June 13, 2012
HAYNES SECURITY, INC. AND JOHN D'AGOSTINO, PLAINTIFFS-APPELLANTS,
PORT AUTHORITY OF NEW YORK AND NEW JERSEY, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-9165-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 30, 2011 -
Before Judges Fuentes, Nugent and Newman.
Plaintiffs Haynes Security, Inc. and John D'Agostino appeal from two Law Division orders: the March 22, 2010 order denying their motion to bar defendant the Port Authority of New York and New Jersey from using or relying upon documents it produced after discovery ended; and the March 26, 2010 summary judgment order dismissing their complaint with prejudice. Plaintiffs contend the trial court committed numerous procedural and substantive errors, including relying on the belatedly-produced documents, when it dismissed their claim that defendant orally extended for an additional two years, their four-year, multi-million-dollar contract for security services at two airports. We agree with the trial court that, as a matter of law, defendant was not bound by, and plaintiffs could not have reasonably relied upon, oral promises to extend the contract allegedly made by defendant's high-ranking employees. Accordingly, we affirm.
The Port Authority of New York and New Jersey (the Port Authority) is a bi-state agency consisting of twelve commissioners who constitute a board that is authorized to adopt by-laws for its management. N.J.S.A. 32:1-4, -5, and -6. Plaintiff John D'Agostino (D'Agostino) and his wife, Carol Ann, were, respectively, the president and chief executive officer of Haynes Security, Inc. (Haynes), as well as its majority shareholders. In December 2002 the Port Authority's Executive Director, Joseph J. Seymour, signed a "Memorandum of Justification" authorizing the Port Authority's Director of Procurement to enter into a four-year contract with Haynes to provide unarmed, uniformed guard services at two airports.*fn1 The memorandum also authorized "the Director of Procurement, at the discretion of the Director of Aviation, to exercise up to two, two-year renewal options . . . ." Discretion to exercise the renewal options was thus vested in the Director of Aviation, who at the time was William DeCota.
On January 10, 2003, the Port Authority and Haynes entered into a written agreement (the Contract) under which Haynes was to provide the specified services at John F. Kennedy International Airport and LaGuardia Airport, for which it would be paid $89,340,649.41. D'Agostino signed the Contract on behalf of Haynes. Andrea Roitman, the Port Authority's then Manager of Purchasing Services, signed the Contract on behalf of the Port Authority. The initial term of the Contract was four years beginning on February 1, 2003, and ending on January 31, 2007 (the termination date). The Contract provided that, "unless sooner terminated or revoked (or extended)[, the Contract] shall expire at 11:59 p.m. on or about January 31, 2007 . . . ."
The Port Authority had the unilateral right to extend the Contract. The Contract's extension option provided:
The Port Authority shall have the unilateral right, upon sixty (60) days notice to the Contractor to extend this contract for two (2) additional two (2) year periods (herein the "option periods" or "options years") from the Expiration Date originally fixed herein, as the same may have been previously extended on terms stated herein subject only to adjustment of charges as herein provided. Prior to exercising any such option to extend, the Port Authority shall advise the Contractor, in writing, at least sixty (60) days prior to the expiration of the original term thereof, as the same may have been extended that it intends to exercise such extension. The Port Authority makes no guaranty that the extensions will be exercised. . . . The Port Authority shall have the absolute right to extend this Contract as the same may have been previously extended as provided in sub-paragraph B. above, for up to an additional one hundred twenty (120) day period subsequent to the Expiration Date hereinbefore established, on the same terms and conditions as the original Contract Term. The charges in effect for the previous Contract year shall remain in effect during this extension period without escalation. The Port Authority shall notify the Contractor in writing, at least thirty (30) days prior to the Expiration Date hereinbefore established that the Contract term is so extended.
The Contract also authorized the Port Authority to cancel the Contract before the termination date. The cancellation clause provided:
In addition to all other rights of revocation or termination hereunder and notwithstanding any other provision of this Contract the Port Authority may terminate this Contract and the rights of the Contractor hereunder without cause at any time upon five (5) days written notice to the Contractor and in such event this Cont[r]act shall cease and expire on the date set forth in the notice of termination as fully and completely as though such dates were the original expiration date hereof and if such effective date of the termination is other than the last day of the month, the amount of the compensation due to the Contractor from the Port Authority shall be prorated when applicable on a daily basis. Such cancellation shall be without prejudice to the rights and obligations of the parties arising out of portions already performed but no allowance shall be made for anticipated profits.
The Contract also contained an integration clause:
This Agreement consists of the following: Part I (Sections 1 through 38) Part II and Part III and Exhibits 1, 2, 3, 4, 5 and Attachments. It constitutes the entire agreement of the parties on the subject matter hereof and may not be changed, modified, discharged or extended except by written instrument duly executed by the Port Authority and the Contractor. The Contractor agrees that no representation or warranties shall be binding upon the Port Authority unless expressed in writing in this Agreement.
