United States v. Gonzales

• Decision Date: 05 May 2015
• Docket Number: No. C–09–4029 EMC,C–09–4029 EMC
• Citation: 103 F.Supp.3d 1121
• Court: U.S. District Court — Northern District of California
• Parties: United States of America, Plaintiff, v. Gonzales & Gonzales Bondsand Insurance Agency, Inc., et al., Defendants.

103 F.Supp.3d 1121

United States of America, Plaintiff,

v.Gonzales & Gonzales Bondsand Insurance Agency, Inc., et al., Defendants.

No. C–09–4029 EMC

United States District Court, N.D. California.

Signed May 5, 2015

E. Kathleen Shahan, Frances Mary McLaughlin, John Joseph Siemietkowski, United States Department of Justice, Washington, DC, for Plaintiff.

Gary Alan Nye, David Ryan Ginsburg, Roxborough, Pomerance, & Nye LLP, Woodland Hills, CA, for Defendants.

ORDER RE MOTIONS FOR SUMMARY JUDGMENT

(Docket Nos. 156, 159, 163, 165, 167, 169, 171, 174, 176, 182, 242)

EDWARD M. CHEN, United States District Judge

Plaintiff the United States initiated this lawsuit against Defendants Gonzales & Gonzales Bonds and Insurance Agency, Inc. and American Surety Company (collectively, “G&G”). The lawsuit concerns contracts entered into by the government and G & G. More specifically, G & G posted immigration bonds with the government (on behalf of certain aliens), and, according to the government, G & G substantially violated the conditions of those bonds, for example, by failing to deliver an alien to the government upon demand. The government thus seeks to recover the bond amounts from G & G. G & G, in turn, contends that any bond breach declared by the government should be rescinded or that the bond itself should be deemed invalid because the government first breached the bond agreements, for example, by failing to issue a timely delivery demand. Accordingly, G & G contends it owes nothing to the government.

Currently pending before the Court are multiple summary judgment motions and cross-motions regarding twenty different bond matters. The twenty bond matters were identified by the parties as bellwether cases. Subsequently, the parties identified ten out of the twenty bond matters that the Court could evaluate as an initial matter, with the understanding that the Court's ruling on these ten matters would help resolve the remaining bellwether cases, as well as all other bond matters at issue in this action. The ten bond matters identified by the parties are with respect to the following aliens:

(1) Jose Velasquez–Ortega;

(2) Francisco Ayala–Sanchez;

(3) Jose Rodriguez–Yanez;

(4) So Mi Lee;

(5) Yi Chun Yeh;

(6) Martin Nicholas Antonio;

(7) Ingrid Maricela Cruz–Palacios;

(8) Leonel Antonio Recinos–Flores;

(9) Sandeep Singh; and

(10) Miguel Antonio Ortega–Sagbay.

Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTSsummary judgment to G & G on the Velasquez–Ortega, Ayala–Sanchez, Lee, Yeh, Antonio, Cruz–Palacios, Recinos–Flores, and Singh bond matters but DENIESG & G summary judgment on the remaining bond matters. The Court GRANTSthe government summary judgment on the Rodriguez–Yanez and Ortega–Sagbay bond matters but DENIESthe government summary judgment on the remaining bond matters.¹

As to the issue of interest, costs, and penalties, the Court finds in favor of the government on interest and costs. With respect to penalties, the Court finds in favor of the government in part and in favor of G & G in part. More specifically, the government did not abuse its discretion in assessing penalties at the outset but, after G & G offered to pay the principal debt (but not accrued interest or penalties), the government abused its discretion in continuing to assess penalties thereafter on the amounts tendered.

I. GENERAL PRINCIPLES

A. Standard of Review

Previously, the Court ordered a remand to the agency so that, for each bond dispute, the agency could “consider G & G's defenses in the first instance and reach a reasoned decision for this Court to review.” Docket No. 141 (Order at 12). Subsequently, in accordance with the Court's order, G & G presented its defenses to the agency and a number of the bond disputes were actually resolved. SeeDocket No. 153 (civil minutes). However, for the remainder of the bonds, the agency concluded that G & G was in breach and issued decisions to that effect. Those agency decisions are now the subject of the pending motions for summary judgment.

Under Federal Rule of Civil Procedure 56(a), a “court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In evaluating whether summary judgment is appropriate, the Court applies Judge Patel's prior ruling that “[t]he arbitrary and capricious standard [employed under the Administrative Procedure Act (‘APA’) ] is ... appropriate for review of the government's bond-breach determinations.” United States v. Gonzales & Gonzales Bonds & Ins. Agency, Inc.,728 F.Supp.2d 1077, 1082 (N.D.Cal.2010)(rejecting G & G's contention that de novo review is appropriate).

