655 F.2d 1047 | Ct. Cl. | 1981
Lead Opinion
delivered the opinion of the court:
These consolidated cases come before the court on cross motions for summary judgment after transfer from a district court. We must decide whether the plaintiffs, a construction company and its surety, may sue the United States for their alleged losses in completing a federally insured housing project. After consideration of the parties’ written and oral submissions, we dismiss these petitions.
Plaintiff Curtis Johnson (Johnson) is a construction company. Johnson substantially completed a housing project known as the University Gardens project under a construction contract with the owner, the Hoover Interfaith Housing Corporation (Hoover). Johnson brings this action to recover $278,483 (plus attorneys’ fees and costs) supposedly owed it for work done under the contract with Hoover.
Plaintiff Aetna Casualty and Surety Company (Aetna) provided Johnson with performance and payment bonds to be given Hoover and Pacific Mutual Life Insurance Company (Pacific) (Hoover’s lender) to ensure Johnson’s contract performance. Aetna brings this action as subrogee to recover funds which it paid Johnson’s subcontractors and materialmen when Johnson became unable to make the required payments. Aetna seeks recovery in the amount of $152,350.49 plus interest. This amount represents $118,160.51 paid by Aetna to subcontractors and material-men and $34,189.98 in attorneys’ fees and costs. Alternatively, Aetna claims entitlement to an unpaid final progress payment and certain retainages aggregating $150,542 (plus interest).
Normally, amortization of section 236 project mortgages begins after the project is occupied. Interest on the construction loan is incorporated into the principal of the section 236 mortgage, and thus, owners undertaking such projects need little, if any, operating capital. Section 236 owners are generally non-profit, private corporations formed to hold formal title to the property. Should default on the mortgage occur, the mortgagee has the option of assigning the mortgage to HUD and receiving reimbursement of all approved advances, plus interest. Other options are also available to the mortgagee, including renegotiation
Under the construction contract, the contractor receives progress payments as expenses are incurred. Payment requests are submitted to the non-profit owner, who in turn requests corresponding mortgage proceeds. Assuming the loan is in balance, i.e., remaining loan proceeds equal or exceed costs of completion (including those for delivered materials and rendered services), the lender and HUD approve the advance, less a 10 percent retainage. The reduced advance is made to the owner and, ultimately, the contractor. The retainages are payable after the project is complete, state and local occupancy certification occurs, and HUD approves.
Construction of this project was substantially complete by December 2, 1971. Various local authorities and HUD approved the project for occupancy shortly thereafter. However, at that time the remaining mortgage proceeds were apparently inadequate to cover remaining costs.
Eventually, district court litigation in the Ninth Circuit ensued between Aetna, Johnson, Hoover, Pacific, and HUD. Judgment was entered for Aetna against Johnson totaling $203,958.88. However, the district appeals court determined under Marcus Garvey Square, Inc. v. Winston Burnett Construction Co., 595 F. 2d 1126 (9th Cir. 1979), that the actions against HUD were in reality against the United States and in excess of the $10,000 Tucker Act limit on such actions in the district courts. See 28 U.S.C. § 1346(a)(2) (1976). The reformed actions were transferred to this court under 28 U.S.C. § 1406(c) (1976) and consolidated. These cross motions for summary judgment followed.
These suits, of course, are proper only insofar- as the United States has waived its sovereign immunity and consented to suit. See United States v. Mitchell, 445 U. S. 535, 538 (1980); United States v. Testan, 424 U. S. 392, 399 (1976); United States v. Sherwood, 312 U. S. 584, 586 (1941).
The Tucker Act, 28 U.S.C. § 1491 (1976), is the general Congressional consent to suit in this court. Under the Tucker Act, suit in this court is proper only as to actions "founded either upon the Constitution or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.” Transfer of this case from the district court does not found jurisdiction here, Berdick v. United States, 222 Ct. Cl. 94, 99, 612 F. 2d 533, 536 (1979), and if these claims are not within one of the categories enumerated by the Tucker Act, the petitions must be dismissed. Several theories are advanced to support jurisdiction.
EXPRESS OR IMPLIED CONTRACT
Plaintiffs
We cannot agree. Plaintiffs’ allegations are but the most recent in a litany of cases
In D. R. Smalley, we concluded there was no jurisdiction in this court over the plaintiff contractor’s suit against the United States for the plaintiffs contracts had been with the State of Ohio and not the Federal Government:
* * * The defendant did not sign the contracts with the plaintiff and there were no negotiations or communications whatsoever between them. Consequently, there were no express contracts between them.
The same reasoning applies to plaintiffs alternative claim that defendant is liable because of implied contracts with plaintiff. The sovereign acts of defendant described above do not impose liability on defendant for the acts and omissions of the State of Ohio on the theory of implied contract. The contracts were between the state and plaintiff.
