The Anti-Deficiency Act Implications of Consent by Government Employees to Online Terms of Service Agreements Containing Open-Ended Indemnification Clauses ( 2012 )

The Anti-Deficiency Act Implications of Consent by
Government Employees to Online Terms of Service
Agreements Containing Open-Ended
Indemnification Clauses
Traditional principles of contract law govern the standard for consent to an online terms of service
agreement, and, as a result, consent to such an agreement turns on whether the web user had
reasonable notice of and manifested assent to the online agreement.
A government employee with actual authority to contract on behalf of the United States violates the
Anti-Deficiency Act by entering into an unrestricted, open-ended indemnification agreement on
behalf of the government.
A government employee who lacks authority to contract on behalf of the United States does not violate
the Anti-Deficiency Act by consenting to an agreement, including an agreement containing an
unrestricted, open-ended indemnification clause, because no binding obligation on the government
was incurred.
March 27, 2012
MEMORANDUM OPINION FOR THE ASSISTANT GENERAL COUNSEL
FOR ADMINISTRATION
DEPARTMENT OF COMMERCE
You have asked whether a Department of Commerce (“Department”) employee
violates the Anti-Deficiency Act (“ADA”) when he consents on behalf of the
government to terms of service (“TOS”) that include an unrestricted, open-ended
indemnification clause in the course of registering for an account with a social
media application on the Internet.1
We first address the preliminary question whether the standard for consent to
an online TOS agreement is different from the standard for consent in traditional
contract law. We conclude that traditional principles of contract law govern this
question and that, as a result, consent to an online TOS agreement turns on
whether the web user had reasonable notice of and manifested assent to the online
agreement.
We next consider whether entry into an unrestricted, open-ended indemnifica-
tion agreement violates the ADA. We conclude that the answer to this question is
different for employees with actual authority to contract on behalf of the United
States and those without such authority. Although an unrestricted, open-ended
1
See Letter for Caroline Diane Krass, Principal Deputy Assistant Attorney General, Office of Legal
Counsel, from Barbara S. Fredericks, Assistant General Counsel for Administration, Department
of Commerce (June 2, 2011) (“Commerce Letter”). We also received the views of the General Services
Administration (“GSA”). See Letter for Caroline Diane Krass, Principal Deputy Assistant Attorney
General, Office of Legal Counsel, from Kris E. Durmer, General Counsel, General Services Admin-
istration (July 8, 2011) (“GSA Letter”).
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Opinions of the Office of Legal Counsel in Volume 36
indemnification clause is not enforceable against the United States in either
circumstance, see, e.g., Hercules, Inc. v. United States, 516 U.S. 417, 427 & n.10
(1996), an employee with actual authority to contract on behalf of the government
violates the ADA by entering into such an obligation. In contrast, a government
employee who lacks authority to contract on behalf of the United States cannot
enter into an agreement that creates binding obligations for the United States.
Thus, we conclude that an employee without any contracting authority does not
violate the ADA by consenting to an agreement, including an agreement contain-
ing an unrestricted, open-ended indemnification clause, because no obligation was
ever incurred.
I.
You have described to us two situations in which Department employees have
consented to social media TOS agreements that include indemnification clauses.
In the first situation, an agency within the Department sought to establish a
database of images available to employees to use in their print and online materi-
als. In setting up the database, an employee downloaded images for free from at
least three websites: MorgueFile.com, Dreamstime.com, and Stock.xchng. To
download images from these websites, a user must first register for an account by
agreeing to the website’s TOS, which is done by checking a box that reads: “I
have read and agree to the Terms of Use.” The TOS agreement for each of these
websites incorporates an indemnification clause. Commerce Letter at 1-2.2 Thus,
by registering for accounts with these three websites, the employee consented to
TOS agreements that contained indemnification clauses. Id. at 2. According to the
Department, the employee is not a contracting officer, does not maintain a
purchase card, and has not been delegated proper authority to register to use social
media applications. Id. at 3.
In the second situation, an employee with a different agency within the De-
partment registered for an account with watershed.ustream.tv, a self-serve
platform for live, interactive video. Watershed does not offer a free account; the
user must pay for a subscription or select a pay-as-you-go option. Watershed also
requires that the user consent to a TOS agreement that includes an indemnification
clause. The Department discovered that the agency had established an account
with watershed.ustream.tv and that one of its offices had been subscribing to that
2
The indemnification clause for MorgueFile.com, for example, provides:
You agree to indemnify and hold harmless morguefile.com, its contractors, and its li-
censors, and their respective directors, officers, employees and agents from and
against any and all losses, damages, claims and expenses, including attorneys’ fees,
arising out of your use of the Website, including but not limited to any such losses,
damages, claims and expenses arising out of your violation of the Agreement.
Commerce Letter at 2 n.4.
2
Anti-Deficiency Act Implications of Consent by Government Employees
account for the past two years and was billed quarterly through its purchase card.
