Sovereign Immunity Bars Contractor’s Claims for Unjust Enrichment and Promissory Estoppel Against City Government on Semi-Public Project

Harakas Constr., Inc. v. Metro Gov’t of Nashville, 2018 Tenn. App. LEXIS 45 (Tenn. App. January 29, 2018)

 BK Partners LLC (“BK”) sought to build a condominium complex in Davidson County.  This required an upgrade to the existing public sewer system.  Therefore BK and the Metropolitan Government of Nashville and Davidson County (“Metro”) entered into an agreement whereby Metro agreed to contribute $200,000 to the cost of the sewer upgrade with BK responsible for the actual construction.  BK hired Harakas Construction, Inc. (“Harakas”) to upgrade the system (the “Project”).  Metro was not a party to that contract (the “Contract”).

Harakas encountered unforeseen soil conditions, which resulted in two change orders that increased the Contract amount.  Under the Contract, Metro was not required to authorize change orders; nevertheless, Metro was involved in the discussions.  Harakas performed the extra work and achieved substantial completion.  However, after a defect was discovered in the upgraded system, Metro refused to fund the Project.  When BK failed to pay Harakas, Harakas sued both Metro and BK.  Against Metro, Harakas claimed promissory estoppel and unjust enrichment.  The trial court granted Metro summary judgment based on sovereign immunity. 

On appeal, the Court of Appeals stated that the doctrine of sovereign immunity provides that no suit may be brought against a governmental entity unless that entity has consented to be sued.  It is up to governmental entities to prescribe the terms and conditions under which they may be sued, and immunity may only be waived by the legislature, not the judiciary.  To be effective, the consent must be set forth in “plain, clear, and unmistakable terms.”

Harakas argued that Metro waived sovereign immunity by virtue of language contained in its Charter and its “Emergency Procurement Ordinance” (“EPO”).  The Charter provided that Metro was “capable of suing and being sued”, that it could enter into contracts with private entities to perform services, and that it was responsible for creating and maintaining sewers and a sewage disposal system.  The EPO provided that an agent of Metro may make emergency procurements when there is a threat to public health, welfare or safety.

The Court ruled that nothing in these provisions “shows an intent to consent to be sued for unjust enrichment and promissory estoppel.”  The Court reaffirmed that it “will not find a waiver of sovereign immunity in the absence of an enactment clearly and unmistakably disclosing an intent upon the part of the legislature to permit such litigation.”  No such specific intent, the Court reasoned, can be found in either the Charter or the EPO.

In the alternative, Harakas cited to statements made by Metro employees about seeking additional funding for the Project and argued that Metro should be estopped from denying its alleged agreement to pursue that funding in exchange for Harakas performing the work.  The Court noted that for estoppel to arise, Metro’s acceptance of a benefit from Harakas must have been done with knowledge that Harakas would rely on that fact in performing the work.  In rejecting this claim, the Court explained that while a city can in theory be held liable for promissory estoppel, the concept does not generally apply to the acts or statements of its agents.  Therefore, absent any contract or attempt to contract between Metro and Harakas, Metro was not estopped by conversations of its employees about possible additional funding.

The lesson:  A contractor should not rely on a general consent to be sued or a non-specific waiver of sovereign immunity when performing work at the behest of a government entity with which it does not have a contract.  The waiver of sovereign immunity must clearly and unmistakably cover the project and the claims.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

–Alex Corey

This entry was posted in Promissory Estoppel, Sovereign Immunity, Unjust Enrichment and tagged , , . Bookmark the permalink.