A.L. Prime Energy Consultant, Inc. v. Mass. Bay Transportation Authority

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SJC-12370
A.L. PRIME ENERGY CONSULTANT, INC. vs. MASSACHUSETTS BAY
TRANSPORTATION AUTHORITY.
Suffolk. January 5, 2018. - May 2, 2018.
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
Massachusetts Bay Transportation Authority, Contract. Contract,
Termination, Contract clause, Performance and breach,
Implied covenant of good faith and fair dealing.
Civil action commenced in the Superior Court Department on
September 6, 2016.
A motion to dismiss was heard by Mitchell H. Kaplan, J.,
and a question of law was reported by him to the Appeals Court.
The Supreme Judicial Court granted an application for
direct appellate review.
Kevin P. Martin (Joshua J. Bone also present) for the
defendant.
Michael P. Murphy for the plaintiff.
LENK, J. This case concerns the proper construction of the
termination for convenience clause in a contract between the
Massachusetts Bay Transportation Authority (MBTA) and A.L. Prime
2
Energy Consultant, Inc. (Prime), a private fuel supplier. A
termination for convenience clause permits a contracting public
entity, under certain circumstances, to cancel a procurement
contract without exposure to liability for breach of contract.
See Maxima Corp. v. United States, 847 F.2d 1549, 1552 (Fed.
Cir. 1988). Termination for convenience clauses originated in
Federal procurement contracts, and have given rise to a body of
Federal case law defining Federal entities' termination rights.
Some State and municipal procurement contracts also contain
termination for convenience clauses, but the case law
interpreting them is sparse. As a result, some State courts
have looked to Federal precedent for guidance when construing a
termination for convenience clause in a State or municipal
procurement contract.
We are asked to determine first, whether, in Massachusetts,
a termination for convenience clause in a State or municipal
procurement contract should be construed according to Federal
precedent; and second, if not, whether Massachusetts law permits
a State or municipal public entity to invoke a termination for
convenience provision solely to obtain a more favorable price.
This dispute began when the MBTA terminated the MBTA-Prime
contract (contract), in order to procure fuel more economically
through an existing Statewide contract with a different vendor.
Prime filed a complaint against the MBTA for breach of contract
3
and breach of the implied covenant of good faith and fair
dealing, claiming that the MBTA's termination must be evaluated
according to Federal case law. Prime further argued that, under
Federal precedent, a public entity may not invoke a termination
for convenience clause solely to secure a lower price. A
Superior Court judge agreed, and denied the MBTA's motion to
dismiss Prime's complaint. The judge then granted the MBTA's
motion to report the case for interlocutory review pursuant to
Mass. R. Civ. P. 64, as amended, 423 Mass. 1410 (1996), and we
allowed the MBTA's motion for direct appellate review.
The Federal standard for construing a termination for
convenience provision in a governmental procurement contract
departs from the general rule that contracts must be enforced
according to their plain meaning. We decline to import this
Federal case law, which conflicts with Massachusetts precedent
indicating that basic contract principles determine the proper
construction of a termination for convenience clause. We
conclude that a State or municipal entity may terminate a
procurement contract for its convenience in order to achieve
cost savings, where, as here, the contractual language permits,
and in the absence of contrary applicable law. As a result, we
conclude further that the Superior Court judge erred in denying
the motion to dismiss on the ground that a public entity may not
invoke a termination for convenience clause in a State or
4
municipal public procurement contract in order to secure a lower
price.
1. Background. We summarize the facts alleged in the
plaintiff's complaint, Polay v. McMahon, 468 Mass. 379, 382
(2014), as well as relevant "matters of public record, orders,
items appearing in the record of the case, and exhibits attached
to the complaint" (citation omitted). Schaer v. Brandeis Univ.,
432 Mass. 474, 477 (2000).
In January, 2015, the MBTA issued an invitation for bids to
supply it with ultra low sulfur diesel fuel (ULSD) for two
years. The MBTA's procurement of the ULSD was supported with
Federal assistance awarded by the Federal Transit
Administration. See note 10, infra. The MBTA attached to its
invitation for bids the entire contract that the successful
bidder would sign with the MBTA. This contract included the
following provision, entitled "Termination for Convenience":
"Termination for Convenience. The [MBTA] may, in
its sole discretion, terminate all or any portion of
this Agreement or the work required hereunder, at any
time for its convenience and/or for any reason by
giving written notice to the Contractor thirty (30)
calendar days prior to the effective date of
termination or such other period as is mutually agreed
upon in advance by the parties. If the Contractor is
not in default or in breach of any material term or
condition of this Agreement, the Contractor shall be
paid its reasonable, proper and verifiable costs in
accordance with generally accepted government
contracting principles as set forth in the Federal
Acquisition Regulations, including demobilization and
contract closeout costs, and profit on work performed
5
and Accepted up to the of termination to the extent
previous payments made by the [MBTA] to the Contractor
have not already done so. Such payment shall be the
Contractor's sole and exclusive remedy for any
Termination for Convenience, and upon such payment by
the [MBTA] to the Contractor, the [MBTA] shall have no
further obligation to the Contractor. The [MBTA]
shall not be responsible for the Contractor's
anticipatory profits or overhead costs attributable to
unperformed work." (Emphasis supplied.)