*153 Accordingly, since there was no privity of contract, express or implied, between plaintiff and defendant, the defendant is not liable in contract for the damages claimed by plaintiff. [178 Ct. Cl. at 598, 372 F. 2d at 508.]
We have since applied the D. R. Smalley doctrine in a variety of circumstances where Government agencies (including HUD) use other entities to contract for the general welfare, notwithstanding the Government’s intimate involvement with all stages of a project. Such intimate involvement, were the United States not acting as sovereign, might require reformation of the contract or a conclusion that a contract should be implied in fact. Nevertheless, the sovereign nature of the acts insulates the United States from liability. For example, in Housing Corp. of America v. United States, 199 Ct. Cl. 705, 468 F. 2d 922, and Correlated Development Corp. v. United States, 214 Ct. Cl. 106, 556 F. 2d 515, the plaintiff contractors had contracted with local housing authorities (LHAs) to construct and sell housing projects to the LHAs. Funds for the projects were received from the Federal Government under annual contributions contracts. Although HUD was not a party to the contracts between the LHAs and the plaintiffs, those contracts were subject to approval by HUD officials; the construction contracts referenced the annual contributions contracts between HUD and the LHAs; closing documents were prepared by HUD; HUD approved the plans and specifications, as well as any changes in the contract price; and HUD construction representatives inspected the work as it progressed. The plaintiffs in both cases contended, as do plaintiffs here, that the Government made itself a party to the contracts by its dominant control and supervision of every phase. In Housing Corp. of America, 199 Ct. Cl. at 710, 468 F. 2d at 924, we rejected such claims:
The contract here in issue is one of many pursuant to which the Federal Government subsidizes projects of state and local authorities for the public betterment. The United States, however, does not make itself a party to the contracts relating to said projects but obligates itself by separate agreements, as here, to local authorities for the funding of those projects it approves. The significance*154 of that approval is spelled out here in Article IX. This does not create an express or implied contract between plaintiff and defendant nor does it make the Commission defendant’s agent through HUD. HUD’s actions were performed in defendant’s capacity as sovereign. This principle has been settled for some time by a similar case involving construction under the Federal-Aid Highways Act. D. R. Smalley & Sons v. United States, 178 Ct. Cl. 593, 372 F. 2d 505, cert. denied, 389 U. S. 835 (1967). The Smalley case is squarely in point.
Relying on Housing Corp. of America, Correlated Development Corp. reached a similar result.
We see no reason to reach a different result today as to the mortgage insurance for section 236 projects, and we reaffirm the H. A. Ekelin holding. Therefore, HUD’s acts in insuring this project (including accepting default assignment) do not create either express or implied contracts between Johnson and defendant.
The plaintiffs next claim entitlement to the undisbursed mortgage proceeds as third-party beneficiaries to the mortgage agreement. Plaintiffs focus on the language in 12 U.S.C. § 1713(g),
The plaintiffs are, we think, wrong. The critical inquiry is the scope of the "assignment, transfer, and delivery” required in 12 U.S.C. § 1713(g), that is, whether Congress intended the United States to be liable in the same manner a private successor mortgagee would for undisbursed proceeds. That Congress recognized default assignment might occur when mortgage proceeds were undisbursed is beyond doubt, for 12 U.S.C. § 1713(g)(4) requires the then mortgagee to deliver to the Secretary "any balance of the mortgage loan not advanced to the mortgagor.” Yet there is no corresponding provision obligating the United States to pay those undisbursed proceeds to the defaulting mortgagor. Indeed, 12 U.S.C. § 1713(k)
Nor does the legislative history support plaintiffs’ contention that Congress intended 12 U.S.C. § 1713 as a consent to suit over undisbursed mortgage proceeds. That section was added as section 207 of the National Housing Act by section 3, National Housing Act Amendments of 1938, ch. 13, 52 Stat. 8. Our research of the legislative history of section 3 discloses no intent to obligate the United States to disburse any unpaid mortgage proceeds acquired after default. Indeed, testimony at both the House and Senate Committee Hearings by the Federal Housing Administrator indicated that the purpose of allowing the mortgage to be assigned (in lieu of the mortgagee acquiring title and then assigning the underlying property) was merely to place the United States in possession of the property more quickly.
REGULATIONS
The plaintiffs advance a similar contention regarding the mortgagee’s regulatory duty to disburse all mortgage proceeds. In essence, the plaintiffs argue that the United States, as assignee of the mortgage, became a successor mortgagee under 12 U.S.C. § 1713(a)(2). At the time of the assignment, a mortgagee was required by 24 C.F.R. § 221.512 (1973)
*159 * * * as a part of the mortgage transaction * * * the principal amount of the mortgage, to, or for the account of the mortgagor or to his creditors for his account and with his consent. [Emphasis supplied.]
Plaintiffs rely on the emphasized portion, claiming entitlement to the mortgage proceeds as creditors of Hoover. Plaintiffs are wrong for several reasons.
