July 30, 2009
COUNTY OF HUDSON, PLAINTIFF-RESPONDENT,
STATE OF NEW JERSEY, DEPARTMENT OF CORRECTIONS, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-4918-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted May 18, 2009
Before Judges Lisa, Sapp-Peterson and Alvarez.
Defendant, State of New Jersey, Department of Corrections (State), appeals from the trial court order finding that the additional allegations contained in plaintiff, County of Hudson's (County), amended complaint complied with the notice provisions of the Contractual Liability Act, N.J.S.A. 59:13-1 to -10 (CLA), and that defendant had breached the terms of the contract. We reverse.
The complaint arises out of plaintiff's dispute with the State concerning the housing of state prisoners in its county jail. In 1981, in response to the problem of prison overcrowding, the Governor declared a statewide emergency and authorized the Commissioner of the Department of Corrections (DOC) to house state inmates in county jails. County of Gloucester v. State, 256 N.J. Super. 143, 145-46 (App. Div. 1992), aff'd as mod., 132 N.J. 141 (1993). In 1982, the County Correctional Policy Act, N.J.S.A. 30:8-16.3 to -16.12 (CCPA), was enacted to assist counties with the construction costs of correctional facilities which would house state prisoners. N.J.S.A. 30:8-16.4. Over the years, sixteen additional emergency declarations were entered and numerous lawsuits ensued to resolve the contractual relationships between the counties and the State. Gloucester, supra, 256 N.J. Super. at 145-46.
In September 2004, plaintiff filed a complaint against defendant alleging breach of two contracts the parties had entered that provided for housing of state inmates in its county jail. Plaintiff claimed that since December 2001, the "State has failed and refused and continues to fail and refuse to pay the County the per diem rate for 100 cells in accordance with the 1987 and 1988 Contracts." In its answer, defendant raised as an affirmative defense, plaintiff's failure to comply with the CLA's notice provisions. In September 2005, plaintiff filed a second amended complaint which included new allegations. Specifically, plaintiff claimed that since September 21, 1998, the State breached its payment obligations to the County under the 1987 and 1988 Contracts by: . . . (b) failing to pay the County at the per diem rate for cells above 100 cells used by the State to house state prisoners; (c) failing to pay the County for the first fifteen days that each state prisoner was housed at the HCCC*fn1 ; and (d) failing to pay the County in full to house state parole violators at the HCCC. On remand, the motion judge determined that no notice of claim was required for the new allegations, plaintiff's new claims were not barred by laches, and that defendant had breached the terms of the contract. The court determined that defendant was required to pay plaintiff for 100 beds per day, whether or not they were used, and that defendant was required to pay the contract rate for beds used in excess of the first 100. The court awarded $8,585,220.49 in damages for the period plaintiff housed state-sentenced inmates from June 6, 2003 through October 30, 2007. The present appeal followed.
On appeal, defendant raises the following points for our consideration:
THE TRIAL COURT ERRED IN ALLOWING THE COUNTY TO PROCEED ON CLAIMS FOR WHICH THERE WAS NO NOTICE OF CLAIM FILED PURSUANT TO THE CONTRACTUAL LIABILITY ACT.
A. THE TRIAL COURT FAILED TO DETERMINE WHEN AND WHETHER THE COUNTY GAVE NOTICE OF THE NEW CLAIMS AS DIRECTED BY THE APPELLATE DIVISION.
B. THE DISCOVERY RULE IS INAPPLICABLE. POINT II
THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT TO THE COUNTY BECAUSE IT WAS CONTRARY TO THE CONTRACTS BETWEEN THE PARTIES.
A. THE CONTRACTS CALL FOR THE PAYMENT OF A PER DIEM RATE, NOT A FLAT RATE.
B. THE PER DIEM RATE AND OCCUPANCY OF THE BEDS MUST BE INTERPRETED AND EXERCISED IN A MANNER FAVORABLE TO THE STATE.
C. INMATES IN EXCESS OF THE FIRST 100 ARE EXCLUDED FROM THE PLAIN LANGUAGE OF THE CONTRACT.
D. THE COUNTY'S CLAIMS ARE BARRED BY LACHES.
THE TRIAL COURT ERRED IN DETERMINING THAT THE DEPARTMENT IS REQUIRED TO PAY FOR THE HOUSING OF STATE INMATES DURING THE FIRST FIFTEEN DAYS OF CONFINEMENT.
THE TRIAL COURT ERRED IN CONCLUDING THAT ALL PAROLE VIOLATORS ARE STATE PRISONERS UNDER THE CONTRACTS.
