Com., Dept. of Public Welfare v. UEC, Inc.

• Decision Date: 24 January 1979
• Citation: 397 A.2d 779,483 Pa. 503
• Parties: COMMONWEALTH of Pennsylvania, DEPARTMENT OF PUBLIC WELFARE, Appellee, v. UEC, INC., Appellant.
• Court: Pennsylvania Supreme Court

Page 779

397 A.2d 779

483 Pa. 503

COMMONWEALTH of Pennsylvania, DEPARTMENT OF PUBLIC WELFARE, Appellee, v. UEC, INC., Appellant.

Supreme Court of Pennsylvania.

Argued Nov. 14, 1978.

Decided Jan. 24, 1979.

[483 Pa. 507] Ronald M. Katzman, Harrisburg, for appellant.

Allen C. Warshaw, Deputy Atty. Gen., Dept. of Justice, Harrisburg, for appellee.

Before EAGEN, C. J., and ROBERTS, NIX, MANDERINO and LARSEN, JJ.

OPINION

LARSEN, Justice.

On May 2, 1973, appellants, UEC, Inc. (Universal Education Corporation, Inc., hereinafter "UEC") filed with the Board of Arbitration of Claims (the Board) a complaint against the Commonwealth, Department of Public Welfare (DPW), appellee, seeking damages for breach of certain written and oral contracts. DPW filed preliminary objections to the complaint, which objections were dismissed by the Board. DPW appealed the dismissal of their preliminary objections to Commonwealth Court which reversed the Board, sustained DPW's preliminary objections and dismissed UEC's complaint. Commonwealth, Dep't. of Pub. Welfare v. UEC, Inc., 19 Pa.Cmwlth. 461, 338 A.2d 730 (1975). This appeal followed.

In deciding the efficacy of DPW's preliminary objections and the correctness of the decisions of the tribunals below, we must accept as true all well-pleaded material facts set forth in UEC's complaint, as well as all inferences reasonably arising therefrom. Reardon v. Wilbur, 441 Pa. 551, 272 A.2d 888, 889 (1971). We, therefore, set forth the relevant facts of the case as pleaded in the complaint.

UEC entered into a written contract with the Commonwealth of Pennsylvania on June 15, 1970 whereby UEC was to receive compensation of approximately $4,000,000 for providing program design and development, staff training and management for a system of model day-care centers. The term of the contract was from June 15, 1970 to June 14, 1971 and thereafter from year to year subject to cancellation by either party on sixty days written notice. On April 14, 1971, the Commonwealth sent a telegram to UEC announcing the cancellation of the contract. Shortly thereafter, high officials of the Commonwealth, namely Governor Milton Shapp, Attorney General J. Shane Creamer and DPW General Counsel Marx S. Leopold, informed UEC that, notwithstanding the telegram of April 14th, negotiations to extend the contract were reopened. During the negotiations on contract extension, UEC agreed to maintain its operations at a reduced level in order to avoid new start-up costs should the contract be renewed. Operations continued until October 14, 1971, at which time the Commonwealth informed UEC, for the first time since its telegram of April 14th, that the contract would not be renewed. UEC immediately terminated operations under the contract.

From October 14, 1971 until February 15, 1973, the Commonwealth, through its agents and officers including (according to the complaint) the Governor, the Secretary of Public Welfare, Helen Wolgemuth and the DPW General Counsel Leopold, continued on numerous occasions to give assurances of its intention to pay UEC the balance due under the contract. At some point during this period, however, a dispute arose as to the exact amount of compensation remaining to be paid (some $1,130,000 of the total amount had been paid). Thereafter, on or about January 18, 1972, Secretary Wolgemuth and General Counsel Leopold orally agreed with UEC that the Commonwealth would pay, and UEC would accept in compromise and settlement, an amount to be determined through an audit conducted by the United States Department of Health, Education and Welfare (HEW). ¹ HEW was to calculate the amount owed to UEC on a quantum meruit basis, i. e., the reasonable value of the services performed.

Pursuant to this oral agreement of January 18, 1972, the Commonwealth per Secretary Wolgemuth requested HEW to conduct the audit. HEW conducted the audit during the period from March 21, 1972 to November 22, 1972, and concluded that the total value of the services performed by UEC was an amount in excess of $2,500,000. The Commonwealth was informed of the results of the audit in November, 1972 but, despite the continued assurances that the Commonwealth intended to pay the balance owed UEC, refused to compensate UEC in accordance with either the written contract or the oral agreement of January 18, 1972. At no time has the Commonwealth suggested that UEC did not perform its services in accordance with the terms of the contract nor has it suggested that UEC has breached the contract in any manner that might relieve it (the Commonwealth) from its obligation to compensate UEC.

