# Opposition Brief — Bank One, Stevens Point, NA v. United States Department of Commerce

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1989
- **Citation:** 489 U.S. 1053

## Text

OCTOBER TERM, 1988

BANK ONE, STEVENS POINT, NA, PETITIONER
V.
UNITED STATES DEPARTMENT OF COMMERCE, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS IN OPPOSITION

WILLIAM C. BRYSON
Acting Solicitor General

JOHN R. BOLTON
Assistant Attorney General

JOHN F. CORDES

MARY K. DOYLE
Altorneys
Department of Justice
Washington, D.C. 20530
(202) 633-2217

MICHAEL A. LEVITT
Acting General Counsel

JAMES K. WHITE
Assistant General Counsel

GEORGE E, MADEN
WALTER J. MCLELLAN
Altorneys
Department of Commerce
Washington, D.C. 20230

QUESTION PRESENTED

Whether the government is required to honor loan guar-
antees made pursuant to provisions of the Trade Act of
1974, 19 U.S.C. 2341 et seg., when the lending bank
materially breached the terms of the loan guaranty agree-
ments and the government neither directed nor encour-
aged those breaches.

(1)

TABLE OF CONTENTS

Page
EE SE Cee TN TET OTOP ER TTT ETE TTT Ee |
REED Sy re |
ek a edb anda e Koen Redden ees l
EE OE a a ae 7
ee eerie way bbws ks ea WA A AS ws 14

TABLE OF AUTHORITIES
Cases:
Branch Banking and Trust Co. v. United States, 98 F.

Supp. 757 (Ct. Cl.), cert. denied, 342 U.S. 893 (1951) .. Y
Brown v. Marsh, 777 F.2d 8 (D.C. Cir. 1985) ........... 9
Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947) .. 7
Federal Deposit Ins. Corp. v. Harrison, 735 F.2d 408

ord eke ch caae eb bsae ese aes s 9
Finley v. United States, cert. granted, No. 87-1973 (Oct. 3,

Ne ig Caw bas eed waew ase vs 12
Franchise Tax Bd. v. United States Postal Service, 467

lea Wa Cb hig wadks duo 6 sew Kes 8
Graver Tank & Mfg. v. Linde Air Products Co., 336 U.S.

eg cece sun aes ane 11
Heckler v. Community Health Services of Crawford

ee I |. 7
Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709

a ways Gin va. n'a bee sas 10
Loeffler v. Frank, No. 86-1431 (June 13, 1988) ......... 8
Lyneyv. Payne, 476 US. 926 (1966) ................... 10
Maxima Corp. v. United States, 847 F.2d 1549 (Fed. Cir.

a x pak bch de eae 0 4 9
Morgan v. Heckler, 779 F.2d 544 (9th Cir. 1985) ........ 9
Schweiker v. Hansen, 450 U.S. 785 (1981) ............. 7
Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310

Sy a SA ge 11
United Mine Workers v. Gibbs, 383 U.S. 715 (1966) ..... 12-13
United States v. Florida, 482 F.2d 205 (Sth Cir. 1973) .... 9
United States v. Mattuci, 502 F.2d 883 (6th Cir. 1974)... 9
Utah Power & Light Co. v. United States, 243 U.S. 389

eee eas 64 Hy Kn a ae's 6i-de d6 eA 7-8

(III)

IV

Cases — Continued:

Wagner v. Director, Federal Emergency Management
Agency, 847 F.2d 515 (9th Cir. 1988) ......-----+---
Wilber Nat’l Bank v. United States, 294 U.S. 120 (1935) ..

