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Dick Fischer Dev. No. 2, Inc., v. Dept. of Administration (9/4/92), 838 P 2d 263
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
DICK FISCHER DEVELOPMENT )
NO. 2, INC., )
) File No. S-4349
Appellant, )
) Superior Court No.
v. ) 3AN 86 10666 CI
)
DEPARTMENT OF ADMINISTRATION, ) O P I N I O N
STATE OF ALASKA, )
)
Appellee. ) [No. 3880 - September 4, 1992]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Victor D. Carlson, Judge.
Appearances: Erin B. Marston, John Spencer
Stewart, Stafford Frey Cooper & Stewart,
Anchorage, for Appellant. Ross A. Kopperud,
Assistant Attorney General, Anchorage, and
Charles E. Cole, Attorney General, Juneau,
for Appellee.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
Dick Fischer Development No. 2, Inc. (Fischer) sued the
State of Alaska to recover full bid preparation costs and other
damages when the State cancelled a large office construction
project.1 The State cross-claimed seeking reimbursement for
partial bid preparation costs paid to Fischer. In granting the
State's summary judgment motion, the superior court held that the
State's cancellation of the project did not entitle Fischer to
bid preparation costs or other damages. It also ordered Fischer
to repay the State. Fischer appeals this decision. We affirm.
I. FACTS AND PROCEEDINGS
The State planned to construct a large office building,
the Anchorage Office Complex (AOC), in downtown Anchorage. The
State solicited bids for the project and identified Fischer as
the low bidder. The State awarded the project to Fischer;
however, the unsuccessful bidders filed bid protests pursuant to
2 AAC 15.100.2 Before the bid protests could be resolved, the
State cancelled the AOC project.
Fischer claimed that he had incurred over $850,000 in
bid preparation costs and post-award expenses by the time the
State cancelled the project. In an effort to settle adverse
claims and retain good will in the construction industry, the
State agreed to pay Fischer and other claimants reasonable bid
preparation costs. In her decision, Eleanor Andrews,
Commissioner of the Department of Administration, cited the
project's "long and unfortunate history"and noted that this was
the State's third unsuccessful solicitation of bids for the AOC
project. Since the bidders spent considerable time and money
preparing their bids, Commissioner Andrews felt that it was
"fundamentally unfair"to ask them to bear the full cost of the
State's indecisiveness. According to a letter from the
Commissioner to Fischer, the decision to pay bid preparation
costs was not based on legal liability but on "independent policy
considerations."
Fischer and two other bidders submitted claims for bid
preparation costs. The State formed an audit committee to review
the bidders' claims and determine accurate payments. In light of
the substantially different computation methods used by the
bidders to calculate their claims, the committee suggested two
payment options. The first option was to provide the companies
with specific guidelines as to what would be considered a
compensable expense. This would require the companies to
recalculate their claims. The second option was to make equal
payments to each claimant regardless of the actual bid
preparation costs. Commissioner Andrews chose the second option
and paid each bidder $238,222. The amount was determined by
dividing the funds appropriated to the AOC project by the number
of bidders submitting claims. Acceptance of the payment did not
require the recipient to release any further claims. However,
the State expressly reserved the right to modify the decision to
pay partial bid preparation costs if a claim was filed later.3
In July 1985 Fischer filed a claim with the Department
of Administration seeking damages for breach of contract, lost
profits, and bid preparation costs. The State rejected Fischer's
claim without providing an administrative hearing. In response,
Fischer filed a claim in the superior court. After the breach of
contract claim was decided by this court, Fischer amended its
complaint to include damages for denial of due process based on
the State's cancellation of its administrative hearing. The
State counterclaimed for reimbursement of the $238,222 paid to
Fischer and filed a motion for summary judgment. The superior
court granted the State's motion and ordered Fischer to repay the
money. Fischer appeals the decision.4
II. DISCUSSION
A. Fischer is not entitled to bid
preparation costs.
