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Post-War Theory Defenses

Several lawsuits and other legal actions have established the ability of private parties to assert the so-called “war theory” of federal liability for the government’s involvement in operations at individual facilities.  The war theory has expanded CERCLA’s provision to exempt environmental damages sustained as a result of war to include damages incurred in supporting the war effort.  This argument has been applied to the World War II era, primarily, but the government involved itself at numerous facilities well beyond that time.

While the government sold most of the equipment and property it acquired during World War II, it retained some facilities for possible, future needs.  Also, the government established a network of privately-owned facilities that would be called upon in the event ofa national emergency.  Further, the government created programs providing guaranteed insurance coverage, rapid tax amortization and indemnification against loss for contractors involved in “hazardous” projects.

Several laws defined the means by which the federal government maintained a presence in private industry well after World War II.

National Industrial Reserve (P.L. 80-883)

Congress passed the National Industrial Reserve Act in 1948 to designate certain industrial facilities as key to national defense.  Those facilities would be maintained in a condition to be converted to wartime/defense purposes on 120 days notice.  The owners of such facilities agreed to maintain such status for a period of 20 years or other agreed upon timeframe.  The time requirements of the Act lessened as subsequent laws implemented new contracting procedures.

As of June 1950, the “Departmental Industrial Reserve” (it is not clear with which agency or military branch this entity was associated) had designated 260 facilities as part of the Industrial Reserve.  This included many government-owned facilities within the arsenal (aka ammunition plant) system.  Another 194 facilities were designated for the Reserve under the “national security clause” of the War Powers Act.  Finally, the Army had designated 125 facilities with which it maintained relations.  The number of plants in the National Industrial Plant Reserve diminished by1960, but those overseen by the military branches increased during that time.  (It is not clear how long the military continued to assign “reserve” status because the Department of Defense stopped reporting on the program in 1960.)

Defense Production Act (P.L. 81-774)

Congress passed the Defense Production Act in 1950 giving the President broad powers to regulate industry during the war.  Through the Office of Defense Mobilization (ODM), the government instituted wage and price controls, regulated production in certain industries such as steel and mining, established contractual priorities and dispersed manufacturing plans to specific industries.  The Act provided the impetus for the establishment of domestic industries for the mining and processing of aluminum and titanium, in particular.  The ODM instituted programs during the Korean War carrying the full weight of the Act.  Some programs were eliminated and others reduced after that war, but the Act and its provisions remains in-force.  They have provided justification for issuing and/or guaranteeing government loans to develop new technologies in more recent times.

National Defense Contracts Act (P.L. 85-804)

Congress passed the National Defense Contracts Act in 1958 in response to concerns from defense contractors that private liability insurance carriers would not cover activities involving hazardous risks.  Executive Order 10789 further defined the authority of the Department of Defense to enter contracts under the new act.  The act provided that the federal government would assume the risk of potential losses and would indemnify contractors against such losses should they occur.  The act did not define “hazardous” and only provided a general application to industries supporting “national defense.”  Each agency, which appears to have been limited to defense entities, using the indemnification authority had to submit an annual report to Congress.  If anticipated costs of indemnification exceeded $50,000, the agency’s report had to include the contractors’ names, actual or estimated potential costs, description of property or service involved and justification for offering indemnification.

Questions about the indemnity provisions of federal contracts led President Nixon to issue Executive Order 11610 in 1971 to clarify application of such provisions.  The order limited indemnity to situations “unusually hazardous or nuclear in nature.”  It also required that inclusion of indemnification provisions be approved in advance by an official not below that of the secretary of a military department.  That official would consider the availability and cost of private insurance to cover indemnity in making their determinations

Contractual relationships outside the bounds of the aforementioned legislation may trigger federal liability, also.  Judgments favorable to defendants in CERCLA actions have relied on proving government ownership and/or overt control of day-to-day operations, but Heritage’s clients have asserted liability accruing from de facto control.  Examples include:

  • government contracts that constitute the sole source of business activity for a company or facility;
  • price subsidies to insure continued production;
  • mandated use of specifications, raw materials or processes set by the government; and
  • the presence of government inspectors.

Numerous sources exist for documenting federal involvement.  Many materials are accessible through the National Archives and Records Administration with varying degrees of difficulty.  Older records will reside in the National Archives and more recent documents will be in the Federal Records Centers.  The latter requires authorization to access.  Heritage has extensive experience with holdings in the National Archives and can provide guidance to making FOIA or discovery requests for materials in the Records Centers or other government repositories.