870 F.

2d 320
29 ERC 1753, 57 USLW 2640, 19 Envtl.
L. Rep. 21,297

CITY OF GARLAND, Plaintiff-Appellee,

v.
ZURN INDUSTRIES, INC., et al., Defendants,
and
URS Company, Successor in Interest to Forrest & Cotton,
Inc., Defendant-Third Party Plaintiff-Appellant,
v.
UNITED STATES of America, Third-Party DefendantAppellee.
No. 88-1697.

United States Court of Appeals,

Fifth Circuit.
April 21, 1989.

Teresa Jenkins Carson, William R. Allensworth, David Taubenfeld,

Haynes & Boone, Dallas, Tex., for appellant.
Bert R. Oastler, Neal J. Sweeney, Atlanta, Ga., for City of Garland, Tex.
Jay Tidmarsh, Trial Atty., Torts Branch, Civil Div., U.S. Dept. of Justice,
Washington, D.C., Marvin Collins, U.S. Atty., Dallas, Tex., for U.S.A.
Appeal from the United States District Court for the Northern District of
Texas.
Before POLITZ and JOLLY, Circuit Judges, and HUNTER, District
Judge.*
E. GRADY JOLLY, Circuit Judge:

In this case we are asked to consider whether the Environmental Protection

Agency ("EPA") is protected by the "discretionary function" or

"misrepresentation" exceptions to the Federal Tort Claims Act, 28 U.S.C. Secs.

1346(b), 2671 et seq. ("FTCA"), for any negligence in its analysis, testing, or
eventual approval of a physical-chemical waste water treatment process
submitted by the City of Garland. Finding that the "misrepresentation"
exception, 28 U.S.C. Sec. 2680(h), bars this third-party action against the EPA
for contribution, we affirm.
2

* This case arose out of the construction of the City of Garland's Duck Creek
sewage treatment plant. The City of Garland, Texas ("Garland") turned to URS
Company ("URS") in 1969 and 1970 to study ways in which the city's sewage
plant could be expanded and improved to meet anticipated Texas and EPA
effluent discharge permit requirements. Garland wanted an innovative proposal
so that it could receive a construction grant from the EPA. In addition, the city
sought to be designated a regional waste water treatment facility so that it
would be more likely to be awarded significant federal funding. In early 1970
Garland contracted with URS to provide a recommendation and design that
would meet the EPA's permit requirement. URS designed a physical-chemical
("p-chem") treatment plant which incorporated a technologically innovative
carbon adsorption system. Garland applied for and received a substantial grant
from the EPA, which financed seventy-five percent of the cost of construction
of the Duck Creek project. As part of the application process, before Garland
was awarded a grant, the EPA reviewed and approved URS's design.

As design engineer for the project, URS analyzed Garland's sewage, reviewed
ten years of data Garland had compiled, and conducted its own treatability
tests. Although URS wished to build a scaled-down version of its proposed
plant so that the p-chem process could be tested, the EPA rejected Garland's
funding request for such a pilot plant. The EPA stated that it had already
conducted a wealth of experimentation and studies on p-chem waste treatment,
so a test plant was not necessary. Garland declined to fund the pilot plant itself.

Construction of the Duck Creek project was begun in 1974 and the facility
began operating in 1977. Soon after the new plant started operations, the
system ruptured and could not be repaired to operate as originally intended. The
plant did not meet the permit requirements, and as a result the EPA filed suit
against Garland in federal district court for violations of the Clean Water Act,
33 U.S.C. Sec. 1311, seeking civil penalties and an abatement of the condition.
The City was forced to pay to defend against the environmental enforcement
actions brought against it and to redesign the plant in order to bring it into
compliance. The EPA withheld certain grant funds until the Duck Creek plant
met its permit requirements, which also caused Garland to lose interest and
bonding capacity. The EPA's action against Garland was settled by consent

decree, establishing interim effluent levels and assessing Garland a substantial

penalty. Garland's reconfigured plant only became fully operational in late
April 1986.
5

In 1982 Garland filed suit against URS and other engineering consultants and
contractors for the p-chem waste water treatment plant, in an effort to recoup
the costs it had incurred under the consent decree. Garland requested over $26
million in damages from URS, alleging that URS's novel physical-chemical
process design could never have produced the required effluent quality, and
URS had failed to recommend and perform essential pilot scale testing and
sufficient waste water testing before recommending the process. See Zurn
Industries, Inc. v. Acton Const. Co., 847 F.2d 234 (5th Cir.1988) (related case,
reporting additional facts).

