Linan v. Housing Auth. /Camden

• Court: Court of Appeals for the Third Circuit
• Decided: February 13, 1995
• Docket: 94-5193
• Status: Unknown

Opinion

Opinions of the United 1995 Decisions States Court of Appeals for the Third Circuit

2-13-1995

Linan v Housing Auth. /Camden Precedential or Non-Precedential:

Docket 94-5193

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Recommended Citation "Linan v Housing Auth. /Camden" (1995). 1995 Decisions. Paper 45. http://digitalcommons.law.villanova.edu/thirdcircuit_1995/45

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu. UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 94-5193

LINAN-FAYE CONSTRUCTION CO., INC.

Appellant v.

HOUSING AUTHORITY OF THE CITY OF CAMDEN

Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 90-cv-04651)

Argued: September 23, 1994 BEFORE: BECKER, COWEN and GARTH, Circuit Judges

(Filed February 13, 1995)

Cary L. Flitter (argued) Lundy, Flitter & Beldecos 450 North Narberth Avenue P.O. Box 278 Narberth, PA 19072-0278

Counsel for Appellant Linan-Faye Construction Co., Inc.

Mark D. Caswell (argued) Freeman, Zeller & Bryant Ten Melrose Avenue Woodcrest Pavilion, Suite 400 Cherry Hill, NJ 08003-3647

Counsel for Appellee Housing Authority of the City of Camden OPINION

COWEN, Circuit Judge. Linan-Faye Construction Company Co., Inc. ("Linan-

Faye"), a public housing contractor, appeals from orders of the

district court that granted summary judgment for the Housing

Authority of the City of Camden ("HACC") on Linan-Faye's claims

under public contract law and 42 U.S.C. § 1983. Because the

district court erred in applying federal common law rather than

state law to resolve this dispute, we will reverse and remand to

the district court for further proceedings. Nevertheless, since

we conclude that in the absence of New Jersey law which

specifically interprets "termination for convenience" clauses New

Jersey courts would look to federal common law for guidance, we

will limit the triable issues on remand to a determination of:

(1) the definition of "work performed" for purposes of paragraph

17 of Linan-Faye's contract with HACC; (2) the pre-termination

expenses incurred by Linan-Faye that may be compensable as "work

performed" under paragraph 17 of the contract; and (3) HACC's

liability, if any, for damages resulting from HACC's withholding

of Linan-Faye's performance bond after termination. Finally,

because the district court did not err in determining that Linan-

Faye failed to demonstrate a protectible property or liberty

interest sufficient to support its § 1983 claim, we will affirm

the district court's grant of summary judgment on this claim. I. FACTS & PROCEDURAL HISTORY

On August 11, 1988, HACC advertised for bids on a

housing modernization project. The project involved the

renovation and rehabilitation of 244 housing units and was to be

funded in substantial part by a grant from the United States

Department of Housing and Urban Development pursuant to the

Public and Indian Housing Comprehensive Improvement Assistance

Program ("CIAP"). Plaintiff, Linan-Faye, attended all required

pre-bid meetings and submitted a bid of $4,264,000, together with

supporting documentation which included a bid bond, performance

bond, qualification statement, and required affidavits. Linan-

Faye was the lowest responsible bidder for the job, underbidding

its nearest competitor by $600,000. Accordingly, HACC informed

Linan-Faye that the contract was to be forthcoming.

Linan-Faye engaged in preparatory activities in

connection with the contract, including meeting with prospective

subcontractors, job planning and pricing, talking with relevant

inspectors, and securing insurance. Also, on several occasions,

representatives of Linan-Faye met with HACC and its architect to

discuss specifications and make preparations for the commencement

of physical construction. Linan-Faye, however, never began

physical construction because numerous disputes broke out between

the parties over interpretation of the specifications.

Linan-Faye contends that HACC demanded concessions

before permitting work to begin. HACC maintains that the parties arrived at different interpretations of the project plans and

specifications, and this conflict became evident at pre-

construction meetings. On November 29, 1988, as the result of

these disputes, HACC advised Linan-Faye that it was going to

rebid the project. Linan-Faye filed suit to enjoin this

rebidding and allow it to complete the project as bid.

The district court entered a temporary restraining

order to prevent HACC from accepting further bids. Subsequently,

the court approved a Stipulation of Settlement and Order of

Dismissal with Prejudice, under which the parties agreed to

execute the contract and proceed with the project as originally

planned. Nevertheless, disputes soon broke out again.

On November 22, 1989, HACC issued a Notice to Proceed.

Linan-Faye contends that the notice was limited to an order to

correct certain plumbing problems that were a portion of the

original contract. Linan-Faye refused to proceed in a piecemeal

fashion, and insisted that it would not begin work until a

certain number of vacant buildings were available at the same

time so that it could achieve economies of scale. HACC responded

that it had scattered vacant units available, but not rows of

units.

Subsequently, HACC attempted first to extract the

plumbing segment from the contract and, when that failed,

proposed a complete buy-out of Linan-Faye's contract. The

parties entertained the possibility of a buy-out until July of 1990, at which time HUD informed HACC that it would not approve a

buy-out. HACC reinstated the previous Notice to Proceed by

letter dated July 23, 1990.

At a preconstruction meeting on September 6, 1990,

Linan-Faye informed HACC that it would not start work until the

contract price was increased to reflect the costs incurred by the

delay in commencing construction. HACC responded that Linan-Faye

had to begin work before it would address the issue of the price

increase.

HACC elected to terminate Linan-Faye's contract by

letter dated September 25, 1990. In that letter, Gregory Kern,

the Interim Executive Director of HACC, stated that HACC would

instruct the Modernization Office to assist Linan-Faye in

reclaiming its performance bonds. While the letter did not

mention the terms "breach" or "default," it did state that Linan-

Faye "had continually failed to demonstrate its intent to perform

under the public contract." Letter from Kern to Norman Faye

(September 25, 1990); App. Vol. I at 114-115. HACC confirmed its

decision to terminate by letter dated October 23, 1990.

Linan-Faye objected to the termination and filed the instant

action on October 26, 1990, setting forth theories of recovery

under New Jersey public contracts law and 42 U.S.C. § 1983.

Linan-Faye served HACC with a complaint in December of 1990

seeking specific performance and damages. HACC did not surrender

Linan-Faye's performance bond until July of 1991, after the district court determined that specific performance was not

available to Linan-Faye.

In April of 1992, HACC filed a motion for summary

judgment on Linan-Faye's civil rights claim and for the first

time argued, in that same motion, that the "termination for

convenience" clause set forth in paragraph 17 of the General

Conditions of their contract limited Linan-Faye's damages under

the contract.1 The district court granted HACC's motion for

1 . Paragraph 17 of this contract's General Conditions of the Contract for Construction states in relevant part:

a. Subject to the approval of HUD, the performance of work under this contract may be terminated by the PHA in accordance with this paragraph in whole, or from time to time in part, whenever the Contracting Officer shall determine that such termination is in the best interest of the PHA. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying the extent to which the performance of the work under the contract is terminated, and the date upon which such termination becomes effective.

b. If the performance of the work is terminated, either in whole or in part, the PHA shall be liable to the Contractor for reasonable and proper costs resulting from such termination, which costs shall be paid to the Contractor within 90 days of receipt by the PHA of a properly presented claim setting out in detail: (1) the total cost of the work performed to date of termination less the total amount of contract payments made to the contractor . . .; and (5) an amount constituting a reasonable profit on the value of work performed by the Contractor.

App. Vol. II at 45. summary judgment on the § 1983 claim, but deferred decision on

the effect of the termination of convenience clause pending

further discovery.

Upon a renewed motion for summary judgment, the

district court held for HACC, determining that Linan-Faye's

damages would be limited to those compensable under the

contract's termination for convenience clause. The district

court left open, however, the possibility of recovery for damages

accruing from HACC's initial failure to identify specifically the

termination as one of convenience.

HACC filed its third motion for summary judgment on

October 27, 1993. In that motion, HACC contended that since

Linan-Faye never began work under the contract, it could not

recover any damages under the termination for convenience clause.

Linan-Faye responded that it could recover damages for: (1)

preparatory costs such as soliciting subcontractors, pricing, and

pre-construction meetings; (2) improper notice of termination;

(3) pre-termination delay by HACC; and (4) HACC's refusal to

relinquish Linan-Faye's performance bond. Determining that

federal common law applied in interpreting this contract, the

district court held that Linan-Faye incurred no compensable

damages under the termination for convenience clause. The court,

therefore, entered an order granting summary judgment for HACC.

This appeal followed. Following oral argument before this Court, HACC and

Linan-Faye agreed to participate in non-binding mediation of the

controversy before the Honorable Max Rosenn, Senior Circuit

Judge. By memorandum dated November 9, 1994, Judge Rosenn

informed us that efforts to reach a settlement of the controversy

through mediation were unsuccessful.

II. JURISDICTION & OVERVIEW OF ISSUES RAISED IN THIS APPEAL

The district court exercised jurisdiction in this

matter by virtue of the diversity of citizenship of the parties

with the requisite amount in controversy pursuant to 28 U.S.C. §

1332 (1988). This Court has jurisdiction pursuant to 28 U.S.C. §

1291 (1988). Linan-Faye essentially raises six issues on

appeal:2 (1) whether the district court erred in applying

federal common law and not the law of New Jersey to interpret

this contract; (2) whether New Jersey law precludes retroactive

application of a termination for convenience clause; (3) whether

the district court was correct in its application of the

constructive termination for convenience doctrine; (4) whether

the district court erred by engaging in impermissible fact

2 . Linan-Faye styles its appeal as containing seven issues. Brief of Appellant at ix-x. The first of these issues, according to Linan-Faye, is that the district court engaged in impermissible fact finding on contested matters. Given our conclusion concerning the application of the termination for convenience clause, however, this issue is best resolved in conjunction with a discussion of the proper application of that clause. See discussion infra part VI. finding so as to deny Linan-Faye all compensation; (5) whether

Linan-Faye has an actionable claim for violation of its civil

rights; and (6) whether HACC's position that the termination for

convenience clause denies any recovery is barred by principles of

equitable and judicial estoppel.

