U.S. v. Don B. Hart Equity Pure Trust

• Decision Date: 16 June 1987
• Docket Number: No. 86-1614,86-1614
• Citation: 818 F.2d 1246
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. DON B. HART EQUITY PURE TRUST, Don B. Hart and Mary Louise Hart, Defendants- Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1246

818 F.2d 1246

56 USLW 2014

UNITED STATES of America, Plaintiff-Appellant, v. DON B. HART EQUITY PURE TRUST, Don B. Hart and Mary Louise Hart, Defendants- Appellees.

No. 86-1614.

United States Court of Appeals Fifth Circuit.

June 16, 1987.

Nancy M. Koenig, Myrna B. Silen, Attys., Lubbock, Tex., Marvin Collins, U.S. Atty., Dallas, Tex., for plaintiff-appellant.

Martha A. Miller, Atlanta, Ga., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas

Before WISDOM, WILLIAMS, and HILL, Circuit Judges.

ROBERT MADDEN HILL, Circuit Judge:

In this appeal the Small Business Administration (SBA) contends that the district court erred in granting summary judgment in favor of Don Hart Equity Pure Trust (Hart Trust) on a claim by the SBA for the payment of a deficiency judgment rendered against Hart Trust. We agree with the SBA and therefore reverse the court's granting of summary judgment in favor of Hart Trust.

I.

The facts in this case were stipulated to by both parties. Don B. Hart and Mary Louise Hart are farmers in Hansford County, Texas. Because of financial difficulties, on August 28, 1978, the Harts, through Hart Trust, sought and obtained a loan from the SBA. Hart Trust executed a promissory note in the amount of $157,400, payable to the SBA. That same day the Harts personally guaranteed the note, with the SBA obtaining a lien and an undivided interest in two properties owned by the Harts.

The loan called for repayment in annual installments of $18,452, due each January 15 from 1979 through 1988. Hart Trust made its first installment payment on January 15, 1979. It could not make the second payment on January 15, 1980, but the SBA agreed to defer the payment until July 15, 1980. When Hart Trust could not make that payment, the 1980 installment was deferred a second and final time until November 15, 1980. Hart Trust never paid this or any of the subsequent installments.

After Hart Trust failed to make the second installment payment, the SBA declared the note in default and accelerated the note so that the entire principal became due and payable. On September 7, 1982, the properties securing the note were sold at a foreclosure sale, and the proceeds were applied to Hart Trust's debt under the note. After the sale, Hart Trust owed an unpaid principal balance of $55,261.64. The SBA sought payment of this amount from the Harts and then instituted this action against them when the Harts refused to pay. During the service of the loan, the SBA did not at any time provide Hart Trust or the Harts with a written notice of the provisions for deferral and loan payment moratoriums found in 13 C.F.R. Sec. 131.

After consideration of these facts, the district court concluded that SBA borrowers have a legal entitlement to loan deferral consideration, and that Hart Trust was denied that consideration without procedural due process. In reaching this conclusion, the court relied on cases interpreting deferral procedures used by the Farmers Home Administration (FmHA). The court noted that the FmHA cases were not binding authority, but because of the parallels between the language and purposes of the FmHA and SBA loan program statutes, the court felt justified in relying upon the FmHA cases when considering due process requirements in the SBA loan deferral program. The court concluded that the SBA should be held to the same due process standards that have been applied to the FmHA.

In examining FmHA cases, the court adopted the rule expressed in Allison v. Black, 723 F.2d 631, 634 (8th Cir.1983):

The requirement of a request by the borrower prior to consideration for section 1981a relief presupposes that the borrower has knowledge of the availability of such relief. Notice to the borrower is therefore indispensable. In like manner, the requirement of a showing of prima facie eligibility is necessarily premised upon the expectation that some procedure will be provided under which the borrower may make the requisite showing. Thus, the rudimentary elements of adequate notice and an opportunity to be heard are embodied in the language of section 1981a.

Based on this language, the court held that Hart Trust should have received written notice of the deferral provisions, and that any constructive notice received by reason of obtaining deferrals was not sufficient. The court also concluded that even if sufficient notice was given, Hart Trust did not have an adequate opportunity to be heard, and thus the procedure used was still infirm.