In August 1987 URS filed a third-party action against the EPA for contribution
as joint tortfeasor. URS's theory was that if Garland were awarded damages
against URS, URS should be compensated by the EPA because the EPA's acts
or omissions in its review and approval process were negligent and a proximate
cause of any injury Garland suffered from any deficiency in the design of the
Duck Creek plant. URS's claim evolved into a claim that the EPA had breached
its duty to exercise care in the study of p-chem processes before counselling
URS on the process and before approving URS's design. URS alleged that it
had relied heavily on the EPA's input in making its final recommendation to
Garland. URS relied on the EPA's process design manual, met with EPA
scientists and engineers for discussion, and combined the results of its own
treatability studies with the EPA's scientific data before recommending to
Garland that it go ahead with the p-chem process. Further, URS alleged that the
EPA itself participated in the analysis and design of the Duck Creek treatment
plant, and reviewed and approved the plant's final design and specifications.
These were operational functions mandated by EPA regulations, and, it
therefore was alleged, the EPA must be liable under the FTCA to Garland for
any negligence in their execution.

The United States removed the case to federal court and moved to dismiss
URS's claims, asserting that (1) the acts of the EPA were protected by the
"discretionary function" exception to the FTCA; (2) URS was required to file
an administrative claim before it brought its third-party action against the EPA;
and (3) the doctrine of "derivative jurisdiction" precluded the federal court from
obtaining jurisdiction over the removed action.

On March 25, 1988 the court found that the EPA had performed discretionary
functions in examining the plans for the plant, in discussing the plans with

URS, and in deciding to provide a grant to the city to construct the plant. The
court granted EPA's motion to dismiss on this basis, although it noted that any
of the three grounds would have sufficed to warrant dismissal.
II
9

On appeal URS urges that the district court's dismissal of URS's claims was
based on a misunderstanding of those claims. URS explains that its third-party
claim against the EPA is based not on EPA's discretionary decision to fund the
Duck Creek plant, but on the EPA's nondiscretionary acts in implementing its
decision to institute a research and development program in order to encourage
and develop innovative waste treatment processes. The EPA contributed to
Garland's damages by failing to use due care both in conducting its research
into the p-chem process, and in reviewing and analyzing the Duck Creek
treatment plant design. These involved scientific research and experimentation,
and so, URS contends, are not protected by the FTCA as "social, economic or
political policy" decisions. United States v. S.A. Empresa de Viacao Aerea Rio
Grandense (Varig Airlines), 467 U.S. 797, 814, 104 S.Ct. 2755, 2764, 81
L.Ed.2d 660 (1984). Further, because the EPA would not provide funds to
Garland for a pilot plant for independent testing of the p-chem system, Garland
and URS were forced to rely on studies, test results, and information generated
by the EPA's research center and disseminated by the EPA's independent
research program. The EPA wrongly approved the process, and both Garland
and URS relied to their detriment on that recommendation. For these reasons, it
is argued, the EPA must be considered a joint tortfeasor and owe contribution
to URS.

10

The EPA responds in turn that the FTCA's discretionary function exception
does bar URS's claims because the EPA is required to weigh environmental and
economic policy objectives in reviewing and approving a grantee's design, and
Congress gave the EPA complete discretion as to the manner in which it would
conduct its research and disseminate the information it gleaned from that
research. Moreover, to the extent URS alleges that it relied on the EPA's
research data, URS's claim is barred by the FTCA's misrepresentation
exception, which has been construed to preclude claims based upon negligence
in obtaining and communicating information upon which a party may
reasonably be expected to rely in the conduct of his economic affairs. United
States v. Neustadt, 366 U.S. 696, 706, 81 S.Ct. 1294, 1300, 6 L.Ed.2d 614
(1961).

III
11

We turn first to the EPA's argument that 28 U.S.C. Sec. 2680(h), the

11

12

We turn first to the EPA's argument that 28 U.S.C. Sec. 2680(h), the
misrepresentation exception to the government's waiver of sovereign immunity
under the FTCA, bars URS's claim for contribution. It is clear from the case
law that section 2680(h), stating that the FTCA will not apply to "[a]ny claim
arising out of ... misrepresentation," protects the EPA against liability for
contribution to URS for any damages Garland incurred as a result of its reliance
on data the EPA generated or collected on the p-chem process and shared with
URS.
In United States v. Neustadt, homebuyers negotiated a purchase price of
$24,000 in reliance on an FHA appraisal that negligently misrepresented the
value of the home. They sued the government under the FTCA for the
difference between the lower fair market value of the property and the price
they negotiated on the basis of the FHA appraisal. The district court found the
government liable for $8,000. The Fourth Circuit affirmed, but the Supreme
Court reversed, finding that section 2680(h) excluded from recovery under the
FTCA claims arising out of negligent misrepresentation. The Court considered
the legislative history of section 226 of the National Housing Act, 12 U.S.C.
Sec. 1701 et seq., requiring that a seller of property approved for FHA
mortgage insurance "shall agree to deliver, prior to the sale of the property, to
the person purchasing such [property], a written statement setting forth the
amount of the [FHA] appraised value ...," and found nothing from which it
could infer that Congress intended to limit or suspend the application of the
"misrepresentation" exception of the Tort Claims Act in the Neustadts'
situation:

