Traunig v. US CV-95-544-JD 07/29/96 UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Gerald W. Traunig

v. Civil No. 95-544-JD

United States of America

O R D E R

The plaintiff, Gerald Traunig, has filed this pro se action

under the Federal Tort Claims Act ("FTCA") against the defendant,

the United States of America (the "government") a alleging that

the Department of Veterans Affairs ("DVA") negligently processed

his reguest to refund a DVA-guaranteed mortgage resulting in

losses to the plaintiff. Before the court is the government's

motion to dismiss (document no. 9) for lack of subject matter

jurisdiction.

Background1

Consistent with the applicable standard of review, discussed infra, the facts relevant to the instant motion are recited in a light most favorable to the plaintiff. However, the court, constrained by the plaintiff's skeletal pleadings, out of necessity has incorporated certain facts alleged by the government where those facts have not been disputed by the plaintiff.

1 The plaintiff is a veteran who in 1982 obtained a $65,000

loan from Fidelity Guaranty Mortgage Co. in exchange for a

mortgage on a residence at 40 Mapleside Drive, Wethersfield, CT

("the property"). At the time, the DVA executed an agreement

with Fidelity Guaranty whereby the DVA would guarantee 42.3

percent of the loan under a federal program designed to assist

veterans with home purchases. See

; 38 C.F.R.

P t . 36.4300 et seq. Under this program, in the event of default

by the veteran the mortgagee could submit a claim to the DVA

which would, in turn, pay an amount egual to the extent of the

guarantee less certain expenses. A related statute,

(a)(2), authorizes the DVA to refund a guaranteed loan by

paying the balance due the loan holder in exchange for the note.

Under this arrangement, the DVA actually holds the loan and

collects payments directly from the veteran.

At some point during 1985 the plaintiff's loan payments

became erratic and/or incomplete. On October 22, 1985, Fidelity

Guaranty sold the loan to Knutson Mortgage & Financial Corp.

According to the government, the default was cured by June 5,

1986.

The plaintiff again ceased making regular loan payments on

or about August 1, 1993. Knutson notified the DVA of the

2 plaintiff's loan delinquency by a "Notice of Default" dated

October 18, 1993.2 Later that month Knutson notified the DVA of

its intent to foreclose.

In response to these notices the DVA entered into a series

of communications with the plaintiff concerning his options with

respect to the property. By letter of November 25, 1993, the

plaintiff formally requested that the DVA refund the loan under

. On or before January 31, 1994, the plaintiff

completed and submitted the financial disclosure form the DVA

requires to process a loan refunding application. The plaintiff

also asked that the DVA refinance the loan at an annual rate of

less than twelve percent. Soon thereafter the DVA requested that

Knutson provide a property appraisal and forebear from

foreclosing pending its decision on the refunding application.

On February 9, 1994, Knutson agreed to forbear and, in late

March, provided the requested appraisal.

At some point during October 1994, the plaintiff sought an

update on the status of his pending application. In response,

the DVA requested that the plaintiff complete another financial

disclosure form to update the one he submitted roughly nine

2The DVA received Knutson's notice of default on or about November 3, 1993.

3 months earlier. The plaintiff complied on or before November 25,

1994 .

Upon receipt of the updated financial disclosure. Bill

Marko, the chief of loan service and claims at the DVA's

Manchester, New Hampshire office, reviewed the plaintiff's file

and, by correspondence dated December 13, 1994, denied the

request for refunding on the ground that the plaintiff had

reported an insufficient income. At the time the DVA recommended

that the plaintiff list the residence for sale in order to retain

whatever equity position he had in the property.

In the subsequent months the DVA, at the plaintiff's

request, reviewed its prior decision not to refund. The DVA did

not change its position following the additional review.

On or about December 14, 1994, the DVA notified Knutson of

its decision not to refund the loan and instructed the mortgage

company to proceed with foreclosure. The government has

represented that the plaintiff continues to occupy the property

given the pendency of his challenge to the foreclosure.

Discussion

In its motion, the government asserts that the court lacks

subject matter jurisdiction because the allegedly tortious

4 conduct falls within the discretionary function exception to the

FTCA,

(a). In the alternative, the government

asserts that this action does not fall within the FTCA's general

waiver of sovereign immunity because the plaintiff has failed to

establish that it owed the plaintiff an actionable duty under

state law to process his reguest for loan refunding. The

plaintiff objects to the motion on a variety of grounds,

addressed infra.

A motion to dismiss for lack of subject matter jurisdiction

under Rule 12(b)(1) challenges the statutory or constitutional

power of the court to adjudicate a particular case. 2A James W.

Moore et al., Moore's Federal Practice 5 12.07 (2d ed. 1995).

The party seeking to invoke the court's jurisdiction bears "the

burden to establish by competent proof that jurisdiction exists."

