U.S. v. Chappell Livestock Auction, Inc.

• Decision Date: 29 September 1975
• Docket Number: No. 74-1618,74-1618
• Citation: 523 F.2d 840
• Parties: 17 UCC Rep.Serv. 1098, 17 UCC Rep.Serv. 299 UNITED STATES of America, Appellant, v. CHAPPELL LIVESTOCK AUCTION, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 840

523 F.2d 840

17 UCC Rep.Serv. 1098, 17 UCC Rep.Serv. 299

UNITED STATES of America, Appellant, v. CHAPPELL LIVESTOCK AUCTION, INC., Appellee.

No. 74-1618.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 14, 1975.

Decided April 29, 1975.

On Rehearing En Banc Sept. 29, 1975.

William K. Schaphorst, U. S. Atty.; Daniel E. Wherry, Asst. U. S. Atty., Lincoln, Neb. and Roger L. Sherman, Atty., U. S. Dept. of Agriculture, Shawnee Mission, Kan., for appellant.

Cline, Williams, Wright, Johnson & Oldfather, Lincoln, Neb., for appellee.

Before HEANEY and WEBSTER, Circuit Judges, and NANGLE, ^* District Judge.

HEANEY, Circuit Judge.

This case was submitted to the District Court on stipulated facts. The United States loaned money to farmers through the Farmers Home Administration, taking a security interest in cattle. Financing statements were duly filed. Defendant auctioneer sold five head of encumbered cattle on behalf of the farmers, and the United States sued the auctioneer for common law conversion. The auctioneer defended on the basis of Rev.Stat Nebraska § 69.109.01. ¹ That statute exempts an auctioneer from liability when he has no actual knowledge of the security interest and acts in good faith. The parties stipulated that the auctioneer had complied with the terms of the Nebraska statute, and could not be held liable if state law controlled. Under federal common law, however, the auctioneer would be strictly liable in conversion.

The District Court granted summary judgment for the defendant. It relied on United States v. Kramel, 234 F.2d 577 (8th Cir. 1956), where we held that whether an auctioneer had converted collateral secured under the Farmers Home Administration loan program was to be determined by resort to state law.

The government asks us to reverse the District Court because: (1) our rule in Kramel was improvidently adopted and should be overruled; or (2) the facts of this case are distinguishable from those in Kramel. We reject both contentions and affirm.

I.

The government urges this Court to reconsider the Kramel decision because five Circuits have adopted a contrary rule whereby, notwithstanding state law, an auctioneer is strictly liable in conversion under federal common law. See United States v. Hext, 444 F.2d 804 (5th Cir. 1971); Cassidy Commission Co. v. United States, 387 F.2d 875 (10th Cir. 1967); United States v. Carson, 372 F.2d 429 (6th Cir. 1967); United States v. Sommerville, 324 F.2d 712 (3rd Cir. 1963), cert. denied, 376 U.S. 909, 84 S.Ct. 663, 11 L.Ed.2d 608 (1964); United States v. Matthews, 244 F.2d 626 (9th Cir. 1957).

While recognizing the fact that Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), does not apply to actions to enforce rights of the United States acting under its constitutional powers, we noted in Kramel that, in framing the applicable federal rule, the courts occasionally resort to state law. United States v. Kramel, Supra at 580, citing Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 87 L.Ed. 838 (1943). On the issue of the auctioneer's conversion, we chose to apply state law, noting that: (1) to permit federal common law to control would require the displacement of state tort law affecting title to personal property, an issue traditionally left to the states; and (2) Congress, in enacting the Farmers Home Administration Act, did not indicate that uniformity was needed, for no intention to override state law was expressed, even though it must have been aware that laws affecting or protecting title are not identical in all states. We believe this reasoning is still valid. Moreover, in adopting a similar rule in United States v. Union Livestock Sales Co., 298 F.2d 755 (4th Cir. 1962), the Fourth Circuit noted three additional reasons which we find persuasive: (1) there is no need in fact for uniformity in Farmers Home Administration loan transactions throughout the United States; (2) the procedure adopted by government regulations requires the chattel mortgage to be filed or recorded in accordance with local recording laws; and (3) the general purpose of the statute to give aid and assistance to the farming community will be promoted if the loans are made in accordance with local practice.

We find nothing in the Supreme Court decisions cited by the government which indicates to us that our original conclusion was erroneous. The rule laid down in Kramel is supported by the Supreme Court's opinion in United States v. Yazell 382 U.S. 341, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966). It has not been weakened or modified by subsequent decisions of this Court. ²

II.

