1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

2-13-1995

Linan v Housing Auth. /Camden

Precedential or Non-Precedential:

Docket 94-5193

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Recommended Citation

"Linan v Housing Auth. /Camden" (1995). 1995 Decisions. Paper 45.

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 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 No. 94-5193 

 

 LINAN-FAYE CONSTRUCTION CO., INC. 

 Appellant

v. 

 HOUSING AUTHORITY OF THE CITY OF CAMDEN 

 

 Appeal from the United States District Court 

 for the District of New Jersey 

 (D.C. Civ. No. 90-cv-04651) 

 

 Argued: September 23, 1994 

 BEFORE: BECKER, COWEN and GARTH, 

 Circuit Judges

 (Filed February 13, 1995) 

 

Cary L. Flitter (argued) 

Lundy, Flitter & Beldecos 

450 North Narberth Avenue 

P.O. Box 278 

Narberth, PA 19072-0278 

 Counsel for Appellant 

 Linan-Faye Construction Co., Inc. 

Mark D. Caswell (argued) 

Freeman, Zeller & Bryant 

Ten Melrose Avenue 

Woodcrest Pavilion, Suite 400 

Cherry Hill, NJ 08003-3647 

 Counsel for Appellee 

 Housing Authority of the 

 City of Camden 
 

OPINION 

 

COWEN, Circuit Judge. 

 Linan-Faye Construction Company Co., Inc. ("LinanFaye"), a public housing contractor, appeals from orders of the 

district court that granted summary judgment for the Housing 

Authority of the City of Camden ("HACC") on Linan-Faye's claims 

under public contract law and 42 U.S.C. § 1983. Because the 

district court erred in applying federal common law rather than 

state law to resolve this dispute, we will reverse and remand to 

the district court for further proceedings. Nevertheless, since 

we conclude that in the absence of New Jersey law which 

specifically interprets "termination for convenience" clauses New 

Jersey courts would look to federal common law for guidance, we 

will limit the triable issues on remand to a determination of: 

(1) the definition of "work performed" for purposes of paragraph 

17 of Linan-Faye's contract with HACC; (2) the pre-termination 

expenses incurred by Linan-Faye that may be compensable as "work 

performed" under paragraph 17 of the contract; and (3) HACC's 

liability, if any, for damages resulting from HACC's withholding 

of Linan-Faye's performance bond after termination. Finally, 

because the district court did not err in determining that LinanFaye failed to demonstrate a protectible property or liberty 

interest sufficient to support its § 1983 claim, we will affirm 

the district court's grant of summary judgment on this claim. 
 I. FACTS & PROCEDURAL HISTORY 

 On August 11, 1988, HACC advertised for bids on a 

housing modernization project. The project involved the 

renovation and rehabilitation of 244 housing units and was to be 

funded in substantial part by a grant from the United States 

Department of Housing and Urban Development pursuant to the 

Public and Indian Housing Comprehensive Improvement Assistance 

Program ("CIAP"). Plaintiff, Linan-Faye, attended all required 

pre-bid meetings and submitted a bid of $4,264,000, together with 

supporting documentation which included a bid bond, performance 

bond, qualification statement, and required affidavits. LinanFaye was the lowest responsible bidder for the job, underbidding 

its nearest competitor by $600,000. Accordingly, HACC informed 

Linan-Faye that the contract was to be forthcoming. 

 Linan-Faye engaged in preparatory activities in 

connection with the contract, including meeting with prospective 

subcontractors, job planning and pricing, talking with relevant 

inspectors, and securing insurance. Also, on several occasions, 

representatives of Linan-Faye met with HACC and its architect to 

discuss specifications and make preparations for the commencement 

of physical construction. Linan-Faye, however, never began 

physical construction because numerous disputes broke out between 

the parties over interpretation of the specifications. 

 Linan-Faye contends that HACC demanded concessions 

before permitting work to begin. HACC maintains that the parties 
arrived at different interpretations of the project plans and 

specifications, and this conflict became evident at preconstruction meetings. On November 29, 1988, as the result of 

these disputes, HACC advised Linan-Faye that it was going to 

rebid the project. Linan-Faye filed suit to enjoin this 

rebidding and allow it to complete the project as bid. 

 The district court entered a temporary restraining 

order to prevent HACC from accepting further bids. Subsequently, 

the court approved a Stipulation of Settlement and Order of 

Dismissal with Prejudice, under which the parties agreed to 

execute the contract and proceed with the project as originally 

planned. Nevertheless, disputes soon broke out again. 

 On November 22, 1989, HACC issued a Notice to Proceed. 

Linan-Faye contends that the notice was limited to an order to 

correct certain plumbing problems that were a portion of the 

original contract. Linan-Faye refused to proceed in a piecemeal 

fashion, and insisted that it would not begin work until a 

certain number of vacant buildings were available at the same 

time so that it could achieve economies of scale. HACC responded 

that it had scattered vacant units available, but not rows of 

units. 

 Subsequently, HACC attempted first to extract the 

plumbing segment from the contract and, when that failed, 

proposed a complete buy-out of Linan-Faye's contract. The 

parties entertained the possibility of a buy-out until July of 
1990, at which time HUD informed HACC that it would not approve a 

buy-out. HACC reinstated the previous Notice to Proceed by 

letter dated July 23, 1990. 

 At a preconstruction meeting on September 6, 1990, 

Linan-Faye informed HACC that it would not start work until the 

contract price was increased to reflect the costs incurred by the 

delay in commencing construction. HACC responded that Linan-Faye 

had to begin work before it would address the issue of the price 

increase. 

 HACC elected to terminate Linan-Faye's contract by 

letter dated September 25, 1990. In that letter, Gregory Kern, 

the Interim Executive Director of HACC, stated that HACC would 

instruct the Modernization Office to assist Linan-Faye in 

reclaiming its performance bonds. While the letter did not 

mention the terms "breach" or "default," it did state that LinanFaye "had continually failed to demonstrate its intent to perform 

under the public contract." Letter from Kern to Norman Faye 

(September 25, 1990); App. Vol. I at 114-115. HACC confirmed its 

decision to terminate by letter dated October 23, 1990. 

 Linan-Faye objected to the termination and filed the instant 

action on October 26, 1990, setting forth theories of recovery 

under New Jersey public contracts law and 42 U.S.C. § 1983. 

Linan-Faye served HACC with a complaint in December of 1990 

seeking specific performance and damages. HACC did not surrender 

Linan-Faye's performance bond until July of 1991, after the 
district court determined that specific performance was not 

available to Linan-Faye. 

 In April of 1992, HACC filed a motion for summary 

judgment on Linan-Faye's civil rights claim and for the first 

time argued, in that same motion, that the "termination for 

convenience" clause set forth in paragraph 17 of the General 

Conditions of their contract limited Linan-Faye's damages under 

the contract.1 The district court granted HACC's motion for 

 

1. Paragraph 17 of this contract's General Conditions of the 

Contract for Construction states in relevant part: 

 a. Subject to the approval of HUD, the performance of work 

under this contract may be terminated by the PHA in 

accordance with this paragraph in whole, or from time 

to time in part, whenever the Contracting Officer shall 

determine that such termination is in the best interest 

of the PHA. Any such termination shall be effected by 

delivery to the Contractor of a Notice of Termination 

specifying the extent to which the performance of the 

work under the contract is terminated, and the date 

upon which such termination becomes effective. 

 b. If the performance of the work is terminated, either in 

whole or in part, the PHA shall be liable to the 

Contractor for reasonable and proper costs resulting 

from such termination, which costs shall be paid to the 

Contractor within 90 days of receipt by the PHA of a 

properly presented claim setting out in detail: (1) the 

total cost of the work performed to date of termination 

less the total amount of contract payments made to the 

contractor . . .; and (5) an amount constituting a 

reasonable profit on the value of work performed by the 

Contractor. 

App. Vol. II at 45. 
summary judgment on the § 1983 claim, but deferred decision on 

the effect of the termination of convenience clause pending 

further discovery. 

 Upon a renewed motion for summary judgment, the 

district court held for HACC, determining that Linan-Faye's 

damages would be limited to those compensable under the 

contract's termination for convenience clause. The district 

court left open, however, the possibility of recovery for damages 

accruing from HACC's initial failure to identify specifically the 

termination as one of convenience. 

 HACC filed its third motion for summary judgment on 

October 27, 1993. In that motion, HACC contended that since 

Linan-Faye never began work under the contract, it could not 

recover any damages under the termination for convenience clause. 

Linan-Faye responded that it could recover damages for: (1) 

preparatory costs such as soliciting subcontractors, pricing, and 

pre-construction meetings; (2) improper notice of termination; 

(3) pre-termination delay by HACC; and (4) HACC's refusal to 

relinquish Linan-Faye's performance bond. Determining that 

federal common law applied in interpreting this contract, the 

district court held that Linan-Faye incurred no compensable 

damages under the termination for convenience clause. The court, 

therefore, entered an order granting summary judgment for HACC. 

This appeal followed. 
 Following oral argument before this Court, HACC and 

Linan-Faye agreed to participate in non-binding mediation of the 

controversy before the Honorable Max Rosenn, Senior Circuit 

Judge. By memorandum dated November 9, 1994, Judge Rosenn 

informed us that efforts to reach a settlement of the controversy 

through mediation were unsuccessful. 

 II. JURISDICTION & OVERVIEW OF ISSUES RAISED IN THIS APPEAL 

 The district court exercised jurisdiction in this 

matter by virtue of the diversity of citizenship of the parties 

with the requisite amount in controversy pursuant to 28 U.S.C. § 

1332 (1988). This Court has jurisdiction pursuant to 28 U.S.C. § 

1291 (1988). Linan-Faye essentially raises six issues on 

appeal:2 (1) whether the district court erred in applying 

federal common law and not the law of New Jersey to interpret 

this contract; (2) whether New Jersey law precludes retroactive 

application of a termination for convenience clause; (3) whether 

the district court was correct in its application of the 

constructive termination for convenience doctrine; (4) whether 

the district court erred by engaging in impermissible fact 

 

2. Linan-Faye styles its appeal as containing seven issues. 

Brief of Appellant at ix-x. The first of these issues, according 

to Linan-Faye, is that the district court engaged in 

impermissible fact finding on contested matters. Given our 

conclusion concerning the application of the termination for 

convenience clause, however, this issue is best resolved in 

conjunction with a discussion of the proper application of that 

clause. See discussion infra part VI. 
finding so as to deny Linan-Faye all compensation; (5) whether 

Linan-Faye has an actionable claim for violation of its civil 

rights; and (6) whether HACC's position that the termination for 

convenience clause denies any recovery is barred by principles of 

equitable and judicial estoppel. 

