Opinion
EP-00-CV-170-DB.
March 26, 2001
MEMORANDUM OPINION AND ORDER
On this day, the Court considered a Motion to Dismiss that Defendant the United States of America filed on September 26, 2000. Plaintiffs filed a "Response to Defendant's Motion to Dismiss and in the Alternative, but Without Waiving the Foregoing, to Transfer the Case to the Court of Federal Claims" on October 19, 2000.
After due consideration, the Court is of the opinion that Defendant's motion should be granted for the reasons that follow.
FACTS
These facts are taken from Plaintiffs Complaint, which is neither short nor plain. See FED. R. Civ. P. 8(b)(2). Rather, the Complaint sets forth numerous seemingly unrelated and often contradictory alleged facts in a rambling manner. To the extent possible and required, the Court summarizes the facts relevant to the instant Motion to Dismiss.
Plaintiffs Jaime and Patricia Monardes (together, "the Monardeses") owned Sunbelt Moulding and Millwork, Inc. ("Sunbelt"). At some point, they obtained a loan for the business either through the United States Small Business Administration ("SBA") in El Paso, Texas, or which the SBA guaranteed Plaintiffs defaulted and the SBA, from March 1995 to February 1996, allegedly improperly accelerated and foreclosed on the loan. Plaintiffs allege that the SBA sold Sunbelt, including the plant, equipment and inventory.
At some point, the Monardeses and Sunbelt were in bankruptcy proceedings. Plaintiffs allege that the SBA tried to accelerate and foreclose the loan while Plaintiff were in bankruptcy proceedings. On that basis, Plaintiffs contend that Defendant was negligent for not following a so-called "rule of two" internal SBA procedure. Also on that basis, Plaintiffs contend that the SBA breached its contract with Sunbelt.
Plaintiffs also allege that the SBA made agreements with various persons to sell and/or lease Sunbelt and its assets, and Defendants either "held up" those sales or conspired to defraud certain purchasers of their money.
To the extent Plaintiffs allege that Defendant has defrauded persons other than Plaintiffs, Plaintiffs have no standing to assert such claims.
Later, the Federal Bureau of Investigations ("FBI") allegedly became involved at the SBA's behest. Plaintiffs contend that Defendant "defamed and slandered" Plaintiffs to the FBI. Later, Plaintiffs allege, the Office of the United States Attorney falsely accused Plaintiffs of bank fraud based on the loan to Sunbelt.
The Office of the United States Attorney is not named as a defendant herein and Plaintiffs do not appear to state a claim against that office. They apparently mention that criminal prosecution of the Monardeses for background information.
Plaintiffs commenced the instant action by filing a Complaint on June 6, 2000, against Defendant the United States of America, as well as against Jan Donovan, Paul Montes, and Philip Silva, all employees of the SBA in El Paso. Plaintiffs allege that their claims fall under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. § 1346, 267 1-2680. As best as the Court can discern, those claims are as follows: breach of contract; negligence; fraud or misrepresentation; defamation; interference with contractual rights; and various civil conspiracies.
The Court has read Plaintiffs' Complaint carefully and cannot find a single instance in which Plaintiffs distinctly set forth a "claim," labeled as such so that it can be identified easily.
Plaintiffs allege that Defendant violated the United States Bankruptcy Code, the Uniform Commercial Code and SBA policies and procedures. Because they do not allege that each "violation" constitutes a separate cause of action, the Court can only assume that the violations are part of Plaintiffs claim for negligence.
By Order entered October 24, 2000, the Court substituted the United States as Defendant for each individual defendant Plaintiffs originally named and dismissed those individuals as party defendants pursuant to 28 U.S.C. § 2679(d)(1). The instant motion followed.
