SJJC Aviation Servs., LLC v. City of San Jose

• Decision Date: 24 May 2017
• Docket Number: H041035
• Citation: 219 Cal.Rptr.3d 637,12 Cal.App.5th 1043
• Court: California Court of Appeals Court of Appeals
• Parties: SJJC AVIATION SERVICES, LLC, Plaintiff and Appellant, v. CITY OF SAN JOSE, et al., Defendants and Respondents; Signature Flight Support Corporation, et al., Real Parties in Interest and Respondents.

12 Cal.App.5th 1043

219 Cal.Rptr.3d 637

SJJC AVIATION SERVICES, LLC, Plaintiff and Appellant,

v. CITY OF SAN JOSE, et al., Defendants and Respondents;Signature Flight Support Corporation, et al., Real Parties in Interest and Respondents.

H041035

Court of Appeal, Sixth District, California.

Filed May 24, 2017

Counsel for Plaintiff and Appellant, SJJC AVIATION SERVICES, LLC: David P. Lanferman, Ash Pirayou, Palo Alto, Peter J. Howell, Alan B. Fenstermacher, Rutan & Tucker, Costa Mesa

Counsel for Defendants and Respondents, CITY OF SAN JOSE, et al.: Richard Doyle, City Attorney Nora Frimann, Ardell Johnson, Margo Laskowska, Office of the City Attorney

Counsel for Real Parties in Interest and Respondents: SIGNATURE FLIGHT SUPPORT CORPORATION, et al. Charles Lagrange Coleman, III, San Francisco, David I. Holtzman, Los Angeles, Amanda Jean Monchamp, San Francisco, Holland & Knight

In this action SJJC Aviation Services, LLC (SJJC) filed a petition for writ of mandate and a complaint seeking to overturn the decision by the City of San Jose (the City) to award a lease and operating agreement to real parties in interest Signature Flight Support Corporation (Signature) and its prospective subtenant, BCH San Jose LLC (BCH). The superior court sustained the demurrers of the City and real parties to SJJC's first amended petition and complaint without leave to amend. SJJC appeals from the ensuing judgment of dismissal, contending that the "flawed" process of soliciting bids for the lease should be set aside and asserting abuse of discretion by the court in denying leave to amend. We will affirm the judgment.

Background

Because this appeal arises from the sustaining of demurrers, in summarizing the history of the dispute we draw primarily from the facts asserted in the operative pleading, SJJC's first amended petition and complaint. Toward this end "we accept as true the properly pleaded material factual allegations of the complaint, together with facts that may properly be judicially noticed." (Crowley v . Katleman (1994) 8 Cal.4th 666, 672, 34 Cal.Rptr.2d 386, 881 P.2d 1083 ; Moore v . Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479 (Moore ).)

Appellant, a wholly owned subsidiary of Atlantic Aviation FBO, Inc. (Atlantic),¹ is a fixed base operator (FBO) that currently operates a full-service facility at the Norman Y. Mineta San Jose International Airport, which is owned by the City. In early 2012 the City addressed a plan to add a second FBO on the west side of the airport. The new FBO would, according to the City's expectations, "create a competitive environment for facilities providing a range of services to the public, meeting the needs of Silicon Valley companies for access to global markets, providing economic benefit to the region, and revenue to the City and Airport." Consistent with that plan, in August 2012 the City issued a request for proposals (RFP) "for the development and operation of aeronautical services facilities to serve general aviation activities at the [airport]."² In addition to a specific description of the operations and services to be undertaken, the detailed requirements for the proposal included an explanation of the proposer's experience, financial qualifications, management and business plan, and marketing approach, as well as a "proposed rent schedule" and lease term.

In the RFP the City explained that an evaluation panel would first determine, according to pass/fail criteria,³ which proposals were responsive and then rank those responsive proposals using scoring criteria. The scoring criteria most important to the City were revenue to the airport and revenue to the City.⁴ The selected respondent or respondents would be recommended to the City Council for the award of a ground lease and operating agreement. The RFP emphasized that revenue generation would be the "primary consideration" in selecting the proposals to be submitted for approval; the highest revenue-generating proposal would be placed at the site, with the second highest proposal to merit placement on the remaining available land. The RFP also emphasized that proposals that did not conform to the standards and procedures described might be considered "non-responsive and subject to rejection." Attached to the RFP was an "Exemplar Agreement" which was anticipated to govern the parties' relationship "in substantially the form attached to this RFP," but with revisions incorporating pertinent details of the successful bidder's proposal. The City reserved the right "to waive any informality or irregularity in any proposal." It also reserved "the right to reject any and all proposals or portions thereof received in response to this RFP and thereafter reissue the RFP."

