Court Opinion

ID: 3003106
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:39:00.793282+00
Date Added: 2024-06-11T12:52:44.454567
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

Nos. 07-3520 and 08-2851

U.S. N EURO S URGICAL, INCORPORATED ,
a Delaware Corporation, as successor
in interest to G LOBAL H EALTH S YSTEMS,
INCORPORATED , a Delaware Corporation,

                                                  Plaintiff-Appellant,
                                  v.

C ITY OF C HICAGO, an Illinois municipal corporation,

                                                 Defendant-Appellee.

            Appeals from the United States District Court
        for the Northern District of Illinois, Eastern Division.
           No. 02 C 4894—Joan Humphrey Lefkow, Judge.

      A RGUED JANUARY 23, 2009—D ECIDED JULY 9, 2009

 Before B AUER, E VANS, and W ILLIAMS, Circuit Judges.
  B AUER, Circuit Judge. The City of Chicago (the “City”)
hired Global Health Systems, Inc. (“Global”) to install a
computer information system for the Chicago Depart-
ment of Health. Although the installation of the system
2                                Nos. 07-3520 and 08-2851

ultimately was successful, the parties argued over
whether some of the work Global performed was
covered by the contract price or constituted extra
work for which the City owed additional money.
  U.S. NeuroSurgical, Inc., as successor in interest to
Global, sued the City, alleging a breach of contract and
seeking recovery for unpaid invoices. Following a bench
trial, the district court entered judgment for the City,
which U.S. NeuroSurgical, Inc. appeals and we affirm.

                   I. BACKGROUND
  On June 30, 1995, Global signed a contract with the
City in which Global agreed to design, install, implement,
and manage a computer information system for the
Chicago Department of Health (CDOH). Recognizing that
CDOH needed a computerized system which integrated
information amassed at a number of separate health
care clinics, the City purchased the Global Health Infor-
mation System (Global System) to function as the means
of collecting, automating, manipulating, analyzing, and
displaying volumes of data.
  The Global System was not built from scratch for
the City; rather, the system used existing software
that Global expected to modify to meet the particular
specifications of its clients. For the City’s purposes, the
Global System would be used to implement clinical case
management and billing functions for CDOH; the con-
tract described many modifications that Global
would make to the Global System to render it capable
of performing those desired functions.
Nos. 07-3520 and 08-2851                                 3

  There were a number of ways in which a client such
as the City could get data into the Global System. Gener-
ally, Global’s service was to build an interface that
would make the Global System capable of receiving data
exported from a client’s existing computer system. How-
ever, the Global System could also receive data through
conventional key entry, and purportedly, through an
alternative method such as scanning. We use the word
purportedly only because at the time Global and the
City entered into the contract, the Global System did not
include a scanning function; it processed only data
that was “keyed in” at terminals. However, Global had
represented to Jack Lenihan, the City’s project manager,
that the Global System had the capability of receiving
scanned data.
  The contract between the parties provided that data
entry would be the City’s task, but it left open the mecha-
nism by which the data would make its way into
the Global System.
  The contract provision addressing data entry modes
read as follows:
   Current configuration calls for data keyed entry. . . .
   [Global] will assist CDOH in assessing the feasibility
   of alternative data entry modes, such as scannable
   forms and bar coding, and will incorporate changes
   in hardware and [Global System] where alternative
   data entry is found to be more appropriate by CDOH.
  An additional provision stated, “[u]nless specifically
noted to the contrary, all provisions called for in this
project plan are included in the contracted price.”
4                                 Nos. 07-3520 and 08-2851

  Had the City decided that key entry would suffice as
the method of inputting new data into the Global
System, this lawsuit may not have been brought. But the
City decided that it wanted the Global System at CDOH’s
sexually transmitted disease (STD) clinics to include a
scanning function. Global dispatched its software devel-
oper, Bill Hartmann, to visit the STD clinics and perform
an assessment of the clinics’ existing computerized
system. At that time, the STD clinics had scanning
capacity that allowed employees to take a completed
form, such as that filled out by a patient following his
visit, and import the form into a computer so that the
information on the form would become data stored in
the computer’s database. Hartmann understood that the
City wanted its new system to have similar capacity,
and noted that it would be unacceptable for the clinics
to be deficient in this area. The implementation of the
feature, however, would prove quite difficult and give
rise to the present dispute.
   Because scanning alone yields only a visual image of
a document, software was needed to help transform the
visual information into usable data. On Global’s recom-
mendation, CDOH selected Teleform, a scanning soft-
ware that could be used to accomplish this objective
through a three-step process: first, the data was
validated, or edited to correct inconsistencies; second,
the validated data was formatted into an output, or export
file that met the system’s specifications; finally, the data
could be “pushed,” or transferred, into the Global System.
A computer programmer was needed to perform each
category of change.
Nos. 07-3520 and 08-2851                                        5

