United States of America v. Sandwich Isles Communications, Inc. et al
Filing
161
ORDER (1) GRANTING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, ECF NO. 48 ; (2) GRANTING PLAINTIFF'S MOTION TO DISMISS COUNTERCLAIM, ECF NO. 52 ; AND (3) GRANTING THIRD-PARTY DEFENDANTS' MOTION TO DISMISS INDIVIDUAL CAPA CITY CLAIMS, ECF NO. 55 - Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 7/22/2019. "The United States' Motion for Partial Summary Judgment, ECF No. 48, is GRANTED as to Count One of its Complaint. Sandwich Isles has defaulted and has breached the loan contracts. The United States' Motion to Dismiss Counterclaim, ECF No. 52, is GRANTED as to all official-capacity claims. Counterclaimants are granted leave to file an amended counterclaim by August 19, 2019, as to Count One (violation of the Equal Credit Opportunity Act) of the counterclaim only. The Individual Capacity Third-Party Defendants' Motion to Dismiss th e Individual Capacity Claims, ECF No. 55, is GRANTED. The Third-Party Claims based on Bivens are DISMISSED with prejudice." (jo)COURT'S CERTIFICATE of Service - Non-Registered CM/ECF Participants have been served by First Class Mail to the addresses of record listed on the Notice of Electronic Filing (NEF)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
UNITED STATES OF AMERICA,
Civ. No. 18-00145 JMS-RT
Plaintiff,
ORDER (1) GRANTING IN PART
PLAINTIFF’S MOTION FOR
PARTIAL SUMMARY JUDGMENT,
ECF NO. 48; (2) GRANTING
PLAINTIFF’S MOTION TO
DISMISS COUNTERCLAIM, ECF
NO. 52; AND (3) GRANTING
THIRD-PARTY DEFENDANTS’
MOTION TO DISMISS
INDIVIDUAL CAPACITY CLAIMS,
ECF NO. 55
vs.
SANDWICH ISLES
COMMUNICATIONS, INC., ET AL.,
Defendants.
_________________________________
AND RELATED COUNTERCLAIMS
AND THIRD-PARTY CLAIMS.
ORDER (1) GRANTING IN PART PLAINTIFF’S MOTION FOR PARTIAL
SUMMARY JUDGMENT, ECF NO. 48; (2) GRANTING PLAINTIFF’S
MOTION TO DISMISS COUNTERCLAIM, ECF NO. 52; AND
(3) GRANTING THIRD-PARTY DEFENDANTS’ MOTION TO DISMISS
INDIVIDUAL CAPACITY CLAIMS, ECF NO. 55
I. INTRODUCTION
The court addresses three motions in this suit brought by Plaintiff
United States of America (“Plaintiff” or “United States”) arising from the alleged
breach of certain promissory notes by Defendant Sandwich Isles Communications,
Inc. (“Sandwich Isles” or “SIC”).
1
First, the United States seeks summary judgment on Count One of its
Complaint, arguing that it is undisputed that Sandwich Isles has breached loan
contracts—owing the United States well over $129 million—by defaulting on
loans made to Sandwich Isles by the Rural Telephone Bank (“RTB”), predecessor
to the Rural Utilities Service (“RUS”), which is an agency of the U.S. Department
of Agriculture (“USDA”). See ECF No. 48. 1 The United States also moved for
summary judgment on Count Two, seeking to foreclose immediately on the loans
and to sell all property pledged as collateral, but it is no longer pursuing such relief
at this stage of the proceedings.
Second, the United States—as counterclaim-Defendants the USDA;
the Federal Communications Commission (“FCC”); Ajit Pai (“Pai”), Lisa Hone
(“Hone”), Sharon Gillett (“Gillett”), and Carol Mattey (“Mattey”) in their official
capacities as current or former FCC officials; and Kenneth Johnson (“Johnson”), in
his official capacity as head of the RUS (collectively, the “Official Capacity
Counter-Defendants” or simply the “United States”)—moves to dismiss the
counterclaim brought against them by Sandwich Isles and “additional
counterclaimants” Iini Patelesio and Kaleo Cullen. See ECF No. 52.
1
Plaintiff’s Motion for Partial Summary Judgment does not address the other Counts of
the Complaint, alleging (1) violations of the Federal Priority Statute, 31 U.S.C. § 3713, for
preferential transfers to others while Sandwich Isles was “insolvent;” (2) violations of provisions
of the Federal Debt Collection Procedures Act, 28 U.S.C. § 3304, for post-insolvency fraudulent
transfers; and (3) beaches of fiduciary duty. See generally ECF No. 1 at ¶¶ 174 to 279.
2
Third, Pai, Hone, Gillett, Mattey, and Johnson, in their individual
capacities (collectively the “Individual Capacity Third-Party Defendants”),
separately move to dismiss all third-party claims against them. See ECF No. 55.
Having considered the extensive written briefing, and oral arguments
of counsel at the April 29, 2019 hearing, the court rules as follows:
Plaintiff’s Motion for Partial Summary Judgment, ECF No. 48, is
GRANTED in part. It is granted as to Count One because the record establishes
that Sandwich Isles has breached the promissory notes at issue and is in default. It
is denied without prejudice as to Count Two because of an existing bankruptcy
stay and, in any event, procedural and substantive requirements remain before the
sale of all collateral can occur (as conceded by Plaintiff).
The United States’ Motion to Dismiss Counterclaim of Sandwich
Isles, Patelesio and Cullen, ECF No. 52, is GRANTED with leave to amend. By
August 19, 2019, Sandwich Isles may file an amended counterclaim—as to Count
One of its Counterclaim only—that attempts to cure the defects identified in this
Order.
Finally, the Individual Capacity Third-Party Defendants’ Motion to
Dismiss, ECF No. 55, is GRANTED with prejudice. The claims against Pai, Hone,
Gillett, Mattey, and Johnson, in their individual capacities, fail to state viable
causes-of-action under Bivens v. Six Unknown Agents of the Federal Bureau of
3
Narcotics, 403 U.S. 388 (1971), and any such amendment would be futile under
Ziglar v. Abbasi, 137 S. Ct. 1843, 1857 (2017).
II. BACKGROUND
A.
Factual Background
1.
Sandwich Isles
Sandwich Isles was formed in the mid-1990s to provide
telecommunications services to native Hawaiians on Hawaiian home lands. ECF
No. 26-1 ¶ 29 at PageID #590. See generally Nelson v. Hawaiian Homes Comm’n,
127 Haw. 185, 187-89, 277 P.3d 279, 281-83 (2012) (explaining basic history of
the Hawaiian Homes Commission Act); Arakaki v. Lingle, 477 F.3d 1048, 1054-55
(9th Cir. 2007) (also setting forth history, and explaining that the State of Hawaii
Department of Hawaii Home Lands administers Hawaiian home lands for the
benefit of “native Hawaiians,” defined by the Hawaiian Homes Commission Act as
“any descendant of not less than one-half part of the blood of the races inhabiting
the Hawaiian Islands previous to 1778”). Hawaiian home lands are primarily
located in rural or more remote areas, and “[b]ecause of the remote and noncontiguous nature of the Home Lands, the cost to provide infrastructure to these
areas is very high.” ECF No. 26-1 ¶ 20 at PageID #587.
According to the Complaint, “at times relevant,” Defendant Albert
S.N. Hee (“Hee”) has been Sandwich Isles’ president and secretary, and one of its
4
directors. ECF No. 1 ¶ 16 at PageID #5. Hee was president “until a date in 2013
after August 30, 2013.” Id. ¶ 19. He remained secretary “until a date in 2013,”
and a director until July 13, 2015. Id. ¶¶ 19, 20. Sandwich Isles’ current president
and secretary is Defendant Janeen-Ann Olds (“Olds”), having become president
“on a date in 2013 after August 30, 2013.” Id. ¶¶ 13, 14 at PageID #4, 5.
Sandwich Isles is a wholly-owned subsidiary of Defendant Waimana
Enterprises, Inc. (“Waimana”), which is a Hawaii corporation. Id. ¶¶ 33, 107 at
PageID #7, 17. Before December 2012, Hee was the sole owner of Waimana. Id.
¶ 111 at PageID #17. After December 2012, Hee owned 10% of Waimana, with
the other 90% owned by trusts benefitting Hee’s children. Id. ¶ 112 at PageID #18.
The directors of Waimana “at various times relevant” to this case, have been Hee,
his wife, and their children. Id. ¶ 108 at PageID #17. In addition to Sandwich
Isles, Waimana wholly owns as subsidiaries Defendants ClearCom, Inc. and
Ho'opa'a Insurance Corp. Id. ¶¶ 113, 114 at PageID #18. Defendants Paniolo
Cable Company, LLC and Pa Makani LLC are owned indirectly by trusts
benefitting Hee’s children. Id. ¶¶ 115, 116.
When the Complaint was filed on April 20, 2018, Hee was
incarcerated at a Federal Correctional Institution located in Terre Haute, Indiana.
Id. ¶ 18 at PageID #5. As set forth in a Judgment entered on January 7, 2016, Hee
was convicted and sentenced to 46 months imprisonment on various tax-related
5
charges, stemming from a grand jury indictment first returned on September 17,
2014. See United States v. Albert S.N. Hee, Crim. No. 14-00826 SOM (D. Haw.)
(ECF Nos. 1, 242).2 His conviction was affirmed on March 14, 2017. See United
States v. Hee, 681 F. App’x 650 (9th Cir. Mar. 14, 2017) (mem.).
“The evidence at trial established that Hee had characterized millions
of dollars in personal expenses as business expenses incurred by [Waimana].” Hee
v. United States, 2018 WL 4609932, at *1 (D. Haw. Sept. 25, 2018) (denying
§ 2255 petition). Specifically,
Trial evidence established that, between 2002 and 2012,
Hee used Waimana to pay millions of dollars in personal
expenses, including personal massages, college tuition
for his children, living expenses for his children, and
credit card charges such as those for family vacations to
France, Switzerland, Tahiti, Disney World, and the
Mauna Lani resort. Hee also had Waimana pay salaries
and benefits to his wife and children, even while his
children were full-time students doing no work for the
company. And although Hee claimed that he purchased
the Santa Clara house as an investment by Waimana,
Hee’s son and daughter lived in the house while
attending college and rented out rooms to classmates
without submitting the rent proceeds to Waimana.
