BRICK TOWNSHIP BOARD OF EDUCATION v. WALLACE BROTHERS, INC., et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4751-04T54751-04T5

A-6439-03T5

BRICK TOWNSHIP BOARD OF EDUCATION,

Plaintiff-Appellant,

v.

WALLACE BROTHERS, INC.,

t/a WALLACE CONTRACTING and

COLONIAL SURETY COMPANY,

Defendant-Respondent.

_______________________________________

BRICK TOWNSHIP BOARD OF EDUCATION,

Plaintiff-Appellant,

v.

WALLACE BROTHERS, INC.,

t/a WALLACE CONTRACTING and

COLONIAL SURETY COMPANY,

Defendant-Respondent.

_______________________________________

 

Argued April 4, 2006 - Decided July 13, 2006

Before Judges Axelrad and Sabatino.

On appeal from the Superior Court of New Jersey, Law Division, Ocean County, L-3204-02.

Adam J. Steuerman argued the cause for appellant (Montenegro, Thompson, Montenegro & Genz, attorneys; Ben A. Montenegro, of counsel and on the brief).

Harry Jay Levin argued the cause for respondent (Levin Cyphers, attorneys; Colleen Flynn Cyphers, on the brief).

PER CURIAM

The two related appeals before us involve the propriety of a general contractor's withdrawal of its bid on a school construction project after the bids on that project had been opened, and also the application of the offer of judgment rule, R. 4:58-1 et seq. We affirm the Law Division's determination, after a bench trial, that the contractor had sufficient reason to withdraw its bid under the doctrine of unilateral mistake. However, we reverse the court's award of counsel fees to the contractor under R. 4:58-3.

I.

Plaintiff Brick Township Board of Education ("the Board") sought to build a new facility, which would be known as the Brick Educational Enrichment Center. Towards that end, in late June 2002 the Board invited contractors to submit bids on the proposed project by July 9, 2002. The Board circulated a detailed packet with bid specifications, requesting proposals for the prime general construction ("Contract No. 1") as well as an alternative omnibus contract ("Contract No. 6") for the entire project, inclusive of the general contractor work and the work of all of the trade subcontractors. The bid package required, among other things, that each bidder tender a bid bond with its submission, in the amount of ten percent of the total bid, not to exceed $20,000.

On July 8, 2002, defendant Wallace Brothers, Inc. ("Wallace Brothers") submitted its bid on the project, which consisted of two parts: a $1,845,000 bid on Contract No. 1 and, alternatively, a $3,096,896 bid on Contract No. 6. Wallace Brothers included with its bid the requisite $20,000 bid bond.

The following day, July 9, 2002, the Board opened the bids. The bid opening revealed that Wallace Brothers was the low bidder on Contract No. 1. The next lowest bid on that contract had quoted a price of $2,293,000, which was $448,000 higher than, or about twenty-five percent above, the bid of Wallace Brothers.

Upon learning that his firm had submitted the lowest bid on the project, Steven Wallace, a principal of Wallace Brothers, realized that there had been a computation error in the preparation of the bid. Wallace immediately telephoned the Board's architect on the project, who instructed Wallace to write him a letter advising of the mistake. That same day, Wallace also called Nicholas Puleio, the Board's business administrator, and similarly explained that his company's bid had mistakenly omitted certain costs, and that Wallace Brothers was withdrawing the bid. Wallace promptly followed up on these telephone calls with separate letters to the architect and to the Board on July 10, 2002, confirming the mistake in his company's bid and its decision to withdraw.

Despite these communications, the Board voted on July 23, 2002 to award the contract to Wallace Brothers. After Wallace was informed of the Board's action, his counsel transmitted a letter to the Board's counsel repeating that Wallace Brothers had made a mistake in the bid, that the bid had been withdrawn, and that Wallace Brothers was not accepting the contract.

