Opinion ID: 207966
Heading Depth: 1
Heading Rank: 13

Heading: The Sovereign Acts Defense: Does it absolve the Government of liability?

Text: The Government, anticipating that it might find itself in extremis on its other defenses, falls back on the classic government defense invoked whenever a Congressional enactment or other official government action unsettles what were thought to be settled contractual arrangements. The Government argues that the act of Congress in question, the CVPIA, and the implementation of the CVPIA by governmental agencies, are sovereign acts, and any incidental (and presumably unintended) consequences are simply that, for which the Government cannot be held liable. The argument does not often work; in this case the trial court rejected it, as do we. The sovereign acts defense was born of a trio of cases decided by the Court of Claims in the nineteenth century. See Conner Bros. Constr. Co. v. Geren, 550 F.3d 1368, 1372 (Fed.Cir.2008) (discussing Deming v. United States, 1 Ct.Cl. 190 (1865), Jones v. United States, 1 Ct.Cl. 383 (1865), and Wilson v. United States, 11 Ct.Cl. 513 (1875)). The definitive statement of the doctrine is credited to the Supreme Court's opinion in Horowitz v. United States, 267 U.S. 458, 461, 45 S.Ct. 344, 69 L.Ed. 736 (1925), in which the Court, citing those Court of Claims cases, said, the United States when sued as a contractor cannot be held liable for an obstruction to the performance of the particular contract resulting from its public and general acts as a sovereign. The basic notion of the sovereign acts doctrine is that the United States as a contracting party acts in a different capacity from its role as a sovereign. As a contractor, it stands in the same shoes as any private party would in dealing with another private party; as a sovereign, it stands apart. The acts of the one are not to be `fused' with the otherif an act of the Government as sovereign would justify non-performance by any other defendant being sued for contract breach, then the Government as contractor is equally free from liability for non-performance. Recently, the sovereign acts doctrine was the Government's final line of defense in the multi-billion dollar liability action arising from Congress's intervention in the savings and loan imbroglio. The Supreme Court's plurality opinion in that case, United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996), discussed at length the application of the sovereign acts doctrine, id. at 891-911, 116 S.Ct. 2432; that discussion has become the current understanding of the doctrine. See Conner Bros., 550 F.3d at 1374 ([T]his court has treated [the plurality opinion in Winstar ] as setting forth the core principles underlying the sovereign acts doctrine.) In Winstar, the Court explained that [a]s Horowitz makes clear, [the sovereign acts] defense simply relieves the Government as contractor from the traditional blanket rule that a contracting party may not obtain discharge if its own act rendered performance impossible. 518 U.S. at 904, 116 S.Ct. 2432. The Court posed a two-part test, first asking whether the sovereign act is properly attributable to the Government as contractor. Id. at 896. That is, is the act simply one designed to relieve the Government of its contract duties, or is it a genuinely public and general act that only incidentally falls upon the contract? If the answer is that the act is a genuine public and general act, the second part of the test asks whether that act would otherwise release the Government from liability under ordinary principles of contract law. Id. at 896, 116 S.Ct. 2432. This second question turns on what is known in contract law as the impossibility (sometimes impracticability) defense. As the Court in Winstar put it, even if the Government stands in the place of a private party with respect to `public and general' sovereign acts, it does not follow that discharge will always be available, for the common-law doctrine of impossibility imposes additional requirements before a party may avoid liability for breach. Id. at 904, 116 S.Ct. 2432. Regarding the first part of the test, the Supreme Court in Winstar noted two polar interpretations of what is a public and general act. One is that any official act by the sovereign may qualify as a public and general act regardless of its contractual consequences. The polar opposite is that any act that benefits the sovereign directly by relieving it of its contractual duties in any way is disqualified. Id. at 899, 116 S.Ct. 2432. The Court then stated: Our holding that a governmental act will not be public and general if it has the substantial effect of releasing the Government from its contractual obligations strikes a middle course between these two extremes. Id. (emphasis added). Another way of stating the test for whether a governmental act is public and general is that the sovereign acts defense is unavailable where the governmental action is specifically directed at nullifying contract rights. Conner Bros., 550 F.3d at 1374. The trial court in this case did not address the question of whether the CVPIA qualifies as a public and general act, turning instead to the second question: was the ability of the Government to provide the contracted-for quantities of water rendered impossible by the enactment of the CVPIA? At trial, the Districts argued that performance was not impossible because Reclamation could have fulfilled CVPIA water-release requirements by taking water from other CVP reservoirs rather than from New Melones. See Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed.Cir.2002) (under the common-law doctrine of impossibility, performance is excused only when it is objectively impossible to carry out the contract). The trial court concluded that the Government did not meet its burden of proof regarding impossibility of performance due to CVPIA § 3406(b)(2), and therefore, would be barred from invoking the sovereign acts and unmistakability doctrines, if liability had been found for breach of the 1983 Contracts. Stockton, 75 Fed.Cl. at 373. The focus of the Government's argument on appeal is that the trial court defined the scope of the sovereign act too narrowly. Citing Casitas Municipal Water District v. United States, 543 F.3d 1276, 1287-88 (Fed.Cir.2008), the Government contends that the sovereign act at issue includes not only the CVPIA but also the decision by Reclamation and FWS [39] to use water from New Melones to satisfy CVPIA requirements. But even assuming the sovereign act is understood to include the agencies' discretionary implementation of the CVPIA, the Government would have to demonstrate that the agencies' actions made it impossible for Reclamation to deliver to the Districts the full amount of water provided for in the contracts, a showing the Government has not made. Furthermore, even if the specific implementation of the CVPIA chosen by the agencies rendered performance impossible, the Government cannot rely on the sovereign acts doctrine without returning to the first part of the test and establishing that such implementation is a public and general act. Here it is obvious that Reclamation's operational decisions to comply with the CVPIA by denying water to the Districts in violation of its duties under the contract fail the test of a public and general act. The only users affected negatively by Reclamation's actions were the Districts. The conduct of Reclamation in shorting the Districts, presumably in order to make the water available for other users, was directly aimed at the contracts and Reclamation's duties under them, nullifying the rights of the Districts to receive water under the contracts. Whether viewed in terms of having a substantial effect of releasing the Government from its contractual obligations, Winstar, 518 U.S. at 899, 116 S.Ct. 2432, or as a governmental action ... specifically directed at nullifying contract rights, Conner Bros., 550 F.3d at 1374, Reclamation's acts here cannot qualify as public and general. Whether under the first part or the second part of the analysis set out by the Supreme Court, the Government's sovereign acts defense does not survive scrutiny. The trial court correctly rejected that defense, and is affirmed on that point.
