Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_05-cv-00532/USCOURTS-azd-4_05-cv-00532-0/pdf.json

Nature of Suit Code: 360
Nature of Suit: Other Personal Injury
Cause of Action: 28:1346 Tort Claim

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

SERGIO RENTERIA and )

SANDRA RENTERIA, )

husband and wife, )

) CV 05-00532-TUC-CKJ [CRP]

Plaintiffs, ) 

)

vs. ) REPORT AND RECOMMENDATION

)

UNITED STATES OF AMERICA, )

)

Defendant. )

________________________________ )

Plaintiffs Sergio and Sandra Renteria (hereafter "Renterias") allege that the Farm

Services Agency (hereafter "FSA") negligently processed their loan application, and they

were harmed as a result. Defendant, United States of America, (hereafter "Defendant")

moves to dismiss the complaint for lack of subject matter jurisdiction. The Renterias oppose

the motion. For reasons that follow, the Court recommends that the District Judge, after her

independent review, GRANT the Motion To Dismiss [Dkt 9]in part and DENY in part.

While there are several parts to Defendant's motion, the determinative issue is whether

the Renterias' Complaint states a cause of action for tort under Arizona law. The Renterias

assert that the Good Samaritan Doctrine imposed a duty on FSA to use reasonable care in

processing the loan. Defendant alleges that the Doctrine is inapplicable.

I. FACTS

While the facts of this case are convoluted, they can be divided into three crop years:

2000, 2001 and 2002. In 1999, the Renterias investigated a farming operation in Willcox,

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The Renterias complained that misrepresentations by FSA employees caused the loan denials. Those

misrepresentations are not actionable under the Fair Tort Claim Act. 28 U.S.C. § 2680(h).

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Arizona. Complaint, ¶8. In 2000, after being turned down for FSA guaranteed loans from

private banks1

, the Renterias applied for acquisition and operating loans from FSA. (Id. ¶17)

The critical facts alleged are:

Although Mr. Renteria had applied for his loans in September

of 1999, his loans were not approved until September 2000,

causing him to lose an entire year of production and its

associated income. Mr. Renteria was told the first application

had expired. Mr. Renteria replaced it. He then was told the

replacement application was lost. Plaintiffs had to create a third

set of new loan applications. The third set of applications was

denied by the County FSA Committee upon improper staff

advice.

Id. ¶18. 

The Complaint also states that FSA employees gave the Renterias incorrect directives

or no advice at all. Complaint, ¶¶ 19, 20, 21. Despite this, the Renterias were ultimately able

to obtain the loan, apparently in September 2000. However, they lost out on "an entire

operating cycle and a year's potential income." Complaint, ¶21.

For crop year 2001, the Renterias assert that FSA's failure to timely distribute loan

proceeds required the chili crop to be manually weeded, instead of chemically through an

herbicide. Id. ¶22. Critical to the failure to timely distribute loan proceeds was FSA

employee David Toll's failure to "timely process the change in plans for a chili crop." Id.,

¶29. Apparently, the same day of the dispute regarding the change in crop approval, a heavy

rainfall occurred making the herbicide option moot. Id. ¶¶ 27, 28, 29. It cost the Renterias

$60,000 to manually weed the chili crop. Id. ¶30.

Ultimately, the crop failed, not because of the weeds, but because of herbicide residue

that pre-existed the Renterias' purchase of the land. Id. ¶¶ 31, 32. Regarding the 2001 crop,

the Renterias allege:

FSA's David Toll knew about the herbicide residue in the

ground. Mr. Toll made material representations to Plaintiffs by

telling them that he thought there was a history of "chili disease"

on the property. Plaintiffs checked and discovered that there

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was no such history. If Mr. Toll had revealed the true basis for

his suggestion not to plant chilies, Plaintiffs would not have

done so. A truthful disclosure would also have saved Plaintiffs

the wasted investment in a crop that had to be abandoned. 

Id. ¶34.

The chili crop was declared a failure on July 19, 2001, after which the Renterias

notified FSA they would need loan servicing or emergency loans. As these were not

forthcoming, the Renterias filed for bankruptcy. Id. ¶35.

As a result of these problems, the Renterias were unable to get operating loans from

FSA or other lenders for the following crop year, 2002. Id. ¶38. The Renterias claim

$1,525,157.00 in lost profits for that year. Id. ¶39.

In the fall of 2002, the Renterias were unable to plant alfalfa on a leased farm because

of the bankruptcy court order allowing the release of the FSA funds (AMTA payments). Id.

¶40-46. Payment was not received until December, which was far too late to plant alfalfa.

The Renterias concede that if Defendant did not have a duty under Arizona law based

on the Good Samaritan Doctrine, they lose their lawsuit. They also assert that FSA was

negligent in two respects:

1) FSA processed the loan in a negligent fashion; and

2) FSA approved the loan to plant certain crops knowing that the crop would fail.