  At the recommendation of Global’s Vice-President, a
subcontractor named Burt Quint was hired to perform
the first two categories of programming. When Quint
failed to produce an export file that met Global’s specifica-
tions for the Global System, he was fired. Global took over
some of Quint’s tasks, while the City performed other
aspects of the work.
  At trial, Alan Gold, Global’s President and Chief Execu-
tive Officer, testified that he told Lenihan that if Global
performed any of the work Quint had not completed, it
“could be extra work.” According to Gold, Lenihan
responded that Global should do “whatever [it] had to”
to implement the scanning function and that Lenihan
could get the money to pay for the work. According to
Lenihan, however, no such conversation ever occurred.1
  In any event, the project went forward. After Global
and the City completed Quint’s tasks, Global made the
final programming adjustments necessary for the Global
System to process data, and the scanning function ulti-
mately worked. However, Global classified the program-
ming as an “additional service” that was not covered by
the underlying contract.
  The contract contemplated a scenario in which addi-
tional services could be rendered. Section 4.6 of the con-
tract stated that, “[f]rom time to time the City may
request [Global] to perform such additional services such
[sic] as data entry or other consulting, which are not set

1
  The district court found there was insufficient proof of the
alleged conversation to warrant inclusion in its factual findings.
6                                 Nos. 07-3520 and 08-2851

forth in the Project Plan.” In that event, Global would
charge the City its current rates, “to be quoted at the
start of any work agreed to by the parties, in accordance
with the provisions of Section 4.7.” Section 4.7 established
those procedures. It required Global to submit a written
work plan and cost estimate to the City; if agreement
was reached, Global was then required to submit a
detailed work order, which, after several layers of
internal bureaucratic approval, would result in the issu-
ance of an amendment to the contract corresponding to
the work order.
  Although the above procedures were not followed,
Global nonetheless reasoned that the parties had orally
agreed to modify the original contract; it billed the City
for the “extra” work it had performed. The City did not
pay Global for that work.
  On July 11, 2002, USN, Global’s successor in interest,
sued the City in federal court. It alleged that the City
breached its contract with Global and sought compensa-
tion in the amount of $532,033.35 for programming work
done by Global in connection with the implementation
of the scanning operation at CDOH’s STD clinics.
  Following a bench trial, the district court denied any
relief to USN, finding that the work Global performed did
not amount to more than that which was contemplated
in the original contract and thus, USN was not entitled to
additional compensation. The judge reasoned that
Global was contractually obligated to complete the
work because two preconditions had been met: the scan-
ning method of data entry had been determined to be
Nos. 07-3520 and 08-2851                                  7

feasible, and, by the City’s judgment, more appropriate.
Although the work came at greater expense than Global
had originally anticipated, it was necessary to render the
Global System capable of receiving the CDOH data and
thus fell within the broad “will incorporate changes”
language of the contract.
  The district court further found that, even if the work
performed by Global were outside the scope of the con-
tract, the new agreement was without effect because:
(1) it was not executed by the City’s chief procurement
officer, the sole authority under statute that was
vested with the power to bind the City contractually;
(2) it was not in writing, as required by the City’s Munici-
pal Code; and (3) it did not comply with the Addi-
tional Services procedure governing modifications set
forth in the contract. The district court also ruled that
USN was not entitled to recover approximately $32,000.00
from the City for billed receivables under an account
stated theory. The court denied USN’s claim for payment
of twelve invoices totaling that amount because USN
had not offered the invoices into evidence and, more-
over, Lenihan testified that he had rejected each of those
invoices. It declined to address USN’s account stated
theory with respect to a final invoice in the amount of
$250,000.00.
8                                 Nos. 07-3520 and 08-2851