In July, 2015, the MBTA awarded the ULSD contract to
Prime, and agreed that the contract would take effect in
September of that year.1 July, 2015, also saw the creation
of the Fiscal and Management Control Board through
legislative enactment. See St. 2015, c. 46, §§ 199-208.
This body is charged with, among other things, securing the
fiscal stability of the MBTA. See St. 2015, c. 46,
§ 200 (f).
Separately, in May, 2015, the Commonwealth issued a
request for response (RFR) seeking bids for a Statewide
supply of ULSD for executive branch agencies. Dennis
Burke, Inc. (Burke), was the successful bidder, and
executed a contract with the Commonwealth in June, 2015.
Almost one year later, in April, 2016, the MBTA told Prime
that the MBTA could achieve cost reductions by opting into the
1 The Massachusetts Bay Transportation Authority (MBTA)
initially had awarded the contract to a different bidder. A.L.
Prime Energy Consultant, Inc. (Prime), appealed from this
decision on the ground that it was based on incorrect price
calculations, and subsequently was awarded the contract.
6
Statewide ULSD contract with Burke. On July 12, 2016, the MBTA
notified Prime in writing that it intended to terminate the
contract, pursuant to the termination for convenience provision,
effective August 15, 2016. Later that month, Prime demanded
that the MBTA rescind its termination of the contract. The MBTA
replied in August that its termination was proper, and would
allow the MBTA to "utiliz[e] economies of scale available
through the Commonwealth's existing blanket fuel contract," and
encouraged Prime to submit a termination claim.2
In September, 2016, Prime filed a complaint against the
MBTA in the Superior Court. The complaint asserted claims for
breach of contract and breach of the implied covenant of good
faith and fair dealing, and sought "compensatory damages, costs
of suit, reasonable attorney[']s fees, interest, and such
further relief as the court may deem just and equitable."
Although Prime's complaint suggests that the MBTA incorrectly
calculated its potential cost savings, its claims rest on the
premise that the MBTA terminated the contract in order to secure
a lower price for ULSD through the Statewide contract.
In October, 2016, the MBTA moved to dismiss the complaint
pursuant to Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974).
2 The record is silent as to whether the MBTA paid Prime the
reimbursement costs required in the event of a termination for
convenience, but Prime has not alleged that the MBTA failed to
provide this payment.
7
In March, 2017, a Superior Court judge denied the motion. The
judge's decision was based on Federal case law interpreting
termination for convenience clauses in Federal procurement
contracts. The judge reasoned that, under that precedent, Prime
could show that the MBTA acted improperly if Prime proved that
the MBTA had terminated the contract solely to obtain a better
price from another contractor.
In April, 2017, the MBTA filed a motion for reconsideration
or, in the alternative, to report the case for interlocutory
review pursuant to Mass. R. Civ. P. 64. The judge denied the
motion for reconsideration but allowed the rule 64 motion. The
judge stayed all proceedings in the Superior Court pending
interlocutory appeal, and reported the following question to the
Appeals Court:
"May a government agency[3] invoke a termination for
convenience clause contained in a procurement contract for
the purchase of goods for the sole reason that it has
learned of an opportunity to purchase the same goods at a
lower price from another vendor?"
We allowed the MBTA's application for direct appellate review.4
3 Although the MBTA is a political subdivision akin to "a
county, a regional school district, or a fire, improvement, or
incinerator district," see Massachusetts Bay Transp. Auth. v.
Boston Safe Deposit & Trust Co., 348 Mass. 538, 543 (1965);
G. L. c. 161A, § 2, we construe the reported question as
applying to the MBTA.
4 Although the trial judge's report takes the form of a
question of law, we evaluate the propriety of the judge's
decision denying the MBTA's motion to dismiss. See Maher v.
8
2. Discussion. We are asked to determine, as a matter of
first impression, whether to construe a termination for
convenience clause in a State or municipal public procurement
contract according to Federal case law concerning such clauses
in Federal procurement contracts. We first discuss this
precedent, which provides that a court must evaluate whether a
Federal government entity acted in bad faith or abused its
discretion in terminating for its convenience. See, e.g.,
Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1541 (Fed.
Cir. 1996), cert. denied, 520 U.S. 1210 (1997) (Krygoski). We
then compare the Federal standard to our own jurisprudence,
which indicates that a termination for convenience clause in a
public procurement contract should be interpreted under "general
contract principles." See Morton St. LLC v. Sheriff of Suffolk
County, 453 Mass. 485, 490 (2009) (Morton St.). Because the
State and Federal approaches cannot be reconciled, we conclude
that Massachusetts law must determine the proper construction of
a termination for convenience clause.