The government urges that Kramel is not broad enough to call for the application of the Nebraska statute here. It would have us construe that statute to take away only the Remedy, and not to redefine the tort of conversion. ³ Therefore, it contends, this case is governed by United States v. McCabe Co., 261 F.2d 539 (8th Cir. 1959).

In McCabe, the defendant, an insolvent warehouseman, did not deny that he was guilty of conversion of encumbered grain, but defended solely on the ground that he could not be sued by the United States because a state statute had given to the state public service commission the exclusive right to sue insolvent warehousemen. We held that state law could not take away from the United States a cause of action for a wrong which the state continued to recognize as a wrong. In short, the state could not withhold only the remedy.

We cannot agree with the government's reading of the Nebraska statute ⁴ or that the McCabe decision is applicable. We read the statute simply to define the circumstances under which an auctioneer commits the tort of conversion. The government's argument that the statute acts solely to withhold the remedy from an otherwise recognized tort is an unacceptable exercise in semantics. When the statute took away everyone's right to sue the auctioneer, the tort was extinguished. In providing that there is no conversion under the facts of this case, the effect of the statute is no different than that of the state common law rule applied in Kramel.

Since we decline to overrule our holding in Kramel, the grant of summary judgment on the ground that state law prohibited the conversion action against the defendant under the stipulated facts is affirmed.

WEBSTER, Circuit Judge (dissenting).

I must respectfully dissent. It is my view that United States v. Kramel, 234 F.2d 577 (8th Cir. 1956), has been correctly undermined by more recent opinions of this court which place reliance upon cases from other circuits adhering to the prevailing view that federal, not state, law is to be applied in determining the remedies available to the United States for breach of a federal duty. ¹

In determining whether federal or state law should be applied in litigation arising out of a defaulted FHA mortgage our court recently observed:

The rule governing this case is that while state law will be followed to determine what security interests the Government obtains in its financial transactions in nationwide programs, federal law will be applied to determine what remedies are available to the Government to enforce its security interest.

United States v. Thompson, 438 F.2d 254, 256-57 (8th Cir. 1971), citing United States v. Stadium Apartments, Inc., 425 F.2d 358 (9th Cir.) cert. denied, 400 U.S. 926, 91 S.Ct. 187, 27 L.Ed.2d 185 (1970); See United States v. Chester Park Apartments, Inc., 332 F.2d 1, 4 (8th Cir.), cert. denied, 379 U.S. 901, 85 S.Ct. 191, 13 L.Ed.2d 176 (1964). See also United States v. McCabe Co., 261 F.2d 539 (8th Cir. 1959).

In the Stadium Apartments case, Supra, the Ninth Circuit considered an action by the government to protect its interest in a defaulted FHA mortgage and said:

(There is a) federal policy to protect the treasury and to promote the security of federal investment which in turn promotes the prime purpose of the (FHA) Act to facilitate the building of homes by the use of federal credit (which) becomes predominant. Local rules limiting the effectiveness of the remedies available to the United States for breach of a federal duty can not be adopted.

425 F.2d at 363, Quoting United States v. View Crest Garden Apartments, Inc., 268 F.2d 380, 383 (9th Cir.), cert. denied, 361 U.S. 884, 80 S.Ct. 156, 4 L.Ed.2d 120 (1959).

Thus in terms of property interests, the Nature of an interest in property acquired by the government is determined under state law. It takes property subject to preexisting liens determined in accordance with state law. If the government undertakes to perfect a security interest, that interest is tested against the recording and filing requirements of the state where the property is located.

On the other hand, once an interest has been acquired by the government, the power to assert a Claim for any injury to that property which is recognized under federal law may not be abridged or limited by state statute or decision, absent some clear manifestation of a federal legislative intent to do so.

This principle, which we applied in Thompson, Supra, has been applied by five other circuits to reach a result different than that reached by this court in Kramel. In these cases, state law defenses of good faith or absence of knowledge have been rejected as against federal claims based upon wrongful conversion. ²

Thus, in United States v. Hext, 444 F.2d 804 (5th Cir. 1971), the Fifth Circuit, relying upon Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), found the need for uniformity in administering the vast Farmers Home Administration program sufficient to support the application of "federal law, to be fashioned by the federal courts according to general principles of commercial law." 444 F.2d 809. In so doing it noted that a state statutory defense had been specially enacted to protect warehousemen from such conversion claims.

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