by Mike Piscitelli and W. Robert Vezina III

Page 41

When the ContractPoint Florida Parks, LLC, members entered a contract with the Florida Department of Environmental Protection in 2001, they simply wanted to build and operate cabins in Florida state parks — something the legislature specifically encouraged. Instead, they became enmeshed in protracted litigation that came one Florida Supreme Court vote short of nullifying Florida’s ability to contract. This article examines how an obscure statute was wielded by a state agency, nearly erasing more than 20 years of law barring application of sovereign immunity to breach of contract claims.

Public-private Contracting in Florida: The King Abdicates the Throne
For years, Florida has been at the forefront of the trend for states to carry out government programs or services through public-private partnerships or even to fully privatize such activities. Contracting with private parties can bring advantages such as reduced overall costs, including lower start-up costs, and greater flexibility in meeting technological, regulatory, and personnel requirements. Even more frequently, the state turns to private parties to provide goods and services that are not traditionally governmental functions.

Critical to government functioning, then, is continued interest of private parties in performing these services. Florida procurement law, like federal and other states’ laws, generally dictates that contracts be awarded on a competitive basis to a responsible, responsive vendor.¹ Vendors calculate their bids or proposals based not only on expected costs and profits, but on expected risks. Accordingly, prices are higher where the contract entails higher risk to the vendor. Perhaps the highest risk of all — yet one typically not a concern for vendors in Florida — is the risk that the winning vendor will not be paid for the contract it ultimately performs and have no legal recourse.

As absurd as it seems that a private party could be left out in the cold in this way, in many states, absent an express statutory waiver, sovereign immunity principles operate to bar breach of contract suits against the government. Florida courts, however, have recognized legislative intent to waive sovereign immunity for breach of contract and allow a private party to turn to the courts for recourse when necessary.

Most, if not all, practitioners of public contracting law in Florida thought the issue of state contract enforceability was put to rest in Pan-Am Tobacco Corp. v. Department of Corrections, 471 So. 2d 4 (Fla. 1984). There, the Supreme Court unequivocally held that state sovereign immunity does not apply in breach of contract actions, stating, “where the legislature has, by general law, authorized entities of the state to enter into contract or to undertake those activities which, as a matter of practicality, require entering into contract, the legislature has clearly intended that such contracts be valid and binding on both parties.”² The court reasoned that to hold otherwise would render legislative authorization for such contracting void and meaningless. The Pan-Am Tobacco rule has been reaffirmed and applied dozens of times since 1984, most recently by the Florida Supreme Court in American Home Assurance Co. v. National Railroad Passenger Corp., 908 So. 2d 459, 462 (Fla. 2005).

Judgments Against the State: Is Nonpayment an Option?
ContractPoint Florida Parks, LLC, (ContractPoint) accordingly had no reason to suspect that contracting with the Department of Environmental Protection was a risky enterprise. In this instance, the legislature not only authorized, but specifically encouraged DEP to enter contracts exactly like the one at issue: “The legislature finds it to be in the public interest to provide incentives for partnerships with private organizations with the intent of producing additional revenue to help enhance the use and potential of the state park system.”³ Therefore, when ContractPoint obtained a judgment against DEP for breach of contract, which was not appealed, one naturally would expect payment to follow. But, as Lee Corso likes to say, “Not so fast, my friend.”

DEP refused to pay the judgment, relying upon a little-known Florida statute, §11.066, which is hidden away in the portions of the statutes dealing with “Legislative Organizations, Procedures, and Staffing.” DEP’s argument: Despite the court’s uncontested ruling that DEP breached the contract, the statute prohibited DEP from paying the judgment without express legislative appropriation.

Section 11.066 is, to say the least, schizophrenic. Subsection 1 defines the term “appropriation made by law” as money allocated by the legislature in a general or special appropriations act. Subsection 2 deals with police power, providing:

The state and each state agency, when exercising its inherent police power to protect the public health, safety, or welfare, is presumed to be acting to prevent a public harm. A person may rebut this presumption in a suit seeking monetary damages from the state or state agency only by clear and convincing evidence to the contrary.

No harm, no foul so far. However, subsections 3 and 4 appear to have a broader reach:

(3) Neither the state nor any of its agencies shall pay or be required to pay monetary damages under the judgment of any court except pursuant to an appropriation made by law. To enforce a judgment for monetary damages against the state or state agency, the sole remedy of the judgment creditor, if there has not otherwise been an appropriation made by law to pay the judgment, is to petition the [l]egislature in accordance with its rules to seek an appropriation to pay the judgment.