In this case, the contract unambiguously vests the MBTA
with the discretion to terminate "for any reason," a phrase
which necessarily includes the decision to cut costs. We
identify nothing in Massachusetts law to indicate that this,
Retirement Bd. of Quincy, 452 Mass. 517, 522 n.9 (2008), cert.
denied, 556 U.S. 1166 (2009); Mass. R. Civ. P. 64, as amended,
423 Mass. 1410 (1996).
9
standing alone, is an impermissible reason to terminate a
contract for convenience. Nor does construing the termination
for convenience provision as written render the contract
illusory, because the contract required the MBTA to provide
Prime with valuable consideration, and placed certain
restrictions on the MBTA's termination right. As a result, we
conclude that Prime has not alleged sufficient facts to
demonstrate that the MBTA committed a breach of the contract or
the implied covenant of good faith and fair dealing. The
Superior Court judge therefore erred in denying the MBTA's
motion to dismiss on the ground that Prime had not stated a
viable claim upon which relief could be granted.
a. Standard of review. We review an order on a motion to
dismiss de novo. See Galiastro v. Mortgage Elec. Registration
Sys., Inc., 467 Mass. 160, 164 (2014); Shapiro v. Worcester, 464
Mass. 261, 266 (2013). Factual allegations are sufficient to
survive a motion to dismiss if they plausibly suggest that the
plaintiff is entitled to relief. Iannacchino v. Ford Motor Co.,
451 Mass. 623, 636 (2008). Resolution of this case turns on the
proper construction of the contract before us; this is a
question of law, which we also review de novo. See James B.
Nutter & Co. v. Estate of Murphy, 478 Mass. 664, 667 (2018).
b. Applicable law. We first must determine whether to
construe the termination for convenience provision according to
10
Federal precedent. Certain background is helpful in
understanding Prime's argument that Federal law should guide our
analysis.
In general, a termination for convenience clause permits a
contracting public entity, under certain circumstances, to
cancel a procurement contract without exposure to liability for
breach of contract. See Maxima Corp., 847 F.2d at 1552. If a
public entity properly invokes a termination for convenience
clause, the contractor is not entitled to common-law damages;
rather, the remedy is limited to "costs incurred, profit on work
done and the costs of preparing the termination settlement
proposal" (citation omitted). Id. The concept of terminating a
procurement contract for the Federal government's convenience
developed during the Civil War, as a way to avoid military
procurement costs following the completion of a war effort. See
Krygoski, 94 F.3d at 1540. Congress subsequently enacted new
legislation governing terminations for convenience after each of
the World Wars. See id. at 1541. By the end of the Twentieth
Century, the principle had been extended beyond the military
context, and Federal law required that many Federal procurement
contracts contain a termination for convenience clause. See
id.; 48 C.F.R. § 49.502. Indeed, Federal regulations now
provide uniform language for termination provisions that must be
included in certain Federal procurement contracts, permitting
11
termination when it is "in the Government's interest."
48 C.F.R. §§ 52.249-1 to 52.249-6.5
Judicial interpretation of this language has evolved along
with the changes in statutory and regulatory requirements,
primarily in the United States Court of Appeals for the Federal
Circuit and the Court of Claims, which was the predecessor to
the United States Court of Federal Claims.6 See Krygoski, 94
F.3d at 1541-1544; South Corp. v. United States, 690 F.2d 1368,
1369 (Fed. Cir. 1982); Torncello v. United States, 681 F.2d 756,
763-766 (Ct. Cl. 1982). Following some confusion concerning the
correct standard, the United States Court of Appeals for the
Federal Circuit settled that a termination for convenience is
5 The Federal acquisition regulation provides uniform
termination for convenience clauses for seven different types of
procurement contracts. See 48 C.F.R. §§ 52.249-1 to 52.249-7.
These clauses are distinct from one another, but all contain
language permitting termination when it is "in the Government's
interest," with one exception for termination clauses required
in contracts for architect-engineer services when a fixed-price
contract is contemplated, which provides that the government may
terminate "for the Government's convenience or because of the
failure of the Contractor to fulfill the contract obligations."
See 48 C.F.R. § 52.249-7. The United States Court of Appeals
for the Federal Circuit applied the bad faith or abuse of
discretion standard in considering the "in the Government's
interest" language provided by 48 C.F.R. § 52.249-2. See
Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1544-1545
(Fed. Cir. 1996), cert. denied, 520 U.S. 1210 (1997).
6 The United States Court of Appeals for the Federal Circuit
is a specialized court that hears appeals from the United States
Court of Federal Claims, which has jurisdiction to review
appeals of most decisions by Federal contracting officers. See
28 U.S.C. § 1295(a)(3); 41 U.S.C. § 7104(b)(1).
12
proper so long as a government entity does not act in bad faith
or abuse its discretion. See Krygoski, supra at 1541.
