Subcontracting, Minority-Owned Businesses and Quantum Meruit

 “When you get something for nothing, you just haven’t been billed for it yet.”  So said the underappreciated Philadelphia journalist and public relations executive Franklin P. Jones whose quips entertained readers of major publications for years.  Here’s a brief example of what he was talking about.

ABC Transport owns a dump truck.  The company owner lets a valued employee, Jack, borrow the truck on a Saturday to help his brother-in-law haul material.  While on his way to the job, Jack loses control of the truck when it skids on wet pavement, and the truck ends up pitched forward in a ditch and unmovable.  As Jack sits at the side of the road, uninjured but in a state of shock, a heavy-duty tow truck shows up by chance.  It is owned by the only towing company in the area with equipment large enough to handle the situation.  With Jack in a daze, the operator attaches his hook and chain and pulls the dump truck from the ditch.  Jack later drives away in the fully operable dump truck.  The following week, a bill from the towing company arrives. If ABC refuses to pay it, can the towing company collect from ABC for its services?  Chances are, it can.  

Under a legal doctrine called “quantum meruit” a person may sue and recover for the value of goods or services they furnish even though no written or verbal contract exists.  Although the term seems related to physics or to an organization in a James Bond film, it’s a Latin term meaning “as much as is deserved.”   Claims may arise where the parties have agreed on some contractual terms, but not on an essential term, such as price, or where they have agreed in writing to a scope of work, but the work actually carried out goes further.

While particulars can vary from state to state, the general contours of quantum meruit are generally consistent.  To prevail in a lawsuit, a plaintiff must prove: 

*  It provided valuable goods or services to the defendant.

*  The defendant accepted, used and/or benefitted from the goods or services.

*  A reasonable expectation that it would be paid for the goods or services it  provided whether or not the defendant recognized such expectation.

When these elements are established, a court can determine that an implied contract exists and can award damages to a claimant based on the value of the goods delivered or work performed.  This outcome rests upon a centuries-old legal principle that a person should not be unjustly enriched by retaining benefits without compensating the provider. 

This month we explore a ruling by the Supreme Court of Mississippi.  The issue under consideration was whether a waste hauling subcontractor had substantiated its claim for compensation over and above the amounts it had agreed to in writing.  Setting aside decisions from lower courts, the justices, by a 7-2 margin, found that the extra work claimed by the subcontractor fell within the scope of its written contract and that the subcontractor had no reasonable expectation of additional payment.

From October, 2009, through September, 2015, Waste Management of Mississippi (“WMM”) was under contract with the city of Jackson to collect solid waste from all residential units and light commercial entities within the municipal limits. The engagement required WMM to subcontract 36 percent of the work to minority-owned or women-owned businesses and to heed the requirements of the city's equal business opportunity (EBO) plan.  To fulfill this obligation, the company entered into written subcontracts with Jackson Ramelli Waste LLC (“JRW”) and Metro Waste Disposal (“MWD”).

For a term beginning on October 1, 2009, and ending September 30, 2010, the JRW subcontract stated that the company would service 11,175 homes at a rate of $7.40 per home. It further provided that JRW’s payment rate would be adjusted annually to reflect any change in the U.S. Department of Labor Consumer Price Index for Urban Wage Earners and Clerical Workers (“CPI”).  JRW also agreed to perform the services in compliance with the contract between WMM and the city.  Neither party could assign the subcontract without the other party's consent.

Without WMM’s knowledge or permission, JRW sub-subcontracted all of its work to RKC LLC, a Louisiana company that was neither a minority- nor women-owned company.  RKC performed all of the residential waste-collection services that WMM had hired JRW to perform. 

The WMM-JRW subcontract had no provision for renewal or extension.  When it expired, JRW nevertheless continued to perform residential collection for the city on behalf of WMM on a month-to-month basis until March 2015.   During this period, JRW invoiced WMM for this work on a monthly basis. With the exception of the final month, WMM paid each invoice in full.

Meantime, in January 2012, JRW purchased the right to assume MWD’s routes under the contract. Although WMM was not a party to this agreement, JRW sought its approval before finalizing the transaction because JRW knew that WMM had a continuing obligation to comply with the city's EBO plan. 