THE TRIAL COURT ERRED IN CONCLUDING THAT PARTICIPANTS IN THE JUDICIARY'S INTENSIVE SUPERVISION PROGRAM ARE STATE PRISONERS UNDER THE CONTRACTS.
THE TRIAL COURT IMPROPERLY AWARDED DAMAGES IN THE AMOUNT OF $8,585,220.49.
The trial court's determination that plaintiff was not required to file a notice of claim with respect to the new allegations contained in the amended complaint raises a question of law to which we, as a reviewing court, owe no deference to the trial court in its interpretation of the law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Rather, we review the trial court's legal determination de novo. Toll Bros., Inc. v. Twp. of W. Windsor, 173 N.J. 502, 549 (2002).
The CLA provides for a waiver of the State's sovereign immunity for liability arising out of a contract. N.J.S.A. 59:13-3. A condition precedent to seeking recovery against the State under the CLA is the requirement that a claimant comply with the CLA's notice requirements. N.J.S.A. 59:13-5. A notice of claim must be in writing and must be filed within ninety days of the accrual of the claim. Ibid. In that regard, the notice must include the name of the claimant, the nature of the claim, the specific reasons for making the claim, and the dollar amount of the claim, if known. Ibid. The notice provisions of the CLA are consistent with the requirements for maintaining a cause of action under the Tort Claims Act, N.J.S.A. 59:1-1 to -12, and are often read together. W.V. Pangborne & Co. v. N.J. Dep't of Transp., 226 N.J. Super. 367, 373 (App. Div. 1988), rev'd on other grounds, 116 N.J. 543 (1989). In complying with the notice requirements, the State is (1) afforded an opportunity to settle meritorious claims; (2) able to properly investigate a submitted claim; and (3) if appropriate, able to undertake necessary corrective action. See Beauchamp v. Amedio, 164 N.J. 111, 121-22 (2000).
In the present matter, on remand, rather than finding "when and whether" the notice of claim for these new allegations had been filed, as we directed, the trial court found that no notice of claim was necessary. In reaching this conclusion, the court employed the discovery rule doctrine (discovery rule) and determined that because the new claims had been discovered in the course of litigating the original claim, it would be burdensome for plaintiff to file an additional notice of claim each time it discovered a new breach of the same contract. Moreover, the court found that defendant was not prejudiced because of the lack of a notice of claim inasmuch as defendant was on notice that these issues would be raised.
The discovery rule is an equitable doctrine created by the courts to protect unsuspecting persons from statutory limitations periods during which a claim must be brought or forever lost. See Lopez v. Swyer, 62 N.J. 267, 272-74 (1973). A cause of action does not accrue under the doctrine "until the injured party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim." Id. at 272.
The discovery rule does not apply in every case and "the equitable claims of the parties must be weighed against each other." County of Morris v. Fauver, 153 N.J. 80, 109 (1998). The rule is most often applied in negligence and personal injury cases where damages are likely to be "self-concealing or undiscoverable." Ibid. Thus, for example, the doctrine has been applied in cases of medical and legal malpractice actions, products liability cases, and in actions asserting common law fraud. Id. at 109-10 (citations omitted).
Ordinarily, however, the discovery rule is not applied in most contract cases because it is presumed that the parties are familiar with the terms of the contract and know when a breach has occurred. Id. at 110. Moreover, in those instances where the rule is asserted, an obligation is imposed upon the person asserting the rule to demonstrate that reasonable diligence was exercised to investigate possible causes of action. Ibid. The discovery rule may not be invoked where due diligence has not been exercised. O'Keeffe v. Snyder, 83 N.J. 478, 497-98 (1980).
Defendant argues that the trial court erred in applying the discovery rule to the newly asserted claims in the amended complaint because its payment practices were known to plaintiff for more than two decades before the complaint was filed. Specifically, defendant contends its payment practices were contained in the procedures manual and also appeared on the monthly reimbursement reports. Defendant therefore urges that plaintiff did not need time to discover that defendant was not paying for the first fifteen days of the state prisoner's confinement.
Plaintiff does not dispute that defendant's payment policies are contained in defendant's procedures manuals. Nor does plaintiff dispute that during the course of the parties' contractual relationship, it received monthly reimbursement reports. Rather, plaintiff responds that filing a new notice of claim at the receipt of each monthly voucher and instituting a new lawsuit at the end of each ninety-day waiting period would be wasteful of public resources. The issue here, however, is not one of waste of public resources because plaintiff never filed one notice of claim in connection with the newly asserted claims.