As we have already discussed, the Secretary does not under the statute become a successor mortgagee with a duty of disbursement. Plaintiffs’ application of the mortgagee’s regulatory duty to disburse is therefore incorrect. Even were the statute less clear, the regulations themselves negate the conclusion plaintiffs would have us reach. First, the regulations governing section 236 projects contain their own definition of mortgagee in 24 C.F.R. § 207.251(g):
(g) The term "mortgagee” means the original lender under a mortgage, its successors and such of its assigns as are approved by the Commissioner, and includes the holders of the credit instruments issued under a trust indenture, mortgage or deed of trust pursuant to which such holders act by and through a trustee therein named.
That regulation also contains a separate definition for the Secretary’s representative, the Federal Housing Commissioner. See 24 C.F.R. § 207.251(a). No mention is made of the Commissioner as a mortgagee, and as the Commissioner must approve any successor mortgagee, see also 24 C.F.R. § 207.261, the implication is that a mortgagee is one other than the Commissioner. Moreover, consistently throughout the regulations, and including the provisions discussing default assignment, 24 C.F.R. §§ 207.255-207.259, the distinct terms "Commissioner” and "mortgagee” are used in contrast to each other. Given the precise use of these terms, we can hardly infer that the terms "Commissioner” and "mortgagee” become interchangeable, as plaintiffs’ reading requires.
Second, those who drafted the regulations establishing the default procedures in 24 C.F.R. § 207.255 et seq. were
In light of these considerations, we conclude that the plaintiffs have no claim founded on the regulations.
MECHANIC’S LIEN
The plaintiffs argue that under California law they have a valid mechanic’s lien against the University Gardens property. See Cal. Civ. Code § 3110 (West 1974). Plaintiffs theorize that as the United States has foreclosed the mortgage and now owns the property, that lien may be enforced against the United States. Plaintiffs’ arguments, however, ignore the long-settled rule that liens such as Johnson claims are not enforceable against the United States or its property. Armstrong v. United States, 364 U. S. 40, 46 & n.4 (1960), and cases cited; J. F. Hodgkins Co. v. United States, 162 Ct. Cl. 40, 43, 318 F. 2d 932, 934 (1963). Plaintiffs have thereby overlooked what may be their strongest claim, viz., that because a once-valid lien has been made unenforceable, the United States has taken a property interest so as to require Fifth Amendment compensation. See Armstrong, supra at 44-49; J. F. Hodgkins, supra at 43, 318 F. 2d at 934; J. J. Henry Co. v. United States, 188 Ct. Cl. 39, 46, 411 F. 2d 1246, 1249 (1969). The relevant inquiries are whether Johnson had an enforceable lien which became unenforceable and if so, whether foreclosure of the mortgage amounts to a Fifth Amendment taking.
We need only reach the question of whether Johnson has an enforceable lien under California law. Article VII of the construction contract between Johnson and Hoover provides:
The Contractor shall file no mechanic’s or material-man’s lien or maintain any claim against the Owner’s real estate or improvements for or on account of any*161 work done, labor performed or materials furnished under this Contract.
The provision clearly purports to waive Johnson’s lien rights.
Mechanic’s liens in California are entirely creatures of statute. Holm v. Bramwell, 20 Cal. App. 2d 332, 67 P. 2d 114 (1937). California Civil Code § 3268 (West 1974) allows lien rights to be waived and provides:
Except where it is otherwise declared, the provisions of the foregoing titles of this part, in respect to the [lien] rights and obligations of parties to contracts, are subordinate to the intention of the parties, when ascertained in the manner prescribed by the chapter on the interpretation of contracts; and the benefit thereof may be waived by any party entitled thereto, unless such waiver would be against public policy.
Although our research has disclosed no California authority squarely holding that such clauses in construction agreements are consistent with public policy, we have little doubt the Article VII waiver would be held valid.
California statutory law does contain a provision, Cal. Civ. Code § 3262 (West 1974), which generally invalidates construction contract provisions which purport to waive the lien rights of those not party to the agreement. The implication, of course, is that a contractor may, consistent with public policy, agree to waive his own lien rights.
