Reynolds v. U.S., 79-2068

• Decision Date: 09 March 1981
• Docket Number: No. 79-2068,79-2068
• Parties: Charles REYNOLDS and Lois A. Reynolds, his wife, as individuals and as parents and next friends of Steven Reynolds, and Steven Reynolds, individually, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 707

643 F.2d 707

Charles REYNOLDS and Lois A. Reynolds, his wife, as individuals and as parents and next friends of Steven Reynolds, and Steven Reynolds individually, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 79-2068.

United States Court of Appeals Tenth Circuit.

Argued Jan. 27, 1981.

Decided March 9, 1981.

Richard E. Ransom of Smith, Ransom & Gilstrap Law Offices, Albuquerque, N. M., for plaintiffs-appellants.

R. E. Thompson, U. S. Atty., Albuquerque, N. M., for defendant-appellee.

Before BARRETT, DOYLE and SEYMOUR, Circuit Judges.

BARRETT, Circuit Judge.

Charles Reynolds and Lois A. Reynolds, his wife, as individuals and as parents and next friends of Steven Reynolds, a minor, appeal from an order granting the defendant United States of America's motion for judgment on the pleadings for failure to state a claim upon which relief can be granted.

Well Pleaded Facts

Inasmuch as this appeal is from the grant of a Rule 12(b)(6) motion, we must accept as true the material facts alleged in Reynolds' First Amended Complaint. Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 740, 96 S.Ct. 1848, 1850, 48 L.Ed.2d 338 (1976).

Armond and Renee Fourton, who reside in rural Taos County, New Mexico, applied for and received financial assistance through the Farmers Home Administration (FmHA), Department of Agriculture, United States of America, to construct a residence on their farm property (the FmHA is an agency of the United States): Tom Ramsey, the Taos County Supervisor for the FmHA, in conjunction with the office of the New Mexico State Director, David W. King, approved the construction and/or permanent mortgage arrangements submitted by the Fourtons; during construction of the Fourton residence, the building contractor installed a heating system equipped by the manufacturer for use of natural gas; during the course of construction and prior to occupancy of the residence on June 14, 1976, the FmHA had inspected the residence and the quality and safety of its construction; about November 1, 1976, the Fourtons departed their new residence for two weeks during which time they arranged for Steven Reynolds to spend his evenings in the home for purpose of its safekeeping; on November 5, 1976, Steven Reynolds was asphyxiated and poisoned by carbon monoxide by reason of the negligent installation of the heating system which was connected to a supply of butane, contrary to the (furnace) manufacturer's specification; the furnace heating system was unsafe as installed, but the FmHA County Inspector, acting pursuant to the mortgage loan, inspected and approved the Fourton residence and the Fourtons relied on the approval; during the construction and/or inspection the FmHA, acting pursuant to its mortgage loan, either unreasonably inspected or failed to inspect the furnace system and this unreasonable conduct caused Steven Reynolds' severe and permanent brain damage and severe and permanent physical paralysis; FmHA should have reasonably anticipated a third person invitee's presence at the Fourton residence; Charles Reynolds and his wife, Lois, have incurred and will incur medical expenses and hospital expenses, as the parents and natural guardians of Steven Reynolds, and have suffered other monetary damages and mental anguish as a direct and proximate result of the FmHA's negligent acts and omissions.

Trial Court Order

The District Court granted the defendant United States of America's motion for judgment on the pleadings following review and consideration of all pleadings and memoranda of the parties. ¹ The Court concluded "... that Defendant, through the Farmers Home Administration, owed no duty to inspect for safety to Plaintiff and is, therefore, not liable to Plaintiff as a matter of law;" (R., Vol. I, p. 11).

Issues on Appeal

The issues presented for our review are whether the United States of America, through the FmHA, owed a tort duty of ordinary care to its borrowers' (Fourtons) invitee (Steven Reynolds) to inspect for and disapprove unsafe conditions existing in the residential structure pursuant to FmHA mortgage loan procedures, and (per Government's brief) whether the "misrepresentation" exception of the Federal Tort Claims Act bars the recovery sought by Reynolds.

