Tooke v. Miles City Production Credit Ass'n

• Decision Date: 31 October 1988
• Docket Number: No. 87-409,87-409
• Citation: Tooke v. Miles City Production Credit Ass'n, 763 P.2d 1111, 234 Mont. 387 (Mont. 1988)
• Parties: Ernest E. TOOKE and Peggy Tooke, Plaintiffs and Appellants, v. The MILES CITY PRODUCTION CREDIT ASSOCIATION, a corporation, the Interstate Production Credit Association, a corporation, and Albert Van Hamlryck, Defendants and Respondents.
• Court: Montana Supreme Court

Page 1111

763 P.2d 1111

234 Mont. 387

Ernest E. TOOKE and Peggy Tooke, Plaintiffs and Appellants, v. The MILES CITY PRODUCTION CREDIT ASSOCIATION, a corporation the Interstate Production Credit Association, a corporation, and Albert Van Hamlryck Defendants and Respondents.

No. 87-409.

Supreme Court of Montana.

Submitted Sept. 13, 1988.

Decided Oct. 31, 1988.

Gene Huntley argued, Baker, for plaintiffs and appellants.

George W. Huss, Brown and Huss, Miles City, John D. Alexander, Ugrin, Alexander, Zadick & Slovak, Great Falls, R. Alan Wight argued, Miller, Nash, Wiener, Hager & Carlsen, Portland, Or., for defendants and respondents.

Brian J. Smith, argued, Missoula, for amicus curiae Deschamps.

Theodore Thompson, argued, Havre, for amicus curiae Steretts.

Warren C. Wenz, argued, Great Falls, for amicus curiae R & C Farming and R5 Ranch.

Kenneth R. Dyrud, argued, Great Falls, for amicus curiae Kenneth Sollid & Son.

Martin S. King, Missoula, for amicus curiae Western Mt. Production Credit.

Brad L. Arndorfer, Billings, for amicus curiae Miller and D & M Farms.

McDONOUGH, Justice.

This is an appeal from the Sixteenth Judicial District Court, Carter County. The only issue is whether the District Court properly dismissed Appellants Tookes' tort claim against Respondents Miles City Production Credit Association, Interstate Production Credit Association, and Albert Van Hamlryck, (MCPCA), for lack of subject matter jurisdiction. We reverse. (Production credit associations in general are hereinafter referred to as PCA's, and the Federal Tort Claims Act is hereinafter referred to as the FTCA).

This Court has already issued one opinion affirming the District Court. That opinion appears at 45 St.Rep. 641. Subsequent to issuing the first opinion this Court granted Tookes' petition for rehearing, allowed further briefing by the parties and their amici, and heard oral argument. Our decision to reach a result opposite the first opinion issued is based on reconsideration of previously submitted authority, new authority, and recent federal district court decisions which continue to restrict federal subject matter jurisdiction in actions where PCA's attempt to invoke the FTCA. We hereby order the first opinion withdrawn and substitute this opinion in its place.

Tookes alleged that MCPCA's actions on the Tookes' loan application amounted to breach of fiduciary duty and constituted constructive and actual fraud. MCPCA moved to dismiss the suit contending that under the Federal Tort Claims Act subject matter jurisdiction for torts alleged against PCA's rested exclusively in federal court. See 28 U.S.C. Sec. 1346(b) (1982). The District Court agreed citing In the Matter of Sparkman (9th Cir.1983), 703 F.2d 1097, and Towery v. Willamette PCA (Dist.Ct.Ore. Sept. 19, 1983), No. 83-28BE. Towery relied on Sparkman to dismiss a tort claim in state court against an Oregon PCA.

On appeal, Tookes argue that Sparkman does not apply, and that PCA's are exempted from FTCA coverage. Their arguments are premised on the fact that; (1) Congress authorized suit against PCA's in the Farm Credit System legislation, (2) Congress provided for an exemption for PCA's in the FTCA, and (3) under the test set out in Lewis v. United States (9th Cir.1982), 680 F.2d 1239, PCA's are not instrumentalities for purposes of the FTCA.

Tookes present the further argument on rehearing that our first decision in this case effectively denies tort claimant's access to court for prosecution of claims against PCA's because the Montana Federal District Courts continue to deny federal jurisdiction of such causes of action. See Federal Land Bank of Spokane v. Stiles (D.Mont. 1988), 700 F.Supp. 1060 (citing Sterrett v. Milk River PCA (D.Mont.1986), 647 F.Supp. 299). In particular, Tookes assert that the denial of a forum for their claim violates their rights under the Montana Constitution, Article II, Section 16.

MCPCA responds that: (1) Sparkman controls the extent of the waiver of sovereign immunity granted by the Farm Credit System legislation for tort claims against PCA's, (2) PCA's were not exempted from FTCA coverage even though some of the Farm Credit System's components are arguably exempted, and (3) Sparkman provides the test for determining whether PCA's are instrumentalities for purposes of the FTCA.

MCPCA also responds to Tookes' argument on the rights guaranteed by the Montana Constitution, Article II, Section 16, by asserting that sovereign immunity protections fall outside the constitutional guarantees.