STANDARDS
Federal Rule of Civil Procedure 12(b)(1) allows a party to move to dismiss an action for lack of subject matter jurisdiction. On a motion brought under Rule 12(b)(1), which the Court must consider before any other challenge, see Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 172 (5th Cir. 1994), a court must dismiss a cause for lack of subject matter jurisdiction "when the court lacks the statutory or constitutional power to adjudicate the case." Home Builders Ass'n of Miss. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir. 1998) (internal quotation marks removed) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir. 1996). Further, the Court applies the same familiar standard used in ruling on a motion under Rule 12(b)(6). In that respect, the Court must limit its inquiry to facts stated in the complaint and the documents either attached to or incorporated in the complaint. See Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996). Further, the Court must accept as true all material allegations in the complaint, as well as any reasonable inferences to be drawn from them, see Kaiser Aluminum Chem. Sales, Inc., v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982), and must review those facts in a light most favorable to the plaintiff. See Piotrowski v. City of Houston, 51 F.3d 512, 514 (5th Cir. 1995); Garrett v. Commonwealth Mortgage Corp. of Am., 938 F.2d 591, 593 (5th Cir. 1991). The Court also may "consider matters of which [it] may take judicial notice," Lovelace, 78 F.3d at 1017-18, and matters of public record. See 5A CHARLES A. WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1357 (2d ed. 1990).
DISCUSSION
Defendant contends that the Court lacks jurisdiction over Plaintiffs' breach of contract claim because such actions belong before the United States Court of Claims. Further, Defendant contends that as to each alleged claim based upon a tort, either that claim is subsumed within Plaintiffs' contract claim or is expressly excluded by the FTCA. Plaintiffs insist that they have asserted only tort claims. Plaintiffs further argue that Defendant's motion is really one for summary judgment and, in that vein, there are many fact issues precluding summary judgment. The Court agrees with Defendant in all respects.
Plaintiffs erroneously contend that the instant motion is akin to a summary judgment motion. Plaintiffs even attach affidavits and evidentiary exhibits to their Response. However, Defendant moved to dismiss, not for summary judgment. Under Rule12(b)(1) the Court may not consider evidence outside the Complaint. Accordingly, the Court ignores Plaintiffs' evidence at this juncture.
As sovereign, the United States is presumptively immune from suit unless it consents to be sued. See Truman v. United States, 26 F.3d 592, 594 (5th Cir. 1994) ("As the sovereign, the United States is immune from suit unless, and only to the extent that, it has consented to be sued."); Williamson v. United States Dep't of Agric., 815 F.2d 368, 3 73-74 (5th Cir. 1987). Sovereign immunity is jurisdictional. See United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351, 63 L.Ed.2d 607 (1980). Hence, Plaintiff bears the burden of showing that the United States has waived its immunity in this case.
A. Contract Claims — Court of Federal Claims Jurisdiction
Although Plaintiffs argue their claims sound only in tort, not contract, Defendant contends otherwise. Any claim for breach of contract against the United States for which claimed damages exceed $10,000 falls within the exclusive jurisdiction of the Court of Federal Claims pursuant to 28 U.S.C. § 1346(a)(2), 1491(a)(1), part of the Tucker Act. The Tucker Act waives sovereign immunity as to claims which fit within its boundaries. See Richardson v. Morris, 409 U.S. 464, 465, 93 S.Ct. 627, 630, 34 L. Ed 2d 647 (1973). Here, Plaintiffs allege in their Complaint without elaboration that "Defendant . . . is . . . in breach of contract with Sunbelt." To the extent that Plaintiffs allege a breach of contract against the United States, that claim belongs before the Court of Claims, assuming that court has jurisdiction.
However, Plaintiffs also contend that Defendant committed certain torts when it "improperly accelerated, foreclosed, and subsequently sold certain assets of Sunbelt." Defendant contends that such an allegation can only sound in contract. The Court agrees.
A plaintiff cannot avoid Tucker Act jurisdiction simply by characterizing an action as a tort. Cf Amoco Prod. Co. v. Hodel, 815 F.2d 352, 361 (5th Cir. 1987). Rather, a court must look to the source of the right sued upon. In general, if the right upon which a Plaintiff sues stems from an express promise made in a contract, the claim can only sound in contract, not tort. See Herder Truck Lines v. United States, 335 F.2d 261, 263 (5th Cir. 1964) (noting that claim based entirely on breach of clause in contract did not also state separate tort claim; any tort allegation was incidental to contract); United States v. Scrinopskie, 179 F.2d 959, 960 (5th Cir. 1950) (finding that FTCA jurisdiction proper where alleged breach was of an implied obligation in contract, not express obligation). Where the damages alleged are a type foreseeable under the contract, a claim cannot sound in tort. See Nicholson v. United States, 177 F.2d 768, 769 (5th Cir. 1949). Furthermore, to the extent that a plaintiff alleges a tortious breach of contract, the claim nonetheless is a contract claim. See Chain Belt Co. v. United States, 127 Ct. Cl. 38, 115 F. Supp. 701 (1953); see also Mega Constr. Co. v. United States, 29 Fed. Cl. 396, 478 (1993) ("[T]he court has consistently interpreted the Tucker Act to allow jurisdiction over claims which, although somewhat 'tortious' in nature, are essentially based upon the violation of a contractual obligation.") (citing Chain Belt, 115 F. Supp. at 711-12).
