Frankenmuth Mut. Ins. Co. v. Escambia County, Fla.

• Decision Date: 24 April 2002
• Docket Number: No. 01-12976.,01-12976.
• Citation: 289 F.3d 723
• Parties: FRANKENMUTH MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, Cross-Appellant, v. ESCAMBIA COUNTY, FLORIDA, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

289 F.3d 723

FRANKENMUTH MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, Cross-Appellant, v. ESCAMBIA COUNTY, FLORIDA, Defendant-Appellant, Cross-Appellee.

No. 01-12976.

United States Court of Appeals, Eleventh Circuit.

April 24, 2002.

COPYRIGHT MATERIAL OMITTED

David G. Tucker, Pensacola, FL, for Escambia County.

J. Lofton Westmoreland, Charles Franklin Beall, Jr., Moore, Hill & Westmoreland, P.A., Pensacola, FL, for Frankenmuth Mut. Ins. Co.

Appeals from the United States District Court for the Northern District of Florida.

Before BARKETT, HULL and KRAVITCH, Circuit Judges.

BARKETT, Circuit Judge:

The Board of County Commissioners of Escambia County, Florida ("the County") appeals from a summary judgment in favor of Frankenmuth Mutual Insurance Company ("Frankenmuth"). The summary judgment order declared enforceable a computer lease-purchase agreement ("the Lease") between the County and Unisys Leasing Corporation, Frankenmuth's predecessor in interest. Frankenmuth cross-appeals the district court's denial of its motion for costs and attorneys' fees. We AFFIRM the summary judgment declaring the Lease enforceable and VACATE the denial of Frankenmuth's motion for attorneys' fees and costs.

FACTS

In 1992, the Escambia County Comptroller, Joe Flowers, signed a lease-purchase agreement with Unisys Leasing Corporation to lease a mainframe computer. In subsequent years, he added additional computer equipment and an imaging system to the Lease under a series of lease schedules. Paragraph 21 of the lease-purchase agreement contained a "non-appropriation clause," which provided that the agreement would terminate in any given year if the "legislative body or funding authority" should fail to appropriate funds to make the Lease payments.¹ Additionally, paragraph 21 contained a non-substitution clause, which provided that in the event the County refused to appropriate the requisite funds ("non-appropriation"), the County agreed not to purchase or rent any substitute computer equipment for the balance of the appropriation period and for one full period following the termination of the agreement. In a separate addendum, the agreement provided that nothing in the Lease would be construed to constitute a pledge of ad valorem taxes and that, in the event of default, the lessor had no right to compel the County to appropriate funds to make the lease payments.

Flowers made scheduled payments under the lease-purchase agreement for several years without incident, during which the computer equipment was used for a variety of municipal functions, including county payroll and central data processing services, and to service the Road, Mass Transit and Solid Waste Departments. For the years 1992, 1993, and 1994, Flowers submitted his budget requests to the County and included in the Comptroller's budget a line item for "Debt Service on Computer Equipment."² Each year the County approved in excess of $300,000.00 to cover this expenditure without any specific inquiry into the details of the lease agreement. During this period, Unisys conveyed its interest in the Lease to Chicorp Corporation, and Chicorp subsequently conveyed its interest in the Lease to Frankenmuth.

In early 1994, the County began studying the advisability of a county-wide computer network. Flowers suggested integrating the County's computer network with the Comptroller's system, and provided the County with information about the Unisys equipment, although he did not send to the County specific information regarding the terms of the Lease with Unisys. The County affirmed the decision to integrate the systems at a public meeting held on June 28, 1994.

Later in 1994, the County lost millions of dollars in bad derivative investments made by Flowers' office. Flowers was criminally indicted for various acts of malfeasance, one of which was his decision to enter into the Lease with Unisys without County approval. Flowers pled no contest and resigned from office. In 1995, the Florida legislature abolished the Escambia County Office of the Comptroller, and the Escambia County Clerk of the Circuit Court, Ernie Lee Magaha, became responsible for the constitutional duties formerly held by the Office of Comptroller. Magaha and the County reviewed the Lease and determined that the County should reject the Lease because the Unisys equipment was too old, expensive, and ineffective to serve the County's needs. Consequently, in mid-1995, the County notified Frankenmuth that it would not make its remaining Lease payments for that year and that the Lease was void and unenforceable because Flowers had not been authorized to enter into the agreement without County approval, and he had failed to secure such approval.

