White & Case Secures Major Victory for Federal Contractors in the US Court of Appeals for the Ninth Circuit

Global law firm White & Case LLP secured a path-marking win in the US Court of Appeals for the Ninth Circuit, establishing a new test for when federal contractors can remove cases against them from state to federal court under the so-called federal officer removal statute.

In a 2 to 1 decision, the Ninth Circuit held that, "where the government's independent contractor is also an agent under common-law agency principles as reflected in the Restatement (Third) of Agency, the contractor 'acts under' a federal officer for purposes of" the statute. The panel reversed the district court's order that had remanded the case against SOC LLC, SOC-SMG, Inc., and Day & Zimmermann, Inc. (SOC)—federal defense contractors who provided protection services at various Department of Defense (DOD) facilities in Iraq under the Theater-Wide Internal Security Services II (TWISS II) contract—holding that SOC had carried its burden of establishing federal jurisdiction.

The suit, brought by a group of employees who had worked for SOC as guards in Iraq under the TWISS II contract, was initially filed in Nevada state court. The guards allege that SOC fraudulently recruited them by promising that they would not work more than 72 hours in any given week while deployed to Iraq, and that SOC later breached its contract with them when they were required to work additional hours protecting DOD installations in Iraq. SOC removed the case to the US District Court for the District of Nevada under the federal officer removal statute, which provides a mechanism through which defendants in civil or criminal suits in state courts who are federal officers or were "acting under" a federal officer can remove the case to federal court.

In removing the case to federal court, SOC argued that it was required to comply with the orders of onsite DOD military commanders, and any overtime work was the result of the DOD's decisions. SOC argued it was therefore acting under the DOD and the local military commanders when it scheduled the guards to work additional hours. As a result, SOC argued, it was entitled to a federal forum to assert its federal defenses based on its compliance with DOD regulations and the orders of onsite DOD military commanders. The district court disagreed, holding that there was no "causal nexus" between the guards' allegations and the actions of DOD personnel and that SOC's federal defenses were unlikely to succeed. The district court therefore remanded the case to state court.

The panel reversed, holding that the district court had misapplied the federal officer removal statute and Ninth Circuit case law. Beyond announcing a new rule for interpreting the "acting under requirement of the statute, the panel held that SOC sufficiently pleaded a causal nexus because the "challenged acts ... occurred while [SOC] discharged [its] security duties for the Combatant Commander in the Iraq War." The panel held that the district court applied the wrong standard in weighing SOC's federal defenses when it asked whether the defenses were meritorious, rather than whether they were colorable. The panel concluded SOC had carried its burden because it had "alleged a colorable federal defense to the guards' breach-of-contract claim based on excessive work hours—that the DOD in some circumstances required those excessive hours."

With this win, SOC will have the opportunity to litigate this case in a federal forum, including presenting its federal defenses, which SOC argued entitle it to dismissal of the guards' claims as a matter of law.

The team included partner Tara Lee, counsel Scott Lerner, who argued the case, and associates Benedict Bernstein (Washington, DC), Zaur Gajiev (Los Angeles) and Nathan Swire (New York).

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