River & Offshore Services Co. v. United States

• Decision Date: 02 January 1987
• Docket Number: Civ. A. No. 85-3913.
• Citation: 651 F. Supp. 276
• Parties: RIVER AND OFFSHORE SERVICES COMPANY, INC. v. UNITED STATES and Marine Transport Lines, Inc., a/k/a Marine Transport Management, Inc.
• Court: U.S. District Court — Eastern District of Louisiana

651 F. Supp. 276

RIVER AND OFFSHORE SERVICES COMPANY, INC. v. UNITED STATES and Marine Transport Lines, Inc., a/k/a Marine Transport Management, Inc.

Civ. A. No. 85-3913.

United States District Court, E.D. Louisiana.

January 2, 1987.

William P. Schuler, Chalmette, La., Fred Israel, Charles Raley, James Phillips, Israel and Raley, Washington, D.C., for plaintiff.

William F. Baity, Asst. U.S. Atty., New Orleans, La., Thomas L. Jones, Sr. Admiralty Counsel, U.S. Dept. of Justice, Washington, D.C., for defendants.

MEMORANDUM AND ORDER

SEAR, District Judge.

I. Introduction and Prior Proceedings

Marine Transport Lines (MTL) operates a tanker, the USNS SEALIFT ATLANTIC, under a contract with the United States Navy Military Sealift Command. There is no dispute that this vessel is a "public vessel" within the meaning of the Public Vessels Act, 46 U.S.C. § 781 et seq. (PVA). On August 5, 1985 MTL solicited bids for repair and maintenance work on the USNS SEALIFT ATLANTIC. River and Offshore Services Company (ROSCO) submitted a fixed-price bid of $1,555,427.00 for the work and was awarded the contract, which was formalized by a purchase order dated September 9, 1983. ROSCO then awarded a subcontract to Sabine Coating Services (Sabine) to do sandblasting and coating work for $915,000.00.

As work on the vessel proceeded, a series of disputes arose over changes in and the progress of the work. As a consequence MTL allegedly forced ROSCO to replace Sabine with Marine Coatings, Inc. Marine Coatings was more expensive and changing subcontractors allegedly delayed completion of the work. Work on the vessel was not finished within the contractually-specified period. On December 3, 1983 MTL assessed liquated damages against ROSCO in the amount of $522,300.00. After attempting to resolve the matter with MTL, ROSCO brought suit against MTL and the United States seeking return of the liquidated damages, a $736,170.00 unpaid balance under the contract, and $183,870.00 as an "undisputed" contractual obligation.

ROSCO asserts four causes of action against the defendants: (1) for a maritime lien under 46 U.S.C. § 971 and 46 U.S.C. § 742 for materials, labor, services, and other items provided in connection with repair of the vessel; (2) for breach of contract resulting from a failure of the defendants to adjust the contract price because of changes and unavoidable delays; (3) for tortious interference with ROSCO's contract with Sabine; and (4) for prejudgment interest on payments wrongfully withheld. The defendants have filed a motion to dismiss for want of subject matter jurisdiction.

II. May Marine Transport Lines be Sued by ROSCO?

A. Contract and Maritime Lien Claims

The defendants begin their argument by contending that under the Suits in Admiralty Act (SAA) and the PVA the plaintiffs are barred from suing MTL. The PVA is subject to § 5 of the SAA. 46 U.S.C. § 782. Section 745 provides that the remedy provided by the SAA "shall ... be exclusive of any other action by reason of the same subject matter against the agent or employee of the United States ... whose act or omission gave rise to the claim" (emphasis added). The defendants contend that MTL is an agent of the United States, and that therefore PVA § 782,¹ incorporating SAA § 745, bars suit against MTL.

A long line of cases establishes that a contract operator of a naval vessel such as MTL is an agent of the United States for purposes of SAA § 745. See, e.g., Doyle v. Bethlehem Steel Corp., 504 F.2d 911, 913-14 (5th Cir.1974). Of particular relevance is Smith v. United States, 346 F.2d 449 (4th Cir.), cert. denied, 382 U.S. 878, 86 S.Ct. 163, 15 L.Ed.2d 119 (1965), which finds an agency relationship in an operating contract (with MTL, in fact) which is quite similar to the operating contract in this case. Id. at 451-452. See also Saffrhan v. Buck Steber, Inc., 433 F.Supp. 129, 133 (E.D.La.1977) (Rubin, J.); The Mission Santa—Ynez, 1967 A.M.C. 25, 26-29 (C.D.Cal.1966). These cases uniformly hold contract operators to be agents of the United States so as to bar suit against them under SAA § 745.

