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November 12, 1981

ART METAL-U. S. A., INC., Plaintiff,

The opinion of the court was delivered by: OBERDORFER


This action is before the Court on plaintiff's motion for a preliminary injunction, the Court's jurisdiction being invoked under the Public Works and Economic Development Act, 42 U.S.C. §§ 3121-3226, the Administrative Procedure Act, 5 U.S.C. §§ 701-06, and what plaintiff terms in the complaint "the general powers of this Court as a court of equity." At issue are insurance proceeds paid to defendant Economic Development Administration, an agency of the United States Department of Commerce (hereinafter "EDA") as mortgagee of certain property acquired by plaintiff with EDA's assistance. Plaintiff seeks an order requiring EDA to pay the proceeds collected by EDA to plaintiff, and bases its claim upon an oral agreement allegedly made by EDA's Atlantic Regional Office ("ARO") to pay those proceeds to plaintiff. Because it appears that there is not the likelihood of success on the merits required for issuance of a preliminary injunction, see Washington Metropolitan Area Transit Comm'n v. Holiday Tours, Inc., 182 U.S.App.D.C. 220, 559 F.2d 841 (1977), plaintiff's motion will be denied.


 1. In 1972 Art Metal-U.S.A., Inc. ("Art-Metal"), a New Jersey-based fabricator of office and library equipment, acquired certain property adjacent to its Newark facilities and began construction on an addition to its plant. The construction was financed in part by a loan from EDA to Art-Metal of over $ 2,000,000.

 2. Art-Metal's indebtedness to EDA was secured by a mortgage on the company's real property at the Newark site. Under the terms of the loan agreement and a promissory note executed by Art-Metal and payable to EDA, Art-Metal was to repay its indebtedness over a 25-year period with interest at six percent per annum. The mortgage also required Art-Metal to maintain hazard insurance on the property in which EDA had an interest. EDA was named in the mortgage instrument as mortgage loss payee for the insurance policies Art-Metal was required to maintain. The mortgage thus gave EDA an option to apply any insurance proceeds obtained by it to the company's outstanding indebtedness, or to release the proceeds to Art-Metal to finance repair or replacement of the damaged facilities. Under the insurance policies, some circumstances which might delay or even preclude collection of an insurance payment by Art-Metal as insured (such as suspicion as to the cause of loss) did not necessarily preclude forthwith payment to EDA as mortgagee. See Defendants' Memorandum of Points and Authorities in Opposition to Plaintiff's Application for a Preliminary Injunction, Exhibit D, unnumbered page captioned "Uniform Covenants" P 3.

 3. On three occasions in the years 1979 and 1980 in which Art-Metal sustained damage at the Newark plant, the carriers paid the proceeds to EDA, whereupon the agency released the proceeds it received to Art-Metal. In those transactions, the insurance carriers in effect paid to Art-Metal via EDA approximately $ 320,000. See Plaintiff's Memorandum of Points and Authorities in Support of Application for a Preliminary Injunction, Affidavit of P. Kurens and Exhibit 3 thereto. In each instance, the Regional Director of the ARO signed the endorsement on the agency's behalf to release the funds to Art-Metal. The first such payment to Art-Metal occurred on or after Feb. 2, 1979; the second, on or after Nov. 25, 1980; and the third, on or after December 4, 1980. Id.

 4. On August 23, 1980, a fire damaged a substantial portion of Art-Metal's Newark plant, and the company ceased operation at that location. On an uncertain date, Art-Metal submitted claims to the insurance carriers concerned, and informed EDA of the damage. The firm's aggregate claim and proof of loss totaled $ 9,451,812; the claims for damage on property in which EDA had an interest as mortgagee amounted to $ 1,525,898. At the time of the fire, Art-Metal's outstanding indebtedness to EDA was a sum slightly in excess of $ 2,026,000. At that time, EDA had filed no claims. Payment on Art-Metal's claim was not immediately forthcoming from the insurance carriers.

