Edminster, Hinshaw, Russ v. Downe Township ( 2020 )

Case: 19-20176 Document: 00515350877 Page: 1 Date Filed: 03/19/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 19, 2020
No. 19-20176 Lyle W. Cayce
Clerk
EDMINSTER, HINSHAW, RUSS AND ASSOCIATES, INCORPORATED,
doing business as EHRA Engineering,
Plaintiff - Appellee Cross-Appellant
v.
DOWNE TOWNSHIP,
Defendant - Appellant Cross-Appellee
Appeals from the United States District Court
for the Southern District of Texas
Before KING, COSTA, and HO, Circuit Judges.
GREGG COSTA, Circuit Judge:
Parties often choose to have their contracts governed by the law of a
particular state. But what if a dispute later arises about whether the parties
entered into a contract in the first place? Does the choice-of-law provision
apply when deciding a question of contract formation? This appeal poses that
chicken-or-the-egg question.
I.
Hurricane Sandy wreaked havoc on New Jersey’s Downe Township.
FEMA awarded Downe a $2.5 million grant. But there was no guarantee the
township would get to use all that money. FEMA could withhold funds if
Downe failed to comply with grant requirements. So Downe had to identify
and complete FEMA-compliant projects. The township’s mayor, Robert
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Campbell, sought help from an engineering firm located halfway across the
country in Houston, a city that knows a thing or two about hurricane relief
projects.
The firm, Edminster, Hinshaw, Russ and Associates (EHRA), and Mayor
Campbell signed a Professional Services Agreement. The document provides
that Texas law “govern[s] the validity of this Agreement, the construction of
its terms, and the interpretation of the rights and duties of the parties.” It
further states that Mayor Campbell has authority to bind Downe, but that the
agreement does not create a debt against the township. Downe’s governing
body, the Township Committee, never approved the agreement.
Over the next six months, EHRA assisted Downe with FEMA-related
projects and billed the township close to $400,000. Downe never paid EHRA.
EHRA eventually stopped working.
EHRA sued the township for breach of contract and unjust enrichment
in the Southern District of Texas. Among other things, the township defended
on the ground that the agreement was “not binding on Downe.” The district
court disagreed and granted summary judgment in EHRA’s favor on the issue
of contract liability.
The court then held a bench trial to determine damages and attorney’s
fees. It awarded EHRA $245,422 in damages and $126,500 in attorney’s fees.
Because of the award on the contract claim, the court never addressed EHRA’s
unjust enrichment claim.
The township appeals. Among other things, it argues that it never
entered into a contract with EHRA because its legislative body did not approve
the agreement. EHRA also appeals. It contends that the district court should
have awarded more damages.
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II.
The New Jersey Local Public Contracts Law says that a municipality
like Downe can contract for professional services exceeding $17,500 only “by
resolution of the governing body.” See N.J. STAT. ANN. § 40A:11-5(1)(a)(i); see
also id. §§ 40A:11-3(a), 40A:11-4(a). The governing body must “state
supporting reasons” for awarding the contract in its resolution and publish
notice of the resolution in “the official newspaper.” Id. § 40A:11-5(1)(a)(i).
These requirements, which exist in many states, are aimed at “the avoidance
of waste, extravagance and ill-considered spending.” Slurzberg v. City of
Bayonne, 148 A.2d 171, 176 (N.J. 1959); see also St. Barnabas Med. Ctr. v.
Essex Cty., 543 A.2d 34, 39 (N.J. 1988). And the rule that a municipality has
contracting authority only when its governing body grants it that power is not
some special feature of public contracting law; it follows from the broader
principle that a “public body may only act by resolution or ordinance.” Kress
v. La Villa, 762 A.2d 682, 687 (N.J. Super. Ct. App. Div. 2000) (quoting
Midtown Props., Inc. v. Twp. of Madison, 172 A.2d 40, 46 (N.J. Super. Ct. Law
Div. 1961)).
As a result of the Public Contracts Law, purported “contracts” that a New
Jersey township’s governing body does not approve are not contracts. Id. at
686. In other words, they do not exist. Id. That is the status for the document
EHRA seeks to enforce. Mayor Campbell’s signature cannot replace the
statutory mandate for a resolution from Downe’s governing body. See id. at
687. Without the Township Committee’s approval, Downe “did not and could
not enter into a contract.” Id.
EHRA’s principal response is that New Jersey law on public contracts
does not matter because the Professional Services Agreement says that Texas
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law governs.1 As an initial matter, it seems illogical to use Texas law to define
the powers of an entity that is the creation of New Jersey law. Wagner v. Mayor
and Mun. Council of City of Newark, 132 A.2d 794, 503 (N.J. 1957)
(“[M]unicipalities are but creatures of the State, limited in their powers and
capable of exercising only those powers of government granted to them by the
Legislature.”); see also RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(2)
cmt. g (“Fulfillment of the parties’ expectations is not the only value in contract
law; regard must also be had for state interests and state regulation.”). And
Texas does not have “townships,” so what law would there be to apply?2
The disconnect of using Texas law to determine a New Jersey township’s
capacity to contract exposes the more fundamental problem with EHRA’s
argument: the choice-of-law provision has force only if the parties validly
formed a contract. Schnabel v. Trilegiant Corp., 697 F.3d 110, 119 (2d Cir.
