O'BRIEN, Circuit Judge.
The Federal Depository Insurance Corporation (FDIC), while acting as receiver
We draw the facts from the amended complaint. Ken Ulrich is the majority owner of High Plains Cattle Company, LLC. High Plains and Doug English formed ECCO Plains, LLC, to raise cattle for sale. Each made a $7,000,000 capital contribution to ECCO Plains. High Plains financed its capital contribution with a loan from the New Frontier Bank; Ulrich personally guaranteed the debt.
Prior to forming ECCO Plains, High Plains and English entered into an agreement regarding its operation. Relevant here, the parties agreed that High Plains would, upon request, receive a return of its capital contribution before English received any of his capital contribution. The Bank, as well as FDIC, had a copy of the agreement.
The Bank subsequently became insolvent and FDIC was appointed receiver. Thereafter, ECCO Plains sold approximately $5,500,000 worth of cattle to a packing house in Northern Colorado. FDIC caused the packing house to make the sale proceeds payable to both ECCO Plains and FDIC.
High Plains made a written demand to FDIC to apply 100% of the sale proceeds to High Plains' loan. The demand was based on its 50 percent membership interest in ECCO Plains and the terms of the ECCO Plains/English operating agreement.
ECCO Plains, High Plains and Ulrich filed suit against the United States. All three alleged conversion and negligence under the FTCA. ECCO Plains also alleged a Fifth Amendment Takings Claim. The government moved to dismiss based on lack of subject matter jurisdiction or, in the alternative, for failure to state a claim. The district judge granted the motion without much of an explanation. He concluded ECCO Plains' FTCA claims should be dismissed for lack of subject matter jurisdiction because it failed to file a notice of claim. The remaining claims were dismissed for failure to state a claim.
Before turning to the issues, we pause to address what is not at issue in this case. The cattle were owned by ECCO Plains. The proceeds from the sale of the cattle also belonged to ECCO Plains. It is unclear how FDIC came to be a co-payee of those proceeds or why ECCO Plains endorsed the check, especially since it had no relationship with the Bank and consequently no relationship with FDIC as receiver. English was the managing member of ECCO Plains and endorsed the check in that capacity but, for some reason, was not sued.
"The Federal Tort Claims Act [FTCA]... provides generally that the United States shall be liable, to the same extent as a private party, `for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment.'" Kosak v. United States, 465 U.S. 848, 851-52, 104 S.Ct. 1519, 79 L.Ed.2d 860 (1984) (quoting 28 U.S.C. § 1346(b)); see also 28 U.S.C. § 2674. But there are exceptions to this waiver of immunity. See 28 U.S.C. § 2680. Relevant here, the FTCA excludes from its coverage "[a]ny claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights." Id. § 2680(h) (emphasis added). If a claim falls within an exception, it must be dismissed for lack of jurisdiction. Estate of Trentadue, 397 F.3d at 853.
The government relies on the "interference with contract" exception, arguing that despite the labels placed on the claims (i.e., conversion and negligence), High Plains and Ulrich's complaint is that FDIC interfered with their contractual right to the sale proceeds as outlined by High Plains' operating agreement with English. We agree.
To determine whether a claim falls within an FTCA exception, we identify "those circumstances which are within the words and reason of the exception — no less and no more." Kosak, 465 U.S. at 853 n. 9, 104 S.Ct. 1519 (quotations omitted). In doing so, "[w]e must ... look beyond the literal meaning of the language to ascertain the real cause of complaint." Hall v. United States, 274 F.2d 69, 71 (10th Cir. 1959).
In Hall, the government tested Hall's cattle for brucellosis and determined some had the disease. As a result, Hall sold the cattle for less than fair market value. In fact, the cattle did not have the disease. Hall sued the government for negligently performing the tests. But we concluded Hall had not alleged damages based on the negligent testing, i.e., that the cattle suffered physical damage due to the testing. Id. at 71. Rather, his "real claim" was that as a result of the negligent manner in which the tests were made, Hall received inaccurate information and sold his cattle for a loss. Id. Thus, his damages arose from the government's misrepresentation of the cattle's condition. Id. Because misrepresentation was an exempted tort under the FTCA, dismissal was proper. Id.
