Morningstar Water Users Ass'n, Inc. v. Farmington Mun. School Dist. No. 5

• Decision Date: 25 July 1995
• Docket Number: No. 21351,21351
• Citation: 120 N.M. 307,1995 NMSC 52,901 P.2d 725
• Parties: , 103 Ed. Law Rep. 443 MORNINGSTAR WATER USERS ASSOCIATION, INC., a New Mexico corporation, Plaintiff-Appellant, v. FARMINGTON MUNICIPAL SCHOOL DISTRICT NO. 5 and City of Farmington, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 725

901 P.2d 725

120 N.M. 307, 103 Ed. Law Rep. 443

MORNINGSTAR WATER USERS ASSOCIATION, INC., a New Mexico corporation, Plaintiff-Appellant, v. FARMINGTON MUNICIPAL SCHOOL DISTRICT NO. 5 and City of Farmington, Defendants-Appellees.

No. 21351.

Supreme Court of New Mexico.

July 25, 1995.

[120 N.M. 308] Arthur A. Greenfield, Albuquerque, F. Douglas Moeller, Farmington, for appellant.

Jay B. Burnham, City Attorney, Farmington, for appellee City of Farmington.

Tansey, Rosebrough, Gerding & Strother, P.C., Douglas A. Echols, Farmington, for appellee Farmington Mun. School Dist.

OPINION

FROST, Justice.

Farmington Municipal School District No. 5 (School District) entered contracts with the City of Farmington for the provision of water services. Morningstar Water Users Association, Inc. appeals from the district court's refusal to enjoin these contracts. Morningstar argues that the contracts for the water services should have been submitted for competitive bid under the provisions of the New Mexico Procurement Code, NMSA1978, §§ 13-1-28 to -199 (Repl.Pamp.1992). ¹ We find no violation of the Code and affirm the trial court.

I. Facts.

Farmington is located in the northwestern corner of New Mexico. It owns a water utility that services residents and businesses within its municipal boundaries. Morningstar supplies water for domestic and commercial use to over 500 members, all located outside the boundaries of Farmington. It was incorporated as a Water Users' Association in 1979 under NMSA1978, §§ 73-5-1 to -9 (Orig.Pamp. & Cum.Supp.1994). The School District was established under a New Mexico law that requires "[e]very public school in the state [to] be located within the geographical boundaries of a school district." NMSA1978, § 22-4-1 (Repl.Pamp.1993). In 1993 the School District began building a new junior high school on a 30 acre parcel located outside of but adjacent to the Farmington city limits. The School District solicited water services for the new junior high school. This case arose out of competition between Farmington and Morningstar for the right to sell water to the School District. Two contracts are at issue in this dispute, one for permanent and one for temporary water services.

In January 1993 the School District began to negotiate with Morningstar for the permanent water system. The new junior high school was to be built within Morningstar's service area. By March 1993 a proposal was drafted. The proposal included the construction of the necessary water facilities by Morningstar at a cost of $150,000, and specified such matters as acquisition of easements, water quality and pressure, billing, and metering. The proposal was never accepted by the School District.

In March or April 1993 the School District went on to negotiate with Farmington for the permanent water services. The resulting "agreement in principle" required the School District to pay $525,000 toward the anticipated cost of $700,000 for the new water facilities. The agreement also stated that Farmington would provide sewer services and roadway maintenance. Furthermore, the school site would be annexed to Farmington.

Morningstar's existing facilities were only a few hundred feet from and at a higher elevation than the school so that gravity flow alone would be sufficient to convey water to the site. Farmington's existing water facilities were located over 4000 feet from the school site and at a lower elevation. To serve the School District, Farmington needed to construct, in addition to water lines, a water storage tank, and pumping facilities. The School District explained its preference for Farmington, noting its concern that Morningstar seemed to lack satisfactory insurance, that it might not be financially stable, and that the current Morningstar plant might not meet certain federal water quality standards. The School District also feared that, if it did not enter a contract with Farmington, it would be precluded from receiving various benefits of annexation to the city such as roadway maintenance, fire and police services, and credit for the sewer line.

