Oakland-Alameda County Builders' Exchange v. F. P. Lathrop Constr. Co., OAKLAND-ALAMEDA

• Citation: 93 Cal.Rptr. 602,4 Cal.3d 354,482 P.2d 226
• Decision Date: 23 March 1971
• Docket Number: OAKLAND-ALAMEDA,S.F. 22763
• Court: United States State Supreme Court (California)
• Parties: , 482 P.2d 226, 1971 Trade Cases P 73,524 COUNTY BUILDERS' EXCHANGE et al., Plaintiffs and Appellants, v. F. P. LATHROP CONSTRUCTION COMPANY, Defendant and Respondent.

Page 602

93 Cal.Rptr. 602

4 Cal.3d 354, 482 P.2d 226, 1971 Trade Cases P 73,524

OAKLAND-ALAMEDA COUNTY BUILDERS' EXCHANGE et al., Plaintiffs and Appellants, v. F. P. LATHROP CONSTRUCTION COMPANY, Defendant and Respondent.

S.F. 22763.

Supreme Court of California,

In Bank.

March 23, 1971.

MacDonald, Brunsell & Walters and William Walters, Oakland, for plaintiffs and appellants.

Robert J. Foley, Foley, McIntosh & Foley, Foley, Saler & Doutt, Albany, William H. Orrick, Jr., and Orrick, Herrington, Rowley & Sutcliffe, San Francisco, for defendant and respondent.

Thomas C. Lynch and Evelle J. Younger, Attys. Gen., and Wallace Howland, Deputy Atty. Gen., as amici curiae on behalf of defendant and respondent.

MOSK, Justice.

Plaintiffs appeal from a judgment on the pleadings rendered in favor of defendant in their action for declaratory relief and damages for breach of the rules of a bid depository. We here determine whether certain of the rules of the bid depository constitute per se violations of the antitrust law of California.

Bid depositories are creations of the construction industry, generally established by construction trades subcontractors to control the process of submitting subbids to general contractors who are bidding on large construction jobs. The operation of a typical bid depository is succinctly described by a commentator as follows: 'A 'locked box' procedure is the most common method of depository operation. Subcontractors wishing to bid to one or more general contractors on a certain job submit bids in sealed envelopes to the depository. An envelope containing a bid addressed to each general contractor to whom the subcontractor wishes to bid is placed in the 'locked box,' and another envelope containing a copy of that bid is addressed to the depository itself and similarly deposited in the box or another secure receptacle. There will be a cut-off point, typically 4 hours or so before the prime bid opening time (I.e., the time by which all bids must be submitted to the owner or awarding authority), and after that cut-off point (or depository closing time) is reached, no more bids may be received, and none received may be amended or withdrawn.

'Promptly at the depository closing time, the locked box is opened, and the envelopes contained therein are dispensed to the general contractors to whom addressed. Each general contractor then prepares his own bid to the owner of awarding authority based upon the subbids received and his estimates of his own work costs.' (Orrick, Trade Associations Are Boycott-Prone--Bid Depositories As A Case Study (1968) 19 Hastings L.J. 505, 520.)

The 'locked box' operation is said to serve several salutary purposes. It permits orderly preparation of bids and estimates by providing a reasonable time for computations, and thereby reduces error. Also, it tends to prevent 'bid piracy' which occurs when one subcontractor is able to avoid the expense of preparing his own bid by using the bid submitted by another subcontractor as a starting vehicle. Most importantly, it inhibits practices known variously as 'bid shopping,' 'bid peddling,' and 'bid chiseling.' These pejorative expressions appear to be used interchangeably to describe (1) the practice of a general contractor who, before the award of the prime contract, discloses to interested subcontractors the current low subbids on certain subcontracts in an effort to obtain lower subbids, (2) the identical practice of a general contractor engaged in after he has been awarded the prime contract, and (3) the practice of a subcontractor who determines the currently low subbid on a subcontract and then submits a lower bid to the general contractor in return for assurance from the general that the sub will receive the subcontract if the general is the successful prime bidder. (Id. at pp. 520--521; Schueller, Bid Depositories (1960) 58 Mich.L.Rev. 497, 498 and fn. 6, 499--500.) ¹

Plaintiffs in the instant action are the Oakland-Alameda County Builders' Exchange, which operates a 'locked box' bid depository (Depository), and two subcontractors. Defendant is a general contractor. On March 1, 1966, defendant received bids from various subcontractors to be used by it in computing its prime bid for the construction of an auditorium at Chabot College. Most of the subbids received by defendant were submitted through the Depository. Defendant was awarded the construction contract, and it proceeded to award the various subcontracts on the basis of the bids received.

