Donohue v. United States

• Decision Date: 02 June 1978
• Docket Number: Civ. A. No. 6-71349.
• Parties: Donald V. DONOHUE, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Michigan

459 F. Supp. 465

Donald V. DONOHUE, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 6-71349.

United States District Court, E. D. Michigan, S. D.

June 2, 1978.

Alan C. Harnisch, Norman D. Orr, Kemp, Klein, Endelman & Ralls, P. C., Southfield, Mich., for plaintiff.

Robert E. Richardson, U. S. Dept. of Justice, Civ. Div., Washington, D. C., for defendant.

OPINION

FEIKENS, District Judge.

Plaintiff is a qualified mortgage banker possessing special expertise in the field of obtaining residential mortgage insurance for third parties through the United States Department of Housing and Urban Development (HUD), and in particular, the Federal Housing Authority (FHA). He brings this suit against the United States under the Federal Tort Claims Act, alleging that certain federal employees negligently failed to follow proper administrative procedures before suspending him from doing business with HUD and FHA and he contends that this negligence caused him substantial damage.

From October 1961 through May 1974 plaintiff was employed at Advance Mortgage Company (Advance) in Detroit. He became manager of the Advance Origination Office in March 1965 and remained in that position until May 19, 1974 when he voluntarily terminated his employment. Plaintiff left Advance in part because of his dissatisfaction with the compensation program instituted by new management and in part because he decided to move to Arizona.

When plaintiff discovered that Graham Mortgage Company (Graham) was opening a branch office in Phoenix, Arizona, he contacted Richard Graham, president of the company, and was hired almost immediately as manager of its new Phoenix office. He began working at Graham in August 1974 at a base salary of $15,000 plus fringe benefits and an opportunity to participate in an incentive program through which plaintiff could be paid an annual bonus calculated on the basis of profits realized at Graham.

On November 4, 1974 plaintiff was indicted by a federal grand jury in the Eastern District of Michigan for a claimed violation of 18 U.S.C. § 1010 and § 2(b). Specifically, the indictment charged in three counts that plaintiff had wilfully and knowingly filed false statements with HUD on two applications for FHA mortgage insurance. Upon arraignment plaintiff pleaded not guilty.

On November 13, 1974 the Deputy Director of the HUD Regional Office in Phoenix, Donald J. Karl, notified plaintiff that in light of the indictment and "pending completion of the aforesaid action and such legal proceedings as may ensue, plaintiff was suspended from participation in the HUD/FHA programs." On November 18, 1974 the Detroit Regional Office of HUD, through Area Director Elmer C. Binford, informed plaintiff that, in light of the outstanding indictment, the Detroit office had issued an "Unsatisfactory Risk Determination" (URD) against him. An URD requires the issuing office to reject all applications for FHA mortgage insurance submitted by the named individual. On December 30, 1974 plaintiff was informed by the Washington, D. C. office of HUD, through the Acting Assistant Secretary, David M. deWilde, that he was temporarily suspended from all participation in HUD programs pending resolution of the matters charged in the indictment.

On May 5, 1975 the United States Attorney for the Eastern District of Michigan voluntarily dismissed the indictment against plaintiff. This dismissal was based upon evidence, supplied to the government by plaintiff, indicating that his signatures on the falsified HUD/FHA documents (form 2900s) had been forged. Plaintiff notified HUD of the dismissal of the indictment on May 12, 1975. The Washington office thereafter rescinded its suspension on August 15, 1975; the Phoenix office rescinded its suspension on September 12, 1975; and the Detroit office withdrew its URD on October 10, 1975.

When in November 1974 the HUD office in Phoenix began refusing to process any documents submitted by Graham over plaintiff's signature, plaintiff offered to resign as manager of that office. At first Richard Graham resisted the idea; however, when it became clear that plaintiff's suspension had become a serious problem to the Graham office, Richard Graham accepted plaintiff's resignation.

Since plaintiff was ineligible to participate in HUD/FHA programs following his suspension he was unable to find employment as a mortgage banker in the Phoenix area. After he had been reinstated plaintiff began seriously searching for employment in his chosen field. However, because he was candid in informing all prospective employers of the indictment, suspension, and reinstatement most employers were discouraged from hiring him.

