Court Opinion

ID: 9609037
Source: CourtListenerOpinion
Date Created: 2023-08-22 03:21:29.844316+00
Date Added: 2024-06-11T18:02:48.392153
License: Public Domain

HAROLD L. LOWENSTEIN, Judge,
concurring in part and dissenting in part.
I. Did the Plaintiff Make a Case on the Counts for Misrepresentation and Breach of Covenant of Good Faith and Fair Dealing?
The central issue before the court is whether the defendant, a state entity seeking bids on health insurance for state workers, is liable to the plaintiff, Community, because it materially misrepresented facts about the contract Community was making a bid upon. The evidence favorable to the submissions showed that during the negotiations, the highest ranking person of MCHCP deliberately told the bidder that no historical figures were available to determine whether the former holder of the contract had made or lost money based on certain bid figures. Such financial information was available and showed that the incumbent insurer lost great sums of money based on a bid price in the neighborhood of what Community was about to bid.
*52Since the early twentieth century, the Supreme Court of the United States, in such cases as Hollerbach v. United States, 233 U.S. 165, 34 S.Ct. 553, 58 L.Ed. 898 (1914), and United States v. Spearin, 248 U.S. 132, 39 S.Ct. 59, 63 L.Ed. 166 (1918), has held that in government contract cases, the government is liable to a contractor when it makes positive statements about material facts concerning the nature of the work in question when those statements are false. Most states have adopted this principle. Robert E. McKee, Inc. v. City of Atlanta, 414 F.Supp. 957, 959 (N.D.Ga.1976). The rationale in McKee, which concerns conditions of proposed government construction sites, applies equally to the facts here on soliciting bids for insurance:
The reason for holding the government liable for certain material misrepresentations is simple: certain job site investigations are not expected to be performed by each and every bidder; rather, the government performs certain basic tests in order to provide each bidder with some information on which he may make his bid. If every bidder were required to perform all the investigations, even though the chance of receiving the bid was remote, the number of bids would decrease and the dollar amount of the bids would increase.

Id.

