1 The bank acted as a depository for receiving and crediting

of payments on Saraw's VA loans. United States Court of Appeals, 1

2

Fifth Circuit. 3

4

No. 94-41204. 5

6

SARAW PARTNERSHIP, et al., Plaintiffs-Appellants, 7

8

v. 9

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UNITED STATES of America, et al., Defendants-Appellees. 11

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Oct. 31, 1995. 13

14

Appeal from t he United States District Court for the Eastern 15

District of Texas. 16

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Before REYNALDO G. GARZA, KING and HIGGINBOTHAM, Circuit Judges. 18

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REYNALDO G. GARZA, Circuit Judge: 20

21

Background 22

23

Saraw Partnership, Wilburn A. Roberts, Shirley J. Roberts, and 24

Robert Schlegel (collective ly Saraw or the partnership) sued the 25

United States and Citizens and Southern National Bank (the bank) 26

pursuant to the Federal Tort Claims Act (FTCA) for al leged 27

mishandling of a Veterans' Administra tion (VA) loan. 1 The 28

partnership was formed in 1984 for the purpose of acquiring 29

residential real property which was in the process of being 30

foreclosed on or had already been foreclosed. Saraw would improve 31

the property for rental use and eventual sale. In the same year 32

that it was formed, Saraw purchased parcels of real estate from the 33

United States, acting through the VA. Saraw executed nine 34

promissory notes in favor of the VA, each of which was given an 35

internal loan number by VA. 36

This disp ute centers on the purchase of a property in 37Jefferson County, Texas. The VA financed the purchase of the 1

property and assigned it Loan # 28541. Saraw was to make monthly 2

loan payments to VA and VA was to send a payment coupon on each 3

loan. The payment coupon contained information such as the payment 4

due date, the amount due, and the VA loan number. The VA sent 5

Saraw payment coupons for all of the loans except Loan # 28541. 6

This failure to send payment coupons for Loan # 28541 apparently 7

was caused by an erroneous computer data entry made by one of the 8

VA's employees. Saraw notified the VA that it did not have a 9

payment coupon for the loan and sent the payment for Loan # 28541 10

with other payments, designating the checks for Loan # 28541. 11

Saraw alleged that the payments it sent for Loan # 28541 were 12

applied to their various other loans, allowing Loan # 28541 to fall 13

into arrears. The bank was not permitted to credit loan payments 14

without payment coupons attached. As a result, the VA twice 15

foreclosed on the property securing Loan # 28541, placed a cloud on 16

Saraw's title, continued to demand payments for Loan # 28541 and 17

refused to account for and return Saraw's prior payments. During 18

the period 1987-1989, Saraw continued to make payments on Loan # 19

28541 while it worked with VA to resolve the dispute. VA admitted 20

by letter that the problem arose because of erroneous data entry 21

and VA's failure to correct that erroneous entry. 22

Saraw settled its claim against t he bank but pursued its 23

action against the VA, claiming that the VA acted negligently in 24

the handl ing of Saraw's loans. The parties consented to have a 25

magistrate ju dge conduct the proceedings. Several pleadings 26

followed. The magistrate judge granted Saraw's motion to file a 27fifth amended complaint but then considered the United States' 1

alternative motions for dismissal or summary judgment. Holding 2

that the majority of Saraw's claims were barred under 28 U.S.C. § 3

2680(h) as arising under the tort of misrepresen tation, the 4

magistrat e judge dismissed the action for lack of subject matter 5

jurisdiction. Saraw moved for a new trial and new judgment. The 6

court denied Saraw's motion and Saraw timely appealed. We hear the 7

appeal to decide whether the plaintiffs have alleged an action 8

under misrepresentation which is barred or have made a permissible 9

negligence claim under FTCA. 10

Discussion 11

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A. Standard of Review 13

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We review de novo the magistrate judge's grant of the Rule 15

