Midwest Knitting Mills, Inc. v. US

• Citation: 741 F. Supp. 1345
• Decision Date: 10 July 1990
• Docket Number: No. 88-C-717.,88-C-717.
• Parties: MIDWEST KNITTING MILLS, INC., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

741 F. Supp. 1345

MIDWEST KNITTING MILLS, INC., Plaintiff, v. UNITED STATES of America, Defendant.

No. 88-C-717.

United States District Court, E.D. Wisconsin.

July 10, 1990.

Richard F. Yanisch, Denny & Yanisch, Elm Grove, Wis., for plaintiff.

James Santelle, Asst. U.S. Atty., Milwaukee, Wis., for defendant.

OPINION AND ORDER

CURRAN, District Judge.

Midwest Knitting Mills, Inc., a Wisconsin manufacturer of knitted goods, is suing the United States of America pursuant to the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b) & 2671-80, for compensatory damages in the amount of $3,113,637.20, for injuries to its business. The plaintiff alleges that the Small Business Administration (SBA), an agency of the United States, caused injury to Midwest Knitting's business by its negligent supervision of employee Frederick Matthews and by its tortious interference with its own contract with Midwest Knitting. The plaintiff has fulfilled the statutory prerequisite to suit by filing an administrative claim with the local office of the Small Business Administration. See 28 U.S.C. § 2675. Six months passed with no action being taken, so Midwest Knitting deemed the claim denied. See 28 U.S.C. § 2675(a).

The United States has answered and denied liability. After the deadline for the completion of all discovery had passed, the defendant moved to dismiss for lack of subject matter jurisdiction and for summary judgment pursuant to Federal Rules of Civil Procedure 12(b)(1) & 56. This motion is now fully briefed and ready for decision.

I. ALLEGATIONS OF THE COMPLAINT

In its Complaint, Midwest Knitting alleges that:

7. The defendant, through its Small Business Administration, created a structure known as the "8-A program", designed specifically to insure that worthy and qualified minority businesses would have the opportunity to obtain a fair share of the Federal government's military contracts. The distinctive feature of the 8-A program is the provision for "advance payments to cover the cost of material, labor, overhead and administration", this feature being intended to assist otherwise viable companies, equipped with production capability and staff, but short of operating capital, to handle profitable contracts. Plaintiff qualified and was certified as an 8-A contractor in 1978 and recertified in 1982, and thereafter secured and fulfilled a number of military contracts obtained under the aforementioned program through its Milwaukee, Wisconsin, office. At the time of the termination of plaintiff's business in January of 1986, plaintiff, through the Milwaukee, Wisconsin, office of the Small Business Administration, had been awarded and was either working on or was prepared to commence work on five contracts whose total value exceeded the sum of two million dollars.

Plaintiff depended on and relied on the advance payment provisions of the 8-A program to enable it to fulfill its production requirements on the contracts awarded to it.

8. Plaintiff complied in all respects with the rules and regulations of the 8-A program aforesaid and qualified for advance payments on its military contracts; that such advance payments were duly approved by appropriate authorities in the Small Business Administration chain of command, but that such payments never reached the plaintiff company due to dereliction, negligence, and deliberate sabotage on the part of the Business Development Specialist, one Frederick Matthews, assigned by the Small Business Administration to plaintiff's cases to oversee, monitor and assist in the procurement and development of plaintiff's contracts and to administratively expedite the processing of plaintiff's application for advance payments aforesaid.

The failure to receive the advance payments as approved and authorized prevented plaintiff from commencing and pursuing production as planned, with the result that expensive machinery remained unused, trained personnel on plaintiff's payroll were idled and then released from employment, plaintiff's financial obligations went into default, production deadlines were defaulted, and the company was forced to terminate production and close its operation.

9. That the failure of plaintiff company to receive the advance payments for which it had qualified was a direct result of the retention in office of the aforesaid Business Development Specialist by the Small Business Administration management personnel, and the failure of the government's supervisory personnel to exercise due care in the supervision of the said Business Development Specialist assigned to plaintiff's project; that such supervisory personnel were well aware, or should have been aware, that such Business Development Specialist was not carrying out his duties and was in fact incapable of so doing because of personal habits and attitudes, and chemical involvement and dependency, resulting in physical, intellectual and emotional infirmities; that such infirmities on the part of the Business Development Specialist were well known, or should have been known, to the government's supervisory and administrative personnel at its Small Business Administration offices in Milwaukee, Wisconsin, at its Madison, Wisconsin, district office, and at its Chicago, Illinois, regional office, and yet, despite such knowledge, his superiors failed to take remedial action, retained him in office and continued his assignment to plaintiff's contracts; that such conduct on the part of the government's supervisory personnel constitutes negligence and dereliction on the part of the defendant and was a direct and proximate cause of the failure of plaintiff's business and the resultant damage to it.