Based on the acquisition, the parties agreed, without an actual house count, that JRW’s work would increase to approximately 21,000 residences, and JRW began invoicing WMM in larger amounts to reflect the additional stops.  Although the invoices did not show the number of residential units, the monthly billings represented approximately 21,000 households.  These invoices, however, did not reflect any CPI adjustments nor the additional houses JRW claimed to be servicing. WMM paid the invoices in full, and JRW accepted each WMM check. During this time, JRW raised the possibility of additional compensation to reflect CPI changes and a larger number of residences being served, but these issues were not resolved.

 WMM and JRW ended their business relationship in March 2015.  Four months later, JRW took WMM to court, asserting claims for breach of contract and breach of the implied covenant of good faith and fair dealing.  JRW based its claims on WMM’s nonpayment of CPI increases between 2012 and 2015, nonpayment of waste-collection services for additional houses between 2012 and 2015, and nonpayment of work performed in March 2015.

WMM responded and countersued for misrepresentation, fraud, fraudulent inducement, tortious interference with a contract, breach of contract, and breach of the implied covenant of good faith and fair dealing.  These claims were based on JRW’s representations that JRW itself  would perform the services and not assign the work to another company, namely RKC.

On the first day of trial, WMM objected to JRW’s attempt to add a quantum meruit claim to its lawsuit. Although the trial court initially ruled that JRW was limited to the claims in its original complaint, the judge allowed the company to present evidence at trial supporting a quantum meruit recovery and later, over WMM’s objection, to amend its complaint accordingly.

 At the close of evidence, the trial judge rejected WMM’s motion for a directed verdict on JRW’s breach-of-contract claims.  (A directed verdict is a verdict ordered by a court preventing a matter from being considered by the jury.  It typically occurs when a party fails to produce substantial evidence in support of its claim, and therefore no reasonable juror could find in favor of that party.) Although the written subcontract had expired at the end of September 2010, the trial judge found that an agreement did exist between JRW and WMM, "the terms of which must come from the conduct and operation of the parties after September 30, 2010."  This presented a factual issue for the jury to decide.

WMM then moved for a directed verdict on the quantum meruit claim, arguing that JRW waived any right to additional compensation for CPI increases and for uninvoiced services for additional houses because it accepted WMM’s monthly invoice payments and because it did not demand more money. The trial court denied this second motion as well, noting that "the evidence sufficiently raised the issue for fact determination [by the jury]."

For its part, JRW moved for a directed verdict on each of the breach-of-contract and fraud-based claims in WMM’s counterclaim. The trial court granted the motion and directed a verdict in favor of JRW on these allegations.

What remained were JRW’s breach of contract and quantum meruit claims.  These were submitted to the jury, which returned a verdict of $1,017,527.56 in favor JRW.

WMM appealed and argued (1) JRW’s breach-of-contract claim should have been dismissed because the subcontract expired in 2010, and no other agreement supported the payment of any additional compensation; (2) the quantum meruit claim was legally insufficient because, among other reasons, JRW admitted that it did not perform the work; (3) in the alternative, the jury's damages award should be overturned or reduced to an amount supported by the law and the evidence; and (4) WMM is entitled to a new trial because the trial court improperly ruled against it on its breach-of-contract and fraud-based counterclaims.

An intermediate level appeals court, in 2019, found that the trial court was wrong in allowing JRW’s breach-of-contract claim to be submitted to the jury. Specifically, the court found that JRW failed to prove that WM agreed to pay additional compensation for CPI increases or for uninvoiced services for additional houses.  The appeals court then determined that the trial did produce sufficient evidence to create a fact question for the jury on the essential elements of JRW’s quantum meruit claim, and it remanded the claim for further discovery and a new trial.  Finally, the court ruled that the trial judge correctly granted JRW’s motions for a directed verdict on WMM's breach-of-contract and fraud-based claims.  Specifically, the court found insufficient evidence "that [JRW] breached the subcontract, or any subsequent oral agreement between the parties" and found no evidence of "an injury suffered by [WMM] proximately caused by [JRW’s] alleged misrepresentation."

The state supreme court agreed to hear WMM’s further appeal. The company’s argument there was limited to whether the appeals court was wrong by ruling that JRW could press its quantum meruit claim in a new trial.

Under Mississippi law, as explained by the state high court, the doctrine of quantum meruit would apply to JRW’s dispute with WMM if a jury might reasonably believe that JRW performed additional work not contemplated by its contract with WMM, and that WMM accepted JRW's services and believed that JRW wanted to be compensated for such services.

