Schurz, Merlin v. Acting Phoenix Area Director, 23 IBIA 92 (1992)

:

v. : : Docket No. IBIA 92-152-A

Appellant Merlin Schurz, a member of the Salt River Pima Maricopa Indian Community (Community), sought review of an April 1, 1992, decision issued by the Acting Phoenix Area Director, Bureau of Indian Affairs (Area Director; BIA), denying an application for a U.S. Direct Loan in the amount of $350,000. For the reasons discussed in this order, the Board of Indian Appeals (Board) affirms that decision.

At the time he filed his application for a loan, appellant worked as the Sales Manager for American Pride Homes, Inc. (American Pride), a housing construction company owned and operated by Bill Hayes, Jr., also a member of the Community. After Hayes acquired American Pride in 1988, he received two loans from BIA, totalling $350,000. Both of these loans were apparently intended to retire existing debts and to provide operating capital. Appellant applied for a loan in order to purchase 20 percent of the common stock in American Pride. Appellant's loan was to be secured by full and undivided partial interests in several parcels of trust property. 1/

By letter dated April 1, 1992, the Area Director denied appellant's application. The Board received appellant's notice of appeal from this decision on April 28, 1992. Appellant filed a statement of reasons with his notice of appeal and an opening brief.

_________________________ 1/ At the same time, Hayes requested that his existing $350,000 BIA,loan be increased. Hayes' loan modification was denied by the Area Director on Apr. 2, 1992. Hayes appealed this decision. On July 6, 1992, Hayes requested that his appeal be dismissed because negotiated loan funds were being made available to him by BIA. The appeal was dismissed on July 7, 1992. See Hayes v. Acting Phoenix Area Director, 22 IBIA 169 (1992).

Although they intended both loans to benefit American Pride, Hayes and appellant independently sought separate loans. Therefore, the Board assumes that the present appeal was not rendered moot by the withdrawal of Hayes' appeal.

The Board has previously held that BIA's decision whether or not to approve a loan under Title I of the Indian Financing Act, 25 U.S.C. §§ 1461-1469 (1988), is discretionary, and that the Board will not substitute its judgment for that of BIA. The Board will, however, review the decision to ensure that all legal prerequisites to the exercise of discretion were met. See, e.g., McCloud v. Acting Aberdeen Area Director, 21 IBIA 254, 256 (1992). In addition, as with all cases arising under 25 CFR Part 2, the appellant bears the burden of proving that the Area Director's decision was erroneous or not supported by substantial evidence. See, e.g., Navajo Precision Built Systems, Inc. v. Acting Navajo Area Director, 22 IBIA 153, 157 (1992).

The loan requested by appellant was clearly intended to be used to purchase a 20 percent interest in American Pride. What is not clear from the record or appellant's application is the intended source of funds for repayment of the loan. The Area Director appears to have considered both appellant personally and American Pride as a company as the source of funds for repayment. Consideration of both appellant's personal finances and those of American Pride in determining repayment ability was to appellant's advantage.

The first reason the Area Director gave for denying appellant's loan was that

[i]n our judgment, based on the financial documents submitted on American Pride Homes, a reasonable prospect for adequate servicing of this debt is not possible. In January 1989, the Bureau provided a direct loan of $100,000 to Mr. Billman Hayes, owner of American Homes, and a year later he received a second direct loan of $250,000. Both of these loans were for operating capital amounting to total of $350,000.00.

The Bureau has been able to collect only the interest of $7,700.35 due on the initial $100,000.00 loan. There have been no repayments made on the $350,000.00 loan to date by the company. At our March 26, 1992 meeting, we requested additional documents which would substantiate the profitability of American Pride Homes, and the repayment schedule on the loan. Your financial advisor * * * stated that she would have them delivered on March 27, 1992. On March 27th she advised by telephone that all the documentation for our decision had been submitted and she would not be providing any additional information.

Appellant responds that

under Project Information [in an August 1991 Final Report entitled "Capital Injection Analysis," prepared for appellant by American Indian Consultants, Inc.], page 1 the first paragraph line 7 states: "Start-up costs, bonding requirements, and...