Denis Bail Bonds, Inc. v. State

• Decision Date: 08 January 1993
• Docket Number: No. 91-613,91-613
• Court: Vermont Supreme Court
• Parties: DENIS BAIL BONDS, INC. v. STATE of Vermont.

Page 495

622 A.2d 495

159 Vt. 481

DENIS BAIL BONDS, INC. v. STATE of Vermont.

No. 91-613.

Supreme Court of Vermont.

Jan. 8, 1993.

Thomas M. French, Brattleboro, for plaintiffs-appellants.

John A. Serafino of Ryan Smith & Carbine, Ltd., Rutland, for defendant-appellee.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

DOOLEY, Justice.

Plaintiff Denis Bail Bonds, Inc. appeals the decision of the Windsor Superior Court granting defendant State of Vermont's motion for judgment on the pleadings. Plaintiff's lawsuit alleged that the State was liable in tort for the damages caused by the failure of the Vermont Department of Banking and Insurance to inform plaintiff of complaints of wrongdoing by plaintiff's agent. The court held that the claim failed to demonstrate that the State's actions were analogous to any actions for which a private person could be liable, and that the State owed no duty to the plaintiff. We affirm.

Plaintiff is a New Hampshire corporation engaged in the issuance of bail bonds in New Hampshire and Vermont, under contract as general agent for American Bankers Insurance Company (ABIC). In turn, plaintiff was the assignee of a contract that designated Charles M. Detore as its agent for Vermont and part of New Hampshire and authorized him to issue bail bonds underwritten by ABIC. Under these agency contracts, Detore was ultimately liable for any bail forfeitures, financial irregularities or other lost property related to bail bond transactions to which he was a party, and plaintiff was secondarily liable on these obligations.

Beginning in March of 1988, the Vermont Department of Banking and Insurance (Department) ¹

¹ began receiving complaints of misconduct concerning Detore. Generally, the complaints alleged that Detore improperly converted funds placed with him as collateral in bail bond transactions. The Department did not notify plaintiff of these complaints. In November, 1988, the Commissioner of Banking and Insurance (Commissioner) audited Detore's files but did not obtain a court order authorizing their seizure. Apparently as a result of Detore's access to his files, all meaningful records had been removed by the time the audit was completed. The Commissioner revoked Detore's license and obtained a stipulation from Detore to repay the claims arising from his misconduct; Detore subsequently defaulted on this agreement. Under its contracts with ABIC and Detore, plaintiff was obligated to pay these claims.

In March of 1991, plaintiff filed suit in Windsor Superior Court to recover from the State of Vermont the amounts paid in satisfaction of the claims against Detore. ² The court granted the State's motion for judgment on the pleadings, ruling that because the State was protected by sovereign immunity, which it had not waived, plaintiff had failed to state a claim upon which relief could be granted. On appeal in this Court, plaintiff renews its argument that the State waived its sovereign immunity, and therefore has a duty, as demonstrated by 8 V.S.A. §§ 3563-3566 and 4726, to investigate serious complaints of wrongdoing perpetrated by insurers or their agents and to notify interested parties of the complaints. This duty, plaintiff claims, has a private analog in the duty of a certified public accountant to disclose the results of an audit to foreseeably interested persons. Plaintiff contends that the State negligently failed to provide notice of the complaints against Detore, resulting in losses that otherwise would have been preventable.

Absent due process violations, lawsuits against the state for acts essentially governmental in nature are barred unless the state waives its sovereign immunity and consents to be sued. See Williams v. State, 156 Vt. 42, 55, 589 A.2d 840, 848 (1990). The state has waived its sovereign immunity with respect to certain tort actions by the Vermont Tort Claims Act (VTCA). See 12 V.S.A. §§ 5601-5606. The central provision of the statute is § 5601, which provides that the state

shall be liable for injury to persons or property or loss of life caused by the negligent or wrongful act or omission of an employee of the state while acting within the scope of employment, under the same circumstances, in the same manner and to the same extent as a private person would be liable....

12 V.S.A. § 5601(a). Even if subject to liability under this provision, the state still may be immune to suit under several exceptions, notably those in subsection (e). This latter provision contains the "discretionary function" exception, which limits the liability of the state for the discretionary acts or omissions of state agencies or employees. See id. § 5601(e).

The language of § 5601(a) resembles certain provisions of the Federal Tort Claims Act (FTCA). The FTCA provides that the federal government is liable only "to the same extent as a private individual under like circumstances." 28 U.S.C.A. § 2674 (West 1965 & Supp.1992). This concept is also included in the jurisdictional provision of the FTCA, which waives sovereign immunity only "under circumstances where the United States, if a private person, would be liable to the claimant." Id. § 1346(b).