(4) Notwithstanding section 74.091 [which is not relevant to the analysis], a judgment for monetary damages against the state or any of its agencies may not be enforced through execution or any common-law remedy against property of the state or its agencies, and a writ of execution therefor may not be issued against the state or its agencies. Moreover, it is a defense to an alternative writ of mandamus issued to enforce a judgment for monetary damages against the state or a state agency that there is no appropriation made by law to pay the judgment.

Therein lies the rub. If F.S. §11.066 applies to contract actions, then any contract the state enters is illusory, as a judgment based on the state’s breach is not enforceable. As the Supreme Court stated in Pan-Am Tobacco, it is well established that a contract which is not mutually enforceable is an illusory contract, and the opportunity to bring a claims bill before the legislature does not constitute enforcement.⁴

This [c]ourt has recently held that subjecting oneself to the possibility of suit in a court of law is not sufficient obligation to support a contract. We cannot now, in good conscience, hold that the chance to seek an act of grace from the legislature is sufficient remedy to create mutuality.⁵

Thus, the conundrum facing the courts was whether F.S. §11.066 could be interpreted in a fashion that did not bring to a grinding halt the state’s ability to enter binding contracts. If F.S. §11.066 in fact provided the state with a defense to all contract-related judgments against it, any party contracting with the state would incur great risk. The likely result: Fewer parties competing for state contracts and increased bid prices calculated to absorb the risk of the state’s nonpayment — no small issue in this era of $100 million public-private partnerships and ever-increasing outsourcing of traditionally governmental functions.

In response to DEP’s refusal to pay the judgment, ContractPoint petitioned for a writ of mandamus in circuit court in Leon County. The circuit judge denied the writ, considering himself constrained by the language of F.S. §11.066: “[T]he language in Section 11.066, is very clear. No monetary judgment shall be paid unless there is an appropriation made by law to pay the judgment. And that is not the case here.”⁶

Notably, he did appreciate the difficulty his interpretation would create: “As the [p]laintiff correctly points out, the application of [s]ection 11.066 as a limited sovereign immunity, resurrects the problem that the [c]ourt noted in Pan Am, i.e., that a contract with the [s]tate lacks mutuality.”⁷ He concluded, however, that: “[I]n the face of the clear language of Section 11.066, Florida Statutes, I am not prepared to say that the Defendants had a clear legal duty to pay the judgment of the Plaintiffs without a specific appropriation for that purpose.”⁸

The First District Court of Appeal quickly reversed, without oral argument.⁹ The court focused on the well-established jurisprudence under Pan-Am Tobacco and its progeny, adding that §11.066 “does not express any legislative intent to overturn 22 years of case law subjecting the state to breach of contract actions.”¹⁰ Noting that “[i]t is axiomatic that we will not interpret a statute in a manner which would lead to an absurd or unreasonable result,” the court refused to infer that the legislature intended to render all state contracts void for lack of mutuality.¹¹

Citing to the portion of §258.015(3)(a) quoted above, the court properly concluded that the stated intent to encourage public-private partnerships in state parks could not be reconciled with the trial court’s interpretation of §11.066. Recognizing that the legislative intent behind §11.066 was not readily apparent, however, the court certified as a question of great public importance: “Does section 11.066, Florida Statutes, apply where judgments have been entered against the state or one of its agencies in a contract action?”¹² The Supreme Court granted review.¹³

The Florida Supreme Court Rules on §11.066
DEP’s primary argument to the Supreme Court was a simple one: The statute means what it says — there is no limitation on the breadth of the prohibition against payment of judgments without a specific appropriation or on the lack of availability of mandamus to enforce a judgment for monetary damages against the state. DEP had a more difficult time addressing the argument that its interpretation would lead to an absurd result. Essentially, DEP maintained that nonpayment of judgments was a risk inherent in nearly every contract in the private sector and this was simply an example of such risk in the public sector. Of course, that begs the question whether a company contracting with the state could protect itself from that risk when the state would have absolute discretion as to whether it would pay judgments for breach.

ContractPoint’s response to the latter argument was to the point: The court could not adopt DEP’s position without overruling Pan-Am Tobacco, thus, rendering all state contracts void for lack of mutuality. ContractPoint also supported the First District’s interpretation that §11.066 contains no indication of legislative intent to profoundly change existing law.

