MIDEAST SYSTEMS AND CHINA CIVIL CONSTRUCTION SAIPAN JOINT VENTURE v. TURNER INTERN.(MICRONESIA), 85 Civ. 2422 (SWK).

Decision Date22 May 1987
Docket NumberNo. 85 Civ. 2422 (SWK).,85 Civ. 2422 (SWK).
Citation660 F. Supp. 864
PartiesMIDEAST SYSTEMS AND CHINA CIVIL CONSTRUCTION SAIPAN JOINT VENTURE, INC., Plaintiff, v. TURNER INTERNATIONAL (MICRONESIA) INC., Defendant.
CourtU.S. District Court — Southern District of New York

Cichanowicz, Callan, Carcich & Keane, New York City by Victor S. Cichanowicz, Lawrence V. Cichanowicz, for plaintiff.

Seyfarth, Shaw, Fairweather & Geraldson, New York City by Terri L. Combs, Robert J. Feinstein, Alice Baron, Michael Hirschfeld, for defendant.

MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

This action was commenced in New York State Supreme Court and was removed to this Court pursuant to 28 U.S.C. § 1441 on grounds of diversity jurisdiction under 28 U.S.C. § 1332(a). Plaintiff alleges interference with contract, negligence in conducting the bidding process, interference with business relations and fraudulent inducement to bid concerning certain construction contracts funded by a grant from the United States.

This action is presently before the Court on defendant's motions (1) to dismiss the third cause of action, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the ground that it fails to state a claim upon which relief can be granted, and (2) for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, dismissing the first, second and fourth causes of action. For the reasons set forth below, defendant's motions are granted in part and denied in part.

FACTS

Plaintiff Mideast Systems and China Civil Construction Saipan Joint Venture ("Mideast") contests the rejection of its bids for construction contracts to build a hospital and health care facility (the "Project") on the Island of Saipan in the Commonwealth of the Northern Mariana Islands (the "Commonwealth"). Defendant Turner International (Micronesia) Inc. ("Turner") acted as construction manager of the Project pursuant to an agreement with the Commonwealth and acted as the Commonwealth's agent in administering the bidding procedures for the contracts for the Project. The bidding for the Project, which was funded by a grant from the United States to the Commonwealth, was subject to oversight by officials of the United States Department of the Interior (the "DOI").

The Commonwealth's plans and specifications for construction of the Project were divided into "bid packages". Turner solicited and reviewed the bids for the first bid package, the Commonwealth's plans and specifications for site preparation and excavation work on the Project ("Phase I"), and recommended to the Commonwealth that Mideast was the lowest "responsible and responsive" bidder. The Commonwealth then awarded the Phase I contract to Mideast. The contract specified that both time and cost containment were of the essence.

Mideast began to have problems almost immediately after it began work. The parties to the contract disagree sharply about the source of the difficulties. Mideast claims that its work was delayed because of bad weather, unreliable suppliers, and vague specifications, while Turner claims that Mideast failed to keep its equipment in working order and was guilty of poor onsite management. Regardless of the cause, however, completion of Phase I was delayed by five months, and Mideast demanded more than twice the original contract price because of cost overruns.

The remaining bid packages for Phase II of the Project, which was the actual construction of the hospital and health care facility, were then advertised for bid. The invitation to bid expressly reserved the Commonwealth and Turner's right to reject all bids. Mideast was the apparent low bidder for both the individual bid packages and on combination options of those packages. Indeed, Mideast's bid for a combination of all of the bid packages was more than $5 million less than the next lowest bid of almost $15 million.

Mideast then sought to revise its bid upwards by approximately $2.5 million to correct for items it erroneously omitted in preparing its bid. This request was refused but Turner offered to allow Mideast to withdraw its bid to prevent possible forfeiture of its bid bond. Several days later, Mideast next submitted a letter to Turner in which it offered either to perform the work on Phase II for a revised price of just over $12 million, or to contract at its original bid price, provided that Turner would guarantee approximately $2.5 million in change orders during the life of the contract. Finally, Mideast provided that it would perform the contract at its original bid price with subsidization from the Peoples Republic of China.