Incidentally, Defendant cites Texas cases with respect to distinguishing a contract claim from a claim in tort. Although those cases generally address common contract interpretation tools, and are therefore applicable, it is not entirely clear whether Texas law should apply to interpret Plaintiffs' claims to the extent they are not torts. Herder Truck, for instance, quoting United States v. Smith, 324 F.2d 622, 625 (5th Cir. 1963), stated that the state law tort at issue there "should not defeat the long established policy that government contracts are to be given a uniform interpretation and application under federal law, rather than being given different interpretations and applications depending upon the vagaries of the laws of fifty different states." Hence, to the extent necessary, the Court applies federal law to "interpret" the contract and whether Plaintiffs' claim sounds in tort or contract. See generally Brian R. Levey, Tortious Government Conduct and the Government Contract: Tort, Breach of Contract, or Both?, 22 PUB. CONT. L.J. 706, 729-30 (1993).
Here, although Plaintiffs' Complaint does not allege or describe any express contract, the allegation that Defendant "improperly accelerated, foreclosed, and subsequently sold certain assets of Sunbelt" necessarily implies that Defendant had some contractual relationship with Plaintiffs that allowed Defendant to accelerate, foreclose and sell Sunbelt's assets under certain conditions. Hence, Plaintiffs implicitly contend that those conditions did not exist when Defendant accelerated, foreclosed on and subsequently sold Plaintiffs' assets. In other words, Plaintiffs allege that they had a right not to have their property foreclosed upon in such a manner. Plaintiffs do not point to any such right in law. Hence, that right could only reside in a contract. On the whole, then, Plaintiffs have not shown that their claim does not sound in contract, and the Court finds that it is a contract claim. Because Plaintiffs' contract claim is for more than $10,000, the Court of Federal Claims' jurisdiction is exclusive of jurisdiction in this Court.
Plaintiffs do, however, state in their Response to the instant motion, that "it is true that, originally, the relationship between the SBA and the Plaintiffs was a contractual relationship."
B. Alleged Tort Claims — FTCA Jurisdiction
Plaintiffs also set forth various expressly-delineated "tort" claims. The FTCA is one limited way the United States has waived sovereign immunity. See Williamson, 815 F.2d at 374. The FTCA provides that the United States can be liable
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.28 U.S.C.A. § 1346(b)(1) (West Supp. 2000). Plaintiffs allege that their claims come under the FTCA and, therefore, provide the Court with subject matter jurisdiction notwithstanding the United States' sovereign immunity.
Notwithstanding the broad waiver language set forth above, the FTCA sharply excepts its applicability under certain circumstances. Specifically, the FTCA waiver of sovereign immunity does not apply to "[a]ny claim arising out of . . . libel, slander, misrepresentation, deceit, or interference with contract rights." See 28 U.S.C.A. § 2680(h) (West 1994). As a limited waiver of immunity, the FTCA and its exceptions should be "narrowly construed in favor of the United States." Leleux v. United States, 178 F.3d 750, 754 (5th Cir. 1999) (citing, among others, Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct. 2092, 135 L.Ed.2d 486 (1996); Lehman v. Nakshian, 453 U.S. 156, 160-61, 101 S.Ct. 2698, 69 L.Ed.2d 548 (1981)) (emphasis added); see also Williamson, 815 F.2d at 374 (noting court must apply exceptions to FTCA "rigorously"). Finally, "causes of action distinct from those excepted under section 2680(h) are nevertheless deemed to be barred when the underlying governmental conduct 'essential' to the plaintiffs claim can fairly be read to 'arise out of' conduct that would establish an excepted cause of action." Atorie Air, Inc. v. Federal Aviation Admin. of United States Dep't of Transp. 942 F.2d 954, 958 (5th Cir. 1991) (quoting Williamson, 815 F.2d at 377).
