Greenfield Const. Co. Inc. v. Michigan Dept. of State Highways, 1

Citation402 Mich. 172,261 N.W.2d 718
Decision Date25 January 1978
Docket NumberNo. 1,1
PartiesGREENFIELD CONSTRUCTION COMPANY, INC., a Michigan Corporation, Plaintiff- Appellant, v. MICHIGAN DEPARTMENT OF STATE HIGHWAYS, Defendant-Appellee.
CourtSupreme Court of Michigan

Schmier, Fealk & Ellis, Southfield, for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Louis J. Caruso, Curtis G. Beck, Asst. Attys. Gen., Lansing, for defendant-appellee.

RYAN, Justice.

In October of 1972 Defendant, Michigan Department of State Highways, advertised for bids on the construction of sewer outlet structures which would extend 2000 feet into Lake St. Clair. Plaintiff, Greenfield Construction Company, obtained copies of the project proposal, design plans, and specifications, submitted the low bid on the project and ultimately entered into a construction contract with defendant in December, 1972.

Upon arrival at the site in March, 1973, Greenfield alleges it first discovered significant changes in the conditions at the work site from those indicated in the project proposal, design plans, and specifications. Specifically, the water level of Lake St. Clair was approximately 2 feet higher than the last elevation indicated in the project plans supplied by defendant.

Greenfield thereupon notified defendant that it considered these developments to be "changed physical conditions", as that expression is defined in the contract documents, and claimed that under the contract it was entitled to compensation in excess of the contract price.

In petitioning for extra compensation, Greenfield followed the informal procedures customarily employed in situations where there is disagreement between the Highway Department and contractors as to matters of performance or compensation. 1 Ultimately, however, the Department of State Highways, in a letter dated June 6, 1973, advised plaintiff that the Department would not award additional compensation. No record was made of the Department proceedings which culminated in the June 6 letter.

On July 17, 1973, Greenfield filed its two count complaint in the Wayne County Circuit Court. Count I alleged that the June 6 letter from the Department of State Highways was a "declaratory ruling" subject to judicial review under the Administrative Procedures Act of 1969, M.C.L.A. § 24.201 et seq.; M.S.A. § 3.560(101) et seq. Plaintiff sought a reversal of the alleged "declaratory ruling" and, in addition, a declaratory judgment that there had been a material change in conditions under the contract. Count II alleged that certain construction delays were not the fault of plaintiff and that plaintiff asserted entitlement to a declaratory judgment to that effect and for a determination that plaintiff was entitled to an extension of the contractual construction period without suffering liability for liquidated damages.

In response defendant filed a motion captioned "Motion for Accelerated or Summary Judgment." Defendant first asserted that the circuit court lacked subject matter jurisdiction because the matter complained of by plaintiff was not a "contested case" within the Administrative Procedures Act, and did not involve a "rule" within the purview of the Act. Second, defendant contended that any alleged liability or other claims or demands arising out of a contract with the State of Michigan are within the exclusive jurisdiction of the Michigan Court of Claims. Finally, defendant contended that plaintiff had failed to state a claim upon which relief could be granted.

On September 11, 1973, after a hearing, the circuit court issued an opinion holding that the 1970 Standard Specifications for Highway Construction contract provisions in dispute were not "rules" subject to review under the Administrative Procedures Act, M.C.L.A. § 24.263; M.S.A. § 3.560(163), and that consequently the court lacked subject matter jurisdiction over Greenfield's claim. Plaintiff filed a motion to stay the entry of accelerated judgment in favor of defendant.

A second hearing was held later and the court issued a second opinion, this time granting the declaratory relief requested by the contractor.

The court again found, however, that the 1970 Standard Specifications for Highway Construction were not "rules" subject to review under the Administrative Procedures Act and found, in addition, that defendant had "not taken any steps for the promulgation of rules, regulations and procedures by which to issue declaratory rulings and that therefore the decision of June 6, 1973 amounts to no more than an administrative pronouncement." However, the court held the June 6 letter to be arbitrary and capricious and a deprivation of due process. It ruled that the court of claims lacked the requisite equitable jurisdiction to grant declaratory relief. Concluding that the plaintiff had supported its contentions on the merits, however, the court issued its declaratory judgment that a change of conditions had occurred. The issue of money damages was expressly left for later determination in the court of claims.