A month later, in September 2002, the Board filed suit against Wallace Brothers seeking forfeiture of the $20,000 bid bond pursuant to N.J.S.A. 18:18A-24, as well as compensatory damages, interest, fees, costs, and "[s]uch other relief as the court shall deem equitable and just." In its second count, the Board's complaint alleged fraud and misrepresentation by Wallace Brothers and sought punitive damages. Wallace Brothers answered the complaint invoking, among other things, an equitable defense of mistake in the calculation of its bid. In the meantime, the Board went forward with the project with a different contractor.

The litigation culminated with a one-day bench trial in March 2004. The Board's sole witness was Puleio and defendant's sole witness was Steven Wallace. After considering the witnesses' testimony and the documentary exhibits, the trial judge issued an oral decision denying the Board's claims for relief. After reciting the pertinent facts, the trial judge made the following observations:

The issue here is whether or not the [defendant's] mathematical errors fall within the equitable relief of rescission for purposes of allowing him a return of the $20,000 deposit. The case law is old on this, but still valid in that there are certain conditions that have to be met in order for the remedy of rescission based upon unilateral mistake to be applied.

A bid is after all in the nature of a contract, an offer to contract, which upon acceptance it forms a contractual relationship between the parties. And the Public Contract Laws and counsel for the Board has appropriately set forth all of the public policy reasons underpinning that. And also based upon obviously a history and a need to have some fairness in the award of public contracts, the Legislature adopted the local public contract law, as well as the public contract laws applied to the Boards of Education.

The trial judge then went on to discuss and apply the factors expressed in the key cases on unilateral mistake in the public bidding context:

I looked at in the case of Cataldo Construction v Essex County, (phonetic) which was a 1970 case -- it's a Chancery Division case from 1970 -- as well as the case cited, Conduit & Foundation Corporation, which was a 1949 case. Both dealt with the issue of mathematical error or unilateral mistake. And the basis upon which that conform reason to rescind a bid based upon a unilateral mistake.

First of all, the mistake must be of such a consequence that to enforce the contract as actually made would have been unconscionable. In this case the nature of the mistake was rather substantial in that it resulted in a double deduction of the site work amount and that resulted in an erroneous figure for calculating the cost of the general contracting work under the contract.

And I'm satisfied that to enforce that contract as actually made would it be unconscionable. The mistake has to relate to a material feature of the contract, and certainly price is a material feature of any contract. And the mistake must have occurred not withstanding the exercise of reasonable care by the party making the mistake.

The judge then addressed the promptness with which the bidder acted after discovering its mistake:

In this case I note that the defendant, Mr. Wallace, attempted on two occasions prior to the Board acting upon that contract to withdraw that application and so notified the agents of the Board of Education. Notwithstanding that notification, the Board still proceeded to open the bids and finding that the defendant was the lowest bidder, to award him the contract.

There's no question but that the defendant made a mistake, in my mind, as to the calculation of the bid amount. The question is whether or not the negligence of the defendant in making that mistake was of such a degree as to bar an equitable relief. And the case law tells us that that has to turn upon the particular circumstances of the party.

And in the Cataldo case the Court cited, yet again in a rather ancient case, which indicated that a party's own negligence will not always occasion refusal of relief based upon [rescission], and again, that it turns upon the facts of the particular circumstances. Here -- and they also noted what is rather the obvious, which is a mistake by its very definition implies some degree of negligence. And to that extent, it involves a human failing and a poor exercise of judgment. But the role of the Court in its equitable powers is to determine whether or not that misjudgment -- notwithstanding that misjudgment, that it would be inequitable and fundamentally unjust not to render a decision based upon a mistake.

And in this case I -- based upon the defendant's testimony, which apparently is not controverted, that he contacted the Board, the Board's architect on several occasions prior to the award of the contract that he had made a mistake and so advised them and intended to withdraw the bid also I think it causes the Court to balance the equities in favor of the defendant in that regard.

