Sheehan v. Army and Air Force Exchange Service, 79-1471

Citation619 F.2d 1132
Decision Date27 June 1980
Docket NumberNo. 79-1471,79-1471
PartiesArthur Edward SHEEHAN, Plaintiff-Appellant, v. ARMY AND AIR FORCE EXCHANGE SERVICE, An Instrumentality of the Departments of the Army and of the Air Force, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Ira E. Tobolowsky, Irwin Lightstone, Dallas, Tex., for plaintiff-appellant.

Stafford Hutchinson, Asst. U. S. Atty., Dallas, Tex., Thomas W. Petersen, Wm. Kanter, Commercial Litigation Branch, Civil Div., Dept. of Justice, Washington, D. C., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, GARZA and REAVLEY, Circuit Judges.

REAVLEY, Circuit Judge:

The sole issue on this appeal is whether the district court has been vested with subject matter jurisdiction to adjudicate a suit filed by Arthur Sheehan against the Army and Air Force Exchange Service ("AAFES") based upon wrongful discharge from employment. The lower court dismissed for want of subject matter jurisdiction. We reverse and remand because we are persuaded that the lower court did not lack jurisdiction.

I. The Facts and Procedural Posture

On March 16, 1976, Sheehan was an employee of the AAFES serving as Shopping Center Manager for the Fort Jackson Exchange in South Carolina. On that date, he received advance written notice of separation based upon conduct off the job that allegedly reflected discredit on the AAFES and that rendered his retention incompatible with the best interests of the AAFES. The letter was signed by James Stapleton, General Manager of the Piedmont Area Exchange, but since Sheehan was then serving in a special program identified as the Executive Management Program ("EMP"), 1 prior approval for the dismissal was obtained from the Commander of the AAFES, General Hospelhorn. 2 Sheehan's written response to the March 16, 1976 letter proved ineffective and Stapelton signed a letter of final termination dated April 16, 1976. Sheehan pursued administrative appeal 3 and convinced the hearing examiner that his conduct had not reflected discredit on the AAFES and that his retention was not contrary to the best interests of the AAFES. However, the Commander of the AAFES, General Hospelhorn, acting in the capacity of Appellate Authority, disagreed with the hearing examiner and denied the appeal. He informed Sheehan that the decision was final and was not subject to further appeal or review. In January of 1978, Sheehan petitioned for reconsideration, but this effort eventually proved barren when the Chairman of the Board of the AAFES denied his appeal.

Relief was sought in the district court. The complaint alleged that Sheehan had been denied a free and impartial appeal, because General Hospelhorn gave prior approval for the discharge and also served as Appellate Authority in deciding Sheehan's administrative appeal, in derogation of AAFES regulations 4 and procedural due process. General Hospelhorn's decision in denying the appeal was also assailed as arbitrary, capricious, unsupported by substantial evidence, an abuse of discretion, in excess of statutory authority, and contrary to Sheehan's constitutional rights. Sheehan's prayer for relief sought reinstatement; back pay; other concomitants of employment, including accrued vacation time, sick leave, and retirement benefits; expenses incurred in seeking alternative employment; damages for mental anguish; punitive damages; court costs; and attorney fees.

The district court ruled that it lacked subject matter jurisdiction and granted the AAFES' motion to dismiss. On appeal, Sheehan argues that the court had jurisdiction under 28 U.S.C. §§ 1331(a), 1346(a)(2), and 1361 (1976). For the reasons stated below, we think the court possessed subject matter jurisdiction.

II. The Jurisdictional Problem

Subject matter jurisdiction in the federal courts ordinarily involves an examination of the constitutional limitations in Article III and congressional statutory grants of power. When suit is brought against the federal government, however, sovereign immunity, unless waived, operates as a bar to the action in the nature of an additional limitation on the court's subject matter jurisdiction. United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953, 47 L.Ed.2d 114 (1976); United States v. Sherwood, 312 U.S. 584, 587-88, 61 S.Ct. 767, 771, 85 L.Ed. 1058 (1941). A suit against the AAFES is considered a suit against the United States because this nonappropriated fund instrumentality 5 is an "arm( ) of the government deemed by it essential for the performance of governmental functions . . . and partake(s) of whatever immunities it may have under the constitution and federal statutes." United States v. State Tax Commission of Mississippi, 421 U.S. 599, 606, 95 S.Ct. 1872, 1877, 44 L.Ed.2d 404 (1975); see Young v. United States, 498 F.2d 1211, 1215 (5th Cir. 1974); cf. Standard Oil Co. of California v. Johnson, 316 U.S. 481, 485, 62 S.Ct. 1168, 1170, 86 L.Ed. 1611 (1942) (nonappropriated fund post exchanges are arms of the government). Because no constitutional infirmity to the assumption of jurisdiction is implicated here, we turn our attention to statutes which bestow subject matter jurisdiction in the traditional sense and those that waive sovereign immunity.

