## United States Court of Appeals for the Federal Circuit 2008-5114, -5115

FRANCISCO JAVIER RIVERA AGREDANO and ALFONSO CALDERON LEON, Plaintiffs-Cross Appellants,

v. UNITED STATES, Defendant-Appellant.

Teresa Trucchi , Suppa, Trucchi and Henein LLP , of San Diego, California, argued for plaintiffs-c ross appellants. Patricia M. McCarthy , Trial Attorney, Commercial Li tigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendantappellant. With her on the brief were Tony West , Assistant Attorney General, and Jeanne E. Davidson , Director. Of counsel on the brief were Devin A. Wolak , Trial Attorney, and Christopher J. Duncan , Attorney, Office of As sistant Chief Counsel, Department of Homeland Security, United Stat es Customs and Border Protection, of San Diego, California. Appealed from: United States Court of Federal Claims Chief Judge Emily C. Hewitt

## United States Court of Appeals for the Federal Circuit

2008-5114, -5115 FRANCISCO JAVIER RIVERA AGREDANO and ALFONSO CALDERON LEON, Plaintiffs-Cross Appellants,

v. UNITED STATES, Defendant-Appellant. Appeals from the United States Court of Federal Claims in 05-CV-608, Chief Judge Emily C. Hewitt.

__________ ________________ DECIDED: February 17, 2010

__________________________ Before MAYER, CLEVENGER, and DYK, Circuit Judges

. Opinion for the court filed by Circuit Judge MAYER. Concurring opinion filed by Circuit Judge DYK. MAYER, Circuit Judge

. The United States appeals t he judgment of the Court of Federal Claims holding that United States Custom s and Border Protection (“Cus toms”) breached an implied-infact warranty when it inadvertently sold a vehicle containing concealed narcotics to Francisco Javier Rivera Agredano. See Agredano v. United States , 82 Fed. Cl. 416 (2008). Because the court erred in find ing an implied warrant y in the agreement between Customs and Agredano, we reverse

.BACKGROUND Agredano attended a Customs auction of forf eited vehicles on September 5, 2001. In order to participate in the aucti on, Agredano was requir ed to sign a bidder registration form stating that he “agree[d] to comply with the terms of sale contained in the sale catalog for this sale.” The sale catalog, in turn, stated: The vehicles offered to you for purchase at any U.S. Customs Auction are sold “AS IS, WHERE IS” . This means that nei ther U.S. Customs or McCormack Auction Company, or EG & G Dynatrend, extend any warranties or promises of any kind regarding any aspe ct of the vehicle or its ability to operate, in cluding but not limited to the vehicle’s identity, previous ownership, physical condition, registration status, or ability to pass a smog certification. A second disclaimer, printed on a flyer displayed at the auction, stated “[a]ll merchandise is sold on an ‘AS IS, WHERE IS ’ basis, without warrant y or guarantee as to condition, fitness to use, or merchantability stated, impli ed or otherwise. Please bid from your personal observations.” Agredano purchased a 1987 Nissan Pathfinder at the auction. The vehicle had been seized by Customs and forfeited when it s previous owner attempted to transport marijuana across the Mexican border into the United States. While Customs agents detected and removed some of the marijuana at that time, mo re remained in the vehicle unbeknownst to Customs or Ag redano. Several months afte r the auction, on January 24, 2002, Agredano was traveli ng in the Pathfinder in Mexi co with Alfonso Calderon Leon, his business partner and brother-in-la w. The two men were stopped at a checkpoint by Mexican soldiers who in spected the vehicle and found the hidden marijuana. Both men were arrested and s pent nearly a year in prison before being exonerated by a Mexican appel late court on January 10, 2003.

2008-5114, -5115 2Agredano and Leon jointly fil ed a claim against the Unit ed States in the United States District Court for the Southern District of California pursuant to the Federal Tort Claims Act (“FTCA”), 28 U.S.C. §§ 1346(b), 2671-2680, alleging, inter alia , negligence and breach of contract. While the case was pending, the Supreme Court issued its decision in Sosa v. Alvarez-Machain , which held that a statut ory exception to the FTCA “bars all claims based on any injury suffer ed in a foreign country, regardless of where the tortious act or omission occurred. ” 542 U.S. 692, 712 ( 2004). Relying on Sosa , the district court granted the gover nment’s motion for summary j udgment. The parties then stipulated to the filing of an amended complaint, alleging only contract claims, and the transfer of the action to the Court of Federal Claims. The Court of Federal Claim s held that a contract ar ose when Agredano agreed to purchase and Customs agreed to sell the Pathfinder, the cont ract contained an impliedin-fact warranty that the vehicle did not c ontain contraband, and Customs breached this warranty. Agredano , 82 Fed. Cl. at 452. The cour t awarded damages for Agredano’s past and future medical bills, past and future psychiatric treatment, attorney fees in connection with the criminal proceedings in Mexico, and costs incurred by Agredano’s family to visit him in prison. Id. The trial court denied third- party beneficiary status to Leon, denied Agredano’s r equest for damages for emotional distress, and held that Customs did not violate t he implied covenant of good faith and fair dealing. Id. at 428- 29, 447, 451-52. The Un ited States appeals the finding of an implied-in-fact warranty. Agredano and Leon cross- appeal as to third-party beneficia ry status for Leon, damages

2008-5114, -5115 3for emotional distress, and the implied covenant of good fait h and fair dealing. 1 We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3). DISCUSSION We review the Court of Federal Claims’s decision de novo for errors of law and for clear error on findings of fact. Ind. Mich. Power Co . v. United States , 422 F.3d 1369, 1373 (Fed. Cir. 2005). Contract interpretati on is a matter of law, and is therefore reviewed de novo