Lastly, the trial judge underscored the absence of any evidence of prejudice to the Board as the contracting agency:

Finally, in order for a unilateral mistake to form the basis for rescission, there has to be an absence of serious prejudice to the other party -- in this case, the Brick Board of Education -- except for the loss of the bargain, which is obvious. So if we set aside the issue that the loss of the bargain, that is the difference between what the Board actually paid for this project and what was bid by this defendant -- then the question is what serious prejudice has been effected upon the Board of Education. The Board awarded -- if the Board had allowed the revocation of the bid prior to the award - and I have to assume that the Board would have awarded the contract to the same entity that . . . ultimately did the work. So I don't find that there's any real serious prejudice on the part of the Board. There wasn't any delay in the construction, the work was done, and it was done at the lowest acceptable bid but for the Board refusing to allow the defendant to withdraw his bid. This is not a case where after the fact, the defendant found an error. Rather he communicated that information to the Board and its agents prior to the awarding of the bid.

So I don't find that there's any serious prejudice to the Board of Education under these circumstances. And having found, therefore, that the requirements of rescission based upon unilateral mistake are made, that the bid should not have been accepted by the Board effectively because there wasn't -- because it was revoked, and if not revoked, then it was [amenable] to rescission based upon unilateral mistake.

Based upon this reasoning, the trial judge denied the Board's application for forfeiture of the $20,000 bid bond and directed its return to defendant within thirty days. The judge further denied the Board's claims for compensatory damages, there being none presented at trial. The judge also denied the Board's claims for punitive damages, as she made no finding that Wallace Brothers had acted fraudulently or had engaged in affirmative misrepresentation.

In a separate hearing following the trial, the judge granted Wallace Brothers $23,593 in counsel fees and costs pursuant to R. 4:58-3, based upon the Board's failure to have accepted a pretrial offer of judgment of $5,000 tendered by Wallace Brothers.

The Board thereafter filed separate appeals of the trial court's rulings on rescission and on the allowances under R. 4:58-3, which we now consolidate.

II.

The public bidding on the Board's construction project at issue in this appeal is governed by the Public School Contracts Law, N.J.S.A. 18A:18A-1 to -49.3, and related case law on the subject of government contracts. Pursuant to that statutory procurement process, and subject to certain exceptions not applicable here, "[e]very contract for the provision or performance of any goods or services, the cost of which in the aggregate exceeds the [$17,500 annual] bid threshold, shall be awarded only by resolution of the board of education to the lowest responsible bidder after public advertising for bids and bidding therefor . . .[.]" N.J.S.A. 18A:18A-4. It is undisputed here that Wallace Brothers was a "responsible bidder" and that it had submitted the lowest bid on Contract No. 1 for the Brick Educational Enrichment Center.

A competitive bid submitted to a public body pursuant to such statutory procedures is equivalent to an option. The consideration for that option consists of affording the bidder the privilege of bidding and the legal assurance to the successful bidder of its award prevailing against all competitors. See Cataldo Construction Co. v. County of Essex, 110 N.J. Super. 414, 417 (Ch. Div. 1970) (citing Conduit & Foundation Corp. v. Atlantic City, 2 N.J. Super. 433, 438-39 (Ch. Div. 1949). Thus, the bid represents both an offer and a unilateral contract, which, upon the bid's acceptance, ordinarily creates a mutually binding contract. Ibid.

Nevertheless, in certain narrow instances a bid on a public contract may be lawfully rescinded. Normally a bidder's unilateral mistake of fact unknown to the contracting agency will not suffice as grounds to avoid the contract. However, a unilateral mistake in the bid made in good faith has supported the equitable remedy of rescission in certain limited circumstances. See Cataldo, supra, 110 N.J. Super. at 418; Conduit, supra, 2 N.J. Super. 439-40.

As our courts have previously articulated, the special circumstances or "essential conditions" that may justify rescission of a bid due to such a unilateral mistake are as follows:

(1) the mistake must be of so great a consequence that to enforce the contract as actually made would be unconscionable; (2) the matter as to which the mistake was made must relate to the material feature of the contract; (3) the mistake must have occurred notwithstanding the exercise of reasonable care by the party making the mistake, and (4) it must be able to get relief by way of rescission without serious prejudice to the other party, except for loss of his bargain.

