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Kaplan v. Township of Old Bridge

A-2703-07T2 (N.J. Super. App. Div. 2009) (Unpublished)

LOCAL PUBLIC CONTRACTS LAW — The Local Public Contracts Law limits the duration of contracts for insurance consulting services to three years and mandates the passage and publication of a resolution awarding any such document; therefore, automatic renewal provisions following the end of a three year term may not be enforced because they do not comport with the requirements of the Law.

A consultant entered into a municipal contract to provide insurance brokerage and benefit consultant services. For several succeeding years, the parties expressly acted to renew the contract for annual terms. In the fourth renewal year, a new provision was added stating that the agreement would automatically renew for further twelve month periods unless written notice to the contrary was given by either party ninety days prior to the end of each one year period. Renewals subject to this provision continued under an automatic renewal mechanism for six more years. Unlike other professional service municipal contracts, no yearly renewal resolution of the municipal governing body authorized extensions of the agreement. Ultimately, the municipality, in the middle of a contract period, gave the consultant less than thirty days’ notice of termination.

The consultant sued for wrongful termination based on improper notice, and sought reinstatement until the expiration of the contract term and compensatory damages. The municipality argued that the contract, as modified with a provision for automatic renewal, was void and unenforceable because it violated certain requirements of the Local Public Contracts Law (LPCL). These requirements limit the duration of contracts for insurance consulting services to three years and mandate the passage and publication of a resolution awarding any such contract. On summary judgment, the lower court agreed with the municipality and dismissed the complaint. The lower court held that the disputed contract violated the LPCL after the first three year term under the automatic renewal mechanism. The lower court also opined that the consultant appeared to have been fully compensated for the work that he performed in the last contract term up to its expiration. The consultant appealed.

The Appellate Division affirmed the lower court’s ruling that the contract could not be enforced during the last contract term because it did not comport with the requirements of the LPCL. Nonetheless, it remanded the matter to the lower court to examine whether the consultant had been proven his entitlement to income earned, but not paid for, during the last, partial contract period. The Court asked that the lower court review such a claim under equitable principles that a party released from duties under an unenforceable contract should nonetheless not be unjustly enriched.

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