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02/12/85 Art Metal-U.S.A., Inc., v. United States of America

February 12, 1985

ART METAL-U.S.A., INC., APPELLANT

v.

UNITED STATES OF AMERICA APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (D.C. CIVIL ACTION NO. 81-1688). 1985.CDC.28



UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

APPELLATE PANEL:

Tamm and Edwards, Circuit Judges, and Wilkey,* Senior Circuit Judge. Opinion for the court filed by Circuit Judge Tamm.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE TAMM

Appellant Art Metal-U.S.A., Inc. (Art Metal) appeals from the dismissal of its suit under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671-2680 (1982) , for damages resulting from its unlawful de facto debarment from government contracting. Art Metal's complaint alleged, inter alia, that a series of acts and omissions by employees of the General Services Administration constituted negligence per se, interference with prospective advantage, and injurious falsehood. United States District Court Judge Harold H. Greene granted the government's motion to dismiss, holding that the negligence per se counts failed to state a valid tort claim under District of Columbia law, and that the interference with prospective advantage and injurious falsehood claims were barred under the FTCA. Art Metal-U.S.A., Inc. v. United States, 577 F. Supp. 182 (D.D.C. 1983). For the reasons set forth below, we affirm the district court. I. BACKGROUND

Art Metal is a manufacturer of metal office furniture. The vast majority of the company's business is supplying office furniture products to the federal government through contracts with GSA. At the time of the events leading to this action, Art Metal was the government's largest supplier of metal office furniture.

During the summer of 1978, a series of newspaper articles appeared in Washington, D.C., and elsewhere accusing the company of a variety of serious misdeeds and improprieties in its contractual relations with GSA. Among the named and unnamed sources quoted in the articles were GSA employees and officials. The allegations included charges concerning Art Metal's alleged failure to meet GSA specifications, inferior products, and possible abuses in contract dealings with GSA. In response to both the public allegations and inquiries from a Senate subcommittee, GSA abruptly ceased doing business with Art Metal by refusing to award several contracts on which Art Metal was the low bidder. In effect, GSA constructively debarred Art Metal without initiating any of the formal debarment or suspension procedures required by federal procurement regulations.

Art Metal immediately sought and obtained injunctive relief in the United States District Court for the District of Columbia. Judge Harold Greene found that GSA's actions against Art Metal were taken for public relations reasons and were without any substantiated evidentiary basis. In issuing a temporary injunction, the district court concluded that GSA's actions constituted an unlawful de facto debarment in clear violation of the agency's procurement regulations. Art Metal-U.S.A., Inc. v. Solomon, 473 F. Supp. 1 (D.D.C. 1978). In two subsequent actions, the district court entered a permanent injunction and an order awarding Art Metal three pending contracts based on GSA's violation of the injunction. See Brief for Appellant, addendum at 16, 26.

Following denial of its administrative tort claim, Art Metal brought this action under the FTCA, alleging that the GSA officials' acts and omissions constituted negligence, interference with prospective advantage, and injurious falsehood. *fn1 Judge Greene granted the government's motion to dismiss and Art Metal appeals. We address three issues in this appeal: (1) whether interference with prospective advantage is barred as a claim "arising out of . . . interference with contract rights," 28 U.S.C. § 2680(h); (2) whether injurious falsehood is barred as a "claim arising out of . . . libel [or] slander," id.; and (3) whether the GSA officials' violations of federal debarment regulations constituted a tort cognizable under the FTCA. *fn2 II. ARGUMENT

A. Claims Arising Out of the § 2680(h) Exceptions

1. Interference With Prospective Advantage

Art Metal alleged in Counts I, II, and IV of its complaint that GSA officials interfered with its prospective economic advantage by failing to comply with procedural requirements set forth in the debarment regulations, failing to award Art Metal contracts to which it was entitled, canceling and delaying other contracts, and suspending all business with Art Metal. The district court held that those claims were barred under section 2680(h) *fn3 of the FTCA as "claims arising out of . . . interference with contract rights." 28 U.S.C. § 2680(h). *fn4 Art Metal argues that the district court erred by failing to recognize that interference with prospective advantage is a distinct common law tort and therefore not barred by the interference with contract rights exception.

As the Supreme Court recently noted, our task in construing the exceptions set forth in section 2680 (h) is "to identify 'those circumstances which are within the words and reason of the exception' -- no less and no more." Kosak v. United States, 465 U.S. 848, 104 S. Ct. 1519, 1523 n.9, 79 L. Ed. 2d 860 (1984) (quoting Dalehite v. United States, 346 U.S. 15, 31, 97 L. Ed. 1427, 73 S. Ct. 956 (1953)). We are guided in this effort by the Court's analysis in Block v. Neal, 460 U.S. 289, 103 S. Ct. 1089. 75 L. Ed. 2d 67 (1983). In that case, plaintiff Neal received a loan from the Farmers Home Administration (FmHA) to finance the construction of a new home. Regulations required the FmHA to provide technical assistance to the borrower, to review the construction plans and the contract, and th make inspections. After moving into the house, Neal discovered several defects and eventually asked the FmHA to pay to correct them. Upon its refusal, she sued under the FTCA alleging that the defects were partly attributable to FmHA officials' negligence in inspecting and supervising construction of the house. The issue before the Supreme Court was whether the action was barred under section 2680(h) as a "claim arising out of . . . misrepresentation."

In holding that Neal's claims were not barred by section 2680(h), the Court distinguished its earlier holding in United States v. Neustadt, 366 U.S. 696, 6 L. Ed. 2d 614, 81 S. Ct. 1294 (1961), a case involving a prepurchase inspection and appraisal of a home by the Federal Housing Administration. The Court explained that the "gravamen of the action against the Government in Neustadt was that the plaintiff was misled by [the appraisal] prepared by the Government. Neustadt alleged no injury that he would have suffered independently of this reliance on the erroneous appraisal." 460 U.S. at 296. In contrast, the Court found that the government's misstatements were not essential to Neal's claim. In so finding, the Court focused on the government's duty, stating that its duty to use due care in supervising and inspecting construction "is distinct from any duty to use due care in communicating information to respondent." 460 U.S. at 297. Because Neal sought to recover for breach of duties distinct from duties forming the basis for a claim barred by section 2680(h) (misrepresentation), her claim was not barred.

Unlike Neal, Art Metal seeks to recover for the breach of duties identical to those underlying a barred claim. The duty that the GSA officials allegedly breached is the duty not to interfere with Art Metal's economic relationship with third parties. That duty is the same as the duty underlying a claim for interference with contract rights; the claims are distinguished only because the plaintiff's rights or expectancies under the latter are secured by an existing contract. See Restatement (Second) of Torts § 766 comment b (1979) ("here is a general duty not to interfere intentionally with another's reasonable business expectancies of trade with third persons, whether or not they improper under the circumstances."). To hold that interference with prospective advantage does not arise out of interference with contract rights under section 2680(h) would subject the government to liability if its employees interfered with the plaintiff's mere expectation of entering a contract, but not if they interfered with a contract already in existence. Such a result would be illogical and contrary to the "'words and reason of the exception.'" Kosak v. United States, 465 U.S. 848, 104 S. Ct. 1519, 1523 n.9, 79 L. Ed. 2d 860 (1984) ...


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