Friday, February 17, 2017
State Supreme Court Rules:
Company Can’t Sue Competitors Over Wage Violations
By KENNETH OFGANG, Staff Writer
Building companies cannot 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, the state Supreme Court ruled yesterday.
The court, in a unanimous decision, overturned a contrary ruling by Div. Eight of this district’s Court of Appeal. The justices reinstated a Riverside Superior Court ruling, which dismissed a suit by Roy Allan Slurry Seal, Inc. and Doug Martin Contracting, Inc. against American Asphalt South, Inc.
Justice Carol Corrigan said Roy Allen and Doug Martin could not prevail on their claim for prospective interference with economic advantage because they could not plead an essential element—a relationship with a third party, in this case the public entities with which they were seeking to do business, that would probably have produced an economic benefit to the plaintiffs.
“Public works contracts are a unique species of commercial dealings,” Corrigan explained. “In the contracts at issue here, the public entities retained broad discretion to reject all bids. The bids were sealed, and there were no postsubmission negotiations. In awarding the contracts, the public entities could give no preference to any bidder based on past dealings, and were required to accept the lowest responsible bid.”
Because the circumstances of public contracting are so “highly regulated,” the justice concluded, the plaintiffs had, at most, a hope and desire for a profitable relationship with the public entities, not a probability of one.
The suit was one of five that the plaintiffs 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 in Los Angeles, San Bernardino, Orange and San Diego counties.
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, retired Kern Superior Court Judge Robert Oberholzer, sitting on assignment in Riverside, sustained the demurrer in its entirety, and a San Diego judge said the plaintiffs could proceed on all three causes of action.
Court of Appeal Ruling
The plaintiffs appealed Oberholzer’s ruling in January 2014, 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, which reversed Oberholzer in a 2-1 decision.
In concluding that the probability test was met, Justice Laurence Rubin—joined by Justice Madeleine Flier—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.
Justice Madeleine Flier concurred in the opinion.
Justice Elizabeth Grimes dissented, arguing that the requisite relationship between the plaintiffs and the public entities did not exist because no bidder on a public contract has a probability of economic benefit during of the process.
Corrigan, writing yesterday for the high court, took the same view Grimes did.
The uniqueness of the bidding process for the contracts the plaintiffs were seeking distinguishes the case from Korea Supply, she said. The bidding process there, Corrigan wrote, was not “constrained in a manner similar to the statutory rules that govern California public works contracts.”
The jurist also rejected the plaintiffs’ public policy argument that allowing suits of this type will protect employees on public works projects. The area is already extensively regulated, and the competitive bidding laws are supposed to protect the public, not the bidders, she said.
“Expanding tort liability to cover wrongful interference with the public contracts bid process would provide little additional benefit in light of the extensive statutory scheme,” she wrote. It would also have negative consequences, Corrigan said, because it would encourage litigation by unsuccessful bidders, deter responsible bidders from participating in the process, and subject public entities to delays in completing projects and the costs of complying with litigating and complying with public records requests.
The case was argued in the Supreme Court by David Klehm of Doyle & Schafer for the plaintiffs, Stacey M. Leyton of Altshuler Berzon for the State Building and Construction Trades Council of California as amicus supporting the plaintiffs, and Paul G. Szumiak of Atkinson, Andelson, Loya, Ruud & Romo for the defendant.
The case is Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 17 S.O.S. 795.
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