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Armor Elevator Co., Inc. V. Secretary of Housing and Urban Development, 655 F.2d 19 (1st Cir. 1981)

07/23/1981 Posted By: Corwin & Corwin LLP
Citation: 655 F.2d 19 (1st Cir. 1981)
Docket No.: 80-1626.*fn*
Decision Date: July 23, 1981

Peter J. Gagne, Boston, Mass. and Corwin & Corwin, Boston, Mass., were on brief, for
plaintiff, appellant.

Michael Kimmel, Atty., Dept. of Justice, Washington, D.C.,
with whom Edward F. Harrington, U. S. Atty., Boston, Mass.,
and Alice Daniel, Asst. Atty. Gen., Washington, D.C., were on
brief, for the Secretary of Housing and Urban Development,
defendant, appellee.

Aldrich, J. Seven unpaid subcontractors employed in the construction of
the Charles River Park housing and office complex in Boston
sued the general contractor, the owner and the Secretary of
HUD for payment. The cause of action alleged against the
Secretary was that HUD had insured a $42 million construction
loan under §220 of the National Housing Act, 12 U.S.C.§
1715k, that HUD had failed to comply with various regulations
or guidelines under the Act designed to protect the security
of loans that it insures, and that this failure ultimately
resulted in nonpayment by the general contractor of moneys it
owed to the plaintiffs for their work on the project.

The district court dismissed the Secretary on his motion
ruling that under the circumstances of this case the “sue and
be sued” provision of§ 1 of the Act, 12 U.S.C.§ 1702, did
not waive sovereign immunity to suit so as to give the
district court jurisdiction, and that exclusive jurisdiction
for the suit was vested in the Court of Claims. The district
court certified and we allowed this interlocutory appeal. We
think that the district court was correct in ruling that it
lacked jurisdiction albeit for reasons supplemental to those
assigned by the district court. We also think for the reasons
assigned by the district court, that if any federal
jurisdiction exists it is vested in the Court of Claims. We


The issue before us is whether the Secretary may be sued for
consequential damages sustained as a result of the alleged
maladministration of a loan. In this case plaintiffs do not
claim that they had any contractual relations with the
Secretary or that they were the third-party beneficiaries of
any contract to which the Secretary is a party. Nor do they
allege that the Secretary has property or funds upon which
they have a lien, or that the Secretary has a property
interest which has been increased in value by labor or
materials supplied by them. Finally, they do not allege that
the Secretary has a present interest in the complex which has
been increased in value by labor or materials which they
provided or that the Secretary has been unjustly enriched.
Rather their claim is one sounding in tort; and although they
characterize the Secretary’s alleged liability as an
“equitable obligation”, their failure to make any of the
allegations that we have listed, indicates to us that they
mean no more than that their claim is a “just” one aside from
any specific theory of legal or equitable entitlement.


The right to sue the Secretary (and the Secretary’s right to
sue) is found in 12 U.S.C.§ 1702. Unlike other statutes
where, for specific purposes, Congress has broadly waived the
sovereign immunity of the United States to suit,§ 1702
confers upon the Secretary, in his official capacity, the
capacity to sue and be sued only for the purpose of “carrying
out the provisions of … (the National Housing Act).” The
language pertinent here was added in 1935 as a “minor
clarifying amendment” to the National Housing Act.
S.Rep.No.1007, 74th Cong., 1st Sess. 24 (1935). The
legislative history is otherwise unilluminating, but the
language employed in the Senate Report suggests that the
amendment was contemplated to be limited in scope.

