Builders Corporation of America v. United States, 15533.

• Citation: 259 F.2d 766
• Decision Date: 06 May 1958
• Docket Number: No. 15533.,15533.
• Parties: BUILDERS CORPORATION OF AMERICA, a Corporation, and Herlong Sierra Homes, Inc., a Corporation, Appellants, v. UNITED STATES of America, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

259 F.2d 766 (1958)

BUILDERS CORPORATION OF AMERICA, a Corporation, and Herlong Sierra Homes, Inc., a Corporation, Appellants, v. UNITED STATES of America, Appellee.

No. 15533.

United States Court of Appeals Ninth Circuit.

May 6, 1958.

Landis, Brody & Martin, Alvin Landis, Sacramento, Cal., for appellants.

George Cochran Doub, Asst. Atty. Gen., Morton Hollander, Paul A. Sweeney, William W. Ross, Attys., Dept. of Justice, Washington, D. C., Lloyd H. Burke, U. S. Atty., San Francisco, Cal., for appellee.

Before DENMAN, POPE and FEE, Circuit Judges.

JAMES ALGER FEE, Circuit Judge.

This is an action whereby Builders Corporation of America¹ and Herlong Sierra Homes, Inc.,² which built a series of dwelling houses adjacent to Sierra-Ordnance Depot,³ a military installation, in an isolated location far from points of urban development, for the military and civilian personnel of the Depot, claimed to have been damaged by the acts and negligence of certain agents of the United States, who, contrary to orders, prevented the personnel from occupying these dwellings.⁴ Judgment against Builders and Homes was entered by the trial court after a motion to dismiss had been sustained.⁵ This appeal followed.

The sole question is whether the motion to dismiss should have been sustained or the facts should have been further developed before judgment entered.

The complaint sets out allegations which are here summarized.

The government, through the Department of Defense, operates the Sierra-Ordnance Depot in a desolate and isolated region of California. The officers in charge thereof are agents of the United States. The Federal Housing Administration is authorized under federal law to insure mortgages on housing built for rent for residential use for civilian and military personnel. The Federal Housing Administration is a constituent agency of the Housing and Home Finance Agency of the federal government. It encourages improvements in housing conditions and provides a system of mutual mortgage insurance. Where rental housing is built by private enterprise on or near military reservations, the mortgage may be insured by the Federal Housing Administration only when the Secretary of Defense or his designee shall have certified that it is necessary to provide adequate housing for the personnel, that the installation is a permanent part of the Military Establishment, and that there is no present intention to curtail activities at that installation. The Federal National Mortgage Association is a federal agency which aids in effecting these purposes by providing a secondary market for mortgages insured or approved by the Federal Housing Administration.

Because of the isolated location of the Sierra-Ordnance Depot, the Department of Defense had constructed temporary housing for civilian and military personnel there, which had become inadequate. The Department of Defense entered into negotiations with the Federal Housing Administration and other federal agencies to obtain and finance, by insuring mortgages thereon, the construction of dwelling houses to adequately house the personnel above mentioned. The Secretary of the Army certified the requirements above mentioned and also certified that the personnel who were expected to occupy these dwelling units would be capable of paying the rentals proposed. The Federal Housing Administration, upon this certification, agreed to insure the mortgages on these dwelling units.

Plaintiffs, thereupon, relying upon the administrative rulings of the Department of Defense and the commitment of the Federal Housing Administration to insure the mortgages, undertook to construct these dwelling houses. The dwelling houses were constructed and were all ready for occupancy by August, 1954. The mortgages were privately negotiated and were to be insured or purchased by Federal Housing administration or Federal National Mortgage Association. The Commanding General of the Sixth Army, by three different positive orders to the Commanding Officer of the Sierra-Ordnance Depot, directed that a coordinated and aggressive program (the details of which are alleged) be developed to attain full occupation of the dwelling houses so constructed. Notwithstanding the fact that the Commanding Officer of the Depot and other government agents knew there were no other available tenants in virtue of the isolated situation of the base and that plaintiffs would be required to spend money in the payments on mortgages, taxes and operation and maintenance of the property, they did not follow these directions. It is directly alleged that these government agents, "with intention of damaging plaintiffs, deliberately, intentionally, and wilfully failed and refused to carry out the orders issued as aforesaid and failed and refused to initiate or implement any program to assure maximum occupancy of the dwelling units constructed by plaintiffs; failed and refused to establish income limitations for those who were to occupy the houses owned and operated by the defendant, United States of America, as part of the Sierra-Ordnance Depot; failed and refused to take any action to demolish any of the temporary and substandard housing; and failed and refused to issue notices to those specified in said orders to vacate government housing not later than the 1st day of September, 1954."