In this case, the employee consenting to the TOS agreement was a purchase card
holder and thus, by regulation, was a contracting officer or other authorized
individual designated by the agency to contract on its behalf. Id. at 2, 4.3
You have asked whether the ADA is violated whenever a government employ-
ee, in establishing a social media account, consents to a TOS agreement containing
an indemnification clause and what practical consequences flow from such
unauthorized agreements. You also have asked whether a passive TOS agree-
ment—one in which (unlike the situations described above) a user agrees to the
TOS of an online application simply by using the application—can bind the
government. While we decline to address whether particular past actions violated
the ADA, we will use the basic features of these scenarios to provide general
guidance in response to your questions.
II.
The Anti-Deficiency Act provides in relevant part:
(a)(1) An officer or employee of the United States Government or of
the District of Columbia government may not—
(A) make or authorize an expenditure or obligation exceeding an
amount available in an appropriation or fund for the expenditure
or obligation;
(B) involve either government in a contract or obligation for the
payment of money before an appropriation is made unless author-
ized by law.
31 U.S.C. § 1341(a)(1)(A) & (B) (2006).4 Violations of section 1341(a) must be
reported immediately to the President and Congress, with a copy of each report
going to the Comptroller General. Id. § 1351. Officers or employees violating this
section are subject to administrative discipline, and knowing and willful violators
may face criminal penalties. Id. §§ 1349, 1350.
As recognized by the courts and this Office, the Comptroller General has long
taken the position that the ADA is violated by any indemnification agreement that,
without statutory authorization, imposes on the United States an open-ended,
potentially unrestricted liability. In such circumstances, there can never be
3
We assume, for purposes of discussion, that all of the indemnification clauses at issue are similar
to that quoted above for MorgueFile.com.
4
In addition, the Adequacy of Appropriations Act, 41 U.S.C. § 11 (2006), prohibits any contractual
arrangement of the government “unless the same is authorized by law or is under an appropriation
adequate to its fulfillment.” We refer to both statutes collectively as the Anti-Deficiency Act or ADA.
3
Opinions of the Office of Legal Counsel in Volume 36
certainty that sufficient funds have been appropriated to cover the liability. For
example, in Hercules, 516 U.S. 417, the Supreme Court refused to find an
implied-in-fact indemnity agreement. It explained that “the Comptroller General
has repeatedly ruled that Government procurement agencies may not enter into . . .
open-ended indemnity for third-party liability” because such agreements are
barred by the ADA. Id. at 427; see also California-Pacific Utils. Co. v. United
States, 194 Ct. Cl. 703, 715 (1971) (“The United States Supreme Court, the Court
of Claims, and the Comptroller General have consistently held that absent an
express provision in an appropriation for reimbursement adequate to make such
payment, [the ADA] proscribes indemnification on the grounds that it would
constitute the obligation of funds not yet appropriated.”); Indemnification
Agreements and the Anti-Deficiency Act, 8 Op. O.L.C. 94, 96 (1984) (“Indemnifi-
cation Agreements”) (recognizing the Comptroller General’s long series of
opinions holding that “the Anti-Deficiency Act is transgressed by any indemnity
provision that subjects the United States to an indefinite, indeterminate, or
potentially unlimited liability”); e.g., Fed. Aviation Admin. Negotiations with Pac.
Gas & Elec. Co., B-260063, 1995 WL 390069, at *5 (Comp. Gen. June 30, 1995);
Assumption by Gov’t of Contractor Liab. to Third Persons—Reconsideration, 62
Comp. Gen. 361, 363-66 (1983); To the Administrator, Gen. Servs. Admin., 35
Comp. Gen. 85, 87 (1955); To the Sec’y of the Interior, 16 Comp. Gen. 803, 804
(1937); To the Sec’y of War, 7 Comp. Gen. 507, 507-08 (1928).5
Not every indemnification agreement violates the ADA,6 but the kind of open-
ended, uncapped indemnification clause at issue in many social media TOS
agreements would run afoul of the statute. Although the online context does not
alter the invalidity of such an indemnification clause, TOS agreements in this
5
See also 2 Gov’t Accountability Office, Principles of Federal Appropriations Law 6-59 to 6-60
(3d ed. 2006) (“Federal Appropriations Law”) (“[A]bsent express statutory authority, the government
may not enter into an agreement to indemnify where the amount of the government’s liability is
indefinite, indeterminate, or potentially unlimited. Such an agreement would violate both the
Antideficiency Act . . . and the Adequacy of Appropriations Act . . . , since it can never be said that
sufficient funds have been appropriated to cover the government’s indemnification exposure.”); Office
of Mgmt. & Budget, Circular No. A-11, § 145, at 3 (2010) (“If you . . . [s]ign a contract that obligates
the Government to indemnify parties against losses (‘open-ended indemnification’ clause) . . . , [t]hen,
you must report a violation of . . . 31 U.S.C. 1341(a).”).
