Monday, February 23, 2015
Court of Appeal Rules:
Company Can Sue Competitors for Failure to Pay Prevailing Wages
By KENNETH OFGANG, Staff Writer
Building companies can sue a competitor whose violations of the prevailing wage law allegedly enabled it to submit lower bids and thereby gain contracts that would otherwise have gone to the plaintiffs, this district’s Court of Appeal ruled Friday.
Div. Eight, in a 2-1 decision, overturned a Riverside Superior Court judge’s ruling dismissing the suit by Roy Allan Slurry Seal, Inc. and Doug Martin Contracting, Inc. against American Asphalt South, Inc. The suit is one of five that the plaintiffs have filed, claiming that American Asphalt interfered with prospective economic advantage by unfairly underbidding on 23 contracts with Riverside County and with 16 cities in that county and Los Angeles, San Bernardino, Orange and San Diego counties.
The complaints also included claims for predatory pricing under the Unfair Practices Act, and sought injunctive relief under the Unfair Competition Law, but the appeals court Friday said those claims were correctly dismissed.
The successful bids on the contracts totaled $14.6 million. The plaintiffs claimed that if the difference between the wages required by Labor Code §§1770 and 1771, and those actually paid by the defendant, were added to the defendant’s bids, each of the contracts would have gone to one of the plaintiffs, rather than to the defendant.
The defendant demurred to all of the complaints, producing conflicting rulings. A Los Angeles Superior Court judge allowed the intentional-interference and predatory pricing claims to go forward, Riverside Judge Robert Oberholzer sustained the demurrer in its entirety, and a San Diego judge said the plaintiffs could proceed on all three causes of action.
The plaintiffs appealed Oberholzer’s ruling last January, and the Supreme Court then ordered that all of the suits be coordinated in Los Angeles Superior Court, and that all appeals be heard in this district.
Justice Laurence Rubin, writing for the Court of Appeal Friday, said the plaintiffs’ allegations satisfied the essential elements of the intentional-interference tort, including the requirement that there be an economic relationship between the plaintiff and a third party that makes it reasonably probable the plaintiff will gain some future economic benefit.
Rubin explained that the Allan and Martin companies pled the requisite relationship by alleging that they were the lawful and second-lowest bidders, and thus had a relationship with the contracting public entities that created a probability that they would get the contracts and earn a profit. He rejected the defendant’s contention that a losing bidder cannot sue for intentional interference because the contracting process does not create an economic relationship between the government and an unsuccessful bidder or a reasonable probability of a contract being awarded.
Korea Supply Precedent
The jurist cited Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, which allowed an action by the agent for the losing bidder on a Republic of Korea defense contract. The agent alleged that Lockheed Martin violated the Foreign Corrupt Practices Act by providing bribes and sexual favors to South Korean officials, and thus procured a contract that would have gone to the plaintiff’s principal had it been awarded on the merits, thereby depriving the plaintiff of a multimillion dollar commission.
“As Korea Supply suggests, a bidder on a government contract who submits a superior bid and loses out only because a competitor manipulated the bid selection process through illegal conduct has been the victim of actionable intentional interference. This is consistent with the notion that the true lowest bidder may bring a mandate action to compel the public agency to reverse its previous decision improperly awarding a contract. Absent some enforceable right, such mandate actions would not be possible.”
Justice Madeleine Flier concurred in the opinion, while Justice Elizabeth Grimes dissented.
Grimes argued that the requisite relationship between the plaintiffs and the public entities did not exist.
“Even if one could say that the relationship between bidders and the public entity soliciting bids is an ‘existing economic relationship’ (and I think that is not so), certainly that relationship cannot, as a matter of law, ‘contain the probability of future economic benefit’ to the bidder,” Grimes wrote. “It is antithetical to the principles of competitive bidding on public works projects that any bidder may expect probable future economic benefit – none of the bidders has a ‘probability’ of future economic benefit from the contract on which it is bidding.”
Attorneys on appeal were Doyle & Schafer’s Daniel W. Doyle and David Klehm for the plaintiffs and Scott K. Dauscher, Paul G. Szumiak and Jennifer D. Cantrell of Atkinson, Andelson, Loya, Ruud & Romo for the defendant.
The case is Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 15 S.O.S. 1030.
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