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2007-0114. Cleveland Constr., Inc. v. Cincinnati, Slip Opinion No. 2008-Ohio-2337.
Hamilton App. No. C-050749, C-050779, and C-050888, 2006-Ohio-6452. Judgment reversed.
Moyer, C.J., and Lundberg Stratton, O'Connor, O'Donnell, Lanzinger, and Cupp, JJ., concur.
Pfeifer, J., dissents and would affirm the judgment of the court of appeals.
Opinion: http://www.supremecourtofohio.gov/rod/docs/pdf/0/2008/2008-Ohio-2337.pdf
(May 21, 2008) The Supreme Court of Ohio ruled today that no property interest is created when a city does not award a public contract to the low bidder based on the city’s proper exercise of its discretion to reject bids deemed not to comply with requirements included in the bid invitation. The Court’s 6-1 decision, authored by Justice Judith Ann Lanzinger, reversed a ruling in which the 1st District Court of Appeals held that a construction company that submitted the low bid for a portion of a public construction contract had a property interest in that contract and therefore could pursue a claim for money damages against the city of Cincinnati.
The case involved a suit filed by Cleveland Construction Inc., which submitted a bid that was lower than the bid of Valley Interiors Systems for the drywall portion of a $145 million expansion and renovation of the Cincinnati Convention Center. The city’s purchasing agent disqualified Cleveland’s bid and accepted Valley’s bid as “lowest and best” on the basis that Valley’s bid met the city’s specification that at least 35 percent of the contract would be fulfilled by small business enterprises (SBEs) while Cleveland’s bid did not meet that requirement.
Arguing that as the low bidder it had a protected property interest in the drywall contract, Cleveland filed suit seeking damages for lost profits and injunctive relief to prevent Valley from proceeding on the drywall contract for the project. The trial court denied the injunctive relief, but later held that Cleveland had a constitutionally protected interest in the drywall contract and that the city had deprived it of that interest without providing due process of law. The trial court awarded Cleveland attorney fees and costs, but granted a directed verdict in favor of the city on the company’s claim for lost profits.
Cleveland appealed, and the city filed a cross-appeal. On review, the 1st District Court of Appeals affirmed the trial court’s judgment by holding that Cleveland had a protected property interest in the contract. The court of appeals awarded attorney fees, but reversed the lower court’s directed verdict in favor of Cincinnati and remanded the case for trial on Cleveland’s claim for money damages. The city appealed that ruling, and the Supreme Court agreed to review the case.
In today’s decision, the Court reversed the 1st District and reinstated the trial court’s directed verdict in favor of the city. Writing for the majority, Justice Lanzinger quoted the U.S. Supreme Court’s 2005 holding in Town of Castle Rock v. Gonzales that a party does not obtain a constitutionally protected entitlement to a benefit “if government officials may grant or deny (the benefit) in their discretion.”
“In this case, the city’s bid package, which contained the invitation to bid and the bidding requirements, ... reserved the right of the city to ‘reject any and all bids or parts of any bid ... and not award a contract,’” wrote Justice Lanzinger. “The documents also stated that ‘[a]ny bid which is incomplete ... or which contains ... irregularities of any kind, may be cause for rejection of [the] bid.’ The invitation to bid also informed potential bidders that they ‘will be subject to the provisions of the City of Cincinnati ... Small Business Enterprise Program. Failure of a bidder to comply with these requirements may be cause for rejection of the bid.’ Clearly, the Cincinnati Municipal Code and the bidding documents are united in emphasizing the city’s broad discretion to grant or deny contracts. In fact, the city is not required to award a contract at all if it is dissatisfied with any of the submitted bids.”
Justice Lanzinger acknowledged but rejected the 1st District’s holding that the city abused its discretion in awarding the drywall contract to Valley Interiors because that action was contrary to a city ordinance limiting acceptance of bids based primarily on SBE participation to cases in which the accepted bid is less than 10 percent or $50,000 higher than “an otherwise qualified bid.”
Observing that the 1st District’s reading of the ordinance “is only one possible interpretation” of the cited language, Justice Lanzinger wrote: “Even if we were to accept the First District’s conclusion that Cincinnati Municipal Code 321-37(c)(4) limits the city’s discretion to award a contract to a higher bidder when the award is made based upon SBE considerations, that conclusion does not mean that the city must award the contract to the lowest bidder, which in this case is Cleveland Construction. Simply because the city might be prohibited from accepting a specific bid does not mean that it loses its discretion to reject other bids for any reason. Even if the city had abused its discretion by awarding the drywall contract to Valley, it does not follow that it also abused its discretion by denying the contract to Cleveland Construction.”
“The outcome of this case would be different if the contract and relevant municipal ordinances said that the contract would be awarded to the ‘lowest bidder.’ Instead, they said that the contract would be awarded to the ‘lowest and best bidder.’” (Emphasis added.) Justice Lanzinger concluded. “And even the lowest and best bid may be rejected if the bid ‘is not in the best interests of the city.’ Given the extensive discretion of the city in considering bids, Cleveland Construction had no property right in the drywall contract at issue in this case. No property interest is created when a city properly exercises its discretion and does not award a contract to a party deemed not to have complied with the requirements of the invitation to bid. Because the city did not abuse its discretion, no property interest in the contract ever existed.”
Justice Lanzinger’s opinion was joined by Chief Justice Thomas J. Moyer and Justices Evelyn Lundberg Stratton, Maureen O’Connor, Terrence O’Donnell and Robert R. Cupp.
Justice Stratton also entered a separate opinion stating that she agreed with the majority holding based on the extreme discretion granted to city officials by the city ordinance and specific invitation to bid at issue in this case. “(S)uch broad discretion without real parameters ... may give rise to opportunities for abuse, unfairness, or partiality in the bidding process,” Justice Stratton wrote. “Yet a bidder in such a case faces insurmountable obstacles in challenging the bid because the discretion is so broad. Nevertheless, efforts to improve the city’s bidding procedures must be directed toward the city’s governing body or to the General Assembly to establish stricter requirements in the bidding process under R.C. 735.05. Therefore, I reluctantly concur.”
Justice Paul E. Pfeifer dissented without opinion, stating that he would affirm the judgment of the court of appeals.
Contacts
Richard Ganulin, 513.352.3329, for
the City of Cincinnati.
W. Kelly Lundrigan, 513.662.3680, for Cleveland Construction, Inc.