Life Partners, Inc., et al v. USA

Filing

PUBLISHED OPINION FILED. [10-50354 Affirmed ] Judge: EGJ , Judge: JWE , Judge: CH Mandate pull date is 10/07/2011 [10-50354]

Case: 10-50354

Document: 00511573899

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Date Filed: 08/16/2011

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
August 16, 2011

No. 10-50354

Lyle W. Cayce
Clerk

LIFE PARTNERS INC.; UNITED WESTERN TRUST COMPANY,
Plaintiff-Appellants,
v.
UNITED STATES OF AMERICA,
Defendant-Appellee.

Appeal from the United States District Court
for the Western District of Texas

Before JOLLY, ELROD, and HAYNES, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
Plaintiffs, Life Partners Inc. and United Western Trust Company
(hereinafter Life Partners), appeal from the district court’s order granting the
United States’ motion to dismiss for lack of subject matter jurisdiction. We
AFFIRM.
I.
The facts are undisputed. Life Partners is in the business of purchasing
at a reduced price existing life insurance polices that are owned by elderly or
terminally-ill individuals. Those individuals then assign their rights in the
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policies to Life Partners, who collects the proceeds on behalf of their investors
upon the death of the insured. In 2002, Life Partners attempted to purchase a
Federal Employee Group Life Insurance policy belonging to S.D., an employee
of the Small Business Administration (SBA). Prior to purchasing the policy,
Life Partners contacted the SBA to confirm that S.D.’s policy had not been
assigned to any other party. The United States admits that an employee of the
SBA assured Life Partners that the policy had not been previously assigned,
and that its assurance was a misrepresentation; it further admits that the
employee did not review S.D.’s file to confirm the accuracy of the statement.
After receiving assurance that the policy had not been assigned, Life Partners
agreed to buy S.D.’s policy.
Unbeknownst to Life Partners, S.D. had previously assigned the policy.
Joan Redd, an SBA employee, had completed that assignment and recorded it
in S.D.’s personnel file. When he later contacted Redd to assign the policy to
Life Partners, she refused based on the prior assignment. She then contacted
another employee of SBA, Sharon Taylor, whom she knew to be friends with
S.D., to tell her that she should not complete any assignment related to the
policy because it had already been assigned.
Nonetheless, when S.D. later approached Taylor, she completed the
paperwork reflecting that the SBA had received the assignment, despite her
knowledge that it had already been assigned. She did not review S.D.’s file or
any other records relating to the policy before signing the document, in violation
of the SBA’s policy. Believing the policy to be unassigned, and after Taylor had
completed the paperwork, Life Partners paid S.D. for the policy. Four years
after its purchase, in September 2006, Life Partners attempted to convert the
policy to an individual insurance policy. The SBA then informed Life Partners
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for the first time that the policy had been previously assigned.
Life Partners filed an administrative claim with the SBA, alleging that
it “relied on the SBA’s representations reasonably and in good faith, which
representations were false. The SBA misrepresented . . . that the coverage had
not been previously assigned . . . .” The SBA denied Life Partners’ claims based
on 28 U.S.C. § 2680(h), which exempts claims arising out of a misrepresentation
from those for which sovereign immunity is waived in the Federal Tort Claims
Act (FTCA). Life Partners then filed a motion for reconsideration with the SBA,
arguing that its claim was not barred because it stemmed from the SBA’s
negligence in failing to keep appropriate records of the prior assignment. The
SBA again denied the claim. Life Partners then filed suit in district court
against the United States, alleging negligence in record-keeping and the
administration of S.D.’s policy. The district court granted the United States’
motion to dismiss for lack of subject matter jurisdiction, holding that “[t]he
actions of SBA fit the definition of negligent misrepresentation exactly.”
II.
This court reviews the grant of a 12(b)(1) motion to dismiss for lack of
subject matter jurisdiction de novo. Saraw P’ship v. United States, 67 F.3d 567,
569 (5th Cir. 1995). The party asserting jurisdiction bears the burden of proof
on a 12(b)(1) motion to dismiss. Randall D. Wolcott, M.D., P.A. v. Sebelius, 635
F.3d 757, 762 (5th Cir. 2011). The court takes as true all of the allegations of
the complaint and the facts set out by the plaintiff. Ass’n of Am. Physicians &
Surgeons, Inc. v. Tex. Med. Bd., 627 F.3d 547, 553 (5th Cir. 2010).

The

dismissal will not be affirmed “unless it appears certain that the plaintiff[s]
cannot prove any set of facts in support of [their] claim which would entitle
[them] to relief.”

