No. 87-409h 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

ERNEST E. TOOKE and PEGGY TOOKE, 

Plaintiffs and Appellants, 

-VSTHE MILES CITY PRODUCTION CREDIT ASSOCIATION, 

a corporation, THE INTERSTATE PRODUCTION 

CREDIT ASSOCIATION, a corporation, and ALBERT 

VAN HAMLRYCK, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Sixteenth Judicial District, 

In and for the County of Carter, 

The Honorable Peter L. Rapkoch, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Gene Huntley argued, Baker, Montana 

For Respondent: 

George W. Huss, Brown and Huss; Miles City, Montana 

John D. Alexander, Ugrin, Alexander, Zadick & Slovak; 

Great Falls, Montana 

R. Alan Wight argued; Miller, Nash, Wiener, Hager & 

Carlsen, Portland, Oregon 

For Amicus Curiae: 

Brian J. Smith argued, (~eschamps), Missoula, Montana 

Theodore Thompson argued, (Steretts), Havre, Montana 

Warren C. Wenz argued, (R&C Farming & R5 Ranch), Great 

Falls, Montana 

Kenneth R. Dyrud argued, (Kenneth Sollid & Son) , Great 

Falls, Montana 

I- Martin S. King, (Western Mt. Prod. Credit), Missoula, 

6, nT 

0 Montana 

.-i Brad L. Arndorfer, (Miller & D&M Farms), Billings, 

-1 L.? . - Montana 

- # 

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Filed :g t- r 

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CO 52 

Submitted: September 13, 1988 

Decided: October 31, 1988 

Clerk 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

This is an appeal from the Sixteenth Judicial District 

Court, Carter County. The only issue is whether the District 

Court properly dismissed Appellants Tookes' tort claim 

against Respondents Miles City Production Credit Association, 

Interstate Production Credit Association, and Albert Van 

Hamlryck, (MCPCA) , for lack of subject matter jurisdiction. 

We reverse. (Production credit associations in general are 

hereinafter referred to as PCA's, and the Federal Tort CI-aims 

Act is hereinafter referred to as the FTCA). 

This Court has already issued one opinion affirming the 

District Court. That opinion appears at 45 St.Rep. 641. 

Subsequent to issuing the first opinion this Court granted 

Tookes' petition for rehearing, allowed further briefing by 

the parties and their amici, and heard oral argument. Our 

decision to reach a result opposite the first opinion issued 

is based on reconsideration of previously submitted 

authority, new authority, and recent federal district court 

decisions which continue to restrict federal subject matter 

jurisdiction in actions where PCA's attempt to invoke the 

FTCA . We hereby order the first opinion withdrawn and 

substitute this opinion in its place. 

Tookes alleged that MCPCA's actions on the Tookes' loan 

application amounted to breach of: fiduciary duty and 

constituted constructive and actual fraud. MCPCA moved to 

dismiss the suit contending that under the Federal Tort 

Claims Act subject matter jurisdiction for torts alleged 

against PCA's rested exclusively in federal court. See 28 

U.S.C. § 1346(b) (1982). The District Court agreed citing In 

the Matter of Sparkman (9th Cir. 1983), 703 F.2d 1097, and 

Towery v. Willamette PCA (Dist. Ct. Ore. Sept. 19, 1983), No. 
83-28BE. Towery relied on Sparkman to dismiss a tort claim 

in state court against an Oregon PCA. 

On appeal, Tookes argue that Sparkman does not apply, 

and that PCA's are exempted from FTCA coverage. Their 

arguments are premised on the fact that; (1) Congress 

authorized suit against PCA's in the Farm Credit System 

legislation, (2) Congress provided for an exemption for 

PCA's in the FTCA, and (3) under the test set out in Lewis v. 

United States (9th Cir. 1982), 680 F.2d 1239, PCA's are not 

instrumentalities for purposes of the FTCA. 

