Opinion ID: 2357566
Heading Depth: 2
Heading Rank: 4

Heading: Contract Reformation

Text: INA asserts that even if the ADA applies, and prohibits enforcement of the Repayment Agreement as written, the contract should be interpreted or reformed to achieve the parties' intentions as far as possible. See Leiken v. Wilson, 445 A.2d 993, 998 (D.C.1982) ([W]hen a contract is fairly open to two constructions, one of which makes it lawful while the other renders it unlawful, the former should be adopted.). Under this proposal, the revised contract would treat the $40 million appropriated by Congress as a cap on the District's obligation to indemnify INA. In practical terms, reformation would permit the District to pay INA's costs, fees and expenses only to the extent that any of the $40 million appropriation remains unspent. There is precedent for this approach. In Union Pacific Railroad Corp., a case involving an indemnification agreement, the government's obligations under [the contract] appear[ed] so open-ended as to contravene the Anti-Deficiency Act. 52 Fed.Cl. at 733-34. Nevertheless, the court granted the plaintiff leave to seek reformation of the contract to specify (1) that in no event will the government payments under the clause exceed actual appropriations and (2) that nothing in the contract shall be construed as a promise that Congress, at a later date, will appropriate sufficient funds to meet deficiencies. Id. at 734-35. [10] This court has also recognized that where an agreement has been reached by the parties but the writing does not accurately express [their] mutual agreement . . . reformation is appropriate. Lumpkins v. CSL Locksmith, LLC, 911 A.2d 418, 423-24 (D.C.2006) (quotation marks and citation omitted). The law permits reformation of written contracts where one party proves a mutual mistake in the terms of the agreement. If the language of a written instrument does not reflect the true intent of both parties, then their mutual mistake is reformable. This reformation is driven by a respect for the parties' intent and gives effect to the terms mutually agreed upon by the parties. 27 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 70:2 (4th ed.2003); see also 17A AM.JUR.2D CONTRACTS § 340 (2005) (Courts are obligated to construe contracts that are potentially in conflict with a statute, and thus void as against public policy, where reasonably possible, to harmonize them with the statute.). However, [s]ince the remedy of reformation is equitable in nature, a court has the discretion to withhold it, even if it would otherwise be appropriate, on grounds that have traditionally justified courts of equity in withholding relief. RESTATEMENT (SECOND) OF CONTRACTS § 155, cmt. d (1981). At one time the Comptroller General seemed to allow indemnification agreements that would otherwise be open-ended if there was an explicit contractual limitation of liability to funds available at the time of the occurrence of the contingency, coupled with the assurance that nothing in the agreement will be viewed as binding Congress to approve additional funds to cover a possible deficiency. Metzenbaum, 63 Comp. Gen. at 147 (describing opinion in In re Reimbursement of State of New York Under Olympic Support Contract, B-202518, 1982 WL 28395 (Comp.Gen. Jan.8, 1982)). Later, however, the Comptroller General recognized that, although such a solution prevents an overt violation of the Antideficiency Act [it] has potentially disastrous fiscal consequences for the Federal agency involved. . . . [11] In re Assumption by Government of Contractor Liability to Third Persons  Reconsideration, 62 Comp. Gen. at 367. The Comptroller General's current view is that open-ended indemnification agreements should not be entered into regardless of the existence of language of limitation except with express congressional acquiescence. In re U.S. Park Police Indemnification Agreement, B-242146, 1991 WL 200162, at  (Comp. Gen.1991) (emphasis added); accord, 63 Comp. Gen. at 147; 62 Comp. Gen. at 368. It thus appears that, if we allowed reformation in the manner suggested, the resulting contract would violate the current guidance of the Comptroller General. We obviously are reluctant to authorize such an outcome. In these circumstances, moreover, reforming the contract would amount to a salvage operation, not an effort to accurately express the mutual agreement of the parties. The stark reality is that the parties intended what they wrote, but ignored the restrictions imposed by the Anti-Deficiency Act. It would be entirely fictitious to say that they intended for any indemnification obligation to be capped by whatever portion of the $40 million appropriation happened to remain unspent at the time the liability arose. Cf. California-Pacific Utilities Co., 194 Ct.Cl. 703, 718 (reformation not appropriate because plaintiff failed to prove a mutual mistake by the parties in the expression of their true intent). The District of Columbia's representative departed from longstanding governmental policy when he expressly represented that he was fully authorized and empowered to enter into the Repayment Agreement. However, we have seen no proof that the District signed the indemnification agreement in bad faith. And there are serious roadblocks deterring the District from now resolving to honor the spirit of its previous agreement. See, e.g., 31 U.S.C. § 1350 (criminal penalties for violating the ADA); 31 U.S.C. § 1349(a) (authorizing administrative discipline for violating the ADA). Moreover, we cannot treat INA as an unsuspecting dupe. In accordance with Supreme Court case law, this court has repeatedly held that one who contracts with a government agent is constructively notified of the limits of that agent's authority, and any reliance on contrary representations cannot be reasonable. Williams, 902 A.2d at 96. INA's claims fail as a matter of law. For the reasons discussed, the judgment of the Superior Court is hereby Affirmed.