Stone v. Dartmouth College,

(D.N.H. 1988)

(citing O'Toole v. Arlington Trust Co . ,

(1st Cir.

1982)). However, the court assumes the truthfulness of the facts

concerning jurisdiction as alleged by the pleading, and the case

may be dismissed only if the plaintiff fails to allege an element

necessary for jurisdiction to exist. I d .; see Garita Hotel Ltd.

Partnership v. Ponce Federal Bank, F.S.B.,

(1st

Cir. 1992) ("court takes factual allegations in complaint as

5 true, indulges every reasonable inference helpful to the

plaintiff's cause"). The court "may consider pleadings,

affidavits, and other evidentiary materials without converting

the motion to dismiss to a motion for summary judgment." Irving

v. United States, No. 81-501-M, slip op. at 4 (D.N.H. March 13,

1996) (guoting Lex Compute & M q m t . Corp. v. Eslinqer & Pelton

P .C .,

(D.N.H. 1987)). Finally, when

considering the instant motion, the plaintiff's pro se status

reguires the court to hold his complaint to a less stringent

standard than that bestowed on pleadings drafted by attorneys.

Eveland v. Director of C.I.A.,

(1st Cir. 1988)

(citing Haines v. Kerner,

(1972) (per curiam)) .

The Federal Tort Claims Act ("FTCA") waives the federal

government's sovereign immunity for those tort actions alleging

damages caused by federal employees while acting within the scope

of their employment where the government, if a private party,

would be liable under the law of the place where the tort

occurred.

, 1346(b) (West 1994). However,

there is a battery of statutory exceptions to this waiver of

immunity,

(West 1994), and each exception, as

well as the FTCA's overall waiver of immunity, is strictly

construed in favor of the United States, e.g., Sweenev v. Easter

6 Seal Society, No. 95-15-M, slip op. at 5-6 (D.N.H. Dec. 1 , 1995)

(citing Akutowicz v. United States,

(2d Cir.

1988)). The court lacks subject matter jurisdiction over cases

which fall within these exceptions. E .q , Attallah v. United

States,

(1st Cir. 1992).

The "discretionary function" exception bars

[a]ny claim based upon an act or omission of any employee of the Government, exercising due care, in the execution of a statute or regulation, whether or not such statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.

(a). The exception shields the government from

lawsuit even where the federal employee negligently performed or

abused the discretionary authority or function. See Aver v.

United States,

(1st Cir. 1990) ("If a

discretionary function was involved, the fact that critical

factors were not considered or that the decision was negligently

made will not bring the challenged conduct outside of the

exception").

The Supreme Court has articulated a two-step analysis to

determine whether a given act or omission falls within the

discretionary function exception. First, the discretionary

function exception covers only acts or omissions which are

7 discretionary in nature, that is, involving an element of

judgment or choice. United States v. Gaubert,

(1991). The nature of the conduct, rather than the status of the

actor, governs whether the exception applies. I d .; Attallah,

. If the challenged act or omission does not involve

the exercise of choice or judgment, or if federal statutes,

regulations, or policies specifically prescribe a course of

action for an employee to follow, then the discretionary function

exception does not apply. Gaubert,

; Attallah,

. Second, the discretionary function exception,

when properly construed, protects only government actions and

decisions based on considerations of public policy. Gaubert,

. Therefore, a lawsuit is barred only where the

federal employee's judgment or choice furthered the purposes of a

regulatory regime which gives an employee discretion. I_ci. at

1275.3 This reguirement reflects the judiciary's traditional

3The Supreme Court explained that

[t]here are obviously discretionary acts performed by a Government agent that are within the scope of his employment but not within the discretionary function exception. . . . If [a Government employee] drove an automobile on a mission connected with his official duties and negligently collided with another car, the exception would not apply. Although driving reguires the constant exercise of discretion, the official's decisions in exercising that discretion can hardly be reluctance to "second gue s s []" those legislative and

administrative decisions grounded in social, economic, or

political policy. See i d . at 323; Attallah,

.

The plaintiff alleges that he suffered a variety of economic

losses, some related to his treatment for emotional distress,

from the government's "fail[ure] to process a mortgage refunding

application, after claimant completed all the steps, imposed by

the VA, to expedite timely processing." Complaint at 5 2. The

complaint, even when viewed from the indulgent perspective

accorded pro se litigants, cannot survive the instant motion to

dismiss.

As a threshold pleading matter, the plaintiff has failed to

"allege facts which would support a finding that the challenged

actions are not the kind of conduct that can be said to be

grounded in the policy of the regulatory regime." Gaubert,

. Likewise, the plaintiff has neither alleged nor

implied that the government's responsibilities for processing

veteran reguests for loan refunding involve, even in part, non-

discretionary duties imposed by federal law, i.e., by statute,

agency regulation, or administrative directive. In arriving at

said to be grounded in regulatory policy.