Tookes present the further argument on rehearing that 

our first decision in this case effectively denies tort 

claimant's access to court for prosecution of claims against 

PCA's because the Montana Federal District Courts continue to 

deny federal jurisdiction of such causes of action. See 

Federal Land Bank of Spokane v. Stiles (D. Mont. March 1, 

1988), No. CV 86-69-M-CCL (citing Sterrett v. Milk River PCA 

(D. Mont. 1986), 647 F.Supp. 299). In particular, Tookes 

assert that the denial of a forum for their claim violates 

their rights under the Montana Constitution, Article 11, 

Section 16. 

MCPCA responds that: (1) Sparkman controls the extent of 

the waiver of sovereign immunity granted by the Farm Credit 

System legislation for tort claims against PCA's, (2) PCA's 

were not exempted from FTCA coverage even though some of the 

Farm Credit System's components are arguably exempted, and 

(3) Sparkman provides the test for determining whether PCA's 

are instrumentalities for purposes of the FTCA. 

MCPCA also responds to Tookes' argument on the rights 

guaranteed by the Montana Constitution, Article 11, Section 

16, by asserting that sovereign immunity protections fall 

outside the constitutional guarantees. 
MCPCA points out that tort claims against 

instrumentalities acting primarily as agents of the United 

States must be pursued according to the FTCA. 28 U.S.C. S 

2671 (1982). And tort claims cognizable under the sovereign 

immunity waiver in the FTCA must be brought in federal 

district court. 28 U.S.C. S 1346 (b) (1982) . The farm credit enabling legislation provides 

instrumentality status for PCA's. 113 U.S.C. S 2091 (1982). 

And at least in regard to state taxation, Congress protected 

PCA's by granting them instrumentality status. 12 U.S.C. § 

2098 (1982) . MCPCA argues that these statutes and Sparkman 

demonstrate that PCA's are instrumentalities for purposes of 

applying the FTCA. 

Tookes argue that despite the instrumentality status of 

PCA's, they are subject to state court jurisdiction on tort 

claims. Tookes point out that Sparkman relied on general 

principles of sovereign immunity rather than the FTCA to find 

protection from punitive damages for PCA's. The more 

specific authority, Lewis, allows state court jurisdiction, 

according to Tookes. We agree with Tookes that Lewis 

controls over Sparkman. 

In Sparkman the Ninth Circuit Court of Appeals reviewed 

a decision from bankruptcy court where the debtor's 

counterclaim in tort sought punitive damages from the 

creditor PCA. The bankruptcy court refused to hold the PCA 

liable for punitive damages. The Court of Appeals relied on 

general principles of sovereign immunity to affirm the 

decision. Sparkman, 703 F.2d at 1100. The fact that 

Sparkman relied on general principles of sovereign immunity 

rather than the FTCA is evident by its citation of Painter v. 

Tennessee Valley Authority (5th Cir. 1973), 476 F.2d 943. 

Painter held that sovereign immunity protected the Tennessee 

Valley Authority from punitive damages. Painter, 476 F.2d at 
944. However, Painter is not a FTCA case because the 

Tennessee Valley Authority is specifically exempted from the 

agencies and instrumentalities covered in the FTCA. 28 

U.S.C. S 2680(1) (1982). Thus, Sparkman did not decide the 

issue before us in this case. 

Nevertheless, Sparkman stands for the proposition that 

current federal law grants some of the benefits of sovereign 

immunity to PCA's. According to the Court, 

The sovereign, along with its agencies and 

instrumentalities, enjoys immunity from suit unless 

it waives that immunity. Federal Housing 

Administration v. Burr, 309 U.S. 242, 244, 60 S.Ct. 

488, 490, 84 L.Ed. 724 (1940). A federal 

instrumentality, therefore, retains its immunity 

from punitive damages unless Congress explicitly 

authorizes liability for such damages. 

Sparkman, 703 F. 2d at 1101 (emphasis in original) . The case 

also makes it clear that the waiver of sovereign immunity as 

found in the sue and be sued provision in the PCA enabling 

legislation does not waive all sovereign immunity 

protections. Sparkman, 703 F.2d at 1101. And generally, 

waivers of sovereign immunity are to be strictly construed. 