Defendant asserts that the Good Samaritan Doctrine in Arizona only applies to

inspection services related to public safety and to government activities with no private

analogue. Defendant also argues that the Renterias are in effect complaining about

misrepresentations by Mr. Toll and others; such complaints are not actionable under Federal

Torts Claim Act. 28 U.S.C. § 2680(h).

II. LAW

The question of whether there is a legal duty to act or refrain from acting is a threshold

issue in any lawsuit, one that is appropriately raised by a motion to dismiss authorized under

Rule 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure (hereafter "Rules"). 

A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may

attack either the allegations of the complaint as insufficient to confer upon the court subject

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matter jurisdiction, or the existence of subject matter jurisdiction in fact. Thornhill Publ'g

Co., Inc. v. General Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir.1979). When the motion

to dismiss attacks the allegations of the complaint as insufficient to confer subject matter

jurisdiction, all allegations of material fact are taken as true and construed in the light most

favorable to the nonmoving party. Federation of African Amer. Contractors v. City of

Oakland, 96 F.3d 1204, 1207 (9th Cir.1996). When the motion to dismiss is a factual attack

on subject matter jurisdiction, however, no presumptive truthfulness attaches to the plaintiff's

allegations, and the existence of disputed material facts will not preclude the trial court from

evaluating for itself the existence of subject matter jurisdiction in fact. Thornhill, 594 F.2d

at 733.

A plaintiff has the burden of proving that jurisdiction does in fact exist. Thornhill, 594

F.2d at 733. Conclusory allegations of law and unwarranted inferences are insufficient to

defeat a motion to dismiss. Rosenbaum v. Syntex Corp., 95 F.3d 922, 926 (9th Cir.1996).

A motion to dismiss under Rule 12(b)(6) permits dismissal for "failure to state a claim

upon which relief can be granted." In these instances, review is limited to the contents of the

complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996). Such a motion may

also be granted if an affirmative defense or other bar to relief is apparent from the face of the

complaint, such as absolute immunity or the statute of limitations. 2A J. Moore, W. Taggart

& J. Wicker, Moore's Federal Practice, ¶ 12.07 at 12-68 to 12-69 (2d ed. 1991 & Supp.

1191-92) citing Imbler v. Pachtman, 424 U.S. 409, 96 S.Ct. 984, 47 L.Ed.2d 128 (1976).

Under the Federal Tort Claims Act (hereafter "FTCA"), subject to certain statutory

exceptions and limitations, the United States is liable in tort "in the same manner and to the

same extent as a private individual in like circumstances." 28 U.S.C. § 2674. Exclusive

subject matter jurisdiction is accorded to the federal district courts for civil actions for money

damages:

... 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

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occurred.

28 U.S.C. § 1346(b).

Defendant asserts that the Good Samaritan Doctrine only applies to physical safety

cases. Citing Love v. United States, 915 F.2d 1242 (9th Cir. 1990). In Love, the court

acknowledged that Montana recognized the Good Samaritan Doctrine and observed it is

"typically" applied to inspection services related to physical safety. Love, 915 F.2d at 1248.

In Love, economic harm resulted from the foreclosure on a Farmers Home Administration

loan.. The Court of Appeals upheld the dismissal of the Good Samaritan claim because

"(p)hysical safety was not implicated". Id.

The FTCA explicitly recognizes that there is no uniform circuit law on torts, but rather

the law of the state where the action arose controls. 28 U.S.C. § 1346(b), § 2674. In many

states, courts apply the Good Samaritan Doctrine only to physical harms to person or

property, not to pure economic harm. Shaner v. United States, 976 F.2d 990, 994 (6th Cir.

1992) (Ohio Law); St. Denis v. Department of Housing and Urban Development, 900

F.Supp. 1194, 1203-04, (D. Alaska 1995) (Alaska law); Audio Odyssey Ltd. v. United States,

243 F.Supp. 2d 951, 965 (S.D. Iowa 2003) (Iowa law). Arizona courts hold otherwise, "[t]he

volunteer may be liable for economic harm as well as physical harm." Lloyd v. State Farm

Mutual Insurance Co., 176 Ariz. 247, 250, 860 P.2d 1300, 1303 (App. 1992). In this case,

the fact that a safety inspection is not at issue, does not preclude recovery.