Hobbs v. Hawkins, 968 F.2d 471, 475 (5th Cir. 1992)
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(alterations in original) (internal quotation marks omitted).
III.
As an initial matter, we must determine whether Life Partners properly
exhausted its administrative remedies. An action cannot be brought against
the United States for the negligent act of one of its employees “unless the
claimant shall have first presented the claim to the appropriate Federal
agency.” 28 U.S.C. § 2675(a). That requirement is a prerequisite to suit under
the FTCA. McAfee v. 5th Circuit Judges, 884 F.2d 221, 222-23 (5th Cir. 1989).
Its purpose is “to ease court congestion and avoid unnecessary litigation, while
making it possible for the Government to expedite the fair settlement of tort
claims asserted against the United States.” Frantz v. United States, 29 F.3d
222, 224 (5th Cir. 1994) (internal quotation marks omitted).
To fulfill that requirement, an FTCA claimant must provide the agency
with “facts sufficient to allow his claim to be investigated.” Cook v. United
States, 978 F.2d 164, 166 (5th Cir. 1992). “This court has not required plaintiffs
to specifically enumerate legal theories of recovery in their administrative
claims.” Frantz, 29 F.3d at 224. As long as “the Government’s investigation of
[the] claim should have revealed theories of liability other than those
specifically enumerated therein, those theories can properly be considered part
of the claim.” Rise v. United States, 630 F.2d 1068, 1071 (5th Cir. 1980). Based
on that standard, we have held that a plaintiff adequately exhausted his
administrative remedies because his claim for medical negligence should have
revealed the possibility of an informed consent claim. Frantz, 29 F.3d at 224.
We need not reach the question of whether the filing of a claim alleging
only facts and theories that are clearly barred exhausts administrative
remedies as to claims that may not be barred. Here, Life Partners’ original
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administrative claim alleged that “the SBA confirmed via facsimile that Life
Partners, Inc. had been assigned ownership of the coverage at issue.” Although
it also, and primarily, alleged misrepresentation, a plaintiff’s “specifically
enumerate[d] legal theor[y]” does not alone resolve the issue.

See id.

Regardless of how it was characterized, Life Partners’ allegation arguably
should have triggered an investigation into whether the SBA’s records
incorrectly reflected that the policy had not been previously assigned.
Furthermore, even if the initial claim were not sufficient to provide notice
to the SBA, the SBA was specifically presented with the exact claim brought on
appeal—negligent record-keeping—in Life Partners’ motion for reconsideration
to the SBA. Specifically, the motion stated that “[a]lthough the Claimants’
claim is couched in terms of misrepresentation claim [sic], the ‘focal point of the
claim’ is the USBA’s failure to properly administer this . . . coverage and retain
proper documentation for the coverage.” The SBA again denied the claim.
Thus, we conclude that the SBA had the opportunity to investigate and
evaluate the claim and consider the need, if any, to settle its liabilities,
satisfying the purposes of the exhaustion requirement here. Accordingly, Life
Partners exhausted its administrative remedies.
IV.
We next consider whether Life Partners’ claims for negligent recordkeeping and administration are essentially claims of misrepresentation, such
that they are barred by the FTCA. Life Partners argues that “[t]he gravamen
of Plaintiffs’ complaint against Defendant is Defendant’s negligent failure to
administer the S.D. policy, not Defendant’s admitted failure to communicate
correct information.” Specifically, it argues that SBA “negligently fail[ed] to
adequately examine the records of the S.D. policy prior to executing, processing,
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and recording the assignment.”
The United States has partially waived its sovereign immunity in the
FTCA, which subjects the United States to tort liability if a private person
would be liable for the same act under state law. 28 U.S.C. § 1346(b) (waiving
sovereign immunity for any “negligent or wrongful act or omission of any
employee of the Government while acting within the scope of his office or
employment, under circumstances 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”). However, the FTCA also includes several
exceptions to that waiver, including “[a]ny claim arising out of . . .
misrepresentation [or] deceit.” 28 U.S.C. § 2680(h). That exception bars claims
for both negligent and intentional misrepresentation. Block v. Neal, 460 U.S.
289, 295-96 (1983).
The Supreme Court has considered the scope of the misrepresentation
exception in two leading cases, United States v. Neustadt, 366 U.S. 696 (1961),
and Block, 460 U.S. 289. In Neustadt, the Court held that a suit alleging that
the plaintiffs bought a home for more than it was worth based on a negligent
appraisal was barred.

