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Concrete Tie of San Diego Inc. v. Liberty Construction Inc.

filed: February 27, 1997.

CONCRETE TIE OF SAN DIEGO, INC., FOR THE USE OF DBA ATLAS CONSTRUCTION SUPPLY, PLAINTIFF,
v.
LIBERTY CONSTRUCTION, INC., A CALIFORNIA CORPORATION, DEFENDANT, V. LIBERTY CONSTRUCTION, INC., A CALIFORNIA CORPORATION; LUCILLE KURTIN; SOL GERBER, THIRD-PARTY-PLAINTIFFS-APPELLANTS, V. SMALL BUSINESS ADMINISTRATION, THIRD-PARTY-DEFENDANT-APPELLEE.



Appeals from the United States District Court for the Southern District of California. D.C. No. CV-90-01508-LSP. Louisa Porter, Magistrate Judge, Presiding.

Before: Diarmuid F. O'Scannlain, Thomas G. Nelson, and Michael Daly Hawkins, Circuit Judges. Opinion by Judge O'Scannlain.

Author: O'scannlain

O'SCANNLAIN, Circuit Judge:

We must decide whether the Small Business Administration owed any duty to a minority-owned small business concern by virtue of a federal set-aside program for minority-owned government contractors.

I

Liberty Construction, Inc. ("Liberty") is a minority-owned business determined by the Small Business Administration ("SBA") to be a socially and economically disadvantaged small business concern (a "section 8(a) concern") under the set-aside provisions of § 8(a) of the Small Business Act, 15 U.S.C. § 637(a). In 1989, following the tender of several bid proposals by Liberty, Liberty entered into a subcontract with the SBA. The contract provided that Liberty would construct a "hazardous/flammable materials warehouse" for the Navy.*fn1 Liberty engaged two sureties, Sol Gerber and Lucille Kurtin ("the sureties"), who provided payment bonds. Essentially, the sureties agreed to pay Liberty's laborers, suppliers, and subcontractors if Liberty failed to do so.

Liberty encountered financial difficulties after it began building the warehouse. Liberty was unable to pay its suppliers and subcontractors, some of whom filed claims against it and the sureties. Those claims were settled, but Liberty was forced out of business and its sureties were left to pay approximately $500,000 to unpaid creditors.

Liberty and the sureties each filed cross-claims against the SBA (which had been named as a third-party defendant), alleging breaches of statutory, regulatory, and contractual duties to Liberty and the sureties. Specifically, Liberty claimed that the SBA breached its duties to Liberty under the Small Business Act, its implementing regulations, and the SBA's Operating Procedures when the SBA made no effort to determine whether (1) the contract award to Liberty contained a fair and reasonable price that would allow Liberty to earn a reasonable profit, or (2) Liberty had the financial or technical capacity to perform the contract. It further contended that, had the SBA investigated the terms and Liberty's financial and technical capacity, it would never have awarded the contract and therefore Liberty would not have suffered the financial ruin that befell it. Liberty also alleged breach of contract claims. The sureties' complaint made identical claims as subrogees of Liberty, as well as an additional claim that the SBA owed the sureties an equitable duty to comply with statutory and regulatory provisions. The cases were consolidated in the district court.

The SBA moved for summary judgment, contending that the statutes and regulations governing minority set-aside provisions do not create a legally cognizable duty to section 8(a) concerns as a matter of law, which the district court granted. It ruled that the Act and its implementing statutes do not create a legally cognizable duty to Liberty or the sureties. On a motion for reconsideration, the district court clarified its decision, noting that neither the Federal Tort Claims Act ("FTCA") nor the "sue and be sued" clause of the Small Business Act creates a right of action.

Liberty and the sureties now appeal the district court's grant of summary judgment, arguing that they may bring their claims under either the FTCA or the "sue and be sued" clause. We will consider these arguments in turn.

II

The relevant provision of the FTCA states that

the district courts . . . shall have exclusive jurisdiction of civil actions on claims against the United States, for money damages . . . 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.

28 U.S.C. § 1346(b).

Under the law of this circuit, the United States may be liable under the FTCA "for the performance of some activities that private persons do not perform," but only when a state or municipal entity would be subject to liability under the law of the place where the activity occurred. Hines v. United States, 60 F.3d 1442, 1448 (9th Cir. 1995) (citations omitted). In order for the United States to be liable under such a theory, however, it must have breached a mandatory duty for which a cause of action lies.

In this case, as in Hines, we look to California's public entity liability law to determine whether the United States ...


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