5ASR3d172

Series: 5ASR3d | Year: () | 5ASR3d172
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SAMOA DEVELOPMENT, INC., Plaintiff,

 

v.

 

AMERICAN SAMOA POWER AUTHORITY,

FRED PELE, and DOES I-XX, Defendants.

 

High

Court of American Samoa

Trial

Division

 

CA

No. 146-95

 

August

24, 2001


[1] A party may

rescind a contract award where no contractual rights have vested.

 

[2] A public

agency’s invitation for bids is regarded as a request for offers and no

contractual rights arise prior to its acceptance by the agency.

 

[3] In public

contracts, the bid is the offer, and a contract comes into being upon

acceptance by the governmental agency.

 

[4] Courts will

respect statutory language requiring formal execution of a contract in order

for contract rights and obligations to vest.

 

[5] Where

arbitrary action or fraudulent intent to injure a complaining party is

indicated, courts may interfere with an agency’s power to rescind its award.

 

[6] Where

circumstances indicated that backroom negotiations had taken place between government

agency and second-lowest bidder that was awarded contract after award

rescinded, court would not honor clause shielding agency from liability as it

had clearly employed clause arbitrarily and acted in bad faith.

 

[7] Where public agency granted contractor an extension for filing its

bond, but did not clearly specify the length of such extension, court would

consider agency’s custom of flexibility in determining the limits of the

extension.

 

[8] Where the objective language used by the parties indicates their

intent to be bound by the contract, the court will give that language effect.

 

[9] Where court found cancellation of contract award was arbitrary and in

bad faith, but nonetheless concluded that no formal contract had been formed,

it could not award expectation damages as are normally appropriate in breach of

contract cases.

 

[10] Where defendants arbitrarily and in bad faith canceled contract

award, court could properly award damages incurred by winning bidder in

reliance upon award. 

 

[11] The doctrine of promissory estoppel prevents a party from denying

its implied promise to execute a contract with another once the other has

relied in good faith upon the first party’s representation.

 

[12] Where

court determined that public utility and its manager had arbitrarily and in bad

faith canceled contract award, punitive damages in the amount of $5,000.00 were

proper to deter the defendants from wantonly, arbitrarily, and abusively

wielding their public procurement power in the future.

 

[13] The general rule is that a party cannot recover attorney’s fees

incurred in enforcing a claim against another.

 

[14] The court can and does award attorney’s fees where required by

statute, or where an opposing party has acted wantonly, oppressively, or in bad

faith.

 

[15] Where defendants arbitrarily, and in bad faith, rescinded contract,

plaintiff was entitled to reliance damages, attorney’s fees and punitive

damages.

 

Before RICHMOND, Associate Justice, and LOGOAI, Chief Judge.[1]

 

Counsel: For

Plaintiff, Charles V. Ala`ilima

 For Defendants, Roy J.D. Hall, Jr.

 

OPINION AND ORDER

 

Plaintiff Samoa Development Inc. (“Samoa Development”) brings this suit for

damages against defendants American Samoa Power Authority (“ASPA”) and Fred

Pele (“Pele”) for wrongfully cancelling an award of procurement.  ASPA and Pele contend their act was justified

by the explicit terms governing the award, specifically those applicable to

contractors’ bonds.  The case proceeded

to trial on November 28, 2000.  Both

counsel were present.

 

Facts

 

On June 8, 1995, the Office of Procurement of the American Samoa

Government issued an Invitation for Bids for Project #AS-NH-001(29), regarding

striping, signing and delineation of portions of the Territorial Route 1

highway of American Samoa (“the striping project”).  ASPA was, at the time, engaged in public

highway construction and maintenance. ASPA’s Executive Director Abe Malae

(“Malae”) was, as ASPA’s chief procurement officer, ultimately responsible for

the selection of outside contractors procured for highway projects.  Pele, the general manager of ASPA’s

Civil/Highway Division, had been delegated authority for administration of the

performance of contracts for such projects, including the contract in

question.  He also had at least apparent

authority to conduct the procurement process for the striping project.

