Lee Const. Co. v. Fed. Reserve Bank of Richmond

• Decision Date: 06 August 1982
• Docket Number: Civ. No. K-81-3090.
• Citation: 558 F. Supp. 165
• Parties: LEE CONSTRUCTION CO., INC., etc. v. FEDERAL RESERVE BANK OF RICHMOND and Provident Savings Bank of Baltimore.
• Court: U.S. District Court — District of Maryland

558 F. Supp. 165

LEE CONSTRUCTION CO., INC., etc. v. FEDERAL RESERVE BANK OF RICHMOND and Provident Savings Bank of Baltimore.

Civ. No. K-81-3090.

United States District Court, D. Maryland.

August 6, 1982.

Gerald S. Klein and Patricia A. Aluisi, Baltimore, Md., for plaintiff.

Edmund S. Dandridge, Jr., Charles M. Kerr, John H. Morris, Jr., and Venable, Baetjer & Howard, Baltimore, Md., for defendant Federal Reserve Bank of Richmond.

H. Thomas Howell, Thomas Waxter, Jr., Susan M. Ringler, and Semmes, Bowen & Semmes, Baltimore, Md., for defendant Provident Sav. Bank of Baltimore.

FRANK A. KAUFMAN, Chief Judge.

In this case plaintiff Lee Construction Co. (Lee), a Maryland corporation with its principal place of business in Baltimore, Maryland, challenges the bidding procedures employed by the defendant Federal Reserve Bank of Richmond (Bank), a United States corporation with its principal office in Richmond, Virginia, and a branch office in Baltimore, in connection with the sale of certain real property located in Baltimore and seeks equitable relief and damages. The Bank's instructions to bidders made it plain that no bids subject to financing contingencies would be acceptable. Lee alleges that it submitted the highest bid for the property, but that, after negotiation, the Bank ultimately rejected Lee's bid as nonqualifying because the bid was subject to mortgage financing. After rejecting Lee's nonqualifying bid, the Bank accepted the substantially lower bid of defendant Provident Savings Bank of Baltimore (Provident), a federally-chartered bank with its principal place of business in Baltimore.

In its Amended Complaint, Lee claims a right to seek review pursuant to the Administrative Procedure Act (APA), 5 U.S.C. § 702, of the Bank's actions in connection with the solicitation and consideration of the bids in question. Additionally, Lee seemingly claims that the Bank breached a duty purportedly imposed by § 4 of the Federal Reserve Act of 1913 (Act),¹ 12 U.S.C. § 341, "to act in a prudent and responsible manner in the conduct of its business affairs."

Both the Bank and Provident have moved, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted on the grounds (1) that Lee lacks standing to seek judicial review of the Bank's actions under the APA and (2) that Lee otherwise fails to state a claim upon which relief can be granted.

ALLEGATIONS OF FACT

For the purposes of considering defendants' motions to dismiss, the allegations of Lee's Amended Complaint are accepted as true and construed herein in the light most favorable to Lee.

During early 1981 the Bank gave public notice that it would sell, by way of public bid, the building and real property owned by the Bank located at the northwest corner of Calvert and Lexington Streets in Baltimore. Bid documents were made available to the public.

The Invitation to Bid and accompanying documents set forth the conditions with which each bidder was required to comply in order to have its bid considered by the Bank. Paragraph 7 of the Invitation to Bid stated: "The Bank reserves the right to reject any and all bids received and undertakes no obligations to sell by reason of this offering or any response to it."

Accompanying the Invitation to Bid were the Instructions to Bidders (bid instructions). Paragraph 1.4 of the bid instructions defined a "bidder" as, inter alia, "any corporation ... submitting a bid." Paragraph 1.3 defined a "bid" as "a complete and properly executed Bid Form to purchase the Property made in accordance with the Bid Documents and accompanied by the deposit required by Paragraph 3.3." The "Bid Documents" were defined in paragraph 1.2 as, inter alia, "the Invitation to Bid, the Instructions to Bidders, the Bid Form, and the Contract between the Bank and the successful bidder." Paragraph 3.3 of the bid instructions provided that each bid had to be accompanied by a certified check in the amount of $25,000. Paragraph 4.2 stated:

The Bank shall have the right to reject any and all bids, to accept a bid from other than the highest bidder, to negotiate with any bidder on the terms of his bid, or to take any other action with respect to any bid which it in its sole discretion may deem proper under the circumstances.

The Bid Form required to be submitted by all bidders and the Bid Form actually executed by Lee provided that each bidder specifically agreed that the Bank had the rights set forth in said paragraph 4.2. Further, paragraph 4.3 provided that "the Bank shall have the right to waive any formality or irregularity in any bid received."

