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MONTER v. UNITED STATES

November 21, 1977

GERALD MONTER and ROBERT COHEN, General Partners in a Limited Partnership trading as HOLIDAY GREEN ACRES APARTMENTS, Plaintiffs
v.
THE UNITED STATES; and MITCHELL KOBELINSKI, Administrator of the Small Business Administration, (SBA), Defendants


Herman


The opinion of the court was delivered by: HERMAN

In the instant case Plaintiffs are seeking judicial review of the denial of their application for Small Business Administration mortgage refinancing. At a pre-trial conference held May 4, 1977, it was agreed by counsel for both sides that this case would be decided on briefs and a stipulation of facts which has been filed. This agreement puts the case in the procedural posture of cross motions for summary judgment.

 On June 23, 1972, Plaintiffs' apartment complex in the Borough of Kingston, Pennsylvania, was damaged by severe flooding caused by Hurricane Agnes. On December 7, 1972, Plaintiffs were granted a loan by the SBA. Subsequently the amount of this loan was adjusted several times. On July 5, 1973, Plaintiffs requested that they be permitted to refinance liens on their apartment complex at 1% to the extent permitted by the Disaster Relief Act of 1970 and amendments thereto. This request was denied by SBA because the entire complex did not suffer flood damage of 30% of its fair market value, as required under the applicable regulation. Plaintiffs then requested that their apartment buildings be considered separately and asked for refinancing on those buildings damaged 30% or more. Alternatively, they requested that "phase three" of their complex, comprised of five buildings, be considered as a separate entity suffering damage to approximately 32% of its market value. These requests were also denied by SBA.

 The parties have agreed that Plaintiffs are ineligible for refinancing if the project is looked upon as one integral property unit, as uninsured damage amounted to approximately 15% of the market value of the entire complex. The parties have further agreed that if the project is not looked upon as a whole, and is instead considered as separate buildings or "phase three" is considered separately, then Plaintiffs are eligible for greater refinancing then has been agreed to by SBA.

 Plaintiffs have alleged that refusal to consider each building or "phase three" as separate property units for purposes of loan refinancing is unreasonable, capricious, erroneous and beyond the scope of the authority of the SBA and its administrator.

 Plaintiffs invoke jurisdiction under 15 U.S.C. § 634(b)(1), 28 U.S.C. § 1361, 5 U.S.C. § 701 et seq., 28 U.S.C. § 1346(a)(2) and 28 U.S.C. § 2201 and § 2202. Defendants contend that this Court lacks jurisdiction to review the action of the administrator. The issue is whether the administrator of the SBA has exceeded the bounds of his authority by denying refinancing on the terms requested by the Plaintiffs.

 As stated in Raitport v. Small Business Administration, 380 F. Supp. 1059, 1060 (E.D. Pa. 1974), "The law has been clearly established that a court can review an SBA decision only if it is arbitrary, capricious or erroneous as a matter of law." The power to interpret SBA regulations is vested in the administrator, and the regulations will be sustained if they are reasonable and consistent with the statute and if the Plaintiff fails to show a weighty reason to overrule them. Capital Refrigeration, Inc. v. United States, 375 F. Supp. 462 (M.D. Pa. 1973).

 The Small Business Administration Act, 15 U.S.C. § 636(b) gives the administrator broad discretionary powers in providing for disaster assistance loans. *fn1"

 The section of the statute which provides the current basis for dispute is contained in the unnumbered part of 15 U.S.C. § 636(b) following 15 U.S.C. § 636(b)(8). The unnumbered portion of the statute provides in pertinent part:

 
"In the administration of the disaster loan program under paragraphs (1), (2), and (4) of this subsection [ 15 U.S.C. 636(b)(1), (2), and (4)], in the case of property loss or damage or injury resulting from a major disaster as determined by the President or a disaster as determined by the Administrator which occurs on or after January 1, 1971, and prior to July 1, 1973, the Small Business Administration, to the extent such loss or damage or injury is not compensated for by insurance or otherwise --
 
(A) may make any loan for repair, rehabilitation, or replacement of property damaged or destroyed without regard to whether the required financial assistance is otherwise available from private sources;
 
(B) may, in the case of the total destruction or substantial property damage of a home or business concern, refinance any mortgage, or other liens outstanding against the destroyed or damaged property if such property is to be repaired, rehabilitated, or replaced, except that (1) in the case of a business concern, the amount refinanced shall not exceed the amount of the physical loss sustained . . . ."

 The administrator had the authority under the statute to set the terms of refinancing. The federal regulation then in effect implementing this power of refinancing, 23 C.F.R. 123.3(a)(2) provided in pertinent part:


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