 III. CHOICE OF LAW 

 Linan-Faye contends that the district court erred in 

applying federal common law and not the law of New Jersey to 

resolve this dispute. According to Linan-Faye, this action 

involves a contract dispute between a private contractor and an 

autonomous public housing authority created pursuant to New 

Jersey law. Where such parties enter federal court based upon 

diversity of citizenship, Linan-Faye argues, the federal courts 

presumptively apply state law. See Erie R. Co. v. Tompkins, 304 

U.S. 64, 78, 58 S. Ct. 817, 822 (1938). We agree. 

 Our review of a district court's determination as to 

choice of law is plenary. Louis W. Epstein Family Partnership v. 

Kmart Corp., 13 F.3d 762, 766 (3d Cir. 1994) (citing Universal 

Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir. 

1981)). This Court's recent decision in Virgin Islands Housing 

Authority v. Coastal General Construction Services Corp., 27 F.3d 

911 (3d Cir. 1994), strongly indicates the proper result in this 

case. In Coastal General, we determined, in the context of 

deciding a question of federal jurisdiction, that local law, not 
federal law, governs a dispute over the termination provisions of 

a contract between a public housing authority and a private 

construction company. Id. at 917. As we stated in Coastal 

General, "[t]he fact that a contract is subject to federal 

regulation does not, in itself, demonstrate that Congress meant 

that all aspects of its performance or nonperformance are to be 

governed by federal law rather than state law applicable to 

similar contracts in businesses not under federal regulation." 

Id. at 916 (quoting Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir. 

1974)). In addition, we explained that even if the contractor's 

complaint contained assertions respecting the use of federal 

funds in a construction project and the adoption of contractual 

forms authorized by HUD, there would be no difference in outcome. 

Id. at 917. 

 Similar to Coastal General, in the instant case a 

public housing authority contracted with a private construction 

company. Linan-Faye, the construction company, did not contract 

directly with the United States government. While HUD funded the 

construction project in part, and HUD forms were used in the 

contract, Coastal General teaches that these facts do not dictate 

application of federal common law. Rather, the holding of 

Coastal General indicates that in construing termination clauses 

such as the one at issue in this case, courts must look to local 

law. Thus, the district court was incorrect in applying federal 

common law and not the law of New Jersey to resolve this dispute. 
 The district court erred in deviating from the 

generally applicable Erie doctrine. The Supreme Court, in Boyle 

v. United Technologies Corp., 487 U.S. 500, 108 S. Ct. 2510 

(1988), set forth a two-pronged inquiry for determining whether 

to apply federal common law in the absence of an express 

Congressional grant of such authority. According to the Supreme 

Court, a court must first determine whether the action involves 

"`uniquely federal interests.'" Id. at 504, 108 S. Ct. at 2514 

(citing Texas Industries Inc. v. Radcliff Materials, Inc., 451 

U.S. 630, 640, 101 S. Ct. 2061, 2067 (1981)). Once a court 

identifies a uniquely federal interest, the court must then 

determine whether a "significant conflict" exists between an 

identifiable "federal policy or interest and the [operation] of 

state law." Id. at 507, 108 S. Ct. at 2516 (quoting Wallis v. 

Pan American Petroleum Corp., 384 U.S. 63, 68, 86 S. Ct. 1301, 

1304 (1966)). 

 Relying on American Pipe & Steel Corp. v. Firestone 

Tire & Rubber Co., 292 F.2d 640 (9th Cir. 1961), and United 

States v. Taylor, 333 F.2d 633 (5th Cir. 1964), the district 

court concluded that the government's interest in ensuring a 

uniform interpretation of the termination for convenience 

provisions in this contract provided the "significant federal 

interest" necessary to pre-empt state law. Linan-Faye 

Construction Co. v. Housing Authority of Camden, 847 F. Supp. 

1191, 1197 (D.N.J. 1994). These cases, however, do not dictate 
this result. While both of these cases applied federal law in 

interpreting a contract, the government interest was far more 

significant in those cases than in the case at hand. In American 

Pipe & Steel, the Court of Appeals for the Ninth Circuit stated, 

"we agree generally with appellee that the construction of 

subcontracts, let under prime contracts connected with the 

national security, should be regulated by a uniform federal law." 

American Pipe & Steel, 292 F.2d at 644. The instant case 

involves no matter of national security. Further, the court in 

American Pipe & Steel expressly acknowledged that the development 

of the law in this area was "still uncertain and unclear." Id. 

Similarly, in Taylor, the contract at issue involved the 

construction of an atomic energy plant, a matter intricately 

involved with national security during the 1950's and 1960's. 

Taylor, 333 F.2d at 635. The Taylor court also explicitly 

referred to the fact that American Pipe & Steel dictated 

application of federal common law in such a case. Id. at 637. 

Thus, both of these decisions concerned matters of national 

security that are simply not present in this case.3

 

3. Still another distinction exists between the instant case and 

the cases the district court relied upon in applying federal 

common law to interpret this contract. American Pipe & Steel and 

Taylor involved direct United States government procurement 

contracts, or a subcontract with a United States government prime 

contractor. American Pipe & Steel, 292 F.2d at 641; Taylor, 333 

F.2d at 635. Neither of these situations involved, as is the case 

here, the outright grant of funds to a public agency. The closer 

nexus to the United States government in American Pipe & Steel

and Taylor heightens the federal government's interest. The 

weaker link in this case diminishes the significance of the 
 Moreover, the district court erred in finding a 

conflict between federal and state law that would endanger any 

federal interest involved. The district court correctly 

recognized the proposition that a lawsuit which involves a 

federal interest is a "necessary, not a sufficient, condition for 

the displacement of state law." Linan-Faye Construction Co., 847 

F. Supp. at 1198 (quoting Boyle 487 U.S. at 507, 108 S. Ct. at 

2516). The court, however, failed to identify a significant 

conflict. In the only paragraph that attempts to identify a 

conflict, the court stated: 

 We find it implausible that the federal government 

would require all CIAP contracts in excess of 

$10,000.00 to contain a termination for convenience 

clause, and then leave interpretation of that clause to 

the vagaries of state law, particularly where, like New 

Jersey, there are few or no state law cases 

interpreting this type of provision. Rather, we 

believe that the decision to include a termination for 

convenience clause in the "Uniform Requirements" 

section of the C.F.R. reflects a federal interest in a 

consistent interpretation of that clause. 

Id.

 The first sentence of this paragraph merely assumes the 

answer to the question the court is wrestling with: whether 

Congress left interpretation of clauses in these types of 

contracts to state law. The second sentence of the above quoted 

(..continued) 

government interest. Thus, the district court was incorrect in 

finding a government interest significant enough to warrant 

deviating from Erie and applying federal common law. 
paragraph simply reidentifies the interest involved, it does not 

point out a conflict with state law. 

 The problem with the district court's reasoning is 

highlighted by its own analysis of what the outcome would be 

under state law. The court states, "[e]ven assuming that New 

Jersey law were to apply, we have no basis for believing that New 

Jersey courts would look elsewhere than to federal common law for 

guidance." Id. If New Jersey courts, as is likely, would look 

to federal common law to decide this question for which there is 

little state law precedent on point, then the court is incorrect 

in its assertion that a conflict exists. The outcome would be 

the same under both federal and state common law. Thus, the 

court erred in applying federal common law and not the law of New 

Jersey to resolve this dispute and we must reverse with the 

direction that the district court resolve all remaining issues in 

accordance with New Jersey law. 

 IV. NEW JERSEY LAW 

 Having decided that it is the law of New Jersey that 

governs the interpretation of this contract, we must now decide 

whether Linan-Faye is correct when it argues that the general 

principles of contract damages under New Jersey law would permit 

Linan-Faye to recover full expectation damages under this 

contract rather than those damages provided for under the 
contract's termination for convenience clause. Citing A-S 

Development, Inc. v. W.R. Grace Land Corp., 537 F.Supp. 549, 557 

(D.N.J. 1982), aff'd 707 F.2d 1388 (3d Cir. 1983), and other 

cases,4 Linan-Faye states that under New Jersey law one who 

breaches an agreement must compensate the injured party in order 

to put the non-breaching party in as good a position as he would 

have been in had performance been rendered as promised. Further, 

Linan-Faye argues that New Jersey courts have declined to import 

federal procurement concepts into their contract law 

jurisprudence. See Edwin J. Dobson, Jr., Inc. v. Rutgers, 157 

N.J. Super. 357, 418, 384 A.2d 1121, 1152 n.10 (1978) ("The 

policy factors that have lead [sic] to the development of this 

concept in federal contracts, such as a need to expand or abandon 

a particular arms program with consequent economic impact on 

contractors and subcontractors, do not warrant state courts 

adopting it wholesale by judicial fiat when traditional remedies 

for breach of contract are available."), aff'd sub nom., Broadway 

Maintenance Corp. v. Rutgers, 180 N.J. Super. 350, 434 A.2d 1125 

(A.D. 1981), aff'd, 90 N.J. 253, 447 A.2d 906 (1982). While the 

cases Linan-Faye cites stand for these general propositions, such 

 

4. Linan-Faye also cites Donovan v. Bachstadt, 91 N.J. 434, 453 

A.2d 160 (1982), for the proposition stated above. Further, 

Linan-Faye cites In Re Merritt Logan, Inc., 901 F.2d 349, 357-58 

(3d Cir. 1990) and Sandler v. Lawn-A-Mat Chemical & Equipment 

Corp., 141 N.J. Super. 437, 454, 358 A.2d 805 (A.D.), 

certification denied, 71 N.J. 503, 366 A.2d 658 (1976), for the 

proposition that the courts of New Jersey have long maintained a 

liberal rule of damages to a non-breaching party. 
generalities provide insufficient guidance in deciding the proper 

construction of a contract that contains a termination for 

convenience clause.5

 It is undisputed that there are no cases in New Jersey 

construing the effect of termination for convenience clauses. It 

is also undisputed that there are numerous federal cases dealing 

specifically with termination for convenience clauses and, in 

particular, with the doctrine of constructive termination for 

convenience. Therefore, as the district court stated, "courts in 

New Jersey would recognize that where the parties have 

incorporated a particular clause pursuant to federal regulation, 

they do so against the backdrop of federal case law addressing 

the clause." Linan-Faye Construction Co., 847 F. Supp. at 1198. 

Accordingly, we align ourselves with the district court in its 

determination that if New Jersey law were to apply, New Jersey 

courts would look to this rich body of federal common law 

concerning the termination for convenience doctrine, unless to do 

so would violate some enshrined principle of New Jersey law. Id. 

Like the district court, we are unable to discern such a 

principle.6

 

5. Additionally, the quoted language in Dobson represents only 

the opinion of a single judge on this matter. The relevant issue 

was not addressed in the New Jersey Supreme Court opinion 

affirming this case. 

