August Newsletter (Issue 08-2016)

Unsuccessful Bidder Has Standing To Challenge Award of Contract On The Grounds That It Was Denied A Fair And Equal Opportunity To Compete

3449082_G Facts and Procedural History: In 2013, Monroe City R-1 School District (District) contacted with ATG Sports to design a new athletics stadium at Monroe City High School (Project).  ATG Sports submitted unsealed plans and drawings of the proposed stadium to the District and drafted the request for proposals that the District used to solicit bids.  The District sought base bids as well as bids on 13 possible alternates or enhancements to the project.  Byrne & Jones and ATG Sports were the only bidders on the Project.

Byrne & Jones submitted the lowest base bid as well as the lowest total bid when factoring in all 13 of the proposed enhancements to the project.  When the District selected only seven of the 13 alternates, ATG Sports’ total bid was the lowest. In January 2014, the District awarded the contract to ATG Sports.

On March 25, 2014, Byrne & Jones filed a declaratory judgment action against the District alleging that it was denied a fair and equal opportunity to compete in the bidding process for a public works contract to build the stadium because of collusion and favoritism between the District and ATG Sports.  Byrne & Jones sought to enjoin the District from entering into a contract for the Project with ATG Sports and requested an award of its costs, attorney fees, and bid preparation costs in connection with the Project.

The trial court dismissed Byrne & Jones’ petition after finding that Byrne & Jones, as an unsuccessful bidder, lacked standing to challenge the award of the contract because it did not bring the action as a taxpayer or in the interest of the public.  Byrne & Jones appealed to the Missouri Supreme Court, asserting that it had standing to challenge the District’s award of the contract because, as a participant in the competitive bidding process, it has a right to a fair and equal opportunity to compete for public contracts.

Byrne & Jones Standing: Section 177.086.1 requires school districts constructing facilities that exceed $15 thousand dollars to publicly advertise for bids “once a week for two consecutive weeks, in a newspaper of general circulation . . . located within the city in which the school district is located.”  All bids submitted to the school district must be sealed and in writing.  The school district cannot entertain bids that are not in “accordance with the specifications furnished by the district and all contracts shall be let to the lowest responsible bidder complying with the terms of the letting, provided that the district shall have the right to reject any and all bids” including the lowest bid.

 The Missouri Supreme Court notes: “Generally, Missouri courts have held that an unsuccessful bidder competing for a public contract has no special pecuniary interest in the award of the contract to it and, therefore, lacks standing to challenge the award of the contract to another bidder.”  An unsuccessful bidder has no interest in having a public contract awarded to it because an advertisement is merely an offer “to receive proposals for a contract,” and “the statute requiring that contracts be let to the lowest and best bidder was designed for the benefit and protection of the public and not the bidders.”

The Missouri Supreme Court held that, an unsuccessful bidder who was denied a fair opportunity to bid on a public contract is within the zone of interest protected by competitive bidding requirements; therefore, an unsuccessful bidder has standing to challenge a contract that was not fairly bid.  Nevertheless, because the stadium had already been built the claim for injunctive relief was moot.  The Court denied ATG Sports request for damages related to its cost or recovery of such damages because the statute does not authorize such damages.  Byrne & Jones Enterprises, Inc. v. Monroe City R–1School District, (SC94680, 07/26/16)

Comment Howard: This decision makes it clear that failure to follow procedures by the governmental entity is subject to a challenge by an unsuccessful bidder on the grounds that the bid process was unfair, provided the claim is brought in a timely fashion.  Two judges concurred on the grounds that there was no reason to decide this issue because the construction work had already been completed making the matter moot.  By deciding this issue, the Missouri Supreme Court went out of its way to clarify standing with respect to the ability to challenge bidding procedures that are not fair.  If the contract has already been awarded it will be difficult to stop the project because in order to get an injunction a bond will have to be posted to cover the damages if the injunction is not successful.  This opinion represents a major change in public construction law making it the leading case on governmental construction law bidding practices.

Monarch Fire District Trapped In Perpetuity By Evergreen Clause

8f876cfd75d5a62fc7a435e1269704cfFacts And Procedural Status: The Monarch Fire Protection District (District) is a fire-protection district that entered into a collective-bargaining agreement with the Professional Fire Fighters of Eastern Missouri (Union) that took effect January 1, 2011, for a period of three years, up to and including December 31, 2013.  Section 5.02 of the agreement states:

This Collectively Bargained Agreement shall take effect as of January 1, 2011, and shall continue in full force and effect for a period of approximately three (3) years to and including December 31, 2013.