Waimana wrongfully deducted the expenses on corporate
2
The court takes judicial notice of Hee’s conviction, and of various court decisions and
published administrative orders related to it and to Sandwich Isles, as discussed later in this
Order. See, e.g., Harris v. Cty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (“[Courts] may
take judicial notice of undisputed matters of public record . . ., including documents on file in
federal or state courts.”) (citations omitted). This includes “records and reports of administrative
bodies.” United States v. Ritchie, 342 F.3d 903, 909 (9th Cir. 2003) (citation omitted).
6
tax returns, and Hee failed to report the receipt of any
rental income on his personal tax returns. After an
eleven-day trial, the jury returned a verdict of guilty
beyond a reasonable doubt on all counts.
Id.
2.
Loans from the RTB and Funding from the FCC’s USF Program
To partially finance construction and operation of Sandwich Isles’
telecommunications services on Hawaiian home lands, Sandwich Isles and the
United States entered into a series of loan agreements and corresponding
promissory notes from September 1997 to April 2001. ECF No. 1 ¶ 57 at PageID
#10. The three loans, totaling over $165 million, were made by the RTB pursuant
to the Rural Electrification Act of 1936, as amended, 7 U.S.C. § 901 et seq. See
Kenneth Kuchno Decl. ¶¶ 5-6, ECF No. 50 at PageID #939.3 RTB was an agency
of the USDA, but was dissolved in 2006, and was succeeded by the RUS, which is
also an agency of the USDA. Id. ¶ 19 at PageID #940. As of January 1, 2013,
Sandwich Isles was required to make monthly installment payments to the RUS of
$1,086,758.01. Id. ¶ 35 at PageID #942.
3
The court overrules Sandwich Isles’ objections to Kuchno’s declaration, arguing that it
is insufficient to authenticate the various financial records attached to the Complaint and to
Kuchno’s declaration. See ECF No. 108 at Page ID #1326-27. Kuchno declares under penalty
of perjury that he is a current Deputy Assistant Administrator with the RUS, having worked there
since 1980 and as Deputy Assistant Administrator since 2014. ECF No. 50 ¶ 3. In that capacity,
he attests to having personal knowledge of facts, issues, and documents referred to in his
declaration. Id. ¶ 4. His declaration is sufficient to authenticate the records, and Sandwich Isles
offers nothing contrary to question their authenticity.
7
Meanwhile, Sandwich Isles was receiving subsidies from the FCC as
part of the FCC’s Universal Service Fund (“USF”). Indeed, to qualify for certain
loan advances, the RUS required Sandwich Isles to provide “evidence that [it] has
received approval to participate in the Universal Service Fund” so that the RUS
could “determine that the revenues derived by [Sandwich Isles] from said Fund,
along with the revenues derived by [Sandwich Isles] from all other sources, will be
sufficient to enable [Sandwich Isles] to maintain” a certain level of financial
health. ECF No. 1-1 ¶ 5 at Page ID #76.
The USF is a funding stream the [FCC] uses to subsidize
telecommunications and information services in rural and
high-cost areas, as well as for schools, libraries, and lowincome households. 47 U.S.C. § 254(b)(3), (h)(1)(B).
The USF receives its funding from businesses in the
telecommunications sector; some businesses are required
by statute to contribute while others must contribute only
when the [FCC] has, in its discretion, required them to do
so. Specifically, the Act mandates contributions from
“[e]very telecommunications carrier that provides
interstate telecommunications services.” Id. § 254(d).
Moreover, under its permissive contribution authority,
the [FCC] may demand USF contributions from “[a]ny
other provider of interstate telecommunications . . . if the
public interest so requires.” Id.
Vonage Holdings Corp. v. F.C.C., 489 F.3d 1232, 1236 (D.C. Cir. 2007).
As addressed later in this Order, the USF was established to fulfill
certain principles, including that:
8
Consumers in all regions of the Nation, including lowincome consumers and those in rural, insular, and high
cost areas, should have access to telecommunications and
information services, including interexchange services
and advanced telecommunications and information
services, that are reasonably comparable to those services
provided in urban areas and that are available at rates that
are reasonably comparable to rates charged for similar
services in urban areas.
47 U.S.C. § 254(b)(3), and that “[t]here should be specific, predictable and
sufficient Federal and State mechanisms to preserve and advance universal
service.” 47 U.S.C. § 254(b)(5).
In 2005, Sandwich Isles was receiving USF high-cost support in the
amount of $14,000 per “loop” (or line) per year. ECF No. 26-1 ¶¶ 52 to 59 at
PageID #597 to 601; In re Sandwich Isles Commc’ns, 20 FCC Rcd. 8999, 9006
n.53, 2005 WL 1147760 at **5 n.53 (May 16, 2005).
3.
The 2011 Transformation Order, and 2013 Waiver Denial
In 2011, “the FCC ‘comprehensively reformed’ its existing regulatory
system for telephone service.” In re FCC 11-161, 753 F.3d 1015, 1035 (10th Cir.
2014). “On February 9, 2011, the FCC issued a Notice of Proposed Rulemaking
(NPRM) ‘proposing to fundamentally modernize the FCC’s Universal Service
Fund (USF or Fund) and intercarrier compensation (ICC) system.’” Id. at 1035-36
(citation and brackets omitted). As a result, on November 18, 2011, the FCC
issued a comprehensive 975-page Report and Order (the “Transformation Order”),
9
that, among other matters, reformed the manner and amount of USF payouts made
to rural carriers. See In re Connect America Fund, 26 FCC Rcd. 17663, 2011 WL
5844975 (Nov. 18, 2011), petitions for review denied, In re FCC 11-161, 753 F.3d
at 1033; see also In re FCC 11-161, 753 F.3d at 1070 (analyzing changes to USF
subsidies).
The Transformation Order instituted a $250 per line per month cap on
USF support, effective July 2014. See 47 C.F.R. § 54.302(a). This was a
significant reduction from the $14,000 per line per year that Sandwich Isles had
been receiving. As summarized by the United States, “[t]he Transformation Order
affected . . . all high-cost USF recipients by establishing, ‘for the first time,’ a
‘budget for the high-cost programs within USF’ to ‘protect consumers and
businesses that ultimately pay for USF through fees on their communications
bills.’” ECF No. 55-1 at PageID #1037 (quoting Transformation Order, 26 FCC
Rcd. 17663, ¶ 18).
The FCC recognized that its reforms could impact particular
recipients differently, so the Transformation Order established a “waiver
mechanism under which a carrier can seek relief from some or all of our reforms if
the carrier can demonstrate that the reduction in existing high-cost support would
put consumers at risk of losing voice service. . . .” Id. (quoting Transformation
Order ¶¶ 32, 193, 539). See also In re FCC 11-161, 753 F.3d at 1069 (explaining
10
that “the Order made clear that if ‘any rate-of-return carrier can effectively
demonstrate that it needs additional support to avoid constitutionally confiscatory
rates, the FCC will consider a waiver request for additional support.’”) (citing
Transformation Order ¶ 294).
Sandwich Isles sought a waiver from the Transformation Order, and
its $250 per line per month cap on USF subsidies, but the FCC denied its request
on May 10, 2013. See In re Connect America Fund, 28 FCC Rcd. 6553, 2013 WL
1962345 (May 10, 2013). The FCC’s denial concluded as follows:
We conclude that Sandwich Isles has failed to show good
cause for a waiver at this time. In particular, Sandwich
Isles seeks a waiver that would allow it to retain a
number of significant and wasteful expenses, totaling
many millions of dollars, including significant payments
to a number of affiliated and closely-related companies.
Indeed, Sandwich Isles’ corporate expenses are 623
percent greater than the average for companies of similar
size with the highest corporate operations expenses. . . .
Sandwich Isles may file a new petition for waiver in the
future, once it is able to restructure its operations in an
appropriate manner that allows it to reduce unreasonable
expenses.
2013 WL 1962345, at **1. Sandwich Isles apparently did not appeal that denial.
And in a different decision in related proceedings, on December 5,
2016, the FCC issued an administrative Order concluding that “Sandwich Isles
improperly received payments in the amount of $27,270,390 from the federal highcost support mechanisms from 2002 to June 2015,” and finding that “amount[s] to
11
be determined of the inflated management fees paid by Sandwich Isles to its parent
company Waimana . . . were excessive.” In re Sandwich Isles Commc’ns, 31 FCC
Rcd. 12999, 2016 WL 7129743 at **1 (Dec. 5, 2016). Among other things, the
Order required Sandwich Isles to repay the $27 million that it improperly received,
and it continued a suspension of further USF payments to Sandwich Isles that the
FCC had implemented on July 28, 2015. Id. at **10
The FCC denied reconsideration of that Order on January 3, 2019.
See In re Sandwich Isles Commc’ns, Inc., 2019 WL 105385 (F.C.C. 18-172 Jan. 3,
2019). And, on May 17, 2019, the Court of Appeals for the District of Columbia
dismissed as untimely Sandwich Isles’ appeal of that reconsideration Order. See
Sandwich Isles Commc’ns, Inc. v. FCC, 2019 WL 2564087 (D.C. Cir. May 17,
2019).
4.
Sandwich Isles Stops Making Full Payments on the Loans
Meanwhile, in an April 25, 2013 letter from Hee to the Secretary of
Agriculture, Sandwich Isles—given the FCC’s adoption of the Transformation
Order lowering USF payments (and apparently while its waiver petition was still
pending)—notified the FCC that Sandwich Isles “is unable to continue making
interest and principal payments on [its] RUS loans.” ECF No. 48-18 at PageID
#892. Rather, Hee stated that “beginning in May 2013, Sandwich Isles will be
12
reducing the amount of its debt payment made to RUS to match the amount the
FCC has determined is reasonable and supportable.” Id. at PageID #894.