Statutes:

Consolidated Omnibus Budget Reconciliation Act of

1985, Pub. L. No. 99-272, Tit. XIII, 100 Stat. 82:

§ 13006(a)(1), 100 Stat. 304 .....- 6 eee eee rere
§ 13006(b), 100 Stat. 304 ......-... eee eee ete

Trade Act of 1974, 19 U.S.C. 2341 ef seq. ....-----+++>:
19 U.S.C. 2342(b) (Supp. IV 1986) .....--------+--
19 U.S.C. 2342(b)(I(A) «06-6 eee eee etree
19 U.S.C. 2344(d) (Supp. IV 1986) ....---------+--
19 U.S.C. 2345(a2) ... 0... 2 cee e cece e eens:
UR fate. Tawar rer rr ree tae

Page

~

aNNNNN WNW WN

Jn the Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-940
BANK ONE, STEVENS POINT, NA, PETITIONER
Vv.

UNITED STATES DEPARTMENT OF COMMERCE, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-A12)
is reported at 854 F.2d 223. The opinions of the district
court (Pet. App. Al3-A20, A61-A69) are not reported.

JURISDICTION

The judgment of the court of appeals was entered on
August 8, 1988. A petition for rehearing with suggestion
for rehearing en banc was denied on September 9, 1988.
Pet. App. A75. The petition for a writ of certiorari was
filed on December 7, 1988. The jurisdiction of this Court
is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. Petitioner, a bank in Stevens Point, Wisconsin, had
for several years made loans to Weber Plastics and Weber

(1)

2

Tackle, Inc. (Weber or Weber Companies) that Weber did
not repay. Pet. App. Al, Al3. In 1979, Weber approached
petitioner for new loans to finance its fishing tackle opera-
tions and plastics manufacturing facility and to purchase
new and modernize existing equipment. Pet. App. Al4.
Because of Weber’s unsatisfactory credit history and large
debt, petitioner and other local banks refused to make the
requested loans. Jbid.

In October 1980, Weber sought financial assistance in
the form of a loan guaranty from the United States
Department of Commerce’s Economic Development Ad-
ministration (EDA) pursuant to provisions of the Trade
Act of 1974, 19 U.S.C. 2341 et seg. Pet. App. A2, Al4.
The Trade Act authorized the EDA to provide financial
assistance to American firms hurt by imports which had
“no reasonable access to financing through the private
capital market,” but provided a “reasonable assurance of
repayment of the loan.” 19 U.S.C. 2342(b)(1)(A), 2345(a)
(2)'; see Pet. App. A2. A necessary step in the loan
guaranty application process was the preparation of a
“Diagnostic Analysis and Recovery Plan.” Pet. App. Al4.
Weber presented an initial draft of the plan to the EDA
and to petitioner for review. After revisions (based upon
petitioner’s comments) were made in the recovery plan, it
was approved by EDA. Petitioner thereafter agreed to
loan Weber a total of $2.1 million, 90% of which was
guaranteed by EDA. Pet. App. Al4-Al6.

Under the terms of the guaranty agreements, petitioner
agreed to certain terms and conditions, including the re-

| The Trade Act was amended in 1986 to provide that “no direct
loans or guarantees of loans” could be made under the adjustment
assistance provisions after April 7, 1986. 19 U.S.C. 2344(d) (Supp. IV
1986). Section 2342(b) now provides for technical assistance alone.
Consolidated Omnibus Budget Reconciliation Act for 1985, Pub. L.
No. 99-272, Tit. XIII, § 13006(a)(i) and (b), 100 Stat. 304.

a ee ae

3

quirement that it would exercise “such care and diligence
in the disbursement, servicing, collection and liquidation
of the Loan as would be exercised by a reasonable and
prudent commercial bank in dealing with a loan of its
funds without guaranty * * *.” Pet. App. A2. Each guar-
anty also provided that “if the bank ‘failed to comply with
all of the material provisions’ of the agreement{,] the
government could terminate the guaranty.” Jbid.

On November 13, 1981—after the guaranty agreements
were signed, but before the loans were closed — Weber’s
accountants issued a Financial Report for the Fiscal Year
ending July 31, 1981, which showed that Weber’s losses
for that year were more than double the $250,000 loss pro-
jected in the recovery plan. Pet. App. A8, A87, A88. Peti-
tioner received a copy of the report and, on December 7,
1981, forwarded it to the EDA along with other materials.
Pet. App. A87.?

