Widnall, 162 F.3d 541, 544 (9th Cir. 1998). Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit. FDIC v. Meyer, 510 U.S. 471, 475 (1994). In the Amended Complaint, Plaintiff claims that this Court has subject matter jurisdiction pursuant to various statutes and regulations. AC, 1-2. However, Plaintiff has not, and cannot, cite to anything that vests this Court with subject matter jurisdiction because the United States has not waived its sovereign immunity to be sued in this manner. Accordingly, Plaintiffs action against the SBA should be dismissed for lack of subject matter jurisdiction. B. The Small Business Act Expressly Precludes The Injunctive Relief That Plaintiff Seeks Against The SBA. By its express terms, the Small Business Act, 15 U.S.C. 631, et seq., provides that the SBA has not waived its sovereign immunity as to any action based on an attachment, injunction, garnishment, or other similar process. 15 U.S.C. 634(b)(1) (emphasis added). This language is simple, plain and direct, and leaves no doubt that Congress has not granted a waiver of sovereign immunity as to injunction suits. Lloyd Wood Construction Co. v. Sandoval, 318 F.Supp. 1167, 1171 (N.D. Ala. 1970). Federal courts have consistently held that [Section 634(b)(1)] precludes the issuance of an injunction against the [SBA] Administrator because the court has no subject matter jurisdiction and therefore no power to order such relief. Palmer v. Weaver, 512 F.Supp. 281, 285 (E.D. Penn. 1981) (citations omitted).

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In Palmer, the plaintiff sought to enjoin the SBA to process a new loan application and give said application the consideration required by law after his initial loan applications were denied by the SBA. Id. The court held that 15 U.S.C. 634(b) expressly precludes [injunctive] relief, as do the cases construing that statutory provision, [thus], plaintiffs complaint insofar as it seeks injunctive relief must be dismissed. Id; see also Dubrow v. Small Bus. Admin., 345 F. Supp. 4, 8 (C.D. Cal. 1972) (holding that Section 634(b)(1) precludes courts from assuming subject matter jurisdiction over plaintiffs who sought to enjoin the SBA from enforcing a disaster relief loan requirement.). Accordingly, this Court lacks subject matter jurisdiction over Plaintiffs claim for injunctive relief against the SBA. C. Plaintiffs Claims Are Not Subject To Judicial Review Under the Administrative Procedure Act. The Administrative Procedure Act (APA), 5 U.S.C. 701, et seq., authorizes a reviewing court to set aside final agency action that is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A).3 The scope of judicial review under the APA standard is narrow, highly deferential, and presumes the agency action to be valid. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 419, 28 L.Ed.2d 814, 91 S.Ct. 814 (1971); see also Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974). The APA provides a limited waiver of sovereign immunity only when there has been final agency action. 5 U.S.C. 706(2)(A). The final agency action must mark the consummation of the agencys decision-making process[and] must be

The APA is not a grant of subject matter jurisdiction in the federal courts. Califano v. Sanders, 430 U.S. 99, 105, 107, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977). Rather, jurisdiction in an APA case is derived from 28 U.S.C. 1331, subject only to preclusion -of-review statutes created or retained by Congress. Id. at 105.
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one by which rights or obligations have been determined, or from which legal consequences will flow. Bennett v. Spear, 520 U.S. 154, 177-78, 117 S.Ct. 1154 (1997) (citations omitted). The alleged action may not be of a merely tentative or interlocutory nature. Id. at 178. Here, Plaintiff has failed to cite to any final agency action on which to base subject matter jurisdiction. Accordingly, this Court lacks subject matter jurisdiction over Plaintiffs claims against the SBA. 1. The SBAs Decision To Repurchase The Guarantee On Plaintiffs Loan Is Not Judicially-Reviewable Because It Is Committed To The SBAs Sole Discretion. Even assuming arguendo, that the Court determines there was a final agency action, Plaintiff is precluded from seeking judicial review because the APA specifically forbids judicial review when (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law. 5 U.S.C. 701(a). Thus, unless agency action is clearly contradictory to a statutory provision, a plaintiff challenging the exercise of an agencys discretionary power faces an all but insurmountable task to be able to bring his case within this standard. Strickland v. Morton, 519 F.2d 467, 470 (9th Cir. 1975). The Small Business Act provides that the SBA has broad discretion in its loan-making decisions without fear of judicial review. See, e.g. Gifford v. Small Bus. Admin., 626 F.2d 85, 86 (9th Cir. 1980) (holding that the SBAs determination of how much to lend a[ ] loan applicant, and the extent to which managerial counseling and assistance is provided are decisions committed to the discretion of the SBA and are therefore not reviewable under section 10 of the APA, 5 U.S.C. 701(a)(2).); Concrete Tie of San Diego v. Liberty Constr., Inc., 107 F.3d 1368, 1372 (9th Cir. 1997) (holding that the SBAs decision to certify that a subcontractor is responsible enough to perform a government contract awarded under the Small Business Act is discretionary and incapable of judicial review.). 6