On May 10, 2013, the RUS responded to the April 25, 2013
notification by declaring that Sandwich Isles’ nonpayment of the full amounts
owing was an “event of default,” and that the RUS would be “accelerat[ing] the
entire debt on the Loans” if full payment was not made. ECF No. 48-19 at PageID
#895, 896. After apparent negotiations, by letter dated July 26, 2013, the USDA
rejected a proposed restructuring plan from Sandwich Isles. ECF No. 48-21 at
PageID #905. That letter indicated that, in order to cure the default, Sandwich
Isles was required by August 26, 2013 to make payment in full of past due
amounts. Id. at PageID #906.
Sandwich Isles did not make payment in full. Instead, it continued to
make periodic partial payments until February 2018, when it made its last
payment. Specifically, “[f]rom November 2013 through February 2018,
[Sandwich Isles] has made payments on the RUS Loans ranging from
approximately 4.6% to approximately 27.7% of the monthly installment payments
that were due in 2013 prior to RUS’s acceleration of the repayment of the RUS
Loans.” ECF No. 110 ¶ 18 at PageID #1368, 1369.
13
B.
Procedural Background
The United States, on behalf of the RUS, filed this suit on April 20,
2018. ECF No. 1. The Complaint contains six substantive counts:
•
Count One (breach of contract against Sandwich Isles for failure to
repay the RUS loans);
•
Count Two (seeking foreclosure and sale of mortgaged property,
against Sandwich Isles and several other Defendants who may have
had interests in such property); 4
•
Count Three (violations of the Federal Priority Statute, 31 U.S.C.
§ 3713, against Hee, Olds, and Randall Ho “for approving payment of
claims of others before causing the claims of the United States to be
paid”);
•
Count Four (violations of the Federal Debt Collection Procedures Act,
28 U.S.C. § 3304, against Waimana, ClearCom, Ho'opa'a Insurance
Co., Paniolo, Pa Makani LLC, Hee, Ho, and Olds, for “transfers made
while [Sandwich Isles] was insolvent”);
•
Count Five (violations of the Federal Debt Collection Procedures Act,
against Waimana, ClearCom, Paniolo, Hee, Ho, and Olds, for
“[Sandwich Isles’] transfers or obligations for which [Sandwich Isles]
did not receive reasonably equivalent value”); and
•
Count Six (breach of fiduciary duty, against Hee and Olds).
On August 3, 2018, Sandwich Isles filed its answer, along with a
counterclaim. ECF No. 26. The counterclaim joins as “additional
4
Those Defendants are Hawaii National Bank, Maui Electric Co., Ltd., Hawaiian Electric
Company, Inc., Central Pacific Bank, Kekauluohi, Inc., Dell Financial Services LLC, R.M.
Towill Corporation, ClearCom, Inc., and Paniolo. ECF No. 1 at PageID #26.
14
Counterclaimants” Patelesio and Cullen (who were joined, perhaps improperly,
pursuant to Federal Rules of Civil Procedure 13(h) and 20). As discussed to
follow, the counterclaim is made against the United States, and “additional
counterclaim Defendants Kenneth Johnson, the FCC, Ajit Pai, Lisa Hone, Sharon
Gillett,[5] and Carol Mattey.” ECF No. 26-1. The counterclaim (more correctly
characterized as a third-party counterclaim as to the individuals sued in their
personal capacities) is described and analyzed later, when discussing the motions
seeking its dismissal.
As described in the Introduction, the court now faces three substantive
motions—(1) the United States’ Motion for Partial Summary Judgment as to
Counts One and Two of its Complaint, ECF No. 48, (2) the United States’ Motion
to Dismiss the counterclaim as to its official-capacity allegations, ECF No. 52, and
(3) the Individual Capacity Third-Party Defendants’ Motion to Dismiss the thirdparty counterclaim as to the individual-capacity allegations, ECF No. 55. The
court held a hearing on the motions on April 29, 2019. ECF No. 140.
5
The counterclaim describes Sharon “Gillette” as “the former Bureau Chief of the FCC’s
Wireline Competition Bureau.” ECF No. 26-1 at PageID #586. The court, however, spells her
name “Gillett,” as used by government counsel representing the counterclaim Defendants in their
individual capacities.
15
III. DISCUSSION
A.
Motion One—the United States’ Motion for Partial Summary Judgment
on Counts One and Two of its Complaint, ECF No. 48
1.
Standard of Review
Summary judgment is proper where there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(a). Rule 56(a) mandates summary judgment “against a party who
fails to make a showing sufficient to establish the existence of an element essential
to the party’s case, and on which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of
Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).
“A party seeking summary judgment bears the initial burden of
informing the court of the basis for its motion and of identifying those portions of
the pleadings and discovery responses that demonstrate the absence of a genuine
issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th
Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah’s
Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has
carried its burden under Rule 56[(a)] its opponent must do more than simply show
that there is some metaphysical doubt as to the material facts [and] come forward
with specific facts showing that there is a genuine issue for trial.” Matsushita
16
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citation and
internal quotation marks omitted).
“An issue is ‘genuine’ only if there is a sufficient evidentiary basis on
which a reasonable fact finder could find for the nonmoving party, and a dispute is
‘material’ only if it could affect the outcome of the suit under the governing law.”
In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)). When considering the evidence on a
motion for summary judgment, the court must draw all reasonable inferences in the
light most favorable to the nonmoving party. Friedman v. Live Nation Merch.,
Inc., 833 F.3d 1180, 1184 (9th Cir. 2016).
“When the party moving for summary judgment would bear the
burden of proof at trial, ‘it must come forward with evidence which would entitle it
to a directed verdict if the evidence went uncontroverted at trial.’” C.A.R. Transp.
Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (quoting
Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)). And so a Plaintiff
moving for summary judgment on an affirmative claim “must establish beyond
peradventure all of the essential elements of the claim . . . to warrant judgment in
his favor.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Put
another way, “[its] showing must be sufficient for the court to hold that no
reasonable trier of fact could find other than for the moving party.” Calderone v.
17
United States, 799 F.2d 254, 259 (6th Cir. 1986) (quoting W. Schwarzer, Summary
Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99
F.R.D. 465, 488 (1984)).
2.
As to Count One, Sandwich Isles has Defaulted on the Promissory
Notes
Sandwich Isles admits that it has not made full installment payments
on the RUS promissory notes since before April 2013. ECF No. 48-2 ¶¶ 15, 19 at
PageID #830-31; ECF No. 110 ¶¶ 15, 19 at PageID #1367-69. Rather, Sandwich
Isles made a partial payment on April 30, 2013, and continued to make partial
payments until February 2018, when it stopped making payments altogether. ECF
No. 110 ¶¶ 16, 18 at PageID #1368-69.
Sandwich Isles also concedes that the RUS accelerated the remaining
balance on the loans according to the loans’ terms, effective August 27, 2013, after
the RUS rejected a proposed restructuring plan on July 26, 2013. Id. ¶ 17; ECF
No. 48-21 at PageID #903; Kuchno Decl. ¶ 45, ECF No 50 at PageID #943. As
such, Sandwich Isles cannot contest that a failure to make full payments was an
“event of default,” at least as the term is defined under the loan documents. See
ECF No. 1-10 at PageID #148 (Art. III, § 1(a) of mortgage); ECF No. 1-1 at
PageID #69 (§ 5.1 of the Sept. 26, 1997 Loan Contract).
18
And Sandwich Isles acknowledges that it has not repaid the balances
due on the RUS loans, which exceeded $129 million in July 2018 (with interest
continuing to accrue). ECF No. 110 ¶ 19 at PageID #1369; ECF No. 48-22 at
PageID #909.
Despite those uncontested facts, Sandwich Isles argues that it has not
breached the loan contracts (and is therefore not in default) because a purported
“basic assumption” of the loans—that Sandwich Isles would continue to receive
the same level of USF payments from the FCC to, in turn, make the loan payments
to the RUS—changed when the FCC issued its Transformation Order in 2011, and
then denied Sandwich Isle’s application for a waiver from the Transformation
Order in 2013. In essence, Sandwich Isles contends that its obligation to make full
loan payments to the RUS ended when the FCC lowered the amount of USF
payments to Sandwich Isles. See ECF No. 108 at PageID #1331 (opposition
arguing that “[c]ontinuation of the universal service fund payments at the same
level was a ‘basic assumption on which the contract was made’” such that “SIC’s
obligation to perform the contract has been discharged”) (quoting Restatement
(Second) of Contracts § 261). This argument fails, both factually and legally.
Nothing in the contractual language supports Sandwich Isles’
position. Sandwich Isles relies on the following provision (the “Revenue
19
Documentation Prerequisite”) listed in “Schedule A” of the Sept. 26, 1997 loan
agreement: 6
(C) . . . [N]o advances of funds on account of the [loans]
will be made unless and until those additional
prerequisites to advances of funds have been met as set
forth in Schedule A attached to and made a part of this
agreement.
....
5. [Sandwich Isles provides] evidence that [Sandwich
Isles] has received approval to participate in the
Universal Service Fund to enable RUS to determine that
the revenues derived by [Sandwich Isles] from said Fund,
along with the revenues derived by [Sandwich Isles]
from all other sources, will be sufficient to enable
[Sandwich Isles] to maintain a TIER of 1.04.
ECF No. 1-1 at PageID #56, 76. 7 And it cites to a declaration of Albert Hee as
extrinsic evidence of the parties’ intent that the obligation to make full payments
on the RUS loans was contingent on sufficient USF payments continuing without
reduction. See Hee Decl. ¶¶ 9-11, ECF No. 110-1 at PageID #1375-76.
But the terms of the Revenue Documentation Prerequisite are
unambiguous, and they say nothing about Sandwich Isles’ obligations to make loan
6
Some of the loan agreements do not have this Revenue Documentation Prerequisite.
See ECF No. 1-2 at PageID #79-85 (Jan. 22, 1999 loan agreement with no such reference to USF
payments); ECF No. 1-3 at Page ID #87-95 (Apr. 2, 2001 loan agreement with no such
reference).
