Application of the Government Contractor Defense Affirmed in Agent Orange Cases

As reported in the June 2008 issue of this newsletter, the Second U.S. Circuit Court of Appeals recently issued a trio of opinions that dismissed the latest series of claims based on the alleged injurious exposure to chemical herbicides, including 'Agent Orange,' during the Vietnam War. This article addresses the Second Circuit's decision affirming the application of the 'government contractor defense' to preclude the plaintiffs' claims asserted against the companies that had manufactured the herbicides. In re Agent Orange Prod. Liab. Litig., 517 F.3d 76 (2d Cir. 2008), reh'g en banc denied (2d Cir. May 7, 2008). Under the government contractor defense, a private manufacturer is immunized from liability where it has made a product in accordance with specifications formulated by the government.

At the outset, it should be recognized that, with respect to the alleged Agent-Orange-related injuries, the government itself could not be held liable because, among other grounds, claims arising out of 'combatant activities' are specifically exempted under the Federal Tort Claims Act, and the government's 'discretionary function' immunity bars such claims. See 28 U.S.C. '2680(j) (FTCA does not provide for claims 'arising out of the combatant activities of the military or naval forces, or the Coast Guard, during time of war'); In re Agent Orange Litig., 818 F.2d 204 (2d Cir. 1987) (affirming dismissal of manufacturers' third-party claims against the government in original Agent Orange litigation on Feres doctrine/discretionary function grounds). With the government so potentially immunized in an instance where a plaintiff is injured by a product ordered and utilized by the government, the plaintiff might be able to proceed solely against the manufacturer.

Boyle v. United Technologies Corp.

In 1988, in Boyle v. United Technologies Corp., 487 U.S. 500 (1988), the U.S. Supreme Court addressed the potential liabilities of manufacturers under such circumstances and recognized the 'government contractor defense.' In Boyle, the Supreme Court 'concluded that the 'uniquely federal interest[ ]' of 'getting the Government's work done' requires that, under some circumstances, independent contractors be protected from tort liability associated with their performance of government procurement contracts.' In re Agent Orange, 517 F.3d at 87 (quoting Boyle, 487 U.S. at 504-05). The Supreme Court concluded that 'the protection for discretionary action taken by federal agencies and employees implies some measure of similar protection for government contractors even though they are themselves non-governmental entities.' Id. at 88. The Court reasoned that 'the exercise of government discretion is inherent to military contracting [as] 'the selection of the appropriate design for military equipment to be used by our Armed Forces is assuredly a discretionary function within the meaning of this provision. It often involves not merely engineering analysis but judgment as to the balancing of many technical, military, and even social considerations, including specifically the trade-off between greater safety and greater combat effectiveness.” Id. (quoting Boyle, 487 U.S. at 511).

Three-Prong Test

As the Second Circuit explained in its recent Agent Orange decision, the 'government contractor defense' requires a three-pronged showing, that:

(1) the United States approved reasonably precise specifications (for the allegedly defectively designed equipment); (2) the equipment conformed to those specifications; and (3) the [contractor who supplied the equipment] warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States. 517 F.3d at 88 (quoting Boyle, 487 U.S. at 512).

'The third requirement is imposed because 'in its absence, the displacement of state tort law would create some incentive for the manufacturer to withhold knowledge of risks, since conveying that knowledge might disrupt the contract but withholding it would produce no liability.” Id.

In its recent decision, the Second Circuit held that each of the prongs was satisfied and affirmed District Judge Jack Weinstein's dismissal on government contractor defense grounds. The first and third prongs of the test, respectively, whether the product specifications were formulated by the government or the contractor, and whether the contractor was aware of relevant risks of which it did not apprise the government, were given the most scrutiny. This would be expected in most government contractor defense cases, as these elements focus on issues of 'who knew what and when,' which are typically highly controverted. (It seems fair to presume that conformance with specifications will be satisfied in the majority of circumstances involving military products, given the quality control and inspection performed on products prior to their acceptance.)