The United States Court of Appeals for the Federal
Circuit's precedent as to abuse of discretion "suggest[s] that
[the] court will avoid a finding of abused discretion when the
facts support a reasonable inference that the contracting
officer terminated for convenience in furtherance of statutory
requirements for full and open competition." See id. at 1544,
citing Caldwell & Santmyer, Inc. v. Glickman, 55 F.3d 1578, 1582
(Fed. Cir. 1995) (Caldwell), and Salsbury Indus. v. United
States, 905 F.2d 1518, 1521 (Fed. Cir. 1990), cert. denied, 498
U.S. 1024 (1991); 41 U.S.C. § 3301(a)(1) (requiring full and
open competition in procurement by Federal executive branch
agencies). See also discussion, infra. With respect to the bad
faith standard, in order to succeed on a claim that a
termination for convenience clause was invoked in bad faith, a
contractor must overcome the presumption that a contracting
officer has acted in good faith, by showing "'well-nigh,
irrefragable proof' that the government had a specific intent to
injure it." Caldwell, supra at 1581, quoting Torncello, 681
F.2d at 770.7 The Court of Federal Claims has explained that
7 The United States Court of Appeals for the Federal Circuit
has concluded that the requirement for "well-nigh, irrefragable
proof" approximates the "clear and convincing evidence"
13
"[a] claim for breach of contract based on breach of the implied
duty of good faith and fair dealing is distinct from a claim for
breach of contract based on an improper termination for
convenience" under Federal law. See TigerSwan, Inc. v. United
States, 110 Fed. Cl. 336, 345 (2013).8,9
Our own precedent concerning termination for convenience
clauses in public procurement contracts is far less extensive.
We have had one previous occasion to construe such a clause.
See Morton St., 453 Mass. at 486-487. In Morton St., supra at
494, we held that where a sheriff lost outside funding to pay a
standard. See Am-Pro Protective Agency, Inc. v. United States,
281 F.3d 1234, 1239-1240 (Fed. Cir. 2002) (Am-Pro Protective).
8 The Court of Federal Claims held in TigerSwan, Inc. v.
United States, 110 Fed. Cl. 336, 345 (2013), quoting Am-Pro
Protective, 281 F.3d at 1239-1240, that "[t]o establish a breach
based on bad faith in this context, a contractor must present
clear and convincing evidence that the government's termination
was made with the 'intent to injure' the contractor." By
contrast, under Federal common law, "[p]arties can show a breach
of the implied duty of good faith and fair dealing by proving
lack of diligence, negligence, or a failure to cooperate."
TigerSwan, Inc., supra. "[P]roof of 'bad faith' is not required
to show a breach of the implied duty of good faith and fair
dealing in most cases," and "[e]vidence of government intent to
harm the contractor is not ordinarily required." Id. at 346.
But see Austin v. United States, 118 Fed. Cl. 776, 790 (2014)
(rejecting claim for breach of implied duty of good faith and
fair dealing against Federal government entity, based on
conclusion that "the record does not reflect that any government
official acted with the specific intent to injure plaintiffs").
9 A claim that a Federal public entity has invoked a
termination for convenience clause in bad faith also is distinct
from a claim for breach of the implied duty of good faith and
fair dealing under Massachusetts law. See discussion, infra.
14
lease, she lawfully could terminate the lease under a
termination for convenience provision. We applied "general
contract principles," looking to the unambiguous contractual
language and the dictionary definition of "convenience." See
id. at 490, 494. We concluded that "losing the funding for the
lease is plainly an inconvenience justifying termination"
because, to continue the lease, the sheriff would have been
required to reduce or eliminate funding for other obligations.
Id. at 494.
In Morton St., the parties did not raise, and the court did
not address, the question whether to import Federal precedent
when construing a termination for convenience provision. See
id. at 490-494. The court interpreted the termination for
convenience clause according to "general contract principles."
Id. at 490. This approach is consonant with the canon that "in
general the law applicable to public contracts is the same as
that applicable to private contracts." R. Zoppo Co. v.
Commonwealth, 353 Mass. 401, 404 (1967).
The Federal standard, by contrast, is a gloss that has
settled on the uniform language found in certain Federal
termination for convenience clauses, informed partly by Federal
procurement requirements that have no application to State or
municipal agencies. See Krygoski, 94 F.3d at 1544 ("court will
avoid a finding of abused discretion when the facts support a
15
reasonable inference that the contracting officer terminated for
convenience in furtherance of statutory requirements for full
and open competition"); 41 U.S.C. § 3301(a)(1) ("an executive
agency in conducting a procurement for property or services
shall . . . obtain full and open competition through the use of
competitive procedures in accordance with the requirements of
[the Federal Procurement Policy] and the Federal Acquisition
Regulation"). The Federal acquisition regulation mandates that
certain Federal procurement contracts include a termination for
convenience clause, and provides stock language for them. See
48 C.F.R. §§ 49.502, 52.249-1 to 52.249-6. Non-Federal
entities, however -- such as the MBTA -- may craft their own
termination for convenience clauses when drafting procurement
contracts, because they are not bound by the Federal acquisition
regulation. See 48 C.F.R. §§ 1.104, 2.101. As a result, for
example, the contract here allows the MBTA to terminate "in its
sole discretion," and "for any reason," rather than allowing
termination only where the termination is "in the Government's
interest."