6. Linan-Faye argues that decisions of the New Jersey Supreme 

Court such as W.V. Pangborne & Co. v. New Jersey Dept. of 

Transportation, 116 N.J. 543, 562 A.2d 222 (1989), where the 

court has found against governmental entities, are inconsistent 
 V. TERMINATION FOR CONVENIENCE 

 Because the New Jersey Supreme Court would likely look 

to federal common law as persuasive authority in order to 

construe this contract's termination for convenience clause, we 

must examine the parties' contentions in light of the relevant 

federal case law.7 As a preliminary matter, we must determine 

the method HACC used to terminate Linan-Faye. HACC argues that 

it terminated Linan-Faye by letter of September 25, 1990, and 

this letter constituted a termination for convenience. LinanFaye, on the other hand, argues that this letter constituted a 

default termination. Linan-Faye has the better of this argument. 

(..continued) 

with the broad discretion federal courts have conferred on the 

government in cases concerning termination for convenience 

clauses. Pangborne, however, involved a failure of a 

governmental entity to deal in good faith. Id. at 562, 562 A.2d 

at 231 ("DOT's failure . . . to deal expressly and clearly with 

this material term constitutes a breach of an implied duty of 

good faith and fair dealing and the supervening obligation of the 

government to deal scrupulously with the public."). Federal 

common law also looks disfavorably on the government in cases of 

governmental bad faith. See infra Part V. Therefore, LinanFaye's argument is unpersuasive. 

7. We recognize that the district court also applied federal 

common law to resolve this dispute. Linan-Faye Construction Co.

847 F. Supp. at 1198. Nevertheless, there is a difference 

between looking to federal common law as persuasive authority and 

being bound by federal law. The district court opted for the 

latter approach and determined that construction of the 

termination for convenience clause was purely a matter of federal 

common law. In light of our previous holding in Coastal General, 

27 F.3d at 917, we opt for the former approach. 
 HACC's letter of September 25, 1990 is replete with 

references to defaults on the part of Linan-Faye. HACC stated in 

the letter that Linan-Faye's correspondence evidences LinanFaye's "intent to avoid compliance with the specifications." 

Letter from HACC to Norman Faye (September 25, 1990); App. Vol. 

I at 114. Further, HACC stated in its letter that Linan-Faye had 

"continually failed to demonstrate its intent to perform under 

the public contract" and that "it is clear" Linan-Faye is "no 

closer to performing its contract obligations then it was in 

September of 1988." Id. at 114, 115. Nowhere in this letter 

does HACC state that it is terminating Linan-Faye simply for 

convenience. It is apparent from this document that HACC 

originally terminated Linan-Faye for default.8

 Given HACC's original termination of Linan-Faye for 

default, the question that we must reach is whether the court 

should retroactively convert this termination for default into a 

 

8. HACC argues that the last paragraph of this letter which 

states that HACC has "instructed the Modernization Office to 

assist [Linan-Faye] as needed in obtaining release of [LinanFaye's Bond]," App. at 115, is inconsistent with a default 

termination because if HACC had terminated for a default it was 

entitled to hold onto the bond. Just because HACC had the right 

to hold onto the bond under the contract, however, does not mean 

that it intended to exercise this right at the time of the 

letter. HACC may not have felt that the defaults it cited, such 

as a failure to begin work, were compensable via the bond, or it 

may have decided that it did not wish to encourage litigation 

over the bond issue. In any event, this paragraph provides 

insufficient support for HACC's argument that this letter 

constituted a termination for convenience. 
termination for convenience. HACC argues, based on a number of 

cases from the United States Court of Claims and the Court of 

Appeals for the Federal Circuit,9 that the district court did not 

err in invoking the constructive termination for convenience 

doctrine in order to convert this default termination into a 

termination for the convenience of the Housing Authority. LinanFaye argues that under federal common law the doctrine of 

constructive termination for convenience has no application to 

this case. According to Linan-Faye, Federal Acquisition 

Regulations (FAR's) applicable to direct procurement contracts 

provide for a "conversion clause," a clause that automatically 

converts a termination for default into a termination for 

convenience. 48 C.F.R. § 49.401(b) (1993). Linan-Faye suggests, 

therefore, that because no such regulations exist in grant

situations10 such as this, there is an expressed intent that such 

a conversion not be allowed. We find Linan-Faye's argument 

unpersuasive. 

 

9. See discussion infra this part. 

10. HACC received a grant pursuant to the Public and Indian 

Housing Comprehensive Improvement Assistance Program ("CIAP"). 

CIAP grants, which are administered by HUD, require recipients to 

set forth various terms and conditions in their agreements with 

contractors. 24 C.F.R. § 968.110(j) (1994). The regulations 

concerning CIAP grants, collected at 24 C.F.R. § 85.1 et seq., 

differ from the FAR's applicable to direct government procurement 

contracts. The CIAP grant regulations do not provide for a 

mandatory conversion clause. 
 The absence of a conversion provision in regulations 

concerning CIAP grants does not preclude application of federal 

common law. While the FAR's have an explicit conversion clause, 

it was the federal common law that originally developed the 

concept of termination for convenience, and later developed the 

concept of constructive termination for convenience. We find it 

appropriate to apply federal common law. 

 The idea that the government can, under certain 

circumstances, terminate a contract without paying full 

expectation damages, dates from the winding down of military 

procurement following the civil war. Torncello v. United States, 

681 F.2d 756, 764 (Ct. Cl. 1982). The termination for 

convenience doctrine originated "in the reasonable recognition 

that continuing with wartime contracts after the war was over 

clearly was against the public interest." Id. Where the 

government terminates a private contractor pursuant to a 

termination for convenience clause in a contract, instead of 

receiving full expectation damages the contractor's recovery is 

defined by the termination for convenience clause. Recovery is 

limited to "`costs incurred, profit based on the work done, and 

the costs of preparing the termination settlement proposal.'" 

Maxima Corp. v. United States, 847 F.2d 1549, 1552 (Fed. Cir. 

1988) (quoting R. Nash & J. Cibinic, Federal Procurement Law 1104 

(3d ed. 1980)) After World War II, termination for convenience 
came to be applied to peacetime non-military procurement. Id.

(citing Torncello, 681 F.2d at 765-66). 

 Constructive termination for convenience, an outgrowth 

of termination for convenience, is a judge-made doctrine that 

allows an actual breach by the government to be retroactively 

justified.11 Maxima Corp., 847 F.2d at 1553. This doctrine has 

its origins in the Supreme Court's decision in College Point Boat 

Corp. v. United States, 267 U.S. 12, 45 S. Ct. 199 (1925). In 

that decision, the Supreme Court held: 

 A party to a contract who is sued for its breach may 

ordinarily defend on the ground that there existed, at 

the time, a legal excuse for nonperformance by him, 

although he was then ignorant of the fact. He may, 

likewise, justify an asserted termination, rescission, 

or repudiation, of a contract by proving that there 

was, at the time, an adequate cause, although it did 

not become known to him until later. 

College Point, 267 U.S. at 15-16, 45 S. Ct. at 200-01 (footnotes 

omitted) (emphasis added). 

 The decision of the Court of Claims in John Reiner & 

Company v. United States, 325 F.2d 438 (Ct. Cl. 1963), cert.

 

11. The "government" involved in these cases is typically the 

United States government. In the instant case, the entity 

seeking to terminate for convenience is the Housing Authority of 

Camden. While the doctrine of constructive termination for 

convenience originally developed to allow the United States 

government maximum flexibility to deal with military contractors 

during times of war, the expansion of this doctrine into areas 

other than those involving military contracts suggests that its 

precepts should be applied to all government entities that 

provide services to the public. Of course, the final word on 

this issue rests with the New Jersey Supreme Court. 
denied, 377 U.S. 931, 84 S. Ct. 1332 (1964), demonstrates the 

operation of this doctrine. In John Reiner, the plaintiff 

contracted with the government to supply generator sets to the 

Army. Id. at 439. Following delivery of a written contract, but 

before performance commenced, the government notified the 

plaintiff that the contract was canceled and that the contract 

would be rebid because of an impropriety in the original bidding 

procedure identified by a competitor. Id. Nevertheless, no such 

impropriety was found to exist. Id. at 442. The Court of 

Claims, therefore, was forced to consider the proper measure of 

damages to the contractor. In answering this question, the court 

determined that while the government did not rely on the 

termination for convenience clause in canceling the contract with 

the plaintiff, because it could have so relied, the measure of 

damages was limited to the damages provided for in that clause. 

Id. at 443. According to the court, even though the excuse 

originally offered was not a "valid justification," a "good 

ground did exist in the far-reaching right to terminate under the 

termination article." Id. This case granted the government 

great latitude in retroactively terminating contracts for 

convenience. 

 Perhaps the high-water mark of courts' permissiveness 

in allowing the government to terminate for convenience, 

constructively or otherwise, was Colonial Metals Co. v. United 

States, 494 F.2d 1355 (Ct. Cl. 1974), overruled in part by
Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982). In that 

case, a dealer in copper contracted with the government to sell 

copper ingot to the Navy. Id. at 1357. The government 

terminated this contract to obtain the copper ingot from other 

sources at a cheaper price. Id. The court held that even where 

the government knew of the better price elsewhere at the time it

awarded the contract and then later decided to terminate the 

contract to pursue the better price, in the absence of proof of 

malice or conspiracy, termination was not improper. Id. at 1361. 

 Termination for convenience, and its expansion into the 

constructive termination for convenience doctrine, however, does 

not confer upon the government a discretion that is unbounded. 

In granting the government the privilege of constructive 

termination for convenience, courts brush up against the problem 

of allowing the government to create an illusory contract. See

Torncello, 681 F.2d at 769 (when evaluating a termination for 

convenience, one cannot ignore hornbook law that "a route of 

complete escape vitiates any other consideration furnished and is 

incompatible with the existence of a contract."). Accordingly, 

courts have articulated limits on the use of the constructive 

termination for convenience doctrine in various ways. For 

instance, in Torncello the Court of Claims stated that the 

constructive application of a termination for convenience clause 

requires "some kind of change from the circumstances of the 

bargain or in the expectations of the parties" Id. at 772. In 
Kalvar Corp. v. United States, 543 F.2d 1298, 1301 (Ct. Cl. 

1976), cert. denied, 434 U.S. 830, 98 S. Ct. 112 (1977), by 

contrast, the court's inquiry into whether to prevent the 

government from receiving the benefit of the termination for 

convenience clause focused on whether the government evidenced 

any bad faith in terminating the contract. Pointing out that the 

court is required to presume good faith on the part of public 

officials, the court in that case determined that the contractor 

could not avoid the application of the termination for 

convenience clause. Id. at 1301-02; see also SMS Data Products 

Group, Inc. v. United States, 19 Cl. Ct. 612, 617 (1990) ("This 

court presumes that Government officials act in good faith."). 

 In this matter, the district court concluded that under 

the bad faith test it was proper to allow HACC to invoke the 

doctrine of constructive termination for convenience. 

