Elsag Bailey, Inc. v. City of Detroit, Mich.
| Decision Date | 29 August 1997 |
| Docket Number | No. 96-CV-70623.,96-CV-70623. |
| Citation | 975 F.Supp. 993 |
| Parties | ELSAG BAILEY, INC. d/b/a Bailey Controls Co., Plaintiff, v. CITY OF DETROIT, MICHIGAN, Thomas J. DeRiemaker, and Westin Engineering, Inc., Defendants. and CITY OF DETROIT, MICHIGAN, Third-Party Plaintiff/Counter-Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, a foreign corporation, Third-Party Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Jeffrey G. Heuer, Jaffe, Raitt, Heuer & Weiss, Detroit, MI, Steven G. Feirson, Aaron C.F. Finkbiner, III, Dechert, Price & Rhoads, Philadelphia, PA, for Plaintiff.
Thomas M. Keranen, Walter J. Federlein, Peter J. Cavanaugh, Federlein & Keranen, P.C., Bloomfield Hills, MI, for Defendant City of Detroit/DeRiemaker.
Michael L. Harrison, Harrison & Kaylor, San Jose, CA (Kevin J. Gleeson, Thomas L. Auth, Jr., Sullivan, Ward & Bone, Southfield, MI, of counsel), for Defendant Westin.
When this suit was filed on February 9, 1996, the complaint raised issues only of breach of contract and common law tort liability. On December 30, 1996, plaintiff Elsag Bailey, Inc. (Bailey) sought and later obtained permission to file an amended complaint. It was in this amended complaint that Bailey, for the first time, raised due process issues.
In conferences with counsel, it became clear that when both the complaint and amended complaint were analyzed, three issues predominated: (1) the defense of immunity raised by the City of Detroit (City) to the common law tort claims; (2) the issues relating to the alleged deprivations of due process; and (3) the issues involved in the breach of contract claims.
It seemed to me that the posture of this case, as these issues surfaced, required the use of Fed.R.Civ.P.42(b). It provides:
The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim, cross-claim, counterclaim, or third-party claim, or of any separate issue of any number of claims, cross-claims, counterclaims, third-party claims, or issues, always preserving inviolate the right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States.
I utilized this approach in dealing with Bailey's common law tort claims in its complaint, countered by the defendants' motion to dismiss those claims on statutory immunity (See my Opinion and Order dated June 17, 1997).
In like fashion, I then directed that the parties consider with me Bailey's assertion of due process duties imposed on defendant City of Detroit as raised in Bailey's amended complaint. I clarified for the parties how these issues could be addressed under Rule 42(b). Bailey expressed an understandable concern; and that is that, contending as it did that these due process rights had factual content, i.e., there were issues of fact that precluded the use of Rule 42(b)'s purposes. This contention is without merit; in an exploration of the issues, I would only decide the legal issues and would reserve factual issues, if any, for jury trial.
Counsel for both parties seem somewhat mystified by the use of Rule 42. They view the proceedings akin to motion practice.
This issue has been fully tried. Testimony through depositions and numerous exhibits was received. Argument, almost excessive at times, was followed by hearings and the filling of multiple briefs.
Bailey's counsel has argued throughout that the due process issues should be submitted to a jury. But, I conclude that the issue is a legal issue and that a jury trial is not required. Accordingly, the opinion that follows are my findings and conclusions to a matter fully tried.
Bailey's chief contention is that because the City, as a governmental agency acting under color of state law, entered into a contract with it, that relationship imposed duties on the City to afford Bailey due process in a pre-termination hearing before it declared Bailey to be in default of its contract, PC-665. For Bailey to clinch its point, it had to demonstrate that it had a protectable property or a liberty interest that required due process and, thus, an action under Title 42 U.S.C. Section 1983.
We have here a commercial contract entered into by a governmental unit and a contractor. While it might be argued that absent the contractual provisions hereinafter referred to there might be a right to due process, any claim that such right exists in this case is derived from the contract. Several sections in the contract are noteworthy.
Section 3.4.2 of the General Conditions provides:
Before the Owner shall exercise its right to declare the Contractor in default by reasons of conditions set forth in Article 3.4.1 above, the Engineer will provide the Contractor and Surety written notice of the Owner's intent and the ground or grounds thereof and designate a mutually agreeable [time] at which the Contractor will be given an opportunity to be heard before the Board of Water Commissioners.