It is further set up that these agents of the government, for the purpose of delaying and preventing civilian and military personnel from occupying these dwelling houses and to circumvent the orders and directives above recited, made false statements to the Commanding General of the Sixth Army, Federal Housing Administration and Housing and Home Finance Company, concerning structural defects in these houses, and charged that plaintiffs had improperly constructed the same. It is further alleged that these agents of the government, "acting within the scope of their authority and employment, by threats and intimidation and abuse of the authority vested in them by virtue of their respective positions, sought to and did preclude and prevent said military and civilian personnel from moving into said dwelling units constructed by plaintiffs." Plaintiffs set up that they lost rental income and were otherwise damaged in a sum over three million dollars.

There is a second cause of action where a similar state of facts is alleged, but the government agents are said to have acted carelessly and negligently in failing to carry out the orders and directives and in making false statements as to the construction of the dwelling houses.

A motion to dismiss was interposed on two grounds: (1) that the complaint failed to state a cause of action, and (2) that the court lacked jurisdiction over the subject matter of the action under the Tort Claims Act.

The opinion as to the first count of the complaint goes on the ground that Congress, by the Tort Claims Act, did not surrender the traditional immunity of the United States from suit in certain specific areas there outlined. In one of these, no recovery can be had for the tort of interference with contract rights.⁶ The trial court held that the law of California applied. With this position we agree.⁷ The analysis of the law of that state indicates clearly that both interference of contract rights and interference with prospective advantage depend upon the same principles. There is no doubt that the analysis of the trial court is thorough and correct. If the claim of plaintiffs is based upon the alleged willful interference of the government agents with the actual rental contracts with civilian and military personnel, it must fail. There may be doubt that interference with a prospective advantage falls within the statutory exception. The trial court held, however, that the exception applied as to count one.

There is another ground which was argued before this Court but which was not presented in the opinion of the District Court. The Act expressly excludes from coverage torts of deceit and misrepresentation.⁸ It is claimed that both counts are based upon willful or negligent misrepresentation of the condition of these dwelling units to the personnel, thus preventing them from occupying these units. This Court is of opinion that the gist of the complaint as to this phase is different. In any event, the holding of the trial court is more nearly accurate in analysis.

As to count two, the trial court held that no claim was stated upon which relief could be granted. The basis of this ruling was that negligence was charged, but that no duty upon the part of the United States could be predicated upon the facts alleged.

The trial court did not consider the question of whether the facts recited in the complaint showed that the action was barred by the discretionary function exception, since the matter had been disposed of upon the grounds above recited.

The validity of the position of the trial court as to count one cannot be questioned, once it be admitted that there is an attempt by the pleader to state a cause of action in tort based upon interference with actual contract rights with members of the personnel of the Depot.

The ground chosen by the trial court was that there was no jurisdiction of count one because the allegations stated a claim for the tort of interference with contract rights. An exception in the Act exempts the government from liability for such interference, as we have seen. But the gist of the complaint is rather that the agents failed and refused to perform obligations which the government had assumed in virtue of contracts and commitments of other agencies.

The complaint alleges misrepresentations were made to the personnel as to the condition of the dwelling houses. There is no adequate explanation of these allegations. The purpose seems to have been to negative a defense. The representations as to the condition of the dwelling houses are alleged to have been false. It is alleged these were made by the...