On certification to the Superior Court, Appellate Division, whose opinion is reported at 296 N.J. Super. 26 (1996).
The opinion of the court was delivered by: Garibaldi, J.
The opinion of the Court was delivered by
This appeal presents yet another facet of the prison overcrowding crisis in New Jersey. In County of Gloucester v. State, 132 N.J. 141 (1993) and Worthington v. Fauver, 88 N.J. 183 (1982), we addressed the State's authority to house state prisoners in county facilities under executive orders issued under the Civil Defense and Disaster Control Act ("CDDCA" or "Disaster Control Act"), N.J.S.A. App. A:9-30 to -63. In this appeal, we address a similar issue under the County Correctional Policy Act ("CCPA"), N.J.S.A. 30:8-16.3 to -16.l2. Specifically, this appeal concerns the per diem reimbursement rate due the County of Morris ("County") from the State under their CCPA contract for housing state prisoners in the County's prison facilities.
Commissioner's Authority to House State Prisoners in County Facilities
On June 19, 1981, in response to the problem of prison overcrowding, which had reached "crisis dimensions" by the early 1980s, Governor Brendan Byrne issued Executive Order No. 106. Worthington, supra, 88 N.J. at 188-89. That Order declared state prison overcrowding to be an emergency under the Disaster Control Act. Id. at 188, 190. Under the authority of the emergency powers of that Act, the Order permitted the Commissioner of Corrections to alleviate the overcrowding problem temporarily by housing state-sentenced prisoners in county correctional facilities for the 90-day duration of the Order. Id. at 190-91. That Order also directed the Commissioner to develop an appropriate program to compensate those counties holding state prisoners. Id. at 191.
In Worthington, supra, this Court upheld the validity of the Governor's Orders because they had a basis in legislative authority - the Disaster Control Act - as well as a limited time span. Id. at 200- 202. The Court cautioned, however, that the Disaster Control Act did not permit a permanent delegation of power to the Governor to authorize the reallocation of prisoners by executive order; rather, if the Legislature wanted to change the prison housing system officially, "it could pass a statute to that effect." Id. at 203.
The Legislature responded by passing the County Correctional Policy Act. The CCPA attempts to address the overcrowding crisis by establishing a "long-term, financial assistance program to provide State grants to participating counties to renovate and construct county correctional facilities so that county correctional services may be developed, implemented, operated and improved." N.J.S.A. 30:8-16.5(a). In return, the Act permits the Commissioner of the Department of Corrections ("DOC") to house state prisoners, excluding those with anticipated periods of confinement in excess of twenty-four months and those convicted of certain sexual offenses, in medium and minimum security county facilities. N.J.S.A. 30:8-16.5(b). The counties are instructed to establish a twelve member county corrections advisory board responsible for developing a comprehensive plan to provide, among other things, for the allocation of bed space for the housing of state prisoners and for the formation of "per diem reimbursement rates favorable to the State." N.J.S.A. 30:8-16.7. As noted by the Appellate Division, however, "there is no indication in the record when or if such a board was constituted in Morris County." County of Morris v. Fauver, 296 N.J. Super. 26, 30 n.3 (1996). Nevertheless, pursuant to the County Correctional Policy Act, the DOC entered into a contract for renovation and housing with the County of Morris, as well as with the following counties: Atlantic, Bergen, Camden, Cumberland, Gloucester, Hudson, Middlesex, Mercer, Monmouth, Ocean, Passaic, Somerset, and Union. *fn1
Despite the passage of the CCPA and the DOC's contracts with various counties, however, the executive prison orders still remained in effect. They were extended continuously over the next twelve years by sixteen more executive orders issued by three different governors. County of Gloucester, supra, 132 N.J. at 149. Finally, in 1993, in County of Gloucester, supra, this Court held that prison overcrowding could no longer be classified as an "emergency" under the Disaster Control Act and, thus, the line of executive orders were no longer valid. Id. at 150. The Court stated that the long-term overcrowding problem called for a more permanent legislative solution. Id. at 152.
In response to that observation by the Court, the Legislature passed P.L. 1994 c. 12, which declared once again that state prison overcrowding was an emergency and gave the Governor, for two years, independent statutory authority to issue executive orders deemed "necessary and appropriate to respond to the crowding problem." In 1996, the Legislature extended the Governor's authority in that area for an additional two years. P.L. 1996 c. 9. Pursuant to those two statutes, two more executive orders were issued allowing the DOC to house state inmates in county facilities for appropriate compensation. Executive Order No. 16 (1994); Executive Order No. 48 (1996). Thus, from the time period around 1981 or 1982 to date, the Commissioner has had the authority to house state prisoners in county facilities through the executive orders as well as under the CCPA and financial assistance contracts with the counties.