13 before Sec. 226 was added to the National Housing Act, ... it had been
Long
recognized in Congress that FHA appraisals would be a matter of public record, and
would thus inure, incidentally, to the benefit of prospective home purchasers, by
affording them the "benefit of knowing the appraised value set upon the property * *
* by a trained valuator ..."
14

But at the same time, it was repeatedly emphasized that the primary and
predominant objective of the appraisal system was the "protection of the
Government and its insurance funds"; ... that "there is no legal relationship
between the FHA and the individual mortagor." Never once was it even
intimated that, by an FHA appraisal, the Government would, in any sense,
represent or guarantee to the purchaser that he was receiving a certain value for
his money.

15

366 U.S. at 708-09, 81 S.Ct. at 1301 (footnotes omitted). Accordingly, the

Supreme Court in Neustadt found no "specific duty" on the part of the FHA to
make and communicate an accurate appraisal by virtue of the provisions of the

National Housing Act, and therefore no actionable right of redress against the
Government in the event a faulty appraisal was given. 366 U.S. at 708-09, 81
S.Ct. at 1301-02.
16

In Baroni v. United States, 662 F.2d 287 (5th Cir.1981), purchasers of

subdivision housing units sued the government under the FTCA to recover for
flood damage. The FHA had miscalculated the predicted fifty-year flood height
and approved the subdivision so that loans made on residences constructed
within the subdivision would be eligible for government-insured financing.
After houses were constructed, the subdivision flooded twice and the plaintiffs'
homes were damaged. This circuit found that no federal duty to provide
housing safe from flooding was imposed on the government by the National
Housing Act.

17
While
the information supplied by the government may 'inure, incidentally, to the
benefit of prospective home purchasers,' the primary purpose of the government's
undertaking is to make sure that homes receiving FHA mortgages are constructed to
standards warranting mortgage guarantee protection.... Congress did not intend 'to
extend to the purchaser any actionable right of redress against the Government in the
event of a faulty appraisal....'
18

662 F.2d at 289 (citations omitted). The panel held that even if the
government's undertaking had created a duty under state law to determine the
flood level nonnegligently, the damages complained of resulted from the
communication of the government's miscalculation, and the misrepresentation
exception barred the purchasers' claims. Id.

19

The instant case is not materially distinguishable from Baroni or Neustadt. It

has not been shown that the EPA owed Garland any duty whatsoever on which
URS can premise its claim for contribution, either to counsel on the p-chem
process or to compile accurate information.

20

The EPA's authority to conduct research and to make grants derives from the
Federal Water Pollution Control Act, commonly referred to as the Clean Water
Act, 33 U.S.C. Sec. 1251 et seq.1 The Act's objective was to "restore and
maintain the chemical, physical and biological integrity of the Nation's waters,"
33 U.S.C. Sec. 1251(a), and to that end, under the Act Congress delegated
broad authority to the EPA to establish national programs, conduct research,
and develop effective processes for the prevention, reduction and elimination of
pollution. 33 U.S.C. Sec. 1254(a), (a)(1), (b)(7), (d). The EPA was authorized
to collect the results of its research and other activities and make them available
to the public, along with appropriate recommendations. 33 U.S.C. Sec. 1254(b)

(1), (b)(6). The Act also provided for financial-assistance grants for the
construction of publicly owned treatment works meeting various criteria. 33
U.S.C. Sec. 1281(g)(1). See generally 40 C.F.R. Sec. 30.100 et seq (1973)
(general grant regulations) and 40 C.F.R. Sec. 35.900 et seq (1973) (specific
grant regulations for construction of treatment works).
21

URS urges that the mandatory language of 40 C.F.R. Secs. 35.925 and 35.9257(b) (1973) demonstrates that the EPA owed Garland a statutory duty to review
Garland's proposal and warrant that it would meet the applicable permit
requirements. These regulations state that

22
Before
awarding initial grant assistance for any project for treatment works the
Regional Administrator shall determine:
23

....

24

... [t]hat such works will meet applicable effluent limitations and applicable
water quality standards and attain not less than secondary treatment....