The Court of Appeals reversed, holding that the circuit court lacked subject matter jurisdiction over the dispute. 58 Mich.App. 49, 227 N.W.2d 223 (1975). We granted leave to appeal. 394 Mich. 836 (1975).

Our resolution of the case turns upon the answers to two specific questions:

1) Is Sec. 1.04.03(c) of the 1970 Standard Specifications for Highway Construction a rule within the definition of the Administrative Procedures Act, and

2) Does the circuit court have jurisdiction in this case to issue a declaratory judgment binding upon the defendant State of Michigan.

Our answer to both questions is no.


Sec. 63 of the Administrative Procedures Act, M.C.L.A. § 24.201 et seq., M.S.A. § 3.560(101) et seq., provides narrowly circumscribed authority in the circuit court to judicially review a declaratory ruling issued by an agency of state government, and provides that such review is conducted in the same manner as an agency final decision or order in a contested case. 2

Sec. 64 of the Act confers upon the circuit court authority to issue a declaratory judgment concerning the validity or applicability of an agency rule, providing however the plaintiff has first "requested the agency for a declaratory ruling and the agency has denied the request or failed to act upon it expeditiously". 3 Greenfield claims that Sec. 1.04.03(c) of the 1970 Standard Specifications for Highway construction is a rule within the definition of the Administrative Procedures Act and that the Highway Department letter of June 6, 1973 was a declaratory ruling concerning the applicability of the claimed rule.

We disagree on both points.

A rule is defined in Sec. 7 of the Administrative Procedures act as follows:

" 'Rule' means an agency regulation, statement, standard, policy, ruling or instruction of general applicability, which implements or applies law enforced or administered by the agency, or which prescribes the organization, procedure or practice of the agency * * *." M.C.L.A. § 24.207; M.S.A. § 3.560(107).

Sec. 1.04.03(c) of the 1970 Standard Specifications for Highway Construction provides:

"Changed physical conditions. Should the contractor encounter or the engineer discover, during the progress of the work, physical conditions at the site differing materially from those shown in the contract and included documents, or unknown physical conditions of a nature differing materially from those generally recognized as work of the character provided for in the contract, the engineer will investigate the conditions. Unless the engineer finds that the work required materially changes the character of the work, the work will be paid for at the contract unit price. If the work required is of sufficient magnitude to affect the unit cost by 10% or more, an allowance will be made on such basis as is mutually agreed upon and authorized in advance of the performance of the work. If agreement cannot be reached as to the basis of payment for which the contractor deems compensation to be due him, the work shall proceed as provided under Disputed Claims for Extra Compensation, 1.05.12."

The 1970 Standard Specifications for Highway Construction are found in a bound volume of 735 pages. The specifications include definitions of terms, allocation of duties between the contractor and the state, payment terms, and hundreds of pages of highly technical and detailed information concerning construction methods and techniques, soil composition requirements, metal heat treating methods, and technical details touching almost every conceivable aspect of highway construction work for which the State of Michigan might contract. Relevant portions of the standard specifications, including Sec. 1.04.03(c), are routinely incorporated by reference in the Highway Department construction contracts not only to avoid the cumbersome necessity of reproducing the highly detailed information in every separate contract, but to enable prospective bidders upon state construction contracts to know in advance the bid requirements and construction specifications which will apply if they bid upon a state owned highway construction project.

It is undisputed that no part of the 1970 Standard Specifications for Highway Construction have ever been promulgated as agency rules within the meaning of Sec. 7 of the Administrative Procedures Act as is required by Chapter 3 of the Act, as a condition of their validity. It is likewise undisputed that the statutory steps preliminary to the adoption of agency rules, including publication of the proposed rule, and publication and transmission of notice of public hearing 4 were never undertaken with respect to Sec. 1.04.03(c) or any of the standard specifications.

We agree with the trial court and the Court of Appeals that Sec. 1.04.03(c) of the 1970 Standard Specifications for Highway Construction is not an agency rule within the meaning of Sec. 7 of the...

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