Although Judge Patel referred specifically to the arbitrary-and-capricious component of the APA, she did not foreclose de novo review where appropriate under the APA—e.g.,for purely legal issues. SeeHoward v. FAA,17 F.3d 1213, 1215 (9th Cir.1994)(noting that, under the APA, “[p]urely legal questions are reviewed de novo”); see also5 U.S.C. § 706(providing that “the reviewing court shall decide all relevant questions of law”); Dubois v. United States Dep't of Agric.,102 F.3d 1273, 1284 (1st Cir.1996)(stating that, under the APA, “[e]rrors of law are reviewed by the court de novo”). That being said, Judge Patel did not explicitly address whether contract interpretation is considered a purely legal issue for which there is de novo review under the APA.²Contract interpretation, of course, is typically deemed a question of law. Nevertheless, several courts have held that, where an agency's action is being challenged pursuant to the APA, and where the agency has interpreted a contract, that interpretation is entitled to deference and the arbitrary-and-capricious standard applies—at least where the agency's expertise or statutory domain is implicated.

For example, in Muratore v. United States OPM,222 F.3d 918 (11th Cir.2000), the Eleventh Circuit so concluded. It explained that the arbitrary-and-capricious standard was appropriate by drawing an analogy to Chevrondeference: “Chevronstands, in part, for the proposition that courts may not always conduct a de novo review of agencies even on the pure question of law of statutoryinterpretation”—i.e.,“the ‘question for the court is whether the agency's answer is premised on a permissible construction of the statute.’ ” Id.at 921(emphasis added). “ ‘[C]ontractinterpretation ... is sufficiently similar to statutory interpretation [that it] warrants deference—especially when the interpretation involves a policy determination within the agency's statutory domain.’ ” Id.at 922(emphasis added). In Muratoreitself, the Eleventh Circuit concluded that, because of the agency's expertise, it would defer to the agency's contract “interpretation so long as that interpretation is reasonable and relies on ample factual and legal support.” Id.

Other courts have adopted the same or a similar approach. For example, the Tenth Circuit has stated that “an agency's interpretation of a contract is reviewed under the arbitrary and capricious standard when the subject matter of the contract involves the agency's specialized expertise.” Sternberg v. Sec'y,299 F.3d 1201, 1205 (10th Cir.2002). Similarly, in National Fuel Gas Supply Corp. v. Federal Energy Regulatory Commission,811 F.2d 1563 (D.C.Cir.1987), the D.C. Circuit stated that “an agency's reading of a settlement agreement” should be given deference, “even where the issue simply involves the proper construction of language,” because the agency's statutory domain had been implicated. Id.at 1569. And in Harrell & Owens Farm v. Federal Crop Insurance Corp.,No. 4:09–CV–217–FL, 2010 WL 9462574, 2010 U.S. Dist. LEXIS 145422 (E.D.N.C. Oct. 6, 2010), a district court acknowledged that there were seemingly conflicting Fourth Circuit cases as to which standard should apply (arbitrary and capricious or de novo) but, ultimately, declined to resolve the conflict because

[t]here is sufficient common teaching in the cases to provide a framework for the court to decide the instant matter. Specifically, the cases agree that where the agency's interpretation turns on reference to rules and regulatory provisions, is made pursuant to a comprehensive statutory scheme, and is based on specific policymaking prerogatives and subject-specific expertise, the court is to afford the agency substantial deference. By contrast, where the agency's determination was made simply by reference to general common law principles governing contracts, no such deference is given.

Id. at *7, 2010 U.S. Dist. LEXIS 145422, at *21; see alsoDayton Power & Light Co. v. Fed. Energy Reg. Comm'n,843 F.2d 947, 953 (6th Cir.1988)(stating that “ ‘[a]n agency's interpretation of a contract ... may be reviewed by a court without special deference,’ ” at least where the interpretation is not based on any factual findings or technical expertise).

Cases contrary to those cited above appear to be much fewer in number. See, e.g.,Muratore,222 F.3d at 921(noting that “[t]he Fifth Circuit has continued to conduct a de novo review in its recent cases”); Wapato Heritage, LLC v. United States,No. CV–08–177–RHW, 2008 WL 5046447, at *5, 2008 U.S. Dist. LEXIS 117185, at *14 (E.D.Wash. Nov. 21, 2008)(acknowledging that the agreement involved “subject matter clearly within the [agency's] specialized expertise” but still applying de novo review).

The Court agrees with the reasoning of the Eleventh Circuit in Muratore. As a general matter, the Court finds that, here, the agency's specialized expertise and statutory domain have been sufficiently implicated with respect to the contracts at issue, namely, the immigration bonds and the parties' prior settlement agreements which address how the parties should deal with immigration bonds. Thus, even where the agency is interpreting an immigration bond or one of the parties' prior settlement...