In the case of Union Pacific Railroad Company v. The United States, the United States Court of Federal Claims ruled in favor of the defendant after determining that the relevant statute of limitations had expired, dismissing the plaintiff’s claim that it was owed compensation for the installation of the wrong culverts beneath a train line. The case demonstrates a number of important concepts in regards to contract law and its treatment in the Court of Federal Claims more specifically. By examining the opinion in detail in conjunction with relevant cases and commentary, one is able to see how contract law continues to provides instances of legislative contradiction and struggles to maintain an effective balance between the rights and interests of the various stakeholders. While the decision in Union Pacific Railroad Company v. The United States does not stray from precedent in similar cases, it does demonstrate the difficulty of effectively answering grievances when jurisdictional confusion and the unique legal strategies available to the government conspire to make what would otherwise be a straightforward breach-of-contract claim into a complex, contradictory game.
The contract in Union Pacific Railroad v. The United States was originally between the United States (by way of the United States Army Corps of Engineers) and the Missouri, Kansas & Texas Railway Company (colloquially known as “the Katy”). In 1959 the Corps was trying to develop “a flood control project called the Eufala Dam and Reservoir,” and “to accommodate the resulting man-made lake, adjacent properties would have to be altered significantly,” including an adjacent property owned by the Katy (Lettow, 2012, p. 2). The Corps and the Katy entered into a contract stipulating that that Katy would grant the Corps titles and easements on the necessary portions of its property, while the Corps would construct “new embankments for railroad tracks and facilities on the Katy’s remaining property” (Lettow, 2012, p. 2).
The two elements of the contract relevant to Union Pacific Railroad v. The United States concern the building of these new embankments and the relevancy of the contract’s release clause. Because the new embankments would be subject to extra pressures and degradation as a result of their proximity to the man-made lake, the contract stipulated that any culverts running under the new embankments that were “located below the power-pool elevation of 585.0 feet were to be constructed of monolithic, reinforced concrete, whereas culverts above such elevation could instead be made of corrugated metal pipe” (Lettow, 2012, p. 3). The contract was completed without comment, although as Judge Lettow notes in his opinion, because the Katy was succeed in interest by Union Pacific following the latter’s purchase of the former, there remains some ambiguity as to whether anyone affiliated with the Katy noted any problems at the time of construction (Lettow, 2012, p. 3).
In May, 2003, a Union Pacific train “derailed while crossing an area of track laid on an embankment constructed by the Corps,” and Union Pacific’s investigation determined that the cause of the derailment was the installation of metal culverts where there should have been concrete culverts (Lettow, 2012, p. 4). In a clear breach of contract, the Corps engineers installed two corrugated metal culverts spanning “an elevation of 580 to 587 feet, such that five feet of each culvert was below the line at which reinforced concrete should have been used under the terms of the contract” (Lettow, 2012, p. 4). The “as-built” drawings that were later entered into evidence further demonstrated that the Corps was responsible for installing the incorrect culverts, and furthermore, that the Corps had not make the Katy or any of its engineers aware of the change (Lettow, 2012, p. 9).
Though the contract stipulated that the Katy could have an engineer present during all work, and that this engineer would “have the right to refuse acceptance of any such work which is not performed in accordance with approved plans and specifications,” it appears as if the Katy did not exercise this right, or at least not during the installation of the culverts in question (Lettow, 2012, p. 8). That the Katy apparently did not opt to have an engineer present might seem to obviate Union Pacific’s claim, but in reality the judge did not find the absence of an engineer reason enough to dismiss the claim. However, the question of who knew what when played a crucial role in the ultimate judgment.
The evidence demonstrated that a breach of contract clearly occurred, and neither party disagreed with this fact. Instead, the case rested on jurisdiction and the statue of limitations, due to the fact that the breach occurred sometime during construction (in the 1960s) while it was only fully revealed in 2003 in the aftermath of the train derailment. Initially, Union Pacific “filed suit in the United States District Court for the Eastern District of Oklahoma under the Federal Tort Claims Act [â€¦] alleging negligent-breach-of-contract and negligent-inspection-and-maintenance claims” (Lettow, 2012, p. 4). The government argued that the claim was the sole jurisdiction of the Court of Federal Claims, because “the claim sounded in contract, not tort” (Lettow, 2012, p. 4).