Our precedent instructs courts to examine how a contract,
by its plain language, defines the parties' rights. See
Schwanbeck v. Federal-Mogul Corp., 412 Mass. 703, 706 (1992).
The Federal standard, conversely, requires inquiry into whether
a public entity has abused its discretion or acted in bad faith.
16
Embracing the Federal approach would require Massachusetts
courts, in construing termination for convenience clauses, to
apply the meaning that Federal courts have assigned to language
provided by Federal regulations -- regardless of the specific
contractual language in front of them. The Federal standard,
therefore, cannot be reconciled with "general contract
principles" provided by Massachusetts law, Morton St., 453 Mass.
at 490, including the "elementary" axiom that "an unambiguous
agreement must be enforced according to its terms." Schwanbeck,
supra.10
Prime's argument that, by referencing the Federal
acquisition regulation, the contract incorporates Federal case
10Although Prime does not discuss this fact, we note that
the MBTA's procurement of fuel under section 6.1.1 of the
contract is supported by Federal funding awarded by the Federal
Transit Administration (FTA). The Federal acquisition
regulation, however, does not apply to procurements conducted
with Federal assistance by non-Federal entities, such as the
MBTA. See 48 C.F.R. §§ 1.104, 2.101; Federal Transit
Administration, Circular No. FTA C 4220.1F, at 9 (rev. Mar. 18,
2013) (FTA Circular). A different Federal regulation instructs
that contracts supported by Federal funding must include a
termination for convenience clause, but leaves State and
municipal recipients of Federal funds free to craft their own
contractual language. See 2 C.F.R. Part 200, Appendix II(B); FTA
Circular, supra at 13. Compare 48 C.F.R. §§ 52.249-1 to 52.249-
7 (requiring specific language for termination for convenience
clauses in Federal procurement contracts). The MBTA's receipt
of Federal funding does not alter our conclusion that
Massachusetts law must govern construction of the termination
for convenience clause. See Linan-Faye Constr. Co. v. Housing
Auth. of Camden, 49 F.3d 915, 917, 920 (3d Cir. 1995) (State law
governs termination for convenience clause in State or municipal
contract drafted by Federal funding recipient, using forms
provided by Federal agency, if controlling State law exists).
17
law, is unavailing. The contract states that, in the event of
termination for convenience, "the Contractor shall be paid its
reasonable, proper and verifiable costs in accordance with
generally accepted government contracting principles as set
forth in the Federal Acquisition Regulations." This language
does no more than provide that, once the MBTA terminates for its
convenience, Prime's reimbursement is to be determined under the
principles provided by the Federal acquisition regulation. See,
e.g., 48 C.F.R. § 31.205-42 (cost principles in event of
termination). The single reference to the Federal acquisition
regulation does not incorporate the Federal standard for
interpreting a termination for convenience clause, as Prime
seems to suggest. "[T]he scope of a party's obligation cannot
'be delineated by isolating words and interpreting them as
though they stood alone.'" Starr v. Fordham, 420 Mass. 178, 190
(1995), quoting Boston Elevated Ry. v. Metropolitan Transit
Auth., 323 Mass. 562, 569 (1949). The MBTA's power to terminate
is expressly defined by other language in the termination
provision; disregarding this language would belie the "general
rule of contract construction" "that contracts should be
construed as a whole." See Polaroid Corp. v. Rollins Envtl.
Servs. (NJ), Inc., 416 Mass. 684, 690 (1993).
Neither Prime's additional contention that a termination
for convenience clause -- construed according to its plain
18
language -- would deprive a contractor of any consideration, nor
the fact that certain other States have adopted the Federal
standard, persuades us that we should import Federal precedent
that would conflict with State law. Prime suggests that, in
order to ensure that public procurement contracts provide
contractors with real consideration, we must adopt the Federal
standard. We recognize that Federal case law might represent
"an effort to [rein] back on the government's non-negotiable,
statutorily-conferred entitlement to terminate its contracts as
it pleases." See Handi-Van, Inc. v. Broward County, 116 So. 3d
530, 538 (Fla. Dist. Ct. App. 2013). Public entities, however,
are constrained by the general contract principle that "a
promise that binds one to do nothing at all is illusory and
cannot be consideration." Graphic Arts Finishers, Inc. v.
Boston Redev. Auth., 357 Mass. 40, 43 (1970). A public entity's
power unilaterally to walk away from a contract, without
restrictions, therefore would render the contract illusory. See
Mb Oil Ltd. Co. v. Albuquerque, 382 P.3d 975, 978 (N.M. Ct. App.