6
As we have recognized, the Comptroller General has upheld indemnification clauses when the
potential liability of the United States is limited to an amount that is both known at the time of the
agreement and within the amount of available appropriations. The Comptroller General has also
created a narrow exception permitting indemnification of a public utility service, in limited circum-
stances, for injury or damage not caused by the utility company; and, of course, exceptions to the ADA
have been created by statute. Indemnification Agreements, 8 Op. O.L.C. at 97-99 (citing Comptroller
General decisions and statutes recognizing or creating exceptions to the ADA). Without an applicable
exception, however, an indemnification agreement must include a limitation on the amount of liability
and must state both that the liability is limited to the amount of appropriated funds available at the time
of payment and that the contracting agency implies no promise that Congress will appropriate
additional funds to meet any deficiency in the event of loss. Id. at 98.
4
Anti-Deficiency Act Implications of Consent by Government Employees
relatively new and growing area present some distinct legal issues, both because of
the absence of traditional paper contracts and because of the ease with which
government employees who are not authorized contracting officers can enter into
agreements that purport to bind the United States.
A.
Online TOS agreements often present basic questions regarding whether the
consent necessary to form a contract is present. See Total Med. Mgmt., Inc. v.
United States, 104 F.3d 1314, 1319 (Fed. Cir. 1997) (among the requirements for a
valid contract with the United States are “a mutual intent to contract including
offer, acceptance, and consideration”). In this emerging area, courts have applied
traditional principles of contract law and focused on whether the web user had
reasonable notice of, and manifested assent to, the online agreement. See Specht v.
Netscape Communications Corp., 306 F.3d 17, 28-30 (2d Cir. 2002).
As both you and GSA recognize, the two scenarios you describe in which
Department employees “actively consented to the terms of the TOA” raise no
substantial legal questions regarding whether adequate consent to contract was
present. See Commerce Letter at 3, 4; GSA Letter at 2. The type of TOS agree-
ment you have described is commonly called a “clickwrap” agreement, in which a
user must manifest assent to the website’s terms of service by affirmatively taking
an action, such as checking a box or clicking an “I accept” or “I agree” button.
Because clickwrap agreements require affirmative consent on the part of the user,
courts generally have upheld their enforceability as contracts. See, e.g., Segal v.
Amazon.com, Inc., 763 F. Supp. 2d 1367, 1369 (S.D. Fla. 2011), mandamus
denied, No. 11-10998-D, 2011 WL 1582517 (11th Cir. Apr. 21, 2011); Feldman v.
Google, Inc., 513 F. Supp. 2d 229, 235-39 (E.D. Pa. 2007); Burcham v. Expedia,
Inc., No. 4:07CV1963 CDP, 2009 WL 586513, at *2-*4 (E.D. Mo. Mar. 6, 2009);
Moore v. Microsoft Corp., 741 N.Y.S.2d 91, 92 (N.Y. App. Div. 2002). Whether
the web user actually reads the website’s TOS is immaterial. “Absent a showing of
fraud, failure to read an enforceable clickwrap agreement, as with any binding
contract, will not excuse compliance with its terms.” Feldman, 513 F. Supp. 2d at
236.
You have also asked about the legal ramifications of a government employee’s
passive agreement to a website’s TOS—often called a “browsewrap” agreement—
simply by using the online application. Commerce Letter at 4. Browsewrap
agreements, unlike clickwrap agreements, do not require the user to give express
assent to the website’s terms, such as by checking a box or clicking a button.
Instead, browsewrap agreements typically “involve a situation where notice on a
website conditions use of the site upon compliance with certain terms or condi-
tions, which may be included on the same page as the notice or accessible via a
hyperlink. . . . Thus, a party gives his or her assent simply by using the website.”
Van Tassell v. United Mktg. Group, LLC, 795 F. Supp. 2d 770, 790 (N.D. Ill.
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Opinions of the Office of Legal Counsel in Volume 36
2011) (quoting Southwest Airlines v. Boardfirst, L.L.C., No. 06-CV-0891-B, 2007
WL 4823761, at *4 (N.D. Tex. Sept. 12, 2007)).
Both you and GSA suggest that such an agreement could not constitute a bind-
ing contract because the web user has taken no affirmative action to agree to its
terms. Commerce Letter at 4; GSA Letter at 2. Current case law, however,
suggests that there is no categorical rule that browsewrap agreements are unen-
forceable. Instead, their validity is assessed on a case-by-case basis. Specifically,
for a browsewrap agreement to be enforceable, “[r]easonably conspicuous notice
of the existence of contract terms and unambiguous manifestation of assent to
those terms by consumers are essential.” Specht, 306 F.3d at 35. As other courts
have put it: “[A]bsent a showing of actual knowledge of the terms by the webpage
user, the validity of a browsewrap contract hinges on whether the website provided
reasonable notice of the terms of the contract.” Van Tassell, 795 F. Supp. 2d at 790-
91; see also Hines v. Overstock.Com, Inc., 668 F. Supp. 2d 362, 367 (E.D.N.Y.
