US v. Hill

• Decision Date: 12 November 1987
• Docket Number: No. MCA 84-2144-RV.,MCA 84-2144-RV.
• Citation: 676 F. Supp. 1158
• Parties: UNITED STATES of America, Plaintiff, v. Ira Lee HILL, Jr., Robert Allen Johnson, Roy M. Lister, Pamela E. Wells, a/k/a Pamela Johnson, Ira Lee Hill, Sr., Wewahitchka State Bank, I & E Properties, Inc., Hill Properties, Inc., and Miracle Strip Boat and Motor Headquarters, Inc., Defendants.
• Court: U.S. District Court — Northern District of Florida

676 F. Supp. 1158

UNITED STATES of America, Plaintiff, v. Ira Lee HILL, Jr., Robert Allen Johnson, Roy M. Lister, Pamela E. Wells, a/k/a Pamela Johnson, Ira Lee Hill, Sr., Wewahitchka State Bank, I & E Properties, Inc., Hill Properties, Inc., and Miracle Strip Boat and Motor Headquarters, Inc., Defendants.

No. MCA 84-2144-RV.

United States District Court, N.D. Florida, Panama City Division.

November 12, 1987.

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Samuel A. Alter, Asst. U.S. Atty., Pensacola, Fla. and Polly A. Dammann, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff.

Robert B. Staats, Staats, Overstreet & White, Panama City, Fla., for P.E. Wells.

Larry A. Bodiford, Hutto, Nabors & Bodiford, Panama City, Fla., for defendants Ira Lee Hill, Sr., Ira Leen Hill, Jr., I & E Properties, Inc., Roy M. Lister.

Lynn C. Higby, Panama City, Fla., for defendant Wewahitchka State Bank.

M. Kathryn Knight, Miller, Hamilton, Snider & Odom, Mobile, Ala., for defendant Employer Ins. of Wausau.

VINSON, District Judge.

ORDER AND MEMORANDUM DECISION

On October 14, 1984, the United States filed this civil action seeking recovery for damages it sustained in connection with certain bank loans guaranteed by the Small Business Administration ("SBA") and the Farmers Home Administration ("FmHA"), two federal agencies authorized by Congress to guarantee loans made to businesses. The amended complaint (doc. 50) contains seven counts. Counts I through III arise under the False Claims Act, Title 31, United States Code, §§ 3729-31. Count I alleges that defendants Ira Lee Hill, Jr., Roy M. Lister, Robert Allen Johnson, Pamela E. Wells, Wewahitchka State Bank ("WSB") and I & E Properties, Inc. ("I & E Properties") conspired to defraud the United States by making or using false statements or documents in applications for federal loan guarantees. 31 U.S.C. § 3729(a)(3) Counts II and III allege that these same defendants knowingly made or caused to be made false statements and documents for the purpose of inducing the SBA and the FmHA to guarantee loans for the purchase of two businesses. Under Counts I through III, the Government seeks to hold the defendants jointly and severally liable for triple the damages it sustained by satisfying its guarantees under the loans, as well as for forfeitures in the amount of $30,000.¹ Counts IV, V, and VI allege that WSB breached its loan guarantee agreements with the SBA and the FmHA by knowingly submitting or causing to be submitted false claims to the agencies. Finally, in Count VII, the Government seeks to set aside certain allegedly fraudulent conveyances made by Ira Lee Hill, Jr. and I & E Properties to Ira Lee Hill, Sr., Hill Properties, Inc., and Miracle Strip Boat and Motor Headquarters, Inc.

On June 27, 1986, the Government filed a motion for summary judgment against defendants Hill, Jr., Lister, WSB, and I & E Properties as to Counts I through VI of the amended complaint.² (Doc. 117) The Government's motion is based on the pleadings on file, the criminal convictions and subsequent judgments entered in this district against Hill, Jr., Lister, and Johnson see United States v. Johnson, 730 F.2d 683 (11th Cir.1984), the evidence and testimony admitted at that criminal trial, and voluminous documentary evidence. (Doc. 176) Essentially, the Government contends that the criminal convictions conclusively establish the facts necessary for liability under the False Claims Act and Rule 56, Federal Rules of Civil Procedure, and that WSB and I & E Properties are also civilly responsible on the basis of vicarious liability. The defendants, on the other hand, dispute the effect of collateral estoppel and, with regard to the corporate defendants, argue that mere vicarious liability is insufficient under the complex circumstances of this case. Thus, the defendants challenge the Government's motion on the basis that genuine disputes of material fact remain for trial.

I. FACTUAL BACKGROUND

In accordance with my order dated March 30, 1987 (doc. 163), the parties submitted separate statements of material facts that they contend are or are not in dispute. (Docs. 166, 175) These statements reveal that the following facts are undisputed.

