Flamingo Industries (Usa) v. U.S. Postal Service

• Decision Date: 23 August 2002
• Docket Number: No. 01-15963.,01-15963.
• Citation: 302 F.3d 985
• Parties: FLAMINGO INDUSTRIES (USA) LTD. and Arthur Wah, Plaintiffs-Appellants, v. UNITED STATES POSTAL SERVICE, an entity created pursuant to the Postal Reorganization Act, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

302 F.3d 985

FLAMINGO INDUSTRIES (USA) LTD. and Arthur Wah, Plaintiffs-Appellants, v. UNITED STATES POSTAL SERVICE, an entity created pursuant to the Postal Reorganization Act, Defendant-Appellee.

No. 01-15963.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 13, 2002.

Filed August 23, 2002.

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George P. Eshoo, Redwood City, CA, for the plaintiffs-appellants.

Patricia J. Kenny, Assistant United States Attorney, San Francisco, CA, for the defendant-appellee.

Appeal from the United States District Court for the Northern District of California; Maxine M. Chesney, District Judge, Presiding. D.C. No. CV-00-02484-MMC.

Before: LAY,^* THOMPSON, and TALLMAN, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge.

Plaintiffs Flamingo Industries and its owner Arthur Wah (collectively "Flamingo") brought suit in the Northern District of California against the United States Postal Service. Flamingo asserted a number of federal and state law claims stemming from the Postal Service's termination of Flamingo's contract to produce U.S. Mail sacks. The district court dismissed the suit for lack of jurisdiction and improper venue, and did not reach the merits of any of the claims. Flamingo appeals.

According to the allegations of Flamingo's complaint, which we take as true for purposes of this appeal, the Postal Service terminated Flamingo's contract because it wanted to use cheaper mail sacks manufactured in Mexico, sacks that fail to meet safety and quality regulations. To disguise this scheme, the Postal Service adopted outdated requirements for mail sacks that could not be met by the modern machines used by Flamingo and other domestic manufactures, creating a pretext for canceling the domestic mail sack contracts. Once those contracts were canceled, the Service declared a fake emergency in the supply of mail sacks that allowed it to award future contracts to foreign manufactures on a no-bid basis. The Service sought to hide the false nature of this emergency by failing to follow regulations requiring documentation of any emergency.

Based on this alleged conduct, Flamingo asserted five federal antitrust claims, alleging that the Postal Service, in collusion with Mexican mail sack manufacturers, sought to suppress competition and create a monopoly in mail sack production in violation of federal antitrust laws. Flamingo also asserted claims alleging that the Postal Service violated the Postal Service Procurement Manual, the implied covenant of good faith and fair dealing, California Business and Professions Code § 17200, and 42 U.S.C. § 1983.

The district court did not reach the merits of any of these claims. It dismissed the federal antitrust claims on the ground that the Postal Service was protected by sovereign immunity from antitrust liability. It determined that the claim for breach of the implied covenant of good faith and fair dealing was a tort claim, and dismissed it for lack of exhaustion under the Federal Tort Claims Act. The court dismissed the remaining claims on the ground that venue did not lie in the Northern District of California.

We have jurisdiction under 28 U.S.C. § 1291. We affirm in part, reverse in part, and remand for further proceedings. We conclude that: (1) Flamingo may pursue claims against the Postal Service for alleged violations of federal antitrust laws because Congress has withdrawn the cloak of sovereign immunity from the Postal Service and given it the status of a private corporation; (2) the district court had jurisdiction over Flamingo's Procurement Manual claim pursuant to 28 U.S.C. § 1491(b); (3) the court properly dismissed Flamingo's breach of implied covenant claim for failure to exhaust under the Federal Tort Claims Act; (4) although the district court had original jurisdiction over Flamingo's claim asserted under California Business & Professions Code § 17200, that claim was properly dismissed because it is preempted by federal law; (5) Flamingo's 42 U.S.C. § 1983 claim fails to state a claim upon which relief can be granted; and (6) venue for the Postal Service Procurement Manual claim was properly laid in the Northern District of California.

I THE FEDERAL ANTITRUST LAW CLAIMS

Flamingo argues the district court erred in holding that sovereign immunity bars its suit against the Postal Service under federal antitrust laws.¹ Flamingo contends the Postal Service lost its sovereign status pursuant to the Postal Reorganization Act of 1970, Pub.L. No. 91-375, 84 Stat. 719 (codified as amended in Title 39 of the United States Code), which provides in relevant part that "The Postal Service shall have the ... power[] to sue and be sued in its official name." 39 U.S.C. § 401(1). We agree.

