Moody v. U.S., s. 84-5479

• Decision Date: 08 October 1985
• Docket Number: 84-5695,Nos. 84-5479,s. 84-5479
• Parties: Viola MOODY, et al. (84-5479), George D. Bawgus, et al. (84-5695), Plaintiffs-Appellants, v. UNITED STATES of America, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 150

774 F.2d 150

54 USLW 2255

Viola MOODY, et al. (84-5479), George D. Bawgus, et al. (84-5695), Plaintiffs-Appellants, v. UNITED STATES of America, et al., Defendants-Appellees.

Nos. 84-5479, 84-5695.

United States Court of Appeals Sixth Circuit.

Argued June 10, 1985.

Decided Oct. 8, 1985.

Lenny L. Croce (argued), Oak Ridge, Tenn., L. Caesar Stair, III, Terri Leigh Tribble, Bernstein, Susano, Stair & Cohen, Knoxville, Tenn., Michael J. O'Connor, Johnson City, Tenn., for plaintiffs-appellants.

John W. Gill, U.S. Atty., Michael Haynes, Knoxville, Tenn., J. Paul McGrath, Donald E. Jose, Jo Brooks (argued), U.S. Dept. of Justice, Washington, D.C., Andy Troutman, LaFollette, Tenn., William T. Wray, Jr., Kingsport, Tenn., for defendants-appellees.

Gideon Anders, Berkeley, Cal., for amicus curiae, National Housing Law Project.

Before CONTIE and WELLFORD, Circuit Judges; and EDWARDS, Senior Circuit Judge.

CONTIE, Circuit Judge.

Plaintiffs Viola Moody, George Bawgus et al. appeal orders of the district courts granting judgment for the United States in plaintiffs' actions pursuant to the Federal Tort Claims Act, 28 U.S.C. Secs. 1346, 2671 et seq. claiming negligent supervision and inspection of their homes by employees of the Farmers Home Administration (FmHA) pursuant to the Housing Act of 1949. We affirm.

I.

A.

On May 19, 1980, Viola Moody applied for a rural housing loan from the FmHA office for Campbell County, Tennessee. Moody's application was approved and a loan of $29,400.00 was used to purchase a house on Lot No. 78 in the Valley View Estates Subdivision in Campbell County. A deed of trust and promissory note dated July 10, 1980 provided:

This Note [instrument] shall be subject to the present regulations of the Farmers Home Administration and to its future regulations not inconsistent with the express provisions hereof.

The home purchased by Moody was inspected three times with no deficiencies reported.

On January 6, 1984, Moody and her mother, Hiley Shoffner, filed a complaint pursuant to the Federal Tort Claims Act seeking "damages arising from the negligent acts omissions of officers and employees of Defendant United States of America in the performance of contractual and statutory duties and undertakings." Moody alleged that after she began living in the residence she discovered that the soil was inappropriate for a residential dwelling and subsurface sewage disposal system, and that the dwelling was unfit for human habitation. Moody alleged that "[t]he site development and construction of the house had been inspected and approved by FmHA," and that "[a]t the time of her application, the Plaintiffs believed that the involvement of federal officials in the construction of their home would assure compliance with all state, local, and federal building codes." Further,

FmHA officials and employees undertook to perform a duty which was consistent with its statutory authorization to provide safe and decent housing. The FmHA's undertaking pursuant to the statutes and regulations, was to provide technical assistance to Viola Moody, including supervision and inspection of site development, dwelling construction, and individual water/sewerage system. Viola Moody justifiably relied on the undertakings of the FmHA to inspect the property with due care, to determine its safety, and to provide technical advice and assistance when necessary. FmHA officials and employees failed to exercise due care in providing technical assistance, supervision and inspection.

Moody and Shoffner alleged that their personal property was damaged and that they suffered personal injuries in the form of nervousness, nausea, and difficulty in breathing.

On March 12, 1984, the United States moved to dismiss or for summary judgment and, on April 19, 1984, the district court granted the motion. 585 F.Supp. 286 (E.D.Tenn.1984). Moody premised her argument on the Good Samaritan doctrine of Restatement (Second) of Torts Sec. 323. However, the district court found that reliance was an element of an action under that doctrine, and that 7 C.F.R. Sec. 1924.9(a), (b)(5) provides that inspections are for the FmHA's benefit only and that the borrower is required to inspect to protect her interest. The court held that the regulation precluded Moody from relying on the FmHA inspections, and, therefore, that summary judgment was appropriate. On May 15, 1984, the pendent state claims were dismissed, and Moody appealed.

B.