Should a single significant issue arise that one or both parties believe warrants the reopening of the agreement, the agreement may be reopened for renegotiation of specific items, on such terms, as long as both parties in writing give forty-five (45) days’ notice.

This Agreement shall remain in effect during good faith negotiations and shall continue to remain in full force and effect until such time as a new Agreement is agreed upon. (Emphasis Added By Howard)

Section 5.02 Paragraph 3, above is the heart of the dispute between the parties.  As the December 31, 2013, termination date was nearing the District filed its petition seeking a declaratory judgment that Section 5.02, Paragraph 3 of the agreement is void, unenforceable, and against public policy alleging that this section renders the agreement a contract of indefinite duration, which would be terminable at will by either party.  The Union filed a counterclaim, seeking a declaratory judgment that section 5.02 of the agreement is enforceable.

After the parties filed cross-motions for summary judgment, the trial court granted the Union’s motion for summary judgment, and denied the District’s motion.  The trial court concluded that Section 5.02 does not render the agreement a contract for an indefinite term because it provides that the agreement terminates when either party fails to negotiate in good faith to reach a new agreement.  The trial court also determined that Section 5.02, Paragraph 3 of the agreement does not impermissibly delegate the district’s legislative function to the Union because both parties are required to act in good faith to reach an agreement.  The District appealed to the Eastern District, which upheld the trial court’s decision.

Opinion of Eastern District: Applying rules of statutory construction the Eastern District interpreted the contract in its entirety in order to give effect to each part thereby avoiding an interpretation that would “leave one portion of the contract useless or inexplicable.”  The court concluded that the first phrase “this Agreement shall remain in effect during good faith negotiations” must have some meaning of its own, apart from the second phrase that states “this agreement shall continue to remain in full force and effect until such time as a new Agreement is agreed upon.”  “If the second phrase were intended to fully subsume the first phrase, in other words if the agreement is meant to remain in effect regardless of the lack of good-faith negotiations, then the first phrase serves no purpose whatsoever.”

The court concluded that: “The agreement can only continue to remain in effect if the agreement is still in effect because the parties are engaged in good-faith negotiations. Thus, if either party ceases to negotiate in good faith, the agreement would no longer remain in effect, and it certainly would not continue to remain in effect.”

The court also rejected the District’s argument that the contract was an impermissible delegation of the legislative power of the District based upon precedents that clearly reject the delegation theory.  Monarch Fire Protection District vs. Professional Fire Fighters Of Eastern Missouri, (ED103728, 07/26/16)

Comment Howard: This is a very difficult case for local government because the District is now locked into an agreement that will seemingly continue forever unless the District is willing to engage in bad faith negotiations.  The interpretation reached by the court puts an onerous burden on the District by requiring that the District engage in bad faith negotiations in order to terminate a contract thereby subjecting the city to a lawsuit.  Of course, if the union likes the current agreement why would the union object to bad-faith negotiations?  The court’s interpretation is preposterous because it requires the District to violate the Missouri Constitution by engaging in bad faith negotiations.  Local governmental lawyers should always insert a clearly defined end date into the agreement and language that states that the end date overrules “any other provision in the agreement to the contrary.”

Court Upholds Authority To Arrest Outside Jurisdiction of Political Subdivision

police-cars-2Grandview Police Officer Matthew Earnest observed Baldwin failing to stop at a stop sign, and travelling in the wrong lane of traffic.  The stop sign was located at the intersection of Martha Truman and Grandview Roads, which is at the northernmost boundary of the City of Grandview. Baldwin continued through the intersection, thereby entering into Kansas City.

Officer Earnest followed Baldwin into Kansas City and activated his emergency lights approximately thirty seconds later.  Baldwin signaled and pulled to the shoulder. Officer Earnest conducted an investigation, and ultimately arrested Baldwin for driving while intoxicated.  At all relevant times, Baldwin and Officer Earnest were located within the boundaries of Jackson County.

The State charged Baldwin with driving while intoxicated.  Baldwin moved to suppress the testimony of Officer Earnest, the results of field sobriety tests, Baldwin’s refusal of a breathalyzer test, as well as any statements made by Baldwin at the time of his arrest, because Officer Earnest had conducted the stop in Kansas City, outside his employing jurisdiction of Grandview.  The State responded that Officer Earnest had authority to conduct the stop and arrest under § 70.820.5.  By written order, the circuit court found that Officer Earnest had no authority to conduct the stop and arrest under §544.157, and granted Baldwin’s Motion to Suppress.  The court did not address the application of § 70.820.5.  The State appealed to the Western District.

