Ascot Dinner Theatre, Ltd. v. Small Business Admin.

Decision Date05 October 1989
Docket NumberNos. 86-1061,86-1117,s. 86-1061
Citation887 F.2d 1024
PartiesThe ASCOT DINNER THEATRE, LTD. a Colorado limited partnership, Plaintiff-Appellee/Cross-Appellant, v. The SMALL BUSINESS ADMINISTRATION, an agency of the United States Government; Charles Heatherly, Administrator, Defendants-Appellants/Cross-Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Brian Magoon, Loser, Fitzgerald, Magoon & Davies, P.C., Englewood, Colo., for plaintiff-appellee/cross-appellant.

Peter R. Maier, Appellate Staff Civ. Div., Dept. of Justice, Washington, D.C. (Richard K. Willard, Asst. Atty. Gen., John F. Cordes and Linda J. Silberman, Attys., Appellate Staff Civ. Div., Dept. of Justice, Washington, D.C., Robert N. Miller, U.S. Atty., Denver, Colo., were also on the brief) for defendants-appellants/cross-appellees.

Before HOLLOWAY, Chief Judge, ANDERSON, Circuit Judge, and SAFFELS, District Judge *.

HOLLOWAY, Chief Judge.

The Small Business Administration (SBA) and its Administrator appeal a judgment awarding damages to the Ascot Dinner Theatre (Ascot), 1 an applicant denied a loan guaranty by the SBA. The district court held unconstitutional as applied here the SBA's "opinion molder rule," a regulation which disqualified certain businesses engaged in the formation, expression and distribution of ideas from receiving SBA loan guarantees. The court awarded $59,086.25 as damages arising from the unconstitutional denial of the Ascot application. Mission Trace Investments, Ltd. v. Small Business Administration, 622 F.Supp. 687 (D.Colo.1985).

Concluding that Ascot has on these facts no valid jurisdictional basis for a contract, tort or constitutional claim for damages against the SBA and its Administrator, when sued in his official capacity as he was, we reverse the award of damages. No claim of error is asserted by the defendants with respect to the district judge's adjudication that the rule as applied is invalid under First Amendment principles. Hence that ruling is not considered or disturbed.


The facts were detailed by the district court. See 622 F.Supp. at 688-89. We recite the facts pertinent to our disposition and critical evidentiary support for them in our record. There is no challenge to the subsidiary historical facts found by the district judge.

Ascot was formed in 1982 to establish a dinner theatre in the Mission Trace Shopping Center in Lakewood, Colorado. In October 1982 Ascot signed a lease for the Center property with Pride, a Colorado partnership. Pursuant to the lease agreement, Ascot deposited $49,000 with Pride and agreed to pay an additional amount of not less than $1,100,000 for tenant improvements on or before January 15, 1983. Ascot thereafter paid $50,000 and obtained extensions of the due date to May 15, 1983.

In April 1983 Ascot's representative, Margaret S. McCool, met with Warner Knobe, president of the Columbine Valley Bank and Trust (Columbine), to obtain a loan for Ascot. Upon determining that Ascot was not eligible for a direct loan from Columbine, Knobe suggested an SBA guaranteed loan as an alternative. Columbine had a loan guaranty agreement with the SBA under which Columbine was the lender and the SBA the guarantor of loans, subject to the SBA's approval and its rules and regulations. Knobe provided McCool with the SBA loan guaranty application form.

On May 25, 1983 Pride again extended Ascot's payment due date to June 7, 1983. McCool then met with Pride on June 7 to discuss another extension. McCool completed the SBA application in late May or early June and returned it to Knobe who thereafter delivered it to the SBA. On June 9 or 10 Knobe discussed Ascot's eligibility with an SBA official. Knobe then talked with Ascot's attorney regarding the discussion Knobe had with the SBA official. On June 10 Ascot's attorney telephoned McCool and Ascot then paid an additional $50,000 for another lease extension.

The SBA District Director approved Ascot's creditworthiness on July 22, 1983, but final approval remained subject to a complete eligibility determination. Pride sent Ascot a default letter on July 28, 1983. On August 12, 1983 the SBA determined that Ascot was not eligible for a loan guarantee. The SBA has stipulated that 13 C.F.R. Sec. 120.2(d)(4), et seq. (1983), the "opinion molder rule" in effect at the time of Ascot's application, was the sole basis for denying Ascot's application and that absent the regulation, Ascot would have qualified for an SBA loan guaranty. I R. 3, Stipulations, at p 39.

