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McKee-Berger Inc. v. Board of Education

decided: July 16, 1980.

MCKEE-BERGER-MANSUETO, INC., PLAINTIFF-APPELLEE, CROSS-APPELLANT,
v.
BOARD OF EDUCATION OF THE CITY OF CHICAGO, DEFENDANT-APPELLANT, CROSS-APPELLEE



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77 C 1708 -- J. Sam Perry, Judge .

Before Pell and Sprecher, Circuit Judges, and Ackerman, District Judge.*fn*

Author: Pell

This appeal by the Board of Education of the City of Chicago (the Board) challenges the district court judgment that the Board pay McKee-Berger-Mansueto, Inc. (MBM) $416,976.54 in damages for amounts found to be due and owing under a contract between the parties. The Board raises numerous issues on appeal. The undisputed facts as found by the district court are as follows.

In October of 1973, MBM and the Board entered into a contract whereby MBM was to provide construction management services for the Board's 250 million dollar school rehabilitation program. Due to the requirements of Illinois law, the contract was to run from year to year with the Board having the right of renewal. The Board's exercise of the right was "not due until 30 days after the adoption of the annual budget." This date normally occurs on August 31 of each year.

The relationship between the parties remained amicable, MBM providing the management services and the Board paying, with minor deductions, all bills presented, until September of 1975 when Joseph Hannon succeeded James F. Redmond as Superintendent of the Board. At that time, Hannon wrote to MBM questioning various billing procedures and invoices previously submitted by MBM. The parties exchanged further correspondence and ultimately held a meeting on November 4, 1975, to discuss their differences. At this meeting, MBM agreed to waive until December 7, 1975, the 30-day limitation on the Board's extension privilege which otherwise had expired on August 31, 1975, and further agreed that the Board could withhold 20% of the amounts MBM billed as security until the differences between the parties were settled. Failing to achieve such reconciliation soon thereafter, MBM granted further extensions, four in total, and thus continued to perform, bill, and receive payment for its services until it finally chose to quit at the end of the final extension on June 18, 1976. Upon cessation of its performance, MBM sued the Board for the 20% of the billings withheld up to that point and for 100% of the final bill which the Board had refused to pay. After a trial on the merits, the district judge granted judgment on the contract to MBM for its claimed damages of $416,976.54. The court held, in the alternative, that if the contract were held to have expired on August 31, 1975, MBM was due the identical amount under a theory of quantum meruit. The court also found against the Board on its counterclaim for funds it asserted were wrongfully billed and obtained by MBM. Each party has appealed from the judgment insofar as it is adverse to its position.

I. THE ADMISSION OF EVIDENCE OF NONPERFORMANCE AND THE BOARD'S MOTION TO AMEND ITS COMPLAINT.

During the course of the trial and as a part of its case-in-chief, the Board sought to introduce certain evidence concerning specific allegations of nonperformance by MBM. The district judge did not admit this evidence on the ground that the Board had failed sufficiently to plead the specifics of these claims in accordance with Federal Rule of Civil Procedure 9(c).*fn1 The court also declined to allow amendment of the Board's answer so as to include allegations concerning the offered evidence. The Board complains here that its original answer, including the allegations made in its counterclaim which were incorporated by reference in its answer, gave MBM adequate notice of the Board's assertion of MBM's alleged nonperformance. In the alternative, the Board contends it should have been allowed to amend its pleadings. We disagree and find that the district court properly exercised its broad discretion on these issues.*fn2

In its counterclaim, and thus in its answer, the Board made allegations of MBM's nonperformance referring specifically to MBM's alleged over-staffing, the billing of non-MBM employees as if they were employees, the billing of inaccurate and inflated amounts for fringe benefit costs, inadequate typing and technical preparation of periodic reports to the Board, double billing and sundry other objections including a count stating that MBM had received 90% of the money available to it while completing only 70% of its job and, therefore, it could not have completed the job within the contractual money allowance. The evidence that was denied admission, on the other hand, concerned MBM's compliance with specific provisions of the contract; for example, MBM's obligation to maintain representatives in the Board's offices, to develop standard forms and reports, to attend meetings, to make recommendations regarding supplies, advertising, and to inspect work completed.