The Supreme Court adopted Hall's reasoning in United States v. Neustadt, 366 U.S. 696, 703-04, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961). There, the Neustadts purchased a home which had been inspected by an appraiser with the Federal Housing
However, merely because a complaint contains allegations supporting an exempted tort does not mean it cannot also contain other allegations supporting a non-exempted tort. In Block v. Neal, Neal obtained a loan from the Farmers Home Administration (FmHA) to build a house. 460 U.S. 289, 103 S.Ct. 1089, 75 L.Ed.2d 67 (1983). FmHA agreed to supervise the construction. FmHA inspected the house after it was built and found no defects. Neal moved in and discovered numerous defects. She sued FmHA under the FTCA. Relying on Neustadt, the government argued the misrepresentation exception applied. Id. at 294, 296, 103 S.Ct. 1089. The Supreme Court disagreed and distinguished Neustadt. Id. at 296, 103 S.Ct. 1089. It said the gravamen of the complaint in Neustadt was that plaintiffs were misled by the appraisal; they had not alleged any injury they suffered independent of their reliance on the erroneous appraisal. Id. In contrast, FmHA's misstatements were not essential to Neal's negligence claim — the defective house did not arise from the erroneous inspection reports but rather from the negligent construction. Id. at 297-98, 103 S.Ct. 1089. The Court concluded the government owed a duty to Neal separate and apart from any duty to exercise due care in communicating information, namely, to exercise due care in supervising the construction of the house (the Good Samaritan doctrine). Id. at 297, 103 S.Ct. 1089. The fact Neal could have also brought a misrepresentation claim based on her reliance on any inspection reports (absent the misrepresentation exception to the FTCA) was of no moment:
Id. at 298, 103 S.Ct. 1089 (citations and quotations omitted).
Determining whether a complaint falls within an exception under § 2680(h) is no
High Plains and English nevertheless insist this is not an interference with contract case (or not solely one under the reasoning of Block) for two reasons. First, their complaint does not state an interference with contract claim because their allegations do not satisfy all the elements of an interference claim under Colorado law.
High Plains and English claim the interference with contract exception does not apply because under Colorado law, an interference with contract claim requires the defendant (in this case FDIC) to intend to induce a breach of contract and to in fact cause a breach. They say their complaint contains no allegations supporting such intent or breach. To the extent our analysis requires us to determine whether High Plains and Ulrich's complaint contains the essential elements of an interference with contract claim, we conclude it does. See Estate of Trentadue, 397 F.3d at 854-55 (stating other courts have held a claim
Under the FTCA, the United States is liable to the same extent a private person would be liable "in accordance with the law of the place where the act or omission occurred." 28 U.S.C. § 1346(b)(1). High Plains and Ulrich rely on this provision to apply Colorado law in determining whether their complaint states an interference claim. However, in Neustadt, the Supreme Court did not rely on the elements of misrepresentation as defined by state law but rather on "the traditional and commonly understood legal definition" of misrepresentation as defined by the Restatement of Torts and other relevant treatises which it believed "Congress had in mind" when it enacted the FTCA in 1946. Neustadt, 366 U.S. at 706 & n. 16, 81 S.Ct. 1294. We need not resolve the issue as the result is the same regardless of the source of the tort's elements.
Turning first to Colorado law, High Plains and Ulrich correctly quote the Colorado Supreme Court:
Krystkowiak v. W.O. Brisben Cos., 90 P.3d 859, 871 (Colo.2004) (emphasis added) (citations and quotations omitted). Thus, they say Colorado interference law requires both an intent to induce a breach and a breach; their complaint does not allege either.
However, prior to Krystkowiak, the Colorado Supreme Court relied on the definition provided by the Restatement (Second) of Torts § 766 (1979), which does not require the defendant to have intended to induce a breach or to have caused an actual breach:
See Mem'l Gardens, Inc. v. Olympian Sales & Mgmt. Consultants, Inc., 690 P.2d 207, 210 (Colo.1984) (quoting Restatement (Second) of Torts § 776) (emphasis omitted, new emphasis added); see also Colo. Nat'l Bank v. Friedman, 846 P.2d 159, 170 (Colo.1993). Comments to § 766 clarify that inducement of a breach is not a necessary showing but rather merely one way in which the tort can be established. See Restatement (Second) of Torts § 766, cmt. k. The focus is not on whether the third party breached the contract but rather on the defendant's conduct. Id., cmts. c & j.