366 U.S. at 711.

The plaintiffs alleged that the

inaccurate appraisal resulted from a negligent inspection, not from a
misrepresentation. Id. at 704-05. The Court, however, held that the damage,
the payment of a purchase price in excess of the home’s fair market value, arose
out of negligent misrepresentation, even if the government also negligently
conducted the inspection. Id.; see Ware v. United States, 626 F.2d 1278, 1283
(5th Cir. 1980). The plaintiffs would not have purchased the home, and
therefore suffered the harm, without the misrepresentation.
In Block, the Court distinguished Neustadt, holding that a similar claim
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was not barred. 460 U.S. at 296. There, after the plaintiff contracted for the
construction of a home, the Farmers Home Administration (FmHA) agreed to
supervise construction. Id. The FmHA employee inspected the home three
times, issuing a final report indicating that the construction accorded with the
specifications approved by the FmHA. When the plaintiff bought the home and
later discovered extensive defects, she sued the FmHA.

Although the

government argued that Neal’s damages were caused by the inspection reports,
and therefore her claim was barred as one for misrepresentation, the Court held
that the injury Neal alleged, a defective house, arose from the FmHA’s failure
to oversee construction. Id. at 297-98. The plaintiff alleged an injury she
“would have suffered independently of [her] reliance on the erroneous
[representation].”

Id. at 296-97.

The plaintiff’s reliance on the FmHA’s

misrepresentation did not cause the defects in the home; rather, they were
caused by the FmHA’s negligence in failing to oversee construction.
Based on those cases, this circuit uses a two-step process for determining
whether a claim is barred. Commercial Union Ins. Co. v. United States, 928
F.2d 176, 179 (5th Cir. 1991). First, we determine whether “the chain of
causation” from the alleged negligence to the injury depends upon a
misrepresentation by a government agent.1 Id. Or, put another way, whether

1

Life Partners argues that its claim should be allowed to proceed because Texas
recognizes a voluntary-undertaking claim. This argument is foreclosed by the language of the
exception, which states that “[t]he provisions of this chapter and section 1346(b) of this title
shall not apply” if one of the exceptions applies, regardless of whether the claim is valid under
state law. United States v. Neustadt, 366 U.S. 696, 705 n.15 (1961). As the Supreme Court
held in Neustadt, “[w]hether or not this analysis [of whether a claim is one for
misrepresentation] accords with the law of States which have seen fit to allow recovery under
analogous circumstances, it does not meet the question of whether this claim is outside the
intended scope of the Federal Tort Claims Act, which depends solely upon what Congress
meant by the language it used in § 2680(h).” Id. at 705-06 (footnote omitted). We therefore
need not address Texas law.

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“the underlying governmental conduct essential to the plaintiff’s claim can be
fairly read to arise out of conduct that would establish an excepted cause of
action.” McNeily v. United States, 6 F.3d 343, 347 (5th Cir. 1993) (internal
quotation marks omitted). We consider whether “the focal point of the claim is
negligence in the communication of (or failure to communicate) information or
negligence in the performance of an operational task, with misrepresentation
being merely collateral to such performance.” Metro. Life Ins. Co. v. Atkins, 225
F.3d 510, 512 (5th Cir. 2000).

Life Partners’ choice of pleading is not

controlling. Saraw P’ship, 67 F.3d at 570. Instead, “we focus on the conduct
upon which the plaintiff’s claim is based.” Truman v. United States, 26 F.3d
592, 594 (5th Cir. 1994). Second, if the plaintiff’s claim does depend on a
misrepresentation, we must determine “whether Congress has nonetheless
waived sovereign immunity independently of the FTCA.” Commercial Union,
928 F.2d at 179. Because Life Partners does not allege any applicable waiver
of sovereign immunity outside the FTCA, this case turns on the first step.
The FTCA’s misrepresentation exception is broad: it bars any claim
arising out of a misrepresentation—even if the conduct underlying the claim
may also constitute a tort not barred by section 2680(h). McNeily, 6 F.3d at 347;
see also Jeanmarie v. United States, 242 F.3d 600, 604 (5th Cir. 2001) (noting
that we construe waivers of sovereign immunity strictly in favor of the
sovereign). “[T]he line between what constitutes a permissible negligence claim
and a barred misrepresentation claim has not been clearly delineated.” Saraw
P’ship, 67 F.3d at 570.
Even so, a close look at our case law involving the FTCA’s
misrepresentation exception provides guidance. In Atkins, a case also involving
insurance beneficiaries, we reversed the dismissal of a claim alleging that the
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government had improperly failed to include the beneficiary form signed by the
decedent in his file. 225 F.3d at 511-12. The district court held, and the
government argued, that the claim was one for misrepresentation because the
federal employee had failed to communicate to the decedent that his personnel
file did not include a signed copy of the beneficiary form. Id. at 512. We held
that the injury was caused by the government’s failure to keep the signed form,
irrespective of any failure to communicate. Id. Because the injury arose from
the negligent performance of an operational task, it was not barred.
We have also held that a claim was not barred when the Veterans’
Administration failed to enter the plaintiff’s loan payment properly, resulting
in foreclosure of the plaintiff’s property. Saraw P’ship, 67 F.3d at 571. The
government argued that any injury was caused by the government’s failure to
communicate that it had not received the plaintiff’s payment. Id. at 570-71. We
rejected that argument, holding, “This case is not about reliance on faulty
information or on the lack of proper information; rather, the gist of this case is
the government’s careless handling of Saraw’s loan payments.” Id.
Likewise, we have reversed the dismissal of a claim alleging that the
Department of Agriculture mis-diagnosed and then itself killed a rancher’s
cattle. Ware, 626 F.2d at 1282-83. The government argued that the claim was
barred because a mis-diagnosis is a misrepresentation. We noted, however, that
the plaintiff had not taken any action in reliance on that mis-diagnosis, which
is required for a misrepresentation claim; rather, the government had killed the
cattle, causing the damage itself.

