Greenfield Construction Co. v. Department of State Highways

261 N.W.2d 718, 402 Mich. 172, 1978 Mich. LEXIS 370

• Court: Michigan Supreme Court
• Decided: January 25, 1978
• Docket: 56686, (Calendar No. 1)
• Status: Published

Opinions

Ryan, J.

In October of 1972 defendant, Michigan Department of State Highways, advertised for bids on the construction of sewer outlet structures which would extend 2000 feet into Lake St. Clair. Plaintiff, Greenfield Construction Company, obtained copies of the project proposal, design plans, and specifications, submitted the low bid on the project and ultimately entered into a construction contract with defendant in December, 1972.

Upon arrival at the site in March, 1973, Greenfield alleges it first discovered significant changes in the conditions at the work site from those indicated in the project proposal, design plans, and specifications. Specifically, the water level of Lake St. Clair was approximately 2 feet higher than the last elevation indicated in the project plans supplied by defendant.

Greenfield thereupon notified defendant that it considered these developments to be "changed physical conditions”, as that expression is defined in the contract documents, and claimed that under the contract it was entitled to compensation in excess of the contract price.

In petitioning for extra compensation, Greenfield followed the informal procedures customarily employed in situations where there is disagreement between the highway department and contractors as to matters of performance or compensation.¹ Ultimately, however, the Department of State Highways, in a letter dated June 6, 1973, advised plaintiff that the department would not award additional compensation. No record was made of the department proceedings which culminated in the June 6 letter.

On July 17, 1973, Greenfield filed its two-count complaint in the Wayne Circuit Court. Count I alleged that the June 6 letter from the Department of State Highways was a "declaratory ruling” subject to judicial review under the Administrative Procedures Act of 1969, MCLA 24.201 et seq.; MSA 3.560(101) et seq. Plaintiff sought a reversal of the alleged "declaratory ruling” and, in addition, a declaratory judgment that there had been a material change in conditions under the contract. Count II alleged that certain construction delays were not the fault of plaintiff and that plaintiff asserted entitlement to a declaratory judgment to that effect and for a determination that plaintiff was entitled to an extension of the contractual construction period without suffering liability for liquidated damages.

In response defendant filed a motion captioned "Motion for Accelerated or Summary Judgment”. Defendant first asserted that the circuit court lacked subject matter jurisdiction because the matter complained of by plaintiff was not a "contested case” within the Administrative Procedures Act, and did not involve a "rule” within the purview of the act. Second, defendant contended that any alleged liability or other claims or demands arising out of a contract with the State of Michigan are within the exclusive jurisdiction of the Michigan Court of Claims. Finally, defendant contended that plaintiff had failed to state a claim upon which relief could be granted.

On September 11, 1973, after a hearing, the circuit court issued an opinion holding that the 1970 Standard Specifications for Highway Construction contract provisions in dispute were not "rules” subject to review under the Administrative Procedures Act, MCLA 24.263; MSA 3.560(163), and that consequently the court lacked subject-matter jurisdiction over Greenfield’s claim. Plaintiff filed a motion to stay the entry of accelerated judgment in favor of defendant.

A second hearing was held later and the court issued a second opinion, this time granting the declaratory relief requested by the contractor.

The court again found, however, that the 1970 Standard Specifications for Highway Construction were not "rules” subject to review under the Administrative Procedures Act and found, in addition, that defendant had "not taken any steps for the promulgation of rules, regulations and procedures by which to issue declaratory rulings and that, therefore, the decision of June 6, 1973 amounts to no more than an administrative pronouncement”. However, the court held the June 6 letter to be arbitrary and capricious and a deprivation of due process. It ruled that the Court of Claims lacked the requisite equitable jurisdiction to grant declaratory relief. Concluding that the plaintiff had supported its contentions on the merits, however, the court issued its declaratory judgment that a change of conditions had occurred. The issue of money damages was expressly left for later determination in the Court of Claims.

The Court of Appeals reversed, holding that the circuit court lacked subject-matter jurisdiction over the dispute. 58 Mich App 49; 227 NW2d 223 (1975). We granted leave to appeal. 394 Mich 836 (1975).

Our resolution of the case turns upon the answers to two specific questions:

1) Is Section 1.04.03(c) of the 1970 Standard Specifications for Highway Construction a rule within the definition of the Administrative Procedures Act, and

2) Does the circuit court have jurisdiction in this case to issue a declaratory judgment binding upon the defendant State of Michigan.

Our answer to both questions is no.

