805 F.

2d 88

GENERAL ENGINEERING CORPORATION

v.
VIRGIN ISLANDS WATER AND POWER AUTHORITY.
CARIBBEAN ENERGY CO., INC.
v.
SOUTH SHORE ALUMINA, INC., Ashley Andrews, Virgin
Islands
Water and Power Authority, Stephanos O'Reilly,
Cecil George, Willem Westerbann, Victor
Schneider.
Appeal of VIRGIN ISLANDS WATER AND POWER
AUTHORITY.
Martin Marietta Aluminum Properties, Inc., Amicus Curiae.
Nos. 85-3668, 85-3700.

United States Court of Appeals,

Third Circuit.
Argued Sept. 16, 1986.
Decided Oct. 27, 1986.
As Amended Nov. 26, 1986.
Rehearing and Rehearing En Banc Denied Feb. 17, 1987.

Samuel H. Hall, Jr. (argued), St. Thomas, U.S. Virgin Islands, for Virgin
Islands Water and Power Authority.
Frederick G. Watts, Charlotte Amalie, St. Thomas, U.S. Virgin Islands,
Eugene F. Bannigan (argued), John D. Gordan, III, Ethan Greenberg,
Lord, Day & Lord, New York City, for Caribbean Energy Co., Inc.
Peter C. Kissel, Gilbert E. Hardy, Gary C. Adler, O'Connor & Hannan,
Washington, D.C., Harry L. Smith, Patricia A. Moore, Martin Marietta
Corp., Bethesda, Md., amicus curiae.
Before ADAMS, STAPLETON and GARTH, Circuit Judges.

OPINION OF THE COURT

ADAMS, Circuit Judge.

In this appeal the Virgin Islands Water and Power Authority (WAPA) seeks to
invalidate its power-sale agreement with the Caribbean Energy Corporation
(CEC). WAPA asserts that the agreement conflicts with Virgin Islands statutes
that prohibit contracts involving a conflict of interest, and that require public
contracts to be bid competitively. The District Court of the Virgin Islands found
that the agreement was valid, and enjoined WAPA, General Engineering, South
Shore Alumina, Ashley Andrews, and persons acting on their behalf from
interfering with it. General Engineering Corp. v. Virgin Islands Water and
Power Authority, 636 F.Supp. 22 (D.V.I.1985).

I.
2

In early 1983 WAPA, an independent instrumentality of the Government of the

Virgin Islands, consulted Arthur Lowe, an investment banker, regarding the
feasibility of financing a new electric generating project on St. Croix. The
outcome of the discussions was the appointment on December 12, 1983 of
Donaldson, Lufkin & Jenrette (DLJ), a large investment banking firm with
which Lowe was associated, as "exclusive agent and/or principal for a term of
ninety (90) days, for the purpose of arranging financing to suit the needs and
specification of the V.I. WAPA."1 App. 2052. This appointment was renewed
for a six-month period in a May 2, 1984 letter from WAPA to DLJ, in which
WAPA authorized DLJ "to act as its exclusive agent in arranging the financing
of certain power generating equipment." App. 2058. The letter employs
contractual language: DLJ has an "obligation" to arrange the financing, WAPA
"agrees" to cooperate with DLJ, and there is a place at the bottom of the letter
for the signatures of each party. By a letter dated October 12, 1984, DLJ's
authorization to act as WAPA's "exclusive agent" in arranging financing was
extended until February 1, 1985. App. 2085. This letter is far more specific
than the two previous letters. It narrows DLJ's task to evaluation of several
proposals by equipment manufacturers tendered in response to a Request for
Proposals that WAPA issued in August 1984, and negotiation of a financing
arrangement that would suit WAPA's needs. None of this correspondence
adverted to any formula by which DLJ would be compensated for its efforts.
One of the WAPA board members testified that DLJ's compensation was to be
derived from any financing package that DLJ might arrange. App. 332.