The district court agreed with Union Pacific, and awarded it a judgment of $4,456,606.70. Specifically, the court found that the government breached the contract with the installation of the incorrect culverts, that it failed in its duty to inspect and maintain the culverts, and that the contract’s release clause, which may have otherwise released the government from any claims, “was void as against Oklahoma public policy” (Lettow, 2012, p. 4). As will be seen, this judgment was ultimately worthless, not because the decision was overturned on appeal per se, but rather because jurisdictional confusion meant that the Oklahoma district court was not even in a place to rule on it.
The intersection of federal and state law has only become more important over the last few decades, as companies (and the federal government) increasingly engage in contracts across state boundaries and through complex partnerships, such that courts are forced to determine whether state or federal law has priority in areas previously uncommented on by the higher courts (Kahan & Rock, 2011, p. 1295). This is even more true when it comes to railroads, because unlike many other large projects, railways by their nature must cross state lines and are governed by a bevy of different laws, regulations, and codes (Sennewald, 1998, p. 1399). In the case of Union Pacific Railroad, the Oklahoma district court had enough confidence in its own jurisdiction and the primacy of Oklahoma law in this case to uphold Union Pacific’s claim, and the conflict between state and federal law, particularly when it comes to easements, may have contributed to the court’s decision that the claim sounded in tort, rather than contract (Sennewald, 1998, p. 1422).
On appeal, however, the Tenth Circuit reversed the district court’s decision, finding that the breach did sound in contract rather than tort, and because the “the amount in controversy exceeded $10,000,” authority over the case fell solely to the Court of Federal Claims as stipulated by the Tucker Act (Lettow, 2012, p. 5). After being remanded to the lower court, Union Pacific moved to have the case transferred to the Court of Federal Claims, but the lower court denied this request due to the fact that the six-year statute of limitations for the Court of Federal Claims had already expired, and furthermore, because the Tenth Circuit court ruled that the release clause was effective, such that transferring would merely prolong the arrival of the predetermined outcome. However, Union Pacific decided to press on, and filed in the Court of Federal Claims, with the government moving for dismissal due to a lack of jurisdiction as a result of the expired statute of limitations.
The question before the Court of Federal Claims, then, was when exactly the claim accrued, and Judge Lettow’s opinion entertains each potential date before deciding “as a factual matter, the latest possible date of accrual for this cause of action is May 13, 2005, when the Administrative Claim was filed” by Union Pacific with the Corps, and as such the statue of limitations had expired by the time the case reached the Court of Federal Appeals (in February, 2012) (Lettow, 2012, p. 9). There are a number of exceptions and modifications allowed to the six-year statue of limitations, but in his opinion Lettow argues that a majority of them are not applicable. For example, Union Pacific was not eligible for the most common exceptions, such those made “for claims by married women of the claim first accrued during marriage, by person under the age of twenty-one if the claim accrued during minority, by idiots, lunatics, and insane persons, and by persons beyond the seas at the time the claim accrued” (Lettow, 2012, p. 6).
Union Pacific attempted to argue that the government had effectively “waived its right to defend on the basis of statue of limitations” due to certain admissions during the initial lower court phase of the case, but as Lettow notes, “this claim of waiver or estoppel has a basis in fact but is unavailing in law” (Lettow, 2012, p. 7). This point brings up one of the larger issues suggested by the opinion (which will be discussed in greater detail later), namely, the fact that the conflict between the law’s position on jurisdiction and this kind of estoppel is “yet another case where the government has ‘taken entirely irreconcilable positions regarding the jurisdiction of the federal courts,” leading to increased litigation and cost (Lettow, 2012, p. 7). Thus, though he is reluctant, Lettow agreed that “draconian as it may be, this court nonetheless is compelled by law to ignore the government’s prior acceptance of jurisdiction in the district court” (Lettow, 2012, p.7). Though this will be addressed in greater detail later, the problematic nature of this legal obligation is the fact that the time spent litigating the case in the district court, when Union Pacific believed that court to have jurisdiction, contributed to the expiration of the statue of limitations, suggesting that plaintiffs with legitimate claims may ultimately fail in litigation solely due to a kind of confusion on the part of the courts.
Normally the accrual begins at the time of the breach, but Union Pacific was able to make a convincing case that neither the Katy nor Union Pacific could have been aware of the Corps’ installation of the incorrect culverts at the time or subsequently. Judge Lettow ultimately decided that accrual did not begin at the time of the breach, but rather when it was discovered, because even though the contract required the Katy to “make a detailed inspection’ to determine whether ‘the completed sector of the railroad [was] constructed in accordance with the approved plans and specifications,'” the fact that there was no water in the adjacent reservoir would have made it difficult if not impossible for an inspector to determine on sight that the culverts were below the eventual water line (Lettow, 2012, p. 8). Furthermore, Lettow decided that the accrual should not have begun at the time of the derailment, because even though an investigator could have seen that the culverts were made of metal instead of concrete, investigators may not have been aware of the details of the contract at that time.
