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. After 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
summary judgment against them and dismissed the complaints. The
Court of Appeals consolidated the cases and affirmed.
Held: Petitioners may not recover on their
warranty-of-specifications and contractual-indemnification claims.
Pp.422-430.
(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.
418
Syllabus
(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.
REHNQUIST, C. J., delivered the opinion of the Court, in which
SCALIA, KENNEDY, SOUTER, THOMAS, and GINSBURG, JJ., joined. BREYER,
J., filed a dissenting opinion, in which O'CONNOR, J., joined,
post, p. 431. STEVENS, J., took no part in the consideration
or decision of the case.
Carter G. Phillips argued the cause for petitioners. With him on
the briefs were James S. Turner, Alan Dumoff, Jerold Oshinsky,
Gregory W Homer, Rhonda D. Orin, and Walter S. Rowland.
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-
419
eral Bender, David S. Fishback, Alfred Mollin, and Michael T.
McCaul.
*
CHIEF JUSTICE REHNQUIST delivered the opinion of the Court.
Petitioners in this case incurred substantial costs defending,
and then settling, third-party tort claims arising out of their
performance of Government contracts. In this action under the
Tucker Act, they sought to recover these costs from the Government
on alternative theories of contractual indemnification or warranty
of specifications provided by the Government. We hold that they may
not do so.
When the United States had armed forces stationed in Southeast
Asia in the 1960's, it asked several chemical manufacturers,
including petitioners Hercules Incorporated (Hercules) and Wm. T.
Thompson Company (Thompson), to manufacture and sell it a specific
phenoxy herbicide, code-named Agent Orange. The Department of
Defense wanted to spray the defoliant in high concentrations on
tree and plant life in order to both eliminate the enemy's hiding
places and destroy its food supplies. From 1964 to 1968, the
Government, pursuant to the Defense Production Act of 1950 (DPA),
64 Stat. 798, as amended, 50 U. S. C. App. § 2061
et seq.
(1988 ed. and Supp. V), entered into a series of fixed-price
production contracts with petitioners. The military prescribed the
formula and detailed specifications for manufacture. The contracts
also instructed the suppliers to mark the drums containing the
herbicide with a 3-inch orange band with "[n]o
* Herbert L. Fenster, Ray M. Aragon, and
Robin S.
Conrad filed a brief for the Chamber of
Commerce of the United States of America as
amicus curiae
urging reversal.
Robert M. Hager filed a brief for the Agent Orange
Coordinating Council as
amicus curiae urging affirmance.
Gershon M. Ratner filed a brief for the National Veterans
Legal Services Program as
amicus curiae.
420
further identification as to conten[t]." Lodging 30 (available
in clerk's office case file). Petitioners fully complied.
In the late 1970's, Vietnam veterans and their families began
filing lawsuits against nine manufacturers of Agent Orange,
including petitioners. The plaintiffs alleged that the veterans'
exposure to dioxin, a toxic byproduct found in Agent Orange and
believed by many to be hazardous, had caused various health
problems. The lawsuits were consolidated in the Eastern District of
New York and a class action was certified.
In re "Agent Orange"
Product Liability Litigation, 506 F. Supp. 762, 787-792
(1980).
District Judge Pratt awarded petitioners summary judgment on the
basis of the Government contractor defense in May 1983.
In re
"Agent Orange" Product Liability Litigation, 565 F. Supp. 1263.
Before the judgment was entered, however, the case was transferred
to Chief Judge Weinstein, who withdrew Judge Pratt's opinion, ruled
that the viability of the Government contractor defense could not
be determined before trial, and reinstated petitioners as
defendants. See
In re "Agent Orange" Product Liability
Litigation, 597
In May 1984, hours before the start of trial, the parties
settled. The defendants agreed to create a $180 million settlement
fund with each manufacturer contributing on a market-share basis.
Hercules' share was $18,772,568; Thompson's was $3,096,597.
Petitioners also incurred costs defending these suits exceeding $9
million combined.1
1 Nearly 300 plaintiffs decided to "opt out" of the certified
class and to proceed with their claims independent of the class
action. After 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"
421
Petitioners want the United States to reimburse them for the
costs of defending and settling this litigation. They attempted to
recover first in District Court under tort theories of contribution
and noncontractual indemnification. Having failed there,2 they each
sued the Government in the United States Claims Court, invoking
jurisdiction under 28 U. S. C. § 1491, and raising various claims
sounding in contract.3 On the Government's motions, the Claims
Court granted summary judgment against petitioners and dismissed
both complaints.
