Reaves v. U.S. Small Bus. Admin.
| Decision Date | 26 October 2020 |
| Docket Number | CIVIL ACTION NO. 3:18-cv-1230-B |
| Parties | SALLY REAVES, Plaintiff, v. U.S. SMALL BUSINESS ADMINISTRATION and JOVITA CARRANZA, in her capacity as the Administrator of the U.S. Small Business Administration, Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Before the Court is Plaintiff Sally Reaves's Motion for Summary Judgment (Doc. 68) and Defendants Jovita Carranza and U.S. Small Business Administration (collectively, "SBA")'s Motion for Summary Judgment (Doc. 66). These motions arise from the SBA's decision to garnish Reaves's wages. For the reasons that follow, the Court affirms the SBA's garnishment decision in all respects. Accordingly, the Court GRANTS the SBA's motion and DENIES Reaves's motion.
This case arises from Reaves's objection to the SBA's garnishment of her wages. Reavesowned a company called Sagebrush Solutions, LLC. Doc. 58, Third Am. Compl., ¶¶ 10, 12; Doc. 60, Answer, ¶¶ 10, 12. On November 29, 2006, Sagebrush entered into two separate loan agreements with PlainsCapital Bank (PCB). Doc. 58, Third Am. Compl., ¶¶ 10, 11; Doc. 60, Answer, ¶¶ 10, 11. Under the first agreement, Sagebrush received a one-million-dollar line of credit (LOC), which was guaranteed by the SBA (the "SBA Loan"). Doc. 58, Third Am. Compl., ¶ 10; Doc. 60, Answer, ¶ 10. Under the second agreement, Sagebrush received a $525,000 loan from PCB, but the SBA did not guarantee this loan (the "2006 Conventional Loan"). Doc. 58, Third Am. Compl., ¶ 11; Doc. 60, Answer, ¶ 11.
Reaves and her business partner pledged their personal securities accounts to personally guarantee both the SBA Loan and the 2006 Conventional Loan. Doc. 58, Third Am. Compl., ¶ 12; Doc. 60, Answer, ¶ 12. To memorialize her guaranty of the SBA Loan, Reaves signed an agreement with PCB on November 29, 2006 (the "Guaranty Agreement"). See generally Doc. 24-1, A.R., 125-30. The same day, she also signed an agreement with PCB for the SBA Loan (the "Security Agreement") in which she agreed to "secure [her] guarantee with a second lien security interest" in her personal securities accounts "subject only to a prior security interest" in the accounts "in favor of [PCB] securing [Reaves's] guarantee" of the 2006 Conventional Loan. Doc. 54, Suppl. A.R., 637.
In April 2012, Sagebrush entered into a thirteenth modification of the SBA Loan with PCB. Id. at 607-11. This modification required Sagebrush to pay down the SBA Loan balance by $221,064.89, resulting in a balance of $750,000 on the SBA Loan; eliminated available credit for draws; and required Sagebrush to make monthly payments of $10,513. Id. at 508.
In relation to this modification, PCB twice corresponded with the SBA. See Doc. 24-1, A.R., 123, 194-96. In the later correspondence, PCB requested that as part of the restructure, the "SBAallow all of [Reaves's personal securities] to be pledged" behind two other loans by PCB, see id. at 123, neither of which were guaranteed by the SBA. Doc. 58, Third Am. Compl., ¶ 13; Doc. 60, Answer, ¶ 13. The SBA approved this request. See Doc. 24-1, A.R., 123. The Court will refer to this approval as "the subordination."
PCB's first loan, which would maintain a first-lien position on the securities accounts under the SBA-approved proposal, see id., was a March 6, 2012, term loan totaling $171,126.68 ("$171,127 Loan"). Doc. 69, Pl.'s Br., 4; Doc. 67, Defs.' Br., 7. The other was an April 11, 2012, "revolving credit loan" for $250,000 ("$250,000 LOC"). Doc. 69, Pl.'s Br., 4; see also Doc. 67, Defs.' Br., 7. The parties agree that Reaves pledged her personal securities accounts to guarantee the $250,000 LOC. Doc. 69, Pl.'s Br., 4; Doc. 67, Defs.' Br. 7. But Reaves asserts that she did not pledge her personal securities accounts to guarantee the $171,127 Loan, see Doc. 69, Pl.'s Br., 4, although the subordination request from PCB to the SBA states that PCB has a "[first-]lien loan of $171,127" on the "marketable mutual funds." Doc. 24-1, A.R., 123.2
On August 14, 2015, PCB allegedly sent Sagebrush a demand letter indicating that the $171,127 Loan and $250,000 LOC were due. Doc. 58, Third Am. Compl., ¶ 23. By this point, Sagebrush had also defaulted on the SBA Loan. See id.; Doc. 67, Defs.' Br., 8. On September 10, 2015, PCB liquidated Reaves's personal securities accounts, which valued $217,125.75, as well as the personal securities accounts of Reaves's business partner, which valued $286,762.90. Doc. 58,Third Am. Compl., ¶ 22; Doc. 60, Answer, ¶ 22. With these proceeds, PCB paid itself $97,221.78 on the $171,127 Loan, followed by $252,205.99 on the $250,000 LOC. Doc. 58, Third Am. Compl., ¶ 24; Doc. 60, Answer, ¶ 24. Then, PCB applied $150,392.87 of the proceeds to the SBA Loan. Doc. 58, Third Am. Compl., ¶ 24; Doc. 60, Answer, ¶ 24. Thereafter, Sagebrush still owed $343,462.61 on the SBA Loan. Doc. 58, Third Am. Compl., ¶ 24; Doc. 60, Answer, ¶ 24. On January 15, 2016, PCB requested that the SBA honor its guaranty on the SBA Loan. Doc. 54, Suppl. A.R., 516 (citation omitted). The SBA did so on March 28, 2016. Id. (citation omitted).
