Ames-Ennis, Inc. v. MIDLOTHIAN LTD., ETC.

• Decision Date: 23 April 1979
• Docket Number: Civ. No. B-76-1358.
• Parties: AMES-ENNIS, INC., a Body Corporate v. MIDLOTHIAN LIMITED PARTNERSHIP, a Virginia Limited Partnership and Arnold L. Karp and Irwin Nestler and Patricia Harris, Secretary of Housing and Urban Development.
• Court: U.S. District Court — District of Maryland

469 F. Supp. 939

AMES-ENNIS, INC., a Body Corporate v. MIDLOTHIAN LIMITED PARTNERSHIP, a Virginia Limited Partnership and Arnold L. Karp and Irwin Nestler and Patricia Harris, Secretary of Housing and Urban Development.

Civ. No. B-76-1358.

United States District Court, D. Maryland.

April 23, 1979.

COPYRIGHT MATERIAL OMITTED

Leo Howard Lubow and Freishtat & Schwartz, Baltimore, Md., for plaintiff.

William H. Holden, Jr. and Weinberg & Green, Baltimore, Md., for defendants Midlothian Limited Partnership, Arnold L. Karp, and Irwin Nestler.

Russell T. Baker, Jr., U. S. Atty., for Maryland, and Donald H. Feige, Asst. U. S. Atty., Baltimore, Md., for defendant Patricia Harris, Secretary of Housing and Urban Development.

MEMORANDUM AND ORDER

BLAIR, District Judge.

This is an action by a building contractor to recover damages from the Secretary of Housing and Urban Development (HUD) and from the owner-developer of a "Section 236"¹ housing project constructed by the plaintiff. The facts pleaded are essentially as follows: The owner, Midlothian Limited Partnership (Midlothian), undertook to develop a lower-income housing project in Richmond, Virginia. The project was FHA-insured and financed by Maryland National Bank (MNB), an FHA-approved mortgagee. Midlothian engaged the plaintiff, Ames-Ennis, Inc. (Ames-Ennis), to build the project. The various agreements among the parties are evidenced by, inter alia, the Regulatory Agreement between Midlothian and the Secretary (acting through the Federal Housing Commissioner) which governs most aspects of the management of the project; a Commitment for Insurance of Advances, entered into by MNB and the Commissioner; a Mortgagor's Certificate entered into by the Commissioner and Midlothian; and a Cost Plus Construction Contract (with amendments) between Ames-Ennis and Midlothian. A clause of the Mortgagor's Certificate specifies that ". . . upon completion of the Project there will not be outstanding any unpaid obligations contracted in connection with the purchase of the property, construction of the Project, or the mortgage transaction except such obligations as may be approved by the Commissioner as to terms, form and amount." Exhibit 5 to Amended Complaint. The plaintiff contends that it substantially completed construction of the project, but that Midlothian still owes Ames-Ennis the sum of $465,623 under the contract and that the Secretary refused to authorize release of and MNB wrongfully refused to release to Ames-Ennis a 10% retainage representing some $360,000. Midlothian filed a counterclaim alleging that Ames-Ennis failed to perform its obligations under the contract.

The amended complaint is in four counts. The first alleges that HUD and Midlothian, having agreed that upon completion of the project there would remain no outstanding obligations except those approved by HUD, acted tortiously "in symbiotic concert" to withhold the retainage allegedly due Ames-Ennis. The second count asserts that Ames-Ennis is the third-party beneficiary of various contracts between HUD and Midlothian assuring payment in full of the construction loan funds. The two remaining counts assert pendent claims: Count III alleges that Ames-Ennis is third-party beneficiary of various contracts between Midlothian and Maryland National Bank (MNB) which contemplate full payment of construction funds, and Count IV is a simple contract claim for monies due.

Both Midlothian and the Secretary have moved to dismiss for, inter alia, lack of subject matter jurisdiction. It is asserted that Count I must be dismissed for failure of the plaintiff to comply with the requirement of the Federal Tort Claims Act, 28 U.S.C. § 2671, § 2675(a), that a claim first be presented to the defendant agency and that Count II must be dismissed since it presents a contract claim in excess of $10,000 which falls under the exclusive jurisdiction of the Court of Claims. 28 U.S.C. § 1346(a)(2) and § 1491. It is agreed that if it be found that this court lacks jurisdiction over the federal defendant in Counts I and II, then the case in its entirety must be dismissed.² That is precisely the conclusion reached by the court.

While conceding that it never presented its Count I claim to HUD in compliance with the Federal Tort Claims Act and that Count II seeks to recover more than $10,000 on a contract, Ames-Ennis nevertheless asserts several alternative bases for federal jurisdiction. The court will treat these seriatim.

12 U.S.C. § 1702

The plaintiff asserts that this court has jurisdiction over Counts I and II under 12 U.S.C. § 1702, that section of the National Housing Act which permits the Secretary of HUD in her official capacity "to sue and be sued in any court of competent jurisdiction, State or Federal." The question is whether this is an affirmative grant of jurisdiction or merely a waiver of sovereign immunity.

