Unpublished Disposition, 841 F.2d 1130 (9th Cir. 1982)

MEMORANDUM^** 

Appellant Whittle appeals the district court's entry of judgment in favor of the government.

Appellant purchased a house in Tucson, Arizona on May 26, 1982 for a price of $30,000. The sale was subject to FHA insured financing and appellant could not purchase the house without FHA approval of the loan application. The sales contract provided that the house be appraised at a value of at least $30,000 for the contract to be binding. Following an FHA appraisal the financing was approved and the sale was consummated.

Approximately six days after appellant moved into the house, substantial amounts of rainwater leaked in through the roof. In July 1982, following appellant's complaint to the FHA, a FHA inspector examined the residence. His report indicated numerous failures to comply with FHA standards. Appellant incurred approximately $12,000 in damages to repair the house.

The FHA appraisal had been conducted by Donald McReynolds, who had noted deficiencies relating to water and sewer connections, bathroom flooring cracks, cooling and heating requirements, closet space and bathroom wall problems. The finance company apparently certified that some of these repairs were made.

At trial, McReynolds testified that he was an independent contractor hired on an as-needed basis. He also testified that he had his own appraisal business of which a very small percentage was FHA/HUD business. McReynolds was not provided an office by FHA nor was he provided any tools or equipment by FHA when he went out to do an appraisal. He was paid per appraisal and did not receive a salary from the government nor did he receive health insurance or retirement benefits from the government.

Appellant brought this action under the Federal Tort Claims Act (FTCA), 28 U.S.C. § 2671 et seq., alleging that her damages were caused by the negligent FHA appraisal. The government answered appellant's complaint and subsequently filed a motion to dismiss based upon the misrepresentation exception found at 28 U.S.C. § 2680(h) of the FTCA and on the grounds that McReynolds was an independent contractor and thus excluded from the terms of the FTCA as defined in 28 U.S.C. § 2671. That motion to dismiss was denied. Later, the government moved to dismiss for lack of jurisdiction based upon the misrepresentation exception to the FTCA. This motion was also denied. After the district court granted appellant's motion to amend, appellant filed an amended complaint which included an additional allegation that HUD failed to follow its own regulations.

Following a bench trial, the district court issued its memorandum order entering judgment in favor of the government based upon the misrepresentation exception, 28 U.S.C. § 2680(h).

This court reviews a trial court's findings under the clearly erroneous standard. United States v. Becker, 378 F.2d 319, 321 (9th Cir. 1967).

We agree, as did the district court, that United States v. Neustadt, 366 U.S. 697 (1961), is dispositive of this case. In Neustadt, whose relevant facts are near identical to those in this case, the Supreme Court reversing the Fourth Circuit Court of Appeals held that "it may be said that the Government owes a 'specific duty' to obtain and communicate information carefully, lest the recipient be misled to his financial harm." Id. at 710.

The Court also said, however, that "the duty to use due care (and the breach of that duty) in obtaining and communicating information upon which that party may reasonably be expected to rely in the conduct of his economic affairs, is only to state the traditional and commonly understood legal definition of the test of 'negligent misrepresentation.' ..." Id. at 706.

We agree, therefore, that acts of misrepresentation that fall within the exclusionary provision of 28 U.S.C. § 2680(h), encompass the willful or negligent collection and dissemination of information such as the preparation of the subject FHA appraisal.

Appellant's attempt to use Block v. Neal, 460 U.S. 289 (1983), to distinguish Neustadt, is misplaced. Neal is distinguishable in that there was an additional duty separate from any communication of information-imposed on the government that being the inspection of construction as it progressed so as to insure the construction conformed with the standards and specifications of the Farmers Home Administration. In Neal, unlike Neustadt, the government's misstatements were not essential to the plaintiff's negligence claim. In the instant case there are no facts that indicate the existence of a separate and distinct duty on the part of the United States, voluntarily undertaken or otherwise, which would require not applying Neustadt. The appellant's claim arises out of a misrepresentation pursuant to the exception provided for in 28 U.S.C. § 2680(h).

Accordingly, we affirm the judgment of the district court.

AFFIRMED.