Audio Odyssey, Ltd. v. U.S., CIV.3:99-CV-40161.

• Decision Date: 28 January 2003
• Docket Number: No. CIV.3:99-CV-40161.,CIV.3:99-CV-40161.
• Citation: 243 F.Supp.2d 951
• Parties: AUDIO ODYSSEY, LTD., Dogan A. Dincer, and Ann M. Dincer, Plaintiffs, v. UNITED STATES of America, and the United States Small Business Administration, Defendants.
• Court: U.S. District Court — Southern District of Iowa

243 F.Supp.2d 951

AUDIO ODYSSEY, LTD., Dogan A. Dincer, and Ann M. Dincer, Plaintiffs, v. UNITED STATES of America, and the United States Small Business Administration, Defendants.

No. CIV.3:99-CV-40161.

United States District Court, S.D. Iowa, Davenport Division.

January 28, 2003.

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Ann M. Dincer, Davenport, IA, pro se.

Dale G. Haake, Katz McHard Balch Lefstein & Fieweger, PC, Rock Island, IL, for plaintiffs.

Gary L. Hayward, Assist. U.S. Atty., Des Moines, IA, for U.S., defendant.

Glenn P. Harris, Gen. Counsel, Washington, DC, for Small Business Admin., defendant.

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND FOR SUMMARY JUDGMENT

GRITZNER, District Judge.

This matter comes before the Court on Defendants' Motion to Dismiss or in the Alternative, Motion for Summary Judgment. A hearing on the Motions was held October 22, 2002. Plaintiffs were represented by attorney Dale Haake; Defendants were represented by Glenn Harris, counsel for the U.S. Small Business Administration and Assistant United States Attorney Gary Hayward.

Since its commencement in September of 1999, this case has progressed along a tortured path of complicated litigation involving questions of federal jurisdiction, sovereign immunity, applicable common law, privity of contract, and various legal doctrines. Substantial resources have been expended by the Plaintiffs, the Defendants, and both this District Court and the Court of Appeals. It is beyond question that the litigation process has been a great burden for the Plaintiffs, but their dogged pursuit in this matter has been a creative yet ultimately futile effort to seek a legal remedy where none exists. After detailed analysis of the arguments and underlying circumstances of this case, and for the reasons discussed below, the Court is compelled to find the Defendants' Motion to Dismiss or in the Alternative, Motion for Summary Judgment must be granted.¹

I. FACTUAL BACKGROUND

The underlying material facts have been repeatedly set forth by two courts as well as the parties. Accordingly, only the facts essential to the matters now before the Court will be repeated.

Audio Odyssey was a retail electronics store established by Dana Christiansen in 1975. In 1991, Christiansen agreed to sell Audio Odyssey to part owner Dogan Dincer for $270,000. To finance the purchase, Dogan and Ann Dincer applied for a Small Business Administration ("SBA") loan guaranty. Brenton Bank ("Brenton") financed a $200,000 loan payable in monthly installments over seven years; the SBA guaranteed 85 percent of the loan. The loan was secured by Audio Odyssey's accounts receivable, contract rights, general intangibles, inventory, furniture, fixtures, machinery, and equipment. The Dincers personally guaranteed the loan, using their residence and another parcel of land as collateral.

The underlying SBA-Brenton relationship dates back to 1978 when a Guaranty Agreement was entered into by the two parties. The Guaranty stated that all subsequent SBA loans granted by Brenton would be subject to the 1978 agreement. The 1978 Guaranty Agreement provided, inter alia, that (1) the SBA must give lender written approval before lender could sue; (2) the SBA would arrange field visits; and (3) the SBA must submit SBA form 327 when not following standard operating procedures. The loan agreement also stated it would be enforced in accordance with federal law pursuant to 13 C.F.R. § 101.1(d). Audio Odyssey's loan agreement included a clause stating the loan would be subject to the provisions of the 1978 Guaranty Agreement.

In late 1994, Audio Odyssey began experiencing financial difficulties. In the nine-month period beginning November 1, 1994, Audio Odyssey's payment history was marked by several missed or partial payments. By July 12, 1995, Audio Odyssey was two months behind on its loan. In addition, Audio Odyssey was $48,000 in arrears on state sales and federal withholding taxes and was $10,000 overdrawn on its business checking account also held by Brenton. Sometime before July 12, 1995, Brenton became aware Audio Odyssey was going to hold an out of the ordinary sale.

Given Audio Odyssey's recent payment history, Brenton loan officer John Bradley ("Bradley") became concerned the inventory securing Audio Odyssey's loans would be sold and the proceeds would be used to payoff Audio Odyssey's other pending debts. Therefore, on July 12, 1995, Bradley contacted SBA administrator Roger Hoffman ("Hoffman") to inform him of the pending sale and the condition of the Audio Odyssey account. Hoffman verbally agreed to a seizure of the collateral if a workout was not possible.