III. CHOICE OF LAW

Linan-Faye contends that the district court erred in

applying federal common law and not the law of New Jersey to

resolve this dispute. According to Linan-Faye, this action

involves a contract dispute between a private contractor and an

autonomous public housing authority created pursuant to New

Jersey law. Where such parties enter federal court based upon

diversity of citizenship, Linan-Faye argues, the federal courts

presumptively apply state law. See Erie R. Co. v. Tompkins, 304

U.S. 64, 78, 58 S. Ct. 817, 822 (1938). We agree.

Our review of a district court's determination as to

choice of law is plenary. Louis W. Epstein Family Partnership v.

Kmart Corp., 13 F.3d 762, 766 (3d Cir. 1994) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.

1981)). This Court's recent decision in Virgin Islands Housing

Authority v. Coastal General Construction Services Corp., 27 F.3d

911 (3d Cir. 1994), strongly indicates the proper result in this

case. In Coastal General, we determined, in the context of

deciding a question of federal jurisdiction, that local law, not federal law, governs a dispute over the termination provisions of

a contract between a public housing authority and a private

construction company. Id. at 917. As we stated in Coastal

General, "[t]he fact that a contract is subject to federal

regulation does not, in itself, demonstrate that Congress meant

that all aspects of its performance or nonperformance are to be

governed by federal law rather than state law applicable to

similar contracts in businesses not under federal regulation."

Id. at 916 (quoting Lindy v. Lynn, 501 F.2d 1367, 1369 (3d Cir.

1974)). In addition, we explained that even if the contractor's

complaint contained assertions respecting the use of federal

funds in a construction project and the adoption of contractual

forms authorized by HUD, there would be no difference in outcome.

Id. at 917.

Similar to Coastal General, in the instant case a

public housing authority contracted with a private construction

company. Linan-Faye, the construction company, did not contract

directly with the United States government. While HUD funded the

construction project in part, and HUD forms were used in the

contract, Coastal General teaches that these facts do not dictate application of federal common law. Rather, the holding of

Coastal General indicates that in construing termination clauses

such as the one at issue in this case, courts must look to local

law. Thus, the district court was incorrect in applying federal

common law and not the law of New Jersey to resolve this dispute. The district court erred in deviating from the

generally applicable Erie doctrine. The Supreme Court, in Boyle

v. United Technologies Corp., 487 U.S. 500, 108 S. Ct. 2510

(1988), set forth a two-pronged inquiry for determining whether

to apply federal common law in the absence of an express

Congressional grant of such authority. According to the Supreme

Court, a court must first determine whether the action involves

"`uniquely federal interests.'" Id. at 504, 108 S. Ct. at 2514

(citing Texas Industries Inc. v. Radcliff Materials, Inc., 451

U.S. 630, 640, 101 S. Ct. 2061, 2067 (1981)). Once a court

identifies a uniquely federal interest, the court must then

determine whether a "significant conflict" exists between an

identifiable "federal policy or interest and the [operation] of

state law." Id. at 507, 108 S. Ct. at 2516 (quoting Wallis v.

Pan American Petroleum Corp., 384 U.S. 63, 68, 86 S. Ct. 1301,

1304 (1966)).

Relying on American Pipe & Steel Corp. v. Firestone

Tire & Rubber Co., 292 F.2d 640 (9th Cir. 1961), and United

States v. Taylor, 333 F.2d 633 (5th Cir. 1964), the district

court concluded that the government's interest in ensuring a

uniform interpretation of the termination for convenience

provisions in this contract provided the "significant federal

interest" necessary to pre-empt state law. Linan-Faye Construction Co. v. Housing Authority of Camden, 847 F. Supp.

1191, 1197 (D.N.J. 1994). These cases, however, do not dictate this result. While both of these cases applied federal law in

interpreting a contract, the government interest was far more

significant in those cases than in the case at hand. In American

Pipe & Steel, the Court of Appeals for the Ninth Circuit stated,

"we agree generally with appellee that the construction of

subcontracts, let under prime contracts connected with the

national security, should be regulated by a uniform federal law."

American Pipe & Steel, 292 F.2d at 644. The instant case

involves no matter of national security. Further, the court in

American Pipe & Steel expressly acknowledged that the development

of the law in this area was "still uncertain and unclear." Id.

Similarly, in Taylor, the contract at issue involved the

construction of an atomic energy plant, a matter intricately

involved with national security during the 1950's and 1960's.

Taylor, 333 F.2d at 635. The Taylor court also explicitly

referred to the fact that American Pipe & Steel dictated

application of federal common law in such a case. Id. at 637.

Thus, both of these decisions concerned matters of national

security that are simply not present in this case.3 3 . Still another distinction exists between the instant case and the cases the district court relied upon in applying federal common law to interpret this contract. American Pipe & Steel and Taylor involved direct United States government procurement contracts, or a subcontract with a United States government prime contractor. American Pipe & Steel, 292 F.2d at 641; Taylor, 333 F.2d at 635. Neither of these situations involved, as is the case here, the outright grant of funds to a public agency. The closer nexus to the United States government in American Pipe & Steel and Taylor heightens the federal government's interest. The weaker link in this case diminishes the significance of the Moreover, the district court erred in finding a

conflict between federal and state law that would endanger any

federal interest involved. The district court correctly

recognized the proposition that a lawsuit which involves a

federal interest is a "necessary, not a sufficient, condition for

the displacement of state law." Linan-Faye Construction Co., 847

F. Supp. at 1198 (quoting Boyle 487 U.S. at 507, 108 S. Ct. at

2516). The court, however, failed to identify a significant

conflict. In the only paragraph that attempts to identify a

conflict, the court stated: We find it implausible that the federal government would require all CIAP contracts in excess of $10,000.00 to contain a termination for convenience clause, and then leave interpretation of that clause to the vagaries of state law, particularly where, like New Jersey, there are few or no state law cases interpreting this type of provision. Rather, we believe that the decision to include a termination for convenience clause in the "Uniform Requirements" section of the C.F.R. reflects a federal interest in a consistent interpretation of that clause.

Id.

The first sentence of this paragraph merely assumes the

answer to the question the court is wrestling with: whether

Congress left interpretation of clauses in these types of

contracts to state law. The second sentence of the above quoted

(..continued) government interest. Thus, the district court was incorrect in finding a government interest significant enough to warrant deviating from Erie and applying federal common law. paragraph simply reidentifies the interest involved, it does not

point out a conflict with state law.

The problem with the district court's reasoning is

highlighted by its own analysis of what the outcome would be

under state law. The court states, "[e]ven assuming that New

Jersey law were to apply, we have no basis for believing that New

Jersey courts would look elsewhere than to federal common law for

guidance." Id. If New Jersey courts, as is likely, would look

to federal common law to decide this question for which there is

little state law precedent on point, then the court is incorrect

in its assertion that a conflict exists. The outcome would be

the same under both federal and state common law. Thus, the

court erred in applying federal common law and not the law of New

Jersey to resolve this dispute and we must reverse with the

direction that the district court resolve all remaining issues in

accordance with New Jersey law.

IV. NEW JERSEY LAW

Having decided that it is the law of New Jersey that

governs the interpretation of this contract, we must now decide

whether Linan-Faye is correct when it argues that the general

principles of contract damages under New Jersey law would permit

Linan-Faye to recover full expectation damages under this

contract rather than those damages provided for under the contract's termination for convenience clause. Citing A-S

Development, Inc. v. W.R. Grace Land Corp., 537 F.Supp. 549, 557

(D.N.J. 1982), aff'd 707 F.2d 1388 (3d Cir. 1983), and other

cases,4 Linan-Faye states that under New Jersey law one who

breaches an agreement must compensate the injured party in order

to put the non-breaching party in as good a position as he would

have been in had performance been rendered as promised. Further,

Linan-Faye argues that New Jersey courts have declined to import

federal procurement concepts into their contract law

jurisprudence. See Edwin J. Dobson, Jr., Inc. v. Rutgers, 157

N.J. Super. 357, 418, 384 A.2d 1121, 1152 n.10 (1978) ("The

policy factors that have lead [sic] to the development of this

concept in federal contracts, such as a need to expand or abandon

a particular arms program with consequent economic impact on

contractors and subcontractors, do not warrant state courts

adopting it wholesale by judicial fiat when traditional remedies

for breach of contract are available."), aff'd sub nom., Broadway

Maintenance Corp. v. Rutgers, 180 N.J. Super. 350, 434 A.2d 1125

(A.D. 1981), aff'd, 90 N.J. 253, 447 A.2d 906 (1982). While the

cases Linan-Faye cites stand for these general propositions, such

4 . Linan-Faye also cites Donovan v. Bachstadt, 91 N.J. 434, 453 A.2d 160 (1982), for the proposition stated above. Further, Linan-Faye cites In Re Merritt Logan, Inc., 901 F.2d 349, 357-58 (3d Cir. 1990) and Sandler v. Lawn-A-Mat Chemical & Equipment Corp., 141 N.J. Super. 437, 454, 358 A.2d 805 (A.D.), certification denied, 71 N.J. 503, 366 A.2d 658 (1976), for the proposition that the courts of New Jersey have long maintained a liberal rule of damages to a non-breaching party. generalities provide insufficient guidance in deciding the proper

construction of a contract that contains a termination for

convenience clause.5

It is undisputed that there are no cases in New Jersey

construing the effect of termination for convenience clauses. It

is also undisputed that there are numerous federal cases dealing

specifically with termination for convenience clauses and, in

particular, with the doctrine of constructive termination for

convenience. Therefore, as the district court stated, "courts in

New Jersey would recognize that where the parties have

incorporated a particular clause pursuant to federal regulation,

they do so against the backdrop of federal case law addressing

the clause." Linan-Faye Construction Co., 847 F. Supp. at 1198.

Accordingly, we align ourselves with the district court in its

determination that if New Jersey law were to apply, New Jersey

courts would look to this rich body of federal common law

concerning the termination for convenience doctrine, unless to do

so would violate some enshrined principle of New Jersey law. Id.

