
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                              _________________________          No. 96-1785                                    FRILLZ, INC.,                                Plaintiff, Appellant,                                          v.                        PHILIP LADER, AS ADMINISTRATOR OF THE                     UNITED STATES SMALL BUSINESS ADMINISTRATION,                                 Defendant, Appellee.                              _________________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Reginald C. Lindsay, U.S. District Judge]                                              ___________________                              _________________________                                        Before                           Selya and Stahl, Circuit Judges,                                            ______________                            and Woodlock,* District Judge.                                           ______________                              _________________________               Evans J. Carter, with whom Hargraves, Karb, Wilcox & Galvani               _______________            _________________________________          were on brief, for appellant.               Susan M. Poswistilo, Assistant United  States Attorney, with               ___________________          whom Donald  K.  Stern,  United  States Attorney,  and  Glenn  P.               _________________                                  _________          Harris, Office of General Counsel, Small Business Administration,          ______          were on brief, for appellee.                              _________________________                                   January 21, 1997                              _________________________          ______________          *Of the District of Massachusetts, sitting by designation.                    SELYA,  Circuit  Judge.    Plaintiff-appellant  Frillz,                    SELYA,  Circuit  Judge.                            ______________          Inc., a  Massachusetts corporation,  seeks damages for  breach of          contract against  Philip Lader, in his  capacity as administrator          of  the  federal  Small   Business  Administration  (SBA).    The          plaintiff bases its suit on the  SBA's alleged refusal to honor a          loan  guaranty commitment.   The  district court  granted summary          judgment for the SBA.  We affirm.                                          I.                                          I.                                          __                                      Background                                      Background                                      __________                    In February 1993,  Frillz asked the  SBA to guaranty  a          proposed loan.  Frillz  contemplated that the loan would  be made          by Eastern Bank (the Lender) in the principal amount of $612,000.          Of this  amount approximately  $240,000 would  be used to  retire          indebtedness owed to Fleet Bank, and the balance would be used to          expand  Frillz's retail  operations  from  fourteen to  seventeen          stores.                    In due course,  the SBA  approved Frillz's  application          for  an 80%  guaranty  of  the loan.    The SBA's  loan  guaranty          authorization contained a clause  requiring receipt by the Lender          of  "evidence satisfactory  to it  in its  sole discretion,  that          there has been no unremedied adverse change since the date of the          Application . .  . in the  financial or  any other conditions  of          [Frillz], which would warrant withholding or not  making any such          disbursement."                    Frillz struggled  in the  third quarter of  fiscal 1993          (February  through April), losing $189,000.  In the next quarter,                                          2          however, its  operations returned  to profitability.   The Lender          subsequently  concluded  that  the  adverse  change  in  Frillz's          financial  picture  had  been  remedied.     Notwithstanding  the          Lender's  satisfaction, the  SBA balked;  it informed  the Lender          that  it did  not  believe  that  the  adverse  change  had  been          sufficiently   ameliorated.     And,   it   announced  that   any          disbursement of the loan must  have the approval of both  the SBA          and the Lender.                    Frillz filed suit claiming that  the SBA had reneged on          its  agreement  that the  Lender  would have  sole  discretion to          determine whether there had been an uncorrected adverse change in          Frillz's  financial  condition.    On  cross-motions  for summary          judgment, the district  court concluded that,  under 15 U.S.C.             636(a)(6)  (1994), the SBA  could not  delegate the  authority to          determine  the financial security of a loan to any outsider.  See                                                                        ___          Frillz,  Inc. v.  Lader, 925  F. Supp.  83, 88  (D. Mass.  1996).          _____________     _____          Hence,  the court entered judgment in the defendant's favor.  See                                                                        ___          id.  This appeal followed.          ___                                         II.                                         II.                                         ___                                       Analysis                                       Analysis                                       ________                    Summary  judgment is  appropriate  when  "there  is  no          genuine issue as to any material fact  and . . . the moving party          is  entitled to judgment as  a matter of  law."  Fed.  R. Civ. P.          56(c).    Our review  of the  district  court's grant  of summary          judgment  is plenary, and in canvassing the record we indulge all          reasonable  inferences in favor of the party opposing the motion.                                          