CAMPBELL-EWALD CO. V. GOMEZ: DIMINISHING THE DERIVATIVE SOVEREIGN IMMUNITY DOCTRINE AND THE SOCIAL COSTS OF INCREASING LIABILITY TO GOVERNMENT CONTRACTORS.

Author:Lewis, W. Logan
 
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TABLE OF CONTENTS

INTRODUCTION 1492 I. HISTORY OF DERIVATIVE 1495 SOVEREIGN IMMUNITY A. Derivative Sovereign Immunity's Foundations in 1496 B. Derivative Sovereign Immunity's Development Through Products Liability 1498 C. Derivative Sovereign Immunity's Expansion to [section] 1983 Cases 1503 II. CAMPBELL-EWALD Co. v. GOMEZ AND DERIVATIVE SOVEREIGN IMMUNITY'S IMPORTANCE 1506 III. THE EXTERNAL COSTS OF CAMPBELL-EWALD CO. V. GOMEZ 1512 A. The Increased Costs 1513 of Independent Contractors B. The Diminished Quality of the Independent Contractor Market 1514 IV. POTENTIAL PITFALL OF DIMINISHED DERIVATIVE SOVEREIGN IMMUNITY: INEFFICIENT VERTICAL GOVERNMENT INTEGRATION 1516 CONCLUSION 1518 INTRODUCTION

"Destined for something big? Do it in the navy. Get a career. An education. And a chance to serve a greater cause. For a FREE Navy video call 1-800-510-2074." (1) This text message, received May 10, 2006, formed the basis of Jose Gomez's claim against Campbell-Ewald Company, an advertising and marketing communications agency contracted in 2000 by the Navy to handle all of its advertising. (2) Notably, Campbell-Ewald did not send the text message or even identify Gomez as a potential Navy recruit. (3) Instead, Mind-Matics, a subcontractor specializing in mobile marketing, "handled the deployment, transmission and delivery of the text messages, including the use of its own SMS short code." (4)

In 2006, Navy Recruiting Command (NRC), the recruitment division of the Navy, in coordination with Campbell-Ewald, adopted a wireless recruiting strategy aimed at recruiting nearly 38,000 active duty Navy sailors by primarily targeting males between the ages of seventeen-and-a-half and twenty-four. (5) To implement the plan, Campbell-Ewald requested bid proposals from subcontractors with expertise in mobile marketing. (6) MindMatics responded, suggesting a direct text message program targeting "cell phones of 150,000 Adults 18-24 from an opt-in list of over 3 million [individuals]." (7)

Before proceeding, Campbell-Ewald sought and obtained the Navy's approval. (8) The NRC provided oversight and approval of Campbell-Ewald's text message recruiting campaign on behalf of the Navy. (9) Lee Buchschacher, Deputy Director of the Marketing and Advertising Plans Division for the NRC, and "Cornell Galloway, an Enlisted Program Advertising Manager, 'authorized and approved the text message campaign proposed by MindMatics."' (10) Moreover, Buchschacher "reviewed, revised, and approved" the Navy's text message. (11)

MindMatics sent the text messages approved by the Navy between May 10 and May 24, 2006. (12) Gomez, who alleged that he had not opted-in to receive text messages but had erroneously received a message, (13) brought a class action lawsuit pursuant to the Telephone Consumer Protection Act (TCPA) (14) on behalf of himself and "all persons in the United States and its Territories who received one or more unauthorized text message advertisements." (15)

The TCPA was passed originally in 1991 as an amendment to the Communications Act of 1934. (16) The idea was to place restrictions on telephone solicitations and to set limitations on the use of automated telephone equipment in telemarketing. (17) The TCPA prohibits anyone from making an automated call, without first obtaining express consent, to the cellular phones of individuals within the United States. (18) Notably, a text message constitutes a call for the purposes of the TCPA. (19) Moreover, Gomez was able to sue Campbell-Ewald instead of MindMatics because of the doctrine of vicarious liability. (20) Although the TCPA does not speak to whether vicarious liability applies, courts ordinarily interpret silence from Congress to imply that "Congress intended to apply the traditional standards of vicarious liability." (21)

Campbell-Ewald, however, would still seem to have an airtight defense to avoid liability. It was acting as an agent of the United States as a contractor for the Navy, and thus may invoke derivative sovereign immunity, (22) an affirmative defense that shields contractors from liability when performing work for a government body. (23) Because Congress did not authorize TCPA suits against the federal government, the Navy cannot be sued for violating the TCPA. (24) Thus, it would seem that Campbell-Ewald, which worked closely with the Navy and received its oversight and approval at different steps throughout the process, would be immune from liability under the doctrine of derivative sovereign immunity. (25)