The Colorado Court of Appeals recently addressed the apparent conflict between Krystkowiak (requiring impossibility of performance or breach of contract) and the prior precedent adopting the Restatement (requiring merely interference with performance). See Slater Numismatics, LLC v. Driving Force, LLC, ___ P.3d ___, ___ ____, No. 11CA0683, 2012 WL 2353847, at *4-5 (Colo.App. June 21, 2012). It concluded Krystkowiak did not overrule the prior precedent because it relied on it. Id. at ___, 2012 WL 2353847, at *5. It interpreted Krystkowiak's discussion of impossibility and breach as merely expressing two ways in which interference with contract could be established. Id. Thus, the Court of Appeals
Id. at ___, 2012 WL 2353847, at *9.
A similar result ensues when we consider pertinent treatises in effect at the time of the FTCA's enactment in 1946 (including the exceptions contained in 28 U.S.C. § 2680(h)). For example, the Restatement (First) of Torts defined interference with contract as "one, who without a privilege to do so, induces or otherwise purposely causes a third person not to ... perform a contract with another." See Restatement (First) of Torts § 766 (1939); see also William L. Prosser, Handbook of the Law of Torts, § 104 at 987-89 (1941) (breach of contract not required for interference with contractual relations; action for interference with contract has also been allowed where the defendant has merely prevented the contract's performance or made it more difficult).
In this case, High Plains and Ulrich have alleged facts stating an interference with contract claim against the government under Colorado law and the treatises in effect in 1946:(1) FDIC induced English to endorse the check on which both FDIC and ECCO Plains were payees, thus permitting FDIC to cash a check which allegedly belonged to High Plains under its agreement with English;
Thus the complaint does satisfy the elements of interference with contract.
High Plains and English also claim the interference with contract exception does
But these alleged duties, even if owed to High Plains and Ulrich, as opposed to ECCO Plains (the owner of the cattle and proceeds), all arise out of High Plains' contract with English. Thus, they are not independent of the contract and the allegations of interference are essential to their claims. Moreover, High Plains and Ulrich have not alleged any injury they suffered independent of FDIC's interfering with their right to receive the proceeds under that contract. Therefore, their injuries are wholly attributable to FDIC's interference with the contract.
High Plains and Ulrich rely mainly on Sowell v. United States, 835 F.2d 1133 (5th Cir.1988). Sowell, an Army private, completed a form allowing the Army to deduct a life insurance premium from his paycheck and pay it to the insurance company. No premiums were ever paid. As a result, when Sowell died, the insurance company denied coverage to the anticipated beneficiary. The beneficiary sued the United States under the FTCA alleging it negligently misplaced the form. The United States moved to dismiss based on the interference with contract exception. The court disagreed: "[T]he duty the Army owed to use due care in processing Sowell's allotment forms is distinct from any duty the Army may have had not to interfere with existing or potential contractual relationships between Sowell and [the insurance company]." Id. at 1135.
Sowell is inapposite. There, the Army agreed with Sowell to pay the premium out of his paycheck. Thus, the Army had a duty independent of its duty not to interfere with Sowell's contract with the insurance company. Here, there is no allegation FDIC agreed with High Plains and Ulrich to perform any service on their behalf with regard to the sale proceeds.
Because the interference with contract exception to the FTCA applies, the district court lacked jurisdiction over High Plains and Ulrich's conversion and negligence claims.
In the district court, the government argued ECCO Plains' Fifth Amendment Takings claim failed either for lack of jurisdiction or failure to state a claim. The district judge dismissed it for failure to state a claim.
An illegal exaction claim exists when "the plaintiff has paid money over to the Government, directly or in effect, and seeks return of all or part of that sum that was improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation." Aerolineas Argentinas v. United States, 77 F.3d 1564, 1572-73 (Fed.Cir.1996) (quotations omitted); see also Norman v. United States, 429 F.3d 1081, 1095 (Fed.Cir.2005) ("An illegal exaction ... involves money that was improperly paid, exacted, or taken from the claimant in contravention of the Constitution, a statute, or a regulation.") (quotations omitted). In other words, an illegal exaction occurs "when the Government has the citizen's money in its pocket." Aerolineas Argentinas, 77 F.3d at 1573 (quotations omitted). "An illegal exaction involves a deprivation of property without due process of law" in violation of the Fifth Amendment's Due Process Clause. Norman, 429 F.3d at 1095. While the United States Court of Federal Claims ordinarily lacks jurisdiction over due process claims under the Tucker Act, 28 U.S.C. § 1491, it does "have jurisdiction over illegal exaction claims `when the exaction is based on an asserted statutory power.'" Id. (quoting Aerolineas Argentinas, Inc., 77 F.3d at 1573); see also Ontario Power Generation, Inc. v. United States, 369 F.3d 1298, 1301 (Fed.Cir.2004) (Tucker Act's waiver of government's sovereign immunity
According to the complaint, the FDIC acted under its receivership powers-an "asserted statutory power" — to take control of the cattle proceeds which otherwise would have gone directly to ECCO Plains. See 12 U.S.C. § 1821(d). The FDIC thereby put ECCO Plains' money "in its pocket" (although it later took that money out of its metaphorical pocket and applied it to English's loans). Thus, ECCO Plains' takings claim is best seen as an illegal exaction claim subject to Tucker Act jurisdiction.