With respect to the 'reasonably precise specifications' element, the Second Circuit rejected the plaintiffs' arguments that the government had not created the specifications for the herbicides, which the plaintiffs contended were 'off-the-shelf' products. Agent Orange was a mixture of two forms of commercially
marketed herbicides: 2,4-D (2,4-Dichlorophenoxyacetic acid) and 2,4,5-T (2,4,5-Trichlorophenoxyacetic acid). As the court acknowledged, '[i]f the government buys a product 'off-the-shelf' ' 'as-is' ' the seller of that product cannot be heard to assert that it is protected from the tort-law consequences of the product's defects. Where the government is merely an incidental purchaser, the seller was not following the government's discretionary procurement decisions.' 517 F.3d at 90.

In the Agent Orange context, however, this was not the case. First, as a factual matter, the herbicides were not commercially available in the concentrations mandated by the Agent Orange specifications and, thus, were not 'off-the-shelf' products. 517 F.3d at 90 (noting that Agent Orange contained 2,4,5-T at purity levels of greater than 90%, compared with commercial grade 2,4,5-T, which did not exceed 55%). Second, as a legal principle, the mere fact that the end product supplied to the government was comprised of commercially available components does not render it an off-the-shelf product. Rather, as the Second Circuit explained, the pertinent inquiry is whether the government was the 'agent of decision' regarding the composition of the product. Id. at 91. In sum, while part of the decision-making process might involve the government's 'reliance on [the] manufacturers' expertise in making a fully informed decision on what to order,' where the government 'independently and meaningfully reviews the specifications' and 'approves' them, the specifications will be the government's for purpose of the government contractor defense. Id.

The third prong of the test, relating to the contractor's knowledge of risks unknown to the government, was also hotly contested in the Agent Orange cases, and would typically be a center of dispute in a product liability litigation implicating the government contractor defense. The Second Circuit held that this prong is satisfied where the contractor 'fully informed the government about hazards related to the government's exercise of discretion that were 'substantial enough to influence the military decision' made.' 517 F.3d at 99. As the court more fully explained:

We therefore do not think that the Boyle Court meant that a defendant seeking the protection of the defense was required to demonstrate that it had shared all known hazards with the government, irrespective of whether those hazards allegedly not conveyed would have had an impact on the government's exercise of discretion about the design defect alleged. It would be impractical to require that a manufacturer compile and present to the government in advance a list of each and every risk associated with a product it is producing for the government. The operation of a tank or a transport plane ' more so the manufacture and use of a chemical agent ' involves, at the extremities, virtually limitless risks. Even if it were possible to generate such complete lists, their comprehensiveness would overwhelm government decision makers with largely irrelevant data, extending the time and costs associated with federal contracting and obscuring those risks most likely to have an impact on contracting decisions. A rule that required full disclosure of all possible risks to anyone would be contrary to Boyle's underlying rationale of protecting the federal interest in 'getting the Government's work done.' Id. at 98-99 (quoting Boyle, 487 U.S. at 505).

The court held that the third prong of the government contractor defense test was satisfied, concluding that the record was clear 'that the defendants did not fail to inform the government of known dangers at the time of Agent Orange's production of the type that would have had an impact on the military's discretionary decision regarding Agent Orange's toxicity.' 517 F.3d at 98. In this regard, the court acknowledged that the manufacturers had some knowledge of health risks for workers exposed during the manufacture of Agent Orange (heightened risk of developing chloracne or liver damage). The court found, however, that the government possessed the same knowledge, and, moreover, that there was no showing that the manufacturers 'had knowledge of a danger that might have influenced the military's conclusion that 'operational use' of Agent Orange posed 'no health hazard … to men or domestic animals.” Id. at 101 (emphasis added). Thus, in sum, the record did not reveal that the manufacturers possessed some 'never-disclosed knowledge of a sort that might have influenced the government's decision-making process regarding Agent Orange as it was used in Vietnam.' Id. at 101-02 (emphasis added).

The Product Liability Context

In the product liability context, the government contractor defense seems most likely to arise with respect to products and equipment procured by the military. For example, as noted in our prior article regarding federal officer removal, the government contractor defense is commonly asserted by naval shipbuilders as the ground for federal officer removal of personal injury lawsuits alleging asbestos exposure (the results of these arguments are mixed, see Harris v. Rapid Am. Corp., 532 F. Supp. 2d 1001, 1004 [N.D. Ill. 2007] [cataloging cases approving and rejecting removal of asbestos cases against shipbuilders]). In addition, product liability cases akin to the Agent Orange cases, involving allegations of latent injuries caused by military products such as depleted uranium shells or other chemical agents that are part of the modern battlefield, might foreseeably arise out of the current military conflicts. Notably, in seeking rehearing from the Second Circuit, the Agent Orange plaintiffs argued (unsuccessfully) that the Panel's decision had improperly expanded the government contractor defense and thereby jeopardized the rights of thousands who have been exposed to asbestos or other toxins.

