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Click here for the full text of this decision FACTS:Supreme Beef was a Texas-based company in the business of processing, grinding and selling meat products. As a major domestic wholesale supplier of beef products, the company had several contracts with the the U.S. Department of Agriculture (USDA) to support the National School Lunch Program. The USDA is responsible for ensuring the safety of the nation’s meat products and has delegated its inspection duties to the Food Safety and Inspection Service (FSIS). In 1996, FSIS issued the Pathogen Reduction, Hazard Analysis and Critical Control Point Systems (HACCP) rule, 9 C.F.R. �417, which requires meat processors to develop and implement preventive controls to ensure product safety. The FSIS maintains the power to verify whether plants’ performance plans are eliminating common pathogens such as E. coli and Salmonella. Two years later, Supreme Beef implemented its first HACCP pathogen control plan. The company failed a series of tests administered by the FSIS over a period of months. Still unable to demonstrate adequate HACCP control by October 1999, Supreme Beef filed a lawsuit on the day that the USDA had set to suspend inspection activities at its plant. Removal of USDA inspectors would be a fatal blow to the company, as it is illegal to sell uninspected beef. The district court granted a temporary restraining order and later upheld Supreme Beef’s contention that because the FSIS testing system was not solely or substantially related to the plant’s sanitary conditions, it fell outside the agency’s regulatory authority. The decision was a Pyrrhic victory, however, as the court refused to compel USDA to perform the National School Lunch contracts. Having lost its government contracts and many other customers, Supreme Beef was forced to seek Chapter 11 bankruptcy in September 2000. Its case was subsequently converted to Chapter 7. Adding insult to the company’s injury, the USDA filed various proofs of claim totaling $32,753 for pre-petition meat certification services and overtime inspection work. The trustee filed an adversary proceeding against the government in bankruptcy court seeking damages for USDA’s unauthorized regulatory activity. The reference was withdrawn and the case proceeded in federal district court. The trustee asserted five claims against the USDA under the Federal Tort Claims Act (FTCA), 28 U.S.C. �� 1346(b), 2671-2680. The USDA moved to dismiss Supreme Beef’s claims as being barred facially by federal sovereign immunity. Supreme Beef countered that USDA had waived its immunity by filing bankruptcy proofs of claim. The district court sided with the USDA and Supreme Beef appealed. A U.S. 5th Circuit panel reversed the trial court’s judgment and held that 11 U.S.C. �106(c) waived USDA’s sovereign immunity and authorized a setoff of Supreme Beef’s permissive counterclaims. The 5th Circuit ordered rehearing en banc. HOLDING:The judgment of the district court was affirmed. Absent an express waiver of federal immunity by Congress, the court stated that the USDA cannot be sued by Supreme Beef. The FTCA is an exclusive vehicle for the assertion of tort claims for damages against the federal government, the court stated. Because USDA’s implementation of a Salmonella performance standard involved discretionary acts, the FTCA affords no recovery for claims predicated on such actions, the court stated. Additionally, the FTCA excludes recovery for claims against the United States for libel, slander, misrepresentation, deceit, or interference with contract rights, and four of the company’s causes of action also ran afoul of this limitation. The district court correctly held, and Supreme Beef does not dispute on appeal, that for these reasons, it could not have asserted FTCA claims against the USDA prior to filing bankruptcy, the court stated. The court held that Bankruptcy Code �106 does not provide a substantive or independent basis for asserting a claim against the government. The en banc panel’s interpretation of �106, the court majority stated, that Supreme Beef has no claim for offset against the federal government unless non-bankruptcy law gave it a claim that was “property of the estate” as of the date of bankruptcy. Any such claim, however, was coterminous with, and doomed under, the FTCA, the court stated. OPINION:Jones, C.J., wrote the majority en banc opinion, in which Jolly, Davis, Smith, Wiener, Barksdale, Garza, DeMoss and Dennis, J.J., joined. CONCURRENCES: Higginbotham, J.: “A Congressional waiver of immunity must be unequivocal . . . . ambiguity is resolved in favor of the sovereign . . . . Rather than creatively stretching for non-existent certainty, I would accept the uncertainty, apply the clear statement rule, and reach the same conclusion as the majority. To my eyes, my colleagues move beyond interstitial interpretation of this statutory array to the making of policy choices that ought be left to Congress.” Dennis, J.: “Thus, although section 106(c) of the Bankruptcy Code contains a waiver of sovereign immunity, that section cannot be read to dispense with the substantive principles and limitations that the FTCA imposes on the liability of the United States. To hold otherwise would require us to construe section 106(c) as not only waiving sovereign immunity, but also altering the essential nature of tort claims against the United States and significantly expanding the substantive liability of the federal government for tort claims asserted in a bankruptcy proceeding.” Owen, J.: “Whether Supreme Beef Processors prevails ultimately turns on the meaning of the”[n]otwithstanding’ phrase in section 106(c). Because that phrase is ambiguous, it does not waive the federal government’s immunity from the claims enumerated in 28 U.S.C. �2780.” DISSENT:Clement, J., joined by Benavides, Stewart and Prado, J.J., concurring in part and dissenting in part: “[T]o reach its holding that Supreme Beef cannot use �106(c) to offset the USDA’s claim for overtime inspection services, the majority opinion ignores the plain language of �106(c), disregards Congress’s intent to allow offset against governmental claims, and rewrites the definition of property of the estate. Therefore, I respectfully dissent . . . I would hold that Supreme Beef can pursue its claim for offset against the USDA’s $32,753 claim for overtime inspection services.”

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