Court Opinion

ID: 879781
Source: CourtListenerOpinion
Date Created: 2013-06-04 23:42:40.964653+00
Date Added: 2024-06-11T13:00:33.795922
License: Public Domain

No. 8 7 - 4 0 9 b
               IN THE SUPREME COURT OF THE STATE OF MONTANA
                                   1988

ERNEST E. TOOKE and PEGGY TOOKE,
                Plaintiffs and Appellants,

THE 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, Baker, Montana
       For Respondent :
                George W. Huss, Brown and Huss; Miles City, Montana
                John D. Alexander, IJgrin, Alexander, Zadick & Slovak;
                Great Falls, Montana

                                   Submitted on Briefs:      January 14, 1988
                                     Decided:      March 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
Hemlryck, (MCPCA), for lack of subject matter jurisdiction.
We affirm. (Production credit associations in general are
hereinafter referred to as PCA's, and the Federal Tort Claims
Act is hereinafter referred to as the FTCA).
      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 Production Credit Association (D.C.Ore.
filed Sept. 19, 1983), No. 83-28BE.          Towery relied on
Sparkman to dismiss a tort claim in state court against an
Oregon production credit association for lack of subject
matter jurisdiction.
      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 68, PCA's are not
instrumentalities for purposes of the FTCA. Tookes have also
made a motion for judgment on this appeal contending that
MCPCA waived objections to subject matter jurisdiction by
filing a separate action in state district court to foreclose
Tookes' mortgage.
      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 has
also responded to Tookes' motion for judgment contending that
subject matter jurisdiction cannot be created by consent. We
will    address the parties' contentions on the issue
separately,     beginning    with   the    argument    over   the
applicability of Sparkman.
                                I.
      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
2679 (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.      12 U.S.C. S 2091 (1982).
And at least in regard to state taxation, Congress protected
PCA1s by granting them instrumentality status. 12 U.S.C. S
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. To support this proposition, Tookes cite Birbeck v.
Southern New England Production Credit Association   (D.Conn.
1985), 606 F. Supp. 1030.     The plaintiffs in Birbeck had
agreed to transfer real and personal property to their
creditor PCA in exchange for a release from debt.       After
execution of the settlement agreement, the plaintiffs brought
an action in federal district court to have the agreement set
aside contending that federal statutes granting federal
courts subject matter jurisdiction to adjudicate alleged
constitutional and federal common law violations made their
claim cognizable in federal court.    The Court held that no
grant of subject matter jurisdiction existed under the law
cited by the plaintiffs.     Birbeck, 606 F.Supp. at 1046.
However, the plaintiffs in Birbeck did not allege that the
FTCA granted subject matter jurisdiction for the claim, and
"the relief plaintiffs seek rests on principles of state
contract law." Birbeck, 606 F.Supp. at 1038. Thus, Birbeck
is not authority for deciding the issue of whether a tort
claim against a PCA should proceed according to the
provisions of the FTCA.
     However, Sparkman   does not directly settle the issue
either.   In Sparkman the Ninth Circuit Court of Appeals
reviewed an appeal from bankruptcy court where the debtor's
counterclaim in tort sought punitive damages from the
creditor PCA. Although the bankruptcy court cited the FTCA
when it refused to hold the PCA liable for punitive damages,
the Circuit 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 PCA1s. According to the Court,
     The sovereign, along with       its agencies and
     instrumentalities, enjoys immunity from suit unless
     it waives    that   i&unity.      Federal Housing
     Administration v. Burr, 309 U.S. 242, 244, 60 S. Ct.
488, 490, 84 L . E d .   724 (1940).     A federal
     instrumentality, therefore, retains its immunity
     from punitive damages unless Congress explicitly
     authorizes liability for such damages.
 (Emphasis in original).   Sparkman, 703 F.2d at 1101.    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.    We note on the
other hand, however, that sue and be sued provisions in
general should he 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. 2d 784, 792-93.       Thus, under
Sparkman, some sovereign immunity protection exists for
PCA1s, but the extent of this protection is a difficult issue
to resolve.
     MCPCA   contends that    since Sparkman makes      PCA's
instrumentalities in regard to sovereign immunity protection
from punitive damages, they must also be instrumentalities
for the purposes of the FTCA, (absent an explicit waiver).
MCPCA also cites a recent United States Supreme Court opinion
in support of this contention.     See Library of Congress v.
Shaw (1986), - U.S. -, 106 S. Ct. 2957, - L.Ed.2d -    .  Shaw
states that in analyzing whether Congress waived the immunity
of the United States, "we must construe the waiver strictly
in favor of the sovereign    ... and not enlarge the waiver
'beyond what the language requires'".     Shaw, 106 S.Ct. at
2963. We agree with MCPCA that Sparkman read together with
the rule of construction in Shaw leads to the conclusion that
PCA's should be sued for torts under the FTCA. However, in
addition to Birbeck, Tookes argue that Lewis should control
over Sparkman.

