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Authored - NJ Contract Law Update - Interplay Among Concepts of (1) Express Contract, (2) Contract-Substitute Claims Such As Quantum Meruit; (3) Breach of Covenant of Good Faith; and (4) Punitive Damages
JUNE 04, 2014 | Windels Marx - Commercial Litigation

In U.S. Accu-Measurements v. Ruby Tuesday, Inc., ("USAM"), 2014 WL 197878 (D.N.J. Jan. 14, 2014), the Court lucidly explained a number of recurring contract issues: (1) quantum meruit as a substitute for a 'straight' contract claim; (2) the interplay of such an issue with the covenant of good faith; and (3) the availability of punitive damages (or alternatively, similar evidence) in a contract claim. The Court held as follows:

1. (a) Punitive damages are presumptively not available for a contract claim that does not allege a fiduciary relationship or aggravated facts. The Court focused more on the special relationship than the potentially egregious facts; and it does appear that an argument could have been made in USAM that the facts were egregious.

(b) Perhaps implicitly recognizing this, the Court indicated that its ruling striking punitive damages was "provisional", in the sense that more evidence might develop on the issue; but explained that that Court's ruling should not be an impediment to the progress of the case, because the Court felt that any triable punitive damages issue should (in any event) be tried separately only after a plaintiffs compensatory-damage verdict might come in.

(c) Apart from the failure to focus on the egregiousness of the facts--whether they were tantamount to a tort--the Court's solutions are interesting: allowing the case to proceed without prejudice to the substantive issue eventually being raised, but with the knowledge that the Court felt the facts probably did not present a triable issue on punitive damages.

(d) The Court emphasized this practical approach by indicating: "much evidence relevant to punitive damages would also be relevant to show a contractual breach1 or ordinary damages. Such dual-purpose evidence is not excluded by this ruling [provisionally striking punitive damages]."

2. Unjust enrichment and contract breach may be pleaded alternatively--and even submitted to the jury alternatively.

3. (a) Quantum meruit (or any other contract-substitute or quasi-contractual claim) cannot be applied when an express contract exists concerning the identical subject matter--although, as refined by the USAM Court, this means that the precise subject must be covered by express contractual language in order for the contract-substitute claim to be out of bounds.

(b) Thus, for example, in the contract at issue in USAM, there was an auditing-services component which recited a specific consideration. Ostensibly, quantum meruit could not substitute for that formula--except that quantum meruit could apply in one of two circumstances, according to the Court:

i. If there were additional services not covered by the express language of the agreement, even if related to its subject matter; or

ii. If the contingent benefits upon which payments were premised were in effect achieved through a more global settlement (as discussed in USAM), then quantum meruit might apply. This is because a benefit would have been conferred based on a usage of the work product (called for in the contract) that was not precisely the type of usage expressed in the contract, but consistent with its sprit and intent (to paraphrase the Court).

(c) These formulations arguably have a logical and precedential grounding; but present a slippery slope, since the contract could have expressly provided for compensation in these 'other circumstances'--but didn't.

4. The conduct in question, whether intentional or possibly not2, nonetheless could constitute a breach of the covenant of good faith. In other words, the plaintiff's work product might have been utilized to achieve a pecuniary benefit that either intentionally or knowingly3 encompassed the kind of benefits intended--albeit in a more indirect fashion, by way of cancelling the leases rather than reducing the payments in question. The Court held that this could also be a breach of the contractual covenant of good faith and fair dealing.
The Court again agreed that these issues should be kept open until the end of the case; to the extent of its ruling being 'without prejudice' (paraphrase) until the trial concluded.

USAM provides us with an interesting insight into a Court intending to weave contract principles into what it felt was the most equitable decision, both substantively and procedurally. The Opinion is worth consulting

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education and now in its third edition. His updates on New Jersey contract law are based on recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Which, as it turns out--further along in the Opinion--included potential breach of the covenant of good faith.

2 If intentional, thus rising to or near the level of a tort; bringing us back to the punitive damages question--or even the possible pleading of a tort claim.

3 Or--perhaps/arguably--having no scheme in mind, but being unwilling to compensate once the benefit became apparent.


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