Great Am. Life Ins. Co. v. Sec'y, Dep't of Interior

GREAT AMERICAN LIFE INSURANCE COMPANY, Plaintiff, v. SECRETARY, DEPARTMENT OF THE INTERIOR, ET AL., Defendants.

Case No. 1:16-CV-00699-MRB

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO WESTERN DIVISION CINCINNATI

June 3, 2019

Judge Michael R Barrett

ORDER

This matter is before the Court on Defendants' Motion to Dismiss (Doc. 10). Plaintiff, Great American Life Insurance Company ("Plaintiff" or "GALIC"), asserts nine claims against the Secretary of the Interior and multiple other Defendants on the basis that the United States government failed to honor a guaranty governed by the Indian Financing Act of 1974. Defendants ("Defendants" or "the government") contend that almost all of Plaintiff's claims must be dismissed due to failure to state a claim, lack of jurisdiction, sovereign immunity, or some combination thereof.

I. BACKGROUND

The Indian Loan Guaranty, Insurance, and Interest Subsidy Program (Program) was established under the Indian Financing Act of 1974 (IFA), Pub. L. No. 93-262, as amended, 25 U.S.C. § 1451 et seq., and regulations at 25 C.F.R. pt. 103. Loan guaranties are governed by Title II of the IFA (codified at §§ 1481-1499), which authorizes the Secretary of the Interior to guarantee up to 90 percent of the unpaid principal and interest due on loans to Indian entities or individuals "[i]n order to provide access to private money sources which otherwise would not be available." 25 U.S.C. § 1481.

In order for a loan to be guaranteed under the Program, that loan must close and fund. 25 C.F.R. § 103.18. Under § 103.36(d)(1), a guaranty holder may submit a claim for loss to the Department of the Interior ("Interior" or "Agency") if the loan borrower has defaulted. The Agency may deny a claim for loss if the loan is not guaranteed as indicated in § 103.18. 25 C.F.R. § 103.39(a).

On June 24, 2010, the Agency issued Loan Guaranty No. G103D1A1501. (Compl. ¶ 14). Plaintiff purchased the guaranteed loan on April 2, 2012. (Id. at ¶ 27). Plaintiff claims it was "induced" to purchase the loan. (Id. at PageID 3). On June 19, 2013, asserting default on the loan, Plaintiff submitted a claim to the Agency for loss under the guaranty. (Id. at ¶ 32). On December 23, 2013, the Agency denied Plaintiff's $20,043,618 claim for loss under the guaranty, for the purported reason that Plaintiff failed to demonstrate that the loan had been funded, as required by regulation. (Id. at ¶¶ 33, 47).

Plaintiff argues that, as a result, the Agency has "dump[ed] the burden of [a] failed tribal business on [Plaintiff]." (Doc. 15, PageID 126). According to Plaintiff, "the Government achieved this unjust result through a flawed administrative process triggered by GALIC's claim for payment under the Guaranty," in which the "[t]he Agency's final decision to renege on the Guaranty . . . was supported by . . . [the] alleged lack of 'sufficient documentation' that the original loan . . . ever funded." (Id.) Plaintiff asserts that, as a purchaser in due course in the secondary market, it had nothing to do with this original closing. (Id.) Regardless, Plaintiff alleges that the Agency's rationale for not honoring the guaranty is arbitrary and capricious because, inter alia, the Bureau of Indian Affairs monitored, almost hour by hour, the closing and funding of the original loan; reviewed and approved the loan structure; and accepted and cashed a premium check in the amount of$405,354.00. (Compl. ¶¶ 50-52). This premium check is set by federal regulation at 2% of the original loan principal amount that the BIA guarantees. 25 C.F.R. § 103.8. Also by regulation, the premium must be paid to the BIA by the original lender at the time the original loan closes and funds. 25 C.F.R. § 103.19 ("The premium is due within 30 calendar days of the loan closing.").

Plaintiff now seeks relief in this Court. As Defendants, it names the Agency, its then-Secretary (Sally Jewel) in her official capacity, and two employees of the Agency (Lawrence Roberts and Jack Stevens) in their official capacities. Plaintiff asserts the following claims for relief: (1) breach of contract; (2) "Violations of Due Process"; (3) "de novo review"; (4) "Arbitrary and Capricious Action": (5) fraudulent inducement; (6) intentional misrepresentation; (7) negligent misrepresentation; (8) declaratory judgment; and (9) "attorneys' fees."

