Luck Bros., Inc. v. Agency of Transp.

• Citation: 99 A.3d 997,2014 VT 59
• Decision Date: 13 June 2014
• Docket Number: No. 13–249.,13–249.
• Court: Vermont Supreme Court
• Parties: LUCK BROTHERS, INC. v. AGENCY OF TRANSPORTATION.

99 A.3d 997

2014 VT 59

LUCK BROTHERS, INC.

v.AGENCY OF TRANSPORTATION.

No. 13–249.

Supreme Court of Vermont.

June 13, 2014.

Motion for Reargument Denied June 26, 2014.

David Bond of Fead Construction Law, PLC, South Burlington, for Plaintiff–Appellant.

William H. Sorrell, Attorney General, and Toni Hamburg Clithero, Assistant Attorney General, Montpelier, for Defendant–Appellee.

Present: REIBER, C.J., DOOLEY, SKOGLUND, ROBINSON and CRAWFORD, JJ.

Opinion

REIBER, C.J.

¶ 1. Plaintiff Luck Brothers, Inc., a construction company that rebuilt a portion of Main Street in the City of Barre pursuant to a contract with defendant Vermont Agency of Transportation, appeals from the superior court's decision granting the Agency's motion to dismiss Luck Brothers' lawsuit on grounds that the company failed to exhaust its administrative remedies before pursuing a remedy in the superior court. In its complaint, Luck Brothers alleged counts sounding in breach of contract and negligent misrepresentation, among others, but also sought a

declaratory ruling that it had no obligation to exhaust administrative remedies because the Agency's claims process did not comport with the requirements of the Administrative Procedure Act or due process. We affirm the superior court's decision, but clarify the standard of review in appeals to the Vermont Transportation Board from Agency determinations under the claims process for construction contracts.

¶ 2. The following facts are undisputed. In 2011, the Agency advertised for bids to reconstruct a half-mile section of North Main Street in downtown Barre. Luck Brothers submitted the low bid of $10,615,573 and was awarded the contract for the project, which it commenced in the summer of 2011. In June 2012, Luck Brothers submitted a claim to the Agency seeking approximately $855,000 in additional compensation beyond the bid amount based on alleged differing site conditions from those assumed in the contract. One year later, Luck Brothers submitted a supplemental claim, making the total claim approximately $1.1 million.

¶ 3. The claim was submitted pursuant to the parties' contract, which incorporated, among other things, the Agency's 2006 Standard Specifications for the Construction Book, http://vtranscontracts.vermont.gov/construction–contracting/2006–standard–specifications, and the General Special Provisions for those Specifications, dated December 7, 2010, http://vtranscontracts. vermont.gov/sites/aot_contract_administration/files/documents/2006GenSpecs.pdf. The Specifications included provisions mandating a dispute resolution process for resolving claims regarding federal-aid highway construction contracts administered by the Agency, such as the instant one.

¶ 4. Under these provisions, claims for additional compensation must be submitted first to the Agency's Construction Engineer, and in the event the claim is denied, to the Agency's Director of Program Development. Specifications, § 105.20. If the Director denies the claim, the contractor may appeal to the statutorily created Transportation Board. See 19 V.S.A. § 3 (“A transportation board is formed to be attached to the agency of transportation.”).

¶ 5. On September 7, 2012, less than three months after submitting its $855,000 claim, Luck Brothers filed a complaint against the Agency in superior court seeking, among other things, declaratory relief and compensatory damages. Substantively, the complaint alleged breach of contract, negligent misrepresentation, and breach of an implied warranty on the part of the Agency, and

sought penalties under the Prompt Pay Act. In support of these claims, Luck Brothers alleged that it incurred significant, unexpected additional costs as the direct result of the Agency's failure to inform bidders of material information that it was aware of concerning subsurface water conditions and deteriorating sewer lines.

¶ 6. Procedurally, the complaint sought a declaratory ruling that Luck Brothers had no obligation to exhaust its administrative remedies with respect to its claims against the Agency because those remedies were inadequate and did not comport with the requirements of due process. In support of this claim, Luck Brothers stated that the Transportation Board was empowered to provide only appellate, as opposed to original, jurisdiction over its contract dispute, and that neither the Legislature through the enabling statute nor the Agency through rulemaking had provided a valid or enforceable administrative proceeding for initially adjudicating contract disputes. The complaint stated that the provisions in the Specifications governing contract disputes were “laden with ambiguity,” established unreasonably short deadlines for contractors to make claims, and imposed unreasonably burdensome requirements relating to such claims.

