810 F.

2d 34
55 USLW 2436

C.P. CHEMICAL COMPANY, INC., Plaintiff-Appellant,

v.
UNITED STATES of America and U.S. Consumer Product
Safety
Commission, Defendants-Appellees.
No. 313, Docket 86-6132.

United States Court of Appeals, Second Circuit.

Argued Oct. 31, 1986.
Decided Jan. 26, 1987.

Joseph A. Maria, P.C., White Plains, N.Y., for plaintiff-appellant.

Richard M. Schwartz, Asst. U.S. Atty., New York City (Rudolph W.
Giuliani, U.S. Atty., John P. Mackey, Stephen Lemberg, and Harleigh P.
Ewell, New York City, of counsel), for defendants-appellees.
Before MANSFIELD * , MESKILL and MINER, Circuit Judges.
MINER, Circuit Judge:

C.P. Chemical Company appeals from a judgment of the United States District
Court for the Southern District of New York (Brieant, J.) dismissing its
complaint against the United States and the Consumer Product Safety
Commission ("Commission" or "agency") under the Federal Tort Claims Act,
28 U.S.C. 1346(b), 2671-80 ("FTCA"), and the Consumer Product Safety
Act, 15 U.S.C. 2053(h) ("CPSA"), for lack of subject matter jurisdiction and
failure to state a claim. The suit arose from the Commission's ban on the use of
formaldehyde-emitting foam insulation, 47 Fed.Reg. 57,488 (1982). The Fifth
Circuit ruled, in Gulf South Insulation v. U.S. Consumer Product Safety
Commission, 701 F.2d 1137, 1148-50 (5th Cir.1983), that the ban was
improper because it was promulgated under the procedures of the CPSA, 15
U.S.C. 2057, 2058, 2079(d), rather than under the appropriate procedures of
the Federal Hazardous Substances Act, 15 U.S.C. 1261-1276. C.P. Chemical

alleged that the Commission erroneously included within the ban its insulation
product, Tripolymer 105, which emits no formaldehyde gas. The district court
held that the FTCA waiver of sovereign immunity does not extend to the
agency conduct forming the basis for this tort action against the United States
and the Commission. The court also held that the CPSA provides no predicate
for this action. For the reasons stated below, we affirm.
BACKGROUND
2

C.P. Chemical Company is a family-owned New York corporation that

manufactured "Tripolymer 105," a foam insulation product that was mixed on
the job site and pumped between a structure's walls. Tripolymer 105, a phenalurea based product, competed with a similar product--urea-formaldehyde foam
insulation ("UFFI"). However, unlike Tripolymer 105, UFFI was found to emit
detectable levels of formaldehyde gas.

On March 5, 1979, the Consumer Product Safety Commission announced an

investigation of UFFI in response to complaints of "acute irritant symptoms"-irritations to the eye, nose and throat and related symptoms allegedly
attributable to the formaldehyde emissions of the formaldehyde-based foam
insulation. 44 Fed.Reg. 12,080 (1979). After extensive information gathering,
the Commission proposed a rule that would ban installation of UFFI in all
residences and public structures, 46 Fed.Reg. 11,188 (1981). Pursuant to the
rulemaking procedures of the Consumer Product Safety Act, 15 U.S.C.
2058, 2079(d), the agency found that UFFI posed an unreasonable risk of acute
irritant effects and cancer. The Commission issued its final ban on the use of
UFFI in residences and schools on April 2, 1982. 47 Fed.Reg. 14,366 (1982). A
memorandum issued on April 14, 1982 stated that it was the staff's
"preliminary opinion that Tripolymer 105 falls within the definition of ureaformaldehyde foam insulation as specified in the Commission's ban." Joint
App. at 209. As the district court noted, "this press release effectively
terminated the plaintiff's insulation business." Joint App. at 251.

