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Wells v. McMahon

United States District Court, D. Nevada

April 22, 2019

MICHAEL J. WELLS, Plaintiff,
LINDA McMAHON, in her official capacity as the Administrator of the U.S. Small Business Administration, and the NEVADA STATE DEVELOPMENT CORPORATION, Defendants.



         Defendants Linda McMahon, in her official capacity as the Administrator of the United States Small Business Administration ("SBA") and the Nevada State Development Corporation ("NSDC") have each filed separate motions to dismiss (ECF Nos. 8, 13) the complaint of plaintiff Michael J. Wells (ECF No. 1-2). Wells filed responses to both sets of motions (ECF Nos. 10, 27), and the moving parties timely replied (ECF Nos. 11, 38). For the reasons stated below, the Court grants the SBA's motion to dismiss and the NSDC's motion to dismiss.

         I. Factual Background and Procedural History

         The following facts are adduced from Wells's complaint, which, for the purpose of resolving the motions to dismiss, are presumed to be true. Wells was an investor in, and the manager of, a company called Main Street Galleria, LLC. (ECF No. 1-2 at 5). On December 27, 2007, NSDC executed an SBA loan for $1, 789, 000 (SBA loan #2253116004) to the Frontier Fun Center, Inc., an entity associated with the Main Street Galleria. (Id.) The borrower listed on the loan was the Main Street Galleria. (Id.) On January 2, 2009, Wells signed an "Unconditional Guarantee" ("UG") with the SBA (form number 148, October 1998 edition). (Id.) Wells was listed as the Guarantor on the loan, the Main Street Galleria was listed as the Borrower, and NSDC was listed as the Lender. (Id. at 20). Pursuant to the UG, Wells waived "to the extent permitted by law, many and numerous conceivable rights he may have had as a debtor and guarantor, including rights of redemption of collateral, rights to notice of almost any stripe, and nearly all contractual, equitable, and other defenses, including commercial responsibility on the part of the Lender in collecting and enforcing the debt and guarantee." (Id. at 6). In the event that Wells defaulted on the SBA loan, the SBA would "purchase" the loan from NSDC.

         Wells defaulted on the loan sometime between February 1 and April 30, 2010. (ECF No. 1-2 at 6). Pursuant to the UG, the SBA purchased the loan from NDSC on May 1 2010. (Id.) On June 4, 2010, Wells asserts that the SBA was required to accelerate the loan "as delineated in the Deed of Trust with the recording of a Notice of Default," but it failed to do so. (Id.) According to Wells, the NSDC was responsible for liquidation activities until it tendered its final wrap-up report on February 23, 2012. Despite its obligations, neither it nor the SBA followed federal laws and regulations regarding the notice and due process provisions. (Id.) For instance, on March 26, 2012, the SBA sent default letters to various guarantors related to the Frontier Fun Center project, but Wells was not among them. (Id.) Because of the SBA inaction, Wells alleges thai he was unable to take any action to save the underlying Frontier Fun Center project. (Id. at 7). On October 23, 2012, the SBA charged off the loan, and on March 4, 2014, it referred the lean to the U.S. Department of the Treasury for collection through the Treasury Offset Program. (Id. at 6).

         Wells alleges that he first received notice about the status of the loan fro:n the Treasury Department on March 5, 2014, when it sent him a notice of unpaid delinquent debt. (ECF No. 1-2 at 7). Wells disputed the debt, but on May 7, 2014, the Treasury Department referred the debt to a private debt collection company for "further enforcement" and collection. (Id.) After disputing the debt with the private company, the company "ceased" enforced collection activities and promised to investigate the validity of the Treasury claim. (Id.) Wells alleges that he did nol hear from that private company again. On May 20, 2015, Wells asserts that a different private coll action company contacted him regarding the SBA loan and that he once again disputed it, but this collection company ignored his dispute. (Id.) Instead, it sent a notice of Administrative Wage Garnishment ("AWG") to Wells, and he responded by tendering a request for an AWG hearing. (Id.). Wells lodged objections to the collection of his alleged debt on July 19 and September 7, 2017. (Id.) Despite his objections, the SBA issued a "Garnishment Hearing Decision" that rejected Wells's objections and ordered a garnishment of 15% of his disposable monthly income. (Id. at 8).

         Wells filed this action in Nevada state court on January 10, 2018. (ECF No. 1-2). In his complaint, he alleges six causes of action against both NSDC and the SBA: (1) common law breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) equitable subrogation; (4) violation of his right to procedural due process; (5) a declaration of his rights under the SBA loan; and (6) injunctive relief against defendants from collecting on the alleged debt. The SBA removed the action to federal court on June 21, 2018. (ECF No. 1). Both the SBA and NSDC now seek dismissal of Wells's complaint.

         II. Legal Standard

         The SBA and NSDC both request dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. To survive a motion to dismiss for failure to state a claim, a complaint must satisfy Federal Rule of Civil Procedure 8(a)(2)'s notice pleading standard. See Mendiondo v. Centinela Hosp. Med. Or., 521 F.3d 1097, 1103 (9th Cir. 2008). That is, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The Rule 8(a)(2) pleading standard does not require detailed factual allegations; a pleading, however, that offers" 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action'" will not suffice. Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         Furthermore, Rule 8(a)(2) requires a complaint to "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 667 (quoting Twombly, 550 U.S. at 570). A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference, based on the court's judicial experience and common sense, that the defendant is liable for the misconduct alleged. Id. "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief. Id.

         In reviewing a motion to dismiss, the court accepts the facts alleged in the complaint as true. Iqbal, 556 U.S. at 667. Even so, "bare assertions. . .amount[ing] to nothing more than a formulaic recitation of the elements of a. . .claim. . .are not entitled to an assumption of truth." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Iqbal, 556 U.S. at 681) (brackets in original) (internal quotation marks omitted). The court discounts these allegations because "they do nothing more than state a legal conclusion-even if that conclusion is cast in the form of a factual allegation." Id. (citing Iqbal, 556 U.S. at 681.) "In sum, for a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." la.

         As an alternative to dismissal, NSDC requests summary judgment on all Wells's claims. Summary judgment is appropriate only when the pleadings, deposition', answers to interrogatories, and admissions on file, together with the affidavits, if any, show 'that there is no genuine issue as to any material fact and that the [moving party] is entitled to judgment as a matter of law." Fed. R. Crv. P. 56(c). In assessing a motion for summary judgment, the evidence, together with all inferences mat can reasonably be drawn therefrom, must be read in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp, 475 U.S. 574, 587 (1986); Cnty of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001). The moving party bears the burden of informing the court of the basis for its motion, along with evidence showing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On those issues for which it bears the burden of proof, the moving party must make a showing that is "sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party." Calderone v. United States, 799 F.2d 254, 259 (6th Cir. 1986).

         To successfully rebut a motion for summary judgment, the non-moving party must point to facts supported by the record which demonstrate a genuine issue of material fact. Reese v. Jefferson Sch. Dist. No. 14J, 208 F.3d 736 (9th Cir. 2000). A "material fact" is a fact "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Where reasonable minds could differ on the material facts at issue, summary judgment is not appropriate. See v. Durang, 711 F.2d 141, 143 (9th Cir. 1983). A dispute regarding a material fact is considered genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Liberty Lobby, 477 U.S. at 248. The mere existence of a scintilla of evidence in support of the non-moving party's position is insufficient to establish a genuine dispute; there must be evidence on which the jury could reasonably find for the non-moving party. See Id. at 252.

         III. ...

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