Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-85-01685/USCOURTS-ca10-85-01685-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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FILED 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

United Stat.es Court of Appeals 

Tenth Circuit 

FEB O 61989 

ROBERT L. HOECKER 

Clerk SHELLEY IRRIGATION DEVELOPMENT ) 

INC., a Wyoming corporation, ) 

NED R. SHELLEY and DEAUN SHELLEY, ) 

) 

Plaintiffs-Appellants, ) 

) 

) 

v. ) 

) 

VALLEY BANK AND TRUST COMPANY, ) 

a Utah Banking Corporation, and ) 

the UNITED STATES OF AMERICA, ) 

acting through the SMALL BUSINESS ) 

ADMINISTRATION, JOHN DOES ) 

1 through 10, ) 

) 

Defendants-Appellees. ) 

No. 85-1685 

No. 85-1966 

(D.C. No. C-77-0230) 

( D. Utah) 

ORDER AND JUDGMENT 

Before MCWILLIAMS, SEYMOUR, and MOORE, Circuit Judges. 

Shelley Irrigation Development and Ned and Deaun Shelley 

(Shelley) brought this action against Valley Bank and Trust Co. 

(Bank) and the Small Business Administration (SBA) to recover 

damages arising from the Bank's allegedly wrongful failure to 

disburse funds from a loan it had extended to Shelley. The SBA 

had guaranteed the loan and had imposed conditions on the 

disbursal of the loan proceeds. Shelley sought damages against 

the Bank for breach of contract, conversion, and tortious 

interference with contractual relations, and against the SBA for 

breach of contract and breach of regulations. 

Appellate Case: 85-1685 Document: 01019962630 Date Filed: 02/06/1989 Page: 1 
The case was originally filed in state court. It was removed 

to federal court on the SBA's motion after it was added as a 

defendant. The district court granted the SBA's motion to dismiss 

or, in the alternative, for summary judgment. The case proceeded 

to trial before a jury on Shelley's claims against the Bank. 

After Shelley had presented its case-in-chief, the court granted 

the Bank's motion for a directed verdict on the claims for 

conversion and tortious interference with contractual relations. 

After all the evidence had been presented, the court directed a 

verdict for the Bank on the breach of contract claims as well. On 

appeal, Shelley concedes that its claims against the SBA are moot 

if this court upholds the lower court's disposition of the claims 

against the Bank. However, Shelley argues that the district court 

was without subject matter jurisdiction over the Bank claims once 

the court granted the SBA's motion to dismiss. In the 

alternative, Shelley contends that it presented sufficient 

evidence on its claims against the Bank to send the case to the 

jury. We affirm. 

I. 

We first address Shelley's jurisdictional argument that the 

district court lost subject matter jurisdiction once the SBA was 

dismissed from the action. The cases are to the contrary. 

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"When federal parties remove an action under 

section 1442(a)(l), the federal court assumes 

jurisdiction over all the claims and parties in the case 

regardless of whether the federal court could have 

assumed original jurisdiction over the suit .••• If 

the federal party is eliminated from the suit after 

removal under this provision, the district court does 

not lose its ancillary or pendent-party jurisdiction 

over the state law claims against the remaining nonfederal parties." 

District of Columbia v. Merit Systems Protection Bd., 762 F.2d 

129, 132-33 (D.C. Cir. 1985). Accord IMFC Professional Services 

v. Latin American Home Health, Inc., 676 F.2d 152, 158-59 (5th 

Cir. 1982); lA Moore's Federal Practice ,1 0.164[1] at 387 (2d ed. 

1987). Accordingly, the district court here properly retained 

jurisdiction over the state law claims against the Bank after the 

SBA was dismissed. 1 

II. 

The nub of all Shelley's claims against the Bank is the 

allegation that the Bank breached its contractual obligation to 

Shelley to disburse proceeds from the loan for Shelley to use as 

working capital. Shelley contends that it presented sufficient 

evidence to send this issue to the jury. 

1 When the federal defendant is dismissed after a§ 1442 

removal, the district court retains the discretionary power to 

either adjudicate the state law claims or remand the case to state 

court. See District of Columbia v. Merit Systems Protection Bd., 

762 F.2d 129, 133 (D.C. Cir. 1985). In this case, the federal 

defendant was dismissed shortly before trial and after extensive 

discovery had taken place over a period of several years. Shelley 

has not contended that the district court abused its discretion 

under these circumstances in resolving the remaining claims. 

