Linan v. Housing Auth. /Camden ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
2-13-1995
Linan v Housing Auth. /Camden
Precedential or Non-Precedential:
Docket 94-5193
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 94-5193
LINAN-FAYE CONSTRUCTION CO., INC.
Appellant
v.
HOUSING AUTHORITY OF THE CITY OF CAMDEN
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 90-cv-04651)
Argued: September 23, 1994
BEFORE: BECKER, COWEN and GARTH,
Circuit Judges
(Filed February 13, 1995)
Cary L. Flitter (argued)
Lundy, Flitter & Beldecos
450 North Narberth Avenue
P.O. Box 278
Narberth, PA 19072-0278
Counsel for Appellant
Linan-Faye Construction Co., Inc.
Mark D. Caswell (argued)
Freeman, Zeller & Bryant
Ten Melrose Avenue
Woodcrest Pavilion, Suite 400
Cherry Hill, NJ 08003-3647
Counsel for Appellee
Housing Authority of the
City of Camden
OPINION
COWEN, Circuit Judge.
Linan-Faye Construction Company Co., Inc. ("Linan-
Faye"), a public housing contractor, appeals from orders of the
district court that granted summary judgment for the Housing
Authority of the City of Camden ("HACC") on Linan-Faye's claims
under public contract law and 42 U.S.C. § 1983. Because the
district court erred in applying federal common law rather than
state law to resolve this dispute, we will reverse and remand to
the district court for further proceedings. Nevertheless, since
we conclude that in the absence of New Jersey law which
specifically interprets "termination for convenience" clauses New
Jersey courts would look to federal common law for guidance, we
will limit the triable issues on remand to a determination of:
(1) the definition of "work performed" for purposes of paragraph
17 of Linan-Faye's contract with HACC; (2) the pre-termination
expenses incurred by Linan-Faye that may be compensable as "work
performed" under paragraph 17 of the contract; and (3) HACC's
liability, if any, for damages resulting from HACC's withholding
of Linan-Faye's performance bond after termination. Finally,
because the district court did not err in determining that Linan-
Faye failed to demonstrate a protectible property or liberty
interest sufficient to support its § 1983 claim, we will affirm
the district court's grant of summary judgment on this claim.
I. FACTS & PROCEDURAL HISTORY
On August 11, 1988, HACC advertised for bids on a
housing modernization project. The project involved the
renovation and rehabilitation of 244 housing units and was to be
funded in substantial part by a grant from the United States
Department of Housing and Urban Development pursuant to the
Public and Indian Housing Comprehensive Improvement Assistance
Program ("CIAP"). Plaintiff, Linan-Faye, attended all required
pre-bid meetings and submitted a bid of $4,264,000, together with
supporting documentation which included a bid bond, performance
bond, qualification statement, and required affidavits. Linan-
Faye was the lowest responsible bidder for the job, underbidding
its nearest competitor by $600,000. Accordingly, HACC informed
Linan-Faye that the contract was to be forthcoming.
Linan-Faye engaged in preparatory activities in
connection with the contract, including meeting with prospective
subcontractors, job planning and pricing, talking with relevant
inspectors, and securing insurance. Also, on several occasions,
representatives of Linan-Faye met with HACC and its architect to
discuss specifications and make preparations for the commencement
of physical construction. Linan-Faye, however, never began
physical construction because numerous disputes broke out between
the parties over interpretation of the specifications.
Linan-Faye contends that HACC demanded concessions
before permitting work to begin. HACC maintains that the parties
arrived at different interpretations of the project plans and
specifications, and this conflict became evident at pre-
construction meetings. On November 29, 1988, as the result of
these disputes, HACC advised Linan-Faye that it was going to
rebid the project. Linan-Faye filed suit to enjoin this
rebidding and allow it to complete the project as bid.
The district court entered a temporary restraining
order to prevent HACC from accepting further bids. Subsequently,
the court approved a Stipulation of Settlement and Order of
Dismissal with Prejudice, under which the parties agreed to
execute the contract and proceed with the project as originally
planned. Nevertheless, disputes soon broke out again.
On November 22, 1989, HACC issued a Notice to Proceed.
Linan-Faye contends that the notice was limited to an order to
correct certain plumbing problems that were a portion of the
original contract. Linan-Faye refused to proceed in a piecemeal
fashion, and insisted that it would not begin work until a
certain number of vacant buildings were available at the same
time so that it could achieve economies of scale. HACC responded
that it had scattered vacant units available, but not rows of
units.
Subsequently, HACC attempted first to extract the
plumbing segment from the contract and, when that failed,
proposed a complete buy-out of Linan-Faye's contract. The
parties entertained the possibility of a buy-out until July of
1990, at which time HUD informed HACC that it would not approve a
buy-out. HACC reinstated the previous Notice to Proceed by
letter dated July 23, 1990.
At a preconstruction meeting on September 6, 1990,
Linan-Faye informed HACC that it would not start work until the
contract price was increased to reflect the costs incurred by the
delay in commencing construction. HACC responded that Linan-Faye
had to begin work before it would address the issue of the price
increase.
HACC elected to terminate Linan-Faye's contract by
letter dated September 25, 1990. In that letter, Gregory Kern,
the Interim Executive Director of HACC, stated that HACC would
instruct the Modernization Office to assist Linan-Faye in
reclaiming its performance bonds. While the letter did not
mention the terms "breach" or "default," it did state that Linan-
Faye "had continually failed to demonstrate its intent to perform
under the public contract." Letter from Kern to Norman Faye
(September 25, 1990); App. Vol. I at 114-115. HACC confirmed its
decision to terminate by letter dated October 23, 1990.
Linan-Faye objected to the termination and filed the instant
action on October 26, 1990, setting forth theories of recovery
under New Jersey public contracts law and 42 U.S.C. § 1983.
Linan-Faye served HACC with a complaint in December of 1990
seeking specific performance and damages. HACC did not surrender
Linan-Faye's performance bond until July of 1991, after the
district court determined that specific performance was not
available to Linan-Faye.
In April of 1992, HACC filed a motion for summary
judgment on Linan-Faye's civil rights claim and for the first
time argued, in that same motion, that the "termination for
convenience" clause set forth in paragraph 17 of the General
Conditions of their contract limited Linan-Faye's damages under
the contract.1 The district court granted HACC's motion for
1
. Paragraph 17 of this contract's General Conditions of the
Contract for Construction states in relevant part:
a. Subject to the approval of HUD, the performance of work
under this contract may be terminated by the PHA in
accordance with this paragraph in whole, or from time
to time in part, whenever the Contracting Officer shall
determine that such termination is in the best interest
of the PHA. Any such termination shall be effected by
delivery to the Contractor of a Notice of Termination
specifying the extent to which the performance of the
work under the contract is terminated, and the date
upon which such termination becomes effective.
b. If the performance of the work is terminated, either in
whole or in part, the PHA shall be liable to the
Contractor for reasonable and proper costs resulting
from such termination, which costs shall be paid to the
Contractor within 90 days of receipt by the PHA of a
properly presented claim setting out in detail: (1) the
total cost of the work performed to date of termination
less the total amount of contract payments made to the
contractor . . .; and (5) an amount constituting a
reasonable profit on the value of work performed by the
Contractor.
App. Vol. II at 45.
summary judgment on the § 1983 claim, but deferred decision on
the effect of the termination of convenience clause pending
further discovery.
Upon a renewed motion for summary judgment, the
district court held for HACC, determining that Linan-Faye's
damages would be limited to those compensable under the
contract's termination for convenience clause. The district
court left open, however, the possibility of recovery for damages
accruing from HACC's initial failure to identify specifically the
termination as one of convenience.
HACC filed its third motion for summary judgment on
October 27, 1993. In that motion, HACC contended that since
Linan-Faye never began work under the contract, it could not
recover any damages under the termination for convenience clause.
Linan-Faye responded that it could recover damages for: (1)
preparatory costs such as soliciting subcontractors, pricing, and
pre-construction meetings; (2) improper notice of termination;
(3) pre-termination delay by HACC; and (4) HACC's refusal to
relinquish Linan-Faye's performance bond. Determining that
federal common law applied in interpreting this contract, the
district court held that Linan-Faye incurred no compensable
damages under the termination for convenience clause. The court,
therefore, entered an order granting summary judgment for HACC.
This appeal followed.
Following oral argument before this Court, HACC and
Linan-Faye agreed to participate in non-binding mediation of the
controversy before the Honorable Max Rosenn, Senior Circuit
Judge. By memorandum dated November 9, 1994, Judge Rosenn
informed us that efforts to reach a settlement of the controversy
through mediation were unsuccessful.
II. JURISDICTION & OVERVIEW OF ISSUES RAISED IN THIS APPEAL
The district court exercised jurisdiction in this
matter by virtue of the diversity of citizenship of the parties
with the requisite amount in controversy pursuant to 28 U.S.C. §
1332 (1988). This Court has jurisdiction pursuant to 28 U.S.C. §
1291 (1988). Linan-Faye essentially raises six issues on
appeal:2 (1) whether the district court erred in applying
federal common law and not the law of New Jersey to interpret
this contract; (2) whether New Jersey law precludes retroactive
application of a termination for convenience clause; (3) whether
the district court was correct in its application of the
constructive termination for convenience doctrine; (4) whether
the district court erred by engaging in impermissible fact
2
. Linan-Faye styles its appeal as containing seven issues.
Brief of Appellant at ix-x. The first of these issues, according
to Linan-Faye, is that the district court engaged in
impermissible fact finding on contested matters. Given our
conclusion concerning the application of the termination for
convenience clause, however, this issue is best resolved in
conjunction with a discussion of the proper application of that
clause. See discussion infra part VI.
finding so as to deny Linan-Faye all compensation; (5) whether
Linan-Faye has an actionable claim for violation of its civil
rights; and (6) whether HACC's position that the termination for
convenience clause denies any recovery is barred by principles of
equitable and judicial estoppel.
III. CHOICE OF LAW
Linan-Faye contends that the district court erred in
applying federal common law and not the law of New Jersey to
resolve this dispute. According to Linan-Faye, this action
involves a contract dispute between a private contractor and an
autonomous public housing authority created pursuant to New
Jersey law. Where such parties enter federal court based upon
diversity of citizenship, Linan-Faye argues, the federal courts
presumptively apply state law. See Erie R. Co. v. Tompkins, 304
U.S. 64, 78, 58 S. Ct. 817, 822 (1938). We agree.
Our review of a district court's determination as to
choice of law is plenary. Louis W. Epstein Family Partnership v.
Kmart Corp., 13 F.3d 762, 766 (3d Cir. 1994) (citing Universal
Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.
1981)). This Court's recent decision in Virgin Islands Housing
Authority v. Coastal General Construction Services Corp., 27 F.3d
911 (3d Cir. 1994), strongly indicates the proper result in this
case. In Coastal General, we determined, in the context of
deciding a question of federal jurisdiction, that local law, not
federal law, governs a dispute over the termination provisions of
a contract between a public housing authority and a private
construction company. Id. at 917. As we stated in Coastal
General, "[t]he fact that a contract is subject to federal
regulation does not, in itself, demonstrate that Congress meant
that all aspects of its performance or nonperformance are to be
governed by federal law rather than state law applicable to
similar contracts in businesses not under federal regulation."
Id. at 916 (quoting Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir.
1974)). In addition, we explained that even if the contractor's
complaint contained assertions respecting the use of federal
funds in a construction project and the adoption of contractual
forms authorized by HUD, there would be no difference in outcome.
Id. at 917.
Similar to Coastal General, in the instant case a
public housing authority contracted with a private construction
company. Linan-Faye, the construction company, did not contract
directly with the United States government. While HUD funded the
construction project in part, and HUD forms were used in the
contract, Coastal General teaches that these facts do not dictate
application of federal common law. Rather, the holding of
Coastal General indicates that in construing termination clauses
such as the one at issue in this case, courts must look to local
law. Thus, the district court was incorrect in applying federal
common law and not the law of New Jersey to resolve this dispute.
The district court erred in deviating from the
generally applicable Erie doctrine. The Supreme Court, in Boyle
v. United Technologies Corp., 487 U.S. 500, 108 S. Ct. 2510
(1988), set forth a two-pronged inquiry for determining whether
to apply federal common law in the absence of an express
Congressional grant of such authority. According to the Supreme
Court, a court must first determine whether the action involves
"``uniquely federal interests.'" Id. at 504, 108 S. Ct. at 2514
(citing Texas Industries Inc. v. Radcliff Materials, Inc., 451
U.S. 630, 640, 101 S. Ct. 2061, 2067 (1981)). Once a court
identifies a uniquely federal interest, the court must then
determine whether a "significant conflict" exists between an
identifiable "federal policy or interest and the [operation] of
state law." Id. at 507, 108 S. Ct. at 2516 (quoting Wallis v.
Pan American Petroleum Corp., 384 U.S. 63, 68, 86 S. Ct. 1301,
1304 (1966)).
Relying on American Pipe & Steel Corp. v. Firestone
Tire & Rubber Co., 292 F.2d 640 (9th Cir. 1961), and United
States v. Taylor, 333 F.2d 633 (5th Cir. 1964), the district
court concluded that the government's interest in ensuring a
uniform interpretation of the termination for convenience
provisions in this contract provided the "significant federal
interest" necessary to pre-empt state law. Linan-Faye
Construction Co. v. Housing Authority of Camden, 847 F. Supp.
1191, 1197 (D.N.J. 1994). These cases, however, do not dictate
this result. While both of these cases applied federal law in
interpreting a contract, the government interest was far more
significant in those cases than in the case at hand. In American
Pipe & Steel, the Court of Appeals for the Ninth Circuit stated,
"we agree generally with appellee that the construction of
subcontracts, let under prime contracts connected with the
national security, should be regulated by a uniform federal law."
American Pipe & Steel, 292 F.2d at 644. The instant case
involves no matter of national security. Further, the court in
American Pipe & Steel expressly acknowledged that the development
of the law in this area was "still uncertain and unclear." Id.
Similarly, in Taylor, the contract at issue involved the
construction of an atomic energy plant, a matter intricately
involved with national security during the 1950's and 1960's.
Taylor, 333 F.2d at 635. The Taylor court also explicitly
referred to the fact that American Pipe & Steel dictated
application of federal common law in such a case. Id. at 637.
Thus, both of these decisions concerned matters of national
security that are simply not present in this case.3
3
. Still another distinction exists between the instant case and
the cases the district court relied upon in applying federal
common law to interpret this contract. American Pipe & Steel and
Taylor involved direct United States government procurement
contracts, or a subcontract with a United States government prime
contractor. American Pipe & Steel, 292 F.2d at 641; Taylor, 333
F.2d at 635. Neither of these situations involved, as is the case
here, the outright grant of funds to a public agency. The closer
nexus to the United States government in American Pipe & Steel
and Taylor heightens the federal government's interest. The
weaker link in this case diminishes the significance of the
Moreover, the district court erred in finding a
conflict between federal and state law that would endanger any
federal interest involved. The district court correctly
recognized the proposition that a lawsuit which involves a
federal interest is a "necessary, not a sufficient, condition for
the displacement of state law." Linan-Faye Construction Co., 847
F. Supp. at 1198 (quoting Boyle 487 U.S. at 507, 108 S. Ct. at
2516). The court, however, failed to identify a significant
conflict. In the only paragraph that attempts to identify a
conflict, the court stated:
We find it implausible that the federal government
would require all CIAP contracts in excess of
$10,000.00 to contain a termination for convenience
clause, and then leave interpretation of that clause to
the vagaries of state law, particularly where, like New
Jersey, there are few or no state law cases
interpreting this type of provision. Rather, we
believe that the decision to include a termination for
convenience clause in the "Uniform Requirements"
section of the C.F.R. reflects a federal interest in a
consistent interpretation of that clause.
Id.
The first sentence of this paragraph merely assumes the
answer to the question the court is wrestling with: whether
Congress left interpretation of clauses in these types of
contracts to state law. The second sentence of the above quoted
(..continued)
government interest. Thus, the district court was incorrect in
finding a government interest significant enough to warrant
deviating from Erie and applying federal common law.
paragraph simply reidentifies the interest involved, it does not
point out a conflict with state law.
The problem with the district court's reasoning is
highlighted by its own analysis of what the outcome would be
under state law. The court states, "[e]ven assuming that New
Jersey law were to apply, we have no basis for believing that New
Jersey courts would look elsewhere than to federal common law for
guidance." Id. If New Jersey courts, as is likely, would look
to federal common law to decide this question for which there is
little state law precedent on point, then the court is incorrect
in its assertion that a conflict exists. The outcome would be
the same under both federal and state common law. Thus, the
court erred in applying federal common law and not the law of New
Jersey to resolve this dispute and we must reverse with the
direction that the district court resolve all remaining issues in
accordance with New Jersey law.
IV. NEW JERSEY LAW
Having decided that it is the law of New Jersey that
governs the interpretation of this contract, we must now decide
whether Linan-Faye is correct when it argues that the general
principles of contract damages under New Jersey law would permit
Linan-Faye to recover full expectation damages under this
contract rather than those damages provided for under the
contract's termination for convenience clause. Citing A-S
Development, Inc. v. W.R. Grace Land Corp., 537 F. Supp. 549, 557
(D.N.J. 1982), aff'd 707 F.2d 1388 (3d Cir. 1983), and other
cases,4 Linan-Faye states that under New Jersey law one who
breaches an agreement must compensate the injured party in order
to put the non-breaching party in as good a position as he would
have been in had performance been rendered as promised. Further,
Linan-Faye argues that New Jersey courts have declined to import
federal procurement concepts into their contract law
jurisprudence. See Edwin J. Dobson, Jr., Inc. v. Rutgers, 157
N.J. Super. 357, 418, 384 A.2d 1121, 1152 n.10 (1978) ("The
policy factors that have lead [sic] to the development of this
concept in federal contracts, such as a need to expand or abandon
a particular arms program with consequent economic impact on
contractors and subcontractors, do not warrant state courts
adopting it wholesale by judicial fiat when traditional remedies
for breach of contract are available."), aff'd sub nom., Broadway
Maintenance Corp. v. Rutgers, 180 N.J. Super. 350, 434 A.2d 1125
(A.D. 1981), aff'd, 90 N.J. 253, 447 A.2d 906 (1982). While the
cases Linan-Faye cites stand for these general propositions, such
4
. Linan-Faye also cites Donovan v. Bachstadt, 91 N.J. 434, 453
A.2d 160 (1982), for the proposition stated above. Further,
Linan-Faye cites In Re Merritt Logan, Inc., 901 F.2d 349, 357-58
(3d Cir. 1990) and Sandler v. Lawn-A-Mat Chemical & Equipment
Corp., 141 N.J. Super. 437, 454, 358 A.2d 805 (A.D.),
certification denied, 71 N.J. 503, 366 A.2d 658 (1976), for the
proposition that the courts of New Jersey have long maintained a
liberal rule of damages to a non-breaching party.
generalities provide insufficient guidance in deciding the proper
construction of a contract that contains a termination for
convenience clause.5
It is undisputed that there are no cases in New Jersey
construing the effect of termination for convenience clauses. It
is also undisputed that there are numerous federal cases dealing
specifically with termination for convenience clauses and, in
particular, with the doctrine of constructive termination for
convenience. Therefore, as the district court stated, "courts in
New Jersey would recognize that where the parties have
incorporated a particular clause pursuant to federal regulation,
they do so against the backdrop of federal case law addressing
the clause." Linan-Faye Construction Co., 847 F. Supp. at 1198.
Accordingly, we align ourselves with the district court in its
determination that if New Jersey law were to apply, New Jersey
courts would look to this rich body of federal common law
concerning the termination for convenience doctrine, unless to do
so would violate some enshrined principle of New Jersey law. Id.
Like the district court, we are unable to discern such a
principle.6
5
. Additionally, the quoted language in Dobson represents only
the opinion of a single judge on this matter. The relevant issue
was not addressed in the New Jersey Supreme Court opinion
affirming this case.
6
. Linan-Faye argues that decisions of the New Jersey Supreme
Court such as W.V. Pangborne & Co. v. New Jersey Dept. of
Transportation, 116 N.J. 543, 562 A.2d 222 (1989), where the
court has found against governmental entities, are inconsistent
V. TERMINATION FOR CONVENIENCE
Because the New Jersey Supreme Court would likely look
to federal common law as persuasive authority in order to
construe this contract's termination for convenience clause, we
must examine the parties' contentions in light of the relevant
federal case law.7 As a preliminary matter, we must determine
the method HACC used to terminate Linan-Faye. HACC argues that
it terminated Linan-Faye by letter of September 25, 1990, and
this letter constituted a termination for convenience. Linan-
Faye, on the other hand, argues that this letter constituted a
default termination. Linan-Faye has the better of this argument.
(..continued)
with the broad discretion federal courts have conferred on the
government in cases concerning termination for convenience
clauses. Pangborne, however, involved a failure of a
governmental entity to deal in good faith. Id. at 562, 562 A.2d
at 231 ("DOT's failure . . . to deal expressly and clearly with
this material term constitutes a breach of an implied duty of
good faith and fair dealing and the supervening obligation of the
government to deal scrupulously with the public."). Federal
common law also looks disfavorably on the government in cases of
governmental bad faith. See infra Part V. Therefore, Linan-
Faye's argument is unpersuasive.
7
. We recognize that the district court also applied federal
common law to resolve this dispute. Linan-Faye Construction Co.
847 F. Supp. at 1198. Nevertheless, there is a difference
between looking to federal common law as persuasive authority and
being bound by federal law. The district court opted for the
latter approach and determined that construction of the
termination for convenience clause was purely a matter of federal
common law. In light of our previous holding in Coastal General,
27 F.3d at 917, we opt for the former approach.
HACC's letter of September 25, 1990 is replete with
references to defaults on the part of Linan-Faye. HACC stated in
the letter that Linan-Faye's correspondence evidences Linan-
Faye's "intent to avoid compliance with the specifications."
Letter from HACC to Norman Faye (September 25, 1990); App. Vol.
I at 114. Further, HACC stated in its letter that Linan-Faye had
"continually failed to demonstrate its intent to perform under
the public contract" and that "it is clear" Linan-Faye is "no
closer to performing its contract obligations then it was in
September of 1988." Id. at 114, 115. Nowhere in this letter
does HACC state that it is terminating Linan-Faye simply for
convenience. It is apparent from this document that HACC
originally terminated Linan-Faye for default.8
Given HACC's original termination of Linan-Faye for
default, the question that we must reach is whether the court
should retroactively convert this termination for default into a
8
. HACC argues that the last paragraph of this letter which
states that HACC has "instructed the Modernization Office to
assist [Linan-Faye] as needed in obtaining release of [Linan-
Faye's Bond]," App. at 115, is inconsistent with a default
termination because if HACC had terminated for a default it was
entitled to hold onto the bond. Just because HACC had the right
to hold onto the bond under the contract, however, does not mean
that it intended to exercise this right at the time of the
letter. HACC may not have felt that the defaults it cited, such
as a failure to begin work, were compensable via the bond, or it
may have decided that it did not wish to encourage litigation
over the bond issue. In any event, this paragraph provides
insufficient support for HACC's argument that this letter
constituted a termination for convenience.
termination for convenience. HACC argues, based on a number of
cases from the United States Court of Claims and the Court of
Appeals for the Federal Circuit,9 that the district court did not
err in invoking the constructive termination for convenience
doctrine in order to convert this default termination into a
termination for the convenience of the Housing Authority. Linan-
Faye argues that under federal common law the doctrine of
constructive termination for convenience has no application to
this case. According to Linan-Faye, Federal Acquisition
Regulations (FAR's) applicable to direct procurement contracts
provide for a "conversion clause," a clause that automatically
converts a termination for default into a termination for
convenience. 48 C.F.R. § 49.401(b) (1993). Linan-Faye suggests,
therefore, that because no such regulations exist in grant
situations10 such as this, there is an expressed intent that such
a conversion not be allowed. We find Linan-Faye's argument
unpersuasive.
9
. See discussion infra this part.
10
. HACC received a grant pursuant to the Public and Indian
Housing Comprehensive Improvement Assistance Program ("CIAP").
CIAP grants, which are administered by HUD, require recipients to
set forth various terms and conditions in their agreements with
contractors. 24 C.F.R. § 968.110(j) (1994). The regulations
concerning CIAP grants, collected at 24 C.F.R. § 85.1 et seq.,
differ from the FAR's applicable to direct government procurement
contracts. The CIAP grant regulations do not provide for a
mandatory conversion clause.
The absence of a conversion provision in regulations
concerning CIAP grants does not preclude application of federal
common law. While the FAR's have an explicit conversion clause,
it was the federal common law that originally developed the
concept of termination for convenience, and later developed the
concept of constructive termination for convenience. We find it
appropriate to apply federal common law.
The idea that the government can, under certain
circumstances, terminate a contract without paying full
expectation damages, dates from the winding down of military
procurement following the civil war. Torncello v. United States,
681 F.2d 756, 764 (Ct. Cl. 1982). The termination for
convenience doctrine originated "in the reasonable recognition
that continuing with wartime contracts after the war was over
clearly was against the public interest." Id. Where the
government terminates a private contractor pursuant to a
termination for convenience clause in a contract, instead of
receiving full expectation damages the contractor's recovery is
defined by the termination for convenience clause. Recovery is
limited to "``costs incurred, profit based on the work done, and
the costs of preparing the termination settlement proposal.'"
Maxima Corp. v. United States, 847 F.2d 1549, 1552 (Fed. Cir.
1988) (quoting R. Nash & J. Cibinic, Federal Procurement Law 1104
(3d ed. 1980)) After World War II, termination for convenience
came to be applied to peacetime non-military procurement. Id.
(citing Torncello, 681 F.2d at 765-66).
Constructive termination for convenience, an outgrowth
of termination for convenience, is a judge-made doctrine that
allows an actual breach by the government to be retroactively
justified.11 Maxima Corp., 847 F.2d at 1553. This doctrine has
its origins in the Supreme Court's decision in College Point Boat
Corp. v. United States, 267 U.S. 12, 45 S. Ct. 199 (1925). In
that decision, the Supreme Court held:
A party to a contract who is sued for its breach may
ordinarily defend on the ground that there existed, at
the time, a legal excuse for nonperformance by him,
although he was then ignorant of the fact. He may,
likewise, justify an asserted termination, rescission,
or repudiation, of a contract by proving that there
was, at the time, an adequate cause, although it did
not become known to him until later.
College Point, 267 U.S. at 15-16, 45 S. Ct. at 200-01 (footnotes
omitted) (emphasis added).
The decision of the Court of Claims in John Reiner &
Company v. United States, 325 F.2d 438 (Ct. Cl. 1963), cert.
11
. The "government" involved in these cases is typically the
United States government. In the instant case, the entity
seeking to terminate for convenience is the Housing Authority of
Camden. While the doctrine of constructive termination for
convenience originally developed to allow the United States
government maximum flexibility to deal with military contractors
during times of war, the expansion of this doctrine into areas
other than those involving military contracts suggests that its
precepts should be applied to all government entities that
provide services to the public. Of course, the final word on
this issue rests with the New Jersey Supreme Court.
denied, 377 U.S. 931, 84 S. Ct. 1332 (1964), demonstrates the
operation of this doctrine. In John Reiner, the plaintiff
contracted with the government to supply generator sets to the
Army. Id. at 439. Following delivery of a written contract, but
before performance commenced, the government notified the
plaintiff that the contract was canceled and that the contract
would be rebid because of an impropriety in the original bidding
procedure identified by a competitor. Id. Nevertheless, no such
impropriety was found to exist. Id. at 442. The Court of
Claims, therefore, was forced to consider the proper measure of
damages to the contractor. In answering this question, the court
determined that while the government did not rely on the
termination for convenience clause in canceling the contract with
the plaintiff, because it could have so relied, the measure of
damages was limited to the damages provided for in that clause.
Id. at 443. According to the court, even though the excuse
originally offered was not a "valid justification," a "good
ground did exist in the far-reaching right to terminate under the
termination article." Id. This case granted the government
great latitude in retroactively terminating contracts for
convenience.
Perhaps the high-water mark of courts' permissiveness
in allowing the government to terminate for convenience,
constructively or otherwise, was Colonial Metals Co. v. United
States, 494 F.2d 1355 (Ct. Cl. 1974), overruled in part by
Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982). In that
case, a dealer in copper contracted with the government to sell
copper ingot to the Navy. Id. at 1357. The government
terminated this contract to obtain the copper ingot from other
sources at a cheaper price. Id. The court held that even where
the government knew of the better price elsewhere at the time it
awarded the contract and then later decided to terminate the
contract to pursue the better price, in the absence of proof of
malice or conspiracy, termination was not improper. Id. at 1361.
Termination for convenience, and its expansion into the
constructive termination for convenience doctrine, however, does
not confer upon the government a discretion that is unbounded.
In granting the government the privilege of constructive
termination for convenience, courts brush up against the problem
of allowing the government to create an illusory contract. See
Torncello, 681 F.2d at 769 (when evaluating a termination for
convenience, one cannot ignore hornbook law that "a route of
complete escape vitiates any other consideration furnished and is
incompatible with the existence of a contract."). Accordingly,
courts have articulated limits on the use of the constructive
termination for convenience doctrine in various ways. For
instance, in Torncello the Court of Claims stated that the
constructive application of a termination for convenience clause
requires "some kind of change from the circumstances of the
bargain or in the expectations of the parties" Id. at 772. In
Kalvar Corp. v. United States, 543 F.2d 1298, 1301 (Ct. Cl.
1976), cert. denied, 434 U.S. 830, 98 S. Ct. 112 (1977), by
contrast, the court's inquiry into whether to prevent the
government from receiving the benefit of the termination for
convenience clause focused on whether the government evidenced
any bad faith in terminating the contract. Pointing out that the
court is required to presume good faith on the part of public
officials, the court in that case determined that the contractor
could not avoid the application of the termination for
convenience clause. Id. at 1301-02; see also SMS Data Products
Group, Inc. v. United States, 19 Cl. Ct. 612, 617 (1990) ("This
court presumes that Government officials act in good faith.").
In this matter, the district court concluded that under
the bad faith test it was proper to allow HACC to invoke the
doctrine of constructive termination for convenience.
Additionally, the district court commented that even under the
changed circumstances test of Torncello, the deterioration in the
relationship between HACC and Linan-Faye would constitute
sufficiently changed circumstances to apply this doctrine. We
agree with the district court's decision that it was appropriate
to apply the constructive termination for convenience doctrine in
this case for two reasons. First, Linan-Faye has produced
insufficient evidence of bad faith on the part of HACC to
overcome the presumption that public officials act in good faith.
Second, this case is very different from Torncello.
In Torncello, the government awarded a private
contractor the right to service all of the Navy's pest control
needs. Torncello, 681 F.2d at 758, 762. However, after awarding
the contract to this contractor, the Navy called the Department
of Navy Public Works to perform the task because this
organization, from its initial bid, appeared to be able to do the
work cheaper. Id. at 758. The government invoked the
constructive termination for convenience doctrine arguing that
since it had never called the private contractor to perform any
actual work, the private contractor was not entitled to any
damages. Id. at 759. Limiting its decision in Colonial Metals,
the court held, in an opinion joined by only three of six judges,
that the requirement of the government's good faith is not
sufficient and that without other checks, free termination for
convenience is not supportable. Id. at 771.12
In the matter at hand, Linan-Faye does not claim that
HACC terminated its contract to obtain the work at a cheaper
price. Linan-Faye also does not claim that HACC terminated the
contract in order to obtain work from a lower bidder who was
known to HACC at the time it contracted with Linan-Faye. Indeed,
12
. Notably, the disagreement among the judges in that case was
on the precise issue of whether it was appropriate to create a
stricter test for convenience terminations by the government.
Id. at 773-774 (Friedman, C.J., Davis, J., and Nichols, J.
concurring) While all the judges agreed on the result in that
case, the court could not muster a majority to embrace the new
"changed circumstances" test.
Linan-Faye points out in its brief that it was the low bidder for
the project. Brief of Linan Faye at 1. Thus, the divisive facts
presented in Torncello are not present here.
Moreover, subsequent cases have limited the scope of
Torncello. The Court of Appeals for the Federal Circuit, for
example, has stated that Torncello "stands for the unremarkable
proposition that when the government contracts with a party
knowing full well that it will not honor the contract, it cannot
avoid a breach claim by adverting to the convenience termination
clause." Salsbury Industries v. United States, 905 F.2d 1518,
1521 (Fed. Cir. 1990), cert. denied, 498 U.S. 1024, 111 S. Ct.
671 (1991); see also T.I. Construction Co. v. Kiewit Eastern Co.,
No. 91-2638, 1992 WL 382306, at *9 (E.D.Pa. Dec. 10, 1992)
(citing language in Torncello indicating that its holding was
limited to the facts presented); Modern Systems Technology Corp.
v. United States, 24 Cl. Ct. 699, 704 (Cl. Ct. 1992) (applying
bad faith test and reading Torncello to stand only for the above
stated proposition), aff'd, 980 F.2d 745 (Fed. Cir 1992). In
addition, in a subsequent case, the United States Claims Court
stated that "Torncello did not change the traditional
understanding" that the "Government could invoke the clause so
long as it did not act in bad faith or clearly abuse its
discretion." SMS Data Products, 19 Cl. Ct. at 619-20. In light
of these developments, and considering the division among the
court in Torncello, we decline to read that case as significantly
limiting the power of the government in terminating for
convenience.13
As the district court recognized, the post award
deterioration of the relationship between HACC and Linan-Faye
which included conflict over the specifications would likely
constitute sufficiently changed circumstances to justify
application of the doctrine of constructive termination for
convenience even under the reasoning in Torncello. See Embrey v.
United States, 17 Cl. Ct. 617, 624-25 (1989) (deterioration of
business relations considered sufficiently changed circumstances
to allow government to terminate for convenience); see also SMS
Data Products, 19 Cl. Ct. at 621 (genuine concern that contractor
could not meet the contract's mandatory requirements constituted
changed circumstances). Without establishing a litmus test as to
what constitutes changed circumstances, which is unnecessary in
view of subsequent limits on Torncello, we hold that New Jersey
courts, looking to federal law as persuasive authority, would
permit HACC to invoke the constructive termination for
13
. Linan-Faye also cites a law review note written shortly
after the Torncello decision in support of its claims. Stephen
N. Young, Note, Limiting the Government's Ability to Terminate
For Its Convenience Following Tornecello [sic], 52 Geo. Wash. L.
Rev. 892 (1984). In that note, the author suggests that
Torncello provides a reason to eliminate the government's right
to constructively terminate for convenience. Id. at 911. As
this author was writing without the benefit of recent decisions,
all that can be said of his recommendation is that future courts
declined to take the hint.
convenience doctrine in this instance.14 Accordingly, damages
will be limited by the termination for convenience clause of the
contract.15
14
. The dissent states that the majority "holds that a
deterioration in business relations, demonstrated in not
insignificant part by a dispute over specifications, constitutes
such a change in circumstances." See infra at 12 (emphasis
added). The dissent is incorrect insofar as it reads this to be
the holding of our decision. As we have already explained,
Torncello, and its changed circumstances approach, has been
sharply limited by more recent cases. See discussion supra this
Part. We have therefore declined to endorse wholeheartedly the
changed circumstances approach. Accordingly, an accurate
statement of our position is that (1) Linan-Faye has not
demonstrated actual bad faith on the part of HACC and (2) this
case does not present the divisive facts presented in Torncello
that warranted finding against the government.
15
. At oral argument, Linan-Faye suggested that the application
of paragraph 16(d) of the General Conditions of this Contract
"trumps" the constructive application of the paragraph 17
termination for convenience clause. Paragraph 16(d) states, in
pertinent part:
The Contractor's right to proceed shall not be terminated or
the Contractor charged with damages under this clause
if:
(1) The delay in completing the work arises from
unforeseeable causes beyond the control and without the
fault or negligence of the Contractor. Examples of
such causes include (1) acts of God, or of the public
enemy, (ii) acts of the PHA or other governmental
entity in either its sovereign or contractual capacity
(iii) acts of another contractor in the performance of
a contract with the PHA (iv) fires . . . .
App. Vol II at 45.
This subsection of paragraph 16 carves out an exception to when
HACC can terminate for default.
While Linan-Faye's argument goes to whether HACC breached
the agreement in terminating for default, it cannot prevent
application of the constructive termination for convenience
VI. COMPENSATION IN LIGHT OF THE TERMINATION
FOR CONVENIENCE CLAUSE
Having determined that the termination for convenience
clause is applicable in this case, we must next decide whether
the district court erred in granting summary judgment for HACC
and denying Linan-Faye all compensation. Linan-Faye contends
that the district court exceeded its role at the summary judgment
stage because there still remain six contested issues concerning
its contract claim. According to Linan-Faye, the district court
erred in determining: (1) the definition of "work performed"
under the contract; (2) there was no evidence of compensable pre-
termination expenses under the contract; (3) the reason why HACC
retained Linan-Faye's performance bond; (4) that Linan-Faye
"refused" to begin work; (5) that Linan-Faye misunderstood the
contract specifications; and (6) that there was proper HUD
approval of the contract's termination.
Our scope of review is plenary in determining the
propriety of summary judgment. Oritani Savings & Loan Ass'n v.
Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir. 1993).
Summary judgment is proper only "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
(..continued)
doctrine. The very premise of the College Boat decision is that
a party may defend a suit for breach on the grounds that a legal
excuse existed at the time of the alleged breach. College Boat,
267 U.S. at 15-16, 45 S. Ct. 200-01. Thus, whether HACC breached
its agreement by terminating the contract for default is largely
beside the point.
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S.
317, 322, 106 S. Ct. 2548, 2552 (1986). Further, at the summary
judgment stage, "the judge's function is not himself to weigh the
evidence and determine the truth of the matter but to determine
whether there is a genuine issue for trial." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511 (1986).
Three of the issues that Linan-Faye raises are
genuine issues of material fact in dispute. The other issues
concern facts that are either not material, or are not in
dispute. We will reverse the decision of the district court
granting summary judgment on those issues where there is a
genuine issue of material fact in dispute.
A. Definition of "Work Performed" under the Contract
Linan-Faye argues that the trial court improperly
selected isolated phrases from correspondence between the parties
in its determination that the phrase "work performed" in
paragraph 17 of the contract16 refers only to "physical
construction" and not to preparatory work. The district court
conceded that the contract documents, which include the
contract's General Conditions and its Supplement to the Standard
Form Agreement, failed to define the term "work." Linan-Faye
16
. See supra note 1 for the text of paragraph 17.
Construction Co., 847 F. Supp. at 1206. Based on an analysis of
the word "work" as used in several paragraphs of the contract,
the district court concluded that "work" could not include
"preparatory work" until after Linan-Faye began physical
construction on the project. Id. at 1207. We conclude that the
district court erred in determining this disputed issue of fact.
Paragraph 8(a) of the General Conditions of this
contract is the paragraph from which the district court draws the
most support for its conclusion that "work" under the termination
for convenience clause does not include "preparatory work." The
court's reading of this paragraph, however, is too strained to
support a grant of summary judgment. Paragraph 8(a) of the
General Conditions states:
Progress payments will be made at approximately thirty
(30) day intervals; and in preparing estimates,
acceptable work in place, material delivered to and
properly stored on the site, and preparatory work done
will be taken into consideration. If the contract
covers more than one project, a separate estimate shall
be furnished for each.
App. Vol. II at 42. From this paragraph, the district court
deduced that expenses for preparatory work were recoverable only
if the contractor begins the physical construction required under
the contract. Linan-Faye Construction Co., 847 F. Supp. at 1207.
This conclusion is unjustified.
There is nothing in the language of paragraph 8(a) that
speaks to situations where HACC terminates Linan-Faye for
convenience after Linan-Faye has performed preparatory work, but
before it has begun physical construction. If anything, the
language of this paragraph demonstrates that both parties
considered preparatory work to be a compensable cost because the
paragraph states that preparatory work will be taken into
consideration in preparing estimates for compensation. Thus, the
district court erred in concluding that this paragraph is
dispositive.
The district court's survey of numerous other
paragraphs containing the word "work" also produces inconclusive
results. According to the court, paragraph 2 which requires the
contractor to "furnish all necessary labor, materials, tools,
equipment, water, light, heat, power, transportation, and
supervision necessary for performance of the work," and paragraph
22 which allows the contractor to request from the architect
drawings "which will [be required] in the planning and production
of the work" somehow indicate that "work performed" under
paragraph 17 does not include preparatory work. Id. at 1206
(emphasis added). These provisions, on their face, do not appear
to support any such conclusion. In addition, the district court
determined that paragraphs 26, 29 and 35, which refer to the
contractor's obligation to protect "work completed to date" and
to the warranty as to "work done," support the conclusion that
work performed under the termination for convenience clause does
not include preparatory work. Once again, if anything, these
provisions merely beg the question of how to define "work" under
paragraph 17 of the contract. Finally, the court refers to
paragraphs 7 and 31 that speak to obligations of the contractor
before and shortly after "commencing work" under the contract.
Unfortunately, these paragraphs also do not illuminate whether
the parties considered preparatory work to constitute compensable
work for purposes of the termination for convenience clause.17
Linan-Faye asks for the opportunity to present
testimony and cross-examine witnesses concerning the intent of
the parties in using the phrase "work performed" in paragraph 17
of the contract. Based on the evidence mustered by the district
court, we cannot conclude that there is no dispute as to this
issue. Further, this issue is material to the question of what
constitutes proper compensation under paragraph 17. Therefore,
Linan-Faye should be allowed to present the evidence that it
feels is appropriate to determine the intent of the parties.
Accordingly, we hold that the district court erred in granting
summary judgment for HACC on this disputed issue.
B. Evidence of Pre-Termination Expenses
17
. The district court also refers, in a footnote, to letters
exchanged between the parties that purportedly explain the
understanding of the parties concerning the definition of "work
performed." The fact that the court goes beyond the contract and
looks to these letters to reinforce its conclusion demonstrates
the impropriety of granting summary judgment and the need to make
such decisions on a more fully developed record.
Related to the disputed issue of the definition of
"work performed" under the contract is the issue of whether
Linan-Faye produced any evidence of pre-termination expenses
compensable as "work-performed." The district court determined
that Linan-Faye "had presented no evidence of expenses that would
merit an equitable adjustment to the contract." Id. at 1208
n.22. Linan-Faye argues that the certification which it
submitted in opposition to HACC's third motion for summary
judgment provides the requisite evidence. Linan-Faye is correct.
The district court, at this early stage of the
litigation, improperly concluded that there was "no evidence" of
expenses compensable under the termination for convenience
clause. Linan-Faye described 15 types of expenses that Linan-
Faye incurred preparing for work on the HACC contract.
Certification of Norman Faye (October 21, 1993); App. at 231-33.
While many of these "expenses" may not be compensable, some of
the stated expenses, such as time spent "with municipal building,
plumbing and electrical inspectors regarding job phasing,
contract details, code requirements, and problem solving," may be
compensable if the parties so intended under the termination for
convenience clause of the contract. Cf. ITT Defense
Communications Division, Nos. 11858, 13439, 1970 ASBCA Lexis 29,
at *56 (July 29, 1970) (cost of work done by appellant in
preparing and submitting configurations that were never used
still properly compensable under the termination for convenience
clause); Navgas, Inc., No. 9240, 1964 ASBCA Lexis 1139, at *29
(November 18, 1964) (costs of investigating work to be done, and
determining the best way to perform the contract, if awarded, are
properly compensable under termination for convenience clause).
Although, on the whole, the evidence produced by Linan-Faye in
this certification appears meager, by granting summary judgment
for HACC the district court improvidently prevented the plaintiff
from developing the record more fully. There was not a complete
lack of evidence. Accordingly, we must reverse the grant of
summary judgment on this issue and remand for trial.
In remanding for trial on this issue, however, it is
important to explain precisely the scope of our holding. We do
not hold that Linan-Faye is entitled to pre-termination expenses
that accrued as the result of any alleged pre-termination
breaches of contract by HACC. As the district court correctly
held, cases that have addressed the issue of pre-termination
breaches have concluded that claims for such damages are subsumed
in the termination for convenience clause. Linan-Faye
Construction Co., 847 F. Supp. at 1203, 1204 (citing Nolan
Brothers, Inc. v. United States, 405 F.2d 1250 (Ct. Cl. 1969));
Descon System Ltd. v. United States, 6 Cl. Ct. 410 (1984)). Pre-
termination expenses that accrued as the result of any alleged
pre-termination breaches by HACC are not compensable. On remand,
the triable issue is limited to a determination of the pre-
termination expenses which Linan-Faye incurred that the parties
intended to be compensable as "work performed" under the
termination for convenience clause of the contract.
C. Why HACC Retained Linan-Faye's Performance Bond
Linan-Faye next contends that the trial court
improperly resolved a factual dispute as to why HACC retained
Linan-Faye's performance bonds after terminating Linan-Faye.
According to Linan-Faye, it is entitled to damages arising from
HACC's failure to return this performance bond. Linan-Faye
alleges that by retaining its bond, HACC prevented it from
accepting other construction contracts and used the bond as an
inducement to force Linan-Faye to accept an unreasonable
resolution of this dispute. HACC argues that it retained Linan-
Faye's performance bond because Linan-Faye instituted a suit
seeking specific performance and if Linan-Faye were successful,
HACC would need Linan-Faye's bond.
This issue is not resolved solely by reference to the
termination for convenience clause because the events that give
rise to this claim occcured after termination.18 Recognizing
18
. Linan-Faye argues that it is entitled to damages because of
HACC's improper withholding of its performance bond both before
and after termination. Concerning Linan-Faye's claim for damages
for pre-termination withholding of the bond, we agree with the
district court that such damages are not recoverable because the
termination for convenience clause controls and does not provide
for such recovery. Claims arising from events following
termination, however, would not be governed by the termination
for convenience clause.
this, the district court decided the issue by concluding that
keeping the bonds during the pendency of the litigation was the
"logical response" to the plaintiff's lawsuit. Linan-Faye
Construction Co., 847 F. Supp. at 1205.
Unfortunately, there is no testimony or record evidence
to support the conclusion that HACC engaged in the "logical
response" posited by the district court. No one from HACC ever
indicated that it was Linan-Faye's suit for specific performance
that prevented HACC from returning the bond. Counsel for HACC
simply raised this argument when the case took on a litigation
posture. This naked assertion by counsel, without record
support, is not sufficient to warrant a grant of summary
judgment.
The district court attempts to justify its decision to
accept HACC's argument by referring to the September 25, 1990
termination letter sent by Gregory Kern, the Interim Executive
Director of HACC. Nevertheless, its reasoning is unpersuasive.
According to the court, Mr. Kern's letter which indicated that
HACC would return the bonds was sent before Linan-Faye instituted
suit. Linan-Faye, 847 F. Supp. at 1205 n.16. Therefore, the
court reasoned, "[t]he decision of the HACC to depart from Mr.
Kern's original plan only supports [the] finding that HACC felt
compelled to hold onto the bonds until the Court had disposed of
plaintiff's claims for specific performance." Id. (emphasis
added). The court in this passage, however, merely assumes its
conclusion. What eludes the district court is any evidence
indicating that it was the suit for specific performance that
caused retention of the bond. In effect, what the district court
stated is that the decision of HACC to depart from Kern's
original plan supports HACC's decision to depart from Kern's
original plan -- a statement without significance.
Moreover, even taking HACC's view of the timing of the
relevant events, there was an unjustified gap of over one month
between the time HACC terminated Linan-Faye and the time Linan-
Faye served its complaint seeking specific performance.
According to HACC, after it issued its September 25, 1990 letter
of termination, Linan-Faye sought reversal of HACC's decision to
terminate. HACC states that it sent a letter to Linan-Faye on
October 23, 1990 confirming its decision to terminate. Linan-
Faye did not serve its complaint for specific performance until
early in December of 1990, however, and the bond had not yet been
returned. This unexcused delay strengthens Linan-Faye's argument
that HACC did not decide to hold onto the performance bond as the
result of the specific performance suit. In light of these
facts, we will reverse the district court's grant of summary
judgment for HACC and remand for trial on this disputed issue.19
19
. We recognize that Linan-Faye's complaint in this matter does
not set forth a theory of recovery for damages due to improper
retention of the performance bond following termination. Indeed,
the complaint could not set forth such a theory because the
events giving rise to this aspect of Linan-Faye's claim (i.e.,
HACC's continued refusal to relinquish the bond during the
pendency of the specific performance action) did not occur until
D. Whether Linan-Faye "Refused" to Begin Work.
Linan-Faye asserts that the district court improperly
found it "refused" to begin work. According to Linan-Faye, it
did not refuse to begin work, but merely wanted to agree on any
changes that HACC desired before it began construction. Linan-
Faye contends that there is no basis in the record for the
district court's finding that it flatly refused to begin work.
We find that the question of whether Linan-Faye flatly
refused to begin work is immaterial to this case. Whether Linan-
(..continued)
after the complaint was filed. Nevertheless, the district court
made findings on this issue. Linan-Faye, 847 F. Supp. at 1205.
Further, both parties briefed and argued the issue before this
Court and HACC did not argue that the issue was not properly
before the district court. Accordingly, we find it appropriate
to set forth the applicable theory of recovery on remand.
On remand, the theory upon which damages would be predicated
is the common law action of detinue (or its modern counterpart).
According to the New Jersey Supreme Court, "[t]he gist of the
common law action of detinue was that [the] defendant originally
had and acquired possession of the chattels lawfully, as by
finding or bailment, but holds them subject to the plaintiff's
superior right to immediate possession which has been asserted by
a demand." Baron v. Peoples National Bank of Secaucus, 9 N.J.
249, 256, 87 A.2d 898, 901 (1952). At common law, the
appropriate remedy in a detinue action where property has been
unlawfully detained is a judgment for the value of the property
and damages in detention. Id.
Here, HACC lawfully received Linan-Faye's performance bond
pursuant to a contract between the parties. Following
termination, however, HACC's legal right to retain the bond is
the subject of the dispute that must be resolved on remand. If
the jury were to find HACC liable for improper retention of the
bond, the appropriate measure of damages would be compensation
for jobs lost by Linan-Faye (after termination) that resulted
from HACC's improper action.
Faye actually "refused" to begin work would be relevant if it was
necessary to decide if Linan-Faye defaulted on its obligations.
The district court, however, based its holding on the doctrine of
constructive termination for convenience. Linan-Faye
Construction Co., 847 F. Supp. at 1203. The constructive
termination for convenience doctrine makes the original reason
for termination relevant only to the extent that it evidences the
government's bad faith or a change in circumstances from the time
of contracting.20 The issue of whether there was an actual
default by Linan-Faye in refusing to begin work is immaterial.
In this case the default termination is converted into a
termination for convenience of the government by operation of
law. Since we agree with the district court that it was
appropriate to apply the constructive termination for convenience
doctrine, we hold that this issue is immaterial.
E. Whether Linan-Faye Misunderstood the Specifications
Linan-Faye argues that the district court improperly
concluded that it misunderstood the contract specifications
because the court indicated in a footnote that "[a]t the very
least, plaintiff misinterpreted the architect's specifications"
for the project. Linan-Faye Construction Co., 847 F. Supp. at
1203 n.13. According to Linan-Faye, it was HACC who
20
. See infra Part V for analysis of the constructive
termination for convenience doctrine.
"misinterpreted" the contract specifications. The dispute over
proper interpretation of the contract specifications, argues
Linan-Faye, prevented the court from resolving this issue at the
summary judgment stage.
Linan-Faye's argument misinterprets the district
court's reasoning. The relevant statement the court made in this
footnote is merely that there was discord between the parties
over interpreting their agreement. The district court mentioned
the discord to support its conclusion concerning the constructive
termination for convenience doctrine. Whether Linan-Faye
actually misunderstood the specifications, or whether it was
HACC's misunderstanding, is irrelevant where there is a
termination for convenience. As the district court held, the
constructive termination for convenience doctrine operates to
allow the government to extricate itself from contractual
relationships without arguing as to which party was in default.
Id. at 1203. Accordingly, the issue of who misunderstood the
contract specifications is not material, and played no part in
the order granting summary judgment.
F. Whether HUD Approval was Necessary for Termination
Linan-Faye suggests that whether HUD approved a
termination for convenience is a disputed issue that precludes
summary judgment. It concedes that HACC obtained HUD's general
approval to terminate the contract, but argues that HUD never
approved a termination for convenience. Linan-Faye contends that
HUD approval of a termination for convenience was a condition
precedent to invoking that clause, and failure to obtain such
approval precludes summary judgment. Linan-Faye does not succeed
in raising a disputed material issue on this point.
For the purposes of deciding this case, the district
court did not assume that HACC originally terminated for
convenience. While there is a dispute as to whether the original
letter of termination constituted a default termination or a
termination for convenience, HACC prevails under the district
court's reasoning without having to prove that it obtained HUD
approval of a termination for convenience. The court proceeded
on a constructive termination for convenience theory. Linan-Faye
does not dispute that HUD had approved HACC's right to terminate
generally. Thus, concerning the original termination, HACC
fulfilled its obligations by informing HUD, and obtaining from
HUD a general approval for the termination of the contract.
Because HACC received general HUD approval to terminate, there is
no bar to this court's using the constructive termination for
convenience doctrine to convert this into a termination for
convenience by operation of law. Further, and most importantly,
there is simply no dispute as to the material facts of what
approval HACC obtained. Indeed, both parties concede that HACC
obtained HUD approval to terminate generally, but did not obtain
specific HUD approval of a termination for convenience.
Therefore, this cannot be a disputed factual issue as Linan-Faye
erroneously contends.
Accordingly, we will reverse the district court's grant
of summary judgment and remand for trial on the issues of: (1)
the definition of "work performed" under paragraph 17 of the
contract; (2) the pre-termination expenses incurred by Linan-Faye
that are compensable as "work performed" under the termination
for convenience clause; and (3) HACC's possible liability for
damages resulting from its retaining Linan-Faye's bond after
termination.
VII. SECTION 1983
Linan-Faye next asserts that the district court erred
in granting summary judgment against it on its claim under 42
U.S.C. § 1983. Linan-Faye argues it has a protectible property
interest in its contract with HACC that is entitled to Fourteenth
and Fifth Amendment protection. Further, Linan-Faye contends
that HACC's retention of its performance bond implicates a
liberty interest entitled to constitutional protection. In
granting summary judgment, the district court held that whatever
property interest Linan-Faye may have had, it does not rise to a
sufficient level of certainty or dependency to merit
constitutional protection. Linan-Faye Construction Co. v.
Housing Authority of Camden, 797 F. Supp. 376, 380 (D.N.J. 1992).
We agree with the district court's resolution of this
matter. This Court recently surveyed the law concerning
Fourteenth Amendment claims based on contracts with state
entities. Unger v. National Residents Matching Program, 928 F.2d
1392 (3d Cir. 1991). We stated in Unger that it is beyond
dispute today that a contract with a state entity can give rise
to a property right protected under the Fourteenth Amendment.
Id. at 1397 (citing Perry v. Sindermann, 408 U.S. 593, 599-601,
92 S. Ct. 2694, 2698-2700 (1972)). Nevertheless, we stated that
the Supreme Court has never held that every state contract gives
rise to such a protectible property interest. Id.
As we explained in Unger, relevant Supreme Court cases
and cases from other courts of appeals instruct that two general
types of contract rights are recognized as property protected
under the Fourteenth Amendment: (1) where "the contract confers a
protected status, such as those ``characterized by a quality of
either extreme dependence in the case of welfare benefits, or
permanence in the case of tenure, or sometimes both, as
frequently occurs in the case of social security benefits'"; or
(2) where "the contract itself includes a provision that the
state entity can terminate the contract only for cause." Id. at
1399 (citing S & D Maintenance Co. v. Goldin, 844 F.2d 962, 966-
67 (2d Cir 1988)). In Unger, a physician licensed to practice
medicine in Pennsylvania was admitted into Temple University
Hospital's dermatology residency program through the National
Resident Matching Program. Id. at 1393. Shortly before Unger
was to begin the program, she received a letter stating that the
University had decided to discontinue the program. Id. Unger
filed suit under 42 U.S.C. § 1983. Id.
Declaring that the contract in Unger did not fall into
either of the two protected categories, we dismissed Unger's §
1983 claim. Id. at 1402. We relied in part on the reasoning of
our previous decision in Reich v. Beharry, 883 F.2d 239 (3d Cir.
1989), where we stated:
Many . . . courts have observed that if every breach of
contract by someone acting under color of state law
constituted a deprivation of property for procedural
due process purposes, the federal courts would be
called upon to pass judgment on the procedural fairness
of the processing of a myriad of contract claims
against public entities. We agree that such a
wholesale federalization of state public contract law
seems far afield from the great purposes of the due
process clause.
Reich, 883 F.2d at 242 (citations omitted).
Linan-Faye's contract with HACC does not fall into
either of the two categories we delineated in Unger. The
contract does not confer a protected status on the plaintiff and
the state entity could terminate the contract for reasons other
than for cause. Indeed, it could be terminated for convenience.
To grant Linan-Faye a remedy under § 1983 would create the
wholesale federalization of state public contract law that
concerned us in Unger and Reich. Accordingly, the district court
did not err in granting summary judgment for HACC on Linan-Faye's
claim.
Turning to Linan-Faye's assertion that it has been
deprived of a constitutionally protected liberty interest, we
also find that the district court did not err in granting summary
judgment for HACC. The Court of Appeals for the Second Circuit
addressed a case factually similar to the one at hand in S & D
Maintenance Co. v. Goldin, 844 F.2d 962 (2d Cir. 1988). In that
case, a contractor brought a § 1983 claim against the City of New
York, claiming that the City's withholding of payments under a
contract to maintain parking meters resulted in the contractor
being left with insufficient capital to pursue other work. Id.
at 963, 970. The court held that although the consequential
damages of an alleged breach may be severe, this fact alone
cannot convert a contract claim into a deprivation of liberty.
Id. at 970. We agree with the reasoning of the Court of Appeals
for the Second Circuit, and conclude that Linan-Faye fails to
establish a claim of constitutional magnitude. We will affirm
the district court's grant of summary judgment to HACC on Linan-
Faye's § 1983 claim.
VIII. ESTOPPEL CLAIMS
Linan-Faye's final contention is that HACC is precluded
from refusing to pay compensation by reason of principles of
equitable and judicial estoppel. Linan-Faye argues that HACC
could have terminated for convenience in 1988 but that it did
not, and it breached a duty of fairness by waiting two years
before deciding to terminate. Linan-Faye relies on a single
case, M. & O. Disposal Co. v. Township of Middletown, 100 N.J.
Super. 558, 242 A.2d 841 (A.D. 1967), aff'd, 52 N.J. 6, 242 A.2d
841 (1968), to support its equitable estoppel argument.
Additionally, Linan-Faye argues that because HACC asserted in
prior judicial proceedings that there would be a "defined measure
of damages" under the termination for convenience clause, HACC is
now judicially estopped from arguing that it owes Linan-Faye
nothing.
We find Linan-Faye's equitable estoppel claim
unpersuasive. HACC could have terminated for convenience in 1988,
but it also could have pursued completion of the contract
according to its terms. HACC's decision to terminate after an
inability to agree to such terms does not breach a duty of
fairness. Indeed, this termination was within HACC's rights
under the contract and, as explained above, the constructive
termination for convenience doctrine allows HACC to convert its
original termination into a termination for convenience.
Moreover, Linan-Faye's reliance on M. & O. Disposal is
misplaced. That case involved the question of whether a
municipality impliedly ratified a contract for extra work which
was outside the scope of contract to dispose of garbage. Id. at
560, 567, 242 A.2d at 841, 846. In that case, the New Jersey
court merely stated the general precept that equitable principles
of estoppel will be applied against municipalities where the
interests of justice, morality, or common fairness clearly
dictate this course. Id. at 567, 242 A.2d at 846. Beyond the
obvious fact that the timing problem presented here has almost
nothing to do with the ratification issue presented in M. & O.
Disposal, Linan-Faye has failed to demonstrate how HACC's
exercise of its rights under this contract violates principles of
justice, morality, or common fairness. Thus, we find Linan-
Faye's equitable estoppel argument unconvincing.
Linan-Faye's argument for judicial estoppel is also
unpersuasive. Judicial estoppel precludes a party from assuming
a position in a legal proceeding inconsistent with one previously
asserted to the prejudice of an adverse party. Brown v. Allied
Plumbing & Heating Co., 129 N.J.L. 442, 446, 30 A.2d 290, 292
(Sup. Ct.), aff'd 130 N.J.L. 487, 33 A.2d 813 (E. & A. 1943);
Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 620, 581
A.2d 91, 107 (A.D. 1990) (citations omitted), aff'd, 124 N.J.
520, 591 A.2d 943 (1991). There is no inconsistency in taking
the position that HACC took in prior proceedings. HACC merely
argued that the termination for convenience clause provided the
defined measure of damages. After the district court decided the
difficult question of whether the termination for convenience
clause defines the measure of damages, it was not only
appropriate, but necessary, for HACC to address the question of
what the measure of damages is under that clause. At this later
stage, HACC may contend that this clause provides no compensation
for Linan-Faye in this instance. The attempt by Linan-Faye to
describe a contradiction in HACC's legal position has no force
under the facts presented in this case.
IX. CONCLUSION
In sum, we find that the district court erred in its
decision to apply federal common law and not the law of New
Jersey to resolve this dispute. Applying New Jersey law, we will
reverse the district court's grant of summary judgment and remand
for trial on the issues of material fact that are in dispute.
The three issues that remain in dispute in this case are the
definition of "work performed" under paragraph 17 of the
contract, whether and to what extent Linan-Faye incurred
preparatory expenses prior to termination that are compensable as
"work performed" under paragraph 17, and HACC's possible
liability for damages resulting from its withholding of Linan-
Faye's performance bond after termination. Finally, we will
affirm the district court's grant of summary judgment in favor of
HACC on Linan-Faye's § 1983 claim.
Linan-Faye Construction Co., Inc. v. Housing Authority of the
City of Camden, No. 94-5193.
BECKER, Circuit Judge, Concurring and Dissenting.
I join in Parts I, II, and III of the majority opinion.
However, I dissent from Part IV because I do not agree that New
Jersey would apply to this garden variety construction dispute
between a builder and a local governmental agency precepts drawn
from a potpourri of federal cases which amount at best to a hodge
podge, and at worst to a regime so inhospitable and unfair to
small contractors who deal with government agencies as to be
inconsistent with New Jersey jurisprudence. Rather, I believe
that New Jersey would apply its own law, which would not
recognize the doctrine of "constructive termination for
convenience" but rather would apply the normal rule of contract
breach which, on this record, would unquestionably render HACC
liable. Moreover, even if the New Jersey Supreme Court were to
assimilate federal law, I do not think that it would read that
law in the matter predicted by the majority. The precepts that
the majority applies are gleaned from cases that have been
excoriated in critical commentary because they are in
considerable measure poorly reasoned.
I also find myself unable to join in Part VII, dealing
with Linan-Faye's 42 U.S.C. § 1983 claims. I cannot agree with
the majority that HACC's arguably improper retention of Linan-
Faye's performance bond, which the company requires in order to
engage in any business, did not impair Linan-Faye's liberty
interest. I do, however, join the majority with respect to its
rejection of Linan-Faye's property interest claim.21
I. WHAT LAW WOULD NEW JERSEY APPLY?
The majority, notwithstanding the considerable
authority of the Dobson case, supra Maj. Op. at 13, reasons that
because there are no cases in New Jersey construing the effect of
termination for convenience clauses, "courts in New Jersey would
recognize that where the parties have incorporated a particular
clause pursuant to federal regulation, they do so against the
backdrop of federal case law addressing the clause," and hence
would adopt federal law, whatever that may be. That is the sum
and substance of the majority's argument. It is, I suggest,
pretty "thin soup," neither documented nor reasoned.
The majority's prediction also ignores the facts that
should govern the analysis required in such circumstances. A
review of the facts Linan-Faye has advanced and supported in
connection with the summary judgment motion -- which are glossed
over by the majority -- will illuminate the correct prediction of
New Jersey law. At this stage, these facts must obviously be
21
. I take no position on Parts VI.B through F and VIII of the
majority opinion, as they are outside the ambit of this effort,
except to note that the discussion of HACC's delay in invoking
the termination for convenience clause, see Part VIII, supports
my views insofar as it highlights the dubiousness of HACC's ex
post reliance thereon.
viewed in the light most favorable to Linan-Faye, the non-moving
party. See Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d
Cir. 1976).
A. The Facts Viewed in the Light
Most Favorable to Linan-Faye
It is undisputed that the parties had a binding
$4,264,000 contract for the rehabilitation of 244 housing units.
Linan-Faye, with declarations cognizable in summary judgment
proceedings: (1) represents itself to be an experienced, highly
regarded contractor that was ready, willing, and able to perform
the job in a timely fashion; (2) states that through
incompetence, poor planning, or other contractors' delay, the
HACC failed or refused to give Linan-Faye even a Notice to
Proceed for a full year; and (3) submits that after finally
giving that Notice, HACC then proceeded, without justification,
to delay Linan-Faye for almost another year. Linan-Faye also
represents that HACC never supplied Linan-Faye with a list of
which vacant units to work on; that turmoil reigned at HACC as
the Executive Director was replaced by a new Acting Executive
Director, Gregory Kern, in July 1990; and that Kern decided to
"clean house" by, inter alia, summarily terminating Linan-Faye's
contract.
It is also undisputed that in the course of the
termination dialogue, HACC never suggested that the termination
was "for convenience." All the discussion and written notices
instead alleged contractor default, which Linan-Faye staunchly
denied. Moreover, whether or not it was legally required, HACC
never got HUD approval to terminate for convenience. Indeed,
HACC did not invoke the termination for convenience clause until
two years after termination, when the litigation began. Most
importantly, during the period from September 1988 through August
1991, HACC held Linan-Faye's performance bonds, effectively
precluding Linan-Faye from bidding any other significant work.
Linan-Faye has proffered evidence that it suffered damages of
$1,492,000 as a result of HACC's breach of the contract and a
further loss of $1,249,999 from its inability to use its bonding
line.
B. General New Jersey Contract Law Principles
Under general common law contract principles,
applicable in New Jersey and elsewhere, one who breaches a
contract must compensate the injured non-breaching party so as to
put it in the position it would have occupied had performance
been rendered as promised. Donovan v. Bachstadt, 453 A.2d 160,
165 (N.J. 1982); 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 992 (1951).
A court in a breach of contract case aims to fashion a remedy in
order to compensate the non-breaching party fully. Donovan, 453
A.2d at 165; 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 992 (1951).
The New Jersey courts have long maintained a liberal
rule that non-breaching parties are entitled to damages. Cf. In
re Merritt Logan, Inc., 901 F.2d 349, 357 (3d Cir. 1990)
(interpreting New Jersey contract damages law); Sandler v. Lawn-
A-Mat Chem.& Equip. Corp., 358 A.2d 805, 814 (N.J. Super. Ct.
App. Div.), cert. denied, 366 A.2d 658 (N.J. 1976) (non-breaching
party "presumptively" entitled to damages, with doubts resolved
against the breaching party). New Jersey courts have also
narrowly construed clauses that tend to restrict a party's right
to recover its full common law damages. See American Sanitary
Sales Co. v. State, 429 A.2d 403, 407 (N.J. Super. App. Div.),
cert. denied, 434 A.2d 1094 (N.J. 1981) (narrowly interpreting a
"no damage for delay" clause in a New Jersey state contract).
The reluctance of the New Jersey Courts to give
expansive effect to exculpatory clauses extends to cases
involving its own government agencies. See, e.g., Buckley & Co.,
Inc. v. State, 356 A.2d 56, 62 (N.J. Super. Ct. Law Div. 1975);
Ace Stone, Inc. v. Township of Wayne, 221 A.2d 515, 518-19 (N.J.
1966); American Sanitary Sales Co., 429 A.2d at 407; see also
Department of Transp. v. Arapaho Constr., Inc., 357 S.E.2d 593,
594-95 (Ga. 1987) (relying in part on Ace Stone). Moreover,
under New Jersey law there is a presumption against finding a
contractual intent to alter common law rights and remedies. See,
e.g., Gibraltar Factors Corp. v. Slapo, 125 A.2d 309, 310 (N.J.
Super. Ct. Law Div. 1956) (parties presumed to contract with
reference to existing law), aff'd, 129 A.2d 567 (N.J. 1957),
appeal dismissed, 355 U.S. 13 (1957); see also Rescigno v.
Picinich, 377 A.2d 733, 739 (N.J. Super. Ct. Law Div. 1977)
(applying a presumption against a statutory intent to alter
common law rights); Blackman v. Iles, 71 A.2d 633, 636 (N.J.
1950) (same). Indeed, New Jersey courts commonly award
contractors common law contract damages against the State,
including damages for delay. See, e.g., American Sanitary Sales
Co., 429 A.2d at 407; Buckley & Co., 356 A.2d at 65 (see also
cases cited therein).
C. New Jersey and the Federal Law Alternative
This is not the first case in which a court applying
New Jersey law has had to adjudicate a contract dispute with some
federal connection. In Edward J. Dobson, Jr., Inc. v. Rutgers,
384 A.2d 1121 (N.J. Super. Ct. Law Div. 1978), aff'd sub nom.
Broadway Maintenance Corp. v. Rutgers, 434 A.2d 1125 (N.J. Super.
Ct. App. Div. 1981), aff'd, 447 A.2d 906 (N.J. 1982), plaintiff-
contractors sought to avoid the impact of a "no-damage for delay"
clause by asserting their claim for delay as an "equitable
adjustment." The court traced the history of the "equitable
adjustment" provisions in federal construction contracts and
federal regulations. But the court refused to import this wholly
federal concept into the New Jersey law of public construction
contracts. Finding that the term "equitable adjustment" had
become a term of art in federal contracts, the court held:
The policy factors that have lead [sic] to
the development of this concept in federal
contracts, such as a need to expand or
abandon a particular arms program with
consequent economic impact on contractors and
subcontractors, do not warrant state courts
adopting it wholesale by judicial fiat when
traditional remedies for breach of contract
are available. Id. at 1153 n.10.
This holding was affirmed by both the intermediate appellate
court and Supreme Court of New Jersey and strongly suggests that
New Jersey courts would not import the federal concept of
constructive termination for convenience into its public
construction contracts jurisprudence.
As the majority correctly points out, because there is
no reported New Jersey precedent interpreting a "termination for
convenience" clause, it is the function of this court to predict
how the New Jersey Supreme Court would rule if confronted with
this issue. In my view, there is no reason to believe that that
court, if called upon to resolve the question, would jettison a
century of settled contract law supporting liberal contract
remedies and narrowly construing similar exculpatory provisions
in order to adopt a harsh -- and harshly criticized, see infra --
federal interpretation of the clause at issue here. In this
case, the retroactive application of this dramatic change in the
law imposed by the majority to the factual scenario described
above not only exacerbates the harshness of the result but also
increases my confidence that the New Jersey Supreme Court would
never have adopted this interpretation.