Union Pacific attempted to further argue that the date of accrual should begin in February 2007, when it first received the Corps’ “as-built” drawings which demonstrated that it had in fact installed metal culverts without the consent of a Katy engineer, but Lettow denied this date, deciding instead that the accrual began in May 2005, when Union Pacific first filed its administrative claim with the Corps. Because Union Pacific acknowledged the metal culverts as both the cause of the derailment and a breach of contract in that administrative claim, there was no choice but to determine that Union Pacific was aware a breach occurred, and thus accrual must begin. As a result, Lettow had no choice but to dismiss the claim, given that the statue of limitations had expired by the time Union Pacific brought the case to the Court of Federal Claims in February 2012.
Perhaps the most obvious issue raised by this decision is the aforementioned “draconian” necessity of enforcing a statute of limitations such that a case is dismissed even as the plaintiff, acting in good faith, specifically did not take the case to the Court of Federal Claims out of a belief that the district court had jurisdiction over the matter. From an outside observer, this would seem to grant an unfair advantage to the government, who, as in this case, can acquiesce to a district court’s jurisdiction simply as a means of “running out the clock” until the applicable statute of limitations expires. The problem is not that claims can expire, but rather that the particular process of the courts, and particularly the Court of Federal Claims, may be set up in such a way as to give the government unwarranted advantage in defending itself from legitimate claims.
That the government attempts to exploit jurisdictional issues in its cases before the Court of Federal Claims is not in question, as evidenced by two recent opinions issued by that same court, Extreme Coatings Inc. v. The United States and Hartford Fire Insurance Company v. The United States. In the former case the government attempted to have the case dismissed on the grounds that the plaintiff did not properly file a claim to the government contracting officer, and as such the court did not have subject matter jurisdiction over the claim (Wheeler, 2012, p. 1-2). In that case the judge denied the government’s motion and stayed the case for thirty days to allows for the claim to be filed and responded to (which was largely a formality). This is not to begrudge the government its right to question jurisdiction in its own defense, but simply to point out that it is a common and (although not in the case of Extreme Coatings Inc.) useful tool.
The other decision, Hartford Fire Insurance Company v. The United States, did not rest entirely on issues if jurisdiction, but questioning jurisdiction was a central component of the government’s defense that the plaintiff had failed to make a claim that could be compensated. At issue was a contract between the Hartford Fire Insurance Company and the Army Corps of Engineers, and in particular whether or not the Corps had wrongly disbursed funds to another contractor with whom Hartford was associated. In that case, the government argued (among other things) that “any lawsuit Hartford might have would be more akin to an impairment of suretyship claim, which cannot be maintained against the United States” (Futey, 2012, p. 5). The judge ultimately denied the government’s motion, finding both that Hartford successfully stated its claim and that the court itself had jurisdiction over the case.
Both opinions further demonstrate the importance of the Court of Federal Claims to contract law, because the Tucker Act makes the Court the preeminent authority on large government contracts, which have rapidly become one of the most lucrative kinds of employment for large firms. Anytime something happens with these (sometimes multibillion dollar) contracts, the Court of Federal Claims hears the case, such as “a multibillion dollar government contracts claim regarding the B-2 stealth bomber [and] a multibillion dollar claim and $111 million award to Hughes Aircraft for unauthorized government use of its satellite guidance technology” (Carter, 1997, p. 75). More recently the court decided in a multimillion dollar suit between Daewoo Engineering and Construction and the government, deciding that Daewoo had submitted false claims and was responsible for over seven million dollars in damages after failing to complete a road in the Republic of Palau (Rosetti & McKeeman, 2007, p. 13). Thus, the Court of Federal Claims plays an outsized role in the economy at large, because it is responsible for hearing claims from the world’s largest companies, many of whom got that way via government contracts. As a result, problems or complications with federal contract law can have far-reaching ramifications, not only for the companies involved, but also for the public at large, who frequently deals with these companies or their handiwork without their knowledge.
