As my four children were running through the house this weekend, I inevitably yelled at them, "No running in the house!" My five-year-old responded, "Just passing through…" Imagine the smile I had this morning when I read about a recent Tennessee appellate court decision about pass-through claims against the State.
In Kay and Kay Contracting, LLC v. Tennessee Dep’t of Transportation (pdf), the contractor entered into a $10.2 million contract with TDOT for the construction of a new bridge on Interstate 75. The contractor then entered into a $3.1million subcontract with the grading and excavation subcontractor.
Problems occurred during performance and both the contractor and subcontractor filed claims against TDOT for additional compensation. TDOT rejected the subcontractor’s claim because it did not have a contract with the subcontractor and, thus, it argued that sovereign immunity barred any claim by the subcontractor. Although the Claims Commission agreed that the subcontractor was not a proper party to the lawsuit, it allowed the contractor to pursue the claim against TDOT as "pass-through" claim on behalf of the subcontractor.
The Court of Appeals of Tennessee reversed, holding that the pass-through claim was prohibited by the doctrine of sovereign immunity. Under that principle, the state is immune from lawsuit unless that immunity is expressly waived by statute or otherwise. The Tennessee legislature has expressly determined that a written contract with the State is a waiver of the immunity for any lawsuit on the breach of that contract. See Tennessee Code 9-8-307(a)(1)(L).
In Kay and Kay, the appellate court concluded that the contractor was not entitled to pursue the pass-through claim on behalf of the subcontractor, who did not have a contract with the state. The court reasoned:
We acknowledge that we must give Tenn. Code Ann. § 9-8-307(a)(1)(L) a liberal construction. However, in so doing we cannot amend, alter, or extend the statute beyond its obvious meaning. Stewart, 33 S.W.3d at 791. The obvious and ordinary meaning of requiring a “written contract between claimant and the state…” is not susceptible of more than one meaning. A contract is either written or it is not. If we allow pass-through claims, then we are allowing a party to sue the State and prosecute the claim of a different entity that has no contractual relationship with the State. This is contrary to the clear and unambiguous language of the statute requiring a written contract between the claimant and the State before the State can be sued for breach of contract. We again note that if the General Assembly believes that allowing pass-through claims is in the State’s best interest and public policy favors allowing such claims, we invite the General Assembly to amend the relevant statutory provisions to expressly allow such claims.
The appellate court expressly held that its decision applied "only to pass-through claims wherein subject matter jurisdiction is predicated on the removal of the State’s immunity pursuant to Tenn. Code Ann. § 9-8-307(a)(1)(L)."
The court expressed no opinion on whether pass-through claims otherwise are permitted in Tennessee in other contexts. That decision was left for another day … another dispute.
Image: Roger Smith