The district court also was concerned with the lack of substantive standards by which a borrower's entitlement to deferral relief could be measured. The court criticized the program because the decision to extend deferral relief to a borrower was left to the discretion of the individual SBA loan officer. Thus, the court concluded that there was no safeguard to insure consistent administration of the loan deferral program.

Based on these factors, the district court concluded that Hart Trust failed to receive due process under the provisions of the Small Business Act because [it was] not afforded a reasonable opportunity for meaningful administrative review of the decisions made by the local loan servicing officer. Meaningful review requires as a minimum the promulgation of standards to be used in measuring deferral rights under the statute, personal notice to borrowers of the availability of and the standards governing deferral, and finally, personal notice of the proper procedure for appealing the loan servicing officer's decision.

For these reasons, the court granted summary judgment in favor of Hart Trust. ¹

The SBA now appeals, arguing that (1) this circuit's unpublished opinion, United States v. Parr, 793 F.2d 1288 (5th Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 320, 93 L.Ed.2d 293, 3277 (1986), controls and requires reversal; (2) that due process in the SBA loan program context does not require personal notice of the availability of deferral relief and a meaningful opportunity to be heard; (3) that the FmHA line of cases, and the standards developed in those cases, are not applicable to the SBA; (4) that the SBA does not administer its deferral program in an ad hoc, discretionary, or inconsistent manner; (5) that the district court erred in giving probative value to the terms of the settlement agreement adopted in Stone; and (6) that the court erred in holding that the SBA was not entitled to a deficiency judgment. We address these contentions below.

II.

First, we find that Parr controls the first three issues. ^* Under Parr, Hart Trust does not have the right to receive actual written notice of the deferral program and an opportunity to be heard in order for the SBA to have complied with procedural due process standards. Parr also prevents Hart Trust from relying upon FmHA cases as support for that position.

In Parr the borrowers were farmers in Frio County, Texas, and were unable to maintain their obligations under the SBA Disaster Loan Program (the same program involved in the instant case). The Parrs took out two loans with the SBA. The payments on the first loan were deferred three times for a total of 15 months, and the payments on the second loan were deferred twice for a total of 18 months. Eventually the SBA decided to accelerate the loans and place the Parrs in default. The Parrs never tendered a single payment on either of the two loans.

The Parrs argued that (1) the United States had an obligation to continue to extend credit to them because the SBA assured them that their loan obligations would be deferred if they could not make their payments; and (2) that the United States could not accelerate their loans without giving them notice and an opportunity to be heard.

This court found neither argument to be persuasive. As to the Parr's claim for procedural due process, the court held that

people are charged with knowledge of the contents of federal regulations, just as they are charged with knowledge of statutory law. See Federal Crop Insurance Co. v. Merrill, 332 U.S. 380, 384-85, 68 S.Ct. 1, 92 L.Ed. 10 (1947). Thus, officers of the United States were not responsible for informing the Parrs of any right to loan deferrals before acceleration.

As for the Parrs' claim that they did not receive notice, the court found that

even if the United States did have an obligation to inform the Parrs of the availability of deferrals, the Parrs were so informed. In fact, the Parrs received three deferrals on the first loan and two deferrals on the second.

Finally, the court dismissed the Parrs' claim that the government had any duty to continue to make loans to the Parrs, noting that no such obligation was contained in the written promissory notes signed by the Parrs.

The facts of Parr correspond almost exactly with the facts of the instant appeal. In both cases, after having received deferrals, the borrowers were still unable to pay back the loans. The SBA eventually declared the loans to be in default and foreclosed upon the property. In both cases the borrowers argued that due process required that they receive actual notice of the deferral program and an opportunity to be heard on the issue of deferrals. In Parr we rejected that claim, and, therefore, we must follow that precedent and also reject such a contention in the present case.

Hart Trust attempts to minimize Parr's impact through three arguments. First, it contends that Parr has no precedential value. However, there is no merit to this assertion. Although Parr is unpublished, it is binding precedent. 5th Cir.R. 47.5.3. Moreover, even if we were to disagree with the conclusion reached in Parr, we cannot overrule another Fifth Circuit panel absent an overriding Supreme Court decision or a change in statutory law. Girard v. Drexel Burnham Lambert, Inc., 805 F.2d 607, 610 (5th Cir.1986). Thus, we are bound by Parr. Because Parr is binding precedent, we are...