C.P. Chemical Company, along with other foam insulation manufacturers,

sought judicial review of the UFFI ban pursuant to 15 U.S.C. 2060. On April
7, 1983, the Fifth Circuit held that the Commission's rule was not supported by
substantial evidence and therefore vacated the ban. Gulf South Insulation v.
U.S. Consumer Product Safety Commission, 701 F.2d 1137 (5th Cir.1983).
While expressly declining to address C.P. Chemical's claim that it should have
been exempted from the ban because its product was safer than UFFI, 701 F.2d
at 1140, the court also held that the Commission had followed the wrong
rulemaking procedures when it promulgated the rule under the informal

procedures of the Consumer Product Safety Act, 15 U.S.C. 2058, 2079(d).

The agency should have proceeded under the Federal Hazardous Substances
Act, 15 U.S.C. 1261-1276, which requires a formal hearing wherein rules of
evidence are applied and the right to confront and cross-examine witnesses is
recognized, 701 F.2d at 1149-50, see 15 U.S.C. 1262(a)(2).
5

Thereafter, on December 23, 1983, C.P. Chemical filed an administrative

claim, alleging that the Commission recklessly disseminated false and
derogatory information about its product, and that the Commission was grossly
negligent in failing to follow the appropriate rulemaking procedure under the
Federal Hazardous Substances Act. That claim was denied by the Commission
because it was based on agency action as defined by 5 U.S.C. 551(13) and
therefore was prohibited by 15 U.S.C. 2053(h)(2), which bans such claims.
Joint App. at 16.

On August 24, 1984, C.P. Chemical timely filed suit in the United States
District Court for the Southern District of New York, seeking $700,000,000 in
damages on two causes of action identical to those asserted in its administrative
claim: (1) the Commission was grossly negligent in failing to follow the
appropriate rulemaking procedure; and (2) the Commission recklessly
disseminated false and derogatory information about Tripolymer 105.
Defendants moved to dismiss the complaint pursuant to Rules 9(b), 12(b)(1)
and 12(b)(6) of the Federal Rules of Civil Procedure, for lack of subject matter
jurisdiction and failure to state a claim. The district court entered final judgment
for defendants on three grounds: (1) that the Federal Tort Claims Act did not
waive sovereign immunity for nationwide agency conduct that could not be
committed by a private individual, 28 U.S.C. 1346(b), 2674; (2) that the
agency conduct at issue fell squarely within the discretionary function
exception, or other exceptions set forth in 28 U.S.C. 2680(h); and (3) that the
complaint did not state a claim within the jurisdiction of the CPSA, 15 U.S.C.
2053(h).

On appeal, C.P. Chemical contends that sovereign immunity has been waived
under the Federal Tort Claims Act, 28 U.S.C. 2680, because a private
individual would be held liable under New York law for tortious interference
with business, and because the agency failed to use "due care" when it applied
the wrong rulemaking procedure. C.P. Chemical also contends that the district
court erred in applying the discretionary function exception. Finally, C.P.
Chemical asserts that by failing to follow the appropriate rulemaking
procedure, the Commission's gross negligence was outside the bounds of its
authority and therefore did not constitute "agency action," so that a civil suit
would lie under section 2053(h) of the CPSA.

DISCUSSION
A. Federal Tort Claims Act
Purposes of the Act
8

When the FTCA was enacted, "[u]ppermost in the collective mind of Congress
were the ordinary common-law torts. Of these, the example which is reiterated
in the course of the repeated proposals for submitting the United States to tort
liability is 'negligence in the operation of vehicles.' " Dalehite v. United States,
346 U.S. 15, 28, 73 S.Ct. 956, 964, 97 L.Ed. 1427 (1953) (footnotes omitted).
The Dalehite Court's discussion of the FTCA's legislative history contains
ample evidence that while Congress intended to allow garden-variety tort suits
against the United States, 1 it was concerned with avoiding precisely the type of
liability appellant asserts here. Id. at 27, 73 S.Ct. at 963-64.