2016) (government's unlimited right to terminate could render
contract illusory).11 That is a situation, however, not
confronting us in the contract at issue here.12
11We leave for another day the question whether a public
entity may terminate a contract for its convenience in order to
rebid the contract in search of a lower price. See Petricca
Constr. Co. v. Commonwealth, 37 Mass. App. Ct. 392, 392-397
19
We recognize that some State courts have consulted Federal
precedent in construing a termination for convenience clause in
a State or municipal contract. See, e.g., Krygoski, 94 F.3d at
1542, 1544; RAM Eng'g & Constr., Inc. v. University of
Louisville, 127 S.W.3d 579, 584, 587 (Ky. 2003) (applying now
defunct Federal standard permitting termination only under
changed circumstances). Nonetheless, there is no consensus
concerning whether or how to apply the Federal standard. See,
e.g., Old Colony Constr., LLC v. Southington, 316 Conn. 202, 204
n.1 (2015) ("Unlike [F]ederal contracts, no [S]tate regulations
dictate the requirements and obligations attendant to
termination for convenience in municipal contracts. As in the
present case, such obligations generally are dictated by the
(1994) (G. L. c. 30, § 39M, which allows awarding authority to
"reject any and all bids, if it is in the public interest to do
so," did not permit State entity to reject valid bid and
readvertise procurement contract in order to "recapture the
benefit of a lower bid that was properly rejected"). In this
case, the MBTA had the opportunity to contract with a new vendor
by joining an existing Statewide contract. Under the
Commonwealth's regulations for the procurement of commodities or
services, which the MBTA has elected to follow, see 801 Code
Mass. Regs. § 21.01(2)(a) (2003), State agencies typically must
procure goods and services through a competitive process, but
this requirement does not apply when an agency joins a
collective purchasing agreement. See 801 Code Mass. Regs.
§§ 21.05(5), 21.06 (1997).
12 See discussion, infra, concerning consideration provided
by the MBTA-Prime contract in the event of termination.
20
terms of the contract").13 Additionally, at least one Federal
court has held that, where controlling State law exists, a State
court need not look to Federal precedent construing termination
for convenience clauses. See Linan-Faye Constr. Co. v. Housing
Auth. of Camden, 49 F.3d 915, 917, 920 (3d Cir. 1995).
In sum, in light of the incompatibility between the Federal
standard and our own jurisprudence, we are not persuaded that
Federal law should supplant Massachusetts precedent in
determining the proper construction of a termination for
convenience clause in a State or municipal public procurement
contract. Having concluded that the termination for convenience
clause must be construed according to Massachusetts law, we turn
to Prime's claims against the MBTA.
c. Proper construction. i. Breach of contract. Prime
alleges that the MBTA's decision to terminate the contract in
order to secure a better price or contract terms from another
vendor "rendered the competitive bidding process meaningless"
and was a breach of the contract. In order to determine whether
13See Mb Oil Ltd. Co. v. Albuquerque, 382 P.3d 975, 978-980
(N.M. Ct. App. 2016) (discussing Federal standard and plain
contractual language, and declining to state controlling
standard); Louis Food Serv. Corp. v. Department of Educ. of the
City of New York, 76 A.D.3d 956, 958 (N.Y. 2010) (New York law
permits State government agency to exercise rights under
termination for convenience clause without judicial inquiry); 4N
Int'l, Inc. v. Metropolitan Transit Auth., 56 S.W.3d 860, 861-
862 (Tex. Ct. App. 2001) (rejecting Federal standard and
applying Texas law).
21
Prime has alleged sufficient facts to show that the MBTA's
termination was impermissible, we analyze the contract according
to the principle that "[w]hen contract language is unambiguous,
it must be construed according to its plain meaning." Balles v.
Babcock Power Inc., 476 Mass. 565, 571-572 (2017).
The language of a contract is unambiguous unless "the
phraseology can support a reasonable difference of opinion as to
the meaning of the words employed and the obligations
undertaken" (citation omitted). Bank v. Thermo Elemental, Inc.,
451 Mass. 638, 648 (2008), and cases cited. The contract at
issue vests the MBTA with "sole discretion" to terminate. "Sole
discretion" means the "power to make decisions without anyone
else's advice or consent." Black's Law Dictionary 565 (10th ed.
2014). See Thomas v. Oregon Fruit Prods. Co., 228 F.3d 991, 994
n.3 (9th Cir. 2000) ("sole discretion" represents "unambiguous
grant of discretion"). The words "sole discretion" cannot
reasonably be interpreted in multiple ways. See Bank, supra.
They clearly permit the MBTA to terminate the contract
unilaterally.
The termination provision further provides that the MBTA
may terminate the contract "for its convenience and/or for any
reason." As we concluded in Morton St., 453 Mass. at 494,
quoting the American Heritage Dictionary of the English Language
411 (3d ed. 1996), "'convenience' means the 'quality of being
22
suitable to one's comfort, purposes, or needs.'" Conserving
resources meets an important need. See Morton St., supra at
492, 494 (recognizing "concern about the public fisc" and "many
challenging decisions that public officials with considerable
obligations and limited resources often need to make, especially
during difficult fiscal times, in order to allocate available
resources more suitably").
The word "any" is defined as "one, no matter what one:
every." Webster's Third New International Dictionary 97 (2002).
The phrase "for any reason" thus unambiguously includes the
MBTA's reason for termination: achieving cost savings. See
Insurance Brokers W. Inc. v. Liquid Outcome LLC., 874 F.3d 294,
298 (1st Cir. 2017); (phrase "for any reason" is unambiguous);
Ruiz v. A.B. Chance Co., 234 F.3d 654, 672 (Fed. Cir. 2000)
(same). "There is no ambiguity here that would allow a court to
search for an intent of the parties not to be held strictly to
the plain terms of the contract language." Eigerman v. Putnam
Invs., Inc., 450 Mass. 281, 287 (2007).
Prime argues that, under Morton St., only a funding loss or
other change of circumstances could justify invocation of a
termination for convenience clause, but Morton St. contains no
such limitation. Indeed, in that case we concluded that
"challenging decisions" forced by budget constraints may
motivate a public entity to terminate a contract. See Morton
23
St., 453 Mass. at 494. We did not define the full extent of the
sheriff's discretion in Morton St., because it clearly
encompassed the sheriff's right to end the lease when she lost
the financing for that lease. Id. The sheriff's circumstances
were sufficient, but not necessary, to justify termination for
convenience.
The Legislature's decision to create the Fiscal and
Management Control Board in order to secure the MBTA's fiscal
stability indicates that the MBTA's budget is under pressure.
See St. 2015, c. 46, § 200 (f). Moreover, the contract language
in this case contains a broader authorization of discretion than
was at issue in Morton St., 453 Mass. at 486-487. In that case,
the termination provision provided simply that the contract
could "be terminated at any time for the convenience of the"
sheriff. Id. Accordingly, we considered whether the funding
loss constituted an inconvenience. Id. at 494. Here, by
contrast, the contract specifies that the MBTA may terminate
"for any reason"; Prime does not allege that the MBTA terminated
the contract for no reason at all but, rather, argues that its
stated reason is improper.14 In sum, Prime has not alleged any
impermissible conduct or wrongdoing, aside from its contention
14As noted, although Prime's complaint asserts that the
MBTA incorrectly calculated its potential cost savings, the
complaint does not allege that the MBTA's stated reason for
terminating the contract concealed another, illegitimate one.
24
that the MBTA could not terminate the contract in order to
secure a lower price.15
Finally, construing the termination clause as written does
not, as Prime argues, render the contract unenforceable for lack
15In its brief, Prime suggests that the MBTA's decision to
terminate the contract runs afoul of Massachusetts public
bidding laws that are aimed at fostering equitable competition.
We observe that, as a recipient of Federal assistance, the MBTA
both must comply with applicable State law and must ensure that
"procurement transactions be conducted in a manner providing
full and open competition." 2 C.F.R. §§ 200.318(a), 200.319(a).
Prime, however, has alleged no statutory or regulatory
violations that occurred during the process by which the
contract at issue here, or the Statewide ULSD contract, was
awarded. On the facts provided, we have no reason to conclude
that these procedures did not comply with applicable law, and,
accordingly, must enforce the contract as written. Contrast
Phipps Prods. Corp. v. Massachusetts Bay Transp. Auth., 387
Mass. 687, 692 (1982) (contract was unenforceable where MBTA did
not comply with statutory public bidding requirements).
To the extent that Prime argues that the contract,
construed according to its plain language, is unenforceable as
contrary to the public policy of treating bidders fairly and
equally, we reject this claim. "'Public policy' in this context
refers to a court's conviction, grounded in legislation and
precedent, that denying enforcement of a contractual term is
necessary to protect some aspect of the public welfare." Feeney
v. Dell Inc., 454 Mass. 192, 200 (2009), and cases cited.
Although "[w]e have repeatedly stated that the purpose of
competitive bidding statutes is not only to ensure that the
awarding authority obtain the lowest price among responsible
contractors, but also to establish an open and honest procedure
for competition for public contracts," Modern Continental
Constr. Co. v. Lowell, 391 Mass. 829, 840 (1984), terminating a
procurement contract in order to secure a lower price does not
conflict with this purpose. If a contract clearly defines the
public entity's right to terminate, the bidders are equally on
notice of such a possibility. Furthermore, the Legislature has
encouraged State agencies to join cooperative purchasing
agreements. See G. L. c. 30B, § 23. As explained supra, the
MBTA's termination was consistent with this court's precedent.
