December 26, 2013
BROCKWELL & CARRINGTON CONTRACTORS, INC., Plaintiff-Appellant/ Cross-Respondent,
DOBCO, INC., Defendant-Respondent/ Cross-Appellant, and CARLSTADT EAST RUTHERFORD BOARD OF EDUCATION, APS CONTRACTING, INC. and PIKE CONSTRUCTION CO. LLC, Defendants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 30, 2013
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-8541-11.
Robert T. Lawless argued the cause for appellant/cross-respondent (Hedinger & Lawless, L.L.C., attorneys; Mr. Lawless, on the briefs).
Charles F. Kenny argued the cause for respondent/cross-appellant (Peckar & Abrahamson, P.C., attorneys; Mr. Kenny, on the briefs; Michael E. Smilow, on the briefs).
Lindabury, McCormick, Estabrook & Cooper, P.C., attorneys for respondent Carlstadt East Rutherford Board of Education (Dennis McKeever, on the letter brief).
Before Judges Yannotti, St. John and Leone.
In this appeal, which arises from the award of a school construction contract pursuant to the New Jersey public bidding laws, the central issue is whether the fourth-lowest bidder can bring suit directly against the lowest bidder challenging the award and seeking money damages. For the reasons that follow, we conclude that the bidder's complaint was properly dismissed.
We review the facts and procedural history in the light most favorable to plaintiff. On September 1, 2001, the Carlstadt-East Rutherford Board of Education (Board) opened competitive bidding for a renovation project at Becton Regional High School (the Project). Dobco, Inc. (Dobco) was the lowest numerical bidder, followed by APS Contracting, Inc. (APS), Pike Construction Co., LLC (Pike), and Brockwell & Carrington Contractors, Inc. (Brockwell). Dobco was then awarded the Project contract (the Contract).
Dobco's bid submission identified Environmental Climate Control, Inc. (ECC) as its heating, ventilation and air-conditioning subcontractor for the Project. In connection with that submission, ECC tendered two documents: a notice of classification and "State of New Jersey Form DBC 701" (Form 701). Both forms are required before a contractor or subcontractor may become eligible to submit bids on public works projects. In order to place the controversy before us in the proper context, we briefly summarize the applicable public bidding laws.
Pursuant to N.J.S.A. 52:35-3 and 18A:18A-27, the Division of Property Management and Construction (DPMC) classifies bidders that wish to become eligible to submit bids on public works projects. The classification process is conducted in accordance with the provisions of N.J.A.C. 17:19-2.1 to -2.13. Each classified bidder's "aggregate rating" must be calculated in accordance with the formula prescribed by N.J.A.C. 17:19-2.8. The aggregate rating, which is based on a variety of financial factors, including the bidder's working capital, bonding capacity and performance rating, determines the amount of the proposed contract on which a bidder may bid. Ibid. At the conclusion of the classification process, DPMC issues the bidder a notice of classification that includes the maximum amount of public work on which it is qualified to bid.
A school board "can only accept bids from those 'qualified in accordance with such classification.'" Advance Elec. Co. v. Montgomery Twp. Bd. of Educ., 351 N.J.Super. 160, 175 (App. Div. 2002)(quoting N.J.S.A. 18A:18A-26). To ensure compliance, every bidder must certify via Form 701 that the bid proposal, "when added to its backlog of uncompleted construction work, " will not exceed the aggregate rating. N.J.A.C. 17:19-2.13. A bidder may not be awarded a contract which would exceed its aggregate rating. N.J.A.C. 17:19-2.13(c). We have interpreted these requirements to be equally applicable to subcontractors. See Brockwell & Carrington Contractors, Inc. v. Kearny Bd. of Educ., 420 N.J.Super. 273, 280 (App. Div. 2011).
Here, the contract was awarded to Dobco on September 6, 2011. Brockwell's attorney contacted counsel for the Board, Dennis McKeever, on September 9 to raise concerns over ECC's aggregate rating. By letter to the Board dated September 13, Brockwell formally protested the award, asserting that ECC was not qualified to participate in the Project because the value of its subcontract, when combined with its outstanding projects, would place ECC above its aggregate rating limit. ECC's ineligibility, argued Brockwell, rendered Dobco's bid materially deficient and thus precluded the Board from legally awarding Dobco the Contract.
Dobco and ECC subsequently provided the Board with additional information to demonstrate that ECC was, in fact, qualified to perform the contract. Brockwell alleges that these submissions contained inaccurate, incomplete and misleading information for the purpose of inducing the Board to award the contract to Dobco. According to Brockwell, the Board's "duly authorized representative" also determined that APS and Pike's bids were materially deficient.
