Opinion ID: 669850
Heading Depth: 3
Heading Rank: 2

Heading: The Implied Warranty of Specifications

Text: 48 Both Hercules and Thompson argue for recovery based upon a theory of an implied warranty of specifications, as set forth in United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166 (1918), and its progeny. Spearin stands for the proposition that when the government includes detailed specifications in a contract, it impliedly warrants that (i) if the contractor follows those specifications, the resultant product will not be defective or unsafe, and (ii) if the resultant product proves defective or unsafe, the contractor will not be liable for the consequences. Spearin, 248 U.S. at 136-37, 39 S.Ct. at 61. As with any contract-based claim, however, to recover for a breach of warranty, a plaintiff must allege and prove (1) that a valid warranty existed, (2) the warranty was breached, and (3) plaintiff's damages were caused by the breach. San Carlos Irrig. and Drainage Dist. v. United States, 877 F.2d 957, 959 (Fed.Cir.1989); accord Wunderlich Contracting Co. v. United States, 351 F.2d 956, 968, 173 Ct.Cl. 180 (1965) (stating that a plaintiff asserting a claim for breach of an implied warranty of specifications has the burden of establishing the fundamental facts of liability, causation, and resultant injury.). Unlike the superior knowledge doctrine, discussed above, the implied warranty of specifications covers problems arising after performance of the underlying contract. See Poorvu v. United States, 420 F.2d 993, 190 Ct.Cl. 640 (1970). 49 In the present case, Hercules and Thompson argue that because the government supplied the specifications and formula for Agent Orange, the government is liable for their injuries by reason of the breach of an implied warranty of specifications, even though the alleged harm (i.e., costs incurred in the Agent Orange litigation) occurred several years after completion of the Agent Orange production contracts. Both Hercules and Thompson contend that summary judgment was improperly granted because various factual issues remain in dispute with regard to their claims, including (i) whether an implied warranty arose out of the contracts, (ii) whether the type of damages sought were reasonably foreseeable at the time the contracts were formed, (iii) whether, leaving aside the government contractor defense, Hercules and Thompson faced potential liability in the Agent Orange litigation, (iv) whether the government knew that Hercules and Thompson faced potential liability, (v) whether the government's defective specifications gave rise to their alleged potential liability, and (vi) whether the class action settlement constituted reasonable conduct in light of the potential liability. 50 We need not, however, resolve the above factual issues because a necessary element of appellants' breach of warranty claims--i.e., causation--is lacking. As noted above, to make out a prima facie case of breach of an implied warranty of specifications, Hercules and Thompson must show not only that the facts support an implied warranty, but also that the warranty was breached and that their damages were caused by the breach. San Carlos, 877 F.2d at 959. As seen above, as far as damages to the extent of contributions to the Agent Orange settlement fund are concerned, the Claims Court held that Hercules' and Thompson's claims failed because (i) the absence of scientific evidence regarding the consequences of dioxin exposure precluded a finding that the warranty was breached, (ii) even assuming the existence of an implied warranty of specifications, the warranty would not include the kind of indemnity sought here, and (iii) the availability of the government contractor defense precluded a finding that their damages were caused by the alleged breach. Hercules, 25 Cl.Ct. at 626-28; Wm. T. Thompson, 26 Cl.Ct. at 26-28. We agree with the Claims Court that the record from the Agent Orange litigation is sparse with respect to scientific proof that the veterans' injuries were caused by dioxin. We also agree with the Claims Court that the facts would have to be stretched to support the theory that, under an implied warranty of specifications, Hercules and Thompson would be entitled to recover from the government their contributions to the Agent Orange settlement fund. 8 However, we prefer to rest our decision on the third ground articulated by the court: Hercules and Thompson cannot prove that their damages were caused by the government's alleged breach of an implied warranty of specifications because they were protected from liability to the Agent Orange plaintiffs by the government contractor defense. 51 The Supreme Court explained the government contractor defense in Boyle v. United Technologies Corp., 487 U.S. 500, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988). In Boyle, a serviceman was killed during a training exercise due to an alleged design defect in his aircraft. Boyle's personal representative (Boyle) brought a diversity action in federal district court against the government contractor that had manufactured the aircraft, but did not sue the government. Boyle alleged, inter alia, under Virginia tort law, that the contractor had defectively designed the aircraft's emergency escape-hatch system. The contractor contended that it had manufactured the escape-hatch system in accordance with government-supplied specifications as required by the contract, and therefore was not liable to Boyle. The jury returned a general verdict for Boyle, and the district court denied the contractor's motion for judgment notwithstanding the verdict. The United States Court of Appeals for the Fourth Circuit reversed and remanded with directions that judgment be entered for the contractor. The Fourth Circuit found, as a matter of federal law, that the contractor could not be held liable for the allegedly defective design because it had satisfied the requirements of the government contractor defense. 