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Hercules Inc. et al. v. United States (94-818), 516 U.S. 417 (1996).
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[ Breyer ]
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[ Rehnquist ]
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NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D.C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES


No. 94-818


HERCULES INCORPORATED, et al., PETITIONERS v. UNITED STATES

on writ of certiorari to the united states court of appeals for the federal circuit

[March 4, 1996]

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 (EDNY 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 (EDNY 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. [n.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, [n.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. [n.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 (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. ___ (1995), and now affirm the judgment below but on different grounds. [n.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 (1941). Congress created the Claims Court [n.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," see 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 Mutual 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 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 specification." Id., at 136. From this, petitioners contend the United States is responsible for 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 Co. v. United States, 431 U.S. 666 (1977). [n.6]

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. [n.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. [n.8] There is also reason to think that a contracting 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. [n.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. [n.10] We view the Anti Deficiency Act, and the contracting 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 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, [n.11] 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 Savings & Loan Assn. v. Solimino, 501 U.S. 104, 112 (1991). [n.12]

We find unpersuasive Thompson's argument that §707 of the DPA [n.13] reveals Congress' intent to hold harmless manufacturers for any liabilities which flow from compliance with an order issued under the DPA. Petitioner reads the provision too broadly. The statute plainly provides immunity, not indemnity. By expressly providing a defense to liability, Congress does not implicitly agree that, if liability is imposed notwithstanding that defense, the Government will reimburse the unlucky defendant. [n.14] We think petitioner'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 petitioner 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 v. Minnesota Mutual Investment Co., 271 U.S. 212, 217-218 (1926).

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.


Notes

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 opt out 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 (EDNY 1985). The Court of Appeals for the Second Circuit affirmed, but solely on the basis of the Government contractor defense. In re "Agent Orange" 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).

4 Justice 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 6. 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.

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.

6 Justice Breyer asserts, post, at 11, 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 of specification 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, 1143-1144 (CA10 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.

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 contractual indemnification claim. Plaintiff's Memorandum in Opposition to Government's Motion to Dismiss and for Summary Judgment 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").

8 Justice 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 supra, n. 4; post, at 6-7), 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 7. 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 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.

9 The 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 Persons-- Reconsideration, 62 Comp. 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 8-9. But the Anti Deficiency Act applies equally to capped indemnification agreements. We do not suggest that all indemnification agreements would violate the Act, cf. supra, at 11 (citing 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.

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 Pub. L. 85-804, 50 U.S.C. §§ 1431-1435 (1988 ed. and Supp.V)).

12 Justice 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 7. 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.).

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.