7
“TIER” means “times interest earned ratio,” and is a figure used by the RUS “to assess
its borrowers’ financial health.” Kuchno Decl. ¶¶ 30-31, ECF No. 50 at Page ID #941-942; ECF
No. 125 at Page ID #1633.
20
payments. 8 The absence of ambiguity in this provision renders extrinsic evidence
of intent improper. See, e.g., CNH Indus. N.V. v. Reese, 138 S. Ct. 761, 765-66
(2018) (reasoning that courts may not consult extrinsic evidence “unless, ‘after
applying established rules of interpretation, [the provision] remains reasonably
susceptible to at least two reasonable but conflicting meanings.’”) (quoting 11 R.
Lord, Williston on Contracts § 30.4, at 53-54 (4th ed. 2012)); Klamath Water
Users Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999) (“[W]hen
the terms of a contract are clear, the intent of the parties must be ascertained from
the contract itself.”) (citation omitted); id. (“The fact that the parties dispute a
contract’s meaning does not establish that the contract is ambiguous; it is only
ambiguous if reasonable people could find its terms susceptible to more than one
interpretation.”) (citation omitted).
The clear terms required Sandwich Isles, as a condition precedent to
receiving “advances of funds,” to provide the RUS with evidence only that
Sandwich Isles was “approv[ed] to participate in the [USF]”—and evidence of
such participation that was in fact given to the RUS. See ECF No. 50 ¶ 30, 32 at
8
The court applies federal law in interpreting these federal contracts entered into
pursuant to the Rural Electrification Act, as amended, 7 U.S.C. § 901 et seq. See, e.g., United
States v. Seckinger, 397 U.S. 203, 209-10 (1970) (holding that federal law controls interpretation
of a contract between United States and contractor, where the “contract was entered into
pursuant to authority conferred by federal statute”); Kennewick Irrigation Dist. v. United States,
880 F.2d 1018, 1032 (9th Cir. 1989) (“Federal law controls the interpretation of a contract
entered pursuant to federal law when the United States is a party.”) (citing Seckinger).
21
PageID #941-42. This enabled the RUS to determine whether USF revenues
“along with the revenues . . . from all other sources,” would be sufficient for
Sandwich Isles “to maintain a TIER of 1.04.” ECF No. 1-1 at PageID #76. The
RUS knew that Sandwich Isles would be participating in the USF (and required
such participation) and would be receiving subsidies. The provision, however,
says nothing about limiting Sandwich Isles’ duty to repay the loans based on
receipt of any specific level of USF payments. It says nothing about ending
Sandwich Isles’ repayment obligations if USF payments were reduced. Indeed, it
specifically contemplates that Sandwich Isles would be receiving revenues from
other sources (besides USF payments) to maintain the specified measure of
financial health.
Under the provision’s plain language, if Sandwich Isles was unable to
provide evidence that it was “approv[ed] to participate in the [USF],” then the RUS
was not required to make further advances of funds. Id. Likewise, the provision
could indicate that the RUS had no further obligation to advance funds if Sandwich
Isles could not “maintain a TIER of 1.04.” Id. But there is no language that even
hints at terminating or reducing Sandwich Isles’ separate obligation to make loan
payments for previous advances. There is no language excusing Sandwich Isles
from full performance if USF payments are reduced or discontinued. Similarly,
nothing in that provision (or anywhere else in the loan contracts) precludes the
22
FCC (a non-party to the contracts) from changing the amount of USF payments to
Sandwich Isles. 9
And this reading—that the contracts say nothing limiting Sandwich
Isles’ loan payment obligations upon a regulatory change in the amount of USF
payments—is fully supported by United States v. Winstar Corporation, 518 U.S.
839, 905-910 (1996), which interpreted the “basic assumption” provision of
section 261 of the Restatement (Second) of Contracts, relied upon by Sandwich
Isles. In particular, Sandwich Isles contends that, under section 261, its payment
obligation was discharged (or there is at least a question of fact regarding its
obligation) by the non-occurrence of a “basic assumption” of the contract. Section
261 provides:
Where, after a contract is made, a party’s performance is
made impracticable without his fault by the occurrence of
an event the non-occurrence of which was a basic
assumption on which the contract was made, his duty to
render that performance is discharged, unless the
language or the circumstances indicate the contrary.
In interpreting section 261, Winstar reasoned that “[t]he premise of this
requirement is that the parties will have bargained with respect to any risks that are
both within their contemplation and central to the substance of the contract.” 518
9
There is no indication that RUS or the USDA has any control over the FCC or its
decisions on the amount of USF payments made to carriers.
23
U.S. at 905. And “if the risk was foreseeable there should have been provision for
it in the contract, and the absence of such a provision gives rise to the inference
that the risk was assumed.” Id. (quoting Lloyd v. Murphy, 153 P.2d 47, 50 (Cal.
1944) (Traynor J.) (internal brackets omitted) (emphasis added).
Here, if a “basic assumption of the contract” was—as Sandwich Isles
contends—that USF payments would not be lowered by the FCC (or that a
lowering of USF payments would discharge its obligation to make loan payments),
then “there should have been provision for it in the contract.” Id. As for USF
payments to Sandwich Isles, “there is no doubt that some changes in the regulatory
structure . . . were both foreseeable and likely when [Sandwich Isles] contracted
with the Government,” id. at 906—especially in this highly regulated
telecommunications area—and yet there is no contractual language making such a
regulatory change (or lack thereof) a prerequisite towards Sandwich Isles’ payment
obligation. This absence “gives rise to the inference that the risk was assumed [by
Sandwich Isles].” Id. at 905. Indeed, Winstar reasoned under analogous
circumstances that “it would be absurd to say that the nonoccurrence of a change in
///
///
///
24
the regulatory capital rules was a basic assumption upon which these contracts
were made.” Id. at 907 (citations omitted). 10
Moreover, this conclusion—that a continuation of (non-reduced) USF
payments was not a “basic assumption” of the loan contracts indicated in the
Revenue Documentation Prerequisite—is further reinforced by the Tenth Circuit’s
decision in In re FCC 11-161, which upheld the Transformation Order. In
particular, In re FCC 11-161 rejected the argument that the Transformation Order
unlawfully deprived rural carriers (such as Sandwich Isles) “of a reasonable
opportunity to recover their prudently-incurred costs.” 753 F.3d at 1069. In so
doing, the Tenth Circuit concluded that the FCC was “both reasoned and
reasonable” in finding that “carriers have no vested property interest in USF
[payments].” Id. at 1070, 1071 (quoting Transformation Order ¶ 293).
Specifically, it embraced the FCC’s conclusions that:
there was no statutory provision or Commission rule that
provides companies with a vested right to continued
receipt of support at current levels, and we are not aware
of any other, independent source of law that gives
particular companies an entitlement to ongoing USF
support.
10
See also Restatement (Second) Contracts § 261, cmt. b (“The continuation of existing
market conditions and of the financial situation of the parties are ordinarily not such [basic]
assumptions . . .”); id., illustration 3 (“A and B make a contract under which B is to work for A
for two years at a salary of $50,000 a year. At the end of one year, A discontinues his business
because governmental regulations have made it unprofitable and fires B. A’s duty to employ B
is not discharged, and A is liable to B for breach of contract.”).
25
Id. at 1070 (square brackets omitted). Finally, In re FCC 11-161 found the FCC’s
analysis to be “entirely consistent with the overarching universal service principles
outlined in 47 U.S.C. § 254(b), including the principle that ‘there should be
specific, predictable and sufficient Federal and State mechanisms to preserve and
advance universal service.’” Id. at 1071 (quoting 47 U.S.C. § 254(b)(5)).
Ultimately Sandwich Isles’ argument thus amounts to an
impermissible collateral attack on the Transformation Order and the Tenth
Circuit’s opinion upholding it—but this court is bound by those decisions. See
FCC v. ITT World Commc’ns, Inc., 466 U.S. 463, 468 (1984) (“Exclusive
jurisdiction for review of final FCC orders . . . lies in the Court of Appeals.
Litigants may not evade these provisions by requesting the District Court to enjoin
action that is the outcome of the agency’s order.”) (citations omitted); Mais v. Gulf
Coast Collection Bureau, Inc., 768 F.3d 1110, 1113 (11th Cir. 2014) (“Congress
unambiguously deprived the federal district courts of jurisdiction to invalidate FCC
orders by giving exclusive power of review to the courts of appeals.”) (citation
omitted). And “[w]here exclusive jurisdiction [over a challenge to an FCC order]
is mandated by statute, a party cannot bypass the procedure by characterizing its
position as a defense to an enforcement action.” United States v. Any & All Radio
Station Transmission Equip., 207 F.3d 458, 463 (8th Cir. 2000) (quoting Sw. Bell
26
Tel. v. Ark. Pub. Serv., 738 F.2d 901, 906 (8th Cir. 1984), vacated and remanded
on other grounds, 476 U.S. 1167 (1986)).
In sum, the United States is entitled to summary judgment on Count
One. Sandwich Isles has defaulted on its loan obligations with the RUS; Sandwich
Isles has breached the loan contracts. 11
3.
The United States Now Concedes that it is Premature to Grant
Summary Judgment on Count Two
In addition to Count One, the United States originally also sought
summary judgment as to Count Two, seeking to foreclose immediately and to sell
all property pledged as collateral by Sandwich Isles to secure the loans.
Circumstances, however, have changed after the motion was filed such that—
whether or not the United States had fulfilled the necessary steps to sell such
collateral at that time—the United States no longer seeks relief on Count Two at
this stage.
11
In its supplemental memorandum, the United States takes the position that “the Court
should issue a judgment on Count I’s claim for breach of contract. The United States then will
request that this judgment be made final under Fed. R. Civ. P. 54(b). . . .” ECF No. 139 at
PageID #2029. It is unclear what the United States seeks by this request at this stage—by this
Order, the court grants summary judgment on Count One in favor of the United States, but no
actual “judgment” will issue (given other open claims, including Counts Three to Six, against
other Defendants) unless and until a Rule 54(b) motion is actually filed and granted. The current
motion is insufficient for such purposes; at minimum, it does not analyze all the factors under
Rule 54(b) and does not provide notice to Defendants that such a partial final judgment is sought
on Count One.