McKeever contacted Brockwell's attorney on October 4 and explained that the Project would proceed with Dobco. On October 14, some six weeks after the contract had been awarded, Brockwell filed an order to show cause with verified complaint seeking to enjoin Dobco and the Board from moving forward on the contract. Brockwell also sought declaratory relief that Dobco's bid was materially deficient, and the award was null and void. Brockwell contended that the Dobco, APS and Pike bids failed to conform to the bid specifications, and, therefore, it was entitled to the award of the contract as the lowest responsive bidder.
After the motion judge denied Brockwell's application, it sought permission from this court to file an emergent motion, which was granted on October 20, 2011. We then denied the requested relief, concluding that Brockwell failed to demonstrate a likelihood of success on the merits and that the harm to defendants of staying the project outweighed any harm to Brockwell.
Brockwell having earlier declined defendants' request to dismiss the action, on December 16, 2011, Dobco served the first of two frivolous claim letters. On January 5, 2012, Brockwell stipulated to the dismissal of the Board from the lawsuit. One week later, Brockwell filed its initial amended complaint. The first count alleged that the Board's "duly authorized representative" had deemed the bids of co-defendants APS and Pike "materially deficient" and sought a declaration that the Board could not legally award the Project contract to either company. The sole evidence presented in support of this claim was a September 2, 2011 email sent to the Board by its architect, the relevant portions of which stated as follows:
Bid determined as non-responsive as they are using an unapproved window manufacturer/supplier that supplied erroneous testing and beyond the time limit.
Bid Bond lacks a Corporate Seal
Uncompleted contracts form lacks Corporate
Missing Financial Statement
ECI (Haz Mat) contractor is over his DPMC limit
Unapproved Window supplier/manufacturer
Bid determined as non-responsive
In the second and third counts, Brockwell sought an order compelling discovery and seeking from Dobco compensatory damages incurred as a result of Dobco's submission to the Board of "inaccurate, incomplete, false and misleading documents" in connection with its bid for the Project.
Dobco then served Brockwell with a second frivolous claim letter and moved to dismiss the amended complaint for failure to state a cause of action, quash discovery and recover attorney's fees. Dobco appended several exhibits in support of its motion, including a certification from counsel for the Board. The Board's counsel McKeever stated that he was charged with assessing the responsiveness of the Project bids, and at no time did he determine that APS's and Pike's bids were materially deficient.
In response, Brockwell crossed-moved for leave to file a second amended complaint. The proposed second amended complaint sought to add Michael Dassatti, president of Brockwell, and ECC as party plaintiff and party defendant, respectively. Brockwell alleged the same grounds for relief against ECC, and added a fourth count seeking a declaration that the Project subcontract between Dobco and ECC should be declared void and unenforceable.
After oral argument, the motion judge issued a written decision on April 2, 2012. The judge granted Dobco's motion to dismiss the first amended complaint, finding it "deficient on its face, " and denied Brockwell's cross-motion for leave to file a second amended complaint. With respect to the first count, the judge determined:
This cause of action fails on several levels. As evidenced by the affidavit of [McKeever], the Board made no determination that Pike's and APS's bids were deficient. Moreover, this [C]ourt cannot possibly take any action with respect to the validity of two bidders on a public project when the public entity has not acted on those bids. The Court notes that the Board is no longer a party to this action. If this Court is asked to undo or enforce something allegedly done by the Board, then the Board would need to be a necessary party to this action.
Addressing the second count requesting discovery, the judge stated that the discovery demands "are purely calculated to harass Dobco and improperly seek proprietary information in an attempt to gain a business advantage over Dobco." With respect to the third count, the judge concluded that "a disgruntled, losing bidder on a public project is not entitled to monetary damages . . . . [because] it is well-settled law in this State that money damages are not an available remedy to the losing bidder." The judge also found that
In order for Brockwell to have standing, the Board must make a finding rejecting the bids of APS and Pike, at which time APS and Pike would have the opportunity to show that they submitted qualified bids and/or that any deficiencies in their bids were not material and, therefore, waivable defects. There is nothing in the record to show that the bids were defective. In order for the bids of APS and Pike to be rejected, the Board would have to reconvene a hearing and allow APS and Pike to challenge any such finding by the Board. The situation would be untenable and Brockwell has failed to [c]ite any precedent for such a proceeding. Brockwell will not be able to prove at trial that the bids of the second and third lowest bidders would have been rejected as a matter of law, without the second and third lowest bidders being afforded the opportunity to challenge that finding. Brockwell lacked standing as the fourth lowest bidder and could not prove damages for a claim of tortious interference against Dobco.