I

Section 63 of the Administrative Procedures Act, MCLA 24.201 et seq.; MSA 3.560(101) et seq., provides narrowly circumscribed authority in the circuit court to judicially review a declaratory ruling issued by an agency of state government, and provides that such review is conducted in the same manner as an agency final decision or order in a contested case.²

Section 64 of the act confers upon the circuit court authority to issue a declaratory judgment concerning the validity or applicability of an agency rule, providing however the plaintiff has first "requested the agency for a declaratory ruling and the agency has denied the request or failed to act upon it expeditiously”.³

Greenfield claims that Section 1.04.03(c) of the 1970 Standard Specifications for Highway Construction is a rule within the definition of the Administrative Procedures Act and that the highway department letter of June 6, 1973 was a declaratory ruling concerning the applicability of the claimed rule.

We disagree on both points.

A rule is defined in § 7 of the Administrative Procedures Act as follows:

" 'Rule’ means an agency regulation, statement, standard, policy, ruling, or instruction of general applicability, which implements or applies law enforced or administered by the agency, or which prescribes the organization, procedure or practice of the agency * * * MCLA 24.207; MSA 3.560(107).

Section 1.04.03(c) of the 1970 Standard Specifications for Highway Construction provides:

"Changed Physical Conditions. — Should the contractor encounter or the engineer discover, during the progress of the work, physical conditions at the site differing materially from those shown in the contract and included documents, or unknown physical conditions of a nature differing materially from those generally recognized as work of the character provided for in the contract, the engineer will investigate the conditions. Unless the engineer finds that the work required materially changes the character of the work, the work will be paid for at the contract unit price. If the work required is of sufficient magnitude to affect the unit cost by 10% or more, an allowance will be made on such basis as is mutually agreed upon and authorized in advance of the performance of the work. If agreement cannot be reached as to the basis of payment for which the contractor deems compensation to be due him, the work shall proceed as provided under Disputed Claims for Extra Compensation, 1.05.12.”

The 1970 Standard Specifications for Highway Construction are found in a bound volume of 735 pages. The specifications include definitions of terms, allocation of duties between the contractor and the state, payment terms, and hundreds of pages of highly technical and detailed information concerning construction methods and techniques, soil composition requirements, metal heat treating methods, and technical details touching almost every conceivable aspect of highway construction work for which the State of Michigan might contract. Relevant portions of the standard specifications, including Section 1.04.03(c), are routinely incorporated by reference in the highway department construction contracts not only to avoid the cumbersome necessity of reproducing the highly detailed information in every separate contract, but to enable prospective bidders upon state construction contracts to know in advance the bid requirements and construction specifications which will apply if they bid upon a state-owned highway construction project.

It is undisputed that no part of the 1970 Standard Specification for Highways Construction have ever been promulgated as agency rules within the meaning of § 7 of the Administrative Procedures Act as is required by chapter 3 of the act, as a condition of their validity. It is likewise undisputed that the statutory steps preliminary to the adoption of agency rules, including publication of the proposed rule, and publication and transmission of notice of public hearing⁴ were never undertaken with respect to Section 1.04.03(c) or any of the standard specifications.

We agree with the trial court and the Court of Appeals that Section 1.04.03(c) of the 1970 Standard Specifications for Highway Construction is not an agency rule within the meaning of § 7 of the Administrative Procedures Act. It is, as its title suggests, one of hundreds of standard contract terms and specifications governing the contractual relationship between the state and contractors engaged in state highway work. It follows, therefore, that the June 6, 1973 letter from the defendant’s Central Office Adjustment Board, and the endorsement thereof by the Director of the Department of State Highways, refusing to allow extra compensation, did not constitute "a declaratory ruling as to the applicability * * * of a rule or order of the [defendant] agency” subject to circuit court judicial review under § 63 of the act.

Similarly, there was no basis for a declaratory judgment concerning "the validity or application of a rule” under § 64 of the act.

II

In addition to the judicial review of administrative action sought in count I of its complaint, plaintiff prayed in count II for a declaratory judgment:

"A. That the delays heretofore incurred have been on account of unusual conditions beyond the control of plaintiff.

"B. That plaintiff is entitled to an extension of the contract time to compensate it for those days unavoidably lost by reason of said delays.

"C. That said extension of time should be an additional compensatory working day during the normal working season on Lake St. Clair, April 1 through November 1, for each day lost by plaintiff as a result of:

(1) Change of conditions at work site.

(2) Stop Order issued by Army Corps of Engineers.

The defendant claims the circuit court was without jurisdiction to entertain the complaint for declaratory relief and that the plaintiff’s exclusive remedy is in the Court of Claims.