Federal Housing Administration v. Burr, 309 U.S. 242, 60 S.
Ct. 488, 84 L. Ed. 724 (1940), is the seminal case on the
“sue and be sued” clause of §1702. It decided that the
Federal Housing Administration, created by the National
Housing Act and the predecessor of the Secretary under§
1702, was subject to garnishment by a judgment creditor of
one of its former employees with respect to the employee’s
unpaid wages earned while employed to carry out the Act.
Succinctly stated, the Court’s opinion said that when
Congress permits an agency to “sue and be sued”:

It cannot be lightly assumed that restrictions on that
authority are to be implied. Rather if the general authority
to “sue and be sued” is to be delimited by implied
exceptions, it must be clearly shown that certain types of
suits are not consistent with the statutory or constitutional
scheme, that an implied restriction of the general authority
is necessary to avoid grave interference with the performance
of a governmental function, or that for other reasons it was
plainly the purpose of Congress to use the “sue and be sued”
clause in the narrow sense. In the absence of such showing,
it must be presumed that when Congress launched a
governmental agency into the commercial world and endowed it
with authority to “sue and be sued,” that agency is not less
amenable to judicial process than a private enterprise under
like circumstances would be. (footnote omitted).

309 U.S. at 245, 60 S. Ct. at 490.

The decision in Burr has been variously construed by the
courts which have considered it. Like the district court in
the instant case, some courts have held that suit against the
Secretary will lie only when the Secretary controls funds
authorized to be used for the payment of the plaintiff’s
alleged losses. See, e. g., DSI Corp. v. Secretary of HUD,
594 F.2d 177 (9 Cir. 1979); Marcus Garvey Square, Inc. v.
Winston Burnett Constr. Co., 595 F.2d 1126 (9 Cir. 1979);
United States v. Adams, 634 F.2d 1261 (10 Cir. 1980). We
believe this too narrow an interpretation; but if that theory
is invoked here, the Secretary is entitled to judgment as the
district court explained. Other courts, however, have looked
more to discerning the Congressional intent in enacting the
limited waiver of immunity by considering whether the
plaintiff’s claim is of the type for which a private
enterprise doing business in the commercial world would be
liable. Thus it has been held that the Secretary can be sued
on contracts for services, Federal Housing Administration v.
Burr, supra, or by assuming the role of mortgagee, e. g. S.S.
Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28 (2
Cir. 1979), or as insurer at the instance of the insured, e.
g. Ferguson v. Union Nat’l Bank of Clarksburg, 126 F.2d 753
(4 Cir. 1942), or by assuming the role of the titleholder, e.
g. Trans-Bay Engineers and Builders, Inc. v. Hills, 179 U.S.
App. D.C. 184, 551 F.2d 370 (D.C.Cir.1970), or as the seller,
e. g. Krupp v. Federal Housing Administration, 285 F.2d 833
(1 Cir. 1961). The rationale of these holdings has been
variously that the Secretary may be sued on a contract made
by him by a party to the contract and by a third-party
beneficiary of the contract, in short, by any person having
direct contractual relations with the Secretary on a claim
derived from the contract. Another rationale which has been
employed is the theory of unjust enrichment exemplified by
Trans-Bay Engineers and Builders, Inc. v. Hills, 551 F.2d at
381-83. There the borrower defaulted and the lender assigned
the mortgage to the Secretary who had insured it. She
acquired the property through foreclosure at 10% less than
the actual value of the mortgage because the 10% assurance of
completion retainage had not been paid and then she sought to
avoid paying the retainage herself. The Secretary thus
deprived the general contractor of payments for services
rendered and the contractor was unable to protect itself
legally because the construction contract required the waiver
of mechanic’s liens. Because the Secretary had unjustly
enriched herself at the expense of the general contractor,
she was held subject to liability to pay the unpaid

The rationale of none of the cases decided subsequently to
Burr is applicable here. As we have stated, plaintiffs
neither allege that they had any direct contractual relations
with the Secretary nor do they allege that they are
third-party beneficiaries under any of the Secretary’s
contracts. Similarly, they fail to allege a case of unjust
enrichment. They have failed to show any benefit that has
inured to the Secretary. Their claim is simply that by reason
of the Secretary’s failure to comply strictly with
regulations prescribed by the Secretary they went unpaid
while strict compliance likely would have resulted either in
the project not having been undertaken so that they would not
have been employed, or if undertaken, that available funds
would have been sufficient to pay them. We conclude therefore
this type of claim is beyond the limited waiver of sovereign
immunity enacted by Congress. Certainly we do not construe
the claims as ones the redress of which will carry out the
provisions of the National Housing Act. Nor do we think that
the claim is like any that would be made against a private
enterprise since its foundation is alleged noncompliance with
a self-governing regulation.