The judge also determined that Brockwell failed to plead adequately its causes of action for fraudulent misrepresentation and tortious interference. Accordingly, the judge entered an order dismissing the amended complaint pursuant to Rule 4:6-2(e) and denying Brockwell's cross-motion for leave to file an amended pleading.
With respect to Dobco's motion for attorney's fees, the judge concluded that the amended complaint "is blatantly frivolous and Brockwell is maintaining this action in bad faith for the purpose of harassment, delay or malicious injury." Consequently, the judge awarded Dobco costs and attorney's fees in the amount of $48, 856.
Brockwell appeals from those portions of the order dismissing its suit, denying leave to file an amended complaint and awarding sanctions. Dobco cross-appeals the sanctions award to the extent that it failed to hold opposing counsel jointly and severally liable.
We review a grant of a motion to dismiss a complaint for failure to state a cause of action de novo, applying the same standard under Rule 4:6-2(e) that governed the motion court. See Frederick v. Smith, 416 N.J.Super. 594, 597 (App. Div. 2010), certif. denied, 205 N.J. 317 (2011). When considering such a motion, the trial court must determine "whether a cause of action is 'suggested' by the facts." Printing Mart-Morristown v. Sharp Elec. Corp., 116 N.J. 739, 746 (1989).
Preliminarily, we note the general purpose of bidding laws is "to secure for the taxpayers the benefits of competition and to promote the honesty and integrity of the bidders and the system." In re Protest of Award of On-Line Games Prod. & Operation Servs. Contract, Bid No. 95-X-20175, 279 N.J.Super. 566, 589 (App. Div. 1995). "Their objects are to guard against favoritism, improvidence, extravagance and corruption; their aim is to secure for the public the benefits of unfettered competition." Terminal Constr. Corp. v. Atl. Cnty. Sewerage Auth., 67 N.J. 403, 410 (1975). New Jersey's bidding laws, therefore, have been construed to curtail "the discretion of local authorities by demanding strict compliance with public bidding guidelines." L. Pucillo & Sons, Inc. v. Borough of New Milford, 73 N.J. 349, 356 (1977).
In recognition of the public policies undergirding the bidding laws, "a bidder claiming to be entitled to the award of a contract for public work has long been held to have sufficient standing to challenge the rejection of his bid or the letting of the contract to another bidder, and to compel the award of the contract to him." M.A. Stephen Constr. Co. v. Rumson, 125 N.J.Super. 67, 74 (App. Div. 1973)(citation omitted); see also Advance Electric, supra, 351 N.J.Super. at 168 n.1 ("Given the public importance of the bidding statutes, an unsuccessful bidder may challenge a bid award by seeking to enforce the policy of the bidding statutes.").
In count three of its first amended complaint, however, Brockwell does not seek to challenge the contract award and compel the award of the contract to Brockwell. Rather, Brockwell is, in effect, asserting an implied private civil remedy for money damages under New Jersey's public bidding laws. To determine whether a statute confers an implied private right of action, the Supreme Court requires courts to consider whether:
(1) plaintiff is a member of the class for whose special benefit the statute was enacted; (2) there is any evidence that the Legislature intended to create a private right of action under the statute; and (3) it is consistent with the underlying purposes of the legislative scheme to infer the existence of such a remedy. . . . [T]he primary goal [is] a search for the underlying legislative intent.
[R.J. Gaydos Ins. Agency, Inc. v. Nat'l Consumer Ins. Co., 168 N.J. 255, 272-73 (2001)(alterations in original)(citation omitted)].
We discern no legislative support for such an implied cause of action for damages by an unsuccessful bidder against the bidder who was awarded the contract, based on alleged misrepresentations in the successful bidder's submissions. First, it is apparent to us that the Legislature did not intend to create a private right of action. New Jersey courts "have generally declined to infer a private action in statutes where the statutory scheme contains civil penalty provisions." Id. at 274. Both N.J.S.A. 18A:18A-33 and N.J.S.A. 40A:11-32 prescribe criminal and civil penalties for "[a]ny person who makes, or causes to be made, a false, deceptive or fraudulent statement in the [bid] questionnaire." The existence of such penalties cuts against a finding that the Legislature intended private parties to obtain damages based on misrepresentations or fabrications in the bidding process.