Defendant also argues that the Good Samaritan Doctrine only applies to hold a

government entity liable in situations where the activity in issue has no private sector

analogue; the present action then, is precluded because the private sector provides

commercial loans to farmers. The sole authority cited for this position is Judge Kozinski's

dissent to the certification of a question to the Arizona Supreme Court in Carroll v. United

States, 923 F.2d 752 (9th Cir. 1991). In Carroll, Judge Kozinski noted that the Good

Samaritan Doctrine "normally" is only applied by the federal government for activities that

have no private sector analogue. Id. at 753. Obviously, a dissenting opinion has no

precedential value. Moreover, the notion that liability only incurs where there is no private

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sector analogue is contrary to the explicit directive of the FTCA that liability attaches in

instances where a private person would be liable. 28 U.S.C. § 1346(b). Additionally, the

Supreme Court specifically instructed the federal courts to look for a private person analogy

in a federal mine safety inspection case. United States v. Olson, ____ U.S. ____, 126 S.Ct.

510, 513 (2005). Defendant's argument that because a private analogue (commercial

banking) exists, the claim fails, is unavailing.

The question remains whether Arizona law applies the Good Samaritan Doctrine to

the facts of this case. In essence, the question which was certified to the Arizona Supreme

Court in Carroll, and to date remains unanswered, needs to be resolved in this case. 

The Good Samaritan Doctrine, states:

One who undertakes, gratuitously or for consideration, to render

services to another which he should recognize as necessary for

the protection of the other's person or things, is subject to

liability to the other for physical harm resulting from his failure

to exercise reasonable care to perform his undertaking, if

(a) his failure to exercise such care increases the risk of such 

 harm, or

(b) the harm is suffered because of the other's reliance upon the

 undertaking.

Restatement of Torts, Second, § 323. 

The Court must apply this doctrine to two separate circumstances in this case: the

processing of the Renterias' loan application; and the distribution of funds for their approved

loan. The complaint, as drafted, necessitates that the Court analyze the Renterias' claims by

crop year.

1. CROP YEAR 2000

The Renterias applied for acquisition and operating loans from FSA in September

1999, but the loans were not approved until September 2000. Id. ¶18. As a result, the

Renterias missed the entire 2000 crop year and lost a full year's potential income. Id. ¶21.

The Renterias allege that FSA was negligent in processing the loan application. Id. ¶¶ 19,

20, 21.

While the Renterias concede that initially FSA had no duty to accept their loan

applications, they argue that once FSA accepted their application, it had the obligation to use

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reasonable care in processing their loan. As support, the Renterias cite Restatement of Torts.

While § 323 does establish a duty on those who gratuitously render service to another,

the harm that is suffered must be "because of the other's reliance upon the undertaking."

Restatement (Second) of Torts, § 323(b). In Florida Auto Auction of Orlando, Inc. v. United

States, 74 F.3d 498 (4th Cir. 1996), auto auction companies sued the Federal Government on

theories of negligence and conversion because customs officials allowed automobiles to be

exported without presentment of a certificate of title as required by federal regulation. The

court found no evidence that the auto auction companies relied on customs officials to

enforce the certificate of title requirement to protect their interest. Florida Auto Auction of

Orlando, Inc., 74 F.3d at 505. Thus, the negligence claim based on the Good Samaritan

Doctrine failed. See also, Moody v. United States, 774 F.2d 150, 156-57 (6th Cir. 1985)

(Farmers Home Administration housing loan inspection regulations explicitly enacted to

protect the government thus, precluding the borrowers reliance thereon.). 

This need for reliance is emphasized not only in the explicit language of § 323, but

also in the comments to the Restatement:

The Institute expresses no opinion as to whether: (1) the making

of a contract, or a gratuitous promise, without in any way

entering upon performance, is a sufficient undertaking to result

in liability under the rule stated in this section.

See also, §323, comment d.

 In September 1999, the Renterias applied for acquisition and operating expense loans.

No doubt they expected the loan applications to be approved promptly. The Renterias,

however, were not legally entitled to rely on those expectations. FSA could have denied

their application in September 2000, or earlier, leaving the Renterias with no claim,

whatsoever, for damages. In fact, their loan could have even been approved, but not

immediately funded, due to a lack of sufficient funds within the Agency. 7 U.S.C. §

1983a(4). Pragmatically, the Renterias could not rely on the loan proceeds for their business

until the loan was in some way approved, as opposed to being denied or placed in pending

status due to lack of funds. Since this approval did not occur until it was too late to plant

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crops for the 2000 crop year, the Renterias reasonable reliance in the efforts made by the

FSA cannot be established. The Court finds that the Renterias have stated no claim for crop

year 2000.

2. CROP YEAR 2001

The Renterias complain that they suffered damages because the loan proceeds were

not timely distributed. They also allege that FSA did not advise them of a herbicide residue

that would likely lead to the failure of the planned chili crop. The late distribution of the loan

proceeds apparently caused the Renterias to incur $60,000 in labor costs to manually weed

the crop. (The offset for the cost of the unapplied herbicide is not indicated in the

Complaint.) Manual weeding did not affect the success of the crop. Rather, the herbicide

residue problem caused the loss of the entire crop.

