Kajima/Ray Wilson v. MTA

• Decision Date: 12 June 2000
• Docket Number: No. S077461.,S077461.
• Citation: 1 P.3d 63,23 Cal.4th 305,96 Cal.Rptr.2d 747
• Parties: KAJIMA/RAY WILSON, Plaintiff and Respondent, v. LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY, Defendant and Appellant.
• Court: California Supreme Court

96 Cal.Rptr.2d 747

23 Cal.4th 305

1 P.3d 63

KAJIMA/RAY WILSON, Plaintiff and Respondent, v. LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY, Defendant and Appellant.

No. S077461.

Supreme Court of California.

June 12, 2000.

Rehearing Denied August 23, 2000.

DeWitt W. Clinton and Lloyd W. Pellman, County Counsel, and Richard P. Chastang, Deputy County Counsel, for Defendant and Appellant.

Manuela Albuquerque, City Attorney (Berkeley) and Christopher H. Alonzi, Deputy City Attorney, for 99 California Cities and the California State Association of Counties as Amici Curiae on behalf of Defendant and Appellant.

Kamine, Steiner & Ungerer, Bernard S. Kamine, Los Angeles, Maurya K. Hogan and Joseph M. Rossini for Plaintiff and Respondent.

The Diepenbrock Law Firm, Eileen M. Diepenbrock, Sacramento; Dauer & Thompson, James E. Thompson, Jennifer L. Dauer and Paul F. Dauer, Sacramento, for the Associated General Contractors of

California as Amicus Curiae on behalf of Plaintiff and Respondent.

Monteleone & McCrory, Thomas P. McGuire, Los Angeles, and Joseph C. Malpasuto, Glendale, for Southern California Contractors Association and Engineering Contractors Association as Amici Curiae on behalf of Plaintiff and Respondent.

John H. Findley, Sacramento, for Pacific Legal Foundation and Kellogg Construction as Amici Curiae on behalf of Plaintiff and Respondent.

BROWN, J.

We consider in this case whether the lowest responsible bidder that is wrongfully denied a public contract has a cause of action for monetary damages against the public entity, and if so, whether those damages include bid preparation costs and lost profits. We conclude bid preparation costs but not lost profits are available under a theory of promissory estoppel. We therefore reverse the judgment of the Court of Appeal.

I. FACTUAL AND PROCEDURAL BACKGROUND

In April 1994, Los Angeles Metropolitan Transportation Authority (MTA) solicited bids to build the Red Line Hollywood/Highland station and tunnels. The lowest bid was from Tutor-Saliba-Perini (Tutor-Saliba), but plaintiff Kajima/Ray Wilson (Kajima) successfully protested Tutor-Saliba's receiving the award because Tutor-Saliba had not attained MTA's goal regarding use of Disadvantaged Business Enterprises (DBE). Ultimately, none of the submitted bids were deemed responsive, and MTA exercised its right to reject all bids. (Pub.Util.Code, § 130232, subd. (a) ["The commission, at its discretion, may reject any and all bids and readvertise."].) Tutor-Saliba filed suit challenging this action.

In November 1994, MTA solicited new bids for the same public project. This solicitation set a minimum DBE goal of 30 percent of the total amount bid. The three lowest bids came from Kajima at $68,912,089, Tutor-Saliba at $69,887,867 and Kiewit-Shea at $72,970,345. The contract was awarded to Tutor-Saliba despite the fact that its bid was almost $1 million more than Kajima's. (See Pub. Util.Code, § 130232, subd. (a) [contracts in excess of $25,000 required to be awarded to the "lowest responsible bidder"].) Kajima again protested. Tutor-Saliba's suit against MTA with regard to the April 1994 solicitation was subsequently dismissed.

MTA justified its selection on the ground that Tutor-Saliba, but not Kajima, satisfied the DBE participation goal. Kajima fell below the goal because it identified Manual Tejeda Trucking (Tejeda) as a "broker" in its bid, while Tutor-Saliba identified Tejeda as a "subcontractor." Unknown to Kajima, MTA had an unwritten policy granting only a 5 percent DBE credit of bid amounts designated for entities identified as "brokers," while awarding 100 percent credit of bid amounts for those identified as "subcontractors." Had Kajima received the same percentage credit for the work to be performed by Tejeda as did Tutor-Saliba, Kajima's DBE credit would have exceeded the 30 percent goal.

Kajima filed suit against MTA, seeking an injunction, issuance of a writ of mandate or prohibition, and damages. Kajima sought $93,411 for its round 1 bid and protest expenses, $134,092 for its round 2 bid and protest expenses, $1,298,589 in unabsorbed overhead expenses, and $1,544,034 in lost profit on the MTA contract, The total damages sought were $3,070,126, plus prejudgment interest.