1. Negligence
Plaintiff contends that Defendant was negligent by "not follow[ing] all of the proper internal procedures used within the SBA in instances such as the subject matter of this case." Negligence claims are cognizable under the FTCA. Texas Law requires a negligence plaintiff to prove "(1) the existence of a legal duty owed by one person to another to protect the latter against injury; (2) a breach of that duty; and (3) damages (4) proximately resulting from the breach." 53 TEX. JUR. 3D Negligence § 5 (1997).
Here, stated another way, Plaintiffs' negligence claim is that the SBA had a duty to follow its own internal procedures and breached that duty, which breach proximately caused injury to Plaintiffs. Plaintiffs further allege, in a similar fashion (albeit without specifically referring to negligence based thereon), that Defendant violated certain United States Bankruptcy Code ("Bankruptcy Code") and Uniform Commercial Code ("UCC") provisions.
Here, as part of their negligence claim, Plaintiffs allege that the SBA breached a duty to Plaintiffs to follow its own internal regulations. Although state law determines whether a cause of action exists, see Johnston v. United States, 85 F.3d 217, 219 (5th Cir. 1996), and negligence is a long-established tort under Texas law, the FTCA applies only to tort claims under which "the United States, if a private person, would be liable." § 1346(b) (emphasis added). Clearly, no private person could be liable for the same breach because private persons are not subject to the alleged SBA internal regulations. Hence, Plaintiffs' negligence claim cannot be brought under the FTCA. Similarly, Plaintiffs' allegations that Defendants violated the Bankruptcy Code and the UCC, to the extent related to any negligence claim, cannot be brought against the United States under the FTCA because, as far as this Court knows, no private person would be liable for such a negligence claim under Texas law. Accordingly, after due consideration, the Court is of the opinion that Plaintiffs' negligence claim(s) should be dismissed for lack of subject-matter jurisdiction.
2. Misrepresentation
Plaintiffs contend that the SBA made material misrepresentations to Plaintiffs in the course of handling Plaintiffs' loan. On the face of that claim, the FTCA, which expressly excludes "[a]ny claim arising out of . . . misrepresentation," § 2680(h), does not apply. See Williamson, 815 F.2d at 377 (holding any action based on a misrepresentation, whether negligent or intentional, not cognizable under the FTCA). Because the FTCA does not apply, Defendant is entitled to sovereign immunity. Accordingly, to the extent Plaintiffs allege a claim for misrepresentation, the Court is of the opinion that such a claim should be dismissed for failure of subject-matter jurisdiction.
3. Defamation
Similarly, Plaintiffs allege that the SBA "defam[ed] and slander[ed] Plaintiffs with the FBI." Because the FTCA also expressly excludes "[a]ny claim arising out of . . . libel [and] slander," § 2680(h), the FTCA does not apply. Because the FTCA does not apply, Defendant is entitled to sovereign immunity. Accordingly, to the extent Plaintiffs allege a claim for defamation, the Court is of the opinion that such a claim should be dismissed for failure of subject-matter jurisdiction.
4. Interference with Contract
Plaintiffs argue that the SBA intentionally interfered with contractual rights, and allege some facts to support such a claim. However, because the FTCA also expressly excludes "[a]ny claim arising out of . . . interference with contract rights," § 2680(h), the FTCA does not apply. Because the FTCA does not apply, Defendant is entitled to sovereign immunity. Accordingly, to the extent Plaintiffs state a claim for interference with contractual rights, the Court is of the opinion that such a claim should be dismissed for failure of subject-matter jurisdiction.