The government contractor defense might arise in non-military product liability cases as well. As the Third Circuit has held, 'the government contractor defense is available to the manufacturers of nonmilitary products as a matter of federal common law.' Carley v. Wheeled Coach, 991 F.2d 1117, 1125 (3d Cir. 1993) (design defect alleged in ambulance roll-over), cert. denied, 510 U.S. 868 (1993). See also Joseph v. Fluor Corp., 513 F. Supp. 2d 664 (E.D. La. 2007) (explosion of gas stove in trailer provided by FEMA to Hurricane Katrina victim; remanded to state court on ground that manufacturer could not sustain colorable federal government contractor defense due to lack of government's control over specifications for trailers); Russek v. Unisys Corp., 921 F. Supp. 1277 (D.N.J. 1996) (upholding government contractor defense as to claims for repetitive stress injury allegedly caused by defective design of 'Multiple Position Letter Sorting Machines' supplied by defendant to Postal Service).

The Second Circuit's decision is an important reaffirmation of the scope and application of the government contractor defense, which might arise in a variety of product liability contexts. Litigation concerning the defense will most often focus on whether the government was the decision-maker for the product specifications at issue, and whether the contractor made adequate disclosure of risks known to it concerning the product. On these two points, the Second Circuit's recent Agent Orange decision reflects that for the defense to apply: 1) the government need not have created the specifications, so long as it approved them after substantive review; and 2) the contractor need not disclose all risks known to it, but only those relating to the government discretion being exercised, which would appear to delimit the scope of risks that must be disclosed to those known to arise out of the product's intended use.

Practitioners litigating the government contractor defense should be aware of these contours recently defined by the Second Circuit. The latter point in particular appears potentially to provide for the defense to have a broad scope (i.e., due to such limitation on the risks that need to be disclosed, the third element of the defense would be more easily established by a manufacturer), and it will be seen whether such a trend develops in future government contractor defense cases.

As reported in the June 2008 issue of this newsletter, the Second U.S. Circuit Court of Appeals recently issued a trio of opinions that dismissed the latest series of claims based on the alleged injurious exposure to chemical herbicides, including 'Agent Orange,' during the Vietnam War. This article addresses the Second Circuit's decision affirming the application of the 'government contractor defense' to preclude the plaintiffs' claims asserted against the companies that had manufactured the herbicides. In re Agent Orange Prod. Liab. Litig., 517 F.3d 76 (2d Cir. 2008), reh'g en banc denied (2d Cir. May 7, 2008). Under the government contractor defense, a private manufacturer is immunized from liability where it has made a product in accordance with specifications formulated by the government.

At the outset, it should be recognized that, with respect to the alleged Agent-Orange-related injuries, the government itself could not be held liable because, among other grounds, claims arising out of 'combatant activities' are specifically exempted under the Federal Tort Claims Act, and the government's 'discretionary function' immunity bars such claims. See 28 U.S.C. '2680(j) (FTCA does not provide for claims 'arising out of the combatant activities of the military or naval forces, or the Coast Guard, during time of war'); In re Agent Orange Litig., 818 F.2d 204 (2d Cir. 1987) (affirming dismissal of manufacturers' third-party claims against the government in original Agent Orange litigation on Feres doctrine/discretionary function grounds). With the government so potentially immunized in an instance where a plaintiff is injured by a product ordered and utilized by the government, the plaintiff might be able to proceed solely against the manufacturer.

Boyle v. United Technologies Corp.

In 1988, in Boyle v. United Technologies Corp. , 487 U.S. 500 (1988), the U.S. Supreme Court addressed the potential liabilities of manufacturers under such circumstances and recognized the 'government contractor defense.' In Boyle, the Supreme Court 'concluded that the 'uniquely federal interest[ ]' of 'getting the Government's work done' requires that, under some circumstances, independent contractors be protected from tort liability associated with their performance of government procurement contracts.' In re Agent Orange, 517 F.3d at 87 (quoting Boyle, 487 U.S. at 504-05). The Supreme Court concluded that 'the protection for discretionary action taken by federal agencies and employees implies some measure of similar protection for government contractors even though they are themselves non-governmental entities.' Id. at 88. The Court reasoned that 'the exercise of government discretion is inherent to military contracting [as] 'the selection of the appropriate design for military equipment to be used by our Armed Forces is assuredly a discretionary function within the meaning of this provision. It often involves not merely engineering analysis but judgment as to the balancing of many technical, military, and even social considerations, including specifically the trade-off between greater safety and greater combat effectiveness.” Id. (quoting Boyle, 487 U.S. at 511).