Like the district court, we are unable to discern such a

principle.6

5 . Additionally, the quoted language in Dobson represents only the opinion of a single judge on this matter. The relevant issue was not addressed in the New Jersey Supreme Court opinion affirming this case. 6 . Linan-Faye argues that decisions of the New Jersey Supreme Court such as W.V. Pangborne & Co. v. New Jersey Dept. of Transportation, 116 N.J. 543, 562 A.2d 222 (1989), where the court has found against governmental entities, are inconsistent V. TERMINATION FOR CONVENIENCE

Because the New Jersey Supreme Court would likely look

to federal common law as persuasive authority in order to

construe this contract's termination for convenience clause, we

must examine the parties' contentions in light of the relevant

federal case law.7 As a preliminary matter, we must determine

the method HACC used to terminate Linan-Faye. HACC argues that

it terminated Linan-Faye by letter of September 25, 1990, and

this letter constituted a termination for convenience. Linan-

Faye, on the other hand, argues that this letter constituted a

default termination. Linan-Faye has the better of this argument.

(..continued) with the broad discretion federal courts have conferred on the government in cases concerning termination for convenience clauses. Pangborne, however, involved a failure of a governmental entity to deal in good faith. Id. at 562, 562 A.2d at 231 ("DOT's failure . . . to deal expressly and clearly with this material term constitutes a breach of an implied duty of good faith and fair dealing and the supervening obligation of the government to deal scrupulously with the public."). Federal common law also looks disfavorably on the government in cases of governmental bad faith. See infra Part V. Therefore, Linan- Faye's argument is unpersuasive. 7 . We recognize that the district court also applied federal common law to resolve this dispute. Linan-Faye Construction Co. 847 F. Supp. at 1198. Nevertheless, there is a difference between looking to federal common law as persuasive authority and being bound by federal law. The district court opted for the latter approach and determined that construction of the termination for convenience clause was purely a matter of federal common law. In light of our previous holding in Coastal General, 27 F.3d at 917, we opt for the former approach. HACC's letter of September 25, 1990 is replete with

references to defaults on the part of Linan-Faye. HACC stated in

the letter that Linan-Faye's correspondence evidences Linan-

Faye's "intent to avoid compliance with the specifications."

Letter from HACC to Norman Faye (September 25, 1990); App. Vol.

I at 114. Further, HACC stated in its letter that Linan-Faye had

"continually failed to demonstrate its intent to perform under

the public contract" and that "it is clear" Linan-Faye is "no

closer to performing its contract obligations then it was in

September of 1988." Id. at 114, 115. Nowhere in this letter

does HACC state that it is terminating Linan-Faye simply for

convenience. It is apparent from this document that HACC

originally terminated Linan-Faye for default.8

Given HACC's original termination of Linan-Faye for

default, the question that we must reach is whether the court

should retroactively convert this termination for default into a

8 . HACC argues that the last paragraph of this letter which states that HACC has "instructed the Modernization Office to assist [Linan-Faye] as needed in obtaining release of [Linan- Faye's Bond]," App. at 115, is inconsistent with a default termination because if HACC had terminated for a default it was entitled to hold onto the bond. Just because HACC had the right to hold onto the bond under the contract, however, does not mean that it intended to exercise this right at the time of the letter. HACC may not have felt that the defaults it cited, such as a failure to begin work, were compensable via the bond, or it may have decided that it did not wish to encourage litigation over the bond issue. In any event, this paragraph provides insufficient support for HACC's argument that this letter constituted a termination for convenience. termination for convenience. HACC argues, based on a number of

cases from the United States Court of Claims and the Court of

Appeals for the Federal Circuit,9 that the district court did not

err in invoking the constructive termination for convenience

doctrine in order to convert this default termination into a

termination for the convenience of the Housing Authority. Linan-

Faye argues that under federal common law the doctrine of

constructive termination for convenience has no application to

this case. According to Linan-Faye, Federal Acquisition

Regulations (FAR's) applicable to direct procurement contracts

provide for a "conversion clause," a clause that automatically

converts a termination for default into a termination for

convenience. 48 C.F.R. § 49.401(b) (1993). Linan-Faye suggests,

therefore, that because no such regulations exist in grant

situations10 such as this, there is an expressed intent that such

a conversion not be allowed. We find Linan-Faye's argument

unpersuasive.

9 . See discussion infra this part. 10 . HACC received a grant pursuant to the Public and Indian Housing Comprehensive Improvement Assistance Program ("CIAP"). CIAP grants, which are administered by HUD, require recipients to set forth various terms and conditions in their agreements with contractors. 24 C.F.R. § 968.110(j) (1994). The regulations concerning CIAP grants, collected at 24 C.F.R. § 85.1 et seq., differ from the FAR's applicable to direct government procurement contracts. The CIAP grant regulations do not provide for a mandatory conversion clause. The absence of a conversion provision in regulations

concerning CIAP grants does not preclude application of federal

common law. While the FAR's have an explicit conversion clause,

it was the federal common law that originally developed the

concept of termination for convenience, and later developed the

concept of constructive termination for convenience. We find it

appropriate to apply federal common law.

The idea that the government can, under certain

circumstances, terminate a contract without paying full

expectation damages, dates from the winding down of military

procurement following the civil war. Torncello v. United States,

681 F.2d 756, 764 (Ct. Cl. 1982). The termination for

convenience doctrine originated "in the reasonable recognition

that continuing with wartime contracts after the war was over

clearly was against the public interest." Id. Where the

government terminates a private contractor pursuant to a

termination for convenience clause in a contract, instead of

receiving full expectation damages the contractor's recovery is

defined by the termination for convenience clause. Recovery is

limited to "`costs incurred, profit based on the work done, and

the costs of preparing the termination settlement proposal.'"

Maxima Corp. v. United States, 847 F.2d 1549, 1552 (Fed. Cir. 1988) (quoting R. Nash & J. Cibinic, Federal Procurement Law 1104

(3d ed. 1980)) After World War II, termination for convenience came to be applied to peacetime non-military procurement. Id.

(citing Torncello, 681 F.2d at 765-66).

Constructive termination for convenience, an outgrowth

of termination for convenience, is a judge-made doctrine that

allows an actual breach by the government to be retroactively

justified.11 Maxima Corp., 847 F.2d at 1553. This doctrine has

its origins in the Supreme Court's decision in College Point Boat

Corp. v. United States, 267 U.S. 12, 45 S. Ct. 199 (1925). In

that decision, the Supreme Court held: A party to a contract who is sued for its breach may ordinarily defend on the ground that there existed, at the time, a legal excuse for nonperformance by him, although he was then ignorant of the fact. He may, likewise, justify an asserted termination, rescission, or repudiation, of a contract by proving that there was, at the time, an adequate cause, although it did not become known to him until later.

College Point, 267 U.S. at 15-16, 45 S. Ct. at 200-01 (footnotes omitted) (emphasis added).

The decision of the Court of Claims in John Reiner &

Company v. United States, 325 F.2d 438 (Ct. Cl. 1963), cert.

11 . The "government" involved in these cases is typically the United States government. In the instant case, the entity seeking to terminate for convenience is the Housing Authority of Camden. While the doctrine of constructive termination for convenience originally developed to allow the United States government maximum flexibility to deal with military contractors during times of war, the expansion of this doctrine into areas other than those involving military contracts suggests that its precepts should be applied to all government entities that provide services to the public. Of course, the final word on this issue rests with the New Jersey Supreme Court. denied, 377 U.S. 931, 84 S. Ct. 1332 (1964), demonstrates the

operation of this doctrine. In John Reiner, the plaintiff

contracted with the government to supply generator sets to the

Army. Id. at 439. Following delivery of a written contract, but

before performance commenced, the government notified the

plaintiff that the contract was canceled and that the contract

would be rebid because of an impropriety in the original bidding

procedure identified by a competitor. Id. Nevertheless, no such

impropriety was found to exist. Id. at 442. The Court of

Claims, therefore, was forced to consider the proper measure of

damages to the contractor. In answering this question, the court

determined that while the government did not rely on the

termination for convenience clause in canceling the contract with

the plaintiff, because it could have so relied, the measure of

damages was limited to the damages provided for in that clause.

Id. at 443. According to the court, even though the excuse

originally offered was not a "valid justification," a "good

ground did exist in the far-reaching right to terminate under the

termination article." Id. This case granted the government

great latitude in retroactively terminating contracts for

convenience.

Perhaps the high-water mark of courts' permissiveness

in allowing the government to terminate for convenience,

constructively or otherwise, was Colonial Metals Co. v. United States, 494 F.2d 1355 (Ct. Cl. 1974), overruled in part by Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982). In that

case, a dealer in copper contracted with the government to sell

copper ingot to the Navy. Id. at 1357. The government

terminated this contract to obtain the copper ingot from other

sources at a cheaper price. Id. The court held that even where

the government knew of the better price elsewhere at the time it

awarded the contract and then later decided to terminate the

contract to pursue the better price, in the absence of proof of

malice or conspiracy, termination was not improper. Id. at 1361.

Termination for convenience, and its expansion into the

constructive termination for convenience doctrine, however, does

not confer upon the government a discretion that is unbounded.

In granting the government the privilege of constructive

termination for convenience, courts brush up against the problem

of allowing the government to create an illusory contract. See

Torncello, 681 F.2d at 769 (when evaluating a termination for

convenience, one cannot ignore hornbook law that "a route of

complete escape vitiates any other consideration furnished and is

incompatible with the existence of a contract."). Accordingly,

courts have articulated limits on the use of the constructive

termination for convenience doctrine in various ways. For

instance, in Torncello the Court of Claims stated that the constructive application of a termination for convenience clause

requires "some kind of change from the circumstances of the

bargain or in the expectations of the parties" Id. at 772. In Kalvar Corp. v. United States, 543 F.2d 1298, 1301 (Ct. Cl.

1976), cert. denied, 434 U.S. 830, 98 S. Ct. 112 (1977), by

contrast, the court's inquiry into whether to prevent the

government from receiving the benefit of the termination for

convenience clause focused on whether the government evidenced

any bad faith in terminating the contract. Pointing out that the

court is required to presume good faith on the part of public

officials, the court in that case determined that the contractor

could not avoid the application of the termination for

convenience clause. Id. at 1301-02; see also SMS Data Products

Group, Inc. v. United States, 19 Cl. Ct. 612, 617 (1990) ("This

court presumes that Government officials act in good faith.").

In this matter, the district court concluded that under

the bad faith test it was proper to allow HACC to invoke the

doctrine of constructive termination for convenience.