5. Civil Conspiracy to Defraud
Finally, Plaintiffs contend that agents of the SBA conspired "to use misrepresentations, deceit, and fraud which injured Plaintiffs;" "to commit libel and slander;" and "to commit tortious interference with contract rights," among other things. Under Texas law, a civil conspiracy plaintiff must show "(1) two or more persons; (2) an object to be accomplished; (3) meeting of the minds on the end or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result." See Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983). A civil conspiracy "is a derivative tort. That is, a defendant's liability for conspiracy depends on participation in some underlying tort for which the plaintiff seeks to hold at least one of the named defendants liable." Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex. 1996). The injury must have been caused by the tort or statutory violation that the conspirator agreed with the perpetrator to bring about while intending the resulting harm. See Triplex Communications, Inc. v. Riley, 900 S.W.2d 716, 720 (Tex. 1995); Schlumberger Well Surveying Corp. v. Nortex Oil Gas Corp., 435 S.W.2d 854, 857 (Tex. 1968). Damages recoverable are those resulting from the commission of the underlying wrong, not the conspiracy itself. See Triplex, 900 S.W.2d at 720.
Accepting Plaintiffs' construction of their civil conspiracy claim(s), the underlying torts Plaintiffs allege fall neatly within the FTCA exception in § 2680(h). In other words, torts based on "misrepresentations" and "deceit" are situations which the FTCA expressly precludes. "Fraud" can be fairly included within the meaning of "deceit." See, e.g., Paul v. United States, 929 F.2d 1202, 1204 (7th Cir. 1991) ("'Deceit is intentional manipulation through lies or material omissions when there is a duty to speak . . . .' United States v. Neustadt, 366 U.S. 696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961)."). As discussed above, "libel" and "slander" also come within the § 2680(h) exception. "Interference with contract" also is expressly excluded from FTCA coverage. Hence, Plaintiffs cannot prove a civil conspiracy claim without also proving those expressly-excluded underlying torts. As such, after due consideration, the Court is of the opinion that there is no jurisdiction for those civil conspiracy claims.
Plaintiffs also argue that they have stated a claim for "civil conspiracy to violate the Bankruptcy Code and the UCC by improperly accelerating, foreclosing, and subsequently selling certain assets of Sunbelt Corporation." As discussed above, to the extent that Plaintiffs claim that Defendant's acceleration and foreclosure of the loan injured them, that claim sounds only in contract. Similarly, because civil conspiracy merely seeks to hold a defendant liable for a tort another committed against the plaintiff pursuant to the defendant's agreement with the tortfeasor, Plaintiffs' claims for conspiring to violate the Bankruptcy Code and/or the UCC fail for the same reason set forth above with respect to Plaintiffs' negligence claim based on those violations — a private person cannot be liable to Plaintiffs for violating those provisions because a private person does not owe Plaintiffs a duty to observe those provisions.
Even if there were some jurisdiction for a civil conspiracy claim based on negligence, a civil conspiracy claim cannot rely on negligence as the underlying tort. See Triplex, 900 S.W.2d at 720 n. 2 (noting that one cannot conspire to be negligent or even grossly negligent). Civil conspiracy requires specific intent to harm. See id. at 719. Hence, Plaintiff cannot state such a claim.
Because there is no underlying tort for which the United States can be liable under the FTCA, no civil conspiracy claim based on those torts comes within the FTCA. Accordingly, after due consideration, the Court is of the opinion that Plaintiffs' claims for civil conspiracy must be dismissed for lack of subject-matter jurisdiction.
C. Transfer to Court of Claims or Leave to Amend
Plaintiffs ask the Court to transfer to the Court of Federal Claims any claim the Court should find is cognizable only in that court, if at all. Plaintiffs also ask the Court to grant them leave to amend their complaint. Although those requests are mutually exclusive, the Court is of the opinion that Plaintiffs should be granted leave to amend their complaint to state a claim upon which this Court can exercise subject-matter jurisdiction. Alternatively, the Court will transfer this entire cause to the Court of Federal Claims if Plaintiffs so request as directed below.
Accordingly, IT IS HEREBY ORDERED that Defendant the United States of America's Motion to Dismiss is GRANTED.
IT IS FURTHER ORDERED that Plaintiffs' request for leave to amend their Complaint is GRANTED. Plaintiffs must file an Amended Complaint that separately, clearly and fully sets out their claims (i.e. causes of action), if at all, not later than ten days after entry of this Order. Should Plaintiff not file an Amended Complaint within that time, the Court will TRANSFER this entire cause to the Court of Federal Claims for that court's consideration.