Hercules, Inc. v.
United States, 25
Cl. Ct. 616
(1992); Wm. T. Thompson Co. v.
United
States, 26 Cl. Ct. 17 (1992).
The two cases were consolidated for appeal and a divided panel
of the Court of Appeals for the Federal Circuit affirmed.
24 F.3d
188 (1994). The court held that petitioners' claim of implied
warranty of specifications failed because petitioners could not
prove causation between the alleged breach and the damages. The
court explained that, had petitioners pursued the class-action
litigation to completion, the Government contractor defense would
have barred the imposition of tort liability against them. The
Government contractor defense, which many courts recognized before
the
Agent Orange settlement, but which this Court did not
con-
Product Liability Litigation,
818 F.2d
187, 189 (1987), cert. denied sub nom. Krupkin v. Dow Chemical
Co., 487 U. S. 1234 (1988).
2 The District Court dismissed the claims,
In re "Agent
Orange" Product Liability Litigation, supra, and the Second
Circuit affirmed. The appeals court found first that
Stencel
Aero Engineering Corp. v.
United States, 431 U. S. 666 (1977),
precluded such recovery and second that "well-established
principles of tort law" would not recognize contribution and
indemnity where the underlying claims that settled "were without
merit."
In re "Agent Orange" Product Liability Litigation,
supra, at 207.
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).
422
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.
423
(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).
The distinction between "implied in fact" and "implied in law,"
and the consequent limitation, is well established in
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.
424
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.
Petitioners do not contend that their contracts contain express
warranty or indemnification provisions. Therefore, for them to
prevail, they 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. We
consider petitioners' warranty-of-specifications and
contractual-indemnification claims in turn.
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
425
costs incurred in defending and settling the third-party tort
claims.
Neither the warranty nor
Spearin extends that far.
When the Government provides specifications directing how a
contract is to be performed, the Government warrants that the
contractor will be able to perform the contract satisfactorily if
it follows the specifications. The specifications will not
frustrate performance or make it impossible. It is quite logical to
infer from the circumstance of one party providing specifications
for performance that that party warrants the capability of
performance. But this circumstance alone does not support a further
inference that would extend the warranty beyond performance to
third-party claims against the contractor. In this case, for
example, it would be strange to conclude that the United States,
understanding the herbicide's military use, actually contemplated a
warranty that would extend to sums a manufacturer paid to a third
party to settle claims such as are involved in the present action.
It seems more likely that the Government would avoid such an
obligation, because reimbursement through contract would provide a
contractor with what is denied to it through tort law. See
Stencel Aero Engineering Corp. v.
United States,
431 U. S. 666
(1977).6
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.
426
As an alternative basis for recovery, Thompson contends that the
context in which the Government compelled it to manufacture Agent
Orange constitutes an implied-in-fact agreement by the Government
to indemnify for losses to third parties.7 The Government required
Thompson to produce under authority of the 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. Under these conditions,
petitioner contends, the contract must be read to include an
implied agreement to protect the contractor and indemnify its
losses. We cannot agree.
The circumstances surrounding the contracting are only relevant
to the extent that they help us deduce what the parties to the
contract agreed to in fact. These conditions here do not, we think,
give rise to an implied-in-fact indemnity agreement.8 There is also
reason to think that a con-
7 Hercules did not plead contractual indemnification in its
complaint or raise the claim in the Court of Appeals. Indeed, in
the Claims Court, Hercules expressly disavowed having raised any
contractualindemnification claim. Plaintiff's Memorandum in
Opposition to Defendant's Motion to Dismiss and for Summary
Judgment in No. 90-496, p. 55 ("Hercules' claims for relief all are
based on breaches of contractual duties; they are not claims that
the Government has impliedly or expressly agreed to indemnify
Hercules for open-ended liabilities").
