Public Leasing Corp. v. Acting Anadarko Area Director, 22 IBIA 104 (1992)

• Court: Interior Board of Indian Appeals

Appeals from a decision withdrawing the entire loan amounts under two loan guaranty certificates.

Affirmed in part; vacated in part; and remanded.

1. Indians: Financial Matters: Financial Assistance--Regulations: Interpretation

   Where subsequent legislation renders questionable the continued validity of a Bureau of Indian Affairs regulation, the Board of Indian Appeals will not apply the regulation to the detriment of a party dealing with the Bureau.

2. Indians: Financial Matters: Financial Assistance

   Under 25 U.S.C. § 1493 (1988), the Bureau of Indian Affairs may not decline to honor an already-approved loan guaranty on the grounds of lender imprudence. However, under 25 U.S.C. § 1494 (1988), the Bureau may raise certain defenses against a claim under the guaranty.

3. Indians: Financial Matters: Financial Assistance

   Under the Bureau of Indian Affairs' loan guaranty program, the failure of a lender to maintain effective liens will diminish the amount of the guaranty to the extent of any loss caused by the lender's failure. 25 CFR 103.28(b).

4. Indians: Financial Matters: Financial Assistance

   Arguable Bureau of Indian Affairs imprudence in approving a loan guaranty does not relieve the lender of its obligations under the loan guaranty regulations and agreement.

   IBIA 91-98-A, 91-99-A

   APPEARANCES: John T. Moshier, Esq., Natalie P. Garth, Esq., and Jeffrey A. Bernick, Esq., Phoenix, Arizona, for appellants; Alan R. Woodcock, Esq., Office of the Regional Solicitor, Southwest Region, U.S. Department of the Interior, Tulsa, Oklahoma, for the Acting Area Director.

   OPINION BY ADMINISTRATIVE JUDGE VOGT

   Appellants the Guardian Life Insurance Company of America (Guardian) and Public Leasing Corporation (PLC) seek review of an April 25, 1991, decision of the Acting Anadarko Area Director, Bureau of Indian Affairs (Area Director; BIA), withdrawing the entire loan amounts under loan guaranty certificates Nos. B049000045 (certificate 45) and B049000048 (certificate 48) issued to PLC. For the reasons discussed below, the Board affirms the Area Director's decision in part, vacates it in part, and remands this matter to him for further proceedings.

   Background

   On February 14, 1989, PLC applied at the Horton Agency, BIA, for a loan guaranty to cover a $20,000,000 loan it proposed to make to Construction Technology Corporation (CTC), a corporation chartered by the Sac and Fox Tribe of Missouri. 1/ The purpose of PLC's proposed loan to CTC was stated to be: "Completion of Madden Steel Buildings, Inc. [(Madden)] acquisition * * * consolidation of all debt, expansion of inventory, plant capacity." 2/ This loan guaranty request was denied by the Area Director on August 15, 1989. The denial was not appealed.

   On June 23, 1989, prior to denial of its first request, PLC submitted a second loan guaranty request to the Horton Agency, this time for a proposed loan to CTC in the amount of $1,950,000. The request was made following CTC's request to PLC for an "interim" loan. 3/ In a June 27, 1989, ___________________________ 1/ No copy of the certificate of incorporation for CTC is included in the record. However, according to a June 30, 1989, memorandum from the Regional Solicitor, Southwest Region, to the Area Director, the certificate required that at least 51 percent of the stock of the corporation be owned by the Tribe or its members. This same ownership requirement appears in the record copy of an unsigned certificate of incorporation for Reserve Industrial Authority, the corporate name adopted by CTC in 1990. See infra.

   There is conflicting information in the record concerning actual ownership of CTC stock. It appears, however, that stock was issued to some or all of the members of the CTC Board of Directors but later relinquished by them to the Tribe.

   2/ Madden was a manufacturer of metal buildings with manufacturing facilities in Oklahoma City, Oklahoma; Burkburnett, Texas; and Center, Texas; and other facilities in Plattsmouth, Nebraska; and Urbana, Illinois. According to appellants, CTC had initiated the acquisition of Madden in 1987.

   3/ In a letter to PLC dated June 15, 1989, CTC stated that it had received several orders and needed immediate financing to meet its increase in business. The letter concluded:

   IBIA 91-98-A, 91-99-A

   letter to BIA, PLC stated: "PLC will make the needed interim loan only with a first lien on the CTC/Madden assets and the BIA guaranty. To enable PLC to accede to a first lien position, existing loan[s] must be paid off. These payoffs are included in the amount of the CTC loan request to us."

   In anticipation of approval of a loan guaranty, BIA and PLC executed Loan Guaranty Agreement No. B0089001, dated November 17, 1989, in which PLC agreed to abide by a number of provisions similar to those in 25 CFR Part 103, the regulations governing BIA's loan guaranty program.