 

The specifications governing the striping project, made available to all

bidders, incorporated the Hawaii Standard Specifications for Road and Bridge

Construction and explicitly substituted terms. 

Haw. Dep’t of Transp., Highways

Div., Haw. Standard Specifications. 

Three provisions, in particular, are relevant in this case. Section

103.04 of the specifications governs cancellation of the award, and reserves

for the ASG’s Department of Public Works “the right to cancel the award of any

contract at any time before the execution of said contract by all

parties without any liability to the awarded and to any other bidder.”  Id. at § 103.04 (emphasis added).  Section 103.06 requires contractor’s bonds.

It states, specifically, “[a]t the time of the execution of the contract, the

successful bidder shall file a ‘Performance Bond’ and a ‘Payment Bond.’”  Id. at § 103.06.  Finally, Section 103.08 provides that failure

to execute the contract and file acceptable bonds within 10 days after the

award of the contract, or within such further time as the Director may allow,

shall be cause for the cancellation of the award.”  Id. at § 103.08.  Such specifications are authorized by

A.S.C.A. § 15.0102 (12).[2]

 

On July 11, 1995, the Source Evaluation Board (“SEB”) for this

procurement met, opened the bids, and found Samoa Development to be, at $182,951.00,

the lowest responsive bidder.[3]  In second place was Island Builders, Inc.

(“Island Builders”), at $193,034.69.  The

U.S. Department of Transportation, Federal Highway Administration (“FHWA”),

which provided funding for the striping project, was notified of the SEB’s

findings by ASPA’s letter of July 21, 1995, signed by Pele. FHWA concurred in

the award to Samoa Development on August 1, 1995.  A notice of award was issued to Samoa

Development on August 9, 1995, in a letter from ASPA, signed by Malae and Pele,

and addressed to Samoa Development’s president Falema`o Pili (“Pili”).  The letter requests that Samoa Development

“provide originals of the Performance Bond for 100% of the contract amount,

Labor and Material Payment Bond for 100% of the contract amount and proof of

insurance coverage” within 14 days upon receipt of the notice.  The notice was marked received on August 11,

1995.

 

On August 23, 1995, two days before the deadline to acquire the bonds,

Samoa Development sent a letter, signed by Pili, to ASPA acknowledging the

“conditional awarding” of the striping contract to it, and asking for an

extension of 15 days to acquire the bonds. 

ASPA granted to Samoa Development an extension within which to provide

performance and payment bonds.  There is,

however, no express evidence as to the actual number of days given in the

extension itself, ASPA’s notice to Samoa Development of its withdrawal of the

striping project award, dated September 13, 1995, signed by Pele for Malae and

ASPA, confirms an extension of 19 days. 

The relevant portion states, “You have been extended nineteen (19) more

calendar days, in addition to the addition to the original fourteen (14)

calendar days to post the bonds but to no avail.”  However, a ASPA’s later letter of October 6,

1995, again signed by Pele for Malae and ASPA, written with the purpose of

asking Samoa Development to pick up the original bonds, states: “It is very

unfortunate that your company had failed to submit all necessary bonds in time

even after extending the period for further [sic] 14 days. ASPA has been

awaiting [sic] 5 days more than the deadline to inform you the withdrawal [sic]

of this project.”

 

We find that an extension of 14 days was given.  However, we also find that ASPA and Pele

unofficially postponed termination of the contract award for another five days

and thus afforded Samoa Development further time to provide the required

bonds.  This action was consistent with

ASPA’s customary practice.  In 1995, ASPA

was flexible in its deadlines regarding the accepting and filing of bonds as a

matter of practical necessity in the procurement of local contractors to

perform public construction projects that required bonding.  As small businesses, local contracting firms

were unaccustomed to bonding requirements for federally-funded projects and

often encountered financial and logistical problems in routinely acquiring

contractors’ bonds.

