Federal Circuit Round-Up

Two recent decisions by the United States Court of Appeals for the Federal Circuit dealt with issues of interest to federal government contractors.

Lockheed Martin Corporation v. United States, No. 99-5039 (Fed. Cir. April 26, 2000)

This case demonstrates an interesting connection between tax law and the intellectual property clauses found in government contracts.  It also illustrates how contractors may take tax credits for research done under fixed-price federal contracts.  Lockheed Martin, the contractor in this case, performed research and development under federal fixed-price contracts, primarily involving weapons systems.  In order to qualify for a federal tax credit for that research and development, the contractor had to show that its research was not “funded” by the government.  Under the applicable Treasury regulations, that in turn meant that Lockheed Martin had to show that it retained substantial rights in the research.  The Court held that, although the government gains sweeping rights to a contractor’s intellectual property through the normal “Rights in Technical Data” contract clause, because the contractor itself may still use the fruits of the research, the research tax credit is still available.

Dureiko v. United States, No. 99-5043 (Fed. Cir. Apr. 14, 2000).

This important decision narrows the government’s ability to escape liability for “discretionary” actions.  Under both the Federal Tort Claims Act (FTCA) and the Stafford Act (also known as the Disaster Relief Act of 1974), the government is immunized from liability for the performance of “discretionary functions.”  The question in this case was whether the government agency, by entering into a contract, lost the protection of the “discretionary function” exception.

The case stemmed from the severe damage caused by Hurricane Andrew in southern Florida.  The plaintiffs, who operated a mobile home park, agreed to allow the federal government to lease spaces at the park in return for the government’s agreement to clean up the hurricane damage at the park without causing additional damage.  The government breached that agreement when, according to the plaintiffs, the government’s third-party contractor indiscriminately demolished the mobile home park’s infrastructure. 

The plaintiffs originally sued in tort in district court; the district court dismissed the suit, finding that the government’s emergency relief efforts were a “discretionary function” under the Stafford Act and therefore protected from liability.  When the plaintiffs sued in the Court of Federal Claims on a contract theory, the Court of Federal Claims also dismissed the suit, again on grounds that the government was performing a “discretionary function.”  The Federal Circuit reversed.  The Court held the government was liable for damage to the mobile home park, because once the government entered into a contract to repair the park to certain standards, the government’s adherence to the terms of that contract was no longer a “discretionary function.”