Source: https://law.justia.com/cases/federal/appellate-courts/F2/373/753/362584/
Timestamp: 2019-04-18 16:52:06+00:00

Document:
Joseph T. Wynne, San Juan, P. R., for appellant.
Stanley L. Feldstein, San Juan, P. R., with whom Nachman, Feldstein, Laffitte & Smith, San Juan, P. R., was on brief, for appellee.
This case arises out of a contract in which appellant Racquet Club, Inc. agreed to pay appellee Lipper a contingent commission of 4% on any funds1 raised to finance certain construction projects that Racquet Club was about to undertake. Among appellee's efforts2 to raise funds was an inquiry at the Department of Commerce about the possibility of a loan from the Area Redevelopment Administration (ARA). This conversation led to an application by Racquet Club to ARA, seeking a second mortgage loan of $1,600,000. Following ARA authorization of this loan, appellee sued for payment of a $64,000 commission and obtained judgment, from which Racquet Club appeals.
The principal contention on appeal is that the payment of a contingency commission for obtaining a loan from the federal government contravenes public policy, and that an agreement to pay such a commission should not be enforced by the courts. We hold that there is no such general proposition of law, but that a published regulation of the Small Business Administration (SBA), prohibiting the payment of commissions in connection with loans in which SBA participates, is applicable to this case and bars appellee's recovery.
A century ago the Supreme Court held that a promise to pay a fee contingent upon success in financial dealings with a government agency was void as against public policy. Providence Tool Co. v. Norris, 1864, 2 Wall. 45, 17 L. Ed. 868. Since that time, however, as more sophisticated situations have arisen, the rule has gradually developed that, in the absence of statute or regulation, courts will decline to enforce contingent fee contracts only when an attempt to "introduce personal solicitation and personal influence" into dealings with government is actually intended or in fact results. Coyne v. Superior Incinerator Co., 2 Cir., 1936, 80 F.2d 844. Compare Oscanyan v. Arms Co., 1880, 103 U.S. 261, 26 L. Ed. 539 (refusing enforcement after improper influence exercised), with Valdes v. Larrinaga, 1914, 233 U.S. 705, 34 S. Ct. 750, 58 L. Ed. 1163 (enforcing contract despite past possibility that plaintiff would use improper influence). The record in this case suggests no basis for concluding that any attempt was contemplated or made. Hence the contract is not void under any general principle of federal common law.
At the same time that the courts have refined the rule announced in Providence Tool Co., they have recognized a power in the executive to declare certain fees paid in connection with defined categories of contracts to be in violation of public policy, see, e.g., Browne v. R & R Engineering Co., 3 Cir., 1959, 264 F.2d 219, and have held that a valid declaration to that effect will defeat a contracting party's attempt to recover the forbidden commission. Browne v. R & R Engineering Co., supra; Le John Mfg. Co. v. Webb, 1955, 95 U.S.App.D.C. 358, 222 F.2d 48. In other words, the executive agencies may, if they see fit, proscribe in advance what they reasonably fear to be dangerous liaisons.
It is true that ARA and SBA are distinct bodies, created by different legislation. ARA is an agency within the Department of Commerce; the older SBA is an independent executive agency. By virtue of ARA's authorizing legislation and regulations, however, the two agencies work together on loans of the type involved here. ARA was instructed by Congress that, in order to avoid duplication of existing facilities and staffs, it should delegate its assigned tasks to other appropriate agencies, on a reimbursable basis, wherever possible. 42 U.S.C. § 2521. In pursuance of this dictate the Secretary of Commerce, by regulation, 13 C.F.R. § 301.55, delegated to SBA substantial duties and powers with respect to loans under 42 U.S.C. § 2505. SBA not only makes the actual loan, subsequently reimbursed out of ARA appropriations, but is responsible for important factual determinations and the exercise of expertise. Thus it must decide, among other things, that no adequate private or other federal assistance is available to the borrower; that federal assistance does not exceed 65% of the cost of acquisition and development; that monies are in fact being supplied from certain other sources to meet the rest of the cost; and, most important, that there is reasonable assurance of repayment.
There is no unfairness in applying SBA regulations. It is made clear to a loan applicant at the outset, as the record in the case at bar demonstrates, that he is dealing with both agencies. After preliminary approval by ARA, the applicant is told that his application is to be submitted to SBA, and that he is to "discuss financial problems" with that agency, and that his final assurance that a loan will be forthcoming will be by a signed agreement with SBA on terms and conditions which that agency will make known to him.
Appellee contends that the SBA regulation is nevertheless inapplicable to this case because neither the ARA statute nor its regulations delegate to SBA any power to make regulations applicable to ARA loans. We hold, however, that the congressional directive to ARA to promote efficiency by delegating tasks to existing agencies is not simply to borrow manhours and office space, but to adopt existing administrative machinery as a whole whenever possible. The SBA regulation, designed to prevent the exercise of "personal influence" upon its own staff, must be held to be applicable here.
The judgment of the District Court is vacated, and judgment is ordered in favor of the defendant.

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 § 2521
 § 301
 § 2505