The House Report accompanying the bill that became the FTCA included the
specific statement that it is neither "desirable [n]or intended that the
constitutionality of legislation, or the legality of a rule or regulation, should be
tested through the medium of a damage suit for tort." H.R.Rep. No. 1287, 79th
Cong., 1st Sess. 6 (1945). See also Statement of Assistant Attorney General
Francis M. Shea, Hearings on H.R. 5733 and H.R. 6463 Before the House
Comm. on the Judiciary, 77th Cong., 2d Sess. 6, 25, 33 (1942). The earlier
Committee Reports echo this concern:

10 is not] desirable or intended that the constitutionality of legislation, or the legality

[It
of a rule or regulation should be tested through the medium of a damage suit for tort.
However, the common-law torts of employees of regulatory agencies would be
included within the scope of the bill to the same extent as torts of nonregulatory
agencies.
11

H.R.Rep. No. 2245, 77th Cong., 2d Sess. 10 (1942); S.Rep. No. 1196, 77th
Cong., 2d Sess. 7 (1942); House Hearings on H.R. 5373 and H.R. 6463, supra,
at 33.

12

In the case before us, the wrongful conduct at issue is an agency's failure to
select the appropriate rulemaking procedure in promulgating an administrative
regulation. Thus, we must decide whether the FTCA's limited waiver of
sovereign immunity extends to the Commission's procedural error in banning
UFFI under the Consumer Product Safety Act, rather than under the Federal
Hazardous Substances Act. In essence, appellant urges us to find a waiver of
sovereign immunity and allow a finding of tort liability for an agency's failure

to follow procedures prescribed by a regulation or statute.

13

We conclude, for the reasons given above, that the purposes of the Act would
not be served by such a finding. We also conclude that two specific provisions
of the statute itself preclude C.P. Chemical from establishing the requisite
waiver: the requirement that the government be held liable only if a private
person would be liable for the same conduct, 28 U.S.C. 1346(b), 2674, and
the provision excluding claims based upon the performance or nonperformance of a discretionary function, 28 U.S.C. 2680(a).

The Private Analog Requirement

14

Section 1346(b) of the FTCA confers jurisdiction on district courts for claims
seeking money damages arising from tortious actions of employees of the
United States "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." 28 U.S.C. 1346(b). The plain meaning
of section 1346(b) is that the United States cannot be held liable when there is
no comparable cause of action against a private citizen. The language of 28
U.S.C. 2674 restates this threshold limitation on the FTCA's waiver of
sovereign immunity: "The United States shall be liable, respecting the
provisions of this title relating to tort claims, in the same manner and to the
same extent as a private individual under like circumstances...." The Supreme
Court, in addressing the congressional intent behind section 2674, concluded
that Congress limited the bases for the United States' liability to those
"circumstances that would bring private liability into existence." Feres v.
United States, 340 U.S. 135, 141, 71 S.Ct. 153, 157, 95 L.Ed. 152 (1950).
Thus, as to certain governmental functions, the United States cannot be held
liable, for no private analog exists. "[Q]uasi-legislative or quasi-adjudicative
action by an agency of the federal government is action of the type that private
persons could not engage in and hence could not be liable for under local law."
Jayvee Brand v. United States, 721 F.2d 385, 390 (D.C.Cir.1983); K.C. Davis,
5 Administrative Law Treatise 27:5, 27:16 (1984).

15

The Commission's ban of UFFI was promulgated in response to its statutory

duty to protect the public against unreasonable risks of injury posed by
consumer products. See 15 U.S.C. 2051(a). The Commission's conduct
clearly was a quasi-legislative activity for which we find no private counterpart.
There is simply no comparable rulemaking activity in private life, and appellant
has failed to point us toward an analogous private action recognized under New
York's tort law.

The Discretionary Function Exception

16

The "discretionary function" exception, 28 U.S.C. 2680(a), provides an

additional rationale for finding that the FTCA does not waive sovereign
immunity in the circumstances before us. Section 2680(a) provides that:

The provisions of this chapter and section 1346(b) of this title shall not apply to-17
18 Any claim based upon an act or omission of an employee of the Government,
(a)
exercising due care, in the execution of a statute or regulation, whether or not such
statute or regulation be valid, 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.
19