Id. at 1283.

“The government’s

misrepresentation caused Ware to do nothing save remain in ignorance that he
had suffered a compensable loss.” Id. Importantly, the misrepresentations in
the above cases were merely collateral to the focal point of the claims,
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“negligence in the performance of an operational task.” See Atkins, 225 F.3d at
512.
In contrast, we have affirmed the dismissal of a claim based on the FHA’s
miscalculation of the predicted 50-year flood plane when approving a
subdivision plan, holding that the damages sought resulted “solely from the fact
that the government communicated its miscalculation to the developer who
relied on it, and that reliance eventually caused the plaintiffs’ damages.”
Baroni v. United States, 662 F.2d 287, 289 (5th Cir. 1981); see also McNeily, 6
F.3d at 347. We also affirmed the dismissal of a claim based on the FmHA’s
unfulfilled promise to give a farmer a loan if he sold some of his land, which in
turn caused him to be ineligible for the loan. Williamson v. U.S. Dep’t of Agric.,
815 F.2d 368, 378 (5th Cir. 1987). Because the plaintiff had relied on the
FmHA’s representation that he would receive a loan in selling his land, his
claim was barred. Id. In sum, a claim for injury arising from a plaintiff’s
reliance on a misrepresentation is barred by the FTCA; a claim alleging injury
independent of the misrepresentation, such as one in which government action
directly caused the injury, is not barred. See Ware, 626 F.2d at 1282-83.
In the instant case, Life Partners’ injury, the purchase of a previouslyassigned

policy,

arose

from

its

action

in

reliance

on

the

SBA’s

misrepresentations. Life Partners has not alleged any specific facts to establish
that the SBA performed an operational task negligently. The injury did not
result from negligent record-keeping like in Atkins, as Life Partners alleges;
rather, at all times, the records properly reflected that the policy had previously
been assigned. Nor did it result from Taylor’s administering the assignment
“without first checking for any previous assignments”; Taylor admitted that she
had actual knowledge that the policy had previously been assigned at the time
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she conveyed the incorrect information to Life Partners. More importantly,
even assuming the SBA had performed a task negligently, Life Partners has not
established that any such negligence caused its injury.2 Simply put, Life
Partners would have suffered no injury absent the misrepresentation, because
it otherwise would not have purchased the policy. Life Partners’ claim is
therefore barred as one for misrepresentation.
V.
While we certainly do not condone the intentional misrepresentation
made by the government employee here, neither can we ignore the plain
meaning of the statute limiting the scope of the United States’ tort liability.
Life Partners did exhaust its administrative remedies, but its claim arises out
of a misrepresentation and is barred by the FTCA. As a result, we AFFIRM.

2

At oral argument, Life Partners argued that the SBA had negligently accepted the
assignment document without determining whether the policy had been previously assigned,
which caused Life Partners’ injury. Life Partners did not make this argument in its brief,
however. “Failure adequately to brief an issue on appeal constitutes waiver of that argument.”
Procter & Gamble Co. v. Amway Corp., 376 F.3d 496, 499 n.1 (5th Cir. 2004). As such, we do
not consider this argument. Nonetheless, even if we were to consider the SBA’s acceptance
of the assignment document, any negligence in doing so did not cause Life Partners’ injury.
S.D. assigned the policy to Life Partners with no involvement by the SBA other than Taylor’s
misrepresentation. The assignment was already complete when SBA accepted the document.
This after-the-fact acknowledgment did not cause Life Partners to purchase the policy.

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