Dore v. Kleppe

• Decision Date: 14 November 1975
• Docket Number: No. 74-1614,74-1614
• Citation: 522 F.2d 1369
• Parties: William O. DORE, bringing the following action on his own behalf, and on behalf of all other persons similarly situated, Plaintiff-Appellant, v. Thomas J. KLEPPE, as administrator of the Small Business Administration, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1369

522 F.2d 1369

William O. DORE, bringing the following action on his own

behalf, and on behalf of all other persons

similarly situated, Plaintiff-Appellant, v. Thomas J. KLEPPE, as administrator of the Small Business

Administration, Defendant-Appellee.

No. 74-1614.

United States Court of Appeals, Fifth Circuit.

Nov. 14, 1975.

Patrick D. Breeden, New Orleans, La., Joseph E. Defley, Jr., Port Sulphur, La., for plaintiff-appellant.

Gerald J. Gallinghouse, U. S. Atty., New Orleans, La., Robert E. Kopp, Stanton R. Koppel, Atty., Dept. of Justice, Washington, D. C., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before BROWN, Chief Judge, and COLEMAN and DYER, Circuit Judges.

JOHN R. BROWN, Chief Judge:

From September 7-10, 1965 the Gulf Coast states of Mississippi, Louisiana, and Florida were hit by Betsy, a severe hurricane. In response to humanitarian demands and in aid of the extensive loss of property in those states Congress passed the Southeast Hurricane Disaster Relief Act of 1965, Pub.L. 89-339, 79 Stat. 1301, which was signed into law by President Johnson on November 8, 1965. The Act provided for forgiveness of a portion of disaster loans obtained from the Small Business Administration (SBA), ¹ to those who had suffered property loss because of Betsy's high winds and wind-driven waters. ² Among those receiving loans were Ethel Pottharst and William Dore.

This controversy, still raging in the tenth year after the turbulent winds subsided, centers around the forgiveness provisions. The Act provides for cancellation of up to $1,800 after payment of the first $500 ³ of the loan. The SBA The SBA moved to dismiss the suit on the basis of sovereign immunity, administrative discretion, and statute of limitations. ⁵ The District Judge granted the SBA's motion on the grounds that the action was barred by the statute of limitations and by res judicata. We reverse.

interpreted this language to mean that the first $1,000 above $500 is forgiven in full, but only 50% Of the loan above $1,500 is forgiven up to a total cancellation of $1,800. William Dore brought a class suit challenging this interpretation of the forgiveness provision. This action was brought on behalf of a class "composed of all those who borrowed more than $1,500.00 but less than $3.100.00 from the (SBA) pursuant to the (Act) * * * and who were not granted full forgiveness of up to $1,800.00 on that portion of their loans in excess of $500.00." ⁴ Under the SBA approach the full $1,800 would be forgiven only with a loan of $3,100 whereas plaintiffs claim that a loan of $2,300 should receive the full $1,800 forgiveness.

Although the Government had never pleaded the affirmative defense of res judicata, F.R.Civ.P. 8(c), the District Court held that those plaintiffs who were part of the class in an earlier suit, Pottharst v. SBA, E.D.La., 1971, 329 F.Supp. 1142, were barred from raising the present issue in new litigation. In Pottharst the plaintiff borrowers sued the SBA over its interpretation of the phrase "to the extent such loss is not compensated for by insurance or otherwise" (emphasis added), also part of § 3 of the Betsy Act of 1965. ⁶ The Pottharst plaintiffs argued that any Uninsured loss, whether or not insurable, was covered by the Act. The SBA contended that only uninsurable losses were eligible for the forgiveness provision. It should not have been surprising to anyone conscious of the humanitarian motives for such legislation that Judge Rubin rejected this artificial reading by the SBA, reminiscent of some fine print insurance policy contentions. ⁷

Dore was part of the Pottharst class. After the Pottharst decision holding that his uninsured but insurable loss was eligible for the forgiveness provision, Dore was notified in August 1972 that $1,250 of his $2,000 loan was forgiven. He then brought the present suit in a representative capacity claiming that $1,500 of his loan should be forgiven under the Act.

On appeal Dore claims (i) that for purposes of limitation the Act's termination on January 1, 1967 ⁸ does not limit the accrual of actions to that date and (ii) that because Pottharst involved an agency interpretation of a separate part of the statute, res judicata is not applicable. The Government contends that the plaintiffs are barred by the 6-year Statute of Limitations, that res judicata was properly applied, and that the SBA had discretion to interpret the statute as it did.

Although, guided by Judge Rubin's fine opinion in Pottharst, we intend to reach the merits of the issue, we first are faced with the threshold question whether the claim is barred by the Statute of Limitations, res judicata, or both. We hold that it is not.