3          See Garside v. Osco Drug, Inc., 895 F.2d 46, 48  (1st Cir. 1990).          ___ _______    _______________          We are  not bound by  the rationale  of the lower  court but  may          instead affirm  an entry of  summary judgment on  any alternative          ground  made manifest by the  record.  See  Hachikian v. FDIC, 96                                                 ___  _________    ____          F.3d 502, 504 (1st Cir. 1996).  We follow that avenue here.                    Frillz  challenges the district court's holding that 15          U.S.C.   636(a)(6)  precludes the  SBA from  delegating to  other          than in-house  personnel  on several  grounds.   It  argues  that          Congress in 1981 repealed the  language in section 636(a)(6) that          restricts the SBA's  power to delegate, and thus that there is no          statutory impediment to the SBA's  delegation of authority to the          Lender.1  Alternatively, it asserts that even if Congress did not          repeal the  disputed portion  of section 636(a)(6),  that statute          should  not  be  interpreted  to  bar  delegation  of  the  SBA's          authority.  These questions are not without complication; indeed,          the  district court aptly described the task of answering them as          "somewhat pedantic  and unavoidably  ponderous."  Frillz,  925 F.                                                            ______                                        ____________________               1We set  out  in  the  Appendix  the text  of  15  U.S.C.             636(a)(6) as  it appeared before Congress amended  it by enacting          the Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub. L. 97-          35,     1910,  95 Stat.  778  (stating  inter  alia that  section                                                  _____  ____          636(a)(6)(C), which Congress described as "[s]ection[] 7(a)(6)(C)          . . . of the Small Business Act [is]  repealed [as of] October 1,          1985").  Frillz  claims that Congress thereby intended  to repeal          not  only section 636(a)(6)(C) proper  but also the last sentence          of  15 U.S.C.     636(a)(6)  (which  states  in  part  that  "any          authority conferred  by this  subparagraph on  the Administration          shall  be exercised solely by the Administration and shall not be          delegated  to  other  than  Administration   personnel").    This          sentence appears below section  636(a)(6)(C) without any  further          letter  or numerical  reference,  yet without  indentation.   The          compilers of  the code  apparently determined that  this sentence          did  not  comprise  part  of  section  636(a)(6)(C),  but  Frillz          disagrees.                                          4          Supp. at 86.  We spare ourselves that difficulty, for the  record          allows  us to  reach  the same  destination  by an  easier,  less          labyrinthine  path:  the SBA official  who approved Frillz's loan          guaranty lacked power under  existing SBA regulations to delegate          his authority further.2                    A  suit  against a  federal  official  in his  official          capacity  is  in  effect a  suit  against  the  government.   See                                                                        ___          American  Policyholders Ins. Co. v. Nyacol Prods., Inc., 989 F.2d          ________________________________    ___________________                                        ____________________               2The   question  of  whether  Congress  repealed  the  final          sentence  of  section 636(a)(6)  is  freighted  with uncertainty.          When one examines the content of section 636(a)(6) as it appeared          before  Congress amended it in  1981 through the  OBRA, the final          sentence fits  comfortably, in structural terms,  with subsection          (C).  At  that time, section 636(a)(6) began  by stating that SBA          loans must be "of such sound value or so secured as reasonably to          assure repayment," and subsections (A), (B), and (C) each limited          this requirement:  subsection (A) with respect to loans to assist          any handicapped individual; subsection  (B) with respect to loans          for  energy measures;  and subsection (C)  with respect  to loans          used  to refinance indebtedness.   The first clause  of the final          undesignated  sentence also  dealt with  loans used  to refinance          existing indebtedness.  It is thus reasonable to suggest that the          final  sentence   of  section  636(a)(6)  comprises   a  part  of          subsection (C).                On the other hand, when Congress passed the OBRA, the final          sentence of section 636(a)(6) appeared as it does now:  below the          three subsections, unindented.   It did not appear from  the form          of the  statute to have been  part of subsection (C);  and, since          Congress specified only that subsection (C) was repealed, to hold          now that the  final undesignated sentence comprised  part of that          subsection would  violate the  principle that implied  repeals of          federal  statutes are  disfavored.   See  Passamaquoddy Tribe  v.                                               ___  ___________________          Maine,  75 F.3d 784, 790  (1st Cir. 1996).   Moreover, subsequent          _____          Congresses assumed  that the final sentence  survived the repeal,          see, e.g., H.R. Rep. No. 101-667, at 15 (1990), reprinted in 1990          ___  ____                                       _________ __          U.S.C.C.A.N. 3990,  3992;  H.R. Rep.  No. 102-492,  at 3  (1992),          reprinted in 1992  U.S.C.C.A.N. 891,  892, and a  court for  that          _________ __          reason would be hard-pressed  to find that the sentence  had been          deleted in 1981.   