“The judges were focused on how far can KBR stretch these government contracting defense doctrines to grab immunity for their conduct,” Mike Doyle, the soldiers’ lead attorney, said in an interview after the 75-minute hearing. The judges weren’t “overly receptive” to KBR’s claim of “blanket immunity,” Doyle said.

Lawyers for injured soldiers urged the three-judge panel to reject KBR’s theory that the Houston-based company (KBR:US) is immune from the lawsuits. The plaintiffs, 125 national guardsmen from Indiana and West Virginia, as well as 13 members of Britain’s Royal Air Force, accuse the company of exposing them to toxic chromium compounds in Iraq in 2003.

Wartime Decisions

“We had an excellent opportunity to get our points across to the panel today, that this is a case that should never go to trial,” Lawrence Ebner, KBR’s appellate attorney, said in an interview after the hearing. Any lawsuit requiring an examination of U.S. wartime decisions, “as this one would, is barred” by the military-contracting defenses, he said.

A trial court judge in Houston found the company’s conduct can be judged separately from the actions of the U.S. Army and allowed the case to proceed to trial. KBR appealed that decision two weeks before jury selection was scheduled to begin.

U.S. Circuit Judge Carolyn Dineen King pressed lawyers at today’s hearing on the exact meaning of the political question doctrine and whether it applies to cases in which the trial judge has already ruled the Army can’t be held responsible. That doctrine bars courts from passing judgment on decisions by the executive branch, of which the military is an extension. The combatant activities exemption blocks litigation over injuries suffered in active war zones.

“It isn’t the fact of what the government did -- the raw fact -- it’s a question of re-evaluating the wisdom of it and the reasons for it” that are prohibited under the statute, King told the lawyers, according to a transcript of the proceeding.

“This case would simply be impossible to try without examining military judgments,” Ebner replied.

Congress didn’t intend for military contractors to use “court-made doctrines” as a means to “slam the courthouse door in the face of Americans” supporting the war effort overseas, University of Baltimore law professor Charles Tiefer said in a phone interview before today’s hearing.

‘Judicial Backlash’

“KBR has been straining these defenses way too much,” said Tiefer, an expert on defense contractors who served three years on the U.S. Commission on Wartime Contracting. “There seems to be some judicial backlash which might bring KBR to account on some of these matters.”

KBR’s lawyers have said the stakes in the Texas case are high, as it presents the clearest picture yet of how the military-contracting statutes should be interpreted.

The laws were designed “to eliminate courts from the battlefield,” Mark Lowes, KBR’s litigation vice president, said in an interview before the hearing.

“All contractors, not just KBR, are in the business of controlling risk,” Lowes said. “Next time, there may be no one there to support the Army because there’s no way to evaluate the risk.”

Still Working

Military contractors are unlikely to stop pursuing work with the army if KBR is found liable for injuries to the troops, Tiefer said.

“Trucking companies have to pay damages in trials, but I continue to see trucks on the highway,” he said. “War zone contracts have been very lucrative. There’s no sign companies won’t eagerly compete to get those contracts.”

Geoff Harrison, one of KBR’s lead attorneys, said a ruling against the company could undermine military discipline with “potentially disastrous” consequences during wartime.

“If civilian defense contractors like KBR are exposed to post-combat, after-the-fact U.S. tort liability, based on their work in a war zone under the direction of the U.S. military in wartime on foreign soil, then contractors will be forced to second-guess U.S. military decisions and instructions, and be forced to pick and choose what orders to follow and not to follow,” Harrison said in an interview.

Burn Pits

From 2006 through this year, judges largely agreed with KBR’s interpretation of the law and threw out death and injury cases involving dozens of workers and soldiers (KBR:US). Those included suits over convoy drivers killed or injured outside of Baghdad and by soldiers claiming they were harmed by toxic smoke from company burn pits in Iraq.

In November, an Oregon federal jury -- the first to hear claims tied to the company’s work in Iraq -- awarded $85 million to 12 soldiers who claimed they were poisoned by chromium dust while guarding a company work site in 2003. Most of the award was for punitive damages, and KBR appealed the verdict.

Last month, the U.S. Court of Appeals in Philadelphia ordered KBR to stand trial over allegations that shoddy workmanship caused a soldier in Iraq to be electrocuted. Days later, a federal judge in Houston ordered KBR to face trial in April on human-trafficking claims involving foreign workers in Iraq.

‘False Starts’

“Our defenses are right, but being right on the law and the facts don’t mean you get the right result,” Lowes said. “We can expect some false starts from courts as they struggle through what to do.”

The soldiers in the case that was argued in El Paso today contend their injuries resulted from KBR’s failure to warn them of widespread toxic contamination at the Qarmat Ali water-treatment plant and weren’t caused by Army decisions.

KBR was hired to rehabilitate Iraq’s oil-production facilities after the U.S.-led invasion in 2003. The soldiers were assigned to protect KBR at Qarmat Ali.

Company officials (KBR:US) noted yellow sodium-dichromate dust, a carcinogen used to inhibit corrosion, blowing about the site shortly after their arrival in May 2003, according to documents produced in the case. The plaintiffs alleged that chromium dust exposure can cause skin, eye and lung irritations and lead to genetic mutations that trigger immune disorders and cancer.

“KBR had numerous opportunities to inform the U.S. Army Corps of Engineers and onsite personnel of the danger,” David Gunn, a lawyer for the soldiers, said in a court filing.

Complaints Dismissed

Health complaints at Qarmat Ali were routinely dismissed by company officials as “nothing” or as expected complications of working in a harsh desert climate, the soldiers said in court filings. Only after KBR managers arrived at the site wearing chemical protective suits and respirators in August 2003 did the soldiers say they learned the truth, according to their lawyers.

“The delay occurred because KBR did not fully comply with occupational safety and health standards required by the contract,” Gunn said, quoting from the 2011 Defense Department Inspector General’s report into the incident.

“KBR’s contract said to check out the site, and if there was any danger, to shut it down,” Doyle said in an interview. The company continued the work to meet project deadlines and win performance bonuses, he said.

KBR contends it followed both Army orders and the terms of its contract (KBR:US). The company has said it promptly and properly alerted soldiers to the dangers at Qarmat Ali, and it disputes that soldiers were harmed by their exposure to the sodium-dichromate dust, which in some places formed drifts four feet thick, according to court filings.

Health Studies

“None of the soldiers was injured or sickened in any way” by their alleged exposure in Iraq, Harrison said. He said contemporaneous health studies by the U.S. and U.K. military disprove claims of physical injuries to the troops.

Lowes said KBR believes its contractor-on-the-battlefield defenses will ultimately prevail, even if the company has to carry the fight to the U.S. Supreme Court.

“We support the soldiers,” Lowes said. “We support the national goals and activities of our duly elected U.S. government. How can that be anything but patriotic?”

The case is McManaway v. KBR Inc. , 12-20763, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

To contact the reporters on this story: Laurel Brubaker Calkins in Houston at [email protected]; Margaret Cronin Fisk in Detroit at [email protected]

The company, which was negotiating a possible agreement with the EPA at the time it issued the suspension last November, wants a judge to order the agency to lift the suspension and allow BP to bid for and secure new government contracts.

The suspension, called a debarment, affects only new federal contracts, not existing ones. Because of it, however, BP has lost out on potentially billions of dollars of business with the U.S. government.

Among other things, the company was ineligible for new contracts worth up to $1.9 billion to provide fuel to the government this year. BP has been a major supplier of fuel to the U.S. military.

The contracts were with the Defense Logistics Agency, a combat support unit that provides the Army, Navy, Air Force, Marine Corps and other federal agencies with logistics, acquisition and technical services.

An EPA spokesman declined to comment on BP's court action, referring questions to the Justice Department, which also had no comment.

Eleven workers were killed when an undersea well owned by BP blew out on April 20, 2010, some 50 miles off the coast of Louisiana, and triggered an explosion on the Transocean-owned Deepwater Horizon drilling rig. It caused the worst offshore oil spill in U.S. history.

In March, the Interior Department said it would allow BP to bid in a Gulf of Mexico lease sale, but warned that if the company was the highest bidder and remained under the EPA suspension at the time of the lease award, it would be disqualified. BP, which remains one of the largest leaseholders in the Gulf, skipped the auction.

BP pleaded guilty Jan. 29 to manslaughter, obstruction of Congress and other criminal charges stemming from the well blow-out and rig explosion in the Gulf. It was ordered to pay a $4 billion criminal penalty that it negotiated with the Justice Department.

The guilty plea keeps the suspension in place until BP can work out an administrative agreement with the EPA. In its court filing Monday, however, BP suggests that the suspension should have ended once the criminal case was resolved.

BP agreed to the plea deal in November, just before the EPA suspension.

BP said in its court filing Monday that the EPA order, which applies to 21 different BP entities, was continued by the agency just last month after BP lost an administrative challenge to the suspension.

BP said it holds contracts with the federal government worth more than $1.34 billion, under which the company provides jet fuel, marine diesel fuel, aviation gasoline, commercial airport refueling ser- vices, bulk fuel storage, lubricants and natural gas.

Besides the criminal penalty and fallout from the EPA suspension, the company has spent more than $25 billion on Gulf clean-up, compensation to victims and other spill-related costs.

A civil trial over the disaster is set to resume next month in federal court in New Orleans. Billions of dollars in fines are at stake.