Jean Moreau & Associates: Two warnings to contractors on governmental projects
January 30, 2012
By: Robert J. Allen
On January 13, 2012, the Virginia Supreme Court issued its decision in Jean Moreau & Associates, Inc. v. Health Center Commission for the County of Chesterfield, 2012 Va. LEXIS 5 (2012). The decision reminds companies of the particular procedures and limitations applicable to claims for payment on public projects.
Since 1993, Chesterfield County’s Health Center Commission (HCC) has operated Lucy Corr Village as a nursing-care and assisted living facility. In 2004, Jean Moreau & Associates, Inc. (Jean Moreau) was awarded a five-year contract to plan and develop an independent-living facility at Lucy Corr Village. Under the contract, Jean Moreau was to be paid a monthly fee of $20,000 and development and marketing fees totaling $2.25 million.
In May 2006, the HCC discontinued Jean Moreau’s contract. By letter dated June 9, 2006, Jean Moreau claimed that it was owed development fees. The parties engaged in negotiations about the amount owed and ultimately HCC paid a number of invoices on July 31, 2006. Almost three months later, on October 24th, Jean Moreau made an offer to mediate the dispute over the development fees. HCC rejected the offer to mediate and refused to pay additional money.
Thereafter, Jean Moreau brought a lawsuit asserting claims for breach of contract and quantum meruit (meaning a claim for the reasonable value of the work performed). The lawsuit claimed $2.25 million in damages. HCC responded by arguing that the breach of contract claim was barred because Jean Moreau did not comply with the claims procedure in Virginia’s Public Procurement Act and the quantum meruit claim was barred by the doctrine of sovereign immunity. The trial court ruled in favor of HCC and dismissed Jean Moreau’s claims. Jean Moreau appealed to the Virginia Supreme Court.
On appeal, the Supreme Court found that Jean Moreau’s contract was a “public contract” under the Procurement Act, Va. Code Ann. § 2.2-4300 et seq. The Court found that Jean Moreau failed to submit a claim within 60 days after final payment as required under § 2.2-4363(C)(1) of the Procurement Act. The Court ruled that Jean Moreau’s letter dated June 9th provided notice of an intent to file a claim but it was not a claim. The October 24th letter was arguably a claim but it was not submitted within 60 days after receipt of final payment. Further, the Court suggested that a claim requires more than what Jean Moreau provided. The Court ruled that Jean Moreau failed to follow the mandatory, procedural steps set forth in the Procurement Act and, therefore, its breach of contract claim was barred.
The Court also rejected Jean Moreau’s quantum meruit claim on the basis of HCC’s sovereign immunity. Under the doctrine of sovereign immunity, governmental entities are shielded from liability in certain circumstances. In Virginia, counties enjoy absolute immunity. In other Virginia Supreme Court cases, it has been decided that a quantum meruit claim is allowed against a municipality exercising a proprietary function. The John Moreau case was the first time that the Court “specifically addressed whether recovery on the basis of quantum meruit is also allowed against municipal corporations exercising governmental functions.” 2012 Va. LEXIS 5, *15. The Court rejected HCC’s argument that it was entitled to absolute immunity, as Chesterfield County is, because HCC was created by the County. Instead, the Court ruled that HCC was immune from liability only when performing governmental functions. The Court found that Lucy Corr Village was a governmental function and, as a result, Jean Moreau could not recover against HCC.
The Jean Moreau case serves as an important reminder for Virginia companies that enter into contracts with state and county agencies and municipal corporations. When disputes arise, the company may not be able to bring claims that could be brought against a private entity. The doctrine of sovereign immunity is “alive and well” in Virginia. If the contract specifies a procedure for claims, that procedure must be followed. If the contract does not include a procedure for the submission of claims, then the Procurement Act governs. Under the Act, a contractor must give written notice of the intent to file a claim “at the time of the occurrence or at the beginning of the work upon which the claim is based.” Va. Code Ann. § 2.2-4363(C)(1). The claim itself must be submitted “in writing no later than 60 days after receipt of final payment.” Id. Unfortunately, the Procurement Act does not specify exactly what may be considered a claim, so a contractor must be clear that it is making a claim under the Act and provide all pertinent information and documentation.
For more information on this case, please contact Robert J. Allen at rallen@spottsfain.com or (804) 697-2187. Contact any member of Spotts Fain’s Construction Industry Practice Group for construction related questions.
