United States v. Buffalo Coal Mining Company

• Decision Date: 04 February 1959
• Docket Number: No. A-12052,A-12273.,A-12052
• Citation: 170 F. Supp. 727
• Parties: UNITED STATES of America, Plaintiff, v. BUFFALO COAL MINING COMPANY, Inc., Buell Nesbett, W. T. Malcolm, United States Fidelity & Guaranty Company of Baltimore, Maryland, Territory of Alaska, Yukon Equipment Company, Inc., Gould and Gould, Inc., Sisters of Charity of the House of Providence in the Territory (Now State) of Washington, a corporation, Morris Steel Products Company of Birmingham, Alabama, a corporation, Defendants. PALMER INDEPENDENT SCHOOL DISTRICT, Plaintiff, v. BUFFALO COAL COMPANY, Incorporated, Defendant.
• Court: U.S. District Court — District of Alaska

170 F. Supp. 727

UNITED STATES of America, Plaintiff, v. BUFFALO COAL MINING COMPANY, Inc., Buell Nesbett, W. T. Malcolm, United States Fidelity & Guaranty Company of Baltimore, Maryland, Territory of Alaska, Yukon Equipment Company, Inc., Gould and Gould, Inc., Sisters of Charity of the House of Providence in the Territory (Now State) of Washington, a corporation, Morris Steel Products Company of Birmingham, Alabama, a corporation, Defendants.

PALMER INDEPENDENT SCHOOL DISTRICT, Plaintiff, v. BUFFALO COAL COMPANY, Incorporated, Defendant.

Nos. A-12052, A-12273.

District Court, Alaska, Third Division, Anchorage.

February 4, 1959.

George Boney, Asst. U. S. Atty., Anchorage, Alaska, for plaintiff United States.

John D. Shaw, Palmer, Alaska, for plaintiff Palmer Independent School Dist.

Buell A. Nesbett, Anchorage, Alaska, for defendants Buffalo Coal Mining Co., Inc., W. T. Malcolm, and Buell Nesbett.

Edward V. Davis, Anchorage, Alaska, for defendants United States Fidelity & Guaranty Co. and Gould & Gould, Inc.

David Pree, Asst. Atty. Gen., of Alaska, for Territory of Alaska.

E. L. Arnell and Donald A. Burr, Arnell & Burr, Anchorage, Alaska, for defendant Yukon Equipment Co., Inc.

McCARREY, District Judge.

Claim for relief No. A-12,052 has been consolidated with No. A-12,273, in conformance with the rules, and without objection.

The subject of this opinion is not related to claim No. A-12,273. Therefore, no reference will be made thereto.

The United States has sued the Buffalo Coal Mining Company, Inc., an Alaska corporation, hereinafter referred to as Buffalo, Buell Nesbett, W. T. Malcolm, United States Fidelity and Guaranty Company, Yukon Equipment Company, Inc., Gould and Gould, Inc., Sisters of Charity of the House of Providence, and Morris Steel Products Company, a foreign corporation,

a. To foreclose its chattel mortgage which secured a promissory note in the sum of $425,775 by Buffalo;

b. For any deficiency judgment which might exist after sale of mortgaged property;

c. For judgment against defendant Nesbett as guarantor, in the sum of $30,000;

d. For judgment against defendant Malcolm as guarantor, in the sum of $20,000;

e. For judgment against United States Fidelity and Guaranty Company and Buffalo Coal Mining Company, Inc., jointly and severally, in the sum of $2,400, for lease rental yet unpaid;

f. For forfeiture and cancellation of the coal mining lease now held by Buffalo;

g. For a decree adjudging defendant Buffalo indebted to the United States for unpaid revenue taxes, etc., in the sum of $28,328.99;

h. "That the Court determine and adjudicate all matters involved herein and determine the merits of all claims to and liens upon the property and rights to property * * *," etc.

Buffalo answered in the usual form and thereafter set up its defenses, neither of which is related to or has any bearing upon the issues to be determined in this opinion. Thereafter, it alleged a counterclaim against Reconstruction Finance Corporation in the sum of $778,083, which claim for relief consists of two segments, although not so denominated, as follows:

a. That the Buffalo Coal Mining Company "* * * had no privilege or opportunity to question or suggest changes in the provisions of any of the documents but was required to accept them as printed and presented by RFC," and while the RFC was obligated to disburse the loan to the Buffalo Coal Mining Company for its use "* * * in rehabilitating and developing the Buffalo Coal Mine, but interpreted said documents as reserving to it the right to refuse to disburse at any time that it felt Buffalo's financial position had changed adversely; that in refusing to disburse the unexpended balance of the loan * * Buffalo's supplemental loan request represented an `adverse change' in its financial condition, RFC breached the terms of its loan contract * * *."

b. "That as a result of RFC's refusal to disburse and the unwarranted and negligent failure of agencies of plaintiff to render a decision, Buffalo was forced to suspend all mining operations on March 20, 1953, was shortly thereafter ordered to suspend mine dewatering operations by RFC with the result that the main shaft of the mine filled with water rendering it financially impossible to resume mining operations on the financial schedule set out in the supplemental loan request even if same had been approved; that Buffalo was unable to pay bills for equipment purchased with RFC's approval and already delivered at the mine which resulted in embarrassment to the corporation and law suits; that Buffalo was in the meantime, unable to interest private capital in the enterprise because of its complicated financial arrangement with RFC and its inability to obtain any decision on its supplemental loan request; that Buffalo was prevented from accepting the coal contract commitment offered by the Naval Purchasing Agent thus preventing its from keeping the mine in operation even on a limited production schedule."