Even a cursory comparison of what was alleged in the counterclaim and what was sought to be introduced at trial reveals there is little resemblance between the two. The Board contends that its answer and counterclaim should have put MBM on notice that it would contest the adequacy of MBM's performance, especially insofar as it "specifically" alleged the inadequacy of the "quantity" of MBM's performance. It is evident, however, that the Board is attempting improperly to treat "performance" or "quantity of performance" as generic terms and specific allegations of nonperformance as fungible items. To do so, however, simply ignores the explicit requirements of Rule 9(c) that denials of performance are to be made "specifically and with particularity." There were no allegations in the pleadings concerning the relevant specific allegations made by the Board at trial and detailed review of the entire record reveals little or no mention of the latter allegations during any deposition or during the trial itself until the evidence was finally offered. Thus, even assuming that the Board's incorporation into its answer of the allegations made in its counterclaim was a proper procedure, see Brause v. Travelers Fire Ins. Co., 19 F.R.D. 231, 234 (S.D.N.Y.1956), the offered evidence went well beyond anything mentioned in the Board's generalized pleadings. Unless we are to ignore the strictures of Rule 9, we cannot find the district court abused its discretion in this regard.*fn3

A similar conclusion is appropriate to the Board's challenge of the district judge's denial of the Board's motion to amend its answer. It is certainly correct, as the Board points out, that amendments are appropriate to allow the pleadings to conform to the evidence admitted at trial. See, e.g., Temperato v. Rainbolt, 22 F.R.D. 57 (E.D.Ill.1958) and Reynolds-Fitzgerald v. Journal Publishing Co., 15 F.R.D. 403 (S.D.N.Y.1954). However, the Board unfortunately engages in circular reasoning and ignores the fact that its evidence was not admitted at trial for the very reason that it was not adequately pleaded. The Board's attempted bootstrap argument also ignores the obvious prejudice to plaintiffs had the amendment been allowed, as was requested, after both sides had rested their cases-in-chief. Three of MBM's most essential witnesses in this area, Mattox, the Board's official most directly responsible for the rehabilitation program, and Thomas and Zanchettin, MBM project managers for the program, were all well beyond the district court's jurisdiction and declined or were unable to make themselves available to plaintiffs for trial. This fact was known to the parties and thus these individuals' depositions were taken by MBM in advance of trial. At these depositions, which Board attorneys attended, no significant inquiry was made by the Board into the areas of alleged nonperformance sought to be introduced at trial, nor were further depositions taken by the Board at another time. It is clear from the record that MBM was therefore justifiably surprised by the offered evidence and would have been prejudiced by its admission.

The Board's allegation that MBM impliedly consented to the trial of these issues by not objecting until the evidence was finally offered is equally unpersuasive. The Board apparently fails to realize that the evidence was rejected because MBM had inadequate notice of the claims the offered evidence assertedly tended to prove. We cannot conceive how MBM could implicitly consent to something of which it had no knowledge. The Board's cited case, Holley Coal Co. v. Globe Indemnity Co., 186 F.2d 291 (4th Cir. 1950), is distinguishable for the plaintiff there clearly had advance notice the defendant would present the challenged defenses and had knowledge of the specifics of those defenses. In light of these considerations, we do not disagree with the district judge's decision on these matters.

II. THE EXPIRATION OF THE CONTRACT.

The Board claims the district court improperly found for MBM under the contract because, it argues, the express terms of the contract state that it normally expired on August 31 of each year unless renewed by the Board and the Board failed to renew on August 31, 1975. Therefore, the Board concludes, there was no contract on which to find liability after that date. We do not believe this contention merits much discussion for it is clear from the record, as the Board itself candidly admits in its brief, "there (was) a series of five . . . extensions agreed to by the parties.*fn4 For the Board to request and be granted these extensions of the renewal-opting period, allow MBM to continue its performance for almost ten months after the Board claims the contract had expired, and continue to pay MBM its bills during that period,*fn5 minus the 20% agreed to by the parties, renders unpersuasive its present contention that there was no contract between the parties.

The Board's argument that what was agreed to was an extension of the time in which the Board could exercise its option as opposed to an extension of the agreement itself is equally unpersuasive. The Board's logic would seem to be that during the extensions, MBM was bound to perform until the project was completed but the Board was under no obligation to pay for those services. Such a position is untenable when the record is clear that both parties treated the contract as a whole as continuing throughout the extension periods. We hold, therefore, that the district court correctly determined that the contract remained in force by agreement of the parties until June 31, 1976, and thus, correctly based its decision on the contract. Because of the result we reach we need not address the correctness of the district court's finding that even if the contract is deemed to have expired on August 31, 1975, the same amount was due under a theory of quantum meruit. MBM in its cross-appeal asserted that if this court should hold that the district court erred in granting MBM judgment on the contract, judgment on a quantum meruit theory, being ...


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