[Conduit, supra, 2 N.J. Super. at 440.]

In Conduit, a successful public bidder on a city's boardwalk construction project was granted rescission because of its unilateral mistake where its submitted bid was $50,250, or 26%, below the correct and intended bid amount of $193,421. Id. at 436-438. Upon discovering that computation error, Conduit immediately notified city representatives, attended a meeting with the city commissioners where it explained its error, and withdrew its bid. Conduit explained that the error in bid computation had resulted from two people working on the bid, with little sleep, each thinking the other person had included a $50,250 cost item on the bid. Ibid. The commissioners informed Conduit that they would take the error under advisement, but then awarded Conduit the contract despite Conduit's attempted withdrawal. Ibid.

Presented with these facts, the chancery judge in Conduit ruled that the computation error represented a unilateral mistake, which had occurred despite Conduit's general exercise of reasonable care in preparing its bid. Id. at 442. The judge further determined that the mistake was one of so great a consequence as to render enforcement of the contract "unconscionable." Id. at 441. The mistake concerned "a material feature of the contract." Ibid. Finally, the judge concluded that the bidder had "promptly" given notice of its mistake to the city prior to the city's award of the contract, and made no finding of any "serious prejudice" to the city. Id. at 441-42. Accordingly, the judge sustained the bidder's rescission of its bid and ordered the city to return the money that had been deposited with the bid. Id. at 442.

In Cataldo, a bidder sought rescission of its bid on a county bridge repair project and the return of its bid security upon dicovering, the day after bids were opened, a $10,000 error in its submitted bid of $24,233, in lieu of the correct amount of $34,233. Cataldo, supra,, 110 N.J. Super. at 416. This computation error represented 29% of the total bid price. Immediately after discovering the error, the bidder notified the county and requested that its bid be withdrawn. Id. at 417.

The chancery judge in Cataldo applied the criteria set forth in Conduit, supra, in evaluating the bidder's claim for rescission. Id. at 417-19. Based upon these circumstances, the judge concluded that Cataldo's mistake represented a substantial margin of error on its submission. Id. at 19. The judge further held that the county's refusal to permit Cataldo to revoke its bid, after having been immediately notified of the error once Cataldo discovered it and before the bid had been accepted, was inequitable, and that enforcement of the apparent contract based upon the flawed bid would have been unconscionable. Ibid. Although Cataldo simply attributed its computation mistake to time pressures, the judge found that justification, given the surrounding circumstances, sufficient to warrant relief:

Because of the delay in getting price quotations on materials the final bid figures were worked out and put in form for submission in an atmosphere of great haste. In that atmosphere the reporting of an incorrect figure seems normal enough to be excusable. Loss of all benefits of a bargain based on the mistake appears to be the only disadvantage to the county which will flow from the granting of relief.

[Id. at 422.]

Bearing in mind these well-established principles, we find that the trial court's findings here were based upon substantial and credible evidence, Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484 (1974), and that its decision to deny the Board forfeiture of Wallace Brothers' bid bond was legally sound.

The mistake at issue here, a $307,000 error on a $1,845,000 bid, amounted to 16.6% of the quoted price on Contract No. 1, a magnitude somewhat less than but fairly comparable to the respective 26% and 29% errors involved in Conduit and Cataldo. The trial judge had a sound basis to consider such a large mistake one of sufficient "consequence" to make enforcement of the contract unconscionable. Conduit, supra, 2 N.J. Super. at 441. In addition, it is readily apparent that the $309,000 error related to "a material feature of the contract," ibid., particularly in light of the approximate twenty-five percent gap between Wallace Brothers' bid and that of the next highest bidder. The judge also had ample grounds to find that Wallace Brothers' mistake occurred "notwithstanding the exercise of reasonable care by the party making the mistake." Id. at 440. Lastly, we concur with the trial judge's finding that there was no proof of "serious prejudice" to the Board, other than its loss of the potential advantage of Wallace Brothers' mistaken contract price. Wallace Brothers communicated its mistake to the school's architect and business administrator almost immediately after the error was discovered. There was no proof at trial that the Board sustained any consequential damages or that the construction project was significantly delayed.