2009) (“In ruling on the validity of a browsewrap agreement, courts consider
primarily ‘whether a website user has actual or constructive knowledge of a site’s
terms and conditions prior to using the site.’”) (citation omitted), aff’d, 380 Fed.
Appx. 22 (2d Cir. 2010).
Different facts have produced different conclusions about the enforceability of
browsewrap agreements. In Specht, the Second Circuit held that a reasonably
prudent Internet user would not have known or learned of the existence of the
license terms before responding to a particular website’s invitation to download
free software and, accordingly, that the website did not provide reasonable notice
of the license terms. 306 F.3d at 20, 28-30. As a result, “plaintiffs’ bare act of
downloading the software did not unambiguously manifest assent to the arbitration
provision contained in the license terms.” Id. at 20. Similarly, in Hines, the court
found no contract because the user was never advised of the terms and conditions
and could not see the link to them without scrolling down to the bottom of the
screen, which she was not required to do to make her purchase. 668 F. Supp. 2d at
367. By contrast, an Illinois appellate court found that an online contract provided
reasonable notice where a blue hyperlink entitled “Terms and Conditions of Sale”
appeared on numerous web pages the plaintiffs completed in the ordering process,
and where the plaintiffs were advised on three separate web pages that “[a]ll sales
are subject to Dell’s Term[s] and Conditions of Sale.” Hubbert v. Dell Corp., 835
N.E.2d 113, 121-22 (Ill. App. Ct. 2005); see also PDC Labs., Inc. v. Hach Co.,
No. 09-1110, 2009 WL 2605270, at *3 (C.D. Ill. Aug. 25, 2009) (finding online
terms sufficiently conspicuous where the terms were “hyperlinked on three
separate pages of the online Plate order process in underlined, blue, contrasting
text” and were brought to the user’s attention by specific reference in the final
order step, which directed the user to “[r]eview terms,” followed by a hyperlink to
the terms).
6
Anti-Deficiency Act Implications of Consent by Government Employees
As this case law reflects, browsewrap agreements often present more difficult
questions about user consent than clickwrap agreements, but there is no per se rule
against their enforceability. Government employees registering for Internet social
media accounts will need to ensure that they do not inadvertently consent to TOS
agreements that violate the ADA (or other provisions of law), whether or not the
online application requires the user to give express consent to the website’s terms
of service.
B.
You first ask whether a government employee without authority to bind the
government who signs up for a social media account, and thereby assents to the
terms of an agreement containing an open-ended, unrestricted indemnification
clause, has violated the ADA. In your view, while the employee may have made
an unauthorized commitment, there would be no valid agreement because the
employee has no authority to bind the government. Accordingly, the employee
would not have violated the ADA. Commerce Letter at 3; see also GSA Letter at 3
(same). Although the question is a difficult one on which little authority exists, we
agree that government employees who lack authority to contract on behalf of the
United States have made unauthorized commitments, but have not violated the
ADA, even if they purport to consent to contract terms, such as an open-ended,
unrestricted indemnification clause, that would impose an obligation on the United
States exceeding or preceding available funds in an appropriation.
An open-ended, unrestricted indemnification clause potentially violates the
ADA because it represents an “obligation exceeding an amount available in an
appropriation or fund.” 31 U.S.C. § 1341(a)(1)(A). It may also “involve” the
government in an “obligation” for “payment of money before an appropriation is
made.” Id. § 1341(a)(1)(B). To violate the statute, therefore, the government
officer or employee entering into the contract must have authorized or involved
the government in an “obligation” in excess or in advance of funds available in an
appropriation. Only a government officer or employee with actual authority to
bind the government in contract, however, can authorize or involve the govern-
ment in such an obligation.
The term “obligation” has a well-understood meaning in fiscal law, as is illus-
trated in the usage of the term by the Comptroller General and the U.S. Govern-
ment Accountability Office (“GAO”). They have defined “obligation” as “[a]
definite commitment that creates a legal liability of the government for the
payment of goods and services ordered or received, or a legal duty on the part of
the United States that could mature into a legal liability by virtue of actions on the
part of the other party beyond the control of the United States.” Gov’t Accounta-
bility Office, GAO-05-734SP, A Glossary of Terms Used in the Federal Budget
Process 70 (2005); To the Administrator, Agency for Int’l Dev., 42 Comp. Gen.
