Love v. U.S.
| Decision Date | 18 September 1991 |
| Docket Number | No. 87-3832,87-3832 |
| Parties | Clinton W. LOVE, Sr., and Rose Mary Love, husband and wife, Plaintiffs-Appellants, v. UNITED STATES of America; United States Department of Agriculture; Farmers Home Administration; Philip A. Young; Claude Hargrove; Arthur E. Lung; Theodore Hebnes; Roger Meredith; Rodger Vanvalkenburg; Dale Gilbert; Jim Walker; Stanley Faught, and Gilbert L. Anderson, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Robert M. Kampfer, Gene A. Picotte, P.C., Clancy, Mont., for plaintiffs-appellants.
Robert J. Brooks, Asst. U.S. Atty., Great Falls, Mont., for defendants-appellees.
Before FLETCHER and D.W. NELSON, Circuit Judges, and CARROLL *, District Judge.
Circuit Judges Fletcher and Nelson have voted to deny the petition for rehearing, and to deny the petition for rehearing en banc. District Judge Carroll voted to grant the petition for rehearing and petition for rehearing en banc.
On the request of a judge in regular active service, the suggestion for rehearing en banc was put to a vote of the full court, and the majority of the court voted to deny rehearing. Fed.R.App.P. 35(b). Circuit Judge O'Scannlain dissented from the denial of rehearing and was joined by Circuit Judges Poole, Norris, Hall and Kozinski. The dissent is filed as an attachment to this order.
The petition for rehearing is denied and the suggestion for rehearing en banc is rejected. The mandate shall issue forthwith.
By denying rehearing, a majority of this court has effectively determined that the following proposition is legally sound: the federal government may be held liable for tort damages under state law for the breach of duties that arise solely as a matter of federal contract law. Because this proposition offends the Supremacy Clause, eviscerates the Tucker Act, intrudes upon the exclusive jurisdiction of the Claims Court, allows the states to override federal sovereign immunity, will expand the already crowded docket of this court, will improperly reduce the availability of federal aid, and controverts every first-year law student's basic understanding of the difference between contracts and torts, I respectfully dissent.
The Loves are Montana farmers who obtained agricultural loans from the Farmers Home Administration ("FmHA") under the Consolidated Farm and Rural Development Act ("CFRDA"), Pub.L. No. 87-128, 75 Stat. 307 (1961) (). They secured their loans through a chattel mortgage on their livestock and machinery. In 1984, purportedly for reasons beyond their control, the Loves defaulted on their loans and filed for bankruptcy. After obtaining a release from the bankruptcy court's automatic stay of proceedings, the FmHA foreclosed, took possession of the Loves' collateral, and sold it.
The Loves filed suit in the District of Montana, contending that the FmHA (a) acted unlawfully because the Loves were eligible for loan deferral under the CFRDA; (b) wrongfully deprived the Loves of their property without any notice or hearing; and (c) improperly seized certain livestock and machinery that were not listed as collateral in the security agreement. The Loves, who originally filed pro se, asserted claims under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. §§ 1346(b), 2671-80, characterizing them as the following "torts": (a) conversion, (b) breach of fiduciary duty, (c) breach of the implied covenant of good faith and fair dealing, and (d) negligent performance of an undertaking to render services.
The district court, citing this court's decision in Woodbury v. United States, 313 F.2d 291 (9th Cir.1963), dismissed the complaint for want of jurisdiction. The court held that the complaint sounded in contract and that exclusive jurisdiction for such actions lies with the United States Claims Court under the Tucker Act, 28 U.S.C. §§ 1346(a), 1491. Love v. United States, 656 F.Supp. 847 (D.Mont.1987). On appeal, a split panel of this court distinguished Woodbury; cited Fort Vancouver Plywood Co. v. United States, 747 F.2d 547 (9th Cir.1984), Walsh v. United States, 672 F.2d 746 (9th Cir.1982), and a Third Circuit decision, Aleutco Corp. v. United States, 244 F.2d 674 (3d Cir.1957); and reversed. Love v. United States, 871 F.2d 1488 (9th Cir.1989), amended, 915 F.2d 1242 (9th Cir.1990).
