LaPlant v. United States

WILLIAM A. NORRIS, Circuit Judge; Appellants Francis and Clara LaPlant appeal the district court’s dismissal of their [882] action for want of subject matter jurisdiction. The district court held that appellants’ suit is a contract action, which under the Tucker Act, 28 U.S.C. §§ 1346(a), 1491, is within the exclusive jurisdiction of the Claims Court. We affirm. I Appellants, ranchers in Montana, entered into a series of loan agreements with the Farmers Home Administration (FmHA) in the late 1970s.1 In the early 1980s, appellants began to fall behind in their repayment obligations and sought a refinancing agreement, which the FmHA rejected. Appellants then sought to sell some of their land to extinguish their debt. The FmHA intervened and, threatening appellants with foreclosure, forced appellants to sell more land than they had planned, including their homestead, on highly unfavorable terms. The FmHA never informed appellants that administrative avenues were open to them whereby they might reschedule their loans. Appellants filed suit in district court under the Federal Tort Claims Act (FTCA), 28 U.S.C. §§ 2671-2680, contending that the FmHA had breached its duty of “good faith” under Montana law. Appellants argue that Montana tort law imposes on the FmHA a “fiduciary” duty to treat borrowers “fairly and in good faith,” and that the FmHA breached its duty by pressuring appellants to sell their land at a loss without informing them of their rights to debt rescheduling. The district court dismissed the action, holding that the claim was in the exclusive jurisdiction of the Claims Court under the Tucker Act, 28 U.S.C. § 1346. II Under federal law, jurisdiction over contract claims against the government differs from jurisdiction over tort claims. The FTCA and the Tucker Act divide tort and contract jurisdiction between the district courts and the Claims Court respectively. The FTCA waives sovereign immunity of the United States for suits challenging certain tortious actions by United States officers, and vests exclusive jurisdiction over such claims in the federal district courts. 28 U.S.C. § 1346(b). The Tucker Act, on the other hand, waives sovereign immunity with respect to claims against the United States founded “upon any express or implied contract” or “for liquidated or unliqui-dated damages in cases not sounding in tort,” 28 U.S.C. § 1491, and vests exclusive jurisdiction in the Claims Court over such claims when they exceed $10,000. 28 U.S. C. § 1346(a)(2). The law applied under the FTCA and the Tucker Act also differs. The FTCA expressly provides that the United States shall be liable for torts “in accordance with the law of the place where the act or omission occurred.” 28 U.S.C. § 1346(b). The substantive liability rules applicable under the FTCA are therefore furnished by state law. Woodbury v. United States, 313 F.2d 291, 295 (9th Cir.1963). Under the Tucker Act, by contrast, the law to be applied in construing and enforcing government contracts is federal, not state law. The Tucker Act’s incorporation of federal substantive law reflects a policy of ensuring that government contracts are subject to uniform interpretation and application rather than the varying constructions possible under the laws of the fifty states. Id. Keeping this policy in mind, we must determine whether appellants’ claim is tort-based or contractual in nature.2 At the outset, we note that the language of appellants’ complaint, which casts its claim for relief in terms of tort rather than contract, cannot be determinative in our inquiry. See Rowe v. United States, 633 F.2d 799, 802 (9th Cir.), cert. denied, 451 U.S. 970, 101 S.Ct. 2047, 68 L.Ed.2d 349 (1980). Nor can Montana law’s characterization of an action for “bad faith” as an action sounding in tort control our inquiry. A review of the Montana Supreme Court [883] decisions delineating the “bad faith" cause of action reveals that although the cause of action is attendant upon the formation and performance of commercial contracts, it is considered a tort independent of breach of contract. See, e.g., Lipinski v. Title Insurance Co., 202 Mont. 1, 655 P.2d 970 (1982); State ex rel. Dimler v. District Court, 170 Mont. 77, 550 P.2d 917 (1976). However, the Montana Supreme Court’s characterization of bad faith as a “tort” is grounded on considerations that have little bearing on the Tucker Act’s distinction between tort and contract actions for purposes of the Claims Court jurisdiction. The tort/contract distinction drawn by the Montana court apparently has significance for the purpose of delineating the elements of state law causes of action and determining what the available remedies are. But the Montana court’s reasons for distinguishing between tort