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The Original W. Hargrove Demolition, Inc v. City of Camden

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 16, 2012

THE ORIGINAL W. HARGROVE DEMOLITION, INC., PLAINTIFF-RESPONDENT,
v.
CITY OF CAMDEN, DEFENDANT.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-0627-11.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted: December 21, 2011

Before Judges Axelrad, Sapp-Peterson and Ostrer.

Intervenor Ace Auto Parts, Inc. (Ace) appeals from a June 13, 2011 order of the Law Division, setting aside the City of Camden's (City) award to it of the contract for removal and storage of abandoned, disabled, and impounded vehicles and directing the award of the contract to plaintiff, the Original W. Hargrove Demolition, Inc. (Hargrove). The City found disqualifying material defects in Hargrove's bid, consisting of insufficient zoning of its storage facility, lack of the requisite towing equipment, and insufficient proof of experience and recommendations. It awarded the contract to Ace, the second lowest responsible bidder. The court found any defects, if existing, were immaterial and the City was arbitrary and capricious in rejecting Hargrove's bid. On appeal, Ace challenges the court's rulings as to each of the components of Hargrove's bid that were rejected by the City. We reverse and vacate the order.

I.

On August 30, 2010, the City published an invitation for bids for a two-year contract to provide removal and storage of abandoned, disabled and impounded vehicles under Bid #10-12. Hargrove and Ace each submitted bids by the November 4 due date.*fn1

In response to a protest from Ace, on February 1, 201l, the City Attorney sent a letter to both bidders, noting his review and input from the City Business Administrator, City Bureau of Purchasing, and the State Department of Community Affairs, Division of Local Government Services. He explained his recommendation that City Council (Council) disqualify Hargrove's bid as materially noncompliant with the specifications in three respects and declare Ace the lowest responsible bidder. The award of the towing contract was scheduled for the February 8 Council meeting but was rescheduled for March 1 to afford the bidders an opportunity to submit testimony and evidence regarding the City Attorney's recommendation.

On February 4, Hargrove filed a Verified Complaint in Lieu of Prerogative Writs and an Order to Show Cause seeking to preliminarily enjoin the City from disqualifying Hargrove's bid and awarding Ace the contract. The City filed opposition. Ace filed a motion to intervene, which was granted.

Following oral argument on February 8, the court granted temporary restraints pending the February 25 return date, which was converted to a case management conference. By order of February 25, the court permitted Council to take testimony and award the bid, subject to judicial review. At the March 1 Council session, Ace submitted additional documentation in support of disqualification of Hargrove's bid; Hargrove presented no testimony or documentation. Council rejected Hargrove's bid as containing material defects and awarded the towing contract to Ace, memorialized in Resolution MC-11:1590.

By order of April 14, 2011, the court granted Ace's motion in limine to supplement the record with the additional information it had submitted to Council. On the same date, the court heard oral argument on Hargrove's challenge, and directed counsel to submit supplemental briefs. On June 3, the court rendered its oral decision, concluding, "the City acted in an arbitrary and capricious manner when it rejected the Hargrove proposal to Bid Number [10-12]. Any defects, if existing, were immaterial. Hargrove is therefore declared to be the lowest responsible bidder . . . ; and accordingly, shall be awarded the contract resulting therefrom." Ace filed a motion for a stay pending appeal, which the court denied by order of June 13, 2011.

On June 17, 2011, Ace filed a notice of appeal, followed by a motion for a stay of the trial court's order. By order of July 15, we denied the stay but accelerated the appeal.

Ace raises the following arguments on appeal:

POINT I

THE TRIAL COURT ERRED IN RULING THAT THE CITY'S DECISION THAT HARGROVE'S BID WAS NOT COMPLIANT WITH THE BID SPECIFICATIONS BECAUSE HARGROVE'S PROPOSED STORAGE LOT WAS NOT ZONED TO PERMIT THE STORAGE OF ABANDONED, DISABLED AND IMPOUNDED VEHICLES WAS ARBITRARY AND CAPRICIOUS.

l. The City's Decision In Awarding A Municipal Towing Contract Is Entitled To Deference And Can Only Be Overturned Where It Is Arbitrary And Capricious.

2. The City's Disqualification Of The Hargrove Bid Cannot Be Determined To Be Arbitrary And Capricious Where The Bid Contained Material Defects.

