Myers & Myers, Inc. v. U.S. Postal Service, 15

CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)
Citation527 F.2d 1252
Docket NumberNo. 15,D,15
PartiesMYERS & MYERS, INC., et al., Appellants, v. UNITED STATES POSTAL SERVICE et al., Appellees. ocket 74--2629.
Decision Date24 December 1975

Page 1252

527 F.2d 1252
35 A.L.R.Fed. 466
MYERS & MYERS, INC., et al., Appellants,
No. 15, Docket 74--2629.
United States Court of Appeals,
Second Circuit.
Argued Sept. 19, 1975.
Decided Dec. 24, 1975.

Page 1253

John C. Fish, Hinman, Howard & Kattell, Binghamton, N.Y., for appellants.

Neil H. Koslowe, Atty., U.S. Dept. of Justice (Irving Jaffe, Acting Asst. U.S. Atty. Gen., James M. Sullivan, Jr., U.S. Atty., N.D.N.Y., William Kanter, Atty., U.S. Dept. of Justice, on the brief), for appellees.

Before MOORE, FEINBERG and OAKES, Circuit Judges.

OAKES, Circuit Judge:

This appeal is taken from a judgment dismissing a complaint brought against the United States Postal Service by a former 'star route' carrier. A 'star route' is a contract awarded by the Postal Service for the transportation of mail between post offices by privately owned truck 1 for a term, in this case, of four years in duration. This suit was

Page 1254

brought by the carrier under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671 et seq., for alleged negligence by the Postal Service in connection with its refusal to renew six star route contracts. The United States District Court for the Northern District of New York, Edmund Port, Judge, held that the Postal Service decision as to whether to renew star route contracts is a 'discretionary function' within the meaning of 28 U.S.C. § 2680(a) and is therefore excluded from the jurisdiction provided by the Federal Tort Claims Act. No other basis for federal jurisdiction being advanced, the claim was dismissed for lack of subject matter jurisdiction. We affirm in part, reverse in part and remand for further proceedings.

Appellants had been star route contractors in and about Binghamton, New York, for 26 years. Prior to 1973 their contracts were renewed regularly pursuant to what is now 39 U.S.C. § 5005(a)(4), (b)(2). 2 Over this period they accumulated an investment of some $77,000 in the vehicles and equipment involved in the administration of their six star route contracts. These contracts were the sole business of their firm. The last time the contracts were up for renewal was on June 30, 1973. Negotiations for renewal had virtually been completed satisfactorily when appellants were notified out of the blue on May 16 and 17, 1973, that none of the contracts would be renewed. Letters received from the Postal Service on that date stated no reason for the nonrenewal.

Appellants were nevertheless encouraged to bid on the six contracts as they came up and did bid on them all, their bid on two being the lowest made. A month later the low bids submitted by appellants for these two contracts were, however, rejected. The Postal Service at that time informed the appellants as to one rejection that 'on information furnished this office you have been considered unresponsible.' Another letter, dated June 19, 1973, rejected the other low bid in the following terms:

We were recently advised, on the basis of certain findings, to cancel your previous contracts. It has been determined, on the basis of these same findings, that you are to be considered a 'not responsible' bidder.

After these two contracts were awarded to others, appellants filed a protest with the General Counsel of the Postal Service. His office acknowledged that determining the responsibility of bidders is a discretionary function of the contracting officer, but stated that 'when presented with a protest against a determination of nonresponsibility . . . it is our duty to ascertain whether the Contracting Officer's determination was based on substantial information which reasonably supports his findings.' The information provided the contracting officer by the postal inspection service was that appellants had entered into a 'decidedly illegal' subcontract for part of one route and in connection therewith had filed a 'fraudulent' cost statement purporting to show the subcontractor's

Page 1255

vehicles as their own. Upon investigation, however, the General Counsel in a lengthy decision dated August 8, 1973, found that the 'subcontract' was in fact a valid truck rental agreement that had been fully disclosed to the Service and acquiesced in by it; that the 'fraud' was at most an irregularity; and that the contracting officers' determinations of nonresponsibility were not based on substantial evidentiary grounds. The decision went on to say:

Furthermore, it appears that the procedures followed here effectively denied the protestant the opportunity to defend against the charges of misconduct on which the determinations of nonresponsibility were based and, without benefit of a hearing, apparently have barred it from consideration for star route contract awards for an indeterminate time. . . .