Although we recognize the strong policy concerns in the arena of public bidding, see Terminal Constr. Corp. v. Atlantic County Sewerage Auth., 67 N.J. 403, 410 (1975), we discern no dilution of those concerns by permitting Wallace Brothers, in these particular circumstances, to rescind its miscalculated bid. The record is bereft of any hint of corruption, sharp dealing or other nefarious conduct by Wallace Brothers. Rather, the record supports an assessment that the bid miscalculation resulted from an honest mistake, one that would make it unfair to require Wallace Brothers to forfeit its $20,000 bid bond.

III.

Apart from its merits appeal, the Board also contends that the trial court erred in awarding counsel fees and costs to Wallace Brothers under the offer of judgment rule, R. 4:58-1 et seq. The applicable circumstances are as follows.

The Board filed its complaint on September 25, 2002. As we noted above, the complaint not only sought forfeiture of the defendant's $20,000 bid bond, but also compensatory and punitive damages. Wallace Brothers filed an answer on October 28, 2002, raising, among other defenses, the doctrine of unilateral mistake.

Shortly after joinder of the pleadings, Wallace Brothers filed and served on November 22, 2002, an offer of judgment for $5,000, pursuant to R. 4:58-3, the Rule provision governing such offers by non-claimants. Reciprocally, on December 19, 2002, the Board filed and served an offer of judgment pursuant to R. 4:58-2, offering to resolve the case by taking $16,500 on its liquidated claim under the bid bond and granting Wallace Brothers a release on its remaining unliquidated claims.

Neither party accepted the other party's offer of judgment. The case proceeded through discovery and was tried in March 2004, over a year after the offers of judgment had been exchanged. After Wallace Brothers prevailed at trial, its counsel filed a certification of services for $24,463. The fee application consisted of 92.20 hours of professional services, mainly by trial counsel at rates ranging from $250 to $300 per hour, plus $335.50 in disbursements. After hearing oral argument, the trial judge awarded Wallace Brothers $23,593, reducing its fee claim by a modest sum of $870.

On appeal, the Board first argues that the trial court lacked jurisdiction to entertain the fee application because the Board had already filed a notice of appeal of the final judgment on the merits, an argument that is without sufficient merit to warrant discussion. R. 2:11-3(e)(1)(E).

The Board next argues that the fee award was improper under the then-applicable terms of R. 4:58-3 because its pleadings included claims unliquidated in nature, and, finally, that the amount of the fee awarded was unreasonable. As we agree with the Board on the former point, we need not decide the latter issue of reasonableness.

At the time that Wallace Brothers served its $5,000 offer of judgment on the Board in November 2002, the version of R. 4:58-3 then in effect stated as follows:

4:58-3. Consequences of Non-Acceptance of Offer of Party Not a Claimant

If the offer of a party other than the claimant is not accepted and the determination is at least as favorable to the offeror as the offer, the offeror shall be allowed, in addition to costs of suit, litigation expenses and attorney's fees as prescribed by R. 4:58-2, and any such allowances shall constitute a prior charge upon the judgment. In an action for unliquidated damages, however, no allowances under this rule shall be granted to such offeror unless the amount awarded to the claimant is in excess of $750.00 and is less than 80 percent of the offer.

[Emphasis added).]

As we recently observed in Sema v. Automall 46, Inc., 384 N.J. Super. 145, 153 (App. Div. 2006), the Supreme Court amended R. 4:58-3, effective September 1, 2004. The amendment, among other things, eliminated the Rule's former distinction between offers on claims of unliquidated versus liquidated damages. Ibid.; see also Pressler, Current N.J. Court Rules, comment on R. 4:58 (2006). Prior to that change in 2004, the Rule "permitted an award of costs and counsel fees to a defendant in an unliquidated damage action only if plaintiff obtained a judgment of at least $750, and the amount of the judgment was less than eighty percent of the offer." Sema, supra, 384 N.J. Super. at 153; see also Frigon v. DBA Holdings, Inc., 346 N.J. Super. 352, 354 (App. Div. 2002). No such conditions applied to the recovery of allowances under the Rule in liquidated damages actions. Ibid.

