Opinion
1:99CV00002
January 18, 2001
MEMORANDUM OPINION and ORDER
The facts have been set forth in the court's memorandum opinions of March 24, 2000, and October 6, 2000. The court's March 24, 2000, order dismissed MCI Constructors, Inc.'s (MCI) claims against Defendant City of Greensboro, North Carolina (the City), except for MCI's breach of warranty and negligent misrepresentation claims as they related to MCI's project bid. The court found the contract between MCI and the City required the City Manager to resolve questions for monies arising under the contract as a condition precedent to filing suit. The court dismissed MCI's claims for wrongful termination, declaratory judgment, and breach of contract and negligent misrepresentation to the extent the two latter claims involved the alleged inaccuracy of the contract documents for failing to state a claim for relief.
Article 16 of the contract, whose validity is the issue in both motions before the court, provides the following:
To prevent disputes and litigations, the city Manager shall in all cases, determine the amount, quality, and acceptability of the work and materials which are to be paid for under the contract; shall determine all questions in relation to said work and supplies, and the performance thereof; and shall, in all cases decide every question which may arise relative to the fulfillment of the contract on the part of the contractor. His estimate and decision shall be final and conclusive, and in case any question touching the contract shall arise between the parties, such estimate and decision shall be a condition precedent to the right of the contractor to receive monies under the contract.
(Def.'s Br. Supp. Mot. Dismiss, Sept. 14, 1998, Ex. 1-B.)
MCI filed a motion for reconsideration, arguing that its wrongful termination claim and motion for declaratory judgment should not be dismissed and that it had satisfied the condition precedent or, in the alternative, that the City satisfied the condition precedent by terminating MCI's contract. In addition, MCI argued that, because the City's motion to dismiss did not request the relief granted with respect to MCI's claims for breach of contract and negligent misrepresentation based on the contract's subsurface data, those claims should be reinstated.
The court found it erred in dismissing MCI's wrongful termination claims for failing to state a claim for relief, because termination for cause would relieve the City of certain payment-obligations depending on whether cause existed. However, the court also held that MCI had to submit its wrongful termination claim to the City Manager, as called for in the contract, before it was properly before the court. The court rejected MCI's contention that either the City or MCI already had satisfied the condition precedent. Thus, the court did not have subject matter jurisdiction to consider MCI's wrongful termination claim until it had been submitted to the City Manager. Finally, because the City's motion for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) failed to state with particularity the grounds for dismissing MCI's breach of contract and negligent misrepresentation claims, the court reinstated those claims as they related to the subsurface data. All other portions of the court's March 24, 2000, order remain in effect.
The court noted in the October 6, 2000, memorandum opinion that MCI failed to raise two arguments regarding the condition precedent during the court's initial consideration. As such, the court did not consider them in reaching a decision. Rather, it reiterated the parties' agreement that claims must be submitted to the city Manager and the fact that this step had not been taken by either side with respect to the claims at issue.
In the present motion, MCI once again attempts to circumvent this procedure by raising a new line of argument under the guise of an amended complaint. While the court will dismiss this amended complaint for the reasons stated in this opinion, it notes that MCI has had ample opportunity in which to argue the invalidity of the arbitration clause. Presumably, that argument should have been included in MCI's motion to reconsider, which was filed by MCI's new counsel; its absence, in the face of MCI's assertion that it had satisfied the condition precedent, would seem to indicate that MCI viewed it as the legitimate contractual provision that it is.
The court also granted MCI's motion to dismiss the City's counterclaim and third-party complaint for failure to state a claim for relief, because the underlying basis for each was MCI's alleged breach of contract. The court required the City to submit the contractual claim to the City Manager, as it did with MCI.
In arguing that Count XII tries to circumvent the court's findings on the condition precedent, the City relies on the law-of-the-case doctrine and the court's implicit reliance on Article 16's validity in its orders. Both parties spent a good deal of time discussing this issue in their briefs. However, having based its judgment on other grounds, the court will not discuss the merits of the doctrine as applied in this case.