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The Small Business Act gives the SBA broad discretion to issue loans to small businesses either directly or in cooperation with banks or other financial institutions through agreements to participate on an immediate or deferred (guaranteed) basis. 15 U.S.C. 636(a). While the Small Business Act sets guidelines for the maximum loan amount and the interest rates to charge, the Act leaves the decision to repurchase the guarantee to SBAs discretion. Id. The Small Business Act further provides that, [t]he guarantee percentage [ ] may be reduced [by the SBA] upon the request of the lender. 15 U.S.C. 636(a)(2)(B)(i) (emphasis added). Moreover, federal regulations provide that the SBA, in its sole discretion, may purchase the guaranteed portion of a loan at any time whether in default or not, with or without the request from a Lender. 13 C.F.R. 120.520(a)(1) (emphasis added). Accordingly, Plaintiff is precluded from seeking judicial review of the SBAs discretionary and lawful action. 2. The SBAs Decision To Investigate Plaintiffs Fraud Allegations Is Not Judicially-Reviewable Because It Is Committed To The SBAs Sole Discretion. To the extent that Plaintiff attempts to compel the Court to declare that the SBA should have further investigated and prosecuted Innovative Bank because of potential fraud, this claim fails as a matter of law. The SBA, as a federal agency, is given broad authority to investigate and prosecute potential fraud within its loan programs. See Heckler v. Chaney, 470 U.S. 821, 831 (1985) (holding that an agencys decision not to prosecute or enforce, whether through civil or criminal process, is a decision generally committed to an agencys absolute discretion. (citations omitted)). Further, an agencys decision not to take enforcement action should be presumed immune from judicial review under [5 U.S.C.] 701(a)(2). Id. at 832. Moreover, federal regulations provide that if the SBA suspects that the Lender has acted improperly, the SBA, in its sole discretion, may undertake such investigation as it deems necessary to determine whether to honor or deny the 7

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guarantee, and may withhold a decision on whether to honor the guarantee until the completion of such investigation. 13 C.F.R. 120.524(c) (emphasis added). Accordingly, to the extent that Plaintiff seeks judicial review of SBAs investigation into potential fraud by Innovative Bank, this Court lacks subject matter jurisdiction over such claims. D. The Declaratory Judgment Act Does Not Vest This Court With Subject Matter Jurisdiction. Plaintiff attempts to base this Courts jurisdiction on 28 U.S.C. 2201, the Declaratory Judgment Act. See AC, 1. However, this statute does not confer subject matter jurisdiction. See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). Rather, this statute permits declaratory relief once plaintiff has first established that subject matter jurisdiction exists on an independent basis. Id., see also Plum Creek Timber Co., Inc. v. Trout Unlimited, 255 F.Supp.2d 1159, 1164 (D. Idaho 2003). Plaintiffs reliance on this statute to establish subject matter jurisdiction is therefore contrary to law. Accordingly, this Court lacks subject matter jurisdiction over Plaintiffs claim for declaratory relief pursuant to the Declaratory Judgment Act. E. 18 U.S.C. 1031 Does Not Vest This Court With Subject Matter Jurisdiction Over Plaintiffs Claims. Plaintiffs citation to 18 U.S.C. 1031, a criminal statute, is unfounded. This statute allows the United States government to criminally prosecute those who perpetrate fraud against the United States government. However, this statute does not create a private right of action. See Linda R.S. v. Richard D., 410 U.S. 614, 619 (1973) (a private citizen lacks a judicially cognizable interest in the prosecution or nonprosecution of another.) Accordingly, this statute does not confer subject matter jurisdiction over Plaintiffs claims. /// /// 8

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F.

Federal Regulations Cited By Plaintiff Do Not Vest This Court With Subject Matter Jurisdiction Over Plaintiffs Claims. Plaintiffs claim that various federal regulations confer subject jurisdiction

upon this Court is misguided. See AC, 2. The cited regulations generally pertain to SBA loan programs (13 C.F.R. Part 120), and procedures and remedies available to the SBA to enforce their loan programs (13 C.F.R. Part 142). However, the regulations do not confer subject matter jurisdiction upon a private citizen to commence an action like Plaintiff brings herein. Accordingly, Plaintiff has failed to demonstrate this Courts subject matter jurisdiction as to her claims against the SBA, and her action should be dismissed. IV. CONCLUSION For the foregoing reasons, the Federal Defendants respectfully requests that the Court dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) on the ground that this Court lacks subject matter jurisdiction. DATED: June 21, 2013. Respectfully submitted, ANDR BIROTTE JR. United States Attorney LEON W. WEIDMAN Assistant United States Attorney Chief, Civil Division /s/ MATTHEW P. LANE Assistant United States Attorney Attorneys for Federal Defendant U.S. Small Business Administration