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A.L. Prime Energy Consultant, Inc. v. Massachusetts Bay Transportation Authority

Superior Court of Massachusetts, Suffolk

March 3, 2017

A.L. Prime Energy Consultant, Inc.
Massachusetts Bay Transportation Authority No. 136376

          Filed March 4, 2017


          Mitchell H. Kaplan, Justice of the Superior Court.

         In July 2016, defendant Massachusetts Bay Transportation Authority (MBTA) terminated its two-year fuel supply agreement with plaintiff A.L. Prime Energy Consultant, Inc. (Prime). The MBTA explained that the termination was made pursuant to its exercise of a contractual right that permitted termination for convenience. The MBTA terminated the contract in order to take advantage of cost savings it believed it could achieve by purchasing fuel through the Commonwealth's existing statewide fuel contract. Prime alleges that the MBTA abused its discretion when it invoked the termination for convenience provision and that therefore the MBTA is liable for breach of contract and breach of the covenant of good faith and fair dealing. The matter is now before the Court on the MBTA's motion to dismiss pursuant to Mass.R.Civ.P. 12(b)(6). For the reasons that follow, the motion is DENIED .


         The following facts are drawn from the allegations in Prime's complaint, which are accepted as true for the purposes of this motion, the exhibits attached to the complaint, and matters of public record appropriate for judicial notice. See Schaer v. Brandeis Univ., 432 Mass. 474, 477, 735 N.E.2d 373 (2000); Watterson v. Page, 987 F.2d 1, 3-4 (1st Cir. 1993).[1]

         On January 15, 2015, the MBTA's Materials Management Department issued an Invitation for Bids (IFB) for the supply of Ultra Low Sulfur Diesel Fuel (ULSD). The IFB provided that the contract would have a two-year term.

         A few months later, the Operation Services Division of the Commonwealth's Executive Office of Administration and Finance (OSD), which is responsible for establishing statewide contracts on behalf of state public purchasers, issued a Request for Response (RFR) seeking bids for the statewide supply of ULSD. The RFR divided the state into eight zones based upon geographic proximity and requested that bidders submit a price proposal for each zone with the possibility that a separate contract could be executed for each zone. The RFR specified that the initial term of the contract between a successful bidder and the OSD would be one year, with three options to renew of up to one year each. Dennis Burke, Inc. was the successful bidder for zones 1, 2, 3, 5, and 6.[2] It executed a contract to provide ULSD to those zones on June 30, 2015 (the Statewide Contract).

         On July 1, 2015, Prime was awarded the contract to supply ULSD to the MBTA in accordance with the MBTA's IFB (Prime Contract).[3] The contract contained a so-called " termination for convenience" provision that states:

Termination for Convenience . The Authority [MBTA] may, in its sole discretion, terminate all or any portion of this Agreement or the work required hereunder, at any time for its convenience and/or for any reason by giving written notice to the Contractor [Prime] thirty (30) calendar days prior to the effective date of termination or such other period as is mutually agreed upon in advance by the parties. If the Contractor is not in default or in breach of any material term or condition of this Agreement, the Contractor shall be paid its reasonable, proper and verifiable costs in accordance with generally accepted government contracting principals as set forth in the Federal Acquisition Regulations, including demobilization and contract closeout costs, and profit on work performed and Accepted up to the time of termination to the extent previous payments made by the Authority to the Contractor have not already done so. Such payment shall be the Contractor's sole and exclusive remedy for any Termination for Convenience, and upon such payment by the Authority to the Contractor, the Authority shall have no further obligation to the Contractor. The Authority shall not be responsible for the Contractor's anticipatory profits or overhead costs attributable to unperformed work.

         Prime Contract at § 5.29.3.

         Approximately two weeks after the parties entered the Prime Contract, the 2015 Appropriations Act (Chapter 46 of the Acts of 2015) became effective. The Act enacted a series of legislative initiatives meant to reform the MBTA. Those reforms included the creation of a Fiscal and Management Control Board (FMCB) that was charged with, among other things, securing the fiscal stability of the MBTA. The Act granted the FMCB a three-year exemption (2015-2018) from the requirements in G.L.c. 7, § § 52-55, the so-called Pacheco Law.[4] The Act also required the FMCB to provide annual reports to the Legislature detailing the outsourcing contracts that utilized the temporary exemption.

         In April 2016, the MBTA informed Prime that it was considering purchasing ULSD under the Statewide Contract because it believed this would result in cost savings. A few months later, by letter dated July 12, 2016, the MBTA terminated the Prime Contract pursuant to the contract's termination for convenience provision so that it could participate in the Statewide Contract. Prime challenged the MBTA's claims that it would save money by switching to a new vendor and contended that the MBTA's cost-savings rationale was not a proper basis upon which to terminate the contract for convenience. The MBTA did not rescind the termination.

         On September 1, 2016, the FMCB issued its first annual report as required under the 2015 Appropriations Act. The report, in addition to describing the contracts executed pursuant to the exemption, indicated that the MBTA planned to participate in statewide contracts to obtain better volume discounts. See Annual Report at 9. A few days after the report was issued, Prime filed the present lawsuit against the MBTA.

         Prime brings claims for breach of contract (Count I) and breach of the implied covenant of good faith and fair dealing (Count II). It asserts that termination for convenience clauses, like the one in the Prime Contract, cannot be invoked for the sole purpose of obtaining a better price from another contractor. In consequence, the MBTA abused its discretion when it terminated the Prime Contract so that it could purchase ULSD under the Statewide Contract, allegedly at a better price. In moving to dismiss the complaint, the MBTA argues that " ...

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