More important to the ultimate result, ContractPoint raised the context of F.S §11.066’s adoption and contended that the statute was never intended to apply to state contract actions. While the statute’s legislative history was spotty to say the least, senate committee hearing tapes indicated that the legislation’s rationale was Florida’s citrus canker eradication program.¹⁴ In 1988, the Supreme Court ruled that the eradication procedure then in place amounted to a taking.¹⁵ The legislature responded the following year by setting up a compensation schedule and fund to pay for the eradication of citrus trees and essentially provided a phasing-out period for such compensation.¹⁶ In 1991, as that program was about to phase out, §11.066 was passed.

In addition, §11.066 was cited in only one decision prior to the ContractPoint case, in Haire v. Fla. Dep’t of Agric. & Consumer Servs., 870 So. 2d 774 (Fla. 2004) — in the context of whether the 2003 citrus canker statute was constitutional.¹⁷ The 2003 statute provided that compensation was subject to the availability of appropriated funds. The Haire court noted that language was “nothing more than a reiteration of the language in subsection 11.066(3).”¹⁸ Interestingly, the Haire opinion was authored by Justice Pariente, who also wrote the ContractPoint opinion.

In ContractPoint, the Supreme Court examined the context of §11.066’s passage, as well as the statute’s language dealing with police power, and affirmed the First District’s ruling.¹⁹ The court noted that DEP has long had the authority to “grant privileges, leases, concessions, and permits for the use of land for the accommodation of visitors in the various parks, monuments, and memorials.”²⁰ The court further observed that this was a case of first impression, stating: “[W]e are neither aware of, nor have we been provided with, any cases in which the [s]tate has sought to avoid enforcement of a judgment based on section 11.066, since the provision was enacted in 1991.”²¹

Essentially, the court looked to the language of subsection 2 to limit the seemingly absolute language of subsections 3 and 4. The court emphasized subsection 2’s language providing that the state, when “exercising its inherent police power to protect the public health, safety, or welfare, is presumed to be acting to prevent a public harm.”²² Noting that the police power reference in subsection 2 precedes the monetary damages references in subsection 3, the court concluded that the two subsections read together “accordingly relate to monetary damages contained in judgments arising from the exercise of the [s]tate’s police powers.”²³

The court then examined the history of §11.066’s adoption, remarking that the legislative history, although somewhat sketchy, appears to focus on police power issues and, specifically, the citrus canker eradication program,²⁴ as discussed above. The court also deemed important that both before and after §11.066’s enactment, a “vast array” of legislation has granted state agencies broad contracting authority and addressed the rights and obligations of those contracting with the state — without limiting the payment of contract-related judgments.²⁵ Finally, the court acknowledged the long history of Florida jurisprudence holding that the state waives sovereign immunity when it enters a written contract, concluding that §11.066 does not express a clear intent to nullify Pan-Am Tobacco and reimpose sovereign immunity as to express written contracts.²⁶

The court concluded by affirmatively recognizing that a writ of mandamus against a state agency is indeed available and holding that the trial court could issue such a writ on remand if DEP still refused to pay.²⁷ Justice Pariente’s majority opinion was joined by Chief Justice Quince and Justices Anstead and Lewis. Justice Wells authored a dissent, which was joined by Justices Cantero and Bell.²⁸

Not surprisingly, the thrust of the dissent is “read the statute.” Justice Wells wrote that there is no ambiguity in subsections 3 and 4 and that, on their face, they answer the question whether a writ of mandamus can issue.²⁹

After raising the obvious statutory interpretation argument, the dissent moved on to far shakier jurisprudential grounds. The dissent made an intellectually difficult distinction between Pan-Am Tobacco recognizing the right of contracting entities to sue state agencies and “a separate legal proceeding to enforce a judgment from a breach of contract action.”³⁰ Of course, as the majority pointed out, the value in a breach of contract suit is meaningless if there is no right to enforce an ensuing judgment.³¹ The dissent attempted to sidestep that issue by stating that applying §11.066 to breach of contract actions simply would “permit the [l]egislature to choose the time and manner by which it will pay outstanding judgments.”³² As noted in the majority opinion, however, such a requirement would be wholly without standards and insufficient to establish mutuality.³³

Disaster Avoided
Is this the end of a story that most lawyers thought ended with Pan-Am Tobacco? It appears so. Perhaps a question exists of what happens if a judgment exceeds the amount in the state’s coffers, though it is difficult to imagine such a chain of events. For now, though, it seems settled that if the state breaches its contracts, it must pay judgments resulting from those breaches.

