Advance Medical Diagnostic Laboratories v. County of Los Angeles

• Decision Date: 14 May 1976
• Docket Number: BIO-SCIENCE
• Citation: 58 Cal.App.3d 263,129 Cal.Rptr. 723
• Court: California Court of Appeals Court of Appeals
• Parties: ADVANCE MEDICAL DIAGNOSTIC LABORATORIES, a California Corporation, Petitioner and Appellant, v. The COUNTY OF LOS ANGELES, a subdivision of the State of California, et al., Respondents and Respondents;LABORATORIES, a corporation and Biochemical Procedures, a corporation, Real Parties in Interest and Respondents. Civ. 46386.

Page 723

129 Cal.Rptr. 723

58 Cal.App.3d 263

ADVANCE MEDICAL DIAGNOSTIC LABORATORIES, a California Corporation, Petitioner and Appellant, v. The COUNTY OF LOS ANGELES, a subdivision of the State of California, et al., Respondents and Respondents;

BIO-SCIENCE LABORATORIES, a corporation and Biochemical Procedures, a corporation, Real Parties in Interest and Respondents.

Civ. 46386.

Court of Appeal, Second District, Division 2, California.

May 14, 1976.

As Modified on Denial of Rehearings June 9, 1976.

Hearing Denied July 8, 1976.

Fierstein, Sturman & Schulman and Harvey Fierstein, Los Angeles, for petitioner and appellant.

John H. Larson, County Counsel, and Raymond G. Fortner, Jr., Deputy County Counsel, Los Angeles, for respondents and respondents.

Gibson, Dunn & Crutcher and R. Randall Huff, Los Angeles, Adelman & Schwartz and Albert L. Schwartz, Beverly Hills, for real parties in interest and respondents.

ROTH, Presiding Justice.

Respondent H. E. Davis (Davis) purchasing agent for respondent County of Los Angeles (County) executed purchase agreements (agreements) with respondents Bio-Science Laboratories (Bio-Science) and Biochemical Procedures (Biochemical), who are real parties in interest (RPIs). Appellant, Advance Medical Diagnostic Laboratories (AMDL), in its capacity as a taxpayer (Code Civ.Proc. § 526a), sought a declaration as a matter of law that the agreements were in direct violation of section 25502.5 of the Government Code and section 270.5 of the Los Angeles County Administrative Code and were thus null and void. In addition AMDL also sought to compel County to seek restitution of all moneys expended under the agreements. This appeal is from the judgment denying the petition for a peremptory writ.

AMDL, Bio-Science, and Biochemical are each corporations engaged in the clinical laboratory testing business. Davis, on behalf of various County medical facilities, sought to obtain lists for numerous and varied anatomical and clinical tests and services. He issued and caused to be circulated 'Request for Quotations' (RFQ) among medical testing service businesses, including AMDL and RPIs. The anatomical and clinical laboratory tests and services contemplated under the RFQs were to be supplied as required and requested by the various County medical facilities in suborders issued pursuant to the agreement.

RFQ T--2359, issued December 27, 1971 consisting of 123 pages, solicited price lists for several County medical facilities. A subsequent RFQ, P--553, issued August 14, 1972, solicited price lists for the County--USC Medical Center. Said RFQs contained statements that the yearly monetary value of the RFQs was approximately $1,000,000 in the first installment and $700,000 in the second. The statements were estimates based upon the numbers of tests and services actually purchased under similar agreements in prior years. The statements were intended to and did enable prospective bidders to arrive at a meaningful bid and also provided the purchasing agent with the information necessary to make an objective determination of the lowest potential costs at which the County could purchase the desired services, needs and requirements from a responsible supplier. County in the RFQs reserved the right to cancel any of the agreements executed as a result of the RFQs if at any time the quality of performance or service did not meet County's standards. The RFQs specifically stated that County did not guarantee any minimum number of tests or monetary value on any agreement resulting from such RFQs.

According to Davis, the purpose of the suborder system was to provide a speedy and efficient means by which the various County Medical facilities could obtain laboratory tests and services. This procedure saved time and administrative costs to County and avoided the burdensome task of having the Board of Supervisors becoming involved in the bidding and the awarding of any of the agreements or suborders issued thereunder.

County asserts further that the agreements were executed: (a) to encumber the necessary funds in the County Auditor's Office to make sure that there were enough funds available to pay the bills when they were received; and (b) to provide a basis of authority for the County medical facilities to place suborders for such services as specifically needed.