The Port Authority vested responsibility for the Contract's management in the Director of the Office of Operations & Emergency Management (OEM), who was responsible for security standards, and the Director of Aviation, who was responsible for the operational aspects of the Contract. John Paczkowski was the Director of OEM. As previously indicated, William DeCota was the Director of Aviation.
The parties' relationship was uneventful until Haynes, D'Agostino, and D'Agostino's wife, Carol Ann, were indicted. On February 2, 2004, one year after commencement of the Contract, a New Jersey grand jury returned an indictment charging Haynes with one count of conspiracy, two counts of commercial bribery, and one count of theft by deception; D'Agostino with one count of conspiracy, one count of misconduct by a corporate official, two counts of commercial bribery, and two counts of theft by deception; and Carol Ann D'Agostino with one count of misconduct by a corporate official and one count of theft by deception. As a result of the indictment, in July 2004, Haynes was suspended from bidding on any New Jersey government contracts. In September 2004, the charges against D'Agostino's wife were dismissed, as were the conspiracy and theft by deception charges against Haynes and D'Agostino relating to another agreement between Haynes and the Port Authority for unarmed, uniformed security services at Newark Liberty International Airport.
By April 2005, the Port Authority's Chief of Staff, Edmond Schorno, was seriously considering terminating the Contract. Schorno commented in emails that the Port Authority should "have a plan in place that will allow [it] to proceed at will if necessary[,]" and that "[b]eing prepared to put out a new RFP just makes good business sense and represents good stewardship." Schorno also wrote, "If Haynes performs in an admirable fashion and the principals are never convicted of any crime, we will have been more diligent throughout the term of the indictment and there is nothing wrong with that."
To address Schorno's concerns, Steven Pasichow, the Port Authority's Assistant Inspector General, recommended that the Port Authority require Haynes to enter into a monitoring agreement to assure that Haynes's performance under the Contract complied with the law. Pasichow selected a three-year term for the monitoring agreement because when he was "with New York City that was generally the routine number of years that we would have a monitorship agreement." During the time Pasichow was preparing the monitoring agreement, Paczkowski was coordinating with OEM the preparation of a new request for proposal (RFP) for the services Haynes was providing under the Contract.
The parties met on April 20, 2005 to discuss the monitoring agreement. They dispute what took place at that meeting. D'Agostino and his attorney, Eric Tunis, attended the meeting. The participating Port Authority representatives included Assistant Inspector General Pasichow; Director John Paczkowski and Charles Agro from OEM; Deputy Director Reiss and James Oliver from Aviation; and Herb Somerwitz, Esq. from the Port Authority's law department. According to Reiss, the purpose of the meeting was to discuss the monitoring agreement. In exchange for Haynes agreeing to enter into the monitoring agreement, the Port Authority would not terminate the Contract under the clause that permitted the Port Authority to cancel the Contract without cause. The extension option was not discussed because it was "way to soon to discuss any renewal option in 2005 with the Contract expiring in 2007."
D'Agostino's version of the meeting differed from that of Reiss. According to D'Agostino, in response to Paczkowski's statement that the Port Authority wanted Haynes to enter into a monitoring agreement, D'Agostino asked if "by me doing this, Haynes . . . is going to keep the Contract through the extension[,] and [Paczkowski] said, yes." No one else at the meeting recalled any discussion about an extension of the Contract. Paczkowski, in his deposition, denied "any discussion at the meeting by Mr. D'Agostino about the fact that he would execute a monitoring agreement if the Port Authority agreed to the extension or the option period set forth in the original Contract[.]" Paczkowski also denied that D'Agostino had addressed "any questions to [him] directly about whether or not execution of the monitoring agreement would in any way tie into the option period or the renewal period in the Contract[.]"
The deposition testimony of D'Agostino's attorney concerning the purpose of the meeting was consistent with that of the Port Authority employees. When asked whether D'Agostino told him that he, D'Agostino, had to enter into the monitoring agreement or lose the Contract, Tunis responded, "That was the whole point of these discussions." Tunis explained that Haynes was in jeopardy of losing all its customers as a result of the indictment, and that D'Agostino was concerned most about losing the Port Authority Contract because it constituted a large percentage of Haynes's revenue.
D'Agostino signed the monitoring agreement on June 29, 2005, and Roitman signed it on behalf of the Port Authority on July 11, 2005. Between April 20 when he met with the Port Authority employees, and June 29 when he signed the monitoring agreement, D'Agostino had another attorney, not Tunis, review and negotiate the terms of the monitoring agreement. The other attorney later testified at his deposition that D'Agostino had struck a deal with the Port Authority that would allow Haynes to continue to fulfill the Contract. Although retained solely in connection with the monitoring agreement, the attorney did not recall being told that Haynes was entering into the monitoring agreement in exchange for a two-year extension of the Contract. The attorney testified that had he been told that, "[t]hat would be something that I would assume would be in writing somewhere[,] . . . I don't think I ever saw the [C]ontract. I didn't even know that the Contract was getting ready to terminate or that there was an option for [a] two-year extension."
