Fatpipe, Inc. v. State

• Decision Date: 14 August 2012
• Docket Number: No. 11–1213.,11–1213.
• Citation: 2012 Ark. 248,410 S.W.3d 574
• Court: Arkansas Supreme Court
• Parties: FATPIPE, INC., Appellant v. STATE of Arkansas; Arkansas Department of Finance and Administration; Office of State Procurement, Appellees.

2012 Ark. 248

410 S.W.3d 574

FATPIPE, INC., Appellant

v.STATE of Arkansas; Arkansas Department of Finance and Administration; Office of State Procurement, Appellees.

No. 11–1213.

Supreme Court of Arkansas.

May 31, 2012.

Rehearing Denied Aug. 14, 2012.

Herbert C. Rule III, Rose Law Firm, Little Rock, for Appellant.

Dustin McDaniel, Atty. Gen., Ali Brady, Asst. Atty. Gen., for Appellees.

COURTNEY HUDSON GOODSON, Justice.

At issue in this appeal is a decision made by appellee, Office of State Procurement (OSP), rejecting the protest submitted by appellant, Fatpipe, Inc. (Fatpipe), of a contract award for the State's purchase of bandwidth equipment. Fatpipe sought judicial review of that decision in the Pulaski County Circuit Court and now appeals the circuit court's order granting OSP's motion to dismiss. For reversal, Fatpipe contends that the circuit court erred in ruling that it lacked standing to protest the contract award; that OSP's decision was not subject to judicial review under the Arkansas Administrative Procedure Act (APA); that its claims were barred by the doctrine of sovereign immunity; and that it failed to join a necessary and indispensable party. As an additional issue, Fatpipe contends that the contract OSP awarded is illegal because the successful bidder is a company that is not registered to do business in Arkansas. Our jurisdiction is pursuant to Arkansas Supreme Court Rule 1–2(b)(5), as this case involves a significant issue needing clarification and development of the law regarding judicial review of an agency's decision. We dismiss the appeal because the circuit court lacked subject-matter jurisdiction to review the decision.

The record reflects that on December 7, 2010, OSP posted an “Invitation for Bid” for the procurement of bandwidth-aggregation appliances for select agencies within the State of Arkansas. The filing deadline for responsive bids expired on January 6, 2011, and OSP received bids from Presidio Networked Solutions (Presidio), Ecessa Corporation (Ecessa), and Ritter Communications. On January 12, 2011, OSP announced its intention to award the contract to Ecessa.

Fatpipe, a Utah corporation that is not a state-qualified vendor, is the supplier of equipment for Presidio's bid. On January 26, 2011, Fatpipe challenged the award to Ecessa by submitting a “Bid and Contract Award Protest” to Jane Benton, the director of OSP. As its protest, Fatpipe asserted, on multiple technical grounds, that Ecessa's proposal was not responsive to the invitation to bid. By letter dated January 27, 2011, Benton responded that Fatpipe's protest could not be considered under the provisions of Arkansas Code Annotated section 19–11–244 (Supp.2011) because Fatpipe was not an “actual bidder” for the contract.¹ Benton advised that Presidio would have been the proper party to contest the award to Ecessa. In a letter written on February 8, 2011, Fatpipe took issue with Benton's determination that it lacked standing to protest the award and requested the opportunity to confer with her in an attempt to resolve the dispute, as permitted under section 19–11– 244(b)(1). In her reply dated February 16, 2011, Benton held firm to the position that Fatpipe was not eligible to protest the award.

On March 9, 2011, Fatpipe filed a petition for judicial review in the Pulaski County Circuit Court pursuant to the APA,² purporting to appeal OSP's rejection of its protest. It subsequently filed an amended petition for judicial review on April 27, 2011, and also an amended and restated petition for review on July 20, 2011. Collectively, Fatpipe alleged that, prior to the invitation to bid, it was one of three providers, including Ecessa, that were solicited by the Arkansas Department of Information Services (DIS) to provide computer network devices for use and evaluation at schools throughout the state. It claimed that, given its status as a nonqualified vendor, DIS representatives suggested that Fatpipe “work through” its associated reseller, Presidio, to submit its quote for equipment to be purchased for use during the evaluation period. Fatpipe alleged that, after the evaluation period concluded, DIS advised that its equipment performed to required specifications. It asserted that DIS and OSP worked together to formulate the invitation to bid and alleged that there was an effort to reduce the quality of the specifications so that Ecessa's device would conform to the contract specifications. Fatpipe also alleged that Ecessa obtained access to Presidio's quote for the equipment used during the evaluation period and that Ecessa used that information to undercut Presidio's subsequent bid. It further alleged that a tally sheet listing the three bids was altered in Ecessa's favor, and it claimed that Ecessa was not qualified to do business in Arkansas. Fatpipe asserted that the award to Ecessa was illegal and void based on these alleged irregularities and unlawful procedures.

Fatpipe also alleged that OSP acted in bad faith and that OSP was estopped from asserting that it lacked standing to contest the award. In this regard, Fatpipe contended that its corporate counsel in Utah reviewed information posted on OSP's website to ascertain the procedure for filing a protest to a contract award. Specifically, it alleged that counsel perused the 2009 Vendor Manual and the “Procurement Law and Rules” of the OSP, dated September 2007, stating that “anyone” could file a protest. Fatpipe asserted that these materials referred to the version of section 19–11–244 prior to its amendment by Act 677 of 2009. It claimed that, in June 2011, the Vendor's Manual was rewritten to include the 2009 amendment to the statute, which Benton relied on to conclude that it lacked standing to protest the award. Fatpipe asserted that OSP violated the law by not updating the Vendor's Manual in a timely manner and that it relied to its detriment on the outdated website postings to conclude that it could protest the award.

In terms of relief, Fatpipe sought reversal of the decision to award the contract to Ecessa and an order requiring the contract to be relet. In the alternative, it asked the circuit court to remand the matter to OSP in conjunction with a stay of the award pending the outcome of its challenge to the contract.

OSP filed motions to dismiss in response to the original petition for judicial review and each amended petition for review. OSP argued that its decision was not subject to review under the APA and that Fatpipe's claims were otherwise barred by sovereign immunity. In addition, OSP asserted that Fatpipe had failed to state facts upon which relief may be granted because Fatpipe lacked standing to contest the bid under the governing statute. It also claimed that Fatpipe had failed to join all necessary parties, as required by Rule 19 of the Arkansas Rules of Civil Procedure, because Ecessa was not made a party to the action.

The circuit court held a hearing on OSP's motions to dismiss on August 1, 2011. Although Fatpipe sought to introduce exhibits for the circuit court's consideration, the court was adamant that its decision was limited to the pleadings and that it would not convert the motion to dismiss to one for summary judgment by considering extraneous matters. On August 11, 2011, the circuit court entered an order dismissing Fatpipe's complaint. The court ruled that Fatpipe lacked standing because it was not an “actual bidder, offeror, or contractor” as required under section 19–11–244; that OSP's decision was an administrative decision and not an adjudication, and thus the APA did not apply; that Fatpipe's claims were barred by sovereign immunity; and that Fatpipe failed to join all necessary parties. From that order comes this appeal.

As its first issue, Fatpipe contends that the circuit court erred in upholding OSP's decision that it lacked standing to contest the award under section 19–11–244. Before reaching this argument, we must first address its second point on appeal challenging the circuit court's ruling that OSP's decision is not one...