3. The City Had A Rational Basis To Determine That Hargrove's Storage Facility Is Not Zoned To Allow For Performance Of This Contract, Constituting A Material Defect In Its Bid.

4. The Trial Court Improperly Considered Facts Outside The Record To Overturn The City's Award.

5. The Hearsay Evidence Improperly Considered By The Trial Court Does Not Make The City's Determination That The Hargrove Bid Lacked Proper Zoning Arbitrary And Capricious.

A. The Prior Use Of The Hargrove Lot Was Abandoned And Extinguished Pursuant To Section 577-167 Of The Camden Zoning Code.

B. The 2001 Resolution Of The Zoning Board Has No Preclusive Effect On Hargrove's Bid And Was Expressly Limited To The 2001 Application Of An Unrelated Entity.

6. The Affidavit Of Zoning And Land Use Compliance Does Not Overcome The Material Defect In Hargrove's Bid.

POINT II

THE TRIAL COURT ERRED IN RULING THAT THE CITY'S DECISION THAT HARGROVE'S BID WAS NOT COMPLIANT WITH THE BID SPECIFICATIONS BECAUSE IT LACKED REQUIRED TOWING EQUIPMENT WAS ARBITRARY AND CAPRICIOUS.

l. Hargrove Lacked The Equipment To Perform The Contract As Required By The Bid Specifications.

2. The Hargrove Bid Fails To Satisfy The Exclusivity Requirement Of Bid Specification XII.2.

3. Hargrove's Failure To Provide Proof Of The Required Equipment I[s] An Unwaivable Material Defect under Meadowbrook.*fn2

POINT III

THE TRIAL COURT ERRED IN RULING THAT THE CITY'S DECISION THAT HARGROVE'S BID WAS NOT COMPLIANT WITH BID SPECIFICATIONS BECAUSE IT LACKED PROOF OF EXPERIENCE AND RECOMMENDATIONS WAS ARBITRARY AND CAPRICIOUS.

Based on our review of the record and applicable law, we are persuaded by the arguments raised by Ace in Point II and articulated in the relevant portion of the City Attorney's letter to the bidders. We are satisfied Hargrove's bid failed to comply with the towing equipment specifications, which clearly required submission with the bid of satisfactory proof the contractor owned or would be able to obtain the requisite equipment. Furthermore, the omission constituted a material and non-waivable defect in the bid package. As the City's rejection of Hargrove's bid on this ground was neither arbitrary nor capricious, the court mistakenly exercised its discretion in setting it aside.

II.

Bid Specification XII, Towing Equipment Specifications, provides:

l. Proof of Ownership or Lease Required

A. At the time of submission of his bid, each bidder must submit proof, satisfactory to the City, of the following:

i. Proof of ownership by recorded title of the required number of wreckers necessary to meet the City's specifications, and to be used exclusively for the City of Camden under the terms of these specifications; or

ii. Proof of a current and binding lease agreement between the bidder and wrecker(s) at the time of the execution of the contract. The bidder must also demonstrate proof of ownership, by record title, of the equipment to be leased and to be used exclusively by the City of Camden under the terms of these specifications; or

iii. Bidder must show proof of ownership by record title of the required equipment together with a fully executed copy, (certified by the bidder as a true copy) of a binding agreement to have available to him the remaining wreckers within ten (10) days after date of the award of the contract to him, when a contract shall be executed.

iv. Proof of availability between the bidder and wrecker(s) owner(s) demonstrating that bidder can get actual possession and control over the wreckers at the time of the execution of the contract.

B. Failure to submit satisfactory proof as required above shall be sufficient cause for rejection of the bid. Failure to secure title or a lease, together with delivery of the remaining vehicles within ten (10) days as set forth above shall be sufficient cause for cancellation of the award. Decision of the City Council in the event of either failure referred to shall be final and binding upon the parties. [(Emphasis added).]

Under Bid Specification XII.2, the specific equipment a contractor must, "at a minimum, have available for the purpose of performing services under this agreement . . . to be used exclusively for the City of Camden under the terms of these specifications, at time of the execution of the contract[]" include: two thirty-ton capacity heavy duty wreckers; one tenton capacity wrecker; two four-ton capacity wreckers, and two flat bed wreckers adequate to service passenger motor vehicles and light trucks under one ton.

