Unpublished Disposition, 842 F.2d 1294 (9th Cir. 1988)

MEMORANDUM^* 

The Carrolls brought suit under the Federal Tort Claims Act (FTCA) alleging that Farmer's Home Administration (FmHA) officials negligently failed to grant their loan applications, and that FmHA officials were guilty of fraud and misrepresentation in handling their loan application. The district court granted the government's motion for summary judgment, finding that the Carrolls' claim was precluded by the discretionary function exception to the FTCA, 28 U.S.C. § 2680(a), and by 28 U.S.C. § 2680(h), which excepts claims for misrepresentation and deceit from the FTCA. We reverse.

1. Discretionary Function Exception.

The FTCA renders the United States liable for damages in certain situations "where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred." 28 U.S.C. § 1346(b). However, several classes of tort claims are excepted from the Act's waiver of immunity. In general, the "discretionary function exception" precludes suits based on the negligence of a government agent when that agent is exercising statutorily mandated discretion. See 28 U.S.C. § 2680(a); Baker v. United States, 817 F.2d 560, 562 (9th Cir. 1987).¹  We have held, though, that the exception does not apply when a government agent acts outside his or her statutory authority because the agent is no longer exercising discretion, but is simply disobeying a statutory command. See Baker, 817 F.2d at 564-66 (discretionary function exception not a bar to claim against the United States where Health, Education, and Welfare employees failed to follow a specific mandatory regulation); Collins v. United States, 783 F.2d 1225, 1230-31 (5th Cir. 1986).

It is undisputed that FmHA employees violated their own regulations in processing the Carrolls' loan applications when they: 1) failed to give specific reasons for denying a loan request, 2) failed to ensure the presence of a decision-making official at an appeal hearing, and 3) went outside the record in reviewing an appeal. Although the loan process involves much discretion, the FmHA failed to follow certain mandatory guidelines that are not discretionary. Therefore, the summary judgment must be reversed.² 

The government argues that the "law of the case" doctrine precludes the Carrolls' claims against the United States to the extent that their claims are based upon alleged discriminatory treatment or procedural errors made by the FmHa. See Planned Parenthood of Central and Northern Arizona v. Arizona, 718 F.2d 938, 949 (9th Cir. 1983). Because of previous litigation, this doctrine does prevent the Carrolls from relitigating due process and equal protection issues. However, the holdings in our earlier unreported decisions³  do not preclude them from pursuing their FTCA claim based on the negligence of the FmHA employees.

In the previous litigation, the Carrolls were unsuccessful on due process and equal protection claims involving essentially the same facts as here. The earlier district court decision which we affirmed was based on the finding that any procedural errors committed by the FmHA were not of a constitutional order and therefore did not result in a due process or equal protection violation. However, the district court did not find in that case that violations of FmHA regulations did not occur. In fact, as we have noted, the government does not deny the existence of those violations.

The negligence claim was not decided in the previous litigation because it was in the administrative process required under the FTCA, and the government acknowledged at oral argument that the issue was properly withheld from the court pending the administrative decision. Thus, no court has ever held that the FmHA officials did not act negligently in denying the Carrolls' loan applications, and they are not barred as the result of any failure to raise it previously.

Our holding that the negligence claims are not barred by Sec. 2680(a) does not end the inquiry into whether the Carrolls have established a cause of action. The crucial inquiry is whether, in undertaking the granting of loans, a duty arose under state law because of the relationship thereby created. See United Scottish Ins. Co. v. United States, 614 F.2d 188, 194 (9th Cir. 1979), aff'd after remand 692 F.2d 1209 (9th Cir. 1982), rev'd on other grounds, 467 U.S. 797 (1984). Whether the Carrolls have a claim against the United States depends on whether a private person under like circumstances could be found liable in tort under Arizona law.

The district court made no findings with respect to this local law requirement of the FTCA, and the parties did not brief this issue on appeal. On remand, the district court should consider whether Arizona provides a cause of action against private parties that is analogous to the Carrolls's claim against the United States. See Baker, 817 F.2d at 566; Art Metal-U.S.A., Inc. v. United States, 753 F.2d 1151, 1156-59 (D.C. Cir. 1985); Tuepker v. Farmers Home Admin., 708 F.2d 1329, 133 (8th Cir. 1983). Should Arizona law fail to provide such a cause of action, "the district judge must dismiss the case for failure to state a claim pursuant to the FTCA." Id.⁴ 

Reversed and remanded for further proceedings consistent with this decision.