LOGAN E. COMBS, PETITIONER V. UNITED STATES OF AMERICA, ET AL. No. 89-7432 In The Supreme Court Of The United States October Term, 1990 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Eleventh Circuit Brief For The Federal Respondents In Opposition OPINIONS BELOW The decisions of the court of appeals (Pet. App. B1) and the district court (Pet. App. A1-A3) are unreported. JURISDICTION The judgment of the court of appeals was entered on March 19, 1990. The petition for a writ of certiorari was filed on May 7, 1990. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTIONS PRESENTED 1. Whether the government is liable under the Federal Tort Claims Act (FTCA) for allegedly negligent inspection of a newly-constructed house purchased with an FHA-insured loan, where the owner admits that he was aware of alleged construction defects and refused to permit the contractors to correct them. 2. Whether the FTCA permits the exercise of pendent party jurisdiction over parties other than the United States in the absence of any independent basis for federal jurisdiction. STATEMENT 1. Petitioner filed this action under the Federal Tort Claims Act (FTCA), 28 U.S.C. 2671 et seq., seeking damages for alleged defects in a house constructed by private contractors and purchased with a government-insured loan. /1/ Petitioner sued the contractors, the United States, the Department of Veterans Affairs, its Secretary, and various VA officials. He alleged that the VA had approved "plans and specifications" for the house, and that the agency owed him a duty to supervise construction of the house to ensure that it complied with the approved plans and specifications. /2/ Pet. 3. Petitioner further alleged that the VA breached its duty to him by failing to conduct adequate inspections of the house, failing to acknowledge in its report the severity of the construction flaws and deviations from the approved plans and specifications, and failing properly to advise petitioner of his rights pursuant to its regulations. Pet. 3-5. Petitioner conceded that he discovered at least some of the alleged flaws while the house was still under construction, but refused to allow the contractors to correct any of the defects. Pet. App. A3; Pet. Mot. for Summary Judgment 2-3. Petitioner sought damages for the asserted difference between the value of his house without defects and its actual market value. 2. The district court granted the defendants' motion to dismiss the case. The court dismissed the contractors for want of jurisdiction after determining that both petitioner and the contractors were Alabama residents. Pet. App. A3. The court dismissed all remaining defendants except the United States on the ground that petitioner's exclusive remedy under the FTCA, 28 U.S.C. 2679(b)(1), is against the United States. Id. at A2. Finally, the district court dismissed the claims against the United States, holding that, "because (petitioner) admitted in his complaint that he was aware of the construction defects," he "cannot now attribute his injury to the negligence of agents of the United States through their failure to properly inspect his home." Ibid. 3. The court of appeals summarily affirmed the judgment of the district court. Pet. App. B1. ARGUMENT The court of appeals' summary affirmance of the fact-bound decision of the district court does not conflict with any decision of this Court or any other court of appeals. Accordingly, further review by this Court is not warranted. 1. To the extent that petitioner seeks to recover on the basis of alleged misstatements by government officials, his claim under the FTCA is barred by 28 U.S.C. 2680(h) as one that "aris(es) out of * * * misrepresentation." See Block v. Neal, 460 U.S. 289, 295-296 (1983); United States v. Neustadt, 366 U.S. 696 (1961). "(W)hen the loss suffered by the injured party is caused by the breach of a * * * duty to use due care in obtaining and communicating information upon which that party may reasonably be expected to rely in the conduct of his economic affairs," the claim stated is only "the traditional and commonly understood * * * tort of 'negligent misrepresentation' * * * ." Neustadt, 366 U.S. at 706. In addition, petitioner's admission that he was aware of the alleged defects implies that he did not rely on the representations of the VA. See Pet. App. A3. /3/ Petitioner contends that the VA owed him a duty to supervise construction of his house, and that the VA breached this duty. Pet. 6. In Block v. Neal, the Court held that such claims under the FTCA are not barred by Section 2680(h) if the government's alleged misstatements "are not essential to plaintiff's negligence claim." 