Hercules Inc. v. U.S.

• Decision Date: 04 March 1996
• Docket Number: 94818
• Citation: 116 S.Ct. 981,516 U.S. 417,134 L.Ed.2d 47
• Parties: HERCULES INCORPORATED, et al., Petitioners, v. UNITED STATES
• Court: U.S. Supreme Court

516 U.S. 417

116 S.Ct. 981

134 L.Ed.2d 47

HERCULES INCORPORATED, et al., Petitioners,

v UNITED STATES.

No. 94-818.

Supreme Court of the United States

Argued Oct. 30, 1995.

Decided March 4, 1996.

Syllabus ^*

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. __-__.

(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, 41 S.Ct. 563, 565-566, 65 L.Ed. 1099. 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. __-__.

(b) Neither an implied contractual warranty of specifications nor United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166, 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. __-__.

(c) Although the Government required petitioner Thompson 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 res ulting 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. Pan-Atlantic S.S. Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133. 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, 71 S.Ct. 153, 95 L.Ed. 152, and, in any event, may not be entertained by this Court, see United States v. Minnesota Mutual Investment Co., 271 U.S. 212, 217-218, 46 S.Ct. 501, 502-503, 70 L.Ed. 911. Pp. __-__.

24 F.3d 188 (C.A.Fed.1994), 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. STEVENS, J., took no part in the consideration or decision of the case.

On Writ of Certiorari to the United States Court of Appeals for the Federal Circuit.

Carter Phillips, Provo, UT, for petitioners.

Edward C. DuMont, Washington, DC, for respondent.

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 alternate 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 further identification as to content." Lodging 30. 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 by-product 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 (E.D.N.Y.1983). 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 F.Supp. 740, 753 (E.D.N.Y.1984).

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

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 consider 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, 108 S.Ct. 2510, 2518-2519, 101 L.Ed.2d 442 (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 i ndemnify Thompson for...