28 U.S.C. 2680 (emphasis added). The second clause of section 2680(a)

"marks the boundary between Congress' willingness to impose tort liability
upon the United States and its desire to protect certain governmental activities
from exposure to suit by private individuals." United States v. Varig Airlines,
467 U.S. 797, 808, 104 S.Ct. 2755, 2762, 81 L.Ed.2d 660 (1984); see Hendry v.
United States, 418 F.2d 774, 782 (2d Cir.1969) ("It is clear that 2680(a) was
intended to protect the validity of governmental regulations from challenge in a
tort action for damages...."). In Dalehite v. United States, 346 U.S. at 34, 73
S.Ct. at 967, the Supreme Court described the discretion protected by section
2680(a) as "the discretion ... to act according to one's judgment of the best
course." In Caban v. United States, 671 F.2d 1230 (2d Cir.1982), we noted that,
by its very nature, the promulgation of a regulation is a discretionary act
entitled to immunity under section 2680(a) because formulating a rule involves
balancing the government's interest in protecting public welfare against
competing private interests. In promulgating the ban on UFFI, the Commission
balanced general safety considerations against the specific interests of the
manufacturers. Whether or not the substantive ban was erroneous or an abuse of
discretion, section 2680(a) applies.

20

While the Commission's substantive decision to ban UFFI was discretionary,

and therefore within the FTCA exemption of section 2680(a), appellant
contends that the Commission lacked the discretion to decide which
rulemaking procedure to apply. However, as the D.C. Circuit has recognized,
the procedures by which a rule is adopted are integral to, and intertwined with,
the decision to adopt the substantive regulation. Jayvee Brand, 721 F.2d at 389.
Thus, the court concluded that "making a discretionary decision without
following mandated procedures should be characterized, for the purposes of the

FTCA, as an abuse of discretion. It follows that the discretionary function

exception applies...." Id. at 390.
21

Appellants assert that our ruling in Myers & Myers, Inc. v. United States Postal
Service, 527 F.2d 1252 (2d Cir.1975), governs the case at bar and requires a
holding opposite to the D.C. Circuit's ruling in Jayvee Brand. In Myers, we
noted that the failure of the Postal Service to comply with its own regulations in
awarding a government contract might constitute negligence under state law, id.
at 1261, and we remanded the case, inter alia, for a determination of whether
such a failure amounted to actionable negligence under state law. See also
Madison v. United States, 679 F.2d 736, 741 (8th Cir.1982) (once government
adopts rules by which safety inspections would be conducted, it is obligated to
take reasonable steps to enforce compliance with those regulations; remanded
for a determination of whether a cause of action existed under Arkansas law).
However, appellant's reliance on Myers is misplaced. Myers presented a wholly
different issue from the one now before us. Myers involved an agency's
application of a pre-existing rule, rather than an agency's rulemaking procedure.
In the rulemaking process, an agency is involved in a higher order of policy
making, one involving a greater degree of discretion; it can promulgate a rule,
or decide not to do so, on the basis of policy considerations. Rule application,
on the other hand, is more mechanical and involves less discretion; the agency,
by promulgating the rule, has already asserted its broad policy choices.

22

Furthermore, this is not a case where an agency ignored its own regulations or
the clear mandate of statutory procedure. Rather, as discussed below, based on
a determination within its province, the Commission was required to follow one
of two routes in promulgating its regulation--the procedures prescribed by
either the CPSA or the FHSA. The Fifth Circuit determined that the
Commission made this underlying determination erroneously, and as a result
followed the wrong rulemaking procedure, Gulf South, 701 F.2d at 1149-50.
For that reason, inter alia, the ban on UFFI was void.

23

15 U.S.C. 2079(d) of the Consumer Product Safety Act provides:

24

A risk of injury which is associated with a consumer product and which could
be eliminated or reduced to a sufficient extent by action under the Federal
Hazardous Substances Act ... may be regulated under this [Act] only if the
Commission by rule finds that it is in the public interest to regulate such risk of
injury under this [Act].