12(b)(1) motion to dismiss for lack of subject matter jurisdiction. 16

Hobbs v. Hawkins, 968 F.2d 471, 475 (5th Cir.1992). This Court 17

will not affirm the dismissal "unless it appears certain that the 18

plaintiff[s] cannot prove any set of facts in support of [their] 19

claim which would entitle them to relief." I d. (internal quotation 20

and citation omitted). Since this matter comes to us from a 21

dismissal pursuant to Fed.R.Civ.P. 12(b)(1), we must take as true 22

all of the allegations of the complaint and the facts as set out by 23

the appellant. G arcia v . United States, 776 F.2d 116, 117 (5th 24

Cir.1985). Because we find that plaintiff could prove facts 25

demonstrating negligent performance of an operational task on the 26

part of the United States, we reverse the decision of the 27

magistrate judge. 28

B. Liability Under FTCA 29

30The United States as a sovereign is immune from suit except 1

as it has consented to suit. W illiamson v. U.S.D.A., 815 F.2d 368, 2

373 (5th Cir.1987). The FTCA provides that the United States can 3

be liable in tort for any 4

negligent or wrongful act or omission of any employee of the 5

G overnment while acting within the scope of his emplo yment, 6

under circumstances where the United States, if a private 7

person, would be liable to the claimant in accordance with the 8

law of the place where the act or omission occurred. 9

10

28 U.S.C. § 1346(b). There are several exceptions to this consent 11

to be sued which must be strictly construed in favor of the 12

government. A torie Air Inc. v. F.A.A., 942 F .2d 954, 958 (5th 13

Cir.1991). The exception relevant to this dispute is that which 14

bars claims "arising out of

... misrepresentation." 28 U.S.C. § 15

2680(h). This exclusion encompasses claims for negligent as well 16

as intentional misrepresentation. W illiamson, 815 F.2d at 377 & n. 17

8. It also covers both affirmative acts of misrepresentation and 18

omissions of material fact. M cNeily v. United States, 6 F.3d 343, 19

347 (5th Cir.1993). 20

The magistrate judge d ismissed on the grounds that the 21

plaintiffs alleged the tort of misrepresentation, stating that 22

Although the chain of events in this case may have started 23

with a mistake in key-punching an address on a computer data 24

sheet, the damages asserted in this case were caused by the 25

government allegedly failing to communicate to the plaintiff 26

that there was a problem with its loan payments. 27

28

Saraw claims contra that its alleged damages arose primarily from 29

the negligent keystroke. The government asserts that the 30

magistrat e judge properly held that any damages arose from VA's 31

alleged failure to communicate to Saraw the problems with the loan; 32

thus Saraw's claim is barred under the misrepresentation exclusion 33of FTCA, 28 U.S.C. 2680. 1

As is evident fromthis conflict, the line between what 2

constitu tes a permissible negligence claim and a barred 3

mis representation claim has not been clearly delineated. This 4

Circuit has no clear precedent commanding a result in this case. 5

However, the 9th Circuit recently had a chance to consider the 6

troublesome distinction between negligence and misrepresentation in 7

a case involving facts similar to those now before us. 8

In Mundy v. U.S., 983 F.2d 950 (9th Cir.1993), the plaintiff 9

(Walter Mundy, a Nort hrop Corporation employee) sued the United 10

States under the FTCA for negligently handling his request for a 11

higher security clearance. The government misfiled a document and 12

then overlooked that document during the processing of his security 13

clearance, re sulting in a denial of security clearance. The 14

government then communicated the result of the security clearance 15

process to the plaintiff's employer who promptly termi nated the 16

plaintiff. The issue in that case was whether the plaintiff's 17

claim was based on negligent misrepresentation from the government 18

or from its negligent performance of an operational task. The 19

court turned to United States v. Fowler, 913 F.2d 1382, 1387 (9th 20

Cir.1990) for guidance: 21

Courts have had difficulty in determining whether a claim is 22

one for misrepresentation. The concept is slippery; any 23

misrepresentation involves some underlying negligence and any 24

negligence action can be characterized as on e for 25

misrepresentation because anytime a person does something he 26

explicitly or implicitly represents that he will do the thing 27

n on-negligently. G uild v. United States, 685 F.2d 324, 325 28

(9th Cir.1982). To determine whether a claim is one for 29

misrepresentation or negligence the court examines the 30

distinction 31

32

between the performance of operational tasks and the 332 Cf. Redmond v. United States, 518 F.2d 811 (7th Cir.1975)