Other jurisdictions have considered whether a construction contract clause waiving subsequent lien rights is valid. The majority rule appears to be that such clauses are effective, see, e.g., J. B. Cieri Construction Co. v. Gramercy Construction Corp., 13 A. D. 2d 901, 215 N.Y.S. 2d 994 (App. Div. 1961); Bendik v. Uniontown S. R. Co., 408 Pa. 66, 182 A. 2d 512 (1962); Hammond Hotel & Improvement Co. v. Williams, 95 Ind. App. 506, 176 N.E. 154, rehearing denied, 95 Ind. App. 506, 178 N. E. 177 (1931); Mitchell v. Wrightstown Community Apartments, Inc., 4 N. J. Super. 321, 67 A. 2d 203 (App. Div. 1949); Capitol Plumbing and Heating Supply Co. v. Snyder, 104 Ill. App. 2d 431, 244 N. E. 2d 856 (1969), and are therefore presumably consistent with public policy. This is so even though the owner has failed to pay all sums owed under the construction agreement for
The California courts have often enforced similar promises against laborers and suppliers when the promises were required by a surety as a pre-condition to employment or purchase. See, e.g., Giant Powder Co. Consolidated v. Fidelity & Deposit Co. of Maryland, 214 Cal. 639, 7 P. 2d 1023 (1932); Fraters Glass & Paint Co. v. Southwest Construction Co., 200 Cal. 688, 254 P. 1097 (1927); W. R. Spalding Lumber Co. v. Fradkin, 68 Cal. App. 2d 308, 156 P. 2d 450 (1945); Kennedy v. National Surety Co., 111 Cal. App. 306, 295 P. 359 (1931). We see little reason to distinguish between a waiver required by a surety and one required by the owner, especially in light of Martin v. Becker, 169 Cal. 301, 146 P. 665, 670 (1915):
So far as this examination of authorities has proceeded, we find that the actions are between the contractor and the owner of the property upon which the work was done, to enforce the lien upon that property, and we find that the adjudications are merely to the effect that the courts will consider each of these contracts according to its facts, and that when the contract between the parties is such as to force the conclusion that the intent of the parties was to waive the mechanic’s lien, * * * it is held that these contracts are inconsistent with the conception of a right to a mechanic’s lien. * * * The decision in each case is based upon findings that the nature of the contract under which the security is taken forces the conclusion that there was a waiver of the right to the lien: Of these cases no criticism may be made, and with them no fault may be found.
We therefore hold that Article VII of the construction contract waived Johnson’s right to lien under California
OTHER ENTITLEMENT THEORIES
The plaintiffs allege a variety of other jurisdictional theories. All are without merit. Plaintiffs assert 12 U.S.C. § 1713(Z), supra note 14, authorizes suit in this court. That subsection provides in relevant part that "the Secretary shall also have power * * * to pay * * * all expenses or charges in connection with * * * and to deal with [and] complete * * * any property acquired by him under this section * * *.” Under the plaintiffs’ theory, this provision obligates the United States to repay all costs of a contractor if the United States subsequently acquires the property. Subsection 1713(Z) does indeed allow the Secretary to complete a project, but nothing in that subsection mandates completion occur or that any other expense be paid. It follows that plaintiffs have no right to compel completion or payment and therefore can have no claim based on this provision. See Marcus Garvey Square, 595 F. 2d at 1130. Moreover, that portion of § 1713(Z) is apparently directed to the situation where the Secretary is assigned an incomplete project and then completes it. Id.; see 12 U.S.C. § 1713(g) (language after "Provided”). Here Johnson completed the project prior to the Secretary’s acquisition of the property. In any event, 12 U.S.C. § 1713(Z) does not provide plaintiffs a claim.
[t]he decision of the Supreme Court in United States v. Neustadt, 366 U. S. 696 (1961), removes any doubt that claims based on negligent misrepresentation, wrongful inducement, or the careless performance of a duty allegedly owed, are claims sounding in tort. * * * [Somali Development Bank v. United States, 205 Ct. Cl. 741, 749, 508 F. 2d 817, 821 (1974).]
Tort claims, of course, are expressly beyond our Tucker Act jurisdiction.
The claim based on unjust enrichment/equitable lien is also beyond our jurisdiction. Those doctrines, however, are based not on agreement but are equitable in nature. Both proceed from a perception that a party ought to be bound rather than from a conclusion that a party has agreed to be bound. See Cleveland Chair Co. v. United States, 214 Ct. Cl. 360, 364, 557 F. 2d 244, 246 (1977); J. C. Pitman & Sons, Inc. v. United States, 161 Ct. Cl. 701, 704-705, 317 F. 2d 366, 368 (1963). Plaintiffs’ unjust enrichment/equitable lien theory of recovery is therefore based upon a contract implied in law, over which this court has not been given jurisdiction. E.g., Merritt v. United States, 267 U. S. 338, 341 (1925); Algonac Manufacturing Co. v. United States, 192 Ct. Cl. 649, 674, 428 F. 2d 1241, 1255-1256 (1970).
Plaintiffs’ citation of Trans-Bay Engineers & Builders, Inc. v. Hills, 551 F. 2d 370, and related cases
Johnson and Aetna’s position is not without substantial equity. They have, at their own expense, completed a housing project which is now owned by the United States. The United States obtained that project by accepting assignment of and eventually foreclosing a mortgage which, in part at the United States’ behest, was never fully disbursed. Under the Tucker Act, as presently drawn, these plaintiffs have no suit cognizable in this court. Litigation with HUD concerning the mortgage insurance provisions arises not infrequently and if held to be in reality against the United States, compare Marcus Garvey Square, supra, with Trans-Bay Engineers, supra, must be brought here.