The bid instructions further provided in paragraph 5.1 for the form of contract of sale to be executed between the Bank and the successful bidder and paragraph 5.2 provided that no substitute contract forms would be permitted or accepted. As Lee admits in paragraph 9 of its Amended Complaint, the form of contract of sale required by the Bank "allowed no financing contingencies."

Finally, paragraph 11.2 of the bid instructions provided: "The Bank shall not be liable for any costs or expenses incurred by bidders in the preparation and/or submission of bids."

On February 16, 1981, Lee submitted a bid for $4.3 million which materially failed to comply with the bid instructions in two respects: (1) the bid was expressly made "contingent upon Lee's ability to obtain a mortgage in the amount of $3,870,000.00 at an interest rate of twelve (12%) percent for a term of 28 years 7 months" and (2) the bid was not accompanied by a certified check in the amount of $25,000 (although the bid was accompanied by an uncertified check in that amount). After the submission of Lee's bid, the Bank also learned from the Department of Assessments and Taxation of the State of Maryland that Lee's charter had been annulled on February 8, 1980.

Despite these deficiencies, the Bank entertained Lee's bid and in a letter dated February 27, 1981, the Bank set forth three conditions which Lee would have to meet and the dates by which Lee must comply before the Bank would consider Lee's bid: (1) Lee's corporate status would have to be clarified by March 6, 1981; (2) the certified check in the amount of $25,000 required by the bid instructions would have to be provided to the Bank by March 6, 1981; and (3) Lee would have to provide, by March 27, 1981, the Bank with a written commitment for the mortgage financing upon which Lee's bid was contingent.

After receipt of the Bank's February 27, 1981 letter, the President of Lee met on March 9, 1981, with certain representatives of the Bank to discuss the conditions set forth in the Bank's said February 27, 1981 letter. The President of Lee apparently requested an extension of time to procure the written financing commitment required by the Bank. By letter dated March 16, 1981, the Bank indicated that Lee would have to submit the written commitment by March 27, 1981, as originally stated in the Bank's February 27, 1981 letter, in order for Lee's bid to be entertained by the Bank.

By letter dated March 17, 1981, Lee informed the Bank that Lee had complied with the first two conditions stated in the Bank's February 27, 1981 letter, i.e., (1) Articles of Revival had been approved by the State Department of Assessments and Taxation and (2) Lee submitted to the Bank a certified check in the amount of $25,000. Further, in that same March 17, 1981 letter, Lee again asked for an extension of time in which to secure the written financing commitment. In a letter dated April 2, 1981, however, the Bank reaffirmed the position stated in its March 16, 1981 letter that an extension of time beyond March 27, 1981 could not be granted. Accordingly, since Lee had not submitted by March 27, 1981 a written commitment for the mortgage financing upon which Lee's bid was contingent, the Bank informed Lee that "we must consider your offer a nonqualifying bid and we cannot accept it." Thereafter, the Bank accepted Provident's bid of $2.8 million — a bid substantially lower than Lee's conditional bid of $4.3 million.

Herein, Lee contends that the actions of the Bank were arbitrary, capricious and contrary to government procurement regulations and that the award of the bid to Provident was without any rational basis. Lee further claims that the Bank breached a duty imposed by its enabling legislation, 12 U.S.C. § 341, and owed to a bidder such as Lee and to the public to act "in a reasonable and prudent manner in the conduct of the bidding process." In that regard Lee asserts that because the terms and conditions of the bid instructions imposed requirements on or restricted the form of bids, the Bank's actions "raised economic inhibitions to prospective bidders" and either deterred such bidders from bidding at all or reduced the amount such bidders were able to offer for the property. Lee alleges that had the Bank made it generally known to all prospective bidders that it would entertain bids such as Lee's which were subject to financing contingencies and unaccompanied by the required certified check, actual bidders might have offered more for the property and prospective bidders might have made bids that otherwise would not have been made. By allegedly so inhibiting the bidding process, the Bank "invalidated the process and conducted its affairs in an unbusinesslike and imprudent manner in violation of the statutory mandate of 12 U.S.C. § 341."

Lee seeks declaratory relief, an injunction prohibiting the transfer of the property from the Bank to Provident, damages of $10 million and an order compelling the Bank to resolicit bids for the property.

On the merits, for reasons set forth infra, Lee clearly may not prevail. But the merit issues may not be reached until this Court, a federal district court with limited jurisdiction, examines first the existence, vel non, of subject-matter jurisdiction, see Owen Equipment &...