27
In particular, after the United States filed its motion, Defendant
Paniolo was forced into bankruptcy by creditors. See Notice of Nov. 13, 2018
Involuntary Chapter 11 Petition of Paniolo, ECF No. 74. Accordingly, the action
was stayed as to any claims against Paniolo, or against “any property of Paniolo or
the Paniolo bankruptcy estate.” See ECF No. 136 at PageID #1911.
Given that stay and other subsequent developments, the United States
filed a supplemental memorandum stating in part that “a foreclosure sale of all
Collateral pledged by [Sandwich Isles] in connection with the RUS loans currently
is premature, and certain real property of [Sandwich Isles] could not currently be
sold free and clear of all liens and encumbrances.” ECF No. 139 at PageID
#2021.12 Accordingly, at the April 29, 2019 hearing on these motions, the United
States asked the court to defer action on its motion as to Count Two.
The court agrees that it cannot grant the United States relief on Count
Two at this stage. At minimum, even aside from the bankruptcy stay as to Paniolo,
the United States recognizes that it has not fully perfected its interests in certain
real property of Sandwich Isles. See id. at PageID #2029. However, rather than
simply deferring the motion as to Count Two as the United States asks, the court
12
It appears that Paniolo has interests in some of Sandwich Isles’ pledged collateral,
rendering the bankruptcy stay applicable to potential claims against that collateral.
28
will for administrative reasons DENY the motion as to Count Two without
prejudice. At an appropriate time, the United State may re-file a complete motion
(that is, without incorporating any previous filings by reference) as to Count Two,
seeking to foreclose and sell collateral as it deems necessary, after all necessary
prerequisites are completed.
B.
Motion Two—The Official Capacity Counter-Defendants’ Motion to
Dismiss Counterclaim of Sandwich Isles, Patelesio and Cullen, ECF No.
52
Sandwich Isles and the “additional counterclaimants” Patelesio and
Cullen 13 allege four Counts in their 45-page Counterclaim. The four Counts are:
Count One (violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et
seq.); Count Two (violation of the Telecommunication Act of 1934, as amended by
the Telecommunications Act of 1996); Count Three (violations of Bivens v. Six
Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971), as
to the Rural Consumer Counterclaimants); and Count Four (violations of Bivens, as
to Sandwich Isles).
The Counterclaim alleges in various ways that the counterclaim
Defendants took various actions relating to the RUS loans and USF subsidies “on
13
Patelesio and Cullen are current native Hawaiian beneficiaries of the Hawaiian Homes
Commission Act who allegedly would or may be deprived of telecommunication services if
Sandwich Isles ceases to operate. They are sometimes referred to as “the Rural Consumer
Counterclaimants.” See ECF No. 26-1 at PageID #579.
29
the basis of [the Rural Consumer Counterclaimants’] race as native Hawaiians,”
ECF No. 26-1 ¶ 120 at Page ID #618; or on the basis that Sandwich Isles “is
owned by Hawaiian Homes Commission Act beneficiaries and serves native
Hawaiians. . . .” Id. ¶ 132 at Page ID #621. It alleges that “[s]tarting in 2010,
USDA and FCC abruptly and arbitrarily embarked on a targeted campaign to
reduce services to native Hawaiians, and ultimately cut such services altogether
while destroying [Sandwich Isles].’” Id. ¶ 70 at PageID #604.
Although not clearly stated, the counterclaim appears to be brought
against the FCC and government officials in both their official and individual
capacities. The counterclaim Defendants have thus filed two motions to dismiss,
based on the capacity on which they were sued. This section addresses Motion
Two (brought by the United States) which is limited to challenging the
Counterclaim’s official-capacity allegations, including against the FCC itself.
Motion Three, which is addressed later, is restricted to challenging the same
Counterclaim (or, more precisely, third-party counterclaim) as to the individualcapacity allegations.
1.
Standards of Review
a.
Rule 12(b)(1)
Federal Rule of Civil Procedure 12(b)(1) authorizes a court to dismiss
claims over which it lacks proper subject matter jurisdiction. The court may
30
determine jurisdiction on a motion to dismiss for lack of jurisdiction under Rule
12(b)(1) so long as “the jurisdictional issue is [not] inextricable from the merits of
a case. . . .” Kingman Reef Atoll Invs., L.L.C. v. United States, 541 F.3d 1189,
1195 (9th Cir. 2008). The moving party “should prevail [on a motion to dismiss]
only if the material jurisdictional facts are not in dispute and the moving party is
entitled to prevail as a matter of law.” Casumpang v. Int’l Longshoremen’s &
Warehousemen’s Union, 269 F.3d 1042, 1060 (9th Cir. 2001) (citation and
quotation marks omitted); Tosco Corp. v. Cmtys. for a Better Env’t, 236 F.3d 495,
499 (9th Cir. 2001), abrogated on other grounds by Hertz Corp. v. Friend, 559
U.S. 77 (2010).
b.
Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss
for “failure to state a claim upon which relief can be granted[.]” A Rule 12(b)(6)
dismissal is proper when there is either a “‘lack of a cognizable legal theory or the
absence of sufficient facts alleged.’” UMG Recordings, Inc. v. Shelter Capital
Partners, LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v. Pacifica
Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990)).
Although a plaintiff need not identify the legal theories that are the
basis of a pleading, see Johnson v. City of Shelby, Mississippi, 135 S. Ct. 346, 346
(2014) (per curiam), a plaintiff must nonetheless allege “sufficient factual matter,
31
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). This tenet—that the court must accept as true all of the allegations
contained in the complaint—“is inapplicable to legal conclusions.” Id.
Accordingly, “[t]hreadbare recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at
555); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011) (“[A]llegations
in a complaint or counterclaim may not simply recite the elements of a cause of
action, but must contain sufficient allegations of underlying facts to give fair notice
and to enable the opposing party to defend itself effectively.”).
Rather, “[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 (citing
Twombly, 550 U.S. at 556). In other words, “the factual allegations that are taken
as true must plausibly suggest an entitlement to relief, such that it is not unfair to
require the opposing party to be subjected to the expense of discovery and
continued litigation.” Starr, 652 F.3d at 1216. Factual allegations that only permit
the court to infer “the mere possibility of misconduct” do not show that the pleader
is entitled to relief as required by Rule 8. Iqbal, 556 U.S. at 679.
32
2.
The Counterclaim is Dismissed as against the Official Capacity
Counter-Defendants for Lack of Subject-Matter Jurisdiction, or for
Failure to State a Claim
a.
Count One—Violation of the ECOA, 15 U.S.C. § 1691 et seq.
Incorporating the Counterclaim’s allegations regarding racial
discrimination against native-Hawaiian owned Sandwich Isles, Count One of the
Counterclaim alleges that the “USDA violated the Equal Credit Opportunity Act
[(“ECOA”)], when it . . . refused to make the loan in the full amount it had
previously been approved to [Sandwich Isles].” ECF No. 26-1 ¶ 98 at PageID
#613. 14 It alleges that Sandwich Isles is an “applicant” under the ECOA because it
14
The ECOA provides in part that:
It shall be unlawful for any creditor to discriminate against any applicant,
with respect to any aspect of a credit transaction--(1) on the basis of race,
color, religion, national origin, sex or marital status, or age (provided the
applicant has the capacity to contract)[.]”
15 U.S.C. § 1691(a), where,
The term “creditor” means any person who regularly extends, renews, or
continues credit; any person who regularly arranges for the extension,
renewal, or continuation of credit; or any assignee of an original creditor
who participates in the decision to extend, renew, or continue credit.
15 U.S.C. § 1691a(e), and where, in turn,
The term “person” means a natural person, a corporation, government or
governmental subdivision or agency, trust, estate, partnership, cooperative,
or association.
15 U.S.C. § 1691a(f).
33
“applied to RUS for a restructured loan agreement.” Id. ¶ 99. But “[i]nstead of
signing the workout agreement containing the terms they represented they
accepted, RUS filed this lawsuit, thus failing and refusing to offer a workout to
[Sandwich Isles] as they have offered to numerous Caucasian-owned borrowers.”
Id. ¶ 102 at PageID #614.15
In this regard, elsewhere in the Counterclaim, Sandwich Isles alleges
that “although [Sandwich Isles’] entire loan application had been approved, USDA
refused to fund any further loans long before the entire loan had been funded.” Id.
¶ 80 at PageID #609. It alleges that “USDA’s refusal to fund the rest of the loan
they had approved was a direct violation of federal law,” id. ¶ 81, ostensibly based
on alleged race discrimination because “[n]o Caucasian-owned [Rural Local
Exchange Carrier] had ever been subjected to such a cut-off.” Id.
The United States, however, argues that this ECOA claim is timebarred, at least to the extent it is based on any loan decisions by the RUS that were
made before August 3, 2013—five years prior to the August 3, 2018 filing of the
Counterclaim, where a five-year limitation period now applies under 15 U.S.C.
15
To the extent these allegations might state a claim for breach of contract, this court
would lack jurisdiction to consider that claim (especially where Sandwich Isles seeks damages of
not less than $200 million, ECF No. 26-2 ¶ 136). See, e.g., M-S-R Pub. Power Agency v.
Bonneville Power Admin., 297 F.3d 833, 840 (9th Cir. 2002) (“The Tucker Act confers exclusive
jurisdiction on the Court of Federal Claims for contract claims against the government exceeding
$10,000.”) (citing 28 U.S.C. § 1491(a)(1) (other citation omitted)).
34
§ 1691e(f). 16 This would clearly bar claims based on RUS loan decisions made in
1997, 1999 or 2001, and would also apparently include the RUS’s “refus[al] to
make the loan in the full amount it had previously approved” as alleged in Count
One. See ECF No. 26-1 ¶ 98 at PageID #613.