The Weber loans were closed on December 17, 1981.
Pet. App. A15S. On that date, the EDA’s Regional Director
wrote a letter to petitioner in which he opined, on the basis
of an affidavit and statements made by Weber’s President
and Treasurer (Remer Hutchinson), that since the date of
the acceptance of the guaranty agreements by the peti-
tioner, there had been “no unremedied adverse changes in
the financial condition of Weber Tackle Company suffi-
ciently serious * * * to warrant withholding disbursement
on account of the referenced loans.” Pet. App. A90.

On October 18, 1982, Weber defaulted on the loans. (It
later went out of business). Pet. App. A3, A1l6. Petitioner
timely notified EDA of the default. Pet. App. Al6. Later,

* It was undisputed in the court of appeals that the petitioner had
received the Financial Report and sent it to the EDA before the loans
were closed, although the district court was uncertain about this point.
See Pet. App. Al7.

4

on June 15, 1984, petitioner demanded that EDA honor its
guarantees and repurchase the EDA-guaranteed portion
of the loans. Jbid. On February 20, 1986, after the matter
had been investigated by the Inspector General of the
Department of Commerce, the EDA refused to acknowl-
edge liability on its guaranty agreements. Pet. App. A16,
A43.

2. Petitioner originally brought suit against Weber in
state court, seeking to foreclose on Weber’s assets that had
secured the loans. Pet. App. A3. Weber answered the
complaint and asserted a third-party complaint against the
government. Ibid. After the government removed the case
to the United States District Court for the Western District
of Wisconsin, petitioner twice amended its complaint and
ultimately named as defendants, among others, the Secre-
tary of Commerce in his official capacity,? Weber, and the
individual respondents Remer and Elaine Hutchinson.*
Pet. App. A3, A4, Al3.

3 Section 2350 of Title 19 of the United States Code provides that
the Secretary of Commerce may sue and be sued in United States
District Court regardless of the amount in controversy. Although peti-
tioner named other federal defendants in its suit (the United States
Department of Commerce, the United States, and the EDA), it sought
no separate relief against them and, as the court of appeals recognized
(Pet. App. AS), they should have been dismissed. For the sake of
simplicity, we will hereinafter refer to the governmental defendants
collectively as the “federal respondent.”

4 Remer Hutchinson, the former president of Weber Companies,
owned a controlling interest in the companies. Pet. App. A22. His
wife, Elaine Hutchinson, was the former Secretary of the companies.
Pet. App. A23. The individual respondents counterclaimed against
petitioner, alleging that petitioner had agreed to subordinate its priori-
ty position with respect to certain collateral to their personal claim for
$150,000 advanced to Weber, and filed a cross-claim against the
federal respondent, alleging that it was aware of the subordination
agreements, and by guaranteeing the loans, had effectively subordi-

5

3. The district court conducted a one-day bench trial
on the loan guaranty issues. After examining those of peti-
tioner’s activities that the federal respondent claimed had
breached the guaranty agreements, the court concluded
that the federal respondent should not be released from its
guaranty obligations. Pet. App. A13-A20.

First, the district court found that Weber’s audited
Financial Report for the year ended July 31, 1981 should
have raised questions about the viability of the recovery
plan, that both petitioner and the federal respondent
should have obtained the report prior to closing the loans,
and, therefore, that each entity should bear responsibility
for its imprudent acts. Pet. App. Al7.

Similarly, the district court was “distressed” at the peti-
tioner’s practice of allowing Weber to acquire additional
fixed assets before having them approved, and of dis-
bursing loan proceeds after Weber had defaulted. But it
found the government estopped from protesting against
these practices since it, too, generally followed “sloppy
procedures” in approving fixed asset expenses and had not
protested either that practice or the continued disburse- °
ment. Pet. App. Al7-A18.

