Appeal from an order of the United States District Court for the Western District of New York (Curtin, Chief Judge) dismissing a third-party complaint that alleged: breach of contract and negligence on the part of the third-party defendants, a principal-agent relationship between the third-party plaintiffs and the third-party defendants, and a general claim for indemnification. Reversed and remanded.
LUMBARD, MESKILL, and PIERCE, Circuit Judges.
The City of Niagara Falls, New York ("City"), and the Niagara Falls Urban Renewal Agency ("URA"), third-party plaintiffs, appeal from an order entered June 6, 1983, in the United States District Court for the Western District of New York, John T. Curtin, Chief Judge. The district court dismissed the third-party complaint, which had pleaded four causes of action, on the grounds that there was no valid waiver of sovereign immunity with respect to the first cause of action, the court lacked subject matter jurisdiction over the second cause of action, and the third cause of action failed to state a claim upon which relief could be granted. The fourth cause of action was not addressed by the court; it is not raised on appeal and we will not address it here.
We reverse and remand as to the three causes of action.
Falls Riverway Realty, Inc. and Forest City Development Corp., the plaintiffs in the principal action, own real property located in the City of Niagara Falls. They sued the City and URA in the New York State Supreme Court, alleging that certain actions of the defendants taken pursuant to an Urban Renewal Plan ("Plan") deprived the plaintiffs of reasonable and suitable access to this property and claiming damages therefor. The City and URA thereafter filed a third-party complaint in the New York State Supreme Court against the Secretary and other named officials of the United States Department of Housing and Urban Development (hereinafter collectively referred to as "HUD"),*fn1 alleging that if the City and URA were found liable to the plaintiffs, HUD would be liable to the City and URA. HUD invoked title 28, section 1442 of the United States Code and removed the entire case to the United States District Court for the Western District of New York.
The City and URA, in their third-party complaint, alleged as a first cause of action that the URA entered into several contracts with HUD, pursuant to a program of federal financial assistance for slum clearance and urban renewal. They further alleged that all actions complained of by the plaintiffs were taken pursuant to the directions of HUD, under the contracts and the Federal Housing Act of 1949 as amended, 42 U.S.C. §§ 1450-1469c ("Act"),*fn2 and that if the plaintiffs were to recover judgment against the City and URA the "third-party defendants [HUD] will have breached the Planning Contracts and Loan and Capital Contract with damages at least equal to the amount recovered by the plaintiffs."
The second cause of action alleged that HUD directed that changes be made in the Plan, that the City and URA relied on HUD's expertise in preparing the Plan, and that if the City and URA were found liable to the plaintiffs, "third-party defendants [HUD] will have been negligent and will have breached their duties to the City and the [URA] and by reason of such negligence and breach of duties, the City and the [URA] will have suffered damages at least equal to the amount recovered by plaintiffs."
The third cause of action alleged that HUD "selected the [URA] as [HUD's] representative and agent" and that therefore HUD was liable for the consequences of actions taken by the City and URA pursuant to the Plan.
The district court found that the first cause of action was a "contract claim for a settlement in excess of $10,000" and therefore that, under 28 U.S.C. §§ 1346, 1491 (1982), only the Court of Claims had jurisdiction of the cause. The court held that the second cause of action sounded in negligence and was barred by the Federal Tort Claims Act provision for "misrepresentation," 28 U.S.C. § 2680(h) (1982), see United States v. Neustadt, 366 U.S. 696, 6 L. Ed. 2d 614, 81 S. Ct. 1294 (1961), or alternatively was barred by the "discretionary function" doctrine of Dalehite v. United States, 346 U.S. 15, 97 L. Ed. 1427, 73 S. Ct. 956 (1953) and 28 U.S.C. § 2680(a) (1982). The court dismissed the third cause of action because "the . . . federal financial assistance [that] was extended to the local agency cannot constitute the supervision of the day-to-day operation of the agency by the federal government" required for a finding of an agency relationship by United States v. Orleans, 425 U.S. 807, 48 L. Ed. 2d 390, 96 S. Ct. 1971
The issues presented for our review with respect to the first two causes of action are jurisdictional; the issue with respect to the third cause of action is whether the court could ...