                    II. DISCUSSION
  On appeal, USN contends that the district court erred
by ruling in favor of the City. According to USN, the
scanning implementation services it performed for the
City constituted extra work that required additional
compensation. It claims that the parties reached a mutual
agreement to carry forward with this work under a modi-
fied version of the original contract. Although the
changes were not made using the procedures that were
detailed in the contract, USN reasons that they are
binding nonetheless because Lenihan had been expressly
delegated the authority to contract. As an alternate
theory of recovery, USN argues that the City’s failure to
contest the correctness of Global’s invoices established
an account stated. Finally, USN contends that the
district court abused its discretion in awarding the City
costs associated with the litigation of USN’s claims.
Because a modified contract could only be valid if it
was entered into with proper authority, we begin our
analysis by considering this question.

    A. Authority to Contract
  The district court determined that any purported oral
modification to the contract was without legal effect. We
review the district court’s legal conclusions de novo.
Cerros v. Steel Technologies, Inc., 288 F.3d 1040, 1044 (7th
Cir. 2002).
  The contract between Global and the City included a
choice-of-law provision, which specified that the agree-
Nos. 07-3520 and 08-2851                                   9

ment was governed by Illinois law. The City of Chicago’s
power to contract is limited by Illinois law. CFM v. City
of Chicago, 516 N.E.2d 880, 884 (Ill. App. Ct. 1987). Unless
the power to bind the City in a contract is expressly
delegated to someone other than the statutory authority,
only corporate authorities may execute contracts.
McMahon v. City of Chicago, 789 N.E.2d 347, 352 (Ill. App.
Ct. 2003). Pursuant to Illinois’ Municipal Purchasing Act
(65 ILCS 5/8-10-16), the City created a department of
purchases, contracts and supplies headed by a procure-
ment officer, who acts as the sole agent of the
municipality in contracting. CFM, 516 N.E.2d at 884.
  Here, the purported agreement that Lenihan entered
into with Global on the City’s behalf exceeds the limits of
the City’s power to contract. That is to say, even if Lenihan
reached agreement with Global that the scanning imple-
mentation was additional work requiring additional
compensation, the agreement did not comply with
the provisions of the Municipal Purchasing Act or the
Municipal Code of Chicago. Lenihan was not the
City’s procurement officer and had no statutory
authority to bind the City in contract.
  Global is charged with knowing the level of authority
Lenihan actually possessed. D.S.A. Finance Corp. v. County
of Cook, 801 N.E.2d 1075, 1081-82. (Ill. App. Ct. 2003).
Business transactions involving municipal corporations
are not governed by the same rules that govern non-
governmental entities. Id. at 1081. Illinois courts presume
a party doing business with a government entity knows
two things: (1) he cannot enforce a contract unless the
10                               Nos. 07-3520 and 08-2851

applicable statutory method of executing the contract has
been followed; and (2) statutes and ordinances limit an
official’s authority to bind a government entity to a con-
tract. Id. While the original contract between Global and
the City followed the requirements of State and City
statute, the purported modified agreement did not. It is
therefore unenforceable.
  Nevertheless, USN contends that the City expressly
delegated contracting authority to Lenihan. As noted
above, a caveat to the principle that the authority to
bind an Illinois municipality in contract rests solely with
those who have been designated by statute to do so is
when there has been an express delegation of that author-
ity to another. McMahon, 789 N.E. 2d at 352. According
to USN, such delegation to Lenihan is evident from
the language of the contract as well as the conduct of
Lenihan and his superiors.
  As USN notes, the contract stated that Lenihan’s duties
included the “approval of all changes to project plans.”
USN reasons that this provision can be read as a delega-
tion of authority to Lenihan to modify the existing con-
tract. We disagree.
  In our view, authority vested in Lenihan to oversee
changes to a project plan does not equate to a delegation
of authority to bind the City contractually. A satisfactory
project plan was but one of a number of procedures
required before a new contract could be established. The
contract called for many layers of approval: Global had
to submit a written work plan and cost estimate to the
City; after review was completed and an agreement
Nos. 07-3520 and 08-2851                                11