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
427
tracting officer would not agree to the open-ended
indemnification alleged here. The Anti-Deficiency Act bars a
federal employee or agency from entering into a contract for future
payment of money in advance of, or in excess of, an existing
appropriation. 31 U. s. C. § 1341.9 Ordinarily no federal
appropriation covers contractors' payments to third-party tort
claimants in these circumstances, and the Comptroller General has
repeatedly ruled that Government procurement agencies may not enter
into the type of open-ended indemnity for third-party liability
that petitioner Thompson claims to have implicitly received under
the Agent Orange contracts.lO We view the Anti-Deficiency Act, and
the contract-
as true and still find them inadequate. In addition, we are
skeptical that any material information regarding these 30-year-old
transactions remains undisclosed, yet still discoverable. Hercules,
and presumably Thompson, had access to all discovery materials
(including thousands of documents and scores of depositions)
produced during the
Agent Orange class-action litigation.
See Motion of United States for a Protective Order Staying
Discovery in No. 90-496 (Cl. Ct.), pp. 1,3-4, n. 1.
9The Anti-Deficiency Act, 31 U. S. C. § 1341, provides:
"(a)(1) An officer or employee of the United States Government
or of the District of Columbia government may not-
"(A) make or authorize an expenditure or obligation exceeding an
amount available in an appropriation or fund for the expenditure or
obligation;
"(B) involve either government in a contract or obligation for
the payment of money before an appropriation is made unless
authorized by law."
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
428
ing officer's presumed knowledge of its prohibition, as strong
evidence that the officer would not have provided, in fact, the
contractual indemnification Thompson claims. In an effort to avoid
the Act's reach, Thompson argues that the Anti-Deficiency Act is
not applicable to an implied-in-fact indemnity because such an
indemnification is "judicially fashioned" and is "not an express
contractual provision." Brief for Petitioners 41. However, "[t]he
limitation upon the authority to impose contract obligations upon
the United States is as applicable to contracts by implication as
it is to those expressly made."
Sutton, 256 U. S., at 580
(opinion of Brandeis, J.).
When Thompson contracted with the United States, statutory
mechanisms existed under which a Government contracting officer
could provide an indemnity agreement to specified classes of
contractors under specified conditions. See,
e. g.,
50 U. S. C. § 1431 (1988 ed., Supp. V) (permitting the President,
whenever he deems it necessary to facilitate national defense, to
authorize Government contracting without regard to other provisions
of law regulating the making of contracts; in 1958, the President,
in Executive Order No. 10789, delegated this authority to the
Department of Defense, provided that the contracts were "within the
limits of the amounts appropriated and the contract authorization
therefor" and "[p]roper records of all actions taken under the
authority" were maintained; in 1971, the President amended the
Order to specify the conditions under which indemnification could
be provided to defense contractors); 10 U. S. C. § 2354 (1956
statute authorizing indemnification provisions in contracts of a
military department for research or development); 42 U. S. C. §
2210 (indemnity scheme, first enacted
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.
429
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
We find unpersuasive Thompson's argument that § 707 of the DPA13
reveals Congress' intent to hold harmless manufacturers for any
liabilities which flow from compliance with an order issued under
the DPA. Thompson reads the provision too broadly. The statute
plainly provides immunity, not indemnity. By expressly providing a
defense to liability,
11 See,
e. g., 48 CFR § 235.070 (1994) (specifying
criteria for indemnification clauses in Department of Defense
research and development contracts); §§252.235-7000 to 252.235-7001
(contract language to be used for indemnification under 10 U. S. C.
§ 2354); 32 CFR § 7-303.62 (1983) (contract language to be used for
indemnification under 50 U. S. C. §§ 14311435 (1988 ed. and
Supp.V)).
12JU8TICE BREYER asserts that, by citing these statutes and
regulations, "the majority implies that a contracting officer, in
all likelihood, would not have agreed to an implicit promise of
indemnity, for doing so would amount to a bypass of" the
provisions.
Post, at 436-437. We view the statutes and
regulations, which cover different fields of Government
contracting, not as implying what a contracting officer might have
done with regard to the Agent Orange contracts, but as showing that
a promise to indemnify should not be readily inferred.
13 Section 707 provides, in relevant part:
"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.).
430
Congress does not implicitly agree that, if liability is imposed
notwithstanding that defense, the Government will reimburse the
unlucky defendant.14 We think Thompson's reliance on
Ryan
Stevedoring Co. v.
Pan-Atlantic S. S.
Corp.,
350 U. S. 124
(1956), is likewise misplaced; there, in an action between private
parties, we held that the stevedore was liable to the shipowner for
the amount the latter paid in damages to an injured employee of the
former. Here Thompson claims a breach of warranty by its customer,
not by its seller and supplier.
