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Preston v. United States

January 19, 1979

ROBERT L. PRESTON, ET AL., PLAINTIFFS-APPELLANTS,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE.



On Appeal from the United States District Court for the Western District of Wisconsin. No. 77 C 33 - James E. Doyle, Judge.

Before Swygert and Cummings, Circuit Judges, and Crowley, District Judge.*fn*

Author: Cummings

Plaintiff Robert L. Preston and 67 other farmers and estates of deceased farmers have sued the United States under the Federal Tort Claims Act (28 U.S.C. ยง 1346(b)) for damages, claiming that they lost $1,910,057.42*fn1 in their dealings with Grain Finance Company, Inc. (Grain Finance) and Farmers Grain Exchange, Inc. (FGX) by reason of negligent and wrongful actions of the United States Department of Agriculture, the Agricultural Marketing Service (AMS) and Commodity Credit Corporation (CCC). As an alternative to damages, plaintiffs sought an accounting.

Defendant filed a motion to dismiss. The following allegations of the complaint must be taken as true for purposes of ruling on that motion: In 1957 Benjamin T. Green secured a Wisconsin license for Grain Finance to operate a public warehouse in Evansville, Wisconsin, and in December 1965, he secured a similar license for FGX to operate a public warehouse at the same location as the Grain Finance warehouse. Green thereafter stored gain for farmers in the Evansville area at that warehouse and issued warehouse receipts in the names of Grain Finance and FGX, commingling all the grain stored by Grain Finance with all the grain stored by FGX.

Beginning in late 1959, the CCC approved the Evansville warehouse facility as a depository for CCC-owned grain. In July 1969, Green obtained CCC approval of the Evansille warehouse not only as a depository for CCC-owned grain but also as a depository for grain acquired in the warehouse by CCC as a result of its loans to farmers. Simultaneously Green and CCC entered into a Uniform Grain Storage Agreement. By virtue of that agreement, farmers with grain on deposit in the Evansville warehouse facility could obtain loans from CCC secured by the grain they deposited there.*fn2 CCC regularly causes inspections and audits to be made of CCC-approved warehouses to assure that they are safe places for the storage of grain.

According to the plaintiffs, since in order to obtain the favorable CCC loans they were required to store their grain in an approved warehouse, CCC's approval of Green's warehouse effectively invited and encouraged farmers in the Evansville area to store grain in that facility. Because it was known that CCC would cause audits to be made of Grain Finance, plaintiffs were lured to the Evansville warehouse facility, causing them to have dealings with Grain Finance and FGX. Because of its approval of the warehouse, CCC is said to have assumed a duty to plaintiffs to exercise reasonable care in ascertaining whether that warehouse facility was a safe place in which to store grain from the standpoint not only of physical facilities but also from the standpoint of economic stability and the integrity of the operator. CCC is said to have a duty to warn plaintiffs if the Evansville facility was not a safe place or if it became a place that was not safe.

In cooperation with CCC, AMS conducted audits of Grain Finance in September 1969, May 1970, December 1970, May 1971, October 1971, May 1972, November 1972, April 1973, August 1973 and August 1974. By conducting those audits, CCC and AMS assertedly assumed a duty to plaintiffs to exercise reasonable care in ascertaining that said warehouse was and continued to be a safe place in which to store grain and to warn them otherwise.

Because of CCC's approval of this warehouse facility, plaintiffs allege that they did increasing amounts of business with Grain Finance and FGX and borrowed money from CCC secured by their grain on deposit there. They also deposited grain in that facility under a variety of arrangements including simple bailments and price later contracts (see note 3 Infra ) which did not involve CCC loans. In November 1972, at Green's request, CCC withdrew its approval of his warehouse so that after that date CCC loans were no longer available for grain stored there. However, AMS continued to audit the facility which still contained grain which was owned by CCC or which was collateral for CCC loans. Plaintiffs continued to do business with Grain Finance and FGX until November 14, 1974, when a state court receiver was appointed for those companies.

According to plaintiffs, when CCC approval was granted to this warehouse facility in July 1969 and when the Uniform Grain Storage Agreement was entered into between Green and the CCC effective that month, Grain Finance and FGX had serious financial difficulties and were bankrupt, so that their warehouse facility was not a safe place in which to store grain.

After July 1969, Grain Finance and FGX assertedly sold some grain which was owned by these farmers or by CCC and covered by warehouse receipts. Plaintiffs also alleged:

"Some of the grain which they (Grain Finance and FGX) sold, they had no right to sell because, although it was the subject of price later contracts, the sales were not made pursuant to the price later contracts (with plaintiffs), but by way of converting the grain, and the proceeds from the sale of the grain, to their own use" (App. 11).

Green, Grain Finance and FGX after 1969 allegedly used the same grain twice to represent purchases and obligations of both of the legally separate but physically integrated firms in order to distort audits of their books. There was a growing disparity between the grain they had on hand and the grain they needed to meet their obligations. FGX filed a bankruptcy petition in September 1974, and Grain Finance did so in February 1975.

Plaintiffs claim they were injured by the following wrongful acts of defendant and its agencies:

1. CCC failed to ascertain that Grain Finance and FGX had serious financial difficulties or were bankrupt when it approved their ...


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