Beneficial v. Polonowicz ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
2-9-1995
Beneficial vs. Polonowicz
Precedential or Non-Precedential:
Docket 94-1346
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0. 94-1346
BENEFICIAL CONSUMER DISCOUNT COMPANY,
Appellant
v.
DAVID R. POLTONOWICZ; JOHN POLTONOWICZ;
THE INTERNAL REVENUE SERVICE OF THE UNITED STATES OF AMERICA
On Appeal From the United States District Court
For the Eastern District of Pennsylvania
(D.C. Civil Action No. 93-cv-03780)
Submitted Pursuant to Third Circuit LAR 34.1(a)
August 4, 1994
BEFORE: STAPLETON and GREENBERG, Circuit Judges,
and ATKINS,* District Judge
(Opinion Filed February 9, l995)
Shawn J. Lau
Bingaman, Hess, Coblentz & Bell
660 Penn Square, 601 Penn Street
P. O. Box 61
Reading, PA 19603
Attorney for Appellant
Frank W. Hunger
Assistant Attorney General
Michael R. Stiles
United States Attorney
*Honorable C. Clyde Atkins, United States District Judge for the
Southern District of Florida, sitting by designation.
Barbara L. Herwig
Irene M. Solet
Attorneys, Appellate Staff
Civil Division, Room 3343
U.S. Department of Justice
10th & Pennsylvania Ave., N.W.
Washington, DC 20530-0001
Attorneys for Appellee
OPINION OF THE COURT
STAPLETON, Circuit Judge:
Beneficial Consumer Discount Co. ("Beneficial") appeals
from an order dismissing its third-party claim against the
Internal Revenue Service ("IRS"), and remanding the remainder of
this case to state court. The district court reasoned that the
doctrine of sovereign immunity precluded Beneficial's claim
against the IRS. At issue is whether the waiver of the sovereign
immunity of the United States set forth either in the Right to
Financial Privacy Act of 1978 ("RFPA"), 12 U.S.C. §§ 3401-3422,
or the Federal Torts Claims Act ("FTCA"), 28 U.S.C. §§ 1346(b),
2671-2680, permits Beneficial's claim. We hold that neither of
these statutes waives the federal government's sovereign immunity
against Beneficial's claim. We will affirm in part and dismiss
in part for lack of jurisdiction.
I.
This case arises out of a March 1991 installment loan
agreement between Beneficial and defendants David Poltonowicz and
John Poltonowicz ("the Poltonowiczs"). Beneficial, claiming that
the Poltonowiczs defaulted on that loan, filed suit against them
in the Pennsylvania Court of Common Pleas. In response, the
Poltonowiczs asserted a counterclaim, alleging that Beneficial
had violated the terms of the loan agreement, as well as
unspecified state and federal laws, by providing certain
confidential information to third parties.
Beneficial admits that it released information
concerning the Poltonowiczs to a third party, the IRS. It
nevertheless argues that this alleged breach of confidentiality
was entirely justified. It explains that IRS officials requested
the confidential information in writing and certified to
Beneficial, pursuant to the requirements of 12 U.S.C. § 3403(b),
that the request met the requirements of the RFPA. The IRS also
informed Beneficial that good-faith reliance upon the RFPA
certification would relieve Beneficial of any possible liability
to the Poltonowiczs for disclosing the requested account
information. See 12 U.S.C. § 3417(c).
This appeal arises because Beneficial did something
more than assert the IRS's RFPA certification as a defense under
§ 3417(c); it joined the IRS, alleging that, if Beneficial were
held liable to the Poltonowiczs, it was entitled to judgment
against the IRS for any amount they recovered. In response, the
IRS removed the case to the district court and filed a motion to
dismiss on the ground that Beneficial's claim was barred by the
doctrine of sovereign immunity. The district court granted the
IRS's motion, dismissing Beneficial's claim against the IRS with
prejudice, and remanding the case to state court. Beneficial
filed a timely motion for reconsideration. The district court
denied that motion and this appeal followed.
II.
We are presented with threshold issues of jurisdiction.
With certain exceptions not here relevant, we may review only
final orders of a district court. Moreover, we are specifically
barred by 28 U.S.C. § 1447(d) from reviewing "[a]n order
remanding a case to the State court from which it was removed,"
where the district court has decided to remand because it
believes it "lacks subject matter jurisdiction." 28 U.S.C.
§§ 1447(c), (d), as interpreted in Thermtron Products, Inc. v.
