Rich Products Corp. v. US, Civ. No. S-91-1401 DFL GGH.

• Decision Date: 31 July 1992
• Docket Number: Civ. No. S-91-1401 DFL GGH.
• Citation: 804 F. Supp. 1270
• Court: U.S. District Court — Eastern District of California
• Parties: RICH PRODUCTS CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.

804 F. Supp. 1270

RICH PRODUCTS CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. S-91-1401 DFL GGH.

United States District Court, E.D. California.

July 31, 1992.

Martin H. Orlick, Tobin and Tobin, Walnut Creek, Cal., for plaintiff.

Joyce A. Vermeersch, Asst. U.S. Atty., Sacramento, Cal., and Bertha R. Mitrani, U.S. Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM OF DECISION AND ORDER

LEVI, District Judge.

Plaintiff Rich Products Corporation ("Rich Products") sues the United States for negligence, claiming that the United States Department of Agriculture ("USDA") either failed to inspect or improperly inspected Rich Products' frozen fruit. The government moves to dismiss for lack of subject-matter jurisdiction on the basis that Rich Products' claim is barred by the misrepresentation exception to the Federal Tort Claims Act ("FTCA"). The court grants defendant's motion to dismiss.

FACTS

Rich Products processes and freezes fresh fruit.¹ In July 1984, Rich Products contracted with a defense contractor to provide frozen fruit. The frozen fruit was sold to the defense contractor for the military's "Meals Ready to Eat" field ration program. Rich Products separately contracted with the USDA to inspect the fruit to certify that it met contract and military specifications. Following the USDA's certification, Rich Products shipped the fruit to the purchaser. After the purchaser received the fruit, a question arose as to whether the USDA's certification was accurate. Thereafter, on April 16, 1985, the USDA issued superseding certificates reversing its finding that the product met the contract specifications. As a result of these superseding certificates, Rich Products was sued by the purchaser for breach of contract. In this action, Rich Products claims that it was injured by the USDA's failure to inspect or improper inspection of the fruit.

The complaint alleges negligence by the USDA. While the complaint does not expressly state a misrepresentation claim, it uses language suggesting such a claim. The USDA moves to dismiss the entire complaint on the ground that Rich Products' claim is barred by the misrepresentation exception to the FTCA.

ANALYSIS

The Federal Tort Claims Act² is a limited waiver of sovereign immunity and is strictly construed. The Act does not permit suit against the government for claims of misrepresentation, whether negligent or willful. 28 U.S.C. § 2680(h); United States v. Neustadt, 366 U.S. 696, 702, 81 S.Ct. 1294, 1298, 6 L.Ed.2d 614 (1961). Therefore, to the extent that Rich Products' complaint alleges a misrepresentation claim, it must be dismissed. The district court must look beyond the characterizations in the pleadings to distinguish misrepresentation from negligence claims, a task which is frequently far from simple. Mt. Homes, Inc. v. United States, 912 F.2d 352, 356 (9th Cir.1990).

The Supreme Court twice has provided guidance in distinguishing misrepresentation from negligence claims. In Neustadt, plaintiffs relied on an inaccurate written appraisal prepared by the Federal Housing Administration ("FHA") when purchasing a house and brought a claim against the FHA based on this reliance. The Court held that the misrepresentation exception barred plaintiffs' claims against the FHA. Neustadt, 366 U.S. at 710-711, 81 S.Ct. at 1302-1303. The Court defined negligent misrepresentation as breach of "the duty to use due care in obtaining and communicating information upon which that party may reasonably be expected to rely in the conduct of his economic affairs." Id. at 706, 81 S.Ct. at 1300.

Subsequently, the Supreme Court distinguished the duty to obtain and communicate accurate information — which falls within the misrepresentation exception — from the duty to perform a separate task. In Block v. Neal, 460 U.S. 289, 103 S.Ct. 1089, 75 L.Ed.2d 67 (1983), plaintiff received a loan from the Farmers Home Administration ("FmHA") to build her home. The loan agreement provided that the FmHA should approve all plans and could inspect and test all materials and workmanship. Id. at 291, 103 S.Ct. at 1090-91. The completed house was defective, and plaintiff sued the FmHA alleging that it failed to properly inspect and supervise construction. The Court held that the FmHA was subject to suit for allegedly breaching a separate duty to supervise the construction, independent of its duty to carefully obtain and communicate information. Id. at 297, 103 S.Ct. at 1094. The Court noted that the "essence of an action for misrepresentation, whether negligent or intentional, is the communication of misinformation on which the recipient relies." Id. at 296, 103 S.Ct. at 1093. The Block court distinguished Neustadt because the plaintiffs in Neustadt had alleged no injury that they would have suffered independent of their reliance on the negligent appraisal. Id. ("The gravamen of the action against the Government in Neustadt was that the plaintiffs were misled by a `Statement of FHA Appraisal' prepared by the Government"). By contrast, in Block the Court found that plaintiff alleged a breach by FmHA of its duty to supervise the construction of the house. FmHA's misrepresentations were not essential to a claim of negligent supervision, and thus the claim was not barred by the misrepresentation exception. Id. at 297, 103 S.Ct. at 1094.

In a case which preceded Neustadt, the Ninth Circuit expressed the sometimes elusive distinction between negligent misrepresentation and other negligence involving some communication of information:

The key distinction in this area is between the performance of operational tasks and the communication of information. The Government is liable for injuries resulting from negligence in performance of operational tasks even though misrepresentations are collaterally involved. It is not liable, however, for injuries resulting from commercial decisions made in reliance on government misrepresentations.

Guild v. United States, 685 F.2d 324, 325 (9th Cir.1982).

The court draws a number of principles from its review of the caselaw. First, in determining whether a complaint is barred by the misrepresentation exception, the court must look beyond the language in which the complaint is couched and consider the "essence" or "gravamen" of the suit. See Mt. Homes, 912 F.2d at 355. Second, if the alleged misrepresentation is essential to the claim then the action is barred even though there is some other allied negligence by the government, for example, in gathering the information that proves inaccurate. When government misinformation is at issue, plaintiff must allege injury independent of that caused by the erroneous information. See id. at 356. Finally, the misrepresentation exception particularly protects the United States from suit by commercial entities which claim to have lost money because of reliance on false government information. Id.

This case involves two main events: the issuance of the first certificates and the issuance of the superseding certificates.³ One of these certifications necessarily was inaccurate. To state a claim of negligence rather than misrepresentation, Rich Products must eliminate the government's communication of inaccurate information from the essence of its claim.

As to the first certificates, the complaint alleges that Rich Products shipped the fruit "in reasonable reliance" on the first certificates. Complaint, par. 11. Any claim based on Rich Products' reliance upon inaccurate certificates is barred since the "essence" of the action is one of misrepresentation based on the "communication of misinformation on which the recipient relies." Block, 460 U.S. at 296, 103 S.Ct. at 1093; see Restatement (Second) of Torts § 552 (1977). Under the reasoning in Neustadt, any allied negligence in gathering the information communicated in the certificates does not alter the essence of the action as one for misrepresentation. Moreover, the claim is within the heart of the area covered by the misrepresentation exception: a commercial entity claiming loss because of reliance on government representations. Thus, any claim based on the inaccuracy of the first certificates is barred by the misrepresentation exception.

The court rejects Rich Products' effort to circumvent the misrepresentation exception as to the first certificates by alleging a failure by USDA to "promptly correct" the misinformation in these certificates.⁴ This argument is but a thinly veiled attempt to restate a misrepresentation claim as one for negligence. The misrepresentation exception precludes liability for damages based on either providing false...