460 U.S. 289 (1983), 81-1494, Block v. Neal

Docket Nº:No. 81-1494
Citation:460 U.S. 289, 103 S.Ct. 1089, 75 L.Ed.2d 67
Party Name:Block v. Neal
Case Date:March 07, 1983
Court:United States Supreme Court
 
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Page 289

460 U.S. 289 (1983)

103 S.Ct. 1089, 75 L.Ed.2d 67

Block

v.

Neal

No. 81-1494

United States Supreme Court

March 7, 1983

Argued January 19, 1983

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SIXTH CIRCUIT

Syllabus

In her complaint in the later-described action, respondent asserted the following facts. She obtained a loan from the Farmers Home Administration (FmHA) under the Housing Act of 1949 for the construction of a prefabricated house. She then contracted with a builder to construct the house. The contract required the work to conform to plans approved by FmHA and granted FmHA the right to inspect and test all materials and workmanship and reject any that were defective. During and at the completion of construction of the house, an FmHA official inspected the site and reported that the construction accorded with FmHA-approved drawings and specifications. After respondent moved into the house, she discovered, and FmHA officials [103 S.Ct. 1090] identified, a number of defects. The builder refused to comply with FmHA's request to cure the defects in accordance with the builder's warranty, and FmHA declined to pay for certain defects. Respondent then brought an action in Federal District Court under the Federal Tort Claims Act (FTCA), alleging that the defects were partly attributable to FmHA's employees' failure properly to inspect and supervise construction of the house. The District Court dismissed the complaint for failure to state a claim on which relief could be granted. The Court of Appeals reversed, holding that the complaint stated a claim for negligence and that the action was not barred by 28 U.S.C. § 2680(h), which precludes recovery under the FTCA for "[a]ny claim arising out of . . . misrepresentation."

Held: Respondent's claim did not "aris[e] out of . . . misrepresentation" within the meaning of § 2680(h), and thus is not barred by that provision, because respondent did not seek to recover on the basis of misstatements made by FmHA officials. United States v. Neustadt, 366 U.S. 696, distinguished. Although FmHA may have undertaken both to supervise construction of respondent's house and to provide her with information regarding the progress of construction, her action is based solely on the former conduct. The essence of an action for misrepresentation is the communication of misinformation on which the recipient relies. Here, the FmHA's duty to use due care to ensure that the builder adhered to the approved plans and cured all defects before completing construction was distinct from any duty to use due care in communicating information to respondent. Pp. 294-299.

Page 290

646 F.2d 1178, affirmed.

MARSHALL, J., delivered the opinion of the Court, in which BRENNAN, WHITE, BLACKMUN, POWELL, REHNQUIST, STEVENS, and O'CONNOR, JJ., joined. BURGER, C.J., concurred in the judgment.

MARSHALL, J., lead opinion

JUSTICE MARSHALL delivered the opinion of the Court.

The Secretary of Agriculture is authorized by Title V of the Housing Act of 1949, 63 Stat. 432, as amended, 42 U.S.C. § 1471 et seq. (1976 ed., and Supp. V), to extend financial and technical assistance through the Farmers Home Administration (FmHA) to low-income rural residents who seek to obtain housing. Respondent Onilea Neal, the recipient of an FmHA loan for the construction of a prefabricated house, brought this action under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671-2680. She alleged that defects discovered after she set up residence were partly attributable to the failure of FmHA employees properly to inspect and supervise construction of her house. This case presents the question whether respondent's action is barred by 28 U.S.C. § 2680(h), which precludes recovery under the Tort Claims Act for "[a]ny claim arising out of . . . misrepresentation."

I

A

The facts described in respondent's complaint may be summarized as follows. Unable to obtain credit from other

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sources, Neal applied for a Rural Housing Loan from FmHA pursuant to § 502(a) of the Housing Act of 1949, 42 U.S.C. § 1472(a). FmHA approved her application in June, 1977. During the summer of that year, Neal received advice from S. Lain Parkison, the FmHA Supervisor for Roane County, Tenn.