Police officers of political subdivisions do not have authority to make an arrest outside their jurisdiction absent a statute granting them such authority.  The State argued that the circuit court erred in suppressing the evidence because Officer Earnest had the authority to make arrests for violations of state law throughout Jackson County by virtue of § 70.820.5, which provides:

In addition to the emergency response powers prescribed in subsection 1 of this section, any peace officer of a county of the first classification with a charter form of government, or any peace officer of any political subdivision within any county of the first classification with a charter form of government, or any peace officer of any city not within a county, who has completed the basic peace officer training program pursuant to chapter 590 may arrest persons who violate any provision of state law within the boundaries of any county of the first classification or of any city not within a county.

The Western District concluded that the above statute applied because: “…the officer was employed by a political subdivision within a first class County with a charter form of government; that the arrest was for violation of state law; the arrest took place within a first-class county; and testimony by the officer showed that he had completed the basic peace officer training course required by Chapter 590.”  Since the trial court did not make any findings concerning whether the officer satisfied the training requirements in chapter 590 the court remanded the case for further determination of this question.  State Of Missouri v. Baldwin, (WD78351, 03/29/16)

Comment Howard: The opinion has a very good discussion of statutory authority of police officers to make an arrest outside of their jurisdiction.  It also has a good discussion of when a title to a statute can be considered in determining the meaning of the statute.

Division of Lagers Pension in Divorce Action

You may find a recent opinion discussing the division of a Lagers pension in a divorce action between husband and wife is of interest.  Landewee vs. Landewee, (ED102483, 7/19/16)

Ballot Title For Tobacco Fees Was Misleading And Unfair Because It Did Not Mention Future Increases

636007857885205727164487009_ztrowno2z8qvfzkquieuProcedural Status and Facts: Missouri resident and taxpayer Jim Boeving filed suit in the Circuit Court of Cole County to challenge the fairness and sufficiency of the official ballot title for an initiative petition that would amend the Missouri constitution to increase the taxes and fees paid on the sale of cigarettes, and to use the revenues to fund programs addressing children’s health and education.

The circuit court rejected Boeving’s challenge to the summary statement but agreed that the fiscal note summary was insufficient and unfair.  The parties cross-appealed the trial court’s decision to the Western District.

The proposed constitutional amendment to impose a new tax and fee on the retail sale of cigarettes provides:

In addition to any tax levied upon the sale of cigarettes in this state, a tax shall be levied upon the sale of cigarettes in an amount equal to thirty mills per cigarette (or sixty cents per pack of twenty cigarettes) phased in, in four equal annual increments of seven and one-half mills (or fifteen cents per pack of twenty cigarettes) on January 1, 2017, January 1, 2018, January 1, 2019, and January 1, 2020.

In addition, the Amendment imposes an equity assessment on wholesalers in the amount of $.67 per package of 20 cigarettes, which shall be adjusted each year starting in 2017, which shall be increased 3% per year or the annual increase in the Consumer Price Index, whichever is greater.

On January 5, 2016, the Secretary of State certified the official ballot title for the petition.  An official ballot title consists of a summary statement prepared by the Secretary of State, as well as a fiscal note summary prepared by the State Auditor.

The summary statement certified by the Secretary of State read as follows:

Shall the Missouri Constitution be amended to:

  • increase taxes on cigarettes each year through 2020, at which point this additional tax will total 60 cents per pack of 20;
  • create a fee paid by cigarette wholesalers of 67 cents per pack of 20 on certain cigarettes; and
  • deposit funds generated by these taxes and fees into a newly established Early Childhood Health and Education Trust Fund?

 Opinion – Failure To Show Future Increases: The Western District concluded that the second bullet point of the above summary statement was misleading because there was nothing in the summary statement that would alert a voter that the annual fee would be increased nor did the summary signal that a voter should investigate the issue further before voting.  In addition, the first bullet in the summary statement advised the voters that the retail sales tax would be subject to annual increases through 2020 and that the highest monetary amount of the tax would be the tax in 2020 thereby identifying future increase.  Identification of future tax increases in bullet one strongly suggests to the voters that the fee of $.67 per pack of 20 cigarettes in bullet two was a fixed fee.  Therefore, the Western District found that the second bullet was unfair and misleading because: “Here, the summary statement purported to precisely state the monetary amount of the equity assessment fee; but it did so in a materially inaccurate fashion.”