Additionally, the district court commented that even under the

changed circumstances test of Torncello, the deterioration in the

relationship between HACC and Linan-Faye would constitute

sufficiently changed circumstances to apply this doctrine. We

agree with the district court's decision that it was appropriate

to apply the constructive termination for convenience doctrine in

this case for two reasons. First, Linan-Faye has produced

insufficient evidence of bad faith on the part of HACC to

overcome the presumption that public officials act in good faith.

Second, this case is very different from Torncello. In Torncello, the government awarded a private

contractor the right to service all of the Navy's pest control

needs. Torncello, 681 F.2d at 758, 762. However, after awarding

the contract to this contractor, the Navy called the Department

of Navy Public Works to perform the task because this

organization, from its initial bid, appeared to be able to do the

work cheaper. Id. at 758. The government invoked the

constructive termination for convenience doctrine arguing that

since it had never called the private contractor to perform any

actual work, the private contractor was not entitled to any

damages. Id. at 759. Limiting its decision in Colonial Metals,

the court held, in an opinion joined by only three of six judges,

that the requirement of the government's good faith is not

sufficient and that without other checks, free termination for

convenience is not supportable. Id. at 771.12

In the matter at hand, Linan-Faye does not claim that

HACC terminated its contract to obtain the work at a cheaper

price. Linan-Faye also does not claim that HACC terminated the

contract in order to obtain work from a lower bidder who was

known to HACC at the time it contracted with Linan-Faye. Indeed,

12 . Notably, the disagreement among the judges in that case was on the precise issue of whether it was appropriate to create a stricter test for convenience terminations by the government. Id. at 773-774 (Friedman, C.J., Davis, J., and Nichols, J. concurring) While all the judges agreed on the result in that case, the court could not muster a majority to embrace the new "changed circumstances" test. Linan-Faye points out in its brief that it was the low bidder for

the project. Brief of Linan Faye at 1. Thus, the divisive facts

presented in Torncello are not present here.

Moreover, subsequent cases have limited the scope of

Torncello. The Court of Appeals for the Federal Circuit, for

example, has stated that Torncello "stands for the unremarkable

proposition that when the government contracts with a party

knowing full well that it will not honor the contract, it cannot

avoid a breach claim by adverting to the convenience termination

clause." Salsbury Industries v. United States, 905 F.2d 1518,

1521 (Fed. Cir. 1990), cert. denied, 498 U.S. 1024, 111 S. Ct.

671 (1991); see also T.I. Construction Co. v. Kiewit Eastern Co.,

No. 91-2638, 1992 WL 382306, at *9 (E.D.Pa. Dec. 10, 1992)

(citing language in Torncello indicating that its holding was

limited to the facts presented); Modern Systems Technology Corp.

v. United States, 24 Cl. Ct. 699, 704 (Cl. Ct. 1992) (applying

bad faith test and reading Torncello to stand only for the above

stated proposition), aff'd, 980 F.2d 745 (Fed. Cir 1992). In

addition, in a subsequent case, the United States Claims Court

stated that "Torncello did not change the traditional

understanding" that the "Government could invoke the clause so

long as it did not act in bad faith or clearly abuse its

discretion." SMS Data Products, 19 Cl. Ct. at 619-20. In light

of these developments, and considering the division among the

court in Torncello, we decline to read that case as significantly limiting the power of the government in terminating for

convenience.13

As the district court recognized, the post award

deterioration of the relationship between HACC and Linan-Faye

which included conflict over the specifications would likely

constitute sufficiently changed circumstances to justify

application of the doctrine of constructive termination for

convenience even under the reasoning in Torncello. See Embrey v.

United States, 17 Cl. Ct. 617, 624-25 (1989) (deterioration of

business relations considered sufficiently changed circumstances

to allow government to terminate for convenience); see also SMS

Data Products, 19 Cl. Ct. at 621 (genuine concern that contractor

could not meet the contract's mandatory requirements constituted

changed circumstances). Without establishing a litmus test as to

what constitutes changed circumstances, which is unnecessary in

view of subsequent limits on Torncello, we hold that New Jersey

courts, looking to federal law as persuasive authority, would

permit HACC to invoke the constructive termination for

13 . Linan-Faye also cites a law review note written shortly after the Torncello decision in support of its claims. Stephen N. Young, Note, Limiting the Government's Ability to Terminate For Its Convenience Following Tornecello [sic], 52 Geo. Wash. L. Rev. 892 (1984). In that note, the author suggests that Torncello provides a reason to eliminate the government's right to constructively terminate for convenience. Id. at 911. As this author was writing without the benefit of recent decisions, all that can be said of his recommendation is that future courts declined to take the hint. convenience doctrine in this instance.14 Accordingly, damages

will be limited by the termination for convenience clause of the

contract.15 14 . The dissent states that the majority "holds that a deterioration in business relations, demonstrated in not insignificant part by a dispute over specifications, constitutes such a change in circumstances." See infra at 12 (emphasis added). The dissent is incorrect insofar as it reads this to be the holding of our decision. As we have already explained, Torncello, and its changed circumstances approach, has been sharply limited by more recent cases. See discussion supra this Part. We have therefore declined to endorse wholeheartedly the changed circumstances approach. Accordingly, an accurate statement of our position is that (1) Linan-Faye has not demonstrated actual bad faith on the part of HACC and (2) this case does not present the divisive facts presented in Torncello that warranted finding against the government. 15 . At oral argument, Linan-Faye suggested that the application of paragraph 16(d) of the General Conditions of this Contract "trumps" the constructive application of the paragraph 17 termination for convenience clause. Paragraph 16(d) states, in pertinent part:

The Contractor's right to proceed shall not be terminated or the Contractor charged with damages under this clause if:

(1) The delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (1) acts of God, or of the public enemy, (ii) acts of the PHA or other governmental entity in either its sovereign or contractual capacity (iii) acts of another contractor in the performance of a contract with the PHA (iv) fires . . . .

App. Vol II at 45.

This subsection of paragraph 16 carves out an exception to when HACC can terminate for default. While Linan-Faye's argument goes to whether HACC breached the agreement in terminating for default, it cannot prevent application of the constructive termination for convenience VI. COMPENSATION IN LIGHT OF THE TERMINATION FOR CONVENIENCE CLAUSE

Having determined that the termination for convenience

clause is applicable in this case, we must next decide whether

the district court erred in granting summary judgment for HACC

and denying Linan-Faye all compensation. Linan-Faye contends

that the district court exceeded its role at the summary judgment

stage because there still remain six contested issues concerning

its contract claim. According to Linan-Faye, the district court

erred in determining: (1) the definition of "work performed"

under the contract; (2) there was no evidence of compensable pre-

termination expenses under the contract; (3) the reason why HACC

retained Linan-Faye's performance bond; (4) that Linan-Faye

"refused" to begin work; (5) that Linan-Faye misunderstood the

contract specifications; and (6) that there was proper HUD

approval of the contract's termination.

Our scope of review is plenary in determining the

propriety of summary judgment. Oritani Savings & Loan Ass'n v.

Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir. 1993).

Summary judgment is proper only "if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with (..continued) doctrine. The very premise of the College Boat decision is that a party may defend a suit for breach on the grounds that a legal excuse existed at the time of the alleged breach. College Boat, 267 U.S. at 15-16, 45 S. Ct. 200-01. Thus, whether HACC breached its agreement by terminating the contract for default is largely beside the point. the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to

judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S.

317, 322, 106 S. Ct. 2548, 2552 (1986). Further, at the summary

judgment stage, "the judge's function is not himself to weigh the

evidence and determine the truth of the matter but to determine

whether there is a genuine issue for trial." Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511 (1986).

Three of the issues that Linan-Faye raises are

genuine issues of material fact in dispute. The other issues

concern facts that are either not material, or are not in

dispute. We will reverse the decision of the district court

granting summary judgment on those issues where there is a

genuine issue of material fact in dispute.

A. Definition of "Work Performed" under the Contract Linan-Faye argues that the trial court improperly

selected isolated phrases from correspondence between the parties

in its determination that the phrase "work performed" in

paragraph 17 of the contract16 refers only to "physical

construction" and not to preparatory work. The district court

conceded that the contract documents, which include the

contract's General Conditions and its Supplement to the Standard

Form Agreement, failed to define the term "work." Linan-Faye

16 . See supra note 1 for the text of paragraph 17. Construction Co., 847 F. Supp. at 1206. Based on an analysis of

the word "work" as used in several paragraphs of the contract,

the district court concluded that "work" could not include

"preparatory work" until after Linan-Faye began physical

construction on the project. Id. at 1207. We conclude that the

district court erred in determining this disputed issue of fact.

Paragraph 8(a) of the General Conditions of this

contract is the paragraph from which the district court draws the

most support for its conclusion that "work" under the termination

for convenience clause does not include "preparatory work." The

court's reading of this paragraph, however, is too strained to

support a grant of summary judgment. Paragraph 8(a) of the

General Conditions states: Progress payments will be made at approximately thirty (30) day intervals; and in preparing estimates, acceptable work in place, material delivered to and properly stored on the site, and preparatory work done will be taken into consideration. If the contract covers more than one project, a separate estimate shall be furnished for each.

App. Vol. II at 42. From this paragraph, the district court

deduced that expenses for preparatory work were recoverable only if the contractor begins the physical construction required under

the contract. Linan-Faye Construction Co., 847 F. Supp. at 1207.

This conclusion is unjustified.

There is nothing in the language of paragraph 8(a) that

speaks to situations where HACC terminates Linan-Faye for

convenience after Linan-Faye has performed preparatory work, but before it has begun physical construction. If anything, the

language of this paragraph demonstrates that both parties

considered preparatory work to be a compensable cost because the

paragraph states that preparatory work will be taken into

consideration in preparing estimates for compensation. Thus, the

district court erred in concluding that this paragraph is

dispositive.