“In 2015, after five years of this month-to-month relationship, [JRW] requested additional compensation for alleged increases in CPI adjustments and houses serviced,” the majority opinion stated.  “But the record shows that [WMM] never agreed to pay . . . additional compensation for CPI increases or for an increase in houses that [JRW] claimed to service.” 

During this period each JRW monthly invoice stated that it was for "Residential Garbage Collection Service" for a particular month at an agreed upon amount.  Not one invoice included a house count or a request for payment for any additional stops serviced.

Indeed, Robert Ramelli testified that he did not send any invoices for additional houses without an agreed-on house count because he believed WMM would dispute the amount, and he could not afford to keep doing the work and not get paid.  Here’s an excerpt from his testimony:

Q.  Mr. Ramelli. Is it correct that you continued to invoice Waste Management for 21,215; is that correct?

A.  Yes, ma'am.

Q.  You never increased your invoices to reflect the house count that Ms. Robinson talked about of 23,721 houses?

A.  No ma'am. We wanted to do a joint house count to make sure we had the right numbers with Waste Management.

Q.  And did you accept payment from Waste Management for those 21,000 houses?

A.  Yes, ma'am, I did.

Q.  Why?

 A.  Because that's what they told me that they thought I was picking up, and that

the contract said that it had to be an undisputed invoice. And I couldn't afford to

keep doing the work and not getting paid. If I would have sent them an invoice

or more houses, they would have disputed it and not paid me.

(Emphasis added.)   Thus, the JRW invoices, together with Ramelli's testimony, established that there was neither an agreement by WMM to pay nor a reasonable expectation that it would pay for any additional houses, but WMM would pay the agreed-upon amount included in each monthly invoice.

In its argument to the justices, JRW’s reliance on various correspondence with WMM ended up backfiring.  Evidence of these exchanges only strengthened WMM’s claim that it never agreed to additional compensation and nor provided JRW with any reasonable expectation for additional compensation.

For example, in an October 2014 letter to Jim Funderburg, a WMM representative, Robert Ramelli said that he believed that JRW was servicing approximately five thousand additional houses for which JRW was not being paid.  Ramelli requested both a new "house count" and an "increase in per household compensation."  Notably, Ramelli stated that his company was "currently working at a deficit and may find it necessary to withdraw [its] services should [it] fail to reach an amicable agreement."

However, Ramelli conceded at trial that Funderburg rejected his request for an increase in per household compensation. Specifically, Funderburg responded to Ramelli by letter dated October 27, 2014:

Waste Management is agreeable to a joint house count verifying the number of

homes currently serviced by Jackson Ramelli . . . . We will also invite the City to

participate since a potential increase or decrease in the number of homes will

need to be agreed upon by the City in order for us to be paid for any additional

homes or credit due to reduction.

I also suggest we postpone any discussion of an increase in your compensation

until after the house count is completed. In order to increase Ramelli's

compensation, Waste Management would need to receive a corresponding increase from the City.

In fact, a joint house count never occurred.  JRW submitted two unilateral house counts in 2014 and 2016, but RKC owner David Starks testified that Funderburg “didn't agree with [the] numbers” and insisted that the "math was off."

 “Indeed, there is nothing in the correspondence to support a ‘reasonable expectation’ of additional compensation,” the majority justices wrote.  “Instead, the correspondence demonstrates [JRW]’s clear understanding that [WMM] had not agreed to and did not agree to additional compensation. *  *  *  [T]he record shows that [JRW] continued to provide service and to submit invoices based on the original house count and without any CPI increases for years after 2011.  *  *  *  Given that Waste Management consistently refused to agree to any increase in compensation, [JRW] could not have had any 'reasonable expectation' of additional compensation for its services. * * * But even assuming [JRW] performed additional work, there is no record evidence that [WMM] accepted [JRW]'s services and understood that [JRW] desired to be compensated for said services."

As the majority viewed the record, JRW failed to prove the necessary elements of quantum meruit.  Thus, the trial court was wrong in submitting the case to the jury and in denying WMM's motions for a directed verdict in its favor on the quantum meruit claim. Likewise, the appeals court erred by remanding the claim for a new trial.  The high court entered a final judgment in favor of WMM.

Waste Management of Mississippi Inc. v. Jackson Ramelli Waste LLC, No. 2018-CT-00164-SCT, Sept. 3, 2020