Following a bench trial, the court issued a peremptory writ of mandate, ordering MTA to cease using its 5 percent broker policy in connection with DBE credits "instead of evaluating the amount of work proposed to be subcontracted to the `broker.' " In addition, the court awarded Kajima $44,869 in round 2 bid expenses, $89,223 in round 2 bid protest expenses, $300,000 in unabsorbed overhead, $350,000 in lost profits, and $139,829.74 in prejudgment interest. The total judgment entered was $923,921.74.

The Court of Appeal affirmed. It first concluded MTA's application of the 5 percent policy to Kajima's bid was arbitrary, violated federal regulations, and was an abuse of discretion. MTA does not challenge this ruling here. It further held that the trial court acted within its discretion in awarding lost profits under a promissory estoppel theory. It stated, "We see no reason to draw a bright line in public works cases to preclude recovery of any specific type of damages under all circumstances, including lost profits.... Instead, because of the equitable nature of the [promissory estoppel] remedy, each case should be addressed on its merits to determine if the trial court has abused its discretion." Finally, the court concluded MTA had waived the issue of overhead costs on appeal. MTA's petition for rehearing was denied.

We granted MTA's petition for review to determine whether the lowest responsible bidder who is wrongfully denied a public contract has a cause of action for monetary damages against the public entity, and if so, whether those damages include lost profits. We consider only whether Kajima was properly awarded its bid preparation costs and lost profits. While the trial court also awarded Kajima its round two bid protest costs and overhead costs, MTA has waived review of those issues.

II. DISCUSSION

A. Background

In California, under the doctrine of promissory estoppel, "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. The remedy granted for breach may be limited as justice requires." (Rest.2d Contracts, § 90, subd. (1), p. 242; see C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 6, 151 Cal.Rptr. 323, 587 P.2d 1136 [§ 90 "has been judicially adopted in California"].) Promissory estoppel is "a doctrine which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced." (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 672, 111 Cal.Rptr. 693, 517 P.2d 1157.)

In Drennan v. Star Paving Co. (1958) 51 Cal.2d 409, 412, 333 P.2d 757, a subcontractor withdrew its bid prior to acceptance by the general contractor, but after the general contractor had used the bid in his master bid for the job, and was awarded the public contract. We concluded there was no contract between the general contractor and subcontractor, but nonetheless held the subcontractor's bid enforceable under a theory of promissory estoppel because of the general contractor's reasonable and detrimental reliance. (Id. at pp. 413-415, 333 P.2d 757.) We noted that the subcontractor "had reason to expect that if its bid proved the lowest it would be used by [the general contractor]. It induced `action ... of a definite and substantial character on the part of the promisee'" (id. at p. 413, 333 P.2d 757) because the general contractor was now bound to perform that portion of the job for the amount stated in the subcontractor's bid. (Id. at p. 415, 333 P.2d 757.) We concluded "it is only fair that plaintiff should have at least an opportunity to accept defendant's bid after the general contract has been awarded to him." (Ibid.)

In City of Inglewood-Los Angeles County Civic Center Authority v. Superior Court (1972) 7 Cal.3d 861, 863-865, 103 Cal.Rptr. 689, 500 P.2d 601 (City of Inglewood), Argo Construction Company, Inc. (Argo) instituted a mandate proceeding to have a management contract awarded to Swinerton & Walberg Company (Swinerton) set aside. Argo contended it was the lowest responsible bidder and was improperly denied the contract. (Id, at pp. 864, 867, 103 Cal.Rptr. 689,500 P.2d 601.) We agreed, and remanded the case to the trial court. (Id. at pp. 870, 871, 103 Cal.Rptr. 689,500 P.2d 601.)

In the subsequent appeal, the court first concluded the misaward by a public entity of a public works contract to one other than the lowest responsible bidder did not give the lowest bidder a cause of action in tort. (Swinerton & Walberg Co. v. City of Inglewood-L.A. County Civic Center Authority (1974) 40 Cal.App.3d 98, 101, 103, 114 Cal.Rptr. 834 (Swinerton).) The court further concluded, however, that Swinerton could recover damages under a theory of promissory estoppel. (Swinerton, supra, 40 Cal.App.3d at pp. 103-104, 114 Cal.Rptr. 834.) In particular, the court reasoned that "the Authority promised in its solicitation of bids to award the contract to the lowest responsible bidder and Argo's reasonable and detrimental reliance upon this promise" stated a cause of action for promissory estoppel "`if injustice can be avoided only by enforcement of the promise.'" (Id. at p. 104, 114 Cal. Rptr. 834, quoting Rest.2d Contracts, § 90.) The court rejected the civic center authority's argument that Argo could not state a cause of action for promissory estoppel because "the competitive bidding requirements on contracts for public works exist to protect the public rather than the bidders," and because the civic center authority had the right...