Fourth Circuit Decision Clarifies Scope of Yearsley Sovereign Immunity to Government Contractors

4 min

The U.S. Court of Appeals for the Fourth Circuit recently clarified the breadth of the Yearsley sovereign immunity doctrine as it respects government contractors, including that Yearsley may provide immunity against causes of action arising under federal law, not solely state law, ultimately acknowledging further protection for government contractors acting at the (arguably) lawful direction of a government agency.

On April 24, 2018, the Fourth Circuit affirmed the decision by the U.S. District Court for the Eastern District of Virginia dismissing a lawsuit alleging a contractor's violation of the Telephone Consumer Protection Act (TCPA) based on application of the Yearsley immunity doctrine. In Cunningham v. General Dynamics Information Technology, Inc., 888 F.3d 640 (4th. Cir. 2018), Cunningham and several other similarly situated plaintiffs filed suit claiming that they received automated phone calls from General Dynamics Information Technology, Inc. (GDIT) which advertised the commercial availability of health insurance, without their consent. In dismissing the suit for lack of subject matter jurisdiction, the District Court relied on the rule promulgated in Yearsley v. W.A. Ross Constr. Co., 309 U.S. 18, 20-21 (1940), which "immunizes government contractors from suit when the government authorized the contractor's actions and the government validly conferred that authorization." Cunningham, 888 F.3d at 643

Under the doctrine of sovereign immunity, "the United States is immune from private civil suits absent an express waiver." Id. Yearsley provides that this immunity can also apply in certain circumstances to agents carrying out the sovereign's will—i.e., government contractors. Specifically, a government contractor will not be subject to suit if "(1) the government authorized the contractor's actions and (2) the government 'validly conferred' that authorization, meaning it acted within its constitutional power." Id. (internal citations and quotations omitted).

In the present case, the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS) maintains the website through which it administers the Affordable Care Act. CMS awarded GDIT's predecessor a contract to maintain this system. The contractor was required to make phone calls to individuals to inform them about their ability to buy health insurance, using an auto-dialer function and predetermined scripts. Id. at 643-44. While including these instructions, the contract separately required that GDIT maintain a corporate compliance program in part to ensure it did not violate applicable statutes and regulations. Id. at 644.

Cunningham claimed that he received a voicemail message from one of these calls, containing language identical to that prescribed by the contract, and that this amounted to a TCPA violation because Cunningham did not consent to such action (though in reaching its decision the Court did not opine on whether any such violation occurred). Id. at 644-45.

The Fourth Circuit rejected each of Cunningham's three arguments that:

  1. Yearsley does not apply to federal claims;
  2. In the event Yearsley applied, GDIT failed to prove that the two-prong test was satisfied; and
  3. Yearsley should be treated as a merits defense, rather than a jurisdictional matter. See Cunningham, 888 F.3d at 645-51.

The Circuit found no precedent limiting Yearsley's government contractor immunity only to state law claims. Id. at 645-46.

With respect to Yearsley's two-prong test, the Circuit found that GDIT followed the express instructions of the contract to a T, including carefully following the contractually required call script. Id. at 647. The Circuit also rejected Cunningham's argument that GDIT could not act in accordance with the contract simply because the contract required GDIT to follow applicable laws, which Cunningham contends GDIT could not do here by failing to obtain Cunningham's consent to the advertising message. Id. Given that the contract's instructions regarding outreach were unambiguous and did not direct GDIT to obtain consent to the calls, however, the Circuit found that GDIT did not violate the contract itself by failing to do so. Id.

The Court similarly rejected Cunningham's argument that the authority was not validly conferred to GDIT. Id. at 648. No evidence existed that CMS lacked the authority to delegate this work to GDIT. Moreover, the Circuit rejected the argument that because the contract directed work that may be in violation of law, such work could not be validly authorized. Id. Finally, the Circuit rejected the argument that Yearsley should be treated as a merits-related basis for dismissal, not a jurisdictional one, acknowledging that if Yearsley's basis for dismissal is sovereign immunity, that necessarily deprives the District Court of jurisdiction over the claim. Id. at 650-51.

The Court's decision in Cunningham reinforces an important protection for federal government contractors. Although application of the contractor immunity defense must meet the Yearsley criteria and is fact-intensive in nature, it remains a viable insulation from lawsuits and potential liability for federal contracts faced with certain allegations relating to their contract-authorized conduct.