Between 2009 and 2012, defendant outbid plaintiffs on 23 public works contracts
to apply slurry seal coating on various roadways in Southern California
counties. Plaintiffs jointly sued defendant in all of those counties for
intentional interference with prospective economic advantage. In the action
in Riverside County, plaintiffs alleged that defendant won six public
contracts on which plaintiffs were the second lowest bidder. Plaintiffs
allege that defendant submitted intentionally submitted deflated bids
because it failed to pay prevailing wage and overtime compensation in
connection with those contracts. Plaintiffs further alleged that they
had relationships with the contracting entities and would have been the
successful bidder but for defendant's conduct.
The trial court sustained defendant's demurrer to the cause of action
without leave to amend. However, a divided Court of Appeal panel found
plaintiffs' allegations sufficient and reversed the trial court's
ruling. Defendant then appealed the matter to the California Supreme Court.
Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., California Supreme Court Case No. S225398 (February 16, 2017), the California
Supreme Court held that an unsuccessful bidder on a public contract cannot
meet the pleading and proof elements necessary to prevail on an intentional
interference with prospective economic advantage claim. Specifically,
the Court considered whether the unsuccessful bidder can meet the requirements
of showing an existing relationship with the public agency that contains
the probability of an economic benefit to the plaintiff. The Court noted
that public contracts are a "unique species of commercial dealings"
in which public agencies generally retain a broad discretion to reject
all bids. Because the bids were sealed and there were no post-submission
negotiations, the public agency could give no preference to any bidder
based upon past dealings. The public agency was required to accept the
lowest responsive and responsible bid, if any bid was accepted.
The Court further reasoned that plaintiffs could not show an existing economic
relationship with the public agency because of the uncertainty as to who
would be the lowest bidder and whether the agency would reject all of
the bids. The Court further noted that the criteria for responsible and
responsive bidders made it speculative for plaintiffs to allege that they
would have been awarded the contract but for defendant's illegal conduct.
Accordingly, the Court held that plaintiffs' allegations were insufficient
and the demurrer was properly sustained.
The Court's decision in
Roy Allan eliminates an unsuccessful bidder's challenge to a public contract
award based upon the filing of a tort claim for intentional interference
with prospective economic advantage. Thus, contractors who are bidding
on public contracts must now only focus upon challenges to the successful
bidder's responsiveness and responsibility when protesting the award
of a public contract. When making such challenges, the protesting bidder
should pay close attention to the awarding entity's bid protest procedures.