May 21, 2012
FRANCIS TEDESCO AND GREGORY WRIGHT, PLAINTIFFS-APPELLANTS,
RUTGERS, THE STATE UNIVERSITY OF NEW JERSEY AND FIRST TRANSIT INCORPORATED, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-4730-11.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 1, 2012
Before Judges Payne, Reisner and Simonelli.
Plaintiffs Francis Tedesco and Gregory Wright appeal from three September 30, 2011 orders dismissing their complaint against defendants Rutgers, the State University of New Jersey (Rutgers or University) and First Transit, Inc. (First Transit), and ordering plaintiffs to pay Rutgers' counsel fees.*fn1
To briefly summarize, the underlying dispute concerns a contract to provide student bus service on the Rutgers New Brunswick campuses. After Academy Express, LLC (Academy) and First Transit submitted bids, Rutgers awarded the 2011 contract to First Transit. Academy, which had previously been providing the campus bus service, filed a multi-count complaint challenging the bid award and seeking other relief. Assignment Judge Travis Francis dismissed the pertinent counts of the complaint. Immediately thereafter, Tedesco, Academy's chief executive officer, and Wright, its general manager, filed a separate declaratory judgment action in their capacity as "taxpayers," again seeking to nullify the award of the contract to First Transit (the Tedesco complaint). Judge Garruto dismissed the Tedesco complaint and granted Rutgers' motion for counsel fees for the filing of frivolous litigation. For the reasons that follow, we affirm.
On June 9, 2010, the Rutgers Purchasing Department issued a Request for Proposal (RFP) for transportation companies to install, manage and operate the Campus Bus System at the University. Only two companies, First Transit and Academy, submitted proposals in response to the RFP. Academy, the incumbent, had provided the bus service to the University since 2000.
On October 21, 2010, Natalie Calleja, the Associate Director of the Purchasing Department at Rutgers, notified First Transit that the University had decided to award it the bus service contract. On the same day, Academy was notified that it had lost the bid. According to the contract, First Transit was to commence providing the bus services beginning July 1, 2011, for a period of five years.
On December 10, 2010, Academy filed a complaint against Rutgers and First Transit. The thrust of Academy's complaint was that in mid-June 2010 Rutgers in general, and Calleja in particular, decided to "secretly exclude Academy" from consideration in the RFP process. The complaint stated that Calleja, in an "unfair," "improper," and "unconscionable" manner, favored First Transit during the RFP process. Academy alleged that "private and undisclosed contacts" between June and October 2010, were in violation of Rutgers' rules governing procurement contracts. The complaint also alleged that First Transit was given "numerous opportunities" to amend/improve aspects of its bid while other vendors were not afforded the same opportunities. This included expansion of the services to be contracted for, and capitalization of the buses over a fifteen-year term.
The complaint contained ten counts, but only counts nine and ten are relevant to this appeal. In count nine, Academy sought a "Declaratory judgment that First Transit's 'Final Proposal' and its Bid are each void ab initio owing to a failure to meet mandatory and non-waivable requirements, legal impossibility, illegality and violations of public policy and breach of fiduciary obligations." Under count ten, Academy alleged that defendants committed a "[v]violation of the New Jersey Public Contracts law and/or Local Public Schools Law, the [State Comptroller's] 'Best Practices' rules and Defendants' statutory and common law duties of fairness, openness and competition."
Around March 22, 2011, defendants filed a motion for judgment on the pleadings pursuant to Rule 4:6-2(e). On May 6, 2011, Judge Francis granted the motion on counts 4, 9, and 10. Judge Francis rejected Academy's claims under count nine because the:
New Jersey Declaratory Act . . . , is procedural in nature and a party must demonstrate that it has a legal right to the declaration it seeks. . . .
Academy's non-compliance theory fails, because Rutgers was not required to select any bid and, therefore, standing is not created as a result of this theory. In addition, case law holds that merely submitting a bid does not create a legal right to challenge a competitor's proposal.
Academy's complaint does not demonstrate that it has a legal right to the declaration it seeks and, accordingly, with respect to count nine, the application of Rutgers is granted.
Judge Francis found that Academy's claims under count ten failed because Rutgers, the State University v. Kugler, 110 N.J. Super. 424 (Law. Div. 1970), aff'd o.b., 58 N.J. 113 (1971), held that Rutgers was not subject to the public bidding laws, and Academy's argument, that the law had changed since Kugler was decided, was without legal basis. Judge Francis' decision did not, however, result in the entry of a final order, because several other, unrelated counts of the complaint remained pending.
Instead of having Academy's attorneys seek immediate interlocutory appellate review of Judge Francis' ruling on the bid award, Tedesco and Wright filed a separate lawsuit against Rutgers and First Transit on June 29, 2011.*fn2 The Tedesco suit alleged the same facts that gave rise to the Academy suit, but was filed by Tedesco and Wright in their capacity as taxpayers.
