Bros. Petroleum, LLC v. United States

• Citation: 569 F.Supp.3d 405
• Decision Date: 01 November 2021
• Docket Number: CIVIL ACTION No. 21-956
• Parties: BROTHERS PETROLEUM, LLC, et al. v. UNITED STATES of America, et al.
• Court: U.S. District Court — Eastern District of Louisiana

569 F.Supp.3d 405

BROTHERS PETROLEUM, LLC, et al.

v.UNITED STATES of America, et al.

CIVIL ACTION No. 21-956

United States District Court, E.D. Louisiana.

Signed November 1, 2021

Filed November 2, 2021

Edward J. Castaing, Jr., Peter E. Castaing, Crull, Castaing & Lilly, William P. Gibbens, Ian Lewis Atkinson, Schonekas, Evans, McGoey & McEachin, LLC, New Orleans, LA, for Brothers Petroleum, LLC, Golden Gallons, L.L.C., Manhattan Management Services, L.L.C.

SECTION: "J" (1)

ORDER AND REASONS

CARL J. BARBIER, UNITED STATES DISTRICT JUDGE

Before the Court is a Motion to Dismiss Under Federal Rule of Civil Procedure 12(b) (Rec. Doc. 38) filed by Defendants; an opposition (Rec. Doc. 44) filed by Plaintiffs; and a reply (Rec. Doc. 48) filed by Defendants. Having considered the motion and legal memoranda, the record, and the applicable law, the Court finds that the motion should be granted.

FACTS AND PROCEDURAL BACKGROUND

Plaintiffs Brothers Petroleum, LLC; Golden Gallons, LLC; and Manhattan Management Services, LLC are small businesses who applied for the Paycheck Protection Program ("PPP") of the recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). (Rec. Doc. 1, at 2). Congress tasked the United States Small Business Administration ("SBA") with administering PPP. Id. The SBA's authority to administer loans stems from § 7(a) of the Small Business Act, 15 U.S.C. § 636 et seq. Id. at 6. The CARES Act instructed the SBA to temporarily guarantee loans under a new § 7(a) program, PPP. Id. Pursuant to existing § 7(a) guidelines for issuing small business loans, an owner of twenty percent or more of the equity of a business, who is subject to an indictment for a felony, is not eligible to receive an SBA loan ("the Criminal History Exclusion"). (Rec. Doc. 27, at 3).

Imad Hamadan, owner of more than twenty percent of the equity in the three Plaintiff LLCs, is currently subject to a felony indictment. (Rec. Doc. 1, at 27–30). Therefore, the Plaintiff LLCs were deemed ineligible for PPP under the Criminal History Exclusion. Id. at 29.

In response, Plaintiffs filed this action, seeking injunctive and declaratory relief. Plaintiffs then filed a motion for preliminary injunction, which was denied by this Court based upon strong Fifth Circuit precedent that district courts lack subject matter jurisdiction to grant such relief against the SBA. (Rec. Doc. 38, at 1–2). Defendants subsequently filed the instant motion. Defendants seek dismissal of the case for lack of subject matter jurisdiction, in direct response to the Court's finding in Plaintiffs’ motion for preliminary injunction, or. in the alternative, dismissal under 12(b)(6) for failure to state a claim.

LEGAL STANDARD

In deciding a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), "the district court is ‘free to weigh the evidence and resolve factual disputes in order to satisfy itself that it has the power to hear the case.’ " Krim v. pcOrder.com, Inc. , 402 F.3d 489, 494 (5th Cir. 2005). The party asserting jurisdiction must carry the burden of proof for a Rule 12(b)(1) motion to dismiss. Randall D. Wolcott, M.D., P.A. v. Sebelius , 635 F.3d 757, 762 (5th Cir. 2011). The standard of review for a motion to dismiss under Rule 12(b)(1) is the same as that for a motion to dismiss pursuant to Rule 12(b)(6). United States v. City of New Orleans , No. 02-3618, 2003 WL 22208578, at *1 (E.D. La. Sept. 19, 2003). If a court lacks subject matter jurisdiction, it should dismiss without prejudice. In re Great Lakes Dredge & Dock Co. , 624 F.3d 201, 209 (5th Cir. 2010).

When "a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits." Id. (internal quotation marks and citation omitted).

To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead sufficient facts to " ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible when the plaintiff pleads facts that allow the court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The factual allegations in the complaint "must be enough to raise a right to relief above the speculative level." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. "[D]etailed factual allegations" are not required, but the pleading must present "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. The court must accept all well-pleaded facts as true and must draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc. , 565 F.3d 228, 232 (5th Cir. 2009). However, " ‘conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.’ " Beavers v. Metro. Life Ins. Co. , 566 F.3d 436, 439 (5th Cir. 2009) (citation omitted).

