January 17, 2012
MERIDIAN MANAGEMENT CORPORATION, PLAINTIFF-APPELLANT,
NEW JERSEY TRANSIT CORPORATION, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Essex County, L-8461-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 6, 2011
Before Judges Reisner, Simonelli and Hayden.
In this contract dispute, plaintiff Meridian Management Corporation (Meridian) appeals from a February 8, 2011 order, entered after a bench trial, dismissing its complaint against defendant New Jersey Transit Corporation (NJT). We affirm.
These are the most pertinent facts. In 2002, NJT issued an invitation for "firm fixed price" bids for janitorial services for the East Concourse at Penn Station in New York City. The bid documents contained the following standard language:
NJ Transit is a public agency and exempt from paying Sales and Federal Excise Taxes. Bidders shall not include these taxes in their bid price.
Meridian, a Florida-based company that specialized in providing "facilities maintenance" services for "government facilities," was the successful bidder, obtaining a contract to perform the work from 2002 to 2005, and a later extension to 2008.*fn1 NJT paid Meridian over $11 million dollars for its work. There is no dispute that NJT paid Meridian the entire amount that it billed under the contract pursuant to the fixed price quoted in its bid.
The contract contained the following standard language, precluding the contractor from charging NJT sales taxes, and requiring the contractor to pay "any taxes as a result of this contract":
Section 9. Taxes and Applicable Laws.
The Contractor Meridian agrees that any taxes to be paid as a result of this Contract will be paid by the Contractor and that NJ TRANSIT'S obligation is limited to payments for the goods, materials or services in accordance with the unit prices stated herein. As a public agency, NJ Transit is exempt from State use & sales taxes and Federal Excise Taxes. They must not be included in the Contractor's price quotations or invoices. The State of New Jersey's Federal Excise Tax Exemption is 22-75-0050K and the State of New Jersey's State Excise Tax Exemption Number is 21-60000928.
Although section 9 specifically referred to NJT's tax exemption, Meridian's vice-president of administration, Thomas Brownfield, assumed this language meant that Meridian was also exempt from paying sales taxes for services it purchased from subcontractors in carrying out the contract. Based on that understanding, Meridian directed its subcontractors not to charge Meridian sales taxes for the services the subcontractors provided to Meridian. However, Meridian was eventually audited by the New York State taxing authorities, which required Meridian to pay approximately $400,000 in sales taxes for those subcontracted services.
In 2008, Brownfield sent NJT a letter demanding that NJT reimburse Meridian for the sales taxes that New York required Meridian to pay. By letter dated March 11, 2008, NJT declined to pay, asserting that the contract only addressed NJT's tax liability, Meridian was responsible for knowing its own tax obligations, and NJT was not responsible for Meridian's error. In his testimony, Brownfield asserted that the $400,000 Meridian paid in New York sales taxes was a "total loss" to Meridian, because it could not be recouped from NJT, but he did not testify that Meridian did not make a profit on the contract.
On cross-examination, Brownfield admitted that Meridian had been doing business in New York State since 1998, and he "was familiar" with New York's sales tax laws. He further admitted knowing that under New York law, the tax exemption of a tax exempt entity "does not necessarily apply to subcontractors." He replied "yes," when asked whether, before bidding on the NJT contract, he "understood that under New York state law, subcontractors were not exempt for sales taxes arising from a contract with a tax exempt entity." Further, despite knowing that the New York Department of Taxation and Finance would give advisory opinions on tax issues, Brownfield did not seek advice from that agency, or from Meridian's legal counsel, before submitting a bid. He also did not ask NJT for clarification "about how the tax language" in the bid specifications would affect subcontractors.
Brownfield admitted that the invitation for bid (IFB) did not state that the services of subcontractors were exempt from sales tax. However, he asserted that he inferred such an exemption from sections 3.1.2 and J of the bid specifications. Section 3.1.2 provided in general terms:
The prime contractor is responsible for assuring subcontractor compliance with all terms and conditions of this IFB. The prime contractor will assume sole responsibility for any payments due the subcontractor(s) under this contract.
Several pages earlier, in section J, the specifications also stated that "NJ TRANSIT is a public agency and exempt from paying Sales and Federal Excise Taxes. Bidders shall not include these taxes in their bid price." Brownfield had never seen such a provision before in any other IFB. But he testified that he read section J and section 3.1.2 together and concluded that the subcontractors could not charge sales tax to Meridian. He did not seek legal advice because he thought it was "clear" that the tax exemption applied to subcontractors.
