Ecco Plains, LLC. v. United States

• Decision Date: 04 September 2013
• Docket Number: No. 11–1559.,11–1559.
• Citation: 728 F.3d 1190
• Parties: ECCO PLAINS, LLC.; Ken Ulrich; High Plains Cattle Company, LLC., Plaintiffs–Appellants, v. UNITED STATES of America, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

728 F.3d 1190

ECCO PLAINS, LLC.; Ken Ulrich; High Plains Cattle Company, LLC., Plaintiffs–Appellants,

v.UNITED STATES of America, Defendant–Appellee.

No. 11–1559.

United States Court of Appeals,Tenth Circuit.

Sept. 4, 2013.

Jordan D. Factor (Matthew M. Wolf with him on the brief) of Allen & Vellone, P.C., Denver, CO, for Plaintiffs–Appellants.

Michael Conrad Johnson, Assistant United States Attorney, Denver, CO (John F. Walsh, United States Attorney, Denver, CO, and Dina L. Biblin, Senior Litigation Counsel, FDIC Legal Division, Arlington, VA, with him on the brief) for Defendant–Appellee.

Before, TYMKOVICH, McKAY, and O'BRIEN, Circuit Judges.

O'BRIEN, Circuit Judge.

The Federal Depository Insurance Corporation (FDIC), while acting as receiver ¹ of the New Frontier Bank (the Bank), used proceeds from the sale of cattle belongingto a limited liability company (LLC) to pay down a loan of one of the two LLC members. According to the complaint, the FDIC had no authority to do so because the payment was contrary to the members' agreement. Ignoring the separate entity status of an LLC, the other LLC member brought suit in its own name against the United States under the Federal Tort Claims Act (FTCA) for what it claimed to be the FDIC's wrongful disbursement of the proceeds. The LLC itself sued the government under the Fifth Amendment Takings Clause. The district judge dismissed the suit for failure to state a claim. While we agree dismissal was appropriate, it should have been for lack of jurisdiction as to the member's claims (the FTCA's “interference with contract” jurisdictional exception, see28 U.S.C. § 2680(h)) and as to the LLC's claim because jurisdiction lies exclusively with the United States Court of Federal Claims.

I. FACTUAL BACKGROUND

We draw the facts from the amended complaint. Ken Ulrich is the majority owner of High Plains Cattle Company, LLC. High Plains and Doug English formed ECCO Plains, LLC, to raise cattle for sale. Each made a $7,000,000 capital contribution to ECCO Plains. High Plains financed its capital contribution with a loan from the New Frontier Bank; Ulrich personally guaranteed the debt. ² English also financed his capital contribution from the Bank. ³ No ECCO Plains assets were pledged as security for either loan. Indeed, it appears ECCO Plains had no business relationship with the Bank.

Prior to forming ECCO Plains, High Plains and English entered into an agreement regarding its operation. Relevant here, the parties agreed that High Plains would, upon request, receive a return of its capital contribution before English received any of his capital contribution. The Bank, as well as FDIC, had a copy of the agreement.

The Bank subsequently became insolvent and FDIC was appointed receiver. Thereafter, ECCO Plains sold approximately $5,500,000 worth of cattle to a packing house in Northern Colorado. FDIC caused the packing house to make the sale proceeds payable to both ECCO Plains and FDIC.⁴

High Plains made a written demand to FDIC to apply 100% of the sale proceeds to High Plains' loan. The demand was based on its 50 percent membership interest in ECCO Plains and the terms of the ECCO Plains/English operating agreement.English, on the other hand, instructed FDIC to apply 50% of the proceeds to the High Plains loan and the other 50% to the English Cattle Company loan. FDIC, however, did neither. Instead, it applied all of the proceeds to the English Cattle Company loan. It then sold that loan, along with the High Plains loan, to third parties.

ECCO Plains, High Plains and Ulrich filed suit against the United States. All three alleged conversion and negligence under the FTCA. ECCO Plains also alleged a Fifth Amendment Takings Claim. The government moved to dismiss based on lack of subject matter jurisdiction or, in the alternative, for failure to state a claim. The district judge granted the motion without much of an explanation. He concluded ECCO Plains' FTCA claims should be dismissed for lack of subject matter jurisdiction because it failed to file a notice of claim. The remaining claims were dismissed for failure to state a claim.