Finally, the district court found that petitioner’s dis-
bursement of the loan proceeds into a checking account
controlled by a Weber company not party to the loans had
been imprudent, but had caused no harm. Pet. App. A18.
It held that petitioner’s practice of allowing Weber to
maintain substantial overdrafts and to violate certain

nated its Own interest in the collateral. Pet. App. A61-A69. Ulti-
mately, petitioner and Weber entered into a stipulation for entry of a
judgment of foreclosure and replevin against Weber. Pet. 10 n.10.
Later, the district granted summary judgment for petitioner against
the individual respondents, and summary judgment in favor of peti-
tioner and the federal respondent on the individual respondents’
counter- and cross-claims. Pet. 12.

6

negative covenants in the guaranty agreements was like-
wise harmiess. Pet. App. Al19.

4. The court of appeals reversed and directed the
district court to dismiss petitioner’s claim against the
federal respondent on the merits. Pet. App. All. Observ-
ing that “[t]he district judge agreed with the government
that the bank had acted imprudently,” the appellate court
concluded that “the bank’s conduct amounted to a
material breach * * * which therefore excused the govern-
ment from performing its obligations under the guaranty”
because “the evidence overwhelmingly established that
th{e] undemanding standard [for a material breach] was
satisfied, and the district court’s (unexplained) disagree-
ment with this conclusion we deem clearly erroneous.”
Pet. App. A9-A10.

The appellate court then turned to the district court’s
conclusion that “the bank’s imprudence was somehow can-
celled by the government’s.” Pet. App. Al0. The court of
appeals held that “nothing in the guaranty agreement en-
joins the guarantor to vigilance.” /bid. It also noted that
while some subordinate EDA officials had turned a “blind
eye” to some of the petitioner’s imprudent acts, none of
those officials had any actual or apparent authority to
modify the terms of the guaranty agreements, ibid., so
that “[t]he failure of the Economic Development Ad-
ministration’s regional staff to insist upon compliance
_ with [the provision requiring petitioner to act with the
prudence of a normal commercial bank making the loan
without a government guaranty] * * * does not open the
vaults of the Treasury to a bank that violated the provi-
sion.” Pet. App. A10-A11. Finally, although recognizing
that “[t]he question whether and in what circumstances the
federal government can be estopped by an act of its agents
remains unsettled,” the court of appeals held that
petitioner’s estoppel argument failed in any case because

petitioner had not demonstrated that even “the traditional
elements of an estoppel” were present. Pet. App. All.

ARGUMENT

1. Petitioner’s main contention is that the court of ap-
peals erred in failing to hold the government estopped by
its own imprudent behavior from asserting petitioner’s
material breach of the guaranty agreements. Petitioner’s
objection, however, is not to any error in the legal stand-
ard adopted by the court here. While we maintained below
and continue to believe that the government is not subject
to estoppel in this case (see Federal Crop Ins. Corp. v.
Merrill, 332 U.S. 380 (1947)), the court in fact assumed for
the purposes of the decision that the government was
susceptible to estoppel. Noting that “[t]he question
whether and in what circumstances the federal government
can be estopped by an act of its agents remains unsettled,”
the court explicitly followed the approach adopted by this
Court in Heckler v. Community Health Services of
Crawford County, Inc., 467 U.S. 51, 61 (1984), to hold
that “ ‘however heavy the burden might be when an estop-
pel is asserted against the Government, the private party
surely cannot prevail without at least demonstrating that
the traditional elements of an estoppel are present.’ ” Pet.
App. All. Petitioner’s objection is thus simply to the ap-
plication of that standard to the facts of this case, and spe-
cifically to the court’s conclusion that “there was no
reliance by the bank.” Jbid.; see Community Health Ser-
vices, 467 U.S. at 61, 66 (requiring “reasonable reliance”
as element of estoppel).°

5 Petitioner’s repeated attempts to distinguish cases like Schweiker
v. Hansen, 450 U.S. 785 (1981); Federal Crop Ins. Corp. v. Merrill,
332 U.S. 380 (1947); Wilber Nat'l Bank v. United States, 294 U.S. 120
(1935); and Utah Power & Light Co. v. United States, 243 U.S. 389

