Dubrow v. Small Business Administration

• Decision Date: 19 May 1972
• Docket Number: No. 72-696.,72-696.
• Parties: Gerald DUBROW and Kirk T. Nelson, on behalf of themselves and all others similarly situated, Plaintiffs, v. SMALL BUSINESS ADMINISTRATION, an Agency of the United States, Government, Defendant.
• Court: U.S. District Court — Central District of California

345 F. Supp. 4

Gerald DUBROW and Kirk T. Nelson, on behalf of themselves and all others similarly situated, Plaintiffs, v. SMALL BUSINESS ADMINISTRATION, an Agency of the United States, Government, Defendant.

No. 72-696.

United States District Court, C. D. California.

May 19, 1972.

M. J. Collins, Los Angeles, Cal., and George A. Peters, Sherman Oakes, Cal., for plaintiffs.

William D. Keller, U. S. Atty., Frederick M. Brosio, Jr., Asst. U. S. Atty., Chief Civil Div., Matthew A. Schumacher, Asst. U. S. Atty., Los Angeles, Cal., for defendants.

ORDER DENYING PRELIMINARY INJUNCTION AND DISMISSING COMPLAINTS

DAVID W. WILLIAMS, District Judge.

Following the February 9, 1971 earthquake, President Nixon declared Los Angeles County a disaster area for purposes of making low interest loans available under the Disaster Relief Act to persons whose property had suffered damage. This relief program was administered by the Small Business Administration (SBA). A damage survey of the disaster area was prepared by the Office of Emergency Preparedness and it was estimated that total damage would approximate 240 to 250 million dollars. Accordingly a loan pool of 242 million dollars was set up for use by the SBA in making loans to those whose applications that agency approved.

About March 1, 1971, the SBA began accepting applications for loans and it fixed February 29, 1972 as the deadline for the filing of such applications. During this one-year period approximately 83,000 applications were filed of which approximately 50,000 were received during the first nine months of the filing period.

Plaintiffs bring this civil action for injunctive relief on behalf of a putative class of some 30,000 people who applied for disaster relief loans during the last three months of the filing period and whose applications were rejected.¹ Plaintiffs seek to enjoin the SBA from requiring those who filed applications during the last three months of the one-year period from having to accompany the application with a structural engineer's report to be prepared at the estimated cost of $150.² Such a report was not required of those who filed their applications during the first nine months.³ Indeed, it is alleged that the SBA never communicated to plaintiffs or members of their class the fact that a structural engineer's report would be required; rather, plaintiffs and others had to call and insist on knowing the reasons why their applications were rejected before they were informed of the new requirement. Also, it appears that those who filed during the last three months were subjected to a financial screening in order to determine their ability to repay the loan whereas earlier applicants were not required to show ability to repay. Plaintiffs contend that to require a structural engineer's report of those who filed during the last three months and to require a strong showing of ability to repay is vexatious and invidious in that, (1) it is arbitrary, unreasonable and unnecessary to a determination of real property damage that is earthquake connected, (2) it unnecessarily imposes a heavy financial burden on poorer applicants, and (3) it unreasonably discriminates against those who applied for disaster relief in the last three months of the filing period and in favor of those who applied during the first nine months.

During the three week period March 10 to March 31, 1972, the Los Angeles office of the SBA processed an unprecedented 27,711 applications for loans under the Disaster Relief Act. Of these 26,724 were rejected, more than eighteen times the number of rejections for any three weeks during the filing period. Plaintiffs allege that rejecting this large a number of applications was both whimsical and arbitrary.

The SBA acknowledges that it changed its requirements during the last few months of the program, but explains that the increase in the number of applications during the last three months was unexpected. Past experience in administering Disaster Relief loans revealed that the first few months of the filing period would attract the majority of those who suffered bona fide disaster connected damage and who could not get reconstruction assistance on as favorable terms from other sources. Based on this same experience in administering past loans, it was expected that past patterns would prevail and that the last quarter of the filing period would see a great diminution of filed applications. During the first eight months of the filing period almost 44,000 loan applications were filed and the total amount of loans requested was $194,000,000 out of which loans totalling approximately $154,000,000 were approved. The last few months, however, brought an inordinate number of applications and it was apparent that this new wave of claims, if approved in the same ratio as past claims, would far exceed the balance of authorized funds. At about the same time it was discovered that many of the earlier applications were misleading and the product of fraudulent misrepresentations on the part of homeowners, some of whom padded their damage claims or applied for funds to repair damage not connected with the earthquake. Appeals to Congress for additional funds proved fruitless. Thus, it was deemed wise to stop the earlier relaxed investigative procedures, originally instituted fresh upon the tragic earthquake, which resulted in attracting fraudulent and ineligible damage claims that siphoned off a substantial part of the loan pool. The SBA therefore sought to preserve the few remaining millions of dollars to those able to establish eligibility by a clear showing of need for the amount requested and reasonable ability to repay.