The Contract, Reimbursement Rates, and Actions of the Parties
In 1983 *fn2 , pursuant to the CCPA, the DOC and the County of Morris entered into the Morris County Correctional Facility Assistance Contract ("MCCFAC"). That contract provided that the County would "construct a forty bed addition and make renovations to its county correctional facility" in exchange for $2,156,676, which the Legislature had appropriated to the DOC to assist the County in meeting the construction costs of its facility. On the completion of that facility, the County was required to make available to the DOC forty cells to house forty minimum or medium security state prisoners, with certain restrictions on the identity of such prisoners.
Paragraph 11 set forth the method for computing the per diem reimbursement rates required under the CCPA as well as the forty-year term of the contract: The Department shall pay the County a per-diem rate for housing of State prisoners in the 40 cells reserved for such prisoners in the county correctional facility. The rate shall be 75% of the average of the budgeted daily costs of housing state prisoners in the State prisons at Trenton, Rahway and Leesburg during that fiscal year. The 75 per cent per-diem rate shall remain in effect until such time as the total monies retained by the Department because of the discount equals $120,680.00. Thereafter, the County shall continue to make available to the Department a total of 40 cells for use by State prisoners, but the per- diem rate shall be 100 percent of the average daily cost of housing State prisoners in the State prisons at Trenton, Rahway and Leesburg during that fiscal year. The County shall continue to make 40 cells available to the Department for use by State prisoners for the useful life of the facility, as set forth in N.J.S.A. 40A:2-22 (forty years). At the end of this period, the Commissioner and the County shall reassess the need for continued use of the 40 cells by the Department, and may negotiate a continuation of this agreement upon such terms as are deemed appropriate.
Paragraph 12 provided that the ordinary and reasonable costs of housing the State prisoners in the county facility, including the costs of housing, facility maintenance, security, food, routine medical and dental care, prescriptions, transportation, and salaries of County personnel used to provide those services would be encompassed in the per diem rate. Furthermore, the DOC also was required to reimburse the County for the costs of all extraordinary and necessary medical, dental, surgical, psychiatric, and hospital services.
According to interrogatory answers by the Commissioner of the DOC, the County "'began to house state inmates pursuant to the MCCFAC [the contract] in Fiscal Year 1986, beginning with the period October 1, 1985, through December 31, 1985.'" County of Morris, supra, 296 N.J. Super. at 32 (alterations in original). At that time, "'the average of the budgeted daily costs of housing state prisoners in the state prisons at Trenton [New Jersey State Prison], Rahway [East Jersey State Prison] and Leesburg [Bayside State Prison] ... was $36.51.'" Ibid. (alterations in original). For various other years, according to the Appellate Division, the average per capita costs for state prisoners, which were supposed to be the measure of payment under the contract, were the following: 1985 - $36.87; 1986 - $36.51; 1987 - $42.74; 1988 - $45.43; 1989 - $48.26; 1990 - $49.79; 1991 - $53.13; 1992 - $51.75; 1993 - $56.87. Id. at 29 n.1.
Prior to the time that the DOC began to house contract prisoners in Morris County, any state prisoners housed in the County's facilities were executive order prisoners. According to statements by William Fauver, the Commissioner of the DOC, the reimbursement rates for executive order prisoners were initially determined through separate negotiations with each county. As that became too cumbersome, the DOC set a uniform rate of compensation comparable to the costs of housing prisoners in one or various state prisons. The per diem reimbursement rate for executive order prisoners was $42.95 per inmate for fiscal year 1981, $45.00 beginning in fiscal year 1985, and $58.50 as of 1994. Ibid.
On September 7, 1984, before any state prisoners were housed in the County under MCCFAC, Commissioner William Fauver wrote a letter to Captain John Delaney of the Morris County Jail stating: Please be advised that the Department of Corrections has increased the per diem rate for housing State-sentenced inmates in the county facilities to $45.00 effective July 1, 1984. This rate will be paid through Fiscal Year 1985 to all counties who are housing State-sentenced inmates beyond the fifteen-day exclusionary period.
That letter made no explicit mention of the type of prisoners - executive order, contract, or both - to which it was referring.