Moreover, we find that the statutes governing public contracts were not enacted for the special benefit of bidders, and that an implied civil remedy would be inconsistent with the purposes of those laws. "The public interest in awarding public contracts by competitive bidding is to secure competition and guard against favoritism, improvidence, extravagance and corruption." Morie Energy Mgmt., Inc. v. Badame, 241 N.J.Super. 572, 576 (App. Div. 1990)(internal quotation marks omitted). The "purpose of competitive bidding for local public contracts is . . . not the protection of the individual interests of the bidders but rather the advancement of the public interest in securing the most economical result by inviting competition in which all bidders are placed on an equal basis." Star of Sea Concrete Corp. v. Lucas Bros., Inc., 370 N.J.Super. 60, 72 (App. Div. 2004)(emphasis added)(internal quotation marks omitted). Accordingly, "whatever rights a bidder may have in the process are conferred . . . to the end that the public will obtain all that is due it in the procurement process, rather than for [the bidder's] individual aggrandizement." Morie, supra, 241 N.J.Super. at 576 (alterations in original)(emphasis added)(citations and internal quotation marks omitted).
Thus, as a salutary measure to protect the integrity of the public bidding process, courts have conferred standing on unsuccessful bidders to challenge contract awards. See Advance Electric, supra, 351 N.J.Super. at 168 n.1. The point is not to make the challenger whole, but rather to vindicate the goal of competition, and its beneficial consequences to the taxpayers. Accordingly, we have not only rejected claims for damages against the contracting agency itself, see M.A. Stephen, supra, 125 N.J.Super. at 67, but also a third-party consultant of an agency. Morie, supra, 241 N.J.Super. at 577-78 (holding that public policy militates against recognizing "a cause of action in favor of a bidder against a professional who negligently prepares illegal specifications for a public contract").
Morie Energy Management, Inc. v. Badame, supra, concerned a damages claim for lost profits by a contractor whose contract award was later set side due to illegal specifications established by the contracting agency's consulting architect. Id. at 574-75. We upheld the motion judge's grant of summary judgment, finding that recognition of such a cause of action would eliminate a prospective bidder's incentive to notify the contracting agency about possible illegalities within the specifications. Id. at 577-78. Otherwise, we reasoned, the bidder could simply sit on its hands and then sue for damages in the event that the award was set aside. Ibid. This, in turn, would thwart the overarching public policy of promoting competitive bidding. Id. at 577.
Those considerations are equally availing in the present circumstances. To authorize a private cause of action would reduce an unsuccessful bidder's incentive to promptly and comprehensively challenge an award that is improper or illegal under the bidding laws. The bid protest process affords unsuccessful bidders like Brockwell, a full and fair opportunity to challenge the intended award of a public contract, on the grounds that the competing bid submissions do not comply with the bidding laws.
We do not find compelling Brockwell's characterization of its causes of action as common-law fraud, unjust enrichment or tortious interference with prospective economic advantage. Brockwell's labeling does not change the substance of the wrong asserted by it, namely an implied private civil remedy under New Jersey's public bidding laws. As the motion judge correctly concluded, relying on Delta Chemical Corp. v. Ocean County Utilities Authority, 250 N.J.Super. 395 (App. Div. 1991)(affirming dismissal of action brought by unsuccessful bidder for money damages against a county agency), "it is well-settled law in this State that money damages are not an available remedy to the losing bidder." Therefore, we conclude that the motion judge was correct in dismissing Brockwell's first amended complaint and denying leave to file a second amended complaint.
Next, we address Dobco's claims that Brockwell and its counsel persisted with a cause of action both legally unsupportable and factually illusory. Dobco argues that the frivolousness of Brockwell's claims was apparent because Brockwell twice amended its complaint and the motion judge found that no rational argument could be advanced in support of Brockwell's positions.
As a general proposition, the parties in civil litigation must bear their own counsel fees, even when they prevail. "Although New Jersey generally disfavors the shifting of attorneys' fees, a prevailing party can recover those fees if they are expressly provided for by statute, court rule, or contract." Packard–Bamberger & Co. v. Collier, 167 N.J. 427, 440 (2001)(citations omitted). Both N.J.S.A. 2A:15–59.1 and Rule 1:4–8 permit a prevailing party to seek counsel fees and expenses by way of sanction for the filing of frivolous claims. The former provides for sanctions against parties only, while the latter extends to attorneys. However, we have cautioned:
Sanctions are not to be issued lightly; they are reserved for particular instances where a party's pleading is found to be completely untenable, or where no rational argument can be advanced in its support[.] Simply because some of the allegations made at the outset of litigation later proved to be unfounded does not render [the complaint] frivolous[.]
[McDaniel v. Man Wai Lee, 419 N.J.Super. 482, 499 (App. Div. 2011)(alterations in original)(citations and internal quotation marks omitted).]