Fischer argues that it is entitled to a refund of its
bid preparation costs because the State's decision to cancel the
office project was arbitrary and unreasonable. When a State
agency solicits bids, it impliedly contracts to give those bids
fair and honest consideration. King v. Alaska State Housing
Authority, 633 P.2d 256, 263 (Alaska 1981). In King, the
plaintiffs sued the Alaska State Housing Authority (ASHA) for
damages resulting from the rejection of their bid to develop the
Eastchester area of Anchorage. Id. at 258. In 1964, ASHA
developed an urban renewal plan for the Eastchester area and,
pursuant to the plan, condemned the land on which the project was
to be built. Id. The plaintiffs owned part of the condemned
land. Id. The renewal plan required ASHA to give preferential
consideration to bids submitted by former owners. Id. The
plaintiffs submitted a bid, but ASHA awarded the project to a
competing developer. Id. The plaintiffs sued for bid
preparation costs, arguing that ASHA did not give their bid fair
and honest consideration. Id. at 261. The superior court
granted ASHA's motion for summary judgment. Id. at 259. We
reversed, holding that a solicitation of bids creates an implied
contract to give all bids fair and honest consideration. Id. at
263. We stated that if the government's rejection was arbitrary
and capricious, the bidder was entitled to bid preparation costs.
Id. To aid in identifying a wrongful rejection, we adopted the
arbitrary and capricious standard outlined in Keco Industries,
Inc. v. United States, 492 F.2d 1200 (Ct. Cl. 1974). King, 633
P.2d at 263 n.7. In Keco, the court stated that in evaluating
the governmental action, the following factors should be
considered: 1) subjective bad faith on the part of the
officials, depriving the bidder of fair and honest consideration
of the proposal; 2) proof that there was no reasonable basis for
the administrative decision; 3) the amount of discretion
entrusted to procurement officials; and 4) violation of a
pertinent statute. Keco, 492 F.2d at 1203-04.
The issue in this case is whether there was a
reasonable basis for the State's decision to cancel the AOC
project.5 The State gives three reasons for cancelling the
project: lack of legislative support, problems with financing,
and impropriety surrounding the bidding process. We consider
any of these reasons to be enough to justify the State's
cancellation of the project.
Fischer argues that, according to the Department of
Law, legislative resistance to the project was legally
irrelevant; therefore, lack of legislative support is not a valid
reason for cancelling the AOC project. Although legislative
approval was not required for the procurement of lease space,
there were valid reasons for seeking legislative approval.
First, construction of the AOC would have had a significant
impact on the State's fiscal affairs over a period of 40 years.
The project involved substantial costs and a complex long term
financing arrangement. In addition, the legislature would have
had to appropriate funds annually to ensure the success of the
project. If the legislature did not appropriate funds for the
lease every year, the lease would have terminated.6 Although
current legislative support for the project would not have
guaranteed future funding, lack of support in the initial stages
indicated the possibility of future funding problems. For these
reasons, cancellation of the project for lack of legislative
support was neither arbitrary nor capricious.
The State's second reason for cancelling the project
involved financing. The State's ability to meet the obligations
set out under the lease agreement was questionable considering
the legislature's lack of support, and state officials were
otherwise unsure how the project would be financed.
We agree that the lack of a viable funding arrangement
was a legitimate reason for the State to cancel the project. See
Weber v. City of Philadelphia, 262 A.2d 297 (Pa. 1970) (court
held that city's rejection of all bids for sports stadium because
of city's inability to finance project was not arbitrary and
capricious).
The State's third reason for cancellation was a problem
surrounding ex parte communication between former Commissioner
Rudd and Al Parrish, a one time agent of Fischer. Assistant
Attorney General Rubini determined that the communication between
Rudd and Parrish was enough to fatally taint the bidding process
and require cancellation of the project. Fischer argues
implicitly that the company did not gain a competitive advantage
from the communication; therefore, it was not a valid reason for
the State to cancel the project. Fischer states that at the time
of the conversation, Parrish was neither an agent nor an employee
of the company. Assuming that Fischer did not gain a competitive
advantage from the communication between Parrish and Rudd, the
issue becomes whether the mere appearance of impropriety is
enough to taint the entire bidding process.