and contract actions have nothing to do with the Tucker Act’s policy of generating a uniform body of federal law of government contracts. In determining whether appellants’ “bad faith” action is tort-based or contractual for purposes of the Tucker Act, then, we ignore the state law characterization of the claim and focus instead on the substance of appellants’ suit. In dismissing appellants’ action the district court relied on our decision in Woodbury v. United States, 313 F.2d 291 (9th Cir.1963). We agree that Woodbury mandates dismissal of the action. In Woodbury, this court determined that, in circumstances similar to the present case, a suit challenging the government’s breach of an allegedly implied fiduciary duty arising out of a contractual relationship was a “contract” action falling within the exclusive jurisdiction of the Claims Court. In Woodbury, the plaintiffs obtained partial financing from the government for construction of a housing project. When the enterprise encountered financial difficulties and the government foreclosed, the plaintiff brought suit charging that the government had breached an implied fiduciary duty to provide long-term financing and to put the debtor’s interests ahead of its own. We held that the claim was contractual in nature: Many breaches of contract can also be treated as torts. But in cases such as this, where the 'tort’ complained of is based entirely upon breach by the government of a promise made by it in a contract, so that the claim is in substance a breach of contract claim, and only incidentally and conceptually also a tort claim we do not think that the common law or local state law right to “[ ...] sue in tort” brings the case within the Federal Tort Claims Act. 313 F.2d at 295. We noted that to conclude otherwise would “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.” Id. Appellants, as well as the dissent, attempt to distinguish Woodbury on the ground that the claim in that case was based on the breach of a governmental promise, whereas the claim in the present case does not depend on any contractual promise by the government to act in good faith. We reject this argument for two reasons. In the first place, we think that this attempted distinction mischaracterizes the holding of Woodbury. The “fiduciary” duty in Woodbury is essentially identical to the “good faith” duty invoked by appellants in this case, in that it was implied by the operation of state law. Woodbury, like this case, involved an obligation whose source was not any specific promise, but state law governing contractual relationships. True, the Woodbury opinion cast the government’s asserted fiduciary obligation in terms of a “promise” rather than in terms of a duty created by state law to govern the contractual relationship; but the presented facts of the case, and the court’s analysis, indicate that the court was not dealing with a governmental promise at all, but a fiduciary duty allegedly arising by operation of state law. The government was charged with breaching its duty to respect the interests of the other party to its contract, a duty which was not set out in the terms of the contract itself, but [884] rather was imposed by the law governing the manner in which contractual obligations must be discharged. See 313 F.2d at 294. Similarly, the essence of the appellants’ claim in this case is that the government has acted to deprive them of the benefit of their bargain, in violation of a term implied in all commercial contracts by operation of Montana law — the term requiring parties to deal fairly and in good faith. The Woodbury decision stands for the proposition that the “fiduciary” or “good faith” obligations attaching to contractual relationships cannot be imposed on the federal government by operation of state law, but are exclusively questions of federal law which must be determined in the first instance by the Claims Court. Second, even if the specific holding of Woodbury is read to apply only to obligations deriving from a governmental promise as opposed to obligations externally imposed by state law, we still think the rationale of Woodbury controls this case. In Woodbury we defined the policy of the Tucker Act as ensuring that the government’s obligations arising out of its contracts would be subject to uniform interpretation, and not differ according to “the vagaries of the laws of fifty different states.” 