Discussion

Reynolds brought this action under the Federal Tort Claims Act, 28 U.S.C. § 2674, which provides that the United States shall be liable to tort claimants in the same manner as a private individual under similar circumstances. Jurisdiction in the District Court rested on 28 U.S.C. § 1346(b) which permits suit against the United States:

... 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.

Thus, Reynolds contend that the issue is whether the material allegations contained in the First Amended Complaint are legally sufficient to state a claim for relief against a private individual. In support thereof, Reynolds rely on Section 324A of the Restatement, Second, Torts (1965) relating to liability to third persons for negligent performance of an undertaking:

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if

(a) his failure to exercise reasonable care increases the risk of such harm, or

(b) he has undertaken to perform a duty owed by the other to the third person, or

(c) the harm is suffered because of reliance of the other or the third person upon the undertaking.

In Moya v. Warren, 544 P.2d 280 (N.M.Ct.App.1975), the Court recognized the applicability of § 324A, supra, in federal tort claim suits involving contractual obligations. In that case, the plaintiff was in the position of a third person. The Court held the defendant owed no duty to the plaintiff, and relied on the well-established rule that in any tort action it is incumbent upon the plaintiff to establish the defendant owed a duty to plaintiff and that the defendant failed to observe the standard of care which the law requires in the performance of that duty.

Neither 28 U.S.C. § 2674 (the Federal Tort Claims Act) or 28 U.S.C.A. § 1346(b) provide an independent cause of action. These statutes simply waive the sovereign immunity of the United States and render the Government liable to the same extent as a private individual under like circumstances. No recovery may be had under the Federal Tort Claims Act by virtue of specific exceptions carved out under 28 U.S.C. § 2680, including any claim arising out of misrepresentation. The District Court did not rule that the "misrepresentation" exception applied. Instead, the Court granted judgment predicated on the proposition that the FmHA owed no tort duty of ordinary care to the safety of its borrowers' invitee.

On appeal, the Government argues that the District Court correctly found that the Government owed no tort duty to the plaintiffs. In addition, the Government contends that the "misrepresentation" exception of the Tort Claims Act applies and thus bars the claim.

The Housing Act of 1949

Before discussing our disposition of the appeal, we will review the Housing Act of 1949, as amended, in order to probe the nature of the Government's duty involved in the case at bar, and to determine whether the Act provides a basis for recovery based upon Reynolds' First Amended Complaint. In considering these matters, we note that an appellate court may affirm a district court judgment on a basis not relied on by the district court if supported by the record and the law. In Pound v. Insurance Company of North America, 439 F.2d 1059 (10th Cir. 1971) we said: "... we are reminded of our well established appellate maxim that if a trial court's decision is correct upon any proper theory, we will uphold that decision ..." 439 F.2d at p. 1062. See also: Coleman v. Mountain Mesa Uranium Corp., 240 F.2d 12 (10th Cir. 1956); 10 Wright and Miller, Federal Practice and Procedure, § 2716, pp. 439-441.

The primary congressional purpose underlying the enactment of the Housing Act of 1949, as amended, is "the realization as soon as feasible of the goal of a decent home and a suitable living environment for every American family ..." 42 U.S.C. § 1441 (1970). Title V of the Act declares that such a goal is to be sought for farm families and others living in rural areas who are unable to obtain credit to secure decent housing. It seeks to remedy that condition by extending financial assistance to such persons through loans authorized by the Secretary of Agriculture. 42 U.S.C. § 1471 et seq. Section 502 of the Act authorizes loans if the Secretary determines that the qualified applicants have the ability to repay them in full, with interest, based upon the income and earning capacity of the applicant and his family from the farm and other sources. 42 U.S.C. § 1472(a). The Act specifically declares that the financial assistance authorized is designed to "... enable them to construct, improve, alter, repair or replace dwellings and other farm buildings ... in order to provide them, their tenants, lessees, sharecroppers, and laborers with decent, safe and sanitary living conditions and adequate farm buildings ..." 42 U.S.C. § 1471(a)(1).

7 CFR 1802.2(b) reiterates that the primary objectives of FmHA assistance are to achieve the aforesaid stated objectives of the loan and to protect the interests of the government (7 CFR 1822.7(a)) while assisting such families to obtain decent, safe, and sanitary housing. Other significant, relevant...