Hermansdorfer, 423 U.S. 336 (1976), and Gravitt v. Southwestern
Bell Telephone Co., 430 U.S. 723 (1977).
The November 30, 1993, order from which Beneficial
appeals dismissed with prejudice its cross-claim against the IRS
on "grounds of sovereign immunity" and remanded the remaining
claims in the case to the state court from which it came because
it had "no independent jurisdiction" over those claims.
Beneficial asks us to hold that the district court erred in
dismissing its claim against the IRS. It further asks us to rule
that the district court erred in remanding the other claims in
the case whether or not it was justified in dismissing the IRS.1
We conclude that we have jurisdiction to review that portion of
the November 30, 1993, order which dismissed Beneficial's claim
against the IRS with prejudice, and we will affirm that part of
the order. We are without jurisdiction, however, to review the
district court's remand decision.
Because the district court's decision to dismiss
Beneficial's claim against the IRS affected the substantive
rights of the parties and was separable from the district court's
decision to remand, that portion of the order appealed from is a
final one over which we have appellate jurisdiction despite the
bar of 28 U.S.C. § 1447(d). This is the teaching of the Supreme
Court's decision in City of Waco v. United States Fidelity &
Guaranty Co., 293 U.S. 140, 143-44 (1934) (review permitted of an
order dismissing one party to a case where that order was
accompanied by a motion to remand because "in logic and fact the
decree of dismissal preceded that of remand and was made by the
District Court while it had control of the case."), and our
decision in Carr v. American Red Cross, 17 F.3d 671, 674-78 (3d
Cir. 1994) (same).
On the other hand, § 1447(d) bars our review of that
portion of the district court's order remanding this case to
state court. City of Waco v. United States Fidelity & Guarantee
1
. Beneficial contends that even if the IRS is protected by
sovereign immunity, the district court had jurisdiction to rule,
and should have ruled, on its motion for summary judgment on the
Poltonowiczs' claim against Beneficial under the RFPA.
Co., 293 U.S. 140, 143 (1934) (stating that "no appeal lies from
the order of remand"); see generally 15A Charles A. Wright et
al., Federal Practice & Procedure § 3914.11, at 712-15 (1992 &
Supp. 1994). Cases permitting appellate consideration of remand
orders, such as Carr or Thermtron Products, are inapposite. We
permitted review of the remand order in Carr because without that
review, our decision overturning the district court's order which
triggered the remand would have been meaningless. 17 F.3d at
683. Our decision here, in contrast, affirms the order preceding
remand. Thermtron Products is likewise inapplicable; the Supreme
Court there permitted mandamus review of a remand order which was
based "on grounds that [the district court] had no authority to
consider." 423 U.S. at 351. Here the district court's remand
was based on its conclusion that it had no subject matter
jurisdiction over the remaining claims and, as Thermtron Products
expressly recognized, this is the kind of order which comes
within the scope of § 1447(d) and may not be reviewed.
III.
It is well settled that the United States enjoys
sovereign immunity from suits and, accordingly, may be sued only
if it has waived that immunity. United States v. Idaho ex rel.
Dep't of Water Resources, 113 S. Ct. 1893, 1896 (1993); United
States v. Nordic Village, Inc., 112 S. Ct. 1011, 1014 (1992); FMC
Corp. v. Department of Commerce, 29 F.3d 833, 838-39 (3d Cir.
1994); In re University Med. Ctr. (University Med. Ctr. v.
Sullivan), 973 F.2d 1065, 1085 (3d Cir. 1992). The IRS, as an
agency of the United States, is thus shielded from private
actions unless sovereign immunity has been waived. United States
v. Mitchell, 463 U.S. 206, 212 (1983).
"[W]aivers of federal sovereign immunity must be
'unequivocally expressed'" in the statutory text and "'[a]ny such
waiver must be strictly construed in favor of the United
States.'" Idaho, 113 S. Ct. at 1896 (citations omitted);
Department of Energy v. Ohio, 112 S. Ct. 1627, 1633 (1992);
Nordic Village, 112 S. Ct. at 1014-15; Ardestani v. INS, 112
S. Ct. 515, 520 (1991); University Med. Ctr., 973 F.2d at 1085.
Beneficial asserts that two federal statutes permit it
to bring its third-party claim against the IRS: the Federal
Right to Privacy Act ("the FRPA") and the Federal Tort Claims Act
("the FTCA"). We consider the applicability of these two
statutes in turn.