Additionally, the district court commented that even under the 

changed circumstances test of Torncello, the deterioration in the 

relationship between HACC and Linan-Faye would constitute 

sufficiently changed circumstances to apply this doctrine. We 

agree with the district court's decision that it was appropriate 

to apply the constructive termination for convenience doctrine in 

this case for two reasons. First, Linan-Faye has produced 

insufficient evidence of bad faith on the part of HACC to 

overcome the presumption that public officials act in good faith. 

Second, this case is very different from Torncello. 
 In Torncello, the government awarded a private 

contractor the right to service all of the Navy's pest control 

needs. Torncello, 681 F.2d at 758, 762. However, after awarding 

the contract to this contractor, the Navy called the Department 

of Navy Public Works to perform the task because this 

organization, from its initial bid, appeared to be able to do the 

work cheaper. Id. at 758. The government invoked the 

constructive termination for convenience doctrine arguing that 

since it had never called the private contractor to perform any 

actual work, the private contractor was not entitled to any 

damages. Id. at 759. Limiting its decision in Colonial Metals, 

the court held, in an opinion joined by only three of six judges, 

that the requirement of the government's good faith is not 

sufficient and that without other checks, free termination for 

convenience is not supportable. Id. at 771.12

 In the matter at hand, Linan-Faye does not claim that 

HACC terminated its contract to obtain the work at a cheaper 

price. Linan-Faye also does not claim that HACC terminated the 

contract in order to obtain work from a lower bidder who was 

known to HACC at the time it contracted with Linan-Faye. Indeed, 

 

12. Notably, the disagreement among the judges in that case was 

on the precise issue of whether it was appropriate to create a 

stricter test for convenience terminations by the government. 

Id. at 773-774 (Friedman, C.J., Davis, J., and Nichols, J. 

concurring) While all the judges agreed on the result in that 

case, the court could not muster a majority to embrace the new 

"changed circumstances" test. 
Linan-Faye points out in its brief that it was the low bidder for 

the project. Brief of Linan Faye at 1. Thus, the divisive facts 

presented in Torncello are not present here. 

 Moreover, subsequent cases have limited the scope of 

Torncello. The Court of Appeals for the Federal Circuit, for 

example, has stated that Torncello "stands for the unremarkable 

proposition that when the government contracts with a party 

knowing full well that it will not honor the contract, it cannot 

avoid a breach claim by adverting to the convenience termination 

clause." Salsbury Industries v. United States, 905 F.2d 1518, 

1521 (Fed. Cir. 1990), cert. denied, 498 U.S. 1024, 111 S. Ct. 

671 (1991); see also T.I. Construction Co. v. Kiewit Eastern Co., 

No. 91-2638, 1992 WL 382306, at *9 (E.D.Pa. Dec. 10, 1992) 

(citing language in Torncello indicating that its holding was 

limited to the facts presented); Modern Systems Technology Corp. 

v. United States, 24 Cl. Ct. 699, 704 (Cl. Ct. 1992) (applying 

bad faith test and reading Torncello to stand only for the above 

stated proposition), aff'd, 980 F.2d 745 (Fed. Cir 1992). In 

addition, in a subsequent case, the United States Claims Court 

stated that "Torncello did not change the traditional 

understanding" that the "Government could invoke the clause so 

long as it did not act in bad faith or clearly abuse its 

discretion." SMS Data Products, 19 Cl. Ct. at 619-20. In light 

of these developments, and considering the division among the 

court in Torncello, we decline to read that case as significantly 
limiting the power of the government in terminating for 

convenience.13

 As the district court recognized, the post award 

deterioration of the relationship between HACC and Linan-Faye 

which included conflict over the specifications would likely 

constitute sufficiently changed circumstances to justify 

application of the doctrine of constructive termination for 

convenience even under the reasoning in Torncello. See Embrey v. 

United States, 17 Cl. Ct. 617, 624-25 (1989) (deterioration of 

business relations considered sufficiently changed circumstances 

to allow government to terminate for convenience); see also SMS 

Data Products, 19 Cl. Ct. at 621 (genuine concern that contractor 

could not meet the contract's mandatory requirements constituted 

changed circumstances). Without establishing a litmus test as to 

what constitutes changed circumstances, which is unnecessary in 

view of subsequent limits on Torncello, we hold that New Jersey 

courts, looking to federal law as persuasive authority, would 

permit HACC to invoke the constructive termination for 

 

13. Linan-Faye also cites a law review note written shortly 

after the Torncello decision in support of its claims. Stephen 

N. Young, Note, Limiting the Government's Ability to Terminate 

For Its Convenience Following Tornecello [sic], 52 Geo. Wash. L. 

Rev. 892 (1984). In that note, the author suggests that 

Torncello provides a reason to eliminate the government's right 

to constructively terminate for convenience. Id. at 911. As 

this author was writing without the benefit of recent decisions, 

all that can be said of his recommendation is that future courts 

declined to take the hint. 
convenience doctrine in this instance.14 Accordingly, damages 

will be limited by the termination for convenience clause of the 

contract.15

 

14. The dissent states that the majority "holds that a 

deterioration in business relations, demonstrated in not 

insignificant part by a dispute over specifications, constitutes 

such a change in circumstances." See infra at 12 (emphasis 

added). The dissent is incorrect insofar as it reads this to be 

the holding of our decision. As we have already explained, 

Torncello, and its changed circumstances approach, has been 

sharply limited by more recent cases. See discussion supra this 

Part. We have therefore declined to endorse wholeheartedly the 

changed circumstances approach. Accordingly, an accurate 

statement of our position is that (1) Linan-Faye has not 

demonstrated actual bad faith on the part of HACC and (2) this 

case does not present the divisive facts presented in Torncello

that warranted finding against the government. 

15. At oral argument, Linan-Faye suggested that the application 

of paragraph 16(d) of the General Conditions of this Contract 

"trumps" the constructive application of the paragraph 17 

termination for convenience clause. Paragraph 16(d) states, in 

pertinent part: 

 The Contractor's right to proceed shall not be terminated or 

the Contractor charged with damages under this clause 

if: 

 (1) The delay in completing the work arises from 

unforeseeable causes beyond the control and without the 

fault or negligence of the Contractor. Examples of 

such causes include (1) acts of God, or of the public 

enemy, (ii) acts of the PHA or other governmental 

entity in either its sovereign or contractual capacity 

(iii) acts of another contractor in the performance of 

a contract with the PHA (iv) fires . . . . 

App. Vol II at 45. 

This subsection of paragraph 16 carves out an exception to when 

HACC can terminate for default. 

 While Linan-Faye's argument goes to whether HACC breached 

the agreement in terminating for default, it cannot prevent 

application of the constructive termination for convenience 
 VI. COMPENSATION IN LIGHT OF THE TERMINATION 

 FOR CONVENIENCE CLAUSE 

 Having determined that the termination for convenience 

clause is applicable in this case, we must next decide whether 

the district court erred in granting summary judgment for HACC 

and denying Linan-Faye all compensation. Linan-Faye contends 

that the district court exceeded its role at the summary judgment 

stage because there still remain six contested issues concerning 

its contract claim. According to Linan-Faye, the district court 

erred in determining: (1) the definition of "work performed" 

under the contract; (2) there was no evidence of compensable pretermination expenses under the contract; (3) the reason why HACC 

retained Linan-Faye's performance bond; (4) that Linan-Faye 

"refused" to begin work; (5) that Linan-Faye misunderstood the 

contract specifications; and (6) that there was proper HUD 

approval of the contract's termination. 

 Our scope of review is plenary in determining the 

propriety of summary judgment. Oritani Savings & Loan Ass'n v. 

Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir. 1993). 

Summary judgment is proper only "if the pleadings, depositions, 

answers to interrogatories, and admissions on file, together with 

(..continued) 

doctrine. The very premise of the College Boat decision is that 

a party may defend a suit for breach on the grounds that a legal 

excuse existed at the time of the alleged breach. College Boat, 

267 U.S. at 15-16, 45 S. Ct. 200-01. Thus, whether HACC breached 

its agreement by terminating the contract for default is largely 

beside the point. 
the affidavits, if any, show that there is no genuine issue as to 

any material fact and that the moving party is entitled to 

judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 

317, 322, 106 S. Ct. 2548, 2552 (1986). Further, at the summary 

judgment stage, "the judge's function is not himself to weigh the 

evidence and determine the truth of the matter but to determine 

whether there is a genuine issue for trial." Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511 (1986). 

 Three of the issues that Linan-Faye raises are 

genuine issues of material fact in dispute. The other issues 

concern facts that are either not material, or are not in 

dispute. We will reverse the decision of the district court 

granting summary judgment on those issues where there is a 

genuine issue of material fact in dispute. 

 A. Definition of "Work Performed" under the Contract 

 Linan-Faye argues that the trial court improperly 

selected isolated phrases from correspondence between the parties 

in its determination that the phrase "work performed" in 

paragraph 17 of the contract16 refers only to "physical 

construction" and not to preparatory work. The district court 

conceded that the contract documents, which include the 

contract's General Conditions and its Supplement to the Standard 

Form Agreement, failed to define the term "work." Linan-Faye 

 

16. See supra note 1 for the text of paragraph 17. 
Construction Co., 847 F. Supp. at 1206. Based on an analysis of 

the word "work" as used in several paragraphs of the contract, 

the district court concluded that "work" could not include 

"preparatory work" until after Linan-Faye began physical 

construction on the project. Id. at 1207. We conclude that the 

district court erred in determining this disputed issue of fact. 

 Paragraph 8(a) of the General Conditions of this 

contract is the paragraph from which the district court draws the 

most support for its conclusion that "work" under the termination 

for convenience clause does not include "preparatory work." The 

court's reading of this paragraph, however, is too strained to 

support a grant of summary judgment. Paragraph 8(a) of the 

General Conditions states: 

 Progress payments will be made at approximately thirty 

(30) day intervals; and in preparing estimates, 

acceptable work in place, material delivered to and 

properly stored on the site, and preparatory work done 

will be taken into consideration. If the contract 

covers more than one project, a separate estimate shall 

be furnished for each. 

App. Vol. II at 42. From this paragraph, the district court 

deduced that expenses for preparatory work were recoverable only

if the contractor begins the physical construction required under 

the contract. Linan-Faye Construction Co., 847 F. Supp. at 1207. 

This conclusion is unjustified. 

 There is nothing in the language of paragraph 8(a) that 

speaks to situations where HACC terminates Linan-Faye for 

convenience after Linan-Faye has performed preparatory work, but 
before it has begun physical construction. If anything, the 

language of this paragraph demonstrates that both parties 

considered preparatory work to be a compensable cost because the 

paragraph states that preparatory work will be taken into 

consideration in preparing estimates for compensation. Thus, the 

district court erred in concluding that this paragraph is 

dispositive. 