We agree, but for reasons not fully addressed by either party.

This Court has long recognized the well established rule that a state cannot be sued without its consent, granted by legislative enactment. McNair v State Highway Department, 305 Mich 181, 187; 9 NW2d 52 (1943); Mead v Michigan Public Service Commission, 303 Mich 168, 173; 5 NW2d 740 (1942); Manion v State Highway Commissioner, 303 Mich 1, 19; 5 NW2d 527 (1942); cert den 317 US 677 (1942); McDowell v Warden of Michigan Reformatory at Ionia, 169 Mich 332, 337; 135 NW 265 (1912); Board of Supervisors of Sanilac County v Auditor General, 68 Mich 659; 36 NW 794 (1888); Michigan State Bank v Hastings, 1 Doug 225 (Mich, 1844).

There is, of course, a distinction between sovereign immunity from suit and sovereign immunity from liability.

Legislative waiver of a state’s suit immunity merely establishes a remedy by which a claimant may enforce a valid claim against the state and subjects the state to the jurisdiction of the court.

By waiving its immunity from liability, however, the state concedes responsibility for wrongs attributable to it and accepts liability in favor of a claimant. In so doing it may even create a cause of action in favor of the claimant which did not theretofore exist. Minty v Board of State Auditors, 336 Mich 370; 58 NW2d 106 (1953); Van Antwerp v State, 334 Mich 593; 55 NW2d 108 (1952).

It was to various aspects of the issue of sovereign immunity from liability that this Court addressed itself repeatedly in the last decade, most recently upholding statutory state tort immunity in Thomas v Department of State Highways, 398 Mich 1; 247 NW2d 530 (1976), and abolishing judicially created tort immunity in Pittman v Taylor, 398 Mich 41; 247 NW2d 512 (1976).

We address today, however, the issue of sovereign immunity from suit. Broadly stated, the issue is whether the State of Michigan’s sovereign immunity from suit has been waived to the extent that it may be sued in our courts of general jurisdiction upon a complaint for declaratory judgment.

While it is clear that the circuit court has general original jurisdiction in matters of law and equity, including jurisdiction to issue declaratory judgments, its jurisdiction is not limitless.

Article 6, § 13 of the Constitution of the State of Michigan provides in part:

"The circuit court shall have original jurisdiction in all matters not prohibited by law. ” (Emphasis added.)

MCLA 600.605; MSA 27A.605 provides:

"Circuit courts have original jurisdiction to hear and determine all civil claims and remedies, except where exclusive jurisdiction is given in the constitution or by statute to some other court or where the circuit courts are denied jurisdiction by the constitution or statutes of this state. ” (Emphasis added.)

To the foregoing emphasized exceptions this Court has earlier and repeatedly added those cases in which the defendant is by its sovereignty suit-immune. Lucking v People, 320 Mich 495; 31 NW2d 707 (1948); Manion v State Highway Commissioner, supra; Missouri Tie & Lumber Co v Sullivan, 275 Mich 26; 265 NW 779 (1936); McDowell v Warden of Reformatory, supra; People ex rel Ayres v Board of State Auditors, 42 Mich 422; 4 NW 274 (1880).

Thus it is well settled that the circuit court is without jurisdiction to entertain an action against the State of Michigan unless that jurisdiction shall have been acquired by legislative consent.

In 1939, with enactment of the Court of Claims Act,⁵ the Legislature, for the first time, adopted a comprehensive legislative scheme authorizing suit against the State of Michigan and its various agencies.⁶ Prior to that time the Legislature had permitted suit only against a few selected state agencies and then only for limited periods.⁷ Save for these scattered exceptions, until 1939 the state could not be sued because the requisite legislative consent had not been given. McDowell v Warden of Reformatory, supra.

Today the Court of Claims Act⁸ stands as this state’s controlling legislative expression of waiver of the state’s sovereign immunity from direct action suit against it and its agencies and of their submission to the jurisdiction of a court.

It is controlling because in addition to authorizing suit against the state, the act also limits any prior legislative authorization which may be inconsistent with the act. Those scattered legislative expressions waiving the state’s suit immunity which were enacted prior to the original Court of Claims Act must be construed within the terms and in light of the subsequent act. Such construction is mandated by the sweeping language of the act which clearly manifests the Legislature’s intent to limit its authorization to suits in the Court of Claims. So construed, the Court of Claims Act is both permissive and restrictive. This Court has heretofore applied this rationale to post-Court of Claims Act legislation waiving suit immunity by holding that the scope of any such authorization is limited by the terms and conditions of jurisdiction established in the Court of Claims Act. Hirych v State Fair Commission, 376 Mich 384, 390; 136 NW2d 910 (1965).