733, 734 (1963) (an “obligation of funds” exists if there is “a legal duty on the part
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Opinions of the Office of Legal Counsel in Volume 36
of the United States which constitutes a legal liability or which could mature into a
legal liability by virtue of actions on the part of the other party beyond the control
of the United States”); accord Contract for Legal Services, B-322147, 2011 WL
2644733, at *2 (Comp. Gen. July 6, 2011); Obligational Practices of the Corp. for
Nat’l & Cmty. Serv., B-300480, 2003 WL 1857402, at *3 (Comp. Gen. Apr. 9,
2003); see also McDonnell Douglas Corp. v. United States, 39 Fed. Cl. 665, 671
(1997). Thus, “[w]hen an agency takes some action that creates a legal liability,
the agency ‘obligates’ the United States government to make a payment. . . .
A legal liability is a claim that may be legally enforced against the government.”
Nat’l Mediation Bd., B-305484, 2006 WL 1669294, at *4 (Comp. Gen. June 2,
2006).
For example, in discussing the Anti-Deficiency Act implications of National
Mediation Board (“NMB”) appointments of arbitrators to grievance adjustment
boards, the Comptroller General explained that “only an authorized officer of the
United States government can enter into a contract or other binding commitment
on behalf of the government.” Id. at *11. “Consequently, if someone other than an
authorized officer attempts to sign a contract or other agreement committing the
government to some action, the commitment is not binding on the government.” Id.
(emphasis added). Thus, the Comptroller General concluded that the NMB incurs
an “obligation” for ADA purposes “when an authorized NMB official appoints an
arbitrator to a specific case or a specified group of related cases,” id., and it is the
appointment “by an authorized NMB official . . . that is the obligating event for
NMB.” Id. at *12.
Determining whether a government officer or employee has authorized or
involved the government in an “obligation” for ADA purposes, then, requires an
assessment whether the officer or employee has entered into a contract that binds
the United States. A binding contract is formed only if an authorized employee has
entered into (or ratified) the agreement. See Trauma Serv. Group v. United States,
104 F.3d 1321, 1325 (Fed. Cir. 1997) (in addition to the usual contract-formation
elements, “[a] contract with the United States also requires that the Government
representative who entered or ratified the agreement had actual authority to bind
the United States”); accord Total Med. Mgmt., 104 F.3d at 1319. It is settled law
that the United States is not bound by a contract entered into by a government
employee acting outside his authority.7 Anyone entering into an arrangement with
7
A government employee purporting to bind the United States in contract acts outside his authority
when he has no authority to contract for the United States or when he exceeds whatever contract
authority he possesses. As GSA observes, under the Federal Acquisition Regulations System (“FAR”),
“[c]ontracting officers may bind the Government only to the extent of the authority delegated to them,”
GSA Letter at 4 (citing 48 C.F.R. § 1.602-1(a) (2010)), and that authority may be limited to a specific
dollar amount in the Contracting Officer’s warrant, id.; see also 48 C.F.R. § 1.603-3(a) (2010) (certi-
ficate of appointment of contracting officer shall state any limitations on the scope of authority to be
exercised). Thus, a contracting officer whose warrant, for example, authorizes him to bind the United
8
Anti-Deficiency Act Implications of Consent by Government Employees
the government “takes the risk of having accurately ascertained that he who
purports to act for the Government stays within the bounds of his authority.” Fed.
Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947); see, e.g., City of El Centro v.
United States, 922 F.2d 816, 820-21 (Fed. Cir. 1990) (rejecting hospital’s claim
for costs in treating injured illegal aliens at the request of a Border Patrol agent
where the agent had no authority to bind the government in contract); Stout Rd.
Assocs. v. United States, 80 Fed. Cl. 754, 757-58 (2008) (rejecting claim by hotel
based on canceled hotel reservation where the agreement was entered into by an
intern with no contracting authority and her supervisors lacked authority to
delegate such authority to her or to ratify the agreement themselves); cf. Office of
Personnel Mgmt. v. Richmond, 496 U.S. 414, 415-16, 424-25, 434 (1990) (erro-
neous advice given by a government employee to a benefits claimant does not give
rise to estoppel against the Government and thereby entitle the claimant to a
monetary payment not permitted by law).8
For these reasons, a government employee without contracting authority cannot
bind the United States to an online TOS agreement. Accordingly, that unauthor-
ized employee has neither “authorize[d]” nor “involve[d]” the government in an
“obligation” to indemnify the social media company and therefore has not violated
the Anti-Deficiency Act. 31 U.S.C. § 1341(a)(1)(A) & (B). By the same token, the
employee cannot be said to have “involve[d]” the government in a “contract” for
the payment of money in advance of an appropriation. Id. § 1341(a)(1)(B).9 As one
States only up to $10,000 would have no authority, in consenting to an open-ended indemnification
agreement, to obligate the United States to pay more than that limit.
8
See also, e.g., To Clyde Esnard Malle, 18 Comp. Gen. 568, 571-73 (1938) (rejecting claim for
compensation where the government employees involved had no authority to contract on behalf of the
United States for the claimant’s services); Architect of the Capitol—Contract Ratification, B-306353,
2005 WL 2810714, at *2 (Comp. Gen. Oct. 26, 2005) (Architect of Capitol not obligated to pay
contractor for construction performed pursuant to directives by employee who lacked authority);
Instructions for Settling Claim of Anthony R. Grijalva, B-204002.OM, 1982 WL 27962, at *1 (Comp.
Gen. Mar. 31, 1982) (agreement for rental of horse void because district ranger lacked contracting
authority); Claim of Hertz Corp. for Payment of Car Rental Charges, B-199804.OM, 1981 WL 24420,
at *1-*3 (Comp. Gen. Feb. 24, 1981) (no liability to Hertz Corporation for credit card where supply
officer had no authority to bind the government to a contract for open-ended use of credit cards).
Many social media services are provided at no immediate cost to the government, raising the
question whether a government employee is required to have contracting authority to bind the agency
in such an arrangement. GSA Letter at 2-3. We see nothing in the FAR or case law that would permit
an unauthorized government employee to bind the government in contract even if the contract imposes
no upfront costs on the government. Furthermore, social media agreements containing indemnification
clauses could impose costs, because such clauses, if enforceable, could impose monetary liability on
the United States.
9
Although, as GSA points out, a contracting officer with restricted contracting authority cannot
bind the United States to an open-ended online indemnification agreement in an amount that exceeds
his contracting authority, GSA Letter at 4, such a contracting officer may nonetheless violate the ADA
by entering into such an indemnification agreement—effectively capped at the limit of the officer’s
contracting authority—because the loss subject to the indemnification agreement may arise in a future
year in which the availability of an appropriation to pay that potential liability is unknown. For that
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Opinions of the Office of Legal Counsel in Volume 36
pair of commentators put it, “an obligation cannot arise against the United States
merely because an unauthorized official has procured goods or services. Much
more is necessary, and it does not follow that an Anti-Deficiency Act violation
occurs, eo instanti, with every irregular procurement.” Major Gary L. Hopkins &
Lieutenant Colonel Robert M. Nutt, The Anti-Deficiency Act (Revised Statutes
3679): And Funding Federal Contracts: An Analysis, 80 Mil. L. Rev. 51, 89
(1978).10
Furthermore, it would be inappropriate and, indeed, would likely violate the
ADA if an authorized official were to ratify a TOS agreement containing an
unenforceable indemnification clause executed by an employee without contract
authority or with insufficient contract authority. See Commerce Letter at 3. Under
the FAR, the head of a contracting activity or higher-level official, if designated,
may ratify an unauthorized commitment but only if “[t]he resulting contract would
otherwise have been proper if made by an appropriate contracting officer.” 48
C.F.R. § 1.602-3(b)(2) & (c)(3) (2010); Dep’t of Commerce, Commerce Acquisi-
tion Manual 1301.602, Ratification of Unauthorized Commitments § 3.2.1(b)(iii),
at 5 (2009), available at http://www.osec.doc.gov/oam/acquistion_management/
policy/commerce_acquisition_manual_cam/default.htm (last visited Nov. 8,
2012). Entering into a TOS agreement containing an indemnification clause that
violates the ADA would not otherwise have been proper, even if approved by an
authorized official.
C.
We turn now to whether a government officer or employee with contracting
authority violates the ADA by entering into a TOS agreement that includes an
unrestricted, open-ended indemnification clause.11 Such agreements violate the
reason, as we have previously recognized, the Comptroller General has insisted that even an
indemnification agreement “limited to a definite maximum” must provide “(1) that only the amount of
appropriated funds actually available at the time of loss will be paid, and (2) that it creates no
obligation to appropriate additional funds.” Management of Aircraft Hijacking, 2 Op. O.L.C. 219, 224
(1978); see also Indemnification Agreements, 8 Op. O.L.C. at 96 (same); 2 Federal Appropriations
Law at 6-73 (to ensure that agency will have sufficient funds available should contingent liability under
an indemnification agreement ripen into an obligation, the agency must either “obligate or . . . reserve
administratively sufficient funds to cover the potential liability,” or the agreement must “expressly
limit the government’s liability to appropriations available at the time of the loss with no implication
that Congress will appropriate funds to make up any deficiency”).
10
We do not address here whether a government employee without contracting authority may
violate the ADA by “mak[ing] . . . an expenditure . . . exceeding an amount available in an appropria-
tion or fund.” 31 U.S.C. § 1341(a)(1)(A).
