Adam v. Mount Pleasant Bank and Trust Co., 68514

• Decision Date: 23 November 1983
• Docket Number: No. 68514,68514
• Citation: 340 N.W.2d 251
• Parties: Robert D. ADAM, et al., Appellees, v. MOUNT PLEASANT BANK AND TRUST COMPANY, et al., Defendants, State of Iowa, Appellant.
• Court: Iowa Supreme Court

Page 251

340 N.W.2d 251

Robert D. ADAM, et al., Appellees, v. MOUNT PLEASANT BANK AND TRUST COMPANY, et al., Defendants, State of Iowa, Appellant.

No. 68514.

Supreme Court of Iowa.

Nov. 23, 1983.

Thomas J. Miller, Atty. Gen., John R. Scott and Iris J. Post, Asst. Attys. Gen., Daniel J. Fay, Asst. Commerce Counsel, and Mark E. Schantz, Des Moines, for appellant.

James P. Hoffman of James Hoffman Law Offices, Keokuk, and James Walker, Bloomington, Ill., for appellees.

Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, McCORMICK, and McGIVERIN, JJ.

McCORMICK, Justice.

In this appeal we revisit the misrepresentation exception in the Iowa Tort Claims Act, first addressed in Hubbard v. State, 163 N.W.2d 904 (Iowa 1969). Plaintiffs are farmers who lost grain when the Prairie Grain Company of Stockport went bankrupt. They brought the present action against the State and other parties in an effort to recover the value of their grain. They characterize their action against the State as a negligence claim based on breach of several duties owed them by the Iowa State Commerce Commission. In moving for summary judgment, the State characterized the action as based on misrepresentation and thus subject to an exception to the State's waiver of sovereign immunity. See Iowa Code § 25A.14(4) (1981). The trial court overruled the motion, and we granted the State's application for interlocutory review. We now affirm the trial court.

Plaintiffs' claims against the State are contained in two counts of the petition. Each count makes essentially the same allegations except that in one the commerce commission's conduct is called negligent and in the other it is called willful and wanton. Plaintiffs allege that for more than five years before February 1, 1980, the Prairie Grain Company operated a grain elevator at Stockport, that in each of five years before 1980 the commission issued the company a grain dealer's license and a warehouseman's license, that the company was insolvent during those five years, that the insolvency would have been discovered by a proper audit, that the commission knew its staff and procedure were inadequate for it to meet its statutory obligation to administer the Iowa Bonded Warehouse Law and the Iowa Bonded Grain Dealers Law, and that the commission's conduct proximately caused them to lose the value of grain delivered by them to the elevator for sale or storage.

Specifications of negligent and willful and wanton conduct included allegations that the commission:

(a) failed to inspect Prairie Grain and the contents of its warehouse not less than once every six months in violation of the Code of Iowa, § 543.2;

(b) when it did inspect Prairie Grain, the Commission performed the inspections in a negligent, careless and substandard manner;

(c) failed to adopt rules necessary for the efficient administration of the Iowa Bonded Warehouse Law in violation of the Code of Iowa, § 543.3;

(d) failed to adopt rules necessary for the efficient administration of the Iowa [Grain Dealers] Law in violation of the Code of Iowa, § 542.2;

(e) with knowledge that its staff and procedures were inadequate to carry out its statutory function, the Commission failed to request additional and/or more competent field examiners and other personnel.

Code chapter 25A, the Iowa Tort Claims Act, abrogates sovereign immunity for tort claims against the State with certain exceptions. Among the exceptions is any claim "arising out of ... misrepresentation...." § 25A.14(4). Because our statute is based on the federal Tort Claims Act, we assume our legislature intended it to have the same meaning as the federal statute. Hubbard, 163 N.W.2d at 911. Federal decisions interpreting the federal act are therefore entitled to great weight. Id. at 909.

The misrepresentation exception is addressed in two Supreme Court decisions, United States v. Neustadt, 366 U.S. 696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961), and Block v. Neal, 460 U.S. 289, 103 S.Ct. 1089, 75 L.Ed.2d 67 (1983).

In Neustadt the exception was held applicable to a claim against the government by a purchaser of residential property who alleged he paid a price in excess of the property's fair market value because he relied on a negligently done inaccurate FHA inspection and appraisal. The Court found that the purchaser's claim that the government had breached its duty to use due care in obtaining information on which the purchaser might reasonably be expected to rely was wholly based on common law negligent misrepresentation. Id. 366 U.S. at 706-07, 81 S.Ct. at 1300-01, 6 L.Ed.2d at 621-22.

The Court held that the misrepresentation exception includes negligent misrepresentation. 366 U.S. at 702, 81 S.Ct. at 1298, 6 L.Ed.2d at 619. The Court also held that misrepresentation has its common law meaning. Id. at 706-07, 81 S.Ct. at 1300-01, 6 L.Ed.2d at 621-22.

The respondent in Block v. Neal borrowed money from the Farmers Home Administration (FmHA) for the construction of a house. She made a contract with a builder that included provisions requiring the home to conform with plans approved by FmHA and giving FmHA the right to inspect and test all materials and workmanship and reject any that were defective. FmHA conducted inspections and ultimately issued a final report certifying conformity of the construction with the plans. After moving into the home, respondent discovered deviations from the plans and defects in materials and workmanship which neither the builder nor FmHA would remedy. She then brought suit against the government under the federal Tort Claims Act based on alleged negligence by FmHA in carrying out its inspections. Relying on Neustadt, the government asserted that the action was barred by the misrepresentation exception in the federal statute.

In rejecting the government's contention, the Court noted that "the essence of an action for misrepresentation, whether negligent or intentional, is the communication of misinformation on which the recipient relies." --- U.S. at ----, 103 S.Ct. at 1093, 75 L.Ed.2d at 74. The Court distinguished Neustadt on the ground that the purchaser in that case did not allege any injury "that he would have suffered independently of his reliance on the erroneous appraisal." Id. at ----, 103 S.Ct. at 1093, 75 L.Ed.2d 74.

The Court then said:

Section 2680(h) thus relieves the Government of tort liability for pecuniary injuries which are wholly attributable to reliance on the Government's negligent misstatements. As a result, the statutory exception undoubtedly preserves sovereign immunity with respect to a broad range of government actions. But it does not bar negligence actions which focus not on the Government's failure to use due care in communicating information, but rather on the Government's breach of a different duty.

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FmHA's duty to use due care to ensure that the builder adhere to previously approved plans and cure all defects before completing construction is distinct from any duty to use due care in communicating information to respondent. And it certainly does not "appea[r] beyond doubt" that the only damages alleged in the complaint to be caused by FmHA's conduct were those attributable to Neal's reliance on FmHA inspection reports.

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Common to both the misrepresentation and negligence claim would be certain factual and legal questions, such as whether FmHA officials used due care in inspecting Neal's home while it was under construction. But the partial overlap between these two tort actions does not support the conclusion that if one is excepted under the Tort Claims Act, the other must be as well. Neither the language nor...