Pa. Board Of Claims Will Continue To Hear Non-Procurement Code Contract Claims

Linkedin Facebook Twitter Plusone Email

Does the Pennsylvania Board of Claims have jurisdiction to decide all “contract” claims against the Commonwealth of Pennsylvania?  Prior to 2002, the Board did have such jurisdiction, without question. However, since 2002, with the passage of Act 142, the Board has been faced “with a constant series of jurisdictional challenges” on grounds that its enabling provisions, now contained in the Procurement Code, limit its jurisdiction only to claims under Procurement Code contracts.

In a decision issued on September 11, 2013, the Board said it could and would continue to hear claims arising under non-Procurement Code contracts, even while it declined to hear the particular non-Procurement Code contract claim before it.  The Board found that it was required to read its jurisdictional statute broadly “so as to acknowledge the Board’s historical purpose, serve the public interest and avoid the potential for disruption to existing Commonwealth business and commercial interests should the validity of its non-Procurement Code contractual relations be called into doubt.”  In its ruling, the Board said that it did not believe that the General Assembly intended to radically alter the Board’s jurisdiction.  The Board agreed that restricting its jurisdiction to Procurement Code contracts only “could potentially threaten to disrupt several significant commercial and economic relationships enjoyed by the Commonwealth outside the Procurement Code arena.” The Board also pointed out that the legislative history of the 2002 amendments did not contain any discussion regarding modification of sovereign immunity coverage for contract claims against the Commonwealth.

Indeed, the Board went so far as to proclaim that: “We believe the circumstances … provide strong indication that the General Assembly did not intend to materially change the Board’s function, the scope of sovereign immunity or the long-established public policy served by the Board.”  The Board also found that a broad reading of its jurisdictional mandate “ultimately serves the best interest of the Commonwealth by providing parties contracting with a Commonwealth agency assurance that it may rely upon the agency to fulfill its obligations as well, avoiding the economic disruption that may result from public knowledge of a contrary holding.”

The Board’s decision came in the context of a claim involving a loan made by a Commonwealth agency. In August 2011, Telwell, Inc., filed claims in the Court of Common Pleas of Philadelphia County against Public School Employees’ Retirement System (PSERS).  Telwell claimed that it was owed $500,000 in overpaid interest on a loan made to it by PSERS.  The claim stemmed from the fact that the loan commitment and the note recited different interest rate terms.  The claim was eventually transferred to the Board of Claims.

When Telwell filed for summary judgment, PSERS raised the issue of the Board’s subject matter jurisdiction. PSERS claimed that Board’s jurisdiction did not extend to claims arising from a loan made by a Commonwealth agency.  PSERS further argued that it enjoyed the defense of sovereign immunity.  PSERS’s position derived support from the 2002 amendments to the Procurement Code which codified the Board of Claims by moving its jurisdictional provisions into the Procurement Code. Thus, the Procurement Code, at 62 Pa.C.S. § 1724(a), now arguably limits the Board’s jurisdiction to claims arising from a “contract entered into by a Commonwealth agency in accordance with this part…” This “part” is a reference to Part I of the Procurement Code.  Section 102(f.1) of the Procurement Code further provides that “[t]his part does not apply to loans.” Again, this “part” is a reference to Part I of the Procurement Code.  On the other hand, section 1724(c) of the Procurement Code extends the Board’s jurisdiction to “a contract entered into by a Commonwealth agency involving real property interests in which the Commonwealth agency is the respondent.”

Telwell conceded that its claim was not based on a Procurement Code contract, but it argued that the Board needed to retain jurisdiction over claims arising from all contracts with the Commonwealth. While the Board agreed with many of Telwell’s arguments (as noted above), the Board ultimately sided with PSERS, relying primarily on section 102(f.1) of the Procurement Code which explicitly exempted “loans” from its purview, and, by extension, from the Board’s jurisdiction. The Board did not see any neat way around this unambiguous and blanket exclusion.  Nonetheless, in doing so, the Board acknowledged the far reaching and potentially disastrous ramifications of a ruling that it could not hear any claims under any non-Procurement Code contracts, noting that, if a contract claim does not fall within the Board’s jurisdiction, then there is no exception to sovereign immunity and no possibility of redress against the Commonwealth.

While the Board expressed its firm view that it could continue to hear non-Procurement Code contract claims, it appears certain that contract claims arising out of Commonwealth loans cannot be heard by the Board.  This in and of itself is a far reaching decision.  Moreover, there is no guarantee that Board’s expansive view of its jurisdictional legislation will be supported by the courts.

Thus, for this reason and more, the ruling in Telwell is potentially foreboding. A party obtaining a loan from the Commonwealth or a Commonwealth agency is now suitably forewarned – there is no remedy for a breach by the Commonwealth. Moreover, any party entering into a non-loan contract with the Commonwealth or a Commonwealth agency, but outside the purview of the Procurement Code, would be wise to look both ways, and think twice.  If the Commonwealth breaches such a contract, and the contracting party is damaged, the contracting party may well be out of luck, without any recourse or remedy if the arguments in favor of limiting the Board’s jurisdiction hold sway with the Commonwealth Court or the Supreme Court.  Section 1724(b) of the Procurement Code may provide some relief to parties contracting with the Commonwealth. This subsection gives the Board jurisdiction to arbitrate claims arising from “[a] written agreement executed by a Commonwealth agency and the Office of Attorney General in which the parties expressly agree to utilize the board to arbitrate disputes arising from the agreement.”  If the contract is an non-Procurement Code contract, the contracting party should insist that the Commonwealth agency and the AG’s office sign off on using the Board of Claims to hear claims.  This would arguably effectuate a waiver of sovereign immunity.

The Board of Claims decision can be found here.

A hat tip and thanks to West Chester attorney, Paul Drucker, Esq., who brought this decision to my attention.

Linkedin Facebook Twitter Plusone Email
Posted on by Christopher I. McCabe, Esq. in Board of Claims, Procurement Code Leave a comment