The district court's survey of numerous other

paragraphs containing the word "work" also produces inconclusive

results. According to the court, paragraph 2 which requires the

contractor to "furnish all necessary labor, materials, tools,

equipment, water, light, heat, power, transportation, and

supervision necessary for performance of the work," and paragraph

22 which allows the contractor to request from the architect

drawings "which will [be required] in the planning and production

of the work" somehow indicate that "work performed" under

paragraph 17 does not include preparatory work. Id. at 1206

(emphasis added). These provisions, on their face, do not appear

to support any such conclusion. In addition, the district court

determined that paragraphs 26, 29 and 35, which refer to the

contractor's obligation to protect "work completed to date" and

to the warranty as to "work done," support the conclusion that

work performed under the termination for convenience clause does

not include preparatory work. Once again, if anything, these

provisions merely beg the question of how to define "work" under paragraph 17 of the contract. Finally, the court refers to

paragraphs 7 and 31 that speak to obligations of the contractor

before and shortly after "commencing work" under the contract.

Unfortunately, these paragraphs also do not illuminate whether

the parties considered preparatory work to constitute compensable

work for purposes of the termination for convenience clause.17

Linan-Faye asks for the opportunity to present

testimony and cross-examine witnesses concerning the intent of

the parties in using the phrase "work performed" in paragraph 17

of the contract. Based on the evidence mustered by the district

court, we cannot conclude that there is no dispute as to this

issue. Further, this issue is material to the question of what

constitutes proper compensation under paragraph 17. Therefore,

Linan-Faye should be allowed to present the evidence that it

feels is appropriate to determine the intent of the parties.

Accordingly, we hold that the district court erred in granting

summary judgment for HACC on this disputed issue.

B. Evidence of Pre-Termination Expenses

17 . The district court also refers, in a footnote, to letters exchanged between the parties that purportedly explain the understanding of the parties concerning the definition of "work performed." The fact that the court goes beyond the contract and looks to these letters to reinforce its conclusion demonstrates the impropriety of granting summary judgment and the need to make such decisions on a more fully developed record. Related to the disputed issue of the definition of

"work performed" under the contract is the issue of whether

Linan-Faye produced any evidence of pre-termination expenses

compensable as "work-performed." The district court determined

that Linan-Faye "had presented no evidence of expenses that would

merit an equitable adjustment to the contract." Id. at 1208

n.22. Linan-Faye argues that the certification which it

submitted in opposition to HACC's third motion for summary

judgment provides the requisite evidence. Linan-Faye is correct.

The district court, at this early stage of the

litigation, improperly concluded that there was "no evidence" of

expenses compensable under the termination for convenience

clause. Linan-Faye described 15 types of expenses that Linan-

Faye incurred preparing for work on the HACC contract.

Certification of Norman Faye (October 21, 1993); App. at 231-33.

While many of these "expenses" may not be compensable, some of

the stated expenses, such as time spent "with municipal building,

plumbing and electrical inspectors regarding job phasing,

contract details, code requirements, and problem solving," may be

compensable if the parties so intended under the termination for

convenience clause of the contract. Cf. ITT Defense

Communications Division, Nos. 11858, 13439, 1970 ASBCA Lexis 29,

at *56 (July 29, 1970) (cost of work done by appellant in

preparing and submitting configurations that were never used

still properly compensable under the termination for convenience clause); Navgas, Inc., No. 9240, 1964 ASBCA Lexis 1139, at *29

(November 18, 1964) (costs of investigating work to be done, and

determining the best way to perform the contract, if awarded, are

properly compensable under termination for convenience clause).

Although, on the whole, the evidence produced by Linan-Faye in

this certification appears meager, by granting summary judgment

for HACC the district court improvidently prevented the plaintiff

from developing the record more fully. There was not a complete

lack of evidence. Accordingly, we must reverse the grant of

summary judgment on this issue and remand for trial.

In remanding for trial on this issue, however, it is

important to explain precisely the scope of our holding. We do

not hold that Linan-Faye is entitled to pre-termination expenses

that accrued as the result of any alleged pre-termination

breaches of contract by HACC. As the district court correctly

held, cases that have addressed the issue of pre-termination

breaches have concluded that claims for such damages are subsumed

in the termination for convenience clause. Linan-Faye

Construction Co., 847 F. Supp. at 1203, 1204 (citing Nolan Brothers, Inc. v. United States, 405 F.2d 1250 (Ct. Cl. 1969));

Descon System Ltd. v. United States, 6 Cl. Ct. 410 (1984)). Pre-

termination expenses that accrued as the result of any alleged

pre-termination breaches by HACC are not compensable. On remand,

the triable issue is limited to a determination of the pre-

termination expenses which Linan-Faye incurred that the parties intended to be compensable as "work performed" under the

termination for convenience clause of the contract.

C. Why HACC Retained Linan-Faye's Performance Bond

Linan-Faye next contends that the trial court

improperly resolved a factual dispute as to why HACC retained

Linan-Faye's performance bonds after terminating Linan-Faye.

According to Linan-Faye, it is entitled to damages arising from

HACC's failure to return this performance bond. Linan-Faye

alleges that by retaining its bond, HACC prevented it from

accepting other construction contracts and used the bond as an

inducement to force Linan-Faye to accept an unreasonable

resolution of this dispute. HACC argues that it retained Linan-

Faye's performance bond because Linan-Faye instituted a suit

seeking specific performance and if Linan-Faye were successful,

HACC would need Linan-Faye's bond.

This issue is not resolved solely by reference to the

termination for convenience clause because the events that give

rise to this claim occcured after termination.18 Recognizing

18 . Linan-Faye argues that it is entitled to damages because of HACC's improper withholding of its performance bond both before and after termination. Concerning Linan-Faye's claim for damages for pre-termination withholding of the bond, we agree with the district court that such damages are not recoverable because the termination for convenience clause controls and does not provide for such recovery. Claims arising from events following termination, however, would not be governed by the termination for convenience clause. this, the district court decided the issue by concluding that

keeping the bonds during the pendency of the litigation was the

"logical response" to the plaintiff's lawsuit. Linan-Faye

Construction Co., 847 F. Supp. at 1205.

Unfortunately, there is no testimony or record evidence

to support the conclusion that HACC engaged in the "logical

response" posited by the district court. No one from HACC ever

indicated that it was Linan-Faye's suit for specific performance

that prevented HACC from returning the bond. Counsel for HACC

simply raised this argument when the case took on a litigation

posture. This naked assertion by counsel, without record

support, is not sufficient to warrant a grant of summary

judgment.

The district court attempts to justify its decision to

accept HACC's argument by referring to the September 25, 1990

termination letter sent by Gregory Kern, the Interim Executive

Director of HACC. Nevertheless, its reasoning is unpersuasive.

According to the court, Mr. Kern's letter which indicated that

HACC would return the bonds was sent before Linan-Faye instituted

suit. Linan-Faye, 847 F. Supp. at 1205 n.16. Therefore, the

court reasoned, "[t]he decision of the HACC to depart from Mr.

Kern's original plan only supports [the] finding that HACC felt

compelled to hold onto the bonds until the Court had disposed of

plaintiff's claims for specific performance." Id. (emphasis

added). The court in this passage, however, merely assumes its conclusion. What eludes the district court is any evidence

indicating that it was the suit for specific performance that

caused retention of the bond. In effect, what the district court

stated is that the decision of HACC to depart from Kern's

original plan supports HACC's decision to depart from Kern's

original plan -- a statement without significance.

Moreover, even taking HACC's view of the timing of the

relevant events, there was an unjustified gap of over one month

between the time HACC terminated Linan-Faye and the time Linan-

Faye served its complaint seeking specific performance.

According to HACC, after it issued its September 25, 1990 letter

of termination, Linan-Faye sought reversal of HACC's decision to

terminate. HACC states that it sent a letter to Linan-Faye on

October 23, 1990 confirming its decision to terminate. Linan-

Faye did not serve its complaint for specific performance until

early in December of 1990, however, and the bond had not yet been

returned. This unexcused delay strengthens Linan-Faye's argument

that HACC did not decide to hold onto the performance bond as the

result of the specific performance suit. In light of these

facts, we will reverse the district court's grant of summary

judgment for HACC and remand for trial on this disputed issue.19

19 . We recognize that Linan-Faye's complaint in this matter does not set forth a theory of recovery for damages due to improper retention of the performance bond following termination. Indeed, the complaint could not set forth such a theory because the events giving rise to this aspect of Linan-Faye's claim (i.e., HACC's continued refusal to relinquish the bond during the pendency of the specific performance action) did not occur until D. Whether Linan-Faye "Refused" to Begin Work.

Linan-Faye asserts that the district court improperly

found it "refused" to begin work. According to Linan-Faye, it

did not refuse to begin work, but merely wanted to agree on any

changes that HACC desired before it began construction. Linan-

Faye contends that there is no basis in the record for the

district court's finding that it flatly refused to begin work.

We find that the question of whether Linan-Faye flatly

refused to begin work is immaterial to this case. Whether Linan-

(..continued) after the complaint was filed. Nevertheless, the district court made findings on this issue. Linan-Faye, 847 F. Supp. at 1205. Further, both parties briefed and argued the issue before this Court and HACC did not argue that the issue was not properly before the district court. Accordingly, we find it appropriate to set forth the applicable theory of recovery on remand. On remand, the theory upon which damages would be predicated is the common law action of detinue (or its modern counterpart). According to the New Jersey Supreme Court, "[t]he gist of the common law action of detinue was that [the] defendant originally had and acquired possession of the chattels lawfully, as by finding or bailment, but holds them subject to the plaintiff's superior right to immediate possession which has been asserted by a demand." Baron v. Peoples National Bank of Secaucus, 9 N.J. 249, 256, 87 A.2d 898, 901 (1952). At common law, the appropriate remedy in a detinue action where property has been unlawfully detained is a judgment for the value of the property and damages in detention. Id. Here, HACC lawfully received Linan-Faye's performance bond pursuant to a contract between the parties. Following termination, however, HACC's legal right to retain the bond is the subject of the dispute that must be resolved on remand. If the jury were to find HACC liable for improper retention of the bond, the appropriate measure of damages would be compensation for jobs lost by Linan-Faye (after termination) that resulted from HACC's improper action. Faye actually "refused" to begin work would be relevant if it was

necessary to decide if Linan-Faye defaulted on its obligations.

The district court, however, based its holding on the doctrine of

constructive termination for convenience. Linan-Faye

Construction Co., 847 F. Supp. at 1203. The constructive

termination for convenience doctrine makes the original reason

for termination relevant only to the extent that it evidences the

government's bad faith or a change in circumstances from the time

of contracting.20 The issue of whether there was an actual

default by Linan-Faye in refusing to begin work is immaterial.