It is undisputed that all personal contact and communications with SBA personnel were made by and through Knobe for the Columbine bank. No contact occurred between McCool or any other representative of Ascot and any personnel or officials of the SBA. After the loan guaranty was denied, Knobe requested an agency review to reconsider the denial based upon the opinion molder rule. This review affirmed the denial of the guaranty. II R., Knobe's testimony, 35-40.

Ascot's complaint followed. It sought declaratory relief, and also damages against the SBA and its Administrator in his official capacity for wrongful denial of the loan guarantee. Ascot asserted that promissory estoppel precluded the SBA from denying the loan application and that 13 C.F.R. Sec. 120.2(d)(4) (1983), the opinion molder rule involved here, was unconstitutional as applied.

After a bench trial in April 1985 the district court rejected the promissory estoppel claim because Ascot failed to demonstrate reliance on SBA representations. The court held, however, that the SBA regulation "unnecessarily" inhibited Ascot's First Amendment rights and that the SBA could not deny benefits to applicants solely because they engage in constitutionally protected expression. 622 F.Supp. at 702. The court awarded damages based on losses incurred after Ascot "relied on at least the possibility of obtaining SBA financial assistance." Id. at 703.

The SBA timely appealed. It argues that sovereign immunity precludes the award of damages against the SBA and the Administrator for losses of a loan applicant denied loan assistance on the basis of an agency regulation subsequently held unconstitutional. Opening Brief for Federal Defendants at 7. The SBA also says that its denial of the Ascot loan application did not proximately cause the injuries alleged by Ascot. On cross-appeal, Ascot seeks the $149,060 in damages denied by the trial court and argues that this loss in lease payments is also a consequence of the SBA denial and would not have occurred but for the denial of the guaranty.

II Sovereign Immunity

In this case of first impression, Ascot says that the unconstitutional application of the opinion molder rule entitles it to recover damages on its claim whose "substance is that of a breach of contract rather than tort." Cross-Appellant's Reply Brief at 10. Ascot argues against the application of the Federal Tort Claims Act (FTCA), 28 U.S.C. Secs. 1346(b), 2671 et seq. (1976), which operates as an exclusive remedy, see Sec. 2679, and precludes claims arising from regulations on stated conditions. See Sec. 2680. Ascot contends that the SBA's refusal to grant guaranty assistance to an eligible applicant is in substance a breach of contract claim and only incidentally and conceptually also a tort claim. Cross-Appellant's Reply Brief at 9-10. The SBA asserts that Ascot asserts a tort claim, precluded by the FTCA, and that sovereign immunity also precludes any nontort basis of liability to Ascot.

We are persuaded that the controlling issue is that of sovereign immunity. 2 Absent the waiver of sovereign immunity, Ascot's claim cannot survive. It is established principle that the United States, as sovereign, "is immune from suit save as it consents to be sued ... and the terms of its consent to be sued in any court define the court's jurisdiction to entertain the suit." United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953, 47 L.Ed.2d 114 (1975) (quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941)); United States v. Mel's Lockers, 346 F.2d 168, 169-70 (10th Cir.1965). Waiver of sovereign immunity cannot be implied, but must be unequivocally expressed. Testan, 424 U.S. at 399, 96 S.Ct. at 953-54.

Ascot argues that an unrestricted waiver of immunity arises in 15 U.S.C. Sec. 634(b)(1), which provides:

Powers of Administrator

(b) In the performance of, and with respect to, the functions, powers, and duties vested in him by this chapter the Administrator may-- (1) sue and be sued in any court of record of a State having general jurisdiction, or in any United States district court, and jurisdiction is conferred upon such district court to determine such controversies without regard to the amount in controversy; but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Administrator or his property ....

We must disagree with Ascot's position on the waiver of immunity based on Sec. 634(b)(1) for reasons that follow.

Tort Exclusion

We are persuaded that the consent to sue and be sued in Sec. 634(b)(1) does not establish a waiver of immunity so as to permit entertainment of Ascot's damages claim. Congress has integrated the "sue and be sued" statutes, such as Sec. 634(b)(1), within the overall scheme for allowing claims against the United States. In this scheme the Tucker Act, 28 U.S.C. Secs. 1346(a)(2), and 1491 (1973), provides the waiver of immunity and the jurisdictional grant for the district courts and Court of Claims to entertain nontort actions arising from the Constitution, statutes, regulations, and express or implied contract obligations of the Government.

However, Ascot's claim should be viewed as an alleged constitutional tort, a claim of unconstitutional application of the regulation known as the opinion molder rule, see Cross-Appellant's Reply Brief at 5, since as noted below there is no viable contractual basis for...

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