Gaubert,

n.7. this decision, the court has taken cognizance of the documentary

evidence attached by the plaintiff to his opposition to the

instant motion. Specifically, the court finds that the DVA's

statement that "a review of your file indicates there has been a

refunding reguest in process since January 1994 and VA has failed

to complete the process" was merely an acknowledgment of the

pendency of the plaintiff's reguest for refunding and does not

establish that the DVA's processing of the reguest involved

anything other than a discretionary function. See Plaintiff's

Opposition to Motion to Dismiss ("Plaintiff's Opposition"),

Exhibit A (October 24, 1994, correspondence from Bill Marko, DVA

chief of loan service and claims).

Aside from the inadeguacy of the complaint -- itself a

grounds for dismissal -- the court finds the government has

established with competent evidence that the conduct complained

involves a high degree of judgment and choice, the key indicia of

a discretionary function under the first prong of Gaubert. See

Affidavit of Leonard Levy, assistant director for loan and

property management for the DVA's loan guaranty service ("Levy

Affidavit") (noting, inter alia, that loan refunding is

discretionary decision of local VA offices; local offices enjoy

"latitude to establish their own operational procedures" and are

10 not governed by national "mandatory" policies; there is no

"formal or mandatory application procedure," no procedure or bar

on the reconsideration of a denied application, and no formal

appeal procedures; and "no mandatory time frame in which the VA

must decide whether or not it will refund a loan"); accord

Affidavit of Bill Marko, chief of the DVA's regional loan service

& claims section ("Marko Affidavit") (noting that "[u]nder the

statute, regulations, and manual guidelines, the decision to

refund a mortgage lies completely at the discretion of the

officials of the DVA who have been delegated the Secretary's

authority" and indicating that the refund decision is based on a

variety of criteria, including the circumstances of the default,

the veteran's ability to pay, relative risk of loss to the DVA,

and the market value of the property). These affidavits, neither

of which has been challenged by the plaintiff, indicate that the

refund application and approval process is somewhat amoebic,

varies from office to office, and ultimately reguires the highly-

individualized assessments emblematic of discretionary functions.

The court's finding that the DVA's loan refunding activities

involve a high degree of choice and individual judgment is also

consistent with the plain meaning of the statute, i.e., "the

Secretary may, at the Secretary's option, pay the holder of the

11 obligation . . . , " 3

(a) (2) (emphasis supplied),

and is in full accord with prior court interpretations of the

DVA's authority in this area. For example, in Rank v. Nimmo,

(9th Cir.), cert. denied,

(1982), the Ninth

Circuit ruled that the DVA's decision whether or not to exercise

a loan assignment-refunding option is a discretionary function

not reviewable under the Administrative Procedure Act,

(a)(2). The court reasoned that

[t]he decision to accept an assignment of a veteran's loan necessarily involves a consideration of myriad factors, including, but not limited to, internal VA management considerations relating to budget and personnel, the risk of loss to the VA, the adeguacy of prior loan servicing, and the circumstances of the borrower's default. The application of these factors, as well as the determination of other relevant factors and the weight attributed to each, has been entrusted to the unfettered discretion of the VA.

(also noting that the statutory language of

(a), the predecessor to

(a),

"indicates that Congress simply intended to empower the VA to

refund, at its discretion, loans that are in default"); see also

First Family Mortgage Corp. v. Earnest,

(6th

Cir. 1988) (noting that internal VA manuals on loan refunding are

"general statements of agency policy and procedure" and "do not

create an enforceable mandatory . . . 'refunding duty' on the

part of the V A " ) .

12 The court also finds that, at stage two of the Gaubert

analysis, the DVA's conduct "involved the kind of policy judgment

that the discretionary function exception was designed to

shield."

. To a large extent this finding is

dictated by the court's determination, supra, that the relevant

decision-making process is entrusted to DVA discretion because

if a regulation allows the employee discretion, the very existence of the regulation creates a strong presumption that a discretionary act authorized by the regulation involves consideration of the same policies which led to the promulgation of the regulations. •k -k -k -k

When established governmental policy, as expressed or implied by statute, regulation, or agency guidelines, allows a Government agent to exercise discretion, it must be presumed that the agent's acts are grounded in policy when exercising that discretion.

Gaubert,

; accord Kane v. United States,

(8th Cir. 1994) ("when governmental policy allows for the

exercise of discretion, an agent's acts when exercising that

discretion are presumed to be grounded in the policy"). This

presumption places the burden on the plaintiff to "show[] that

the [DVA's] actions [or inactions] were not grounded in the

[agency's] policy." Pond v. Maiercik, No. 94-225-M, slip op. at

18-19 (D.N.H. Sept. 19, 1995). The plaintiff cannot as a matter

of law satisfy this burden given the inadeguacy of his complaint

13 and responsive pleadings noted supra, i.e., the absence of

factual allegations which, if true, "would support a finding that

the [DVA's] conduct was not the kind that 'can be said to be

grounded in the policy of the regulatory regime.'" I d ., slip op.

at 20 (guoting Gaubert,

) .