     Tookes argue that the    test as set out in Lewis on
whether an entity is an instrumentality for purposes of
applying the FTCA should control over the strict construction
of the waiver of sovereign immunity as it appears in
Sparkman. The critical element of the test set out in Lewis
for finding the FTCA applicable is the existence of federal
government control over the entity's detailed physical
performance and day to day operation. Lewis, 680 F.2d at
1240.    Other factors include: whether the entity is an
independent corporation; whether the government is involved
in the entity's finances; and whether the mission of the
entity furthers the policy of the United States. Lewis, 680
F.2d at 1240-41. Weighing these factors the Court in Lewis
held that the federal reserve banks are not instrumentalities
under the FTCA.    Tookes argue a similar result should be
reached here.
     Sparkman distinguishes the current case from Lewis.
Lewis emphasizes the lack of federal control in the
operations of the federal reserve banks, Lewis, 680 F.2d at
1241, while Sparkman emphasizes pervasive federal involvement
in PCA's. Sparkman, 703 F.2d at 1101. Lewis also cites the
sue and be sued provision in the federal reserve bank's
authorizing legislation to support the proposition that the
FTCA does not apply to federal reserve banks.      Lewis, 680
F. 2d at 1242. This treatment of sue and be sued provisions
runs contra to Sparkman's analysis of the PCA sue and be sued
provision.    Sparkman, 703 F.2d at 1101.    Furthermore, the
United States Supreme Court's decision in Shaw requires
specificj-ty in sovereign immunity waivers.   Shaw, 106 S.Ct.
at 2963. The -   -
               Lewis analysis lacks adequate consideration of
this rule of construction.     Thus, we hold that absent a
specific    exclusion,   PCA's    should   be    treated   as
instrumentalities for purposes of the FTCA.

     Tookes argue that a specific exclusion for PCA's exists.
In 1959 Congress excluded from coverage under the FTCA any
claim arising from the activities of a federal land bank, a
federal intermediate credit bank, or a bank for cooperatives.
28 U.S.C.   S 2680(n)   (1982).    This exclusion has been
interpreted to encompass PCA's.      Sterrett v. Milk River
Production Association (D.Mont. 1986), 647 F. Supp. 299.
     We must give due regard to decisions of the federal
Circuit Courts of Appeals and the federal District Courts.
United States ex rel. Lawrence v. Woods (7th ~ i r .1970), 432
F.2d 1072, 1075. However, the decisions of these courts do
not control our decisions on issues of federal law.
Lawrence, 432 F.2d at 1075.
     We conclude that Sterrett's analysis of the exemption in
28 U.S.C. S 2680(n) is incorrect.     The exemption fails to
mention PCA's.     The legislative history also lacks any
mention of PCAts in regard to exemption from the FTCA. H.R.
Rep. No. 287, 86th Cong., 1st Sess. 9, reprinted - 1959 U.S.
                                                 in
Code Cong. & Ad. News 2123, 2131. And in other parts of the
history, PCA's are dealt with separately. H.R. Rep. No. 287,
86th Cong., 1st Sess. 4-5, reprinted - 1959 U.S. Code Cong.
                                       in
& Ad. News 2123, 2126.       Furthermore, even if PCA's were
included in the exemption provided by 28 U.S.C. § 2680(n), it
does not necessarily follow that they may be sued for torts
in state or federal court.      See Kolb v. Naylor (N.D.Iowa
1987), 658 F. Supp. 520, 526 (exception from FTCA under 28
U.S.C. S 2680 (n) means that no waiver of sovereign immunity
for tort claims exists for components of the farm credit
system which are included in the exemption).
     We hold that the lack of a specific exemption resolves
this issue in favor of MCPCA. Under Shaw, we are bound to
strictly construe waivers of sovereign immunity. Shaw, 106
S.Ct. at 2963.        Sterret's   expansion of the waiver to
include PCA's in the specifically exempted components of the
farm credit system cannot be reconciled with Shaw's mandate
that the waiver not be enlarged beyond what its language
requires.     Congress could have mentioned PCA's in the
exemption    provided   for   federal   land  banks,  federal
intermediate credit banks, and banks of cooperatives. It did
not, and we decline to expand the waiver and interpret it as
was done in Sterret.
      In regard to Tookes' motion for judgment, we agree with
MCPCA1s contention that subject matter jurisdiction cannot be
conferred by consent, and we deny the motion.       Affirmed.

We Concur: