Cabalce v. Thomas E. Blanchard & Assocs., Inc.

797 F.3d 720

Terrance D. CABALCE, individually and as Personal Representative of the Estate of Bryan Dean Cabalce;

Gail S. Cabalce, Plaintiffs–Appelleesv.THOMAS E. BLANCHARD & ASSOCIATES, INC. ;

Richard Bratt;

HIDC Small Business Storage LLC;

Hawaiian Island Development Co., Inc.;

Hawaiian Island homes Ltd.;

Hawaiian Island Commercial Ltd.;

Ford Island Ventures, LLC, Defendantsv.VSE Corporation, Defendant–Third–Party–Plaintiff–AppellantandDonald Enterprises, Inc.;

United States of America, Third–Party–Defendants.

Charlize Leahey Irvine, individually and as Personal Representative of the Estate of Robert Leahey, deceased;

Charles Leahey, Jr., individually;

James Leahey, individually;

Michael Leahey, individually, Plaintiffs–Appelleesv.Thomas E. Blanchard & Associates, Inc. ;

Richard Bratt;

HIDC Small Business Storage LLC;

Hawaiian Island Development Co., Inc.;

Hawaiian Island Homes Ltd.;

Hawaiian Island Commercial Ltd.;

Ford Island Ventures, LLC, Defendantsv.VSE Corporation, Defendant–Third–Party–Plaintiff–AppellantandDonald Enterprises, Inc.;

United States of America, Third–Party–Defendants.

George Joseph Kelii, individually and as Co–Personal Representative of the Estate of Justin Joseph Kellii, Deceased;

Priscilla Ann Kelii;

Danielle Theresa Battisti, individually and as Co–Personal Representative of the Estate of Justin Joseph Kellii, Deceased;

Deborah Ann Dularte, individually and as Co–Personal Representative of the Estate of Justin Joseph Kellii, Deceased;

Denise Marie Kellii Hirano;

Joshua Kellii;

Jaymee Kellii, Plaintiffs–Appelleesv.Thomas E. Blanchard & Associates, Inc. ;

Richard Bratt;

HIDC Small Business Storage LLC;

Hawaiian Island Development Co., Inc.;

Hawaiian Island Homes Ltd.;

Hawaiian Island Commercial Ltd.;

Ford Island Ventures, LLC, Defendants

and

VSE Corporation, Defendant–Third–Party–Plaintiff–Appellant

and

Donald Enterprises, Inc.;

United States of America, Third–Party–Defendants.

Heather Freeman, Individually, and as Next Friend of Maleia Mika Freeman, a minor, and as Personal Representative of the Estate of Robert Kevin Donor Freeman, Deceased;

Robert Freeman;

Emma Freeman;

Martin William Sprankle, Individually, and as Personal Representative of the Estate of Neil Benjamin Sprankle, Deceased;

Unhee Seo, Plaintiffs–Appelleesv.Thomas E. Blanchard & Associates, Inc. ;

Richard Bratt;

HIDC Small Business Storage LLC;

Hawaiian Island Development Co., Inc.;

Hawaiian Island Homes Ltd.;

Hawaiian Island Commercial Ltd.;

Ford Island Ventures, LLC, Defendants

and

VSE Corporation, Defendant–Third–Party–Plaintiff–Appellant

and

Donald Enterprises, Inc.;

United States of America, Third–Party–Defendants.

Nos. 13–15256

13–15259

13–15265

13–15266.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 7, 2014.

Filed Aug. 13, 2015.

Kurt James Hamrock (argued), Raymond B. Biagini, Lisa Norrett Himes, and Shannon Gibson Konn, McKenna Long & Aldridge LLP, Washington, D.C., for Defendant–Appellant.

Steven K. Hisaka (argued) and Gail Y. Cosgrove, Hisaka Yoshida & Cosgrove, and Jan M. Weinberg, Honolulu, HI, for Plaintiffs–Appellees.

Appeals from the United States District Court for the District of Hawaii, J. Michael Seabright, District Judge, Presiding. D.C. Nos. 1:12–cv–00373–JMS–RLP, 1:12–cv–00391–JMS–RLP, 1:12–cv–00376–JMS–RLP, 1:12–cv–00377–JMS–RLP.

Before: A. WALLACE TASHIMA, JOHNNIE B. RAWLINSON, and RICHARD R. CLIFTON, Circuit Judges.

OPINION

RAWLINSON, Circuit Judge:

Pursuant to a contract with the United States Department of the Treasury, Appellant VSE Corporation (VSE) agreed to store and destroy fireworks that had been seized by the federal government. VSE challenges the district court's order remanding to state court several actions that sought to impose liability on VSE for a deadly explosion involving the seized fireworks. VSE contends that removal to federal court pursuant to 28 U.S.C. § 1442 was proper because it acted under the directions of a federal officer when it stored and attempted to destroy the fireworks. VSE also argues that VSE adequately asserted two colorable federal defenses—the government contractor defense and derivative sovereign immunity. We disagree, and affirm the district court's order.

I. BACKGROUND

This case stems from a deadly explosion involving seized fireworks that were stored by VSE on behalf of the federal government prior to the planned destruction of the fireworks. VSE entered into a contract with the Treasury Executive Office for Asset Forfeiture for the storage and disposal of seized property. The contract specified that VSE “shall provide all services, materials, supplies, supervision, labor, and equipment, except that specified herein as Government-furnished, to perform all property management and disposition work ...” VSE was responsible for the disposition of seized property in accordance with instructions “issued by the seizing or blocking agency....” VSE was required to “destroy General Property as prescribed and directed by the responsible seizing or blocking agency designated representative on the disposition order,” and to comply with federal, state, and local laws and regulations when destroying hazardous materials. Additionally, the contract provided that “[a]ll destructions must be coordinated and approved by the responsible seizing or blocking agency designated representative. Failure to coordinate and obtain prior approval of all destruction activity will result in unallowable costs....”

The contract's indemnity clause specified that:

The Contractor is “an Independent Contractor” and shall obtain all necessary insurance to protect Project Personnel from liability arising out of the Contract. The Contractor hereby agrees to indemnify and hold the Government and its employees harmless in connection with any loss or liability from damage to or destruction of property, or from injuries to or death of persons (including the agents and employees of both parties) if such damage, destruction, injury, or death arises out of, or is caused by, performance of work under the Contract, unless such damage, destruction, injury, or death is caused solely by the active negligence of the Government or its employees. The Contractor agrees to include this clause, appropriately modified, in all subcontracts to be performed under the Contract.

With respect to safety precautions, the contract delineated that:

The Contractor shall be responsible for all damages to persons or property that occurs as a result of its, its subcontractors, or any of its or its or its [sic] subcontractor's employee's fault or negligence. The Contractor shall take proper safety and health precautions to protect the work, the workers, the public and property of others. The Contractor shall also be responsible for all materials delivered and work performed until completion and acceptance of the service.

According to James Fallon (Fallon), a vice-president of VSE, pursuant to the contract, VSE was storing fireworks that had been seized by the federal government. The seizures, referred to as the Haleamau and Chang seizures, were part of a criminal case requiring maintenance of the fireworks as evidence. Fallon related that the Haleamau seizure “consisted of 1,370 cartons of fireworks” and that the Chang seizure “consisted of a total of 296 cartons of fireworks....”

The seized fireworks were actually stored by Donaldson Enterprises, Inc. (Donaldson), a subcontractor utilized by VSE. Tragically, storage and destruction of the fireworks did not proceed as planned. An explosion of fireworks in a commercial storage facility resulted in the deaths of five individuals.

Terrance Cabalce, the father of Bryan Cabalce (Cabalce), filed a complaint in Hawaii state court alleging that VSE was liable for the death of his son. The complaint alleged that Cabalce was employed by Donaldson, which was hired by VSE to store, transport, dismantle, and dispose of the seized fireworks. According to the complaint, VSE negligently caused Cabalce's death by failing to eliminate the dangers associated with the fireworks; disposing of the fireworks in the same area where the fireworks were stored; utilizing tools and pumps that may have caused the ignition of the fireworks; storing the fireworks in a confined area that was susceptible to static electricity; and using diesel oil to dismantle the fireworks. The complaint also alleged that VSE's dismantlement and transportation of the fireworks was an ultra-hazardous activity and that VSE was liable “under the theories of strict liability for breach of warranty, defective design, conducting an ultra-hazardous activity, breach of implied warranty of habitability, implied warranty of fitness for a particular purpose, other applicable warranties, respondeat superior, res ipsa loquitor, agency liability, partnership liability, and/or otherwise.”

Plaintiff Charlize Leahey Irvine (Irvine) filed a complaint in Hawaii state court against VSE for the death of Robert Leahey (Leahey), another Donaldson employee. According to the complaint, Leahey was working in a storage unit leased by Donaldson that contained “39 plastic wrapped pallets of fireworks (1370 cartons containing 5480 fireworks”) and “approximately 17–55 gallon barrels, some of which contained diesel fuel oil and a mixture of other combustible/explosive materials.” Irvine alleged that Leahey and five other Donaldson employees were dismantling the fireworks “by cutting open the casings of the fireworks with a cutting tool similar to a scissors and mixing the gun powder removed from the casings with the diesel fuel. The employees used a small pump to move the diesel fuel from full barrels of diesel fuel to the barrels containing gun powder.” Irvine averred that, after the work was moved inside the storage unit when it started to rain, an explosion occurred that “was so great that debris was blown over 150 feet from the front doors of the storage unit. Three vehicles parked outside of the storage unit caught fire and burned from the intense...