The Counterclaim marks 2010 as the key time when the alleged
improper discrimination occurred, or at least began. See ECF No. 26-1 ¶ 70 at
PageID # 604 (“Starting in 2010, USDA and FCC abruptly and arbitrarily
embarked on a targeted campaign to reduce services to native Hawaiians . . . .”). It
also alleges disparate treatment that may have occurred much earlier—its
allegation that “although [Sandwich Isles’] entire loan application had been
approved, the USDA refused to fund any further loans long before the entire loan
had been funded” (id. ¶ 80 at PageID # 609), refers to decisions made regarding the
April 2, 2001 loan agreement. See Hee Decl. ¶¶ 17-18, ECF No. 110-1 at PageID
#1379-80 (explaining ¶ 80); ECF No. 1-3 (Apr. 2, 2001 loan contract).
The court agrees that, on its face, much of Count One is barred by the
applicable statute of limitations under the ECOA (either two or five years).
16
And a two-year period applies to ECOA claims—such as any claims that might be
predicated on RUS loan decisions in 1997, 1999, or 2001—that accrued before July 21, 2010.
See, e.g., Guy v. Mercantile Bank Mortg. Co., 711 Fed. App’x, 250, 252 (6th Cir. Oct. 2, 2017)
(“Claims brought under the ECOA that accrued prior to July 21, 2010 are subject to a two-year
statute of limitations.”); id. at n.3 (noting that “o[n] July 21, 2010, Congress passed the DoddFrank Act, which increased the limitations period for bringing an action under the ECOA from
two years to five years.”) (citing Pub. L. No. 111–203, § 1085(7), 124 Stat. 1376, 2085 (2010)).
35
Accordingly, based on a running of the statute of limitations, the Court
DISMISSES Count One of the counterclaim as to any discriminatory acts that
occurred prior to August 3, 2013. See, e.g., Von Saher v. Norton Simon Museum of
Art at Pasadena, 592 F.3d 954, 969 (9th Cir. 2010) (“A claim may be dismissed
under Rule 12(b)(6) on the ground that it is barred by the applicable statute of
limitations only when ‘the running of the statute is apparent on the face of the
complaint.’”) (quoting Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th
Cir. 2006)).17
17
The United States measured the cutoff date on which actions would be time-barred
from when the Counterclaim was filed—August 3, 2018—and Sandwich Isles did not contest
that accrual date (although its opposition did contest the running of the limitation period by
emphasizing that its ECOA counterclaim is based on acts beginning in 2010, not 1997, see ECF
No. 123 at PageID #1580).
It is possible, however, that the applicable date for measuring timeliness would actually
be when the United States’ Complaint was filed—April 20, 2018—if the ECOA counterclaim
was compulsory. See, e.g., MH Pillars Ltd. v. Realini, 2018 WL 1184847, at *3-4 (N.D. Cal.
Mar. 7, 2018) (concluding that “although the Ninth Circuit has not opined on the issue . . . the
weight of authority [is] that the filing of a complaint tolls the statute of limitations for
compulsory counterclaims, which relate back to the date the initial complaint was filed”)
(citations omitted); Oahu Gas Serv. v. Pac. Res., Inc., 473 F. Supp. 1296, 1298-99 (D. Haw.
1979) (applying a relation back rule to a compulsory counterclaim, tolling the statute of
limitations to when the initial complaint was filed).
But the parties have not briefed this issue, much less addressed whether Sandwich Isles’
counterclaim is compulsory or permissive. Moreover, the issue makes little difference because
even assuming that April 20, 2013 is the proper cutoff date, Sandwich Isles’ ECOA counterclaim
would still be time-barred (at least as currently pleaded). Although there might be a question
about the timeliness of a claim based on the RUS’s alleged failure to “offer a workout,” the
current allegations are unclear. The dismissal, however, is without prejudice and so, if
necessary, the court can address accrual questions further if Count One is amended, and if there
is a challenge to such an amendment.
36
Nevertheless, it may be possible for Sandwich Isles to identify some
discriminatory RUS decision “refus[ing] to fund the rest of the loan,” ECF No. 261 ¶ 81 at PageID #609, occurring after August 3, 2013 (or April 20, 2013) that
would not be time-barred. It is also unclear from the face of the Counterclaim
whether claims based on the RUS’s alleged failure “to offer a workout” to
Sandwich Isles are timely (as it is, the record appears to indicate that the RUS
formally rejected a proposed restructuring plan on July 26, 2013 (see ECF No. 4821), which would be time barred if the cutoff is August 3, 2013). Accordingly, the
dismissal is without prejudice. Sandwich Isles is granted leave to file an amended
counterclaim, as to Count One only, to attempt to state an ECOA claim based on
non-time-barred actions.
In deciding whether to amend, however, Sandwich Isles should bear
in mind that alleged violations of the ECOA by the RUS that occurred after
Sandwich Isles was no longer qualified for credit are not actionable. See, e.g.,
Mays v. Buckeye Rural Elec. Co-op, Inc., 277 F.3d 873, 877 (6th Cir. 2002)
(reiterating that an element of an ECOA claim is that “Plaintiff was qualified for
the credit”) (citation omitted); Lynch v. Fed. Nat’l Morg. Ass’n, 2016 WL
6776283, at *7-8 (D. Haw. Nov. 15, 2016) (stating elements of an ECOA claim as
including being “qualified for credit,” and dismissing claim because plaintiff
“fail[ed] to allege she was qualified to receive a modification or to allege any facts
37
from which the Court could infer she was qualified to receive any modification”).
And, based on the court’s findings addressed in Motion One, Sandwich Isles was
in default at least as of August 27, 2013 when the RUS accelerated the remaining
balance on the loans. See ECF No. 50 ¶ 45 at PageID #943.18
b.
Count Two—Violation of Telecommunications Act
Incorporating factual allegations of the Counterclaim, Count Two
alleges that the FCC and the RUS “violated the requirement to provide sufficient
and predictable support to rural telecommunications in rural, insular and high cost
areas.” ECF No. 26-1 ¶ 111 at PageID #616. Specifically, it alleges that they
violated a mandatory requirement to provide “sufficient support from the USF
according to specific and predictable mechanisms.” Id. (citing 47 U.S.C. § 254).19
18
The court, however, does not dismiss the ECOA claims on this basis—it would require
consideration of evidence, which the court cannot generally do when considering whether a
pleading fails to state a claim under Rule 12(b)(6), without converting the motion into a Rule 56
summary judgment motion.
19
Section 254, regarding “universal service,” provides in part:
(b) Universal service principles. The Joint Board and the [FCC]
shall base policies for the preservation and advancement of
universal service on the following principles:
...
(2) Access to advanced services
Access to advanced telecommunications and information
services should be provided in all regions of the Nation.
(3) Access in rural and high cost areas
(continued . . . )
38
Because the FCC previously (i.e., prior to issuance of the Transformation Order)
provided USF subsidies amounting to $14,000 per line, the Counterclaim alleges
that the FCC and the RUS admitted that this amount was appropriate and necessary
to support telecommunications to Hawaiian Homelands, implying that they
breached a mandatory duty by reducing that amount. Id. ¶ 110 at PageID #615.
And the Counterclaim alleges that “[a]ll of the Counterclaim-Defendants, and each
of them, have for years deliberately violated the statutory mandate . . . [t]o provide
(. . . continued)
Consumers in all regions of the Nation, including low-income
consumers and those in rural, insular, and high cost areas, should
have access to telecommunications and information services,
including interexchange services and advanced
telecommunications and information services, that are reasonably
comparable to those services provided in urban areas and that are
available at rates that are reasonably comparable to rates charged
for similar services in urban areas.
(4) Equitable and nondiscriminatory contributions
All providers of telecommunications services should make an
equitable and nondiscriminatory contribution to the preservation
and advancement of universal service.
(5) Specific and predictable support mechanisms
There should be specific, predictable and sufficient Federal and
State mechanisms to preserve and advance universal service.
....
(7) Additional principles
Such other principles as the Joint Board and the [FCC]
determine are necessary and appropriate for the protection of the
public interest, convenience, and necessity and are consistent with
this chapter.
39
specific and predictable support for rural telecommunications to native Hawaiians
on Hawaiian Home Lands.” Id. ¶ 114 at PageID #616.20
Read broadly, these allegations challenge the decisions:
(1) by the FCC in the Transformation Order that reduced Sandwich
Isles’ USF payments from $14,000 “per loop per year,” ECF No. 26-1 ¶ 56 at
PageID #599, by capping support at $250 “per line per month,” id. ¶ 72 at PageID
#605; and
(2) by the FCC in the May 10, 2013 FCC Order that denied Sandwich
Isles’ petition for a waiver from that price cap, id. ¶ 74 at PageID #606 (citing In
the Matter of Connect Am. Fund, 28 F.C.C. Rcd. 6553, 6555 (May 10, 2013)). 21
But, as mentioned above in rejecting Sandwich Isles’ argument in
attempting to defend the first Motion, this district court lacks subject-matter
20
Under the Westfall Act, 28 U.S.C. § 2679, the United States substituted as the sole
counter-Defendant as to Count Two of the Counterclaim, after the Attorney General certified that
any acts taken by the individuals as to Count Two were done within the scope of their
employment. See ECF No. 129 (“Notice of Substitution of the United States of America for
Individual-Capacity Defendants Kenneth Johnson, Ajit Pai, Sharon Gillett, Carol Mattey, and
Lisa Hone as to Count Two of SIC’s Counterclaims.”).
21
As analyzed earlier with Count One, the Counterclaim also generally alleges actions
(or inactions) by RUS in “refus[ing] to fund the rest of the loan [it] had approved,” id. ¶ 81, ECF
No. 26-1 at PageID #609; and in seeking to foreclose on the loans instead of “reneg[ing]” on an
agreed-upon “workout agreement,” id. ¶ 85, ECF No. 26-1 at PageID #610. Count Two
(violations of the Telecommunications Act), however, cannot encompass these allegations
because RUS cannot violate requirements that might exist under 47 U.S.C. § 254, or other
sections of the Telecommunications Act. That Act concerns the FCC—not RUS, which is an
agency of the USDA. RUS does not make USF subsidy payments to carriers, and loan decisions
by RUS are not made under standards set forth in 47 U.S.C. § 254.
