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Blume v. Small Business Administrator

United States District Court, W.D. Kentucky, Bowling Green Division

May 25, 2018



          Greg N. Stivers, United States District Court Judge

         This matter is before the Court on Defendants' Motion to Dismiss (DN 16), and Plaintiff's Motions for Partial Summary Judgment (DN 4, 13). The Court finds that the facts and legal arguments are adequately presented in the parties' filings and its decision would not be significantly aided by oral argument, despite Plaintiffs' requests. (DN 4, 13, 18, 20, 21). For the reasons outlined below, Defendant's Motion to Dismiss is GRANTED, and Plaintiff's motions are DENIED.


         On July 12, 2007, the Small Business Administration (“SBA”) approved the application of Audubon State Bank (“ASB”) for a SBA guaranteed loan[1] to Royal Professional Solutions, LLC d/b/a Audubon Dairy Queen (“Royal”). (Am. Compl. Ex. 5, at 4 DN 10-6). The loan amount was $85, 200.00 for the remodel of a Dairy Queen restaurant in Audubon, Iowa, which Royal operated under a franchise with American Dairy Queen (“DQ”). (Am. Compl. Ex. 5, at 4). On August 10, 2007, Royal executed a promissory note in favor of ASB in exchange for the loan. (Am. Compl. ¶ 7, DN 10; Am. Compl. Ex. 1, DN 19-1). Plaintiff Guy A. Blume (“Plaintiff”) signed the note on behalf of Royal as a member of the limited liability company and also in his individual capacity, and Pamela K. Blume (collectively, “the Blumes”) signed as a manager/member and in her individual capacity. (Am. Compl. Ex. 1, at 6). The Blumes also executed individual unconditional personal guaranties in favor of ASB which were secured with a real property mortgage. (Am. Compl. ¶ 8; Am. Compl. Ex. 2, DN 10-2).

         On October 10, 2011, DQ issued a Confirmation of Termination notice to Royal and the Blumes indicating that the store would be closed on September 1, 2011, for failure to pay fees and submit required monthly reports. (Def.'s Mot. Dismiss Ex. A1, DN 16-1). The termination letter stated that the franchise and license rights would be terminated effective November 8, 2011. (Def.'s Mot. Dismiss Ex. A1). Thereafter, ASB determined that Royal and the Blumes had defaulted on the 2007 loan, as well as another SBA-guaranteed loan for $150, 000.00. (Am. Compl. Ex. 4-1, DN 10-4).

         In October 2015, the Department of the Treasury informed Plaintiff of its intent to initiate administrative wage garnishment for the sum of $78, 591.58 owed to the SBA as a result of the default.[2] (Am. Compl. Ex. 4-2, DN 10-5). Plaintiff requested a hearing on the wage garnishment issue, and the matter was referred to the SBA for review and determination. (Am. Compl. Ex. 4-2).

         On August 21, 2017, the SBA issued a decision finding that the wage garnishment action could not proceed, as the “borrower was current in its payments when the lender called it in default, liquidated the business, sold its assets, and obtained the SBA guarantee.” (Am. Compl. Ex. 4-2, at 4). On September 11, 2017, Plaintiff initiated the present action alleging breach of contract against the SBA and negligence against the United States. (Compl., DN 1; Am. Compl. ¶¶ 34-41). The parties have filed competing dispositive motions. (Pl.'s Mot. Partial Summ. J., DN 4; Pl.'s Mot. Partial Summ. J., DN 13; Def.'s Mot. Dismiss, DN 16).[3]


         The standards for dismissal under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) differ in the Sixth Circuit. See RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). Threshold challenges to subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) should generally be decided before any ruling on the merits under Fed.R.Civ.P. 12(b)(6). See Bell v. Hood, 327 U.S. 678, 682 (1946). In most circumstances, the plaintiff bears the burden to survive Fed.R.Civ.P. 12(b)(1) motions to dismiss for lack of subject matter jurisdiction. See id.

         Challenges to subject matter jurisdiction come in several varieties. Facial attacks challenge a plaintiff's establishment of jurisdiction in their complaint and require the court to examine the jurisdictional basis. See United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citation omitted). Factual attacks contest the existence of factual prerequisites to jurisdiction. See Id. In such motions, the district court is empowered to resolve the factual disputes affecting any jurisdictional prerequisites. See Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir. 1986). A plaintiff bears the burden in both of these situations. See Bell, 327 U.S. at 682.