With its bid, Hargrove submitted a letter, dated November 3, 2010, from Beaverbrook Motors, Inc. (Beaverbrook), stating:

If Hargrove Demolition is awarded the towing contract for the City of Camden, Beaverbrook Motors, Inc[.] will enter into an agreement to make available to Hargrove Demolition the following equipment:

2 30 ton plus wreckers both with under reach

2 4 ton plus wreckers both with under reach Beaverbrook Motors has 60 years of towing experience and has worked for State and local municipalities without incident.

Upon awarding of the contract I will provide as per the bid specifications a copy of the registration and insurance for the said equipment contract. This equipment will also meet the parameters to be within 10 miles of the City of Camden.

I certify that this equipment will meet all state and local specifications to perform the work specified. I understand per the bid specification that the equipment and lease must be in place within 10 days after award of contract.*fn3

On or about February 9, 2011, three months after submission of the bids, Hargrove provided the City with an Agreement to Lease Vehicles between Hargrove and Beaverbrook of that date. This agreement was a fully executed contract for the lease of the required equipment signed by both parties' representatives.

The City rejected Hargrove's bid as having a material defect for, among other reasons, not submitting the proper documentation for the required towing equipment under Bid Specification XII.1.A.i-iii. Specifically, as stated in the City Attorney's letter to the bidders, "the Letter dated November 3, 2010 from [Beaverbrook] to [Hargrove] does not show (1) 'proof of ownership' or (2) 'a current and binding lease agreement' or (3) 'proof of ownership . . . of the required equipment together with a fully executed copy, (certified by the bidder as a true copy) of a binding agreement." He further explained that the letter "on its face simply does not evidence ownership by any party of the referenced wreckers or an actual written agreement executed between Beaverbrook and Hargrove to provide for same." Moreover, although the letter mentioned that Beaverbrook would enter into an agreement with Hargrove if Hargrove received the bid, this "is not an actual agreement, but, on its face, merely a unilateral promise by Beaverbrook to enter into an agreement with Hargrove contingent on the City's award of the towing contract[.]"

Applying the Meadowbrook Carting Co., Inc. v. Borough of Island Heights, 138 N.J. 307 (1994) analysis, the City Attorney explained the City could not waive this requirement because it would deprive the City of its assurance that the contract would be performed according to the requirements. Furthermore, waiver would adversely affect competitive bidding by placing Hargrove in a position of advantage over other bidders who fully complied, and other potential bidders who may not have bid due to their inability to meet the specifications.

The court found the City to be arbitrary and capricious in disqualifying Hargrove's bid. According to the court, by Bid Specification XII.1.A using the term "or" to connect subsections one through three, it permitted bidders to comply with one of the three terms. The court found the reading of the specifications made option three redundant, and concluded it should "select the construction that gives meaning to each of the provisions of the contract so that no part of the contract is rendered meaningless." Nevertheless, it found subsection three to be "meaningless" and "in error."

Furthermore, the court found the final clause of subsection three referencing "when a contract shall be executed" appeared to mean "the executed and binding agreement referred to would not be executed until after the submission of the bid. Nothing in the language implies execution concurrent with the submission of the bid[.]" According to the court's interpretation, the bid specification "contemplated and permitted" submission of a binding lease "after the award of the City towing contract."

As the court found "[t]he City towing contract was never awarded to Hargrove, therefore, their obligation to provide a fully executed lease for the required equipment . . . has not yet been triggered." It noted the specifications were "too vague and ambiguous to constitute a reasonable basis for the City to reject the Hargrove bid proposal[]" and bidding specifications for public contracts should be "unmistakably clear." Accordingly, the court held the City was arbitrary and capricious in rejecting Hargrove's bid, because the bid complied with the specifications.

We disagree. The City was neither arbitrary nor capricious in its interpretation of Bid Specification XII.1.A. When interpreting the meaning of the bid specification, the court should consider the plain language. See Jen Electric, Inc. v. Cnty. of Essex, 197 N.J. 627, 641 (2009). "'A basic principle of contract interpretation is to read the document as a whole in a fair and common sense manner.'" Porreca v. City of Millville, 419 N.J. Super. 212, 233 (App. Div. 2011) (quoting Hardy ex rel. Dowdell v. Abdul-Matin, 198 N.J. 95, 103 (2009)). However, a contract should not be interpreted in a way to render one of the terms meaningless. Porreca, supra, 419 N.J. Super. at 233.

