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LINAN-FAYE CONSTR. CO. v. HOUSING AUTH. OF CAMDEN

March 15, 1994

LINAN-FAYE CONSTRUCTION CO. INC., Plaintiff
v.
HOUSING AUTHORITY OF THE CITY OF CAMDEN, Defendant



The opinion of the court was delivered by: JOSEPH E. IRENAS

 IRENAS, District Judge:

 Plaintiff and defendant entered into an ill-fated contract for the renovation of a Camden housing project. Almost immediately, the parties became embroiled in disputes over project specifications. At one point, the defendant attempted to rebid the project, which led to litigation and a temporary settlement between the parties. Ultimately, the defendant opted to terminate the contract rather than persist in the disputes. Plaintiff then filed suit in this Court, seeking specific performance of the contract and damages for alleged pre- and post-termination breaches.

 In previous summary judgment motions, we dismissed the plaintiff's count under 42 U.S.C. § 1983 and found that plaintiff's damages under the contract were limited by the termination for convenience clause incorporated in the contract documents. We left open the possibility, however, that plaintiff might be able to recover damages attributable to a delay in labelling the termination as one of convenience. We now find that (1) plaintiff may not recover damages arising from a delay in labelling the termination as one of convenience; (2) damages arising from pre-termination breaches are subsumed within the termination for convenience clause; and (3) defendant is not liable for any damages arising from its decision not to relinquish plaintiff's performance bonds during the pendency of the plaintiff's action for specific performance. We also find that the expenses allegedly incurred by the plaintiff are not compensable under the termination for convenience clause. Therefore, we will grant the defendant's motion for summary judgment.

 I. FACTUAL BACKGROUND

 On or about August 11, 1988, the Housing Authority of the City of Camden ("HACC") let out and advertised for bid a housing modernization project known as "Occupied Unit Rehabilitation -- Peter J. McGuire Gardens NJ 10-4" (the "project"). The project involved the renovation and rehabilitation of 244 housing units, which would be funded by the United States Department of Housing and Urban Development ("HUD") through HACC.

 Plaintiff Linan-Faye Construction Co., Inc. ("Linan-Faye") submitted a sealed bid in the sum of $ 4,264,000.00 together with supporting documentation, which included a bid bond, a performance bond, a qualification statement, and various required affidavits. Linan-Faye also attended all required "pre-bid" meetings.

 Plaintiff was the "lowest responsible bidder" for the job, underbidding its nearest competitor by some $ 600,000.00. Accordingly, on September 30, 1988, James Norton, Modernization Officer of the HACC, sent a formal notice of award to Linan-Faye, and advised the plaintiff that "contracts for the above captioned modernization work will be forthcoming." Letter of Norton to Linan-Faye of 9/30/88.

 Plaintiff engaged in preparatory activities in connection with the contract, including meeting with prospective subcontractors, job planning and pricing, and securing insurance. Representatives from Linan-Faye also met on several occasions with HACC and its architect, The Bruner Firm ("Bruner"), to discuss the details and specifications of the project and make preparations for the commencement of work. However, Linan-Faye never began the physical renovation of the buildings.

 Disputes arose between the parties between October and November of 1988. *fn1" Plaintiff contends that HACC demanded "numerous give-backs and concessions before permitting Linan to start work." Complaint at P 10. Defendant, on the other hand, maintains that the parties arrived at different interpretations of the project plans and specifications, the conflict of which became evident at preconstruction meetings. Whatever the cause of the discord, it prompted HACC to rethink its relationship with Linan-Faye. Consequently, on November 29, 1988, Linan-Faye was advised by Bruner that the McGuire Gardens project would be rebid.

 On December 20, 1988, Linan-Faye filed a complaint and order to show cause to enjoin the rebidding and allow it to complete the project "as bid." On December 21, 1988, this Court entered a Temporary Restraining Order to prevent HACC from accepting further bids. On January 29, 1989, the Court approved a Stipulation of Settlement and Order of Dismissal with Prejudice, by which the parties agreed to execute the contracts and proceed with the project as originally planned. Paragraph 2 of the order emphasized that:

 
Nothing herein shall be construed to interpret nor pass upon the language of the contract, nor the obligations of the respective parties thereunder; nor shall this Stipulation and Order be construed to alter or amend the contract terms.

 Stipulation of Settlement and Order of Dismissal with Prejudice of 1/23/89 at P 2. *fn2"

 The settlement agreement was but a temporary cessation of hostilities, and disputes soon broke out again. Plaintiff refused to begin construction, insisting that it "would not and could not commence construction until it received, inter alia, a fully signed Contract and a Notice to Proceed." Complaint at 17. Defendant alleges that plaintiff presented numerous problems or potential problems that it insisted be resolved by HACC before it would start work, and that it was this quibbling that delayed issuance of the Notice to Proceed.

 HACC issued a Notice to Proceed on November 22, 1989. Despite language which indicated its generality, *fn3" plaintiff contends that the notice was in fact restricted to certain plumbing problems that were but 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. *fn4"

 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 from early 1990 until July of that year, at which time HUD informed HACC that it would not approve a buy-out. By letter of July 23, 1990, HACC reinstated the previous Notice to Proceed and set a starting date thirty days hence.

 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 the price increase issue could be addressed. Linan-Faye still refused to begin work, and HACC looked for ways to terminate the contract.