The monitoring agreement required that Haynes, at its sole expense, retain an "Independent Private Sector Inspector General" (IPSIG) to be selected by the Port Authority. The primary responsibility of the IPSIG would be to design and implement a corruption prevention program for Haynes. Paragraph 2 of the monitoring agreement, entitled "John D'Agostino," provided that D'Agostino would continue with his "normal activities on behalf of Haynes related to [the Contract]" until there was a "disposition of the criminal charges" pending against him. In the event of a deferred prosecution or disposition other than criminal conviction, the monitoring agreement would "continue for one year from the termination of the period of the 'deferred prosecution.'" In the event of the complete dismissal of the criminal charges, the term of the monitoring agreement and IPSIG would discontinue, subject to the IPSIG completing any ongoing audits or investigations.
Paragraph 3 of the monitoring agreement, entitled "Independent Private Sector Inspector General," contained terms for the duration of the IPSIG. Paragraph 3(a)(ii) stated that the term of the IPSIG would expire upon the occurrence of one of four events. Two of those events were a deferral or dismissal of the criminal charges against D'Agostino. The third event occurred "[a]fter final payment by the Port Authority to Haynes and resolution of all claims of Haynes in connection with the Contract." The final terminating event had to do with the Port Authority completing pending audits or investigations.
Paragraph 7 of the monitoring agreement, entitled "Miscellaneous," provided: "The term of this Agreement, except as otherwise stated, shall be three years from the date of the execution of this Agreement by Haynes."
Roitman signed the monitoring agreement on behalf of the Port Authority. Like the Contract, the monitoring agreement contained an integration clause providing that the agreement constituted the "full agreement between the parties." The monitoring agreement contained no reference to an extension of the Contract.
Sometime in 2005, after the monitoring agreement was in place, D'Agostino retained Edward Bilinkas, Esq., and Haynes retained Vincent J. Nuzzi, Esq., to represent them in the criminal action. According to Bilinkas, he learned from D'Agostino that "the Port Authority represented approximately seventy percent . . . of Mr. D'Agostino's revenues for his company, and he was always concerned about the Port Authority and keeping the contracts with them." Bilinkas also learned from D'Agostino "that there was an extension that had been promised to Haynes Security."
During the months between his retention by D'Agostino and June 2006, Bilinkas had numerous conversations with Pasichow about the Contract extension. Bilinkas did not recall the names of any other employee of the Port Authority with whom he had any conversations. When asked at his deposition about specific conversations with Pasichow, the following exchange took place:
Q. [By Counsel] Did anybody from the Port Authority ever say in your presence or in a phone conversation that the Port Authority had promised Mr. D'Agostino on behalf of Haynes Security that he would automatically have a two-year extension of the current security contract?
A. [By Mr. Bilinkas] My discussion with Pasichow, in my discussions with Pasichow, the two-year extension was discussed and it was a given. It wasn't -- it was going to be promised. It was already written in stone, as far as I was concerned, based on my discussions with Pasichow.
Q. What did Mr. Pasichow say to you that led you to believe that it was etched in stone, as you say?
A. Just by my discussions, he never indicated that that was an issue. It was always whether or not what we were doing would have any impact on John, you know, continuing with that two-year extension. It was never, it was never -- he never made any indication to me that, you know, that wasn't resolved or that that issue had to be decided or reviewed at some point in time.
All my discussions with him and everyone from the Port Authority is that that was resolved, etched in stone and all I was trying to do as his lawyer was to make sure that nothing that I did impacted on that two-year extension.
Q. Okay. When you say etched in stone, did you ask Mr. D'Agostino if there was any writing confirming his understanding --
Q. -- of an extension?
When asked if he requested anyone from the Port Authority to put the representations about the extension in writing, Bilinkas said that Pasichow declined. Bilinkas testified:
Q. [By Counsel] Did you or anybody on behalf of the Haynes or Mr. D'Agostino ask the Port Authority to confirm in writing what you believe was etched in stone with respect to the automatic continuation of the two-year extension?
A. [By Mr. Bilinkas] No. I asked Pasichow if he can put that in writing before the meeting and Pasichow says, "I will set up a . . ." -- "We will set up a meeting with all the parties so you can be assured that what you are doing is not a problem."
And, to me, that's the whole purpose of that meeting. I mean, why -- again, I don't want to ask a question, but why would I be going to Hoboken the day before a plea meeting with the Port Authority if there was, you know, if that wasn't my only concern in that meeting.
Q. So you are saying your only concern at that meeting was that Haynes Security would receive a two-year extension from the Port Authority?
A. No. My understanding was that they had already received a two-year extension. I wanted to make sure that what I was doing would not adversely impact what had already been promised to him.