8

The court of appeals’ holding in this case that there was
insufficient evidence to support a finding of reasonable re-
liance does not warrant this Court’s review. Under the
plain terms of the guaranty agreements, petitioner had a
contractual responsibility “to administer the loan in the
same fashion as would a ‘reasonable and prudent commer-
cial bank’ in dealing with a loan that had not been guaran-
teed by the United States Government.” Pet. App. A7-A8.
That is, the bank was not supposed to look to the govern-
ment to guide its actions. To the contrary, it was obliged
by the terms of the guaranty agreements to exercise its
judgment independently, guided by the practice of other
commercial institutions. Petitioner does not contend that
the terms of the contract were modified so as to release
petitioner from its obligation to act as a “reasonable and
prudent commercial bank.”® Petitioner cannot demon-
strate how it otherwise might reasonably have relied on the

(1917), in which this Court has held estoppel against the government
inappropriate, are beside the point. The court of appeals did not reach
the question whether the government could be estopped on the facts of
this case because it found that petitioner had failed to satisfy the tradi-
tional test for estoppel. For the same reason, petitioner’s invocation of
Franchise Tax Bd. v. United States Postal Service, 467 U.S. 512 (1984)
and Loeffler v. Frank, No. 86-1431 (June 13, 1988) is gratuitous.
Franchise Tax Bd. and Loeffler concern the obligations assumed by
the Postal Service in its commercial role given a “sue and be sued”
clause, and do not concern the circumstances under which such an en-
tity might be estopped. Although petitioner cites those cases to sup-
port the proposition that when the government enters into commercial
activities, its liabilities are the same as those of other private entities,
the court of appeals had already assumed as much in this case when it
applied the principles of estoppel to the circumstances presented here.

© The court of appeals’ determination that the subordinate officials
with whom petitioner dealt had no “authority to modify the terms of
the guaranty” is germane to no wider point. See Pet. App. A10.

9

government; the court of appeals did not err in concluding
that the district court’s unexplained conclusion to the con-
trary was mistaken.

Petitioner observes (Pet. 20-22), as did the court of ap-
peals (Pet. App. All), that the law of estoppel remains
unsettled. As petitioner notes (Pet. 20-22), a number of
courts of appeals have held that the government may not
be estopped when it acts in its sovereign capacity (see, e.g.,
United States v. Florida, 482 F.2d 205, 210 (Sth Cir. 1973);
cf. United States v. Mattuci, 502 F.2d 883 (6th Cir. 1974));
other courts have held that the government may be
estopped when it acts in a “proprietary” capacity as when
its activities are arguably analogous to those of a private
concern (see, e.g., Federal Deposit Ins. Corp. v. Harrison,
735 F.2d 408, 412 (11th Cir. 1984); Branch Banking &
Trust Co. v. United States, 98 F. Supp. 757 (Ct. Cl.), cert.
denied, 342 U.S. 893 (1951)); still others have eschewed
the sovereign/proprietary distinction, and have held that
the government may be estopped only if, in addition to the
traditional elements of estoppel, the government’s agents
have engaged in “affirmative misconduct” that causes
“serious injustice” to the complainant (see, e.g., Wagner v.
Director, Federal Emergency Management Agency, 847
F.2d 515, 519 (9th Cir. 1988); Morgan v. Heckler, 779
F.2d 544, 545 (9th Cir. 1985)).’

7 Maxima Corp. v. United States, 847 F.2d 1549 (Fed. Cir. 1988),
and Brown v. Marsh, 777 F.2d 8 (D.C. Cir. 1985), cited by petitioner
(Pet. 20-21), are not relevant because they do not concern estoppel. In
Maxima Corp., the court held that under contract law the government
could not retroactively apply a “termination for convenience” clause
to a contract already fully performed on both sides. In Brown, the
court held that a plaintiff had substantially satisfied his duty to ex-
haust administrative remedies, adding that, where the obligation did
not have the nature of a jurisdictional bar, the government could not
press the obligation as a legal defense when it had failed to raise the
defense sufficiently below.