Perhaps recognizing the weakness of their legal position,
petitioners plead "simple fairness," Tr. of Oral Arg. 3, and ask us
to "redress the unmistakable inequities," Brief for Petitioners 40.
Fairness, of course, is in many respects a comparative concept, and
the fact that the veterans who claimed physical injury from the use
of Agent Orange could not recover against the Government, see
Feres v.
United States, 340 U. S. 135 (1950),
considerably weakens petitioners' equitable appeal. But in any
event we are constrained by our limited jurisdiction and may not
entertain claims "based merely on equitable considerations."
United States
For the foregoing reasons, the judgment of the Court of Appeals
is
Affirmed.
JUSTICE STEVENS took no part in the consideration or decision of
this case.
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.
431
JUSTICE BREYER, with whom JUSTICE O'CONNOR joins,
dissenting.
The petitioners, two chemical companies, have brought this
breach-of-contract action seeking reimbursement from the Government
for their contribution to the settlement of lawsuits brought by
Vietnam veterans exposed to their product Agent Orange. The
companies argue that their contracts with the Government to produce
Agent Orange contain certain promises or warranties that, in
effect, hold them harmless. To win this case, as in the most
elementary breach-of-contract case, the companies must show that
the Government in fact made the warranties or promises, that the
Government breached them, and that the Agent Orange settlement
contribution was a consequent foreseeable harm. See Restatement
(Second) of Contracts §§346, 347, 351 (1979); 5 A. Corbin,
Contracts §§ 997, 1001, 1002 (1964).
The companies concede that the promises, or warranties, are not
written explicitly in their contracts; but, the companies intend to
prove certain background facts and legal circumstances, which, they
say, will show that these promises, or warranties, are an
implicit part of the bargain that the parties struck. See 3
id., §§ 538, 551 (common and trade usage, course of
dealings, and existing statutes and rules of law are always
probative as to the meaning of the parties).
The background facts alleged include the following:
• 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
432
where its use might lead to plausible tort claims advanced by
those who used it.
Id., at 10-11, 25.
• 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.
The background (1960's) legal circumstances include the
following:
• 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.).
433
These background facts and circumstances, say the companies,
show that the Government knew far better than they that its Agent
Orange contract specifications would force them to produce a risky
product for risky use. They add that all parties knew of legal
doctrines that made the Government responsible in analogous
circumstances for analogous risks. They argue that the Government
would not have wanted to
force them (under the DPA) to enter
into a contract subjecting them (through its specifications) to
serious risks of damage, in respect to which (because of the
Government's superior knowledge) they could not bargain for
compensation. They conclude that the Government, in the contracts,
took responsibility for those risks by implicitly promising to
assume responsibility for the consequences of specification
defects, including indemnification for the settlement of
defect-related tort suits.
The Federal Circuit affirmed a grant of summary judgment against
the companies. But, in doing so, it did not decide against the
companies in respect to their claimed promises. Instead the Federal
Circuit assumed (reluctantly and for argument's sake) that the
companies would be able to prove the existence of the promises, but
it went on to hold against them regardless. Even assuming the
promises, the Circuit wrote, the companies will not be able to
prove
causation between promises and damages. The Circuit
believed that, had the companies litigated the Agent Orange tort
suits instead of settling them, they would have asserted a
"government contractor defense," see
Boyle v.
United
Technologies Corp., 487 U. S. 500 (1988), and
thereby won the lawsuits. It concluded that, since the companies
could readily have won the suits, the settlement amounts to a
"voluntary payment" that cuts any causal link between a broken
promise, or warranty, and resulting harm.
The companies, in their petition for certiorari and initial
brief on the merits, primarily asked us to review, and to re-
434
verse, this "no causation" holding. The Court, in today's
opinion, does not discuss that holding. Instead it holds that the
companies will not be able to prove the existence of the implicit
promises. In my view, however, the record before us now does not
permit this latter holding. Rather, this Court should reverse the
Court of Appeals' "no causation" holding and then remand this case
for further proceedings.