On May 1, 2006, Schorno, Reiss, Pasichow, Roitman and others met internally to discuss an inquiry Pasichow had received from D'Agostino and Bilinkas about how a recently proposed plea agreement would affect the Contract. According to internal emails between Port Authority employees, D'Agostino was contemplating pleading guilty to two fourth-degree crimes as a condition to his entry into a pre-trial intervention program, which would ultimately result in the expungement of his plea and conviction. Schorno insisted that if D'Agostino pled guilty he would have to sever any affiliation with Haynes, and suggested that D'Agostino be so informed in writing. Schorno also stated that if D'Agostino was acquitted at a trial, that would be a "totally different story than if he pleads."
Reiss was concerned about continuity of the operations that were the subject of the Contract. Those at the meeting agreed to invite D'Agostino's wife and executive team to explain why Haynes was still capable and "should be considered when renewal option comes up." In an internal email, Reiss stated that "[n]o decision was reached on whether [the] renewal option should be exercised no[w]. We discussed [the] timeline for RFP and the fifteenth floor wanted to wait to see what Haynes does next since current Haynes performance is satisfactory." In another email dated May 8, 2006, Pasichow noted that Bilinkas had contacted him, and that he, Pasichow, informed Bilinkas that the Port Authority would not want D'Agostino involved in Haynes if D'Agostino pled guilty.
The parties scheduled a meeting on June 8, 2006, the day before D'Agostino was to enter a plea in the criminal action. Bilinkas told Pasichow to "[m]ake sure everyone who has any role in the decision-making process concerning Haynes security is at the meeting."
D'Agostino and Haynes were represented at the June 8, 2006 meeting by Bilinkas and Nuzzi. The two monitors also attended the meeting. Pasichow attended the meeting along with Roitman and Larry Waxman, Procurement Contracts Manager, Purchasing Services Division. Reiss attended by phone. According to D'Agostino, when Pasichow told him that "after tomorrow you have to resign from the company, you have to get out," D'Agostino asked, "So what you're telling me is if I do this tomorrow, [plead guilty,] then the Haynes contract is going to continue and be extended[?]" According to D'Agostino, Pasichow said "Yes." D'Agostino also testified that after his conversation with Pasichow he walked over to Roitman and Waxman who were standing near a doorway and asked them, "Am I doing the right thing? Is Haynes going to keep the Contract through the extension? And they both said, yes." D'Agostino never asked about whether the extension was for 120 days or for two years.
Bilinkas said that he also asked Pasichow, "If John agrees to this, if he agrees to that, are you telling me that the Port Authority doesn't have a problem with the Contract, with the extension you know, and he said, 'yes.'" Bilinkas testified in his deposition that "[h]ad they not specifically told us that what we were planning on doing the very next day would not affect the extension, we never would have gone through with that plea."
Haynes's attorney, Nuzzi, confirmed D'Agostino's deposition testimony. According to Nuzzi, D'Agostino said he would be "out today" as long as his plea did not impact the extension. Nuzzi also testified that "someone said, 'There is no problem with the extension. You got to be out of there today.'"
The monitors, Edwin Stier and Gerard French, recalled no such conversation. Stier testified that he had no understanding that the Port Authority had given Haynes a two-year extension of the Contract, and French testified he was never present at any meeting, including the June 8, 2006 meeting, "where any Port Authority representative promised an extension of the agreement."
The Port Authority representatives also denied that any representation concerning the contract extension had been made at the June 8, 2006 meeting. In a certification submitted in support of the Port Authority's summary judgment motion, Roitman averred that the Contract had required the approval of the Board of Commissioners, that the only person who had the authority to extend the Contract was William DeCota, the late Director of Aviation, and that had the Contract been extended, the extension would have been memorialized in a letter. Roitman also averred that she did not have the authority to extend the Contract, and never suggested to D'Agostino or anyone from Haynes that she had such authority. She met with D'Agostino only once before the June 8, 2006 meeting, and neither he nor anyone else from Haynes had ever asked her whether she had the authority to exercise the option. According to Roitman, the Port Authority would have terminated the Contract had D'Agostino refused to resign. She acknowledged that during a break in the June 8 meeting, D'Agostino asked her if she thought he was doing the right thing, and she indicated that she thought he was.
On June 9, 2006, D'Agostino resigned as the president of Haynes and sold his shares in the company to his wife. He also entered a guilty plea in the criminal action and was placed into a pre-trial intervention program, which he subsequently completed, resulting in the dismissal of the charges.
In the fall of 2006, the Port Authority issued a new RFP for the unarmed, uniformed security contracts for John F. Kennedy and LaGuardia airports. Haynes submitted a proposal, but was not awarded a new contract. Consequently, when the Contract expired in January 2007, the Port Authority did not extend it. Roitman certified that only after Haynes was not awarded the new contract did his attorney protest the Port Authority's decision to issue a new RFP rather than exercise its option to extend the Contract for two years.