WAPA's requirements for increased power production were both pressing and

quite difficult to solve. The residents of St. Croix were in urgent need of new
electric generating capacity, but WAPA's options were circumscribed by a bond
indenture that effectively prevented it from incurring additional debt to finance
new facilities. WAPA and DLJ therefore contemplated a third-party nonrecourse financing arrangement. Under such a program the new plant would be
financed and owned by investors independent of WAPA, and WAPA would
purchase the output of the plant and resell it to its customers. The investors'
security interest would run only against the new plant, and not against WAPA.
This sort of financing is highly complex and relatively new to the financial
community. The district court found that only about ten such projects had been
successfully completed, 636 F.Supp. at 26, and there was testimony that
hundreds of attempts to arrange such financing packages had failed. App. 892.
4

On January 24, 1984, shortly after its initial appointment by WAPA, DLJ
submitted a proposal to construct a plant using generating units manufactured
by Wartsila Power, Inc. App. 2503. The proposal stated that upon WAPA's
approval of the suggested equipment, DLJ would put together a financing
package. There was testimony that the contemplated financing was to be by
third-party ownership with the sale of output to WAPA, as discussed above.
App. 333. WAPA, dissatisfied with the equipment choice, rejected the
proposal. 636 F.Supp. at 29.

In search of alternative equipment, WAPA in August 1984 issued a Request for

Proposals (RFP) for the design and construction of a 20-megawatt electric
generating facility. App. 2060. WAPA did not consult with DLJ before issuance
of the RFP. The language of the RFP is somewhat ambiguous. A large portion
of it describes the technical specifications of the plant and the role of the
proposers in designing and constructing the plant. Isolated language in the RFP,
however, suggests that the proposer is also responsible for providing financing
for the plant. App. 2062. This suggestion is confirmed by a statement appearing
later in the document: "Payments to be in accordance with a negotiated
agreement based on purchase of power or lease purchase agreement," which
indicates that third-party financing was contemplated. App. 2074. On the other
hand, the RFP also states: "Title to the work covered by this contract shall pass
to the owner upon formal acceptance ...," id., apparently contemplating the
outright purchase of the facility by WAPA. The district court found that these
inconsistencies resulted from WAPA's lack of familiarity with the complexities
of third-party financing. 636 F.Supp. at 29.

WAPA received ten proposals in response to the RFP. Its technical staff pared
the list down to six proposals that it believed merited further consideration. On
December 4, 1984, WAPA sent a slightly different list of six proposals to DLJ,2

directing it to evaluate them as provided in the letters appointing DLJ as

WAPA's "agent." DLJ completed this task on January 30, 1985, after
interviewing representatives of four of the proposers in New York. None of the
four proposers was willing to participate as principal in a third-party financing
arrangement.
7

At about this time dissension developed within the WAPA board. At a

February 14, 1985 meeting of the board 3 --after DLJ had advised the board that
it shortly would be making a power-sale proposal based on its evaluation of the
responses to the RFP, but before it actually tendered the proposal--board
member Willem Westerbaan asserted that such a proposal could not be
entertained without reopening the RFP to solicit power-sale proposals.4
Although not all members of the board were in agreement with Westerbaan's
assessment, App. 213, board member Roy Adams wrote to DLJ's attorney on
February 21, 1985, explaining on behalf of the board that if DLJ were to
conclude that it would be more advantageous for WAPA to have a third-party
arrangement than outright ownership, it would be necessary to issue a new
RFP, App. 2134. The record does not disclose a response to this letter by DLJ.

DLJ submitted the second proposal to WAPA on February 25, 1985. App.
2136. It contemplated that DLJ and Sunlaw Energy Corp., "an experienced
energy developer," would form a corporation, to be called Caribbean Energy
Co., Inc. (CEC), that would finance, design, construct, and own a 20-megawatt
cogeneration plant that would sell electricity and steam to WAPA. DLJ,
through CEC, would act as a principal in this undertaking. The plant would
utilize generators manufactured by M.A.N., a German firm that submitted one
of the six proposals that DLJ evaluated. In a March 1 follow-up letter, however,
DLJ told WAPA that it would be willing to participate on the same terms but
using the equipment of a different manufacturer, if WAPA so preferred. App.
2147. Under the proposal WAPA would be required to purchase a minimum
amount of electricity and steam each year for 20 years, at a specified price. At
the end of the 20 years WAPA would have an option to purchase the plant.