         Sovereign immunity may serve as a basis for a Fed.R.Civ.P. 12(b)(1) motion to dismiss for lack of jurisdiction. See Muniz-Muniz v. U.S. Border Patrol, 741 F.3d 668, 671 (6th Cir. 2013). “‘[W]hile the Eleventh Amendment is jurisdictional in the sense that it is a limitation on the federal court's judicial power, ' the defense ‘is not coextensive with the limitations on judicial power in Article III.'” Nair v. Oakland Cty. Cmty. Mental Health Auth., 443 F.3d 469, 474 (6th Cir. 2006) (citing Calderon v. Ashmus, 523 U.S. 740, 745 n.2 (1998)). “[U]nlike subject-matter jurisdiction, ‘the entity asserting Eleventh Amendment immunity has the burden to show that it is entitled to immunity.'” Id. (citation omitted).

         When considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), courts must presume all factual allegations in the complaint to be true and make all reasonable inferences in favor of the non-moving party. Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (citation omitted). “But the district court need not accept a bare assertion of legal conclusions.” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (citation omitted). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted) (citation omitted). When a plaintiff is proceeding pro se, the Court is required to liberally construe the complaint and hold it to a less stringent standard than a similar pleading drafted by an attorney. Haines v. Kerner, 404 U.S. 519, 520 (1972); Hahn v. Star Bank, 190 F.3d 708, 715 (6th Cir. 1999). Even pro se complaints, however, must satisfy basic pleading requirements. Wells v. Brown, 891 F.2d 591, 594 (6th Cir. 1989).

         To survive a motion to dismiss under Rule 12(b)(6), the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep't of Educ., 615 F.3d 622, 627 (6th Cir. 2010) (internal quotation marks omitted) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim becomes plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “A complaint will be dismissed pursuant to Rule 12(b)(6) if no law supports the claims made, if the facts alleged are insufficient to state a claim, or if the face of the complaint presents an insurmountable bar to relief.” Southfield Educ. Ass'n v. Southfield Bd. of Educ., 570 Fed.Appx. 485, 487 (6th Cir. 2014) (citing Twombly, 550 U.S. at 561-64).


         A. Defendant's Motion to Dismiss

         The United States mounts several arguments on behalf of the SBA[4] in support of its motion to dismiss Plaintiff's breach of contract claim. (Def.'s Mot. Dismiss 5-17, DN 16). Although the Motion to Dismiss was filed by “[t]he United States, on behalf of the Small Business Administration, ” it contains arguments that are relevant to Plaintiff's claims against both the SBA and United States. (See Def.'s Mot. Dismiss 5-9). Notably, Section III argues for dismissal of Plaintiff's negligence claim brought only against the United States, not the SBA. (Def.'s Mot. Dismiss 6-9). Thus, while Plaintiff complains that “[t]he United States has not appeared in the motion to dismiss defending the claims of negligence against their employees, ” he was clearly on notice that the Motion to Dismiss extended to his negligence claim. Further, the Court has the power to sua sponte dismiss a complaint for lack of subject matter jurisdiction. See Apple v. Glenn, 183 F.3d 477, 479 (6th Cir. 1999). The Court will therefore consider the arguments raised in the Motion to Dismiss as to Plaintiff's negligence claim against the United States, insofar as they address lack of subject matter jurisdiction.

         1. Plaintiff's Negligence Claim - Sovereign Immunity[5]

         The United States argues that it enjoys sovereign immunity under the FTCA for Plaintiff's negligence claim. (Def.'s Mot. Dismiss 6-9). “‘The United States, as sovereign, is immune from suit save as it consents to be sued . . . .' This principle extends to agencies of the United States, as well, which are immune absent a showing of a waiver of sovereign immunity.” Whittle v. United States, 7 F.3d 1259, 1262 (6th Cir. 1993) (internal citation omitted) (citing United States v. Testan, 424 U.S. 392 (1976)). The Federal Tort Claims Act (“FTCA”) is the exclusive remedy for suits against the United States or its agencies sounding in tort, including negligence. 28 U.S.C. § 2679(a). The FTCA “waives sovereign immunity to the extent ...

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