Justia Contracts Opinion Summaries

A former Army specialist was seriously injured in a suicide bombing at a U.S. military base in Afghanistan. The attack was carried out by Ahmad Nayeb, a Taliban operative hired by Fluor Corporation, a military contractor, as part of a program encouraging the hiring of Afghan nationals. The Army’s investigation concluded that Fluor was primarily responsible due to negligent supervision and failure to enforce proper security procedures, including allowing Nayeb to check out tools used in the bombing and to move about the base unsupervised. The plaintiff sued Fluor in federal court in South Carolina, seeking damages under state law for negligent supervision, negligent entrustment, and negligent retention of Nayeb.The United States District Court for the District of South Carolina granted summary judgment to Fluor, holding that state-law tort claims were preempted under Fourth Circuit precedent whenever they arose out of combatant activities in a wartime setting. The United States Court of Appeals for the Fourth Circuit affirmed, adopting a broad “battlefield preemption” doctrine. It reasoned that the Federal Tort Claims Act’s (FTCA) combatant-activities exception, which preserves government immunity for claims arising out of military combatant activities, reflected an intent to bar all tort suits against contractors connected with those activities, regardless of whether the contractor followed or violated military instructions.The Supreme Court of the United States vacated the Fourth Circuit’s judgment and remanded the case. The Court held that the Fourth Circuit erred in finding the state-law tort claims preempted where the federal government neither ordered nor authorized the challenged conduct. The Supreme Court clarified that neither the Constitution, federal statutes, nor its precedents support such broad preemption. Preemption applies only if the contractor was following government directives or if there is a significant conflict between federal interests and state law, which was not the case here. View "Hencely v. Fluor Corp." on Justia Law

During the Second World War, Chevron’s corporate predecessor operated oil fields in Plaquemines Parish, Louisiana, producing crude oil that was refined into aviation gasoline (avgas) for the United States military under federal contracts. Decades later, following the enactment of Louisiana’s State and Local Coastal Resources Management Act of 1978, which imposed permit requirements on certain uses of the coastal zone but exempted uses lawfully commenced before 1980, Plaquemines Parish and other parishes brought suit in state court. They alleged that Chevron and other oil companies had failed to obtain required permits and that some pre-1980 activities, including those during the war, were illegally commenced and not exempt.The parish’s expert report specifically challenged Chevron’s wartime crude-oil production methods, including its use of vertical drilling, canals, and earthen pits, as harmful to the environment and not in compliance with the Act. Chevron sought removal to federal court under the federal officer removal statute, 28 U.S.C. §1442(a)(1), arguing that the suit was “for or relating to” acts under color of its duties as a federal contractor refining avgas. The United States District Court granted the parish’s motion to remand to state court. The United States Court of Appeals for the Fifth Circuit affirmed, reasoning that although Chevron acted under a federal officer as a military contractor, the suit did not “relate to” those acts because the federal refining contract did not govern how Chevron obtained or produced crude oil.The Supreme Court of the United States held that Chevron plausibly alleged a close, not tenuous or remote, relationship between the challenged crude-oil production and its federal avgas refining duties. The Court concluded that the suit satisfied the “relating to” requirement for removal under §1442(a)(1), vacated the Fifth Circuit’s judgment, and remanded the case for further proceedings. View "Chevron USA Inc. v. Plaquemines Parish" on Justia Law

A company operating a private detention facility in Colorado under contract with U.S. Immigration and Customs Enforcement was sued in a class action by a former detainee. The lawsuit challenged two of the company’s work policies for detainees: a sanitation policy that required unpaid cleaning under threat of punishment, and a voluntary work program offering minimal pay. Plaintiffs alleged that the sanitation policy violated federal anti-forced-labor laws and that the voluntary work program constituted unjust enrichment under Colorado law.After discovery, the United States District Court for the District of Colorado considered the company’s argument that, under the Supreme Court’s decision in Yearsley v. W. A. Ross Construction Co., it could not be held liable for conduct that the government had lawfully “authorized and directed.” The District Court concluded that the government contract did not instruct the company to adopt the specific work policies at issue and that the company had developed those policies on its own. Therefore, the court held that the Yearsley doctrine did not shield the company from liability and allowed the case to proceed to trial.The company appealed immediately, but the United States Court of Appeals for the Tenth Circuit dismissed the appeal for lack of jurisdiction, holding that a denial of Yearsley protection is not subject to interlocutory appeal under Cohen v. Beneficial Industrial Loan Corp.The Supreme Court of the United States affirmed the Tenth Circuit’s decision, holding that Yearsley provides a merits defense, not an immunity from suit. Therefore, a pretrial order denying Yearsley protection cannot be immediately appealed; any review must wait until after final judgment. The Court remanded the case for further proceedings. View "Geo Group, Inc. v. Menocal" on Justia Law