Almost simultaneously, a separate panel of this court addressed the same question and, once again by a split decision, reached the opposite result. LaPlant v. United States, 872 F.2d 881 (9th Cir.1989). The LaPlant panel found the Woodbury decision directly on point and distinguished Fort Vancouver and Walsh. See 872 F.2d at 883-85. Upon rehearing, however, the LaPlant panel withdrew its opinion in deference to Love, which was the first of the two cases to be submitted and decided. LaPlant v. United States, 916 F.2d 1377 (9th Cir.1990).
The full court then entertained and rejected a sua sponte call for rehearing Love en banc. Because I believe that this case involves questions "of exceptional importance" and because I believe that the analysis of the original LaPlant opinion was correct (for reasons stated both therein and herein), I must dissent from this court's decision to reject en banc rehearing. Fed.R.App.P. 35(a)(2).
The Love opinion initially points out that "[u]nder the FTCA, the federal government assumes liability for wrongs that would be actionable in tort if committed by a private party under analogous circumstances, under the law of the state where the act or omission occurred." Love, 915 F.2d at 1245 (citing 28 U.S.C. § 2674). Focusing first on the asserted tort of conversion, the opinion then explains that Montana law requires mortgagees and lienholders to give notice to debtors before disposing of secured property. When mortgagees in Montana fail to comply with this requirement, they are liable for the tort of conversion. The opinion concludes that because the FmHA allegedly failed to provide notice to the Loves under the applicable notice provision of the CFRDA, 7 U.S.C. § 1981a, an action lies against the government for this Montana tort. See id. at 1246.
I cannot agree. As the Love opinion itself points out, the relevant notice requirement is a requirement of federal law. See id. Whatever statutory notice the FmHA owes the Loves is an obligation imposed upon the agency by the CFRDA, not by the Montana Code. Likewise, whatever non-statutory obligations the FmHA bears--whether express or implied--exist purely as a matter of federal law. The Loves' relationship with the FmHA has no basis in state law whatsoever, and it certainly has no basis in tort.
The rights and duties that bind the Loves and their lender arise under and are governed by three sources: (a) the parties' loan agreement, which is a federal contract, (b) the CFRDA, which is the comprehensive federal statute that allows the government to enter that contract and explains the terms by which it may do so, and (c) in the interstices, federal common law. See Boyle v. United Technologies Corp., 487 U.S. 500, 504, 108 S.Ct. 2510, 2513, 101 L.Ed.2d 442 (1988) (); United States v. Little Lake Misere Land Co., 412 U.S. 580, 590-94, 93 S.Ct. 2389, 2395-98, 37 L.Ed.2d 187 (1973); Clearfield Trust Co. v. United States, 318 U.S. 363, 366-67, 63 S.Ct. 573, 575, 87 L.Ed. 838 (1943); see also Boyle, 487 U.S. at 504-05, 108 S.Ct. at 2514. Whatever tort obligations may bind private lenders in Montana are irrelevant to this case; they can have no bearing on a legal relationship grounded in federal law.
If this were not so, every federal assistance program in the nation would be beholden to the individual notice requirements of the fifty states--not to mention all the other contract and tort obligations that are implied under various states' laws. There would be no uniformity in the administration of federal aid, and the effective cost of farm subsidies (and presumably all other forms of federal aid) would surge with increased administrative costs, increased transaction costs, and the concomitant expansion of federal tort liability. The predictable net effect would be fewer dollars for deserving farmers (and other aid recipients), and less certainty in both the markets and the law.
The Supreme Court has recognized and prevented this parade of horribles from occurring in similar contexts. For example, in its landmark decision in Clearfield Trust, the Court held that "[t]he rights and duties of the United States on commercial paper which it issues are governed by federal rather than local [substantive] law." Clearfield Trust, 318 U.S. at 366, 63 S.Ct. at 575. The reasoning of the Court's opinion in that case should inform, if not control, our analysis here:
When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power.... The authority to issue the [commercial paper in question] had its origin in the Constitution and the statutes of the United States and was in no way dependent on the law of Pennsylvania or any other state. The duties imposed upon the United States and the rights acquired by it as a result of the issuance [of this commercial paper] find their roots in the same federal sources.
... [R]easons which may make state law at times the appropriate federal rule are singularly inappropriate here. The issuance of commercial paper by the United States is on a vast scale and transactions in that paper from issuance to payment will commonly occur in several states. The application of state law ... would subject the rights and duties of the United States to exceptional uncertainty. It would lead to great diversity in results by making...
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