Plaintiff finally obtained employment as a mortgage banker with the Fort Wayne Mortgage Company (Fort Wayne) of Phoenix. He began working there on March 1, 1976. His base salary at Fort Wayne was $20,000 per year and his responsibilities were very similar to those he had held at Advance. However, unlike Graham and Advance, Fort Wayne had no incentive program for compensating its employees and plaintiff thus was not able by personal initiative to increase his rate of pay. Plaintiff was unable to function satisfactorily at Fort Wayne and he was fired in November 1976.

Since that time plaintiff has sold real estate for Clements Realty Company for which he is paid on a commission basis and has thereby earned $1,299.00 since 1977.

On June 28, 1976 plaintiff, while still unemployed, filed suit for the alleged deprivation of his constitutional rights. His original complaint named the United States and claimed in three counts that his license to participate in the HUD/FHA mortgage insurance program was a property and liberty interest protected by the Due Process Clause of the Fifth Amendment of which he was deprived. Plaintiff alleged that HUD had violated his due process rights by suspending his license without a hearing and had thereby caused him to lose both the ability and the opportunity to be meaningfully employed as a mortgage banker.

In response to the initial complaint, the United States moved for dismissal or, in the alternative, for summary judgment, contending that the Federal Tort Claims Act (FTCA), 28 U.S.C. § 1346, was plaintiff's exclusive remedy for the alleged violation of his constitutional rights, and that plaintiff's claim was barred under the FTCA for failure to exhaust administrative remedies, 28 U.S.C. § 2675(a), and in all other respects by sovereign immunity. After a hearing on defendant's motion, held on November 3, 1976, I deferred ruling and granted plaintiff leave to follow one or more of the following alternatives:

(1) To show why the United States should not be dismissed as a party defendant;

(2) To move to add additional parties or otherwise amend the complaint;

(3) To have the complaint dismissed without prejudice.

Subsequently, plaintiff filed administrative tort claims with all three HUD offices, which were in due course denied. Plaintiff then filed an amended complaint seeking damages against the United States under the FTCA for the negligent actions of its employees.

In order to prove his claim under FTCA, plaintiff must establish, by a preponderance of the evidence, that (1) a federal employee acted negligently, as that term is defined under the applicable local laws, 28 U.S.C. § 1346(b), and (2) that such conduct proximately caused the injury and damage of which plaintiff complains.

In order to prove the first element plaintiff offered the procedural regulations governing HUD employees at the time of his suspension, specifically 24 C.F.R. 24.10 and 24.11, claiming that since HUD officials violated these regulations they were negligent as a matter of law. In both Arizona and Washington, D. C. (the applicable jurisdictions here) a violation of a statutory or regulatory provision constitutes negligence per se provided the individual seeking damages falls within a class intended to be protected by the statute or regulation and the harm suffered was of the type designed to be prevented by the statute. See Southern Pacific Transportation Co. v. Lueck, 111 Ariz. 560, 535 P.2d 599 (1975); Manhattan-Dickman Construction Co. v. Shawler, 113 Ariz. 549, 558 P.2d 894 (1976); HRH Construction Corporation v. Conroy, 134 U.S. App.D.C. 7, 411 F.2d 722 (1969) and cases cited therein.

Part 24 of 24 C.F.R., which governed the Department of Housing and Urban Development at the time of plaintiff's suspension provided in part:

§ 24.11 Suspension.

Suspension is a drastic action taken when there is suspicion or fraud or other criminal conduct in Government business or contractual dealings and, as such, shall not be based upon an unsupported accusation. A contractor or grantee is suspended pending investigation and appropriate action by the Department of Justice. In assessing whether adequate evidence exists for invoking a suspension, consideration shall be given to the amount of credible evidence which is available, to the existence or absence of corroboration as to important allegations, as well as to the inferences which may properly be drawn from the existence or absence of affirmative facts. This assessment shall include an examination of basic documents, such as contracts, inspection reports, and correspondence. A suspension may be modified whenever it is determined to be in the interest of the Government to do so.

Since plaintiff did not do business with the Detroit office of HUD, the issuance of an URD against him by that office did not harm his financial condition or injure him in any other compensable manner. Therefore, I will consider the validity of plaintiff's claims under the FTCA as they pertain to the actions of HUD officials in the Phoenix and Washington offices only.

24 C.F.R. 24.10 and 24.15(a)(5) establish procedures for notice, hearing and review for those cases in which HUD seeks to debar or suspend the license of an individual with whom it does business.¹...