On July 13, 1995, the Dincers made a deposit at Brenton intended to cover the overdue June and July payments. However, Brenton applied the deposit to Audio Odyssey's other delinquent accounts. On the same day, Dincer tried to contact both the SBA and Brenton to arrange a workout proposal. Dincer made several phone calls to Bradley but never reached him.

At 8:50 a.m. on July 14, 1995, Brenton hand-delivered Audio Odyssey a letter advising Audio Odyssey its account was in default and demanding payment in full by 9:00 a.m. Unable to pay on such short notice, Dincer requested thirty days and referred Brenton to Audio Odyssey's attorney, Stephen Wing. By 12:12 p.m., Wing sent a fax stating Brenton was operating on misinformation, because Audio Odyssey was not in default.

Later that same day, Brenton obtained a writ of replevin from the Iowa District Court for Scott County. At 4:15 p.m. on July 14, 1995, Scott County Sheriffs deputies, acting pursuant to the writ, seized Audio Odyssey's inventory and equipment and locked the doors of Audio Odyssey. On July 17, 1995, Hoffman learned of the deposit and the replevin action. SBA paid Brenton the guaranteed portion of the outstanding loan. SBA never received any proceeds from the seizure. In September of 1999, the Dincers and Audio Odyssey filed suit alleging the SBA negligently performed or failed to perform various procedures, breach of contract, and tortious interference.² On June 30, 2000, the District Court granted the Defendants summary judgment on all claims. Plaintiffs' appealed. The Eighth Circuit affirmed in part, reversed in part, and remanded for further proceedings.³

II. PROCEDURAL HISTORY

At an earlier stage in these proceedings, Defendant SBA moved for summary judgment on all claims—negligence, contract, and tortious interference with contract. The Honorable Ronald E. Longstaff granted summary judgment on all pending motions, finding the discretionary functions exception⁴ provided sovereign immunity against the negligence and tortious interference claims, and Audio Odyssey lacked privity of contract under Iowa law. Audio Odyssey appealed.

On appeal, the Eighth Circuit affirmed the tortious interference ruling and reversed the negligence and contract rulings. The appellate court found the discretionary functions exception did not apply to claims against the SBA for failure to perform mandatory procedures; however, the discretionary function exception would apply to claims against the SBA for negligent execution of those mandatory procedures. The Eighth Circuit found federal common law, not Iowa law, applied to the contract claim and, on that basis, found Audio Odyssey had privity of contract as a thirdparty beneficiary to the 1978 loan agreement. The case was remanded for further proceedings. Audio Odyssey, Ltd, v. United States, 255 F.3d 512 (8th Cir.2001).

In the present motion, Defendant SBA moves to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure ("Rule") 12(b)(1) and failure to state a claim upon which relief may be granted under Rule 12(b)(6). In the alternative, SBA submits there is no genuine issue of material fact subject to dispute and, therefore, moves for summary judgment under Rule 56(c). Plaintiffs do not claim there are issues of fact which would preclude analysis of the case as a matter of law.

III. STANDARD FOR DISMISSAL

"A complaint should not be dismissed unless it appears beyond a doubt that plaintiffs cannot prove any set of facts in support of their claim that would entitle them to relief." Klett v. Pirn, 965 F.2d 587, 589 (8th Cir.1992) (citing United States v. Aceto Agric. Chem. Corp., 872 F.2d 1373, 1376 (8th Cir.1989)). The complaint must reveal an insuperable bar to relief on its face to warrant a Rule 12(b)(6) dismissal. Id. (citing United States v. Aceto Agric. Chem. Corp., 872 F.2d 1373, 1376 (8th Cir.1989)).

"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45^6, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). On a motion to dismiss, the court must accept and liberally construe all of plaintiffs facts as true. Id, In construing the facts, the court shall "reject conclusory allegations of law and unwarranted inferences". Silver v. H & R Block, Inc., 105 F.3d 394, 397 (8th Cir. 1997). If a motion to dismiss is pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must only consider the pleadings in determining whether the plaintiff has stated a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). If matters outside the pleadings are considered in rendering its decision, the district court must treat the motion as one for summary judgment and dispose of the motion in accordance with Federal Rule of Civil Procedure 56. Buck v. F.D.I.C., 75 F.3d 1285, 1288 (8th Cir.1996).

However, when a district court is considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, it has the authority to look to matters outside the pleadings. Denser v. Vecera, 139 F.3d 1190, 1192 n. 3 (8th Cir.1998) (citing Drevlow v. Lutheran Church, Mo. Synod, ...