We discussed this issue in McBirney & Assoc. v. State,
753 P.2d 1132 (Alaska 1988). In McBirney, we held that a
demonstrated impropriety justified cancellation of a contract
between the State and McBirney & Associates. Id. at 1137. In
reaching our conclusion, we cited NKF Engineering, Inc. v. United
States, 805 F.2d 372 (D.C. Cir. 1986). In NKF, the court noted
that the appearance of impropriety was reason enough to
disqualify a bidder. Id. at 376. The goal of the competitive
bidding process is "to prevent fraud, collusion, favoritism and
improvidence in the administration of public business."
McBirney, 753 P.2d at 1135-36 (quoting Gostovich v. City of West
Richland, 452 P.2d 737, 740 (Wash. 1969)). Even the appearance
of impropriety threatens the goals of the process and Fischer
cannot legitimately claim that the ex parte communication did not
create the appearance of impropriety. We hold, therefore, that
the concern over impropriety in the bidding process was
sufficient to support the State's decision to cancel the project.7
B. Fischer must repay the $238,222
tendered for bid preparation costs.
When Fischer filed his claim for bid preparation costs,
the State counterclaimed for reimbursement of the $238,222 paid
to Fischer. The superior court ordered Fischer to reimburse the
State. Fischer argues that it should not have to repay the money
because the State promised to pay undisputed claims for bid
preparation costs.
Essentially, Fischer's argument assumes a contract
between Fischer and the State based on the State's promise. In
order to have a valid contract, consideration is required. See
Hall v. Add-Ventures, Ltd., 695 P.2d 1081, 1087 n.9 (Alaska
1985). Fischer did not give any consideration for the State's
promise to pay undisputed claims for bid preparation costs.
Neither the State nor Fischer claim that the payment was made to
settle existing claims for costs. In fact, Fischer was not
required to relinquish any future claims against the State and is
now litigating those claims before this court.
There is also no detrimental reliance argument. The
Restatement (Second) of Contracts 90(1) (1979) states:
A promise which the promisor should
reasonably expect to induce action or
forbearance on the part of the promisee or a
third person and which does induce such
action or forbearance is binding if injustice
can be avoided only by enforcement of the
promise.
Detrimental reliance is required to make the State's promise
binding. Fischer alleges no such reliance, therefore, the
State's promise to pay undisputed claims is not enforceable.8
C. Fischer is not entitled to
damages for denial of due process of
law.
Finally, Fischer asserts a denial of its due process
rights arising from the State's unilateral cancellation of its
administrative hearing. Fischer relies on Bivens v. Six Unknown
Named Agents of the Fed. Bureau of Narcotics, 403 U.S. 388
(1971), to support its claim for damages. See also Davis v.
Passman, 442 U.S. 228 (1979) (allowing claim for damages for
violation of Fifth Amendment due process clause). In Bivens, the
Supreme Court allowed a claim for damages resulting from a
violation of the Fourth Amendment of the United States
Constitution. Bivens, 403 U.S. at 397. In King, we noted that
the federal courts have been reluctant to extend the Bivens
decision where alternative remedies are available. King, 633
P.2d at 261 n.5 (citing Hearth, Inc. v. Department of Public
Welfare, 612 F.2d 981, 982 (5th Cir. 1980)). We are also
hesitant to extend the Bivens decision, and will not allow a
claim for damages except in cases of flagrant constitutional
violations where little or no alternative remedies are available.
In this case, Fischer had other remedies available. When the
State cancelled its administrative hearing, Fischer appealed to
this court for relief. Therefore, Fischer has received a full
opportunity to present his claims for bid preparation costs and
has not been denied due process.