 

Samoa Development did, in good faith, acquire the

appropriate bonds. On September 8, 1995, ASPA received from Kalilimoku Hunt, a

general agent of the American National Insurance Co., a letter stating that

“all of the requirements to consummate the bond” for the striping project were

received by the Hunt/Linden Agency, and were then submitted to the National

Casualty Insurance Co.  It further

stated: “[w]e have indications from the Insurance Company that the bond should

be issued by Wednesday 13, 1995 [sic].” 

Samoa Development received further confirmation of the processing of its

bond on September 11, 1995, in a letter from Robert Style, Regional Director of

Broker’s Network, stating, “we are in the process of procuring bond(s) in the

amount $182,951.00.”

 

On September 12, 1995, Samoa Development received a hand-scrawled

fax from an “Anita” at Specialty Bonds and Insurance, Co. to a “Kauli,” with

the subject line “Re: Samoa Development,” the body of which states:

 

WE HAVE APPROVAL TO ISSUE

BOND FOR CAPTIONED. PLZ [sic] HAVE 61A EXECUTED AND FAX’D [sic] BACK. RATE WILL

BE 390, SO WE WILL NEED FAX’D [sic] COPY OF CHECK IN AMOUNT OF $5,489.00. THX!

[sic].

 

Samoa

Development apprised Pele of the authorization that day, and on September 13,

1995, sent to ASPA what Pili described in a cover letter to be “the documents

which indicates [sic] the issuing of our Bond. The Underwriter is sending our

Bond in the overnight pouch on Friday’s flight.”

 

Despite these communications, in a letter dated and faxed on September

13, 1995, signed by Pele only, without a signature above the signature line for

Malae, ASPA withdrew the contract from Samoa Development “because of failure to

post the required performance and the payment bonds.”  Pili immediately responded with a letter

asking for reconsideration “on the grounds that a letter of intent was included

to ensure the forthcoming issuance of the Bond. 

Moreover, the fax included from the underwriter further firms [sic] the

Impending Bond which was about to be issued.”

 

On September 14, 1995, a letter from Anita Love of Specialty Bonds and

Insurance, Inc., was faxed to ASPA confirming that approval had been given to

issue performance and payment bonds in the amount of $182,951.00 for the

striping project.  She also faxed a copy

of the bonds to ASPA, and on September 15, 1995, mailed the originals via

express mail.  These arrived in due

course, as confirmed by ASPA’s letter of October 6, 1995, signed by Pale for

Malae and ASPA, requesting that Pili pick up the originals of the bonds.

 

Island Builders, the second lowest bidder, was awarded the contract,

which was eventually executed without the original payment bond or insurance

documentation.  It had secured a bond

from surety United Pacific Insurance Company on September 1, 1995, according to

the dates on the face of the bond.  The

contract date is listed as August 28, 1995. However, Island Builders still had

not supplied either the original payment bond or insurance documentation when

ASPA held a preconstruction meeting on October 17, 1995.  Further, due to lack of appropriate equipment,

Island Builders caused delay of the striping until at least December 1, 1995.

 

Discussion

 

I.  Termination of the Contract

Award

 

[1] Samoa Development complains that it was wronged by

ASPA’s and Pele’s termination of the award of the striping project.  However, courts have upheld the right to

rescind a contract award where no contractual rights have vested.  McRae v. Farguhar & Aibright Co.,

269 S.W. 375, 377 (Ark. 1925).  The

issue is thus whether or not contractual rights vested in ASPA’s award of the

striping project to Samoa Development.

 

[2-3] A public agency’s invitation for

bids is regarded as a request for offers; no contractual rights arise prior to

its acceptance by the agency.  State v.

Johnson, 779 P.2d 778, 780 (Alaska 1989).  The bid is the offer, and a contract comes

into being upon acceptance by the agency. 