On November 16, 2007, Haynes and D'Agostino filed a complaint against the Port Authority alleging causes of action for breach of contract, promissory estoppel, fraud, negligent misrepresentation, and breach of the covenant of good faith and fair dealing. On May 2, 2008, after unsuccessfully moving to dismiss the complaint for failure to state a cause of action, the Port Authority filed an answer. Four months later, the Port Authority produced documents in response to plaintiffs' demand, but did not Bates stamp those documents. On September 26 and November 24, 2008, and on January 16, 2009, the Port Authority supplemented its response to plaintiffs' document demand by providing Bates stamped documents. On February 5, 2010, the Port Authority again produced documents. The documents were Bates stamped sequentially.
The Port Authority could not demonstrate that all of the sequentially numbered Bates stamped documents had previously been produced. Consequently, plaintiffs filed a motion to bar the belatedly-produced documents. On February 19, 2010, the Port Authority moved for summary judgment. On March 22, 2010, the court denied plaintiffs' motion to bar the use of documents produced after the discovery end date, and on March 26, 2010, the court granted summary judgment to defendant. This appeal followed.
Haynes and D'Agostino contend that the trial court erred when it granted the Port Authority's summary judgment motion. The summary judgment standard is set forth in Rule 4:46-2(c) and Brill v. Guardian Life Insurance Company of America, 142 N.J. 520 (1995). The motion judge must determine whether the competent evidential materials, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party. Brill, supra, 142 N.J. at 540. When reviewing an order granting summary judgment, we "'employ the same standard [of review] that governs the trial court.'" Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010) (quoting Busciglio v. DellaFave, 366 N.J. Super. 135, 139 (App. Div. 2004)). Thus, we must determine whether there was a genuine issue of material fact, and if not, whether the trial court's ruling on the law was correct. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Legal conclusions are subject to de novo review. Henry, supra, 204 N.J. at 330.
Haynes and D'Agostino first argue that the trial court erred by granting summary judgment as to their breach of contract claim because there were factual disputes about whether the Port Authority employees orally promised to extend the Contract, and whether those employees had the actual or implied authority to bind the Port Authority. Clearly, a factual dispute existed as to whether Port Authority employees Roitman, Pasichow, Paczkowski, and Waxman orally promised D'Agostino that the Contract would be extended beyond its termination date. Nevertheless, we conclude that the trial court correctly determined, as a matter of law, that those oral promises were not binding on the Port Authority, and that Haynes and D'Agostino did not reasonably rely upon them.
The Port Authority is "a public corporate instrumentality of New Jersey and New York," Bunk v. Port Auth. of N.Y. & N.J., 144 N.J. 176, 184 (1996), and a political subdivision of the State, id. at 187 (citing Brown v. Port Auth. Police Superior Officers Ass'n, 283 N.J. Super. 122, 131 (App. Div. 1995)). For that reason, the legal principles that apply to contracts entered into by public corporate bodies apply to the Port Authority and those who contract with it.
Although general principles of contract law apply to public corporate bodies, see 10 Eugene McQuillin, The Law of Municipal Corporations, § 29.2 (3rd ed. rev. 2009), particular principles circumscribe both a public corporate body's authority to contract and the authority of public employees to enter into contracts on behalf of a public corporation. It is well settled that public corporations can act only within the scope of their legislatively delegated authority, and that they "cannot be bound by an engagement which [they] had no power to make and [their] corporate powers cannot be extended by the operation of the doctrine of estoppel." Spoerl v. Twp. of Pennsauken, 14 N.J. 186, 189 (1954) (citing Hill Dredging Co. v. Ventnor City, 77 N.J. Eq. 467 (Ch. 1910)).
Governmental bodies "must act by formal action . . . with respect to contracts," City of Jersey City v. Roosevelt Stadium Marina, Inc., 210 N.J. Super. 315, 327 (App. Div. 1986), certif. denied, 110 N.J. 152 (1988), and a public corporation "'cannot be bound in contract, express or implied, unless the officer or employee has authority to enter into such a contract on behalf of the corporation.'" St. Barnabas Med. Ctr. v. Cnty. of Essex, 111 N.J. 67, 78-79 (1988) (quoting Cooper Med. Ctr. v. Johnson, 204 N.J. Super. 79, 82 (Law Div. 1985), aff'd, 208 N.J. Super. 38 (App. Div. 1986)). "The legal principle cannot be too often repeated, that a public corporation is not bound by acts of its agents coming within the apparent scope of their power and authority. Their authority to act must be explicit and direct that the corporation be bound." Giardini v. Mayor of Dover, 101 N.J.L. 444, 446 (Sup. Ct. 1925) (internal quotation marks and citation omitted). See also Bianchi v. Newark, 53 N.J. Super. 66, 75 (App. Div. 1958).
When dealing with employees of public corporations, contractors are presumed to "operate with knowledge of relevant laws constraining the procedural and substantive discretion and authority of officials with whom they deal, and where applicable provisions are not followed, any agreements entered into are unenforceable, absent lawful ratification." St. Barnabas Med. Ctr., supra, 111 N.J. at 77-78 (citations omitted). For that reason, "those seeking to deal with government employees 'must take great care to learn the nature and extent of their power and authority.'" Aeromar C. Por A. v. Port Auth. of N.Y. & N.J., 536 N.Y.S.2d 173, 176 (App. Div. 1988) (quoting McDonald v. Mayor of New York, 68 N.Y. 23, 27 (1876)).