Before the court's October 6, 2000, order was filed, MCI filed a first amended complaint containing identical claims against the City, plus Count XII. Count XII seeks a declaratory judgment that Article 16's use of the City Manager as arbiter of all claims unconstitutionally violates due process and is void as against public policy. The City has now filed a motion to dismiss Count XII of the first amended complaint for failure to state a claim for relief. In its brief in support of the motion, the City also notes the court's disposition of MCI's other claims against the City, as determined by the October 6, 2000, order. MCI has filed a motion to strike the City's seventh defense in its answer to MCI's first amended complaint, which states that MCI's failure to satisfy the condition precedent is a bar to its claims for relief.
MCI indicated to the court in its oral request to amend its complaint that the purpose of the amendment was to make its claim regarding the subsurface conditions "track the language of the clause upon which we are relying." (Mot. Hr'g Tr., 6/25/2000, at 37.) The court allowed the amendment on the understanding that it would cover the technical materials dealing with the subsurface data. While Count II was amended to add the phrase "technical subsurface data," it appears that MCI's actual objective was to lodge one final assault on Article 16 in an effort to avoid it. The result is additional time and expense spent by the parties and the court on an arbitration provision whose validity never before has been questioned and implicitly underscored the court's previous orders.
MCI mentioned in a footnote to its brief in opposition to the City's motion that the City's 12(b)(6) motion was joined with its answer to the first amended complaint. The court has elected to consider the motion to dismiss at this time without any further hearings.
For the reasons herein, the City's motion to dismiss Count XII of the first amended complaint will be granted, and MCI's motion to strike Defendant's seventh defense will be denied.
I. Defendant's Motion to Dismiss Count XII
For the purposes of the City's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must take MCI's factual allegations as true. See Hunt v. Republican Party of North Carolina, 980 F.2d 943, 952 (4th Cir. 1992) (citing Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1848 (1869)). A motion to dismiss may not be granted unless "it can be said that on the claim as pleaded the claimant can prove no set of facts that would entitle her to relief."Labram v. Havel, 43 F.3d 918, 920 (4th Cir. 1995).
In a last-ditch attempt to avoid the arbitration clause to which it agreed, MCI amended its complaint to include Count XII, which is nothing more than a creative rephrasing of its objection to the City Manager's presumptive bias in favor of Defendant. MCI's sole basis for its contention that Article 16 (the arbitration clause) is unconstitutional is that the City has admitted in its answer to the first amended complaint that the City Manager has no authority to bind the City. According to MCI, this lack of authority means that the provisions of Article 16 are waived because "it would be a useless act for MCI to submit any claim to [the City Manager] for decision." (Pl.'s Br. Supp. Mot. Strike Seventh Defense, Sept. 28, 2000, at 4.)
This contention simply repeats the futility argument already rejected by this court. (Mem. Op., 3/24/2000, at 11-12.) As stated in the court's March 24, 2000, Memorandum Opinion, the North Carolina cases addressing futility have involved an express denial to follow the terms of an agreement or refusals to consider submitted claims. See Rice v. Wood, 371 S.E.2d 500, 502 (1988); J.R. Graham Son, Inc. v. Randolph County Bd. of Educ., 212 S.E.2d 542, 544 (1975). MCI does not contend, nor does it offer any proof, that the City has ever stated or otherwise represented that it does not intend to abide by the terms of Article 16 and the City Manager's decision. It merely points to the fact that the City admits that the City Manager has no legal authority over the City Council in governing the municipality. As the City has argued in its brief, one has nothing to do with the other. While the City Manager may not have the authority to enforce its decision, to the extent that there is a legal contract providing for the City Manager to settle disputes, that contract is binding on the City, as well as MCI.
The authority cited by MCI in its brief in support of its motion to strike the City's seventh defense, ironically, bolsters the City's position. The proposition stated in the Williston treatise that "the performance of a condition precedent is waived where the other party has unequivocally declared by word or act that performance of the condition will not secure performance of the counterpromise" is not disputed by the City. Samuel Williston, A Treatise on the Law of Contracts § 39:39 (4th ed. 2000). Rather, the City argues that it in no way has declared that it will not abide by the terms of Article 16; in fact, it has repeatedly stated its desire to have the issues settled by the City Manager. Similarly, the only case law cited by MCI reflects a fact scenario where one side is not bound by the arbitration clause because it can dispute the arbiter's factfinding. There is no such unequal provision in the contract at issue here. Both MCI and the City are bound by the terms, which state that the City Manager's "estimate and decision shall be final and conclusive." (Def.'s Br. Supp. Mot. Dismiss, Sept. 14, 1998, Ex. 1-B.) Because there is no evidence whatsoever that the City will not abide by the terms of the contract, this entire line of argument is irrelevant.
