Love v. U.S.

Citation915 F.2d 1242
Decision Date05 October 1990
Docket NumberNo. 87-3832,87-3832
PartiesClinton 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. Lund, Theodore Hebnes, Roger Meredith, Rodger Vanvalkenburg, Dale Gilbert, Jim Walker, Stanley Faught, and Gilbert L. Anderson, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th 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.

Appeal from the United States District Court for the District of Montana.

Before FLETCHER and NELSON, * Circuit Judges, and CARROLL, ** District Judge.

FLETCHER, Circuit Judge:

Clinton W. and Rose Mary Love appeal the dismissal of their complaint against the United States and certain federal officials arising out of the government's liquidation of the Loves' livestock and farm equipment. We reverse.

BACKGROUND

The Loves are Montana farmers who obtained agricultural loans from the Farmers Home Administration ("FmHA"), under the consolidated Farm and Rural Development Act ("CFRDA"), 7 U.S.C. Secs. 1921 et seq. (1982). The loans purportedly were secured by a chattel mortgage on the Loves' livestock and machinery. In 1984, the Loves defaulted on these loans and went into bankruptcy, allegedly due to conditions beyond their control. The individual defendants in this action, officials of FmHA, obtained a release of the stay of proceedings from the U.S. Bankruptcy Court, took possession of the secured property, and sold it. The Loves allege that the livestock and machinery were critical to their farming operation, which failed without it.

The Loves apparently are members of a nationwide class certified by the district court in Coleman v. Block, 580 F.Supp. 192 (D.N.D.1984). The class comprises:

all persons who have obtained a farmer program loan from the Farmers Home Administration, and who are or may be eligible to obtain a farmer program loan from the Farmers Home Administration, and whose loans are or will be administered in the Farmers Home Administration offices located throughout the United States ...

580 F.Supp. at 192. The Coleman court, interpreting 7 U.S.C. Sec. 1981a, issued a preliminary injunction against the Secretary of Agriculture and FmHA, prohibiting them from liquidating farm property without providing the debtor farmer notice and the opportunity for a hearing. At the hearing, the farmer would be afforded the opportunity to establish his eligibility for loan deferral if he could show that his loan default was a result of circumstances beyond his control.

The Loves allege (1) that they are members of this class and that their insolvency resulted from circumstances beyond their control, making them eligible for loan deferral; (2) that defendants possessed and sold off the Loves' property without any notice or hearing as required by the Coleman injunction. The Loves also allege that their security agreement with the government failed to reference their livestock and machinery as collateral, so that The Loves filed a pro se complaint, which was amended after they obtained counsel. It alleges claims against the government under the Federal Tort Claims Act (FTCA), 28 U.S.C. Secs. 2671-80 (1982), and against the individual defendants under the Constitution. The district court dismissed the action in its entirety for lack of subject matter jurisdiction and for failure to state a claim.

the government never had a valid security interest in the property.

DISCUSSION

We review de novo the dismissal of a complaint for failure to allege subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) or failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Fort Vancouver Plywood Co. v. United States, 747 F.2d 547, 549 (9th Cir.1984) (failure to allege subject matter jurisdiction); Western Reserve Oil and Gas Co. v. New, 765 F.2d 1428, 1430 (9th Cir.1985) (failure to state a claim). Our review is based on the contents of the complaint, the allegations of which we accept as true and construe in the light most favorable to the plaintiff. Western Reserve, 765 F.2d at 1430. Dismissal is improper unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Gibson v. United States, 781 F.2d 1334, 1337 (9th Cir.1986) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)).

I. FTCA Claims
A. Conversion

The district court found that the Loves' claim for conversion was premised on a breach of contract, and was therefore not cognizable under the FTCA. Instead, the court ruled, such a claim must be brought before the Court of Claims under the Tucker Act, 28 U.S.C. Secs. 1346(a)(2), 1491.