As discussed above, the point when the loan is approved was the first time the

Renterias could reasonably rely on the efforts of FSA to distribute the loan timely. The facts

alleged in the Complaint do not sufficiently apprise the Court that the Renterias reasonably

relied on FSA's loan processing efforts. Nor do the facts indicate that the loan distribution

was indeed untimely. However, a claim for relief on the issue of the cost of manually

weeding the crop is stated.

With respect to the issue that the herbicide residue caused the chili crop to fail, while

sounding as a misrepresentation claim, can be legitimately stated as a claim for failing to use

reasonable efforts in processing the loan. The Renterias theorize that FSA negligently

approved their loans knowing that the chili crop would fail due to the herbicide residue. In

effect, the FSA approved a loan it knew could not be repaid. Defendant attempts to segregate

the misrepresentation element of these events from the loan processing elements:

In this regard, defendant is incorrect that plaintiffs' claim is

based on its agent's failure to disclose herbicide residue on

plaintiffs' property. Regardless of whether or not defendant,

through its agents, chose to disclose the presence of herbicide

residue, and regardless of whether it had a duty to do so,

defendant was negligent if it approved a loan knowing that it

could not be repaid and thereafter instituted collection efforts

against plaintiffs, causing them to file for bankruptcy. In other

words, defendant's had a duty to follow basic lending practices

in approving loans to individuals not able to repay them or

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where defendant knew, as is alleged here, that the collateral

would likely be impaired. This duty is unrelated to the reason

for the applicant's ineligibility for a loan, whether it be an

unknown condition about the property or poor creditworthiness.

Defendant's Response, p. 7, fn. 3.

Given the pernicious practices of payday lenders and real estate speculators lending

money to those in danger of mortgage defaults, the world might well be a better place if

lenders had a duty to the borrower to determine the borrower's ability to repay the loan. No

such duty exists. The lender's efforts to determine the creditworthiness and ability to repay

by a borrower are for the lender's protection, not the borrower's. Here again, the missing

element is reliance. The Renterias cannot establish any right to reasonably rely on FSA's

determination of their ability to repay the loan. Rather, the Renterias had to rely on their own

judgment and risk assessment to determine whether or not to accept the loan. 

The Court finds that the claim that FSA negligently loaned money to the Renterias

fails for lack of a duty. Therefore, the claims related to the failed 2001 crop year and the

defaulted loans must be dismissed.

This determination does not negate the claim for the increased expenses for the

manual weeding. Those increased expenses would still be a harm to the Plaintiffs regardless

of whether the crop was ultimately successful.

3. CROP YEAR 2002

The Renterias argue that the loan default in 2001 caused them to be unable to obtain

loans for the 2002 crop year. As discussed above, FSA had no duty to prevent the Renterias

from entering into and ultimately defaulting on the 2001 crop year loans. As a result, the

Renterias' inability to obtain loans for the 2002 crop year is not attributable to any breach of

a duty by FSA. The Court finds that the claim for lost profits for the 2002 crop year must

be dismissed.

Additionally, the Renterias' claim that they were unable to plant alfalfa on a leased

farm in the Fall of 2002. The allegations of the Complaint, [¶¶ 40-46] indicate that the

Renterias had been approved for AMTA payments to be used for planting alfalfa on Mr.

Hardy's farm. The Renterias claim that FSA was negligent in contacting Mr. Hardy and in

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communicating the need for a bankruptcy court order authorizing FSA to distribute the

AMTA payments. Because these AMTA payments apparently had been approved, The

Renterias could rely on FSA to use reasonable efforts to timely distribute those funds. The

Court finds that, this claim survives the Defendant's Motion To Dismiss.

Therefore, it is the Report and Recommendation of this Court that the District Judge,

after her independent review of the Record enter an order as follows:

1. GRANT Defendant's Motion To Dismiss [Dkt 9] in part and DENY in part.

2. That Plaintiffs' claim related to FSA's negligent failure to timely disburse funds to

allow herbicide treatment for the 2001 crop year and alfalfa seeding on the leased

farm in the 2002 crop year survives the Motion To Dismiss. 

3. That all other claims are dismissed for failure to state a claim on which relief can be

granted.

4. That the caption is amended to designate the Defendant solely as the United States of

America.

5. A Scheduling Conference is set for MONDAY, JULY 5, 2006, AT 1:30 P.M. The

conference will be conducted in Judge Pyle's Chambers [Chambers 5660].

Pursuant to 28 U.S.C. § 636(b), the parties have ten (10) days from the date of this

Report and Recommendation to file written objections to these findings and

recommendations with the District Court. Any objections filed should be filed as CV 05-

00532-TUC-CKJ.

DATED this 15th day of May, 2006.

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