The Tedesco complaint contained one count, seeking a declaratory judgment on the grounds that Rutgers had failed to comply with its own bidding policies, guidelines and manuals by a) giving special treatment to First Transit, b) engaging in pre-award communications with First Transit, c) providing First Transit with significant financial advantages in the bidding process, d) providing First Transit with the exclusive opportunity to present supplemental proposals in response to the bid, e) modifying and amending portions of the bid to advantage First Transit, and f) accepting non-compliant bids only from First Transit.
The day after the Tedesco complaint was filed, Academy filed an order to show cause (OSC) seeking to enjoin Rutgers and First Transit from proceeding with the contract. The Tedesco plaintiffs joined in that OSC. Judge Francis permitted the Tedesco plaintiffs to participate in the OSC hearing, recognizing that their interests were essentially the same as Academy's interests. On June 30, 2011, the judge declined to enjoin the contract between First Transit and Rutgers, which was due to commence the next day. Judge Francis held that neither Academy nor the Tedesco plaintiffs had presented any evidence warranting injunctive relief. He held that Academy had not established a likelihood of success on the merits of the public bidding issue, and an adequate remedy at law was available in the form of money damages.
Judge Francis then addressed whether Rutgers had violated its own processes and procedures. He ruled against Academy on this issue stating that "Academy participated, and it is undisputed[,] in this exact - - in this similar, if not exact process in 2000, and was therefore, not unfamiliar with the process employed by Rutgers in accepting, and evaluating RFPs, which Academy now contests." In fact, the court stated, Rutgers' challenged actions were explicitly permitted under the language of sections 2.13, 2.18, and 2.19 of the RFP.
With respect to Tedesco and Wright, Judge Francis found that while they were taxpayers, they were associated with Academy. Therefore, he reasoned they were not "unassociated plaintiffs, but have . . . a collateral interest . . . in the litigation." He denied Tedesco and Wright the relief they sought, for the reasons "[stated] in the original decision . . . and those announced today."
On July 21, 2011, Judge Francis entered two orders denying Academy's and Tedesco's applications for a temporary restraining order. On July 22, 2011, Rutgers' counsel served Tedesco and Wright's counsel with notice, pursuant to Rule 1:4-8, that their complaint was frivolous and Rutgers would apply for sanctions unless the complaint was promptly withdrawn. Rutgers' demand was based on Judge Francis' "dismissal of virtually all of the counts in the Academy action, as to which [Tedesco] is aware given his status as President and CEO." Rutgers asserted that "Tedesco lacked standing" because under Kugler, the public bidding laws do not apply to Rutgers, making Tedesco's status as a taxpayer irrelevant. Rutgers' notice also asserted that Judge Francis had already found Academy to have no legal claim against Rutgers because of sections 2.13, 2.18 and 2.19 of the RFP.
Plaintiffs failed to respond to the notice, and on August 24, 2011, Rutgers filed a motion to dismiss the Tedesco complaint for failure to state a cause of action under Rule 4:6-2(e), and sought sanctions pursuant to R. 1:4-8. On August 25, 2011, First Transit also filed a motion to dismiss.
On September 30, 2011, Judge Bryan D. Garruto issued orders dismissing the Tedesco complaint and granting Rutgers' motion for sanctions. In a written opinion, Judge Garruto reasoned that Rutgers v. Piluso, 60 N.J. 143 (1972), on which the Tedesco complaint mainly relied, did not support plaintiffs' claim that "all activities carried out by Rutgers are public in nature." In fact, the judge stated, the Piluso opinion "specifically mentions and cites Kugler for the principle that 'Rutgers has been held not subject to public bidding statutes applicable to state departments generally.'" Accordingly, Judge Garruto held that Rutgers operates as a private entity in the contracting context.
The judge then addressed plaintiffs' claim that Rutgers violated its own internal processes or procedures by privately negotiating with First Transit without Academy's knowledge. He found no violation of those processes or procedures because "[s]sections 2.13, 2.14, 2.18, and 2.19 of the RFP specifically give Rutgers discretion to conduct its bidding process in the 'best interest of the University' as long as the process is not unreasonable." He acknowledged that Judge Francis previously ruled that those provisions "provide Rutgers with wide discretion regarding its process to obtain bids for services." The legal outcome did not change because "Tedesco has filed this lawsuit as a 'taxpayer.'" Therefore, Judge Garruto granted defendants' motions to dismiss the Tedesco complaint.
Judge Garruto further reasoned that, under Rule 1:4-8, sanctions were permitted "where a Plaintiff insists on prosecuting a claim barred by controlling law." He held that plaintiffs should have known that they had no reasonable basis for their claim after Judge Francis rendered his ruling dismissing the bid challenge.
We review de novo the trial court's grant of a motion to dismiss, using the same legal standard as the trial court. Smerling v. Harrah's Entm't Inc., 389 N.J. Super. 181, 186 (App. Div. 2006). We review the trial court's decision to grant counsel fees for abuse of discretion. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001); United Hearts, L.L.C. v. Zahabian, 407 N.J. Super. 379, 390 (App. Div.), certif. denied, 200 N.J. 367 (2009).