 The General Conditions to the Contract ("General Conditions") signed between the parties provided two avenues by which a contract could be terminated. Paragraph 16 governed terminations for default of the contractor, while P 17 governed "terminations for convenience":

 
a. Subject to the approval of HUD, the performance of work under this contract may be terminated by the PHA [public housing agency] 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 of 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; (2) the cost (including reasonable profit) of settling and paying claims under subcontracts and material orders for work performed and materials and supplies delivered to the site, payment for which has not been made by the PHA to the Contractor or by the Contractor to the subcontractor or supplier; (3) the cost of preserving and protecting the work already performed until the PHA or assignee takes possession thereof or assumes responsibility therefor; (4) the actual or estimated cost of legal or accounting services reasonably necessary to prepare and present the termination claim to the PHA; and (5) an amount constituting a reasonable profit on the value of the work performed by the Contractor. . . .

 General Conditions at P 17 (emphasis added). *fn5"

 HACC elected to terminate Linan-Faye's contract and did so by letter dated September 25, 1990. While the letter never mentioned the terms "breach" or "default," it did note that Linan-Faye "had continually failed to demonstrate its intent to perform under the public contract as awarded pursuant to the laws of the State of New Jersey." Letter from Kern to Faye of 9/25/90.

 Linan-Faye objected to the termination, and filed the instant suit on October 26, 1990. The complaint set forth theories of recovery under New Jersey public contracts law and 42 U.S.C. § 1983. In July of 1991, defendant moved to rebid the project, and plaintiff again sought to obtain a temporary restraining order. The court denied the motion, finding that monetary damages would be sufficient to compensate the plaintiff for any losses suffered.

 In April 1992, defendant filed a motion for partial summary judgment as to plaintiff's civil rights claim. Defendant also argued in that motion that the "termination for convenience" clause set forth at P 17 of the General Conditions operated to limit the damages recoverable by plaintiff under the contract. On August 21, 1992, the Court granted HACC's motion for summary judgment as to the plaintiff's § 1983 claims. Order of August 21, 1993; see also Opinion of August 24, 1993. However, we declined to rule on the effect of the termination for convenience clause, preferring to wait until further discovery had been completed.

 In March of 1993, HACC renewed its motion for partial summary judgment as to the applicability and effect of the termination for convenience clause. On April 23, 1993, this Court granted the motion for summary judgment, limiting plaintiff's damages to those recoverable under the termination for convenience clause, but leaving open the possibility of recovery for damages accruing from defendant's failure to specifically identify the termination as one of convenience. The decisions were certified by the Court for interlocutory appeal to the Third Circuit, but plaintiff's petition to file such an appeal was denied.

 On October 27, 1993, defendant filed its third motion for summary judgment, contending that since plaintiff "never began work under the Contract, never having mobilized the site," Defendant's Brief in Support at 3, it could not recover damages under the termination for convenience clause. Plaintiff responded that (1) it had incurred preparatory costs (e.g., soliciting subcontractors, pricing, preconstruction meetings) within the ambit of P 17; (2) it could recover damages resulting from the faulty termination notice; (3) it could recover damages for pre-termination delay; and (4) it could recover damages resulting from HACC's refusal to relinquish plaintiff's performance bonds.

 II. LEGAL ANALYSIS

 A. Choice of Law

 The Maguire Gardens renovation project was funded by the Public and Indian Housing Comprehensive Improvement Assistance Program ("CIAP"), which in turn is administered by the United States Department of Housing and Urban Development through a series of federal statutes and regulations. See, e.g., 42 U.S.C. § 1437(1); 24 C.F.R. 968.101 et seq. The regulations require that contracts entered into pursuant to the CIAP contain certain provisions. 24 C.F.R. § 968.110(j). These provisions, which are collected in the Uniform Requirements for Grants and Cooperative Agreements to State, Local, and Federally Recognized Indian Tribal Governments (the "Uniform Requirements"), 24 C.F.R. § 85.1 et seq., include a requirement that all CIAP contracts in excess of $ 10,000.00 incorporate a termination for convenience clause. 24 C.F.R. § 85.36(i)(2).

 Section 85.36(b) of the regulations permits grantees, such as the HACC in this case, to use applicable state and local procurement laws and regulations, "provided that the procurements conform to applicable Federal law and the standards identified in this section." 24 C.F.R. § 85.36(b). Plaintiff reasons from this provision that New Jersey law should govern interpretation of the termination for convenience clause. However, to paraphrase the plaintiff, this is a considerable and unnecessary leap in logic with which this Court cannot agree.

 The text of § 85.36(b) expressly limits its applicability to state and local procurement laws and regulations. Nothing suggests it is a general choice-of-law provision, or that the federal government has any interest in mandating that the vagaries of fifty distinct state laws, rather than the federal common law, be applied to interpret a clause required by federal regulation to be included in contracts for construction projects around the country.

 Whether state or federal law applies to disputes brought under the court's diversity jurisdiction depends upon the degree to which the outcome will affect the interests of the federal government. *fn6" Bank of America National Trust & Savings v. Parnell, 352 U.S. 29, 1 L. Ed. 2d 93, 77 S. Ct. 119 (1956). The application of federal law is appropriate where "a uniform national rule" is necessary to further federal interests. Clearfield Trust Co. v. United States, 318 U.S. 363, 87 L. Ed. 838, 63 S. Ct. 573 (1943), or where "there is significant conflict between some federal policy or interest and the use of state law." Miree v. DeKalb County, 433 U.S. 25, 29, 53 L. Ed. 2d 557, 97 S. Ct. 2490 (1977) (quoting Wallis v. Pan American Petroleum Corp., 384 U.S. 63, 16 L. Ed. 2d 369, 86 S. Ct. 1301 ...


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