I need mention only one fatal flaw in the Court of Appeals' "no
causation" holding, that of hindsight. The Court of Appeals, in
essence, found the companies' Agent Orange settlement so obviously
unnecessary, so abnormal, so far removed from ordinary litigation
behavior, that it could not have been "foreseeable," see
Restatement (Second) of Contracts § 351; 5 Corbin, Contracts §
1002, or (if I recast the same point in the Court's tort-like
"causation" language) that it cut the causal link between promise
breach and harm. But, viewed without the benefit of legal
hindsight, the settlement was neither unforeseeable nor was it an
intervening "cause" of the loss.
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
435
1984), cert. denied, 470 U. S. 1051 (1985). The Second Circuit,
the home of the Agent Orange litigation, had not decided the issue.
And, the two Agent Orange Second Circuit trial judges who (due to
certain here irrelevant procedural considerations)
both
considered the companies' "government contractor" defense decided
the issue in opposite ways. Compare
In re "Agent Orange" Product
Liability Litigation, 565 F. Supp. 1263, 1274-1275 (EDNY 1983),
with
In re "Agent Orange" Product Liability Litigation, 597
F. Supp. 740, 847-850 (EDNY 1984), aff'd,
818
F.2d 145 (CA2 1987), cert. denied
sub nom. Fraticelli v.
Dow Chemical Co., 484 U. S. 1004 (1988). This Court did not
authoritatively uphold the "government contractor" defense until
1988, four years after the settlement here at issue.
Boyle,
supra. And, it did so on a ground different from that upon
which the Circuit Courts had previously relied. Compare
McKay,
supra, at
448-451; Tillett, supra, at 596-597 (finding
the "government contractor defense" implicit in
Feres v.
United States, 340 U. S. 135 (1950)), with
Boyle,
supra, at 509-511 (explicitly rejecting
Feres as the
basis for a "government contractor defense").
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
436
simply should set aside the Court of Appeals' determination on
the point.
The Court instead decides this case on an alternative basis,
namely, that the companies cannot prove the existence of the
implicit promises or warranties that they claim. But the existence
of a contractual promise implied in fact is very much a creature of
particular circumstance-the particular terms, the negotiating
circumstances, and the background understandings of law or industry
practice. See 3 Corbin,
supra, §§ 562, 566-570. Unlike the
majority, which compartmentalizes the companies' claims into
several separate doctrinal categories (a
"Spearin" claim, an
implied indemnification claim)-each rejected separately for
doctrine-specific reasons-I believe the companies' submissions,
fairly read, also set forth a much more general fact-based claim.
In essence, the companies say that the parties, when specifying the
details of this compulsory defense order, implicitly agreed to
allocate to the Government certain risks of
defective-government-specification-caused harm-namely, those risks
for which each company, because of its inferior knowledge, could
not seek compensation in the contract price. And, the companies
allege background facts that,
if true and complete (as we
must assume at this stage of the proceedings), make that
implication plausible.
The legal considerations to which the majority points do not
answer the companies' basic implied-in-fact contentions. To do so,
the majority would have to argue that the five sets of legal
circumstances to which it points, taken separately or together,
show that no Government contracting officer would have agreed to a
promise or warranty (of the sort claimed); hence, one cannot
possibly imply the existence of such a promise "in fact." See 3
Corbin,
supra, § 561. The majority cannot argue that,
because those five sets of circumstances suggest the contrary.
First, the majority implies that a contracting officer, in all
likelihood, would not have agreed to an implicit promise of
437
indemnity, for doing so would amount to a bypass of, and "render
... superfluous," the statutes and "panoply of implementing
regulations" that set forth specific procedures that contractors
must follow to obtain a promise of indemnity.
Ante, at 429.
My problem with this argument lies in the fact that, in 1964, the
relevant statute, Executive Order, and regulations read very
differently. At that time, their language was nonspecific or
ambiguous on the procedures required for indemnification. The
statute has always been phrased in general language, making
no explicit reference to indemnification. See 50 U. S. C. § 1431
(1988 ed., Supp. V); 50 u. S. C. § 1431 (1964 ed.). The portion of
the Executive Order that today treats indemnification as special,
and sets out procedures for indemnification,
did not exist
in 1964, and the relevant regulations were also either silent or
much more ambiguous than they are today. Compare Exec. Order 11610,
3 CFR 594 (1971-1975 Comp.) (indemnification), with Exec. Order
10789, 3 CFR 426 (1954-1958 Comp.) (no specific reference to
indemnification); compare 32 CFR § 17-301
et seq. (1975)
(implementing today's indemnification procedures) with 32 CFR §
17-301
et seq. (1964) (no reference to indemnification
procedures) and 32 CFR § 17.204-4 (1960) ("Informal commitments may
be formalized under certain circumstances to permit payment to
persons who have taken action without formal contract
[e.
g., where a person has furnished property or services to the
military in good-faith reliance on the apparent authority of a
person giving an oral instruction]. Formalization of commitments
under such circumstances normally will facilitate the national
defense by assuring such persons that they will be treated fairly
and paid expeditiously"); 32 CFR § 17.206(i) (1964)
(indemnification contracts must subject Government's obligation to
availability of appropriated funds).