A suggested letter of intent was approved by WAPA in a board meeting on

March 14; Westerbaan dissented from this approval and walked out of the
meeting. After some revisions, a contract embodying the proposal was
approved at a board meeting on May 23, 1985, with Westerbaan again the sole
dissenter. Among its provisions was one declaring that no relationship of
agency would exist between the parties. App. 2198. Under the terms of the
contract, WAPA is obligated to purchase at least 140 million kilowatt-hours of
electricity per year, at 4.5 cents per kilowatt-hour. It must also purchase at least
630 million pounds of steam each year, at $2 per thousand pounds. Both of

these prices are subject to adjustment over the term of the contract. WAPA
must supply the plant with fuel, lubricating oil, and water as required. The
district court found that the total cost to WAPA will compare favorably with
what it presently costs WAPA to produce energy at its existing plant,
describing the potential savings to WAPA and its customers as "impressive."
636 F.Supp. at 34.
10

On March 13, 1985, upon learning of the DLJ proposal, General Engineering
Corp., one of the disappointed responders to the RFP, wrote to WAPA offering
to build a generating plant and sell the output to WAPA at a rate lower than that
proposed by DLJ. App. 2233. WAPA apparently made no response, either to
this letter or to two follow-up letters dated March 27 and May 30. App. 2234,
2236.

11

South Shore Alumina, Inc. also demonstrated interest at this time in selling
power to WAPA. This company held an option to purchase Martin Marietta's
property on the south shore of St. Croix. The property had formerly been used
to process bauxite, and contained an electric generating plant that was then not
in use. South Shore offered to sell WAPA the output of this plant, but WAPA
went ahead with its contract with CEC, asking DLJ to look into the possibility
of buying power from South Shore on an interim basis. DLJ and South Shore
met, but reached no agreement.

12

Governor Juan Luis then intervened on South Shore's behalf. A series of

meetings were held involving WAPA, South Shore, and the Governor. Roy
Adams and Herman Richardson, WAPA board members, stated at these
meetings that the agreement with DLJ was not yet final, though in fact the
contract had already been signed. Upon learning that WAPA's agreement with
DLJ was final, and therefore precluded the sort of arrangement that South
Shore proposed, the Governor acted to reconstitute WAPA's board. He
removed Adams and Richardson, and excluded Margaret Creque and Benjamin
Banks on the ground that their terms of office had expired. He then placed three
of his own nominees on the board. The Governor signed a new power-sale
agreement with South Shore, submitting it to WAPA for ratification. His
position was that the contract with DLJ was void, since the board that signed it
lacked a quorum, Creque and Banks not having been entitled to office at the
time the agreement was signed.

13

Three lawsuits, which the district court eventually consolidated for trial, were
filed. In the first action, Creque and Banks sued the Governor for reinstatement
to the board. The district court ordered them reinstated, and the Governor
appealed. On October 14, 1986, this Court affirmed the district court. Creque v.

Luis, 803 F.2d 92 (3d Cir.1986). In the second action, General Engineering
Corp. sued WAPA to enjoin implementation of the contract with DLJ, and CEC
intervened. The district court ruled in WAPA's favor. General Engineering
timely appealed to this Court, but thereafter withdrew its appeal.
14

The present appeal is from the third action, brought by CEC against WAPA, in
which CEC sought a determination that its contract with WAPA was valid and
requested an injunction preventing interference with the contract. The district
court granted the relief CEC requested. On appeal, WAPA contends that the
contract is invalid because it violates both the Virgin Islands conflict of interest
statute, 3 V.I.C. Secs. 1101-03, and WAPA's competitive bidding statute, 30
V.I.C. Sec. 116. WAPA also argues that a party to a contract may not be
enjoined from interfering with that contract. 5

II.
A. Conflict of Interest Statute
15

The Virgin Islands conflict of interest statute, 3 V.I.C. Sec. 1102, provides:
No territorial officer or employee shall:

16 be financially interested in any contract made or negotiated by him in his official

(1)
capacity, or by any public agency of which he is a member.
***
17
18 have any interest, financial or otherwise, direct or indirect, or engage in any
(3)
business or transaction or professional activity, or incur any obligation of any nature,
which is in substantial conflict with the proper discharge of his duties in the public
interest and of his responsibilities as prescribed in the laws of the Virgin Islands.
.............................................................
19
...................
20
***
21
22 wilfully and knowingly disclose, for pecuniary gain to any other person,
(5)
confidential information acquired by him in the course of and by reason of his
official duties or use any information for the purpose of pecuniary gain.
23

