Kipf v. United States, CV-78-68-BLG.

• Decision Date: 08 October 1980
• Docket Number: No. CV-78-68-BLG.,CV-78-68-BLG.
• Parties: Kelsey D. KIPF and Kathy E. Kipf, Husband and Wife, Plaintiffs, v. UNITED STATES of America; Farmers Home Administration; Robert Bergland, in his capacity as Secretary of the United States Department of Agriculture; Gordon Cavanaugh, in his capacity as Administrator of the Farmers Home Administration, United States Department of Agriculture; Wallace B. Edland, in his capacity as State Director for Montana of the Farmers Home Administration, United States Department of Agriculture; Billie J. Burns, in his capacity as District Director of the Farmers Home Administration, United States Department of Agriculture; Evert J. Lovec, individually and in his capacity as County Supervisor for the Farmers Home Administration in Custer County, Montana, United States Department of Agriculture; and Mary Lou Falconer, individually and in her capacity as Assistant County Supervisor for the Farmers Home Administration in Custer County, Montana, United States Department of Agriculture, Defendants.
• Court: U.S. District Court — District of Montana

501 F. Supp. 110

Kelsey D. KIPF and Kathy E. Kipf, Husband and Wife, Plaintiffs, v. UNITED STATES of America; Farmers Home Administration; Robert Bergland, in his capacity as Secretary of the United States Department of Agriculture; Gordon Cavanaugh, in his capacity as Administrator of the Farmers Home Administration, United States Department of Agriculture; Wallace B. Edland, in his capacity as State Director for Montana of the Farmers Home Administration, United States Department of Agriculture; Billie J. Burns, in his capacity as District Director of the Farmers Home Administration, United States Department of Agriculture; Evert J. Lovec, individually and in his capacity as County Supervisor for the Farmers Home Administration in Custer County, Montana, United States Department of Agriculture; and Mary Lou Falconer, individually and in her capacity as Assistant County Supervisor for the Farmers Home Administration in Custer County, Montana, United States Department of Agriculture, Defendants.

No. CV-78-68-BLG.

United States District Court, D. Montana, Billings Division.

October 8, 1980.

COPYRIGHT MATERIAL OMITTED

William J. Miele, Montana Legal Services Ass'n, Miles City, Mont., Robert L. LaRoche, Mont. Legal Serv. Ass'n, Billings, Mont., for plaintiffs.

Lorraine D. Gallinger, Asst. U. S. Atty., Dist. of Mont., Billings, Mont., for defendants.

OPINION AND ORDER

BATTIN, Chief Judge.

The principal issue raised by this case is whether a plaintiff who received a Farmers Home Administration loan from the Department of Agriculture has a cause of action against the federal government and Department officials (a) for breach of contract or (b) for negligence. Because the cause of action for negligence is barred by United States v. Neustadt, 366 U.S. 696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961), and the Federal Tort Claims Act, we conclude that the defendant's motion to dismiss as to the negligence claim must be granted. Because of the uncertain state of the law as to the contract claim, defendant's motion to dismiss as to this count should be denied.

Sometime prior to September 9, 1975, plaintiffs Kelsey and Kathie Kipf notified the local Farmers Home Administration (FmHA) office in Miles City, Montana, that they wished to purchase a home at 2209 Leighton Boulevard in Miles City. Kelsey Kipf is blind and neither Kelsey nor his wife had ever purchased a home before. On September 9, 1975, plaintiffs signed an option to purchase and on September 12, 1975, they submitted a completed loan form to the local FmHA office. On October 7, 1975, Mary Lou Falconer, a FmHA assistant county supervisor, conducted an inspection of the house to determine whether it was acceptable for FmHA financing. Ms. Falconer found the house's foundation, roof, windows, floor, floor coverings, exterior walls, and wiring to be "good." Soon afterwards, the house was approved for FmHA financing. On November 12, 1975, plaintiffs received a rural housing loan of $19,850.00 to purchase the house. Over the course of the next year, the Kipfs discovered numerous defects in the house, including cracked concrete floors, buckling foundation, leaking roof, water seeping down the walls during rainstorms, bowed walls, sagging ceilings, and exposed electrical wires, outlets and light switches in the garage.

On October 7, 1977, plaintiffs filed a claim for damages with the FmHA and on December 22, 1977, this claim was denied. On April 14, 1978, plaintiffs filed suit in this Court, alleging breach of contract and negligence. On September 14, 1978, defendants United States of America, Farmers Home Administration, Robert Bergland, Gordon Cavanaugh, Wallace B. Edland, Billie J. Burns, Evert J. Lovec, and Mary Lou Falconer filed motions to dismiss. These motions are presently before the Court.

TORT THEORY

In the initial count of their complaint, plaintiffs allege that all of the defendants were negligent in not warning them of the defects which appeared in their home after Ms. Falconer inspected it. Because of the Federal Tort Claims Act and the case of United States v. Neustadt, 366 U.S. 696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961), this cause of action must be dismissed.