Three-Prong Test

As the Second Circuit explained in its recent Agent Orange decision, the 'government contractor defense' requires a three-pronged showing, that:

(1) the United States approved reasonably precise specifications (for the allegedly defectively designed equipment); (2) the equipment conformed to those specifications; and (3) the [contractor who supplied the equipment] warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States. 517 F.3d at 88 (quoting Boyle, 487 U.S. at 512).

'The third requirement is imposed because 'in its absence, the displacement of state tort law would create some incentive for the manufacturer to withhold knowledge of risks, since conveying that knowledge might disrupt the contract but withholding it would produce no liability.” Id.

In its recent decision, the Second Circuit held that each of the prongs was satisfied and affirmed District Judge Jack Weinstein's dismissal on government contractor defense grounds. The first and third prongs of the test, respectively, whether the product specifications were formulated by the government or the contractor, and whether the contractor was aware of relevant risks of which it did not apprise the government, were given the most scrutiny. This would be expected in most government contractor defense cases, as these elements focus on issues of 'who knew what and when,' which are typically highly controverted. (It seems fair to presume that conformance with specifications will be satisfied in the majority of circumstances involving military products, given the quality control and inspection performed on products prior to their acceptance.)

With respect to the 'reasonably precise specifications' element, the Second Circuit rejected the plaintiffs' arguments that the government had not created the specifications for the herbicides, which the plaintiffs contended were 'off-the-shelf' products. Agent Orange was a mixture of two forms of commercially
marketed herbicides: 2,4-D (2,4-Dichlorophenoxyacetic acid) and 2,4,5-T (2,4,5-Trichlorophenoxyacetic acid). As the court acknowledged, '[i]f the government buys a product 'off-the-shelf' ' 'as-is' ' the seller of that product cannot be heard to assert that it is protected from the tort-law consequences of the product's defects. Where the government is merely an incidental purchaser, the seller was not following the government's discretionary procurement decisions.' 517 F.3d at 90.

In the Agent Orange context, however, this was not the case. First, as a factual matter, the herbicides were not commercially available in the concentrations mandated by the Agent Orange specifications and, thus, were not 'off-the-shelf' products. 517 F.3d at 90 (noting that Agent Orange contained 2,4,5-T at purity levels of greater than 90%, compared with commercial grade 2,4,5-T, which did not exceed 55%). Second, as a legal principle, the mere fact that the end product supplied to the government was comprised of commercially available components does not render it an off-the-shelf product. Rather, as the Second Circuit explained, the pertinent inquiry is whether the government was the 'agent of decision' regarding the composition of the product. Id. at 91. In sum, while part of the decision-making process might involve the government's 'reliance on [the] manufacturers' expertise in making a fully informed decision on what to order,' where the government 'independently and meaningfully reviews the specifications' and 'approves' them, the specifications will be the government's for purpose of the government contractor defense. Id.

The third prong of the test, relating to the contractor's knowledge of risks unknown to the government, was also hotly contested in the Agent Orange cases, and would typically be a center of dispute in a product liability litigation implicating the government contractor defense. The Second Circuit held that this prong is satisfied where the contractor 'fully informed the government about hazards related to the government's exercise of discretion that were 'substantial enough to influence the military decision' made.' 517 F.3d at 99. As the court more fully explained:

We therefore do not think that the Boyle Court meant that a defendant seeking the protection of the defense was required to demonstrate that it had shared all known hazards with the government, irrespective of whether those hazards allegedly not conveyed would have had an impact on the government's exercise of discretion about the design defect alleged. It would be impractical to require that a manufacturer compile and present to the government in advance a list of each and every risk associated with a product it is producing for the government. The operation of a tank or a transport plane ' more so the manufacture and use of a chemical agent ' involves, at the extremities, virtually limitless risks. Even if it were possible to generate such complete lists, their comprehensiveness would overwhelm government decision makers with largely irrelevant data, extending the time and costs associated with federal contracting and obscuring those risks most likely to have an impact on contracting decisions. A rule that required full disclosure of all possible risks to anyone would be contrary to Boyle's underlying rationale of protecting the federal interest in 'getting the Government's work done.' Id. at 98-99 (quoting Boyle, 487 U.S. at 505).