On April 22, 1993, the School Board of the School District approved "in principle" the agreement negotiated with Farmington. The finality of the agreement was contingent upon Farmington and Morningstar reaching a mutual definition of the boundaries of their respective water systems. A few weeks later, at another School Board meeting on May 13, a revised version of the agreement was approved with the same stipulations. At that time, Morningstar urged that the contract for the permanent water system be submitted for competitive bid according to the New Mexico Procurement Code.

The record is unclear on the sequence of events, but it seems that in late April or early May the School District decided to negotiate on short notice a temporary water service contract. The imminent landscaping of the school grounds would need an immediate water supply. On May 13, 1993, Morningstar met with two School District officials to discuss tentative terms for the construction of this temporary water supply. Morningstar alleges that the officials agreed to submit the proposed terms to the School Board at its meeting that same night. Apparently no action was taken at that meeting on Morningstar's proposal for temporary services.

The School District, on May 17, 1993, issued a "Request for Emergency Quotation for Temporary Water Supply for Mesa View Junior High School." Morningstar bid $82,105 and Farmington bid $48,000. On May 21, the School Board awarded the contract to Farmington. The temporary facility would be built within Morningstar's service area. Morningstar protested this award and complained that the competitive bidding requirements of the Procurement Code should have been, and were not, strictly followed. Morningstar argued that, while the Code included provisions for emergency purchases, the need for the temporary system did not fall within those provisions.

Morningstar filed a complaint in district court on May 24, requesting the court to declare null and void School District's contracts and agreements with Farmington for both the temporary and permanent water systems. Morningstar characterized Farmington's conduct as a "plan to destroy Morningstar," and also requested compensatory and punitive damages. The court dismissed Morningstar's complaints, concluding that there were no violations of the Procurement Code and that Morningstar was not entitled to relief.

On appeal, Morningstar argues that both the temporary and permanent water contracts should have been submitted for competitive sealed bids as required by Procurement Code. We decline to adopt the statutory interpretations suggested by Morningstar and affirm the trial court.

II. The permanent contract falls within the statutory exemptions to the Procurement Code.

A. Statutes in question.

The Procurement Code regulates all purchases by public entities in New Mexico. The Code governs all nonfederal expenditures "by state agencies and local public bodies for the procurement of items of tangible personal property, services and construction." Section 13-1-30. "The purposes of the Procurement Code are to provide for the fair and equitable treatment of all persons involved in public procurement, to maximize the purchasing value of public funds and to provide safeguards for maintaining a procurement system of quality and integrity." Section 13-1-29(C); see Planning & Design Solutions v. City of Santa Fe, 118 N.M. 707, 710, 885 P.2d 628, 631 (1994) (discussing policy behind Procurement Code). At issue in this case is the requirement that, within certain limitations, all procurements by government entities "shall be achieved by competitive sealed bid." Section 13-1-102.

There are several exemptions in the Procurement Code, pointing to situations in which purchases by a public entity do not require competitive bidding. The first issues we address center on two of these exemptions found at Section 13-1-98: One exemption states that "[t]he provisions of the Procurement Code shall not apply to ... purchases of publicly provided or publicly regulated ² ... water." Section 13-1-98(D). The other exemption states that the Procurement Code is inapplicable to the "procurement of items of tangible personal property or services by ... a local public body from ... a local public body." Section 13-1-98(A). There is no dispute that both Farmington and the School District are "local public bodies," defined by the Procurement Code as "every political subdivision of the state and the agencies, instrumentalities and institutions thereof." Section 13-1-67. Reading the provisions and exemptions together, the Procurement Code applies only when a private entity is selling goods or services to a public entity. The exemptions in Section 13-1-98 apply when the seller is a governmental rather than private entity.

Farmington and the School District assert that the water services contract falls within both the Section 13-1-98 exemptions to the Procurement Code, and that there was no need to put the matter up for competitive bid. Morningstar alleges that there are no exemptions in the Code that render the water contract immune from the competitive bidding requirement.

B. The governmental-proprietary dichotomy defined.

Morningstar argues that, when selling water to the School District, Farmington was not acting as a governmental entity but rather as a proprietary entity and that this distinction is significant when interpreting the Procurement Code. Morningstar defines the governmental-proprietary distinction only in the most cursory terms, and we note that past attempts at definition are less than satisfactory.

The term "proprietary" is assigned to municipal activities that are businesslike, while the term "governmental" is applied to the activities of governing that are not commerce related. Osborne M. Reynolds, Jr., Handbook of Local...