A public contractor's attempt to enforce a contract based upon an oral promise can give rise to five classes of cases:
1. Where there was no lack of power in the corporation or its agents to make the contract but the defect was in an irregular exercise of such power. There a recovery may be had because one contracting with a public body, under such conditions, is not obliged to scrutinize, at his peril, the corporate proceedings.
2. Where the contract is within the corporate power, but entered into with unauthorized agents, and has, subsequently, been ratified and confirmed by the corporate body, or its properly authorized agents, in which case a recovery may be had.
3. Where the contract is within the corporate power but entered into through unauthorized agents and the acceptance or ratification was not by the corporate body or its duly authorized agents -- but by unauthorized agents or officers, in which event, there can be no recovery as upon a contract either expressed or implied.
4. Where the contract is not within the corporate powers there can be no ratification or acceptance, and consequently no recovery.
5. Where the contract is within the corporate power, but entered into with an unauthorized agent, and there is no ratification, there can be no recovery. [Potter v. Metuchen, 108 N.J.L. 447, 450-451 (Sup. Ct. 1931) (internal citations omitted).]
The case before us falls into the fifth category. The parties do not dispute that the Port Authority was authorized to enter into the Contract, nor do they dispute that the Port Authority could delegate to Executive Director Seymour the power to authorize the Contract. Executor Director Seymour, in turn, delegated to Director of Aviation DeCota the discretionary authority to extend the Contract for two years. That delegation is evidenced by the December 18, 2002 Memorandum of Justification that DeCota submitted to Seymour, which Seymour approved. Plaintiffs have produced no written evidence that DeCota delegated his discretionary authority to any other employee, and there is no evidence that anyone was granted explicitly the authority to orally extend the Contract. The Contract itself provided that an extension would be exercised by written notice to Haynes. In short, there is no evidence that either the Port Authority or DeCota took formal action to extend the Contract beyond the termination date.
Haynes, D'Agostino, and their representatives claim that four Port Authority employees orally promised to extend the Contract: Roitman, Pasichow, Paczkowski, and Waxman. But the authority of those employees to orally bind the corporation to an extension of the Contract was required to be explicit and direct. See Giardini, supra, 101 N.J.L. at 446. The motion record established neither of those requirements.
Further, Haynes and D'Agostino did not "take great care to learn the nature and extent of [the] power and authority" of Roitman, Pasichow, Paczkowski, and Waxman. See Aeromar C. Por A., supra, 536 N.Y.S.2d at 176. The plaintiffs never sought to review the Port Authority's records concerning the Contract, cf. Aeromar C. Por A., supra, 536 N.Y.S.2d at 176 (noting that the officials to be consulted and the procedures to be followed in the obtaining of leases are designated in the Port Authority's by-laws, instructions and delegations kept on file in the office of the secretary), and did not even ask Roitman, Pasichow, Paczkowski, and Waxman if they were authorized to orally and informally exercise the Port Authority's option to extend the Contract. Put simply, the plaintiffs made no attempt to verify the authority of the Port Authority employees to orally extend a bi-state, multi-million dollar contract that involved security measures at two major airports. Instead, they disregarded the Contract's provisions concerning written extensions of its initial four-year term, and they disregarded their obligation, imposed upon those who seek to bind public agencies to informal oral promises, to ascertain the authority of the employees. We conclude, as a matter of law, that the Port Authority was not bound by the oral promises of its employees under those
Plaintiffs argue that Roitman's authority to orally extend the initial term of the Contract can be inferred from her signing the Contract and the monitoring agreement; that Paczkowski's authority to orally extend the initial term of the Contract can be inferred from his promise; and that Pasichow's authority to orally extend the initial term of the Contract can be inferred from his drafting of the monitoring agreement, his choice of a three-year term for that agreement, his demand that Haynes implement a corruption program, his insistence that D'Agostino divest himself of any interest in Haynes, and his affirmance of D'Agostino's inquiry that the Contract would be extended if Haynes entered into the monitoring agreement.
Those arguments ignore the central question: as a matter of procedural formality, how is the Port Authority's power to enter into contracts exercised and delegated to its employees? In this instance, the power to contract was delegated through a written Memorandum of Justification. The Director of Aviation was the person with the authority to exercise the extension of the Contract. D'Agostino never asked to see any document authorizing any Port Authority employee to extend the Contract. Significantly, the Contract itself stated that the Port Authority would exercise its option to extend the Contract by notifying Haynes in writing. D'Agostino's failure to make so much as an inquiry as to the authority of Roitman, Pasichow, Paczkowski, and Waxman to orally exercise the extension of a bistate, multi-million dollar contract, when the Contract itself stated that an extension would be in writing, is, as a matter of law, insufficient to demonstrate a triable issue as to the authority of those employees.