460 U.S. at 297. In this case, however, petitioner offers no legal support for his contention that the government owed him a duty to supervise the construction. /4/ On the contrary, the real estate purchase contract signed by petitioner states, in boldface type, that "HUD does not warrant the value o(r) the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable." /5/ See Pet. C.A. Br. App. In any event, the question presented by petitioner lacks continuing significance, because the Department of Housing and Urban Development recently promulgated a regulation stating that FHA appraisals and inspections are performed to determine the maximum insurable mortgage amount and to protect the Government and its insurance funds. Appraisals and inspections neither create nor imply a duty or obligation from HUD to the mortgagor or any other party, and are not to be regarded as a warranty by HUD to the mortgagor, or any other party, of the value or condition of the property. 54 Fed. Reg. 19,887-19,888 (1989), to be codified at 24 C.F.R. 200.145(c)(1). Although this regulation did not take effect until June 19, 1989 (id. at 19,886), after petitioner's loan was insured, HUD stated that it was "not establish(ing) new policy," but merely "reaffirm(ing) and codif(ying) what has always been the position of the Department as to the limited function of the appraisals and inspections it requires." Ibid. In addition, Congress has established an exclusive administrative remedy for structural defects in dwellings purchased with FHA-insured loans. Pursuant to 12 U.S.C. 1735b(a), the Secretary of HUD has established a program to pay for the correction of structural defects on dwellings for one to four families purchased with loans insured by the FHA or VA. See 24 C.F.R. 200.500-200.515. The VA has established a similar program under 38 U.S.C. 1827. See 38 C.F.R. 36.4364. An owner must apply for assistance under these programs within four years after the first mortgage insurance certificate issued in connection with the property. 12 U.S.C. 1735b(a); 38 U.S.C. 1827(a); 24 C.F.R. 200.502; 38 C.F.R. 36.4364(b). The decisions of the Commissioner of the FHA and the Secretary of Veterans Affairs under these programs are "final and conclusive" and "not subject to judicial review." 12 U.S.C. 1735b(c); 38 U.S.C. 1837(b). 2. Finally, petitioner asserts (Pet. 9) that the courts below should have assumed pendent party jurisdiction over the two private contractors who constructed his house. In Finley v. United States, 109 S. Ct. 2003 (1989), this Court held that the FTCA does not permit the exercise of pendent party jurisdiction over additional defendants for whom there is no independent basis of federal jurisdiction. Finley is controlling here. Petitioner does not challenge the district court's determination that it lacked diversity jurisdiction over the contractors, and does not allege any other independent basis of jurisdiction over the contractors. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General STUART M. GERSON Assistant Attorney General ANTHONY J. STEINMEYER MARY K. DOYLE Attorneys JULY 1990 /1/ Petitioner's mortgage was insured by the Federal Housing Administration (FHA). Pet. 5. /2/ The FHA may insure dwellings approved for mortgage guaranty by the VA. See 12 U.S.C. 1709(b)(2). /3/ Petitioner's contention that the VA failed properly to advise him of his rights under its regulations also falls within the misrepresentation exception of Section 2680(h). Moreover, "regulations published in the Code of Federal Regulations 'have the force and effect of law and all persons affected thereby are charged with legal notice of their provisions.'" Moody v. United States, 774 F.2d 150, 156 (6th Cir. 1985), cert. denied, 479 U.S. 814 (1986) (quoting Adamsville Lumber Co. v. Rainey, 348 F. Supp. 373, 376 (W.D. Tenn. 1972)). /4/ Petitioner (Pet. 6-7) relies upon Bonuchi v. United States, 827 F.2d 377 (8th Cir. 1987), but that decision does not support his position. In Bonuchi, the court expressly declined to decide whether the owner of a house constructed with a government-insured loan has a cause of action under the FTCA for negligent supervision of the construction. Id. at 380 n.5. Bonuchi held that the misrepresentation exception barred such a claim by a subsequent purchaser of the house. /5/ Even if the VA owed petitioner a duty to supervise the construction of his house, and breached that duty, it is not clear that such a breach caused any damage to petitioner. The district court stated that petitioner "admitted in his complaint that he was aware of the construction defects." Pet. App. A2. Moreover, petitioner apparently refused to permit the contractors onto the property to correct any of the defects. Pet. Mot. for Summary Judgment 3.