Source: https://www.legalcrystal.com/case/107534/hercules-inc-vs-united-states
Timestamp: 2020-01-24 17:59:55
Document Index: 84962035

Matched Legal Cases: ['§ 1491', '§ 1341', '§2157', '§ 707', '§ 2157', '§ 707', '§ 1491', '§2157', '§ 707', '§ 101', '§ 2071', '§ 707', '§2061', '§ 1431', '§ 2157', '§ 1341']

Hercules Inc Vs United States - Citation 107534 - Court Judgment | LegalCrystal
Hercules, Inc. Vs. United States - Court Judgment
LegalCrystal Citation legalcrystal.com/107534
Decided On Oct-30-1995
Case Number 516 U.S. 417
Appellant Hercules, Inc.
hercules, inc. v. united states - 516 u.s. 417 (1995) october term, 1995 syllabus hercules, inc. et al. v. united states certiorari to the united states court of appeals for the federal circuit no. 94-818. argued october 30, 1995-decided march 4,1996 petitioner chemical manufacturers produced the defoliant agent orange under contracts with the federal government during the vietnam era. mter they incurred substantial costs defending, and then settling, tort claims by veterans alleging physical injury from the use of agent orange, petitioners filed suits under the tucker act to recover such costs from the government on alternative theories of contractual indemnification and warranty of specifications provided by the government. the claims court granted.....
Hercules, Inc. v. United States - 516 U.S. 417 (1995)
(a) The Tucker Act's grant of jurisdiction to the Claims Court to hear and determine claims against the Government that are founded upon any "express or implied" contract with the United States, 28 U. S. C. § 1491(a), extends only to contracts either express or implied in fact, not to claims on contracts implied in law, see, e. g., Sutton v. United States, 256 U. S. 575 , 581. Because the contracts at issue do not contain express warranty or indemnification provisions, petitioners must establish that, based on the circumstances at the time of contracting, there was an implied agreement between the parties to provide the undertakings that petitioners allege. Pp. 422-424.
(b) Neither an implied contractual warranty of specifications nor United States v. Spearin, 248 U. S. 132 , the seminal case recognizing a cause of action for breach of such a warranty, extends so far as to render the United States responsible for costs incurred in defending and settling the veterans' tort claims. Where, as here, the Government provides specifications directing how a contract is to be performed, it is logical to infer that the Government warrants that the contractor will be able to perform the contract satisfactorily if it follows the specifications. However, this inference does not support a further inference that would extend the warranty beyond performance to third-party claims against the contractor. Thus, the Spearin claims made by petitioners do not extend to postperformance third-party costs as a matter of law. Pp. 424-425.
(c) Although the Government required petitioner Wm. T. Thompson Co. to produce Agent Orange under authority of the Defense Production Act of 1950 (DPA) and threat of civil and criminal fines, imposed detailed specifications, had superior knowledge of the hazards, and, to a measurable extent, seized Thompson's processing facilities, these conditions do not give rise to an implied-in-fact agreement to indemnify Thompson for losses to third parties. The Anti-Deficiency Act, which bars federal employees from entering into contracts for future payment of money in advance of, or in excess of, an existing appropriation, 31 U. S. C. § 1341, must be viewed as strong evidence that a contracting officer would not have provided, in fact, the contractual indemnification Thompson claims. And, the detailed statutes and regulations that enable such contracting officers to provide indemnity agreements to certain contractors show that implied agreements to indemnify should not be readily inferred. Also contrary to Thompson's argument, the DPA provision specifying that "[n]o person shall be held liable for damages or penalties for any act or failure to act resulting directly or indirectly from compliance with a[n] ... order issued pursuant to this Act," 50 U. S. C. App. §2157, does not reveal an intent to indemnify contractors. Likewise, since Thompson claims a breach of warranty by its customer rather than its seller and supplier, it misplaces its reliance on Ryan Stevedoring Co. v. PanAtlantic S. S. Corp., 350 U. S. 124 . Finally, petitioners' equitable appeal to "simple fairness" is considerably weakened by the fact that the injured veterans could not recover from the Government, see Feres v. United States, 340 U. S. 135 , and, in any event, may not be entertained by this Court, see United States v. Minnesota Mut. Investment Co., 271 U. S. 212 , 217-218. Pp. 426-430.