D. The Termination of Convenience Provision and Its
Harsh Construction by the Majority
The termination for convenience clause has, as the
majority explains, a long lineage, dating from the Civil War era.
During that era federal government contracting was attended by
much impropriety and scandal. See generally CARL SANDBURG, ABRAHAM
LINCOLN, THE WAR YEARS (1948). The modern (post-1970) incarnation
of the clause is ensconced in the Code of Federal Regulations:
If the contractor can establish, or if it is
otherwise determined that the contractor was
not in default or that the failure to perform
is excusable; i.e., arose out of causes
beyond the control and without the fault or
negligence of the contractor, the [prescribed
default clauses] provide that a termination
for default will be considered to have been a
termination for the convenience of the
Government . . . .
Federal Acquisition Regulations ("FAR's"), 48 C.F.R. § 49.401(b)
(1993). The FAR's apply to direct United States government
procurement (including HUD procurement). They do not apply to
grants of federal funds to local public housing authorities. The
district court acknowledged this undisputed point. (Dist. Ct.
Op. at 18 n.7)
Moreover, regulations that govern grants to local
housing agencies contain their own specific scheme and procedures
for federally funded contracts made by state and local housing
authorities that are separate and distinct from the FAR's. These
"CIAP" requirements mandate a variety of terms and provisions
that must be set forth in such contracts, including a termination
for convenience clause. See 24 C.F.R. § 85.36(i)(2). In
contrast to the FAR's, however, the Administrative Requirements
for CIAP Grants do not include any counterpart to the automatic
conversion language of 48 C.F.R. § 49.401(b), or the other
specific termination provisions found in HUD's own FAR's. This
is consistent with the mandate of the CIAP enabling statute,
which is designed to allow the housing authority grantees maximum
discretion and individualized judgment. 42 U.S.C.S. § 14371(e)E,
(e)(4)(D) (1994).
The absence of an express conversion clause in the
Administrative Requirements for Grants is significant because,
under the venerable maxim of statutory construction, expressio
unius est exclusio alterius, the inclusion of one is the
exclusion of another. As I see it, the exclusion of an automatic
conversion provision in the Requirements for Public Housing
Authority Contracts (when specifically included in HUD's own
FAR's) expresses an intent to exclude such a provision, unless
local PHA administrators choose to include it. Cf. Marshall v.
Western Union Tel. Co., 621 F.2d 1246, 1251 (3d Cir. 1980)
(refusing to apply a Department of Labor standard in one
subsection of a regulation where it had been excluded when it was
included elsewhere); SUTHERLAND STATUTORY CONSTRUCTION § 31.06 (4th
ed.). Moreover, without the conversion clause, HACC's initial
failure to allege that it was terminating the contract with
Linan-Faye for convenience prevents HACC from subsequently
embracing that argument.
Before contracts with the federal government included
automatic conversion clauses, courts did not permit government
agencies to use the termination for convenience clauses to escape
from a breach. In Klein v. United States, 285 F.2d 778 (Ct. Cl.
1961), for example, the Court of Claims rejected the government's
argument that, because it had a contractual right to terminate
for convenience, its illegal breach of contract should be
disregarded. Id. at 784. Accord Goldwasser v. United States,
325 F.2d 722, 725 (Ct. Cl. 1963); Dynalectron Corp. v. United
States, 518 F.2d 594, 604 (Ct. Cl. 1975); Torncello v. United
States, 681 F.2d 756, 771-72 (Ct. Cl. 1982); Rogerson Aircraft
Corp. v. Fairchild Indus.Inc., 632 F. Supp. 1494, 1499 (C.D. Cal.
1986) (changed circumstances required).
The problems confronted by government contracting
officers operating under the Klein rule resulted in the adoption
of the automatic conversion clause by regulation, 48 C.F.R. §
49.401(b). The clause now appears in most direct federal
government procurement contracts. However, as the Rogerson court
noted in footnote 5 of its opinion, where the "automatic
conversion clause" is not made part of the contract, either
expressly or by regulation, the Klein rule remains fully
applicable and bars the implication of such clause. Rogerson,
632 F. Supp. at 1500 n.5. Although the contract in Rogerson
appears more specific than the instant contract in its
requirement that the agency elect its basis for termination
(i.e., default or convenience), the Rogerson decision remains
important and persuasive. Without a conversion clause, HACC
cannot invoke the termination for convenience provision to cure
its improper default termination. And a wrongful termination for
default constitutes a breach of the contract entitling the
wrongly terminated subcontractor to state law damages for the
breach, including lost profits. Id. at 1500-01; Clay Bernard
Sys. Int'l, Ltd. v. United States, 22 Cl. Ct. 804, 810-11 (1991)
(holding that absent a "conversion clause" a wrongful termination
for default is a breach, entitling contractor to recovery under
federal procurement law).
But even if HACC had initially invoked its termination
for convenience clause, thus avoiding the issue of the absence of
a conversion clause, HACC could not avoid liability in this case.
The majority acknowledges that the case law construing the
termination for convenience clause has retrenched from its high
water mark. While the majority's discussion does not clearly
depict the current state of the law, the leading cases appear to
hold that government agencies can only invoke the clause where
there has been some change in the circumstances of the parties.
See Torncello, 681 F.2d at 772. The majority holds that a
deterioration in business relations, demonstrated in not
insignificant part by a dispute over specifications, constitutes
such a change in circumstances. In my view, such a rule would
largely eviscerate the limitation. As lawyers who have dealt
with construction disputes know, these contracts almost always
generate some dispute over specifications, and any construction
dispute rancorous enough to spawn litigation will almost
certainly have led to the requisite deterioration in business
relations. The facts of this case illustrate how circular a
deterioration-of-business-relations test can be, for HACC did not
even attempt to invoke the clause until litigation began.
The majority constructs a regime under which a dispute
arising out of a garden variety contract between a builder and a
local housing authority, which is not a federal government
contract but only a local agency contract to which certain
federal regulations apply, has been severed from its common law
roots. The majority's application of selected federal cases
renders these local agency contracts virtually illusory by giving
an arguably defaulting local agency the right to avoid its own
breach, and sharply limit its liability simply by incanting the
termination for convenience clause two years after the fact. In
my view, it is inconceivable that the New Jersey Supreme Court,
which has so consistently supported liberal awards of contract
damages, would countenance that result, especially in the fact
scenario at bar.
This conclusion is strongly buttressed by the scathing
criticism that has been levied at Torncello and the cognate
jurisprudence. See, e.g., Stephen N. Young, Note, Limiting the
Government's Ability To Terminate for Convenience Following
Tornecello, 52 GEO. WASH. L. REV. 892 (1984) (suggesting that the
Torncello decision provides a reason to eliminate the
government's ability to terminate for convenience entirely).
Because I do not believe that the New Jersey Supreme
Court would adopt the federal interpretation but would instead
continue to give exculpatory clauses such as the termination for
convenience clause only narrow -- if any -- effect, I dissent.22
II. THE § 1983 CLAIM
I also dissent from the majority's affirmance of the
summary judgment granted on Linan-Faye's § 1983 claim. While I
agree that Linan-Faye's interest in the contract did not rise to
a property interest protected by the Constitution, I cannot agree
that HACC's unjustified retention of Linan-Faye's performance
bond did not deprive Linan-Faye of a protected liberty interest.
The majority dismisses Linan-Faye's claim rather
summarily, overlooking precedent which would, in my view, require
22
. As my discussion explains, I believe that this result would
follow even if New Jersey were to look to federal law, for I do
not think New Jersey would read federal law so expansively as
does the majority.
reversal. The right to follow a chosen profession free from
unreasonable interference comes within both the liberty and
property concepts of the Fifth and Fourteenth Amendments. See
Greene v. McElroy, 360 U.S. 474, 492 (1959); Piecknick v.
Commonwealth of Pennsylvania, 36 F.3d 1250, 1259 (3d Cir. 1994);
Bernard v. United Township High Sch. Dist. No. 30, 5 F.3d 1090,
1092 (7th Cir. 1993). It is true that the Constitution protects
only the right "to pursue a calling or occupation, and not the
right to a specific job." Bernard, 5 F.3d at 1092 (quoting
Wroblewski v. City of Washburn, 965 f.2d 452, 455 (7th Cir.
1992)). Nevertheless, the majority and the sole case on which it
relies, S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2d Cir.
1988), fail to consider how disputes over specific jobs can,
under certain circumstances, affect a party's pursuit of its
occupation.
In S & D, although the Court of Appeals for the Second
Circuit framed the § 1983 claim as one challenging the
plaintiff's dismissal from government employment, which clearly
did not rise to a constitutional violation, the true basis of the
plaintiff's liberty claim was that New York City's refusal to pay
amounts already due had essentially forced the company out of
business and left it "tottering near bankruptcy, unable to get
work, as a direct result of the city's alleged breach of the
contracts and withholding of payments." S & D, 844 F.2d at 970.
While I believe that S & D may be in error to the extent it
denies that the plaintiff's claim implicated a protected liberty
interest, the instant case provides an even stronger claim.
Whereas the city defendant in S & D could argue that the
plaintiff was not entitled to the amounts that it alleged it had
already earned, HACC cannot make any such argument about its
(arguably unjustified) failure to return Linan-Faye's own
performance bond. Also, when HACC interfered with Linan-Faye's
(pre-existing) capacity to obtain large construction contracts,
the core of its business, it brought this case into close
resemblance to those cases where the state actors are held liable
under § 1983 for revoking or interfering substantially with a
person's license to pursue a chosen occupation. Cf. Herz v.
Degnan, 648 F.2d 201 (3d Cir. 1981) (finding violation of a
property interest in the revocation of a professional license).
Without the use of its bonding line, Linan-Faye was
paralyzed: It could not bid on any significant contracts and
thus could not replace the business lost through the government's
breach. Hence, because HACC's arguably unjustified retention of
the bond did impinge on protected liberty interests, the district
court erred by awarding the defendant summary judgment on this
claim. I therefore also dissent from the portion of the majority
opinion that affirms this ruling.