The opinion of the court was delivered by: GILES
The Government has moved for dismissal, or, in the alternative, summary judgment, asserting that plaintiff's claim is barred by 28 U.S.C. § 2680(h),
which provides that the FTCA's waiver of governmental immunity does not extend to claims arising out of misrepresentation. Plaintiff responds that its cause of action arises not from misrepresentation, but from the negligence of the Department's employees in failing to perform the grading service properly. For the reasons set forth below, the Government's motion is granted.
The seminal case interpreting the misrepresentation exception is United States v. Neustadt, 366 U.S. 696 (1961). There, the Court held that the exception barred a suit by purchasers of a home who relied upon a negligently inaccurate Federal Housing Administration (FHA) inspection and appraisal report. The plaintiffs purchased the home for a price based upon the FHA appraisal value. After moving in, they discovered a serious value-impairing structural defect not disclosed by the report. Plaintiffs sought to recover from the United States the difference between the fair market value and the purchase price.
The Court held that the claim was barred because it arose from misrepresentation of the condition and value of the house, rather than from negligent inspection.
[T]he argument has been made by plaintiffs, and consistently rejected by the courts,... that the bar of § 2680(h) does not apply when the gist of the claim lies in negligence underlying the inaccurate representation, i.e., when the claim is phrased as one "arising out of" negligence rather than "misrepresentation." But this argument... is nothing more than an attempt to circumvent § 2680(h) by denying that it applies to negligent misrepresentation.
Id. at 703 (emphasis in original).
The court also rejected plaintiffs' argument that breach of a specific statutory duty was actionable even though accompanied by misrepresentation:
To say,... that a claim arises out of "negligence", rather than "misrepresentation", when the loss suffered by the injured party is caused by the breach of a "specific duty" owed by the Government to him, i.e., the 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, is only to state the traditional and commonly understood legal definition of the tort of "negligent misrepresentation", as is clearly, if not conclusively, shown by the authorities set forth in the margin, and which there is every reason to believe Congress had in mind when it placed the word "misrepresentation" before the word "deceit" in Section 2680(h).
Id. at 706-07 (footnotes omitted) (citing Restatement of Torts P552 (1938), superseded, Restatement (Second) of Torts, § 552 (1977) (negligent misrepresentation)).
Section 2680(h) has been applied to bar suit in a variety of other contexts. For instance, in Hall v. United States, 274 F.2d 69 (10th Cir. 1959), owners of livestock sued to recover losses resulting from the discount sale of cattle incorrectly diagnosed by federal agents as diseased. In affirming the trial court's dismissal of the complaint, the court stated:
We must then look beyond the literal meaning of the language to ascertain the real cause of complaint. Plaintiff's real claim is that because of the negligent manner in which these tests were made, the result showed that plaintiff's cattle were diseased; whereas, in fact, they were free from disease and that the Government misrepresented the true condition of these cattle. Plaintiff's loss came about when the Government agents misrepresented the condition of the cattle, telling him they were diseased when, in fact, they were free from disease. The claim is that this misrepresentation caused plaintiff to sell his cattle at a loss. This stated a cause of action predicated on a misrepresentation. Misrepresentation as used in the exclusionary provision of the Statute was meant to include negligent misrepresentation.
Id. at 71. Accord, Saxton v. United States, 456 F.2d 1105 (8th Cir. 1972) (misrepresentation exception bars suit by plaintiffs unable to sell cattle following erroneous diagnosis that animals were not diseased); Mizokami v. United States, 414 F.2d 1375 (Ct. Cl. 1969) (misrepresentation exception bars suit by plaintiffs who sold spinach at a ...