The court held that the third prong of the government contractor defense test was satisfied, concluding that the record was clear 'that the defendants did not fail to inform the government of known dangers at the time of Agent Orange's production of the type that would have had an impact on the military's discretionary decision regarding Agent Orange's toxicity.' 517 F.3d at 98. In this regard, the court acknowledged that the manufacturers had some knowledge of health risks for workers exposed during the manufacture of Agent Orange (heightened risk of developing chloracne or liver damage). The court found, however, that the government possessed the same knowledge, and, moreover, that there was no showing that the manufacturers 'had knowledge of a danger that might have influenced the military's conclusion that 'operational use' of Agent Orange posed 'no health hazard … to men or domestic animals.” Id. at 101 (emphasis added). Thus, in sum, the record did not reveal that the manufacturers possessed some 'never-disclosed knowledge of a sort that might have influenced the government's decision-making process regarding Agent Orange as it was used in Vietnam.' Id. at 101-02 (emphasis added).

The Product Liability Context

In the product liability context, the government contractor defense seems most likely to arise with respect to products and equipment procured by the military. For example, as noted in our prior article regarding federal officer removal, the government contractor defense is commonly asserted by naval shipbuilders as the ground for federal officer removal of personal injury lawsuits alleging asbestos exposure (the results of these arguments are mixed, see Harris v. Rapid Am. Corp. , 532 F. Supp. 2d 1001, 1004 [N.D. Ill. 2007] [cataloging cases approving and rejecting removal of asbestos cases against shipbuilders]). In addition, product liability cases akin to the Agent Orange cases, involving allegations of latent injuries caused by military products such as depleted uranium shells or other chemical agents that are part of the modern battlefield, might foreseeably arise out of the current military conflicts. Notably, in seeking rehearing from the Second Circuit, the Agent Orange plaintiffs argued (unsuccessfully) that the Panel's decision had improperly expanded the government contractor defense and thereby jeopardized the rights of thousands who have been exposed to asbestos or other toxins.

The government contractor defense might arise in non-military product liability cases as well. As the Third Circuit has held, 'the government contractor defense is available to the manufacturers of nonmilitary products as a matter of federal common law.' Carley v. Wheeled Coach, 991 F.2d 1117, 1125 (3d Cir. 1993) (design defect alleged in ambulance roll-over), cert. denied , 510 U.S. 868 (1993). See also Joseph v. Fluor Corp. , 513 F. Supp. 2d 664 (E.D. La. 2007) (explosion of gas stove in trailer provided by FEMA to Hurricane Katrina victim; remanded to state court on ground that manufacturer could not sustain colorable federal government contractor defense due to lack of government's control over specifications for trailers); Russek v. Unisys Corp ., 921 F. Supp. 1277 (D.N.J. 1996) (upholding government contractor defense as to claims for repetitive stress injury allegedly caused by defective design of 'Multiple Position Letter Sorting Machines' supplied by defendant to Postal Service).

The Second Circuit's decision is an important reaffirmation of the scope and application of the government contractor defense, which might arise in a variety of product liability contexts. Litigation concerning the defense will most often focus on whether the government was the decision-maker for the product specifications at issue, and whether the contractor made adequate disclosure of risks known to it concerning the product. On these two points, the Second Circuit's recent Agent Orange decision reflects that for the defense to apply: 1) the government need not have created the specifications, so long as it approved them after substantive review; and 2) the contractor need not disclose all risks known to it, but only those relating to the government discretion being exercised, which would appear to delimit the scope of risks that must be disclosed to those known to arise out of the product's intended use.

Practitioners litigating the government contractor defense should be aware of these contours recently defined by the Second Circuit. The latter point in particular appears potentially to provide for the defense to have a broad scope (i.e., due to such limitation on the risks that need to be disclosed, the third element of the defense would be more easily established by a manufacturer), and it will be seen whether such a trend develops in future government contractor defense cases.