with Global was reached, Global would submit a final
detailed quotation known as a “Work Order” that
needed to be signed by CDOH, and approved by the I.T.
department. Finally, CDOH would request that the pur-
chasing department process a contractual amendment
corresponding to the Work Order.
  Although Lenihan’s approval of changes was necessary
to create a modified contract, it alone was not sufficient.
The language highlighted by USN simply falls short of
an express delegation of authority to Lenihan to bind
the City in contract.
  Next, USN notes several distinct change provisions in
the contract which, it argues, contemplate the delegation
of authority to the project manager, Lenihan. USN cites
provision 5.6 of the contract, which specifies that no
changes to the contract are valid unless in writing and
signed by the parties. It argues that this provision gives
the parties the flexibility to make changes without fol-
lowing more rigid requirements set forth in other provi-
sions and detailed above.
  We read this provision as did the district court, by its
plain meaning. That is, it is merely an express require-
ment that the modifications to the contract be in writing.
The provision neither usurps nor supplants the addi-
tional layers of approval required.
  The remaining examples USN provides in support of its
contention that Lenihan was expressly delegated the
authority to contract fail to illuminate the proposition
for which they purport to stand. For instance, USN cites
a number of discussions that it maintains took place
12                               Nos. 07-3520 and 08-2851

among City employees concerning strategies to procure
additional services from Global and secure funds for
those services without going through the formal amend-
ment process detailed in the contract. Some of these
internal conversations involved Lenihan, others did not.
  Apart from the fact that the reliability of these state-
ments is dubious at best and the district court omitted
them from its factual findings, none of the alleged conver-
sations involved the City’s procurement officer, the
sole official vested with authority by statute to bind the
city in contract.
  We fail to see how discussions amongst mid-level city
managers concerning ways to circumnavigate the
formal process by which additional services were to
be procured from Global is probative of any express dele-
gation of contractual authority that was made to Lenihan
and more importantly, by one with the statutory
authority to do so.

 B. Oral Modifications
  Furthermore, even if we were to accept USN’s position
that the City had expressly delegated to Lenihan the
authority to contract, any modifications were required to
be in writing. Section 5.6 of the contract states that no
changes to the contract are valid unless in writing and
signed by the parties, or their respective successor and
assigns.
  USN correctly notes that under Illinois law, the terms of
a written contract can be modified by a subsequent oral
Nos. 07-3520 and 08-2851                                 13

agreement notwithstanding contractual language to the
contrary. Tadros v. Kuzmak, 660 N.E.2d 162, 170 (Ill. App.
Ct. 1995). However, in this instance, oral modifications
were not only prohibited by the contract, but by statute.
The City’s Municipal Code requires that all agreements
with the City be in writing. See Municipal Code of Chicago,
Ill. 2-92-050. The statutory language plainly states, “[n]o
contract shall be binding . . . until [it] has been duly
executed.” Thus, whatever the ability of the parties to
abrogate the contractual requirement that all changes be
in writing, they could not agree to a modification that
is prohibited by governing law.

  C. Equitable Estoppel
   USN also argues that it is owed compensation under
principles of equitable estoppel. It contends that the
City’s affirmative act of paying for some of the “extra
work” induced Global’s reliance that the parties had in fact
formed a modified contract. We find no merit to this
reasoning. As we have already established, Lenihan had
no statutory authority to bind the City in contract. A
contract that is entered into by a municipality which
is expressly prohibited by law is void and cannot there-
after be rendered valid by estoppel or ratification on the
part of the municipality. Ad-Ex, Inc. v. City of Chicago,
565 N.E.2d 669, 675 (Ill. App. Ct. 1990). Therefore, even
if Gold and Lenihan had a meeting of the minds which
they believed yielded a modified contract calling for
Global to receive additional compensation, that purported
contract was immediately and permanently void.
14                                  Nos. 07-3520 and 08-2851

  D. Account Stated
  USN makes a last attempt at recovery under an
account stated theory. It claims that it is owed $282,033.35
based on thirteen invoices it sent the City: twelve invoices
for accounts receivable totaling $32,033.35, and one dis-
counted invoice for “special programming,” in the
amount of $250,000, a total representing only half the
number of man hours Global actually worked.
  USN failed to raise these contentions in the closing
memorandum it filed in the district court. After noting
that the claims could be deemed waived based on USN’s
omission, the district court went on to consider the first
account stated claim based on the twelve invoices for
accounts receivable but not the second claim based
on the single invoice for “special programming.” It con-
cluded that USN was not entitled to receive any portion
of the $32,033.35 because it had not established an
account stated.
  Whether an account stated exists is a question of fact.
Dreyer Medical Clinic, S.C. v. Corral, 591 N.E.2d 111, 114 (Ill.
App. Ct. 1992). This court will not set aside a district
court’s findings of fact unless they are clearly erroneous.
United States v. Hickok, 77 F.3d 992, 1006 (7th Cir. 1996).
  “An account stated is an agreement between the
parties who previously engaged in transactions that the
account representing those transactions is true and the
balance stated is correct, together with a promise for
payment of the balance.” Dreyer, 591 N.E.2d at 114. Where
a party acquiesces in the correctness of statements by
failing to object to them within a reasonable time, an
Nos. 07-3520 and 08-2851                                 15