Plaintiff subcontractors had submitted their bids for the painting and floor covering work through the Depository, and their bids were the lowest placed through the Depository in their respective trade categories. Nevertheless, defendant did not accept the two bids because it had received lower painting and floor covering figures from two other subcontractors who had not submitted their offers through the Depository. As a consequence, defendant rejected the bids of plaintiff subcontractors and accepted the lower bids.

The Builders' Exchange and the two subcontractors brought suit against defendant, alleging that defendant had breached the rules of the Depository to which it had subscribed and that plaintiff subcontractors were entitled to damages. Defendant answered, admitted the rules of the Depository and its violation of them, but alleged that the rules were unenforceable because they constituted per se violations of the Cartwright Act, Business and Professions Code sections 16720, subdivisions (a) and (e)(4), and 16726. ² The trial court agreed with defendant's contention and granted judgment on the pleadings to defendant on that basis.

The specific rules of the Oakland-Alameda Bid Depository which defendant and the Attorney General of California, by amicus curiae brief, contend are in violation of Business and Professions Code sections 16720 and 16726 are the following:

Rule 4. 'All bids submitted through the Bid Depository shall be actually delivered to the Bid Custodian by mail, or in person, or otherwise, as follows * * *.' The rule then sets forth a chart which establishes the Depository closing time as four hours prior to the prime opening time, when the prime bid opening time is between 1 p.m. and 5 p.m. on a business day. When the prime bid opening time is between 9 a.m. and 12 noon, the Depository closing time is 4 p.m. on the working day immediately previous.

Rule 6a. 'Any subcontractor or supplier desiring to submit a bid to any person or persons through the Bid Depository shall submit to the Bid Depository a separate and sealed bid addressed to each general contractor to whom the subcontractor or supplier desires to bid and shall file with the Bid Custodian in a separate and sealed envelope addressed to the Bid Depository an identical copy of each such bid filed by him. B. Any general contractor who has received or solicited a bid direct from a subcontractor in a particular craft or supplier in a particular classification upon any project and who desires to use the facilities of the Bid Depository upon that project for receiving competitive bids in that craft or classification, shall submit to the Bid Depository such bid in a separate and sealed envelope addressed to the general contractor and shall file with the Bid Custodian in a separate and sealed envelope addressed to the Bid Depository an identical copy of each such bid filed by him * * *.'

Rule 7. 'Immediately upon receipt of any bid for a specified project it shall be deposited in a Bid Depository box in which sealed bids can be deposited but not removed when locked. The Bid Depository box for each project shall be locked upon deposit of the first bid deposited therein and shall be kept locked until the time for depositing bids upon that project as specified in Rule 4 hereof has expired.'

Rule 8a. 'Any bid deposited with the Bid Depository may be revoked by the person submitting the same at any time prior to the expiration of the time for depositing bids upon the project involved as specified in Rule 4 hereof. * * * B. Any bid delivered to a general contractor as in these Rules provided, shall be deemed an irrevocable offer to such contractor and may not be revoked thereafter without such general contractor's consent for a period of thirty (30) days from the date of delivery to the general contractor * * * unless, prior to general bid opening * * * (t)he subcontractor or supplier gives notice to all general contractors to whom he has bid of a substantial mistake * * *. D. In the event of bids submitted in combination, any segregated portion of the bid may be withdrawn as provided under Rule 8 without jeopardizing or invalidating other segregated portions of the bid. However, in addition to the segregated portion withdrawn, any combination containing the item withdrawn must likewise be withdrawn.'

Rule 9a. 'The sealed envelopes containing bids addressed to the general contractors shall be made available for delivery to the person or persons to whom addressed as soon as practicable after the expiration of the time for depositing bids upon the project involved as specified in Rule 4 hereof, provided, however, that the general contractor may refuse to accept any envelope containing the bid of a subcontractor with whom he does not desire to contract * * * or the general contractor may reject the bid of any subcontractor with whom he does not desire to contract * * * by immediately returning to the Bid Custodian, unopened, the envelope containing the bid of such subcontractor * * *. C. If a general contractor elects to receive delivery through the Bid Depository of one or more bids for a craft or classification, he shall be obligated, and he hereby agrees, that if he is the successful prime bidder and receives an award of the general contract, he will award the contract for this particular craft or classification to the lowest bidder whose bid he receives through the Bid...