On June 3, 1981, George and Patricia Bawgus applied for a rural housing loan from the FmHA office for Washington County, Tennessee. ¹ On July 1, 1981, a conditional commitment was issued noting that there would be three stages of inspection. The commitment provided:

The construction must be completed in accordance with the MPS [Minimum Property Standards], drawings and specifications or description of materials submitted with the application.

The Farmers Home Administration will, if the construction is completed in accordance with the terms of the conditional commitment, approve the house as suitable for a rural housing loan....

The inspections were conducted between September 3, 1981 and October 29, 1981. On November 13, 1981, after construction was complete, the Bawguses signed a promissory note and deed of trust with provisions incorporating FmHA regulations similar to those in Moody's documents. The Bawguses contend that they were never informed that the inspections were solely for FmHA's benefit and thought they were for their benefit as well. Each of the borrowers purchased a lot and house within a subdivision of property owned by Sam Pate and John Kenney d/b/a Rock Creek Builders.

On May 19, 1983, the borrowers filed a complaint pursuant to the FTCA against the United States and the contractors of the homes on Frank Lowe Road in Jonesboro, Tennessee. In a 51-page complaint the plaintiffs alleged that in each case the FmHA inspected the home and in each case such dwelling was defective. The primary defect was water drainage which rendered the houses uninhabitable. The borrowers alleged:

60. FmHA, through its employees, undertook the supervision and inspection of the construction of the plaintiffs' homes.

61. FmHA defendants failed to exercise reasonable care in their supervision and inspection of the construction of the plaintiffs' homes, thereby directly and proximately causing the plaintiffs to suffer substantial damages.

Plaintiffs alleged mental and physical stress as personal injuries in addition to property damage. ² The answer asserted, among other defenses, that plaintiffs' remedy pursuant to 42 U.S.C. Sec. 1479(c) is exclusive, and that the inspections constituted a discretionary function pursuant to 28 U.S.C. Sec. 2680.

On February 27, 1984, the United States moved for judgment on the pleadings pursuant to Fed.R.Civ.Pro. 12(c). On March 23, 1984, the magistrate issued a recommendation recommending denial of the government's motion. On April 9, 1984, Judge Hull adopted that report and denied the motion. The United States sought reconsideration after Judge Taylor issued his opinion in Moody, and Judge Hull granted the government's motion in accordance therewith. This court consolidated the cases for appeal.

II.

Pursuant to Section 501 of the Housing Act of 1949, the Secretary of Agriculture is authorized "to extend financial assistance, through the Farmers Home Administration ... to rural residents ... in order to enable them to provide dwellings and related facilities for their own use." 42 U.S.C. Sec. 1471(a)(2). Section 501(c) specifies the conditions of eligibility for such loans. ³ Further, 42 U.S.C. Sec. 1476(a) provides:

In connection with financial assistance authorized in this subchapter, the Secretary shall require that all new buildings and repairs financed under this subchapter shall be substantially constructed and in accordance with such building plans and specifications as may be required by the Secretary. Buildings and repairs constructed with funds advanced pursuant to this subchapter shall be supervised and inspected as required by the Secretary. In addition to the financial assistance authorized in this subchapter, the Secretary is authorized to furnish, through such agencies as he may determine, to any person, including a person eligible for financial assistance under this subchapter, without charge or at such charges as the Secretary may determine, technical services such as building plans, specifications, construction supervision and inspection, and advice and information regarding farm dwellings and other buildings.

7 C.F.R. Sec. 1924.5 specifies that development and construction must meet a variety of standards. ⁴ Section 1924.1 specifies that "[t]his subpart prescribes the basic Farmers Home Administration (FmHA) policies, methods, and responsibilities in the planning and performing of construction and other development work for insured Rural Housing (RH)...." Section 1924.5(f) provides:

Planning construction and land development and obtaining technical services in connection with drawings, specifications, and cost estimates are the responsibility of the applicant, with such assistance from the County Supervisor or District Director, (whichever is the appropriate loan processing and servicing officer for the type of loan involved), as may be necessary to be sure that the development is properly planned in order to protect FmHA's security.

Subsection (f)(2) describes the responsibilities of the FmHA County Supervisor or District Director which include advising "the applicant regarding drawings, specifications, cost estimates and other related material."

7 C.F.R. Sec. 1944.45 defines a conditional commitment as an "assurance from FmHA to a qualified builder or seller that a dwelling to be built or rehabilitated and offered for sale will be acceptable for purchase by qualified RH loan applicants if built in accordance with FmHA approved plans and specifications." Subsec...