Given the outstanding balance on the SBA Loan and Reaves's personal guaranty of the loan, in March 2018, the SBA issued an administrative wage garnishment order for payments made to Reaves. Doc. 24-1, A.R., 192. Reaves then filed a request for a hearing and disputed the debt. See id. at 222-26. After reviewing Reaves's objections, a hearing officer concluded that garnishment was proper, id. at 120, and Reaves then sought judicial review of this decision with the Court.
Reaves initially filed suit against the SBA on May 14, 2018, seeking the Court's review of the SBA's March 2018 decision to garnish her wages. Doc. 1, Compl., ¶ 5. After amending her complaint twice, see Doc. 5, First Am. Compl., Doc. 32, Second Am. Compl., Reaves moved to remand the case to the SBA. Doc. 43, Pl.'s Mot. to Remand, 1. Reaves asserted that in its March 2018 decision, the SBA failed to consider several of her arguments. See id. at 8, 10. The Court agreed and remanded the case to the SBA, directing the SBA to consider these arguments. See Doc. 53, Mem. Op. & Order, 11-13.
On February 11, 2020, the SBA filed a supplemental administrative record containing its additional findings, dated February 5, 2020, pursuant to the Court's remand order. See Doc. 54,Suppl. A.R., 495. Thereafter, Reaves filed her third amended complaint, which objects to several findings from the SBA's March 2018 and February 2020 decisions. See generally Doc. 58, Third Am. Compl. One month later, Reaves filed a motion to supplement the administrative record with additional evidence or remand the case to the SBA. See Doc. 61, Pl.'s Mot., 1. The Court denied this motion, explaining that Reaves failed to show how the extra-record evidence fell into a recognized exception to the "record rule" or why remand was warranted. Doc. 65, Mem. Op. & Order, 9-11.
Subsequently, Reaves and the SBA filed cross-motions for summary judgment. See Doc. 66, Defs.' Mot.; Doc. 68, Pl.'s Mot. Because the Court has received all briefing on these motions, they are now ripe for review.
A. Summary Judgment in Judicial Review of Agency Action
The Administrative Procedure Act (APA) "provides a way for persons . . . 'adversely affected . . . by agency action . . .' to obtain judicial review of that action." Id. (quoting 5 U.S.C. § 702). Section 706 of the APA establishes the scope of judicial review, which "has the function of determining whether the administrative action is consistent with the law . . . ." See Girling Health Care, Inc. v. Shalala, 85 F.3d 211, 215 (5th Cir. 1996) (citation and quotation marks omitted). Thus, the summary-judgment standard for APA claims is not whether there is a genuine dispute of material fact, but whether the agency action violated § 706. See, e.g., Tex. Comm. on Nat. Res. v. Van Winkle, 197 F. Supp. 2d 586, 596 (N.D. Tex. 2002) (); City of Shoreacres v. Waterworth, 332 F. Supp. 2d 992, 1004-05 (S.D. Tex. 2004) (same).
Section 706 of the APA directs courts to set aside agency actions that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[.]" § 706(2)(A). "Arbitrary and capricious review asks whether the agency articulated a rational connection between the facts found and the decision made." Worldcall Interconnect, Inc. v. FCC, 907 F.3d 810, 817 (5th Cir. 2018) (citation and quotation marks omitted). The arbitrary-and-capricious standard thus requires the Court to ensure that the agency's factual findings are "supported by 'substantial evidence.'" Id. at 817-18 (citing § 706(2)(E)); see also Desa Grp., Inc. v. SBA, 190 F. Supp. 3d 61, 68 (D.D.C. 2016) (citation omitted) (equating arbitrary-and-capricious review with substantial-evidence review where "the arbitrary and capricious standard is performing that function of assuring factual support"). Substantial evidence is "more than a scintilla, less than a preponderance, and is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Worldcall, 907 F.3d at 818 (citation omitted). "In reviewing an agency's decision under the arbitrary and capricious standard, there is a presumption that the agency's decision is valid, and the plaintiff has the burden to overcome that presumption by showing that the decision was erroneous." Tex. Clinical Labs Inc. v. Sebelius, 612 F.3d 771, 775 (5th Cir. 2010) (citation omitted).
In contrast to findings of facts, which are subject to the arbitrary-and-capricious standard, an agency's legal conclusions are subject to an "effectively de novo" review. Tex. Tech Physicians Assocs. v. U.S. Dep't of Health & Hum. Servs., 917 F.3d 837, 844 (5th Cir. 2019) (citation omitted).
The overall dispute between the parties is the propriety of the...
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