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
438
ed.).
Ante, at 427, and n. 10 (citing
In re Assumption
by Government of Contractor Liability to Third
PersonsReconsideration, 62 Compo Gen. 361 (1983)). The problem
with this argument is that other Comptroller General opinions say
that an agreement to indemnify that is
not openended, but is
capped at an amount that a private insurer might have provided, is
not improper. See
Reimbursement of Costs in Connection
with Liabilities to Third Parties for Employees' Negligence, 22
Compo Gen. 892 (1943). A capped agreement, which, if reflected in
the contract price, makes the Government a kind of self-insurer, is
in effect within the appropriation (because the expenditure of
assuming the risk of liability will roughly equal the cost of
premiums that the Government saves by self-insuring), and may well
prove sufficient for the plaintiffs' purposes. After all, on
plaintiffs' factual allegations, a contractor who was as aware of
the plaintiffs' alleged risks as was the Government would have
sensed trouble, wanted insurance, and likely have obtained a
premium payment sufficient to buy it. The companies need argue only
for a capped implicit warranty that would treat the unknowing
contractor similarly. See also
In re Government Indemnification
of Public Utilities Against Loss Arising Out of Sale of Power to
Government, 59 Compo Gen. 705 (1980) (indemnification in
contracts with a "sole source" of a good or service lawful under
AntiDeficiency Act). Whether an agreement to spend money beyond
that which was appropriated is in writing or not is irrelevant to
the Anti-Deficiency Act.
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
439
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
440
objective-to relieve them of involuntarily created
liabilitywould have led contracting officers in the 1960's (given
the parties' uncertainty about future statutory interpretation) to
have believed that a contractual "hold harmless" warranty was
reasonable in the circumstances, not the contrary. See 3 Corbin,
Contracts § 551 (existing statutes and rules of law are always
evidence of the meaning of the parties). The relevant point is not
whether Congress intended to indemnify, but the likely effect of
the DPA's language (before judicial interpretation limited it to an
immunity provision) on what risks contracting officers at the time
might have thought the Government was assuming in a
forced
production contract under the Act.
Fifth, both the Federal Circuit, 24 F. 3d, at 198, n. 8, and the
majority,
ante, at 425, imply 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). That case held (in light of the
Feres
doctrine providing the Government with immunity from armed services
personnel tort suits) that Government contractors, whom armed
services personnel had sued in tort, could not, in turn, sue the
Government for indemnification. Otherwise a soldier, unable (given
Feres) to sue the Government for injury caused, say, by a
defective rifle, would sue the rifle manufacturer instead, and the
rifle manufacturer would then sue the Government for indemnity,
thereby, in a sense, circumventing the immunity that
Feres
promised the Government.
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,
441
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.
In sum, the companies argue factual circumstances-compelled
production, superior knowledge, detailed specifications, and
significant defect-which, if true, suggest that a government,
dealing in good faith with its contractors, would have agreed to
the "implied" promise, particularly in light of legal authorities,
known at the time, that offered somewhat similar guarantees to
contractors in somewhat similar circumstances. The validity of
their claim is likely to turn on the strength of the companies'
factual case, as supported by evidence, and upon the details of
Government contracting practices in the 1960's-matters not now
before us and with which the lower courts are more familiar than
are we.
The Court today unnecessarily restricts
Spearin
warranties, and, lacking particular facts at this stage of the
proceeding, it relies on statutory circumstances that are common to
many Government contracts. I fear that the practical effect of
disposing of the companies' claim at this stage of the proceeding
will be to make it more difficult, in other cases even if not here,
for courts to interpret Government contracts with an eye toward
achieving the fair allocation of risks that the parties likely
intended.
For these reasons, I would remand this case for further
proceedings.
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