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County of Hudson v. State of New Jersey

June 7, 2011

COUNTY OF HUDSON, PLAINTIFF-APPELLANT,
v.
STATE OF NEW JERSEY, DEPARTMENT OF CORRECTIONS, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

SYLLABUS (This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The opinion of the court was delivered by: Hoens, J.,

County of Hudson v. State of New Jersey, Department of Corrections

Argued September 27, 2010

Decided June 7, 2011

Hoens, J., writing for a unanimous Court.

The Court considers whether a party to a contract dispute with the State of New Jersey may expand its contractual claims by amending its complaint, rather than by complying with the notice of claim requirement of the Contractual Liability Act, N.J.S.A. 59:13-1 to -10.

Plaintiff County of Hudson entered into two contracts with defendant State of New Jersey in 1987 and 1988. The contracts set forth the terms by which the County would make beds available in its county jail facilities for the State's use in housing State prisoners. The contracts fixed the number of beds that would be made available to the State, the prisoners who would be eligible, the per diem rate of compensation, and a method for establishing that per diem rate. In 1997, the County filed a complaint in which it alleged that the State had underpaid it. The litigation settled, with the parties agreeing to alter the manner in which the applicable daily rate of reimbursement would be calculated.

In May 2003, the State informed the County that it had overpaid amounts owed for housing prisoners and would recoup the overpayment by making a downward adjustment to the payments it anticipated would be due during the next twelve months. In September 2003, the County Administrator wrote to the State disputing any overpayment and maintaining that the County had been underpaid because the State had been paying only for beds that were used, rather than all of the beds that the contracts required the County to make available. The State responded by explaining the basis of its payments. The State also asserted that it was only required to pay for beds actually being used. In September 2004, when the parties' negotiations reached an impasse, the County sued the Department of Corrections (DOC), asserting that the contracts entitled it to be paid for 100 beds, that the State failed to make those payments, and that the contracts were breached.

During discovery in July 2005, the County deposed a DOC employee, who referred to contract provisions excluding reimbursement for the first fifteen days a prisoner was housed. She explained that the policy was based on general practice and the DOC Procedure Manual. She also explained that counties were not reimbursed for parole violators, and that a lower rate had traditionally been paid for any beds used in excess of 100. The DOC Procedure Manual, first created and disseminated in 1995, was produced by the State a few days later. By leave granted, the County filed an amended complaint on September 14, 2005, adding new claims based on the State's failure to pay for occupied beds in excess of 100 at the per diem rate, failure to pay for the first fifteen days the County housed a State prisoner, and failure to pay for State parole violators housed in the County facility.

In 2006, the trial court granted a motion by the State to dismiss the original and amended complaints on grounds that the County failed to comply with the notice of claim provision in the Contractual Liability Act (Act), which requires that a notice of claim be filed no later than ninety days after the accrual of any cause of action. The Appellate Division reversed in part in 2007, concluding that a September 2003 letter was sufficient to serve as the County's notice, but only for claims that had arisen on or after June 6, 2003. Although this rendered the claims raised in the original complaint untimely, the panel remanded to the trial court to consider whether the claims added through the amended complaint were timely. On remand, the trial court concluded that the Act did not require the County to file a notice for the claims asserted in the amended complaint because the State was on notice through the pending litigation, and the Act did not apply to new claims that arose during discovery. The Appellate Division again reversed the trial court. The panel concluded that the County was required to comply with the Act's notice requirements and its failure to do so barred the claims asserted in the amended complaint. The Supreme Court granted the County's petition for certification, 201 N.J. 439 (2010), in which the County asked the Court to address only whether the Act requires service of a formal notice of claim when the claim is discovered during the pendency of the litigation and, if so, whether the County substantially complied with the requirement through service of the amended complaint.

HELD: Contract claims against the State must be asserted through the timely service of a notice of claim, pursuant to the Contractual Liability Act, N.J.S.A. 59:13-1 to -10. Only following the expiration of the time period imposed by the Act may a contract claim become the subject of a complaint or, if appropriate, be added to an existing complaint. The County of Hudson's amended complaint against the State, through which expanded claims were added, was properly dismissed for failure to comply with the statutory notice requirement.