24 F.3d 188 , affirmed.
Edward C. DuMont argued the cause for the United States. With him on the brief were Solicitor General Days, Assistant Attorney General Hunger, Deputy Solicitor Gen-
Gershon M. Ratner filed a brief for the National Veterans Legal Services Program as amicus curiae.
1 Nearly 300 plaintiffs decided to "opt out" of the certified class and to proceed with their claims independent of the class action. Mter the class action settled, the defendant manufacturers sought and received summary judgment against these plaintiffs. The District Court found that the optout plaintiffs failed to present credible evidence of a causal connection between the veterans' exposure to Agent Orange and their alleged injuries and that the Government contractor defense barred liability. In re "Agent Orange" Product Liability Litigation, 611 F. Supp. 1223 (1985). The Court of Appeals for the Second Circuit affirmed, but solely on the basis of the Government contractor defense. In re "Agent Orange"
Product Liability Litigation, 818 F.2d 187 , 189 (1987), cert. denied sub nom. Krupkin v. Dow Chemical Co., 487 U. S. 1234 (1988).
3 Thompson also raised in its amended complaint a claim under the Takings Clause of the Fifth Amendment, but subsequently abandoned that claim while still in the Claims Court. Wm. T. Thompson Co. v. United States, 26 Cl. Ct. 17, 22, n. 6 (1992).
sider until afterward, shields contractors from tort liability for products manufactured for the Government in accordance with Government specifications, if the contractor warned the United States about any hazards known to the contractor but not to the Government. Boyle v. United Technologies Corp., 487 U. S. 500 , 512 (1988). Because the Court of Appeals believed petitioners could have availed themselves of this defense, the court held that, by settling, petitioners voluntarily assumed liability for which the Government was not responsible. It also rejected Thompson's claim of contractual indemnification. Thompson had argued that the Government, pursuant to § 707 of the DPA, 50 U. S. C. App. § 2157 (1988 ed.), impliedly promised to indemnify Thompson for any liabilities incurred in performing under the DPA. Not persuaded, the court held that § 707 did not create indemnification, but only provided a defense to a suit brought against the contractor by a disgruntled customer whose work order the DPA contract displaced. We granted certiorari, 514 U. S. 1049 (1995), and now affirm the judgment below but on different grounds.4
We begin by noting the limits of federal jurisdiction. "[T]he United States, as sovereign, 'is immune from suit save as it consents to be sued ... and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.'" United States v. Testan, 424 U. S. 392 , 399 (1976), quoting United States v. Sherwood, 312 U. S. 584 , 586
4JU8TICE BREYER'S dissent does not distinguish between, or separately address, the warranty-of-specifications and contractual-indemnification claims. The dissent further observes that petitioners "also set forth" a third "much more general fact-based claim." Post, at 436. This third claim, we believe, is indistinguishable from the contractual-indemnification claim that Thompson (but not Hercules) has raised, and which we address. To the extent that it differs from a claim for contractual indemnification, we decline to consider it; such a claim was neither presented to the Court of Appeals nor argued in the briefs to this Court.
(1941). Congress created the Claims Court 5 to permit "a special and limited class of cases" to proceed against the United States, Tennessee v. Sneed, 96 U. S. 69 , 75 (1878), and the court "can take cognizance only of those [claims] which by the terms of some act of Congress are committed to it," Thurston v. United States, 232 U. S. 469 , 476 (1914); United States v. Sherwood, supra, at 586-589. The Tucker Act confers upon the court jurisdiction to hear and determine, inter alia, claims against the United States founded upon any "express or implied" contract with the United States. 28 U. S. C. § 1491(a).
We have repeatedly held that this jurisdiction extends only to contracts either express or implied in fact, and not to claims on contracts implied in law. Sutton v. United States, 256 U. S. 575 , 581 (1921); Merritt v. United States, 267 U. S. 338 , 341 (1925); United States v. Minnesota Mut. Investment Co., 271 U. S. 212 , 217 (1926); United States v. Mitchell, 463 U. S. 206 , 218 (1983). Each material term or contractual obligation, as well as the contract as a whole, is subject to this jurisdictional limitation. See, e. g., Sutton, supra, at 580-581 (refusing to recognize an implied agreement to pay the fair value of work performed because the term was not "express or implied in fact" in the Government contract for dredging services); Lopez v. A. C. & S., Inc., 858 F. 2d 712, 714-715, 716 (CA Fed. 1988) (a Spearin warranty within an asbestos contract must be implied in fact).
