When is a contractor who performs work for a governmental entity allowed to share in the state’s immunity from suit?  When can the contractor, not just the King so to speak, do no wrong?  A June 2020 Texas Supreme Court opinion sheds additional light on the issue.

1.     Tic-Tac-Toe

The Texas Lottery Commission, an entity entitled to sovereign immunity, contracted with GTECH to manufacture and service instant lottery tickets.  GTECH proposed a “FUN 5” scratch-off game, essentially a tic-tac-toe game with a 5X box that allowed the winner to claim five times the prize amount in the “Prize Box”.  The Commission requested changes to the game, including that dollar bill icons be used instead of the number 5 and a money bag icon be used instead of 5X.  The Commission also requested that the money bag appear on non-winning tickets to avoid micro-scratching.

GTECH made the changes, but did not change its instructions.  Those instructions stated, “reveal a Money Bag icon symbol in the 5X box, win 5 times that prize”.  Several consumers were confused, thinking that if their ticket had the money bag icon, even if they did not win the tic-tac-toe game, they were entitled to win 5x the amount shown in the 5X box. Consumers complained to the Commission, which stopped issuing the game tickets, and then filed suit in Dallas and Travis Counties.

GTECH filed pleas to the jurisdiction in both cases, arguing that it was entitled to a shared form of sovereign immunity called derivative sovereign immunity.

2.    Three in a row 

The Court sidestepped the issue Texas recognizes the doctrine of derivative sovereign immunity, noting that neither party briefed the issue.  As a result, the Court refused to decide whether Texas would adopt the doctrine of derivative sovereign immunity and, if so, what standards it might adopt.

Nonetheless, the Court provided valuable insight into how it might rule on derivative sovereign immunity if and when the issue is presented to it.  The Court looked to federal case-law for guidance, noting that derivative sovereign immunity is constrained to the following situations.

1.    A contractor has derivative immunity when the government specifies the manner in which a task is to be performed and the contractor complies;
2.    A contractor does not have immunity when it is allowed to exercise discretion on how to perform the task; and
3.    A contractor is not entitled to immunity when it is hired to perform a task according to precise specifications but failed to comply with them

Boiled down to its essence, the Court noted that for a contractor to fulfill the “control test” (number 1 on the list, above) and thereby obtain derivative sovereign immunity, the contractor must be able to answer “yes” to the two following questions.

Did the government tell the contractor what to do and how to do it (as opposed to the contractor having some discretion in performing the contract), and if so did the contractor do as it was told?

3.    Enough Control?

Before determining whether the Commission exercised enough control, the Court had to initially determine what behavior or work the Commission was supposed to be controlling. To make that determination, it looked at Plaintiffs’ live pleadings, only.  In those pleadings, Plaintiffs alleged that GTECH chose the wording of the instructions, including failing to state that not all tickets with money bag symbols would be winning tickets.

The Court next turned its attention to the amount of discretion GTECH had in developing the complained-of instructions.  To make that determination, the Court looked at all the evidence, not just the pleadings.  The contract between Lottery Commission and GTECH required GTECH propose game designs and make recommendations for all parts of the game.  The contract also expressly stated that the Commission could rely upon GTECH’s guidance in all matters related to instant game development and services.  A GTECH representative testified that GTECH reviewed the instructions after the Commission asked for changes to make sure the instructions were clear and unambiguous, and did not need to be changed.

In rejecting GTECH’s argument that the Commission specified the manner in which GTECH was to perform its work, the Court stated,

Close supervision and final approval of work over which a contractor has discretion are not the same as the government specifying the manner in which a task is to be performed….Where a contractor has been granted discretion to perform a task and the government approved those discretionary plans, the government has not specified the manner in which the task is to be performed.

4.    What does this mean for construction contractors?

The Court’s opinion in this and an earlier case, the 2015 case of Brown & Gay Engineering, Inc. v. Olivares, indicates that derivative sovereign immunity will likely find limited application to the construction industry. In Brown & Gay, an intoxicated driver entered an exit ramp of the Westpark Tollway, driving eight miles before colliding with a car driven by Pedro Olivares.  Both drivers were killed.  The Tollway Authority delegated responsibility to design road signs to Brown & Gay, subject to approval by the Authority.  Olivares’ parents sued Brown & Gay alleging failure to design proper signs, warning flashers, and other traffic-control related devices around the exit sign.

After a lengthy discussion about the origins of sovereign immunity, the Brown & Gay Court noted immunity has previously been bestowed on contractors when the complained-of conduct was attributable to the government.  The Olivareses, however, did not complain of harm caused by Brown & Gay implementing the government’s direction or orders.  They also did not complain about the decision to build the toll road or its mere existence, but instead that Brown & Gay was negligent in designing the street signs. Since Brown & Gay maintained discretion about the design of the road’s safeguards, including signage, it was not entitled to derivative sovereign immunity.

The Court’s decisions in GTECH and Brown & Gay make it unlikely that construction contractors will be able to avail themselves of derivative sovereign liability when they are hired by governmental entities, except in very limited circumstances.  Since most standard form agreements as well as contract specifications vest discretion for means and methods of construction with the contractor, it is unlikely that a court would find that a governmental owner specified the manner in which the work was to be performed.  There are circumstances, however, where the governmental entity requires strict adherence to the plans, specifications and contract documents, and dictates the manner in which the work is to be performed.  Certain public works projects might fall into that category.  In those instances, derivative sovereign immunity may yet provide a viable defense.

In determining whether a specific project qualifies for qualified derivative immunity, it is advisable to consult with construction counsel.  The attorneys in our Austin and Dallas offices are available to answer any questions you may have.

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