Rochester City Lines, Co. v. City of Rochester, A13–1477.

• Citation: 868 N.W.2d 655
• Decision Date: 19 August 2015
• Docket Number: No. A13–1477.,A13–1477.
• Parties: ROCHESTER CITY LINES, CO., Appellant, v. CITY OF ROCHESTER et al., Respondents, First Transit, Inc., Respondent.
• Court: Supreme Court of Minnesota (US)

868 N.W.2d 655

ROCHESTER CITY LINES, CO., Appellant

v. CITY OF ROCHESTER et al., RespondentsFirst Transit, Inc., Respondent.

No. A13–1477.

Supreme Court of Minnesota.

Aug. 19, 2015.

Gary A. Van Cleve and Rob A. Stefonowicz, Larkin Hoffman Daly & Lindgren Ltd., Minneapolis, Minnesota, and Steven A. Diaz, Law Office of Steven A. Diaz, Washington, D.C., for appellant.

John M. Baker and Monte A. Mills, Greene Espel, P.L.L.P., Minneapolis, Minnesota, for respondents City of Rochester et al.

Charles K. Maier, Matthew G. Plowman, and Richard C. Landon, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, Minnesota, for respondent First Transit, Inc.

Richard P. Schweitzer and Craig M. Cibak, Richard P. Schweitzer, PLLC, Washington, D.C., and Adam S. Huhta, Huhta Law Firm, PLLC, Minneapolis, Minnesota, for amicus curiae American Bus Association.

Dean B. Thomson and Jeffrey A. Wieland, Fabyanske, Westra & Hart & Thomson, Minneapolis, Minnesota, for amicus curiae Associated General Contractors of Minnesota.

Susan L. Naughton, League of Minnesota Cities, for amicus curiae League of Minnesota Cities.

Robert E. Cattanach and Theresa M. Bevilacqua, Dorsey & Whitney LLP, Minneapolis, Minnesota, and Dan. R. Mastromarco, The Mastromarco Firm, PLLP, Annapolis, Maryland, for amicus curiae United Motorcoach Association, Inc.

OPINION

STRAS, Justice.

This case involves two questions arising out of the City of Rochester's selection of a contractor to run its municipal bus service. The first question requires us to determine the appropriate standard of review for an award of a government contract through a “best value” bidding process, a method by which a government contractor is selected by weighing various quantitative and qualitative factors. The second question is whether the district court properly granted summary judgment to the City of Rochester on appellant Rochester City Lines's claims of unfair bias and favoritism in awarding the contract to another bidder. Because we conclude that the district court properly granted summary judgment on each of Rochester City Lines's claims, except the general claim that the City of Rochester acted unreasonably, arbitrarily, or capriciously in awarding the contract to another party, we affirm in part, reverse in part, and remand to the district court for further proceedings consistent with this opinion.

I.

For more than 30 years, Rochester City Lines, Co. (“RCL”) operated the municipal bus service in Rochester. Although the City of Rochester (“City”) owns the buses, bus-stop shelters, and other equipment, it contracted with RCL to operate the bus service through a series of annual contracts. The City subsidized the operation through the receipt of state and federal grants.

In 2011, the Federal Transit Administration (“FTA”) sent the City a series of letters in which it informed the City that, in order to comply with federal procurement requirements and continue to receive federal funding, the City needed to initiate a competitive bidding process for its next contract. The City, which was receiving approximately $1.6 million annually in FTA funding, complied with the FTA's direction and issued a Request for Proposals (“RFP”) in December 2011. Following the methodology of the FTA's guidance documents, the RFP stated that the City would use a “best value” bidding process to select the proposal that presented “the highest quality of service that best matche[d] the City's requirements,” based on a set of predetermined criteria. RCL filed a formal “bid protest” in an attempt to stop the bidding process, claiming that the City's actions were an unconstitutional taking of RCL's property. The bid protest failed, and RCL filed a lawsuit against the City.

RCL again unsuccessfully attempted to stop the bidding process, this time by filing a motion for a temporary injunction with the district court. The competitive-bidding process continued, and the City received responsive bids from RCL and three other companies. An evaluation committee, consisting of four City employees and four outside reviewers, determined that the bid submitted by First Transit, Inc., a national bus-transportation company, presented the best value for the City. The Rochester City Council followed the committee's recommendation and awarded the contract to First Transit on April 2, 2012.