IV.
The Right to Financial Privacy Act of 1978, 12 U.S.C.
§§ 3401-3422, is designed "to protect the customers of financial
institutions from unwarranted intrusion into their records while
at the same time permitting legitimate law enforcement activity."
H.R. Rep. No. 1383, 95th Cong., 2d Sess. 33 (1978), reprinted in
1978 U.S.C.C.A.N. 9273, 9305. The RFPA's civil enforcement
mechanism, § 3417(a), reflects this goal of protecting the
privacy interests of customers of financial institutions. It
states in pertinent part:
(a) Liability of agencies or departments of
United States or financial institutions.
Any agency or department of the United States
or financial institution obtaining or
disclosing financial records or information
contained therein in violation of this
chapter is liable to the customer to whom
such records relate in an amount equal to the
sum of --
(1) $ 100 without regard to the volume of
records involved;
(2) any actual damages sustained by the
customer as a result of the disclosure;
(3) such punitive damages as the court may
allow, where the violation is found to have
been willful or intentional; and
(4) in the case of any successful action to
enforce liability under this section, the
costs of the action together with reasonable
attorney's fees as determined by the court.
Beneficial maintains that § 3417(a) waives the IRS's
sovereign immunity, giving Beneficial a cause of action against
the IRS. We disagree. Nothing in the RFPA permits a financial
institution like Beneficial, which is not a "customer" within the
meaning of that Act, to bring suit to enforce its customers'
RFPA-protected rights. Further, nothing in the RFPA permits a
financial institution to shift to the government as a joint tort-
feasor -- through a suit for contribution, indemnification, or
otherwise -- any part of its burden of paying civil penalties to
a customer for violations of the RFPA. Accordingly, it is not
surprising that the text of the RFPA evidences no intent on the
part of Congress to waive sovereign immunity with respect to
claims like the one here asserted by Beneficial against the IRS.
A.
Section 3417(a) is specifically limited to actions
instituted by the "customer" whose rights to financial privacy
have been violated. The term customer "means any person or
authorized representative of that person who utilized or is
utilizing any service of a financial institution, or for whom a
financial institution is acting or has acted as a fiduciary, in
relation to an account maintained in the person's name." 12
U.S.C. § 3401(5). Here, Beneficial is the financial
institution,2 not the customer; no one claims that the IRS
somehow violated Beneficial's right to financial privacy. Thus,
any § 3417(a) claim Beneficial could have against the IRS would
derive from its allegation that the IRS violated the
Poltonowiczs' rights to financial privacy.
Beneficial suggests that § 3417(a) gives Beneficial the
right to stand in the Poltonowiczs' shoes and assert their rights
to privacy on their behalf. Beneficial points to no provision in
the RFPA, however, indicating that financial institutions may
hold the government liable for violations of their customers'
rights to financial privacy. Instead, the essence of
Beneficial's argument is that fairness requires that such a cause
of action and a waiver of sovereign immunity with respect thereto
be implied by courts called upon to enforce the RFPA. It claims
2
. The RFPA defines "financial institution" broadly as "any
office of a bank, savings bank, card issuer . . ., industrial
loan company, trust company, savings association . . ., credit
union, or consumer finance institution . . . ." 12 U.S.C.
3401(1). Beneficial does not contest that it is a financial
institution for the purposes of the RFPA.
that, unless this court implies such a cause of action and
waiver, Beneficial might be held liable to the Poltonowiczs
merely because it had complied in good faith with the IRS's
request for allegedly confidential financial information.
Nothing in the statute or the legislative history
supports Beneficial's claim to an implied cause of action against
the government for financial institutions to vindicate the rights
of their customers. In fact, § 3417(d), which states that "[t]he
remedies and sanctions described in this chapter shall be the
only authorized judicial remedies and sanctions for violations of
this chapter," appears to mandate the exact opposite conclusion.
See also H.R. Rep. No. 1383, at 49 (stating that "[t]he
definitions of 'financial records' and 'customers,' taken
together, are intended to preclude application of the bill to
anyone other than the person to whose account information the
government seeks to access"). Furthermore, Beneficial's fear of
being held liable for its good-faith reliance on the IRS's RFPA
certification is entirely unfounded. Section 3417(c)
specifically provides relief for a financial institution caught
in a situation like the one Beneficial alleges, dictating that
the institution may not be held liable to customers under the
RFPA if it relied in good faith on a government authority's
certified request for information.3 The availability of this
3
. Section 3417(c) states:
Any financial institution or agent or
employee thereof making a disclosure of
financial records pursuant to this chapter in
good-faith reliance upon a certificate by any
defense obviates any need financial institutions might have to
bring RFPA claims against the government for the government's
violations of their customers' rights to financial privacy. We
therefore decline Beneficial's invitation to imply a derivative
right on its behalf and to find an unexpressed waiver of
sovereign immunity with respect to claims based on that right.