There is nothing about the contract between MTL and the U.S. which requires me to treat MTL differently. The contract gives MTL the authority to possess and operate the USNS SEALIFT ATLANTIC on behalf of the government, according to the government's regulations and directions. While no specific clause in the contract identifies MTL as an "agent" (the term "contractor" is used throughout), the contract establishes an agency relationship.

Entering into subcontracts on behalf of the government is within the scope of MTL's agency. ROSCO admits this in paragraph number seven of its complaint. Under the contract, MTL is permitted to arrange for subcontractors to do repair and maintenance work on the USNS SEALIFT ATLANTIC. Article 22, section (a) of MTL's contract with the Navy, entitled "Maintenance and Repair," states "Except as herein specifically provided the Contractor MTL shall be charged with full responsibility and costs for maintenance and repair of each tanker throughout the period of this Contract...." Section (h) of Article 22 provides:

The Contractor shall be responsible for the full cost of maintenance and repairs which can reasonably be accomplished by the tanker's crews, including the special maintenance riding crews, taking into account the nature of the work, availability of such crews and the operational commitments of the tankers.... Further, the Government shall pay for the cost of all other maintenance and repairs, including parts, which are required to be performed with industrial assistance. The Contractor shall not make repair or maintenance subcontracts, except for special maintenance riding crews, in excess of $10,000 without the prior approval of the Government. The Contractor shall submit to the Government for review and approval all repair specifications prior to issuing to shipyards for bidding....

Article 33, entitled "Default," provides in section (c) that MTL will be liable for the defaults of subcontractors. However, section (g) of the same article provides that this is not the case for subcontractors "with whom the Contractor executes subcontracts at the direction of the Government in accordance with Article 22(h)." The Article 22(h) procedure was used to hire ROSCO. These provisions plainly demonstrate that MTL operated as an agent of the government in contracting with ROSCO.

The suit against MTL with respect to the maritime lien and contract claims is therefore barred by SAA § 745. The consequence of finding an agency relationship between MTL and the government is to place the subcontractor ROSCO in privity of contract with the government. This result conflicts with a well-established line of cases under the Tucker Act upon which the plaintiffs rely. Those cases permit a finding of privity between the federal government and a subcontractor under extremely limited circumstances. Under the Tucker Act privity exists between a subcontractor and the government when the prime contractor "(1) acts as a purchasing agent for the government, (2) the agency relationship between the government and the prime contractor is established by clear contractual consent, and (3) the contract states that the government would be directly liable to the vendors for the purchase price." United States v. Johnson Controls, Inc., 713 F.2d 1541, 1551 (Fed. Cir.1983) (emphasis in original). Except for perhaps the second, none of these factors is present in this case.

The conflict between the Tucker Act and admiralty law has an impact on the Contract Disputes Act of 1978 (CDA).² 41 U.S.C. § 601 et seq. The CDA applies to contracts between the government and "a party to a Government contract other than the Government." 41 U.S.C. §§ 601, 602. In determining to whom the CDA applies, the Federal Circuit held that Congress intended to continue prior Tucker Act law limiting government privity with subcontractors to special situations, and that Congress may have meant to bar subcontractor suits altogether. Johnson Controls, 713 F.2d at 1549-50. Therefore, were this a Tucker Act claim, ROSCO would be unable to make use of the CDA procedures. Accepting the Federal Circuit's analysis of Congressional intention in Johnson Controls as correct, the Congressional desire to limit the government's expense and trouble in defending contract claims by using primary contractors as a buffer between the government and subcontractors³ conflicts with the SAA policy of shielding from liability those who operate ships on behalf of the government. In resolving conflicting congressional intentions, the longstanding policy of the SAA should not be disturbed. In passing the CDA Congress gave no indication that it intended to alter federal agency law under the SAA. I see no compelling reason why the Tucker Act and the SAA must use the identical test for determining who is an agent of the United States.

Because suit is barred by the SAA, MTL is entitled to summary judgment,⁴ dismissing plaintiff's contract and maritime lien claims against MTL.

B. Tort Claim

I reach the same conclusion with respect to the tort claim. ROSCO points out that the government may not be bound by the actions of its agents acting beyond the scope of their authority. See, e.g., Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 383, 68 S.Ct. 1, 2, 92 L.Ed. 10 (1947). Then ROSCO asserts, without citing authority, that if the government were to defend against the tort claim by asserting MTL's lack of authority to commit torts, I could not dismiss the tort claim against MTL, which would proceed based on diversity and/or admiralty jurisdiction. While it may seem unfair for the government to bar suit against its agents and then use the agent's lack of authority to defend the suit against itself, the plaintiffs have not demonstrated that Congress could not or has not dictated that result. MTL is entitled to summary...