Regan v. US Small Business Admin.

• Decision Date: 12 January 1990
• Docket Number: Civ. A. No. CV187-002.
• Citation: 729 F. Supp. 1339
• Parties: John P. REGAN, Jr. and Lois B. Regan, Plaintiffs, v. U.S. SMALL BUSINESS ADMINISTRATION and Trust Company Bank of Augusta f/k/a The First National Bank of Thomson, Defendants.
• Court: U.S. District Court — Southern District of Georgia

729 F. Supp. 1339

John P. REGAN, Jr. and Lois B. Regan, Plaintiffs, v. U.S. SMALL BUSINESS ADMINISTRATION and Trust Company Bank of Augusta f/k/a The First National Bank of Thomson, Defendants.

Civ. A. No. CV187-002.

United States District Court, S.D. Georgia, Augusta Division.

January 12, 1990.

Mark Thomas Sallee, Atlanta, Ga., for plaintiffs.

John P. Wills, Thomson, Ga., and Henry L. Whisenhunt, Jr., Asst. U.S. Atty., Augusta, Ga., for defendants.

ORDER

BOWEN, District Judge.

Plaintiffs bring this suit seeking to be released from a Guaranty and Deed to Secure Debt which they executed on behalf of their employer, Bishop Tile Company, Inc., in favor of The Trust Company Bank of Augusta f/k/a The First National Bank of Thomson ("lender"). On November 3, 1983, lender with the participation of defendant U.S. Small Business Administration ("SBA") made SBA loan No. GP-170610-30-01-ATL to Bishop Tile Company, Inc. in the amount of $80,000.00. As security for the SBA loan, plaintiffs executed a Guaranty together with a Deed to Secure Debt dated November 3, 1983 in favor of lender. The property conveyed to lender pursuant to the Deed to Secure Debt was plaintiffs' personal residence. At the time the documents associated with the SBA loan were executed, plaintiff John P. Regan, Jr. was the on-site construction supervisor for Bishop Tile Company, Inc. and plaintiff Lois B. Regan was the job estimator for Bishop Tile Company, Inc.

Defendant SBA counterclaims seeking a judgment of $43,567.71 together with interest and all costs of this action against the plaintiffs. SBA contends that the Guaranty executed by the plaintiffs was unconditional. When the loan went into default by reason of nonpayment by Bishop Tile Company, Inc., the lender accelerated the maturity of the loan and declared the entire unpaid balance due and payable. The lender transferred and assigned all of its right, title and interest in the note, Guaranty and Deed to Secure Debt to SBA. The plaintiffs have failed and refused to pay the indebtedness evidence by the note.

Plaintiffs have filed a "motion for judgment on the pleadings" with the Court. However, as noted by defendants, the plaintiffs rely on matters outside of the pleadings, such as affidavits, exhibits and interrogatories, in support of their motion. Accordingly, in accordance with Rule 12(c) of the Federal Rules of Civil Procedure, the plaintiffs' motion will be treated as one for summary judgment and disposed of as provided in Rule 56. Also, before the Court is defendant SBA's motion for summary judgment.

Summary judgment should be granted only if "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment bears the burden of showing that there is no genuine dispute as to any material fact in the case. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Clemons v. Dougherty County, Ga., 684 F.2d 1365, 1368 (11th Cir.1982). The party moving for summary judgment may meet this burden by showing that the non-movant has failed to make a showing sufficient to establish the existence of an element essential to the non-movant's case, and on which the non-movant will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If there is any factual issue in the record that is unresolved by the motion for summary judgment, then the Court may not decide that matter. See Environmental Defense Fund v. Marsh, 651 F.2d 983, 991 (5th Cir.1981). All reasonable doubts must be resolved in favor of the party opposing summary judgment. Casey Enterprises v. American Hardware Mutual Insurance Co., 655 F.2d 598, 602 (5th Cir. 1981). When, however, the moving party's motion for summary judgment has pierced the pleadings of the opposing party, the burden then shifts to the opposing party to show that a genuine issue of material fact exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1985). This burden cannot be carried by reliance on the pleadings, or by repetition of the conclusory allegations contained in the complaint. Morris v. Ross, 663 F.2d 1032, 1033 (11th Cir.1981). Rather, the opposing party must respond by affidavits or as otherwise provided in Fed.R.Civ.P. 56. Pursuant to an order of the Court dated April 7, 1989, the parties were instructed to file their motions for summary judgment and briefs in support thereof within thirty days from the date of the order, and each party was given an additional ten days from that date for the filing of their response brief to the opposing party's motion for summary judgment. The nonmovants having had a reasonable opportunity to respond to the motion, I will now rule on plaintiffs' and defendant's motions for summary judgment.

