Concrete Tie of San Diego, Inc. v. Liberty Const., Inc.

• Decision Date: 27 February 1997
• Docket Number: 95-55729,Nos. 95-55727,s. 95-55727
• Citation: 107 F.3d 1368
• Parties: , 41 Cont.Cas.Fed. (CCH) P 77,097, 97 Cal. Daily Op. Serv. 1403, 97 Daily Journal D.A.R. 2084 CONCRETE TIE OF SAN DIEGO, INC., for the use of dba Atlas Construction Supply, Plaintiff, v. LIBERTY CONSTRUCTION, INC., a California corporation, Defendant. LIBERTY CONSTRUCTION, INC., a California corporation; Lucille Kurtin; Sol Gerber, Third-Party-Plaintiffs-Appellants, v. SMALL BUSINESS ADMINISTRATION, Third-Party-Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1368

107 F.3d 1368

65 USLW 2596, 41 Cont.Cas.Fed. (CCH) P 77,097,

97 Cal. Daily Op. Serv. 1403,

97 Daily Journal D.A.R. 2084

CONCRETE TIE OF SAN DIEGO, INC., for the use of dba Atlas

Construction Supply, Plaintiff, v. LIBERTY CONSTRUCTION, INC., a California corporation, Defendant.

LIBERTY CONSTRUCTION, INC., a California corporation;

Lucille Kurtin; Sol Gerber, Third-Party-Plaintiffs-Appellants, v. SMALL BUSINESS ADMINISTRATION, Third-Party-Defendant-Appellee.

Nos. 95-55727, 95-55729.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 9, 1996.

Decided Feb. 27, 1997.

Jeffrey N. Garland, Styn & Garland, San Diego, CA, attorney for third-party-plaintiffs-appellants.

Irene M. Solet, United States Department of Justice, Washington, DC, attorney for third-party-defendant-appellee.

Appeals from the United States District Court for the Southern District of California, Louisa Porter, Magistrate Judge, Presiding. D.C. No. CV-90-01508-LSP.

Before: O'SCANNLAIN, T. G. NELSON and MICHAEL DALY HAWKINS, Circuit Judges.

O'SCANNLAIN, Circuit Judge:

We must decide whether the Small Business Administration owed any duty to a minority-owned small business concern by virtue of a federal set-aside program for minority-owned government contractors.

I

Liberty Construction, Inc. ("Liberty") is a minority-owned business determined by the Small Business Administration ("SBA") to be a socially and economically disadvantaged small business concern (a "section 8(a) concern") under the set-aside provisions of § 8(a) of the Small Business Act, 15 U.S.C. § 637(a). In 1989, following the tender of several bid proposals by Liberty, Liberty entered into a subcontract with the SBA. The contract provided that Liberty would construct a "hazardous/flammable materials warehouse" for the Navy. ¹ Liberty engaged two sureties, Sol Gerber and Lucille Kurtin ("the sureties"), who provided payment bonds. Essentially, the sureties agreed to pay Liberty's laborers, suppliers, and subcontractors if Liberty failed to do so.

Liberty encountered financial difficulties after it began building the warehouse. Liberty was unable to pay its suppliers and subcontractors, some of whom filed claims against it and the sureties. Those claims were settled, but Liberty was forced out of business and its sureties were left to pay approximately $500,000 to unpaid creditors.

Liberty and the sureties each filed cross-claims against the SBA (which had been named as a third-party defendant), alleging breaches of statutory, regulatory, and contractual duties to Liberty and the sureties. Specifically, Liberty claimed that the SBA breached its duties to Liberty under the Small Business Act, its implementing regulations, and the SBA's Operating Procedures when the SBA made no effort to determine whether (1) the contract award to Liberty contained a fair and reasonable price that would allow Liberty to earn a reasonable profit, or (2) Liberty had the financial or technical capacity to perform the contract. It further contended that, had the SBA investigated the terms and Liberty's financial and technical capacity, it would never have awarded the contract and therefore Liberty would not have suffered the financial ruin that befell it. Liberty also alleged breach of contract claims. The sureties' complaint made identical claims as subrogees of Liberty, as well as an additional claim that the SBA owed the sureties an equitable duty to comply with statutory and regulatory provisions. The cases were consolidated in the district court.

The SBA moved for summary judgment, contending that the statutes and regulations governing minority set-aside provisions do not create a legally cognizable duty to section 8(a) concerns as a matter of law, which the district court granted. It ruled that the Act and its implementing statutes do not create a legally cognizable duty to Liberty or the sureties. On a motion for reconsideration, the district court clarified its decision, noting that neither the Federal Tort Claims Act ("FTCA") nor the "sue and be sued" clause of the Small Business Act creates a right of action.