The Statute of Limitations

The District Judge held that all rights under the Act accrued no later than January 1, 1967 and that the subsequent forgiveness "merely recognized rights which accrued previously. ⁹ " While fully agreeing that plaintiffs should be diligent in the filing of their claims, we are unable to accept the position that in the use of such language Congress intended that no claim could accrue after this date. Since many loans were for a period of 30 years the Government should have predicted problems for 30 years in their adjustment. ¹⁰ It does not make sense to conclude that a recipient of the loan could not bring any suit on that loan after January 1, 1973, six years after termination of the Act. What if the administrator failed to make a refund or took some other adverse action concerning an outstanding loan, all within the term period of the loan but more than six years after January 1, 1967? Would the loan recipient be barred by the Statute of Limitations from seeking a judicial determination of this action? Surely this was not the congressional intent. Indeed § 7 of the Act states that the Act will continue to be in effect after January 1, 1967, "with respect to payment of expenditures for obligations and commitments entered into under this Act * * *." If payments are to continue after January 1, 1967, certainly a claim regarding those payments can accrue after that date.

The general rule is that a cause of action accrues when the alleged wrong occurs, which is when the plaintiff has a right to enforce his claim. See United States v. One 1961 Red Chevrolet Impala Sedan, 5 Cir., 1972, 457 F.2d 1353, 1358. As this Court has stated previously "(i)t is axiomatic that before a statute of limitations can begin to run there must be a right of action on which it is to run." United States v. First National Bank of Atlanta, 5 Cir., 1971, 441 F.2d 906, 909 n. 1. Here Dore because of erroneous administrative actions had no right to forgiveness until the decision in Pottharst (1971), and he could not know with any assurance of certainty the amount of forgiveness that the SBA would grant until he received notification of his loan status in August of 1972. We are unable to understand how Dore could have had a cause for relief before this latter date.

The District Judge stated that "all claims arising from the Southeast Hurricane Disaster Relief Act of 1965 are now barred by the Statute of Limitations." As we have explained above this surely is not true for those plaintiffs who were members of the Pottharst class and therefore did not know of their rights of forgiveness until June 23, 1971. It also is not true as to plaintiffs in the present suit who were not in the Pottharst class, either expressly or impliedly, because there was no showing that any of them had fully terminated their loans before May 1967, six years before the filing of the present action. The right to sue to overcome the consequences of the administrative determination accrued to each plaintiff when the final determination of each loan was made.

Dore argues, in addition, that the limitations issue was decided in Pottharst and therefore cannot be relitigated by the SBA. Because we hold that the cause of action could and did accrue after the termination date of the Act we need not rely on collateral estoppel. We point out, however, that in Pottharst Judge Rubin found only that the fact that the Act was now terminated did not

bar relief under it. The Pottharst action was filed within 6 years of January 1, 1967, and there was no real argument that the 6-year Statute of Limitations barred the action.

Res Judicata From Pottharst

We now consider the District Judge's finding that those plaintiffs who were members of the Pottharst class are barred from the present action by res judicata. The general rule is that a final judgment is conclusive on the parties as to all questions of fact and law relevant to the same cause of action which were or could have been litigated in the prior proceeding. Commissioner of Internal Revenue v. Sunnen, 1948, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92 L.Ed. 898, 905; Aerojet-General Corp. v. Askew, 5 Cir., 1975, 511 F.2d 710, 718; Carr v. United States, 5 Cir., 1975, 507 F.2d 191, 193.

The key to deciding whether res judicata applies is a determination of whether the second suit involves the same cause of action as the prior litigation. Acree v. Air Line Pilots Association, 5 Cir., 1968, 390 F.2d 199, 201, Cert. denied, 393 U.S. 852, 89 S.Ct. 88, 21 L.Ed.2d 122. If the cause of action is different in the second suit the parties are estopped from relitigating only those issues actually and necessarily decided in the first suit. Cromwell v. County of Sac, 1877, 94 U.S. 351, 24 L.Ed. 195; Maher v. City of New Orleans, 5 Cir., 1975, 516 F.2d 1051, 1055; Hyman v. Regenstein, 5 Cir., 1958, 258 F.2d 502, 510, Cert. denied, 359 U.S. 913, 79 S.Ct. 589, 3 L.Ed.2d 575; 1B Moore's Federal Practice P 0.441(1), (2) (1974); A. Scott, "Collateral Estoppel by Judgment," 56 Harv.L.Rev. 1, 29 (1942); R. von Moschzisker, "Res Judicata," 38 Yale L.J. 299, 301 (1929).

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