   While PLC's second loan guaranty request was under consideration, the Anadarko Area Office learned that its loan guaranty ceiling for the remainder of calendar year 1989 would be $1,000,000, but that an additional ceiling might be available to cover the remaining $950,000 of PLC's request after January 1, 1990. 4/ In accordance with the 1989 ceiling, PLC submitted a formal application, dated December 3, 1989, for a guaranty in the amount of $1,000,000. The application stated that the purpose of the loan was "Acquisition of [Madden] and provision of working capital." ______________________ fn. 3 (continued)

   "Utilization of Funds--It will be necessary to clear these notes in order to provide a first lien position on the plants and equipment. All assets except those in Center, Texas and Nebraska will be totally cleared at the time of closing.

   Payoff as of 3-31-89 Collateral 164,014 Madden, OKC Plant 177,000 Madden, OKC Plant 49,574 Shields Blvd property 398,642 Madden, Texas Plant 92,248 Morgan bldg.

   43,137 Portable assembly plant 165,000 Deferred acquisition cost

   860,385 working capital

   1,950,000 total."

   PLC replied on June 22, 1989, stating: "PLC will provide $1,950,000 to use to payoff existing loans on property and equipment and to provide working capital for expansion and retirement of deferred acquisition costs.

   "The collateral for the loan must be a first lien on the plants, equipment, inventories, receivables, and investment properties of Madden Steel and the property owned by CTC including the stock of Madden. * * * * * * *

   "This commitment is subject to the execution of mutually accepted documentation and the guarantee of 80% of the loan by the Bureau of Indian Affairs."

   4/ Loan guaranty ceilings for the Area Offices are established by the BIA Central Office in Washington, D.C.

   IBIA 91-98-A, 91-99-A

   On December 12, 1989, the Area Director issued certificate 45 for a 90-percent guaranty of a $1,000,000 loan. By letter of December 13, 1989, he notified PLC that the guaranty had been approved. PLC and CTC entered into a loan agreement on January 11, 1990. On the same day, PLC and Guardian entered into a "participation agreement," under which Guardian purchased a 90-percent "participation interest" in the loan. Apparently, neither of these documents was submitted to BIA. 5/

   In early 1990, CTC changed its name to Reserve Industrial Authority (CTC/RIA) 6/ and acquired PLC; PLC thus became a subsidiary of CTC/RIA. In February 1990, CTC/RIA acquired Madden and in March 1990, it acquired TransLease, Inc., a trucking company with headquarters in Garden City, Kansas.

   By letter of March 21, 1990, CTC/RIA informed the Horton Agency that it would seek a second loan guaranty in the amount of $1,000,000. The Area Director notified the Central Office, BIA, of this request and was informed by letter of July 3, 1990, that a $950,000 loan guaranty ceiling would be reserved for it until August 31, 1990. 7/ On August 16, 1990, PLC submitted a formal application for a 90-percent loan guaranty in the amount of $950,000. The application stated that $150,000 of the loan funds would be used for design and construction costs for a transportation service facility near Reserve, Kansas; 8/ $100,000 would be used for working capital in the Reserve, Kansas, area; $350,000 would be used for working capital in the CTC/RIA central offices; and $450,000 would be used for a line of credit for steel inventory.

   __________________________ 5/ The Area Director states that he first became aware of Guardian's ownership interest in PLC's loans when Guardian filed its appeal to the Board. Guardian has submitted copies of its participation agreements to the Board during the course of this appeal. The question of whether Guardian was required to notify BIA when it acquired participation interests in the loans is discussed infra in connection with the question of Guardian's standing in this appeal.

   The loan agreements have not been submitted to the Board, either as a part of the administrative record, or by any party during the course of this appeal. From statements made by the Area Director, it appears that the agreements were never submitted to BIA. The Board is unable to find any requirement in 25 CFR Part 103 that the parties to guaranteed loans submit copies of their loan agreements to BIA, even though there are provisions in the regulations, such as sections 103.21 and 103.22, which would seem to require that BIA have copies of the agreements.

   6/ The Board hereafter uses this joint designation for purposes of convenience, in order to avoid having to distinguish between pre- and post-name change events.

   7/ This deadline was formally extended until Sept. 14, 1990, and later extended informally for 5 more days.

   8/ This facility was to be constructed on land to be leased from the Tribe.

   IBIA 91-98-A, 91-99-A

   Upon reviewing the application, BIA staff initially expressed concern because CTC/RIA had experienced a loss of $212,487 during the first half of 1990. There was also concern because PLC was now a subsidiary of CTC/RIA, to which it was proposing to make a loan. However,...