The Vermont Tort Claims Act, like the FTCA, is merely a procedural remedy and does not create any substantive cause of action against the state. See generally Stencel Aero Engineering Corp. v. United States, 431 U.S. 666, 671, 97 S.Ct. 2054, 2057, 52 L.Ed.2d 665 (1977). The waiver of sovereign immunity in the federal statute was designed "to compensate the victims of negligence in the conduct of governmental activities in circumstances like unto those in which a private person would be liable." Indian Towing Co. v. United States, 350 U.S. 61, 68, 76 S.Ct. 122, 126, 100 L.Ed. 48 (1955). The waiver is primarily directed at the "ordinary common-law torts." Dalehite v. United States, 346 U.S. 15, 28, 73 S.Ct. 956, 964, 97 L.Ed. 1427 (1953). By maintaining a link to private causes of action, this approach serves to prevent the government's waiver of sovereign immunity from encompassing purely "governmental" functions. Its effect, therefore, "is to waive immunity from recognized causes of action and was not to visit the Government with novel and unprecedented liabilities." Feres v. United States, 340 U.S. 135, 142, 71 S.Ct. 153, 157, 95 L.Ed. 152 (1950).

Under this "private analog" analysis, governmental liability may arise only if "a plaintiff's cause of action [is] 'comparable' to a 'cause of action against a private citizen' ... and his allegations, taken as true, [will] satisfy the necessary elements of that comparable state cause of action." Chen v. United States, 854 F.2d 622, 626 (2d Cir.1988) (citations omitted). This formulation of the private analog requirement proceeds directly from the statutory language. Given the similarity in the federal and Vermont tort claims provisions, we consider it the appropriate analytical approach for determining the scope of the Vermont act and the resulting waiver of sovereign immunity.

Although the relevant analytical approaches are the same under the Vermont and federal acts, there is one important relevant difference between the VTCA and the FTCA. Under the Vermont act, the discretionary function exception in § 5601(e) protects the state from liability only to the extent that it is not covered under a policy of liability insurance purchased by the Commissioner of General Services. 12 V.S.A. § 5601(f). In contrast, the comparable federal provision provides absolute immunity for discretionary functions. See 28 U.S.C.A. § 2680. This has led some federal courts to merge their analyses of the private analog and discretionary function components of the FTCA. See, e.g., Wells v. United States, 851 F.2d 1471, 1474 (D.C.Cir.1988) (the private liability requirement is not grounds for governmental immunity separate from the discretionary function exception); FDIC v. Carter, 701 F.Supp. 730, 735 (C.D.Cal.1987) (cases analyzing governmental liability in terms of the discretionary function exception and those utilizing a duty analysis "can be viewed as substantially interchangeable"). Other federal decisions, however, have not employed this approach. See, e.g., Butts Feed Lots, Inc. v. United States, 690 F.2d 669, 670 (8th Cir.1982) (because government owed plaintiff no duty, court found it unnecessary to reach the discretionary function exception); Harmsen v. Smith, 586 F.2d 156, 158 (9th Cir.1978) (same). Because of the structure of the VTCA noted above, we must clearly separate the two lines of analysis.

In this case, then, the threshold issue is whether plaintiff's factual allegations, which must be taken as true for purposes of the motion for judgment on the pleadings, satisfy the necessary elements of a cause of action against the State comparable to one that may be maintained against a private person. As plaintiff's suit alleges negligence, the requisite elements of the cause of action are familiar: the existence of a legally cognizable duty owed by the defendant to the plaintiff, breach of that duty, such breach as the proximate cause of plaintiff's injury, and actual damages. Langle v. Kurkul, 146 Vt. 513, 517, 510 A.2d 1301, 1304 (1986) (citing W. Prosser & W. Keeton, The Law of Torts § 30, at 164-65 (5th ed. 1984)). Resolution of this case requires us to examine only the first of these elements.

It is well established that liability for negligence must be predicated upon a duty of care, Poplaski v. Lamphere, 152 Vt. 251, 256, 565 A.2d 1326, 1329 (1989), the existence of which is primarily a question of law. Langle, 146 Vt. at 519, 510 A.2d at 1305. "Duty" may be viewed as "an expression of the sum total of those considerations of policy which lead the law to say that the plaintiff is entitled to protection." W. Prosser & W. Keeton, The Law of Torts § 53, at 358 (5th ed. 1984). The Minnesota Supreme Court has enunciated several factors that we consider useful indicia...