Id. However, in this particular case, there are two provisions in

the bidding specifications which would function, if the facts are compliant, to

restrain the vesting of contractual rights until after an award has been made.

These provisions are examined below in light of their interpretation by common

law, and application to the relevant facts of this case.

 

A.  The

Cancellation Clause

 

Section 103.04 of the specifications provides that ASPA, in awarding a

bid, maintains “the right to cancel the award of any contract at any time

before the execution of said contract . . . without any liability to the

awardee.”  ASPA and Pele contend that because

no contract was executed, this provision shields them from liability for

terminating the award to Samoa Development.

 

[4] Courts will respect statutory language requiring

formal execution of a contract in order for contract rights and obligations to

vest.  McRae, 269 S.W. at 382; see

generally Annotation, Revocation, Prior to Execution of Formal Written

Contract, of Vote or Decision of Public Body Awarding Contract to Bidder,

3 A.L.R.3d 864 (1965); 64 Am. Jur. 2d

Public Works and Contracts §§ 63-81 (1972).  Such language manifests parties’ intentions

to treat a procurement award as a purely preliminary and tentative negotiation

event, subject to the signing of a formal contract.  Id. 

To do otherwise would be to presume an intention by parties to form

a contract prior to formal execution in clear contradiction to open, known,

statutory terms.  Id.

 

[5] Clearly, no formal contract had been executed by

September 13, 1995, when ASPA terminated the award, and so it would seem that

ASPA has avoided liability.  However,

where arbitrary action or fraudulent intent to injure a complaining party is

indicated, courts may interfere with an agency’s power to reconsider and

rescind its award. Schull Constr. Co. v. Bd. Regents of Ed., 113

N.W.2d 663, 665 (S.D. 1962).

 

There is evidence here of arbitrariness in ASPA’s action, coupled with an

intent to injure Samoa Development, either of which causes us pause in allowing

ASPA’s exercise of rescission power. 

Specifically, backroom negotiations appear to have occurred between Pele

and Island Builders, the second-lowest bidder which was awarded the contract

after Samoa Development’s award was rescinded. 

The bond procured by Island Builders lists September 1, 1995, as the

bond execution date, and August 28, 1995, as the contract date, despite the

fact that Samoa Development’s award was not rescinded until September 13, 1995.

 

[6] Further, it appears that ASPA and Pele arbitrarily

terminated the award for Samoa Development. 

Pele cancelled Samoa Development’s contract despite knowing that the

bonds had been approved and were about to be issued.  Pele then formalized the contract with Island

Builders on October 5, 1995, despite its inability to obtain proper striping

equipment until December 1, 1995, and more importantly, despite its having

neglected to submit an original payment bond or any insurance documentation. We

will not honor a clause shielding a government agency from liability that is

employed arbitrarily, as a loophole for discrimination against particular

private contractors.  ASPA may not

protect itself from liability due to the cancellation clause in this case.  While ASPA may have been within its strict

rights to cancel the award to Samoa Development, it did so arbitrarily and is

answerable in consequential damages.

 

B.  The Bond

Requirement

 

ASPA further argues that Samoa

Development failed to fulfill the bond requirement contained in the bid

specifications, and thus provided good cause for ASPA’s termination of its

award.  The requirement for filing bonds

is imposed upon Samoa Development by Sections 103.06 and 103.08 of the

specifications. Haw. Dep’t of Transp.,

Highways Div., Haw. Standard Specifications §§ 103.06, 103.08.   Section 103.06 mandates that the successful

bidder file a performance and payment bond [a]t the time of the execution of the contract. Id. (emphasis added).  Section 103.08 sets an explicit deadline for

these conjoint acts, namely “within 10 days after the award of the contract, or

within such further time as the Director may allow.”  Id.  The penalty for failure to execute the

contract and file acceptable bonds is that such failure “shall be cause for

cancellation of the award.”  Read

together, these two sections impose upon the parties the requirement of (1)

bond filing simultaneous with execution of the contract, and (2) a deadline for

doing so of either 10 days after the award, or within a time specified by the

Director of ASPA.