First of all, it seems that one of the initial bars to a suit against the federal government cannot be overcome here. The principle of federal sovereign immunity bars all suits against the federal government unless the sovereign has consented. United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941). The basic statute embodying the consent of the federal government as to tort suits is the Federal Tort Claims Act (28 U.S.C. § 2671, et seq. (1977)). Section 2680(h) explicitly states that no consent is given for "any claim arising out of ... misrepresentation." Because the thrust of plaintiffs' claim is the misrepresentation of Ms. Falconer as to the condition of the house bought by the Kipfs, the claim is barred by the Federal Tort Claims Act.

Plaintiffs nonetheless insist that the gist of this action is not misrepresentation because it is not labelled as such in their complaint. A decision of the United States Supreme Court is conclusive on this point. In United States v. Neustadt, 366 U.S. 696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961), plaintiffs tried to hold the Federal Housing Administration liable for negligent inspection, precisely the allegations made by the plaintiffs here. In Neustadt, the Court held that "misrepresentation" includes "negligent misrepresentation." Id. at 702, 81 S.Ct. at 1298.¹ Neustadt also states that misrepresentation has been "associated with common law deceit and confined very largely to the invasion of interests of a financial or commercial character, in the course of business dealings." Neustadt, 366 U.S. at 711 n. 26, 81 S.Ct. at 1302 n. 26, quoting Prosser, Handbook of the Law of Torts 702-03 (1941 ed.). In the case at bar, the Department of Agriculture officials are alleged to have failed to inspect and warn the plaintiffs of defects which the plaintiffs should have been aware of before they borrowed money to purchase their defective home. Complaint, ¶¶ 32 and 33. Thus, in light of the business nature of the transaction involved in this case, there is little doubt that the tort alleged is that of negligent misrepresentation and must be dismissed under the Federal Tort Claims Act.

CONTRACT THEORY

Plaintiffs also allege that the defendants breached an express contractual duty to inspect. Their reasoning goes somewhat like this. The note signed by the plaintiffs expressly stated that all regulations of the Department of Agriculture were incorporated into the note. Those regulations created a duty on the part of the government to inspect plaintiffs' home to insure that the house was "decent, safe, and sanitary." 7 C.F.R. § 1822.2 (1975). Unconventional though such claims may appear, they do not justify dismissal under Fed.R.Civ.P. 12(b) and 41 for failure to state a claim.

First of all, it seems clear that a federal district court has jurisdiction of a contractual claim such as this against the United States government. Under the Tucker Act, 28 U.S.C. § 1346(a)(2) (1977), a federal district court has jurisdiction for all contractual claims against the government:

District court has original jurisdiction .... of ... (2) Any other civil action ... against the United States, not exceeding $10,000 in amount, founded ... upon any express or implied contract with the United States ....

This provision acts as a waiver of sovereign immunity, Tempel v. United States, 248 U.S. 121, 129, 39 S.Ct. 56, 58, 63 L.Ed. 162 (1918),² and hence allows the United States to be sued on a contractual claim.

Plaintiffs allege that the contractual duty here arises out of the note itself. The note executed by plaintiffs expressly states, "This note shall be subject to the present regulations of the Farmers Home Administration and to its future regulations not inconsistent with the express provisions hereof." Now we reach the core of plaintiffs' argument where they recite a litany of Department of Agriculture regulations which allegedly create a duty to inspect and warn on the part of the government.

The Department of Agriculture regulations make clear that "the basic objective of the FmHA in making section 502 loans is to assist farm owners and other persons who live in rural areas to obtain decent, safe, and sanitary dwellings and related facilities." 7 C.F.R. § 1822.2 (1975). See also 7 C.F.R. § 1802.2(b) (1975). The secondary objectives of these regulations regarding supervision of the Agriculture officials are twofold. The supervision of loans by government officials "will be provided borrowers to the extent necessary to achieve the objectives of the loan and to protect the interests of the Government ...." 7 C.F.R. § 1822.7(a) (1975). Thus, while one of the loan objectives appears to be protection of governmental property interests, another objective, apparently of equal weight, is "to achieve the objectives of the loan," one of which is to provide rural residents with "decent, safe, and sanitary dwellings." Nowhere in the regulations is there an explicit requirement that the County Supervisor inspect the proposed home; the only supervisory requirements relate to the financial details of the loan itself. See 7 C.F.R. 1802.3 (1975). There is, however, the following requirement:

Any buildings purchased with Rural Housing funds must be structurally sound, functionally adequate, and either in good repair or placed in that condition with loan funds. Newly constructed dwellings must comply with the policies stated in paragraph (b)(1) of this section. Good judgment must be used in applying these policies to existing dwellings.

7 C.F.R. § 1822.7(b)(2) (1975). Plaintiffs urge that these regulations describing the loan objectives, when read together, create a duty on the part of the government to adequately inspect the proposed housing. The Department of...