III. The Tucker Act

28 U.S.C. § 1346(a)(2) 6 confers subject matter jurisdiction on the district courts in civil actions against the United States, where the amount claimed does not exceed $10,000, 7 and that, inter alia, are founded upon an express or implied contract with the federal government. The 1970 amendment to this statute provides that for purposes of the statute, express or implied contracts with certain nonappropriated fund instrumentalities, including the AAFES, are considered to be express or implied contracts with the United States. This section also operates as a waiver of sovereign immunity for the enumerated genre of suits. A. L. Rowan & Son, General Contractors, Inc. v. Department of Housing and Urban Development, 611 F.2d 997, 999 (5th Cir. 1980).

Sheehan argues that an implied contract of employment existed between the AAFES and himself. The AAFES counters with the argument that governing regulations 8 establish beyond cavil that he served as an appointed employee and did not toil pursuant to contract. We note that although the complaint does not, by its terms, refer to an implied contract, it does charge that the administrative appellate procedure afforded Sheehan, subsequent to his discharge, did not comport with applicable regulations.

Even if the regulations label the commencement of Sheehan's employment as pursuant to "appointment," we do not think that ends the inquiry. Other regulations provide that an AAFES employee may be separated for cause only under certain conditions and provide for administrative appeal from the separation decision. 9 These latter regulations manifest the understanding of the parties concerning discharge procedures while Sheehan continued in AAFES employment. Accordingly, the regulations were part of a collateral implied in-fact contract between Sheehan and the AAFES that the AAFES would adhere to the regulations in its dealings with him. See Aycock-Lindsey Corp. v. United States, 171 F.2d 518, 520-21 (5th Cir. 1948); cf. Bodek v. Department of Treasury, 532 F.2d 277, 279 n.7 (2d Cir.) (per curiam), cert. denied, 429 U.S. 849, 97 S.Ct. 137, 50 L.Ed.2d 122 (1976) (validly enacted regulations are implied part of an express contract). A contract implied-in-fact is one "founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of their surrounding circumstances, their tacit understanding." Porter v. United States, 496 F.2d 583, 590, 204 Ct.Cl. 355 (1974), cert. denied, 420 U.S. 1004, 95 S.Ct. 1446, 43 L.Ed.2d 761 (1975). That understanding was reinforced by the well-established legal principle that a federal agency is bound to follow its regulations where the rights of individuals are affected. E. g. Morton v. Ruiz, 415 U.S. 199, 235, 94 S.Ct. 1055, 1074, 39 L.Ed.2d 270 (1974); Vitarelli v. Seaton, 359 U.S. 535, 539-40, 79 S.Ct. 968, 972-73, 3 L.Ed.2d 1012 (1959).

The allegation that the discharge violated controlling regulations was, therefore, equivalent to an allegation of breach of an implied-in-fact contract. Such a claim is sufficient to avoid dismissal on jurisdictional grounds. United States v. Hopkins, 427 U.S. 123, 130, 96 S.Ct. 2508, 2512, 49 L.Ed.2d 361 (1976). Accordingly, the lower court should not have dismissed the suit; it had power to hear the dispute and to award monetary relief pursuant to section 1346(a)(2).

Section 1346(a)(2) does not, however, confer subject matter jurisdiction on the district court to award nonmonetary cure. E. g., Lee v. Thornton, 420 U.S. 139, 95 S.Ct. 853, 43 L.Ed.2d 85 (1975); Jones v. Alexander, 609 F.2d 778, 781 (5th Cir. 1980). 10 The source of that power must be found in other statutes.

IV. General Federal Question Jurisdiction

28 U.S.C. § 1331(a) (1976) 11 confers subject matter jurisdiction on the district courts for actions which arise under the Constitution and laws of the United States. Ordinarily, at least $10,000 must be at stake, but after the 1976 amendment to this statute, the monetary limitation does not pertain to suits against an agency of the federal government. Although the complaint did not specify this provision as a basis of jurisdiction, if the facts alleged meet the limitations, the lower court had jurisdiction notwithstanding the omission. Andrus v. Charlestone Stone Products Co., 436 U.S. 604, 607, 98 S.Ct. 2002, 2005 n.6, 56 L.Ed.2d 570 (1978); Schlesinger v. Councilman, 420 U.S. 738, 744 n.9, 95 S.Ct. 1300, 1306, 43 L.Ed.2d 591 (1975).

Sheehan's complaint alleged procedural due process violations, arbitrary and capricious action constituting an abuse of discretion...

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