The City received responses from three companies: Signature, Ross Aviation (Ross), and SJJC. Signature's proposal offered a 50-year lease term with a capital investment of $82 million. It anticipated construction of a facility covering 29 acres⁵ encompassing a terminal, seven hangars, and a shop area. SJJC, on the other hand, proposed a "phased approach": Rather than immediate construction of facilities, it contemplated planning for development; it would pay "up to $290 million" in exchange for five-year options to develop the entire west side of the airport. Some of the specific requested elements of the RFP were deemed inapplicable—for example, no management plan was included because SJJC's proposal was "not defined as FBO or SASO."⁶ Likewise, SJJC did not include a business plan because "[t]he proposal is not specifically defined as of this time."

Both Ross's and SJJC's proposals were rejected as nonresponsive. Ross's proposal had failed to include FBO storage information, a "pass/fail" selection criterion. SJJC had omitted nine required elements, including a rent proposal, its minimum capital investment, and minimum guaranteed property, sales, and use taxes. The staff summary of the three proposals indicated that SJJC had described no facility, whereas Ross and Signature had outlined provisions for a terminal, hangar, shop area, and ramp, among other terms relating to the lease area and specific sources of projected revenue generation for the City.

Both Ross and SJJC submitted letters of protest. In SJJC's letter it acknowledged that its proposal had not addressed all the specific items the City had identified as disqualifying it for consideration. Because it was "not proposing any facilities," several of the requested items were considered "not applicable to Atlantic's proposal." In SJJC's view, however, its "strictly financial proposal"—"[i]n essence a simple real estate development agreement"—offered a higher value to the City, consistent with the City Council's intent "to make revenue generation the primary consideration in a successful proposal." SJJC believed that its "Plan First" approach was superior to the "RFP First" approach contemplated by the City, because it would allow the airport to "pursue a comprehensive planning process" in partnership with SJJC, thus accruing revenue while maintaining "total flexibility" to develop the land once the City determined the "highest-and-best use" for the property.

Unsuccessful in its protest, SJJC then submitted an appeal challenging both its disqualification and the City's "Notice of Intended Award" to Signature. The City Attorney advised the City Council that the defects in SJJC's proposal were material and thus not waivable as minor irregularities; to accept its proposal with such material omissions "would result in Atlantic['s] gaining a competitive advantage over the proposer that complied with all of the RFP submittal requirements." SJJC complained that the City had not followed its own procedures, having rejected SJJC's proposal while ignoring "serious material flaws in Signature's [p]roposal." In SJJC's view, the City had treated Signature preferentially instead of adhering to the same standards. Thus, if the City upheld the rejection of SJJC's proposal, it should reject Signature's as well.

In anticipation of the City Council's meeting on the FBO project, William F. Sherry, the Director of Aviation for the City, updated the council on the negotiations with Signature, which he had already recommended for the award. Sherry reminded the council that it had directed the RFP to specify that the successful applicant would be subject to the existing "Airport Curfew Ordinance" that applied to existing FBOs and their subtenants.⁷ Those existing leases contained curfew provisions that went beyond the curfew ordinance, but they were applicable only if they were contained in all FBO leases. However, Signature—and in particular, its subtenant, BCH—had objected to the additional provisions. BCH was concerned about the term that allowed the City to evict a tenant if it violated the curfew even once, even though that had never occurred since the addition of the provisions in 2004. Nevertheless, Signature was willing to agree to the provisions in the lease presented to it, which contained a term requiring compliance with all applicable federal, state, and local laws. Sherry believed that this provision was sufficient to bind Signature to the curfew ordinance, and he recommended not including the additional curfew term in the proposed Signature lease. The existing curfew terms with the other tenants, including SJJC, would then no longer be enforceable; all would be subjected only to the curfew ordinance.

At the City Council hearing on April 9, 2013, SJJC's attorney voiced its objections to the recommendation of Signature for the award, identifying defects in Signature's proposal that should invalidate acceptance of its bid. SJJC also had objections to the City Council's approval of staff recommendations until completion of the environmental review process under the California Environmental Quality Act (CEQA).

After hearing from representatives of the affected entities and the public, the City...