CONCLUSION
For the reasons discussed above, we conclude that we lack jurisdiction over the claims stated in these petitions. Accordingly, defendant’s cross motions for summary judgment against Johnson in 455-79C and Aetna in 454-79C are hereby granted. Johnson’s and Aetna’s respective summary judgment motions are hereby denied. The petitions are hereby dismissed.
The statutory framework, presently codified at 12 U.S.C. §§ 1701 et seq. (1976), was first enacted in 1934 as the National Housing Act, ch. 847, 48 Stat. 1246 (1934). For simplicity’s sake, we refer hereafter to the statutory framework as if it were contained in a single act of Congress. Subsequent references to the United States Code indicate, except as noted, the 1970 version.
The particular provisions under which this project was built, section 236 of the Act (12 U.S.C. § 1715z-l), were first added by Title II, section 201(a), of the Housing and Urban Development Act of 1968, Pub. L. 90-448, 82 Stat. 476 (1968). Section 236 was added to make rental housing more available to low income families. The section 236 aspects of this project are not directly in issue here. Rather, this litigation is concerned with the rights of the builder and its surety against the United States. Although this controversy focuses on the consequences of default assignment under 12 U.S.C. § 1713(g) (made applicable to section 236 projects by 12 U.S.C. § 1715z-3(a)(2)), similar concerns arise in a variety of HUD housing programs. E.g., Housing Corp. of America v. United States, 199 Ct. Cl. 705, 468 F. 2d 922 (1972); Correlated Development Corp. v. United States, 214 Ct. Cl. 106, 556 F. 2d 515 (1977); Peoples Apparel, Ltd. v. United States, 226 Ct.Cl. 515 (1980); H.A. Ekelin & Assocs. v. United States, 225 Ct.Cl. 561 (1980); C.P. Squires Contractors, Inc. v. United States, 224 Ct Cl. 765 (1980); Beco, Inc. v. United States, 214 Ct. Cl. 820 (1977); Azer v. United States, 204 Ct. Cl. 898 (1974).
Subparagraphs 4(b) and (e) of the Building Loan Agreement provide:
"(b) Upon completion of the improvements, including all landscape requirements and off-site utilities and streets, the Borrower shall furnish to the Lender and the Commissioner satisfactory evidence that all work requiring inspection by municipal or other governmental authorities having jurisdiction has been duly inspected and approved by such authorities and by the rating or inspection organization, bureau, association or office having jurisdiction; and that all requisite certificates of occupancy and other approvals have been issued. The balance due the Borrower hereunder shall be payable at such time after completion as the commissioner authorizes the release of the holdback. However, the Lender may withhold final payment until after the expiration of any period which mechanics and materialmen may have for filing liens.”
"(e) The Borrower agrees that the loan shall at all times remain in balance. The Lender shall, in accordance with the provisions of this agreement, continue to advance to the Borrower funds out of the proceeds of the loan as long as the loan remains in balance and the Borrower is not in default hereunder or under the Note or Mortgage. The loan shall be deemed to be in balance only when the undistributed proceeds of the loan (after provision for reserves, fees, expenses and other deposits required by the Lender or the Commissioner) equal or exceed the amount necessary (based on the Commissioner’s estimate of the cost of construction) to pay for all work completed and all materials delivered, for which payment has not been made, and the cost of completing construction of the project in accordance with the Drawings and Specifications.”
Remaining loan proceeds were apparently $156,652.18. Johnson’s remaining costs are not clear from the record. One affidavit suggests remaining costs were approximately $215,268. The arbitration award of $272,358 (exclusive of costs) suggests the remaining costs were somewhat higher. The plaintiffs appear to concede the loan was in fact out of balance but argue the imbalance was a technicality and should have been disregarded and the loan amount increased.
These sums aggregate $150,542. The difference between this sum and the remaining loan proceeds (supra note 4) is apparently attributable to other construction period costs of Hoover. Under our holding, we need not decide whether the plaintiffs’ recovery should be limited to the lesser amount; and we assume arguendo that plaintiffs are the only creditors of Hoover. Thus, textual references to the undisbursed mortgage or loan proceeds indicate the entire $156,652.18, which was committed by Pacific but never paid.
No disbursement of either the final progress payment or retainages has ever occurred as the loan has allegedly been out of balance or in default since December 2, 1971. See note 3, supra; note 16, infra.
To a large extent, there is an identity of interest between these plaintiffs. Aetna’s rights against the United States (if any) are derived from Johnson through subrogation. Moreover, as the plaintiffs conceded at oral argument, Aetna’s position as judgment creditor of Johnson has the practical effect of making a judgment for Johnson in reality one for Aetna, at least to the extent of $203,958.88. As we dismiss both petitions, we need not apportion recovery between these plaintiffs, nor need we distinguish between the arguments each makes. We therefore refer to Johnson and Aetna simply as the plaintiffs.
