Bozied v. City of Brookings, No. 21299

Decision Date26 December 2001
Docket Number No. 21313., No. 21299
Citation638 N.W.2d 264,2001 SD 150
PartiesThomas BOZIED, Plaintiff and Appellee, v. CITY OF BROOKINGS, South Dakota, a Municipal Corporation, Defendant and Appellant, and Mills Construction, Inc., a South Dakota Corporation, Intervenor and Appellant.
CourtSouth Dakota Supreme Court

Terry D. Wieczorek, Brookings, Attorney for plaintiff and appellee.

Sandra Hoglund of Davenport, Evans, Hurwitz & Smith, Sioux Falls, Attorneys for defendant and appellant.

William G. Taylor and James E. Moore of Woods, Fuller, Shultz & Smith, Sioux Falls, Attorneys for intervenor and appellant.

Mark Barnett, Attorney General, Jeffrey P. Hallem, Assistant Attorney General, Pierre, Attorneys for amicus curiae state.

KONENKAMP, Justice (on reassignment).

[¶ 1.] This is a taxpayer challenge to the legality of certain change orders executed by the City of Brookings on its Agri-Plex project. The circuit court granted summary judgment to the taxpayer, ruling that the change orders were void for violating statutory competitive bidding requirements. The court ordered the contractor to refund all amounts paid on the invalid change orders, resulting in a forfeiture of $548,001. We conclude that whether the change orders were void depends on whether they were "necessitated by circumstances not reasonably foreseeable at the time the underlying contract was let" and were "necessary to the completion of the project" under SDCL 5-18-18.3. These are questions of fact. Despite pleas to reexamine our longstanding rule, we adhere to the principle that equitable remedies and defenses are unavailable when public contracts are declared void. However, if the change orders are found to violate SDCL 5-18-18.3, we hold that in the absence of fraud, collusion, or undue influence, consistent with the precept that parties to a void contract must be left where they are found, the contractor may still retain those funds previously received on the two change orders. We affirm in part, reverse in part, and remand for trial.

A. Background

[¶ 2.] In August 1997, the City of Brookings devised plans to build the Brookings Agri-Plex. It was to consist of an exhibition structure with an attached building for county offices and a separate agricultural research building. To fulfill this plan, business leaders and community officials formed various project committees. John Mills, owner of Mills Construction, Inc., chaired the designing and planning committee. This committee was responsible for estimating the approximate cost of the project and developing a project package to fit within the proposed budget. Brookings then advertised for bids.

[¶ 3.] Several bids were submitted, including one from Mills Construction. John Mills resigned from the planning committee when his company submitted its bid. As the Mills bid was $635,000 lower than the next lowest bid, Brookings awarded Mills the construction contract in September 1997. The contract called for the south parking lot to be graveled. For the research building, only 5,000 square feet would be finished. The contract called for no other improvements to the remaining 25,000 square feet. Project planners were actively searching for long-term tenants and anticipated that interior improvements would eventually be needed to accommodate these tenants. Planners also expected that the south parking lot would be paved when funds became available.

[¶ 4.] After the contract was awarded and the construction began, Brookings issued a series of twelve change orders. Change order # 1, dated October 22, 1997, stated, "YOU ARE DIRECTED TO MAKE THE FOLLOWING CHANGES IN THE CONTRACT." Issued by the architect, it instructed Mills to pave the south parking lot at an increased cost of $107,000.1 The other change order in question here, # 12, was issued on July 17, 1998. This one directed $441,000 of tenant improvements for the unfinished section of the research building because Brookings had secured two tenants for the building. Neither change was advertised for bid. Mills and Brookings signed the change order forms, agreeing to the contract changes.

[¶ 5.] Both John Mills and his project manager, Scott Lardy, inquired about the propriety of accomplishing these improvements by change order. City attorney Alan Glover, whose law partner, Eric Rasmussen, represented Mills, opined that a negotiated change order, without public bidding, was permissible since the changes were precipitated by unforeseen circumstances necessary to the completion of the project. In a later affidavit, Lardy stated that Mills Construction relied on Glover's opinion. John Mills also wrote the Agri-Plex Board inquiring whether the tenant improvements would be accomplished "by [c]hange [o]rder, by separately negotiated contract, or separate bid." Bozied, a taxpayer and local businessperson, publicly questioned the legality of the last change order because it had not been submitted for public bidding.

