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Gatter v. Nimmo

decided: March 11, 1982.

NANCY GATTER, MARY KLINGEL, AND KENNETH AND ALMA BERNSTEIN, INDIVIDUALLY, AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, AND CARL NARDI AND MARIE NARDI
v.
ROBERT T. NIMMO, IN HIS OFFICIAL CAPACITY AS ADMINISTRATOR OF VETERANS AFFAIRS, S.W. MELIDOSIAN, IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE VETERANS ADMINISTRATION CENTER OF PHILADELPHIA, THE VETERANS ADMINISTRATION, AN AGENCY OF THE UNITED STATES GOVERNMENT, THE FIDELITY BOND AND MORTGAGE COMPANY, THE KENNEDY MORTGAGE COMPANY, THE LOMAS AND METTLETON COMPANY, NANCY GATTER, CARL NARDI AND MARIE NARDI, KENNETH BERNSTEIN AND ALMA MARIE BERNSTEIN, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, APPELLANTS



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Before Gibbons, Weis and Garth, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

In this class action plaintiffs Gatter, et al. (the Veterans) appeal from the grant of a summary judgment in favor of the Veterans' Administration (VA) in their suit for declaratory and injunctive relief. The class consists of veterans who are obligors on bonds and mortgages guaranteed by the VA pursuant to Title III of the Servicemen's Readjustment Act of 1944 as amended,*fn1 and have defaulted or may default in payments due on those obligations. They contend that the VA should have notified each defaulting Veteran of the opportunity to apply to that agency for refunding and to avoid foreclosure. They rely on a section of the Act which provides in relevant part:

In the event of default in the payment of any loan guaranteed under this chapter, the holder of the obligation shall notify the Administrator who shall thereupon pay to such holder the guaranty ... and shall be subrogated to the rights of the holder of the obligation to the extent of the amount paid on the guaranty. Before suit in foreclosure the holder of the obligation shall notify the Administrator of the default, and within thirty days thereafter the Administrator may, at the Administrator's option, pay the holder of the obligation the unpaid balance of the obligation plus accrued interest and receive an assignment of the loan and security. Nothing in this section shall preclude any forebearance for the benefit of the veteran as may be agreed upon by the parties to the loan and approved by the Administrator.*fn2 (Emphasis supplied).

The Veterans contend that Congress mandated, by the italicized language, the establishment of a mortgage refunding program under which the VA would, for the Veterans' benefit, acquire defaulted mortgages from the original lenders and enter into new payment arrangements. They charge, and in reviewing the grant of a summary judgment we must assume, that the VA has failed to implement a mortgage refunding program, failed to notify class members of the opportunity for refunding, and failed to establish criteria for refunding eligibility. The District Court held that the option in the statute of taking assignments and working out refunding arrangements is a matter committed to agency discretion within the meaning of the Administrative Procedure Act (APA), 5 U.S.C. ยง 701(a) (2) (1976), and thus not judicially reviewable.*fn3 We affirm.

We recognize that the APA's "generous review provisions must be given a "hospitable' interpretation," Shaughnessy v. Pedreiro, 349 U.S. 48, 51, 75 S. Ct. 591, 594, 99 L. Ed. 868 (1955). The rule of statutory interpretation of federal agency statutes is that "only upon a showing of "clear and convincing evidence' of a contrary legislative intent should courts restrict access to judicial review." Rusk v. Cort, 369 U.S. 367, 379-80, 82 S. Ct. 787, 794, 7 L. Ed. 2d 809 (1962). Important evidence of an intent to provide for nonreviewability is the existence of broad rather than circumscribed discretionary power. Southern Railroad Co. v. Seaboard Allied Milling Corp., 442 U.S. 444, 455, 99 S. Ct. 2388, 2394, 60 L. Ed. 2d 1017 (1979). When a statute is drawn granting such broad discretion as to provide no law to apply, there is a strong indication that the "committed to agency discretion" exception in the Administrative Procedure Act was intended to apply. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971). And the fact that a specific statute was enacted primarily to safeguard interests of the government rather than those of some protected class is significant evidence that the agency's exercise of discretion was intended to be unreviewable. See Local 2855, AFGE (AFL-CIO) v. United States, 602 F.2d 574, 581 (3d Cir. 1979); Merriam v. Kunzig, 476 F.2d 1233, 1242 (3d Cir.), cert. denied, 414 U.S. 911, 94 S. Ct. 233, 38 L. Ed. 2d 149 (1973).

The statute on which the Veterans rely certainly uses the language of broad discretion. It says that "the Administration may, at the Administrator's option " pay to the mortgagee the unpaid balance of the loan and take an assignment. Reiteration of two words in the same sentence negating obligation is a compelling indication of such discretion. As importantly, the whole section contains no standards informing the exercise of that discretion. There are, moreover, indications that the section was intended primarily to afford flexibility in administering the governmental liability resulting from defaults; that it is, primarily for the aid of the government, not of veterans.

It is true, as the Veterans contend, that the overall mortgage guaranty program is intended for the benefit of veterans. But what little evidence there is of the reasons for the clause dealing with assignments suggests that it was not intended to enlarge that benefit. In 1944, when the loan guaranty program was enacted, the statute provided:

No security for the guaranty of a loan shall be required except the right to be subrogated to the lien rights of the holder of the obligation which is guaranteed: Provided, that pursuant to regulations to be issued by the Administrator the mortgagor and mortgagee shall agree that before beginning foreclosure proceedings for default in payment of principal or interest due, the Administrator shall have at least thirty days' notice with the option of bidding in the property on foreclosure or of refinancing the loan with any other agency or by any other means available.*fn4

Plainly this provision required that the loan documents provide a nationally uniform means for affording to the VA as surety an opportunity to safeguard its interests in the security for the guaranty. Title III of the Servicemen's Readjustment Act was not a government loan program, but a suretyship program.

In 1945 Title III of the Servicemen's Readjustment Act was substantially amended by the addition of Section 509(a) giving the Administrator administrative powers with respect to properties which might come into the government's hands as a result of defaults.*fn5 That same law modified the notice of default provision to read:

In the event of default in the payment of any loan guaranteed under this title, the holder of the obligation shall notify the Administrator who shall thereupon pay to such holder the guaranty not in excess of the pro rata portion of the amount originally guaranteed, and shall be subrogated to the rights of the holder of the obligation to the extent of the amount paid on the guaranty: Provided, That prior to suit or foreclosure the holder of the obligation shall notify the Administrator of the default, and within thirty days thereafter the Administrator may, at his option, pay the holder of the obligation the unpaid balance of the obligation plus accrued interest and receive an assignment of the loan and security: Provided further, That (1) nothing herein shall be construed to preclude any forbearance for the benefit of the veteran as may be agreed upon by the parties to the loan and approved by the Administrator; and (2) the Administrator may establish the date, not later than the date of judgment and decree of foreclosure or sale, upon which accrual of interest or charges shall cease.*fn6

The Veterans contend that in this 1945 legislation Congress intended to benefit defaulting obligors rather than protect the government as surety. They note that in H.R. 3749, the House version of ...


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