Stamatios Kousisis and Alpha Painting and Construction Co. were awarded two contracts by the Pennsylvania Department of Transportation (PennDOT) for painting projects in Philadelphia. Federal regulations required subcontracting a portion of the contract to a disadvantaged business enterprise. Kousisis falsely represented that Alpha would obtain paint supplies from Markias, Inc., a prequalified disadvantaged business. However, Markias functioned only as a pass-through entity, funneling checks and invoices to and from Alpha’s actual suppliers, violating the requirement that disadvantaged businesses perform a commercially useful function. Despite this, Alpha completed the projects to PennDOT’s satisfaction and earned over $20 million in gross profit.The Government charged Alpha and Kousisis with wire fraud and conspiracy to commit wire fraud, based on the fraudulent-inducement theory. After a jury convicted them, they moved for acquittal, arguing that PennDOT received the full economic benefit of its bargain, so the Government could not prove they schemed to defraud PennDOT of money or property. The United States Court of Appeals for the Third Circuit rejected this argument, affirming the convictions and deepening the division over the validity of a federal fraud conviction when the defendant did not seek to cause the victim net pecuniary loss.The Supreme Court of the United States held that a defendant who induces a victim to enter into a transaction under materially false pretenses may be convicted of federal fraud even if the defendant did not seek to cause the victim economic loss. The Court explained that the text of the wire fraud statute does not mention economic loss and that the common law did not establish a general rule requiring economic loss in all fraud cases. The Court affirmed the Third Circuit’s decision, concluding that the fraudulent-inducement theory is consistent with both the text of the statute and the Court’s precedent. View "Kousisis v. United States" on Justia Law

Kentucky ruling that authority to bind a principal to arbitration must be explicitly stated in power of attorney violated the Federal Arbitration Act.When the patients moved into Kindred’s nursing home, their relatives used powers of attorney to complete necessary paperwork, including an agreement that any claims arising from the patient’s stay at Kindred would be resolved through binding arbitration. After the patients died, their estates filed suits alleging that Kindred’s substandard care had caused their deaths. The trial court denied Kindred’s motions to dismiss. The Kentucky Supreme Court affirmed, finding the arbitration agreements invalid because neither power of attorney specifically entitled the representative to enter into an arbitration agreement. Because the Kentucky Constitution declares the rights of access to the courts and trial by jury to be “sacred,” the court reasoned, an agent could deprive her principal of such rights only if expressly provided in the power of attorney. The U.S. Supreme Court reversed. The Kentucky Supreme Court’s clear-statement rule violates the Federal Arbitration Act, 9 U.S.C. 2, by singling out arbitration agreements for disfavored treatment. The Act preempts any state rule that discriminates on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements. The FAA is concerned with both the enforcement and initial validity of arbitration agreements. View "Kindred Nursing Centers, L. P. v. Clark" on Justia Law

DIRECTV and its customers entered into service agreements that included a binding arbitration provision with a class-arbitration waiver. It specified that the entire arbitration provision was unenforceable if the “law of your state” made class-arbitration waivers unenforceable. The agreement also declared that the arbitration clause was governed by the Federal Arbitration Act, 9 U.S.C. 2. After California customers entered into the agreement, the Supreme Court held that California’s rule invalidating class-arbitration waivers was preempted by the Federal Act. When California customers sued, the trial court denied DIRECTV’s request to order the matter to arbitration. The California Court of Appeal affirmed, finding the entire arbitration provision unenforceable under the agreement because the parties were free to refer in the contract to California law as it would have been absent federal preemption. The U.S. Supreme Court reversed. The California court’s interpretation does not place arbitration contracts “on equal footing with all other contracts,” as required by the Act. California courts would not interpret contracts other than arbitration contracts the same way. The language the court used to frame the issue focused only on arbitration. View "DIRECTV, Inc. v. Imburgia" on Justia Law

Northwest terminated plaintiff’s membership in its frequent flyer program. A provision in the frequent flyer agreement gave Northwest sole discretion to determine whether a participant had abused the program. Plaintiff claimed that Northwest breached its contract by revoking his membership without valid cause and violated the duty of good faith and fair dealing because it terminated his membership in a way that contravened his reasonable expectations. The district court dismissed, holding that the Airline Deregulation Act of 1978 pre-empted the breach of the duty of good faith and fair dealing claim. The Ninth Circuit reversed, finding that claim “too tenuously connected to airline regulation to trigger” ADA pre-emption. A unanimous Supreme Court reversed. The Act pre-empts a state-law claim for breach of the implied covenant of good faith and fair dealing if it seeks to enlarge contractual obligations that the parties voluntarily adopted. The Act prohibits states from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to [an air carrier’s] price, route, or service,” 49 U.S.C. 41713(b)(1). The phrase “other provision having the force and effect of law” includes state common-law rules like the claimed implied covenant. Exempting common-law claims would disserve the Act’s central purpose: to eliminate federal regulation of rates, routes, and services so they could be set by market forces. Northwest’s program connects to “rates” by awarding credits redeemable for tickets and upgrades, thus eliminating or reducing ticket prices. It also connects to “services,” i.e., access to flights and higher service categories. Because the implied covenant claim sought to enlarge contractual agreement, it is pre-empted. Under controlling Minnesota law, parties may not contract out of the implied covenant; when state law does not authorize parties to free themselves from the covenant, a breach of covenant claim is pre-empted. Participants in frequent flyer programs can protect themselves by avoiding airlines with poor reputations and enrolling in more favorable rival programs; the Department of Transportation has authority to investigate complaints about frequent flyer programs. The Court also noted that the plaintiff did not appeal his breach of contract claim. View "Northwest, Inc. v. Ginsberg" on Justia Law