25

Accordingly, the Commission must proceed in compliance with the more

formal procedures of the Federal Hazardous Substances Act, rather than those
under the CPSA, unless it makes a finding either that the risk of injury could
not be regulated sufficiently under the FHSA, or that it is in the public interest
to proceed under the CPSA. Here, the Commission proceeded under the CPSA
after finding that both tests were met: (1) the protections afforded by the FHSA
were insufficient, because the FHSA is applicable only to household products,
15 U.S.C. 1261(q)(1)(B), and the Commission originally believed that the
danger posed by formaldehyde gas required the rule to extend to all buildings;
and (2) it was in the public interest to regulate UFFI under the CPSA to achieve
a speedy resolution to what was viewed as a dangerous situation.
26

Although the Fifth Circuit held that these findings were erroneous, they were
adopted by the Commission in the exercise of its discretion. The D.C. Circuit,
in Forester v. Consumer Product Safety Commission, 559 F.2d 774
(D.C.Cir.1977), noted that

27
[d]espite
the negative language of [this section], it broadens the [Commission's]
jurisdiction under the CPSA by permitting it in its sound discretion to regulate
products under [the CPSA] which formerly would have been subject to regulation
exclusively under the FHSA....
28

Id. at 784 n. 11 (emphasis added). Here, the Commission was required to inject
its "judgment of the best course," see Dalehite, 346 U.S. at 34, 73 S.Ct. at 967,
into its determination of whether the CPSA requirement had been met. Findings
that necessitate a balancing of policy considerations may require a reviewing
court to find that an agency erred and therefore used the wrong procedure, as
the Fifth Circuit did with the UFFI ban. Such an error, however, cannot form
the basis of governmental tort liability because of the discretionary function
exception.

B. Consumer Product Safety Act

29

Appellant contends that this suit is permitted against the United States by the
Consumer Product Safety Act, 15 U.S.C. 2053(h), which provides that 28
U.S.C. 2680(a) and (h) do not prohibit a claim that:

(1) is based upon-30

31

(A) misrepresentation or deceit on the part of the Commission or any employee

thereof, or

32

(B) any exercise or performance, or failure to exercise or perform, a

discretionary function on the part of the Commission or any employee thereof,

which exercise, performance, or failure was grossly negligent; and
33 is not made with respect to any agency action (as defined in section 551(13) of
(2)
title 5).
34

15 U.S.C. 2053(h) (emphasis added). We note that the CPSA does not alter
the threshold limitation on sovereign immunity imposed by 28 U.S.C.
1346(b) and 2674--threshold limitations that we hold above applicable to this
case.

35

In the case at bar appellants have failed to allege either misrepresentation or

deceit on the part of the Commission, as required by 15 U.S.C. 2053(h)(1)
(A). Further, the district court found that the conduct of the Commission was
not "grossly negligent" within the meaning of section 2053(h)(1)(B). Joint App.
at 253. Appellant has not directed us toward any evidence that the district
court's finding in that regard was erroneous. Thus, appellant has failed to meet
either of the alternative requirements of section 2053(h)(1).

36

Finally, inasmuch as the Commission was engaged in rulemaking-unquestionably "agency action" as defined in 5 U.S.C. 551(13)--when it
banned the use of UFFI and when it clarified that rule as including Tripolymer
105, appellant does not meet the necessary condition stated in 15 U.S.C.
2053(h)(2). "Agency action" includes "the whole or a part of an agency rule,
order, license, sanction, relief, or the equivalent or denial thereof, or failure to
act." 5 U.S.C. 551(13). A "rule" is defined as "the whole or a part of an
agency statement of general or particular applicability and future effect
designed to implement, interpret, or prescribe law or policy...." 5 U.S.C.
551(4). The actions of the Commission in rulemaking and in clarifying its rule
fit squarely within these definitions. Therefore we hold that 15 U.S.C.
2053(h) is of no avail to appellants.

CONCLUSION
37

For the reasons stated above, we hold that the district court correctly dismissed
the complaint for lack of subject matter jurisdiction and for failure to state a
claim. The judgment of the district court is affirmed.

Judge Mansfield participated in oral argument in this case and voted before his
death on January 7, 1987 in favor of the disposition reached in this opinion

The FTCA expressly provides that only the United States may be held liable
for torts committed by a federal agency, and not the agency itself. 28 U.S.C.
2679(a); see Myers & Myers, Inc. v. United States Postal Service, 527 F.2d
1252, 1256 (2d Cir.1975); Jayvee Brand v. United States, 721 F.2d 385, 388
(D.C.Cir.1983). There is therefore no basis for any claim against the
Commission in this action