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Smith v. Department of Education

argued: April 22, 1991.


On Appeal from the District Court of the Virgin Islands Division of St. Thomas/St. John; D.C. Civil No. 89-00132.

Becker, Scirica and Alito, Circuit Judges.

Author: Alito

ALITO, Circuit Judge

Urdley Smith, a landscaping and gardening contractor, contends that he is entitled to compensation from the Government of the Virgin Islands for work done pursuant to an alleged oral contract and a written contract that was not executed in compliance with the contract terms and Virgin Islands procurement statutes. The Appellate Division of the District Court of the Virgin Islands rejected his arguments. We will affirm.


Smith asserts that he entered into two separate agreements to render services for the Government of the Virgin Islands. First, Smith claims that the parties entered into an oral contract for trucking services. Smith contends that he was performing under this contract when he removed trash and debris from five schools from June through August of 1986. According to Smith, he submitted an $18,000 invoice for this work, but the invoice was lost, and he never received payment.

Second, Smith contends that the parties subsequently entered into an unrelated written contract. Smith and Dr. Charles Turnbull, the Commissioner of Education, signed a "Contract for Professional Services" dated October 1, 1986. Under this document, Smith agreed to "provide at least one skilled and experienced Horticulture/Agriculture Program supervisor to assist in the training and supervision of an initial group of 7-10 students to improve and maintain grounds and facilities at a minimum of seven public school projects." Smith also agreed to perform regular maintenance of the school grounds. The contract stated that it was for a period of one year and that Smith was to receive $125,000. Under the heading "CONDITION PRECEDENT," the document stated: "This Contract shall be subject to . . . the approval of the Governor."

In January 1987, Smith submitted an invoice for $27,000 for services rendered under this contract during October, November, and December of 1986. The government paid him the $27,000 he had billed, utilizing monies from a federal fund from which several other contractors were also paid. By letter dated March 11, 1987, however, Smith was instructed that the governor had not signed the proposed contract and that Smith should not do any work under the agreement. Smith was also refused payment for work done during January, February, and March of 1987.

Smith filed this action in the Territorial Court, District of St. Thomas and St. John, for breach of quasi-contract or detrimental reliance and damages. The case was tried without a jury. Smith conceded that the written agreement was null and void, but he introduced evidence that he had performed valuable services pursuant to that agreement and the alleged oral contract. Smith also introduced evidence that the $27,000 payment made in January 1987 had come from a federal fund into which the United States Department of Education had paid more than $270,000. There was no evidence that the federal government had placed restrictions on the expenditure of these funds by the Virgin Islands authorities.

At the conclusion of the trial, the Territorial Court held that Smith was entitled to recover $27,272.73 for work done under the written contract during January to March 1987. The Territorial Court recognized that Smith's written agreement was null and ineffective because it had not been properly executed and that quantum meruit recoveries are generally proscribed when government contracts are executed in violation of statutory requirements. The court held, however, that Smith could recover by virtue of a special "federal funds exception" contained in 31 V.I.C. § 249(b) and discussed in Sargeant v. Government of the Virgin Islands, 10 V.I. 245 (D.C.V.I. 1973). The court concluded that the exception applied here because Smith's payments under the written agreement would have come entirely from federal funds. The court ruled against Smith, however, with respect to his claim for $18,000 for trucking services because those services had not been performed under a written agreement.

The Government of the Virgin Islands appealed to the Appellate Division of the District Court of the Virgin Islands, contending that the Territorial Court erred in awarding Smith any recovery. Smith cross-appealed from the portion of the Territorial Court's judgment denying his $18,000 claim for trucking services.

The district court reversed the award of compensation to Smith, holding that the "federal funds exception" in 31 V.I.C. § 249(b) does not apply simply because a contractor happened to be paid using federal funds. 751 F. Supp. 70. Instead, the court concluded, this exception applies only when the federal government plays a substantial role in the procurement process. The court elaborated:

The federal fund exception is designed to deal with a very small group of contracts in which the federal government played a substantial role in the procurement process. Sargeant 's vitality is limited to those few instances where the federal government approved the project, solicited contractor applicants, reviewed their plans, and actually selected the contractor to whom the contract is awarded, or engaged in other similar extensive activity involving the procurement process. Sargeant cannot stand for the proposition that a contractor who has a null and void contract with the government can recover in quantum meruit despite the general rule simply because he or she fortuitously is to be paid from federal funds. Such a federal funds exception to the general rule would completely circumvent the policies underlying the Organic Act.

The court affirmed the remainder of the Territorial Court's judgment. Smith filed a timely ...

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