(A) The federal programs. The SBA and the FmHA are agencies of the United States responsible for administering the Small Business Act³ and the Business and Industrial Loan Program,⁴ respectively. Both agencies are authorized to guarantee loans made to businesses. While some differences exist in the applicable procedures, both agencies guarantee loans in a similar fashion. An individual or entity desiring to borrow money for specified purposes initiates the guarantee process by filing an application for the loan with a participating lender.⁵ In order to obtain the federal guarantee, the applicant must generally meet certain criteria. For example, the regulations relating to the SBA at the time stated that the applicant must be of "good character," that the applicant must have enough capital in the business to operate on a sound financial basis with SBA assistance, and that the loan must be reasonably secure to assure repayment. See 13 C.F.R. § 122.16 (1978). Additionally, the SBA application requires the lender to make an evaluation of the ability of the applicant's management, the applicant's repayment ability, and to furnish details regarding the applicant's or its officer's prior involvement in criminal proceedings. The lender must also report the applicant's or its affiliates' current indebtedness to the lender. The FmHA imposes similar requirements. See, e.g., 7 C.F.R. § 1980.441 (1978). If the loan and guarantee application is approved, the agency issues an authorization agreement containing certain conditions which must be met before the lender disburses the funds. Under the guarantee, the agency agrees to purchase a guaranteed percentage of the outstanding loan balance in the event of default. Under the guarantee agreements, the agencies retain the right to seek recovery against the lender for various reasons. 13 C.F.R. § 122.10(a)(6) (1978); 7 C.F.R. § 1980.11 (1978). Both guarantee programs allow the lender to assign the guarantee to a secondary participant by entering into an agreement with the agency and the assignee. The agencies, however, retain rights of recourse against the lender as defined in the assignments.

(B) The loans. The Government seeks relief based on three loan transactions involving various defendants and WSB. Each of these transactions formed the basis for the prior criminal convictions of Hill, Jr., Lister, and Johnson and are described briefly here.

(1) Big Chief Truck Stop Loan. On or about August 7, 1978, WSB, through its president, defendant Roy M. Lister, submitted an application to the SBA to guarantee 90% of a $195,000 loan. The purpose of the loan was to enable William J. Dasinger to purchase a business called "Big Chief Truck Stop" from defendant I & E Properties, a Florida corporation.⁶ Defendant Hill, Jr. was, at all times relevant to this case, the president of I & E Properties. The application and documents submitted by WSB represented that Dasinger had made a $10,000 deposit toward the purchase of the business. On August 23, 1978, SBA approved the application, and WSB then disbursed the loan proceeds jointly to Dasinger and I & E Properties. The same day that WSB disbursed the Big Chief Truck Stop loan proceeds, Hill, Jr. issued checks to Dasinger and another individual, Jimmy D. Reavis. These checks were used to reduce or pay off unsecured loans that Dasinger and Reavis had received from WSB.

(2) Florida Trailer Sales Loan. The second guarantee also involved the SBA. On or about January 16, 1979, defendants WSB, Lister, Hill, Jr., I & E Properties, and Johnson submitted or caused the submission of an application to the SBA requesting that the agency guarantee a $350,000 loan by WSB to Johnson. Johnson intended to use the proceeds to purchase Florida Trailer Sales of Panama City, Inc. from I & E Properties.⁷ The application and documents submitted contained the following representations: (a) the statement of personal history represented that Johnson had never been convicted of a criminal offense other than a minor traffic violation; (b) the application and a personal financial statement of Johnson represented his net worth as $83,000; and (c) a contract for sale between Johnson and I & E Properties represented that Johnson had made a $50,000 down payment toward the purchase of Florida Trailer Sales.

On March 7, 1979, the SBA approved WSB's request for a 90% guarantee of the loan and issued an Authorization and Loan Agreement requiring, inter alia, that the borrower furnish evidence prior to disbursement that an initial equity injection of $60,000 had been made to the business since December 31, 1978. On March 15, 1979, WSB certified in a settlement sheet that the proceeds of the loan had been disbursed in accordance with the Authorization and Loan Agreement. The bank also certified that it received no direct or indirect benefit in connection with making the loan. On that same day, Hill, Jr. wrote a check to WSB in the amount of $75,246.58, which was the balance due on a portion of a "floor planning" agreement between WSB, Hill, Jr., and Capital City First National Bank.

Approximately one month later, WSB entered into a secondary participation guarantee agreement and sold the guaranteed portion of the loan ($315,000) to a secondary purchaser. By letter dated November 8, 1979, the secondary purchaser made a formal demand on the SBA to repurchase the guaranteed portion of the loan after WSB stated that it was not in a position to do so. On or about January 21, 1980, the SBA paid $331,865.21 to the secondary purchaser. In March 1981, the SBA liquidated Florida Trailer Sales and received a net recovery of $72,465.75. The SBA incurred expenses of $3,621.88 in connection with the liquidation. The...