In September 1995, Frankenmuth brought this lawsuit seeking both a declaration that the Lease was valid and enforceable and an injunction prohibiting the County from breaching the agreement. During the discovery period, the County purchased a replacement computer system, and Frankenmuth amended its claim to seek only declaratory relief. All parties moved for summary judgment. The district court ruled in part for Frankenmuth, finding that although the non-substitution clause in the Lease was void and unenforceable under Article VII, § 12 of the Florida Constitution,³ the clause was severable, and, because the County had ratified the Lease, the contract was enforceable without the non-substitution clause.

The County appealed the district court's decision and this Court certified two questions to the Florida Supreme Court, namely: (1) whether a county board of commissioners may approve a lease-purchase agreement under Fla. Stat. ch. 125.031 absent formal resolution,⁴ and, if so, what standards guide consideration of whether such an approval has occurred; and (2) whether the non-substitution clause contained in the Lease violates Article VII, § 12 of the Florida Constitution. Frankenmuth v. Magaha, 769 So.2d 1012 (Fla. 2000). The Florida Supreme Court ruled that a county board may approve an agreement absent an express resolution, and outlined a three-part test for determining whether, under Fla. Stat. ch. 125.031, a Board has ratified an agreement after the fact ("the Frankenmuth test"). The Florida Supreme Court also ruled that the non-substitution clause violated the Florida Constitution and was therefore unenforceable.⁵

In accordance with the Florida Supreme Court's decision, this Court vacated the district court's original summary judgment in favor of Frankenmuth, and remanded the case for a determination of whether the County had ratified the agreement under the Frankenmuth test, and was therefore liable under the contract. On remand, the district court again held that the unconstitutional non-substitution clause was severable, and therefore did not invalidate the entire lease. The court concluded that the County had ratified the agreement under the Frankenmuth test and that, accordingly, the contract was enforceable against the county. The district court further held that neither Escambia nor Frankenmuth was entitled to attorneys' fees. The County now appeals, arguing that the district court erred in concluding both that the non-substitution clause was severable and that the county had ratified the lease agreement. Frankenmuth cross-appeals from the denial of its motion for attorneys' fees and costs.

The interpretation of an agreement under traditional contract principles is a question of law subject to de novo review. See Brewer v. Muscle Shoals Bd. of Educ., 790 F.2d 1515, 1519 (11th Cir.1986). We review a district court's decision interpreting a contractual attorneys' fee provision de novo. BankAtlantic v. Blythe Eastman Paine Webber, Inc., 955 F.2d 1467, 1477 (11th Cir.1992).

DISCUSSION

I. The County's Appeal

The Florida Supreme Court held that the non-substitution clause in the Lease violates the Florida Constitution. Frankenmuth, 769 So.2d at 1023. Accordingly, unless the non-substitution clause is severable, the Lease is not enforceable. The County first argues that the district court erred in concluding that the Lease's non-substitution clause is severable. The County further argues that, even if the non-substitution clause is severable, the district court erred in finding that the County ratified the Lease. We first address the severability question.

A. Whether the Lease's Non-Substitution Clause Is Severable

In determining whether a contract provision is severable, Florida courts look to the entirety of the agreement. Wilderness Country Club v. Groves, 458 So.2d 769, 771 (Fla.2d Dist.Ct.App.1984) ("[A] contract is indivisible where the entire fulfillment of the contract is contemplated by the parties as the basis of the arrangement.") (quoting Local No. 234 v. Henley & Beckwith, 66 So.2d 818 (Fla. 1953)). On review of a bilateral contract⁶ such as the one at issue here, the governing rule is that

a bilateral contract is severable where the illegal portion of the contract does not go to its essence, and where, with the illegal portion eliminated, there still remains of the contract valid legal promises on one side which are wholly supported by valid legal promises on the other.

Williston on Contracts, rev. ed., Vol. 6, § 1782; see also Vineberg v. Brunswick Corp., 391 F.2d 184, 186 (5th Cir.1968) ("[a]n illegal contract provision, or one contrary to public policy, when invalidated, will be severed from the remainder of the contract if it is possible to do so without leaving the remainder of the contract meaningless.")⁷; Wilderness, 458 So.2d at 771 (a bilateral contract is severable where the illegal provision does not go to its essence). Whether a contract is entire or divisible depends upon the intention of the parties. Ireland v. Craggs, 56 F.2d 785 (5th Cir.1932). The parties' intention is a matter that may be determined "by a fair construction of the terms and provisions of the contract itself, and by the subject matter to which it has...