We affirm the superior court's award of summary
judgment to the State. We also affirm the superior court's order
for Fischer to reimburse the State.
AFFIRMED.
_______________________________
1. This case is before us for the second time. In Dick
Fischer Dev. v. Department of Admin., 778 P.2d 1153 (Alaska 1989)
(Fischer I), we held that the State's acceptance of Fischer's bid
for the Anchorage Office Complex (AOC) did not create a binding
contract. Id. at 1155. Fischer was the successful bidder in the
State's solicitation for bids on the AOC project. When the State
cancelled the project, Fischer sued the State for lost profits,
breach of contract, and bid preparation costs. Id. at 1154 &
n.1. The State was awarded partial summary judgment. Id.
However, the claim for bid preparation costs was not resolved in
Fischer I, and it is now before this court. In addition, Fischer
filed an amended complaint seeking damages for the State's
alleged violation of Fischer's due process rights.
2. 2 AAC 15.100(a) (repealed 1988) provided that "[a]n
aggrieved bidder may, within five days after award of a contract,
appeal to the department for hearing."
3. In her letter to Fischer informing it of the State's
decision to pay partial bid preparation costs, Commissioner
Andrews stated that Fischer would be required to sign an
acknowledgment form to receive the funds. The form apparently
stated that if a claim were filed, the State could dispute the
bidders entitlement to any bid preparation costs and, if
successful, require the bidder to remit all or part of the
payment to the State. There is nothing in the record, however,
indicating that Fischer ever signed the acknowledgment form.
4. In reviewing an award of summary judgment, this court
must determine whether any genuine issues of material fact exist
and whether the moving party is entitled to judgment as a matter
of law. Drake v. Hosley, 713 P.2d 1203, 1205 (Alaska 1986). All
reasonable inferences of fact must be drawn in favor of the
nonmoving party. Zeman v. Lufthansa German Airlines, 699 P.2d
1274, 1280 (Alaska 1985).
5. King dealt with an improperly rejected bid, not a
project cancellation as in this case. The rationale for creating
an implied promise to not reject bids arbitrarily (loss of time
and resources involved in bid preparation) applies equally to the
circumstances presented here. King, 633 P.2d at 263.
6. The AOC lease agreement contained a standard termination
for non-appropriation provision. The provision provided that
"[i]n the event of non-appropriation by the legislature, the
agreement shall terminate with no further obligation to make
payments."
7. Fischer also argues that the State cancelled the
project to avoid the cost of resolving bid protests and to escape
scrutiny for possible improprieties surrounding the AOC project.
As evidence to support its argument, Fischer submitted a letter
expressing the State's concern about the high cost of resolving
the bid protests. However, in the same letter, Anselm Staack,
Deputy Commissioner of the Department of Administration,
discussed the difficulties of proceeding with the project given
the lack of legislative support. So long as the State had some
valid reasons for cancelling the project, it makes no difference
that other, possibly invalid, reasons played a part in the
State's decision. Given the existence of valid reasons to cancel
the project, the decision was not arbitrary or unreasonable.
Fischer has offered no evidence to support the theory
that the State cancelled the project to avoid scrutiny. Fischer
likens this case to the McBirney case, and argues that the State
was afraid the AOC project would be similarly challenged. While
both cases involve similar projects, the facts in McBirney are
significantly different from this case. Therefore, it is not
reasonable to assume that the State feared the same legal and
political consequences involved in the McBirney case.
8. There is a clear alternative basis for affirming the
superior court's order requiring Fischer to repay the State. As
previously noted, the acknowledgement form that Fischer was
required to sign to receive the partial bid preparation costs
expressly provided for remittance of the money to the State if a
court determined that no costs were owed by the State. We do not
decide the issue on these grounds, however, because the record
contains nothing to show that Fischer actually signed the form.
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