Lobolito, Inc. v. North Pocono Sch. Dist.

• Decision Date: 31 December 1998
• Parties: LOBOLITO, INC., Appellant, v. NORTH POCONO SCHOOL DISTRICT.
• Court: Pennsylvania Commonwealth Court

722 A.2d 249

LOBOLITO, INC., Appellant, v. NORTH POCONO SCHOOL DISTRICT.

Commonwealth Court of Pennsylvania.

Argued December 8, 1998.

Decided December 31, 1998.

Guy P. Beneventano, Harrisburg, for appellant.

William J. Rinaldi, Scranton, for appellee.

Before McGINLEY, J., LEADBETTER, J., and NARICK, Senior Judge.

LEADBETTER, Judge.

Lobolito, Inc. appeals from an order of the Court of Common Pleas of Wayne County (trial court), which sustained the preliminary objections of North Pocono School District (District)¹ and dismissed Lobolito's breach of contract action with prejudice.

Lobolito is the owner and developer of a tract of land in Wayne County. On May 15, 1991, the District and Lobolito entered into a Joint Development Agreement (JDA), which provided that Lobolito would develop its land and construct a sewage treatment plant (plant) and that the District would build a new elementary school and utilize the plant constructed by Lobolito. The JDA also provided that either party could terminate the agreement at any time prior to commencement of construction of the plant. In September 1993, Lobolito applied to the then Department of Environmental Resources for an NPDES permit. On December 7, 1994, the School District and Lobolito entered into a Memorandum of Agreement (Agreement) reflecting, inter alia, changes in the location of the proposed plant and financing arrangements between the parties. The District agreed to proceed with the construction of the new school at such time as Lobolito could offer the sewage disposal service. The Agreement also provided that:

Upon execution and delivery hereof, the School District and Lobolito shall terminate the Joint Development Agreement by providing mutual releases to each other, subject however, to the satisfaction of all costs to be jointly shared pursuant to the Joint Development Agreement, as of the date hereof.

R.R. 271a — 272a.

The Department approved the issuance of the NPDES permit on December 15, 1994, which action was subsequently appealed to the Environmental Hearing Board (EHB). On December 6, 1995, the District resolved to not construct the new school and, accordingly, not to utilize the plant. On March 6, 1996, the EHB issued an Opinion and Order remanding the issuance of Lobolito's permit to the Department for reconsideration in light of the fact that the District had decided not to utilize the plant. Thereafter, Lobolito filed an action against the District, alleging a breach of contract and seeking consequential damages. The District filed preliminary objections, demurring on the grounds, inter alia, that:

26. A school district's determination as to whether a school should or should not be constructed is governmental in nature as its source is derived from Pennsylvania law.

27. Specifically, 24 P.S. § 7-701 authorizes a school board to provide "suitable school buildings to accommodate all children."

28. Where a legislative body acts in a governmental, as opposed to a proprietary, capacity, it cannot take any action which binds its successors.

29. Therefore, the School Board which entered into the Joint Development Agreement and/or Memorandum of Agreement could not bind the School Board which passed the December 6, 1995 Resolution to its determination that an elementary school would be constructed in Clifton Township.

The trial court granted the preliminary objections on other grounds in an Order dated May 19, 1997, and dismissed Lobolito's complaint with prejudice. Lobolito filed a petition for reconsideration, which the trial court denied, and thereafter appealed to the Superior Court. On May 7, that court entered the following:

MEMORANDUM:

Lobolito, Inc., appeals from the order of court dated May 19, 1997, in the Court of Common Pleas of Wayne County (Conway, PJ, presiding). As this appeal deals with a contractor's attempt to recover damages when a subsequent school board abandons a project approved by the prior board, this falls within the province and specific expertise of our sister court. See 42 Pa.C.S. § 762(a)(4); Byrne v. Alexander, 56 Commonwealth Ct. 206, 424 A.2d 602 (1981)(Subsequent board not necessarily bound by previous board's decisions). Therefore, we transfer this appeal to the Commonwealth Court.

Appeal transferred to Commonwealth Court.

On appeal, Lobolito argues that: (1) the execution of the Agreement did not constitute the performance of a governmental function by the District, which bound the successor school board; (2) its complaint sufficiently avers breaches of the JDA and the Agreement and states a cause of action; and (3) the trial court abused its discretion in dismissing its complaint with prejudice without granting Lobolito an opportunity to amend.²

In the performance of governmental functions, as opposed to proprietary functions, a municipal board having legislative authority may not take action which will bind its successors. County of Butler v. Local 585, Service Employees Int'l Union, AFL-CIO, 158 Pa.Cmwlth. 519, 631 A.2d 1389, 1392 (Pa.Cmwlth.1993). In other words, the board cannot enter into a contract whose duration extends beyond the term for which the members of the board were elected. Falls Township v. McManamon, 113 Pa.Cmwlth. 504, 537 A.2d 946, 947 (Pa.Cmwlth.1988),quoting Mitchell v. Chester Housing Auth., 389 Pa. 314, 321, 132 A.2d 873, 877 (1957)

.³ We must determine, therefore, whether the District was performing a governmental function when it executed the Agreement.⁴

In general, proprietary functions have been characterized as those that a legislative board is not statutorily required to perform, may be carried on by private enterprise or are undertaken as a means to raise revenue. County of Butler,631 A.2d at 1392-93.⁵ On the other hand, governmental functions include those that a legislative board is statutorily entrusted with performing, are indispensable to the proper functioning of government and, because they implicate the policy making function, demand that current officeholders be able to control, free of restrictions imposed by predecessors. State Street Bank & Trust Co. v. Commonwealth, Treasury Dep't, 712 A.2d 811, 813-814 (Pa.Cmwlth.1998). These tests, however, merely attempt to articulate factors which will aid the court in resolving the essential inquiry: whether enforcement of the contract would impair, to any significant degree, the new body's exercise of its policymaking role. This distinction is critical, because the doctrine here at issue has its roots in our fundamental notions of democratic government. We select public officials, legislative or executive, whom we believe will carry out the policies intended by the electorate. If they fail to do so, or if the people conclude that new policies are in order, they can be voted out of office. To allow an elected body to perpetuate its policies beyond its term of office would frustrate the ability of the citizenry to exercise its will at the ballot box. It is only because of these fundamental concerns that we allow otherwise valid contracts to be undone, and we must carefully evaluate each case to insure that innocent third parties are not unnecessarily harmed for the sake of democratic principles. As noted long ago by another court, "The true test is whether the contract itself deprives a governing body, or its successor, of a discretion which public policy demands should be left unimpaired." Plant Food Co. v. City of Charlotte, 214 N.C. 518, 199 S.E. 712, 714 (N.C.1938).

Here, the District alone is vested with statutory authority to establish school facilities,⁶ and the determination of whether and where to build a new school clearly encompasses a governmental function. Lobolito argues, nonetheless, that the District contracted not to build...