40
jurisdiction to address challenges to decisions of the FCC. See, e.g., Mais, 768
F.3d at 1113 (“In the Hobbs Act, 28 U.S.C. § 2342, Congress unambiguously
deprived the federal district courts of jurisdiction to invalidate FCC orders by
giving exclusive power of review to the courts of appeals.”) (citation omitted).
See also Pac. Bell Tel. Co. v. Cal. Pub. Utilities Comm’n, 621 F.3d 836, 843 n.10
(9th Cir. 2010) (“Under the Hobbs Act, this court lacks jurisdiction to rule on a
collateral attack of an FCC order.”) (citations omitted).
And “[l]itigants may not evade these provisions by requesting the
District Court to enjoin action that is the outcome of the [FCC’s] order.” ITT
World Commc’ns, Inc., 466 U.S. at 468 (citations omitted). “The exclusive
jurisdiction of the courts of appeals cannot be evaded simply by labeling the
proceeding as one other than a proceeding for judicial review.” Any & All Radio
Station Transmission Equip., 207 F.3d at 463 (citation omitted). That is, “district
courts lack jurisdiction to consider claims to the extent they depend on establishing
that all or part of an FCC order subject to the Hobbs Act is ‘wrong as a matter of
law’ or is ‘otherwise invalid.’” Mais, 768 F.3d at 1120.
Accordingly, this court cannot address whether the FCC’s
Transformation Order’s reduction in USF payments violated 47 U.S.C. § 254’s
principle to provide “specific, predictable and sufficient” support to rural and high
cost carriers such as Sandwich Isles. It cannot consider any claims “to the extent
41
they depend on establishing that all or part of” the Transformation Order is “wrong
as a matter of law” or “otherwise invalid.” Mais, 768 F.3d at 1120. Likewise, this
district court has no power to question the Tenth Circuit’s decision in In re FCC
11-161, which affirmed the Transformation Order and specifically found the
FCC’s analysis to be “entirely consistent with the overarching universal service
principles outlined in 47 U.S.C. § 254(b), including the principle that ‘there should
be specific, predictable and sufficient Federal and State mechanisms to preserve
and advance universal service.’” 753 F.3d at 1071 (quoting 47 U.S.C.
§ 254(b)(5)).
Similarly, this court lacks jurisdiction to address whether the FCC’s
2013 denial to Sandwich Isles of a waiver from the Transformation Order’s
reduction of USF payments violated the Telecommunications Act. If Sandwich
Isles wanted to challenge that waiver denial, its remedy was to file a direct appeal
of the FCC decision. See Am. Bird Conservancy v. FCC, 545 F.3d 1190, 1193 (9th
Cir. 2008) (reiterating that 28 U.S.C. § 2342 “vests the courts of appeals with
‘exclusive jurisdiction’ to review ‘all final orders of the Federal Communications
Commission.’”). It apparently did not do so, and it is too late to challenge that
May 20, 2013 decision now. See 47 U.S.C. § 402(c) (requiring “a notice of appeal
with the court within thirty days from the date upon which public notice is given of
the decision or order complained of”).
42
In short, this court lacks subject matter jurisdiction over Count Two of
the Counterclaim, and it is dismissed with prejudice.22
c.
Counts Three & Four (equal protection violations under
Bivens)
Counts Three and Four make Bivens claims against the officialcapacity counter-Defendants for alleged equal protection violations. But a proper
Bivens claim, by definition, seeks damages for constitutional violations against a
federal official in their individual (not official) capacity. 23 See, e.g., Vaccaro v.
Dobre, 81 F.3d 854, 856 (9th Cir. 1996). “There is no such animal as a Bivens suit
against a public official tortfeasor in his or her official capacity.” Solida v.
McKelvey, 820 F.3d 1090, 1094 (9th Cir. 2016) (quoting Farmer v. Perrill, 275
22
The United States also argues that the Rural Capacity Counterclaimants, Patelesio and
Cullen, lack standing to sue (assuming, in the first place, that they were properly joined as parties
under Federal Rules of Civil Procedure 13(h) and 20). It argues that any injury to them (for
example, in losing access to telecommunications services on Hawaiian Homelands) would not be
“fairly traceable” to government action (for example, in reducing USF funds or foreclosing on
Sandwich Isles loans) because any such injury would be attributable to acts of Sandwich Isles,
not the FCC or the RUS. See, e.g., Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016)
(requiring injury to be “fairly traceable to the challenged conduct of the defendant” and “likely to
be redressed by a favorable judicial decision”) (citing Lujan v. Defenders of Wildlife, 504 U.S.
555, 560-61 (1992)).
The court, however, need not reach this question as to Patelesio or Cullen because the
Counterclaim otherwise fails to state a claim as to Sandwich Isles, which does have standing.
See, e.g., Kostick v. Nago, 960 F. Supp. 2d 1074, 1089-90 (D. Haw. 2013) (“It is enough, for
justiciability purposes, that at least one party with standing is present.”) (citing Dep’t of
Commerce v. U.S. House of Representatives, 525 U.S. 316, 330 (1999)).
23
Motion Three addresses the Bivens claims against Johnson, Pai, Hone, Gillett, and
Mattey in their individual capacities.
43
F.3d 958, 963 (10th Cir. 2001)). Rather, “[a]n action against an officer, operating
in his or her official capacity as a United States agent, operates as a claim against
the United States.” Id. at 1095. And thus, “by the logic of Bivens itself,” there is
no cause of action under Bivens directly against a federal agency. F.D.I.C. v.
Meyer, 510 U.S. 471, 486 (1994). Accordingly, Counts Three and Four fail as a
matter of law to the extent they were asserted against the RUS or the FCC directly,
or against any counter-Defendant in their official capacity. 24 In this regard, those
Counts are dismissed with prejudice.
C.
Motion Three—The Individual Capacity Counter-Defendants’ Motion
to Strike or Dismiss, ECF No. 55
Counterclaim-Defendants (or Third-Party Counter-Defendants) Pai,
Gillett, Mattey, Hone and Johnson, in their individual capacities, move to strike or
dismiss the Counterclaim’s Bivens claims for damages. Count Three alleges that
these individuals violated “additional counterclaimants” (or “the Rural Consumer
Counterclaimants”) Patelesio’s and Cullen’s rights to equal protection by
discriminating against them “on the basis of their race as native Hawaiians.” ECF
24
Counsel for Sandwich Isles did not dispute this proposition at the April 29, 2019
hearing, and admitted that “we probably overpled.”
44
No. 26-1 ¶ 120 at PageID #618. Count Four makes a similar claim on behalf of
Sandwich Isles. Id. ¶ 135 at PageID #622. 25
This motion challenges the Counterclaim on several alternative
grounds: (1) procedurally, as an improper use of Rule 13’s joinder provisions, or
for insufficient service of process, and (2) more substantively, for failure to state a
claim, lack of personal jurisdiction, that the claims are time-barred, or that the
individual capacity counterclaim-Defendants have qualified immunity. The court,
however, need not reach all these arguments because it agrees with the
counterclaim-Defendants’ more fundamental argument that there is no basis in law
for a Bivens claim in the present context.26
25
Count Two of the Counterclaim appears to have also made individual-capacity claims
for violation of the Telecommunications Act. See ECF No. 122 at Page ID #1533 n.1 (“Count II
. . . is also asserted against the Individual Defendants, inasmuch as it . . . is asserted against the
USDA and the FCC, both of which are defined as including the Individual Defendants.”). But,
as noted above, under the Westfall Act, the United States subsequently substituted as the sole
counter-Defendant as to Count Two of the Counterclaim, after the Attorney General certified that
any acts taken by the individuals as to Count Two were done within the scope of their
employment. See ECF No. 129.
26
The other grounds for dismissal could, at best, lead to dismissal without prejudice to
perfecting the procedural defects, or could involve factual questions. On the other hand,
deciding at the threshold whether there even is a Bivens cause of action as a matter of law
ultimately leads to dismissal with prejudice.
And the court may do this in this case despite unresolved questions regarding personal
jurisdiction (and even if only Gillett has been personally served as required by Federal Rule of
Civil Procedure 4(i)(3), see ECF No. 55-1 at PageID #1047). In Simpkins v. District of
Columbia Government, 108 F.3d 366 (D.C. Cir. 1997), the D.C. Circuit affirmed dismissal of
Bivens claims on the merits with prejudice, even though the complaint was not served on the
individuals (rendering the district court without personal jurisdiction) and such insufficiency of
service would have warranted dismissal without prejudice. Id. at 369. Simpkins reasoned that
(continued . . . )
45
1.
Applicable Standards—Bivens is a Disfavored Remedy
In 1971, Bivens authorized a potential remedy for damages against
federal officers acting under color of law who violated the Fourth Amendment’s
prohibition against unreasonable searches and seizures. 403 U.S. at 397. Such a
cause of action is analogous to a civil rights claim under 42 U.S.C. § 1983 against
officials acting under color of state law, although § 1983 does not apply against
federal officials. But, as explained in Ziglar v. Abbasi, 137 S. Ct. 1843 (2017), the
Supreme Court has since authorized a “Bivens claim” in only two other instances:
(1) for gender discrimination against a member of Congress, see Davis v. Passman,
442 U.S. 228 (1979); and (2) for inadequate medical treatment of a federal prisoner
under the Eighth Amendment’s cruel and unusual punishments clause, see Carlson
v. Green, 446 U.S. 14 (1980). 137 S. Ct. at 1860. As Abbasi summarized, “[t]hese
three cases—Bivens, Davis, and Carlson—represent the only instances in which
(. . . continued)
dismissing invalid Bivens claims without prejudice for improper service, only to allow a plaintiff
to re-file the same action again, “would be inconsistent with the duty of the lower federal courts
to stop insubstantial Bivens actions in their tracks and get rid of them.” Id. at 370 (citations
omitted). “[D]elaying the inevitable [is not] in keeping with the Supreme Court’s instruction to
the lower federal courts ‘to weed out’ insubstantial Bivens suits ‘expeditiously.’” Id. (quoting
Siegert v. Gilley, 500 U.S. 226, 232 (1991)). “Dismissing a meritless Bivens suit for
insufficiency of service of process . . . merely postpones the inevitable.” Id.
