Neal v. Bergland, Civ. No. 3-80-36.

• Citation: 489 F. Supp. 512
• Decision Date: 26 February 1980
• Docket Number: Civ. No. 3-80-36.
• Parties: Onilia NEAL v. Robert BERGLAND, Secretary of Agriculture, et al.
• Court: U.S. District Court — Eastern District of Tennessee

489 F. Supp. 512

Onilia NEAL v. Robert BERGLAND, Secretary of Agriculture, et al.

Civ. No. 3-80-36.

United States District Court, E. D. Tennessee, N. D.

February 26, 1980.

Lenny C. Croce, Neil G. McBride, Oak Ridge, Tenn., for plaintiff.

Richard K. Harris, Asst. U.S. Atty., Scott, Humphreys & Humphreys, Edward M. Ellis, Knoxville, Tenn., for defendants.

MEMORANDUM

ROBERT L. TAYLOR, District Judge.

Plaintiff filed this action in the Circuit Court of Roane County, Tennessee, claiming damages arising out of the defective construction of a prefabricated home financed by a loan from the Farmers Home Administration (FmHA). Because several federal officials were named as party defendants, the United States Attorney removed the case to this Court pursuant to 28 U.S.C. § 1442. Subsequently, a Rule 12(b) motion was filed to dismiss the federal defendants for lack of subject matter jurisdiction and for failure of plaintiff to state a claim upon which relief can be granted. That motion is currently before this Court.

For the purposes of this motion, we shall accept as true the facts alleged in the complaint. Plaintiff avers that in August, 1976, she applied for a Rural Housing Loan with FmHA in Roane County, Tennessee, which loan was approved on or about June 9, 1977. FmHA is an agency under the auspices of the Department of Agriculture authorized to make such loans by § 502 of Title V of the Federal Housing Act of 1949, as amended. 42 U.S.C. § 1472. Shortly after the loan was approved, plaintiff entered into a contract with defendant Home Marketing Associates for the purchase and construction of a prefabricated home on a small lot she had recently purchased. Home Marketing warranted that it would install a "General Electric . . . 220 Volt . . . 15 kw Btuh" heating system. There are in addition some 13 other defects specified in the complaint.

Plaintiff further alleges that while this house was being built, the structure was inspected three times by a representative of FmHA. She says that because the representative failed to note the alleged defects and deviations from the plans, the house is of substandard quality and she has been damaged.

Plaintiff claims that both Home Marketing and the FmHA, and its representatives, are liable to her for the amount of damages she has sustained. She proceeds for damages against FmHA on three theories: to wit, breach of contract, negligence, and detrimental reliance. In addition, by an amended complaint, plaintiff seeks mandamus to compel the Secretary of Agriculture to "pay or otherwise compensate plaintiff" for the construction defects in her dwelling. We shall address these theories in order. In doing so, of course, we express no opinion about the merits of plaintiff's claim against the non-federal defendants.

(1) Breach of Contract

Plaintiff alleges that under the regulation and statute, and by the terms of the loan commitment, promissory notes, and deed of trust, the FmHA has in effect "promised to provide plaintiff technical assistance including inspection and supervision of the construction of plaintiff's new home and to insure sic that the provisions of the contract were fulfilled." (Amended complaint, ¶ 30)

A thorough review of the cited documents reveals no such express promises. The issues raised by plaintiff's claim are therefore (1) whether the statute and regulations are incorporated within those documents, and (2) if so, whether they create on the part of the FmHA a duty to plaintiff to supervise the construction of the structure.

Plaintiff relies on regulations promulgated by the Secretary providing that the County Supervisor (the relevant FmHA representative) must inform the borrower and the payee that loan money will be released only if "the quality and quantity of items purchased are in accordance with approved plans" (7 CFR § 1803.7(d)(3)(i)), and that the amount due the builder will be paid only if the work is in compliance "with all items and conditions of the contract" (7 CFR § 1804.4(d)(7)(vii)(a)). Plaintiff argues that the provision of 7 CFR § 1822.7(a) together with 7 CFR § 1822.2 also create a duty to plaintiff to supervise the building of her structure, for the breach of which the FmHA is liable.

We cannot agree. 7 CFR § 1822.7(a) provides:

Supervision will be provided borrowers to the extent necessary to achieve the objectives of the loan and to protect the interests of the Government . . .. (Emphasis added)

The basic objectives of the FmHA program are enunciated in 7 CFR § 1822.2:

The basic objective of the Farmers Home Administration (FmHA) in making Section 502 loans is to assist farmowners and other persons who will live in rural areas to obtain decent, safe, and sanitary dwellings and related facilities. The purpose of the loan is to give families, who do not have sufficient resources to provide such dwellings and related facilities on their own account and cannot obtain the necessary credit from other sources on terms and conditions they can reasonably expect to meet, an opportunity to have adequate homes. (Emphasis added.)

It is clear that in making these loans available to low-income rural inhabitants, the government sought only to provide them with an opportunity to obtain decent housing not otherwise open to them in the private sector. The government did not intend to make itself an insurer of the quality of the workmanship or structures funded with the loan proceeds.

As a condition of making a loan, the FmHA must perfect a security interest in the dwelling built or purchased, 7 CFR § 1822.10, and the amount of the loan is limited by the market value of that security. 7 CFR § 1822.7(3). Thus, the FmHA assumes the position of a mortgagee of the property. It follows that the government would have a strong interest in ensuring that the value of its security would remain adequate to cover the balance of the loan in the event of default by the borrower, especially in view of the risks inherent in the program. The supervision of the building process mandated by the regulations serves this function, and, as the government argues, any benefit to the borrower is purely incidental. In fact, the regulation calling for final inspection by the County Supervisor provides that he should be "accompanied by the borrower when practicable." 7 CFR § 1804.4(g)(1).

To hold the FmHA liable for the shoddy work of the contractor would be tantamount to making a mortgagee the warrantor of the quality of its security. Plaintiff has cited no authority for this proposition, nor have we found any.

The Court holds that even if the regulations are incorporated into the loan obligation agreement between plaintiff and FmHA, they create no duty running from FmHA to plaintiff to warrant the quality of the structure purchased with the loan proceeds. See Ramsey v. Farmers Home Administration, 443 F.Supp. 760 (E.D.Mo. 1978). Accordingly, plaintiff's first cause of action must be dismissed as against the government.

(2) Negligence

Plaintiff's second claim based on negligence is likewise premised on the duties imposed on FmHA by the regulations. Plaintiff claims that FmHA and its employees breached their duty to supervise and inspect the building of plaintiff's dwelling. We have already held that the regulations create no duty running to plaintiff. Therefore, there can be no actionable breach of such duty. Accordingly, plaintiff has here, too, failed to state a claim as against the government defendants.

(3) Detrimental reliance

Plaintiff's third claim styled "detrimental reliance" must also fail. Plaintiff says that "during the course of the entire transaction" defendant employees of the FmHA "promised to perform their regulatory duties" to supervise construction and "to oversee the relationship between the contractor and the plaintiff," and that these promises induced her to enter into the contracts with Home Marketing and the FmHA (Amended Complaint, ¶¶ 36, 37,...