It follows logically, therefore, that to the extent any pre-Court of Claims Act authorization of suit may exceed the jurisdictional limitations imposed by the Court of Claims Act, the former is superseded and limited by the latter. To the extent inconsistent with our opinion today, Hunt v State Highway Commissioner, 350 Mich 309; 86 NW2d 345 (1957), is expressly overruled.⁹

We have heretofore held that a statutory relinquishment of common-law sovereign immunity from suit must be strictly construed. Manion v State Highway Commissioner, supra, 19. Thus a cause of action brought pursuant to a waiver of suit immunity must be of a nature and in a forum permitted by the waiver.

The Court of Claims Act is manifestly a narrowly limited waiver of suit immunity. It restricts by its terms the kinds of claims which may be brought, creates a previously nonexistent court of limited jurisdiction wherein such claims may be prosecuted, and declares the new forum to have exclusive jurisdiction to hear them.

The pertinent section of the act provides:

"(1) Except as provided in section 6440, the jurisdiction of the court of claims as conferred upon it by this chapter over claims and demands against the state or any of its departments, commissions, boards, institutions, arms or agencies, shall be exclusive. The state administrative board is hereby vested with discretionary authority upon the advice of the attorney general, to hear, consider, determine and allow any claim against the state in an amount less than $100.00. Any claim so allowed by the state administrative board shall be paid in the same manner as judgments are paid under section 6458 upon certificátion of the said allowed claim by the secretary of the state administrative board to the clerk of the court of claims. The court has power and jurisdiction:

"(a) To hear and determine all claims and demands, liquidated and unliquidated, ex contractu and ex delicto, against the state and any of its departments, commissions, boards, institutions, arms or agencies.” (Emphasis added.) MCLA 600.6419; MSA 27A.6419.

This Court has previously recognized the limited scope of the Court of Claims Act as a waiver of sovereign suit immunity, in holding that court to be without "the broad and inherent powers of a constitutional court of general jurisdiction”. Taylor v Auditor General, 360 Mich 146, 150; 103 NW2d 769 (1960).¹⁰

In sharply restricting the causes of action which may be brought against the state and in creating a new court of limited and exclusive jurisdiction solely for that purpose, the Legislature indicated with ringing clarity that its waiver of sovereign suit immunity under the Court of Claims Act was limited to the prosecution of claims within the Court of Claims.

We hold, for the foregoing reasons, that the circuit court was without jurisdiction to entertain the plaintiffs suit for judicial review and declaratory judgment under the Administrative Procedures Act, or declaratory judgment under GCR 1963, 521.

The Court of Appeals is affirmed.

Coleman and Fitzgerald, JJ., concurred with Ryan, J.

1 A meeting of the parties’ representatives was held at the highway department’s Detroit office on April 4, 1973. On April 10, 1973 plaintiff was advised by letter that "the Lansing construction office, in conjunction with the Attorney General’s Department, does not feel that a changed condition exists and will not consider additional compensation due to a change in the water level”.

On April 24, 1973 Greenfield addressed a letter to the Director of the State Highway Department summarizing its position and requesting his "intervention” to arrange a meeting with Greenfield’s representatives and the defendant’s board of review.

A meeting was held on May 10, 1973 between representatives of Greenfield and the defendant department. Following receipt of the recommendation of the board, the director of defendant highway department, by letter dated June 6, 1973, advised Greenfield that its request was denied.

2 MCLA 24.263; MSA 3.560(163):

"On request of an interested person, an agency may issue a declaratory ruling as to the applicability to an actual state of facts of a statute administered by the agency or of a rule or order of the agency. An agency shall prescribe by rule the form for such a request and procedure for its submission, consideration and disposition. A declaratory ruling is binding on the agency and the person requesting it unless it is altered or set aside by any court. An agency may not retroactively change a declaratory ruling, but nothing in this subsection prevents an agency from prospectively changing a declaratory ruling. A declaratory ruling is subject to judicial review in the same manner as an agency final decision or order in a contested case.”

3 MCLA 24.264; MSA 3.560(164):

"Unless an exclusive procedure or remedy is provided by a statute governing the agency, the validity or applicability of a rule may be determined in an action for declaratory judgment when the court finds that the rule or its threatened application interferes with or impairs, or imminently threatens to interfere with or impair, the legal rights or privileges of the plaintiff. The action shall be filed in the circuit court of the county where the plaintiff resides or has his principal place of business in this state or in the circuit court for Ingham county. The agency shall be made a party to the action. An action for declaratory judgment may not be commenced under this section unless the plaintiff has first requested the agency for a declaratory ruling and the agency has denied the request or failed to act upon it expeditiously. This section shall not be construed to prohibit the determination of the validity or applicability of the rule in any other action or proceeding in which its invalidity or inapplicability is asserted.”