Because Mideast's bid contained serious and material errors, and because of Mideast's improper attempts to negotiate its bid, Turner determined that Mideast's bid was non-responsive and non-responsible and recommended to the Commonwealth that Mideast's bid be rejected. Because there appeared to be a number of errors in many of the remaining bids, the Commonwealth rejected all the bids and rebid the Phase II bid packages.

Turner issued a second invitation for bids. Mideast again was the apparent low bidder. After interviewing Mideast, Turner preliminarily recommended that Mideast not receive any award on the ground that it was not responsible. The Commonwealth authorized Turner to interview the next lowest bidders. Following these interviews, Turner recommended, and the Commonwealth agreed, that Mideast be denied the Phase II contracts on the ground of non-responsibility. The Commonwealth then divided the Phase II contracts among three other companies.

Mideast requested a meeting to discuss the reasons for the bid rejection. Although a debriefing was scheduled, it never occurred because Mideast filed suit in the U.S. District Court for the Southern District of New York against the Secretary of the Interior, the Governor and Lieutenant Governor of the Commonwealth, and Turner. Mideast Systems & China Civil Construction Saipan Joint Venture, Inc. v. Clark, No. 84 Civ. 1875 (S.D.N.Y.1984). Mideast sought both declaratory and injunctive relief restraining the award of the Phase II contracts to any bidder other than Mideast. After the court denied Mideast's request for a temporary restraining order but before the court ruled on Mideast's application for a preliminary injunction, Mideast voluntarily dismissed the action.

Ten days later, Mideast commenced an action against the Secretary of the Interior in the United States District Court for the District of Columbia. The core of Mideast's allegations was that DOI had released the grant money to the Commonwealth without making sure that the grantee had complied with the terms of the relevant Office of Management and Budget circular. The complaint stated that the contract awards had been irreparably marred by both potential and actual conflicts of interest among the decisionmakers, in violation of the OMB circular. Mideast asked the court to find that it should have been awarded the Phase II contracts as the lowest responsive bidder and to enjoin DOI from issuing funds in a way that would interfere with this award.

The court determined that, based on the evidence of poor Phase I performance, the Commonwealth reasonably had concluded that Mideast was not a responsible bidder, that therefore Mideast could not show that it would have received the contract but for DOI's alleged behavior, and that as a result Mideast's claims failed as a matter of law. Mideast Systems and China Civil Construction Saipan Joint Venture v. Clark, No. 84-1382 (D.D.C. Oct. 23, 1984), vacated and remanded, 792 F.2d 1172 (D.C.Cir. 1986).

On appeal, however, the United States Court of Appeals for the District of Columbia Circuit concluded that:

Mideast has earnestly argued that it was unfairly deprived of valuable construction contracts; unfortunately, it blames the wrong actor for its troubles. On the record before us, appellant has not shown a causal nexus between its injury and DOI's conduct. The case is therefore remanded to the district court with orders to dismiss on the ground that Mideast does not have standing.

Mideast Systems and China Civil Construction Saipan Joint Venture, Inc. v. Hodel, 792 F.2d 1172, 1178 (D.C.Cir.1986).

Mideast filed this action against Turner subsequent to the District of Columbia district court's rejection of Mideast's claims in that forum. Mideast's first cause of action alleges that Turner interfered with its Phase I contract by hindering and delaying its performance on Phase I. Mideast's second cause of action alleges negligence in Turner's conduct of the bidding process. Mideast's third cause of action alleges that Turner tortiously interfered with its business relationship. In its fourth and final cause of action, Mideast claims that Turner fraudulently conducted the Phase II bidding process in that Turner had no intention of awarding the contracts to the lowest bidder but instead intended to and did award the contracts to parties already predetermined by Turner prior to the solicitation of bids.

DISCUSSION

Turner moves for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, dismissing the first cause of action on the ground that the Mideast contract contained a "no-damages-for-delay" clause which bars the assertion of this claim and dismissing the second and fourth causes of action on the ground that these claims are barred by both res judicata and collateral estoppel as a result of the District of Columbia's district court's determination in Mideast Systems and China Civil Construction Saipan Joint Venture v. Clark, No. 84-1382 (D.D.C. Oct. 23, 1984), vacated and remanded, 792 F.2d 1172 (D.C.Cir.1986). Turner also moves to dismiss Mideast's third cause of action, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the ground that it fails to state a claim upon which relief can be granted.

I. The Motion for Summary Judgment

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