Although we need not solve  this riddle today,          we hope that Congress will spare future courts and litigants from          choosing between  these two disagreeable interpretations  of this          damaged statute  and clarify  whether it intends  that the  final          sentence of section 636(a)(6) be preserved.                                          5          1256, 1259 (1st Cir.  1993).  We recently observed  that "parties          seeking  to recover  against the  United States  in an  action ex                                                                         __          contractu have the burden of demonstrating affirmatively that the          _________          agent  who purported to bind  the government had actual authority          to do  so."  Hachikian, 96  F.3d at 505.   The statutes governing                       _________          the SBA  permit the head of  the agency   the  Administrator   to          authorize officers and  employees of the  SBA to exercise  powers          granted to the agency by Congress.  See 15 U.S.C.   634(a).  Such                                              ___          delegations  are made  through agency  regulations.   See Chevron                                                                ___ _______          U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S.          ___________    ________________________________________          837, 843-44 (1984).                    The regulations in effect when the SBA signed  the loan          authorization  agreement  at   issue  here  (February   of  1993)          stipulated that various individuals in the SBA's employ had power          to  approve or  reject loans  up to  $750,000.   See 13  C.F.R.                                                             ___          101.3-2, Pt. I    A(1)(b) (1993).  This group  included Gordon J.          Ryan, as Chief  of the  Finance Division, who  approved the  loan          authorization in this case.   See id.  Ryan also had the power to                                        ___ ___          extend disbursement periods and  to cancel, reinstate, and modify          loan authorizations.   See id. at   (B).  But the regulations did                                 ___ ___          not grant  Ryan any  power to  transfer his  authority:   to  the          precise  contrary, the  regulations  explicitly  admonished  that          "[t]he authority delegated herein may  not be redelegated."   Id.                                                                        ___          at Pt. XI,   A(1).                    Frillz  does not  dispute  that any  delegation of  the          SBA's  authority must  be  made pursuant  to agency  regulations.                                          6          Instead, it argues that because the Chief of the Finance Division          was  authorized  to approve  loans up  to  $750,000, he  was also          empowered to set the terms and conditions of such loans, and that          a determination by the  Lender of whether Frillz had  suffered an          unremedied  adverse financial change  was merely  a loan  term or          condition to which Ryan could (and  did) assent.  This is no more          than a play on words.  Granting the Lender the right to determine          the  soundness  of  a  loan guaranty  constitutes  a  significant          relinquishment of  power.  Frillz  cannot circumvent the  lack of          any  regulatory  authority sufficient  to permit  this delegation          simply by describing it as a term or condition of the loan.                    This  conclusion is  bolstered  by the  language of  15          U.S.C.    634(b)(7), a statute  that grants the Administrator the          power to  "authorize participating  lending institutions, in  his          discretion pursuant  to regulations  promulgated by him,  to take          such actions on  his behalf,  including, but not  limited to  the          determination  of .  .  . creditworthiness."   The  Administrator          exercised this authority in promulgating regulations creating the          so-called  Preferred  Lenders Program  (PLP).   See  13  C.F.R.                                                            ___          120.400  et seq.  (1993).   Although section  634(b)(7) does  not                   __ ____          apply here     Eastern Bank  was not  a member  of the  PLP    it          strongly suggests that any delegation of the right to determine a                                 ___          prospective borrower's financial stability  must be made pursuant          to agency regulations.   Otherwise, the cited portion of  section          634(b)(7) would be superfluous.                    We  hold, then, that  because the Chief  of the Finance                                          7          Division  had  no  authority  to  delegate  to  the  Lender   the          determination  of  whether  Frillz  had  suffered  an  unremedied          adverse change in its  financial condition, the government cannot          be bound by that stipulation in the loan guaranty authorization.                    Frillz has  a  fallback position:    it invites  us  to          remand this case  to the district court so that  it may pursue an          equitable  estoppel  claim  against  the  SBA.   We  decline  the          invitation.     The  doctrine   of  equitable  estoppel   in  its          traditional  incarnation  does  not  apply  against  the  federal          government.   See,  e.g.,  OPM v.  Richmond,  496 U.S.  414,  419                        ___   ____   ___     ________          (1990); United States v.  Ven-Fuel, Inc., 758 F.2d 741,  761 (1st                  _____________     ______________          Cir. 1985); see also Heckler v. Community Health Servs., 467 U.S.                      ___ ____ _______    _______________________          51,  67  (1984)  (Rehnquist,  J., concurring)  (noting  that  the          Supreme Court  has  never upheld  an estoppel  claim against  the          government).    A  party  seeking to  invoke  equitable  estoppel          against the federal government at a minimum "must have reasonably          relied  on  some  `affirmative  misconduct' attributable  to  the          sovereign."  