It is well established that Rutgers is not "bound by any of the [public] bidding statutes." Rutgers v. Kugler, supra, 110 N.J. Super. at 434; see also Rutgers v. Piluso, supra, 60 N.J. at 158 n.6. However, on this appeal, as in the trial court, plaintiffs seek to sidestep that clear holding by arguing that Rutgers has internal policies that require public bidding and it must comply with those policies, and that Rutgers should honor the public policy behind the public bidding laws.
Rutgers is a hybrid entity. It has some of the immunities granted to State agencies, but "is largely autonomous and subject only to minimal state supervision and control." Kovats v. Rutgers, 822 F. 2d 1303, 1311 (3d Cir. 1987). Its governing boards "need not comply with civil service, competitive bidding or administrative procedure requirements." Id. at 1312; see also Fine v. Rutgers, 163 N.J. 464, 469-71 (2000) (discussing the university's "hybrid" status).
On this appeal, plaintiffs rely heavily on Rutgers v. Piluso, supra, arguing that Rutgers is a "state instrumentality" for all purposes. That is incorrect. Piluso held that Rutgers is not subject to local zoning regulations, because application of local zoning could defeat the Legislature's purpose in creating the university:
[T]he Legislature must be said to have intended that the growth and development of Rutgers, as a public university for the benefit of all the people of the state, was not to be thwarted or restricted by local land use regulations and that it is immune therefrom. In this respect it is a statewide facility entitled to the same protection from local enactments as the turnpike and the parkway, so long as it does not act unreasonably or arbitrarily. [Piluso, supra, 60 N.J. at 158 (emphasis added).]
From this language, plaintiffs argue that, in all circumstances, Rutgers is not permitted to act arbitrarily, and therefore may not act arbitrarily in its contracting practices. We conclude that plaintiffs are over-reading Piluso, which concerns zoning and is simply not on point here.
Relying on In re Waterfront Development Permit No. WD88-0443-1, 244 N.J. Super. 426, 434 (App. Div. 1990), certif. denied, 126 N.J. 320 (1991), plaintiffs also argue that as a state entity, Rutgers must follow its own bidding rules. Waterfront stands for the proposition that once an agency promulgates formal regulations, those regulations have the force of law, and the agency must follow them. However, plaintiffs do not point to any formally-promulgated Rutgers "regulations" concerning bidding. Rather, plaintiffs rely on Rutgers' internal policy manuals.
Further, plaintiffs overlook those portions of the manuals that permit Rutgers' Purchasing Department to negotiate with bidders if it is the university's best interests to do so. In fact, the Rutgers Purchasing Policy makes clear that purchasing is to be centralized through the Purchasing Department; that with respect to large purchases, individual requesters are not to contact vendors but are to let Purchasing deal with the vendors; and that "[t]he Purchasing Department (Purchasing) is authorized to conduct and conclude negotiations for the purchase or lease of supplies, equipment, and services to fulfill the requirements of the university." Section IV on "competitive purchasing process" refers to "soliciting requests for quotations and proposals, and negotiating pricing agreements" as part of the "competitive procurement practices" in which Purchasing will engage. Subsection IV(C) specifically provides that
Rutgers reserves the right to establish competitive and non-competitive negotiated agreements with a vendor when it is in the best interest of the university. Vendor selection shall be made using an evaluative process and shall be based on the total benefits to the university. Consideration will be give to price, level of service, market conditions, and other variables as appropriate.
In short, we find nothing arbitrary in Rutgers' interpretation of its own policies to allow its Purchasing Department to pursue a hybrid approach to procurement, including accepting competitive bids and then negotiating with one bidder to obtain improvements in the bid that serve the university's best interests.*fn3 Finally, the RFP itself gave Rutgers broad flexibility to communicate with individual bidders and to waive "the stated requirements" of the RFP "in the best interest of the University, as determined by the University in its sole discretion."
Plaintiffs' complaint was properly dismissed. In light of that conclusion, we do not address Rutgers' arguments concerning plaintiffs' standing, an issue not decided by Judge Garruto.
Addressing plaintiffs' Point II, we find no abuse of discretion or other error in Judge Garruto's decision to award counsel fees pursuant to Rule 1:4-8(a). On this record we cannot disagree with his conclusion that plaintiffs filed this action in bad faith, to get a second bite of the proverbial apple after Judge Francis ruled against Academy in the first lawsuit. The filing of this lawsuit was a blatant violation of the spirit if not the letter of the entire controversy doctrine as well as the doctrine of collateral estoppel. If Academy disagreed with Judge Francis' decision, it should have pursued its appellate remedies, instead of having its managers file essentially the same lawsuit in their capacity as "taxpayers." Moreover, because there was already pending litigation for injunctive relief and damages arising from the same controversy, filing a separate declaratory judgment action was inconsistent with the purpose of the Declaratory Judgment Act, N.J.S.A. 2A:16-51. See N.J. Assoc. for Retarded Citizens v. N.J. Dep't of Human Servs., 89 N.J. 234, 241-42 (1982).