The terms and conditions under which firms and individuals may be debarred or suspended from contracting with the Postal Service are set out in the Postal Contracting Manual, Section 1, Part 6. They provide, among other things, for notice, an opportunity for a hearing, and a limited period of suspension or debarment. Neither suspension nor debarment was invoked in the case of protestant. Consequently, protestant was not accorded that 'fundamental fairness' recognized by the court in Horne Brothers, Inc. v. Melvin R. Laird (150 U.S.App.D.C. 177, 463 F.2d 1268 (D.C.Cir.1972)). The end result, in view of the four year term of each of the star route contracts that was readvertised when it expired on June 30, 1973, is that the protestant was debarred, de facto, from contracting for star routes for an excessive period.

The result of the General Counsel's decision was that appellants were reinstated as low bidders on the two contracts they had protested, as of November 10, 1973. In this suit they seek damages for failure to renew the other four contracts as well as damages for the period between July 1, 1973, and November 10, 1973, on the protested contracts. Their allegations that they have exhausted their administrative remedies, as is required under 28 U.S.C. § 2675, are not disputed.

The basis of the appellants' claim is that the Postal Service failed to renew the appellants' star route contracts solely because of the Service's wrongful and negligent interpretation of information received by the Service concerning the appellants' truck rental arrangements. The question on this appeal is whether this sort of conduct, admittedly harmful to the appellants' business, is comprehended within the jurisdiction afforded by the Federal Tort Claims Act.

The activities of the Postal Service are expressly made subject to the Tort Claims Act by virtue of 39 U.S.C. § 409(c). 3 The Federal Tort Claims Act provides jurisdiction to the district courts for

civil actions on claims . . . for money damages . . . for injury or loss of property . . . caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.

28 U.S.C. § 1346(b). But the Tort Claims Act exempts '(a)ny claim . . . based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.' 28 U.S.C. § 2680(a). The Postal Service contends that the decision to renew star

Page 1256

route contracts is plainly discretionary, since 39 U.S.C. § 5005(b)(2) provides only that such contracts 'may' be renewed by 'mutual agreement,' 4 a standard which obviously leaves the Service with a wide latitude for decision.

We should first note that suit under the Federal Tort Claims Act lies here, if at all, only against the United States. Neither the Postal Service nor the Postal Inspection Service, named as defendants, may be sued directly on claims brought under 28 U.S.C. § 1346(b). Rather, it is expressly provided that

(t)he authority of any federal agency to sue and be sued in its own name shall not be construed to authorize suits against such federal agency on claims which are cognizable under section 1346(b) of this title . . ..

28 U.S.C. § 2679(a). The Postal Service and Postal Inspection Service seem plainly to be 'federal agencies' within the broad definition of that term provided in 28 U.S.C. § 2671 (including 'corporations primarily acting as instrumentalities or agencies of the United States'). Cf. Edelman v. Federal Housing Administration, 382 F.2d 594, 596 (2d Cir. 1967).

The district court also lacks jurisdiction in respect to the two individual Postal Service employees named as defendants in this action. Only claims 'against the United States' are included within the Federal Tort Claims Act jurisdiction. See 28 U.S.C. § 1346(b). No justification for ancillary or diversity jurisdiction has been claimed or argued for by appellants in this case. Accordingly, as to all defendants except the United States, the dismissal of the complaint must be affirmed for lack of subject matter jurisdiction.

As against the United States, however, appellants make three arguments to take the case out of the 'discretionary function' exception: (1) appellees were performing 'operational level' acts; (2) the gravamen of the complaint is negligent investigation by the Postal Service of appellants' financial situation; (3) appellants were entitled to notice and an opportunity to be heard under Greene v. McElroy, 360 U.S. 474, 79 S.Ct. 1400, 3 L.Ed.2d 1377 (1959), before their contracts were not renewed. We will consider each of these arguments below.

I. Operational Level Acts. While appellants argue that the awarding of contracts here was on an 'operational level,' as opposed to a discretionary one, Hendry v. United States, 418 F.2d 774, 782--83 (2d Cir. 1969), the...

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