Ven-Fuel, 758 F.2d  at 761.  Passing the  point that                       ________          even  such reliance  may be  insufficient, see  id. at  761 n.14,                                                     ___  ___          there is absolutely no evidence  of affirmative misconduct by the          SBA which  might arguably be  sufficient to  support an  estoppel          claim against the  government in  this case.   See Hachikian,  96                                                         ___ _________          F.3d at  506  n.3 (noting  that equitable  estoppel is  generally          inapplicable to the federal  government when its employees induce          reliance by their unauthorized actions).                                         III.                                         III.                                         ____                                          8                                      Conclusion                                      Conclusion                                      __________                    We  need go  no  further.   The  Chief of  the  Finance          Division  lacked  authority  to  delegate  the  determination  of          whether Frillz continued to suffer from the effects of an adverse          financial  change.   Consequently,  Frillz  cannot  rely on  that          portion  of the loan authorization  agreement as the  basis for a          breach  of  contract claim  against the  government.   It follows          inexorably, as night follows day, that the district court did not          err in granting summary judgment in the defendant's favor.          Affirmed.          ________                                          9                                       APPENDIX                                       APPENDIX                                       ________               "The Administration is  empowered .  . . to  make loans  for          plant  acquisition,  construction,   conversion,  or   expansion,          including the acquisition of land, material, supplies, equipment,          and working capital,  and to  make loans to  any qualified  small          business concern . . . for purposes of this Act.  Such financings          may be made either directly or in cooperation with banks or other          financial institutions  through agreements  to participate  on an          immediate or  deferred (guaranteed) basis.  These powers shall be          subject, however, to the following restrictions, limitations, and          provisions:                                 *        *        *                    (6) All  loans made under  this subsection shall  be of               such sound  value  or so  secured  as reasonably  to  assure               repayment:  Provided, however, That                             ________  _______                         (A)  for loans  to  assist any  public or  private                    organization or to assist any handicapped individual as                    provided  in  paragraph  (10) of  this  subsection  any                    reasonable  doubt shall  be  resolved in  favor of  the                    applicant;                         (B)   recognizing   that  greater   risk   may  be                    associated with loans  for energy measures as  provided                    in  paragraph  (12)  of  this  subsection,  factors  in                    determining `sound  value'  shall include,  but not  be                    limited  to,   quality  of  the  product   or  service;                    technical  qualifications  of  the  applicant   or  his                    employees;  sales projections; and the financial status                    of the  business concern:  Provided  further, That such                                               ________  _______                    status  need  not be  as  sound  as  that required  for                    general loans under this subsection; and                         (C)  the  Administration   shall  not  decline  to                    participate  in a loan  on a deferred  basis under this                    subsection  solely because  such loan  will be  used to                    refinance all or any  part of the existing indebtedness                    of  a small business concern, unless the Administration                    determines that                                (i) the holder  of such existing indebtedness                         is  in a position likely to sustain a loss if such                         refinancing is not provided, and                              (ii)  if  the  Administration  provides  such                         refinancing through an agreement to participate on                         a deferred basis, it will be in a position  likely                         to  sustain part  or all  of any loss  which would                         have otherwise been sustained by the holder of the                         original indebtedness:  Provided further, That the                                                 ________ _______                         Administration   may   decline  to   approve  such                         refinancing if  it determines that  the loan  will                         not benefit the small business concern.                                          10               On  that  portion of  the  loan used  to  refinance existing               indebtedness held  by a  bank or other  lending institution,               the  Administration  shall  limit  the  amount  of  deferred               participation to 80 per centum of  the amount of the loan at               the  time  of  disbursement:   Provided  further,  That  any                                              ________  _______               authority   conferred   by   this   subparagraph    on   the               Administration    shall   be   exercised   solely   by   the               Administration  and shall  not  be delegated  to other  than               Administration personnel."          15 U.S.C.S.   636(a)(6) (Law. Co-op. 1984).                                          11