11
We recognize that some indemnification agreements, although appearing to be open-ended and
unrestricted, are in fact limited, such as when the government’s potential liability is determinable (for
example, when that potential liability is capped at the value of a commodity, see, e.g., To the
Administrator, Fed. Aviation Agency, 42 Comp. Gen. 708, 710 (1963)), or when its liability or
commitment to indemnify can be avoided by actions under the government’s control, see, e.g., To the
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Anti-Deficiency Act Implications of Consent by Government Employees
ADA and, as a consequence, are unenforceable. As noted, open-ended, unrestrict-
ed indemnification clauses are unenforceable against the government because they
violate the ADA—whether or not the official involved otherwise has contracting
authority. GSA Letter at 3. On several occasions, the Supreme Court held under
earlier versions of the ADA or related statutes that the government was legally
incapable of incurring a contractual obligation to pay more money than Congress
had appropriated or to pay money over a longer period than covered by an
appropriation. See, e.g., Leiter v. United States, 271 U.S. 204, 206-07 (1926);
Sutton v. United States, 256 U.S. 575, 580-81 (1921); Hooe v. United States, 218
U.S. 322, 332-34 (1910); Bradley v. United States, 98 U.S. 104, 116-17 (1878);
see generally Memorandum for Stephen R. Colgate, Assistant Attorney General
for Administration, from Randolph D. Moss, Assistant Attorney General, Office of
Legal Counsel, Re: Applicability of the Antideficiency Act to a Violation of a
Condition or Internal Cap Within an Appropriation at 16-17 (Jan. 19, 2001)
(discussing Supreme Court decisions). Similarly, with respect to open-ended
indemnification clauses, courts have relied on the ADA in refusing to find implied
indemnification agreements and in rejecting express indemnification agreements.
See, e.g., Hercules, 516 U.S. at 427; Rick’s Mushroom Serv., Inc. v. United States,
521 F.3d 1338, 1346 (Fed. Cir. 2008); In re All Asbestos Cases, 603 F. Supp. 599,
611-12 (D. Haw. 1984); Union Pac. R.R. Corp. v. United States, 52 Fed. Cl. 730,
732-34 (2002); Johns-Manville Corp. v. United States, 12 Cl. Ct. 1, 22-25 (1987);
California-Pacific Utils. Co., 194 Ct. Cl. at 715; Ins. Co. of N. Am. v. District of
Columbia, 948 A.2d 1181, 1186-88 (D.C. 2008). Thus, the courts have held that,
by operation of the ADA itself, a government officer or employee who purports to
agree to an indemnification clause has not actually committed the United States to
a binding obligation. In Leiter, for example, the trustees of a landlord sued for the
rent under leases to the Treasury Department, but because the leases were contrary
to the Anti-Deficiency Act, the Court held that the trustees could not recover. 271
U.S. at 205, 207-08.
This situation, then, gives rise to the peculiar question whether a government
employee with contracting authority violates the ADA when, because of the ADA,
the employee has failed to authorize an enforceable “obligation” that otherwise
would exceed funds available in an appropriation. We conclude that the ADA has
been violated in these circumstances. The mere fact that commitments made in
violation of the ADA are not legally enforceable does not somehow erase the
ADA violation; otherwise, the ADA could not be violated. The ADA mandates
that, for violations of section 1341(a), the head of the agency “shall report
Honorable Howard M. Metzenbaum, U.S. Senate, 63 Comp. Gen. 145, 148 (1984); see also 2 Federal
Appropriations Law at 6-72 to 6-74. This opinion does not address these or any similar circumstances
in which there would be no violation of the ADA despite the government’s having entered into an
apparently open-ended, unrestricted indemnification agreement.
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Opinions of the Office of Legal Counsel in Volume 36
immediately to the President and Congress all relevant facts and a statement of
actions taken,” with a copy of each report to be transmitted simultaneously to the
Comptroller General. 31 U.S.C. § 1351. A government officer or employee who
violates section 1341(a) can be subject to administrative discipline and penal
sanctions. Id. §§ 1349, 1350. These provisions would have no effect, and would
make no sense, if an ADA violation does not occur because the violation itself
makes the obligation invalid. Moreover, an otherwise binding contract that
contains a clause violating the ADA may create precisely the sort of moral
obligation for Congress to appropriate money for payments under the contract—a
so-called “coercive deficiency”—that Congress enacted the ADA to counteract.
See 2 Federal Appropriations Law at 6-34 to 6-35; Project Stormfury—
Australia—Indemnification for Damages, 59 Comp. Gen. 369, 372 (1980)
(“coercive deficiencies” involve situations where an agency has legally or morally
committed the United States to make good on a promise). Finally, we note, based
on seven years of reports by the GAO compiling ADA violations,12 that at least
some agencies appear to have treated open-ended indemnification clauses
subjecting the government to indefinite liability as violating the ADA and have
reported such violations. See GAO, Antideficiency Act Reports—Fiscal Year
2011, at 1 (Feb. 9, 2012) (available at http://www.gao.gov/legal/lawresources/
antideficiencyrpts.html (last visited Nov. 8, 2012)); GAO, Antideficiency Act
Reports—Fiscal Year 2010, at 7 (Jan. 9, 2011) (same); GAO, Antideficiency Act
Reports—Fiscal Year 2008, at 12, 13 (Mar. 3, 2009) (same); GAO, Antideficiency
Act Reports—Fiscal Year 2006, at 4, 5, 11 (Mar. 9, 2007) (same); GAO, Anti-
deficiency Act Reports—Fiscal Year 2005, at 6 (Aug. 11, 2006) (same).