In support of their motion for summary judgment, plaintiffs contend that under Georgia law, plaintiffs should be released from their Guaranty in accordance with the theory of novation or in the alternative the theory of increased risk. In accordance with count two of their complaint, plaintiffs show that the lender Bank made loans to Bishop Tile Company subsequent to the SBA loan. One of these subsequent loans was secured by the company's accounts receivables which also secured the SBA loan. Plaintiffs contend that the lender bank did not have approval of the SBA when the loans were made and that these subsequent loans violated the SBA loan and the SBA loan security agreement. Plaintiffs argue that since lender bank made subsequent loans to Bishop Tile Company without the approval of SBA, plaintiffs are relieved from their liability as guarantors on the SBA loan because of either novation or increase in risk.

Although plaintiffs rely solely on Georgia law in fashioning their arguments, "... federal law governs questions involving the rights of the United States arising under nationwide federal programs." United States v. Kimbell Foods, Inc., 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979). In Kimbell, the United States Supreme Court, applying the principles explained in Clearfield Trust Co. v. United States, 318 U.S. 363, 366-367, 63 S.Ct. 573, 574-575, 87 L.Ed. 838 (1943), held that "the SBA and FHA unquestionably perform federal functions within the meaning of Clearfield." United States v. Kimbell Foods, 440 U.S. at 726, 99 S.Ct. at 1457. Therefore, the rights and liabilities of the SBA are derived and governed by federal law. United States v. Kimbell Foods, Inc., 440 U.S. at 726, 99 S.Ct. at 1457; Gunter v. Hutcheson, 674 F.2d 862, 868 (11th Cir.1982) and United States v. Dubrin, 373 F.Supp. 1123, 1125 (W.D.TX. 1974).

Having determined that federal law does apply, the Court must then give content to the federal law. Controversies directly affecting the operation of federal programs do not always require application of a uniform federal rule. Three factors should be considered by a court in determining whether to formulate a uniform federal rule or adopt state law as the federal rule of decision:

whether the federal program was one which by its nature required nationwide uniformity, whether adopting the state law would frustrate the specific objectives of the federal program, and whether applying a federal rule would disrupt commercial relations predicated on state law.

Gunter v. Hutcheson, 674 F.2d at 868. In the instant case, plaintiffs signed a SBA standard form Guaranty agreement. The Guaranty agreement states that "the Undersigned hereby unconditionally guarantees to Lender First National Bank of Thomson, its successors and assigns, the due and punctual payment when due, whether by acceleration or otherwise, in accordance with the terms thereof, the principal of and interest on and all other sums payable, or stated to be payable...." Federal courts have held that such agreements are absolute and unconditional. United States v. Outriggers, Inc., 549 F.2d 337 (5th Cir.1977); United States v. Southern Cycle Access., Inc., 567 F.2d 296 (5th Cir.1978); United States v. Newton Livestock Auction Market, Inc., 336 F.2d 673 (10th Cir.1964); United States v. Dubrin, 373 F.Supp. 1123 (W.D.Tx.1974); United States v. Shirman, 41 F.R.D. 368 (N.D. Ill.1966).

In Dubrin, the court held that neither the fact that borrower's management team was changed without giving a 30-day notice to the SBA as required by the SBA loan agreement, nor the fact that the government asserted and settled claims against co-guarantors for percentages of the loan less than percentages guaranteed, relieved the defendant from the SBA guaranty agreement. United States v. Dubrin, 373 F.Supp. at 1126. The Dubrin court held that the risk of the defendant guarantor "... was not increased by the plaintiff because the obligations of this guarantor are absolute and unconditional." United States v. Dubrin, Id.

In Newton, the defendant guarantors argued that they were released, either fully or to the extent of the storm damage to collateral, by the action of the United States in permitting insurance on the collateral to lapse. United States v. Newton Livestock Auction Market, Inc., 336 F.2d 673 (10th Cir.1964). The court held that "the risk of the guarantors was not increased because their obligations were absolute and unconditional." United States v. Newton Livestock Auction Market, Inc., 336 F.2d at 677.

Turning now to the instant case, it becomes apparent that the plaintiffs' motion for summary judgment cannot be granted. The SBA standard form guaranty agreement signed by the instant case plaintiffs is very similar, if not identical, to the guaranty agreements executed in the cases discussed previously. Pursuant to the guaranty agreement, plaintiffs became absolutely and unconditionally liable in the event of nonpayment by their employer, Bishop Tile Company, Inc. The fact that the accounts receivable of Bishop...