2012) (“Applying the choice-of-law clause to resolve the contract formation
issue would presume the applicability of a provision before its adoption by the
parties has been established.”); Trans-Tec Asia v. M/V Harmony Container,
518 F.3d 1120, 1124 (9th Cir. 2008) (“[W]e cannot rely on the choice of law
provision until we have decided, as a matter of law, that such a provision was
a valid contractual term and was legitimately incorporated into the parties’
contract.”); B-S Steel of Kan., Inc. v. Tex. Indus., Inc., 439 F.3d 653, 661 n.9
(10th Cir. 2006) (referring to “the logical flaw inherent in applying a
1 EHRA also implies that Downe should be judicially estopped from arguing that the
agreement was invalid because Downe “strenuously urged” it was valid in the district court.
While EHRA did emphasize in the district court that Downe changed its position, it never
asserted judicial estoppel. Indeed, it does not expressly do so even on appeal. As a result,
that argument is forfeited.
2 If we applied the law governing Texas cities and counties to a New Jersey township,
there would still need to be an “express authorization by vote of the governing body reflected
in the minutes.” S. Disposal, Inc. v. City of Blossom, 165 S.W.3d 887, 893 (Tex. App.—
Texarkana 2005, no pet.). So it does not appear the result would be any different under Texas
law. But as discussed above, we need not resolve that question.
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contractual choice of law provision before determining whether the underlying
contract is valid”). If the parties did not enter into a contract, then there is no
choice-of-law clause to apply.
The requirements of the New Jersey Public Contracts Law go to this
preliminary question of contract formation. To form a contract, each party
must have capacity. 5 WILLISTON ON CONTRACTS § 9:1 (4th ed. 2019). Common
examples of those who lack capacity are minors or incompetent adults. Id.
Although a less prominent example, a municipality that lacks legislative
authority to enter into an agreement is another type of incapacity. See, e.g.,
Carolina Power & Light Co. v. Darlington Cty., 431 S.E.2d 580, 583 (S.C. 1993)
(characterizing a city official’s “lack of authorization from the municipal
government” to contract as a capacity problem); cf. Kress, 762 A.2d at 687
(explaining that a New Jersey municipality lacks power to enter into a contract
unless it complies with the Public Contracts Law); WILLISTON ON CONTRACTS,
supra, § 11:10 (discussing the capacity of corporations to enter into contracts).
EHRA argues that a municipality’s incapacity is not as big a deal as a minor’s
incapacity. But there are not degrees of capacity. A party has the power to
contract or it does not. Without capacity, there is no contract. And without a
contract, a choice-of-law provision has no effect. So just as infants or
incompetent adults would not be bound by a choice-of-law provision in a
contract they could not agree to, Downe Township is not bound by the Texas
choice-of-law provision in a document it never approved.
That a contract never existed also defeats EHRA’s reliance on the
provision stating that Mayor Campbell has the authority to bind the township.
The reasoning behind such a provision is circular—Mayor Campbell cannot
“vest himself with contractual capacity by stating in the contract that he has
such capacity.” RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187 cmt. d.
And allowing mayors to vest themselves with capacity would usurp the
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legislative authority of township committees and undermine the public-notice
and accountability concerns the Public Contracts Law promotes.
Nor can EHRA complain that it did not know about New Jersey’s public
contracting requirements. As courts in both New Jersey and Texas have
recognized, those contracting with the government “are charged by law with
notice of the limits of governmental officers’ authority and are bound at their
peril to ascertain if the contemplated contract is properly authorized.” S.
Disposal, Inc. v. City of Blossom, 165 S.W.3d 887, 894 (Tex. App.—Texarkana
2005, no pet.); see also Kress, 762 A.2d at 687.
Downe Township never entered into a contract with EHRA. Its citizens
thus cannot be liable for nearly $400,000 on a breach-of-contract theory.
III.
The township may, however, be liable for any benefits it received from
EHRA. As mentioned earlier, EHRA also asserted an unjust enrichment claim.
It ended up not seeking judgment on that equitable claim given its success on
the contract claim. That efficient choice does not result in forfeiture of the
unjust enrichment claim now that the contract victory has been wiped away.
A party cannot recover on both a contractual and quasicontractual theory;
success on the former precludes success on the latter. Goldsmith v. Camden
Cty. Surrogate’s Office, 975 A.2d 459, 464–65 (N.J. Super. Ct. App. Div. 2009)
(recognizing that breach of contract and unjust enrichment are mutually
exclusive theories of recovery). The district court’s finding of contractual
liability thus implicitly rejected the unjust enrichment claim. See Sch. Bd. of
Avoyelles Par. v. U.S. Dep’t of Interior, 647 F.3d 570, 577 (5th Cir. 2011).
Indeed, the district court limited the bench trial to the reasonableness of
EHRA’s invoiced amounts and attorney’s fees. EHRA did not give up its back-
up equitable theory by winning on its primary breach-of-contract theory in the
district court.
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Beyond claiming that unjust enrichment is no longer part of the case, the
township argues that the equitable claim is an impermissible end run around
the Public Contracts Law. In some circumstances, though, New Jersey courts
have allowed private parties to pursue unjust enrichment claims against
municipalities. See St. Barnabas Med. Ctr., 543 A.2d at 42; Law Offices of
Gold, Albanese, Barletti & Velazquez v. Jersey City Mun. Utils. Auth., 2008 WL
656892, at *3–4 (N.J. Super. Ct. App. Div. March 13, 2008) (per curiam). But
see Slurzberg, 148 A.2d at 176 (noting that the public contracting laws cannot
be circumvented by “the equitable principles of estoppel or unjust
enrichment”). We leave it to the district court to decide in the first instance,
with the benefit of full briefing, whether EHRA’s unjust enrichment claim is
viable. The district court should also consider any defenses the township has
raised, including the statute of limitations.
***
The judgment on the breach-of-contract claim is REVERSED and
RENDERED. The case is REMANDED for consideration of the unjust
enrichment claim.
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