25
of consideration. The contract here bound the MBTA to provide
certain valuable consideration to Prime. See Graphic Arts
Finishers, Inc., 357 Mass. at 43 ("The law does not concern
itself with the adequacy of consideration; it is enough if it is
valuable"). In addition to payment for ULSD, the contract
guaranteed Prime thirty days' written notice and reimbursement
for certain costs in the event of termination. See 3 R.A. Lord,
Williston on Contracts § 7:13 (4th ed. 2008) (consideration
exists when reservation of right to cancel requires written
notice). Compare Torncello, 681 F.2d at 769-770 ("a route of
complete escape vitiates any other consideration furnished,"
where no notice or additional payment was provided). The MBTA's
termination does not render the contract illusory. See Simons
v. American Dry Ginger Ale Co., 335 Mass. 521, 525 (1957)
(contract construed as terminable at will on reasonable notice
was not illusory prior to termination). For these reasons, we
conclude that Prime has not alleged sufficient facts to state a
claim for breach of contract.
ii. Breach of the implied covenant of good faith and fair
dealing. Prime's complaint also asserts that the MBTA
terminated the contract "in order to undercut the [c]ontract
price set through the competitive bidding process, thereby
depriving Prime of the fruits of the [c]ontract," and therefore
committed a breach of the implied covenant of good faith and
26
fair dealing. The MBTA's broad latitude under the contract does
not immunize it against such an allegation. See Robert & Ardis
James Found. v. Meyers, 474 Mass. 181, 189 (2016) (covenant of
good faith and fair dealing is implied in every contract).
"The covenant of good faith and fair dealing . . . provides
'that neither party shall do anything which will have the effect
of destroying or injuring the right of the other party to
receive the fruits of the contract.' . . . 'A breach occurs
when one party violates the reasonable expectations of the
other'" (citations omitted) Weiler v. PortfolioScope, Inc., 469
Mass. 75, 82 (2014). "There is no requirement that bad faith be
shown; instead, the plaintiff has the burden of proving a lack
of good faith. . . . The lack of good faith can be inferred
from the totality of the circumstances." Robert & Ardis James
Found., 474 Mass. at 189, quoting Weiler, supra. See Anthony's
Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 473-474 (1991)
(rejecting argument that, because trial judge did not find "bad
faith," he erred in ruling that defendant violated implied
covenant of good faith and fair dealing).
Prime has not alleged sufficient facts to show that the
MBTA's decision to terminate "injured" its right to "receive the
fruits of the contract," which, as discussed, included payment
for ULSD delivered, as well as thirty days' written notice and
reimbursement for certain costs in the event of termination.
27
Nor do Prime's allegations state a claim that the MBTA violated
its "reasonable expectations." "The plaintiff cannot have
misunderstood the broad discretion on the part of" the MBTA.
Eigerman, 450 Mass. at 289. "Any expectation otherwise on the
plaintiff's part, as [a] matter of contract law, would not be
reasonable." Id.16
On the facts provided, this is not a case in which one
party leveraged its discretion to "recapture opportunities
forgone on contracting" or "to refuse 'to pay the expected costs
of performance.'" See Anthony's Pier Four, Inc., 411 Mass. at
473, quoting E.A. Farnsworth, Contracts § 7.17 (a), at 329
(1990). Nor has Prime claimed that the MBTA entered into the
contractual relationship without intending to continue it for
the full term, compare K.G.M. Custom Homes, Inc. v. Prosky, 468
Mass. 247, 254-255 (2014) (party who had no intention of
completing contract committed breach of implied covenant of good
faith and fair dealing), or asserted that the MBTA's stated
reason for terminating the contract concealed an illegitimate
16 Prime contends, in addition, that the obligation of good
faith imposed by the Uniform Commercial Code (U.C.C.) is
applicable here. For the reasons discussed, the MBTA has not
violated this obligation. See G. L. c. 106, § 1-304; Knapp
Shoes, Inc. v. Sylvania Shoe Mfg. Corp., 72 F.3d 190, 199 & n.3
(1st Cir. 1995), cert. denied, 517 U.S. 1245 (1996) (combining
common law and statutory good faith analyses); official comment
to U.C.C. § 1-203, 1 U.L.A. 273 (Master ed. 2012) ("This section
does not support an independent cause of action for failure to
perform or enforce in good faith . . . [and] does not create a
separate duty of fairness and reasonableness").
28
one. See T.W. Nickerson, Inc. v. Fleet National Bank, 456 Mass.
562, 571 (2010); Fortune v. National Cash Register Co., 373
Mass. 96, 104-105 (1977) (employer acts in bad faith by
terminating employee in order to deprive him or her of
commission).
Simply put, "the implied covenant of good faith and fair
dealing cannot create rights and duties that are not already
present in the contractual relationship." Eigerman, 450 Mass.
at 289. Under the terms of the contract, terminating to obtain
a better price, alone, is not a violation of this duty. Prime
has not alleged sufficient facts to prove that the MBTA
committed a breach of the implied covenant of good faith and
fair dealing.
3. Conclusion. We construe the reported question as
asking whether the MBTA's motion to dismiss properly was denied.
We conclude that the Superior Court judge erred in denying the
motion on the ground that a public entity may not invoke a
termination for convenience clause in a public procurement
contract in order to secure a lower price. The matter is
remanded to the Superior Court for further proceedings
consistent with this opinion.
So ordered.