NJT's chief of procurement, Thomas J. Woods, explained that the purpose of section J of the IFB was to ensure that the bids it received reflected its tax exempt status, so that NJT could receive the lowest responsible bids, and to assist bidders in putting together realistic bid prices:
If you [the bidder] include sales taxes, you may wind up not being the low bidder because the smarter bidder is going to say that, well I'm not going to include that because it's just going to escalate my bid price.
However, he testified that section 9 of the contract made the contractors responsible for paying any and all taxes, and they were responsible for knowing their own tax liabilities. He testified that it would be "crazy" for a contractor to rely on its customer for advice about the contractor's tax liabilities.
In a written opinion dated February 8, 2011, Judge Thomas R. Vena found that the parties agreed on the essential facts but disagreed on their legal significance. He concluded that the contract was unambiguous and that NJT was not responsible for Meridian's misunderstanding of its own tax liabilities for purchases from its subcontractors:
Plaintiff has failed to meet its burden of proof. This Court is satisfied that NJT meant to convey what it did convey in the contract documents, to wit: (1) NJT is tax exempt; (2) NJT isn't going to pay sales tax, so don't include it in your bid; and (3) any tax payment that may have to be made is to be made by Meridian.
This Court finds the language clear and unambiguous, leading inescapably to the conclusion that although Meridian may have taken other expenses into consideration when making its bid, it apparently did not believe sales tax was an expense. Clearly, this action was an error on their part, and not an error caused by any act or omission of NJT.
The entirety of Plaintiff's case rests on a false factual premise: that "NJT misrepresented that sales taxes were not going to be assessed on purchases made in connection with the 2002 contracts" (Pb 18-19). Remove that premise, as this Court finds, and every one of Plaintiff's arguments fail.
Contracts are generally "given their plain and ordinary meaning." East Brunswick Sewage Auth. v. East Mill Ass'n, Inc., 365 N.J. Super. 120, 125 (App. Div. 2004) (citing M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J. 378, 396 (2002)). "When the terms of a contract are clear, the court must enforce them as written." Ibid; accord Karl's Sales & Serv. v. Gimbel Bros., 249 N.J. Super. 487, 494 (App. Div.), certif. denied 127 N.J. 548 (1991). We "will not make a different or a better contract than the parties themselves have seen fit to enter into." East Mill Ass'n, Inc., supra, 365 N.J. Super. at 125 (citing Washington Constr. Co. v. Spinella, 8 N.J. 212, 217 (1951)). Courts may not "rewrite the contract merely because one might conclude that it might well have been functionally desirable to draft it differently." Karl's Sales, supra, 249 N.J. Super. at 493 (internal citations omitted).
Where there is a dispute as to the meaning of the contract or its language, the plaintiff has the burden to prove what the parties intended the contract to mean. Id. at 493. "The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Id. at 492.
On an appeal from a trial court's decision of a contract dispute, we apply a dual standard of review. On the one hand, we are bound the judge's factual findings so long as they are supported by sufficient credible evidence. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). On the other hand, we owe no special deference to a trial court's legal interpretations, Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), and following that principle, we engage in de novo review of the judge's interpretation of the contract. See Spring Creek Holding Co. v. Shinnihon U.S.A. Co., 399 N.J. Super. 158, 190 (App. Div.), certif. denied, 196 N.J. 85 (2008); Central Paper Distrib. Servs. v. Int'l Records Storage & Retrieval Serv., Inc., 325 N.J. Super. 225, 231 (App. Div. 1999), certif. denied, 163 N.J. 74 (2000).
On this appeal, Meridian argues in the alternative that the contract is unambiguous and supports its position, or that the trial court should have adopted Meridian's interpretation of ambiguous language in the contract. Meridian also contends that the trial court should have reformed the contract under the doctrines of mutual mistake or unilateral mistake, or to enforce what the parties intended and avoid unjust enrichment. We find no merit in any of those arguments.