The preamble to Bid Specification XII.1.A clearly mandates that "At the time of submission of his bid, each bidder must submit proof, satisfactory to the City, of the following[.]" (Emphasis added). Applying the plain meaning, it is apparent one of the three subparts that follows, which are separated by "or," must be submitted at the time of the bid, not at any later time. Under subpart one, the bidder may provide proof of ownership of the wreckers. Under subpart two, the bidder may provide proof of a current binding lease agreement between the bidder and another entity. Or, under subpart three, the bidder may show proof of ownership and a fully executed copy of a binding agreement to have the equipment available within ten days of the City awarding the contract.

Although the options appear to be similar and overlap, they are worded differently and require different documents. Regardless, one clear purpose, evident in paragraphs (i) through (iii) is that the City wanted proof of ownership by record title of the equipment to be used -- whether it was owned by the bidder under subparagraph (i), subject to a current and binding lease under subparagraph (ii), or a combination of proof of ownership by record title and an agreement to provide within ten days of the award of the contract the remaining wreckers under subparagraph (iii). As recognized by the City, one cannot logically ignore the prefatory language that applies to all three subsections, stating that the proof needs to be submitted "[a]t the time of submission of his bid." Therefore, the plain meaning of the third option would be to require that the additional equipment be available within ten days of the contract, not that the proof be available within ten days of the contract. Under any scenario, the proof was required at the time of the submission of the bid.

The November 3, 2010 Beaverbrook letter submitted with Hargrove's bid satisfies neither subpart (ii) nor (iii). Reading the specifications as a whole in a fair and commonsense manner, it is clear the informal letter is not the type of documentation required by the City. It is not a "current and binding lease agreement" between the bidder and equipment owner or a "fully executed copy, (certified by the bidder as a true copy) of a binding agreement" to have the remaining wreckers available within the specified time.

Even assuming the omitted second page contains signatures of Beaverbrook's and Hargrove's authorized representatives, the vaguely worded letter is simply an agreement to negotiate a lease, i.e. if Hargrove is awarded the contract, Beaverbrook "will enter into an agreement" to make available the four wreckers. It contains no definitive material terms such as the lease period, price, insurance requirements, or any language of obligation and, for a variety of reasons, a lease agreement may never come into fruition. As such, the letter submitted with Hargrove's bid is not a binding agreement that unconditionally assures the City that all the requisite equipment will be available within ten days of execution of the towing contract.

Moreover, Hargrove's post-bid submission to the City of the formal lease agreement is indicative of its understanding of the difference between a letter and a fully executed contract. In contrast with the letter, the February 9, 2011 Agreement to Lease Vehicles is a formal, binding legal document signed by both parties identifying specific vehicles, a three-year term, the rental price and conditions, and containing provisions for breach. This document would satisfy the bid specifications but for the fact it was submitted three months late. As Bid Specification XII.1.A. expressly requires proof of ownership of the requisite equipment by record title or lease to be submitted with the bid, Hargrove's bid was defective.

We next address whether the equipment requirement and proof of ownership or legal interest is a material specification that cannot be waived. Publicly advertised contracts must be awarded to the lowest responsible bidder, N.J.S.A. 40A:11-4a, which "has [been] interpreted . . . to mean [] the contract must be awarded not simply to the lowest bidder, but rather to the lowest bidder that complies with the substantive and procedural requirements in the bid advertisements and specifications." Meadowbrook Carting, supra, 138 N.J. at 313.

Generally, a municipality is without discretion to accept a defective bid. Id. at 314 (citing L. Pucillo & Sons, Inc. v. Mayor & Council of New Milford, 73 N.J. 349, 356 (1977)). "[A]ll bids must comply with the terms imposed, and any material departure invalidates a nonconforming bid as well as any contract based upon it." Meadowbrook Carting, supra, 138 N.J. at 314. Material conditions may not be waived, but "minor or inconsequential discrepancies and technical omissions" may be waived. Ibid.

A municipality has discretion to "accept or reject, for valid reasons, a bid that does not conform with specifications or formal requirements in non-material respects." Serenity Contracting Grp. v. Borough of Fort Lee, 306 N.J. Super. 151, 156 (App. Div. 1997), certif. denied, 153 N.J. 214 (1998). Such exercises of discretion "are entitled to respectful review under an abuse of discretion standard." Id. at 157. See also Palamar Constr., Inc. v. Twp. of Pennsauken, 196 N.J. Super. 241, 250 (App. Div. 1983) ("A reviewing court cannot overturn the decision of a municipal body unless it finds that the decision was arbitrary, capricious and unreasonable") (citing Kramer v. Bd. of Adjustment of Sea Girt, 45 N.J. 268, 296-97 (1965)). A presumption of validity exists that the municipality has properly exercised its discretion. Harvard Enters., Inc. v. Bd. of Adjustment of Madison, 56 N.J. 362, 368 (1970).