The SBA contends that it did not change the requirements until after all applicants who were in the "critical" category had received loans. Though some will be inconvenienced by the new requirement, the agency argues that no applicant will experience any real hardship.

The government contends that this court has no jurisdiction to hear this case and relies on, (1) plaintiff's failure to allege a jurisdictional statute, (2) 15 U.S.C. § 634(b) which precludes injunctive action against the SBA Administrator, and (3) 5 U.S.C. § 701(a) (2) which precludes a court from reviewing agency action committed by law to agency discretion.

Since the purpose of the complaint is for the plaintiff to notify the defendant of the facts upon which he relies for recovery, only if jurisdiction does not affirmatively appear from the facts stated in the complaint should the complaint be dismissed. Seese v. Bethlehem Steel Co., 74 F.Supp. 412 (D.Md.), aff'd 168 F.2d 58 (4 Cir.1948). Thus when a complaint is filed the inquiry for jurisdiction begins, and only when it appears to a certainty from the face of the complaint that the plaintiff cannot allege a case conferring jurisdiction should the complaint be dismissed for failure to contain allegations which confer jurisdiction. Johnson v. Park City Consol. Mines Co., 73 F.Supp. 852 (E.D. Mo.1947); see also, McKenzie v. Blidberg Rothchild Co. Inc., 12 F.R.D. 392 (S.D.N.Y.1952).

The government directs my attention to 15 U.S.C. § 634(b) and argues that this Court cannot have jurisdiction in a suit, the object of which is to enjoin the Administrator of the SBA. While some cases have held that the Administrator cannot be enjoined, see, e.g., vonLusch v. Hoffmaster, 253 F.Supp. 633 (D.Md.1966); U. S. v. Mel's Lockers, Inc., 346 F.2d 168 (10th Cir.1965), those cases were predicated on the specific finding that the Administrator was acting pursuant to some authority vested in him by Small Business Act.⁴ It should be clear, however, that when the Administrator acts beyond the scope of his authority 15 U.S.C. § 634(b) does not preclude injunctive action.⁵ The Court in Lloyd Wood Construction Co. v. Sandoval, 318 F.Supp. 1167 (N.D.Ala.1970), while holding that it had no power to enjoin the SBA Administrator also held that actions and determinations by the Administrator which are beyond the scope of authority granted him by the Act must be set aside by a federal court. Similarly, other federal courts have held that even though certain agency actions may be unreviewable because precluded by statute, yet when there is an abuse of discretion such that the agency no longer acts pursuant to its statutory discretion, the Court may review and set aside the agency action. Scanwell Laboratories v. Shaffer, 137 U.S.App.D.C. 371, 424 F.2d 859 (1970); Jones v. Freeman, 400 F.2d 383 (8th Cir.1968); Peoples v. Department of Agriculture, 138 U.S. App.D.C. 291, 427 F.2d 561 (1970); but see, Seatrain Lines, Inc. v. United States, 233 F.Supp. 40 (D.N.J.1964). Thus this Court would have to find that the Administrator abused his discretion and acted outside the scope of his authority in requiring the structural engineer's report and in investigating the financial ability of the applicant to repay the loan before I could conclude that 15 U.S.C. § 634(b) does not preclude injunctive relief in this case.

This Court's jurisdiction, even if not precluded by Section 634(b) is still subject to the Administrative Procedure Act, 5 U.S.C. § 701 et seq. The government contends that there can be no jurisdiction under the Administrative Procedure Act because the determination of whether to grant a Disaster Relief loan is action committed to agency discretion by law and not reviewable by a federal court, vonLusch v. Hoffmaster, supra 253 F.Supp. at 635. The words, "committed by law to agency discretion" are not talismanic. Whether agency action has been committed by law to agency discretion call for a consideration by the Court of the statute under which the action is taken, its language and purpose, and the nature of the activity or conduct being regulated. Sugarman v. Forbragd, 267 F.Supp. 817 (N.D.Cal.), aff'd 405 F.2d 1189 (9th Cir.), cert. denied, 395 U.S. 960, 89 S. Ct. 2103, 23 L.Ed.2d 747 (1969). Thus the Court is to determine...