B.
Our conclusion must be the same with respect to
Beneficial's effort to secure contribution or indemnity from the
IRS under the RFPA as a joint tort-feasor. Nothing in the RFPA
creates a cause of action for contribution or indemnification in
favor of a financial institution which has been held liable to a
customer as a result of a disclosure to the government.
Moreover, even if we were disposed to imply a cause of action for
contribution or indemnification under the RFPA, we could not
imply a waiver of sovereign immunity with respect to that cause
of action without running afoul of the well-established
injunction against recognizing a waiver of federal sovereign
(..continued)
Government authority or pursuant to the
provisions of section 3413(l) of this title
shall not be liable to the customer for such
disclosure under this chapter, the
constitution of any State, or any law or
regulation of any State or any political
subdivision of any State.
(Emphasis added.)
immunity not evidenced in the statutory text. See, e.g., Idaho,
113 S. Ct. at 1896.
V.
As Beneficial points out, the Federal Tort Claims Act
waives sovereign immunity as to claims against the United States
for money damages for injury caused by the negligent or wrongful
act or omission of a government employee acting within the scope
of his employment "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); see also 28 U.S.C. § 2674.
Beneficial insists that this waiver encompasses the following
cross-claim it seeks to assert against the IRS:
In this matter, if [the Poltonowiczs']
allegations are proven correct, officers
and/or agents of the IRS specifically misled
Beneficial employees into believing that they
were at all times entitled to and under a
duty to respond as requested in the IRS'
Request for Documents. These requests were
made by supposedly seasoned IRS agents, who
knew or should have known of the requirements
of the Federal Right to Financial Privacy
Act. Beneficial presented these allegations
in its complaint to join the IRS as [an]
additional defendant. Should the allegation
be proven correct, this conduct would rise to
the level of tortious conduct under state
law; the Government expressly waives
sovereign immunity for such conduct by virtue
of the Federal Tort Claims Act Title 28,
§§ 1346 and 2674.
(Appellant's Br. at 21.)
This is the claim, and the only claim, Beneficial asks
us to hold is within the scope of the sovereign immunity waiver
found in the FTCA. The district court concluded that the claim
is not within the scope of that waiver because it "sounds in
misrepresentation or deceit" and § 2680(h) of the FTCA
specifically preserves the sovereign immunity of the United
States with respect to claims "arising out of . . .
misrepresentation [or] deceit." 28 U.S.C. § 2680(h). We agree
with the district court.
Beneficial contends that its claim is a fraud claim
under Pennsylvania law and that such claims differ from the
claims of "misrepresentation" or "deceit" barred by § 2680(h).
In its words, "the actions of the IRS representatives in this
matter were on a much greater scale than mere misrepresentations
and rose to the level of fraud. Fraud or fraudulent
misrepresentation is not excluded by the Federal Tort Claims
Act." (Appellant's Br. at 22.) Beneficial's view of the law is
mistaken.
The essence of an action for misrepresentation or
deceit, for the purposes of § 2680(h), is a communication of
misinformation upon which the recipient relies. Block v. Neal,
460 U.S. 289, 296-97 (1983); United States v. Neustadt, 366 U.S.
696, 702-11 (1961). As a result, courts have consistently held
that fraud claims against the government are not permitted under
the FTCA. See, e.g., United States v. Texarkana Trawlers, 846
F.2d 297, 304 (5th Cir.), cert. denied, 488 U.S. 943 (1988); see
also McNeily v. United States, 6 F.3d 343, 349 (5th Cir. 1993)
(referring to § 2680(h) as the "fraud and misrepresentation"
exception to the FTCA).4
Beneficial's fraud claim alleges that it relied to its
detriment on the IRS's alleged misrepresentation that the IRS was
entitled to the information it requested and that the IRS's
certificate relieved Beneficial of any possible liability to the
Poltonowiczs in connection with the disclosure of the account
information. This claim fits squarely into § 2680(h)'s
misrepresentation and deceit exception to the FTCA's waiver of
sovereign immunity. It accordingly is barred by the doctrine of
sovereign immunity.
