Owen of Georgia, Inc. v. Shelby County

Decision Date17 June 1981
Docket NumberNos. 78-1013-1014,s. 78-1013-1014
Citation648 F.2d 1084
Parties29 Cont.Cas.Fed. (CCH) 81,750 OWEN OF GEORGIA, INC., Plaintiff-Appellee, Cross-Appellant, v. SHELBY COUNTY; Roy Nixon, Mayor of Shelby County; Pidgeon-Thomas Iron Company, Defendants-Appellants, Cross-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

Leo Bearman, Jr., Memphis, Tenn., James McDonnell, Jr., Memphis, Tenn., for defendants-appellants, cross appellees.

Frierson M. Graves, Jr., Heiskell, Donelson, Adams, Williams & Kirsch, Memphis, Tenn., for plaintiff-appellee, cross appellant.

Before KEITH and MARTIN, Circuit Judges, CELEBREZZE, Senior Circuit Judge.

CELEBREZZE, Senior Circuit Judge.

This diversity case deals with the ability of an unsuccessful bidder to challenge the decision by a municipality to award a public contract to another bidder. Owen of Georgia, Inc. submitted the low bid for the structural steel portion of a contract to build the Shelby County Criminal Justice Center for Shelby County, Tennessee. The contract was awarded to the second-lowest bidder for the steel package, Pidgeon-Thomas Iron Company. Owen then filed this lawsuit seeking to have the contract between Pidgeon-Thomas and Shelby County declared null and void; to require Shelby County to award the contract to Owen; or to have Shelby County compensate Owen for expenses and lost profits resulting from the award of the contract to Pidgeon-Thomas instead of Owen. The district court concluded that Owen lacked standing to seek mandamus, injunctive relief, or damages, but did have standing to seek declaratory relief. Interpreting the bidding procedure requirements of the Shelby County Restructure Act, the district court proceeded to issue a declaratory judgment holding the award of the contract to Pidgeon-Thomas invalid and void. We reverse the district court's decision that Owen lacks standing to sue, affirm the district court's issuance of declaratory relief, dismiss as moot the claims for mandamus and injunctive relief, and remand for a determination of damages.


The facts are virtually undisputed. In 1977, Shelby County, through its legislative branch, decided to construct a Shelby County Criminal Justice Center under the supervision of a construction manager who would supervise the erection of the complex. In due course, the county advertised for bids on the various components of the project which was budgeted at $38,000,000.00 and divided into about 90 "bid packages". Bid package 0500 dealt with structural and miscellaneous steel. Five companies submitted bids on bid package 0500 in March, 1977; Pidgeon-Thomas submitted the lowest bid and Owen, the third lowest bid.

All of the bids exceeded the budgeted amount. Roy Nixon, Mayor of Shelby County, instructed his architect to review Pidgeon-Thomas' bid with company officials in an effort to reduce the overall amount of the bid. The county's architect and engineer negotiated with Pidgeon-Thomas, changing the specifications to reduce the cost of the steel package. Even after such reductions, however, the Mayor concluded that Pidgeon-Thomas' bid was still too high, and, therefore, he rejected all bids on that package.

Shelby County then advertised for new bids with changed specifications, indicating that the negotiations with Pidgeon-Thomas would not put any other company at a competitive disadvantage. Bid package 0500 now included only structural steel, with the miscellaneous steel comprising a separate package. When the new bids were opened on May 11, 1977, Owen's bid of $2,585,000.00 was the lowest bid. Pidgeon-Thomas was the second lowest bidder at $2,625,625.00.

Shortly thereafter, Mayor Nixon instructed the county architect to award the 0500 contract to Pidgeon-Thomas even though Owen was the low bidder. Mayor Nixon purportedly rejected Owen's bid in favor of Pidgeon-Thomas for two reasons. First, Shelby County was committed to an affirmative action program which included participation by disadvantaged minorities in the construction of the Criminal Justice Center. This policy was expressed in general terms to all bidders, and all bidders were required to submit statistical reports to Shelby County regarding the status of minority employment in their businesses. 1 The reports filed by Owen and Pidgeon-Thomas reflected that Pidgeon-Thomas employed a higher proportion of minorities than did Owen. Second, it was allegedly the policy of Shelby County to encourage participation by local Shelby County firms in the construction of county projects. 2 Pidgeon-Thomas is a local Shelby County firm; Owen is a Georgia firm. For these two reasons the Mayor rejected Owen's bid and recommended to the County legislative body, the Quarterly Court, that Pidgeon-Thomas be awarded the contract for package 0500. Before this recommendation was forwarded to the Quarterly Court, however, Pidgeon-Thomas agreed to reduce its bid to a figure identical to Owen's bid. In addition, the specifications were changed to provide that the County would itself purchase the steel and make an adjustment for sales tax. 3