1. The Contractual Liability Act effects a limited waiver of sovereign immunity for claims relating to contracts with the State. In relevant part, the Act states that a potential claimant "shall" serve a timely notice of claim on the State as a prerequisite to suing, N.J.S.A. 59:13-5, and bars recovery if the party fails to notify the contracting agency within 90 days of the date his or her cause of action accrued, absent leave of court. The Act defines the accrual of a cause of action as "the date on which the claim arose," N.J.S.A. 59:13-2, which in this case resulted in accrual each date that a payment was missed or due. Leave of court must be granted within one year of the date of accrual and the contractor must demonstrate sufficient reason for failing to comply with the 90-day time limit and that the State has not been substantially prejudiced by the delay, N.J.S.A. 59:13-6. (pp. 13-17)

2. The Court explains that it need not evaluate the County's argument that the discovery rule applies to this matter because it rejected that argument in a prior opinion. Even if the discovery rule applied, however, it is limited to claims arising from circumstances in which an innocent plaintiff is unaware of the harm and could not have discovered it in the exercise of reasonable diligence within the ordinary period of limitations. Here, the County knew or should have known through the exercise of reasonable diligence the way in which the State calculated payments. (pp. 17-25)

3. The Court also is not persuaded that a contract claim that is newly-discovered during the pendency of on-going litigation with the State is exempt from the operation of the notice provision of the Act, N.J.S.A. 59:13-5. The notice provision's use of the word "shall" leaves little doubt that the requirement is mandatory. Furthermore, a statute in derogation of sovereignty, such as this one, is generally interpreted strictly. In addition, the time delay embodied in the provision for the purposes of permitting investigation, preparation, and potential resolution would not be served if claims arising during the course of litigation were exempted from the notice requirements. (pp. 25-27)

4. Finally, the Court rejects the County's argument that the amendment of its complaint serves as substantial compliance with the Act's notice of claim requirement. To endorse this approach would be to agree that serving a complaint supplants the need for notice--a result directly contrary to the plain language of the statute and inconsistent with court opinions addressing a similar notice provision in the Tort Claims Act. (pp. 27-30)

The judgment of the Appellate Division is AFFIRMED.

CHIEF JUSTICE RABNER; JUSTICES LONG, ALBIN, and RIVERA-SOTO, and JUDGE STERN (temporarily assigned) join in JUSTICE HOENS's opinion. JUSTICE LaVECCHIA did not participate.

JUSTICE HOENS delivered the opinion of the Court.

Argued September 27, 2010

In this appeal, we consider whether a party to a dispute arising out of the terms of its contracts with the State of New Jersey may expand its contractual claims by amending its complaint rather than by complying with the notice of claim requirement of the Contractual Liability Act, N.J.S.A. 59:13-1 to -10. Because permitting a party to do so would effectively create a means to bypass the notice requirement embodied in the statute governing contract claims against the State and because it would thwart the purposes that the notice requirement was designed to achieve, we conclude that contract claims against the State may not be asserted through an amendment to an existing complaint.

Rather, contract claims against the State, regardless of when they arise, must be asserted through the timely service of a notice of claim in compliance with the applicable statutory provisions. See N.J.S.A. 59:13-5 (governing presentation and consideration of contract claims against the State). Thereafter, and only following the expiration of the time period imposed by the statute, see ibid., a contract claim may be the subject of a complaint or, if appropriate, it may be added to an existing complaint. As part of our analysis of the issues in dispute between the parties, we also reject the assertion that by proceeding with an amendment to an existing complaint, a contracting party has substantially complied with the statutory notice requirement. We therefore affirm the judgment of the Appellate Division dismissing the amended complaint through which the expanded claims were added.

I.This litigation has a lengthy history, a summary of which is required for an understanding of the result that we reach.

Plaintiff County of Hudson entered into two contracts with defendant State of New Jersey in 1987 and 1988. Each of those agreements, referred to as Facility Assistance Contracts, set forth the terms pursuant to which the County would make beds available in its county jail facilities for the State's use in housing State prisoners. The contracts fixed the number of cells or beds that would be made available to the State, the prisoners who would be eligible for being housed in the ...


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