After the City finalized its selection of First Transit, RCL filed another formal bid protest. The City Attorney, acting under the terms of the RFP, denied RCL's protest, and the City Council affirmed his decision. RCL subsequently amended its complaint to add claims against the City, members of the City Council, and First Transit, including a claim seeking a declaration that the bidding process was unlawful. RCL also sued a member of the City Council for defamation. In the meantime, First Transit began operating Rochester's municipal bus service on July 2, 2012. Unable to compete with a federally subsidized operation, RCL ended its fixed-route service in Rochester the following day.

In November 2012, the district court granted summary judgment to the respondents, including the City, on each of RCL's claims. The court of appeals affirmed. Rochester City Lines, Co. v. City of Rochester, 846 N.W.2d 444 (Minn.App.2014). We granted RCL's petition for review to resolve two issues: (1) the applicable standard of review of a “best value” competitive bidding process; and (2) whether the district court erred when it granted summary judgment to the City on RCL's bid-protest claims. We denied review of all other issues decided by the court of appeals.¹

II.

The first question presented in this case requires us to identify the standard of review applicable to a best-value bidding process used by a municipality or other political subdivision of the state. Best-value bidding, as described by the FTA, is a procedure by which the award of a government contract depends on “which proposal represents the ‘best value’ [based] on an analysis of the tradeoff of qualitative technical factors and price or cost factors.” U.S. Dep't of Transp., Third–Party Contracting Guidance, FTA Circular 4220.1F, VI–10 (Nov. 1, 2008, rev. Mar. 18, 2013) (hereinafter “FTA Guidance”); see also Sayer v. Minn. Dep't of Transp., 790 N.W.2d 151, 156 (Minn.2010) (recognizing that the “best-value process differs from the lowest responsible bid process in that it allows public agencies to consider factors other than cost when awarding contracts”). Here, in accordance with the FTA Guidance, the City adopted best-value bidding in its RFP and described it as

a selection process in which proposals contain both price and qualitative components, and award is based upon a combination of price and qualitative considerations. Qualitative considerations may include technical design, technical approach, quality of proposed personnel, and/or management plan. The award selection is based upon consideration of a combination of technical and price factors to determine (or derive) the offer deemed most advantageous and of the greatest value to the procuring agency.

Before the Legislature authorized best-value bidding for public construction projects in 2007, the dominant procedure in Minnesota for government procurement was the lowest-responsible-bidder process.² Although public entities rarely used the best-value process prior to 2007, our cases have never distinguished between the various methods of bidding when discussing the basic principles that guide our review of cases involving government contracts. To the contrary, “[i]rrespective of what lawful method is adopted or used in the letting of public contracts, it is for the courts to determine whether officials in the exercise of their discretion have applied the method used in an arbitrary, capricious, or unreasonable manner.” Griswold v. Ramsey Cty., 242 Minn. 529, 535, 65 N.W.2d 647, 651–52 (1954).

In Griswold, the Ramsey County Board allocated money for construction of a county jail and released design specifications in advance of the bidding. See id. at 531, 65 N.W.2d at 649. Because all of the submitted bids exceeded the amount of money allocated for the jail, however, the Board asked each bidder to subtract from its basic bid the cost of certain items contained in the construction specifications. See id. These alternative bids allowed the County to proceed with part of the construction and then finish the remainder of the jail once funds became available. See id. at 531–32, 65 N.W.2d at 650. As it turned out, the County was able to find additional funds for the jail prior to the construction, and it allocated those funds toward the completion of some of the items listed in the winning bidder's alternative bid. See id. at 532, 65 N.W.2d at 650.

Two taxpayers sued the County, arguing that the bidding process adopted by the County was unlawful. See id. at 532, 65 N.W.2d at 650. In addressing the procedures adopted by the County, we noted that no statute required the Board to adopt a competitive-bidding process because, based on Ramsey County's population, the applicable statutes required competitive bidding only for the procurement of goods, materials, and supplies, not for the construction of public buildings. See id. at 533, 65 N.W.2d at 650. Nevertheless, even in the absence of a statutory mandate, we held that once the County adopted a lawful method for selecting a contractor, it had to give “all contractors an equal opportunity to bid” and not pursue its chosen method “in an unreasonable, arbitrary, or capricious manner.” Id. at 535, 65 N.W.2d at 652. We then concluded that the alternative-bidding process that the Board adopted was unreasonable, arbitrary, and capricious because it allowed bidders to make material changes to their bids after the bidding had closed. See id. at 536, 65 N.W.2d at 652.

Griswold stands for the proposition that, in the absence of a statutory standard and regardless of the method of bidding selected by a public agency, “it is for the courts to...