Plaintiffs filed a putative collective action under the Fair Labor Standards Act, seeking backpay for time spent donning and doffing pieces of protective gear required by the employer because of hazards at its steel plants. The employer argued that the time, otherwise compensable under the Act, is noncompensable under its collective bargaining agreement with plaintiffs’ union. Under 29 U.S.C. 203(o), parties may collectively bargain over whether “time spent in changing clothes ... at the beginning or end of each workday” must be compensated. The district court granted the employer partial summary judgment. The Seventh Circuit and Supreme Court affirmed, concluding that the protective gear constitutes “clothes,” even if integral and indispensable to the work. Whether one exchanges street clothes for work clothes or simply layers one over the other may be a matter of purely personal choice, and section 203(o) should not be read to allow workers to opt into or out of its coverage at random or at will when another reading is textually permissible. Although safety glasses, earplugs, and a respirator do not fit the interpretation of “clothes,” the relevant question is whether the period at issue can, on the whole, be fairly characterized as “time spent in changing clothes or washing.” In this case, time spent donning and doffing safety glasses and earplugs was minimal. View "Sandifer v. United States Steel Corp." on Justia Law

Union-affiliated benefit funds sued Haluch to collect benefits contributions required to be paid under federal law, plus attorney’s fees and costs, which were obligations under a federal statute and the parties’ collective bargaining agreement. The district court issued an order on June 17, on the merits of the contribution claim, and a separate ruling on July 25, on the motion for fees and costs. The Funds appealed on August 15. Haluch argued that the June 17 order was a final decision under 28 U.S.C. 1291, so that notice of appeal was not filed within the 30-day deadline. The First Circuit acknowledged that an unresolved fee issue generally does not prevent judgment on the merits from being final, but held that no final decision was rendered until July 25 because entitlement to fees and costs under the CBA was an element of damages and thus part of the merits. The Supreme Court reversed, finding the appeal of the June 17 decision untimely. The Funds’ claim that contractual attorney’s fees provisions are always a measure of damages failed. There is no justification for different jurisdictional effect based solely on whether an asserted right to fees is based on contract or statute. View "Ray Haluch Gravel Co. v. Cent. Pension Fund of Operating Eng'rs & Participating Emp'rs" on Justia Law

Atlantic, a Virginia corporation, entered into a construction subcontract with J-Crew, a Texas corporation, including a provision that all disputes between the parties would be litigated in Virginia. When a dispute arose, J-Crew filed suit in the Western District of Texas. Atlantic moved to dismiss, arguing that the forum-selection clause rendered venue “wrong” under 28 U. S. C. 406(a) and “improper” under FRCP 12(b)(3). In the alternative, Atlantic moved to transfer the case to Virginia under 28 U. S. C. 1404(a). The district court denied the motions, reasoning that section 1404(a) is the exclusive mechanism for enforcing a forum-selection clause that points to another federal forum; that Atlantic bore the burden of establishing that transfer would be appropriate; and that the court would consider both public- and private-interest factors, only one of which was the forum-selection clause. The Fifth Circuit agreed. The Supreme Court reversed and remanded. A forum-selection clause may be enforced by a motion to transfer under 1404(a). Section 1406(a) and Rule 12(b)(3) allow dismissal only when venue is “wrong” or “improper.” Whether venue is “wrong” or “improper” depends exclusively on whether the court in which the case was filed satisfies the requirements of 28 U. S. C. 1391. Whether a contract contains a forum-selection clause has no bearing on whether a case falls into a specified district. If a defendant files a 1404(a) motion, a district court should transfer the case unless extraordinary circumstances unrelated to convenience of the parties clearly disfavor a transfer. No such factors were present in this case. The district court improperly placed the burden on Atlantic to prove that transfer to the parties’ contractually preselected forum was appropriate instead of requiring J-Crew, the party acting in violation of the forum-selection clause, to show that public-interest factors overwhelmingly disfavored a transfer and erred in giving weight to the parties’ private interests outside those expressed in the forum-selection clause. Its holding that public interests favored keeping the case in Texas because Texas contract law is more familiar to Texas federal judges than to those in Virginia rested on a mistaken belief that the Virginia federal court would have been required to apply Texas’ choice-of-law rules instead of Virginia’s. View "Atlantic Marine Constr. Co. v. U.S. Dist. Court for Western Dist. of Tex." on Justia Law