5 Under the Federal Courts Improvement Act of 1982, the newly created Claims Court inherited substantially all of the trial court jurisdiction of the Court of Claims. 96 Stat. 25. In 1992, Congress changed the title of the Claims Court and it is now the United States Court of Federal Claims. Federal Courts Administration Act of 1992, 106 Stat. 4506. Because the most recent change went into effect after that court rendered its decision in this case, we shall refer to it as the Claims Court throughout this opinion.
our cases. An agreement implied in fact is "founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding." Baltimore & Ohio R. Co. v. United States, 261 U. S. 592 , 597 (1923). See also Russell v. United States, 182 U. S. 516 , 530 (1901) ("[T]o give the Court of Claims jurisdiction the demand sued on must be founded on a convention between the parties-'a coming together of minds' "). By contrast, an agreement implied in law is a "fiction of law" where "a promise is imputed to perform a legal duty, as to repay money obtained by fraud or duress." Baltimore & Ohio R. Co., supra, at 597.
The seminal case recognizing a cause of action for breach of contractual warranty of specifications is United States v. Spearin, 248 U. S. 132 (1918). In that case, Spearin had contracted to build a dry dock in accordance with the Government's plans which called for the relocation of a storm sewer. After Spearin had moved the sewer, but before he had completed the dry dock, the sewer broke and caused the site to flood. The United States refused to pay for the damages and annulled the contract. Spearin filed suit to recover the balance due on his work and lost profits. This Court held that "if the contractor is bound to build according to plans and specifications prepared by [the Government], the contractor will not be responsible for the consequences of defects in the plans and specifications." Id., at 136. From this, petitioners contend the United States is responsible for
6JU8TICE BREYER asserts, post, at 440, that "the majority ... impl[ies] that a 1960's contracting officer would not have accepted an indemnification provision because of Stencel Aero Engineering Corp. v. United States, 431 U. S. 666 (1977)." The case is cited not for such an implication, but to provide added support for our decision not to extend the warranty-ofspecification claim beyond performance. Although we decided Stencel after the formation of the Agent Orange contracts, we observed in that opinion that the Court of Appeals for the Ninth Circuit in 1964 had adopted the position we would hold in Stencel, and that decisions inconsistent with that view began to arise in the Circuits only in 1972. Stencel, 431 U. S., at 669, n. 6 (citing United Air Lines, Inc. v. Wiener, 335 F.2d 379 , 404 (CA9 1964), and Barr v. Brezina Constr. Co., 464 F.2d 1141 , 11431144 (CAlO 1972)). Therefore, when the contracts at issue were drafted, Wiener at the very least suggested that the Government would not be liable under a tort theory.
8JUSTICE BREYER argues that the record before us does not permit us to find, as we do, that the conditions asserted do not support the inference that the contracting parties had a meeting of the minds and in fact agreed that the United States would indemnify. If JUSTICE BREYER is suggesting that the petitioners need further discovery to develop claims alleged in the complaints and not to some unarticulated third claim, see n. 4, supra; post, at 436), we believe his plea for further discovery must necessarily apply only to Thompson's contractual-indemnification claim; we hold in this case that the Spearin claims made by both petitioners do not extend to postperformance third-party costs as a matter of law. See supra, at 425. In any event, JUSTICE BREYER fails to explain what facts are needed, or might be developed, which would place a court on remand in a better position than where we sit today. We take all factual allegations
10 With one peculiar exception that the Comptroller General expressly sanctioned, "the accounting officers of the Government have never issued a decision sanctioning the incurring of an obligation for an open-ended indemnity in the absence of statutory authority to the contrary." In re Assumption by Government of Contractor Liability to Third PersonsReconsideration, 62 Compo Gen. 361, 364-365 (1983). JUSTICE BREYER finds our reliance on the Comptroller General problematic because of a Comptroller General opinion that finds capped indemnity agreements not improper. Post, at 437-438. But the Anti-Deficiency Act applies equally to capped indemnification agreements. We do not suggest that all indemnification agreements would violate the Act, cf. infra, at 428-429 (citing
statutes that expressly provide for the creation of indemnity agreements); the Act bars agreements for which there has been no appropriation. We consider open-ended indemnification in particular because that is the kind of agreement involved in this case.