E.g., cases collected at note 2, supra; Somerville Technical Services v. United States, 226 Ct.Cl. 291, 640 F.2d 1276 (1981); Porter v. United States, 204 Ct. Cl. 355, 496 F. 2d 583 (1974), cert. denied, 420 U. S. 1004 (1975); Velez v. United States, 227 Ct.Cl. 626 (1981); Trus Joist Corp. v. United States, 208 Ct. Cl. 979 (1975). See also City of Manassas Park v. United States, 224 Ct. Cl. 515, 633 F. 2d 181, cert. denied, 449 U. S. 1035 (1980).
The major difference between the cases was plaintiffs assertion in Correlated Development Corp. that section 13 of the annual contributions contract between HUD and the LHAs allowed the plaintiff contractor a direct action against the United States. The issue had not been raised in Housing Corp. of America. The majority opinion in Correlated Development Corp. held section 13 inapplicable as the changes ordered by LHA were not among the listed contingencies invoking the section. The concurring opinion suggested the changes ordered by LHA were seemingly within a broad reading of section 13 but that other considerations required a more circumspect reading, precluding suit.
H. A. Ekelin also rejected the contractor’s contention that it could, as an alleged third-party beneficiary, enforce the Building Loan Agreement. That contention, however, was rejected on the ground that the lender had completely disbursed the mortgage proceeds. Thus, H. A. Ekelin did not (and could not) reach the issue we are compelled to discuss infra, plaintiffs’ claimed right as third-party beneficiaries to compel disbursement of the unpaid loan proceeds.
The presence of undisbursed mortgage proceeds does not in itself alter our conclusion that these were sovereign acts, especially in light of the explicit recognition in 12 U.S.C. § 1713(g)(4) that all undisbursed proceeds must be forwarded to HUD as a part of assignment. See also notes 11-16 and accompanying text, infra. Accepting assignment of a mortgage with undisbursed proceeds on these facts is no less a sovereign act than accepting assignment of a mortgage without such proceeds,
12 U.S.C. § 1713(g) provides in relevant part:
"(g) The failure of the mortgagor to make any payment due under or provided to be paid by the terms of a mortgage insured under this section shall be considered a default under such mortgage and, if such default continues for a period of thirty days, the mortgagee shall be entitled to receive the benefits of the insurance as hereinafter provided, upon assignment, transfer, and delivery to the Secretary, within a period and in accordance with rules and regulations to be prescribed by the Secretary of (1) all rights and interests arising under the mortgage so in default; (2) all claims of the mortgagee against the mortgagor or others, arising out of the mortgage transactions; (3) all policies of title or other insurance or surety bonds or other guaranties and any and all claims thereunder; (4) any balance of the mortgage loan not advanced to the mortgagor; (5) any cash or property held by the mortgagee, or to which it is entitled, as deposits made for the account of the mortgagor and which have not been applied in reduction of the principal of the mortgage indebtedness; and (6) all records, documents, books, papers, and accounts relating to the mortgage transaction. Upon such assignment, transfer, and delivery the obligation of the mortgagee to pay the premium charges for mortgage insurance shall cease, and the Secretary shall, subject to the cash adjustment provided for in subsection (j) of this section, issue to the mortgagee a certificate of claim as provided in subsection (h) of this section, and debentures having a total face value equal to the original principal face amount of the mortgage * * * ”
12 U.S.C. § 1713(a)(2) provides:
"The term 'mortgagee’ means the original lender under a mortgage, and its successors and assigns, and includes the holders of credit instruments issued under a trust mortgage or deed of trust pursuant to which such holders act by and through a trustee therein named.”
It is by no means certain that the 12 U.S.C. § 1713(a)(2) definition of mortgagee should apply to the post-default assignment of a mortgage insured under § 236 of the Act. See 12 U.S.C. §§ 1715z-l(j)(2)(C) and 1715z-3(a)(2) (second sentence), which together indicate the relevant definition is that of 12 U.S.C. § 1707(b). That definition, if anything, provides further support for our conclusion for it requires the Secretary to approve all successor mortgagees. The provision suggests that a successor mortgagee is someone other than the Secretary.
12 U.S.C. § 1713(k) provides:
"(k) The Secretary is authorized either to (1) acquire possession of and title to any property, covered by a mortgage insured under this section and assigned to him, by voluntary conveyance in extinguishment of the mortgage indebtedness, or (2) institute proceedings for foreclosure on the property covered by any such insured mortgage and prosecute such proceedings to conclusion. The Secretary at any sale under foreclosure may, in his discretion, for the protection of the General Insurance Fund, bid any sum up to but not in excess of the total unpaid indebtedness secured by the mortgage, plus taxes, insurance, foreclosure costs, fees, and other expenses, and may become the purchaser of the property at such sale. The Secretary is authorized to pay from the General Insurance Fund such sums as may be necessary to defray such taxes, insurance, costs, fees, and other expenses in connection with the acquisition or foreclosure of property under this section. Pending such acquisition by voluntary conveyance or by foreclosure, the Secretary is authorized, with respect to any mortgage assigned to him under the provisions of subsection (g) of this section, to exercise all the rights of a mortgagee under such mortgage, including the right to sell such mortgage, and to take such action and advance such sums as may be necessary to preserve or protect the lien of such mortgage.” [Emphasis supplied.]