The court has given careful consideration to the plaintiff's

objections that, inter alia, the discretionary function exception

does not bar lawsuits alleging governmental inaction; the court

should give res iudicata effect to the magistrate judge's finding

of subject matter jurisdiction; the motion is untimely; and that

there is an analogous private right of action under Connecticut

tort law. The court addresses the arguments seriatim.

The plaintiff asserts that the discretionary exception bars

only affirmative conduct, i.e., "'action' and 'acting,'" and does

not immunize the government from tort immunity because "the

instant case concerns, exclusively, admitted 'inaction' (the

absence of action)." Plaintiff's Objection to Motion to Dismiss

at 1. The argument fails because this lawsuit sounds in tort, an

area of the law that, as a general matter, does not distinguish

between negligence arising from an affirmative act and that

arising from the failure to act. See generally Bla c k 's Law

Dictionary at 1023-33 (6th ed. 1990) ("Negligence . . . is the

14 doing of some act which a person of ordinary prudence would not

have done under similar circumstances or failure to do what a

person of ordinary prudence would have done under similar

circumstances") (quotation omitted). Thus, the court finds that

the DVA's tortious failure to act, as alleged by the plaintiff,

is subject to the same principles of sovereign immunity,

including the discretionary function exception, applied in those

cases alleging affirmative governmental misconduct.

The plaintiff next asserts that the court is bound by the

magistrate judge's earlier determination that the court possesses

jurisdiction over this dispute. The plaintiff also argues that

the government's motion is untimely.

The plaintiff correctly notes that by memorandum order of

December 21, 1995, the magistrate judge ruled that

given that plaintiff initiates his action against the United States, the court is vested with subject matter jurisdiction pursuant to

. Addition­ ally, in light of the resemblance between plaintiff's claims and actions arising from the FTCA, this court is vested with jurisdiction. See

(b).

Traunig v. United States, No. 95-544-JD, pretrial order at 5-6

(D.N.H. Dec. 21, 1995) (Muirhead, M.J.). However, the order

concludes:

Without expressing an opinion on the merits of the plaintiff's claims, the court finds that the plaintiff.

15 at this stage of the proceeding, has invoked the jurisdiction of this court.

I d . at 6 (emphasis supplied). It is apparent from the face of

the order that the magistrate judge's rulings were issued

pursuant to his initial review of the plaintiff's pro se

complaint,

. See i d . at 1. The rulings are

provisional in that the purpose of the initial review is not to

resolve the merits of the lawsuit but, instead, to determine

whether one or more of the claims alleged sets forth a sufficient

jurisdictional basis for the opposing party to be served. See

generally Local Rule 4.3(d)(1) (local rule governing preliminary

review of pro se actions filed after January 1, 1996). The

magistrate judge's order does not bar the defendant from later

challenging the court's jurisdictional capacity so long as the

defendant presents the objection, along with any other

affirmative defenses, in accordance with Rule 12. In the case of

an objection to the court's exercise of subject matter

jurisdiction, the Federal Rules explicitly provide that such a

defense is never waived and, in fact, may be presented "whenever"

it appears to the parties or the court that the jurisdictional

basis is in guestion. Fed. R. Civ. P. 12(h) (3). Moreover, in

this case the government presented its jurisdictional defense at

the earliest opportunity, i.e., its first substantive pleading in

16 the case, by filing the instant motion within the prescribed

deadline as extended by endorsed court order of April 9, 1996.

Accordingly, neither the law of the case doctrine nor principles

of res iudicata defeat the government's timely motion to dismiss.

Finally, the plaintiff's argument that the common law of

Connecticut provides an analogous private right of action against

the government is irrelevant. Because the court lacks

jurisdiction, the case must be dismissed regardless of whether

the government owed the plaintiff an actionable duty under state

law to process his refunding application.

The court finds that instant action, construed liberally in

accordance with the plaintiff's pro se status, falls sguarely

within the discretionary function exception to the FTCA's limited

waiver of sovereign immunity as that exception has been

interpreted by Gaubert. The court lacks subject matter

jurisdiction and the case must be dismissed.

17 Conclusion

The court lacks subject matter jurisdiction over the

plaintiff's claims. The motion to dismiss (document no. 9) is

granted. The clerk is ordered to close the case.

SO ORDERED.

Joseph A. DiClerico, Jr. Chief Judge

July 29, 1996

cc: Gerald W. Traunig, pro se Gretchen Leah Witt, Esguire

18