We agree with Judge Vena that the contract is unambiguous. Section 9 of the contract clearly precludes Meridian's claim for reimbursement of its sales tax expenses - or any other tax obligation arising from the contract - and Meridian failed to establish its right to any equitable relief. We affirm substantially for the reasons stated in the judge's succinct and cogent February 8, 2011 opinion, which is supported by the record and consistent with applicable law. R. 2:11-3(e)(1)(A). Meridian's appellate arguments warrant no discussion beyond the following comments. R. 2:11-3(e)(1)(E).*fn2
Meridian's reliance on P.T.&L. Construction Co. v. State, 108 N.J. 539 (1987), is misplaced. In P.T.&L., the State failed to disclose to a contractor facts that the State knew about the wet conditions at a proposed construction site. The contractor bid based on its understanding that the site would be dry, and then incurred enormous cost overruns when it proved to be wet. The Court held that the State's failure to disclose this critical information justified holding it liable for the extra construction costs:
[T]he State's nondisclosure of material facts constituted a misrepresentation of site conditions for which recovery may be allowed. The general exculpatory clauses of the contract disclaiming responsibility for differing site conditions do not apply in the face of such a finding. [Id. at 541.]
However, the Court distinguished a claim based only on "implicit" representations in a State contract, which would not support recovery:
We note, however, that had the plaintiff's claim been premised only on its conclusion that dry working conditions were implicit in the contract specifications, recovery would have been precluded by the specific disclaimers of State responsibility for site conditions. There is a critical distinction between a claim based on the State's implying that conditions would be dry and a claim founded on the State's withholding information that conditions would be wet. [Id. at 541-42.]
In this case, the contract clearly stated that NJT had no obligation to pay sales tax, and plainly stated that any taxes would be the contractor's responsibility. The contract made no affirmative representations about whether the contractor was obligated to pay sales tax on its purchases from subcontractors. But Meridian's management concluded that such a representation was "implicit" in the wording of the contract. Ibid. That inference, which we conclude was unreasonable in any event, would not support Meridian's claim for reimbursement of the sales taxes. Ibid. Further, unlike P.T.&L., where the State had in its possession documents, not available to the bidders, that showed wet conditions on the site, here the State had no secret tax information. Meridian's witness admitted that he could have obtained advice from his own counsel or from the New York State taxing authorities concerning Meridian's tax obligations. But he chose not to do so.
Likewise, Dugan Construction Co., Inc. v. New Jersey Turnpike Authority, 398 N.J. Super. 229 (App. Div.), certif. denied, 196 N.J. 346 (2008), is not on point because, unlike Dugan, this case involves neither a mistake nor an ambiguity in the bid specifications. In Dugan, a contractor engaged in blatant overreaching, by attempting to charge the State an extra $9.5 million for work that was worth a little over $50,000. Id. at 237. We rejected the contractor's attempt to exploit an obvious error in the bid specifications concerning the amount of wastewater to be removed. Id. at 247. Without bringing the error to the State's attention, Dugan bid an exorbitant per-gallon price to remove the 55 gallons stated in the bid specifications. Id. at 236-37. When it turned out that the job required removal of over 200,000 gallons of wastewater, Dugan attempted to charge the State the inflated per-gallon price stated in the contract. Id. at 237. We rejected Dugan's claim, but reformed the contract to allow Dugan a reasonable per-gallon price for the work it had actually performed. Id. at 247.
Dugan, however, does not support reformation of this contract, which unambiguously placed the risk of tax obligations on the contractor and not on the State. We find no grounds to impose an extra $400,000 in costs on the State, because Meridian misread the bid specifications and failed to "exercise . . . reasonable care" by inquiring into its own tax obligations before submitting a bid. Id. at 244 (quoting Conduit & Foundation Corp. v. Atlantic City, 2 N.J. Super. 433, 440 (Ch. Div. 1949)). See Cataldo Constr. Co. v. County of Essex, 110 N.J. Super. 414, 418-19 (Ch. Div. 1970).
Moreover, there is no evidence in this record that enforcing the contract as written "would compel performance at a substantial loss due to a serious error in [Meridian's] bid proposal." Dugan, supra, 398 N.J. Super. at 243 (quoting Edward D. Lord, Inc. v. Municipal Util. Auth., 133 N.J. Super. 503, 507-08 (App. Div. 1975)). Meridian was paid more than $11 million for its work and submitted no proof that it did not make a profit on the contract. Therefore, there is no evidence that enforcing the contract would be "unconscionable" so as to warrant reformation. Id. at 244 (quoting Conduit & Foundation Corp. v. Atlantic City, supra, 2 N.J. Super. at 440).