4 MCLA 24.241; MSA 3.560(141):

"(1) Before the adoption of a rule an agency shall give notice of a public hearing and offer any person an opportunity to present data, views and arguments. The notice shall be given within the time prescribed by any applicable statute, or if none then at least 10 days before the public hearing and at least 20 days before the adoption of the rule. The notice shall include:

"(a) A reference to the statutory authority under which the action is proposed.

"(b) The time and place of the public hearing and a statement of the manner in which data, views and arguments may be submitted to the agency at other times by any person.

"(c) A statement of the terms or substance of the proposed rule or a description of the subjects and issues involved, and the proposed effective date of the rule.

"(2) The agency shall transmit copies of the notice to the joint committee on administrative rules, the legislative service bureau, the office of the governor and all persons who have requested the agency in writing for advance notice of proposed action which may affect them. The notices shall be by mail or otherwise in writing to the last address specified by the person. Requests for notices shall be renewed each December.

"(3) The public hearing shall comply with any applicable statute but is not subject to the provisions of this act governing contested cases, unless a rule is required by law to be adopted pursuant to adjudicatory procedures.”

5 1939 PA 135, subsequently amended and re-enacted as 1961 PA 236, MCLA 600.6419; MSA 27A.6419.

6 Taylor v Auditor General, 360 Mich 146, 149-150; 103 NW2d 769 (1960); Mead v Michigan Public Service Commission, supra, 170; Manion v State Highway Commissioner, supra, 20-21.

7 See for example McDowell v Warden of Reformatory, supra. (Suit against a state prison warden brought under authority of 1897 CL 2091. The provision authorizing suit was repealed by 1911 PA 219.)

Wheeler v Board of Control of State Public School, 137 Mich 291; 100 NW 394 (1904). (Contract suit against the Board of Control of the State Public School brought under authority of 1897 CL 2021. 1903 PA 143 rescinded said board’s corporate powers thereby repealing the provision authorizing it to sue and be sued.)

8 MCLA 600.6419; MSA 27A.6419.

9 Hunt held that a circuit court had equitable jurisdiction to issue a permanent injunction and order specific performance of a contract for the sale of private lands to the state through the State Highway Commissioner. The harsh facts involved a written contract for the sale of a business site owned by a husband and wife to the state for highway construction purposes. The state agent who negotiated the deal was later fired for misconduct and prosecuted. Thereafter the highway commissioner attempted to renege on the agreement to pay the plaintiffs some $97,500 after the plaintiffs had indebted themselves upon a $30,600 bank loan in order to acquire a new site for their business.

This Court appeared to rest its approval of the circuit court’s exercise of equitable jurisdiction on three grounds:

1. That by authorizing the highway commissioner to make contracts in connection with the purchase of lands and expend funds appropriate for that purpose the Legislature waived the state’s (highway commissioner’s) suit immunity in connection therewith;

2. That the action at law available to the plaintiffs in the Court of Claims was, in that case, an inadequate remedy; and

3. That upon being sued in equity in the circuit court the defendant highway commissioner filed a cross-claim (nowadays a counterclaim) alleging fraud and seeking revision of the agreement and in so doing “submitted himself to the jurisdiction and thereby cast aside the vestments of immunity”.

How the court could be vested with subject-matter jurisdiction it did not otherwise have by a party (the state via its agent) “[submitting] himself to the jurisdiction” was not explained by the Court in Hunt.

10 In Taylor v Auditor General, this Court declared that the Court of Claims was without the jurisdiction to grant a declaratory judgment. This conclusion was premised on the fact that the declaratory judgment act did not authorize the rendition of declaratory judgments by any and all courts of record, but only those which had a law side and an equity side. Since the Court of Claims "does not possess the broad and inherent powers of a constitutional court of general jurisdiction”, in other words does not have an "equity side”, it could not render a declaratory judgment.

With the repeal of the declaratory judgment act, 1948 CL 691.501, by the Revised Judicature Act, MCLA 600.9901; MSA 27A.9901, the former language which restricted the power to render declaratory judgments to those courts which have both an equity side and a law side is no longer controlling. However, because the power of the Court of Claims is not at issue in this case, we decline to decide whether the Court of Claims is now empowered to render declaratory judgments.