25

Although this regulation places on the EPA a duty to review and evaluate
proposed treatment works designs before awarding a grant of government
funds, it serves as no guarantee to any grantee that the grantee's plans will
satisfy the applicable effluent limitations. 40 C.F.R. Sec. 30.600 (1973), in
effect at the time the City of Garland's construction grant was approved,
specifically dictated that "[t]he primary responsibility for administration of a
grant must remain with the grantee, who is responsible for the success of the
project for which the grant was made." That section continued:

26
Although
grantees are encouraged to seek the advice and opinions of EPA on
problems that may arise, the giving of such advice shall not shift the responsibility
for final decision to EPA. The primary concern of EPA is that granted funds be used
to achieve the objectives of the grant project in a manner that will accord with
program objectives and will make a maximum contribution to the betterment of the
environment. Grantees and those assisting them on project work must direct their
efforts to this end.
27

It is plain that the intent of the EPA's regulations regarding the review and
approval of construction grants under the Act is to ensure that federal funds are
most effectively spent to achieve the central purpose of the Act--to eliminate
the discharge of pollutants into the nation's waters. See generally 40 C.F.R.
Secs. 35.915, 35.920 et seq. (1973); 40 C.F.R. Secs. 35.915 (1988). For the
same reasons that the Supreme Court in Neustadt and this circuit in Baroni held

that the National Housing Act created no actionable duty running from the
FHA to homebuyers, in this case we hold that the Clean Water Act imposed no
duty on the EPA which would limit or suspend the application of the
"misrepresentation exception" to the FTCA.
28

The respective requirements found in Neustadt and Baroni that the FHA
perform appraisals on property prior to its sale and calculate the predicted fiftyyear flood height prior to approving a subdivision for government-insured
financing were imposed predominantly for the "protection of the government
and its insurance funds," Neustadt, 366 U.S. at 709, 81 S.Ct. at 1301, and to
"make sure that homes receiving FHA mortgages are constructed to standards
warranting mortgage guarantee protection," Baroni, 662 F.2d at 289. In the
instant case, the Clean Water Act's regulations requiring review and approval
of construction grants and treatment plant designs are also primarily for the
purpose of ensuring that the government's investment in these projects is put to
best use to improve the quality of the environment. Although the City of
Garland may have been an incidental beneficiary of a determination by the
EPA that the Duck Creek Plant would achieve its permit requirements, it is
apparent that the environment itself was the intended beneficiary of the EPA's
research efforts and its construction grant administration. See 33 U.S.C. Secs.
1251, 1254. Cf. Neustadt, 366 U.S. at 708, 81 S.Ct. at 1301 (FHA appraisals
inure only incidentally to the benefit of prospective homeowners); Baroni, 662
F.2d at 289 (flood height calculations inure only incidentally to the benefit of
prospective homebuyers). We therefore find that the applicable regulations of
the Clean Water Act imposed no duty on the EPA to warrant to Garland that its
plant would meet its permit requirements, which would suspend application of
the misrepresentation exception. Cf. In re Air Crash Disaster Near Silver
Plume, 445 F.Supp. 384, 405-09 (1977) (Federal Aviation Act of 1958 and its
regulations create an actionable duty on the part of the FAA personnel to air
passengers, pilots and personnel to carry out operational activities under the Act
in a nonnegligent manner).

29

In addition, to the extent that URS bases its claim for contribution on inaccurate
data or test results the EPA furnished to Garland or to it as Garland's agent, this
claim is clearly barred by the misrepresentation exception to the FTCA. The
FTCA does not allow for the recovery of damages resulting from the
government's negligence in obtaining and communicating information.
Neustadt, 366 U.S. at 706, 81 S.Ct. at 1300; Baroni, 662 F.2d at 289.

30

Because federal courts lack subject-matter jurisdiction to entertain claims

against the United States falling within one of the statutory exceptions to the
FTCA, URS's third-party claims against the EPA, alleging damages resulting

from its reliance on information the EPA generated negligently and

communicated, were properly dismissed by the district court under the FTCA's
misrepresentation exception, 28 U.S.C. Secs. 1346, 2680(h).2
IV
31

For the foregoing reasons, the judgment of the district court is

32

AFFIRMED.

District Judge of the Western District of Louisiana, sitting by designation

All references are to the Clean Water Act in effect in 1973 and 1974, when the
actions in this case occurred, unless otherwise noted

Although we need not decide this issue in view of our holding above that the
misrepresentation exception bars URS's claims, we note that the "discretionary
function" exception, relied on by the district court, also does not seem
misapplied here. It is not disputed that the EPA's decision to approve the Duck
Creek p-chem process, as the district court held, was the exercise of a
discretionary function. Further, the EPA was under no contractual or other duty
to provide URS with information URS could use to profit through its contract
with Garland; the EPA was simply performing a public service in counselling
both Garland and URS prior to its approval of Garland's Duck Creek proposal