 The district court's survey of numerous other 

paragraphs containing the word "work" also produces inconclusive 

results. According to the court, paragraph 2 which requires the 

contractor to "furnish all necessary labor, materials, tools, 

equipment, water, light, heat, power, transportation, and 

supervision necessary for performance of the work," and paragraph 

22 which allows the contractor to request from the architect 

drawings "which will [be required] in the planning and production 

of the work" somehow indicate that "work performed" under 

paragraph 17 does not include preparatory work. Id. at 1206 

(emphasis added). These provisions, on their face, do not appear 

to support any such conclusion. In addition, the district court 

determined that paragraphs 26, 29 and 35, which refer to the 

contractor's obligation to protect "work completed to date" and 

to the warranty as to "work done," support the conclusion that 

work performed under the termination for convenience clause does 

not include preparatory work. Once again, if anything, these 

provisions merely beg the question of how to define "work" under 
paragraph 17 of the contract. Finally, the court refers to 

paragraphs 7 and 31 that speak to obligations of the contractor 

before and shortly after "commencing work" under the contract. 

Unfortunately, these paragraphs also do not illuminate whether 

the parties considered preparatory work to constitute compensable 

work for purposes of the termination for convenience clause.17

 Linan-Faye asks for the opportunity to present 

testimony and cross-examine witnesses concerning the intent of 

the parties in using the phrase "work performed" in paragraph 17 

of the contract. Based on the evidence mustered by the district 

court, we cannot conclude that there is no dispute as to this 

issue. Further, this issue is material to the question of what 

constitutes proper compensation under paragraph 17. Therefore, 

Linan-Faye should be allowed to present the evidence that it 

feels is appropriate to determine the intent of the parties. 

Accordingly, we hold that the district court erred in granting 

summary judgment for HACC on this disputed issue. 

 B. Evidence of Pre-Termination Expenses

 

17. The district court also refers, in a footnote, to letters 

exchanged between the parties that purportedly explain the 

understanding of the parties concerning the definition of "work 

performed." The fact that the court goes beyond the contract and 

looks to these letters to reinforce its conclusion demonstrates 

the impropriety of granting summary judgment and the need to make 

such decisions on a more fully developed record. 
 Related to the disputed issue of the definition of 

"work performed" under the contract is the issue of whether 

Linan-Faye produced any evidence of pre-termination expenses 

compensable as "work-performed." The district court determined 

that Linan-Faye "had presented no evidence of expenses that would 

merit an equitable adjustment to the contract." Id. at 1208 

n.22. Linan-Faye argues that the certification which it 

submitted in opposition to HACC's third motion for summary 

judgment provides the requisite evidence. Linan-Faye is correct. 

 The district court, at this early stage of the 

litigation, improperly concluded that there was "no evidence" of 

expenses compensable under the termination for convenience 

clause. Linan-Faye described 15 types of expenses that LinanFaye incurred preparing for work on the HACC contract. 

Certification of Norman Faye (October 21, 1993); App. at 231-33. 

While many of these "expenses" may not be compensable, some of 

the stated expenses, such as time spent "with municipal building, 

plumbing and electrical inspectors regarding job phasing, 

contract details, code requirements, and problem solving," may be 

compensable if the parties so intended under the termination for 

convenience clause of the contract. Cf. ITT Defense 

Communications Division, Nos. 11858, 13439, 1970 ASBCA Lexis 29, 

at *56 (July 29, 1970) (cost of work done by appellant in 

preparing and submitting configurations that were never used 

still properly compensable under the termination for convenience 
clause); Navgas, Inc., No. 9240, 1964 ASBCA Lexis 1139, at *29 

(November 18, 1964) (costs of investigating work to be done, and 

determining the best way to perform the contract, if awarded, are 

properly compensable under termination for convenience clause). 

Although, on the whole, the evidence produced by Linan-Faye in 

this certification appears meager, by granting summary judgment 

for HACC the district court improvidently prevented the plaintiff 

from developing the record more fully. There was not a complete 

lack of evidence. Accordingly, we must reverse the grant of 

summary judgment on this issue and remand for trial. 

 In remanding for trial on this issue, however, it is 

important to explain precisely the scope of our holding. We do 

not hold that Linan-Faye is entitled to pre-termination expenses 

that accrued as the result of any alleged pre-termination 

breaches of contract by HACC. As the district court correctly 

held, cases that have addressed the issue of pre-termination 

breaches have concluded that claims for such damages are subsumed 

in the termination for convenience clause. Linan-Faye 

Construction Co., 847 F. Supp. at 1203, 1204 (citing Nolan 

Brothers, Inc. v. United States, 405 F.2d 1250 (Ct. Cl. 1969)); 

Descon System Ltd. v. United States, 6 Cl. Ct. 410 (1984)). Pretermination expenses that accrued as the result of any alleged 

pre-termination breaches by HACC are not compensable. On remand, 

the triable issue is limited to a determination of the pretermination expenses which Linan-Faye incurred that the parties 
intended to be compensable as "work performed" under the 

termination for convenience clause of the contract. 

 C. Why HACC Retained Linan-Faye's Performance Bond

 Linan-Faye next contends that the trial court 

improperly resolved a factual dispute as to why HACC retained 

Linan-Faye's performance bonds after terminating Linan-Faye. 

According to Linan-Faye, it is entitled to damages arising from 

HACC's failure to return this performance bond. Linan-Faye 

alleges that by retaining its bond, HACC prevented it from 

accepting other construction contracts and used the bond as an 

inducement to force Linan-Faye to accept an unreasonable 

resolution of this dispute. HACC argues that it retained LinanFaye's performance bond because Linan-Faye instituted a suit 

seeking specific performance and if Linan-Faye were successful, 

HACC would need Linan-Faye's bond. 

 This issue is not resolved solely by reference to the 

termination for convenience clause because the events that give 

rise to this claim occcured after termination.18 Recognizing 

 

18. Linan-Faye argues that it is entitled to damages because of 

HACC's improper withholding of its performance bond both before 

and after termination. Concerning Linan-Faye's claim for damages 

for pre-termination withholding of the bond, we agree with the 

district court that such damages are not recoverable because the 

termination for convenience clause controls and does not provide 

for such recovery. Claims arising from events following 

termination, however, would not be governed by the termination 

for convenience clause. 
this, the district court decided the issue by concluding that 

keeping the bonds during the pendency of the litigation was the 

"logical response" to the plaintiff's lawsuit. Linan-Faye 

Construction Co., 847 F. Supp. at 1205. 

 Unfortunately, there is no testimony or record evidence 

to support the conclusion that HACC engaged in the "logical 

response" posited by the district court. No one from HACC ever 

indicated that it was Linan-Faye's suit for specific performance 

that prevented HACC from returning the bond. Counsel for HACC 

simply raised this argument when the case took on a litigation 

posture. This naked assertion by counsel, without record 

support, is not sufficient to warrant a grant of summary 

judgment. 

 The district court attempts to justify its decision to 

accept HACC's argument by referring to the September 25, 1990 

termination letter sent by Gregory Kern, the Interim Executive 

Director of HACC. Nevertheless, its reasoning is unpersuasive. 

According to the court, Mr. Kern's letter which indicated that 

HACC would return the bonds was sent before Linan-Faye instituted 

suit. Linan-Faye, 847 F. Supp. at 1205 n.16. Therefore, the 

court reasoned, "[t]he decision of the HACC to depart from Mr. 

Kern's original plan only supports [the] finding that HACC felt 

compelled to hold onto the bonds until the Court had disposed of 

plaintiff's claims for specific performance." Id. (emphasis 

added). The court in this passage, however, merely assumes its 
conclusion. What eludes the district court is any evidence

indicating that it was the suit for specific performance that 

caused retention of the bond. In effect, what the district court 

stated is that the decision of HACC to depart from Kern's 

original plan supports HACC's decision to depart from Kern's 

original plan -- a statement without significance. 

 Moreover, even taking HACC's view of the timing of the 

relevant events, there was an unjustified gap of over one month 

between the time HACC terminated Linan-Faye and the time LinanFaye served its complaint seeking specific performance. 

According to HACC, after it issued its September 25, 1990 letter 

of termination, Linan-Faye sought reversal of HACC's decision to 

terminate. HACC states that it sent a letter to Linan-Faye on 

October 23, 1990 confirming its decision to terminate. LinanFaye did not serve its complaint for specific performance until 

early in December of 1990, however, and the bond had not yet been 

returned. This unexcused delay strengthens Linan-Faye's argument 

that HACC did not decide to hold onto the performance bond as the 

result of the specific performance suit. In light of these 

facts, we will reverse the district court's grant of summary 

judgment for HACC and remand for trial on this disputed issue.19 

 

19. We recognize that Linan-Faye's complaint in this matter does 

not set forth a theory of recovery for damages due to improper 

retention of the performance bond following termination. Indeed, 

the complaint could not set forth such a theory because the 

events giving rise to this aspect of Linan-Faye's claim (i.e., 

HACC's continued refusal to relinquish the bond during the 

pendency of the specific performance action) did not occur until 
 D. Whether Linan-Faye "Refused" to Begin Work. 

 Linan-Faye asserts that the district court improperly 

found it "refused" to begin work. According to Linan-Faye, it 

did not refuse to begin work, but merely wanted to agree on any 

changes that HACC desired before it began construction. LinanFaye contends that there is no basis in the record for the 

district court's finding that it flatly refused to begin work. 

 We find that the question of whether Linan-Faye flatly 

refused to begin work is immaterial to this case. Whether Linan-

(..continued) 

after the complaint was filed. Nevertheless, the district court 

made findings on this issue. Linan-Faye, 847 F. Supp. at 1205. 

Further, both parties briefed and argued the issue before this 

Court and HACC did not argue that the issue was not properly 

before the district court. Accordingly, we find it appropriate 

to set forth the applicable theory of recovery on remand. 

 On remand, the theory upon which damages would be predicated 

is the common law action of detinue (or its modern counterpart). 

According to the New Jersey Supreme Court, "[t]he gist of the 

common law action of detinue was that [the] defendant originally 

had and acquired possession of the chattels lawfully, as by 

finding or bailment, but holds them subject to the plaintiff's 

superior right to immediate possession which has been asserted by 

a demand." Baron v. Peoples National Bank of Secaucus, 9 N.J. 

249, 256, 87 A.2d 898, 901 (1952). At common law, the 

appropriate remedy in a detinue action where property has been 

unlawfully detained is a judgment for the value of the property 

and damages in detention. Id.

 Here, HACC lawfully received Linan-Faye's performance bond 

pursuant to a contract between the parties. Following 

termination, however, HACC's legal right to retain the bond is 

the subject of the dispute that must be resolved on remand. If 

the jury were to find HACC liable for improper retention of the 

bond, the appropriate measure of damages would be compensation 

for jobs lost by Linan-Faye (after termination) that resulted 

from HACC's improper action. 
Faye actually "refused" to begin work would be relevant if it was 

necessary to decide if Linan-Faye defaulted on its obligations. 