Yet, the Supreme Court of the United States rejected this argument, concluding that Campbell-Ewald did not qualify for derivative sovereign immunity in this case. (26) The Court reasoned that the doctrine did not apply because the contractor violated the TCPA by sending text messages to recipients who had not consented to receive such messages. (27) More abstractly, the Court held that "[w]hen a contractor violates both federal law and the Government's explicit instruction... no 'derivative [sovereign] immunity' shields the contractor from suit by persons adversely affected by the violation." (28)

While this holding might ostensibly follow common sense, this Note demonstrates that the Court's much-overlooked holding undermines the very purpose of derivative sovereign immunity, and thus should be overturned in an appropriate subsequent case. (29) This Note further argues that the Supreme Court's holding in Campbell-Ewald Co. v. Gomez runs counter to the Court's jurisprudence and could have far-reaching inefficient implications, including monetarily incentivizing the federal government to integrate vertically the production of goods and services that could otherwise be provided by the private market at lower social costs. (30)

This Note proceeds in four Parts. Part I analyzes the development and history of derivative sovereign immunity. Part II focuses on how the holding in Campbell-Ewald contradicts the Court's jurisprudence and argues that the Court's unworkable standard will create uncertainty for private entities that contract with the government. Part III considers the unintended consequences of Campbell-Ewald's holding, including the increased costs of using government contractors who will inevitably increase prices to offset the costs of expected litigation. Part III also predicts that the quality of services and products available to the government will diminish, as potential independent contractors who lack the risk appetite sufficient to take on the increased risk imposed by the Court's Campbell-Ewald holding will exit the market. Part IV argues that the increased monetary costs to the government of outsourcing projects to private firms could lead the government to integrate vertically to take over the functions in question because it will incur lower pecuniary costs in doing so. The Note concludes that this result would be both normatively undesirable and economically inefficient because the private sector could produce the relevant good or service at a lower social cost.

  1. HISTORY OF DERIVATIVE SOVEREIGN IMMUNITY

    This Part analyzes the development and history of derivative sovereign immunity. The first Section discusses Yearsley v. W.A. Ross Construction Co., the landmark case in which the Supreme Court recognized the government contractor defense for the first time, (31) and how derivative sovereign immunity developed in the area of public works. The next Section explores the development of the derivative sovereign immunity doctrine in the area of products liability and in the military contractor context. The final Section examines the Court's application of derivative sovereign immunity to [section] 1983 cases, which illustrates how the Court has expanded the doctrine of derivative sovereign immunity to include service contracts as well as contracts for manufactured goods and public works.

    A. Derivative Sovereign Immunity's Foundations in Public Works

    In its seminal derivative sovereign immunity case, the Supreme Court held that there is no liability on the part of a contractor when the government has validly conferred on it the authority to execute a project and that project is within the authority of the government to undertake. (32) In Yearsley, the government hired a contractor to improve navigation on the Missouri River, which required building several dikes along the river. (33) The plaintiffs in the case sued the contractor after the construction had caused flooding of ninety-five acres of the plaintiffs' farmland. (34) The Supreme Court held that the contractor was not liable for the resulting damages based on an agency theory of derivative sovereign immunity, concluding that "[t]he action of the agent is 'the act of the government.'" (35) Thus, the Yearsley rule afforded protection to contractors from liability when the contractor had followed the government's guidelines, had acted under authority that has been validly conferred, and had served as an agent of the government. (36)

    The Fifth Circuit Court of Appeals applied Yearsley to an environmental case, concluding that private companies could not be liable for alleged environmental damages caused by their dredging activities performed pursuant to contracts with the federal government." There was no allegation that the companies lacked authority to develop or maintain the Mississippi River Gulf Outlet (MRGO). (38) The Fifth Circuit held that the companies were executing Congress's will in dredging the MRGO, as evinced by the fact that the federal government paid companies to dredge the MRGO on an annual basis. (39) Finally, there was no allegation that the companies deviated from Congress's direction or expectations. (40) Thus, the Fifth Circuit, relying on Yearsley, confirmed that, when a contractor has performed the will of the government and the government conferred the authority properly, the government contractor is not liable for any resulting damages to private parties. (41)

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