MCI, who chose to bind itself to that contract provision, now wants to avoid it because it feels the City will have an unfair advantage, given the City Manager's reliance on the City Council for employment. This feared bias should have been apparent from the inception of the contract; MCI nevertheless entered a contract with the City under those terms. Further, there has been testimony before this court from the parties (Mot. Hr'g Tr., 6/26/2000, at 6-7 and 41-44), and North Carolina case law supports the fact, that North Carolina has recognized and upheld contracts that refer disputes to a project architect or engineer, "even though the architect or engineer is employed by the owner." Welborn Plumbing and Heating Co. v. Randolph County Bd. of Educ., 150 S.E.2d 65, 68 (1966). The court has twice ordered that MCI must first submit its claims to the City Manager, per its contractual agreement, the purpose of which was to avoid this very kind of litigation.
Now MCI is trying to maneuver its way out of this clear mandate by coloring the claim as a constitutional violation. However, MCI has failed to state a basis for relief in Count XII. As the Fourth Circuit has stated in another contract case against a city government, "there manifestly are no federal constitutional issues posed by a simple dispute over the construction of a [contract] and that is all there is to this case." Heath v. Fairfax, 542 F.2d 1236, 1238 (1976) (holding that plaintiffs' claim based on city's failure to pay them the salary allegedly provided for by contract did not rise to the level of a due process violation). A city's alleged breach of contract is not a constitutional violation simply because a government entity is a party to the contract. For there to be a due process violation, the City must have acted to deprive an individual of life, liberty, or property. There is no such deprivation here: "the mere fact that a city is a municipal corporation does not give to its refusal to perform a contract the character of a law impairing its obligation or depriving of property without due process of law." McCormick v. Oklahoma City, 236 U.S. 657, 660, 35 S.Ct. 455, 456 (1915). Therefore, even if the City had expressly repudiated the terms of Article 16, such refusal would not be a constitutional violation.
Though the Supreme Court in McCormick v. Oklahoma City, 236 U.S. 657, 660, 35 S.Ct. 455, 456 (1915), was addressing a jurisdictional issue, the same reasoning applies to Count XII. If a contract issue does not rise to a constitutional level for purposes of asserting federal question jurisdiction, then a constitutional challenge to the same likewise cannot provide the basis for relief in a diversity case.
Once the constitutional underpinnings of Count XII are stripped away, it is clear Plaintiff is, indeed, attempting to beat the same horse that the court laid to rest in its previous orders. No matter how Plaintiff characterizes the arbitration clause, MCI agreed to abide by the provision and sought to have Defendant do the same. If MCI disapproved of the selection of the City Manager as arbiter, it should have voiced any such objections before it ever entered into the contract. Regardless, MCI will have to jump through the hoops as prescribed in the contract before it can bring its wrongful termination claim before this court. Therefore, Count XII will be dismissed for failure to state a claim for relief.
II. Plaintiff's Motion to Strike Defendant's Seventh Defense
MCI has motioned the court to strike the City's seventh defense, MCI's failure to satisfy the condition precedent of Article 16, to MCI's first amended complaint. MCI bases this claim on the City's admission that the City Manager has no authority to bind the City to its decision, allegedly making it futile for MCI to satisfy the condition precedent. Because the court will dismiss Count XII of the first amended complaint and because the October 6, 2000, order already has required MCI to submit its wrongful termination claim to the City Manager, the court will deny MCI's motion to strike the City's seventh defense.
For the reasons discussed herein,
IT IS ORDERED that Defendant's motion to dismiss Count XII of MCI's first amended complaint [96] is granted.
IT IS FURTHER ORDERED that Plaintiff's Motion to Strike the City's Seventh Defense to those claims which have not been dismissed [100] is denied.
As stated in the October 6, 2000, order, Plaintiff's breach of warranty and negligent misrepresentation claims as they relate to MCI's project bid and to the subsurface data are still before this court.