The district court, however, based its holding on the doctrine of 

constructive termination for convenience. Linan-Faye 

Construction Co., 847 F. Supp. at 1203. The constructive 

termination for convenience doctrine makes the original reason 

for termination relevant only to the extent that it evidences the 

government's bad faith or a change in circumstances from the time 

of contracting.20 The issue of whether there was an actual 

default by Linan-Faye in refusing to begin work is immaterial. 

In this case the default termination is converted into a 

termination for convenience of the government by operation of 

law. Since we agree with the district court that it was 

appropriate to apply the constructive termination for convenience 

doctrine, we hold that this issue is immaterial. 

 E. Whether Linan-Faye Misunderstood the Specifications

 Linan-Faye argues that the district court improperly 

concluded that it misunderstood the contract specifications 

because the court indicated in a footnote that "[a]t the very 

least, plaintiff misinterpreted the architect's specifications" 

for the project. Linan-Faye Construction Co., 847 F. Supp. at 

1203 n.13. According to Linan-Faye, it was HACC who 

 

20. See infra Part V for analysis of the constructive 

termination for convenience doctrine. 
"misinterpreted" the contract specifications. The dispute over 

proper interpretation of the contract specifications, argues 

Linan-Faye, prevented the court from resolving this issue at the 

summary judgment stage. 

 Linan-Faye's argument misinterprets the district 

court's reasoning. The relevant statement the court made in this 

footnote is merely that there was discord between the parties 

over interpreting their agreement. The district court mentioned 

the discord to support its conclusion concerning the constructive 

termination for convenience doctrine. Whether Linan-Faye 

actually misunderstood the specifications, or whether it was 

HACC's misunderstanding, is irrelevant where there is a 

termination for convenience. As the district court held, the 

constructive termination for convenience doctrine operates to 

allow the government to extricate itself from contractual 

relationships without arguing as to which party was in default. 

Id. at 1203. Accordingly, the issue of who misunderstood the 

contract specifications is not material, and played no part in 

the order granting summary judgment. 

 F. Whether HUD Approval was Necessary for Termination

 Linan-Faye suggests that whether HUD approved a 

termination for convenience is a disputed issue that precludes 

summary judgment. It concedes that HACC obtained HUD's general 

approval to terminate the contract, but argues that HUD never 
approved a termination for convenience. Linan-Faye contends that 

HUD approval of a termination for convenience was a condition 

precedent to invoking that clause, and failure to obtain such 

approval precludes summary judgment. Linan-Faye does not succeed 

in raising a disputed material issue on this point. 

 For the purposes of deciding this case, the district 

court did not assume that HACC originally terminated for 

convenience. While there is a dispute as to whether the original 

letter of termination constituted a default termination or a 

termination for convenience, HACC prevails under the district 

court's reasoning without having to prove that it obtained HUD 

approval of a termination for convenience. The court proceeded 

on a constructive termination for convenience theory. Linan-Faye 

does not dispute that HUD had approved HACC's right to terminate 

generally. Thus, concerning the original termination, HACC 

fulfilled its obligations by informing HUD, and obtaining from 

HUD a general approval for the termination of the contract. 

Because HACC received general HUD approval to terminate, there is 

no bar to this court's using the constructive termination for 

convenience doctrine to convert this into a termination for 

convenience by operation of law. Further, and most importantly, 

there is simply no dispute as to the material facts of what 

approval HACC obtained. Indeed, both parties concede that HACC 

obtained HUD approval to terminate generally, but did not obtain 

specific HUD approval of a termination for convenience. 
Therefore, this cannot be a disputed factual issue as Linan-Faye 

erroneously contends. 

 Accordingly, we will reverse the district court's grant 

of summary judgment and remand for trial on the issues of: (1) 

the definition of "work performed" under paragraph 17 of the 

contract; (2) the pre-termination expenses incurred by Linan-Faye 

that are compensable as "work performed" under the termination 

for convenience clause; and (3) HACC's possible liability for 

damages resulting from its retaining Linan-Faye's bond after 

termination. 

 VII. SECTION 1983 

 Linan-Faye next asserts that the district court erred 

in granting summary judgment against it on its claim under 42 

U.S.C. § 1983. Linan-Faye argues it has a protectible property 

interest in its contract with HACC that is entitled to Fourteenth 

and Fifth Amendment protection. Further, Linan-Faye contends 

that HACC's retention of its performance bond implicates a 

liberty interest entitled to constitutional protection. In 

granting summary judgment, the district court held that whatever 

property interest Linan-Faye may have had, it does not rise to a 

sufficient level of certainty or dependency to merit 

constitutional protection. Linan-Faye Construction Co. v. 

Housing Authority of Camden, 797 F. Supp. 376, 380 (D.N.J. 1992). 
 We agree with the district court's resolution of this 

matter. This Court recently surveyed the law concerning 

Fourteenth Amendment claims based on contracts with state 

entities. Unger v. National Residents Matching Program, 928 F.2d 

1392 (3d Cir. 1991). We stated in Unger that it is beyond 

dispute today that a contract with a state entity can give rise 

to a property right protected under the Fourteenth Amendment. 

Id. at 1397 (citing Perry v. Sindermann, 408 U.S. 593, 599-601, 

92 S. Ct. 2694, 2698-2700 (1972)). Nevertheless, we stated that 

the Supreme Court has never held that every state contract gives 

rise to such a protectible property interest. Id.

 As we explained in Unger, relevant Supreme Court cases 

and cases from other courts of appeals instruct that two general 

types of contract rights are recognized as property protected 

under the Fourteenth Amendment: (1) where "the contract confers a 

protected status, such as those `characterized by a quality of 

either extreme dependence in the case of welfare benefits, or 

permanence in the case of tenure, or sometimes both, as 

frequently occurs in the case of social security benefits'"; or 

(2) where "the contract itself includes a provision that the 

state entity can terminate the contract only for cause." Id. at 

1399 (citing S & D Maintenance Co. v. Goldin, 844 F.2d 962, 966-

67 (2d Cir 1988)). In Unger, a physician licensed to practice 

medicine in Pennsylvania was admitted into Temple University 

Hospital's dermatology residency program through the National 
Resident Matching Program. Id. at 1393. Shortly before Unger 

was to begin the program, she received a letter stating that the 

University had decided to discontinue the program. Id. Unger 

filed suit under 42 U.S.C. § 1983. Id.

 Declaring that the contract in Unger did not fall into 

either of the two protected categories, we dismissed Unger's § 

1983 claim. Id. at 1402. We relied in part on the reasoning of 

our previous decision in Reich v. Beharry, 883 F.2d 239 (3d Cir. 

1989), where we stated: 

 Many . . . courts have observed that if every breach of 

contract by someone acting under color of state law 

constituted a deprivation of property for procedural 

due process purposes, the federal courts would be 

called upon to pass judgment on the procedural fairness 

of the processing of a myriad of contract claims 

against public entities. We agree that such a 

wholesale federalization of state public contract law 

seems far afield from the great purposes of the due 

process clause. 

Reich, 883 F.2d at 242 (citations omitted). 

 Linan-Faye's contract with HACC does not fall into 

either of the two categories we delineated in Unger. The 

contract does not confer a protected status on the plaintiff and 

the state entity could terminate the contract for reasons other 

than for cause. Indeed, it could be terminated for convenience. 

To grant Linan-Faye a remedy under § 1983 would create the 

wholesale federalization of state public contract law that 

concerned us in Unger and Reich. Accordingly, the district court 
did not err in granting summary judgment for HACC on Linan-Faye's 

claim. 

 Turning to Linan-Faye's assertion that it has been 

deprived of a constitutionally protected liberty interest, we 

also find that the district court did not err in granting summary 

judgment for HACC. The Court of Appeals for the Second Circuit 

addressed a case factually similar to the one at hand in S & D 

Maintenance Co. v. Goldin, 844 F.2d 962 (2d Cir. 1988). In that 

case, a contractor brought a § 1983 claim against the City of New 

York, claiming that the City's withholding of payments under a 

contract to maintain parking meters resulted in the contractor 

being left with insufficient capital to pursue other work. Id.

at 963, 970. The court held that although the consequential 

damages of an alleged breach may be severe, this fact alone 

cannot convert a contract claim into a deprivation of liberty. 

Id. at 970. We agree with the reasoning of the Court of Appeals 

for the Second Circuit, and conclude that Linan-Faye fails to 

establish a claim of constitutional magnitude. We will affirm 

the district court's grant of summary judgment to HACC on LinanFaye's § 1983 claim. 

 VIII. ESTOPPEL CLAIMS 

 Linan-Faye's final contention is that HACC is precluded 

from refusing to pay compensation by reason of principles of 

equitable and judicial estoppel. Linan-Faye argues that HACC 
could have terminated for convenience in 1988 but that it did 

not, and it breached a duty of fairness by waiting two years 

before deciding to terminate. Linan-Faye relies on a single 

case, M. & O. Disposal Co. v. Township of Middletown, 100 N.J. 

Super. 558, 242 A.2d 841 (A.D. 1967), aff'd, 52 N.J. 6, 242 A.2d 

841 (1968), to support its equitable estoppel argument. 

Additionally, Linan-Faye argues that because HACC asserted in 

prior judicial proceedings that there would be a "defined measure 

of damages" under the termination for convenience clause, HACC is 

now judicially estopped from arguing that it owes Linan-Faye 

nothing. 

 We find Linan-Faye's equitable estoppel claim 

unpersuasive. HACC could have terminated for convenience in 1988, 

but it also could have pursued completion of the contract 

according to its terms. HACC's decision to terminate after an 

inability to agree to such terms does not breach a duty of 

fairness. Indeed, this termination was within HACC's rights 

under the contract and, as explained above, the constructive 

termination for convenience doctrine allows HACC to convert its 

original termination into a termination for convenience. 

 Moreover, Linan-Faye's reliance on M. & O. Disposal is 

misplaced. That case involved the question of whether a 

municipality impliedly ratified a contract for extra work which 

was outside the scope of contract to dispose of garbage. Id. at 

560, 567, 242 A.2d at 841, 846. In that case, the New Jersey 
court merely stated the general precept that equitable principles 

of estoppel will be applied against municipalities where the 

interests of justice, morality, or common fairness clearly 

dictate this course. Id. at 567, 242 A.2d at 846. Beyond the 

obvious fact that the timing problem presented here has almost 

nothing to do with the ratification issue presented in M. & O. 

Disposal, Linan-Faye has failed to demonstrate how HACC's 

exercise of its rights under this contract violates principles of 

justice, morality, or common fairness. Thus, we find LinanFaye's equitable estoppel argument unconvincing. 

 Linan-Faye's argument for judicial estoppel is also 

unpersuasive. Judicial estoppel precludes a party from assuming 

a position in a legal proceeding inconsistent with one previously 

asserted to the prejudice of an adverse party. Brown v. Allied 

Plumbing & Heating Co., 129 N.J.L. 442, 446, 30 A.2d 290, 292 

(Sup. Ct.), aff'd 130 N.J.L. 487, 33 A.2d 813 (E. & A. 1943); 

Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 620, 581 

A.2d 91, 107 (A.D. 1990) (citations omitted), aff'd, 124 N.J. 