In this case the default termination is converted into a

termination for convenience of the government by operation of

law. Since we agree with the district court that it was

appropriate to apply the constructive termination for convenience

doctrine, we hold that this issue is immaterial.

E. Whether Linan-Faye Misunderstood the Specifications

Linan-Faye argues that the district court improperly

concluded that it misunderstood the contract specifications

because the court indicated in a footnote that "[a]t the very

least, plaintiff misinterpreted the architect's specifications"

for the project. Linan-Faye Construction Co., 847 F. Supp. at 1203 n.13. According to Linan-Faye, it was HACC who

20 . See infra Part V for analysis of the constructive termination for convenience doctrine. "misinterpreted" the contract specifications. The dispute over

proper interpretation of the contract specifications, argues

Linan-Faye, prevented the court from resolving this issue at the

summary judgment stage.

Linan-Faye's argument misinterprets the district

court's reasoning. The relevant statement the court made in this

footnote is merely that there was discord between the parties

over interpreting their agreement. The district court mentioned

the discord to support its conclusion concerning the constructive

termination for convenience doctrine. Whether Linan-Faye

actually misunderstood the specifications, or whether it was

HACC's misunderstanding, is irrelevant where there is a

termination for convenience. As the district court held, the

constructive termination for convenience doctrine operates to

allow the government to extricate itself from contractual

relationships without arguing as to which party was in default.

Id. at 1203. Accordingly, the issue of who misunderstood the

contract specifications is not material, and played no part in

the order granting summary judgment.

F. Whether HUD Approval was Necessary for Termination Linan-Faye suggests that whether HUD approved a

termination for convenience is a disputed issue that precludes

summary judgment. It concedes that HACC obtained HUD's general

approval to terminate the contract, but argues that HUD never approved a termination for convenience. Linan-Faye contends that

HUD approval of a termination for convenience was a condition

precedent to invoking that clause, and failure to obtain such

approval precludes summary judgment. Linan-Faye does not succeed

in raising a disputed material issue on this point.

For the purposes of deciding this case, the district

court did not assume that HACC originally terminated for

convenience. While there is a dispute as to whether the original

letter of termination constituted a default termination or a

termination for convenience, HACC prevails under the district

court's reasoning without having to prove that it obtained HUD

approval of a termination for convenience. The court proceeded

on a constructive termination for convenience theory. Linan-Faye

does not dispute that HUD had approved HACC's right to terminate

generally. Thus, concerning the original termination, HACC

fulfilled its obligations by informing HUD, and obtaining from

HUD a general approval for the termination of the contract.

Because HACC received general HUD approval to terminate, there is

no bar to this court's using the constructive termination for

convenience doctrine to convert this into a termination for

convenience by operation of law. Further, and most importantly,

there is simply no dispute as to the material facts of what

approval HACC obtained. Indeed, both parties concede that HACC

obtained HUD approval to terminate generally, but did not obtain

specific HUD approval of a termination for convenience. Therefore, this cannot be a disputed factual issue as Linan-Faye

erroneously contends.

Accordingly, we will reverse the district court's grant

of summary judgment and remand for trial on the issues of: (1)

the definition of "work performed" under paragraph 17 of the

contract; (2) the pre-termination expenses incurred by Linan-Faye

that are compensable as "work performed" under the termination

for convenience clause; and (3) HACC's possible liability for

damages resulting from its retaining Linan-Faye's bond after

termination.

VII. SECTION 1983

Linan-Faye next asserts that the district court erred

in granting summary judgment against it on its claim under 42

U.S.C. § 1983. Linan-Faye argues it has a protectible property

interest in its contract with HACC that is entitled to Fourteenth

and Fifth Amendment protection. Further, Linan-Faye contends

that HACC's retention of its performance bond implicates a

liberty interest entitled to constitutional protection. In

granting summary judgment, the district court held that whatever

property interest Linan-Faye may have had, it does not rise to a

sufficient level of certainty or dependency to merit

constitutional protection. Linan-Faye Construction Co. v.

Housing Authority of Camden, 797 F. Supp. 376, 380 (D.N.J. 1992). We agree with the district court's resolution of this

matter. This Court recently surveyed the law concerning

Fourteenth Amendment claims based on contracts with state

entities. Unger v. National Residents Matching Program, 928 F.2d

1392 (3d Cir. 1991). We stated in Unger that it is beyond

dispute today that a contract with a state entity can give rise

to a property right protected under the Fourteenth Amendment.

Id. at 1397 (citing Perry v. Sindermann, 408 U.S. 593, 599-601,

92 S. Ct. 2694, 2698-2700 (1972)). Nevertheless, we stated that

the Supreme Court has never held that every state contract gives

rise to such a protectible property interest. Id.

As we explained in Unger, relevant Supreme Court cases

and cases from other courts of appeals instruct that two general

types of contract rights are recognized as property protected

under the Fourteenth Amendment: (1) where "the contract confers a

protected status, such as those `characterized by a quality of

either extreme dependence in the case of welfare benefits, or

permanence in the case of tenure, or sometimes both, as

frequently occurs in the case of social security benefits'"; or

(2) where "the contract itself includes a provision that the

state entity can terminate the contract only for cause." Id. at 1399 (citing S & D Maintenance Co. v. Goldin, 844 F.2d 962, 966-

67 (2d Cir 1988)). In Unger, a physician licensed to practice

medicine in Pennsylvania was admitted into Temple University

Hospital's dermatology residency program through the National Resident Matching Program. Id. at 1393. Shortly before Unger

was to begin the program, she received a letter stating that the

University had decided to discontinue the program. Id. Unger

filed suit under 42 U.S.C. § 1983. Id.

Declaring that the contract in Unger did not fall into

either of the two protected categories, we dismissed Unger's §

1983 claim. Id. at 1402. We relied in part on the reasoning of

our previous decision in Reich v. Beharry, 883 F.2d 239 (3d Cir.

1989), where we stated: Many . . . courts have observed that if every breach of contract by someone acting under color of state law constituted a deprivation of property for procedural due process purposes, the federal courts would be called upon to pass judgment on the procedural fairness of the processing of a myriad of contract claims against public entities. We agree that such a wholesale federalization of state public contract law seems far afield from the great purposes of the due process clause.

Reich, 883 F.2d at 242 (citations omitted). Linan-Faye's contract with HACC does not fall into

either of the two categories we delineated in Unger. The

contract does not confer a protected status on the plaintiff and

the state entity could terminate the contract for reasons other

than for cause. Indeed, it could be terminated for convenience.

To grant Linan-Faye a remedy under § 1983 would create the

wholesale federalization of state public contract law that

concerned us in Unger and Reich. Accordingly, the district court did not err in granting summary judgment for HACC on Linan-Faye's

claim.

Turning to Linan-Faye's assertion that it has been

deprived of a constitutionally protected liberty interest, we

also find that the district court did not err in granting summary

judgment for HACC. The Court of Appeals for the Second Circuit

addressed a case factually similar to the one at hand in S & D

Maintenance Co. v. Goldin, 844 F.2d 962 (2d Cir. 1988). In that

case, a contractor brought a § 1983 claim against the City of New

York, claiming that the City's withholding of payments under a

contract to maintain parking meters resulted in the contractor

being left with insufficient capital to pursue other work. Id.

at 963, 970. The court held that although the consequential

damages of an alleged breach may be severe, this fact alone

cannot convert a contract claim into a deprivation of liberty.

Id. at 970. We agree with the reasoning of the Court of Appeals

for the Second Circuit, and conclude that Linan-Faye fails to

establish a claim of constitutional magnitude. We will affirm

the district court's grant of summary judgment to HACC on Linan-

Faye's § 1983 claim.

VIII. ESTOPPEL CLAIMS

Linan-Faye's final contention is that HACC is precluded

from refusing to pay compensation by reason of principles of

equitable and judicial estoppel. Linan-Faye argues that HACC could have terminated for convenience in 1988 but that it did

not, and it breached a duty of fairness by waiting two years

before deciding to terminate. Linan-Faye relies on a single

case, M. & O. Disposal Co. v. Township of Middletown, 100 N.J.

Super. 558, 242 A.2d 841 (A.D. 1967), aff'd, 52 N.J. 6, 242 A.2d

841 (1968), to support its equitable estoppel argument.

Additionally, Linan-Faye argues that because HACC asserted in

prior judicial proceedings that there would be a "defined measure

of damages" under the termination for convenience clause, HACC is

now judicially estopped from arguing that it owes Linan-Faye

nothing.

We find Linan-Faye's equitable estoppel claim

unpersuasive. HACC could have terminated for convenience in 1988,

but it also could have pursued completion of the contract

according to its terms. HACC's decision to terminate after an

inability to agree to such terms does not breach a duty of

fairness. Indeed, this termination was within HACC's rights

under the contract and, as explained above, the constructive

termination for convenience doctrine allows HACC to convert its

original termination into a termination for convenience.

Moreover, Linan-Faye's reliance on M. & O. Disposal is

misplaced. That case involved the question of whether a

municipality impliedly ratified a contract for extra work which

was outside the scope of contract to dispose of garbage. Id. at

560, 567, 242 A.2d at 841, 846. In that case, the New Jersey court merely stated the general precept that equitable principles

of estoppel will be applied against municipalities where the

interests of justice, morality, or common fairness clearly

dictate this course. Id. at 567, 242 A.2d at 846. Beyond the

obvious fact that the timing problem presented here has almost

nothing to do with the ratification issue presented in M. & O.

Disposal, Linan-Faye has failed to demonstrate how HACC's

exercise of its rights under this contract violates principles of

justice, morality, or common fairness. Thus, we find Linan-

Faye's equitable estoppel argument unconvincing.

Linan-Faye's argument for judicial estoppel is also

unpersuasive. Judicial estoppel precludes a party from assuming

a position in a legal proceeding inconsistent with one previously

asserted to the prejudice of an adverse party. Brown v. Allied

Plumbing & Heating Co., 129 N.J.L. 442, 446, 30 A.2d 290, 292

(Sup. Ct.), aff'd 130 N.J.L. 487, 33 A.2d 813 (E. & A. 1943);

Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 620, 581

A.2d 91, 107 (A.D. 1990) (citations omitted), aff'd, 124 N.J.