Library of Congress v. Shaw (1986), 478 U.S. 310, 106 S.Ct. 

2957, 92 L.Ed.2d 250. 

On the other hand, however, we agree with Tookes that 

sue and be sued provisions in general should be construed to 

include actions sounding in tort, as well as those sounding 

in contract. Keifer v. Reconstruction Finance Corp. (1939) , 

306 U.S. 381, 395-96, 59 S.Ct. 516, 520-21, 83 L.Ed. 784, 

792-93. And unlike Shaw, Lewis considers the more specific 

issue of whether a particular entity should be classified as 

a government agency under 28 U.S.C. 5 2671, the applicable 

provision of the FTCA. Lewis, 680 F.2d 1240. 
More recent authority persuades this Court that Sparkman 

should be distinguished, and Lewis should be applied in favor 

of Tookesl argument. In the case of In re Hoag Ranches (9th 

Cir. May 19, 1988), No. 87-2461, the Court considered the 

status of PCA1s to determine whether they should be 

considered government agencies under Rule 4 (a) (1) , F. R.App. 

P. Rule 4(a)(l) allows government agencies 60 days to file a 

notice of appeal, while private parties are allowed only 30 

days. The Court in Hoag Ranches refused to allow the 

appealing PCA agency status under Rule 4 (a) (I) reasoning as 

follows: 

Considering the history and current status of 

PCA1s, we conclude that they are not government 

agencies within the meaning of Rule 4(a) (1). We 

recognize that some factors weigh in favor of 

finding agency status. PCA's undoubtedly further a 

government interest in improving the well-being of 

American farmers and ranchers, and the government 

was extensively involved in their establishment. 

At one time it was also actively involved in 

supervising PCA activities. 

We also take note of decisions suggesting that 

PCA1s are, for some purposes, arms of the 

government. In Schlake v. Beatrice Prod. Credit 

Assln the court found- that because of the 

government's pervasive involvement in the creation 

and operation of PCA1s, PCA action was a colorable 

basis for jurisdiction in an action alleging a 

fifth amendment violation. 596 F.2d 278, 281 (8th 

Cir. 1979). We ourselves have found that PCA1s are 

immune from punitive damages based on their status 

as federal instrumentalities. In re Sparkman, 703 

F.2d 1097, 1101 (9th Cir. 1983). 

However, since these cases were decided, the 

government has withdrawn from management of PCA 

operations and has taken additional steps to 

establish PCA1s as private entities. The role of 

the Farm Credit Administration has been changed 

from supervisor to arms-length regulator. PCA1s 

are now privately owned, organized and operated; 

the government has no proprietary interest. These 
changes suggest that PCA's, as they now stand, are 

not government agencies. 

Hoag Ranches, slip op. at 5627. 

The method for determining PCA agency status in 

Hoag Ranches follows along the same lines used for 

determining FTCA coverage for federal reserve banks in Lewis. 

For example, in Lewis the Court considered; (1) whether the 

federal government controlled the entity's detailed physical 

performance and day to day operations, (2) whether the entity 

was an independent corporation, (3) whether the government 

was involved in the entity's finances, and (4) whether the 

mission of the entity furthered the policy of the United 

States. In Hoag Ranches each of these factors was addressed, 

and except for the issue of whether the mission of PCA's 

furthers U.S policy, the factors weighed for finding no 

agency status. 

Similarly, in South Central Iowa PCA v. Scanlan (Iowa 

1986), 380 N.W.2d 699, the Court found that application of 

the Lewis test lead to the conclusion that PCA's could not 

claim agency status: 

In Lewis the court followed the approach 

suggested in Orleans to determine whether federal 

reser~le banks were federal instrumentalities within 

the meaning of the FTCA. The Lewis court 

considered several factors: whether the federal 

government controlled the daily physical 

performance of reserve banks; whether the bank in 

question was an independent corporation; whether 

the government was involved in the bank's finances; 

and whether the mission of the bank furthered the 

policy of the United States. Lewis, 680 F.2d 

1240-41. Applying these factors the court 

determined that the federal reserve bank was not a 

federal instrumentality for purposes of the FTCA. 

