US v. Ken Mar Associates, Ltd.

• Decision Date: 27 October 1987
• Docket Number: No. CIV-83-1805-P.,CIV-83-1805-P.
• Parties: UNITED STATES of America, Plaintiff, v. KEN MAR ASSOCIATES, LTD., et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

697 F. Supp. 400

UNITED STATES of America, Plaintiff, v. KEN MAR ASSOCIATES, LTD., et al., Defendants.

No. CIV-83-1805-P.

United States District Court, W.D. Oklahoma.

October 27, 1987.

William S. Price, U.S. Atty., Eleanor D. Thompson and Robert A. Bradford, Asst. U.S. Attys., Oklahoma City, Okl., for plaintiff.

Robert H. Macy, Dist. Atty., Phullis L. Walta, Asst. Dist. Atty., Oklahoma City, Okl., Charles E. Malson, Bethany, Okl., James A. Jennings and David Harbour, Oklahoma City, Okl., for defendants.

ORDER

PHILLIPS, District Judge.

A. PLAINTIFF'S MOTION TO DISMISS

This matter comes before the Court for consideration of the Motion to Dismiss defendant's counterclaims for lack of subject matter jurisdiction, filed by plaintiff, United States of America. Defendant, Enterprise Industries of Oklahoma, has responded in opposition.

Plaintiff contends sovereign immunity bars defendant's counterclaims for abuse of discretion, fraud and interference with contract. Defendant claims the plaintiff has waived sovereign immunity pursuant to 11 U.S.C. Section 106.

Plaintiff commenced this action on July 23, 1983, to foreclose a mortgage held by the Secretary of Housing and Urban Development ("HUD"). Defendant filed a Chapter 11 Bankruptcy Petition on September 2, 1983. Plaintiff sought and received relief from the automatic stay in the bankruptcy proceeding in order to go forward with the foreclosure action.

On October 30, 1986, the Court granted partial judgment against the defendants Ken Mar Associates, Ltd. and ordered the property to be sold at foreclosure. The foreclosure sale has been completed and confirmed. The only remaining issues in the case are defendant's counterclaims for abuse of discretion, misrepresentation or fraud, and interference with contract.

Jurisdiction in the district court rests on 28 U.S.C. Section 1346(b), which permits suits against the United States. Small v. United States, 333 F.2d 702 (3rd Cir.1964). 28 U.S.C. § 1346(b) provides in part:

... the district courts shall have exclusive jurisdiction of civil actions on claims against the United States ... for injury or loss of property, or personal injury or death 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.

The doctrine of sovereign immunity has always been a bar to suit against the United States, absent the government's consent to be sued. United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351, 63 L.Ed. 2d 607 (1980); United States v. Sherwood, 312 U.S. 584, 586-87, 61 S.Ct. 767, 769-70, 85 L.Ed. 1058 (1941); Stubbs v. United States, 620 F.2d 775, 779 (10th Cir.1980). The government has consented to be sued under the Federal Tort Claims Act, which waives immunity of United States, United States v. Kubrick, 444 U.S. 111, 100 S.Ct. 352, 62 L.Ed.2d 259 (1979), allowing the government to be liable in tort for negligent or wrongful acts committed by a government employee acting within the scope of his employment when a private person would be liable for those acts under applicable law. Jayvee Brand, Inc. v. United States, 721 F.2d 385 (D.C.Cir.1983). The Federal Tort Claims Act, 28 U.S.C. §§ 1346, 2671-2680, is designed to render the United States liable for its torts in the same manner and the same extent as a private individual. Beesley v. United States, 364 F.2d 194 (10th Cir.1966).

However, Congress has provided certain exceptions to this waiver of sovereign immunity. 28 U.S.C. § 2680. If a claim falls within any exception to the Federal Tort Claims Act, the Court is without jurisdiction to hear the case. Monaco v. United States, 661 F.2d 129 (9th Cir.1980) cert. denied, 456 U.S. 989, 102 S.Ct. 2269, 73 L.Ed.2d 1284 (1982). 28 U.S.C. Section 2680 provides in part:

The provisions of this chapter 28 U.S.C. §§ 2671-2680 and Section 1346(b) of this title shall not apply to —

(a) Any claim based upon an act or omission of an employee of the Government, exercising due care ... or based upon the exercise or performance or the failure to exercise or perform, a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.

(h) Any claim arising out of assault ... misrepresentation, deceit, or interference with contract rights ...

It is plaintiff's contention that all of defendant's counterclaims fall within the specified exceptions to the Federal Tort Claims Act, thereby preventing this Court from having subject matter jurisdiction.

