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Where disabled individuals sued the City of Los Angeles for alleged failure of the city’s bus facility to meet the accessibility standards of the Americans with Disabilities Act (ADA) and of the Rehabilitation Act, the city filed a third party complaint against AECOM Services, Inc. and Tutor Perini Corporation for indemnification of the damages or contribution. The city contract with AECOM required AECOM “to defend, indemnify and hold harmless the City against all suits, claims, losses…to the extent that any such claim results from negligent and/or intentional wrongful acts or omissions….” Similar indemnity language was in the Tutor Perini contract.

In an important decision by the U.S. Ninth Circuit Court of Appeals, the court held that federal law did not preempt state law or otherwise prohibit the City from being indemnified. The court distinguishes the facts in this case from those in two other federal court decisions where indemnity obligations of the designers and contractors were found unenforceable. The difference, according to the court, is that the City did not attempt to allocate the full risk of loss to the firms and completely insulate itself from the penalties of ADA non-compliance. Rather, the liability was passed along to the firms only to the extent that they caused the non-compliance due to their own negligence or willful misconduct.

The court, correctly in my opinion, concluded that it would make no sense to impose all liability upon the city if the damages were caused by the designer and contractor. The court found that the issue is not a question of permitting the city as a responsible party from completely insulating itself from liability – but instead, “the greater concern is the potential for contractors to shield themselves from any liability they caused under both state contract law and federal disability regulations if [Disabilities Act] and [ADA] are found to preempt [City’s] claims.” City of Los Angeles v. AECOM Services, Inc., 2017 WL 1431084 (9th Cir., 2017).

The Indemnity Clauses

The indemnity clause included the AECOM’s predecessor-in-interest clause provided as follows:

“to defend, indemnify and hold City … harmless from and against all suits and causes of action, claims, losses, demands and expenses … to the extent that any claim for personal injury and/or for property damage results from the negligent and/or the intentional wrongful acts or omissions of Consultant, its subcontractors of any tier, and its or their officers, agents, servants, or employees, successors or assigns.”

The applicable clause for the Tutor Perini contract (based on its predecessor in interest contract) was the following:

“to defend, indemnify, and hold harmless the City against all costs, liability, damage or expense … sustained as a proximate result of the acts or omissions of [Tutor] or relating to acts or events pertaining to, or arising out of, the contract.”

Commitment by the Firms to Comply with Law

The Tutor contract also required that the contractor, in performing its contractual obligations, “comply with all applicable present and/or future local, … State and Federal Laws, statutes, ordinances, rules, regulations, restrictions and/or orders, including … the Americans with Disabilities Act of 1990.” It also stated that “Contractor shall be solely responsible for any and all damages caused, and/or penalties levied, as the result of Contractor’s noncompliance with such enactments.” The contract provided:

“[e]xcept for the City’s sole negligence or willful misconduct, Contractor expressly agrees to … defend, indemnify, keep and hold City … harmless from any and all costs, liability, damage or expense … sustained as a proximate result of the acts or omissions of Contractor, its agents, servants, subcontractors, employees or invitees; or [ ] relating to acts or events pertaining to, or arising from or out of, this Contract.”

The court explained that based on the these contractual provisions between the City and Appellees’ respective predecessors-in-interest, the City’s third-party complaint against Appellees sought damages for breach of contract, express contractual indemnity, and declaratory relief establishing Appellees’ obligations to defend and indemnify the City.

The Question of Federal Preemption

The court did a thorough analysis of the federal law preemption doctrine, including explaining three recognized ways that a federal law may preempt to state legislation. Neither the Rehabilitation Act nor ADA contain express preemption.     The District trial court incorrectly, according to the appellate court, concluded that “field preemption” applies to preclude the city’s claim for indemnification.

“Field preemption” only occurs:

“where the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that Congress left no room for supplementary state regulation,” or “where the field is one in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject…. [citation omitted]. Title II specifically states that “[n]othing in this chapter shall be construed to invalidate or limit the remedies, rights, and procedures of … any State or political subdivision of any State or jurisdiction that provides greater or equal protection for the rights   of individuals with disabilities than are afforded by this chapter.” 42 U.S.C. §12201(b). In other words, the ADA expressly disavows preemptive federal occupation of the disability-rights field.”

The corporations arguments were based largely upon the Fourth Circuit Court of Appeals’ decision in Equal Rights Center v. Niles Bolton Associates, 602 F.3d 597 (4th Cir. 2010) and also Independent Living Center v. City of Los Angeles, 973 F.Supp.2d 1139 (C.D. Cal. 2013). Those decisions dismissed actions for indemnity in somewhat similar circumstances. The California decision determined that state-law indemnity and contribution claims posed an obstacle to the full implementation of Title II and § 504, and that they were accordingly preempted.

The Ninth Circuit explained the doctrine of the presumption against preemption of state laws by federal laws and concluded that it would “find presumption only if Congress indicated a ‘clear and manifest purpose’ to that effect.”

“Obstacle preemption” applies, says the court, “when a given ‘state law [ ] stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Here, the court found that the indemnity clauses posed no obstacle to the federal law goals. As explained by the court,

“Any concern that a public entity will be able to contract out of Title II or § 504 compliance makes sense       in the context of indemnification for an entity’s failure to maintain appropriate policies and practices—in other words, for its failure to take action solely within its control, as was arguably the case in Equal Rights Center. Permitting a shift of liability to a party   lacking   the power to remedy the violation would frustrate the federal statutes’ regulatory purpose.”

           Since the City’s claim seeks only to collect for violations arising out of the corporations “own negligence or wrongdoing” the indemnification provision functionally seeks contribution from those firms for the damages they caused. This was a key to the court’s decision. The indemnity clause only required that the firms indemnify for damages from non-compliance with the law to the extent those damages were caused by their negligence or wrongful misconduct. Even though that is stated in the “indemnification” clause is the equivalent of “contribution” that could arise under state law for damages caused by a culpable party.

“Allowing the City to seek redress for liability incurred   by virtue of a third-party contractor’s actions does not plausibly pose an obstacle to the intended purpose and effect of Title II or § 504. Rather, finding such claims precluded would itself hamper the statutes’ regulatory purpose. The most a public entity may be able to do in furtherance of its duties under the respective acts may, in many situations, be to expressly contract for compliance (contractual provisions for which it will potentially have to pay a premium to the contractor). From there, the entity best situated to ensure full compliance may well   be the contractor tasked with designing or constructing the public resource in question, and precluding contract clauses for contribution reduces a contractor’s incentives to do so.”

For these reasons, the court the federal laws of the ADA and Rehabilitation Act do not preempt the City’s state-law claims for de facto contribution, however styled, against the corporations.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 19, No. 11 (Dec 2017).

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