II. DISCUSSION

Before turning to the issues, we pause to address what is not at issue in this case. The cattle were owned by ECCO Plains. The proceeds from the sale of the cattle also belonged to ECCO Plains. It is unclear how FDIC came to be a co-payee of those proceeds or why ECCO Plains endorsed the check, especially since it had no relationship with the Bank and consequently no relationship with FDIC as receiver. English was the managing member of ECCO Plains and endorsed the check in that capacity but, for some reason, was not sued.⁵ But whatever claim for conversion or negligence ECCO Plains may have had against the government based on FDIC's actions is not before us. The judge concluded ECCO Plains had not filed a notice of claim prior to bringing suit, leaving the district court without jurisdiction over its tort claims. ⁶See Estate of Trentadue ex rel. Aguilar v. United States, 397 F.3d 840, 852 (10th Cir.2005) (stating a notice of claim is a jurisdictional prerequisite for bringing suit under the FTCA). ECCO Plains has not appealed from this decision. ECCO Plains' only remaining claim is its Fifth Amendment Takings Claim.⁷ Before turning to that claim, however, we first address High Plains and Ulrich's conversion and negligence claims under the FTCA.⁸

A. High Plains and Ulrich's Conversion and Negligence Claims

“The Federal Tort Claims Act [FTCA] ... provides generally that the United States shall be liable, to the same extent as a private party, ‘for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment.’ ” Kosak v. United States, 465 U.S. 848, 851–52, 104 S.Ct. 1519, 79 L.Ed.2d 860 (1984) (quoting 28 U.S.C. § 1346(b)); see also28 U.S.C. § 2674. But there are exceptions to this waiver of immunity. See28 U.S.C. § 2680. Relevant here, the FTCA excludes from its coverage “[a]ny claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.” Id. § 2680(h) (emphasis added). If a claim falls within an exception, it must be dismissed for lack of jurisdiction. Estate of Trentadue, 397 F.3d at 853.

The government relies on the “interference with contract” exception, arguing that despite the labels placed on the claims (i.e., conversion and negligence), High Plains and Ulrich's complaint is that FDIC interfered with their contractual right to the sale proceeds as outlined by High Plains' operating agreement with English. We agree.⁹

To determine whether a claim falls within an FTCA exception, we identify “those circumstances which are within the words and reason of the exception—no less and no more.” Kosak, 465 U.S. at 853 n. 9, 104 S.Ct. 1519 (quotations omitted). In doing so, “[w]e must ... look beyond the literal meaning of the language to ascertain the real cause of complaint.” Hall v. United States, 274 F.2d 69, 71 (10th Cir.1959).

In Hall, the government tested Hall's cattle for brucellosis and determined some had the disease. As a result, Hall sold the cattle for less than fair market value. In fact, the cattle did not have the disease. Hall sued the government for negligently performing the tests. But we concluded Hall had not alleged damages based on the negligent testing, i.e., that the cattle suffered physical damage due to the testing. Id. at 71. Rather, his “real claim” was that as a result of the negligent manner in which the tests were made, Hall received inaccurate information and sold his cattle for a loss. Id. Thus, his damages arose from the government's misrepresentation of the cattle's condition. Id. Because misrepresentation was an exempted tort under the FTCA, dismissal was proper. Id.

The Supreme Court adopted Hall's reasoning in United States v. Neustadt, 366 U.S. 696, 703–04, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961). There, the Neustadts purchased a home which had been inspected by an appraiser with the Federal Housing Administration (FHA). Relying on the appraisal, the Neustadts paid more for the home than its fair market value. After purchasing the home and finding numerous defects, the Neustadts sued the government under the FTCA. They alleged FHA acted negligently in performing the inspection and appraisal. The Supreme Court held the case was barred under 28 U.S.C. § 2680(h) which exempts from FTCA coverage “any claim arising out of ... misrepresentation.” Id. at 701, 81 S.Ct. 1294 (quotations omitted). It held the Neustadts' claim that the government had breached its “duty to use due care in obtaining and communicating information upon which [they were] reasonably ... expected to rely in the conduct of [their] economic affairs,” merely restated the traditional legal definition of “negligent misrepresentation” as would have been understood by Congress when the FTCA was enacted. Id. at 706–07, 81 S.Ct. 1294. Therefore, despite the Neustadts labeling their claim as one for negligence, the Court determined the claim was really one for misrepresentation. Id. at 700–01, 711, 81 S.Ct. 1294.

However, merely because a complaint contains allegations supporting an exempted tort does not mean it cannot also contain other allegations supporting a non-exempted tort. In Block v. Neal, Neal obtained a loan from the Farmers Home Administration (FmHA) to build a house. 460 U.S. 289, 103 S.Ct. 1089, 75 L.Ed.2d 67 (1983). FmHA agreed to supervise the construction. FmHA inspected the house after it was built and found no defects. Neal moved in and discovered numerous defects. She sued FmHA under the FTCA. Relying on Neustadt, the government argued the misrepresentation exception applied. Id. at 294, 296, 103 S.Ct. 1089. The Supreme Court disagreed and...