United States v. Chappell Livestock Auction, Inc. ( 1975 )

HEANEY, Circuit Judge.

This case was submitted to the District Court on stipulated facts. The United States loaned money to farmers through the Farmers Home Administration, taking a security interest in cattle. Financing statements were duly filed. Defendant auctioneer sold five head of encumbered cattle on behalf of the farmers, and the United States sued the auctioneer for common law conversion. The auctioneer defended on the basis of Rev. Stat. Nebraska § 69.109.01.¹ That statute exempts an auctioneer from liability when he has no actual knowledge of the security interest and acts in good faith. The parties stipulated that the auctioneer had complied with the terms of the Nebraska statute, and could not be held liable if state law controlled. Under federal common law, however, the auctioneer would be strictly liable in conversion.

The District Court granted summary judgment for, the defendant. It relied on United States v. Kramel, 234 F.2d 577 (8th Cir. 1956), where we held that whether an auctioneer had converted collateral secured under the Farmers Home Administration loan program was to be determined by resort to state law.

The government asks us to reverse the District Court because: (1) our rule in Kramel was improvidently adopted and should be overruled; or (2) the facts of this case are distinguishable from those in Kramel. We reject both contentions and affirm.

I.

The government urges this Court to reconsider the Kramel decision because five Circuits have adopted a contrary rule whereby, notwithstanding state law, an auctioneer is strictly liable in conversion under federal common law. See United States v. Hext, 444 F.2d 804 (5th Cir. 1971); Cassidy Commission Co. v. United States, 387 F.2d 875 (10th Cir. 1967); United States v. Carson, 372 F.2d 429 (6th Cir. 1967); United States v. Sommerville, 324 F.2d 712 (3rd Cir. 1963), cert. denied, 376 U.S. 909, 84 S.Ct. 663, 11 L.Ed.2d 608 (1964); United States v. Matthews, 244 F.2d 626 (9th Cir. 1957).

While recognizing the fact that Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), does not apply to actions to enforce rights of the United States acting under its constitutional powers, we noted in Kramel that, in framing the applicable federal rule, the courts occasionally resort to state law. United States v. Kramel, supra at 580, citing Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 87 L.Ed. 838 (1943). On the issue of the auctioneer’s conversion, we chose to apply state law, noting that: (1) to permit federal common law to control would require the displacement of state tort law affecting title to personal property, an issue traditionally left to the states; and (2) Congress, in enacting the Farmers Home Administration Act, did not indicate that uniformity was needed, for no intention to override state law was ex-' pressed, even though it must have been aware that laws affecting or protecting title are not identical in all states. We believe this reasoning is still valid. Moreover, in adopting a similar rule in United States v. Union Livestock Sales Co., 298 F.2d 755 (4th Cir. 1962), the Fourth Circuit noted three additional reasons which we find persuasive: (1) there is no need in fact for uniformity in Farmers Home Administration loan transactions throughout the United States; (2) the procedure adopted by government regulations requires the chattel mortgage to be filed or recorded in accordance with local recording laws; and (3) the general purpose of the statute to give aid and assistance to the farming community will be promoted if the loans are made in accordance with local practice.

We find nothing in the Supreme Court decisions cited by the government which indicates to us that our original conclusion was erroneous. The rule laid down in Kramel is supported by the Supreme Court’s opinion in United States v. Yazell, 382 U.S. 341, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966). It has not been weakened or modified by subsequent decisions of this Court.²

II.

The government urges that Kramel is not broad enough to call for the application of the Nebraska statute here. It would have us construe that statute to take away only the remedy, and not to redefine the tort of conversion.³ Therefore, it contends, this case is governed by United States v. McCabe Co., 261 F.2d 539 (8th Cir. 1959).

In McCabe, the defendant, an insolvent warehouseman, did not deny that he was guilty of conversion of encumbered grain, but defended solely on the ground that he could not be sued by the United States because a state statute had given to the state public service commission the exclusive right to sue insolvent warehousemen. We held that state law could not take away from the United States a cause of action for a wrong which the state continued to recognize as a wrong. In short, the state could not withhold only the remedy.

We cannot agree with the government’s reading of the Nebraska statute⁴ or that the McCabe decision is applicable. We read the statute simply to define the circumstances under which an auctioneer commits the tort of conversion. The government’s argument that the statute acts solely to withhold the remedy from an otherwise recognized tort is an unacceptable exercise in semantics. When the statute took away everyone’s right to sue the auctioneer, the tort was extinguished. In providing that there is no conversion under the facts of this case, the effect of the statute is no different than that of the state common law rule applied in Kramel.

Since we decline to overrule our holding in Kramel, the grant of summary judgment on the ground that state law prohibited the conversion action against the defendant under the stipulated facts is affirmed.

1 . The statute provides:

* * * The auctioneer, who in good faith and without notice of a security interest therein, sells personal property at auction, which is in fact subject to a security interest, for a principal whose identity has been disclosed, in which property the auctioneer has no interest but acts only as an intermediary of the owner is not liable to the holder of the security interest for any damage sustained as a result of such sale.

2 . We cannot agree with the dissent that our opinions in United States v. Thompson, 438 F.2d 254 (8th Cir. 1971) and United States v. Chester Park Apartments, Inc., 332 F.2d 1 (8th Cir.), cert. denied, 379 U.S. 901, 85 S.Ct. 191, 13 L.Ed.2d 176 (1964), have undermined the holding of Kramel. Each of those cases dealt with procedural baggage accompanying the Federal Housing Administration’s mortgage foreclosure remedy against parties who had contracted with the government. In Thompson, we held only that the court could specify cash terms at the judicial sale, despite a state statute requiring a three to six month extension of credit. We specifically noted that “[w]e are concerned only with the details in the manner in which a real estate mortgage need be foreclosed.” United States v. Thompson, supra at 257-58. In Chester Park, we held only that the government was entitled to have a receiver appointed in accordance with the explicit terms of the mortgage. In so holding, we expressly distinguished our holding in Kramel. United States v. Chester Park Apartments, supra at 3-4.

Thompson and Chester Park are distinguishable from Kramel in two respects. First, the application of federal law in those cases affected only the interests of parties who had contracted with the government. Here, on the contrary, the government is attempting to recover from a third party who played no part in the contract. Second, the decision to permit federal law to override state law in Thompson and Chester Park left the state law and its attendant policies unimpaired in the bulk of transactions not involving the federal government. On the other hand, to carve out an exception from state law protection whenever an auctioneer handles cattle which is subject to a federal lien would emasculate the state’s policy of furthering the quick flow of commerce in livestock. Although the rule which the government urges would leave the auctioneer liable in conversion only in those few instances in which the government is a secured party, as a practical matter, the auctioneer would be required to check the recording system before every livestock sale, to fully protect himself.

3 . The government correctly points out that, in Kramel, the federal and state common law were different, with only the former recognizing conversion. Here, by contrast, both the common law of the United States and of Nebraska would recognize strict liability in conversion. See State Securities Co. v. Svoboda, 172 Neb. 526, 110 N.W.2d 109 (1961). The statute, of course, altered Nebraska’s common law.

4 . The only Nebraska case we have found construing this statute did not face this issue and provides no guidance. See State Securities Co. v. Norfolk Livestock Sales Co., 187 Neb. 446, 191 N.W.2d 614 (1971).