We believe that application of those same 

factors in this case reveals that PCA's are 

essential-ly nongovernmental, independent entities 
which Congress did not intend the FTCA to cover. 

Like federal reserve banks, PCA's are privately 

owned. Each PCA sells stock to obtain capital; 

however, only individual borrowers can purchase 

shares. 12 U.S.C. § 2094(b). Each PCA is operated 

by an independent board of directors. 12 U.S.C. §§ 

2092, 2093. South Central employees are neither 

federal employees nor supervised by federal 

employees. 

Scanlan, 380 N.W.2d at 701. The authority provided by 

Scanlan, and the new authority provided by Hoag Ranches, 

leads this Court to conclude that PCA's are not FTCA agencies 

under the test from Lewis. 

MCPCA argues that Hoag Ranches does not apply to the 

case at bar because the Court in Hoag Ranches relied in part 

on the 1985 amendments to the Farm Credit Act which made the 

Farm Credit Administration more of an "arms length regulator" 

than a "hands on" supervisor. Hoag Ranches, slip op. at 

5627. The case at hand arose prior to the amendments, and 

thus Hoag Ranches does not apply, according to MCPCA. 

However, in addition to the 1985 amendments, Hoag Ranches 

recognized that: 

there are other factors which have always weighed 

against treating PCA1s as agencies. PCA1s are not 

referred to as agencies in either Title 12 or the 

legislative history, and they have no greater 

access to federal court than do other private 

corporations. When they do go to court, they are 

represented by private, rather than government, 

counsel. ... Finally, Federal Land Banks, which are 

comparable to PCA's in many ways, are not 

considered government agencies. Cotton, 410 

F.Supp. at 171. 

Hoag Ranches, slip op. at 5627-28. We are also convinced 

that even prior to 1985, PCA1s were 
"privately organized, privately owned, and 

privately operated corporation[s], albeit federally 

chartered." 

United States v. Haynes (M.D. Tenn. 1985), 620 F.Supp. 474, 

477 (quoting Sparkman, 703 F.2d at 1102 n. 1 (Fryer J., 

dissenting) ) . Moreover, the 1959 amendments to the Farm Credit Act 

removed federal ownership and control of the Farm Credit 

System. See Sterrett v. Milk River PCA (D. Mont. 1986), 647 

F.Supp. 299, 302 (citing House Rep. No. 287, 86th Congress 

lst, Sess. 1, reprinted - in [I9591 U.S. Code Cong. & Admin. 

News 2123) . The lack of control, the most important factor 

in Lewis, existed when this claim arose, and it weighs 

heavily here for finding that MCPCA cannot claim agency 

status under the FTCA. 

In addition to the authority provided by Lewis, this 

Court is reluctant to leave Tookes without access to court 

for pursuing their claims as guaranteed by the Montana 

Constitution, Article 11, Section 16, which provides in part: 

Courts of justice shall be open to every 

person, and speedy remedy afforded for every injury 

of person, property, or character. 

(Emphasis added). The constitutional guarantee under Section 

16 mandates that the courts be "accessible to all persons 

alike, without discrimination, at the time or times and the 

place or places appointed for their sitting, . . . I' Shea v. 

North-Butte Mining Co. (1919), 55 Mont. 522, 533, 179 P. 499, 

501. Conflicting decisions of the Montana Federal District 

Courts and this Court deny Tookes a forum for their claim 

even though there is no issue presently that their claim is 

coqnizable in some court. In the face of these rulings, we 

are loathe to deprive court access to plaintjffs in these 
types of claims. Thus, we reverse and remand for further 

proceedings consistent ~ri.th our finding that. PCA's may be 

sued outside the FTCA. 

We Concurn , -/