II. ANALYSIS

a. Standard

The government argues for dismissal under Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure.

i. Rule 12(b)(1)

Rule 12(b)(1) allows a defendant to move for dismissal on the basis that the court lacks subject matter jurisdiction. When subject matter jurisdiction is challenged, the party asserting jurisdiction bears the burden of establishing that subject matter jurisdiction exists. Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990); Mich. S.R.R. v. Branch & St. Joseph Counties Rail Users Ass'n., 287 F.3d 568, 573 (6th Cir. 2002). A Rule 12(b)(1) facial challenge to subject matter jurisdiction questions the sufficiency of the pleadings. In such cases, courts apply the Rule 12(b)(6) standard and the court must accept the alleged facts to be true and determine if those facts are sufficient to state a claim for relief that is plausible on its face. Ohio Nat'lLife Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990); Ashcroft v. Iqbal, 556 U.S. 662 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

"It is generally recognized . . . that Rule 12(b)(1) is the appropriate vehicle for a court's consideration of claims that are asserted to be . . . barred by sovereign immunity." Living Care Alternatives of Utica, Inc. v. United States, 312 F. Supp. 2d 929, 931 (S.D. Ohio 2004), aff'd, 411 F.3d 621 (6th Cir. 2005). "On a motion invoking sovereign immunity to dismiss for lack of subject matter jurisdiction, the plaintiff bears the burden of proving by a preponderance of evidence that jurisdiction exists." Chayoon v. Chao, 355 F.3d 141, 143 (2d Cir. 2004).

i. Rule 12(b)(6)

In reviewing a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), this Court must "construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff." Bassett v. NCAA, 528 F.3d 426, 430 (6th Cir. 2008). However, legal conclusions conveyed as factual allegations do not have to be accepted as true; rather, the reviewing court is allowed to draw on its own judicial experience and common sense in determining whether or not the pleader can obtain any relief based on the purported facts. Iqbal, 556 U.S. at 663-64.

"[T]o survive a motion to dismiss a complaint must contain (1) enough facts to state a claim to relief that is plausible, (2) more than a formulaic recitation of a cause of action's elements, and (3) allegations that suggest a right to relief above a speculative level." Tackett v. M&G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (quotation omitted). "A claim has facial plausibility 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. Although the plausibility standard is not equivalent to a "probability requirement . . . it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quotation omitted).

b. Claims

i. Breach of Contract (Count One)

The government argues that sovereign immunity bars most, but not all, of Plaintiff's contract claims: "Interior acknowledges that GALIC may pursue its claim for common law breach of contract (as stated in Count One) against the Secretary, but not the other three named defendants." (Doc. 10, PageID 59). Specifically, Defendants argue that 25 U.S.C. 1496(a) waives sovereign immunity for the Secretary, but not for the Interior itself or other Interior employees. The foregoing statute states in relevant part: "With respect to matters arising out of the guaranty or insurance program authorized by this title [25 USCS §§ 1481 et seq.], and notwithstanding the provisions of any other laws, the Secretary may-- (a) sue and be sued in his official capacity in any court of competent jurisdiction[.]" According to Defendants, the Interior itself and its non-Secretary employees should thus be dismissed.

Plaintiff counters, in reliance on Am. Policyholders Ins. Co. v. Nyacol Prods., 989 F.2d 1256 (1st Cir. 1993), that "the distinction between a suit against the head of an agency and a suit against the agency itself is irrelevant." (Doc. 15, PageID 159). Plaintiff uses similar logic to support the inclusion of Defendants Roberts and Stevens in this suit: "Naming an individual in his official capacity is an alternative way of pleading a claim against the government entity to which the individual belongs." (Id. at 160).

Even if the Court fully accepts the logic of Plaintiff, the Court views the breach of contract claims pending against the Interior and its non-Secretary employees as wholly duplicative of the claim properly pending against the Secretary. In other words, and to mix metaphors: if the Secretary stands in the shoes of the Interior, and if naming its employees is the same as naming the Interior, then all roads lead to the Interior. So, there are three contractclaims pending against the Interior, premised on the same alleged breach. The Court does not allow redundant claims to stand in other contexts,¹ and declines to do so here. The breach of contract claims against the Interior, Roberts, and Stevens are thus dismissed. The claim against the Secretary will stand.

ii. Due Process Claim (Count Two)

Defendants challenge Plaintiff's due process claim on multiple grounds. For simplicity's sake, the Court will not - because it need not - resolve all of them. Instead, the Court will assume arguendo that there are no bars to reaching the issue, such as jurisdictional defects or...