Haynes and D'Agostino contend the Port Authority's argument that only the Director of Aviation, DeCota, was authorized to exercise the Contract option, is contradicted by the testimony of its employees, who said Schorno was the "ultimate decision-maker." But Paczkowski testified that Schorno was "reporting up to the executive director." In any event, the belief of the employees could not vest Schorno or anyone else with the authority to exercise the Contract option, and even if Schorno was the ultimate decision-maker, there is no evidence that he exercised the option to extend the Contract. To the contrary, the evidence indicates that he was in favor of terminating the Contract.
Haynes and D'Agostino next argue that "[e]ven if Andrea Roitman, John Paczkowski and Steven Pasichow did not have authority to bind the Port Authority, the [Port Authority's] second promise to grant the two-year extension on June 8, 2009, and representations made by the Assistant Inspector General in anticipation of that meeting, acted as ratifications of the prior promise to provide the extension." We disagree.
The Port Authority took no formal action with respect to the promises of their employees. There is no evidence that the Port Authority's board or Executive Director even knew about the oral promises. More significantly, the Port Authority prepared a new RFP for the services provided under the Contract, and thereafter awarded those services to another contractor.
The plaintiffs essentially suggest that employees unauthorized to make oral promises that bind a public corporate body, can ratify their initial unauthorized action by making more unauthorized promises. In light of the record, we conclude that that argument is without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Finally, Haynes and D'Agostino argue that the Port Authority waived its "lack of authority defense" by not pleading it as an affirmative defense, and by belatedly raising it in their summary judgment motion. We are unpersuaded by this argument.
Haynes and D'Agostino were aware that the Port Authority was a bi-state agency consisting of a board of commissioners.
They were also aware of the Contract's express provision that if the Port Authority were to exercise its extension options, it would so advise plaintiffs in writing at least sixty days prior to the expiration of the original term. Despite that provision, plaintiffs are attempting to recover considerable damages based on alleged oral promises made by employees who were not authorized, by resolution or other written authority, to bind the Port Authority to a contract. Under those circumstances, it would be neither inequitable nor unjust to impose upon plaintiffs the burden of proving the authority of the employees with whom they dealt. It would be inequitable and unjust to conclude that the Port Authority had waived the right to assert that the employees had no such authority.
Haynes and D'Agostino contend that they established genuinely disputed facts that should have defeated the entry of summary judgment as to their claim of promissory estoppel. In addition to Haynes accepting the monitoring agreement with its considerable expense, Haynes and D'Agostino emphasize that D'Agostino chose to accept a plea rather than try his criminal case based on the promise that the Contract would be extended for an additional two years; that the term of the monitoring agreement was three years, which extended beyond the Contract's initial termination date; and that D'Agostino's plea agreement required that Haynes use the same monitor for the same period beyond the Contract's initial termination date.
The elements of promissory estoppel are: "'1) a clear and definite promise, 2) made with the expectation that the promissee will rely upon it, 3) reasonable reliance upon the promise, 4) which results in definite and substantial detriment.'" E. Orange Bd. of Educ. v. N.J. Sch. Constr. Corp., 405 N.J. Super. 132, 148 (App. Div. 2009) (quoting LoBiondo v. O'Callaghan, 357 N.J. Super. 488, 499 (App. Div.), certif. denied, 177 N.J. 224 (2003)), certif. denied, 199 N.J. 540 (2009). For the reasons that we have previously discussed, we conclude as a matter of law that Haynes and D'Agostino could not have reasonably relied upon the promises of Roitman, Pasichow, Paczkowski, and Waxman without making so much as an inquiry as to whether they were authorized to orally extend the Contract that provided notification of extensions would be written.
Plaintiffs rely upon Johnson v. Hospital Service Plan of New Jersey, 25 N.J. 134 (1957) to support their claim that the Port Authority was estopped from denying the Contract extension based upon the representations of their employees. The facts in Johnson are significantly different from those in this case. There, the Newark City Hospital, which was owned by the municipality (the City), had entered into an agreement with the Hospital Service Plan of New Jersey (the Plan), "whereby certain fixed rates were to be paid the hospital by the Plan for the hospitalization and treatment of subscribers and eligible members of their families." Id. at 136-37. The agreement was signed on behalf of the City by the then Medical Director of the hospital. Id. at 137. Years after the agreement was executed, when a dispute arose between the City and the Plan, the City asserted that its Medical Director had not been authorized to enter into the contract with the Plan, and the contract was therefore unenforceable. Id. at 138. The Court held "that in light of the events succeeding the inauguration of the agreement the [C]ity has accepted [the agreement] by ratification and is now estopped to deny its validity." Id. at 140.
In so holding, the Court in Johnson first noted that "there was no express ratification through the adoption of an ordinance or resolution confirming the acts of the respective medical directors in making contracts with the . . . Plan." Ibid. Nevertheless, the Court held that the "doctrine of implied ratification" applied to the City because the City's conduct "manifest[ed] an intention to affirm the unauthorized act of its agent." Id. at 140-41. The Court based its holding on the City's "permit[ting] the contract with the . . . Plan to remain in effect from 1944 through 1956, although by its very terms the contract was terminable upon 60 days' notice by either party." Id. at 141. The Court explained that during that entire period "no one in the [C]ity administration other than the medical director had ever established rates for hospital care." Ibid. Significantly, the Court found that "Newark cannot contend its administrative officials were ignorant of the existence of the contract or the material facts concerning its execution and terms." Ibid.