The Fourth Circuit ruled in 1942 that the "sue and be sued" language of § 1702 was an affirmative grant of jurisdiction and that the jurisdiction of the District Courts to hear suits against federal agencies was not limited by the Tucker Act. Ferguson v. Union National Bank of Clarksburg, W. Va., 126 F.2d 753, 756-57 (4th Cir. 1942). This decision was followed early by the Third Circuit, George H. Evans & Co. v. United States, 169 F.2d 500, 502 (3d Cir. 1948), and later by the Tenth Circuit, Mar v. Kleppe, 520 F.2d 867, 870-71 (10th Cir. 1975), and by at least one district court. See, e. g., Travelers' Indemnity Co. v. First National Bank of New Jersey, 328 F.Supp. 208, 211-12 (D.N.J.1971).

While ordinarily this court would consider itself conclusively bound by the holding of the Fourth Circuit, in this case, recent developments in the law as well as a number of well-reasoned opinions in other circuits compel the conclusion that § 1702 is not an independent basis of jurisdiction. The Third Circuit (in a more recent case), as well as the Eighth and Ninth Circuits have held that the "sue and be sued" language of § 1702 is not jurisdictional but is merely a waiver of sovereign immunity. Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir. 1974); Bor-Son Building Corporation v. Heller, 572 F.2d 174, 181 (8th Cir. 1978); DSI Corporation v. Secretary, 594 F.2d 177 (9th Cir. 1979). Several district courts are in accord: Harms v. FHA, 256 F.Supp. 757, 760 (D.Md. 1966); Ghent v. Lynn, 392 F.Supp. 879, 880-81 (D.Conn.1975); Trans-Bay Engineers & Builders, Inc. v. Lynn, 396 F.Supp. 265, 268 (D.D.C.1975), affirmed in part, vacated in part and remanded on other grounds, 179 U.S.App.D.C. 184, 190, 551 F.2d 370, 376 (1976).

This court is in agreement with those cases which hold that 12 U.S.C. § 1702 is not an affirmative grant of jurisdiction. The statute by its very terms appears to look outside of itself for jurisdiction. This reading of § 1702 is confirmed by a footnote in a recent decision of the United States Supreme Court. Speaking of a statutory provision for judicial review rather than "sue or be sued" language, the Court noted that:

Section 10 of the APA, specifically 5 U.S.C. § 703 suggests that this language was not intended as an independent jurisdictional foundation, since such judicial review is to proceed "in a court specified by statute" or "in a court of competent jurisdiction." Both of these clauses seem to look to outside sources of jurisdictional authority.

Califano v. Sanders, 430 U.S. 99, 106 n.6, 97 S.Ct. 980, 984, 51 L.Ed.2d 192 (1977). This court finds that 12 U.S.C. § 1702 similarly looks to "outside sources of jurisdictional authority."³

The Fourth Circuit, in holding to the contrary, expressed concern that:

It could hardly have been intended by Congress that suits for over $10,000 against the Secretary could be brought in any state court of general jurisdiction, but in the federal jurisdiction only in the Court of Claims.

If this is an anomaly, it is an anomaly of Congress' own making. Accordingly, this court finds that 12 U.S.C. § 1702 is not a proper jurisdictional foundation for either Count I or Count II.

28 U.S.C. § 1331

The plaintiff next asserts that this court has jurisdiction over Count II under 28 U.S.C. § 1331 in that the case "arises under the Constitution, laws, or treaties of the United States." This case quite clearly does not require the interpretation of the Constitution, or the construction of any federal law or treaty. Nevertheless, the plaintiff properly points out that jurisdiction under § 1331 will support claims founded upon federal common law as well as those of a statutory origin. Illinois v. City of Milwaukee, 406 U.S. 91, 100, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972). Federal common law is that rather narrow body of decisional law which is applied in instances where state law cannot supply the rule of decision and the federal courts are free to choose the appropriate rule. See, e. g., Hinderlider v. LaPlata River & Cherry Creek Ditch Co., 304 U.S. 92, 110, 58 S.Ct. 803, 82 L.Ed. 1202 (1938); D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 471-72, 62 S.Ct. 676, 86 L.Ed. 956 (concurring opinion by Justice Jackson) (1942). While the courts have found it necessary to apply federal common law in cases of disputes between states, Hinderlider, supra, in determining diversity among parties, e. g., Ziady v. Curley, 396 F.2d 873, 874 (4th Cir. 1968), and where there exists a strong federal policy favoring uniformity of result, e. g., Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 87 L.Ed. 838 (1943), this case does not appear to be one of those which requires the application of federal common law.

At issue is a contract between two private, non-diverse parties. The legal question in the case appears to be whether the defendant Midlothian acted properly in withholding payments from or assessing liquidated damages against Ames-Ennis. The contract at issue was never assigned to the Secretary, and federal participation in the transactions was minimal....