10. That further, after plaintiff's business was in jeopardy due to the aforementioned facts, on October 10, 1985, the Small Business Administration, through its management personnel, did make demand on the plaintiff for the surrender and termination of all of its Small Business Administration contracts and did utilize its economic power to enforce such demand and compel compliance by plaintiff.

Complaint at ¶¶ 7-10.

The plaintiff claims that, because of this conduct on the part of Small Business Administration personnel, it was forced to surrender its contracts and "was deprived of the right to complete the subject contracts and was deprived of the profits to be derived therefrom, as well as the profits to be derived from the future operation of plaintiff's company; that such damages are in the amount of $3,113,637.20." Complaint at ¶ 11.

Based on these allegations, the plaintiff raises two theories of liability: (1) that the SBA was negligent in supervising Frederick Matthews, an SBA employee who was responsible for monitoring and overseeing contracts and handling advance payment requirements and processing, see Memorandum in Opposition to Defendant's Motion to Dismiss and for Summary Judgment at 2-12; and (2) that the SBA tortiously interfered with its own contract with Midwest Knitting.¹ See Id. at 12-15.

II. DEFENDANT'S MOTION TO DISMISS

A. DEFENDANT'S POSITION

The defendant has moved the court for an order dismissing all of the plaintiff's claims for lack of subject matter jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(1) & 56. The United States contends that:

Based upon the nature of the allegations articulated in the complaint and the elucidation of the cause of action advanced by the plaintiff during the course of pretrial discovery, there exists no jurisdictional basis upon which monetary damages might properly be awarded to the plaintiff in this federal forum, thus justifying the entry of judgment in favor of the defendant and the outright dismissal of the complaint.

Memorandum in Support of Motion of Defendant United States of America to Dismiss and for Summary Judgment at 4-5. Specifically, the defendant contends that this court is without jurisdiction to entertain this action under the Federal Tort Claims Act because Wisconsin does not recognize the tort of improper or inadequate employment supervision and because claims for interference with contract rights are specifically excluded from the Federal Tort Claims Act's waiver of sovereign immunity. See Id. at 5 & 11.

B. LEGAL STANDARDS

The United States has moved to dismiss Midwest Knitting Company's complaint pursuant to Federal Rule of Civil Procedure 12(b)(1), on the ground that all the claims are barred by the doctrine of sovereign immunity. The government has also submitted affidavits and other matters outside the pleadings, so it has moved for an order granting summary judgment. See Federal Rule of Civil Procedure 56(c). The Seventh Circuit has explained that evidentiary materials can be considered in resolving a motion brought pursuant to Federal Rule of Civil Procedure 12(b)(1) and that challenges to jurisdiction should be dealt with under Rule 12(b)(1) rather than as a motion for summary judgment. See Barnhart v. United States, 884 F.2d 295, 296 (7th Cir.1989), cert. denied, ___ U.S. ___, 110 S.Ct. 2561, 109 L.Ed.2d 743 (1990); Crawford v. United States, 796 F.2d 924, 928-29 (7th Cir.1986). Therefore, the court will confine itself to ruling on the motion to dismiss. Matters outside the pleadings need be considered only insofar as the jurisdictional issue is intertwined with the issue of whether the plaintiff has established all the essential elements of claims upon which relief can be granted. See Roman v. United States Postal Service, 821 F.2d 382, 385 (7th Cir.1987).

When subject matter jurisdiction is put at issue under any federal procedural rule, the burden of proving the jurisdictional allegations is on the party asserting jurisdiction. See Grafon Corporation v. Hausermann, 602 F.2d 781, 783 (7th Cir. 1979). In the instant case, the issues raised by the government's motion are legal rather than factual. Therefore, even though there appear to be material facts in dispute bearing on the merits of the plaintiff's claims, for purposes of...