Likewise, “[a] district court may decide that a complaint fails to state a claim even when
it does not have personal jurisdiction.” Milton H. Greene Archives, Inc. v. Marilyn Monroe LLC,
692 F.3d 983, 990 n.6 (9th Cir. 2012) (citing Wages v. I.R.S., 915 F.2d 1230, 1234-35 (9th Cir.
1990) (rejecting an argument that the district court erred in dismissing Bivens claims on the
merits, despite also ruling that the court lacked personal jurisdiction for insufficient service of
process)).
46
the [Supreme] Court has approved of an implied damages remedy under the
Constitution itself.” Id. at 1855.
After reviewing “the notable change in [the Supreme] Court’s
approach to recognizing implied causes of action,” id. at 1857, Abbasi emphasized
that “expanding the Bivens remedy is now a ‘disfavored’ judicial activity.” Id.
(citation omitted). It examined many instances where the Court refused to extend
Bivens over the last 30 years—including a race-discrimination suit against military
officers. Id. (citing Chappell v. Wallace, 462 U.S. 296 (1983)). It concluded that
“a Bivens remedy will not be available if there are ‘special factors counselling
hesitation in the absence of affirmative action [to create a statutory remedy] by
Congress.’” Id. (quoting Carlson, 446 U.S. at 18) (internal quotation marks
omitted).
Abbasi “articulated a two-part test for determining whether Bivens
remedies should be extended.” Lanuza v. Love, 899 F.3d 1019, 1023 (9th Cir.
2018) (citing Abbasi, 137 S. Ct. at 1859-60). “First, courts must determine
whether the plaintiff is seeking a Bivens remedy in a new context.” Id. “If the
answer to this question is ‘no,’ then no further analysis in required.” Id. That is,
there is a Bivens remedy if the context is not new. But “[i]f the answer is ‘yes,’
then the court must determine whether ‘special factors counsel hesitation.’” Id.
(quoting Abbasi, 137 S. Ct. at 1860 (brackets omitted)).
47
“A case presents a new context if it ‘is different in a meaningful way
from previous Bivens cases decided by the Supreme Court.’” Id. (quoting Abbasi,
137 S. Ct. at 1859 (brackets omitted)). And even “a modest extension” is an
extension for the new context determination. Id. at 1025 (quoting Abbasi, 137 S.
Ct. at 1864).
A case might differ in a meaningful way because of the
rank of the officers involved; the constitutional right at
issue; the generality or specificity of the official action;
the extent of judicial guidance as to how an officer
should respond to the problem or emergency to be
confronted; the statutory or other legal mandate under
which the officer was operating; the risk of disruptive
intrusion by the Judiciary into the functioning of other
branches; or the presence of potential special factors that
previous Bivens cases did not consider.
Id. (quoting Abbasi, 137 S. Ct. at 1860).
The “special factors” inquiry focuses on separation of powers. Id. at
1028. Lanuza summarizes the inquiry:
Abbasi’s special factors include: the rank of the officer
involved; whether Bivens is being used as a vehicle to
alter an entity’s policy; the burden on the government if
such claims are recognized; whether litigation would
reveal sensitive information; whether Congress has
indicated that it does not wish to provide a remedy;
whether there are alternate avenues of relief available;
and whether there is adequate deterrence absent a
damages remedy, among other factors.
48
Id. (citing Abbasi, 137 S. Ct. at 1857-63). “But the most important question . . . is
‘whether the Judiciary is well suited, absent congressional action or instruction, to
consider and weigh the costs and benefits of allowing a damages action to
proceed.’” Id. (quoting Abbasi, 137 S. Ct. at 1857-58). “If ‘there are sound
reasons to think Congress might doubt the efficacy or necessity of a damages
remedy . . . the courts must refrain from creating the remedy in order to respect the
role of Congress in determining the nature and extent of federal-court jurisdiction
under Article III.’” Id. (quoting Abbasi, 137 S. Ct. at 1858).
And “if there is an alternative remedial structure present in a certain
case, that alone may limit the power of the Judiciary to infer a new Bivens cause of
action.” Abbasi, 137 S. Ct. at 1858. Such “‘[a]lternative remedial structures’ can
take many forms, including administrative, statutory, equitable, and state law
remedies.” Vega v. United States, 881 F.3d 1146, 1154 (9th Cir. 2018).
2.
The Counterclaim Presents a “New Context” and “Special Factors”
Counsel Against Recognizing a Bivens Remedy for a Race-based
Equal Protection Challenge to RUS-lending and FCC-funding
Decisions
Applying the Abbasi two-part test, the court easily concludes that the
Counterclaim—alleging race-based discrimination in lending and funding
decisions by RUS and FCC officials—fails to state a valid Bivens cause of action.
49
First, the Counterclaim presents a “new context.” No Supreme Court
case has recognized a Bivens cause of action for a race-based equal protection
violation. That is, the Counterclaim “differs in a meaningful way” from previous
Supreme Court precedent. Although Passman recognized an equal protectionbased Bivens cause of action grounded in the Fifth Amendment, 442 U.S. at 24849, it involved gender discrimination against a Congressman for wrongfully firing
a female secretary—meaningfully distinct from alleged race-based lending and
funding decisions by high-level RUS and FCC officials. Cf. Vega, 881 F.3d at
1153 (concluding that First Amendment access-to-courts and Fifth-Amendment
due process claims presented a “new context”); Schwarz v. Meinberg, 761 F.
App’x 732, 734 (9th Cir. Feb. 13, 2019) (mem.) (“Schwarz’s [Fifth Amendment]
due process claim is a new context because it alleges national origin
discrimination.”). Moreover, the officers are different—the Supreme Court has
never recognized a Bivens claim against individuals from the FCC or the RUS
(much less from the Department of Agriculture).
Next, “special factors”—most significantly, the availability of existing
alternative remedies for alleged constitutional violations—counsel against
recognizing a Bivens remedy in the present context. As the individual
counterclaim-Defendants point out, the RUS loan decisions were made pursuant to
7 U.S.C. § 902(a) “for the purpose of furnishing and improving . . . telephone
50
service in rural areas[.]” And the USF subsidy decisions were made pursuant to
the FCC’s requirement to provide “specific, predictable and sufficient support
mechanisms” to advance “universal service,” 47 U.S.C. § 254(b)(5), where “[a]ll
providers of telecommunications services should make an equitable and
nondiscriminatory contribution to the preservation and advancement of universal
service,” 47 U.S.C. § 247(b)(4). But Congress did not provide for an individual
cause of action for damages against officials who administer these programs, and
“when Congress fails to provide a damages remedy . . . it is much more difficult to
believe that ‘congressional inaction’ was ‘inadvertent.’” Abbasi, 137 S. Ct. at
1862 (quoting Schweiker v. Chilicky, 487 U.S. 412, 423 (1988)). Further, a Bivens
claim could implicate another Abbasi special factor by “being used as a vehicle to
alter” executive policy decisions. Lanuza, 899 F.3d at 1028.
Although no one questions that invidious race discrimination by a
government agency is unacceptable and repugnant, in fact Congress has provided a
remedy for challenging agency action (including unconstitutional action) with the
Administrative Procedures Act (“APA”). See 5 U.S.C. § 706(2) (allowing a
reviewing court to “hold unlawful and set aside agency action, findings, and
conclusions found to be—(A) arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law; [or] (B) contrary to constitutional right,
power, privilege, or immunity,” among other reasons). See Wilkie v. Robbins, 551
51
U.S. 537, 553 (2007) (refusing to recognize a Fifth Amendment Bivens claim
based on decisions of the Bureau of Land Management, reasoning in part that
plaintiff “has an administrative, and ultimately a judicial, process for vindicating
virtually all of his complaints [through the APA]”); see also id. at 552 (“Each time,
the Bureau claimed that Robbins was at fault, and for each claim, administrative
review was available, subject to ultimate judicial review under the APA.”); W.
Radio Servs. Co. v. U.S. Forest Serv., 578 F.3d 1116, 1123 (9th Cir. 2009) (“[T]he
design of the APA raises the inference that Congress ‘expected the Judiciary to
stay its Bivens hand’ and provides ‘a convincing reason for the Judicial Branch to
refrain from providing a new and freestanding remedy in damages[.]’”) (quoting
Wilkie, 551 U.S. at 550); id. (concluding that “the APA leaves no room for Bivens
claims based on agency action or inaction”). 27
In short, Counts Three and Four of the Counterclaim, seeking relief
under Bivens against individuals of the RUS and the FCC for alleged equal
protection violations, fail to state claims. Applying Abbasi, the court cannot infer a
Bivens remedy. Counts Three and Four of the Counterclaim are dismissed with
prejudice as to the individual capacity counter-Defendants.
27
And, as noted earlier, the ECOA, 15 U.S.C. § 1691 et seq., also appears to provide a
remedy for certain discriminatory credit decisions, including by governmental agencies.
52
IV. CONCLUSION
The United States’ Motion for Partial Summary Judgment, ECF No.
48, is GRANTED as to Count One of its Complaint. Sandwich Isles has defaulted
and has breached the loan contracts.
The United States’ Motion to Dismiss Counterclaim, ECF No. 52, is
GRANTED as to all official-capacity claims. Counterclaimants are granted leave
to file an amended counterclaim by August 19, 2019, as to Count One (violation of
the Equal Credit Opportunity Act) of the counterclaim only.
The Individual Capacity Third-Party Defendants’ Motion to Dismiss
the Individual Capacity Claims, ECF No. 55, is GRANTED. The Third-Party
Claims based on Bivens are DISMISSED with prejudice.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, July 22, 2019.
/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge
United States v. Sandwich Isles Commc’ns, Inc., et al., Civ. No. 18-00145 JMS-RT, Order (1)
Granting in Part Plaintiff’s Motion For Partial Summary Judgment, ECF No. 48; (2) Granting
Plaintiff’s Motion To Dismiss Counterclaim, ECF No. 52; and (3) Granting Third-Party
Defendants’ Motion to Dismiss Individual Capacity Claims, ECF No. 55
53
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