49 F.3d 915 (3rd Cir. 1995), 94-5193, Linan-Faye Const. Co., Inc. v. Housing Authority of City of Camden

Docket Nº:94-5193.
Citation:49 F.3d 915
Case Date:February 13, 1995
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 915

49 F.3d 915 (3rd Cir. 1995)




No. 94-5193.

United States Court of Appeals, Third Circuit

February 13, 1995

Argued Sept. 23, 1994.

Sur Petition for Rehearing March 13, 1995.

Page 916

Cary L. Flitter (argued), Lundy, Flitter & Beldecos, Narberth, PA, for appellant Linan-Faye Const. Co., Inc.

Mark D. Caswell (argued), Freeman, Zeller & Bryant, Cherry Hill, NJ, for appellee Housing Authority of the City of Camden.

Before: BECKER, COWEN and GARTH, Circuit Judges.

Page 917


COWEN, Circuit Judge.

Linan-Faye Construction Company Co., Inc. ("Linan-Faye"), a public housing contractor, appeals from orders of the district court that granted summary judgment for the Housing Authority of the City of Camden ("HACC") on Linan-Faye's claims under public contract law and 42 U.S.C. Sec. 1983. Because the district court erred in applying federal common law rather than state law to resolve this dispute, we will reverse and remand to the district court for further proceedings. Nevertheless, since we conclude that in the absence of New Jersey law which specifically interprets "termination for convenience" clauses New Jersey courts would look to federal common law for guidance, we will limit the triable issues on remand to a determination of: (1) the definition of "work performed" for purposes of paragraph 17 of Linan-Faye's contract with HACC; (2) the pre-termination expenses incurred by Linan-Faye that may be compensable as "work performed" under paragraph 17 of the contract; and (3) HACC's liability, if any, for damages resulting from HACC's withholding of Linan-Faye's performance bond after termination. Finally, because the district court did not err in determining that Linan-Faye failed to demonstrate a protectible property or liberty interest sufficient to support its Sec. 1983 claim, we will affirm the district court's grant of summary judgment on this claim.


On August 11, 1988, HACC advertised for bids on a housing modernization project. The project involved the renovation and rehabilitation of 244 housing units and was to be funded in substantial part by a grant from the United States Department of Housing and Urban Development pursuant to the Public and Indian Housing Comprehensive Improvement Assistance Program ("CIAP"). Plaintiff, Linan-Faye, attended all required pre-bid meetings and submitted a bid of $4,264,000, together with supporting documentation which included a bid bond, performance bond, qualification statement, and required affidavits. Linan-Faye was the lowest responsible bidder for the job, underbidding its nearest competitor by $600,000. Accordingly, HACC informed Linan-Faye that the contract was to be forthcoming.

Linan-Faye engaged in preparatory activities in connection with the contract, including meeting with prospective subcontractors, job planning and pricing, talking with relevant inspectors, and securing insurance. Also, on several occasions, representatives of Linan-Faye met with HACC and its architect to discuss specifications and make preparations for the commencement of physical construction. Linan-Faye, however, never began physical construction because numerous disputes broke out between the parties over interpretation of the specifications.

Linan-Faye contends that HACC demanded concessions before permitting work to begin. HACC maintains that the parties arrived at different interpretations of the project plans and specifications, and this conflict became evident at pre-construction meetings. On November 29, 1988, as the result of these disputes, HACC advised Linan-Faye that it was going to rebid the project. Linan-Faye filed suit to enjoin this rebidding and allow it to complete the project as bid.

The district court entered a temporary restraining order to prevent HACC from accepting further bids. Subsequently, the court approved a Stipulation of Settlement and Order of Dismissal with Prejudice, under which the parties agreed to execute the contract and proceed with the project as originally planned. Nevertheless, disputes soon broke out again.

On November 22, 1989, HACC issued a Notice to Proceed. Linan-Faye contends that the notice was limited to an order to correct certain plumbing problems that were a portion of the original contract. Linan-Faye refused to proceed in a piecemeal fashion, and insisted that it would not begin work until a certain number of vacant buildings were available at the same time so that it could achieve economies of scale. HACC responded that it had scattered vacant units available, but not rows of units.