10

Under any of these approaches, however, the govern-
ment would not have been estopped here. Petitioner failed
to demonstrate even that the traditional elements of estop-
pel, let alone “affirmative misconduct” causing “serious
injustice,” existed here. Since the result in this case would
not have been different in any circuit, any conflict that ex-
ists among the courts of appeals in their treatments of
estoppel cases is not presented by the decision in this case. ®

2. Petitioner also claims that the court of appeals en-
gaged in improper factfinding. See Icicle Seafoods, Inc. v.
Worthington, 475 U.S. 709, 714 (1986). Although the
court of appeals arguably engaged in commentary un-
related to the issues developed before the district court and
unnecessary to the disposition of the case,? there was no
disagreement as to the key factual finding. The district
court found (Pet. App. A17-A20), and the court of ap-

* In a related vein, petitioner suggests (Pet. 22-23) that it might
benefit by an application of “appropriate principles of guaranty law,”
even if it cannot demonstrate the traditional elements of an estoppel.
See Pet. 22 (citing Lyng v. Payne, 476 U.S. 926, 936 (1986)). Even
assuming that such an approach would be proper here, an element of
the guaranty agreement at issue in this case was the requirement that
the bank exercise its independent “reasonable and prudent commer-
cial” judgment. There was no corresponding requirement placed on
the federal respondent to evaluate and verify whether petitioner’s ac-
tions were those of a “reasonable and prudent commercial bank.” See
Pet. App. Al0. Nor did the government ever take such action. The
petitioner failed to meet a material requirement of the guaranty; it
therefore cannot seek to enforce the guaranty.

* For example, petitioner objects (Pet. 24 n.16) to the court of ap-
peals’ characterization of petitioner’s decision to close the loans as
“yield[ing] to [the] temptation” to take advantage of the government’s
guaranty program (Pet. App. A8). This statement, however, is simply
part of the court’s generic observation that a bank could be expected
to close a deal if it decided that the deal worked to its commercial self-
interest; it is not specifically related to the court’s disposition of this
case. See /bid.

1]

peals agreed (Pet. App. A10), that petitioner had acted im-
prudently in closing the Weber loans, and in the way it
serviced those loans. This Court does not sit to review that
factual finding. Tiffany Fine Arts, Inc. v. United States,
469 U.S. 310, 317-318 n.5 (1985); Graver Tank & Mfg. v.
Linde Air Products Co., 336 U.S. 271, 275 (1949).

The main disagreement between the court of appeals
and the district court did not concern the finding that the
petitioner had acted imprudently, but the legal conse-
quences of that finding. Specifically, unlike the district
court, the court of appeals held that the imprudence of the
petitioner in closing the loans, like its subsequent im-
prudence in servicing the loans, violated its contractual
obligation to act as a “reasonable and prudent commercial
bank.” Pet. App. A7-A9. It ruled that the “reasonable and
prudent” requirement was a “central undertaking of the
promisor.” Pet. App. A9. Once that central undertaking
was recognized to be at issue, and the court of appeals had
determined that the district court’s refusal to impute
responsibility to the petitioner for the making of the loans
was mistaken,'® the conclusion that the district court had

'0 The obligation of the bank to act as a “reasonable and prudent
commercial bank” appeared in the guaranty agreements. In the court
of appeals’ view, the provision was susceptible to two interpretations:
it could be interpreted as requiring “reasonable and prudent behavior”
subsequent to the closing of each loan, or as requiring such behavior
from the beginning of the transaction (including the closing of the
loan as a necessary component of its later disbursement). Pet. App.
A9. The court of appeals correctly noted that the petitioner waived the
argument that the “reasonable and prudent” requirement did not ap-
ply to it from the beginning of the transaction by failing to make the
argument below. /bid. While petitioner suggests (Pet. 20 n.13) that it
did raise the issue below, its argument in the cited pages goes only to
the contentions that the petitioner did not act imprudently, that the
government acted imprudently as well, and that a guarantor is not en-
titled to expect prudent action from a bank. It does not assert that it

12

clearly erred when it found (Pet. App. A19) that “[t]}here
has been no substantial and material breach of duty” by
the petitioner was compelling. Pet. App. A9-A10.