52 The Supreme Court granted certiorari, and held that where a government contractor has satisfied the requirements of the government contractor defense, as set forth in the Boyle opinion, the contractor cannot be held liable under state tort law, because to allow liability would frustrate specific objectives of federal legislation. Although Boyle's claim was asserted on the basis of state law, the Supreme Court concluded that the Federal Government's interest in the procurement of equipment is implicated by suits such as the present one--even though the dispute is one between private parties. Boyle, 487 U.S. at 506, 108 S.Ct. at 2515. 9 In cases where the government's interest is implicated, the Supreme Court continued, federal law will displace state law if there is a significant conflict between a federal policy and the operation of state law. Id. at 507, 108 S.Ct. at 2515. Looking to the discretionary function exception to the Federal Tort Claims Act, 28 U.S.C. Secs. 1346(b), 2671-2680 (1988) (hereinafter, FTCA) 10 , the Court reasoned that such a significant conflict was present under the circumstances, because to allow Boyle's suit against the contractor would constitute judicial second-guessing of decisions that Congress intended to be within the discretion of the U.S. military. Id. at 511, 108 S.Ct. at 2518. 11 To further define the contours of the government contractor defense, the Supreme Court in Boyle set forth the following three-part test: 53 Liability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States. 54 Id. at 512, 108 S.Ct. at 2518. A contractor who satisfies this test is immune to tort liability under state law for defects in products manufactured for the government in accordance with government-supplied specifications. 55 As seen above, prior to Boyle, the district court and the Second Circuit each concluded that the government contractor defense operated to shield Hercules and Thompson. See In re Agent Orange, 565 F.Supp. at 1273-74 (1983 decision initially granting summary judgment in favor of Hercules and Thompson and two other Agent Orange manufacturers); In re Agent Orange, 611 F.Supp. at 1263 (1985 decision granting all the manufacturers summary judgment against the opt-out plaintiffs following the Agent Orange litigation settlement); and In re Agent Orange, 818 F.2d at 189 (1987 court of appeals decision affirming summary judgment against the opt-out plaintiffs). Thus, Hercules and Thompson successfully argued on three separate occasions that the government contractor defense shielded them from liability for the veterans' tort claims. Consequently, there can be no serious doubt that had the class action Agent Orange litigation proceeded to termination, no liability would have been imposed against Hercules or Thompson. 56 Because the government contractor defense provided a complete defense to the veterans' tort claims, it cannot be said that the damages asserted by Hercules and Thompson were caused by the government, as the Claims Court recognized. As far as their contributions to the settlement fund are concerned ($18,772,568 in the case of Hercules and $3,096,597 in the case of Thompson), it was appellants' voluntary decision to enter into the settlement that led to those damages. The government did nothing to encourage or compel Hercules and Thompson to settle. It was appellants' decision to forego litigating the issue of the government contractor defense to completion that caused them to incur the monetary injury of the contribution to the settlement fund. 57 Based upon the theory of an implied warranty of specifications, Hercules and Thompson also contend that they are entitled to recover the attorney's fees which they incurred in the Agent Orange litigation. As seen above, in rejecting this element of appellants' claims, the Claims Court relied upon Kania v. United States, 650 F.2d at 269. In that case, Eugene Kania brought an action in one of this court's predecessors, the Court of Claims, in which he alleged that the government had breached a contract pursuant to which it had agreed not to prosecute him in return for his testimony before a federal grand jury. After he testified in the grand jury, Kania was indicted for various offenses. He was successful, however, in his efforts to have the indictment dismissed, based upon his purported agreement with the government. After the dismissal, he sued in the Court of Claims seeking to recover the expenses incurred in defending against the government's charges. The Court of Claims held that it was without jurisdiction because, whatever arrangement existed between Kania and the government, there was no contract sufficient to satisfy this court's jurisdictional requirements. Kania, 650 F.2d at 269. The court then went on to state: 58 Should this be in error, we must now add that jurisdiction to award counsel fees and other litigation expenses as an element of breach damages would be extremely dubious. It is the kind of consequential damages not normally awarded in contract breach cases. William Green Construction Co. v. United States, 201 Ct.Cl. 616, 477 F.2d 930 (1973), cert. denied, 417 U.S. 909, 94 S.Ct. 2606, 41 L.Ed.2d 213 (1974). Courts do not, in awarding breach damages, follow through the remote indirect consequences of the breach as distinguished from those directly in contemplation when the contract was made. Northern Helex Co. v. United States, 207 Ct.Cl. 862, 524 F.2d 707 (1975), cert. denied, 429 U.S. 866, 97 S.Ct. 176, 50 L.Ed.2d 146 (1976). 59 In light of Kania, even assuming the existence of an implied warranty of specifications in this case, such a warranty could not be construed to encompass a warranty by the government that Hercules and Thompson would not have to pay to defend themselves against tort claims that lacked merit because a legal doctrine, such as the government contractor defense, provided a defense to them. In the Claims Court, Hercules and Thompson alleged no facts suggesting that such a warranty--which would have to exist in order for Hercules and Thompson to recover their attorney's fees from the Agent Orange litigation--was directly in contemplation when Hercules and Thompson entered into their respective contracts with the government. Kania, 650 F.2d at 269.