We
(Appellants' App'x at 139-41.)
A dismissal based on the interference with contract exception deprives a court of subject matter jurisdiction — an issue we must ordinarily address before turning to the merits. See Estate of Trentadue, 397 F.3d at 853; see also Starkey ex rel. A.B. v. Boulder Cnty. Soc. Servs., 569 F.3d 1244, 1259-60 (10th Cir. 2009). We review a dismissal for lack of jurisdiction de novo. See Harms v. IRS, 321 F.3d 1001, 1007 (10th Cir.2003).
High Plains and Ulrich also complain it is unclear what contract the government is relying on in making the interference with contract argument. They say the government refers to ECCO Plains' operating agreement but the complaint contains no allegations concerning an operating agreement and in fact there is no operating agreement. We disagree. The complaint alleges: "Prior to the formation of ECCO Plains, English and High Plains entered into a binding agreement regarding the operation of ECCO Plains, the parties' capital contributions and the parties' exposures on their ... loans [with the Bank]. The parties agreed that High Plains would receive a return of its capital contribution upon request, and before English received any of his capital contribution." (Appellants' App'x at 9 (emphasis added).) In any event, whether or not it is technically an operating agreement, it is clear the government is relying on the agreement between High Plains and English in which High Plains would receive a return of its capital contribution upon request before English received any of his contribution.
Similarly, High Plains and Ulrich cannot state a conversion claim. Their claim for conversion is based on two theories: (1) FDIC's obligation to "particularly treat" the sale proceeds, namely to apply at least 50 percent to High Plains' loans due to its 50 percent membership interest in ECCO Plains, see Rhino Fund, LLLP v. Hutchins, 215 P.3d 1186, 1195 (Colo.App.2008), and (2) High Plains and Ulrich's immediate right to possess the sale proceeds. The former theory fails because we see no obligation owed to High Plains and Ulrich, as opposed to ECCO Plains, to "particularly treat" the sale proceeds; the latter fails because an immediate right to possess certain property is not enough — the plaintiff must also have some general or specific property interest in the converted property. See Byron v. York Inv. Co., 133 Colo. 418, 296 P.2d 742 (1956) ("Conversion is any distinct, unauthorized act of dominion or ownership exercised by one person over personal property belonging to another.... An action for damages for the conversion of personal property cannot be maintained unless plaintiff had a general or special property [interest] in the personalty converted, coupled with possession or the immediate right thereto.") (emphasis added). Again, a member does not have any interest in property owned by the LLC. However, even assuming an immediate right to possess the property is enough, neither High Plains nor Ulrich had such right — while High Plains had the right to seek a return of its capital contribution upon request, it had not yet exercised this right. Indeed, the complaint only alleges High Plains and Ulrich "intended to exercise their right to [a] return of [High Plains'] capital contribution." (Appellants' App'x at 11 (emphasis added).)
"A constructive trust is a legal fiction, an equitable remedy devised to prevent unjust enrichment and compel restitution of property that in equity and good conscience does not belong to the Defendant." See United States v. Andrews, 530 F.3d 1232, 1237 (10th Cir. 2008) (quotations omitted). "The recipient of the property, the constructive trustee, is deemed to hold legal title to the property for the benefit of the claimant, and it is the obligation of the constructive trustee to surrender the property to the claimant." Id.; see also Lawry v. Palm, 192 P.3d 550, 562 (Colo.App. 2008) ("A constructive trust is a flexible equitable remedy that may be imposed to prevent unjust enrichment.... By imposing a constructive trust, a court awards the successful plaintiff a personal order requiring the defendant to transfer specific property to the plaintiff.") (citations omitted).
A constructive trust is generally imposed upon specific assets. Andrews, 530 F.3d at 1237; Lawry, 192 P.3d at 562. Here, the proceeds from the cattle sale were long gone before the litigation was started. Thus, regardless of their convenient pleading, High Plains and Ulrich were and are seeking money damages from the government, not a constructive trust or other form of equitable relief.
