Carolinas Cotton Growers Association, Inc., Appellants, v. The UNITED STATES of America and John R. Block, Secretary of Agriculture, Appellees
Carolinas Cotton Growers Association, Inc., Appellants, v. The UNITED STATES of America and John R. Block, Secretary of Agriculture, Appellees
2d 1195
I.
The facts of the case are relatively briefly stated. Carolinas Cotton
Growers Association is a cooperative enterprise of growers of cotton in
the Carolinas (hereinafter "the Association"). It is a voluntary
organization, with the Association itself undertaking to pool and to sell the
cotton grown by its various individual cotton grower members. Incident to
this process, the Association enters into various contracts with the
individual growers, agreeing to take the crop grown by that grower at the
time of its harvest, and to pay the grower for the crop in accordance with
grading which is done by agents of the United States Department of
Agriculture. The Association is responsible for requesting the grading of
the cotton, and the Department of Agriculture is obligated under the
Cotton Statistics and Estimates Act, 7 U.S.C. Sec. 473a, et seq. to grade
the cotton, once such a request has been made.
Once the grading is completed, the price for the cotton is then determined
in accordance with the prices established by the National Cotton
Exchange for that particular grade of cotton. The Association then
undertakes to sell the cotton to various users of raw cotton.
In this case, the processes outlined above were followed, with no problem,
until the ultimate users of the cotton--the purchasers from the Association-determined that the cotton had been overgraded, and consequently these
users were not willing to pay the higher price for the overgraded cotton.
Thus, the Association was forced to accept a lower price for the cotton
and, having previously paid the overgrade price for the cotton to the
producers of the cotton, suffered a loss of some $3.2 million.
The complaint asserted a separate, independent tort on the part of the
defendant in the negligent grading of the cotton, and undertook thus to
escape the strictures of the FTCA which ban a suit based on "negligent
misrepresentation". More simply stated, the complaint asserted two
separate, independent torts, namely, the negligent determination of the
proper grade of the cotton, and the tort of communication of a
misrepresentation to the Association. The answer of the defendant asserted
that the tort, if any, was that of negligent misrepresention to the
Association, and that this tort was the basis for liability, if any, to the
Association, and that that basis of liability was not within the scope of the
grant of authority to sue the United States under the FTCA.
II.
While there are not a great many cases in this field, several cases dealing
with this problem deserve close scrutiny. The three cases which bear
particularly closely on the issue raised are Block v. Neal, 460 U.S. 289,
103 S.Ct. 1089, 75 L.Ed.2d 67 (1983), United States v. Neustadt, 366 U.S.
696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961), and Cross Bros. Meat Packers,
Inc. v. United States, 705 F.2d 682 (3rd Cir.1983).
In Neustadt, the Neustadts relied on a certificate of value prepared by the
Federal Housing Administration (FHA) in the negotiation for and
purchasing of their residence. The certificate of value was prepared by the
FHA in accordance with 24 CFR Secs. 200.145, 200.146, 200.148 (1959
ed.)--regulations enacted to implement the duty imposed on FHA by
Section 203(a) of the National Housing Act of 1934, as amended, 12
U.S.C. Sec. 1701, et seq. The purpose essentially was to assure that
federal mortgage money would be protected, in the sense that the lender
could lend no more than an agreed on percentage of the appraisal value as
fixed by the FHA. There was no dispute that the Neustadts, in buying the
home, relied on the appraisal communicated to them via the "statement of
FHA appraisal".
After taking possession of the property, the Neustadts found that the house
was of lesser value than that indicated in the FHA appraisal, because of a
defective condition in the subsoil supporting the home, which defective
condition apparently could have been discovered on a proper inspection.
The Neustadts brought suit against the government under the FTCA,
alleging that they "would not have purchased the property for [the
indicated sum] but for the carelessness and negligence of [FHA]", 366
U.S. at 700-71, 81 S.Ct. at 1297. The government resisted the Neustadt
claim asserting that it was not within the scope of the FTCA because of
the provision of 28 U.S.C. Sec. 2680(h) of that Act, excluding recovery
upon "[a]ny claim arising out of ... misrepresentation, deceit ..." The
District Court found for the Neustadts and the judgment was affirmed by
the Court of Appeals for the Fourth Circuit.
Under the facts presented, the Supreme Court held that the Neustadt claim
was one "arising out of ... misrepresentation" within the meaning of Sec.
2680(h) and therefore was not actionable against the government under
the FTCA. Mr. Justice Whittaker recites a series of cases in which the
holdings had been contrary to that of the court below in Neustadt and
states:
Throughout this line of decisions, the argument has been made by
plaintiffs, and consistently rejected by the courts, until this case, that the
bar of Sec. 2680(h) does not apply when the gist of the claim lies in
negligence underlying the inaccurate representation, i.e., when the claim
is phrased as one 'arising out of' negligence rather than 'misrepresentation'.
But this argument, as was forcefully demonstrated by the Tenth Circuit in
Hall v. United States, [274 F.2d 69 (10th Cir.1959) ] is nothing more than
an attempt to circumvent Sec. 2680(h) by denying that it applies to
negligent misrepresentation.
366 U.S. at 703, 81 S.Ct. at 1298.
Since Sec. 226 of the National Housing Act required that the prospective
purchaser of property be given a "written statement setting forth the
amount of the [FHA] appraised value", the Fourth Circuit in Neustadt
argued that there was a specific duty on the government to make a careful
appraisal. Mr. Justice Whittaker disposed of that contention by stating
The doctrine of the Neustadt case was followed consistently until the Supreme
Court had occasion to pass on a somewhat similar situation in Block v. Neal. In
that case, the facts disclosed that the claimant under the FTCA had entered into
an agreement to have a residence constructed, with the agreement providing
that, when constructed, the Farmers Home Administration (FmHA) would
provide an appropriate loan to the claimant for payment for the house. In that
contract, there was a requirement that the work of the builder conform to plans
approved by FmHA, and granted to FmHA the right to inspect and to test all
materials and workmanship and to reject any that were defective.
