Envirohousing. In effect, the Housing Authority is asking this Court to extend whatever reliance the Housing Authority placed in the Small Business Administration's guarantee to the situation where the surety becomes insolvent and is unable to meet its obligations under the surety bond. If the Housing Authority did so rely when it entered into its contract with Envirohousing, the Court concludes that such reliance was unjustified based upon the actual terms of the agreement between the Small Business Administration and Summit so that to carve out an exception to the general rule concerning reinsurers on the basis of such reliance is not warranted. Otherwise, the Housing Authority would be placed in a better position than a party who contracted with a business concern not eligible for an S.B.A. guarantee which obtained a surety bond from an insurer who later became insolvent. The Court believes that in either situation a party in the Housing Authority's position bears the risk of the surety's insolvency.
Were the Court to accept the Housing Authority's contention that the Small Business Administration stands in the position of a guarantor rather than a reinsurer, no different result would be reached. First, as the Housing Authority itself points out, the other three district courts which have considered this problem, without placing emphasis on the distinction between a reinsurer and a guarantor, stated that as a guarantor, the Small Business Administration was not liable to a Plaintiff in the Housing Authority's position. Further, the Housing Authority's citation of the case of Reconstruction Finance Corp. v. Bairstow, 140 F.2d 353 (7th Cir. 1944) is inapposite because the guaranty contract construed by the Court in that case stated that the guarantee should run to all the holders of the bonds which were guaranteed. No such statement is contained in the contract before the Court in this case.
The Housing Authority also contends that the Small Business Administration is estopped by virtue of its representation to Guy C. Read, an agent for Summit, that it would guarantee all bonds entered into by Summit. Because the Court has held that any reliance on the part of the Housing Authority that the Small Business Administration would pay the surety bonds should Summit become insolvent is unjustified, such an estoppel cannot be worked by the facts of this case. Moreover, to allow a Plaintiff in the position of the Housing Authority to succeed on an estoppel theory based upon the same set of facts which do not permit it to maintain a direct suit on the contract between the Small Business Administration and Summit on the basis of reliance is simply to circumvent the sound reasoning behind the prohibition of such a suit. Finally, as stated by the Court in Six Fountains Apartments, Inc. v. Plus 5 Construction Corp., 433 F. Supp. 1284, 1286 (W.D. La. 1977), it is unlikely that the Small Business Administration intended to waive its sovereign immunity in favor of a Plaintiff in the position of the Housing Authority. To the extent that any of the Small Business Administration's agents made representations which would work an estoppel against the Small Business Administration and preclude it from asserting its sovereign immunity, such representations were outside the scope of the agent's authority and prevent estoppel from being asserted against the United States. See In re Hooper's Estate, 359 F.2d 569, 577 (3d Cir.) cert. denied, 385 U.S. 903, 87 S. Ct. 206, 17 L. Ed. 2d 133 (1966); United States v. 35.30 Acres of Land in Montour County, Pennsylvania, No. 77-688 (M.D. Pa. November 8, 1977). Therefore, the Housing Authority cannot succeed on an estoppel theory.
Because the Court will grant the Small Business Administration's motion to dismiss it from this case, and because many of the Defendants are Pennsylvania residents or organizations so that no jurisdiction would have existed had the action originally been filed in this Court, the case will be remanded to the Court of Common Pleas of Lebanon County, Pennsylvania. See Herman Andrae Electrical Co. v. Freiberg, 332 F. Supp. 858, 859 (E.D. Wis. 1971); Pennsylvania Turnpike Comm'n. v. McGinnes, 179 F. Supp. 578, 583 (E.D. Pa. 1959).
An appropriate order will be entered.
MUIR, U.S. District Judge
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 442 F. Supp.]
1. The Housing Authority of the County of Lebanon's complaint is dismissed as to Defendant Small Business Administration.
2. The above-captioned case is remanded to the Court of Common Pleas of Lebanon County, Pennsylvania.
3. The Clerk of Court is directed to send a certified copy of the docket entries and a copy of this Opinion and Order to the Prothonotary of the Court of Common Pleas of Lebanon County, Pennsylvania.
MUIR, U.S. District Judge
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