¶ 7. The Agency moved to dismiss the complaint on grounds of sovereign immunity and failure to exhaust administrative remedies. In an April 5, 2013 decision, the superior court declined to address the Agency's sovereign immunity argument, but granted its motion to dismiss based on Luck Brothers' failure to exhaust its administrative remedies. In dismissing the complaint on these grounds, the court reasoned as follows:

Nothing in the case law or Vermont statutes precludes the [Transportation] Board from adjudicating Luck's claims in a manner that affords both parties due process. The Board itself has ruled in a separate case that its historical practice and future intention is to accord the parties before [it] in these types of disputes due process. Counsel for Luck ... at the court's January 22, 2013 hearing on the pending motion candidly stated that the prior three cases he took to the Board were resolved generally in conformity with the contractor's due process rights.

In these circumstances, the court fails to perceive any legitimate basis to exempt Luck from the obligation to exhaust administrative remedies by proceeding to the Board. If a specific due process issue emerges, it can be raised before the Board and on appeal from any decision of the Board under [Vermont Rule of Civil Procedure] 74. If Luck believes that one or more provisions of the contract are void, it can raise those issues before the Board as well. If Luck believes that the [Agency] has breached its duty of good faith and fair dealing (such as by manipulating its decisionmaking or delaying it unreasonably), that too can be raised before the Board.

The court also found unavailing any facial challenge grounded on the absence of rulemaking, stating that Luck Brothers' objection on that count was related to the terms of the contract, but that due process was afforded in the administrative proceedings before the Transportation Board rather than in the contract's dispute resolution process. Accordingly, the court dismissed Luck Brothers' suit for lack of jurisdiction.

¶ 8. On appeal, Luck Brothers states the following claims of error: (1) the Agency's contractual claims process, on its face, does not afford constitutionally required due process protections; (2) because of the inadequacies of the claims process, it was not required to exhaust its administrative remedies; (3) the superior court erred in dismissing its rulemaking challenge; (4) the court erroneously conflated its due-process and breach-of-contract claims; and (5) the court abused its discretion by refusing to allow it to obtain discovery with respect to its jurisdictional issues.

¶ 9. Luck Brothers first contends that the superior court erred by focusing on the due process protections available in proceedings before the Transportation Board rather than in the claims process involving the Agency's Construction Engineer and Director of Program Development. According to Luck Brothers, the question of whether contractors are entitled to due process at the Agency level depends on whether one views the Engineer's and Director's decisions as quasi-judicial adjudications or merely executive-level decision-making. In Luck Brothers' view, if those decisions are in fact executive-level determinations rather than quasi-judicial adjudications, they may not be accorded any deference in a hearing before the Board, which must proceed on a clean slate. Luck Brothers states that, in light of the superior court's apparent approval of a previous Board decision in another

case describing its review of contractual disputes as something less than de novo and nondeferential, the court erred in concluding that due process protections at the Board level were constitutionally sufficient.

¶ 10. While we agree with some of the points made in this analysis, ultimately we conclude that the superior court properly dismissed this case based on Luck Brothers' failure to exhaust its administrative remedies. “The constitutional right to due process guarantees certain procedural protections before the government may deprive an individual of a protected property right.” In re Miller, 2009 VT 112, ¶ 9, 186 Vt. 505, 989 A.2d 982. A contractor's right to payment under a contract with the state is a property interest entitled to due process protections. See Gen. Elec. Co. v. N.Y. State Dep't of Labor, 936 F.2d 1448, 1453 (2d Cir.1991) (“It is well established that a contractor has a right to timely payment for work it performs under a contract with a state agency, and that such a right is a property interest protected by the due process clause.”). “Fundamentally, due process requires notice and an opportunity to be heard at a meaningful time in a meaningful manner.” Miller, 2009 VT 112, ¶ 9, 186 Vt. 505, 989 A.2d 982 (quotation omitted). The United States Supreme Court has emphasized that procedural due process is a flexible concept that “calls for such procedural protections as the particular situation demands.” Mathews v. Eldridge, 424 U.S. 319, 334, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976) (quotation omitted).

¶ 11. Although the Agency is statutorily authorized to award contracts “on terms as it deems to be in the...