On August 8, 1977, Neal contracted with Home Marketing Associates, Inc. (Home Marketing), for the construction of a prefabricated house.1 The contract required that Home Marketing's work conform to [103 S.Ct. 1091] plans approved by FmHA. It also granted FmHA the right to inspect and test all materials and workmanship and reject any that were defective. At the same time, Neal entered into a deed of trust with FmHA and signed a promissory note providing for repayment of the principal sum of $21,170, plus interest of 8% per annum on the unpaid principal.

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Home Marketing commenced work on Neal's house in August, 1977, and finished the following month. An FmHA official, Mary Wells, inspected the site on three occasions: soon after construction began, shortly before it was concluded, and after the house was completed. Her inspection reports contained no adverse comments on the construction work. After her third inspection, Wells issued a final report, signed by Neal, which indicated that the construction accorded with the drawings and specifications approved by FmHA. Home Marketing issued a one-year builder's warranty covering workmanship, materials, and equipment.

Neal moved into the house in 1977. During the winter, she discovered that the heat pump in the house was not working properly. She notified FmHA and Home Marketing. An inspection by Parkison, the County FmHA Supervisor, revealed that the heat pump unit was either defective or undersized. On March 22, 1978, FmHA's State Director and other FmHA officials conducted a complete inspection and identified 13 additional defects in the construction of the house. These included deviations from plans approved by FmHA and from applicable Minimum Property Standards. The inadequacies in materials and workmanship included defects in caulking, bridging, sealing, and plumbing, and extended to all areas of the house, such as the porch, the rear door, the floor, the roof, the exterior paint, and the interior wall finish. Home Marketing refused to comply with FmHA's request to cure these defects in accordance with the builder's warranty.

In November, 1978, respondent asked FmHA to pay for the correction of the heating system and other structural defects. It declined to do so.

B

The United States District Court for the Eastern District of Tennessee dismissed Neal's complaint for failure to state a claim on which relief can be granted. Neal v. Bergland, 489 F.Supp. 12 (1980). It found that no contractual duty to supervise

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the construction of respondent's home was created either by the Federal Housing Act of 1949 and the regulations promulgated thereunder or by the various agreements between respondent and FmHA. The court concluded that regulations requiring FmHA officials to ensure that the builder adhere to the terms of its construction contract were intended solely to protect the Government's security interest, and were not intended to make FmHA warrant the quality of construction for the benefit of those receiving rural assistance loans. Id. at 514-515. The District Court also concluded that respondent failed to state a claim against FmHA under applicable tort law. Id. at 515.

The Court of Appeals reversed. Neal v. Bergland, 646 F.2d 1178 (CA6 1981). It agreed with the District Court that FmHA had no contractual obligation to provide Neal with technical assistance or to inspect and supervise construction of her house. Id. at 1181. However, the Court of Appeals found that respondent's complaint stated a claim for negligence under the principle

that one who undertakes to act, even though gratuitously, is required to act carefully and with the exercise of due care and will be liable for injuries proximately caused by failure to use such care.

Id. at 1181-1182, citing Restatement (Second) of Torts § 323 (1965). It noted that, subject to express exceptions, the Tort Claims Act, 28 U.S.C. § 2674, authorizes suit against the Government for the negligence of a federal agency in performing a voluntary undertaking. Ibid.2

The Court of Appeals then considered the question now before us: whether respondent's claim "aris[es] out of . . . misrepresentation," 28 U.S.C. § 2680(h), and is therefore excluded

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from coverage by the Tort Claims Act. Distinguishing this case from others, including United States v. Neustadt, 366 U.S. 696 (1961), the court concluded that respondent's negligence claim did not fall within this exception to the waiver of sovereign immunity. The Secretary of Agriculture and other Government officials petitioned for certiorari and suggested summary reversal on the ground that the decision below cannot be reconciled with this Court's...

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