In FDIC v. Meyer, 510 U.S. 471, 484, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994), the Supreme Court applied a two-step inquiry in analyzing whether a federal instrumentality enjoys immunity from a particular substantive area of law. Under this analysis, "[t]he first inquiry is whether there has been a waiver of sovereign immunity." Id. If there has been, "the second inquiry ... [is] whether the source of substantive law upon which the claimant relies provides an avenue for relief." Id.

A

Following Meyer, we first consider whether 39 U.S.C. § 401(1) operates as a waiver of the Postal Service's sovereign immunity. More precisely, our inquiry is whether the sue-and-be-sued language of that section waives sovereign immunity as to the plaintiffs' antitrust claims.

The Supreme Court established the breadth of the Postal Service's sovereign immunity waiver in Franchise Tax Board v. United States Postal Service, 467 U.S. 512, 104 S.Ct. 2549, 81 L.Ed.2d 446 (1984). There, the issue was whether the Postal Service had to comply with a state tax board's liens on Postal Service employees' salaries. The Court began its analysis by recognizing that the general presumption is that a sue-and be-sued clause should be liberally construed: "[W]hen Congress establishes ... an agency, authorizes it to engage in commercial and business transactions with the public, and permits it to `sue and be sued,' it cannot be lightly assumed that restrictions on that authority are to be implied." Id. at 517 (quoting FHA v. Burr, 309 U.S. 242, 245, 60 S.Ct. 488, 84 L.Ed. 724 (1940)). To overcome this presumption "it must be clearly shown that certain types of suits are not consistent with the statutory or constitutional scheme, that an implied restriction of the general authority is necessary to avoid grave interference with the performance of a governmental function, or that for other reasons it was plainly the purpose of Congress to use the `sue and be sued' clause in a narrow sense." Id. at 517-18 (quoting Burr, 309 U.S. at 245).

The Postal Service could not overcome the presumption. In doing away with the Post Office Department and creating the Postal Service in the Postal Reorganization Act, Congress had "indicated that it wished the Postal Service to be run more like a business than had its predecessor. ..." Id. at 519-20. Congress had "`launched [the Postal Service] into the commercial world'; hence under Burr not only must we liberally construe the sue-and-be-sued clause, but also we must presume that the Service's liability is the same as that of any other business." Id. at 520 (brackets in original).

The Court reaffirmed the breadth of the Postal Service's waiver in Loeffler v. Frank, 486 U.S. 549, 108 S.Ct. 1965, 100 L.Ed.2d 549 (1988). There, a mail carrier had successfully maintained a Title VII action against the Postal Service and was seeking prejudgment interest on his award of damages. Id. at 552. Title VII allowed for actions against the federal government, see 42 U.S.C. § 2000e-16, but it did not contain a provision allowing for prejudgment interest against the government. Indeed, just two years earlier, in Library of Congress v. Shaw, 478 U.S. 310, 106 S.Ct. 2957, 92 L.Ed.2d 250 (1986), the Supreme Court had held that sovereign immunity barred the payment of interest on an award under Title VII against the Library of Congress. The Court in Loeffler, however, distinguished Shaw because, unlike the Library of Congress, the Postal Service's sovereign immunity had been waived. Loeffler, 486 U.S. at 554-56, 565.

The Court stressed the difference between a sovereign instrumentality, such as the Library of Congress, and a non-sovereign sue-and-be-sued instrumentality, such as the Postal Service. The Court stated that in Shaw, "the starting point for our analysis was the `no-interest rule,' which is to the effect that, absent express consent by Congress, the United States is immune from interest awards.... The dispositive question was ... whether Title VII contained an express waiver of the Library of Congress' immunity from interest." Loeffler, 486 U.S. at 565 (citation omitted). It did not. However, "`[t]he no-interest rule is ... inapplicable where the Government has cast off the cloak of sovereignty and assumed the status of a private commercial enterprise.'" Id. (quoting Shaw, 478 U.S. at 317 n. 5). "In creating the Postal Service, Congress [cast off the cloak of sovereignty], and therefore, the no-interest rule does not apply to it." Id.

In 1994, the Court returned to the sue-and-be-sued issue in Meyer, 510 U.S. 471, 114 S.Ct. 996, 127 L.Ed.2d 308. There, the plaintiff prevailed at trial in a Bivens² action against the Federal Savings and Loan Insurance Corporation (FSLIC), which was a federal sue-and-be-sued instrumentality. After the FDIC, the successor in interest to the FSLIC, appealed unsuccessfully, the Supreme Court granted certiorari. Id. at 473-75. In rejecting the FDIC's argument that the FSLIC enjoyed sovereign immunity, the Court reiterated that "sue-and-be-sued waivers are to be `liberally' construed ... notwithstanding the general rule that waivers of sovereign immunity are to be read narrowly in favor of the sovereign." Id....