Beneficial at times characterizes the above-quoted
claim not only as a fraud claim but also as a claim for
contribution or indemnification. The FTCA's waiver of sovereign
immunity normally encompasses claims for contribution or
indemnification where the law of the relevant state would hold a
private individual liable for contribution or indemnification in
the same circumstances. See, e.g., Lockheed Aircraft Co. v.
United States, 460 U.S. 190, 196-98 (1983); United States v.
Yellow Cab Co., 340 U.S. 543, 546-52 (1951).5 Claims for
4
. Beneficial's argument that under Pennsylvania law a fraud
claim is different from a claim for misrepresentation or deceit
misses the mark. The relevant issue is whether the claim
Beneficial here presses is a claim based on "misrepresentation"
and "deceit" as those terms are used in § 2680(h), and the scope
of the § 2680(h) misrepresentation or deceit exception is defined
by federal, not state, law. Cross Bros. Meat Packers, Inc. v.
United States, 705 F.2d 682, 683 (3d Cir. 1983).
5
. The FTCA waives sovereign immunity only in circumstances in
which the United States would be liable under the law of the
place where the government employee's act or omission occurred.
contribution or indemnity against the government are prohibited,
however, when permitting the claims to go forward effectively
would defeat the purposes of a particular exception to the
government's waiver of sovereign immunity. See Stencel Aero
Eng'g Corp. v. United States, 431 U.S. 666, 673-74 (1977)
(private party liable in tort to a military serviceman could not
recover from federal government under a contribution or
indemnification theory because permitting the claim would defeat
the purposes behind the government's immunity against the
serviceman's direct claim).
However Beneficial may characterize the only claim it
here asserts against the IRS, the facts that give rise to
liability under that claim involve misrepresentations or deceit
(..continued)
Accordingly, a showing of a violation of federal law will not
alone suffice to qualify a claim under the FTCA's waiver.
Nuclear Transp. & Storage, Inc. v. United States, 890 F.2d 1348,
1351-53 (6th Cir. 1989) (no FTCA waiver with respect to Fifth
Amendment claim), cert. denied, 494 U.S. 1079 (1990); U.S. Gold &
Silver Invs. Inc. v. United States, 885 F.2d 621, 621-22 (9th
Cir. 1989) (same as to Lanham Act claim); Attallah v. United
States, 955 F.2d 776, 785 n.15 (1st Cir. 1992) (same as to claims
based on Customs regulations); Goldstar (Panama) S.A. v. United
States, 967 F.2d 965, 969 (4th Cir. 1992) (same as to Hague
Convention), cert. denied, 113 S. Ct. 411 (1992); Boda v. United
States, 698 F.2d 1174, 1176 (11th Cir. 1983) (same as to Due
Process claim). Beneficial refers us to no state law other than
Pennsylvania case law pertaining to fraud. Under the
Pennsylvania law of contribution and indemnity, as we understand
it, Beneficial could recover against the IRS under either theory
only if the IRS were directly liable to the Poltonowiczs for the
injuries they allegedly suffered. We have found no Pennsylvania
law which would impose liability on a private individual who did
no more than request information from a financial institution and
receive it when the request was voluntarily honored by the
institution. For this reason, we assume that Beneficial's
decision to rest its FTCA argument solely on the facts alleged in
support of its fraud claim was a deliberate one.
and reliance by Beneficial to its detriment. Permitting
Beneficial to proceed with its "indemnification" and
"contribution" claims effectively would defeat the purposes of
the § 2680(h) misrepresentation and deceit exception to the
government's waiver of sovereign immunity. Cf. Stencel, 431 U.S.
at 672-74; see also Colonial Bank & Trust Co. v. American
Bankshares Corp., 439 F. Supp. 797, 802-03 (E.D. Wis. 1977)
(holding that § 2680(h) bars a third-party misrepresentation
claim against a government agency); Marival, Inc. v. Planes,
Inc., 306 F. Supp. 855, 857-60 (N.D. Ga. 1969) (same). We may
not permit that result.
VI.
For the foregoing reasons, the district court properly
dismissed Beneficial's third-party claim against the Internal
Revenue Service for want of jurisdiction. Accordingly, the
portion of its order effectuating that decision will be affirmed.
The remainder of the appeal will be dismissed for lack of
appellate jurisdiction.