For these reasons, we conclude that the Anti-Deficiency Act is violated when a
government officer or employee with authority to bind the government agrees,
without statutory authorization or some other exception, to an open-ended,
unrestricted indemnification clause.
III.
You have asked about the practical consequences for the government (rather
than for the employee) that flow from an authorized government employee’s
consent to an online TOS agreement that contains an unenforceable indemnifica-
tion clause. We make two observations in this regard.
First, the Department has a duty to mitigate an ADA violation—particularly
when an agreement is in effect—as soon as possible. See To the Chairman, Comm.
on Appropriations, House of Representatives, 55 Comp. Gen. 768, 772 (1976)
12
Congress amended 31 U.S.C. § 1351 in 2004 to require that a copy of each report of an ADA
violation be transmitted to the Comptroller General. See Consolidated Appropriations Act, 2005, Pub.
L. No. 108-447, § 1401(a), 118 Stat. 2809, 3192 (2004).
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Anti-Deficiency Act Implications of Consent by Government Employees
(“We believe it is obvious that, once an Antideficiency Act violation has been
discovered, the agency concerned must take all reasonable steps to mitigate the
effects of the violation insofar as it remains executory.”); The Honorable Glenn
English, B-223857, 1987 WL 101593, at *6 (Comp. Gen. Feb. 27, 1987) (“Once
CCC [Commodity Credit Corporation] determined that sufficient funds were not
available to pay for the meat it had ordered because its borrowing authority had
been depleted . . . , the Antideficiency Act required CCC to do what it could to
mitigate or minimize the magnitude of a possible Antideficiency Act violation.”).
Often, mitigation requires terminating the contract. See id. Accordingly, for those
online social media TOS agreements that have already been executed and that
contain an indemnification provision that violates the ADA, the Department
should renegotiate the terms of service to revise or eliminate the indemnification
clause13 or cancel the Department’s enrollments in social media applications when
their operators insist on such a clause.
Second, you ask whether, if agency employees without authority to bind the
agency do not violate the ADA when, in the course of signing up for social media
applications, they agree to TOS agreements with indemnification clauses, the
government is “subject to no legal ramifications despite the apparent benefits to
the government.” Commerce Letter at 5. Although such indemnification clauses
would not be enforceable, in some circumstances the government arguably may
pay, or be ordered to pay, for the reasonable value of benefits received from a
contractor (e.g., the reasonable value of downloaded photos) under the equitable
principle of quantum meruit. “Under the doctrine of quantum meruit, the govern-
ment pays the reasonable value of services it actually received on an implied,
quasi-contractual basis.” Maint. Serv. & Sales Corp., 70 Comp. Gen. 664, 666
(1991) (concluding that requirements for quantum meruit payment for repair
services for government-owned vehicles were satisfied). “Payment under this
authority is appropriate where there is no enforceable contractual obligation on the
part of the government but where the government has received a benefit not
prohibited by law conferred in good faith.” Unauthorized Legal Servs. Contracts
Improperly Charged to Res. Mgmt. Appropriation, B-290005, 2002 WL 1611488,
at *3 n.9 (Comp. Gen. July 1, 2002). Thus, for example, the Comptroller General
opined that, even though the Fish and Wildlife Service had entered into a contract
for legal services without authority and in violation of the ADA, the Solicitor of
the Department of the Interior could choose to pay the contractors on a quantum
meruit basis, so long as sufficient unobligated funds were available in the
applicable appropriation. Id. at *3, *4 n.9; see also Perri v. United States, 340
F.3d 1337, 1344 (Fed. Cir. 2003) (quantum meruit recovery may be available in
13
GSA has provided examples of TOS agreements that correct or eliminate problematic provisions
such as indemnification clauses. See GSA Letter at 3 n.3 (citing agreements posted on GSA’s website
apps.gov).
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Opinions of the Office of Legal Counsel in Volume 36
the Court of Federal Claims to a plaintiff who provides goods or services to the
government pursuant to an express contract that contains defects rendering it
invalid or unenforceable); e.g., Prestex, Inc. v. United States, 320 F.2d 367, 373
(Ct. Cl. 1963). In some circumstances, it may be that no quantum meruit payment
could be made or ordered, particularly if the website provided free access (apart
from the value of the unenforceable indemnification agreement) or if the govern-
ment already has paid for access. Nevertheless, in other situations, the government
arguably could be required to make a quantum meruit payment.
VIRGINIA A. SEITZ
Assistant Attorney General
Office of Legal Counsel
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