 5. Without first consulting EDA regarding its intentions to seek payment on the insurance policies to EDA as mortgage loss payee, or awaiting payment of its own claims by the insurance carriers, Art-Metal in October or November of 1980 made a decision to reconstruct the facilities and to reopen them. Reconstruction began in November 1980. Art-Metal began to encounter difficulties in obtaining recoveries on its own claims, owing to the carriers' concern that the fire had been caused by arson and that Art-Metal had not cooperated fully in the carriers' investigation of the fire. P. Kurens affidavit P 22.

 6. In December 1980, Art-Metal engaged Harold R. Teltser, a member of the New Jersey bar, to encourage EDA to file a claim as loss payee under the mortgage with a view to further persuading EDA to pay over the proceeds so collected to Art-Metal. In February 1981, Teltser spoke by telephone with John A. Geraghty, a financial analyst at the ARO, to alert EDA to its position as mortgage loss payee and to offer assistance to EDA in presenting claims as loss payee to the insurance carriers. In that conversation, in later discussions, and in a letter dated February 25, 1981, Teltser also requested that EDA pay the proceeds it might obtain from the carriers to Art-Metal to finance reconstruction. The letter of February 25, 1981 stated that repairs were proceeding rapidly, and "may well be complete by the time the first funds are received from the insurance carriers." H. Teltser affidavit, Exhibit 1. Teltser had chosen to speak with Geraghty "regarding the insurance proceeds" because he believed "Mr. Geraghty had the authority to deal with such questions." H. Teltser affidavit P 5. The basis of Teltser's belief is not explained by the record evidence, and it is established by the evidence that Teltser had no basis for believing Geraghty to be Regional Director of the ARO.

 7. In early April 1981, the Regional Director of the ARO wrote to the insurance carriers' General Adjustment Bureau to request payment on the loss sustained at Art-Metal's plant during the August 1980 fire. Following correspondence between EDA and representatives of the carriers, EDA executed on August 18, 1981, a general release discharging the insurance carriers from liability to EDA, and EDA received from the carriers checks for the sum of $ 1,525,898 as payment on EDA's claims arising from the August 1980 fire.

 8. On August 21, 1981, the ARO recommended to EDA headquarters in Washington that the insurance proceeds from the August fire be applied to reduce the loan balance and that the remaining balance be collected. In telephone conversations and at a meeting on September 14, 1981, the EDA official in Washington with authority to make a final decision as to use of the insurance proceeds and the disposition of the loan to Art-Metal, John J. McCracken, Jr., told Art-Metal's representatives that Art-Metal needed to establish its ability to repay the balance of the loan if EDA was to elect to pay the insurance proceeds to the company.

 10. By letter dated October 23, 1981, McCracken informed Art-Metal that EDA had determined that "it would be imprudent, and against the Government's best interests, to release the insurance funds to Art-Metal." McCracken indicated in the letter that the agency's decision was based upon the ARO's recommendation, the meeting of September 14, 1981, the information furnished by Art-Metal, and on "EDA's independent analysis and investigation." Memorandum in Support of Plaintiff's Motion for Reconsideration of the Court's Order Limiting Discovery, Exhibit 1. The letter recited what McCracken considered "downward trends" in Art-Metal's business, the firm's "existing non-operating status," assertedly "unrealistic" sales projections, "the threat of possible foreclosure by the insurance companies should they prevail in their litigation" with Art-Metal respecting liability on various policies, as well as other factors. The letter noted that even after application of the insurance proceeds to the mortgage, a deficiency in the company's payments would still exist, and it urged Art-Metal to bring its mortgage account with EDA to current status.

 11. There exists a dispute between the parties as to whether officials in the ARO orally agreed to pay the insurance proceeds to Art-Metal for the financing of plant reconstruction. The EDA official to whom plaintiff attributes such an undertaking, Geraghty, denies it in an affidavit, and plaintiff has offered no written evidence of such a commitment. The only EDA document evidencing a decision on the company's request for proceeds is the ...

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