The Potential Third-Party Liability of a Federal Construction Contractor
By: Michael H. Payne and Craig A. Schroeder
There has been a great deal of interest in the potential liability that a government contractor has for harm to third parties during or following the performance of a federal construction project. Although the government frequently enjoys sovereign immunity, the transfer of the government’s immunity to a contractor is certainly not automatic and, when it applies, it is generally the result of what has come to be known as the “Government Contractor Defense.” The applicability of that defense to a federal construction contractor is an open question that is beyond the scope of this article, however, but two recent cases have been decided in New Orleans that address the subject of contractor immunity from third party suits. These new cases both arise from the same construction project, the Mississippi River Gulf Outlet (the “MRGO”).
The first case, In Re Katrina Canal Breaches Consolidated Litigation, was heard in The United States District Court for the Eastern District of Louisiana. Six plaintiffs sought compensation from the government based upon alleged negligence of the U.S. Army Corps of Engineers (the “Corps”) with respect to the maintenance and operation of the MRGO for damages incurred in the aftermath of Hurricane Katrina. Before trial, the District Court had found that the Corps was shielded from liability as to the design and construction of the channel due to the discretionary function exception under the Federal Tort Claims Act (the “FTCA”). Notably, no government contractors or subcontractors were named in the suit.
Plaintiffs argued that the Corps’ negligent operation and maintenance of the MRGO – whereby, over time, the channel expanded to two to three times its design width – caused the breach of an important levee and produced catastrophic flooding. The District Court agreed that the Corps had, in fact, been negligent in its maintenance and operation of the MRGO and that, as a result, flooding had occurred to some of the plaintiffs’ property.
The government raised defenses as to its negligence under the Flood Control Act of 1928 (which was summarily dismissed as inapplicable), the FTCA’s “Due Care” exception and the FTCA’s “Discretionary Function” exception. The District Court found that the Corps could not invoke these statutory defenses. This was because the Corps had known about the potential expansion of the channel width due to erosion that ultimately caused the flooding. Hence, the Corps had not used “due care.” The Corps’ actions were also found to be in direct contravention of a mandate of the National Environmental Policy Act of 1969 to file an Environmental Impact Statement on its MRGO project. Thus, the Corps could not seek protection under the FTCA’s “discretionary function” exception. In the end, the court assessed damages for the plaintiffs for a total amount of $719,698.25.
The second case concerned an appeal of two class action matters that had been consolidated by the District Court, Ackerson, et al. v. Bean Dredging LLC, et al. and Reed v. United States. The District Court had found for the defendants and the plaintiffs appealed to the United States Court of Appeals for the Fifth Circuit. As in In Re Katrina, the plaintiffs alleged that dredging activities caused environmental damage to protective wetlands in the MRGO and that the government project caused an amplification of the storm surge in New Orleans during Hurricane Katrina, ultimately causing flooding. Unlike in In Re Katrina, however, the plaintiffs here sought recovery mainly against the government’s contractors (“Contractor Defendants”) who had performed the work.
The Contractor Defendants filed a motion to dismiss and the District Court concluded that they were shielded by government-contractor immunity under the holdings of Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940) and Boyle v. United Technologies Corp, 487 U.S. 500 (1988). The Appeals Court affirmed this decision, also citing Yearsley and Boyle extensively. Specifically, the Appeals Court affirmed that the only ways for an agent or officer of the government to be liable to a third-party for injury is if the agent exceeded his authority or that the authority used had not been validly conferred to that agent. In doing so, the Appeals Court further held that no specific agency relationship needed to be alleged by government contractors to receive government-contractor immunity.
These are encouraging decisions for contractors performing hurricane protection projects in New Orleans. The applicability of the government’s immunity to a contractor, through operation of the Government Contractor Defense or any other legal theory, however, is dependent on the facts of the case and may vary depending upon the jurisdiction. Specific legal advice should be sought in assessing the risk associated with the performance of a federal project that involves third party liability issues. These decisions by the courts in Louisiana, unfortunately, may not be regarded as the final word on the applicability of the Government Contractor Defense to current projects in New Orleans, or to federal construction generally.
Michael H. Payne is the Chairman of the firm's Federal Practice Group and may be contacted to discuss third party liability issues or federal construction matters generally. Craig A. Schroeder is an Associate in the firm’s Federal Practice Group.
