Court Opinion

ID: 9487898
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:29:28.056931+00
Date Added: 2024-06-11T17:52:33.003915
License: Public Domain

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 hodgepodge, and at worst to a regime so inhospitable and unfair to small contractors who deal with government agen*934cies 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 predicts ed 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 Linan-Faye’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.1
I. What Law Would New JeRsey Apply?
The majority, notwithstanding the considerable authority of the Dobson case, supra Maj.Op. at 921, 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 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 Li-nan-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-*935Faye 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, 91 N.J. 434, 453 A.2d 160, 165 (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. Lawn-A-Mat Chem. & Equip. Corp., 141 N.J.Super. 437, 358 A2d 805, 814 (App.Div.), cert. denied, 71 N.J. 503, 366 A.2d 658 (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, 178 N.J.Super. 429, 429. A.2d 403, 407 (App.Div.), cert. denied, 87 N.J. 420, 434 A.2d 1094 (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 eases involving its own government agencies. See, e.g., Buckley & Co., Inc. v. State, 140 N.J.Super. 289, 356 A.2d 56, 62 (Law Div.1975); Ace Stone, Inc. v. Township of Wayne, 47 N.J. 431, 221 A.2d 515, 518-19 (1966); American Sanitary Sales Co., 178 N.J.Super. 429, 429 A.2d at 407; see also Department of Transp. v. Arapaho Constr., Inc., 257 Ga. 269, 357 S.E.2d 593, 594-95 (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, 41 N.J.Super. 381, 125 A.2d 309, 310 (Law Div.1956) (parties presumed to contract with reference to existing law), aff'd, 23 N.J. 459, 129 A.2d 567 (1957), appeal dismissed, 355 U.S. 13, 78 S.Ct. 44, 2 L.Ed.2d 20 (1957); see also Rescigno v. Picinich, 151 N.J.Super. 587, 377 A.2d 733, 739 (Law Div.1977) (applying a presumption against a statutory intent to alter common law rights); Blackman v. Iles, 4 N.J. 82, 71 A.2d 633, 636 (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., 178 N.J.Super. 429, 429 A.2d at 407; Buckley & Co., 140 N.J.Super. 289, 356 A.2d at 65 (see also cases cited therein).
C. New Jersey and the Federal Law Alternative .
This is not the first ease 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, 157 N.J.Super. 357, 384 A.2d 1121 (Law Div.1978), aff'd sub nom. Broadway Maintenance Corp. v. Rutgers, 180 N.J.Super. 350, 434 A.2d 1125 (App.Div.1981), aff'd, 90 N.J. 253, 447 A.2d 906 (1982), plaintiff-contractors 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 *936consequent economic impact on contractors and subcontractors, do not warrant state courts adopting it wholesale by judicial fíat when traditional remedies for breach of contract are available. Id., 157 N.J.Super. 357, 384 A.2d 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. § 1437i(e)(l)(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 únius 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 *937CONSTRUCTION § 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, 152 Ct.Cl. 8 (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 Gold-wasser v. United States, 325 F.2d 722, 725, 163 Ct.Cl. 450 (1963); Dynalectron Corp. v. United States, 518 F.2d 594, 604, 207 Ct.Cl. 349 (1975); Torncello v. United States, 681 F.2d 756, 771-72, 231 Ct.Cl. 20 (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.B. § 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 ease 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 *938damages, 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 Tomcello 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 Tomcello 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.2
II. The § 1983 Claim
I also dissent from the majority’s affir-mance 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 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, 79 S.Ct. 1400, 1411-12, 3 L.Ed.2d 1377 (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 plaintiffs dismissal from government employment, which clearly did not rise to a constitutional violation, the true basis of the plaintiffs 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 plaintiffs 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 *939therefore also dissent from the portion of the majority opinion that affirms this ruling.
Before: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, MCKEE, SAROKIN and GARTH*, Circuit Judges.

. I take no position on Parts VLB 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.

. 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.