Section 1103 in turn defines the conduct prohibited by Sec. 1102(3):

24

A person subject to this chapter has an interest which is in substantial conflict

with the proper discharge of his duties in the public interest and of his
responsibilities as prescribed in the laws of the Virgin Islands or a personal
interest, arising from any situation, within the scope of this chapter, if he will
derive a direct monetary gain or suffer a direct monetary loss, as the case may
be, by reason of his official activity.

25

During the period of time covered by the appointment letters DLJ was a
"territorial officer or employee" within the contemplation of Sec. 1102.
"Territorial officer or employee" is defined to include "employees and
consultants of any branch of the Government or public agency employed on a
contract or fee basis." 3 V.I.C. Sec. 1101(8). Although DLJ's relationship with
WAPA, as established by the letters of appointment, was not well defined, we
are satisfied that at least part of DLJ's duties constituted it a "consultant" for
purposes of this provision. We deem it unimportant that the fee arrangement
may not have been clearly specified, since it is plain that both parties
understood that DLJ would be compensated for its services.

26

Having determined that DLJ was subject to the strictures of the Virgin Islands
conflict of interest law, the issue becomes whether in any of its dealings it ran
afoul of those strictures. We hold that it did not.

27

Section 1102(1) forbids an entity such as DLJ to "be financially interested in

any contract made or negotiated by [it] in [its] official capacity." Here DLJ was
financially interested, through its subsidiary CEC, in the contract of May 23,
1985 with WAPA. But DLJ neither made nor negotiated the contract while
acting in its official capacity, that is, as WAPA's consultant. DLJ's last
appointment extended only through February 1, 1985. The contract was
proposed by DLJ on February 25, and was signed on May 23.6 Thus, during the
time the contract was negotiated and signed DLJ was no longer serving as
WAPA's consultant. Consequently, there was no violation of Sec. 1102(1).

28

Section 1102(3), together with Sec. 1103, forbids DLJ to engage in any
transaction wherein it "will derive a direct monetary gain or suffer a direct
monetary loss, as the case may be, by reason of [its] official activity." This
provision does not forbid benefitting from the public trust: it forbids only
violating that trust. Here the task committed to DLJ was to compose a package,
consisting of financial and technical elements, that would meet the public's
energy needs while remaining within the confines of WAPA's financial
exigencies. The solution that DLJ proposed includes the participation of its
subsidiary CEC, and this participation is the vehicle by which DLJ is to be
compensated for its services. Had DLJ concealed the fact of its interest in CEC,

a different situation would have been presented. But DLJ made it pellucid from
the outset that CEC was to be its wholly owned subsidiary. WAPA was
apprised fully of DLJ's interest in CEC. By entering into the contract knowing
all the facts, WAPA has in effect stated that DLJ's profit from this contract was
no more than what it was entitled to as compensation for the various services it
had rendered and would continue to render. There was therefore no violation of
Sec. 1102(3).
29

Neither was there any violation of Sec. 1102(5). WAPA complains that DLJ
utilized the information it obtained from reviewing the RFP responses for its
own benefit. But it was precisely DLJ's role to evaluate the proposals and then
to devise a financing plan incorporating the best proposal. DLJ may realize
pecuniary gain from the arrangement it devised, but this is invariably the case
when a private concern performs some service for the government, for which it
is compensated, and in the course of performing the service makes use of the
information obtained by virtue of that relationship.

30

WAPA argues that the conflict-of-interest question is governed by the Supreme

Court's opinion in United States v. Mississippi Valley Generating Co., 364 U.S.
520, 81 S.Ct. 294, 5 L.Ed.2d 268 (1961). That case concerned a contract
between the Atomic Energy Commission and Mississippi Valley Generating
Company, a private corporation, for the financing and construction of electric
generating facilities. Negotiations leading up to the contract were conducted on
the AEC's behalf in part by one Wenzell, who was also an officer of First
Boston Corporation, an investment banking firm later retained as the financing
agent for the project. The Supreme Court held that the contract violated the
federal conflict-of-interest statute, 18 U.S.C. Sec. 434, because of Wenzell's
division of loyalties between the AEC and First Boston.