An FmHA official inspected the house twice during the course of its
construction, and once following its completion. While there was a series of
communications between the claimant and the FmHA personnel, it does not
appear clearly from the opinion that the inspection report itself was ever
communicated to the claimant. On moving into the home, some fourteen
defects were found, and the builder refused to cure the defects in accordance
with the warranty which it had given. Thereafter, the claimant requested
payment from the FmHA for the correction of these defects and the FmHA
declined to do so.
5
The Court of Appeals for the Sixth Circuit found that the claimant had
established a claim for negligence under the principle that "one who undertakes
to act, even though gratuitously, is required to act carefully and with the
exercise of due care and will be liable for injuries proximately caused by failure
to use such care." 460 U.S. at 293 (quoting Neal v. Bergland, 646 F.2d 1178,
1181-82 (6th Cir.1981). Further, it found that the FTCA specificially authorized
suit against the government for the negligence of a federal agency in
performing a voluntary undertaking. See 28 U.S.C. Sec. 2674.
The Supreme Court addressed only the narrow issue of whether the claim was
barred by the misrepresentation exception to the FTCA and concluded that this
situation was not controlled by Neustadt because:
7
[t]he
gravamen of the action against the Government in Neustadt was that the
plaintiff was misled by a 'Statement of FHA Appraisal' prepared by the government.
Neustadt alleged no injury that he would have suffered independently of his reliance
on the erroneous appraisal. Because the alleged conduct that was the basis of his
negligence claim was in essence a negligent misrepresentation, Neustadt's action
was barred under the 'misrepresentation' exception.
8
9
Section
2680(h) thus relieves the Government of tort liability for pecuniary injuries
which are wholly attributable to reliance on the Government's negligent
misstatements. ... But it does not bar negligence actions which focus not on the
Government's failure to use due care in communicating information, but rather on
the Government's breach of a different duty
10
460 U.S. at 297, 103 S.Ct. at 1093-94. The Court found that in Neal, the
government's misstatements were not essential to the negligence claim since the
FmHA's "duty to use due care to insure that the builder adhere to previously
approved plans and cure all defects before completing construction is distinct
from any duty to use due care in communicating information to [the Neals]." Id.
The "partial overlap" between the factual and legal questions involved in the
two tort actions (misrepresentation and negligence) was deemed not to preclude
pursuit of the negligence claim as:[n]either the language nor history of the Act
suggests that when one aspect of the Government's conduct is not actionable
under the 'misrepresentation' exception, a claimant is barred from pursuing a
distinct claim arising out of other aspects of the Government's conduct.
11
460 U.S. at 298, 103 S.Ct. at 1094. The Court concluded that the negligence
claim against the government did not "aris[e] out of ... misrepresentation"
within the meaning of 28 U.S.C. Sec. 2680(h).
12
Cross Bros. Meat Packers, Inc. v. USA, presents another approach to the
problem exemplified in the case at hand. In Cross Bros., the plaintiff asserted
some $625,000 in damages suffered because of allegedly negligent meat
grading by Department of Agriculture employees and allegedly negligent
supervision of the persons doing the grading. The Court of Appeals for the
Third Circuit stated that the Supreme Court's definition of the tort of
misrepresentation set forth in Neustadt had been refined in Block v. Neal. The
court's holding was that the complaint in Cross Bros. alleging negligent
supervision and grading "bears a stronger resemblance to the nature of the tort
in [Neal ] than that in Neustadt." It goes on to find that "[t]he meat was
irrevocably devalued when the grade was placed upon it; its value was not
affected by Cross' reliance on government statements." 705 F.2d at 684.
13
From these three cases, the principles applicable to decision in the case at bar
are to be drawn. In comparing the factual patterns, it is apparent that the case at
bar is more closely aligned with the fact pattern in Neustadt than it is with the
fact pattern in Neal or, arguably, in Cross Bros.
14
In this case, the government agents were called on to grade cotton with a price
to be determined from that grading; in Neustadt, the government agents were
called on to appraise certain real property, thereby fixing the value for that real
property. The grade of the cotton was communicated to the Association, with
the concomitant price ultimately to be fixed based on the grade; in Neustadt,
the appraisal value was communicated to the prospective purchaser of the
property. The Association relied on the grading information which it was
supplied; in Neustadt, the purchaser of the real estate, together with the lender,
relied on the appraised value of the property. In the case at bar, the Association
suffered losses because of the misrepresentation of the grade of the cotton; in
Neustadt, the purchaser of the home suffered a loss because of the
misrepresentation of the value.
15
16
The opinion in Cross Bros. is more difficult to reconcile with the discussion of
Neustadt and Neal. However, the rationale of that opinion seems to turn on the
portion of the opinion which indicates that "it's [the meat's] value was not
affected by Cross' reliance on government statements." 705 F.2d at 684.
Certainly, in the case at bar, the loss to the Association was brought about by
the reliance of the Association on government statements. In that sense, the
opinion in Cross Bros. can be reconciled with the Neustadt and Neal analyses,
but, to the extent that such reconciliation is not possible, this court still must
follow the guidance of the Supreme Court in reaching its decision.
III.
17
18
For the reasons set forth, the judgment of the court below is
19
AFFIRMED.