Mission Trace Investments, Ltd. v. Small Business Admin.
Decision Date | 12 November 1985 |
Docket Number | Civ. A. No. 83-C-1982. |
Citation | 622 F. Supp. 687 |
Parties | MISSION TRACE INVESTMENTS, LTD., a Colorado limited partnership, Plaintiff, v. The SMALL BUSINESS ADMINISTRATION, an agency of the United States Government; and James C. Sanders, Administrator, Defendants. |
Court | U.S. District Court — District of Colorado |
Brian Magoon, Steven Lass, Englewood, Colo., for plaintiff.
Colleen Conlin, Asst. U.S. Atty., for defendants.
Plaintiff Mission Trace Investments, Ltd., (Mission) filed a complaint for damages and declaratory relief against the defendants Small Business Administration (SBA) and James C. Sanders, SBA Administrator. The complaint alleged that the SBA wrongfully had denied Mission's application for a loan guarantee, and asserted two primary grounds for relief: (1) that promissory estoppel precluded the SBA from denying the loan application, and (2) that an SBA regulation known as the "opinion molder rule" found in 13 C.F.R. § 120.2(d)(4) (1985) is unconstitutional. It was on this regulation that the SBA relied in denying Mission's application.
Mission filed a motion for partial summary judgment based on its assertion that the opinion molder rule is unconstitutional. That is the matter presently before me.
On April 8, 1985, I held a trial to the court on Mission's promissory estoppel claim and heard additional evidence and oral argument relevant to Mission's motion for partial summary judgment. At that time I denied the promissory estoppel claim because Mission could not demonstrate that it had justifiably relied on SBA representations regarding its loan application. Only Mission's constitutional claims remain. The parties have briefed the issues thoroughly and further argument would not assist in resolving them. Jurisdiction is based on 15 U.S.C. § 634(b)(1) (1982).
Investors formed Mission in 1982 to operate a dinner theatre in the Mission Trace Shopping Center in Lakewood, Colorado. On October 27, 1982, Mission leased commercial property from Pride, a Colorado partnership. Pursuant to the lease agreement, Mission deposited $49,000 with Pride and agreed to pay an additional amount not less than $1,100,000 for tenant improvements on or before January 15, 1983. That due date was extended to February 15, 1983. On February 18, 1983, Mission paid Pride an additional $50,000 to further extend the payment due date to May 15, 1983.
In April 1983, Margaret S. McCool, Mission's representative, met with Warner Knobe, president of Columbine Valley Bank and Trust (Columbine), to inquire about a loan for Mission. Knobe determined that Mission was not eligible for a loan directly from Columbine without outside assistance. Knobe suggested an SBA guaranteed loan and provided McCool with an SBA loan guarantee application form. On May 25, 1983, Pride extended Mission's payment due date again, this time until June 7, 1983. In late May or early June, 1983, McCool completed the SBA application and returned it to Knobe. On June 7, 1983, McCool met with Pride to discuss a further extension of Mission's lease. By June 10, 1983, Knobe had delivered Mission's application to the SBA. Knobe discussed Mission's eligibility with an SBA official on June 9 or 10, 1983. On June 10, 1983, Knobe talked to Mission's attorney, Brian Fitzgerald, about his conversation with the SBA. That same day, Fitzgerald telephoned McCool, and Mission paid an additional $50,000 for another lease extension.
On July 22, 1983, the SBA District Director approved Mission's creditworthiness, but final approval remained subject to an eligibility determination based on noneconomic factors. Apparently, by the latter date SBA officers had become concerned about whether Mission's planned dinner theatre would violate the "opinion molder" rule.
Pride sent Mission a default letter on July 28, 1983. On August 12, 1983, the SBA determined that Mission was not eligible for a loan guarantee. The SBA has stipulated that the opinion molder rule was the sole basis for denying Mission's application, and that absent that rule, Mission would have qualified for and received an SBA loan guarantee.
Although the rule purports to prevent SBA support of all businesses engaged in creating or expressing ideas "regardless of medium, form or content," it provides for several exceptions to the general ban on SBA assistance. Commercial printers, advertisement publishers, advertising firms, broadcasting and cable television operators, nonacademic schools, and general book and music distributors are all expressly excepted from the rule, and thus are eligible for SBA loans and loan guarantees.1
A word of background about the SBA will facilitate understanding the issue presented. Congress created the SBA to assist small businesses as a means of strengthening the national economy. SBA's primary policy goals were declared by Congress:
15 U.S.C. § 631(a) (1982).
Plaintiff, in effect, is contending that the "opinion molder rule" requires the SBA, an agency charged with fostering a stronger economic system by encouraging and assisting small businesses, to deny benefits to many lawful, viable small businesses for reasons totally unrelated to their economic soundness. In response, the SBA has asserted three reasons in defense of its "opinion molder rule." First, that the agency seeks to avoid governmental entanglement with particular political views or propaganda. Second, that the rule merely attempts to avoid the possibility of unconstitutional "prior restraints" that could occur if applicants should seek to improve their chances of receiving financial assistance by tailoring the content of their speech to please the SBA administrators. Third, that "SBA wishes to avoid lending to concerns which publish or produce or sell materials of a highly controversial nature which, while not illegal, may not be in the public interest to promote."2 In his testimony, Charles R. Hertzberg, SBA Deputy Associate Administrator for Financial Assistance, gave several examples of the types of speech the SBA views as contrary to the public interest. These included sexually explicit material and racial supremacy literature. Thus, it appears that the opinion molder rule is aimed at preventing government financing of "offensive" speech.3
Mission claims that the opinion molder rule unconstitutionally inhibits its First Amendment rights by depriving its otherwise eligible business of benefits merely because it exercises its right to freedom of expression. The SBA has responded that the regulation does not prohibit any expression and, in fact, it serves important governmental interests.
The First Amendment's declaration that "Congress shall make no law ... abridging the freedom of speech" clearly prohibits any agency of the government from banning lawful expression in whatever form. Nevertheless, a decision to grant or withhold governmental benefits to parties who engage in protected speech presents complex issues. On the one hand, the government may not deny benefits to a party merely because it exercises its constitutionally protected right to free speech. Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972); Speiser v. Randall, 357 U.S. 513, 78 S.Ct. 1332, 2 L.Ed.2d 1460 (1958). On the other hand, a decision not to subsidize the exercise of a right generally is held not to violate that right. Regan v. Taxation With Representation, 461 U.S. 540, 103 S.Ct. 1997, 76 L.Ed.2d 129 (1983); Cammarano v. United States, 358 U.S. 498, 79 S.Ct. 524, 3 L.Ed.2d 462 (1959).
Consequently, the threshold question is whether Mission can rely on the First Amendment's protection in challenging the opinion molder rule. Does the SBA practice of providing loan guarantees to all qualified businesses, except those that engage in particular types of constitutionally protected expression, abridge freedom of speech?
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