If You Had The Right To Exempt Yourself From Contract Liability, Would You Exercise That Right?
September 6, 2010
This was essentially the question that was posed to the Board of Education of Worcester County (the Board) when it was sued by BEKA Industries, Inc. for damages BEKA incurred while building a new school for the Board. The Board answered the question in the affirmative and sought to defend BEKAs lawsuit claiming that the doctrine of sovereign immunity insulated it from liability to BEKA. The Circuit Court for Worcester County didnt buy the defense, and ultimately entered judgment in favor of BEKA for $1.1M. The Board appealed and argued, inter alia, that the circuit court erred in entering judgment against it because the doctrine of sovereign immunity protected the Board from judgments, except in certain cases delineated in the Education Article of the Maryland Annotated Code. BEKA, on the other hand, argued that the Board was an entity of the State, and as such, the legislature waived the doctrine of sovereign immunity with respect to claims arising from contracts with the State or its entities. The Board responded that, while it was an entity of the State for sovereign immunity purposes, it was not a unit of the State, and the Legislature only waived the doctrine of sovereign immunity for units of the State-not for all State entities.
Harrison Law Group (HLG) was selected by the American Subcontractors Association, the American Subcontractors Association of Baltimore, and the D.C. Metropolitan Subcontractors Association (ASA) to file an amicus brief supporting BEKAs argument that the Board was not allowed to raise the defense of sovereign immunity to claims arising under a written contract. The position advocated by HLG on behalf of ASA essentially explored the consequences of the exercising the choice raised in the question above. By raising the defense of sovereign immunity to avoid liability under its contracts, the Board would not only be hurting the entities with whom it contracts, but also, ultimately, itself and its constituents. Contractors would be very reluctant to do business with the Board for fear that they would not be able to enforce their contracts against the Board. Thus, the Board would find itself unable to procure goods and services necessary to run its schools. According to the Boards budget, the Boards use of contractors is not limited to the construction field. Rather, the Board uses contractors for everything from operating bus service, to maintaining office equipment, to supplying textbooks and school supplies, to maintaining the school facilities. In the event that the Board would be able to find a contractor willing to do business with the Board, the premium that such a contractor would charge to offset the risk of doing business with the Board would create tremendous inefficiencies, and would ultimately cost the taxpayers of Worcester County in the form of higher taxes to run the school system. In short, notwithstanding the clear meaning of law waiving the defense of sovereign immunity for the Board, policy reasons dictate that the Board should not be allowed to insulate itself from contract liability under the doctrine of sovereign immunity.
The Court of Special Appeals agreed with the position advocated by BEKA and the ASA, and held that the Board was a unit of the State for purposes of sovereign immunity. Nevertheless, the Court remanded the case for further factual findings relating to whether the Board had the ability to raise funds necessary to satisfy a judgment entered against it, a judicially imposed prerequisite to the applicability of the sovereign immunity waiver.
A copy of the Court of Special Appeals' opinion can be found here.
The decision of the Court of Special Appeals is currently on appeal to the Court of Appeals. HLG was again selected by the ASA to file an amicus brief supporting the position that the Board of Education could not raise the doctrine of soverign immunity in defense of its contract, and that the availability of funds to pay the judgment was not a pre-requisite to the statutory waiver of sovereign immunity. A copy of the amicus brief filed by HLG on behalf of the ASA can be found here and a copy of the ASA's press release can be found here.