R.L. Augustine Const. Co., Inc. v. Peoria Unified School Dist. No. 11

Decision Date22 April 1997
Docket NumberNo. CV-95-0299-PR,CV-95-0299-PR
Citation936 P.2d 554,188 Ariz. 368
Parties, 118 Ed. Law Rep. 493, 241 Ariz. Adv. Rep. 17 R.L. AUGUSTINE CONSTRUCTION COMPANY, INC., Plaintiff-Appellant. v. PEORIA UNIFIED SCHOOL DISTRICT NO. 11, a political subdivision of the State of Arizona and its Governing Board, Defendant-Appellee.
CourtArizona Supreme Court
OPINION

MARTONE, Justice.

We granted review to consider whether the dispute resolution provisions of the rules adopted by the State Board of Education prescribing school district procurement practices violate due process. We find that we need not reach that issue because the rules fail to comply with the enabling legislation.

I. Introduction

The Governing Board of the Peoria Unified School District No. 11, as owner, entered into an American Institute of Architects standard form of agreement with R.L. Augustine Construction Company, as contractor, to build an administration center in Glendale. A dispute arose over delays, and each party blamed the other. The Governing Board imposed liquidated damages on Augustine and denied its request for additional payment. Through counsel, the parties exchanged letters in an effort to settle the dispute, ultimately culminating in an agreement that those letters would satisfy the first tier of the contract claim mechanism under Arizona Administrative Code (A.A.C.) R7-2-1155-1159 of the Board of Education's procurement rules (submission of claim to the district representative). The parties then went to stage two, under which Augustine appealed to the Governing Board under A.A.C. R7-2-1158. The Governing Board, again acting through the same counsel, advised Augustine that it would appoint a hearing officer under A.A.C. R7-2-1181. At the hearing, Augustine made a record of its claim that there was no difference between the district representative, the hearing officer, and the Governing Board. Augustine argued that it was inherently unfair to have one of the parties to the contract act as both litigant and judge. Nevertheless, the hearing proceeded, and the hearing officer submitted his recommendation to the Governing Board under A.A.C. R7-2-1181(F). The decision of the Governing Board under A.A.C. R7-2-1181(G) followed, for the most part, the recommendation of the hearing officer.

Augustine then filed an action in the Superior Court of Arizona in Maricopa County seeking judicial review of an administrative decision under A.R.S. § 12-905 of the Administrative Review Act, and also seeking a declaration that the Board of Education's procurement rules were unconstitutional because one of the parties to the contract, the Governing Board, as owner, also acted as the final agency decision maker. On motion of the Governing Board, the superior court dismissed the complaint because Augustine failed to seek rehearing under A.A.C. R7-2-1182.

Augustine appealed to the court of appeals which held that the Board of Education's procurement rules were unconstitutional and that the Administrative Review Act did not apply to school districts. It thus reversed. R.L. Augustine Constr. Co., Inc. v. Peoria Unified Sch. Dist. No. 11, 183 Ariz. 393, 904 P.2d 462 (App.1995). The court of appeals agreed with Augustine's claim that the Board of Education's rules were unconstitutional because they permitted a party to the contract to resolve its own contractual dispute. The court of appeals also rejected the Governing Board's argument that any due process problems could be cured by judicial review in the superior court under the Administrative Review Act. It held that there was no right to review under the Act because the Governing Board, a political subdivision of the state, was expressly excluded under A.R.S. § 12-901(1) and § 12-902(A). Believing that an important issue of law had been decided with statewide implications, we granted the Governing Board's petition for review. Rule 23(c)(4), Ariz.R.Civ.App.P.

II. The Board's Rules for Administrative Review

Although we granted review on the constitutionality of the Board of Education's procurement rules, amici Arizona General Contractors Association, et al., suggested that the court need not reach the constitutional question to decide the case. We will not reach a constitutional question if a case can be fairly decided on nonconstitutional grounds. Petolicchio v. Santa Cruz County Fair, 177 Ariz. 256, 259, 866 P.2d 1342, 1345 (1994); see Knoell v. Cerkvenik-Anderson Travel, Inc., 185 Ariz. 546, 548, 917 P.2d 689, 691 (1996); see also Arizonans for Official English v. Arizona, --- U.S. ----, ----, 117 S.Ct. 1055, 1074, 137 L.Ed.2d 170 (1997); Ashwander v. TVA, 297 U.S. 288, 348, 56 S.Ct. 466, 483-84, 80 L.Ed. 688 (1936). We thus entered an order inviting the parties to file supplemental briefs on whether the Board's procurement rules are consistent with the State Procurement Code.

A.R.S. § 15-213(A) provides in relevant part that "[t]he state board of education shall adopt rules prescribing procurement practices for all school districts in this state ... consistent with the procurement practices prescribed in title 41, chapter 23 [A.R.S. § 41-2501 et seq.]." A.R.S. § 41-2611(A) requires administrative review of all contract claims under the Procurement Code "before the purchasing agency and through an appeal heard before the director in accordance with chapter 6 of this title [A.R.S. § 41-1001 et seq.]." Under A.R.S. § 41-2503(18), " 'Purchasing agency' means any state governmental unit which is authorized by this chapter or its implementing regulations, or by way of delegation from the director, to enter into contracts." Under A.R.S. § 41-2503(10), " 'Director' means the director of the department of administration." Under A.R.S. § 41-2611(B), the director may appoint a hearing officer to submit a recommendation but the ultimate decision is the director's to make.

Thus, under the Procurement Code, there is a two-tiered administrative process. The first is with the unit of government that procures the goods or services. 1 The second is with the director of the department of administration. The rules adopted by the director under A.R.S. § 41-2611(A) are consistent with this dual entity scheme. See A.A.C. R2-7-916-919.

In contrast, the rules adopted by the Board of Education, while structured as a two-tiered process in form, in substance provide a one-tier process in which the purchasing body constitutes both the first and second tier. Under A.A.C. R7-2-1155-1156, the Governing Board's district representative is the first administrative decision maker. Under A.A.C. R7-2-1155, 1158, and 1181, second-tier administrative review is by a hearing officer appointed by the Governing Board or by the Governing Board itself, with final decision making in the Governing Board. Thus, unlike the Procurement Code in which the purchasing agency and the director are separate entities, under the rules adopted by the Board of Education, the purchasing agency is both the first-tier reviewer and the second-tier final decision maker. In effect, as Augustine has argued here, the interested party is the adjudicator of contract obligations. A scheme that would have been consistent with the Procurement Code might have first-tier review by a school district representative, or the Governing Board of the school district, and...

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