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Construction Litigation

No Sovereign Immunity for Private Engineering Firm in Texas

By Daniel R. Smith – December 22, 2015

In Brown & Gay Engineering, Inc. v. Olivares, an opinion issued on April 24, 2015, the Supreme Court of Texas ruled that a private engineering firm contracting with the government to design and construct a roadway is not protected from liability by “sovereign immunity,” a defense typically reserved for governmental defendants. 2015 WL 1897646 (Tex. 2015). This is a landmark decision closing the debate in Texas on the applicability of a defense that is often raised by private companies to which the state contracts its authority.

The underlying facts in this case are tragic. A drunk driver entered an exit ramp serving a toll road, heading east in westbound lanes for eight miles before colliding with another vehicle. The collision killed both drivers. Through an engineering services agreement, the Toll Road Authority had delegated to a private engineering firm the responsibility of designing road sign and traffic layouts. Family members of the victim sued the engineering firm, alleging that it had negligently failed to design and install proper signs, warning flashers, and other traffic-control items around the exit ramp, thus causing the death of their loved one.

The engineering firm challenged the trial court’s jurisdiction, arguing that it was essentially an employee of the government being sued in its official capacity and was therefore entitled to governmental immunity. The trial court agreed with the engineering firm, but the intermediate court of appeals reversed, holding that the engineering firm was not entitled to governmental immunity because it was an independent contractor, not an employee of the government. The engineering firm appealed to the Supreme Court of Texas, contending that, despite its status as an independent contractor, it is still entitled to the same immunity as its principal, the Toll Road Authority, and that extending immunity furthers the purpose of the doctrine by protecting the public treasury.

The Supreme Court of Texas disagreed. In reviewing the rationale behind sovereign immunity, the court explained that the doctrine “protects the public as a whole by preventing potential disruptions of key government services that could occur when government funds are unexpectedly and substantially diverted by litigation.” Id. at *3. Immunizing private engineering firms against liability for their own alleged negligence on government projects does not aid this goal.

First, considering the highly competitive world of government-contract bidding, there is no real threat that any costs associated with any increased litigation exposure to a private independent contractor would be passed on to the government, especially because the contractor can and usually does manage its risk by obtaining insurance. In fact, the engineering firm took into account premiums for insurance coverage during the bidding process, allowing it to manage its risk and remain competitive. Id. at *4.

Second, sovereign immunity is not strictly a cost-savings measure. “It guards against unforeseen expenditures associated with the government’s defending lawsuits and paying judgments that could hamper government functions by diverting funds from their allocated purposes.” Id. Even if refusing to extend immunity to private contractors may lead to higher overall costs to be charged by them, such costs will be reflected in the negotiated contract price, thus allowing the government to plan its project spending with reasonable accuracy.

The engineering firm cited several previous cases in which courts, both Texas state courts and federal courts of appeals, had extended sovereign immunity to private contractors. These include, for example, cases in which contractors were sued on federal projects for dredging in accordance with government plans, Ackerson v. Bean Dredging LLC, 589 F.3d 196 (5th Cir. 2009), or building sewer lines as directed by the city in a way that trespassed on private property, Glade v. Dietert, 156 Tex. 382, 295 S.W.2d 642, 643 (1956). Distinguishing these cases, the Supreme Court of Texas reasoned that the conduct at issue was attributable to the government. “That is, the alleged cause of the injury was not the independent action of the contractor, but the action taken by the government through the contractor.” 2015 WL 1897646, at *6. Sovereign immunity, conversely, does not extend to private companies that exercise independent discretion. The Toll Road Authority in this case handed the responsibility of preparing the drawings and specifications for the road, and thus the corresponding discretion for such task, to the engineering firm. The dispute was not about the toll road itself, but rather the engineering firm’s alleged independent negligence in designing the road’s signs and traffic layouts.

This distinction is consistent with several cases from other jurisdictions. For example, the Arkansas Supreme Court ruled that a highway contractor was immune from liability for using a type of asphalt that allegedly lead to automobile crashes when the use of such material complied with the state’s specifications. Smith v. Rogers Grp., Inc., 72 S.W.3d 450 (Ark. 2002). The Wisconsin Court of Appeals extended immunity to a highway bridge designer that allegedly designed a vertical curve outside of industry standards, arguably leading to automobile crashes, when the state directed the bridge designer to implement the design. Estate of Lyons v. CNA Ins. Cos., 558 N.W.2d 658 (Wis. Ct. App. 1996). Furthermore, in a context unrelated to construction, the federal Fourth Circuit of Appeals extended foreign sovereign immunity to a security contractor in a gender discrimination lawsuit brought by a female employee when its client, the Saudi government, rejected her recommendation for a security assignment. Butters v. Vance Int’l, Inc., 225 F.3d 462, 464 (4th Cir. 2000); see also Vanchieri v. N.J. Sports & Exposition Auth., 514 A.2d 1323 (N.J. 1986) (explaining that private security contractor would enjoy public sport complex’s immunity in personal injury suit relating to rowdy fans if it could show that the state made discretionary decisions, such as the number of guards to be used and their posts, and the contractor did not deviate from those decisions).

This notable opinion corrects common misconceptions about the extent of sovereign immunity in Texas, making clear that the defense is not generally available to government contractors. Furthermore, it highlights the importance of obtaining good and reliable insurance coverage when performing services for the government, as legal protections afforded to the government will likely not extend to private contractor firms. Engineering firms and other contractors doing business with the government should not think that, when sued for negligence, the law will be softer on them simply because their client is the state. Rather, they should prepare to defend themselves as if the lawsuit related to a private project, budgeting and insuring against their litigation expense accordingly.

Keywords: construction litigation, sovereign immunity, private contractor, Texas Supreme Court

Daniel R. Smith is a partner at Husch Blackwell, LLP, Austin, Texas.

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