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Case Law Update on Sovereign Immunity Protection for a Contractor

01.19.2021

By Bryce C. Reback, Attorney

The construction project hierarchy is familiar and well established. The owner hires the general contractor, and in turn the contractor hires subcontractors. In the unfortunate event that a legally actionable incident occurs there is plenty of settled law as to who can be held liable when, and why. A question that comes up all too frequently though is how does this structure change when the government is the owner of the project? Under usual circumstances a government actor is afforded extra protections from lawsuit through its sovereign immunity, but is a contractor operating under the government’s instruction offered the same protections? In the recent case of Cheney v. Levy, the third circuit court of appeal of Texas wrestles with this question. Through the Courts analysis and consideration of the issue, it reaches the novel answer: maybe.

The Court recognizes the fact that derivative immunity does exist in the legal world but fails to determine whether derivative immunity is even applicable in Texas. The Supreme Court of Texas has been presented with this very issue and has declined to state outright whether Texas recognizes the doctrine of derivative immunity for contractors who undertake work for governmental agencies. See Nettles, 2020 WL 5754456, at 5; Brown & Gay Eng’g, Inc. v. Olivares, 461 S.W.3d 117, 126 (Tex. 2015). The reason for this blurred line is that in every prior case dealing with this issue the courts have found that it doesn’t matter whether the doctrine applies because the contractors in question “had some discretion” with regard to their work for the State and “[were] not ‘simply implementing the [agency’s] decisions’ such that their conduct could be ‘effectively attributed to the government.’ ” Nettles, 2020 WL 5754456, at 7 (quoting Brown & Gay, 461 S.W.3d at 126). The presence of “some discretion” on part of the contractor seems to be the turning point for these cases. If the contractor is not so limited and restricted in its practice so much so that it is in effect merely just an extension of the government, it is not afforded the same protections.

“The presence of “some discretion” on part of the contractor seems to be the turning point for these cases.”

In Cheney, the analysis and conclusion are no different. The court of appeals determined that it would consider whether Iteris and Levy (“Defendants”) might be entitled to an extension of the City’s immunity from suit “as if—but without holding that—the doctrine of derivative immunity is recognized in Texas.” Cheney at 5. By conducting the analysis in this manner, the court effectively evaded creating these rights in Texas while giving us a roadmap as to how a court may in the future determine whether derivative immunity applies in Texas, if at all.

In Cheney, the courts main focus is on whether the Defendants lacked seemingly all discretion in executing the work. Since this was a challenge by the Defendants on the court’s jurisdiction the standard is to construe jurisdiction liberally and evidence in the light most favorable to the non-moving party. With that in mind, the court looked to the evidence provided by the Defendants to support their claim on derivative immunity. Levy’s contract with the City did not appear on the record; therefore, the Court could not assess whether Levy had discretion under the contract. Additionally, Iteris did not have a contract with either the City or TxDOT and supplied only one document that stated that the “materials/services furnished herein shall be in strict accordance with plans and specifications” prepared for the project. Id. at 5. With the lack of any evidence showing that the Defendants were contractually stripped of any discretion to schedule, express concerns, recommend alternatives, or to suggest or even install warning signage, the Court determined that derivative immunity would not apply. Id. at 5. The fact that neither Defendant established conclusively that they acted solely as an extension of a governmental entity, the City in this case, did not entitle them to the same protections as the City.

While Cheney does not provide us with a hard rule as to derivative immunity’s legitimacy in Texas, it does not shut the door on courts applying the doctrine and even ruling that is does in fact have a place in Texas law. The likely future under Cheney is that courts will continue to analyze whether a contractor had so little discretion in their operations as to afford them the same protections as a governmental entity before determining if derivative immunity is even applicable in Texas. Until then, we wait until a defendant with a hyper restrictive governmental construction contract is brought to court and plays the derivative immunity card.

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