31

Mississippi Valley is not controlling here. First, the Supreme Court was
applying a federal statute worded significantly differently from the Virgin
Islands statute involved in this case. Second, the holding there is explicitly
limited to its facts. See Mississippi Valley, 364 U.S. at 562, 81 S.Ct. at 315.
Third, there is no conflict in this case of the sort found in Mississippi Valley.
There Wenzell was subject to a temptation: any action he took in encouraging
the AEC to contract with Mississippi Valley could be expected to redound to
his benefit through First Boston's participation in the financing. In the case
before us DLJ was presented with no such temptation. It was not in competition
with any of the responders to the RFP, since none was willing to include in its
proposal the requisite financing. 636 F.Supp. at 31. DLJ's role was limited to
evaluating the proposals and presenting the one it considered the best with a
financing package of its devising. Unlike Wenzell, it had no interest in urging

the government to choose one of the proposals over any other.

B. WAPA's Competitive Bidding Statute
32

WAPA seeks to annul the contract on the ground that it was issued in violation
of the applicable competitive bidding statute. 30 V.I.C. Sec. 116 provides:

33

All purchases and contracts for supplies for [sic?] services, except for personal
services, made by the Authority, including contracts for the construction of
facilities of the Authority, shall be made after advertisement for bids
sufficiently in advance of opening bids for the Authority to secure appropriate
notice and opportunity for competition; Provided, That where the expense
estimated to be necessary in connection with the purchase or work does not
exceed two thousand five hundred (2,500) dollars the same may be carried out
without advertisement for bids.

34

Section 116 contains several exceptions, including:

Advertisement for bids shall not be required, however, when-35

36

(3) professional, financial (including financial printing) or other expert services

or work are required and the Authority shall deem it best in the interest of good
administration that contracts therefor be made without such advertisement....

37

30 V.I.C. Sec. 116(a)(3).

38

The primary purpose of a competitive bidding statute is to protect against fraud,

collusion, and favoritism in the issuance of public contracts. See Gostovich v.
West Richland, 75 Wash.2d 583, 452 P.2d 737, 738 (1969); 64 Am.Jr.2d,
Public Works and Contracts Sec. 30. There are certain types of public contracts,
however, with respect to which competitive bidding might be counterproductive
and therefore inappropriate. Contracts for professional services are almost
universally recognized to be such an exception to the general rule. The offerors
of professional services possess varying degrees of skill, and therefore the
lowest bidder does not necessarily represent the best value for the public. As
one court has stated: "The rationale is that the legislature must have intended to
leave public bodies free to judge the professional qualifications of those who
perform services requiring scientific knowledge and professional skill." Waste
Management v. Wisconsin Solid Waste Recycling Authority, 84 Wis.2d 462,
267 N.W.2d 659, 665 (1978).

39

It is widely held that professionals such as engineers and financial advisers fall
within the professional services exception. See 64 Am.Jur.2d, Public Works
and Contracts Sec. 43. Given the difficulties of WAPA's financial position,
WAPA was entitled to conclude that the public's best interests required hiring
the services of a financial adviser expert in arranging third-party financing of
utility plants--particularly given the frequency with which such financing
efforts have failed in the past. Since DLJ offered professional services,
WAPA's selection of it as financial adviser was not subject to the competitive
bidding requirement. It follows then that WAPA was free to accept, or reject,
any proposal that DLJ, in the exercise of its professional judgment, should
recommend.

40

Autotote Ltd. v. New Jersey Sports and Exposition Authority, 85 N.J. 363, 427
A.2d 55 (1981), a leading case in the field, supports this reasoning. In Autotote,
the New Jersey Supreme Court found that the services of a race track totalisator
company were sufficiently professional to fall within both the "professional
services" and "public convenience" exceptions to a competitive bidding statute.
The majority held that the highly technical nature of the computer services and
equipment provided placed the contract within the exception. The concurring
opinion stated that the essential distinguishing factor should be whether "public
convenience--that is, how the interest of the public, not that of the
governmental entity or any other individual party, will best be served."
Autotote, 427 A.2d at 60. It is as true here as in Autotote that "[r]eliability is so
important to the success of operations ... that selection of the ... system ... could
not have been subjected to the even limited uncertainties of public bidding."
Autotote, 427 A.2d at 61. See also Waste Management, supra (statutory
bidding provisions must be read in light of the reasons for their enactment and
must not deny authorities the ability to deal with problems in a sensible,
practical way).

