Preston v. U.S.

• Decision Date: 29 December 1982
• Docket Number: No. 81-1165,81-1165
• Citation: 696 F.2d 528
• Parties: 35 UCC Rep.Serv. 579 Robert L. PRESTON, et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 528

696 F.2d 528

35 UCC Rep.Serv. 579

Robert L. PRESTON, et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 81-1165.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 2, 1981.

Decided Dec. 29, 1982.

Hamilton Smith, McDermott, Will & Emery, Chicago, Ill., for plaintiffs-appellants.

Krista M. Ralston, Asst. U.S. Atty., Frank M. Tuerkheimer, U.S. Atty., Madison, Wis., for defendant-appellee.

Before CUMMINGS, Chief Judge, CUDAHY, Circuit Judge, and CAMPBELL, Senior District Judge. ^*

WILLIAM J. CAMPBELL, Senior District Judge.

Plaintiffs, Robert Preston, et al., appeal from an order of dismissal entered by the district court at the conclusion of their evidence in a non-jury trial. The plaintiffs had sought to prove that the United States Department of Agriculture (and certain subordinate agencies thereof) had converted grain owned by the plaintiffs and was therefore liable under the Federal Torts Claims Act (FTCA), 28 U.S.C. Sec. 1346(b). After the plaintiffs had presented their evidence the court made certain findings of fact and then granted defendant's motion to dismiss. The court concluded that the allegedly wrongful government actions were discretionary and thus within the discretionary function exception of the FTCA, 28 U.S.C. Sec. 2680(a). Alternatively, the court found that the conduct of the defendant did not constitute a conversion under Wisconsin law. For the reasons stated below, we reverse.

FACTUAL BACKGROUND

The plaintiffs in this case are farmers who had utilized the grain storage facilities operated by Grain Finance Company, Inc. (Grain Finance) and Farmers Grain Exchange, Inc. (FGX) in Evansville, Wisconsin. ¹ On July 1, 1969, Grain Finance entered into a Uniform Grain Storage Agreement (UGSA) with Commodity Credit Corporation (CCC), ² an agency of the Department of Agriculture, whereby Grain Finance became an authorized depository for CCC-owned grain and grain deposited as collateral for CCC loans. ³ The UGSA stated:

"All the grain accepted by the warehouseman for storage shall be considered to be commingled and the responsibility of the warehouseman with respect thereto shall be as if stored commingled ..."

It is undisputed that at all times relevant hereto, CCC's grain was in fact commingled in storage with that of other depositors. Somewhat simplified, this means that when depositors brought grain to the warehouse to be stored their grain would be mixed with the other grain in storage and they would receive a warehouse receipt for the amount deposited. Upon the subsequent tender of the warehouse receipt(s), the depositor would be entitled to possession of the same amount of the same quality of grain previously deposited.

The UGSA provided, inter alia, that the warehouseman would keep detailed records regarding its financial status and the grain in storage and that CCC would be permitted to examine those records and to inventory the grain on hand. These rights granted to CCC by the UGSA were not available to the other depositors in this case. Pursuant to those contract rights, Charles Craig, an examiner for Agricultural Marketing Service (AMS), ⁴ arrived at Grain Finance on November 13, 1972 to perform an inspection of the warehouse. Craig found Benjamin Green, President of Grain Finance, to be uncooperative and either unwilling or unable to produce certain types of records required by the UGSA. Despite this problem, Craig computed the inventory on hand and determined that there was a shortage of approximately 71,000 bushels. Additionally, he included with his report a list of price later obligations ⁵ totalling over 259,000 bushels. ⁶ The district court found that By no later than sometime on November 20, 1972, Craig concluded that the warehouse operation was in serious difficulty ... and advised a superior in Kansas City or Indianapolis of the conclusions which he had reached ... Tr. p. 886. ⁷

At 4:30 p.m. on November 20, 1972, the Agricultural Stabilization and Conservation Service (ASCS) ⁸ received a letter from Benjamin Green on behalf of Grain Finance requesting termination of the UGSA and the removal of all CCC grain. The next day Herbert Cast, an official of ASCS, ordered a "whole-house cleanout" of Grain Finance, which consisted of a loading order for 201,948.87 bushels of grain (the entire amount of CCC-owned grain) and a "stop payment order" (a directive that CCC would pay no money for storage charges and other expenses pending settlement of accounts). Additionally, Cast recommended that "no cars [containing grain] be rejected back to shipper." In one report this suggestion was justified by the possibility that the warehouse might be in financial difficulty and in another report it was based on the possibility that the warehouse was experiencing a grain shortage. Cast testified that the decision not to reject cars back to the shipper went beyond what was required by a whole-house cleanout, Tr. p. 476. On November 22, 1972 a loading order was issued for 91,517.25 bushels representing grain acquired by CCC through the calling of its price support loans. ⁹ The court specifically found that prior to the loading orders Cast "and others who participated" knew the following facts:

(1) Craig had computed a shortage at Grain Finance of 71,000 bushels;

(2) The price later obligations were approximately 259,000 bushels; ¹⁰

(3) Grain Finance had failed "for quite some time" to maintain records of its daily position; and

(4) Grain Finance had refused to provide Craig with the grain sheets necessary to reconstruct the missing daily positions. Tr. p. 887.

The court noted that while Cast and the other officials knew that Craig had recomputed the shortage to be about 13,000 bushels,

[T]he actions which ASCS took ... were consistent with a finding that there was a serious difficulty at the warehouse and inconsistent with a finding that there was nothing more than an operational ... shortage of only 12,983 bushels. Tr. p. 888.

Despite the belief on the part of the CCC that Grain Finance was in serious difficulty, no steps were taken to inform the other depositors of the situation. The Shortage Review Committee of the ASCS was not convened (despite the fact that this committee was specifically designed for this type of situation), the Inspector General of the United States Department of Agriculture was not requested to investigate, nor was the Wisconsin Department of Agriculture While the contemplated completion date for the loading orders was January 2, 1973, the loadout was not concluded until October of 1974 due to a nationwide shortage of rail cars. The parties stipulated that "at all times when grain was shipped from the warehouse to CCC after December 21, 1972, there was a shortage." Including the price later obligations, the shortage was stipulated as follows:

                told of the situation. 11   Additionally, the plaintiffs introduced evidence that farmers whose loans were called by the CCC at this time were not informed of the shortage
                

April 25, 1973 517,327.91 bushels

August 8, 1973 639,677.55 bushels

August 20, 1974 734,023.97 bushels

The communications between the government agencies and between those agencies and Grain Finance are replete with references to the urgency of the loadout. Additionally, on August 9, 1973, Cast sent a letter to Green which stated in part:

We shall expect you to ship the remaining inventory on hand, that you will also ship the corn being received and shelled until CCC's obligations have been satisfied, and that you will not sell any of the corn being received and shelled in the meantime.

On October 9, 1974, the final shipment of corn to CCC was made. The "whole-house cleanout" had resulted in the shipment of 293,168.27 bushels to CCC which reduced Grain Finance's obligation to the agency to 297.85 bushels. ¹² One month later Grain Finance and FGX closed their doors. As of November 11, 1974, the shortage at the warehouse (including price later obligations) was 764,907.54 bushels, with the corn inventory in the warehouse being 16,592.84 bushels. Needless to say, bankruptcy proceedings were soon commenced. The practical result of the loadout was that the CCC's obligations were satisfied in full while the other depositors were forced to divide the woefully inadequate assets of the bankruptcy estate.

The plaintiffs filed a claim with the United States Department of Agriculture and after it was denied they filed the initial complaint in this cause. That complaint alleged that the United States was liable for the negligence of CCC in failing to ascertain and/or warn the plaintiffs of the financial condition and grain shortages at Grain Finance in November of 1972. Additionally, plaintiffs alleged that CCC had converted to its own use grain deposited by the plaintiffs at the warehouse. The district court dismissed the complaint based on the conclusion that it alleged tortious conduct involving misrepresentation or deceit and thus was within the exception contained in Sec. 2680(b) of the FTCA. That decision was appealed to this Court and was affirmed with the exception of the claim for conversion which was remanded, see Preston v. United States, 596 F.2d 232 (7th Cir.1979). On remand, the case was presented to the district court on an extensive stipulation of facts and presentation of evidence. ¹³ The plaintiffs' theory of the case was that the government officials had conspired to withdraw CCC's grain without attracting public notice and to that end induced Green to write the letter of November 20, 1972 requesting termination of the UGSA. By enlisting Green's cooperation, the plaintiffs argued, the CCC had obtained constructive possession over the grain in storage. Its subsequent dominion over the grain was therefore unlawfully obtained and constituted a conversion. The district court's findings of fact are not consistent with this theory. ¹⁴ However, more importantly [T]he United States enjoyed...