520, 591 A.2d 943 (1991). There is no inconsistency in taking 

the position that HACC took in prior proceedings. HACC merely 

argued that the termination for convenience clause provided the 

defined measure of damages. After the district court decided the 

difficult question of whether the termination for convenience 

clause defines the measure of damages, it was not only 

appropriate, but necessary, for HACC to address the question of 
what the measure of damages is under that clause. At this later 

stage, HACC may contend that this clause provides no compensation 

for Linan-Faye in this instance. The attempt by Linan-Faye to 

describe a contradiction in HACC's legal position has no force 

under the facts presented in this case. 

 IX. CONCLUSION 

 In sum, we find that the district court erred in its 

decision to apply federal common law and not the law of New 

Jersey to resolve this dispute. Applying New Jersey law, we will 

reverse the district court's grant of summary judgment and remand 

for trial on the issues of material fact that are in dispute. 

The three issues that remain in dispute in this case are the 

definition of "work performed" under paragraph 17 of the 

contract, whether and to what extent Linan-Faye incurred 

preparatory expenses prior to termination that are compensable as 

"work performed" under paragraph 17, and HACC's possible 

liability for damages resulting from its withholding of LinanFaye's performance bond after termination. Finally, we will 

affirm the district court's grant of summary judgment in favor of 

HACC on Linan-Faye's § 1983 claim. 
Linan-Faye Construction Co., Inc. v. Housing Authority of the 

City of Camden, No. 94-5193. 

BECKER, Circuit Judge, Concurring and Dissenting. 

 I join in Parts I, II, and III of the majority opinion. 

However, I dissent from Part IV because I do not agree that New 

Jersey would apply to this garden variety construction dispute 

between a builder and a local governmental agency precepts drawn 

from a potpourri of federal cases which amount at best to a hodge 

podge, and at worst to a regime so inhospitable and unfair to 

small contractors who deal with government agencies as to be 

inconsistent with New Jersey jurisprudence. Rather, I believe 

that New Jersey would apply its own law, which would not 

recognize the doctrine of "constructive termination for 

convenience" but rather would apply the normal rule of contract 

breach which, on this record, would unquestionably render HACC 

liable. Moreover, even if the New Jersey Supreme Court were to 

assimilate federal law, I do not think that it would read that 

law in the matter predicted by the majority. The precepts that 

the majority applies are gleaned from cases that have been 

excoriated in critical commentary because they are in 

considerable measure poorly reasoned. 

 I also find myself unable to join in Part VII, dealing 

with Linan-Faye's 42 U.S.C. § 1983 claims. I cannot agree with 

the majority that HACC's arguably improper retention of LinanFaye's performance bond, which the company requires in order to 
engage in any business, did not impair Linan-Faye's liberty 

interest. I do, however, join the majority with respect to its 

rejection of Linan-Faye's property interest claim.21 

 I. WHAT LAW WOULD NEW JERSEY APPLY? 

 The majority, notwithstanding the considerable 

authority of the Dobson case, supra Maj. Op. at 13, reasons that 

because there are no cases in New Jersey construing the effect of 

termination for convenience clauses, "courts in New Jersey would 

recognize that where the parties have incorporated a particular 

clause pursuant to federal regulation, they do so against the 

backdrop of federal case law addressing the clause," and hence 

would adopt federal law, whatever that may be. That is the sum 

and substance of the majority's argument. It is, I suggest, 

pretty "thin soup," neither documented nor reasoned. 

 The majority's prediction also ignores the facts that 

should govern the analysis required in such circumstances. A 

review of the facts Linan-Faye has advanced and supported in 

connection with the summary judgment motion -- which are glossed 

over by the majority -- will illuminate the correct prediction of 

New Jersey law. At this stage, these facts must obviously be 

 

21. I take no position on Parts VI.B through F and VIII of the 

majority opinion, as they are outside the ambit of this effort, 

except to note that the discussion of HACC's delay in invoking 

the termination for convenience clause, see Part VIII, supports 

my views insofar as it highlights the dubiousness of HACC's ex 

post reliance thereon. 
viewed in the light most favorable to Linan-Faye, the non-moving 

party. See Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d 

Cir. 1976). 

A. The Facts Viewed in the Light

Most Favorable to Linan-Faye

 It is undisputed that the parties had a binding 

$4,264,000 contract for the rehabilitation of 244 housing units. 

Linan-Faye, with declarations cognizable in summary judgment 

proceedings: (1) represents itself to be an experienced, highly 

regarded contractor that was ready, willing, and able to perform 

the job in a timely fashion; (2) states that through 

incompetence, poor planning, or other contractors' delay, the 

HACC failed or refused to give Linan-Faye even a Notice to 

Proceed for a full year; and (3) submits that after finally 

giving that Notice, HACC then proceeded, without justification, 

to delay Linan-Faye for almost another year. Linan-Faye also 

represents that HACC never supplied Linan-Faye with a list of 

which vacant units to work on; that turmoil reigned at HACC as 

the Executive Director was replaced by a new Acting Executive 

Director, Gregory Kern, in July 1990; and that Kern decided to 

"clean house" by, inter alia, summarily terminating Linan-Faye's 

contract. 

 It is also undisputed that in the course of the 

termination dialogue, HACC never suggested that the termination 
was "for convenience." All the discussion and written notices 

instead alleged contractor default, which Linan-Faye staunchly 

denied. Moreover, whether or not it was legally required, HACC 

never got HUD approval to terminate for convenience. Indeed, 

HACC did not invoke the termination for convenience clause until 

two years after termination, when the litigation began. Most 

importantly, during the period from September 1988 through August 

1991, HACC held Linan-Faye's performance bonds, effectively 

precluding Linan-Faye from bidding any other significant work. 

Linan-Faye has proffered evidence that it suffered damages of 

$1,492,000 as a result of HACC's breach of the contract and a 

further loss of $1,249,999 from its inability to use its bonding 

line. 

 B. General New Jersey Contract Law Principles

 Under general common law contract principles, 

applicable in New Jersey and elsewhere, one who breaches a 

contract must compensate the injured non-breaching party so as to 

put it in the position it would have occupied had performance 

been rendered as promised. Donovan v. Bachstadt, 453 A.2d 160, 

165 (N.J. 1982); 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 992 (1951). 

A court in a breach of contract case aims to fashion a remedy in 

order to compensate the non-breaching party fully. Donovan, 453 

A.2d at 165; 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 992 (1951). 
 The New Jersey courts have long maintained a liberal 

rule that non-breaching parties are entitled to damages. Cf. In 

re Merritt Logan, Inc., 901 F.2d 349, 357 (3d Cir. 1990) 

(interpreting New Jersey contract damages law); Sandler v. LawnA-Mat Chem.& Equip. Corp., 358 A.2d 805, 814 (N.J. Super. Ct. 

App. Div.), cert. denied, 366 A.2d 658 (N.J. 1976) (non-breaching 

party "presumptively" entitled to damages, with doubts resolved 

against the breaching party). New Jersey courts have also 

narrowly construed clauses that tend to restrict a party's right 

to recover its full common law damages. See American Sanitary 

Sales Co. v. State, 429 A.2d 403, 407 (N.J. Super. App. Div.), 

cert. denied, 434 A.2d 1094 (N.J. 1981) (narrowly interpreting a 

"no damage for delay" clause in a New Jersey state contract). 

 The reluctance of the New Jersey Courts to give 

expansive effect to exculpatory clauses extends to cases 

involving its own government agencies. See, e.g., Buckley & Co., 

Inc. v. State, 356 A.2d 56, 62 (N.J. Super. Ct. Law Div. 1975); 

Ace Stone, Inc. v. Township of Wayne, 221 A.2d 515, 518-19 (N.J. 

1966); American Sanitary Sales Co., 429 A.2d at 407; see also

Department of Transp. v. Arapaho Constr., Inc., 357 S.E.2d 593, 

594-95 (Ga. 1987) (relying in part on Ace Stone). Moreover, 

under New Jersey law there is a presumption against finding a 

contractual intent to alter common law rights and remedies. See, 

e.g., Gibraltar Factors Corp. v. Slapo, 125 A.2d 309, 310 (N.J. 

Super. Ct. Law Div. 1956) (parties presumed to contract with 
reference to existing law), aff'd, 129 A.2d 567 (N.J. 1957), 

appeal dismissed, 355 U.S. 13 (1957); see also Rescigno v. 

Picinich, 377 A.2d 733, 739 (N.J. Super. Ct. Law Div. 1977) 

(applying a presumption against a statutory intent to alter 

common law rights); Blackman v. Iles, 71 A.2d 633, 636 (N.J. 

1950) (same). Indeed, New Jersey courts commonly award 

contractors common law contract damages against the State, 

including damages for delay. See, e.g., American Sanitary Sales 

Co., 429 A.2d at 407; Buckley & Co., 356 A.2d at 65 (see also 

cases cited therein). 

 C. New Jersey and the Federal Law Alternative

 This is not the first case in which a court applying 

New Jersey law has had to adjudicate a contract dispute with some 

federal connection. In Edward J. Dobson, Jr., Inc. v. Rutgers, 

384 A.2d 1121 (N.J. Super. Ct. Law Div. 1978), aff'd sub nom.

Broadway Maintenance Corp. v. Rutgers, 434 A.2d 1125 (N.J. Super. 

Ct. App. Div. 1981), aff'd, 447 A.2d 906 (N.J. 1982), plaintiffcontractors sought to avoid the impact of a "no-damage for delay" 

clause by asserting their claim for delay as an "equitable 

adjustment." The court traced the history of the "equitable 

adjustment" provisions in federal construction contracts and 

federal regulations. But the court refused to import this wholly 

federal concept into the New Jersey law of public construction 
contracts. Finding that the term "equitable adjustment" had 

become a term of art in federal contracts, the court held: 

 The policy factors that have lead [sic] to 

the development of this concept in federal 

contracts, such as a need to expand or 

abandon a particular arms program with 

consequent economic impact on contractors and 

subcontractors, do not warrant state courts 

adopting it wholesale by judicial fiat when 

traditional remedies for breach of contract 

are available. Id. at 1153 n.10. 

This holding was affirmed by both the intermediate appellate 

court and Supreme Court of New Jersey and strongly suggests that 

New Jersey courts would not import the federal concept of 

constructive termination for convenience into its public 

construction contracts jurisprudence. 

 As the majority correctly points out, because there is 

no reported New Jersey precedent interpreting a "termination for 

convenience" clause, it is the function of this court to predict 

how the New Jersey Supreme Court would rule if confronted with 

this issue. In my view, there is no reason to believe that that 

court, if called upon to resolve the question, would jettison a 

century of settled contract law supporting liberal contract 

remedies and narrowly construing similar exculpatory provisions 

in order to adopt a harsh -- and harshly criticized, see infra -- 

federal interpretation of the clause at issue here. In this 

case, the retroactive application of this dramatic change in the 

law imposed by the majority to the factual scenario described 

above not only exacerbates the harshness of the result but also 
increases my confidence that the New Jersey Supreme Court would 

never have adopted this interpretation. 