The district court relied on our decision in Woodbury v. United States, 313 F.2d 291 (9th Cir.1963). There, Woodbury, a real estate developer, brought suit against the government when the Federal Housing Administration allegedly breached a promise to arrange for long-term financing of a government housing construction contract. Woodbury had undertaken the project, and incurred financial and contractual obligations, allegedly in reliance on the government's promise. Although Woodbury expressed his claim as the tort of breach of fiduciary duty and sued under the FTCA, we held that the claim was really for breach of contract:

Many breaches of contract can also be treated as torts. But in cases such as this, where the "tort" complained of is based entirely upon a breach by the government of a promise made by it in a contract, so that the claim is in substance a breach of contract claim, and only incidentally and conceptually also a tort claim, we do not think that the common law or local state law right to "waive the breach and sue in tort" brings the case within the Federal Tort Claims Act.

Id. at 295. Instead, the contract claim could only have been brought under the Tucker Act, which confers on the Court of Claims exclusive jurisdiction over contract claims in excess of $10,000 against the government. Id. 1 According to defendants and the district court, the Loves' claim for conversion is essentially a breach of contract and must therefore be dismissed under Woodbury. We disagree.

Under 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. 28 U.S.C. Sec. 2674; LaBarge v. Mariposa County, 798 F.2d 364, 366 (9th Cir.1986), cert. denied, 481 U.S. 1014, 107 S.Ct. 1889, 95 L.Ed.2d 497 (1987). Under Montana law, statutory requirements governing disposal of secured property by the mortgagee or lienholder, including the requirement of notice to the debtor, must be followed strictly. Goggins v. Bookout, 141 Mont. 449, 378 P.2d 212, 214 (1963). Where the mortgagee or lienholder disposes of the property without complying with statutory requirements, "he is guilty of a conversion." Id. (quoting Trudell v. Hingham State Bank, 62 Mont. 557, 205 P. 667, 669 (1922)). Montana requires that the secured party give notice to the debtor before disposing of collateral, Mont.Code Ann. Sec. 30-9-504(3)(a) (1987), and provides that the debtor may sue the secured party for any damages resulting from the secured party's failure to comply with such requirement. Id. Sec. 30-9-507(1). Here, the defendants disposed of the Loves' collateral without the required statutory notice under 7 U.S.C. Sec. 1981a (as interpreted by Coleman v. Block, supra ). Thus, the government's alleged action, if taken by a private party under Montana law, would give rise to a cause of action for conversion. 2

The district court and defendants, relying on Woodbury, appear to assume that the Loves' conversion claim sounds in contract rather than tort because the Loves' security agreement with the government must be considered in deciding whether the government's possession of the property was wrongful. This reliance on Woodbury is misplaced. In Woodbury, we dealt with a breach of contract claim that could be characterized as a tort "only incidentally and conceptually." Id. at 295. But we also recognized that some wrongs could sound both in tort and contract:

We do not mean that no action will ever lie against the United States under the Tort Claims Act if a suit could be maintained for a breach of contract based upon the same facts. We only hold that where, as in this case, the action is essentially for breach of a contractual undertaking, and the liability, if any, depends wholly upon the government's alleged promise, the action must be under the Tucker Act, and cannot be under the Federal Tort Claims Act.

Id. at 296. Here, the Loves' allegations could have been brought as a breach of contract claim, but they equally support a tort claim for conversion. Although a breach of promise may be involved, the government's liability does not "depend[ ] wholly upon the government's alleged promise," because liability depends in large part on the Loves' claim of ownership and possession of the property.

This case resembles the facts in Aleutco Corp. v. United States, 244 F.2d 674 (3rd Cir.1957), more than those in Woodbury. In Aleutco, the plaintiff purchased $868,000 of surplus war goods in Alaska. When the Navy refused to let the plaintiff take possession of some of the goods, the plaintiff brought an FTCA suit for conversion. The court held that the plaintiff had sufficiently stated "a cause in tort for conversion" even though it "could have equally well made out a complaint for breach of contract." Id. at 678-79. "The fact that the claimant and the United States were in a contractual relationship does not...

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