In determining whether a condition is material or inconsequential, our Supreme Court has distinguished between requirements that lie at the heart of the undertaking and aspects of the bid that may be waived "in a sensible or practical way." Terminal Constr. Corp. v. Atlantic Cnty. Sewerage Auth., 67 N.J. 403, 411 (1975). In Meadowbrook Carting, the Supreme Court articulated a two-prong test for determining materiality:

[F]irst, whether the effect of a waiver would be to deprive the municipality of its assurance that the contract will be entered into, performed and guaranteed according to its specified requirements, and second, whether [the defect] is of such a nature that its waiver would adversely affect competitive bidding by placing a bidder in a position of advantage over other bidders or by otherwise undermining the necessary common standard of competition. [Supra, 138 N.J. at 315 (internal quotation marks and citations omitted).]

We are satisfied the City performed an appropriate Meadowbrook analysis and properly concluded that the subject specification was a material, non-waivable condition. As to the first prong, the City made a determination as to the minimum equipment required for efficient and effective performance of the towing contract for removal and storage of abandoned, disabled, and impounded vehicles. In inviting bids, the City expressly stated in mandatory terms in Bid Specification XII.2 that the contractor "shall . . . have available" a minimum of two thirty-ton wreckers, one ten-ton wrecker, two four-ton wreckers, and two flat bed wreckers. A contractor's possession of the equipment deemed necessary to fulfill the municipality's towing and storage requirements is essential to the undertaking and, in fact, our Supreme Court has held that "conditions requiring detailed descriptions of materials . . . [have] been found to be so material as not to be the subject of waiver." Terminal Constr. Corp., supra, 67 N.J. at 411-12.

To ensure the contract would be entered into and performed in conformity with these specified requirements, the City also expressly listed in the specifications that it wanted documentation demonstrating that the bidder had ownership or a lease interest in the requisite equipment. Moreover, such proof was expressly required to be submitted to the City "[a]t the time of submission of [the] bid[.]" The materiality of this specification is apparent by the admonition in Bid Specification XII.1.B. that "[f]ailure to submit satisfactory proof as required above shall be sufficient cause for rejection of the bid."

The materiality of this requirement under the second prong is also obvious. There can be no doubt that the specification requiring a contractor to submit with its bid proof of ownership or lease of the seven enumerated wreckers could well have discouraged bidder who did not possess or who were unable to lease the enumerated equipment, or it could have influenced the amount of the bids by those that did bid. Thus, to waive the requirement and, in essence, allow Hargrove to cure its defective bid by the acceptance of a lease three months later, after Ace lodged a protest and the City Attorney found Hargrove's bid to be defective on that ground, would provide Hargrove with an unfair advantage and undermine the competitive bidding process. Such a result strikes at the very heart of the Local Public Contracts Law, N.J.S.A. 40A:11-1 to -51, which was intended to maintain the integrity of the competitive bidding process and guard against unfettered discretion, favoritism, and corruption. See Meadowbrook Carting, supra, 138 N.J. at 314; L. Pucillo & Sons, Inc., supra, 73 N.J. at 356.

We have concluded the City did not act arbitrarily or capriciously in finding that Hargrove did not meet the documentary requirements of the bid specifications evidencing the availability of the required number of wreckers, and that this nonconformity was material and could not be waived. In light of our decision, we need not address Ace's other challenges to the court's rulings respecting the zoning issue of Hargrove's storage lot and its documentary proof of experience, as well as Ace's arguments regarding Hargrove's noncompliance with Bid Specification XII.2, which required specific equipment be designated exclusively for the use of the City.

The court mistakenly exercised its discretion in setting aside as arbitrary and capricious Resolution MC-11:1590, which rejected Hargrove's bid and awarded the subject contract to Ace, the lowest responsible bidder whose "submission materially complied with the bid specifications[.]" Accordingly, we vacate the June 13, 2011 order directing the award of the contract to Hargrove, and reinstate the Resolution awarding the contract to Ace.

Order is reversed and vacated.


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