520, 591 A.2d 943 (1991). There is no inconsistency in taking

the position that HACC took in prior proceedings. HACC merely

argued that the termination for convenience clause provided the

defined measure of damages. After the district court decided the

difficult question of whether the termination for convenience

clause defines the measure of damages, it was not only

appropriate, but necessary, for HACC to address the question of what the measure of damages is under that clause. At this later

stage, HACC may contend that this clause provides no compensation

for Linan-Faye in this instance. The attempt by Linan-Faye to

describe a contradiction in HACC's legal position has no force

under the facts presented in this case.

IX. CONCLUSION

In sum, we find that the district court erred in its

decision to apply federal common law and not the law of New

Jersey to resolve this dispute. Applying New Jersey law, we will

reverse the district court's grant of summary judgment and remand

for trial on the issues of material fact that are in dispute.

The three issues that remain in dispute in this case are the

definition of "work performed" under paragraph 17 of the

contract, whether and to what extent Linan-Faye incurred

preparatory expenses prior to termination that are compensable as

"work performed" under paragraph 17, and HACC's possible

liability for damages resulting from its withholding of Linan-

Faye's performance bond after termination. Finally, we will

affirm the district court's grant of summary judgment in favor of

HACC on Linan-Faye's § 1983 claim. Linan-Faye Construction Co., Inc. v. Housing Authority of the

City of Camden, No. 94-5193.

BECKER, Circuit Judge, Concurring and Dissenting.

I join in Parts I, II, and III of the majority opinion.

However, I dissent from Part IV because I do not agree that New

Jersey would apply to this garden variety construction dispute

between a builder and a local governmental agency precepts drawn

from a potpourri of federal cases which amount at best to a hodge

podge, and at worst to a regime so inhospitable and unfair to

small contractors who deal with government agencies as to be

inconsistent with New Jersey jurisprudence. Rather, I believe

that New Jersey would apply its own law, which would not

recognize the doctrine of "constructive termination for

convenience" but rather would apply the normal rule of contract

breach which, on this record, would unquestionably render HACC

liable. Moreover, even if the New Jersey Supreme Court were to

assimilate federal law, I do not think that it would read that

law in the matter predicted by the majority. The precepts that

the majority applies are gleaned from cases that have been

excoriated in critical commentary because they are in

considerable measure poorly reasoned.

I also find myself unable to join in Part VII, dealing

with Linan-Faye's 42 U.S.C. § 1983 claims. I cannot agree with

the majority that HACC's arguably improper retention of Linan-

Faye's performance bond, which the company requires in order to engage in any business, did not impair Linan-Faye's liberty

interest. I do, however, join the majority with respect to its

rejection of Linan-Faye's property interest claim.21

I. WHAT LAW WOULD NEW JERSEY APPLY?

The majority, notwithstanding the considerable

authority of the Dobson case, supra Maj. Op. at 13, reasons that

because there are no cases in New Jersey construing the effect of

termination for convenience clauses, "courts in New Jersey would

recognize that where the parties have incorporated a particular

clause pursuant to federal regulation, they do so against the

backdrop of federal case law addressing the clause," and hence

would adopt federal law, whatever that may be. That is the sum

and substance of the majority's argument. It is, I suggest,

pretty "thin soup," neither documented nor reasoned.

The majority's prediction also ignores the facts that

should govern the analysis required in such circumstances. A

review of the facts Linan-Faye has advanced and supported in

connection with the summary judgment motion -- which are glossed

over by the majority -- will illuminate the correct prediction of

New Jersey law. At this stage, these facts must obviously be

21 . I take no position on Parts VI.B through F and VIII of the majority opinion, as they are outside the ambit of this effort, except to note that the discussion of HACC's delay in invoking the termination for convenience clause, see Part VIII, supports my views insofar as it highlights the dubiousness of HACC's ex post reliance thereon. viewed in the light most favorable to Linan-Faye, the non-moving

party. See Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d

Cir. 1976).

A. The Facts Viewed in the Light Most Favorable to Linan-Faye

It is undisputed that the parties had a binding

$4,264,000 contract for the rehabilitation of 244 housing units.

Linan-Faye, with declarations cognizable in summary judgment

proceedings: (1) represents itself to be an experienced, highly

regarded contractor that was ready, willing, and able to perform

the job in a timely fashion; (2) states that through

incompetence, poor planning, or other contractors' delay, the

HACC failed or refused to give Linan-Faye even a Notice to

Proceed for a full year; and (3) submits that after finally

giving that Notice, HACC then proceeded, without justification,

to delay Linan-Faye for almost another year. Linan-Faye also

represents that HACC never supplied Linan-Faye with a list of

which vacant units to work on; that turmoil reigned at HACC as

the Executive Director was replaced by a new Acting Executive

Director, Gregory Kern, in July 1990; and that Kern decided to

"clean house" by, inter alia, summarily terminating Linan-Faye's

contract.

It is also undisputed that in the course of the

termination dialogue, HACC never suggested that the termination was "for convenience." All the discussion and written notices

instead alleged contractor default, which Linan-Faye staunchly

denied. Moreover, whether or not it was legally required, HACC

never got HUD approval to terminate for convenience. Indeed,

HACC did not invoke the termination for convenience clause until

two years after termination, when the litigation began. Most

importantly, during the period from September 1988 through August

1991, HACC held Linan-Faye's performance bonds, effectively

precluding Linan-Faye from bidding any other significant work.

Linan-Faye has proffered evidence that it suffered damages of

$1,492,000 as a result of HACC's breach of the contract and a

further loss of $1,249,999 from its inability to use its bonding

line.

B. General New Jersey Contract Law Principles

Under general common law contract principles,

applicable in New Jersey and elsewhere, one who breaches a

contract must compensate the injured non-breaching party so as to

put it in the position it would have occupied had performance

been rendered as promised. Donovan v. Bachstadt, 453 A.2d 160, 165 (N.J. 1982); 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 992 (1951).

A court in a breach of contract case aims to fashion a remedy in

order to compensate the non-breaching party fully. Donovan, 453

A.2d at 165; 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 992 (1951). The New Jersey courts have long maintained a liberal

rule that non-breaching parties are entitled to damages. Cf. In

re Merritt Logan, Inc., 901 F.2d 349, 357 (3d Cir. 1990)

(interpreting New Jersey contract damages law); Sandler v. Lawn-

A-Mat Chem.& Equip. Corp., 358 A.2d 805, 814 (N.J. Super. Ct.

App. Div.), cert. denied, 366 A.2d 658 (N.J. 1976) (non-breaching

party "presumptively" entitled to damages, with doubts resolved

against the breaching party). New Jersey courts have also

narrowly construed clauses that tend to restrict a party's right

to recover its full common law damages. See American Sanitary

Sales Co. v. State, 429 A.2d 403, 407 (N.J. Super. App. Div.),

cert. denied, 434 A.2d 1094 (N.J. 1981) (narrowly interpreting a

"no damage for delay" clause in a New Jersey state contract).

The reluctance of the New Jersey Courts to give

expansive effect to exculpatory clauses extends to cases

involving its own government agencies. See, e.g., Buckley & Co.,

Inc. v. State, 356 A.2d 56, 62 (N.J. Super. Ct. Law Div. 1975);

Ace Stone, Inc. v. Township of Wayne, 221 A.2d 515, 518-19 (N.J.

1966); American Sanitary Sales Co., 429 A.2d at 407; see also

Department of Transp. v. Arapaho Constr., Inc., 357 S.E.2d 593, 594-95 (Ga. 1987) (relying in part on Ace Stone). Moreover,

under New Jersey law there is a presumption against finding a

contractual intent to alter common law rights and remedies. See,

e.g., Gibraltar Factors Corp. v. Slapo, 125 A.2d 309, 310 (N.J.

Super. Ct. Law Div. 1956) (parties presumed to contract with reference to existing law), aff'd, 129 A.2d 567 (N.J. 1957),

appeal dismissed, 355 U.S. 13 (1957); see also Rescigno v.

Picinich, 377 A.2d 733, 739 (N.J. Super. Ct. Law Div. 1977)

(applying a presumption against a statutory intent to alter

common law rights); Blackman v. Iles, 71 A.2d 633, 636 (N.J.

1950) (same). Indeed, New Jersey courts commonly award

contractors common law contract damages against the State,

including damages for delay. See, e.g., American Sanitary Sales

Co., 429 A.2d at 407; Buckley & Co., 356 A.2d at 65 (see also

cases cited therein).

C. New Jersey and the Federal Law Alternative

This is not the first case in which a court applying

New Jersey law has had to adjudicate a contract dispute with some

federal connection. In Edward J. Dobson, Jr., Inc. v. Rutgers,

384 A.2d 1121 (N.J. Super. Ct. Law Div. 1978), aff'd sub nom.

Broadway Maintenance Corp. v. Rutgers, 434 A.2d 1125 (N.J. Super.

Ct. App. Div. 1981), aff'd, 447 A.2d 906 (N.J. 1982), plaintiff-

contractors sought to avoid the impact of a "no-damage for delay"

clause by asserting their claim for delay as an "equitable

adjustment." The court traced the history of the "equitable

adjustment" provisions in federal construction contracts and federal regulations. But the court refused to import this wholly

federal concept into the New Jersey law of public construction contracts. Finding that the term "equitable adjustment" had

become a term of art in federal contracts, the court held: The policy factors that have lead [sic] to the development of this concept in federal contracts, such as a need to expand or abandon a particular arms program with consequent economic impact on contractors and subcontractors, do not warrant state courts adopting it wholesale by judicial fiat when traditional remedies for breach of contract are available. Id. at 1153 n.10.

This holding was affirmed by both the intermediate appellate

court and Supreme Court of New Jersey and strongly suggests that

New Jersey courts would not import the federal concept of

constructive termination for convenience into its public

construction contracts jurisprudence.

As the majority correctly points out, because there is

no reported New Jersey precedent interpreting a "termination for

convenience" clause, it is the function of this court to predict

how the New Jersey Supreme Court would rule if confronted with

this issue. In my view, there is no reason to believe that that

court, if called upon to resolve the question, would jettison a century of settled contract law supporting liberal contract

remedies and narrowly construing similar exculpatory provisions

in order to adopt a harsh -- and harshly criticized, see infra --

federal interpretation of the clause at issue here. In this

case, the retroactive application of this dramatic change in the

law imposed by the majority to the factual scenario described

above not only exacerbates the harshness of the result but also increases my confidence that the New Jersey Supreme Court would

never have adopted this interpretation.