After stating an initial 14-day time period in which Samoa Development

was to file the bonds, ASPA granted an extension for bond filing, but did not

clearly specify how long it would be.  By

the time ASPA terminated its award, on September 13, 1995, it had received,

specifically: (1) a September 8, 1995, letter from the insurance company

confirming Samoa Development’s submission of bond requirements, (2) a September

11, 1995, letter from Broker’s Network confirming that the bonds were being

processed, and finally, (3) a fax from Specialty Bonds Insurance Co. indicating

approval to issue the bond, and asking for a copy of a $5,489.00 check.

 

[7] It appears, however, that ASPA had

an unwritten customary policy of flexibility in accepting contractors’ bonds

for public contracts where such bonds are proven to be reasonably

forthcoming.  This appears to be due to

the difficulties and time-lags inherent in acquiring such bonds from acceptable

off-island sureties when local contractors were still not readily able to

obtain bonds.  We find it necessary to

consider such a custom in this particular, peculiar case, where no written or

otherwise obvious manifestation of ASPA’s and Pele’s intent regarding the

timeline for bond filing has been presented beyond Samoa Development’s request

for a 15-day extension, and ASPA’s retroactive, contradictory statements of

either 14 or 19 days.  See generally 21

Am. Jur. 2d Customs and Usages (1998).

 

[8] ASPA’s custom in 1995 was

to be flexible in accepting contractors’ bonds for public contracts, so long as

they were reasonably forthcoming. Indeed, ASPA eventually executed a contract

with Island Builders without the required original payment bond.  Samoa Development’s bonds were more than

forthcoming; they were imminent, predicated only upon the surety’s receipt of a

check from Samoa Development, and filed the very day after ASPA’s arbitrary cancellation

of its award.[4]  ASPA and Pele had been notified, and were

fully aware of this fact.  Indeed, on

September 14, 1995, the day after termination of the contract award, ASPA

received a confirmation letter from the surety along with faxed copies of the

completed, executed bonds.  Had Pele

acted for ASPA in a manner less arbitrarily disposed towards Island Builders

and more in line with industry custom, he would have received the bonds from

Samoa Development and proceeded with execution of the contract with it.  We hold that Samoa Development fulfilled the

specified requirements for filing bonds, and that ASPA terminated the contract

award without good cause.

 

II.  Damages

 

A.  Reliance

Damages

 

Samoa Development presented evidence of special damages of $95,288,

covering $88,299 as estimated lost profits expected from execution of the

bid-upon contract with ASPA, and $6,989 in expenses related to obtaining the

contractor’s bonds. The issue is whether Samoa Development is entitled to these

damages.

 

[9] We have ruled that

ASPA and Pele cannot escape liability for arbitrary cancellation of a contract

award through the cancellation clause contained in the specifications.  This does not, however, mean that a contract

was indeed formed, and was indeed breached. 

As we discussed above, no formal contract had been executed by September

13, 1995, when ASPA terminated the contract award; since such formalization was

required by the specifications, no contractual rights and obligations actually

vested.  We cannot, therefore, award

expectation damages, i.e., the estimated lost profits, as would be appropriate

in cases involving an actual loss from an actual breach of an actual contract.  Restatement

of Contracts 2d § 347, cmt. a (1981); Miller v. Robertson, 266

U.S. 243, 258 (1924).  Samoa Development

is thus not entitled to the $88,299 in lost profits.

 

[10-11] We can, however,

award Samoa Development reliance damages to avoid injustice in this case, based

on the doctrine of promissory estoppel. 