Approximately one year after that letter, state prisoners were first housed in Morris County under the MCCFAC. Based on Fauver's letter, the County submitted invoices to the DOC under the contract in the amount of $45 per prisoner per day. The State paid the DOC that amount. The $45 rate paid under the contract was, for three years (1985-1987), more than the average daily cost of housing in state prisons, the amount referred to in the contract. Thus, for those years, the State overpaid the amounts due. In the years subsequent to 1988, however, the $45 amount was lower than that required under the contractual terms. Therefore, for that period, the State underpaid the rates in the contract. In all that time, neither party inquired into nor questioned the propriety of the $45 amount. County of Morris, supra, 296 N.J. Super. at 33.
On April 7, 1992, almost seven years after it first began to house state prisoners, the County notified the Commissioner, pursuant to the notice provisions of the Contractual Liability Act, N.J.S.A. 59:13-1 to -10, that the DOC had breached the payment provisions of the contract. The notice stated: The State has been paying the County at the rate of $45.00 per prisoner per day purportedly based on the State's average per diem rate. However, on October 23, 1989 William H. Fauver, Commissioner of the New Jersey Department of Corrections testified under oath in United States District Court Civil Action No. 82-1946 entitled "Camden County, et. al. v. John J. Parker, Warden, et. al that the cost to house a state sentenced prisoner in the Trenton State facility was $63.00 per day .... Furthermore, based upon information and belief, the present average cost to house a State prisoner is approximately $65.00 per day.
Alleging that the DOC had "failed to reimburse the County for the entire per diem rate which the County entitled to" under the contract, the County sought $2,604,000 in damages, representing the twenty-dollar difference between $45 and $65 for 40 prisoners for 3255 days, the time period from May 11, 1983 to April 7, 1992. Even after it sent that notice, however, the County continued to submit invoices at the $45 rate. County of Morris, supra, 296 N.J. Super. at 33.
On October 14, 1992, the County filed suit against the Commissioner, the DOC, and the State. In June 1994, the County filed a motion for partial summary judgment, claiming it was entitled to $407,879.97 for the period covering Fiscal Years 1988 through 1993. The Commissioner cross-moved for summary judgment, and the trial court granted the Commissioner's motion.
In its order dated December 5, 1994, the court found that from 1985 until 1992 both parties ignored the payment terms of Paragraph 11 of the contract. The court ordered that the contract terms would govern in the future, but for all periods up to the date of the court's order in which the County submitted vouchers for $45 per day, the County was not permitted to seek any payment beyond the amounts it had already received. In a modified order on January 5, 1995, the trial court held that as of October 14, 1992, the date the County filed its action against the DOC, the County was insisting on its right to be paid according to the terms of Paragraph 11. Therefore, the Court concluded, the payment provisions of the contract would be enforced as of that date. Furthermore, Morris County would be reimbursed for any difference in rates that had occurred after the filing of its action, despite the fact that the County had continued, until the court's order, to submit invoices at the $45 rate. After the court's decision, the County submitted vouchers to the State at a per diem rate of $58.50, " prejudice as to any future submittals." County of Morris, supra, 296 N.J. Super. at 35.
The Appellate Division reversed. County of Morris, supra, 296 N.J. Super. 26. That court found that the parties did not completely abandon the contract because they adhered to its material portions - the advancement of construction funds and the housing of State prisoners. Furthermore, the parties did not partially modify the payment terms of the contract because there was neither mutual assent to modify nor new consideration to support such a modification. The court instead concluded that the County had been misled.
To determine whether and to what extent any damages were warranted, the Appellate Division analyzed whether the Contractual Liability Act, N.J.S.A. 59:13-1 to -10, applied. The Contractual Liability Act bars recovery in contract actions against the State if a notice of claim is not submitted to the State within ninety days of the claim's accrual. N.J.S.A. 59:13-5. Because the Appellate Division believed that the State was the only party privy over the years to the true facts regarding the accuracy of the State's payments, the court used the discovery rule to determine the accrual date of the County's claim. Finding that the County's claim accrued when the County first became aware of the State's breach in 1992, the court declared that the County's notice of claim against the State, filed shortly after that discovery, satisfied the requirements of the Act. Furthermore, because of the continuing nature of the State's breach, the court concluded that the restrictions in the Contractual Liability Act did not apply. The Appellate Division then remanded for a calculation of damages owed from the date that state prisoners were first housed in the County pursuant to the contract.
On May 21, 1997, we granted the Commissioner's petition for certification. 149 N.J. 409 (1997). *fn3
The DOC argues that the parties abandoned or modified the MCCFAC by their actions over the years, and that, even if the payment terms of the contract were not abandoned or modified, the action is barred by equitable principles of ...