The ContractPoint decision merely affirmed what public contracting lawyers believed to be the undisputed status quo: That actions for public entities’ breach of express written contracts are available and judgments on those actions will be paid. Nevertheless, one Supreme Court vote swing could have disrupted all public-private contracts within the state — and the state’s ability to find private parties willing to enter such contracts at a reasonable price. That state contracting as we know it could be completely nullified — based on an obscure statute which sat dormant for 22 years — is the stuff of which nightmares are made.

¹ See Fla. Stat. Ch. 287 (2008).

² Pan-Am Tobacco Corp. v. Dep’t of Corr., 471 So. 2d 4, 5 (Fla. 1984).

³ Fla. Stat. §258.015(3)(a) (2000).

⁴ Pan-Am Tobacco, 471 So. 2d at 5.

⁵ Id. (citation omitted).

⁶ ContractPoint Fla. Parks, LLC v. Gallagher, No. 05-CA-3159, slip op. at 3 (Fla. 2d Cir. 2006) (emphasis added).

⁷ Id. at 4.

⁸ Id. at 5.

⁹ ContractPoint Fla. Parks, LLC v. Fla. Dep’t of Envtl. Prot., 958 So. 2d 1035, 1037 (Fla. 1st D.C.A. 2007).

¹⁰ Id.

¹¹ Id. at 1037-38.

¹² Id. at 1038.

¹³ Fla. Dep’t of Envt’l Prot. v. ContractPoint Fla. Parks, LLC, 959 So. 2d 715 (Fla. 2007).

¹⁴ Fla. S. Comm. on Approp. tape recording of proceedings (Mar. 14, 1991) (available at Fla. Dep’t of State, Div. of Archives, Tallahassee).

¹⁵ Dep’t of Agric. & Consumer Servs. v. Mid-Fla. Growers, Inc., 521 So. 2d 101 (Fla. 1988).

¹⁶ Fla. Stat. §§602.025, 602.035 (1989).

¹⁷ See Haire v. Fla. Dep’t of Agric. & Consumer Servs., 870 So. 2d 774 (Fla. 2004).

¹⁸ Id. at 785.

¹⁹ Fla. Dep’t of Envt’l Prot. v. ContractPoint Fla. Parks, LLC, 986 So. 2d 1260 (Fla. 2008).

²⁰ Id. at 1263 (quoting Fla. Stat. §258.007(3) (2000)).

²¹ Id. at 1264 n.2. This is consistent with the authors’ experience as public contracting lawyers for over 20 years. To our knowledge, no other state agency has ever raised §11.066 as a defense to payment of a judgment for breach of contract.

²² Id. at 1266 (quoting Fla. Stat. §11.066(2) (2005)).

²³ Id.

²⁴ Id. at 1266-67.

²⁵ Id. at 1267-68.

²⁶ Id. at 1268-80.

²⁷ Id. at 1271-72.

²⁸ All three dissenters have left the court.

²⁹ Id. at 1274 (Wells, J., dissenting).

³⁰ Id. at 1276.

³¹ Id. at 1270 (majority opinion).

³² Id. at 1277 (Wells, J., dissenting).

³³ Id. at 1270-71 (majority opinion).


Mike Piscitelli is a shareholder in the Ft. Lauderdale office of Vezina, Lawrence & Piscitelli, P.A., where he practices in the fields of construction and public contracts law. He served as lead counsel for the plaintiff in the case subject of this article. He received his J.D., with highest honors, from the University of Florida College of Law in 1982.

W. Robert Vezina III, is the managing shareholder of Vezina, Lawrence & Piscitelli, P.A., and resident in the firm’s Tallahassee office where he practices in the fields of construction and public contracts law. He received his J.D. from Duke University in 1981.

The authors acknowledge Megan Reynolds, an associate in the firm’s Tallahassee office, for her assistance in preparing the article for publication. She received her J.D., with honors, from Florida State University College of Law in 2007, where she served as editor-in-chief of the FSU Law Review.

This column is submitted on behalf of the City, County and Local Government Section, James Lee Bennett, chair, and Jewel W. Cole, editor.