The issue of the Court of Federal Claims’ jurisdiction is a serious one, because relatively recent Supreme Court decisions have served to gradually erode that jurisdiction, such that in some cases “two plaintiffs with substantively identical claims may thus end up in different courts, merely because the form of their pleadings differ” (Thies, 2010, p. 1203). For example, in its 1988 decision in Bowen v. Massachusetts, the Supreme Court decided that district courts could hear contract cases against the government “so long as the pleadings characterized the claim as seeking ‘declaratory or injunctive relief’ rather than ‘money damages,'” (Thies, 2010, p. 1203). The problem with this complication of jurisdiction is that it opens up plaintiffs and defendants alike to the kind of jurisdictional and statute of limitations issues that arise when cases are bounced from one court to another independent of the regular appeals process. As Lettow lamented in his opinion, and other commentators have expressed elsewhere, the “costly and time-consuming path through federal District and appellate courts” frequently serves to derail the course of justice by using the letter of the law to contradict the spirit of it (“Taking on takings law,” 1997, p. 74).
Considering the sheer monetary value of the cases considered by the Court of Federal Claims, the public policy implications of the Union Pacific Railroad decision should be staggering. Although this particular case only concerned roughly $4.5 million, which is not very large in the world of government contracts, the fact that its conclusion ultimately rested on the government being able to run out the statue of limitations by initially agreeing to the jurisdiction of the Oklahoma district court should give legislators and the public pause, because this suggests that the law governing federal contracts is contributing to serious inefficiency and waste, both in terms of litigation and contracting. There are entire industries that effectively depend on government contracts to exist (defense being the most prominent), and yet the Union Pacific case and others like it seem to suggest that federal contract law is structured in such a way as to unfairly favor the government in contract disputes.
Even more pressing than the economic issues are the very real safety issues, because in the end the Union Pacific case is an example of shoddy workmanship being performed with impunity, by the Army Corps of Engineers no less. Obviously, the actual engineers responsible for installing the incorrect culverts could not be tried directly, but the fact remains that the Corps ultimately received no punishment or correction from their error, even though it could have resulted in serious injury or death. Though the Union Pacific train derailment did not include any fatalities, it very easily could have, and yet one may reasonably presume that Union Pacific would have likely experienced the same outcome even if this were the case.
This becomes all the more pressing when one considers that much of the death and devastation of Hurricane Katrina (up to two-thirds by some accounts) was also the result of shoddy work on the part of the Army Corps of Engineers. As of 2012, only one claim regarding the Corps’ failed levees has moved forward; it concerns only the maintenance of a single river outlet, and is currently being appealed by the federal government. This is not to unduly villainize the Army Corps of Engineers, but rather to point out that the current system of federal contract law not only seems to favor the government, but also results in dangerous and sometimes deadly practices on the part of government agencies going unchecked. While the law must strike a balance between protecting the innocently accused and defending the aggrieved, it appears that in this area the balance has failed to hold.
There is a way forward, but it remains to be seen whether it is actually tenable, particularly because adjusting federal contract law would ultimately mean the federal government giving up some of its power, or at least some its protection. It is almost impossible to imagine executive policymakers supporting a review of contract law, largely because it is the executive branch that is responsible for defending the government in cases as those discussed here, and it would simply be foolish to give up some of the legal options available to them. Legislative policymakers would have a better chance at effecting useful change, but even here there are difficulties, mainly because contract law frequently requires a specialist’s understanding. However, because many of the largest industries, such as defense and construction, would likely benefit from a change in federal contract law, it seems reasonable to presume that legislative policymakers could take up the cause, provided that their donors in the defense and construction contracting industries decide to mention it.
Analyzing Judge Lettow’s decision in Union Pacific Railroad v. The United States not only provides an overview of contract law and the Court of Federal Claims in particular, it helps to demonstrate the difficulties faced by judges and plaintiffs alike when it comes to making claims regarding a breach of contract. The law is not a singular, coherent system, but rather a pile of sometimes contradictory or ambiguous rules and regulations developed from the problem at hand and applied in perpetuity to the unexpected problems that later arise. The Union Pacific case demonstrates this phenomena because it shows how jurisdictional confusion can ultimately decide the outcome of a case, regardless of the facts or arguments. Based on all available evidence, going forward one can only expect cases such as this to become more common, as aging infrastructure breaks down and decades-old breaches of contract come to the fore while little action is done to overhaul contract law. However, one may hope for some shift either in legislative priority or the attitude of the Supreme Court that might work towards forcing the government to take greater responsibility for its breaches of contract, and particularly those involving the destruction of property and the potential loss of life.
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