The agreements required County to pay RPIs the contract price for each unit of service when a suborder was issued thereunder and literally thousands of laboratory tests and numerous services at an average cost of approximately $10 were obtained by County over a period of a single year by use of suborders. Although suborders in excess of $10,000 were never issued, the record shows that concurrently with the execution of the agreements, a number of blanket purchase orders were issued to each of the RPIs in excess of $10,000 and obviously the total cost to County was hundreds of thousands of dollars per annum.

The legal issue posed is whether agreements executed and performed as described above violated Government Code section 25502.5 ¹ which allows County purchasing agents to 'engage' into contracts for a County as long as the estimated aggregate cost of the contract does not exceed $10,000. AMDL argues that each of the agreements when executed were estimated by County to involve an expenditure far in excess of $10,000; only County's Board of Supervisors could execute the agreement; Davis therefore had no authority to bind County; and, therefore, the agreements are null and void. (Miller v. McKinnon (1942) 20 Cal.2d 83, 124 P.2d 34; Los Angeles Dredging Co. v. Long Beach (1930) 210 Cal. 348, 353, 291 P. 839.) Respondents argue that the agreements were binding only when County issued suborders; at the time the agreements were executed they did not bind County to issue suborders to purchase specific needs and requirements reasonably capable of an estimated $10,000 or more; the agreements were only standing offers to sell at a fixed price to County; the number of suborders were contingent upon the needs of County's medical facilities; County reserved the right to perform any of the tests or services by its in house facility; County implicitly reserved the right to place a limited number of orders elsewhere and to build its own laboratories.

County also argues that it had engaged in the same custom for thirty years. However, this custom of County even if conducted in the best of faith will not make legal what is illegal. (County of Modoc v. Spencer (1894) 103 Cal. 498, 37 P. 483.)

The trial court accepted respondents' arguments.

Settled principles of law, however, require this court to determine the nature of the agreements and what the respective parties intended their obligations to each other to be. (Civ.Code, §§ 1636, 1647; Pacific Gas & E. Co. v. G. W. Thomas Drayage Etc. Co. (1968) 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641; Moss Dev. Co. v. Geary (1974) 41 Cal.App.3d 1, 115 Cal.Rptr. 736; Lee v. Springer Laundries, Inc. (1970) 8 Cal.App.3d 1003, 87 Cal.Rptr. 746.) We are further mindful of the principle that a contract should be construed in such a manner as will render it lawful, reasonable and operative if it can be done without violating the intention of the parties. (Civ.Code, § 1643; Entremont v. Whitsell (1939) 13 Cal.2d 290, 89 P.2d 392.)

It is clearly the law that the accepted bids of RPIs to meet all the needs and requirements of County on the items specified by County, even though County orders only what it may need and require at the prices fixed in the RFQs, for a definite period result in firm contracts. (Fisher v. Parsons (1963) 213 Cal.App.2d 829, 29 Cal.Rptr. 210; Ross v. Frank W. Dunne Co. (1953) 119 Cal.App.2d 690, 260 P.2d 104; Andersen v. La Rinconada Country Club (1935) 4 Cal.App.2d 197, 40 P.2d 571; 1 Witkin, Summary of Calif. Law, 8th Ed., Contracts, p. 162, et seq.; 1A Corbin on Contracts § 156 (1963).) It is conceded by the parties and the trial court specifically found that County 'parted with the right to buy goods and services elsewhere.'

The RFQs discussed above are meticulous documents in excess of 100 pages. They list approximately 401 tests to be performed, have an exhaustive procedure, and in detail spell out various covenants and conditions. It is obvious that completing an RFQ in acceptable form is a task that requires hours of time of a knowledgeable prime executive.

In addition, all of the questions, conditions, and covenants set forth in the RFQs emphasize the significance of the successful bidder's financial responsibility, its staff of professional and trained personnel and physical facilities of a diverse nature to enable it to perform for the full term of the agreement. Among the requirements are: (1) public liability insurance in the amount of $1,000,000; (2) professional liability insurance in the amount of $500,000; (3) Workmen's compensation insurance; (4) a surety bond; (5) continuous maintenance of the requirements conditioned for a license by the State Department of Public Health; (6) at least one of the laboratory directors as a licensed M.D.; (7) a sufficient number of full-time Ph.D.s commensurate with the type and quantity of work being done in the standard demanded; (8) availability of adequate facilities and personnel for 24-hours-a-day, seven-days-a-week to provide normal and emergency service; (9) permission for continuous quality control; and (10) numerous other covenants and conditions among which and the least of which are County's right of inspection, questioning of prices, remedies for offsets and damages and requirements of the laboratories to install and maintain certain equipment at their own expense in County facilities.

The RFQs completed by RPIs when accepted by County became, by means of separate written documents, agreements. These agreements contain all of the conditions and covenants set forth in the RFQs, only some of which we have listed.

In each RFQ...