“Under general principles of contract and tort law, a party who conceals or fails to disclose material information to another is liable for' fraud.” Howard Contracting, Inc. v. G.A. MacDonald Constr. Co., 71 Cal.App.4th 38, 83 Cal.Rptr.2d 590, 599 (1998). The general rule is that by failing to impart its knowledge of difficulties to be encountered in a project, the owner will be liable for misrepresentations if the contractor is unable to perform according to the contract provisions. Warner Constr. Corp. v. City of Los Angeles, 2 Cal.3d 285, 85 Cal.Rptr. 444, 466 P.2d 996, 1001 (Cal.1970). “In the public construction context, however, the conduct of a public agency which would otherwise amount to a tor-tious misrepresentation is treated as a breach of contract. The underlying theory is that providing misleading plans and specifications constitutes a breach of implied warranty of correctness.” Howard, 83 Cal.Rptr.2d at 599. In Howard, the city had knowledge that certain permits that the successful bidder had to obtain to finish the project in a timely manner would not be forthcoming. Similarly, South Dakota has held that government is liable to a contractor for breach of implied warranty when “it misrepresents material facts through concealment or false statements.” Morris, Inc. v. State ex rel. S.D. Dept. of Transp., 598 N.W.2d 520, 523 (S.D.1999) (quoting Mooney’s, Inc. v. S.D. Dept. of Transp., 482 N.W.2d 43, 46 (S.D.1992)). See also Peter Salvucci & Sons, Inc. v. State, 110 N.H. 136, 268 A.2d 899 (1970).
Missouri law implies a covenant of good faith and fair dealing in every contract. Martin v. Prier Brass Mfg. Co., 710 S.W.2d 466, 473 (Mo.App.1986). There appears no reason why this principle would not apply to an entity protected from tort action under sovereign immunity. Cf. Envtl. Prot., Inspection, & Consulting, Inc. v. City of Kansas City, 37 S.W.3d 360, 366 (Mo.App.2000). As long as the party claiming the breach of this implied covenant presents substantial evidence of the lack of good faith and fair dealing, the case may go to the jury. Id. Allowing a contract action for compensatory damages when the contractor was induced into a contract with the government based on a government misrepresentation is not merely explained away as being the product of result-oriented “teetering jurists;” rather, it is based on the rationale in the out-of-state cases cited above that the government got the benefit of work at a price far lower than what the price would have been if it had not made the misrepresenta*53tion. Clark v. City of Humansville, 348 S.W.2d 369, 371 (Mo.App.1961).
The cases referred to supra all contain a common theme. It should make no difference that the majority of caselaw on the subject comes from cases where construction contracts were involved and faulty government specifications were supplied. The rationale behind all of the construction cases equally applies to incorrect representations made by a governmental entity to induce a contractor to enter into any type of government contract or lease. See St. Louis Air Cargo Svcs., Inc. v. City of St. Louis, 929 S.W.2d 821 (Mo.App.1996). The government cannot induce by positive representation, which is incorrect, a party into entering into a contract that is totally unfair and unjust or gives the government a windfall, and then avoid compensatory damages in a suit in contract. Ideker, Inc. v. Mo. State Highway Comm’n, 654 S.W.2d 617, 620-21 (Mo.App.1983); Sanders Co. Plumbing & Heating Inc. v. City of Independence, 694 S.W.2d 841, 845 (Mo.App.1985). Missouri belongs to the majority of states that allows a contract action in these types of cases where there has been a positive misrepresentation. Ideker, 654 S.W.2d at 620-21. Governmental entities may not make false representations and avoid suits in contract merely because the theory behind such suits smack of tort— this is especially so where the result would be fundamentally unfair:
What is and what is not a ‘positive representation’ will always be a question to be answered by the trier of fact case-by-case. But, if those in charge of a public project wish to eliminate that question from disputes with their contractors, they may do so in advance ... by making very sure that any representations they make are accurate.
Sanders, 694 S.W.2d at 847.
In sum, in this case, the representations of the defendant state entity that financial figures were unavailable were incorrect. This past history was most material to the bid of the plaintiff, and allowed, in the words of Judge Somerville in Ideker, “pragmatically speaking” to get a benefit because the performance of the contract by the contractor entailed “more expense than was calculated in submitting his bid, [and, thus,] the governmental entity should bear the added cost.” Id. at 621. The facts in the case at bar cannot be distinguished from those in St. Louis Air Cargo, where the city by words and conduct made assertions to the potential contractor that were not in accordance with the truth and made to deceive. 929 S.W.2d at 826. The fact that the misrepresentations made by the persons who represented the city and the airport were not in the contract itself, or in the bidding documents, did not defeat the cause of action. Id. In the case at bar, a reasonable person would attach importance to the comments of the executive director of MCHCP in determining whether or not to bid on the contract; therefore, the case was submissible and the judgment on the verdict should be affirmed. Id. Both counts of Community’s claims were submissible. Reasonable minds could differ as to whether Community made a sub-missible case; therefore, this court should not set aside the verdict where the defendant knew its representation was false and incorrect. Massman Constr. Co. v. Mo. Highways & Transp. Comm’n., 31 S.W.3d 109, 112-13 (Mo.App.2000). A contrary result allows the state entity a windfall at the expense of a private contractor who dealt in good faith. I would affirm.
II. Retention of Jurisdiction
Based upon a determination that Community made a submissible case of its contract actions, I would affirm the trial court’s retention of jurisdiction to determine the amount of damages flowing from *54losses sustained by Community in the final years of the contract’s existence. Although an action for damages is generally considered legal rather than equitable, Jaycox v. Brune, 434 S.W.2d 539, 542-43 (Mo.1968), the trial court here also obtained equity jurisdiction, and as such the court retains such jurisdiction as long as there has been no loss of equity jurisdiction. State ex. rel. Willman v. Sloan, 574 S.W.2d 421, 422-23 (Mo. banc 1978). A trial court will then retain equity jurisdiction until full and complete justice have been administered as within the scope of the pleadings and the evidence. Craig v. Jo B. Gardner Inc., 586 S.W.2d 316, 325 (Mo. banc 1979); Gray v. White, 26 S.W.3d 806, 821 (Mo.App.1999).
Under the facts in this case, it would be in the interest of judicial economy for the court to determine damages in this action, rather than require the party who has made a case and obtained a verdict to refile each year to obtain full relief. The majority decision makes this point academic as would Community’s statement in its brief that if it was found it had made a submissible case and this court reversed only on this jurisdictional point, that it would gladly refile on the issue of damages.
Finally, I would grant MCHCP’s motion to strike the appendix to Community’s brief. The appendix contains a proposed settlement between the parties which does not appear to have been a part of this extensive record.
III. Injunction Bond
MCHCP, in its reply brief, withdrew the request for relief it raised in Point X. Therefore, it is unnecessary to analyze this point.
IV. Costs
The trial court assessed costs against MCHCP, a state entity created by statute to serve as a health care plan for state employees. Though I believe the verdict should be affirmed, the ruling of costs against a state entity should not stand where there is no specific statute permitting such assessment. Mauer v. Bd. of Trustees of Mo. State Employees’ Ret. Sys., 762 S.W.2d 517, 521 (Mo.App.1988). This point in MCHCP’s appeal should be granted.
y.
I believe the remaining points in MCHCP’s brief, including those dealing with damages and instructional error should be denied. Likewise, the points raised by Community in its cross-appeal should be denied. After dismissing appellant’s point on the injunction bond, I would affirm the trial court’s judgment in all respects except as to the assessment of costs and deny the points raised in Community’s cross appeal.