Our conclusion is reinforced by another consideration.
Plaintiffs’ claims sound in tort. If§ 1702 is deemed a
waiver of immunity for torts committed by the Secretary in
carrying out the National Housing Act, surely the limited
waiver was superseded by the enactment of the Federal Tort
Claims Act. A provision, 28 U.S.C.§ 2679(a), withdraws from
federal agencies vested with the right to sue and be sued the
authority to be sued for the torts of any employee acting
within the scope of employment of his office under
circumstances where the United States, if a private person,
would be liable, and makes the legal remedy under 28 U.S.C.§
1346(b) exclusive. Of course, if plaintiffs’ action is
treated as one in tort, it follows that plaintiffs are barred
from suit because of their failure to allege that they
exhausted their administrative remedies by presenting their
claims to the Secretary as a condition precedent to bringing
suit. 28 U.S.C.§ 2675. However, it is not necessary for us
to decide that plaintiffs’ action is an action for tort, and
we do not so decide. For present purposes it is sufficient to
hold that the district court lacked jurisdiction under§

If any federal jurisdiction exists, it is in the Court of
Claims as the district court decided, and it is for that
court to determine if it has jurisdiction. We do not so
intimate that it does have jurisdiction, but we think that to
avoid any problem of limitations the district court correctly
transferred the case to the Court of Claims. See 28 U.S.C.§


WYZANSKI, Senior District Judge, concurring in part, and
dissenting in part:

I concur in my brethren’s view that in these seven cases the
plaintiffs have not alleged a breach of any express or
implied contract, and that, as this court’s opinion states,
“plaintiffs’ claims sound in tort.” If by the Act of August
23, 1935, c. 614, 49 Stat. 684, 722, Congress originally
waived sovereign immunity so as to subject the Administrator
of the National Housing Act to suit upon claims of this
nature, I agree with my brethren that, by the Federal Tort
Claims Act, Act of June 25, 1948, c. 646, 62 Stat. 984, 28
U.S.C.§ 2679 (now 28 U.S.C.§ 2679(a)), Congress withdrew
that waiver and as a consequence the Secretary of HUD was not
subjected to suit upon these claims by the provisions of the
Act of May 25, 1967, 81 Stat. 17, 18, 12 U.S.C.§ 1702.

Furthermore, I agree that the United States is not subject to
a tort action upon these claims because the plaintiffs have
not alleged that they presented the claims administratively
to the Secretary, as required by 28 U.S.C.§ 2675.

My dissent is confined to the narrow point that, no claim of
express or implied contract having been made, there is no
occasion to transfer this case to the Court of Claims.
Therefore, in my opinion, the district court’s judgment
directing the transfer should be reversed, and the district
court should proceed in accordance with the other parts of
this court’s opinion.


General Footnotes

*fn* This opinion disposes of appeals in the following
additional cases.$No. 80-1627 Intercity Painting Co. v.
Phoenix Urban Corporation et al.$No. 80-1628 Foundation
Engineering Systems, Inc. v. Phoenix Urban Corporation et
al.$No. 80-1629 C & M Roofing Company, Inc. v. Phoenix Urban
Corporation et al.$No. 80-1630 Universal Testing Services,
Inc. v. Phoenix Urban Corporation et al.$No. 80-1631
Manganaro Brothers, Inc. v. Phoenix Urban Corporation et
al.$No. 80-1632 Geotechnical Consultants, Inc. v. Phoenix
Urban Corporation et al.

Judges Footnotes

*fn** Of the Fourth Circuit, sitting by designation.

*** Of the District of Massachusetts, sitting by designation.

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