Builders Corporation of America v. United States

• Citation: 148 F. Supp. 482
• Decision Date: 19 February 1957
• Docket Number: Civ. No. 7250.
• Parties: BUILDERS CORPORATION OF AMERICA, a corporation, and Herlong Sierra Homes, Inc., a corporation, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California

148 F. Supp. 482

BUILDERS CORPORATION OF AMERICA, a corporation, and Herlong Sierra Homes, Inc., a corporation, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. No. 7250.

United States District Court N. D. California, N. D.

February 19, 1957.

Landis & Brody, Sacramento, Cal., for plaintiffs.

Lloyd H. Burke, U. S. Atty., and Marvin D. Morgenstein, Asst. U. S. Atty., San Francisco, Cal., for defendant.

HALBERT, District Judge.

This is an action to recover damages from the United States of America under the provisions of the Federal Tort Claims Act, 28 U.S.C.A. § 2671 et seq., and § 1346(b) for the alleged loss of anticipated rental income from dwelling units constructed by plaintiffs adjacent to the Sierra Ordnance Depot, a military installation of the United States near Herlong, California. Plaintiffs allege that pursuant to a declared public policy of the United States to stimulate and encourage private construction of dwelling units to alleviate the acute housing shortages near federal military installations, Chapter 403, Public Law 211, 81st Congress, 1st Session, 63 Stat. 570, 12 U.S.C.A. § 1748 et seq., as amended, the Secretary of the Army on October 24, 1951, certified to the Federal Housing Administration that a need for housing facilities for base personnel of the Sierra Ordnance Depot existed. Plaintiffs further allege that thereafter the Federal Housing Administration, acting pursuant to statutory authority, 12 U.S.C.A. § 1702 et seq., as amended, agreed to insure mortgages in the amount of $1,113,700 on 125 dwelling units to be constructed by plaintiff, Herlong Sierra Homes, Inc., and to insure mortgages in the amount of $1,261,000 on 150 dwelling units to be constructed by plaintiff, Builders Corporation of America, all of which said dwelling units were to be constructed adjacent to the Sierra Ordnance Depot. Plaintiffs further allege that the Commanding General of the Sixth Army issued an order to the Base Commander of the Sierra Ordnance Depot directing him to follow certain procedures set forth in the order for the general purpose of compelling base personnel to vacate the homes, in which they were then living, and become tenants of the plaintiffs "not later than September 1, 1954." It is alleged that the Base Commander failed and refused to carry out this order, and it is on this alleged failure and refusal that plaintiffs seek to found their two causes of action. The first cause of action is predicated on the theory that the Base Commander refused to carry out the aforementioned order with the intent to injure plaintiffs' business interests, and prevent plaintiffs from entering into an anticipated business relationship with the base personnel. The second cause of action is predicated on the theory that the Base Commander's alleged failure to carry out the order and plan submitted to him was negligence which directly caused plaintiffs' loss of rental income. Damages in the sum of $3,475,000 are sought on both causes of action.

Defendant has filed a motion to dismiss based, generally, on the contention that neither cause of action is cognizable under the provisions of the Federal Tort Claims Act, the alleged tortious conduct of the Base Commander having arisen in the course of exercising a "discretionary" function or duty, 28 U.S. C.A. § 2680(a). Defendant further contends, inter alia, that the first cause of action is grounded on the tort of interference with contractual relations within the meaning of Title 28 U.S.C.A. § 2680(h), and hence, is barred by the exclusion provisions of the Act. Defendant contends that the second cause of action fails to state a claim in negligence for the reason that defendant owed no duty to plaintiffs to protect plaintiffs from the type of loss which they suffered.

The alleged wrongful act of the Base Commander for which plaintiffs seek a recovery under their first cause of action appears to be the tort of "interference with prospective advantage" (Prosser on Torts, p. 745 2d Ed.1955), sometimes labeled "interference with prospective contracts or business relations". Masoni v. Board of Trade, 119 Cal.App.2d 738, 260 P.2d 205. Since Congress has decided not to surrender the immunity of the United States from tort actions based on interference with contract relations, 28 U.S.C.A. § 2680 (h), the essential issue which this Court must decide, then, is whether the tort of interference with prospective advantage or prospective contracts is properly includable within the aforementioned exception to the Tort Claims Act. It would seem to be quite illogical to conclude that Congress intended to exclude one tort from the operation of the Act, and, at the same time, waive the Government's immunity from actions sounding in a substantially identical tort; the distinction between the two being one of degree, only, in the elements necessary to establish liability.¹ Congressional intent need not be further pondered, however, for under the substantive tort law of California, by which we are bound in this case, cf. Massachusetts Bonding Co. v. United States, 352 U.S. 128, 77 S.Ct. 186, 1 L.Ed.2d 189, no distinction between "interfering with contract relations" and "interfering with prospective contract or business relations" is recognized except in the factual situations which are considered essential to the existence of liability for the substantive tort of "interference."² Thus, in Masoni v. Board of Trade, supra, 119 Cal.App.2d at page 741, 260 P.2d at page 207, it was stated:

"Actionable interference of this kind is not limited to inducing breach of an existing contract or other wrongful conduct but comprises also unjustifiably inducing a third person not to enter into or continue a business relation with another." (Citing the Restatement of Torts, § 766(a) and (b)).

(See also: Campbell v. Rayburn, 129 Cal.App.2d 232, 276 P.2d 671; Guillory v. Godrey, 134 Cal.App.2d 628, 286 P.2d 474; Wilson v. Loew's, Inc., 142 Cal. App.2d 183, 298 P.2d 152; and 28 Cal. Jur.2d 427, Interference, §§ 7 and 8).

Few federal cases have dealt with the exclusion of interference with contract relations from federal tort liability,³ but the case of Fletcher v. Veterans Administration, D.C.E.D.Mich., 103 F.Supp. 654, provides a helpful analogy. In that case plaintiff operated a school supported primarily by veteran enrollees, but the Veterans Administration, for undisclosed reasons, thereafter advised the veterans against enrolling in the school with the result that plaintiff was left with empty classrooms, and was forced to discontinue his operations. The ensuing action against the Veterans Administration for "negligence" in causing the loss of existing and future business opportunity was dismissed as an action based on interference with contract rights within the meaning of § 2680(h), Title 28 U.S.C.A.

In view of the foregoing authorities, this Court is of the opinion that the United States did not waive its immunity from the type of claim which plaintiffs assert by their first cause of action, hence, no useful purpose would be served by here ruling on defendant's contention that this cause of action is likewise barred under the "discretionary function" exception enunciated in § 2680(a), supra.

In order to recover damages on their second cause of action, based on negligence, it is essential that plaintiffs allege and prove that defendant owed them a duty to conform to a standard of conduct which would prevent the kind of injury which plaintiffs allegedly suffered. This is the rule in California, Routh v. Quinn, 20 Cal.2d 488, 127 P.2d 1, 149 A.L.R. 215, and is likewise applicable to actions based on negligence under the Federal Tort Claims Act. Dalles City v. River Terminals Company, 9 Cir., 226 F.2d 100; Social Security Admin. Baltimore F.C.U. v. United States, D.C., 138 F.Supp. 639; Mid-Central Fish Co. v. United States, D.C., 112 F.Supp. 792, affirmed 8 Cir., 210 F.2d 263; and Anglo-American & Overseas Corp....