313 F.2d at 295. This policy applies equally to obligations that are “implied in fact” through the agreement of the parties and to those that are “implied in law” through the operation of state laws. Although Montana courts may well define the “good faith” obligation in this case as a creature of tort law rather than contract law, the critical point for Tucker Act purposes is that the obligation rests exclusively on the government’s contractual undertaking with appellants. In effect, state law is being invoked to augment the duties the federal government assumes when it enters into contract, imposing on it a state-defined obligation to give the appellants the benefit of their bargain. The Tucker Act’s policy of ensuring uniformity in the interpretation and application of the obligations attaching to governmental contracts would be undercut if a state law claim of this nature could be brought under the FTCA. State law cannot, consistent with Tucker Act, be used to write terms into government contracts. Ill Appellants’ reliance on Fort Vancouver Plywood Co. v. United States, 747 F.2d 547 (9th Cir.1984), and Walsh v. United States, 672 F.2d 746 (9th Cir.1982), in support of the argument that their claim is tort-based, is misplaced. In Vancouver Plywood, the government sold timber to plaintiff, then accidently started a fire that burned the plaintiff’s purchase. In Walsh, the government granted a cattle easement to plaintiff, then rendered the easement useless by damaging the cattleguards. In both cases, we held that the plaintiffs’ claims were within the district courts’ jurisdiction under the FTCA, because they were traditional negligence claims not grounded in the plaintiffs’ contractual relationship with the government. See Fort Vancouver, 747 F.2d at 552; Walsh, 672 F.2d at 751. The plaintiffs’ contractual relationship with the government was incidental, if not irrelevant, to their cause of action; it would have made no difference, for purposes of their tort suits, if they had not been in contractual privity with the government. The analysis in those decisions is inapposite to the present controversy. Nor does this court’s decision in Martin v. United States, 649 F.2d 701 (9th Cir.1981), compel a result contrary to the one we reach today.3 In Martin, the plaintiff brought a negligence action against the government after injuring her hand in the bathtub of a house she bought from the Veterans Administration. We held that there was FTCA jurisdiction over the suit because the plaintiff's claim alleged “a classic tort” in the negligent repair of a house creating “an unsafe condition leading to a personal injury.” 649 F.2d at 705. Martin is plainly distinguishable from the present case. As in Fort Vancouver and Walsh, the plaintiff in Martin was bringing a standard negligence action in which the contractual relationship with the [885] government was incidental. Indeed, there is no indication that the tort cause of action was in any way dependent upon contractual privity with the government. For example, had it been a guest of the homeowner who was injured, the guest would presumably have also had a tort action against the government under the FTCA. By contrast, the LaPlants’ cause of action is exclusively grounded in their contractual relationship with the government, and consists of purported state-law obligations regarding the manner in which contractual obligations must be discharged.4 IV We have recognized before the increasing difficulty of distinguishing tort claims from contract claims for purposes of Tucker Act jurisdiction. See Walsh, 672 F.2d at 751. In an era in which the obligations attaching to private consensual undertakings are increasingly defined by reference to public values, the distinction between tort and contract is often quite murky. See G. Gilmore, The Death of Contract (1974). Nevertheless, the Tucker Act requires that we draw the line, and we think appellants’ action, which essentially seeks to imply a “good faith” term into a government contract by operation of state law, must be deemed contractual in nature. The judgment below is AFFIRMED. Footnotes [1] For purposes of this appeal, we take as true the allegations set forth in the complaint. [2] We review de novo the district court's determination that it lacks subject matter jurisdiction. Fort Vancouver Plywood Co. v. United States, 747 F.2d 547, 549 (9th Cir.1984). [3] Although the appellants do not cite Martin, the dissent relies heavily upon it. [4] Nor, contrary to the dissent’s suggestion, does it matter that appellants in this case seek compensation for "emotional and physical distress” resulting from the government’s alleged bad faith conduct. This claim is essentially one for consequential damages resulting from the underlying breach of a commercial relationship. If a claim for compensation for such injuries were the basis for FTCA jurisdiction, any contract action could be brought under the FTCA so long as a claim for compensation for "distress” was appended. Such a result would be at odds with the purposes of the Tucker Act, and in any event is not remotely suggested by our decision in Martin.