(where misrepresentations were the sine qua non in chain of

causative events on which claim of complaint was founded, claim

communication of information. The government is liable 1

for injuries resulting from negligence in performance of 2

operational tasks even though misrepresentations are 3

col laterally involved. It is not liable, however, for 4

injuries resulting from commercial decisions made in 5

reliance on government misrepresentations. Fowler, 913 6

F.2d at 1387 (quoting Guild, 685 F.2d at 325). 7

8

Mundy, 983 F.2d at 952. The Mundy court reasoned that 9

Mundy's negligence claim focuses on the performanc e of an 10

operational task—the processing of a requested security 11

clearance—rather than the communication of information.... 12

Although the government necessarily communicated the result of 13

this operational task to Northrop, the communication was not 14

a misrepresentation: the security clearance had in fact been 15

denied. Viewed in this way, the communication was only 16

collaterally involved in Mundy's inquiry . The government's 17

alleged operational error—overlooking a misfiling in 18

processing Mundy's security clearance—remains the focal point 19

of this suit. 20

21

Id. Thus the Ninth Circuit held that the claim was not based on a 22

misrepresentation and allowed the claim. I d. at 953. The 23

communication—the accurate conveyance of the results of the 24

security clearance processing—was only collaterally involved; the 25

negligence at the heart of Mundy's claims lay in the processing 26

errors of misfiling and the failure to discover the misfiling. I d. 27

The court below correctly cited Mundy but incorrectly applied 28

it to the facts of this case. In our estimation, the decision of 29

the magistrate judge misapprehends the source of this conflict and 30

the nature of misrepresentation. We will look to the essential act 31

that spawned the damages. In doing so, we reach a conclusion 32

similar to that of the Ninth Circuit. 33

The erroneous keypunch for Loan # 28541 was the causa sine qua 34

non for all the problems that followed. 2 This case is not about 35was barred under 28 U.S.C. § 2680(h)).

reliance on faulty informati on or on the lack of proper 1

information; rather, the gist of this case is the government's 2

careless handling of Saraw's loan payments. As in M undy, any lack 3

of communication on the government's part seems collateral to the 4

fact of the mishandling of Saraw's payments. The court erroneously 5

characterized Saraw's claim as one under misr epresentation. The 6

proper focal point of this suit is th e alleged 7

negligently-performed operational task of the governm ent. Thus, 8

Saraw should be allowed to bring an action under FTCA. 9

Additionally, we note that "the essence of an action for 10

misrepresentation is the communication of misinformation on which 11

the recipient relies. " B lock v. Neal, 460 U.S. 289, 296, 103 S.Ct. 12

1089, 1093, 75 L.Ed.2d 67 (1983) (emphasis added). The record in 13

this case is replete with evidence that Saraw did not rely on the 14

lack of communication by VA that there were problems with the loan. 15

Rather, Saraw notified VA when the payment coupon was noticed to be 16

missing and has attempted since then on numerous occasions to undo 17

the effects of the erroneous keypunch. Saraw continued to make 18

payments precisely to avoid the kind of harm apparently caused by 19

the government's erroneous keypunch (foreclosure, clouded title, 20

etc...). Where there is no detrimental reliance on an alleged 21

miscommunication, no claim for misrepresentation is made. W are v. 22

United States, 626 F.2d 1278, 1283 (5th Cir.1980). We believe 23

under these facts that the misrepre sentation exclusion does not 24

apply. 25

We REVERSE the dismissal by the court below and REMAND for 26further proceedings in accordance with the opinion of this Court. 1

2