In Sema, we decided to apply the prior version of the offer of judgment rule because that was the operative provision "in effect at all relevant times during [the] litigation," which was tried in June 2004, three months before the present version of R. 4:58-3 was adopted. Sema, supra, 384 N.J. Super. at 153. We do likewise here, as we perceive it would be unfair to penalize the Board retroactively for its non-acceptance of the defendant's offer under the standards of the present Rule.

Measured by the former standard, we conclude that the litigation, particularly at its incipient stage when the parties exchanged their respective offers of judgment, had sufficient components of liquidated-damage and unliquidated-damage issues to relieve the Board of any fee-shifting obligation as a consequence of its no-cause judgment at the eventual trial. Although the Board ultimately did not muster proofs of consequential damages or demonstrate, post-discovery, any fraud or other deliberate wrongdoing by Wallace Brothers that might have entitled it to punitive damages, those evidential shortfalls were not known at the time the Board rejected defendant's $5,000 offer. The Board's claims for damages beyond the face amount of the bid bond were, at the time of its complaint, of "an uncertain quantity," and thus unliquidated in nature. Ibid. (citing Schettino v. Roizman Dev., Inc., 158 N.J. 476, 486 (1999)(quoting 25 C.J.S. Damages 2 (1966))). We also point out in this regard that defendant's offer of judgment was presented in the aggregate, as contrasted with the Board's offer, which separated out the liquidated and unliquidated claims.

Because the Board, as the claimant in this lawsuit, did not obtain at trial an award "in excess of $750," as then required by former R. 4:58-3, the trial judge's allowance of counsel fees and costs to Wallace Brothers must be reversed.

Affirmed on the judgment of dismissal; reversed as to the allowances under R. 4:58-3.

 

Although the precise explanations offered by Wallace Brothers for its mistake vary somewhat, and the mistake on Contract No. 1 does not squarely correspond to the subtotals on the separate bid that Wallace Brothers simultaneously tendered on Contract No. 6, we do not consider those discrepancies sufficient to negate the trial judge's findings that Wallace Brothers had made the mistake despite "reasonable care" and that the mistake had emanated from an erroneous "double deduction" of site work amounts.

We reject as clearly without merit the Board's subsidiary argument contending that expert testimony was required to support the trial judge's finding that Wallace Brothers acted reasonably in the formulation and presentation of its bid. That assessment of reasonableness, in the context of this rather simple case, was not "esoteric in nature," but manifestly within the ken of the judge who presided over the bench trial. Cf. Butler v. Acme Markets, 89 N.J. 270, 283 (1982)(observing that expert testimony is necessary in jury trials where "the matter to be dealt with is so esoteric that jurors of common judgment and experience cannot form a valid judgment as to whether the conduct of a party was reasonable"). Indeed, no such expert testimony appears to have been presented in Conduit, supra, or in Cataldo, supra.

The current version of R. 4:58-3 reads:

If the offer of a party other than the claimant is not accepted and the determination is favorable to the offeror as defined by this rule, the offeror shall be allowed, in addition to costs of suit, the allowances as prescribed by R. 4:58-2, which shall constitute a prior charge on the judgment. A favorable determination qualifying for allowances under this rule is a verdict or determination at least as favorable to the offeror as the offer or, if a money judgment, is in an amount, excluding allowable prejudgment interest and counsel fees, that is 80% of the offer or less. No allowances shall be granted, however, if the claimant's claim is dismissed, a no-cause verdict is returned, or only nominal damages are awarded. Allowances pursuant to this rule must be applied for within 20 days following entry of final judgment and in accordance with R. 4:42-9(b).

[Emphasis added.]

(continued)

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A-4751-04T5

July 13, 2006