MCPCA points out that tort claims against instrumentalities acting primarily as agents of the United States must be pursued according to the FTCA. 28 U.S.C. Sec. 2671 (1982). And tort claims cognizable under the sovereign immunity waiver in the FTCA must be brought in federal district court. 28 U.S.C. Sec. 1346(b) (1982).

The farm credit enabling legislation provides instrumentality status for PCA's. 12 U.S.C. Sec. 2091 (1982). And at least in regard to state taxation, Congress protected PCA's by granting them instrumentality status. 12 U.S.C. Sec. 2098 (1982). MCPCA argues that these statutes and Sparkman demonstrate that PCA's are instrumentalities for purposes of applying the FTCA.

Tookes argue that despite the instrumentality status of PCA's, they are subject to state court jurisdiction on tort claims. Tookes point out that Sparkman relied on general principles of sovereign immunity rather than the FTCA to find protection from punitive damages for PCA's. The more specific authority, Lewis, allows state court jurisdiction, according to Tookes. We agree with Tookes that Lewis controls over Sparkman.

In Sparkman the Ninth Circuit Court of Appeals reviewed a decision from bankruptcy court where the debtor's counterclaim in tort sought punitive damages from the creditor PCA. The bankruptcy court refused to hold the PCA liable for punitive damages. The Court of Appeals relied on general principles of sovereign immunity to affirm the decision. Sparkman, 703 F.2d at 1100. The fact that Sparkman relied on general principles of sovereign immunity rather than the FTCA is evident by its citation of Painter v. Tennessee Valley Authority (5th Cir.1973), 476 F.2d 943. Painter held that sovereign immunity protected the Tennessee Valley Authority from punitive damages. Painter, 476 F.2d at 944. However, Painter is not a FTCA case because the Tennessee Valley Authority is specifically exempted from the agencies and instrumentalities covered in the FTCA. 28 U.S.C. Sec. 2680(l ) (1982). Thus, Sparkman did not decide the issue before us in this case.

Nevertheless, Sparkman stands for the proposition that current federal law grants some of the benefits of sovereign immunity to PCA's. According to the Court,

The sovereign, along with its agencies and instrumentalities, enjoys immunity from suit unless it waives that immunity. Federal Housing Administration v. Burr, 309 U.S. 242, 244, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940). A federal instrumentality, therefore, retains its immunity from punitive damages unless Congress explicitly authorizes liability for such damages.

Sparkman, 703 F.2d at 1101 (emphasis in original). The case also makes it clear that the waiver of sovereign immunity as found in the sue and be sued provision in the PCA enabling legislation does not waive all sovereign immunity protections. Sparkman, 703 F.2d at 1101. And generally, waivers of sovereign immunity are to be strictly construed. Library of Congress v. Shaw (1986), 478 U.S. 310, 106 S.Ct. 2957, 92 L.Ed.2d 250.

On the other hand, however, we agree with Tookes that sue and be sued provisions in general should be construed to include actions sounding in tort, as well as those sounding in contract. Keifer v. Reconstruction Finance Corp. (1939), 306 U.S. 381, 395-96, 59 S.Ct. 516, 520-21, 83 L.Ed. 784, 792-93. And unlike Shaw, Lewis considers the more specific issue of whether a particular entity should be classified as a government agency under 28 U.S.C. Sec. 2671, the applicable provision of the FTCA. Lewis, 680 F.2d 1240.

More recent authority persuades this Court that Sparkman should be distinguished, and Lewis should be applied in favor of Tookes' argument. In the case of In re Hoag Ranches, 846 F.2d 1225 (9th Cir.1988), the Court considered the status of PCA's to determine whether they should be considered government agencies under Rule 4(a)(1), F.R.App.P. Rule 4(a)(1) allows government agencies 60 days to file a notice of appeal, while private parties are allowed only 30 days. The Court in Hoag Ranches refused to allow the appealing PCA agency status under Rule 4(a)(1) reasoning as follows:

Considering the history and current status of PCA's, we conclude that they are not government agencies within the meaning of Rule 4(a)(1). We recognize that some factors weigh in favor of finding agency status. PCA's undoubtedly further a government interest in improving the well-being of American farmers and ranchers, and the government was extensively involved in their establishment. At one time it was also actively involved in supervising PCA activities.

We also take note of decisions suggesting that PCA's are, for some purposes, arms of the government. In Schlake v. Beatrice Prod. Credit Ass'n the court found that because of the government's pervasive involvement in the creation and operation of PCA's, PCA action was a colorable basis for jurisdiction in an action alleging a fifth amendment violation. 596 F.2d 278, 281 (8th Cir.1979). We ourselves have found that PCA's are immune from punitive damages based on their status as federal instrumentalities. In re Sparkman, 703 F.2d 1097, 1101 (9th Cir.1983).

However, since these cases were decided, the government has withdrawn from management of PCA operations and has taken additional steps to establish PCA's as private entities. The role of the Farm Credit Administration has been changed from supervisor to arms-length...