On the facts as recited, UEC alleged two causes of action in its complaint which it filed on May 2, 1973 with the Board. The first asked for enforcement of the contract price and for consequential damages caused by impairment of UEC's cash flow, damage to its business reputation and deprivation of the opportunity to obtain similar contracts with other states. The second cause of action sought enforcement of the oral compromise and settlement agreement. The Commonwealth Court sustained DPW's preliminary objections reasoning that the first cause of action was barred because the action was not brought within six months of the accrual of the cause of action (which they calculated to be October 14, 1971), as required by statute for claims brought against the Commonwealth. Act of May 20, 1937, P.L. 728, No. 193, As amended, 72 P.S. § 4651-6, As amended (1968). ² The second cause of action was also, according to Commonwealth Court, barred by statute, the Administrative Code of 1929, Act of April 9, 1929, P.L. 177 § 512, As amended, 71 P.S. § 192, As amended (Supp.1978-79), ³ which statute was construed by the Commonwealth Court to preclude DPW from entering into a "compromise and settlement agreement" with UEC without first referring the matter to the Department of Justice. Having failed to so refer the case, the court held that DPW was without authority to bind the Commonwealth to the oral agreement and, therefore, UEC could not enforce said agreement. We disagree with Commonwealth Court as to both causes of action.

Initially, appellants assert that the Commonwealth Court was without jurisdiction to hear the appeal because appeals are allowed only from actions of the Board either dismissing the claim or making an award, See 72 P.S. § 4651-8(b), and that, therefore, the order of Commonwealth Court should be vacated. Appellant's argument ignores the distinction between appeals as of right and discretionary appeals. While it is true that appeals As of right may only be taken from the two Board actions mentioned above, 72 P.S. § 4651-8(b) imposes no prohibition against the utilization of the discretionary appeal process. This was the procedure used in the instant case. The Board certified their interlocutory order dismissing DPW's preliminary objections as involving a controlling question of law as to which there is a substantial ground for difference of opinion and that an immediate appeal would materially advance the ultimate determination of the litigation. The certification thus complies with section 501(b) of the Appellate Court Jurisdiction Act of 1970, 17 P.S. § 211.501(b) (Supp.1978-79) regarding discretionary appeals from interlocutory orders, and the Commonwealth Court acted well within the bounds of their discretionary authority to hear the appeal. ⁴

Proceeding to the merits, therefore, we find that the Commonwealth Court erred in dismissing the claim as untimely filed because of failure to file within six months of the accrual of the cause of action. ⁵ The error lies in the failure to consider the doctrine of estoppel as preventing the Commonwealth from asserting the six-month limitation on claims as a defense to its obligations under the contract.

There are certain well settled legal principles applicable to the case at bar.

(I)f through fraud or concealment the defendant causes the plaintiff to relax his vigilance or deviate from his right of inquiry, the defendant is estopped from invoking the bar of limitation of action. (citations omitted) The burden of proving the existence of such fraud or concealment is upon the asserting party by evidence that is clear, precise and convincing. (citations omitted) It is also well established that mere negotiations toward an amicable settlement afford no basis for an estoppel, nor do mistakes, misunderstandings or lack of knowledge in themselves toll the running of the statute . . . (citations omitted). " Nesbitt v. Erie Coach Co., 416 Pa. 89, 92-93, 204 A.2d 473, 475 (1964); Walters v. Ditzler, 424 Pa. 445, 449-450, 227 A.2d 833, 835 (1967).

We have further stated that the "fraud or concealment" necessary to establish a case for application of estoppel principles to prevent a defendant from asserting a statute of limitations does not mean fraud or concealment in "the strictest sense encompassing an intent to deceive, but rather fraud in the broadest sense which includes an unintentional deception . . . (citation omitted). It is not the intention of the party estopped but the natural effect upon the other party which gives vitality to an estoppel." Nesbitt v. Erie Coach Co., supra 416 Pa. at 96, 204 A.2d at 476-77; Walters v. Ditzler, supra, 424 Pa. at 449, 227 A.2d at 835.

The facts pleaded in UEC's complaint are clearly sufficient to demonstrate the propriety of applying estoppel to prevent the Commonwealth from asserting the bar of the six-month limitation of 72 P.S. § 4651-6. High Commonwealth officials, including the Secretary of DPW and its General Counsel, repeatedly gave UEC their assurances that the Commonwealth would compensate them (UEC) under the contract. In fact, they made partial payment and merely questioned the remainder owed. At no point has the Commonwealth ever denied liability for the debt owed UEC. Quite the contrary, the conduct of Commonwealth officials during the period from ...