. St. Christopher Assocs., L.P. v. United States , 511 F.3d 1376, 1380 (Fed. Cir. 2008). “[T]o recover for a breach of warranty, a plaintiff must allege and prove (1) that a valid warranty existed, (2) the warranty was br eached, and (3) plaintiff’s damages were caused by the breach.” Hercules Inc. v. United States , 24 F.3d 188, 197 (Fed. Cir. 1994). At issue in this case is the first prong. It is undisputed that Customs made no express warranties regarding the vehicle, and the trial court appropriately determined that it did not have jurisdiction to entertain a claim that a warranty was implied-in-law. Agredano , 82 Fed. Cl. at 430 (citing Hercules, Inc. v. United States , 516 U.S. 417, 423 (1996)). Instead, the trial court held that the contract between Agredano and Customs contained an implied-in-fact warranty that the Pathfinder was free of contraband, despite the disclaimers of warranty made by Customs at the auction. As the trial court correctly stated, an agreement implied- in-fact requires a “‘meeting of minds’” that can be inferred from the conduct of the parties. Id. at 440 (quoting Baltimore & Ohio R.R. , 261 U.S. 592, 597 (1923)). We have found implied

1 Agredano and Leon also ar gue that we should transfer the FTCA claims they raised in the Southern District of Califo rnia to the United Stat es Court of Appeals for the Ninth Circuit. Because these clai ms were not before the Court of Federal Claims, we lack jurisdiction over them.

2008-5114, -5115 4warranties only where “the circ umstances strongly supported a factual inference that a warranty was implied.” Lopez v. A.C. & S., Inc. , 858 F.2d 712, 715 (Fed. Cir. 1988). The trial court held that the actions of Agredano and Customs, indicating that both parties believed the Pathfinder was fr ee of contraband, demons trate the requisite meeting of the minds to form an implied warranty. Agredano , 82 Fed. Cl. at 440. The foundation of the parties ’ belief is an expectation that Cu stoms had fulfilled its regulatory duty to remove any contraband from the vehicle before selling it. Id. at 437 (“The officers and agents of Customs are tasked with the duty to identify and remove all contraband from vehicles that cross into the United States.”). However, Customs’ responsibility to remove contraband from forfeited vehicles does not provide a contractual warranty to future purchasers of the vehicles that it has done so. D & N Bank v. United States , 331 F.3d 1374, 1378-79 (Fed. Cir. 2003) (“An agency’s performance of its regulator y or sovereign functions does not create contractual obligations.”). While Agredano is correct th at the sale of the vehicle was a commercial transaction, not a regulatory function, the source of any re sponsibility on the part of Customs to search vehicles and remove c ontraband is its regulatory function and a failure to adequately perform this responsibility does not provide a contractual remedy. The existence of an implied-in-fact warr anty is further undermined by the express disclaimers Customs made at the auction, wh ich show that Customs did not intend to make any warranty with regard to the vehicle. The meeting of t he minds required to form an implied-in-fact warranty therefore could not have occurr ed. The trial court held that Customs did not disclaim a warranty t hat the vehicle was free of contraband by interpreting the scope of disclaimer to be lim ited to “the construc tion, maintenance, and

2008-5114, -5115 52008-5114, -5115 6 mechanical operation of the vehi cle” and not extending to “a situation in which ‘the vehicle had been modified in a way that had no effect on its ability to function for transportation.’” Agredano v. United States , 70 Fed. Cl. 564, 572 (2006) (quoting Rodriguez v. United States , 69 Fed. Cl. 487, 498 (2006)). This interpretation ignores the language found in the sale catalog, which indica tes that the disclaimer goes beyond mechanical operation of the vehicle by st ating that no warranties are provided “regarding any aspect of the vehicle or its ability to operate” (emphasis added). The sale catalog offers as examples of aspec ts of the vehicle for which no warranty is provided the vehicle’s identit y, previous ownership, and r egistration status. These examples further demonstrate t hat the disclaimer is not limited to the ability of the vehicle to function for transportation. Cust oms clearly and unambiguous ly stated that it was not extending a warranty r egarding any aspect of the vehi cle, and it is incongruous to find that Customs impliedly warr anted what it expressly disclaimed. The issues of third-party beneficiary st atus and damages for emotional distress raised by Agredano and Leon in their cross-appeal ar e rendered moot by this decision. We have considered their argument that the government violated the implied covenant of good faith and fair dealing, and we concur wit h the trial court’s decision on this issue. CONCLUSION Accordingly, the judgment of the Court of Federal Claims is reversed. REVERSED

## United States Court of Appeals for the Federal Circuit

2008-5114, -5115 FRANCISCO JAVIER RIVERA AGREDANO and ALFONSO CALDERON LEON, Plaintiffs-Cross Appellants,

v. UNITED STATES, Defendant-Appellant. Appeals from the United States Court of Federal Claims in 05-CV-608,Chief Judge Emily C. Hewitt.

DYK, Circuit Judge , concurring. Absent a contractual warranty disclaimer, it seems to me that the sale of an automobile by the governm ent to a private purchaser likely carries with it an implied-infact warranty of fitness, including a warrant y that the vehicle does not contain illegal drugs. However, I agree with the majority that the contract here explicitly disclaimed all warranties, not just those relating to the operability of the vehicle. The government’s regulatory practice of inspec ting such vehicles for cont raband cannot overcome this disclaimer. I accordingly join the majority opinion.