• Dealing With the Government -- Don't Be Left Holding the Bag
  • April 4, 2012 | Authors: Nelson F. Migdal; Richard Moorhouse
  • Law Firms: Greenberg Traurig, LLP - Washington Office ; Greenberg Traurig, LLP - McLean Office
  • “...citizens dealing with the government are charged with knowledge of the limits imposed on governmental employees’ authority and the narrow scope of their accountability.”

    Perhaps this statement from Judge David Lawson of the United States District Court for the Eastern District of Michigan tells you everything you need to know — or already do know — about dealing with the government. For 1200 Sixth Street, LLC, the lesson may have come too late, and at a cost of about $4.3 million, arising out of a failed transaction with the United States of America, acting by and through the General Services Administration (GSA). See 1200 Sixth Street, LLC v. United States of America, acting by and through the General Services Administration, E.D. Michigan No. 11-12948, March 15, 2012.

    The facts of the case describe a real estate deal gone bad, but the applicability of the lessons to be learned have a much broader scope. Although the plaintiff had a signed option with the GSA, the deal depended upon a second element of the transaction to be handled by the GSA with a second developer. While employees of the GSA were providing verbal assurances to the plaintiff and others that the project was proceeding, the GSA failed to contractually bind the party to the second element of the transaction to perform. When the deal collapsed and the plaintiff learned that the GSA, due to an "oversight,” had failed to contractually bind the other party to perform, plaintiff sought reimbursement for its expenditures of roughly $4.3 million.

    The primary problem encountered by this plaintiff, and the first important reminder, is that absent a clear waiver of sovereign immunity, such as under the Contract Disputes Act or the Federal Tort Claims Act, a claim against the United States or one of its agencies for monetary damages is barred and the federal courts have no subject matter jurisdiction to even hear the claim. In an effort to establish jurisdiction, 1200 Sixth Street LLC, the plaintiff here, invoked the Federal Tort Claims Act (FTCA). As an exception to the absolute bar due to sovereign immunity, the FTCA provides a limited waiver for tort claims against the government, as if it were a private individual, except for claims arising out of misrepresentation, deceit or interference with contract rights. This means that false or incorrect statements by employees of governmental agencies, such as the GSA, are protected by the cloak of sovereign immunity, and unless sovereign immunity has been explicitly waived or an element of the FTCA can be found that is applicable, a suit against the government under a fact pattern akin to that in 1200 Sixth Street will fail.

    Employees of the GSA, as just one example, may have a duty not to misinform people who rely upon the information provided by the GSA, but if a government employee acts carelessly by not doing something he/she should have done — and compounds the omission in not informing the party who relied upon that act being taken that it, in fact, had not been taken — the doctrine of sovereign immunity will bar the claim. Also, unlike most commercial transactions, where one may legally assume the representative of the other party has the authority to act on that party’s behalf, the “apparent authority” doctrine does not work in the GSA lease setting, and one must be sure that the GSA representative has the power and authority to bind the government and make commitments.

    So it was for 1200 Sixth Street, LLC, although this was a dismissal of its case on the procedural basis of the lack of subject matter jurisdiction, so the plaintiff may be back. We shall see. In the meantime, Judge Lawson left us some very good advice, “A contractor is well advised not to rely on the promises that an agency makes unless they are in the form of an enforceable contract. Anything less will leave plaintiffs holding the bag, possibly at great expense to themselves.”