We are not persuaded, from our review of the record, that plaintiff's noncompliance with the notice provisions is justified by plaintiff's contention that it was unaware of its additional claims until the deposition of state employees in July 2005, at which time it immediately notified defendant of the additional claims with the filing of the amended complaint. Apart from the fact that the amended complaint asserted entirely different claims for which notice was required, a minimal investigation into plaintiff's monthly reports would have alerted plaintiff that defendant was not, for example, paying for the first fifteen days of confinement. Plaintiff is charged with knowing the terms of the contract and knowing when a breach occurred. County of Morris, supra, 153 N.J. at 110.
Plaintiff's contention that it substantially complied with the notice requirements of the CLA is equally unpersuasive. Plaintiff cites Sprenger v. Trout, 375 N.J. Super. 120, 140 (App. Div. 2005), for the proposition that when a party substantially complies with a statute and there is no prejudice to the other party, strict compliance is not necessary. Substantial compliance with the statutory notice provisions under the CLA is not established where a defendant has been prejudiced by the lack of notice. Ibid.
Here, defendant was poised to defend against plaintiff's claim that it was required to pay for unfilled beds. Plaintiff's additional claims, as asserted in the amended complaint, pertained to different issues. Further, substantial compliance requires a reasonable explanation as to why compliance with the notice provisions under the CLA did not occur. Plaintiff has not met this requirement. Consequently, plaintiff's noncompliance with the requisite notice provisions under the CLA is not satisfied based upon a claim of substantial compliance. Thus, plaintiff's cause of action based upon the additional claims asserted in the amended complaint for non-compliance with the CLA's notice provision is barred.
Because we are convinced that plaintiff was required but failed to comply with the notice provisions of the CLA in connection with its newly asserted claims in the amended complaint, we deem it unnecessary to address defendant's contention that the doctrine of laches precludes plaintiff from asserting those claims or the trial court's ruling on the merits of those additional claims.
Next, we turn our attention to the claim in the original complaint, namely, that the State breached it obligation under the contract to pay for 100 beds per day irrespective of whether 100 beds were actually being used on each day. We disagree with the trial court's interpretation of the contractual language to require such payment.
The language in the contracts at issue describes a per diem rate. The enabling legislation characterizes this provision contained in the contracts executed between the State and county jails throughout the state as "[p]er diem reimbursement rates favorable to the State in recognition of its contribution to the construction or renovation costs of the county correctional facilities but which take into consideration the additional cost of State mandated programs." See N.J.S.A. 30:8-16.7(b)(3). Additionally, the contractual language also provided that in the event the State elected to contribute towards the County's capital expenditure, the contribution "shall be equal to the proportion of the number of cells then being used by the [State]." (emphasis added). These provisions make clear that reimbursement is intended for actual beds used rather than a flat per diem rate based upon 100 beds. Further, if the contractual language was intended to require payment for 100 beds whether or not the beds were filled, it would have been easier to set a flat monthly rate, which could be recalculated periodically to account for cost-of-living increases as opposed to a per diem rate that involved calculations of how many prisoners would be housed at the jail on any given day.
We have had occasion to address the calculation of State costs incurred in housing state prisoners in county jails. In County of Gloucester v. State, supra, 256 N.J. Super. at 154, we stated, "[w]hen the State adds prisoners to a county jail, it does not become necessarily responsible for a percentage of all jail expenses based upon a per capita prisoner ratio." Requiring the State to pay for 100 beds irrespective of whether they are being used by state prisoners on any given day would cause such a result. In County of Morris, supra, the Court analyzed a similar contract and clearly calculated the amount owed based upon the price per prisoner per day, not a flat rate for a given number of beds. 153 N.J. at 92.
Finally, assuming that the contractual language is ambiguous, the record indisputably established that past practice in Hudson County has been for the State to pay only for the actual prisoners housed. When contract terms are ambiguous, the court may look to extrinsic evidence to determine the understanding of the parties. Michaels v. Brookchester, Inc., 26 N.J. 379, 388 (1958). Past practices of the parties are entitled to "'great weight'" in interpreting the agreement. Hall v. Bd. of Educ., 125 N.J. 299, 306 (1991) (quoting Kennedy v. Westinghouse Elec. Corp., 16 N.J. 280, 294 (1954)).
In summary, a court may not rewrite a contract to make a better bargain for the parties than they themselves negotiated. Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 493 (App. Div.), certif. denied, 127 N.J. 548 (1991). The trial court's interpretation of the terms of the contract here to require the State to pay for 100 beds per day, whether or not the beds were actually being used by state-sentenced inmates, was contrary to the clear terms of the contract and enabling legislation. Moreover, to the extent the contractual terms are viewed as ambiguous, past practices between the parties supports the conclusion that the State is only obliged to reimburse plaintiff for its actual costs. The trial court's ruling on this issue had the effect of rewriting a better contract for plaintiff than that which the parties negotiated.