Equitable Estoppel Against Municipalities Restricted by Illinois Supreme Court

more+
less-

The doctrine of equitable estoppel bars a party from denying a fact, or opposing a claim, based on that party's previous statements or conduct. As a general rule, depending on the circumstances, it can be based on either actual authority, meaning that the speaker or actor had authority to bind the defendant, or apparent authority: the speaker/actor seemed, based on her conduct or statements, to have authority.

So can a municipality be estopped based on the apparent authority of its employees?

On Thursday, the Illinois Supreme Court gave a definitive answer: "No."

Patrick Engineering v. City of Naperville arose from a contract related to a stormwater management system. The plaintiff agreed to provide a "Stormwater Asset Management and GIS Information System." The agreement provided a specific mechanism for dealing with change orders and cost overruns. If a representative of the City verbally requested additional services, the plaintiff was required to confirm the request in writing. The plaintiff would then have authority to proceed if the City authorized the work in writing.

But once the work began, things didn't work that way. The plaintiff alleged that various emails had been sent, purportedly authorizing additional work. In 2007 and 2008, the plaintiff sent five invoices to the City, totaling within $10 of the entire project cost, but exceeding the proposed cost in every project area but one. The City made a partial payment, but ultimately declined to pay plaintiff's invoices in full, and the plaintiff sued.

Plaintiff alleged that the City had required additional plans and categories of plans, provided improperly catalogued plans, and changed the size of one of the project areas. The plaintiff did not allege that any City official had authorized additional services in writing.

The plaintiff's complaint was dismissed without prejudice, as were the three amended complaints which followed. By the Third Amended Complaint, the crux of the case had become whether equitable estoppel could be applied against the City. In its order dismissing the Third Amended Complaint, the Circuit Court concluded that plaintiff's claim largely revolved around cost overruns for the original scope of work, and that plaintiff had not alleged that any of the employees with whom it had dealt had authority to bypass the provisions of the contract.

The Appellate Court reversed, finding that the plaintiff's allegations -- that it had dealt with individuals who appeared to have been designated to manage the project, based on their titles and conduct -- were sufficient to make out a claim for equitable estoppel.

The Supreme Court unanimously reversed. Equitable estoppel is particularly disfavored where the public revenue is at stake, the Court held. A plaintiff seeking to establish equitable estoppel against a municipality must plead specific facts showing (1) an affirmative act by the municipality, or by an official with express authority, and (2) reasonable reliance that induces the plaintiff to detrimentally change position.

The Court held that the plaintiff's allegations about the titles and statements of the City's employees fell far short of establishing express authority to informally approve changes to the contract. Nor could the plaintiff allege reasonable reliance: even taking the plaintiff's allegations at face value, the plaintiff made no allegation that anyone had ever specified exactly how much new work was being authorized.

The take-away from Patrick Engineering is clear. In Illinois, the best way to ensure that a government contractor will get paid for cost overruns and changes in the scope of work is to make sure that the contract provides detailed procedures for such circumstances, and to follow them. Failing that, plaintiffs should make sure to confirm the duties and authority of the government employees they deal with.