We disagree with the motion judge's decision that "the Amended Complaint is blatantly frivolous and Brockwell is maintaining this action in bad faith for the purpose of harassment, delay or malicious injury." (emphasis added). The judge grounded his decision on both the N.J.S.A. 2A:15-59.1(b)(2) "no reasonable basis" prong and the N.J.S.A. 2A:15-59.1(b)(1) "bad faith" prong.
We have stated that "[w]here a party has reasonable and good faith belief in the merit of the cause, attorney's fees will not be awarded." First Atl. Fed. Credit Union v. Perez, 391 N.J.Super. 419, 432 (App. Div. 2007)(citing DeBrango v. Summit Bancorp., 328 N.J.Super. 219, 227 (App. Div. 2000); K.D. v. Bozarth, 313 N.J.Super. 561, 574-75 (App. Div.), certif. denied, 156 N.J. 425 (1998)). Moreover, the fact that "some of the allegations made at the outset of litigation later proved to be unfounded does not render frivolous a complaint that also contains some non-frivolous claims." Iannone v. McHale, 245 N.J.Super. 17, 32 (App. Div. 1990)(quoting Romero v. City of Pomona, 883 F.2d 1418, 1429 (9th Cir. 1989)).
We cannot agree with the motion judge that Brockwell's first amended complaint "was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law." N.J.S.A. 2A:15-59.1(b)(2).
As Brockwell contended, other jurisdictions have recognized causes of action grounded in unjust enrichment, tortious interference and misrepresentation against successful bidders that submitted improper bids. See, e.g., Iconco v. Jensen Constr. Co., 622 F.2d 1291 (8th Cir. 1980); Tectonics, Inc. v. Castle Constr. Co, 753 F.2d 957 (11th Cir. 1985); Bradney v. QR Sys. N., Inc., No. 86-4022 (E.D. Pa. Nov. 17, 1986)(slip op.). Having reviewed those cases, we conclude that Brockwell has offered a good faith, yet ultimately unpersuasive, argument that the purposes of the New Jersey bidding laws would be furthered if a responsive, unsuccessful bidder was permitted to file suit directly against the winning, allegedly nonconforming bidder.
Though we have determined that no such cause of action exists under New Jersey law and therefore affirm the lower court's dismissal, that dismissal, in and of itself, is insufficient to justify sanctions. See Ferolito v. Park Hill Ass'n, Inc., 408 N.J.Super. 401, 411 (App. Div.)(holding that the inability of plaintiff's claims to survive a summary judgment motion "is an insufficient ground for an award of fees and costs under the Frivolous Litigation Statute"), certif. denied, 200 N.J. 502 (2009).
Further, we address the determination that Brockwell proceeded with the underlying action "in bad faith for the purpose of harassment, delay or malicious injury." The motion judge found that Brockwell's discovery demands were "purely calculated to harass Dobco and improperly seek proprietary information in an attempt to gain a business advantage over Dobco." Additionally, the judge found that his review of the papers and arguments made it "apparent . . . that Brockwell is pursuing the litigation simply to harass Dobco."
"'[T]he burden of proving that the non-prevailing party acted in bad faith' is on the party who seeks fees and costs pursuant to N.J.S.A. 2A:15-59.1." Ferolito, supra, 408 N.J.Super. at 408 (quoting McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 559 (1993)). Aside from inferential conclusions by Dobco that continued pursuit of the litigation made plain Brockwell's "ongoing hounding and harassment" of it, Dobco did not direct the court to specific facts evidencing bad faith, harassment or malice.
In conclusion, although Brockwell's claims fail substantively, a sufficient good faith argument existed for an extension, modification or reversal of existing law. Brockwell's analytical analogies to cases like Iconco and Tectonics "may be aptly viewed as an objectively reasonable attempt at extension of existing law, not as a baseless attempt to harass, delay, or increase the costs of litigation." Wyche v. Unsatisfied Claim & Judgment Fund, 383 N.J.Super. 554, 561 (App. Div. 2006). Accordingly, mindful of the strong public policy that "the right of access to the courts should not be unduly infringed upon, [and] honest and creative advocacy should not be discouraged, " Iannone, supra, 245 N.J.Super. at 28, we conclude that the motion judge abused his discretion by finding that Brockwell's claims were frivolous under N.J.S.A. 2A:15-59.1(b) and Rule 1:4-8. Therefore, we vacate the award of attorney's fees.
In view of our decision setting aside the award of frivolous litigation sanctions, we need not address Dobco's contention that Brockwell's counsel should be jointly and severally liable for the award.
Affirmed in part; reversed in part.