The opinion of the court was delivered by: JAMES ROBERTSON
The government seeks to recover from defendant Peter D. Vanoosterhout monies paid out under Small Business Administration guarantees when River Capital Corporation, a small business investment company funded by SBA-backed debentures, defaulted on its obligations. Vanoosterhout, who was president and a director of River Capital, is alleged to have been personally responsible for the submission to SBA of financial statements that falsely stated River Capital's financial position. The false statements were allegedly made in order to obtain SBA-guaranteed financing, avoid revealing events of default, and steer SBA away from prompt collection action.
The government's original five-count complaint invokes the False Claims Act, 31 U.S.C. § 3729, and the Financial Institutions Reform, Recovery and Enforcement Act, 12 U.S.C. § 1833(a) ("FIRREA"). Before me is defendant's motion to dismiss, which asserts, inter alia, that the False Claims Act counts are barred by the statute of limitations and that the FIRREA counts will not lie because River Capital was not a federally insured financial institution. For reasons set forth in this memorandum, the defense motion will be treated as a motion for summary judgment, F.R.Civ.P. 12(b), and granted.
River Capital was incorporated in 1982 and licensed by the SBA under § 301(d) of the SBIC Act, 15 U.S.C. § 681. Its financial statement for the year ending December 31, 1986, submitted to SBA, showed total assets in the amount of $ 34,155,290 and SBA debt of $ 22 million. In February 1987, River Capital received $ 4 million in SBA-guaranteed debenture financing. On August 3, 1987, River Capital applied to SBA for an additional $ 2.5 million of guaranteed debenture financing, certifying that there had been no adverse change in its financial condition since December 31, 1986. The requested additional financing was provided on September 29, 1987. On March 3, 1988, River Capital submitted its annual financial statement for the year ending December 31, 1987, reporting assets in the amount of $ 39,439,283 and SBA debt of $ 25,500,000.
By letter dated June 1, 1988, SBA instructed River Capital to take action within 30 days to correct what SBA had identified as repeated and consistent violations of SBA's regulatory and statutory "over-line limitations." River Capital not only failed to correct its over-line violations but, on July 1, 1988, it defaulted on interest payments due to SBA in the total amount of $ 346,847.10. On July 28, 1988, SBA auditor John LoPata completed an SBA audit of River Capital for the 17-month period ending April 30, 1988. The SBA audit concluded that "the independent accountant's report as of December 31, 1986, and 1987, were ... unreliable and misleading." [LoPata's report at 4]. On August 1, 1988, River Capital defaulted upon a principal payment due to SBA in the amount of $ 158,546 (Complaint, PP 31, 32).
The established SBA procedures for the acceleration of debentures and the making of SBA guarantee payments in the event of default were set forth in offering circulars issued with each series of SBA-guaranteed "participation certificates."
The $ 2.5 million debenture financing received by River Capital on
September 29, 1987, was part of Series SBIC 1987-C, for which the offering circular was dated September 23, 1987. According to that offering circular (p. 1):
The principal amount of a Debenture shall become immediately due and payable upon the occurrence of an event of default by an SBIC and subsequent acceleration by SBA of the Debenture (an "Acceleration Event"). Pursuant to its Guarantee, SBA will make a payment of 100% of the principal amount of the Debenture together with interest accrued to the Payment Date next following the Acceleration Event (an "Acceleration Payment").
SBA had discretion to declare an acceleration of an SBIC debenture upon River Capital's default in the payment of principal or interest thereon or upon the failure of River Capital to cure an event of default. If SBA decided to accelerate, its procedures called for it to "transfer the SBIC from operating status into liquidation status in order to protect the creditor position of SBA." The offering circular went on to provide (p.9):
Upon a determination by SBA to transfer an SBIC into liquidation status, jurisdiction over the SBIC is transferred to the Office of Portfolio Management whereupon the SBIC is considered in liquidation status. At this point, an acceleration letter is sent to the SBIC citing violations and defaults, making demand for payment of the accelerated obligations and advising the SBIC that it has been transferred to liquidation status. SBA will make a Guarantee Payment of the outstanding principal and accrued interest with respect to such SBIC Debenture to the next scheduled Payment Date on or before the next scheduled Distribution Date for such Payment Date.
Following River Capital's defaults on July 1 and August 1, 1988, and pursuant to its own procedures, SBA acted formally on August 24, 1988, to place River Capital in liquidation status. Also pursuant to its procedures, SBA sent an acceleration letter to River Capital on September 1, 1988, declaring all of its indebtedness immediately due and payable, demanding payment in full, and advising that River Capital had been transferred to liquidation status on August 24. Further pursuant to its procedures, SBA made a guarantee payment to Chemical Bank, as trustee, on September 9, 1988; that payment was made by operation of SBA's procedures and without any claim, demand or application on the part of Chemical Bank.
River Capital filed for protection under Chapter 11 of the Bankruptcy Code on August 24, 1989. The government subsequently initiated criminal proceedings against Vanoosterhout. Three separate indictments were returned against him, in June 1992, October 1992, and May 1994, in the United States District Court for the Northern District of Ohio. The indictments charged Vanoosterhout with crimes that related directly to River Capital and its SBA financing and included all of the allegations of wrongdoing set forth in the complaint now before me.
For reasons that do not appear of record, all three indictments were dismissed on August 24, 1994. The government filed this ...