Defendant's first counterclaim is that plaintiff did not properly exercise its discretion in determining whether to approve or disapprove a sales contract offered by defendants. In waiving sovereign immunity under the Federal Tort Claims Act, the United States is not liable for claims based on the exercise of, or failure to exercise or perform, a discretionary function or duty on the part of a federal agency or government employee. Blitz v. Boog, 328 F.2d 596 (2d Cir.1964); cert. denied, 379 U.S. 855, 85 S.Ct. 106, 13 L.Ed.2d 58; Jackson v. Kelly, 557 F.2d 735 (10th Cir.1977). Though the United States has waived its traditional immunity under certain circumstances, it is not subject to liability for claims arising out of the exercise of a discretionary function, whether or not the discretion involved has been abused. See Morton v. United States, 228 F.2d 431 (D.C.Cir.1955), cert. denied, 350 U.S. 975, 76 S.Ct. 452, 100 L.Ed. 845 (1956). Defendants' counterclaim for abuse of discretion clearly falls within an exception to the waiver of sovereign immunity under the Federal Tort Claims Act, and is therefore not actionable.

Defendant's next counterclaim is an action for fraud. No recovery may be had by virtue of the specific exceptions carved out under 28 U.S.C. § 2680 for a claim arising out of fraud or misrepresentation. Reynolds v. United States, 643 F.2d 707 (10th Cir.1981). Consent to sue the United States is not provided under sections 1346(b) and 2671-2680 of Title 28, for claims arising out of misrepresentation or deceit. See City and County of San Francisco v. United States, 615 F.2d 498 (9th Cir.1980). All fraud claims are excluded from operation of this chapter 28 U.S.C. §§ 2671-2680 and 1346(b), including fraud in factum, fraud in the inducement, both actual and constructive fraud, intrinsic and extrinsic fraud, and other species of deceit or false representation. Covington v. United States, Department of the Air Force, 303 F.Supp. 1145 (N.D.Miss.1969). In the instant case, the claim for fraud must fail, in that the United States has not waived its sovereign immunity and subjected itself to liability for this type of claim. Fraud lies within the specific exceptions to the government's consent to be sued for actions in tort. 28 U.S.C. § 2680. For these reasons, defendant's counterclaim for fraud must be dismissed.

Defendant's final counterclaim alleges interference with contract. Once again, this type of claim must fall within the category of tort actions to which the United States has waived its sovereign immunity in order to withstand plaintiff's Motion to Dismiss. In the case of Diminnie v. United States, 728 F.2d 301 (6th Cir. 1984), cert. denied, 469 U.S. 842, 105 S.Ct. 146, 83 L.Ed.2d 85 (1984), the court held that claims of libel, slander and interference with contract rights were barred by section 2680(h) of the Federal Tort Claims Act. Consent to sue the United States is not provided under the Federal Tort Claims Act for claims arising out of interference with contract rights. City and County of San Francisco v. United States, 615 F.2d 498 (9th Cir.1980). Section 2680(h) excludes invocation of the relief granted under the Tort Claims Act and 28 U.S.C. § 1346(b) in instances where there is interference, negligent or otherwise, by a government employee or officer, with contractual rights of an aggrieved individual. Dupree v. United States, 264 F.2d 140 (3rd Cir.1959), cert. denied 361 U.S. 823, 80 S.Ct. 69, 4 L.Ed.2d 67 (1959). The United States is immune from suit for a claim based on tortious interference with contract rights. Goodman Group, Inc. v. Dishroom, 679 F.2d 182 (9th Cir.1982).

Defendant's counterclaim for interference with contract must fail for lack of subject matter jurisdiction, as the United States has not consented to being sued for this cause of action.

Defendant contends plaintiff has waived sovereign immunity pursuant to 11 U.S.C. Section 106, a provision of the Bankruptcy Code. Section 106 provides in part:

(a) A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the bankruptcy estate and that arose out of the same transaction or occurrence out of which such governmental unit's claim arose.

Section 106 provides for a limited waiver of sovereign immunity in bankruptcy cases. Notes of the Committee on the Judiciary, Senate Report No. 95-989. In order for this waiver to take effect, two requirements must be met that are absent in the present case. First, the government must file a claim against the estate, requesting its share of the distribution to creditors. See In re Community Hospital of Rockland County, 5 B.R. 11 (S.D.N.Y.1980). Second, a bankruptcy estate must exist in order for Section 106 to be applicable to the present situation. 11 U.S.C. Section 103(a).

The record of the bankruptcy proceedings of defendants reflect that no claim has ever been filed by the government against defendant's bankruptcy estate. More importantly, though, on August 10, 1987, the bankruptcy court dismissed defendant's bankruptcy case. See Order of Dismissal, In re: Enterprise Industries of Oklahoma, Inc., BK No. 83-2352-A, Chapter...