and Chicago Etching loans were below the loan limit and the
Greenhouse Garden Center, Inc. loan was paid in full. The
defendant claims that any alleged violations, therefore, were
corrected before this action was brought and that the S.B.A. no
longer has any cause to complain of these transactions. A reading
of the applicable statute, 15 U.S.C. § 687(d), does not support
the defendant's conclusion. Violations of the Act are not "cured"
because they are not detected and prosecuted before the violation
ceases. The Act unequivocally states that upon violation or
non-compliance with any provision of the Act or the regulations,
a licensee forfeits all of its rights, privileges, and
franchises. While an adjudication by a court is required to
determine whether in fact a violation or non-compliance took
place, the statute does not restrict the court's consideration to
a question whether a violation or non-compliance is presently
occurring. 15 U.S.C. § 687(d). The defendant's interpretation of
the statute, which this court cannot allow, would permit a
licensee to disregard the Act and the regulations with impunity,
so long as violations are "cured" by the time the S.B.A.
The plaintiff alleges and the defendant admits that on March
19, 1964, the defendant loaned $44,000 to Polaris Drilling
Company, $10,949.50 of which was used to pay off encumbrances
against two homes or dwellings of the president of the borrowing
concern. The Act specifies that loans made by licensees to small
business concerns shall be used for the sound financing, growth,
modernization, and expansion of the concerns. 15 U.S.C. § 685(a).
The Polaris financing clearly violated the Act, and the
defendant's assertion that the loan was repaid long before this
action was brought is irrelevant, as indicated above.
The plaintiff alleges and the defendant admits that the
president of the defendant, Leon C. Baker, made personal loans to
Manetti, Inc. for $35,000 and to Chez Coiffeurs Salons, Inc. for
an unstated amount. On April 1, 1963, Mr. Baker contributed the
note evidencing the Manetti loan to the defendant. He then
applied to the S.B.A. for "Section 302" or matching funds under
15 U.S.C. § 682. The S.B.A. refused to match the funds
represented by this transaction. It is admitted that the S.B.A.
notified Mr. Baker by a letter dated February 7, 1964, that the
S.B.A. would match funds only with that portion of paid-in
capital and surplus derived from cash, eligible government
securities, and stock dividends capitalizing retained earnings.
Subsequently, Mr. Baker sold the note to the defendant for
$35,000 in cash and then contributed the cash as additional
paid-in capital and surplus. The S.B.A. was not aware of this
transaction when it matched Section 302 funds with the defendant
for this amount. On May 8, 1964, Mr. Baker similarly sold the
Chez Coiffeurs Salons' note to the defendant and contributed the
cash proceeds to the defendant as additional paid-in capital and
surplus. Again, the S.B.A. was not aware of this transaction
when, upon the defendant's application, it made funds available
in reliance upon the cash "contribution." Both the Manetti and
Chez Coiffeur Salons' transactions violated the Act. The
defendant, by means of these sham transactions, financed personal
loans which were not for the sound financing, growth, expansion
or modernization of the borrowing concerns. 15 U.S.C. § 685(a).
The affidavit of Leon C. Baker, filed by the defendant in
opposition to this motion for summary judgment, is replete with
arguments, opinions and conclusions of the affiant concerning the
validity of a number of S.B.A. regulations. It has been well
established that S.B.A. regulations have the force and effect of
law. Hernstadt v. Programs for Television, Inc., 36 Misc.2d 628,
232 N.Y.S.2d 683 (1962). A licensee under a scheme of federal
regulation acquires no vested rights which immunize it from
reasonable regulation by an administrative agency.
ANA Small Business Investments, Inc. v. Small Business
Administration, supra. Furthermore, arguments concerning the law
or merits of a case in affidavits responding to a motion for
summary judgment may be disregarded by the trial court. Bensen v.
Jackson, 238 F. Supp. 309 (E.D.Pa. 1965). Under Rule 56(e),
Federal Rules of Civil Procedure, the only finding necessary is
that there is no genuine issue as to any material fact. Bohn
Aluminum & Brass Corporation v. Storm King Corporation,
303 F.2d 425 (6th Cir. 1962).
In his affidavit, the president of the defendant contends that
this suit was brought in order to punish the defendant for
opposing legislation proposed by the S.B.A. and in retaliation
for old animosities. These allegations are conclusionary and
unsupported by specific facts. Although the defendant has
presented a sworn statement attesting to its past friction with
the S.B.A., a contention that this suit was brought for any
reason other than the defendant's non-compliance with the Act and
the regulations is purely speculative. The affidavit does not
present any genuine issues of fact and is therefore inadequate to
defeat the motion for summary judgment. Turner v. Lundquist,
377 F.2d 44 (9th Cir. 1967); Scarboro v. Universal C.I.T. Credit
Corp., 364 F.2d 10 (5th Cir. 1966); Wagoner v. Mountain Savings
& Loan Association, 311 F.2d 403 (10th Cir. 1962).
The plaintiff has alleged and the defendant has admitted
conduct that clearly violated the Act and the regulations. There
is no factual dispute regarding the financing transactions in
question. The plaintiff is entitled to a summary judgment as a
matter of law, since there is no genuine issue as to any material
fact. Carter v. Williams, 361 F.2d 189 (7th Cir. 1966); Bumgarner
v. Joe Brown Company, 376 F.2d 749 (10th Cir. 1967).
It is therefore ordered that summary judgment be and it is
hereby rendered for the plaintiff. It is further ordered that
judgment be and it is hereby entered for the plaintiff in the
amount of $550,000 and costs, and the cause is hereby dismissed.