The trial court early in its opinion noted that the takings claim, which was initially the reason why the case was transferred from the district court to the Court of Federal Claims, was stayed pending resolution of the contract claim. The latter claim was raised by plaintiffs in an amendment to the complaint after the transfer. The trial court expressly stated that [t]he takings claims [sic] were stayed pending resolution of the contract claims [sic] and were not at issue at trial. Stockton, 75 Fed.Cl. at 324 n. 2. Some fifty pages later, the trial court ruled, without further opportunity for the parties to be heard, that the takings claim was dismissed. The court, citing Hughes Communications Galaxy, Inc. v. United States, 271 F.3d 1060 (Fed.Cir.2001), opined that, since there was a contract claim, the Government was acting in its commercial capacity and a separate constitutional takings claim could not lie. Stockton, 75 Fed.Cl. at 373-74. That is not a correct understanding of the law. It is true that there is language in earlier cases from this court to the effect that [i]n general, takings claims do not arise under a government contract because ... the government is acting in its proprietary rather than its sovereign capacity, and because remedies are provided by the contract. See St. Christopher Assocs., L.P. v. United States, 511 F.3d 1376, 1385 (2008) (citing Hughes, 271 F.3d at 1070). But that language is nothing more than a passing comment about government contract law, and has to be understood in that context. It cannot be understood as precluding a party from alleging in the same complaint two alternative theories for recovery against the Government, for example, one for breach of contract and one for a taking under the Fifth Amendment to the Constitution. That is expressly permitted by the Federal Rules, and the fact that the theories may be inconsistent is of no moment. See Fed.R.Civ.P. 8(d)(3) (A party may state as many separate claims ... as it has, regardless of consistency.). On the other hand, it can be understood to mean that, when a case arises in which both a contract and a taking cause of action are pled, the trial court may properly defer the taking issue, as it did here, in favor of first addressing the contract issue. It has long been the policy of the courts to decide cases on non-constitutional grounds when that is available, rather than reach out for the constitutional issue. See Nw. Austin Mun. Util. Dist. No. One v. Holder, ___ U.S. ___, 129 S.Ct. 2504, 2513, 174 L.Ed.2d 140 (2009). And of course when a plaintiff is awarded recovery for the alleged wrong under one theory, there is no reason to address the other theories. In Hughes, the plaintiff, having been awarded contract damages against the Government, sought prejudgment interest on its damages award as if there had been a simultaneous Fifth Amendment taking. The trial court refused to award the interest. On appeal, we affirmed the trial court. We noted that [t]his court's predecessor has cautioned against commingling takings compensation and contract damages, and explained that these were two separate causes of action, one based on the Government acting in its proprietary capacity, and one based on the Government as sovereign. Hughes, 271 F.3d at 1070. Our court went on to note that, in any event, plaintiff had failed to prove a taking, only a contractual right. Id. In Sun Oil Co. v. United States, 215 Ct.Cl. 716, 572 F.2d 786 (1978), also cited as support by the trial court, the suit was by a group of oil companies against the United States for an alleged breach of a lease agreement including denial of a permit. The court held for the oil companies on the permit issue. Plaintiffs had also included in their complaint a Fifth Amendment takings claim, regarding which the court commented that it was difficult to tell whether that claim was an independent and additional claim or an alternative claim. The court treated it as an alternative claim, and opined that recovery on one claim theory would seem to preclude recovery on the other claim theory. Id. at 817-18. Nevertheless, because the parties had placed much importance on the takings question, the court proceeded to discuss it, and held there was no taking. Id. at 819. It is well established, as these cases explain, that a party can obtain only one recovery for a single harm regardless of how many legal theories there may be for a recovery. In our case, while one recovery is all that can be had for the same harm, the fact that a cause of action was pled under a contract theory did not preclude a separate count for a cause of action based on a taking. Certainly this is the case when the Government alleges it was acting within its authority in breaching the contract. Of course, as Sun Oil illustrates, the fact that an alternative theory for recovery can be posited does not mean that a recovery under that theory will prevail. In this case, the trial judge denied the contract claim, and then dismissed without trial the takings claim on the ground that the contract claim precluded the takings claim. That is error. To the extent that the trial court purported to issue a judgment regarding the takings count in the complaint, that judgment is vacated.