Tesoro Loses Bid To Toss $9M Suit Over Military Base Work

By Patrick Boyle

Law360, Washington (March 30, 2016, 1:58 PM ET) — A Virginia federal judge on Tuesday rejected Tetra Tech Tesoro Inc.’s bid to dismiss a $9 million breach of contract lawsuit by JAAAT Technical Services LLC, ruling that the court has jurisdiction because the dispute arises from work done on U.S. military bases.

Even though the companies’ contract stipulates that their disputes will be governed by Virginia law, the Constitution and court precedents dictate that the federal courts retain jurisdiction to apply state law for matters that occur within federal enclaves, the court said.

“Because the events giving rise to JAAAT’s claims occurred on the military bases, the court finds that JAAAT’s claims arise under federal law,” U.S. District Court Judge M. Hannah Lauck wrote.

The decision keeps alive JAAAT’s 2015 suit alleging that its subcontractor failed to meet deadlines on five military base contracts in North Carolina and Georgia, forcing JAAAT to incur more than $9 million in damages from shoddy work. JAAAT says the subcontracts stipulated that Tesoro reimburse the contractor for any delay damages that it caused, which Tesoro has purportedly not done.

Tesoro’s argued that the federal court lacks jurisdiction because the suit raises no substantial federal questions, an approach Judge Lauck labeled as “misguided” because it ignores the fact that the dispute arose on land for which the state has ceded jurisdiction to the federal government. Although state laws that exist when an enclave is created still apply to the enclave, the state laws become “federalized” for disputes involving that land, the judge said.

“This so-called ‘federalized’ state law, in turn, confers on federal courts subject matter jurisdiction over claims otherwise characterized as ‘state law,’ such as the contract disputes here,” Judge Lauck wrote, citing federal court precedents. “The parties’ contractual agreement to apply Virginia law does not disturb this conclusion.”

The Supremacy Clause of the U.S. Constitution also mandates that when the events behind a lawsuit occur on a federal enclave, the court must apply the enclave’s federalized state law, she said.

“Tesoro’s attempt to cherry-pick language regarding which government ‘created’ the law does not persuade,” Judge Lauck wrote.

She also rejected the subcontractor’s claim that because the companies chose Virginia law to enforce disputes under their contract, only Virginia laws will be at issue, meaning the case belongs in state court regardless of what federal law says.

“This novel argument — which essentially advances the idea that parties to a contract, by their choosing, may negate the application of federal law — misses the mark,” she wrote. “Tesoro argues for the application of state law in spite of the existence of federal law — federalized state law — that governs the dispute. The parties’ election to the contrary does not override the Constitution.”

An attorney for JAAAT said the legal dilemma was of Tesoro’s own making.

“This contract was created by the defendant, who has tried every procedural technicality possible — including filing five separate cases in the state courts of North Carolina and Georgia — to avoid having its own contract enforced against it in its own chosen forum, the Eastern District of Virginia,” J. Buckley Warden IV said in a statement to Law360. “Now we can finally get to the merits of the matter and show just how poorly the defendant performed its work.”

JAAAT contends that Tesoro failed to meet 540-day deadlines for work on a training facility at Fort Bragg, North Carolina, on a company support facility at Fort Benning, Georgia, and a sensitive compartmented information facility addition at Fort Gordon, Georgia. The contractor also accuses Tesoro of missing date-based deadlines for work on a Fort Bragg C-130 flight simulator and a Fort Bragg brigade headquarters facility.

Tesoro is a construction services firm that operates under California-based parent Tetra Tech EC Inc. JAAAT is based in Hopewell, Virginia, and provides construction services to the U.S. government.

Attorneys for Tesoro did not respond to requests for comment.

JAAAT is represented by Wyatt B. Durrette Jr., S. Sadiq Gill, Christine A. Williams and J. Buckley Warden IV of DurretteCrump PLC.

Tesoro is represented by Neil S. Lowenstein, Richard H. Ottinger and Dustin M. Paul of Lowenstein Vandeventer Black LLP.

The case is JAAAT Technical Service LLC v. Tetra Tech Tesoro Inc., case number 3:15-cv-00235, in the U.S. District Court for the Eastern District of Virginia.

–Editing by Katherine Rautenberg.

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