Opinion ID: 669850
Heading Depth: 3
Heading Rank: 4

Heading: Implied-in-fact Contractual Obligation to Indemnify

Text: 64 The government used the authority provided in section 101 of the DPA, 50 U.S.C. app. Sec. 2071(a) (1964), to require both Hercules and Thompson to enter into contracts to produce Agent Orange for the Vietnam War effort. Based upon this fact, Thompson, but not Hercules, argued in the Claims Court that, pursuant to section 707 of the DPA, 50 U.S.C. app. Sec. 2157 (1964), it was entitled to be indemnified by the government for its contribution to the Agent Orange settlement fund and for the expenses which it incurred in the Agent Orange litigation. The Claims Court rejected this argument. In so doing, it relied upon the reasoning of the district court in the Agent Orange litigation. Wm. T. Thompson, 26 Cl.Ct. at 28. There, in approving the 1984 settlement, the district court rejected the contention of the defendants that the Agent Orange plaintiffs were barred from asserting any claims against them because they were immunized from suit under section 707 of the DPA. In re Agent Orange, 597 F.Supp. at 844. The district court held that section 707, which states in part 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 rule, regulation, or order issued pursuant to this Act, did not provide the immunity asserted by the Agent Orange defendants. 597 F.Supp. at 844-45. The district court stated: 65 the protection afforded by section 707 should correspond to the risk imposed, viz., the possible need for the contractor to break its contracts with third parties or the increased risk to employees or users posed by the speeded up production. 66 597 F.Supp. at 845. 67 On appeal, Thompson contends that under the circumstances of the compelled production here, section 707 of the DPA operated to create an implied-in-fact obligation on the part of the government to indemnify Thompson for the damages it incurred: its contribution to the Agent Orange settlement fund and the expenses which it incurred in the Agent Orange litigation. Thompson argues that the Claims Court erred in accepting the reasoning of the district court. Specifically, Thompson contends that because section 101 of the DPA authorizes the President to compel contract performance as well as contract acceptance, the risk imposed is not limited to breach of contract actions arising out of preference given to DPA contracts, but rather extends to possible tort suits by third parties arising from subsequent use of the product produced under the DPA contract. 68 We disagree. As did the district court in the Agent Orange litigation and the Claims Court in this suit, we read section 707 of the DPA as providing a defense for a DPA contractor against a suit by a non-government customer in the event that the DPA contractor is forced to breach another contract to fulfill the government's requirements. Section 707 does not provide the kind of protection asserted by Thompson. 15 69 In interpreting a statute, we first turn to its language. VE Holding Co. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1579 (Fed.Cir.1990) (citing Mallard v. United States Dist. Court for S. Dist. of Iowa, 490 U.S. 296, 300-01, 109 S.Ct. 1814, 1817-18, 104 L.Ed.2d 318 (1989)), cert. denied, 499 U.S. 922, 111 S.Ct. 1315, 113 L.Ed.2d 248 (1991). Accordingly, we begin our analysis with the pertinent statutory provisions: sections 101 and 707 of the DPA. Section 101(a) of the DPA states: 70 The President is hereby authorized (1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and, for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contracts or orders by any person he finds capable of their performance, and (2) to allocate materials and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defense. 71 50 U.S.C. app. Sec. 2071(a) (1964) (emphasis supplied). Section 707 of the DPA states as follows: 72 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. No person shall discriminate against orders or contracts to which priority is assigned or for which materials or facilities are allocated under title I of this Act or under any rule, regulation, or order issued thereunder, by charging higher prices or by imposing different terms and conditions for such orders or contracts than for other generally comparable orders or contracts, or in any other manner. 73 50 U.S.C. app. Sec. 2157 (1964). 74 The language of section 101(a) makes it clear that the purpose of the statute is to authorize the President to dictate that preference be given to government contracts which are necessary to promote the national defense. Indeed, section 101 is titled Priority in contracts and orders. Although Thompson correctly observes that the statute authorizes the President to compel both contract performance and contract acceptance, section 101(a) expressly states that the granting of such authority is for the purpose of assuring ... priority. Significantly, section 101(a) does not mention either the specific nature of performance under a DPA contract, or the subsequent use of goods produced under such a contract. Therefore, we conclude that, while the risk imposed by section 101(a) does include the possible need of a contractor to break its contracts with third parties in order to give preference to a DPA contract, it does not include the risk that the product produced under the DPA contract will be inherently unsafe to users. 75 Once a contractor has been compelled to accept a national defense contract under section 101(a), section 707 acts to shield the contractor from liability resulting from compliance with that section. At issue in this case is the nature of the liability against which the contractor is shielded. 76 As noted above, in complying with DPA section 101(a) a contractor may have to re-prioritize its outstanding contracts in order to give the required preference to a compelled DPA contract. It stands to reason that the protection provided by DPA section 707 extends only to shield a contractor from breach of contract liability arising as a consequence of such re-prioritization. First, it is a settled rule of statutory interpretation that separate provisions of a statute are to be construed and interpreted together and in light of each other to ascertain the true legislative intent. This court has explained: 77 When the legislative purpose is incorporated in a complex piece of legislation, such as those establishing a major regulatory or entitlement program, the meaning of any particular phrase or provision cannot be securely known simply by taking the words out of context and treating them as self-evident. This rather straightforward homily is captured in the more pretentious proposition that parts of a statute in pari materia must be construed together. 78 Amendola v. Secretary, Dep't of Health and Human Servs., 989 F.2d 1180, 1182 (Fed.Cir.1993); accord Ambassador Div. of Florsheim Shoe v. United States, 748 F.2d 1560, 1565 (Fed.Cir.1984) (stating that where two statutory provisions are enacted in pari materia, a legislative intent to have the provisions work harmoniously together is to be inferred). To hold that section 707 protects contractors against a risk which is greater than that created by the statute with which it operates would violate this rule. 79 Furthermore, the language of section 707 itself supports the conclusion that the section does not extend the kind of indemnity asserted by Hercules. The second sentence of section 707, which prohibits discrimination against contracts to which priority is assigned ..., reinforces the view that the immunity from suit provided by section 707 does not extend to tort suits in which it is alleged that the item produced by the DPA contractor is inherently unsafe to users. Rather, we conclude that to the extent relevant here, the intended protection of section 707 is analogous to that provided under the common-law doctrine of impossibility of performance, which excuses delay or nonperformance of a contract when the agreed upon performance has been rendered commercially impracticable by an unforeseen supervening event not within the contemplation of the parties at the time the contract was formed. Eastern Air Lines, Inc. v. McDonnell Douglas Corp., 532 F.2d 957, 997 (5th Cir.1976) ([DPA section 707] is simply declaratory of the common law [doctrine of impossibility].) (quoting United States v. Texas Construction Company, 224 F.2d 289, 293 (5th Cir.1955)). We also agree with the district court, see In re Agent Orange, 597 F.Supp. at 845, that if Congress had intended section 707 to impose upon the government the kind of liability asserted by Thompson, it would have said so in clear and unequivocal terms. See, e.g., United States v. International Business Machs. Corp., 892 F.2d 1006, 1009 (Fed.Cir.1989) (Had Congress intended to make the exemptions permanent, it knew how: it could and we believe would have used words of futurity....). 80 In sum, the protection afforded by section 707 of the DPA extends no further than the risk imposed by section 101(a) of the DPA. Accordingly, invocation of the DPA by the government for the production of Agent Orange did not give rise to an implied-in-fact contractual obligation on the part of the government to indemnify Thompson for its contribution to the Agent Orange settlement fund or for the expenses which Thompson incurred in the Agent Orange litigation.