 

D. The Termination of Convenience Provision and Its

Harsh Construction by the Majority

 The termination for convenience clause has, as the 

majority explains, a long lineage, dating from the Civil War era. 

During that era federal government contracting was attended by 

much impropriety and scandal. See generally CARL SANDBURG, ABRAHAM 

LINCOLN, THE WAR YEARS (1948). The modern (post-1970) incarnation 

of the clause is ensconced in the Code of Federal Regulations: 

 If the contractor can establish, or if it is 

otherwise determined that the contractor was 

not in default or that the failure to perform 

is excusable; i.e., arose out of causes 

beyond the control and without the fault or 

negligence of the contractor, the [prescribed 

default clauses] provide that a termination 

for default will be considered to have been a 

termination for the convenience of the 

Government . . . . 

Federal Acquisition Regulations ("FAR's"), 48 C.F.R. § 49.401(b) 

(1993). The FAR's apply to direct United States government 

procurement (including HUD procurement). They do not apply to 

grants of federal funds to local public housing authorities. The 

district court acknowledged this undisputed point. (Dist. Ct. 

Op. at 18 n.7) 

 Moreover, regulations that govern grants to local 

housing agencies contain their own specific scheme and procedures 

for federally funded contracts made by state and local housing 
authorities that are separate and distinct from the FAR's. These 

"CIAP" requirements mandate a variety of terms and provisions 

that must be set forth in such contracts, including a termination 

for convenience clause. See 24 C.F.R. § 85.36(i)(2). In 

contrast to the FAR's, however, the Administrative Requirements 

for CIAP Grants do not include any counterpart to the automatic 

conversion language of 48 C.F.R. § 49.401(b), or the other 

specific termination provisions found in HUD's own FAR's. This 

is consistent with the mandate of the CIAP enabling statute, 

which is designed to allow the housing authority grantees maximum 

discretion and individualized judgment. 42 U.S.C.S. § 14371(e)E, 

(e)(4)(D) (1994). 

 The absence of an express conversion clause in the 

Administrative Requirements for Grants is significant because, 

under the venerable maxim of statutory construction, expressio

unius est exclusio alterius, the inclusion of one is the 

exclusion of another. As I see it, the exclusion of an automatic 

conversion provision in the Requirements for Public Housing 

Authority Contracts (when specifically included in HUD's own 

FAR's) expresses an intent to exclude such a provision, unless 

local PHA administrators choose to include it. Cf. Marshall v. 

Western Union Tel. Co., 621 F.2d 1246, 1251 (3d Cir. 1980) 

(refusing to apply a Department of Labor standard in one 

subsection of a regulation where it had been excluded when it was 

included elsewhere); SUTHERLAND STATUTORY CONSTRUCTION § 31.06 (4th 
ed.). Moreover, without the conversion clause, HACC's initial 

failure to allege that it was terminating the contract with 

Linan-Faye for convenience prevents HACC from subsequently 

embracing that argument. 

 Before contracts with the federal government included 

automatic conversion clauses, courts did not permit government 

agencies to use the termination for convenience clauses to escape 

from a breach. In Klein v. United States, 285 F.2d 778 (Ct. Cl. 

1961), for example, the Court of Claims rejected the government's 

argument that, because it had a contractual right to terminate 

for convenience, its illegal breach of contract should be 

disregarded. Id. at 784. Accord Goldwasser v. United States, 

325 F.2d 722, 725 (Ct. Cl. 1963); Dynalectron Corp. v. United 

States, 518 F.2d 594, 604 (Ct. Cl. 1975); Torncello v. United 

States, 681 F.2d 756, 771-72 (Ct. Cl. 1982); Rogerson Aircraft 

Corp. v. Fairchild Indus.Inc., 632 F. Supp. 1494, 1499 (C.D. Cal. 

1986) (changed circumstances required). 

 The problems confronted by government contracting 

officers operating under the Klein rule resulted in the adoption 

of the automatic conversion clause by regulation, 48 C.F.R. § 

49.401(b). The clause now appears in most direct federal 

government procurement contracts. However, as the Rogerson court 

noted in footnote 5 of its opinion, where the "automatic 

conversion clause" is not made part of the contract, either 

expressly or by regulation, the Klein rule remains fully 
applicable and bars the implication of such clause. Rogerson, 

632 F. Supp. at 1500 n.5. Although the contract in Rogerson

appears more specific than the instant contract in its 

requirement that the agency elect its basis for termination 

(i.e., default or convenience), the Rogerson decision remains 

important and persuasive. Without a conversion clause, HACC 

cannot invoke the termination for convenience provision to cure 

its improper default termination. And a wrongful termination for 

default constitutes a breach of the contract entitling the 

wrongly terminated subcontractor to state law damages for the 

breach, including lost profits. Id. at 1500-01; Clay Bernard 

Sys. Int'l, Ltd. v. United States, 22 Cl. Ct. 804, 810-11 (1991) 

(holding that absent a "conversion clause" a wrongful termination 

for default is a breach, entitling contractor to recovery under 

federal procurement law). 

 But even if HACC had initially invoked its termination 

for convenience clause, thus avoiding the issue of the absence of 

a conversion clause, HACC could not avoid liability in this case. 

The majority acknowledges that the case law construing the 

termination for convenience clause has retrenched from its high 

water mark. While the majority's discussion does not clearly 

depict the current state of the law, the leading cases appear to 

hold that government agencies can only invoke the clause where 

there has been some change in the circumstances of the parties. 

See Torncello, 681 F.2d at 772. The majority holds that a 
deterioration in business relations, demonstrated in not 

insignificant part by a dispute over specifications, constitutes 

such a change in circumstances. In my view, such a rule would 

largely eviscerate the limitation. As lawyers who have dealt 

with construction disputes know, these contracts almost always 

generate some dispute over specifications, and any construction 

dispute rancorous enough to spawn litigation will almost 

certainly have led to the requisite deterioration in business 

relations. The facts of this case illustrate how circular a 

deterioration-of-business-relations test can be, for HACC did not 

even attempt to invoke the clause until litigation began. 

 The majority constructs a regime under which a dispute 

arising out of a garden variety contract between a builder and a 

local housing authority, which is not a federal government 

contract but only a local agency contract to which certain 

federal regulations apply, has been severed from its common law 

roots. The majority's application of selected federal cases 

renders these local agency contracts virtually illusory by giving 

an arguably defaulting local agency the right to avoid its own 

breach, and sharply limit its liability simply by incanting the 

termination for convenience clause two years after the fact. In 

my view, it is inconceivable that the New Jersey Supreme Court, 

which has so consistently supported liberal awards of contract 

damages, would countenance that result, especially in the fact 

scenario at bar. 
 This conclusion is strongly buttressed by the scathing 

criticism that has been levied at Torncello and the cognate 

jurisprudence. See, e.g., Stephen N. Young, Note, Limiting the 

Government's Ability To Terminate for Convenience Following 

Tornecello, 52 GEO. WASH. L. REV. 892 (1984) (suggesting that the 

Torncello decision provides a reason to eliminate the 

government's ability to terminate for convenience entirely). 

 Because I do not believe that the New Jersey Supreme 

Court would adopt the federal interpretation but would instead 

continue to give exculpatory clauses such as the termination for 

convenience clause only narrow -- if any -- effect, I dissent.22

 II. THE § 1983 CLAIM

 I also dissent from the majority's affirmance of the 

summary judgment granted on Linan-Faye's § 1983 claim. While I 

agree that Linan-Faye's interest in the contract did not rise to 

a property interest protected by the Constitution, I cannot agree 

that HACC's unjustified retention of Linan-Faye's performance 

bond did not deprive Linan-Faye of a protected liberty interest. 

 The majority dismisses Linan-Faye's claim rather 

summarily, overlooking precedent which would, in my view, require 

 

22. As my discussion explains, I believe that this result would 

follow even if New Jersey were to look to federal law, for I do 

not think New Jersey would read federal law so expansively as 

does the majority. 
reversal. The right to follow a chosen profession free from 

unreasonable interference comes within both the liberty and 

property concepts of the Fifth and Fourteenth Amendments. See

Greene v. McElroy, 360 U.S. 474, 492 (1959); Piecknick v. 

Commonwealth of Pennsylvania, 36 F.3d 1250, 1259 (3d Cir. 1994); 

Bernard v. United Township High Sch. Dist. No. 30, 5 F.3d 1090, 

1092 (7th Cir. 1993). It is true that the Constitution protects 

only the right "to pursue a calling or occupation, and not the 

right to a specific job." Bernard, 5 F.3d at 1092 (quoting 

Wroblewski v. City of Washburn, 965 f.2d 452, 455 (7th Cir. 

1992)). Nevertheless, the majority and the sole case on which it 

relies, S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2d Cir. 

1988), fail to consider how disputes over specific jobs can, 

under certain circumstances, affect a party's pursuit of its 

occupation. 

 In S & D, although the Court of Appeals for the Second 

Circuit framed the § 1983 claim as one challenging the 

plaintiff's dismissal from government employment, which clearly 

did not rise to a constitutional violation, the true basis of the 

plaintiff's liberty claim was that New York City's refusal to pay 

amounts already due had essentially forced the company out of 

business and left it "tottering near bankruptcy, unable to get 

work, as a direct result of the city's alleged breach of the 

contracts and withholding of payments." S & D, 844 F.2d at 970. 

While I believe that S & D may be in error to the extent it 
denies that the plaintiff's claim implicated a protected liberty 

interest, the instant case provides an even stronger claim. 

Whereas the city defendant in S & D could argue that the 

plaintiff was not entitled to the amounts that it alleged it had 

already earned, HACC cannot make any such argument about its 

(arguably unjustified) failure to return Linan-Faye's own 

performance bond. Also, when HACC interfered with Linan-Faye's 

(pre-existing) capacity to obtain large construction contracts, 

the core of its business, it brought this case into close 

resemblance to those cases where the state actors are held liable 

under § 1983 for revoking or interfering substantially with a 

person's license to pursue a chosen occupation. Cf. Herz v. 

Degnan, 648 F.2d 201 (3d Cir. 1981) (finding violation of a 

property interest in the revocation of a professional license). 

 Without the use of its bonding line, Linan-Faye was 

paralyzed: It could not bid on any significant contracts and 

thus could not replace the business lost through the government's 

breach. Hence, because HACC's arguably unjustified retention of 

the bond did impinge on protected liberty interests, the district 

court erred by awarding the defendant summary judgment on this 

claim. I therefore also dissent from the portion of the majority 

opinion that affirms this ruling.