12 U.S.C. § 1713(Z) provides:
"(0 Notwithstanding any other provisions of law relating to the acquisition, handling, or disposal of real and other property by the United States, the Secretary shall also have power, for the protection of the interests of the General Insurance Fund, to pay out of the General Insurance Fund all expenses or charges in connection with, and to deal with, complete, reconstruct, rent, renovate, modernize, insure, make contracts for the management of, or establish suitable agencies for the management of, or sell for cash or credit or lease in his discretion, any property acquired by him under this section; and notwithstanding any other provision of law, the Secretary shall also have power to pursue to final collection by way of compromise or otherwise all claims assigned and transferred to him in connection with the assignment, transfer, and delivery provided for in this section, and at any time, upon default, to foreclose on any property secured by any mortgage assigned and transferred to or held by him: Provided, That section 5 of Title 41 shall not be construed to apply to any*157 contract for hazard insurance, or to any purchase or contract for services or supplies on account of such property if the amount thereof does not exceed $1,000.”
Proposed Amendments to the National Housing Act, Hearings on H. R, 8520 Before the House Committee on Banking and Commerce, 75th Cong., 2d Sess. 13 (1937) (testimony of Stewart McDonald, Federal Housing Administrator); Proposed Amendments to the National Housing Act, Hearings on S. 3055 Before the Senate Committee on Banking and Currency, 75th Cong., 2d Sess. 16 (1937) (same). See also H. R. Rep. No. 1655,75th Cong., 2d Sess. 4 (1937); S. Rep. No. 1300,75th Cong., 2d Sess. 7 (1937).
We need not, therefore, reach defendant’s further contentions that California law does not allow general contractors to claim third-party beneficiary status as to construction financing agreements. See Gordon Bldg. Corp. v. Gibraltar Sav. and Loan Ass’n, 247 Cal. App. 2d 1, 55 Cal. Rptr. 884 (1966). Nor need we reach the related contention that subparagraph 4(e), supra note 3, of the Building Loan Agreement prevents Hoover (and these plaintiffs) from compelling disbursement as the loan has allegedly been out of balance or in default at all relevant times.
We note that other decisions, for example, Trans-Bay Eng’rs & Bldrs., Inc. v. Hills, 551 F. 2d 370 (D.C. Cir. 1976), and Travelers Indem. Co. v. First Nat’l State Bank of N. J., 328 F. Supp. 208 (D. N.J. 1971), have assumed or concluded that the Secretary can be compelled to disburse unpaid mortgage proceeds by those claiming as third-party beneficiaries to the Building Loan Agreement. The differing result may be explained in part in that none of those cases were concerned with this issue as a jurisdictional matter, i.e., jurisdiction over the Secretary was present under statutes other than the Tucker Act. Those cases, instead, used the statute and the various agreements to define substantive rights of parties properly before those courts. We, of course, must approach the jurisdictional issue with more constraint and therefore decline to follow the reasoning of those cases. See also discussion infra at page 164-65.
Subsequent references to the Code of Federal Regulations (C.F.R.) also indicate the 1973 edition, except as noted. The plaintiffs cite 24 C.F.R. § 207.3(b) as the source of the mortgagee’s duty to completely disburse. The regulations governing section 236 projects are contained in Part 236 of C.F.R. Title 24, 24 C.F.R. §§ 236.1 et seq. Subpart A covers eligibility requirements and by cross reference in 24 C.F.R. § 236.1 incorporates (with listed exceptions) 24 C.F.R. §§ 221.502-221.749. Subpart B covers contract rights and obligations for mortgage insurance and by cross reference in 24 C.F.R. § 236.251 incorporates (with listed exceptions) 24 C.F.R. §§ 207.251-207.499.
Compare this holding with J. F. Hodgkins, 162 Ct. Cl. at 44, 318 F. 2d at 935-936. The J. F. Hodgkins liens attached, under Maine law, when the materials were furnished. Even though such liens had a short duration under Maine law (and would have been unenforceable at the time the J. F. Hodgkins suit was brought), a property interest existed when the Government took possession of the boats upon the prime contractor’s default. Thus, notwithstanding the fact the liens shortly after the taking would have been otherwise unenforceable under Maine law, the critical inquiry is whether the liens were enforceable at the time of taking. See Armstrong, 364 U. S. at 41-42, 44, 46. Here, or course, no such enforceable liens were present when the Government came into possession of the property.