DISCUSSION

I. 12( B )(1) – SUBJECT MATTER JURISDICTION AND DECLARATORY RELIEF

Plaintiffs acknowledge that Fifth Circuit precedent does not allow for injunctive relief against the SBA. (Rec. Doc. 44, at 2). However, Plaintiffs contend that declaratory relief is still available. Id. The Declaratory Judgment Act grants wide discretion to a court, acting within its independent jurisdiction in a case of actual controversy, to "declare the rights and other legal relations of any interested party." 28 U.S.C. § 2201(a).

In Pottharst v. Small Business Administration , the plaintiff sought both declaratory and monetary relief. 329 F. Supp. 1142, 1145 (E.D. La. 1971). The court found that "Congress has granted authority for the Administrator of the Small Business Administration to sue and be sued in 15 U.S.C. § 634(b), providing, by way of limitation, that ‘no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Administrator or his property.’ There is therefore, the court found, express statutory authority for declaratory and monetary relief. " Id. at 1145–46 (emphasis added).

Years later, the Fifth Circuit in Valley Construction Co. v. Marsh held "that if plaintiffs can prevail on the merits upon trial, a declaratory judgment is a proper remedy" against the SBA as long as the request for declaratory relief is not "a shallow subterfuge for an unavailable injunction." 714 F.2d 26, 29 (5th Cir. 1983). Other circuits have reached the same conclusion. See Mar v. Kleppe , 520 F.2d 867 (10th Cir. 1975) ("The likelihood is that the statute excepts the injunction because of the threat of impeding or interfering with the administrative process. It does not, however, preclude an action for damages or one seeking a declaratory judgment."); Ulstein Maritime Ltd. v. United States , 833 F.2d 1052 (1st Cir. 1987) ("But a declaratory judgment is a milder remedy which is frequently available in situations where an injunction is unavailable or inappropriate. Thus, even courts that have accepted the view that the SBA is immune from injunction have held that declaratory relief against the SBA is not synonymous with an injunction."); and Little v. United States , 645 F.2d 77 (7th Cir. 1981).

Here, Plaintiffs are seeking a declaration that (1) the Criminal Background Exclusion is contrary to law; (2) the Criminal Background Exclusion is arbitrary and capricious; and (3) the SBA and its Administrator unlawfully withheld agency action through their promulgation and/or application of the Criminal Background Exclusion. A declaration of any of the above would not be "subtle subterfuge," but simply a statement of the existing legal rights. Therefore, the Court will proceed to the 12(b)(6) analysis.

II. 12(B)(6)

A. CONTRARY TO LAW

The Administrative Procedure Act ("APA") requires the court to "hold unlawful and set aside agency action" that is "in excess of statutory jurisdiction, authority, or limitations." 5 U.S.C. § 706(2)(C). To determine if an agency exceeded its statutory authority, the court applies the two-step analysis from Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under the first step of Chevron , the court asks whether "Congress has directly spoken to the precise question at issue." Huawei Techs. USA, Inc. v. Fed. Commc'ns Comm'n , 2 F.4th 421, 433 (5th Cir. 2021) (citing Acosta v. Hensel Phelps Constr. Co. , 909 F.3d 723, 730 (5th Cir. 2018) and quoting Chevron , 467 U.S. at 842–44, 104 S.Ct. 2778 ). If the answer is yes, the court must "give effect to the unambiguously expressed intent of Congress" and reverse an agency's interpretation that fails to conform to the statutory text. Id. (quoting Chevron , 467 U.S. at 842–43, 104 S.Ct. 2778 ). In its analysis of the statute, the court relies on "authoritative Supreme Court decisions" and "conventional standards of statutory interpretation," looking to "text, structure, and the overall statutory scheme." Id. (quoting Chamber of Com. v. U.S. Dep't of Lab. , 885 F.3d 360, 369 (5th Cir. 2018) ).

However, if the answer to the first Chevron question is no, and the statute is silent or ambiguous as to the specific issue, the court then asks whether "the agency's answer is based on a permissible construction of the statute." Id. (citations omitted). When the agency's construction is reasonable, the court will defer to the agency's construction, but when the agency's construction is "arbitrary, capricious, or manifestly contrary to the statute," the court must set aside the agency action. Id. There is considerable deference given to the agency's construction of the statute, and "a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the...