3. Petitioner also seeks certiorari with respect to the
court of appeals’ ruling that the district court had no pend-
ent party jurisdiction over petitioner’s state law claim
against the individual respondents, the Hutchinsons. The
federal respondent is not affected by that ruling.'' We
note, however, that the issue raised by the petitioner does
not require this Court to hold the petition pending disposi-
tion of Finley v. United States, cert. granted, No. 87-1973
(Oct. 3, 1988). Petitioner’s arguments and those involved
in the Finley case concerning the propriety of pendent par-
ty jurisdiction are based on the premise that the threshold
requirements making pendent jurisdiction appropriate
have been met. See United Mine Workers v. Gibbs, 383

had no obligation to act prudently under the guaranty agreement
itself. In any event, the petitioner does not ask this Court to review the
court of appeals’ interpretation of the particularities of the guaranty
agreements employed here, an issue of little continuing importance
given the amendment of the Trade Act to exclude financial assistance
from the government. See 19 U.S.C. 2342(b), 2344(d) (Supp. IV
1986).

'! The district court granted summary judgment for the federal
respondent on a cross-claim filed against it by the Hutchinsons. The
Hutchinsons had claimed that the federal respondent, by virtue of
guaranteeing the Weber loans, had acquiesced in certain letter
agreements by which the petitioner, and therefore the federal respond-
ent, had subordinated its interest in certain collateral to that of the in-
dividual respondents. The court of appeals took no express action on
the district court’s ruling on this claim, but vacated its judgment
disposing of petitioner’s claim against the Hutchinsons and directed
that it be dismissed for lack of subject matter jurisdiction. The in-
dividual respondents have not sought review of the court of appeals’
decision. Rather, only the petitioner seeks to have the disposition rele-
vant to its claim reviewed. The pendent party claim therefore does not
concern the federal government.

13

U.S. 715, 725 (1966) (federal claim must be of sufficient
substance to support subject matter jurisdiction, federal
and state claims must be derived from “common nucleus
of operative fact,” and be such that plaintiff would or-
dinarily be expected to try both in one judicial
proceeding). Unlike the district court in Finley, the court
of appeals here rejected that premise. It found that it did
not have to consider the propriety of pendent party
jurisdiction because the petitioner had not demonstrated
that its claim against the federal government and its claim
against the individual respondents involved the same
“common nucleus of operative facts.” Pet. App. A7
(quoting Gibbs, 383 U.S. at 725). As the court explained,
“(t]he bank’s claim against [EDA] * * * concerns the terms
of the guaranty agreement and the behavior of both the
bank and the EDA in administering the loan. The bank’s
claim against the Hutchinsons involves the terms of its
agreement with the Hutchinsons. There is no overlap of
legally pertinent facts or legal principles.” Thus, contrary
to petitioner’s contention that the Seventh Circuit failed to
apply the Gibbs common nucleus test (Pet. 27), the
Seventh Circuit applied the test and determined that “[t]he
operative facts * * * are separate nuclei with much space
between them.” Pet. App. A7. Since the claim here did not
meet the threshold requirement for pendent jurisdiction,
this case does not raise the question of pendent party
jurisdiction.

14

CONCLUSION

For the foregoing reasons, it is respectfully submitted
that the petition for a writ of certiorari should be denied.

Respectfully submitted.

WILLIAM C. BRYSON

Acting Solicitor Generai
JOHN R. BOLTON

Assistant Attorney General
JOHN F. CORDES

MARY K. DOYLE
Attorneys

MICHAEL A. LEVITT

Acting General Counsel
JAMES K. WHITE

Assistant General Counsel
GEORGE E. MADEN
WALTER J. MCLELLAN

Attorneys

Department of Commerce

FEBRUARY 1989

“> US GOVERNMENT PRINTING OFFICE: 1989— 241-699 00093

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0545%3A3. Public record. Not legal advice.