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Reaves v. United States Small Business Administration

United States District Court, N.D. Texas, Dallas Division

August 16, 2019

SALLY REAVES, Plaintiff,
v.
UNITED STATES SMALL BUSINESS ADMINISTRATION, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          JANE J. BOYLE UNITED STATES DISTRICT JUDGE.

         Before the Court is Plaintiff Sally Reaves's Motion to Remand Wage Garnishment Determination to the U.S. Small Business Administration (Doc. 43). For the reasons discussed below, the Court GRANTS the Motion and REMANDS this case to the agency for additional findings.

         I.

         BACKGROUND

         Plaintiff's present Motion arises out of a dispute with the Small Business Administration (SBA) regarding a March 15, 2018 Garnishment Hearing Decision (Doc. 24-1) that permitted Plaintiff's wages to be garnished.

         In 2006, Plaintiff, as the owner of Sagebrush Solutions, LLC, opened a line of credit owed to PlainsCapital Bank that the SBA guaranteed (SBA Loan). Doc. 32, Pl.'s Am. Compl., ¶¶ 6, 8. Sagebrush was also obligated to pay PlainsCapital on other loans that were not guaranteed by the SBA (Conventional Loans). Id. ¶ 7. The liens securing the SBA Loan pre-dated the liens securing the Conventional Loans. Id. Plaintiff pledged her personal securities account as collateral to personally guarantee both the SBA Loan and the Conventional Loans. Id. ¶ 8.

         In 2012, the SBA and PlainsCapital agreed to a loan restructuring that gave PlainsCapital's Conventional Loans a first lien position and subordinated the SBA loan to a second lien position. Doc. 24-1, Hr'g Decision, 9. Thereafter, Sagebrush defaulted on the SBA Loan and PlainsCapital non-renewed the Conventional Loans. Doc. 32, Pl.'s Am. Compl., ¶ 10. PlainsCapital liquidated Plaintiff's personal securities account and applied the funds first to pay off the Conventional Loans and then applied the remaining funds to the SBA Loan. Doc. 24-1, Hr'g Decision, 72-74, 76. After the liquidation, the SBA Loan had a remaining unpaid balance of $343, 462.61. Id. at 74. On October 7, 2015, PlainsCapital notified Plaintiff that her securities account had been liquidated and that the SBA Loan's remaining balance as of October 6, 2015 was $348, 790.33, including interest. Id. at 106-07.

         On March 6, 2017, the Department of the Treasury issued a wage garnishment order to Sagebrush, and Plaintiff filed a hearing request on March 25, 2017. Id. at 78, 108. In her request, Plaintiff alleged that PlainsCapital violated 31 U.S.C. § 3713 and 13 C.F.R. § 120.411 by paying itself first. Id. at 110-11. Plaintiff also alleged that the structure of the SBA Loan and the Conventional Loans violated the SBA's Standard Operating Procedures. Id. at 111. On July 14, 2017, the Hearing Officer sent a letter to Plaintiff requesting that any additional documents she would like to provide be submitted by August 11, 2017. Id. at 79. Plaintiff responded to this request on August 7, 2017, by sending another letter to the Hearing Officer supporting her claims. See Id. at 83-85.

         The Hearing Officer issued a Garnishment Hearing Decision on March 15, 2018, finding that Plaintiff's wages should be garnished. Id. at 2. The findings were, in relevant part:

A. SBA consented to a lower lien position on the SBA Loan The SBA loan was modified fifteen times. Thirteenth modification occurred on April 11, 2012 . . .
As part of that modification, PlainsCapital Bank sought SBA's approval to subordinate the first position lien on the Securities Accounts securing the SBA Loan to second position, giving PlainsCapital Bank a first position lien to secure its Conventional Loans. SBA approved this on April 6, 2012 . . .
Further, PlainsCapital Bank was not obligated to tell you or to get your permission to subordinate the Securities Accounts to another loan. As part of the original loan transaction you signed an Unconditional Guaranty Agreement . . . that states in pertinent part: “4. Rights of Lender . . . (c) If any or all of the Obligations are now or hereafter secured in whole or in part, Guarantor agrees that Lender may, from time to time, at its discretion, and with or without valuable consideration allow substitution, withdrawal, . . . subordination, . . . or other impairment of all or any of such security or collateral, without notice to or consent by Guarantor, and without in anywise [sic] impairing, diminishing, or releasing the liability of Guarantor hereunder.
Your argument that PlainsCapital Bank improperly gave itself a preference is incorrect. SBA had approved the change in its lien position as to the Securities Accounts therefore PlainsCapital Bank acted correctly and SBA was not harmed. SBA's consent to lower its lien position is dispositive. This results in an unpaid balance on the SBA guaranteed loan which SBA may now collect. I find no evidence supporting the theory that PlainsCapital Bank improperly applied payments to itself first: you are still obligated to the SBA for the unpaid balance on the SBA Loan.

Doc. 24-1, Hr'g Decision, 4-5.

         Plaintiff then initiated this civil action objecting to the Hearing Officer's decision. See Doc. 32, Pl.'s Am. Compl. Plaintiff requested discovery outside of the administrative record regarding the propriety of the SBA's consent to subordination-an issue that the SBA contends was waived by Plaintiff's failure to bring the issue before the Hearing Officer. Doc. 41, Order. The SBA then filed a Motion for Protective Order on discovery outside of the administrative record, which was granted by the Magistrate Judge on February 11, 2019. Id. The Magistrate Judge noted that, as the SBA conceded, the subordination issue would either be rejected as waived or require remand for additional investigation or explanation by the Hearing Officer. Id. This led Plaintiff to file the present Motion to Remand to the SBA, claiming that the SBA failed to adequately address her objections to the wage garnishment: (1) that the SBA improperly consented to subordination; (2) that the loans were in an improper “piggybacking” structure; and (3) the structure violated 31 U.S.C. § 3713. See Doc. 43, Pl.'s Mot. As the Motion is fully briefed, the Court addresses Plaintiff's requested relief.

         II.

         LEGAL ...


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