1The bank acted as a depository for receiving and crediting

of payments on Saraw's VA loans. 

1 United States Court of Appeals,

2

3 Fifth Circuit.

4

5 No. 94-41204.

6

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

8

9 v.

10

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

12

13 Oct. 31, 1995.

14

15 Appeal from the United States District Court for the Eastern

16 District of Texas.

17

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

19

20 REYNALDO G. GARZA, Circuit Judge:

21

22 Background

23

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

25 Robert Schlegel (collectively Saraw or the partnership) sued the

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

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

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

29 partnership was formed in 1984 for the purpose of acquiring

30 residential real property which was in the process of being

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

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

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

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

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

36 internal loan number by VA.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

23 Saraw settled its claim against the bank but pursued its

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

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

26 magistrate judge conduct the proceedings. Several pleadings

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

2 alternative motions for dismissal or summary judgment. Holding

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

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

5 magistrate judge dismissed the action for lack of subject matter

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

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

8 appeal to decide whether the plaintiffs have alleged an action

9 under misrepresentation which is barred or have made a permissible

10 negligence claim under FTCA.

11 Discussion

12

13 A. Standard of Review

14

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

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

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

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

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

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

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

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

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

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

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

26 demonstrating negligent performance of an operational task on the

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

28 magistrate judge.

29 B. Liability Under FTCA

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

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

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

4 be liable in tort for any

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

6 Government while acting within the scope of his employment,

7 under circumstances where the United States, if a private

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

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

10

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

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

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

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

15 bars claims "arising out of ... misrepresentation." 28 U.S.C. §

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

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

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

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

20 347 (5th Cir.1993).

21 The magistrate judge dismissed on the grounds that the

22 plaintiffs alleged the tort of misrepresentation, stating that

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

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

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

26 government allegedly failing to communicate to the plaintiff

27 that there was a problem with its loan payments.

28

29 Saraw claims contra that its alleged damages arose primarily from

30 the negligent keystroke. The government asserts that the

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

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

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

2 As is evident from this conflict, the line between what

3 constitutes a permissible negligence claim and a barred

4 misrepresentation claim has not been clearly delineated. This

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

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

7 troublesome distinction between negligence and misrepresentation in

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

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

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

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

12 higher security clearance. The government misfiled a document and

13 then overlooked that document during the processing of his security

14 clearance, resulting in a denial of security clearance. The

15 government then communicated the result of the security clearance

16 process to the plaintiff's employer who promptly terminated the

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

18 claim was based on negligent misrepresentation from the government

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

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

21 Cir.1990) for guidance:

22 Courts have had difficulty in determining whether a claim is

23 one for misrepresentation. The concept is slippery; any

24 misrepresentation involves some underlying negligence and any

25 negligence action can be characterized as one for

26 misrepresentation because anytime a person does something he

27 explicitly or implicitly represents that he will do the thing

28 non-negligently. Guild v. United States, 685 F.2d 324, 325

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

30 misrepresentation or negligence the court examines the

31 distinction

32

33 between the performance of operational tasks and the
 

2Cf. 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

1 communication of information. The government is liable

2 for injuries resulting from negligence in performance of

3 operational tasks even though misrepresentations are

4 collaterally involved. It is not liable, however, for

5 injuries resulting from commercial decisions made in

6 reliance on government misrepresentations. Fowler, 913

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

8

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

10 Mundy's negligence claim focuses on the performance of an

11 operational task—the processing of a requested security

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

13 Although the government necessarily communicated the result of

14 this operational task to Northrop, the communication was not

15 a misrepresentation: the security clearance had in fact been

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

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

18 alleged operational error—overlooking a misfiling in

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

20 of this suit.

21

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

23 misrepresentation and allowed the claim. Id. at 953. The

24 communication—the accurate conveyance of the results of the

25 security clearance processing—was only collaterally involved; the

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

27 errors of misfiling and the failure to discover the misfiling. Id.

28 The court below correctly cited Mundy but incorrectly applied

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

30 the magistrate judge misapprehends the source of this conflict and

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

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

33 similar to that of the Ninth Circuit.

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

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

1 reliance on faulty information or on the lack of proper

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

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

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

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

6 characterized Saraw's claim as one under misrepresentation. The

7 proper focal point of this suit is the alleged

8 negligently-performed operational task of the government. Thus,

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

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

11 misrepresentation is the communication of misinformation on which

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

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

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

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

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

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

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

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

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

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

22 miscommunication, no claim for misrepresentation is made. Ware v.

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

24 under these facts that the misrepresentation exclusion does not

25 apply.

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

2