Government contractors should take note of the Fifth Circuit’s June 30, 2021 decision in Taylor Energy Co. v. Luttrell, which reaffirmed that contractors can enjoy a broad immunity from third-party liabilities—known as “derivative sovereign immunity,” or “Yearsley immunity.” Yearsley immunity emanates from Yearsley v. W.A. Ross Const. Co., an 80-year-old Supreme Court decision, which established that a contractor is immune when (i) it performed acts pursuant to a valid authorization of Congress and (ii) the contractor did not exceed the scope of that authority.
In Taylor Energy, the court dismissed claims arising out of an oil spill containment project in the Gulf of Mexico. The basic claim in the suit was that the contractor failed to effectively remediate and contain the oil. The Fifth Circuit found that the government: (i) provided direction to the contractor through the statement of work, in the form of “goals” and specific contract deliverables and deadlines; and (ii) periodically met with the contractor and reviewed and approved the work during performance. Based on these core facts, the court held the contractor was immune. The court held that it was irrelevant that the statement of work was “barebones,” and that the contractor—rather than the government—designed certain elements of the remediation effort. Following the Fourth Circuit’s 2018 decision in Cunningham v. GDIT, the Taylor Energy decision is another appellate court victory for contractors in the wake of the Supreme Court reaffirming Yearsley’s core principles in Campbell-Ewald Co. v. Gomez.
Background of the Case
Taylor Energy Company was the lessee and operator of the MC20 platform and oil wells located off the coast of Louisiana. In September 2004, a storm surge from Hurricane Ivan triggered an underwater mudslide, burying the MC20 wells beneath 150 feet of mud and sediment. The damage caused oil to leak across the Gulf floor and surface for the next sixteen years.
In an effort to contain the spill, Taylor drilled several wells and spent over $480 million. However, in 2018, the Coast Guard determined that some wells were discharging hundreds of barrels of oil per day, and it ordered the installation of a containment system. After Taylor’s failed attempts at containment, the Federal On Scene Commander (“OSC”) selected Couvillion Group, LLC as a contractor to undertake the oil containment effort.
Couvillion entered into a Basic Ordering Agreement with the Coast Guard. The Statement of Work laid out goals, including, inter alia, mobilizing to create an MC20 Containment Project Management Plan, developing and implementing a containment design, and working with federal personnel to begin a review of relevant site data.
Taylor filed a Declaratory Judgement Action, seeking tort damages for trespass and other “unauthorized activities” at the MC20 site. Taylor argued that the “barebones contract” and the lack of government oversight allowed Couvillion to overcharge for its services. The district court granted Couvillion’s motion for summary judgement, holding that Couvillion was entitled to Yearsley immunity.
The Fifth Circuit’s Decision
On appeal, Taylor argued that Couvillion was not entitled to Yearsley immunity for two reasons: (1) Couvillion’s actions were not authorized and directed by the government, and (2) Couvillion exceeded the bounds of the Coast Guard’s authority under federal law. The Fifth Circuit rejected both arguments.
On the first Yearsley prong, the court found that the government authorized Couvillion’s plan, the design of the containment system, and the installation of the system. Although Couvillion (rather than the Coast Guard) designed various components of the containment system, the court noted that the focus of the Yearsley analysis is on “whether Couvillion adhered to the government’s instructions described in the contract documents.”
In particular, the court noted:
- The Statement of Work described the purpose of the agreement and detailed the expectations of the contractor.
- The Statement of Work listed nine tasks and eleven deliverables to be completed on specific due dates.
- The Coast Guard routinely met with the contractor, and the contractor sought Coast Guard approval before taking the next steps in the project.
- As designs and components changed throughout the project, an “acceptance team”—comprised of a Coast Guard officer and other government officials—reviewed and approved various components of the design.
On the second prong, the Court found that the relevant statutes empowered the OSC to remove and contain the oil leaks, and Couvillion’s actions on behalf of the government fit within the language of the statutes.
Following the Fifth’s Circuit’s 2009 decision in Ackerson v. Bean Dredging LLC—in which defendant contractors successfully invoked Yearsley while defending claims related to dredging operations—Taylor Energy solidifies Yearsley’s strong footing, particularly with regard to “public works” contracts. When government contractors are sued in tort for alleged injuries arising from performance under federal contracts, Yearsley immunity remains a broad defense.
The Fifth Circuit’s ruling confirms that Yearsley immunity can apply even where the contract does not include detailed directives. Where a Statement of Work sets forth “goals” and specific deliverables and deadlines, and the government maintains some level of oversight of the project—even where the contractor retains some discretion—the contractor may still be entitled to Yearsley immunity. Further, while the claims in Taylor Energy were brought by another contractor, the Fifth Circuit’s holding did not hinge on the identity of the plaintiff; thus, the contractor would have enjoyed the same broad immunity even if the plaintiffs had been non-contractor third parties alleging injuries due to the purportedly ineffective containment efforts.
The Fifth Circuit’s decision reiterates the importance for contractors to review their contracts and practices to ensure they are “building in” the most effective protocols for reducing potential tort liability. Among other things, providing regular progress reports and obtaining written approval from government officials throughout a project will help to mitigate a contractor’s risk. In addition, contractors should ensure that their contracts contain language passing on to the government any risks or hazards of which the contractor is actually aware. These and other practices can help to build a record creating entitlement to not only Yearsley immunity, but also the Government Contractor Defense, the Political Question Doctrine, and other threshold defenses.