in 1957, for liability arising out of a limited class of nuclear incidents, described in Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U. S. 59 , 63-67 (1978)). These statutes, set out in meticulous detail and each supported by a panoply of implementing regulations,l1 would be entirely unnecessary if an implied agreement to indemnify could arise from the circumstances of contracting. We will not interpret the DPA contracts so as to render these statutes and regulations superfluous. Cf. Astoria Federal Sav. & Loan Assn. v. Solimino, 501 U. S. 104 , 112 (1991).12
"No person shall be held liable for damages or penalties for any act or failure to act resulting directly or indirectly from compliance with a rule, regulation, or order issued pursuant to this Act ... notwithstanding that any such rule, regulation, or order shall thereafter be declared by judicial or other competent authority to be invalid." 50 U. S. C. App. §2157 (1988 ed.).
14 The United States urges us to interpret § 707 as only barring liability to customers whose orders are delayed or displaced on account of the priority accorded Government orders under § 101 of the DPA, which authorizes the President to require contractors to give preferential treatment to contracts "necessary or appropriate to promote the national defense." 50 U. S. C. App. § 2071(a)(1) (1988 ed., Supp. V). We need not decide the scope of § 707 in this case because it clearly functions only as an immunity, and provides no hint of a further agreement to indemnify.
• In the 1960's the Government, by exercising special statutory authority, required the companies to enter into the Agent Orange production contracts over the explicit objection of at least one of the companies. See Defense Production Act of 1950 (DPA), 50 U. S. C. App. §2061 et seq. (1988 ed. and Supp. V); App. 8-9, 23-24.
• The Government required the companies to produce Agent Orange according to precise, detailed production specifications. Ibid.
• At that time the Government knew but did not reveal that Agent Orange was defective, or unsafe, to the point
• The Government specified that the companies could not label Agent Orange in ways that might have promoted its safe use (with, say, dilution instructions), while, at the same time, the Government permitted its soldiers to use Agent Orange in unreasonably risky ways (such as using empty containers for showers or barbecues). Id., at 8-10.
• United States v. Spearin, 248 U. S. 132 (1918), in which this Court approved the common judicial practice of reading Government contracts that provide detailed "plans and specifications," as containing an implied warranty that "the contractor will not be responsible for the consequences of defects in the plans and specifications." Id., at 136.
• Lower court decisions reading Government contracts as containing an implied warranty that performance costs will not increase due to the Government's superior knowledge of undisclosed "vital information" that causes the cost increase. See Helene Curtis Industries, Inc. v. United States, 312 F.2d 774 , 777-778, and n. 1 (Ct. Cl. 1963) (collecting cases).
• The broad language of the statute that authorized the President to enter into defense procurement contractslanguage broad enough to authorize Government promises to indemnify. 50 U. S. C. § 1431 (1988 ed., Supp. V); Exec. Order 10789, 3 CFR 426 (1954-1958 Comp.). See also Exec. Order 11610, 3 CFR 594 (1971-1975 Comp.) (taking view that the statute grants authority to promise indemnification).
• The language of the DPA, which, while permitting the Government to place compulsory defense orders, also says that the compelled firms shall not "be held liable for damages ... for any act or failure to act resulting directly or indirectly from compliance with" such an "order." 50 U. S. C. App. § 2157 (1988 ed.).