This doctrine estops ASPA from denying its implied promise to execute a

contract with Samoa Development, once Samoa Development has relied in good faith

upon ASPA’s representation.  Restatement of Contracts 2d § 90

(1981).  The confirmed expenditures by

Samoa Development, made in reliance upon ASPA’s promise, are the $5,489 spent

on premiums for the contractor’s bonds and the $1,500 expended on accounting

fees and communications related to acquisition of the bonds.  We thus award $6,989 as damages related to

the cost of the contractor’s bonds, expended in reliance upon ASPA’s implied

promise to execute a contract for the striping project.

 

B.  Punitive Damages

 

We have awarded

punitive damages to punish defendants and to deter others from committing

similar wrongs where we have found that the elements of fraud, malice, gross

negligence, or oppression mingle in the controversy.  Fiaui v. Faumuina, 27 A.S.R.2d 36, 42

(Trial Div. 1994); Letuli v. Le`i, 22 A.S.R.2d 77, 85-86 (Land &

Titles Div. 1992).

 

[12] To deter ASPA and Pele

from wantonly, arbitrarily, and abusively wielding its public procurement power

in the future, we award Samoa Development punitive damages of $5,000.00. 

 

C.  Attorney’s Fees

 

[13-14] The general rule is against recovery of attorney’s fees by a

party which incurs them in enforcing a claim against another.  Interocean Ships v. Samoa Gases, 26

A.S.R.2d 28, 41 (Trial Div. 1994).  We

have, however, awarded attorney’s fees where required by statute, or where an

opposing party has acted wantonly, oppressively, or in bad faith.  Fiaui, 27 A.S.R.2d at 42; Samoa

v. Gibbens, 3 A.S.R.2d 121, 123 (Trial Div. 1986).

 

[15] ASPA and

Pele acted arbitrarily and in bad faith. 

Their rescission in spite of Samoa Development’s efforts to procure

contractor’s bonds, of which efforts they were made fully aware, was against

courtesy and custom.  We thereby award

Samoa Development $1,500 in attorney’s fees.

 

Order

 

ASPA and Pele are jointly and severally

liable to Samoa Development for:

 

            1.  $6,989 in reliance damages,

            2.  $5,000 in punitive damages, and

            3.  $1,500 in attorney’s fees.

 

ASPA and Pele shall forthwith remit

to the Clerk of the Court a total $13,489 for disbursement to Samoa Development.

 

It is so ordered.

 



[1] Former Chief Associate Judge Tuaolo M.E. Fruean sat at

the trial of this case, but resigned from the bench to take his seat in the

Senate of the Legislature of American Samoa before the court completed

deliberations and issued this decision.

[2] A.S.C.A. § 15.0102(12) enables ASPA to:

[C]ontract for the procurement of supplies, equipment,

materials, personal services other than by employees, and construction with any

public or private entity upon terms and conditions as it finds necessary to the

full and convenient exercise of its purposes and powers, subject to all

applicable laws and rules of American Samoa.

[3] Implicitly at least, the SEB must also have found that

all three bidders were responsible and reasonable, as well as responsive, as

required by A.S.C.A. § 12.0211(g).

[4] Copies of the bonds would have been binding between

the surety and contractor.  Courts must

give effect to a contractor’s bond of the ordinary type as a simple contract

expressing the intention of the parties. 

Hosp. for Women of Md. v. U.S. Fid. and Guar. Co., 11 A.2d

457, 459 (Md. 1940) (superseded by statute on another matter as stated in Atl.

Sea-Con., Ltd. v. Robert Darin Co., 560 A.2d 592, 597 (Md. Ct. App.

1987).  Where the objective language used

by the parties indicates their intent to be bound by the contract, or by the

bond in this case, we will give that language effect.  See, e.g., Record Club of Am., Inc.

v. United Artist Records, Inc., 890 F.2d 1264 (2d Cir. 1989); Hunt Ltd.

v. Lifschultz Fast Freight, Inc., 889 F.2d 1274 (2d Cir. 1989).