Page 918

Subsequently, HACC attempted first to extract the plumbing segment from the contract and, when that failed, proposed a complete buy-out of Linan-Faye's contract. The parties entertained the possibility of a buy-out until July of 1990, at which time HUD informed HACC that it would not approve a buy-out. HACC reinstated the previous Notice to Proceed by letter dated July 23, 1990.

At a preconstruction meeting on September 6, 1990, Linan-Faye informed HACC that it would not start work until the contract price was increased to reflect the costs incurred by the delay in commencing construction. HACC responded that Linan-Faye had to begin work before it would address the issue of the price increase.

HACC elected to terminate Linan-Faye's contract by letter dated September 25, 1990. In that letter, Gregory Kern, the Interim Executive Director of HACC, stated that HACC would instruct the Modernization Office to assist Linan-Faye in reclaiming its performance bond. While the letter did not mention the terms "breach" or "default," it did state that Linan-Faye "had continually failed to demonstrate its intent to perform under the public contract." Letter from Kern to Norman Faye (September 25, 1990); App.Vol. I at 114-115. HACC confirmed its decision to terminate by letter dated October 23, 1990.

Linan-Faye objected to the termination and filed the instant action on October 26, 1990, setting forth theories of recovery under New Jersey public contracts law and 42 U.S.C. Sec. 1983. Linan-Faye served HACC with a complaint in December of 1990 seeking specific performance and damages. HACC did not surrender Linan-Faye's performance bond until July of 1991, after the district court determined that specific performance was not available to Linan-Faye.

In April of 1992, HACC filed a motion for summary judgment on Linan-Faye's civil rights claim and for the first time argued, in that same motion, that the "termination for convenience" clause set forth in paragraph 17 of the General Conditions of their contract limited Linan-Faye's damages under the contract. 1 The district court granted HACC's motion for summary judgment on the Sec. 1983 claim, but deferred decision on the effect of the termination of convenience clause pending further discovery.

Upon a renewed motion for summary judgment, the district court held for HACC, determining that Linan-Faye's damages would be limited to those compensable under the contract's termination for convenience clause. The district court left open, however, the possibility of recovery for damages accruing from HACC's initial failure to identify specifically the termination as one of convenience.

HACC filed its third motion for summary judgment on October 27, 1993. In that motion, HACC contended that since Linan-Faye never began work under the contract, it could not recover any damages under the termination for convenience clause. Linan-Faye responded that it could recover damages for: (1) preparatory costs such as soliciting subcontractors, pricing, and pre-construction meetings; (2) improper notice of termination; (3) pre-termination delay by HACC; and (4) HACC's refusal to relinquish Linan-Faye's performance bond. Determining

Page 919

that federal common law applied in interpreting this contract, the district court held that Linan-Faye incurred no compensable damages under the termination for convenience clause. The court, therefore, entered an order granting summary judgment for HACC. This appeal followed.

Following oral argument before this Court, HACC and Linan-Faye agreed to participate in non-binding mediation of the controversy before the Honorable Max Rosenn, Senior Circuit Judge. By memorandum dated November 9, 1994, Judge Rosenn informed us that efforts to reach a settlement of the controversy through mediation were unsuccessful.


The district court exercised jurisdiction in this matter by virtue of the diversity of citizenship of the parties with the requisite amount in controversy pursuant to 28 U.S.C. Sec. 1332 (1988). This Court has jurisdiction pursuant to 28 U.S.C. Sec. 1291 (1988). Linan-Faye essentially raises six issues on appeal: 2 (1) whether the district court erred in applying federal common law and not the law of New Jersey to interpret this contract; (2) whether New Jersey law precludes retroactive application of a termination for convenience clause; (3) whether the district court was correct in its application of the constructive termination for convenience doctrine; (4) whether the district court erred by engaging in impermissible fact finding so as to deny Linan-Faye all compensation; (5) whether Linan-Faye has an actionable claim for violation of its civil rights; and (6) whether HACC's position that the termination for convenience clause denies any recovery is barred by principles of equitable and judicial estoppel.


Linan-Faye contends that the district court erred in applying federal common law and not the law of New Jersey to resolve this...

To continue reading