The companies, in their petition for certiorari and initial brief on the merits, primarily asked us to review, and to re-
In 1984, when the companies settled, the settlement was not notably different in terms of reasonableness or motivation from other settlements that terminate major litigation, for at that time the law that might have provided the companies with a defense was far less clear than it is today. I concede that even then some Circuits already had found in the law a "government contractor defense" that, in effect, immunized defense contractors from most suits by servicemen claiming injury from defective products. See McKay v. Rockwell International Corp., 704 F.2d 444 , 448-451 (CA9 1983), cert. denied, 464 U. S. 1043 (1984); Brown v. Caterpillar Tractor Co., 696 F.2d 246 ,249-254 (CA3 1982); Tillett v. J. 1. Case Co., 756 F.2d 591 ,599-600 (CA7 1985). But, most of these Circuits had held that the existence of such a defense was a matter of state law, which might differ among the States. See Brown, supra; Tillett, supra; Hansen v. JohnsManville Products Corp., 734 F.2d 1036 , 1044-1045 (CA5
In light of this contemporaneous legal uncertainty, the settlement, viewed from the companies' perspective and without benefit of hindsight, seems a reasonable litigation strategy, through which the companies avoided added litigation costs and the threat of significant additional liability while helping to provide the veterans with at least some compensation. See In re "Agent Orange," 597 F. Supp., at 749 (explaining why Agent Orange District Court approved the settlement). Nothing in the record here suggests the contrary. And, if reasonable at the time, the settlement must have been a "foreseeable" potential consequence of litigation and therefore within the scope of what the companies claim were implicit promises or warranties protecting them against the harms of litigation. See also 24 F.3d 188 , 205-208 (CA Fed. 1994) (Plager, C. J., dissenting). For that reason, this Court
First, the majority implies that a contracting officer, in all likelihood, would not have agreed to an implicit promise of
Second, the majority points to Comptroller General opinions that say that an "open-ended" agreement to indemnify would violate the Anti-Deficiency Act, 31 U. S. C. § 1341 (1988
Third, the majority distinguishes United States v. Spearin, 248 U. S. 132 (1918), on the ground that the implied warranty that Justice Brandeis there discussed protects a contractor from "specifications" that, in the majority's words, will "frustrate performance or make it impossible," but does not "extend ... beyond performance to third-party claims against the contractor." Ante, at 425. Spearin itself does not make this distinction. Nor have subsequent cases. See
Michigan Wisconsin Pipeline Co. v. Williams-McWilliams Co., 551 F.2d 945 (CA5 1977) (allowing recovery against the Government of damages paid by a Government contractor to a third party to which the contractor caused damage by following Government specifications). See also 24 F. 3d, at 197 (Spearin holds contractor harmless if the product proves defective). If the Government must pay, say, for the contractor's own machinery destroyed by a (defectivespecification-caused) explosion when that destruction frustrates performance, see Ordnance Research, Inc. v. United States, 609 F.2d 462 , 479 (Ct. Cl. 1979) (treating explosions causing increased costs as a breach of the warranty of specifications), why should the Government not also have to pay when the explosion takes place just after performance is complete? And, why should it not have to reimburse the contractor's payment for identical damage caused his nextdoor neighbor in the same explosion? In any event, whether or not there are good answers to these questions, they are unlikely to answer plaintiffs' further argument, namely that, even if Spearin does not compel a decision in their favor, it offers indirect support, as background, for implying a promise that would provide (in the particular circumstances) Spearin-like protection.
Fourth, the majority says that the DPA's "hold harmless" provision ("No person shall be held liable for damages ... for any act or failure to act resulting directly or indirectly from compliance with [an] order") does not provide for indemnification. Ante, at 429. The petitioners, however, do not claim the contrary. They state explicitly that they "do not attempt to interpret the DPA's hold harmless language as an affirmative indemnity." Reply Brief for Petitioners 2. They add that "an indemnity should be implied from all the circumstances of this case, including the circumstance that petitioners and the Government contracted against the backdrop of the sweeping hold harmless language contained in the DPA." Ibid. They argue simply that the DPA's stated
One problem with this argument is that Stencel postdates the formation of the contracts here at issue by about a decade. More importantly Stencel does not involve contractual promises to indemnify a contractor. Rather it concerns an indemnification provided by state tort law. Stencel, supra, at 667-668, nn. 2, 3. And, it nowhere says, or directly implies, that the law prohibits the Government from agreeing, explicitly or implicitly, to indemnify a contractor. Indeed,
this Court has explicitly written that it "fail[s] to see how the Stencel holding ... supports the conclusion that if the Tort Claims Act bars a tort remedy, neither is there a contractual remedy. The absence of Government tort liability has not been thought to bar contractual remedies on implied-in-fact contracts, even in those cases also having elements of a tort." Hatzlachh Supply Co. v. United States, 444 U. S. 460 , 465 (1980) (per curiam). I agree with the majority insofar as it warns against a court's too easily reading an implicit promise to indemnify a contractor's armedservices-related tort liability; but, then, its words would represent simply a wise caution and not an absolute prohibition.