The Western District rewrote the summary statement to read as follows

Shall the Missouri Constitution be amended to:

  • increase taxes on cigarettes each year through 2020, at which point this additional tax will total 60 cents per pack of 20;
  • create a fee paid by cigarette wholesalers of 67 cents per pack of 20 on certain cigarettes, which fee shall increase annually; (Emphasis Added By Howard) and
  • deposit funds generated by these taxes and fees into a newly established Early Childhood Health and Education Trust Fund?

Western District – Fiscal Note: The circuit court determined that the State Auditor’s fiscal note summary was unfair and insufficient.

The fiscal note summary prepared by the state auditor states:

When cigarette tax increases are fully implemented, estimated additional revenue to state government is $263 million to $374 million annually, with limited estimated implementation costs.  The revenue will fund only programs and services allowed by the proposal.  The fiscal impact to local governmental entities is unknown.

The Western District decided that in preparing the fiscal note summary the state auditor need not consider that there would be a loss of revenues due to a reduction in sales of cigarettes due to higher costs.  The court found that the state auditor’s assumption that cigarette sales would not decrease due to higher prices was not deceptive and unfair because the state auditors estimate of the potential range of revenues was between $263 million and $374 million dollars.  The $374 million dollars was the high-end of the range.  Failure to assume lower sales due to increased prices for cigarettes did not make the fiscal note unreasonable.

The Western District saw no reason to second guess the Auditor’s conclusion that it was appropriate to reflect the Department of Revenue’s estimate in the fiscal note summary; “her decision to do so falls well within the scope of her authority.”  In other words, courts will not micromanage the auditor statement so long as it is reasonable.  Boeving v. Kander, (WD79694, 07/08/16)

Comment Howard: We have not seen the last of this case since the court did not address a number of other important issues, which will wait until after the election if the voters approve the ballot issue.  Still, there are number of important lessons to take away from this case.  First, if there are periodic increases in a tax submitted to the voters the ballot title should reflect future increases.  I thought the court’s revision to the ballot summary (which fee shall increase annually) was an elegant and simple solution to drafting language to show periodic increases in taxes or fees.  In addition, if you are preparing a fiscal note in conjunction with a proposed tax the standard is whether or not the fiscal note is reasonable.  Courts should not be engaged in micromanaging the economic impact of a particular tax reflected in a fiscal note as long as the statement of the impact is reasonable.

Filing An Appeal Before The Board Of Adjustment Does Not Preclude A Separate Challenge To Turf Grass Provision in Zoning Ordinance

All_Saints_Catholic_Church_(St._Peters,_Missouri)_-_church_&_cemetery_2The City St. Peters (City) sought to enforce an ordinance requiring Appellants to maintain turf grass on at least 50 percent of their residential yard areas.  Appellants initially requested a variance from the City’s Board of Adjustment (Board), and after the Board granted a variance by requiring only 5% turf grass, Appellants did not appeal the Board of adjustment decision but instead filed a separate declaratory judgment action claiming that the turf grass requirement was invalid because it violated Appellants’ substantive due process right to control their own private property (Count I); that the variance granted by the Board violated equal protection in that no other property owners had to situate their turf grass completely in front or side yards (Count II); that the Ordinance’s restrictions constituted an unconstitutional taking of private property (Count III); and that the Ordinance constituted an exercise of power that exceeds the City’s statutory zoning power (Count IV).

The trial court found that Appellants failed to raise their constitutional claims before the Board or in any subsequent administrative appeal under Section 89.110 and that they were required to exhaust their administrative remedies; therefore, the trial court concluded it did not have subject matter jurisdiction and dismissed Appellants’ petition granting the City’s motion to dismiss. Appellants’ appealed to the Eastern District.

Subject Matter Jurisdiction: The Eastern District defined the issue before the court as to whether or not Appellants’ petition constituted a collateral attack on the Board’s decision, for which the exclusive method of judicial review was prescribed by Section 89.110, or a challenge to the validity of the Ordinance, which the trial court may take up independently under its general plenary jurisdiction in the Missouri Constitution.

The Eastern District held that while a person may not collaterally attack a decision of the Board, the statutory certiorari procedures do not preclude claims that an underlying ordinance is invalid, if brought as an independent action from the certiorari procedure.  Counts I, III, and IV of Appellants’ four-count petition, claimed that the ordinance was invalid unrelated to the request for the variance before the Board; therefore, the trial court erred in concluding it did not have jurisdiction to rule on Counts I, III and IV.  Count II however was an equal protection claim that the decision by the Board treated the Appellants differently then others similarly situated; therefore Count II attacked the decision of the Board violating Section 89.110, which provides the exclusive remedy for judicial review.  The trial court did not have jurisdiction and properly dismissed Count II.

Adequacy of Pleadings – Claims:

  • Count I raises a claim under 42 U.S.C. Section 1983 for a violation of substantive due process by interfering with the Appellants’ right to control her property.  While the Appellants’ had a protected property interest to which the 14th Amendment due process protection applied the Appellants did not allege that the action of the City was “truly irrational”; therefore, Count I failed to state a cause of action.
  • Count III is a takings claim, in which Appellants argue that the turf grass requirement inhibits the use and enjoyment of their property, thereby constituting a taking without just compensation in violation of Article I, Sections 26 and Section 28 of the Missouri Constitution.  Based upon the pleadings the Court found that the appellants stated a claim for inverse condemnation.
  • Count IV alleged that the city exceeded its statutory zoning power when it enacted the turf grass requirement.  The Appellants’ claimed that the authorization to adopt zoning laws for the purpose of promoting health, safety, morals or general welfare of the community was insufficient to allow the adoption of the turf grass requirement.  The allegations in Appellants’ petition were sufficient to allege a claim that the City exceeded its grant of power in Sections 89.02 and 89.040, thereby stating a claim.

Waiver: The City argued that by filing a request for a variance with the board of adjustment without objecting to the invalidity of the ordinance the Appellants waived their claim to challenge the ordinance because constitutional objections must be raised at the earliest possible time.  The Eastern District reasoned that since constitutional objections cannot be made to an ordinance before the board of adjustment the Appellants’ did not waive their constitutional objections by failing to raise this issue before the Board.  Duffner v. City of St. Peters, (ED 102898, 01/12/16)

 Comment Howard: This is an extremely important case because it allowed an independent lawsuit to proceed based upon the plenary power of the courts established in the Missouri Constitution.  In other words, the statutory procedures for certiorari are not a bar to a separate lawsuit provided the matter was not considered by the board of adjustment (like the equal protection claim of Appellants’ in Duffner). The opinion of the Eastern District in Duffner appears to be directly contrary to an opinion in the Western District.

Since jurisdiction is the first question courts ask, Judge Wolff’s opinion in J.C.W. ex rel. Webb v. Wyciskalla, 275 S.W.3d 249 (Mo. banc 2009) cited by the Eastern District as the foundation for its opinion in Duffner is required reading.  In this brilliant opinion, Supreme Court Judge Wolff assumes the role of a professor educating his students on “Concepts of Jurisdiction.”  The Webb opinion led the Eastern District to conclude that “Section 89.110 does not limit the plenary jurisdiction granted to circuit courts by the Missouri Constitution, but rather limits a court’s authority to grant a particular remedy in a particular case.”  “Because Section 89.110 is not a limit to the court’s jurisdiction under Webb, this calls into question our prior cases holding that a circuit court may act only under its general plenary jurisdiction or under the statute in a single proceeding. However, the petition here did not include both types of claims.”  Stay tuned for claims in other lawsuits.

There are many reasons why the courts should allow one lawsuit for all related claims even though the board of adjustment cannot decide constitutional claims. Constitutional claims if filed as part of the appeal to the board of adjustment can be a separate count when and if the board of adjustment case is appealed.

The general rule that you should not be allowed to split your causes of actions by filing separate lawsuits makes sense, particularly in the context of board of adjustment cases.  I disagree with the Court’s opinion in Duffner that held that the inverse condemnation claim was independent from the Board of adjustment decision.  After all the history of the Model Act on which Board of adjustment procedures are based tell us that one of the primary purposes is to permit variances where strict application of the zoning regulations imposes unnecessary hardships or practical difficulties (this can avoid a taking when a property owner is denied use of their property).  Certainly the fact that the board granted in Duffner a tenfold decrease in the turf grass requirement is pertinent to whether or not there was a taking.

Board of adjustment procedures are also intended to safeguard the rights of property owner to avoid the arbitrary use of the police power.  While the rules pertaining to Board of adjustment practices are procedural they also provide a mechanism to grant relief from substantive requirements of the zoning ordinance when they work a hardship.  That is exactly what the board of adjustment did in Duffner.  Of course, if your claim is that the board does not have the power under the state law an independent claim requesting a declaratory judgment lies.