Derivative Sovereign Immunity: Next Supreme Court Term’s Bombshell?

On May 18, 2015, the Supreme Court granted certiorari in Campbell-Ewald Co. v. Gomez, 14-857, 191 L. Ed. 2d 977 (2015).  This case, to be decided next term, has been much ballyhooed because of the first two issues which it presents, which are:

1. Whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim?
2. Whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified?

As readers will recall, the Court, in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), did not resolve these very important issues for not only wage and hour litigation, but all class action litigation. 

Lost in the hype of this case is the third issue which the Court took, which is:

1. Whether the doctrine of derivative sovereign immunity, recognized in Yearsley v. W.A. Ross Constr. Co., 309 U.S. 18 (1940) for government contractors is restricted to claims arising out of property damage caused by public works projects? 

The Yearsley derivative sovereign immunity doctrine has been little-used since 1940.  And, it appears, never in employment cases.  But, could the Court’s decision next term expand the doctrine such that it might have application in employment cases?  Obviously, we shall see. 

Here is some quick history.  Campbell-Ewald is a Telephone Consumer Protection Act case.  See 47 U.S.C § 227 et seq.  The Federal Courts are swamped with these cases see, e.g. James G. Snell, Carlos P. Mino, “Telephone Consumer Protection Act Cases Are on the Rise”, Bloomberg BNA (Feb. 14, 2013) (available at: http://www.bna.com/telephone-consumer-protection-act-cases-are-on-the-rise/); David N. Anthony, et al., “Flood of TCPA Claims Expected in Federal Courts” Troutman Sanders (Jan. 24, 2012) (available at: http://www.troutmansanders.com/flood-of-tcpa-claims-expected-in-federal-courts-01-24-2012/). 

In Campbell-Ewald, that company (hereinafter C-E) issued a request for proposal to execute a wireless advertising program for its client, the United States Navy’s recruitment arm. C-E’s goal was to recruit some 38,000 sailors.  MindMatics, LLC, responded to C-E’s proposal request.  Thereafter, C-E made a PowerPoint presentation to the Navy Recruiting Command (NRC), which included a text message proposal from MindMatics to deliver a “Navy-branded SMS text direct mobile ‘push’ program to the cell phones of 150,000 Adults aged 18-24 from an opt-in list of over 3 million.”  2013 U.S. Dist. LEXIS 34346 at *6.   C-E was required to obtain NRC’s approval to proceed.  The Navy approved the text message proposal, and MindMatics sent the text messages to potential Naval recruits.  

Plaintiff Gomez received a text message, and filed a putative nationwide class action under the TCPA against C-E.  The TCPA provides for small statutory damages - $500 per violation, which can be trebled for willful and knowing violations – for unauthorized messages.  47 U.S.C. § 227(b)(3).  Gomez sought damages for the alleged TCPA violation on an individual and class-wide basis, seeking hundreds of millions of dollars on behalf of the class.  In the district court, C-E argued that Gomez’s claim failed as a matter of law because, insofar as the Navy is immune from liability under the TCPA, C-E is also immune as a result of derivative sovereign immunity.  Gomez v. Campbell-Ewald Co., 2013 U.S. Dist. LEXIS 34346, 2013 WL 655237 (C.D. Cal. Feb. 22, 2013). In short, because the Navy cannot be sued, C-E cannot be sued. 

Relying on Yearsley, C-E argued that, inasmuch as it acted on behalf of the Navy, it is immune under the Yearsley doctrine.  In Yearsley, the Supreme Court held that if “[t]he authority to carry out the project was validly conferred…there is no liability on the part of the contractor for executing [the Government’s] will.”  Yearsley, 309 U.S. at 20-21.  An agent is liable under Yearsley only if “he exceeded his authority, or that [the authority] was not validly conferred.”  Id. at 21; see also Butters v. Vance Int’l, Inc., 225 F.3d 462, 466 (4^th Cir. 2000) (it is “well-settled law that contractors and common-law agents acting within the scope of their employment for the United States have derivative sovereign immunity”). 

The lower court granted C-E’s motion for summary judgment based on the Yearsley argument, holding C-E, acting as a Navy contractor, is immune from liability under the doctrine.  On appeal, the Ninth Circuit reversed, 768 F.3d 871 (9th Cir. 2014).  In an opinion written by Judge Benavides, a senior Fifth Circuit Judge sitting by designation, the Court held that Yearsley is not applicable to the facts of this case, holding that Yearsley established a narrow rule regarding claims arising out of property damage caused by public works projects.  The Ninth Circuit distinguished Campbell-Ewald’s facts from Yearsley on the ground that in Yearsley, the contractor’s work was in accordance with an express congressional directive that resulted in an unconstitutional taking of property and that “the Government has impliedly promised to compensate the plaintiffs, and has afforded a remedy for its recovery by a suit in the Court of Claims.”  309 U.S. at 21-22. 

The Ninth Circuit noted that in the seventy-year history of the Yearsley doctrine, it had apparently never been invoked to preclude litigation of a dispute like the one before the Court.  Indeed, the Court noted that the defense had rarely been allowed in the Ninth Circuit, and only in the context of property damage resulting from public works projects.

The petition for certiorari, which was granted, argues that the Ninth Circuit’s decision fundamentally misconstrues and unduly limits the doctrine of Sovereign Immunity.  Petitioner argued that Yearsley establishes a general rule that government contractors are immune from liability for performing duties which are within the scope of their lawfully delegated authority.  In short, what matters is whether the contractor is acting within the scope of validly conferred authority in undertaking the project. 

So, the Supreme Court will now presumably decide how narrow or expansive the derivative sovereign immunity doctrine may be.  If the Court adopts the district court’s expansive interpretation, one can contemplate circumstances in the employment arena where federal, and possibly also state, contractors in employment cases can assert the defense.  Some examples which spring to mind include disparate impact claims based on an employment test administered by a contractor at the behest of the Government; claims arising from the payment by a contractor of wages pursuant to the Government’s command which run afoul of federal wage and hour laws; and discrimination claims arising from hiring quotas arguably imposed by the government.  The federal contractor bar will be watching this case and ready to advise their clients on how, in the proposal process and in the issuance of task orders, contractors might create a paper trail of government approval and hence, depending on the outcome of C-E, immunity for their contractor clients.

By about this time next year, we should have answers to some of these questions.

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