41

The professional services exception in the WAPA statute, among other things,
makes clear that the board has the discretion to avoid bidding when it is "in the
interest of good administration." 30 V.I.C. Sec. 116(a)(3). The contract between
WAPA and CEC presents even more compelling reasons to be concerned with
reliability and with certainty of completion for the benefit of the ratepaying and
energy-using public than does the contract in Autotote. Evidence presented at
trial demonstrates the very real possibility of an imminent energy emergency,
and the overwhelming majority of other efforts competitively to bid similar
projects have been notably unsuccessful. App. 892-94. The trial court thus was
justified in finding that WAPA acted "in the best interest of good
administration" when it approved the DLJ contract.

42

This conclusion might not follow so readily if there were any suggestion in this
case of fraud or collusion: if, for example, there were an allegation that WAPA
and DLJ were not dealing with each other at arm's length, or that the bid DLJ
tendered were rigged. But no such charge has been made.

C. Validity of Injunction
43

WAPA argues in its brief that a court may not enjoin a party to a contract from
interfering with that contract. Because WAPA did not raise this issue in the
district court, we decline to pass on it. See Leizerowski v. Eastern Freightways,
Inc., 514 F.2d 487, 491 (3d Cir.1975).

III.
44

We hold that the contract between CEC and WAPA does not violate the Virgin
Islands conflict of interest and WAPA competitive bidding statutes.
Accordingly, the judgment of the district court will be affirmed.

By a letter dated May 6, 1983, WAPA had issued a similarly worded 90-day
appointment to Davis Skaggs & Co., the firm with which Lowe was then
affiliated

The list prepared by WAPA's staff included a proposal from Sulzer Bros., Inc.,
but not the one from General Engineering Corp., which it considered
unacceptable on its face. The list WAPA sent to DLJ dropped Sulzer but
included General Engineering. General Engineering was the only Virgin
Islands firm among the proposers, and WAPA wished to give it the benefit of
the doubt. 636 F.Supp. at 30

The minutes of this meeting were adverted to at oral argument, but they are not
a part of the record in this case

In addition to his duties as a WAPA board member, Westerbaan was utility

manager at the Martin Marietta alumina plant. Martin Marietta, which has
submitted a brief amicus curiae to this Court, desires to sell cogenerated power
to WAPA

Amicus curiae Martin Marietta Aluminum Properties, Inc., submitted a brief

arguing that the contract between DLJ and WAPA should be invalidated
because it abridges the Public Utility Regulatory Policies Act of 1978, Pub.L.
No. 95-617, 92 Stat. 3117 (codified in scattered sections of 16 U.S.C.), and

Virgin Islands Act No. 5006, 30 V.I.C. Secs. 46-50. The parties did not raise
this issue either in the district court or on appeal
Generally, new issues raised by an amicus are not properly before the court.
See United Parcel Service v. Mitchell, 451 U.S. 56, 60 n. 2, 101 S.Ct. 1559,
1562, n. 2, 67 L.Ed.2d 732 (1981); Knetsch v. United States, 364 U.S. 361,
370, 81 S.Ct. 132, 137, 5 L.Ed.2d 128 (1960). In exceptional circumstances,
however, the federal courts will suspend this rule. Consumers Union of United
States, Inc. v. FPC, 510 F.2d 656, 662 & n. 9 (D.C.Cir.1975). Jurisdictional
issues may give rise to such exceptional circumstances. See, e.g., American
Meat Institute v. EPA, 526 F.2d 442, 449 (7th Cir.1975). Since Martin
Marietta's arguments present no jurisdictional issues or any extraordinary
considerations, we decline to address the new issues raised in its brief.
6

We do not read DLJ's letter of February 25, 1985 as reflecting a continuation of

DLJ's status as a consultant