Plaintiffs raise two other statutory entitlement arguments, based on 12 U.S.C. § 1715r and 9 U.S.C. § 2. Neither has merit. The former section requires a builder to provide a cost certification. Plaintiffs read the section to implicitly mandate compensation when the Secretary unreasonably rejects a cost certification. The statute does not so provide and thus will not support jurisdiction here. E.g., Testan, 424 U. S. at 400. Plaintiffs’ argument as to 9 U.S.C. § 2 has even less merit for that
E.g., F. W. Eversley & Co. v. East N. Y. Non-Profit HDFC, Inc., 409 F. Supp. 791 (S.D. N.Y. 1976); Am. Fid. Fire Ins. Co. v. Construcciones Werl, Inc., 407 F. Supp. 164 (1975); Travelers Indem. Co., supra note 16.
A separate opinion asserts that this record is somehow unclear as to whether the Federal Housing Commissioner required Pacific to actually transfer the undisbursed proceeds to HUD. See 24 C.F.R. § 207.258(b)(4). If that was done, the separate opinion theorizes, the district court may have incorrectly concluded these facts were controlled by Judge Tang’s majority opinion in Marcus Garvey Square. Thus, the separate opinion herein concludes, we should retransfer this case to the district court to "reconsider” its understanding and application of the law of the circuit. The record before us discloses, however, that although the original loan amount was $1,746,800, Pacific only claimed benefits for the funds actually disbursed (and not repaid), $1,588,587.53. Had Pacific actually transferred both the undisbursed and the disbursed portions of the loan, the statute would have entitled Pacific to claim the full amount of the original loan commitment. 12 U.S.C. § 1713(g) (second sentence). Thus, under the discretion given the Commissioner by 24 C.F.R. § 207.258(b)(4), an assignment of only the disbursed portion of the loan occurred. The undisbursed proceeds were retained by the mortgagee and never paid to HUD. Those, as the separate opinion indicates, were precisely the facts of Marcus Garvey Square. See 595 F. 2d at 1131 & n.3, 1132 n.3.
Whether the undisbursed funds were ever delivered to HUD is, of course, a
Concurrence in Part
concurring in the result in part and dissenting in part:
Though I do not join the court’s opinion, I agree with its conclusion that plaintiffs have not shown themselves entitled to monetary relief from the general funds of the Treasury which are necessarily involved in any suit here under the Tucker Act — and I accept much of the opinion’s reasoning to that effect.
But (as the majority says) "Johnson and Aetna’s position is not without substantial equity,” and the Department of Housing and Urban Development (HUD) may be liable to them out of the contract retainages, unpaid progress payments, and other separate funds still in the possession and control of that agency. This suit was originally brought in the District Court against HUD (and private entities). Under the statute, the Secretary of HUD is expressly
The District Court in California apparently thought that it had no jurisdiction against HUD under the Ninth Circuit’s decision in Marcus Garvey Square, supra. But that case may well be significantly different on the very point of whether HUD had separate funds of its own from which recovery could be allowed. There, the Secretary of HUD did not take assignment of the undisbursed amounts but specifically directed that the principal of the mortgage be reduced by the undisbursed funds. See Marcus Garvey Square, supra, 595 F.2d at 1131. That fact — that in those circumstances the undisbursed funds no longer constituted separate HUD funds — was the direct foundation for the Ninth Circuit’s holding that that suit could not be maintained against HUD. Ibid. Here, on the other hand, the undisbursed funds (so far as we really know) may well have been assigned to HUD along with the rest of the Building Loan Agreement, the mortgage, all the other credit instruments and the related documents. The record is not at all clear. In my view, therefore, Marcus Garvey Square does not
Accordingly, I would retransfer this case under 28 U.S.C. § 1506 (1976) back to the District Court in the hope that that court will reconsider its jurisdiction against HUD under 12 U.S.C. § 1702. See Peoples Apparel, Ltd. v. United States and City of Council Bluffs, Iowa, 226 Ct. Cl. 515 (1980), retransferring case to District Court), and Nathan Smith v. Unites States, below.
The court correctly holds that Article VII of the construction contract bars the contractor’s claim of a mechanic’s lien for which just compensation might have to be paid. Johnson’s petition makes various claims that he was improperly induced (by others than the Government) to agree to this provision, but I think it clear from his own allegations that he knew that he was agreeing to this clause (and its meaning) even though he may have thought that he would not in the end be monetarily injured by its inclusion.
In Marcus Garvey Square the Ninth Circuit said: "If it should appear that the Secretary’s reduction of the principal obligation, either by a general rule of policy or by action in a particular case, was done solely for the purpose of depriving the District Court of jurisdiction, then that action would be ignored for the purpose of determining jurisdiction.” 595 F.2d at 1132, n.3. In the present case we have no knowledge at all why Pacific claimed benefits for less than the original loan amount, and very little information on what funds were actually assigned to HUD.