The Government has filed a motion to dismiss the counterclaim based upon the doctrine of sovereign immunity in that the Government has not consented to be sued in this case.

The defendant Gould and Gould, Inc., has also cross-claimed, after answer, for $10,590.10, plus interests and costs, and the Government has moved to dismiss this claim on like grounds; however, a recitation of the pleadings of this defendant is obviated by the decision of the court on the motion to dismiss against Buffalo.

Prior to the determination of the genuine issue, which concerns defendant Buffalo's counterclaim, supra, some preliminary aspects must be resolved.

From a close scrutiny of the counterclaim, it appears readily divisible into two parts:

a. Breach of contract based upon the orginal loan agreement.

b. A tort action based upon negligence.

The segment of the counterclaim based on the original loan contract is a compulsory counterclaim in that it arose out of the same transaction and occurrence that plaintiff's claim arose from. See Rule 13(a), Fed.R.Civ.P., 28 U.S.C.A. The segment of the counterclaim based on the negligence of certain government agencies in processing the defendant's supplemental loan application is a permissive counterclaim in that it involves facts and circumstances independent of the facts and circumstances involved in plaintiff's claim. See Rule 13(b), Fed.R.Civ.P.

In deciding the question of the applicability of the doctrine of sovereign immunity let us assume initially that the United States is the real party in interest in this case and that it is not suing in its representative capacity as assignee of the assets and liabilities of the now defunct Reconstruction Finance Corporation, hereinafter referred to as R. F. C. If the counterclaim of the defendant were, instead, a claim, the cases hold that the doctrine of sovereign immunity would bar the action. See United States v. Shaw, 1940, 309 U.S. 495, 60 S.Ct. 659, 84 L.Ed. 888; United States v. United States Fidelity & Guaranty Co., 1940, 309 U.S. 506, 60 S.Ct. 653, 84 L.Ed. 894; Nassau Smelting & Refining Co. v. United States, 1924, 266 U.S. 101, 45 S.Ct. 25, 69 L.Ed. 190. Query: Does this rule change when a party's would-be claim is converted into a conterclaim by the sovereign's initiative in filing suit?

Permission to file both compulsory and permissive counterclaims is given in Rule 13(a) and 13(b), Fed.R.Civ. P. Rule 13(d), Fed.R.Civ.P., which reads as follows, deals with counterclaims against the United States:

"These rules shall not be construed to enlarge beyond the limits now fixed by law the right to assert counterclaims or to claim credits against the United States or an officer or agency thereof."

The case law under Rule 13(d), Fed. R.Civ.P., is to the effect that the rule is to be interpreted literally in all types of actions.

United States v. Finn, 9 Cir., 1956, 239 F.2d 679, 682.

"* * * As regards plaintiff's immunity from suits to which Congress has not given plaintiff's consent, and as regards jurisdiction of such suits, there is no distinction between counterclaims and original suits. Congress never gave plaintiff's consent to the Finns' counterclaim.

"There is no merit in the contention that, by bringing this action, plaintiff gave its consent to the Finns' counterclaim. This action was brought for plaintiff by its attorneys —the United States Attorney for the Southern District of California and two of his assistants. Plaintiff's attorneys were not authorized to give its consent to the Finns' counterclaim, nor did they attempt or pretend to do so. As indicated above, only Congress could have given such consent."

In accord United States v. Thompson, D.C.N.D.W.Va.1957, 150 F.Supp. 674. Thus, unless Congress has given its consent for the Government to be sued, the defendant's counterclaim is barred by sovereign immunity.

Let us then turn to the question of whether Congress has given its consent to sue in cases involving claims or counterclaims based on contracts and torts, like those in the present case.

As far as the counterclaim sounding in tort is concerned, I note that it fails to state a claim for relief. See Rule 12(b) (6), Fed.R.Civ.P. The agencies of plaintiff, whose job it was to pass on defendant Buffalo's supplemental loan application, were under no duty to defendant to act with haste. While it is not a laudable rule, he who deals with governmental agencies, at least as far as deliberate speed is concerned, deals at his own peril. Also, the tort counterclaim has no jurisdictional basis because it is not one of the torts from which Congress has removed the cloak of sovereign immunity. 28 U.S.C.A. § 2680(h) (1957); United States v. Silverton, 1 Cir., 1956, 200 F.2d 824; Waylyn Corporation v. United States, 1 Cir., 1956, 231 F.2d 544. Thus, defendant Buffalo's tort counterclaim not only fails to state a claim for relief, but it also lacks a jurisdictional basis. If the plaintiff United States is suing and...