account stated is established. W.E. Erickson, Construction,
Inc. v. Congress-Kenilworth Corp., 477 N.E.2d 513, 520
(Ill. App. Ct. 1985). However, an account stated is
merely a method of proving damages for the breach of a
promise to pay a contract and cannot be made the in-
strument to create an original liability. Dreyer, 591 N.E.2d
at 114.
  The district court found that USN failed to establish
an account stated for two reasons: USN did not offer the
contested invoices into evidence and Lenihan provided
uncontroverted testimony that he rejected the invoices.
As Lenihan’s testimony was uncontradicted, we are hard-
pressed to find any error, much less clear error, that
the district court made in finding that an account stated
had not been established.
   Though the district court did not address USN’s
account stated claim for the scanning implementation
work, we can dispose of it in brief here. As we have
already concluded, the purported modified contract
was void for lack of authority and thus, the City was not
liable to USN for additional payment. Consequently,
USN cannot now create an original liability on an
account stated theory.

  E. Recovery of Costs
  Finally, USN appeals the district court’s judgment
awarding damages to the City for various court costs
and fees it incurred in the course of preparing to defend
the suit on which it ultimately prevailed. The district
16                                 Nos. 07-3520 and 08-2851

court awarded the City $13,659.41, a sum which USN
claims was in error because it included costs that are
either not recoverable, excessive, or unsupported by
proper documentation.
   Federal Rule of Civil Procedure 54(d) provides that
“costs other than attorney’s fees shall be allowed as of
course to the prevailing party unless the court otherwise
directs.” Fed. R. Civ. P. 54(d). Section 1920 of the Judiciary
Act plainly states those costs which are recoverable;
it includes court reporter fees associated with obtaining
transcripts, printing and photocopying fees, clerk fees,
and fees associated with obtaining witnesses. 28 U.S.C.
§ 1920. A district court’s determination that a particular
cost is reasonable and necessary will not be overturned
absent an abuse of discretion. Manley v. City of Chicago,
236 F.3d 392, 398 (7th Cir. 2001). Moreover, there is a
strong presumption that costs will be awarded to the
prevailing party. Weeks v. Samsung Heavy Industries
Co., Ltd., 126 F.3d 926, 945 (7th Cir. 1997).
  Following the district court’s entry of judgment in
favor of the City, the City filed a bill of costs that listed
four categories of expenses for which the City sought
reimbursement: fees paid to the clerk of the court, fees
paid to the court reporter for transcripts, fees for wit-
nesses, and fees for copying. The bill of costs specified
the amount of costs falling within each of those
categories as well as the grand total. The City also
attached a fifteen-page itemization of the costs falling
within each of the four listed categories as well as
various invoices from vendors.
Nos. 07-3520 and 08-2851                                 17

  USN filed objections to the bill of costs; the district
court entered an order addressing USN’s objections and
sustaining several of them. At the district court’s direc-
tion, the City filed a revised bill of costs consistent with
the ruling in which the total amount requested was
reduced by approximately $1,200.00. The district court
then entered judgment awarding the City $13,659.41
in costs.
  We find no merit in USN’s challenges to the costs
awarded by the district court. As the prevailing party, the
City was presumptively allowed costs. The City’s
requests were supported with detailed documentation.
The district court thoroughly reviewed the itemized
expenses and, after considering USN’s objections,
awarded the City less than it had sought. The expenses
that the City recuperated fell squarely within categories
of costs deemed recoverable by 28 U.S.C. § 1920. We
find no abuse of discretion.

                   III. CONCLUSION
  For the reasons discussed above, we A FFIRM the
district court’s judgment.

                           7-9-09