D. The Termination of Convenience Provision and Its Harsh Construction by the Majority

The termination for convenience clause has, as the

majority explains, a long lineage, dating from the Civil War era.

During that era federal government contracting was attended by

much impropriety and scandal. See generally CARL SANDBURG, ABRAHAM

LINCOLN, THE WAR YEARS (1948). The modern (post-1970) incarnation

of the clause is ensconced in the Code of Federal Regulations: If the contractor can establish, or if it is otherwise determined that the contractor was not in default or that the failure to perform is excusable; i.e., arose out of causes beyond the control and without the fault or negligence of the contractor, the [prescribed default clauses] provide that a termination for default will be considered to have been a termination for the convenience of the Government . . . .

Federal Acquisition Regulations ("FAR's"), 48 C.F.R. § 49.401(b)

(1993). The FAR's apply to direct United States government

procurement (including HUD procurement). They do not apply to

grants of federal funds to local public housing authorities. The

district court acknowledged this undisputed point. (Dist. Ct.

Op. at 18 n.7)

Moreover, regulations that govern grants to local

housing agencies contain their own specific scheme and procedures

for federally funded contracts made by state and local housing authorities that are separate and distinct from the FAR's. These

"CIAP" requirements mandate a variety of terms and provisions

that must be set forth in such contracts, including a termination

for convenience clause. See 24 C.F.R. § 85.36(i)(2). In

contrast to the FAR's, however, the Administrative Requirements

for CIAP Grants do not include any counterpart to the automatic

conversion language of 48 C.F.R. § 49.401(b), or the other

specific termination provisions found in HUD's own FAR's. This

is consistent with the mandate of the CIAP enabling statute,

which is designed to allow the housing authority grantees maximum

discretion and individualized judgment. 42 U.S.C.S. § 14371(e)E,

(e)(4)(D) (1994).

The absence of an express conversion clause in the

Administrative Requirements for Grants is significant because,

under the venerable maxim of statutory construction, expressio

unius est exclusio alterius, the inclusion of one is the

exclusion of another. As I see it, the exclusion of an automatic

conversion provision in the Requirements for Public Housing

Authority Contracts (when specifically included in HUD's own

FAR's) expresses an intent to exclude such a provision, unless

local PHA administrators choose to include it. Cf. Marshall v. Western Union Tel. Co., 621 F.2d 1246, 1251 (3d Cir. 1980)

(refusing to apply a Department of Labor standard in one

subsection of a regulation where it had been excluded when it was

included elsewhere); SUTHERLAND STATUTORY CONSTRUCTION § 31.06 (4th ed.). Moreover, without the conversion clause, HACC's initial

failure to allege that it was terminating the contract with

Linan-Faye for convenience prevents HACC from subsequently

embracing that argument.

Before contracts with the federal government included

automatic conversion clauses, courts did not permit government

agencies to use the termination for convenience clauses to escape

from a breach. In Klein v. United States, 285 F.2d 778 (Ct. Cl.

1961), for example, the Court of Claims rejected the government's

argument that, because it had a contractual right to terminate

for convenience, its illegal breach of contract should be

disregarded. Id. at 784. Accord Goldwasser v. United States,

325 F.2d 722, 725 (Ct. Cl. 1963); Dynalectron Corp. v. United

States, 518 F.2d 594, 604 (Ct. Cl. 1975); Torncello v. United

States, 681 F.2d 756, 771-72 (Ct. Cl. 1982); Rogerson Aircraft

Corp. v. Fairchild Indus.Inc., 632 F. Supp. 1494, 1499 (C.D. Cal.

1986) (changed circumstances required).

The problems confronted by government contracting

officers operating under the Klein rule resulted in the adoption

of the automatic conversion clause by regulation, 48 C.F.R. §

49.401(b). The clause now appears in most direct federal

government procurement contracts. However, as the Rogerson court noted in footnote 5 of its opinion, where the "automatic

conversion clause" is not made part of the contract, either

expressly or by regulation, the Klein rule remains fully applicable and bars the implication of such clause. Rogerson,

632 F. Supp. at 1500 n.5. Although the contract in Rogerson

appears more specific than the instant contract in its

requirement that the agency elect its basis for termination

(i.e., default or convenience), the Rogerson decision remains

important and persuasive. Without a conversion clause, HACC

cannot invoke the termination for convenience provision to cure

its improper default termination. And a wrongful termination for

default constitutes a breach of the contract entitling the

wrongly terminated subcontractor to state law damages for the

breach, including lost profits. Id. at 1500-01; Clay Bernard

Sys. Int'l, Ltd. v. United States, 22 Cl. Ct. 804, 810-11 (1991)

(holding that absent a "conversion clause" a wrongful termination

for default is a breach, entitling contractor to recovery under

federal procurement law).

But even if HACC had initially invoked its termination

for convenience clause, thus avoiding the issue of the absence of

a conversion clause, HACC could not avoid liability in this case.

The majority acknowledges that the case law construing the

termination for convenience clause has retrenched from its high

water mark. While the majority's discussion does not clearly

depict the current state of the law, the leading cases appear to

hold that government agencies can only invoke the clause where

there has been some change in the circumstances of the parties.

See Torncello, 681 F.2d at 772. The majority holds that a deterioration in business relations, demonstrated in not

insignificant part by a dispute over specifications, constitutes

such a change in circumstances. In my view, such a rule would

largely eviscerate the limitation. As lawyers who have dealt

with construction disputes know, these contracts almost always

generate some dispute over specifications, and any construction

dispute rancorous enough to spawn litigation will almost

certainly have led to the requisite deterioration in business

relations. The facts of this case illustrate how circular a

deterioration-of-business-relations test can be, for HACC did not

even attempt to invoke the clause until litigation began.

The majority constructs a regime under which a dispute

arising out of a garden variety contract between a builder and a

local housing authority, which is not a federal government

contract but only a local agency contract to which certain

federal regulations apply, has been severed from its common law

roots. The majority's application of selected federal cases

renders these local agency contracts virtually illusory by giving

an arguably defaulting local agency the right to avoid its own

breach, and sharply limit its liability simply by incanting the

termination for convenience clause two years after the fact. In

my view, it is inconceivable that the New Jersey Supreme Court,

which has so consistently supported liberal awards of contract

damages, would countenance that result, especially in the fact

scenario at bar. This conclusion is strongly buttressed by the scathing

criticism that has been levied at Torncello and the cognate

jurisprudence. See, e.g., Stephen N. Young, Note, Limiting the

Government's Ability To Terminate for Convenience Following

Tornecello, 52 GEO. WASH. L. REV. 892 (1984) (suggesting that the

Torncello decision provides a reason to eliminate the

government's ability to terminate for convenience entirely).

Because I do not believe that the New Jersey Supreme

Court would adopt the federal interpretation but would instead

continue to give exculpatory clauses such as the termination for

convenience clause only narrow -- if any -- effect, I dissent.22

II. THE § 1983 CLAIM

I also dissent from the majority's affirmance of the

summary judgment granted on Linan-Faye's § 1983 claim. While I

agree that Linan-Faye's interest in the contract did not rise to

a property interest protected by the Constitution, I cannot agree

that HACC's unjustified retention of Linan-Faye's performance

bond did not deprive Linan-Faye of a protected liberty interest.

The majority dismisses Linan-Faye's claim rather

summarily, overlooking precedent which would, in my view, require

22 . As my discussion explains, I believe that this result would follow even if New Jersey were to look to federal law, for I do not think New Jersey would read federal law so expansively as does the majority. reversal. The right to follow a chosen profession free from

unreasonable interference comes within both the liberty and

property concepts of the Fifth and Fourteenth Amendments. See

Greene v. McElroy, 360 U.S. 474, 492 (1959); Piecknick v.

Commonwealth of Pennsylvania, 36 F.3d 1250, 1259 (3d Cir. 1994);

Bernard v. United Township High Sch. Dist. No. 30, 5 F.3d 1090,

1092 (7th Cir. 1993). It is true that the Constitution protects

only the right "to pursue a calling or occupation, and not the

right to a specific job." Bernard, 5 F.3d at 1092 (quoting

Wroblewski v. City of Washburn, 965 f.2d 452, 455 (7th Cir.

1992)). Nevertheless, the majority and the sole case on which it

relies, S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2d Cir.

1988), fail to consider how disputes over specific jobs can,

under certain circumstances, affect a party's pursuit of its

occupation.

In S & D, although the Court of Appeals for the Second

Circuit framed the § 1983 claim as one challenging the

plaintiff's dismissal from government employment, which clearly

did not rise to a constitutional violation, the true basis of the

plaintiff's liberty claim was that New York City's refusal to pay

amounts already due had essentially forced the company out of

business and left it "tottering near bankruptcy, unable to get

work, as a direct result of the city's alleged breach of the

contracts and withholding of payments." S & D, 844 F.2d at 970. While I believe that S & D may be in error to the extent it denies that the plaintiff's claim implicated a protected liberty

interest, the instant case provides an even stronger claim.

Whereas the city defendant in S & D could argue that the

plaintiff was not entitled to the amounts that it alleged it had

already earned, HACC cannot make any such argument about its

(arguably unjustified) failure to return Linan-Faye's own

performance bond. Also, when HACC interfered with Linan-Faye's

(pre-existing) capacity to obtain large construction contracts,

the core of its business, it brought this case into close

resemblance to those cases where the state actors are held liable

under § 1983 for revoking or interfering substantially with a

person's license to pursue a chosen occupation. Cf. Herz v.

Degnan, 648 F.2d 201 (3d Cir. 1981) (finding violation of a

property interest in the revocation of a professional license).

Without the use of its bonding line, Linan-Faye was

paralyzed: It could not bid on any significant contracts and

thus could not replace the business lost through the government's

breach. Hence, because HACC's arguably unjustified retention of

the bond did impinge on protected liberty interests, the district

court erred by awarding the defendant summary judgment on this

claim. I therefore also dissent from the portion of the majority

opinion that affirms this ruling.