Section 3.4.10 of the General Conditions provides:
After notice of the termination of the Contractor's right to proceed, if it is determined for any reason that the Contractor was not in default or that the delay was excusable, the rights, obligations and relationships of the Owner and Contractor shall be the same as if the notice of termination had been issued pursuant to Article 14.1.
Section 14.1 of the General Conditions provides in pertinent part:
In addition to the other conditions, provisions and terms provided in the Contract Documents, the owner shall have the right to terminate, for convenience, the performance of Work and the Contract, in whole or in part, whenever the Owner shall determine that such termination is in the best interests of the City of Detroit. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying the extent to which performance of Work under the Contract is terminated, and the date upon which such termination becomes effective.
As detailed in my June 17, 1997 Opinion and Order, the present dispute arises out of the negotiation, performance and alleged breach of a contract, PC-665, between Bailey and the City. Bailey filed its original complaint on February 9, 1996, alleging various common law tort and contract claims. Ten months later, it moved to amend its complaint to state due process claims. On March 26, 1997, I granted it leave to amend its complaint to allege claims under 42 U.S.C. Section 1983.
Bailey's alleged Section 1983 factual claims begin with a scheme on the part of defendant Westin Engineering, Inc. (Westin) and the Detroit Water and Sewerage Department (DWSD) to blame Bailey for Westin's shoddy workmanship on another contract related to Contract PC-665. According to Bailey, Westin had well-placed friends within the DWSD who were willing to misrepresent the quality of Westin's work. Bailey claims that Westin and the City concocted misrepresentations to induce Bailey into contract PC-665 at a much cheaper price.
Bailey's Section 1983 claims are not limited to the actions of defendants occurring during the negotiation of PC-665. It asserts that the Project Engineer for PC-665, Thomas DeRiemaker (DeRiemaker), furthered the conspiracy between Westin and DWSD by unjustly refusing to approve change orders that Bailey requested. The City responds that DeRiemaker's refusal to approve change orders was based on a legitimate dispute over the interpretation of terms in the contract.
According to the City, the differing interpretations were fully "ventilated" by the parties in a series of letters written in the spring and summer of 1995 and again during settlement talks in the fall of 1995.
Bailey takes a dark view of the letters it received during this period. It says that the letters it received from DeRiemaker and DWSD Director, Stephen Gorden (Gorden), evidence the City's longstanding desire to declare Bailey in default and to relet the contract we now know as PC-665 to another entity.
DeRiemaker appears to have written the first letter. On May 25, 1995, he outlined DWSD's "serious concerns" about Bailey's performance on PC-665. He warned that if five specific concerns were not addressed "the result could be a default by Bailey Controls Company."
Bailey's Chief Operating Officer, Gabriel Rosica (Rosica), responded to Gorden and the Board of Water Commissioners (the Board) on June 23, 1995. He set forth what Bailey believed to be "the open issues relating to" PC-665 and Bailey's "serious concerns as to the City's interpretation of" it.
Another letter from Gorden followed on July 10, 1995 informing Bailey that, although DWSD was "prepared to have [the June 23, 1995] communication addressed by the Board as presented," PC-665's claims process required that submission of claims be first presented to DeRiemaker as a condition precedent to Board action. Gorden expressed his opinion that the failure to follow the proper procedures made it "doubtful" that the Board would take "meaningful action" on Bailey's letter at that time. The letter went on, however, to invite further discussion of the "open issues" under the contract. Gorden, in fact, suggested that DWSD executives would attend such a meeting.
Gorden followed his July 10, 1995 letter with another letter on July 21, 1995 which expressed the view that "the Commissioners, although laypeople [sic], are nevertheless an intelligent group of professionals that have grown cynical, over time, when confronted by a contractor's pleas for equitable treatment." The letter discussed Gorden's concerns about PC-665's potential "demise." The letter again offered Bailey the chance to meet with Gorden to discuss "alternatives." Gorden said that he would "gladly clear [his] calendar for such a meeting and make the appropriate people available."
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