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"The standard to be applied in determining whether 

to grant a motion for directed verdict is not whether 

there is literally no evidence to support the party 

opposing the motion, but whether there is evidence upon 

which the jury could properly find a verdict for that 

party. The court may not weigh the evidence, pass on 

the credibility of witnesses, or substitute its judgment 

for that of the jury. Rather, it views the evidence 

most favorably to the party against whom the motion is 

made and gives that party the benefit of all reasonable 

inferences from the evidence. This standard is the same 

in both the trial court and on appeal." 

Smith Machinery Co. v. Jenkins, 654 F.2d 693, 697 (10th Cir. 1981) 

(citations omitted). 

In directing a verdict for the Bank, the district court 

concluded that Shelley had failed to present evidence that it had 

complied with the loan conditions, and that absent such compliance 

the Bank had no duty to disburse. We have carefully reviewed the 

evidence and we agree with the trial court's conclusion. 

Under Utah law, a plaintiff's failure to satisfy a condition 

precedent excuses a defendant's obligation to perform. See 

Kinsman v. Kinsman, 748 P.2d 210, 213 (Utah Ct. App. 1988); 

Downtown Athletic Club v. Horman, 740 P.2d 275, 280-81 (Utah Ct. 

App. 1987). The evidence is uncontroverted that the loan was 

subject to conditions imposed by the SBA. Of particular relevance 

is provision 3(c)(7), requiring Shelley to obtain standby 

agreements with listed debtors, and provision 3(c)(8), requiring 

Shelley to obtain conversions of debt to equity by listed debtors. 

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Although it is undisputed that these conditions were not 

completely satisfied at the time the loan was closed or 

thereafter, Shelley argues on appeal that the Bank agreed to amend 

the loan to delete these conditions. The basis for Shelley's 

claim of amendment is a letter Shelley wrote to the Bank 

requesting loan modifications. Rec., vol. VII, doc. 63. This 

request, which was approved by the SBA, proposed that the standby 

and conversion requirements be modified to allow Shelley to 

reimburse these creditors from other sources in lieu of obtaining 

standby and conversion agreements. However, the fact that the 

parties agreed to alternative means of satisfying these debts did 

not relieve Shelley of its obligation under the loan agreement to 

eliminate them, nor did it relieve the Bank of its responsibility 

under its SBA agreement to ensure that the loan proceeds be used, 

if necessary, to pay Shelley's creditors. Accordingly, the 

amendments do not negate the Bank's authority to withhold funds in 

the amount required to satisfy these debts should Shelley fail to 

do so. Shelley itself in its proposed amendment suggested that 

loan proceeds be escrowed in an amount sufficient to satisfy some 

of the conversion creditors. 2 Id. 

2 We note that Shelley had also earlier requested the Bank to 

withhold loan proceeds in an amount sufficient to satisfy a 

working capital debt owed a creditor not listed in the standby and 

conversion provisions. See rec., vol. VII, doc. V, at 1. 

Accordingly, to the extent Shelley asserts that the Bank breached 

by failing to disburse these particular funds to Shelley for use 

as working capital, the argument borders on the frivolous. 

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The evidence is undisputed that, although the Bank closed the 

loan, Shelley endorsed the check for the proceeds back to the Bank 

and the funds were then placed into a restricted account rather 

than into Shelley's checking account. Moreover, Shelley continued 

to obtain standby and conversion agreements after the loan had 

closed, and the Bank released funds as it received proof of these 

agreements. The only reasonable inference to be drawn from these 

uncontroverted facts is that, in accordance with the SBA's 

requirements, the Bank closed the loan only because the funds 

representing the unsatisfied loan conditions would be escrowed and 

either paid to Shelley's creditors upon Shelley's request, or 

released when Shelley presented the Bank with proof of payment or 

of a standby or conversion agreement. These latter events never 

fully occurred. 

We also find significant the undisputed evidence that Shelley 

defaulted on its loan payments. The first loan payment was due on 

December 15, 1973. Shelley attempted to make a payment in early 

January, 1974, but the check did not clear until late February, at 

which time the loan was three payments in arrears. Although 

Shelley contends that the Bank waived this default by refusing 

Shelley's request to make a payment out of the loan proceeds, 

Shelley has presented no evidence that unrestricted working 

capital funds were available to make the payment. 

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In sum, we find no evidence reasonably tending to show that 

the loan proceeds were not subject to the restrictions at issue. 

The evidence is undisputed that Shelley did not satisfy these 

conditions or make timely payments on the loan. Under these 

circumstances the Bank had no obligation to disburse the remaining 

funds. 

We have considered all of Shelley's remaining arguments and 

are not persuaded. Accordingly, the judgments for the Bank and 

the SBA are affirmed. 

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Entered for the Court 

Stephanie K. Seymour 

Circuit Judge 

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