On May 16, 1977, Mayor Nixon submitted a resolution to the Quarterly Court recommending that the bid for structural steel be awarded to Pidgeon-Thomas. At that time the Quarterly Court was not advised that Owen was originally the low bidder, that Pidgeon-Thomas had reduced its bid to match Owen's low bid, or that Pidgeon-Thomas was chosen because it was a local concern with the better minority employment record. The Quarterly Court proceeded to approve the contracts for the construction of the Criminal Justice Center. Among those contracts approved was that of Pidgeon-Thomas.

When Owen learned of the contract award to Pidgeon-Thomas, it objected and through its attorney contacted Mayor Nixon to request reconsideration since Owen was the low bidder. As a result of Owen's objections, the issue was resubmitted to the Quarterly Court on June 23, 1977. Owen's attorney appeared and challenged the Mayor's rationale for preferring Pidgeon-Thomas. Nevertheless, a motion to substitute Owen for Pidgeon-Thomas on bid package 0500 was rejected by the Quarterly Court. The Mayor subsequently executed a contract with Pidgeon-Thomas for the structural steel package.

On the above facts, the district court found that Owen lacked standing to seek or obtain mandamus, injunctive relief or damages because there was no evidence of fraud or bad faith on the part of the defendants. The trial court then decided that Owen did have standing to seek a judgment declaring the contract void. The applicable section of the Shelby County Restructure Act provides:

All open market purchase orders or contracts shall be awarded to the lowest bidder who is financially responsible, taking into consideration the qualities of the articles to be supplied, their conformity to specifications, their suitability to the requirements of the County government, and the delivery terms. Any and all bids may be rejected for good cause.

The trial court proceeded to hold that the term "good cause", as set out in the second sentence of the Act, permits rejection of the low bid only in the circumstances delineated in the first sentence of the Act. Although the District Judge found no fraud or bad faith on the part of any of the defendants, and found no loss to the taxpayers of Shelby County, he held that the contract was awarded in violation of the competitive bidding procedures required under the Shelby County Restructure Act. He therefore held the contract award to Pidgeon-Thomas invalid. Owen now appeals the ruling that it lacks standing to seek or obtain preventive, specific or monetary relief. Defendants appeal the ruling that Shelby County's award of the steel package to Pidgeon-Thomas was not authorized by the Shelby County Restructure Act.


The district court, while recognizing a split of authority on the standing issue and the absence of any Tennessee decisions dealing with the issue raised in the present case, held that under the "unusual circumstances" of this case Owen lacked standing to challenge Shelby County's award of the contract to Pidgeon-Thomas. To reach this result, the court relied upon the broad discretion conferred upon elected officials by Tennessee law 4 and upon the absence of fraud, bad faith or surplus cost to the taxpayers. 5 Although a few courts have proffered the absence of bad faith by the solicitor as a rationale for denying an aggrieved bidder standing, see Standard Engineers and Constructors, Inc. v. United States EPA, 483 F.Supp. 1163, 1168 (D.Conn.1980); Menke v. Board of Education of West Burlington, 211 N.W.2d 601 (Iowa 1973), this factor is not dispositive of the question. Our role in this diversity action is to determine the ruling that we believe the highest Tennessee court would adopt.

The Tennessee courts have not directly addressed the issue of whether an unsuccessful bidder, such as Owen, has standing to challenge action of an awarding authority which is asserted to be in violation of a state or local statute. Several decisions, however, treat the issue of standing in related contexts. Particularly instructive is Knierim v. Leatherwood, 542 S.W.2d 806 (Tenn.1976), where the court held that a private citizen has standing to bring suits to protect public roads when that citizen has sustained special injury or damage. In Knierim the Tennessee Supreme Court overruled a case decided three-quarters of a century before which denied standing to private residents seeking to enforce the rights of the public in roads and bridges. The Knierim court rejected the older, narrow approach as being "in conflict with the rationale, reasoning and result of countless subsequent cases decided by our courts." Id. at 810. Only when the complaining party has no special pecuniary or proprietary interest in the public road will he or she lack standing.

The court noted that the...

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