[¶ 6.] In an audit report dated October 16, 1998, the State Auditor concluded that the change orders were unlawful. Bozied then sought to enjoin Brookings from paying Mills until a judicial determination regarding the legality of the change orders could be obtained. In response, the City adopted Ordinance 25-98, allowing Brookings to proceed even if the change orders were later judicially declared unlawful and void under SDCL 5-18-19. Noting that most of the contract money had already been expended, the circuit court denied Bozied's motion for a preliminary injunction in a letter decision dated December 23, 1998. The parties then moved for summary judgment. Following a hearing, the court granted summary judgment to Bozied.

[¶ 7.] The court ruled as a matter of law that the major portion of change order # 1 and all of change order # 12 violated SDCL ch. 5-18. It also concluded that Brookings City Ordinance 25-98 was invalid, as a violation of the South Dakota Constitution and established law. The court held that the defense of equitable estoppel was unavailable to Mills and ordered the company to refund amounts paid under the two unlawful change orders. Lastly, the court awarded Bozied $21,018.64 in attorney fees and expenses. Mills and Brookings appeal.

B. Summary Judgment Standard

[¶ 8.] Under our familiar standard for reviewing summary judgments, we decide only whether genuine issues of material fact existed and whether the law was correctly applied. Harms v. Northland Ford Dealers, 1999 SD 143, ¶ 8, 602 N.W.2d 58, 61. Summary judgment is not the proper method to dispose of factual questions. Harn v. Continental Lumber Co., 506 N.W.2d 91, 94 (S.D.1993). Only when fact questions are undisputed will issues become questions of law for the court. Id. We will affirm the trial court's decision if we find any legal basis to support it. De Smet Ins. Co. of South Dakota v. Gibson, 1996 SD 102, ¶ 5, 552 N.W.2d 98, 99; SDCL 15-6-56(c). Statutory and contract interpretation are questions of law reviewed de novo. State Farm Mut. Auto. Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D.1994). The existence of a legal duty is also a question of law. Poelstra v. Basin Elec. Power Coop., 1996 SD 36, ¶ 9, 545 N.W.2d 823, 825.

C. City Ordinance—Home Rule

[¶ 9.] After Bozied sought to enjoin work on the change orders, the Brookings City Council passed Ordinance 25-98. In relevant part, the ordinance provides:

A. That in the event a contract, or any part thereof, is declared void pursuant to the provisions of SDCL 5-18-19 in a court of competent jurisdiction and there is no finding of fraud, corruption, collusion, or graft on the part of the contracting parties, then payment under said contract shall be made in the following manner, to-wit
1. If the terms of the contract were otherwise complied with, then the amount originally agreed to be paid shall be paid so long as it is deemed to be reasonable under the circumstances, and the City has received fair value for the services rendered.
2. In the event the conditions described in paragraph 1 above are not established, then the amount paid shall be derived on the equitable basis of quantum meruit.
3. In the event there is found to be fraud, collusion, corruption or graft, on the part of the contracting parties, in addition to any other civil or criminal penalties, no payments shall be made to the contractor and any payments previously made shall be recouped from the contractor.
B. The remedies set forth herein shall not be applicable if an action for preliminary and permanent injunction is initiated in a court of competent jurisdiction, seeking to enjoin performance of the alleged unlawful contract within ten (10) days following publication of the City's approval of said contract.

[¶ 10.] This ordinance, in sum, allows the City to honor void contracts, overriding SDCL 5-18-19. The City believes it is empowered to enact such an ordinance because it holds a home rule charter, authorized by the South Dakota Constitution in Article IX § 2. This provision states in part:

A chartered governmental unit may exercise any legislative power or perform any function not denied by its charter, the Constitution or the general laws of the state. The charter may provide for any form of executive, legislative and administrative structure which shall be of superior authority to statute, provided that the legislative body so established be chosen by popular election and that the administrative proceedings be subject to judicial review.
Powers and functions of home rule units shall be construed liberally.

[¶ 11.] Although the power granted to home rule cities may be great, it is not absolute. The South Dakota Legislature limited home rule powers when it enacted SDCL 6-12-5:

Neither charter nor ordinances adopted thereunder may set standards and requirements which are lower or less stringent than those imposed by state law, but they may

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