Here, unlike Johnson, there is no evidence that either the Port Authority Board or Executive Director was aware that the employees had orally promised to extend the Contract. In fact, the employees denied they had ever made such promises. Although we accept the plaintiffs' version of those promises under the summary judgment standard, the application of that standard does not mean that knowledge of the alleged oral promises, which the employees dispute, may be imputed to the Port Authority Board or Executive Director. Further, the Port Authority did not countenance Haynes performing the Contract beyond its termination date under an oral extension. To the contrary, the Port Authority issued a RFP and contracted with another provider of security services to perform those services after the termination date of the Contract. Thus, in contrast with Johnson, here there is no factual basis for concluding that the Port Authority had accepted the oral extension by ratification and was therefore estopped to deny its validity.
Next, plaintiffs argue that the trial court erred by dismissing their claims for fraud, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing. We disagree.
To establish fraud, a plaintiff must prove: "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and 5) resulting damages." Banco Popular N. Am. v. Gandi, 184 N.J. 161, 172-73 (2005) (internal quotation marks and citations omitted). Plaintiffs argue that the Port Authority executives made misrepresentations that the Contract would be extended "at the same time they were planning on issuing an RFP" -- demonstrating the Port Authority's lack of intent to fulfill their promises. Even if those allegations could be construed as representations of a presently existing fact, and not a promised future action, plaintiffs cannot prove reasonable reliance upon the representations. This is so for the reasons we have previously explained; the Port Authority's employees were not authorized to extend the Contract, and plaintiffs made no inquiry to attempt to confirm that the employees had such authority. Under those circumstances, plaintiffs' reliance was not reasonable.
For the same reason, we affirm the trial court's summary judgment dismissal of plaintiffs' negligent misrepresentation claim. "The element of reliance is the same for fraud and negligent misrepresentation." Kaufman v. i-Stat Corp., 165 N.J. 94, 109 (2000). Plaintiffs could not have reasonably relied upon the apparent authority of Roitman, Pasichow, Paczkowski, and Waxman.
We also find unpersuasive plaintiffs' argument that the Port Authority breached the implied covenant of good faith and fair dealing. Plaintiffs argue that the Port Authority breached the implied covenant of good faith and fair dealing "by making representations and failing to extend the Contract by an additional two years."
The Supreme Court has "recently re-emphasized that 'every contract in New Jersey contains an implied covenant of good faith and fair dealing[, t]hat is, neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract[.]'" Wood v. N.J. Mfrs. Ins. Co., 206 N.J. 562, 577 (2011) (quoting Kalogeras v. 239 Broad Ave., L.L.C., 202 N.J. 349, 366 (2010)). The Port Authority did not destroy or injure the right of Haynes to receive the fruits of the Contract, and as we have previously explained, the Port Authority was not bound by the alleged unauthorized acts of its employees in orally exercising an option that the Contract required to occur in writing.
Lastly, Haynes and D'Agostino contend that the trial court erred by denying their motion to bar belatedly-produced documents. Discovery had ended on December 15, 2009. On January 8, 2010, the court entered orders compelling the deposition of Andrea Roitman to take place on February 5, requiring the Port Authority to file its summary judgment motion by March 19, and adjourning the trial to April 6.
The Port Authority produced documents on February 5, 2010. In the transmittal letter, the Port Authority's attorney wrote that she was enclosing "the Port Authority's document production . . . Bates Nos. 1 - 0003752[,]" and that "[m]any of these are duplicates of our earlier document productions, but it is unavoidable since the initial production was not Bates stamped." Haynes and D'Agostino insisted that the Memorandum of Justification that authorized the Port Authority to enter into the Contract, upon which the Port Authority based its summary judgment motion, had not been produced previously. The plaintiffs maintain that the Memorandum of Justification should not have been considered by the trial court. We disagree.
The parties did not Bates stamp and categorize documents produced and received during discovery. Because of that omission, the trial court was confronted with the dilemma of determining whether the Memorandum of Justification had in fact been produced. Generally, the consequences of a failure to catalogue documents produced or received during discovery fall upon the producing party. Here, however, where the plaintiffs were asserting an oral promise to extend a contract that stated extensions would occur by written notice, they had an obligation to ascertain the authority of the employees making those promises. Had plaintiffs done so, they would have been aware of the Memorandum of Justification well before litigation was commenced. Under those circumstances, we do not find that the trial court misapplied its discretion by refusing to bar the use of the document. See Rivers v. LSC P'ship, 378 N.J. Super. 68, 80 (App. Div.), certif. denied, 185 N.J. 296 (2005).