Liberty and the sureties now appeal the district court's grant of summary judgment, arguing that they may bring their claims under either the FTCA or the "sue and be sued" clause. We will consider these arguments in turn.

II

The relevant provision of the FTCA states that

the district courts ... shall have exclusive jurisdiction of civil actions on claims against the United States, for money damages ... under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.

28 U.S.C. § 1346(b).

Under the law of this circuit, the United States may be liable under the FTCA "for the performance of some activities that private persons do not perform," but only when a state or municipal entity would be subject to liability under the law of the place where the activity occurred. Hines v. United States, 60 F.3d 1442, 1448 (9th Cir.1995) (citations omitted). In order for the United States to be liable under such a theory, however, it must have breached a mandatory duty for which a cause of action lies.

In this case, as in Hines, we look to California's public entity liability law to determine whether the United States would be liable under state law.

Under California law, a public entity can be held liable for injury when it fails to discharge a "mandatory duty imposed by an enactment that is designed to protect against the risk of a particular kind of injury," and the entity's failure proximately causes that injury. An "enactment" includes a constitutional provision, statute, ordinance, or regulation. ... Regulations give rise to an actionable duty; internal guidelines, policy manuals, and recommended procedures do not give rise to an actionable duty.

Id. at 1448 (citations omitted); see Cal. Gov't Code §§ 815.6., 810.6.

The California Government Code defines "regulation" in this context as "a rule, regulation, order or standard, having the force of law, adopted by an employee or agency of the United States pursuant to the federal Administrative Procedure Act." Cal. Gov't Code § 811.6. Since the SBA's Operating Procedures are not promulgated pursuant to the Administrative Procedure Act, they do not qualify as regulations for the purposes of California's governmental liability statute. Consequently, Liberty and the sureties can only assert a claim under the FTCA to the extent that statutory and regulatory provisions create a duty to Liberty.

The duties that Liberty identifies boil down to two: (1) that the SBA owed Liberty the opportunity to earn a reasonable profit, and (2) that the SBA was required to make a determination that Liberty was "responsible" enough to handle the contract.

A

In support of its argument that the SBA was required to provide an opportunity for Liberty to earn a reasonable profit, Liberty points to the statutory provision creating the section 8(a) program, which provides:

It shall be the duty of the [Small Business] Administration and it is hereby empowered, whenever it determines such action is necessary or appropriate .... to arrange for the performance of ... procurement contracts by negotiating or otherwise letting subcontracts to socially and economically disadvantaged small business concerns....

15 U.S.C. § 637(a)(1)(B). Of course, the statute does not mention a reasonable profit. For that, Liberty points to 13 C.F.R. § 124.302(a) (1988), entitled "General," which provides:

It is the policy of SBA to enter into contracts with other government agencies and subcontract the performance of such contract [sic] to concerns admitted to the section 8(a) program ... at prices which will enable a company to perform the contract and earn a reasonable profit.

13 C.F.R. § 124.302(a) (1988). Taken together, Liberty argues, the statute creates a "duty" to award subcontracts, and the regulation establishes a "reasonable profit" requirement.

We are not persuaded. While the statutory provision does use the word "duty", it does not speak in mandatory language. The SBA need only award a contract "whenever it determines such action is necessary or appropriate"--a determination within the agency's discretion. Moreover, even if "necessary or appropriate," the statute only tells the SBA "to arrange for the performance of ... procurement contracts by negotiating or otherwise letting subcontracts...." 15 U.S.C. § 637(a)(1)(B). It does not incorporate any "reasonable profit" element.

The language of the regulation likewise does not speak in mandatory terms. While it may be the "policy" of the SBA to enable 8(a) concerns to earn a reasonable profit, it has no duty to do so. Policies are the result of discretionary decisions and are established to guide the agency's employees; a declaration of policy does not create a legally enforceable duty.

Indeed, SBA regulations explicitly recite that the decision to award a contract is discretionary. "SBA is not required to make an award of any particular contract, and should it make an award, SBA is not required to award a contract to a particular 8(a) concern." 13 C.F.R. § 124.301(b)(5) (1988).

Not only is Liberty's argument unsupported by the cited statutory language, it is flatly inconsistent with the statute's pricing provision. "A [procurement] contract may not be awarded under this subsection if the award of the contract would result in a cost to the awarding agency which exceeds a fair market price." 15 U.S.C. § 637(a)(1)(A). The fair market price "shall be determined by the agency offering the procurement requirement to the" SBA, based on either a cost analysis or recent comparable procurement prices. 15 U.S.C. § 637(a)(3)(b). We cannot reconcile the alleged duty of the SBA to ensure a reasonable profit with Congress' command that the procuring agency pay a "fair market price" as determined...