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PENNBANK v. UNITED STATES

January 9, 1985

PENNBANK and FIRST SENECA BANK, Plaintiffs,
v.
THE UNITED STATES OF AMERICA, and its agencies, the ENVIRONMENTAL PROTECTION AGENCY and the FARMERS HOME ADMINISTRATION OF THE UNITED STATES DEPARTMENT OF AGRICULTURE, Defendants



The opinion of the court was delivered by: WEBER

 AND NOW this 9th day of January, 1985, Plaintiffs' motion to strike Defendants' motion for summary judgment is DENIED. Defendants' motion for summary judgment is GRANTED and the action is DISMISSED for the reasons set forth in the accompanying Opinion.

 WEBER, D.J.

 This dispute flows from an unpleasant situation facing certain residents of Crawford County, Pennsylvania. The dwellings of North and South Shenango Townships are tapped into a sewage system that does not work. The system's defects allegedly were caused by faulty construction. That issue, however, is not before us. *fn1" The question here is whether two agencies of the federal government are liable for construction expenses advanced by plaintiff banks for failing to discover the defects before the system was completed.

 The North and South Shenango Joint Municipal Authority ("Authority") was formed in 1974 to provide sanitary sewer service for area residents. The Authority hired an engineering firm that same year to plan construction. To obtain financing, the Authority submitted these plans to the Environmental Protection Agency ("EPA"), the Farmers Home Administration ("FmHA") (also referred to collectively as "the Agencies") and the Pennsylvania Department of Environmental Resources ("DER"). These bodies reviewed the plans and in September 1976 the EPA awarded a grant of $8,600,000 to the Authority. The DER also awarded a grant totalling $165,000. The FmHA approved a long term loan for the project for $3,200,000 in January 1977 contingent upon satisfactory completion of the project.

 Because FmHA regulations prevented closing of the loan before construction was complete, the Authority arranged for interim financing. In January 1977, plaintiff Pennbank agreed to extend up to $6,000,000 credit to the Authority, to be repaid in three years. Plaintiff First Seneca Bank obtained a participating interest in the interim loans through a separate agreement with Pennbank (referred to collectively as "the Banks").

 Construction of the sewage system began in mid-1977. Estimated costs of the project totalled more than $13,000,000. In April 1979 construction of approximately 77 miles of sewer, 22 pumping stations, and a 1.2 million gallon per day sewage treatment plant was completed.

 The Banks ultimately extended by one year the time for loan repayment, to January 1981. Certain residents of North and South Shenango sued the Authority in this court in 1979 for violating the Clean Water Act, 33 U.S.C. § 1251 et seq. (1976) a suit specifically based on the faulty condition of the sewage system. Pymatuning Water Shed Citizens for a Hygienic Environment v. Eaton, 506 F. Supp. 902 (W.D. Pa. 1980). This case eventually reached the Court of Appeals for the Third Circuit. See 644 F.2d 995 (3d Cir. 1981). The suit and its appeal stretched into early 1981; the Authority could not close the FmHA loan and repay the Banks with legal action pending against it. On April 3, 1981 the Authority received notice from the FmHA that it would not close the loan under the conditions stirred up by the litigation: action in the court of appeals, an investigation by the FmHA's inspector general, and a DER order restricting use of the sewage system. *fn2"

 On April 21, 1981 a bank officer attended a meeting with members of the Authority, its solicitors, and an engineer independently retained by the Authority to inspect the sewage system. The Banks claim this as the occasion when they first learned of serious defects in the system. In subsequent meetings between the Authority, the Banks, and the Agencies, the FmHA refused to close its loan and the EPA refused to make its final grant payment. The Banks seized the Authority's operating funds then on deposit, but those were not nearly enough to cover the outstanding interim loans for which the expectation of long term federal financing had dissolved. On February 7, 1983, the Banks filed administrative claims with the Agencies to satisfy the requirements of the Federal Tort Claims Act ("FTCA") 28 U.S.C. §§ 2671-80 (1976). These claims were denied on July 27, 1983 and the Banks filed this suit on January 20, 1984. They contend that the Agencies were negligent in failing to discover any defects in construction of the sewage system during the course of Agency development inspections. The Banks seek $3,600,000 in damages, the amount of outstanding loans to the Authority which the Agencies initially agreed to cover through federal funding.

 Following their answer, the Agencies filed a motion to dismiss, or, in the alternative, for summary judgment on April 30, 1984. They argue that the Banks' claim is time barred; that it is barred by the misrepresentation exception to the FTCA; that the claim is one for interference with contract rights not subject to suit under the FTCA; that the Banks have failed to state a cause of action under Pennsylvania law upon which relief can be granted; and that the claim is barred by the discretionary function exception to the FTCA. The Banks responded by brief to the motion to dismiss and moved to strike the Agencies' alternative summary judgment motion. Both parties have since submitted briefs and evidentiary materials supporting their respective positions on the Agencies' motion. Since we have considered evidentiary matters outside the bounds of the pleadings we will treat this motion as one for summary judgment. See J.M. Mechanical Corp. v. HUD, 716 F.2d 190, 196-97 (3rd Cir. 1983).

 1. The Statute of Limitations.

 Defendants raise the statute of limitations as their first defense. All tort claims against the United States must be brought to the attention of the appropriate federal agency within two years after the claim accrues. 28 U.S.C. § 2401(b) (1976). If the claim is denied, any further action by the claimant must be taken within six months of the denial. Id.; see also § 2675(a). Our task here, as in most limitations disputes, is to decide when plaintiffs' claim "accrued."

 The United States Supreme Court has found that a claim accrues under 28 U.S.C. § 2401(b) when the injured party first becomes aware of both the existence of an injury and its cause. United States v. Kubrick, 444 U.S. 111, 62 L. Ed. 2d 259, 100 S. Ct. 352 (1979). The Banks made their administrative claims on February 7, 1983. Thus, if the Banks knew about the sewage system's deficiencies before February 7, 1981, and knew these were the type of problems caused by shoddy construction, its suit here would be barred.

 The Banks claim that they first learned of defects in the construction on April 21, 1981. On that day, Paul DeArment, Pennbank's officer overseeing the loans, met with members of the Authority, its solicitors, and an engineer independently retained by the Authority to inspect the sewage system. The engineer stated, according to Mr. DeArment, that the sewage system "was on the point of collapse." The engineer found that the sewer pipe was defective; that the pipe joints were leaking; that testing of the system's performance was careless and inaccurate; and that evidence pointed to collusion between the ...


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