No. 94-139
IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
ISC DISTRIBUTORS, INC.,
Plaintiff and Appellant,
v.
MIKE TREVOR; DAVE MARSHALL; RON HEILMAN;
BRUCE SWICK; RON ARMSTRONG; SHARON RANSTROM;
DEBBIE OWEN; SHERRY HANKS; TERRY KRAMER;
ROGER FUCHS; JOHN DOES I THROUGH X, AND
JANE DOES I THROUGH X, individually and in ffJ >&L&. ,.
their representative capacity as employees C~~~~c OF 5'
of the State of Montana, SPATE
Defendants and Respondents.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Larry W. Moran, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Michael E. Wheat, Cok, Wheat & Brown,
Bozeman, Montana
Thane P. Johnson, Werner, Epstein & Johnson,
Cut Bank, Montana
For Respondent:
John F. Sullivan, Hughes, Kellner,
Sullivan & Alke, Helena, Montana
Submitted on Briefs: June 15, 1995
Decided: August 28, 1995
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
The plaintiff, ISC Distributors, Inc., filed an amended
complaint in the District Court for the Eighteenth Judicial
District in Gallatin County, in which it alleged that the
defendants, as employees of the State of Montana, violated its
constitutional rights and acted negligently and in bad faith when
they rejected its proposal for a microcomputer term contract. The
District Court granted the defendants' motion for summary judgment
and dismissed the amended complaint. ISC appeals from the District
Court's order granting summary judgment. We affirm in part and
reverse in part the judgment of the District Court.
The issues on appeal are:
1. Did the District Court err when it held that ISC had an
insufficient property interest upon which to base a claim that it
was denied due process of law in violation of 42 U.S.C. § 1983?
2. Did the District Court err when it held that ISC's
complaint of arbitrary and unfair treatment was insufficient to
form the basis for a claim that it was denied equal protection of
the law in violation of 42 U.S.C. § 1983?
3: Did the District Court err when it held that ISC could
not state a claim for damages based on its allegation that the
defendants acted negligently or in bad faith in their
administration of the Montana Procurement Act?
2
FACTUAL BACKGROWD
The District CourtEs order of summary judgment is based on the
plaintiff's uncontroverted complaint, plus additional material
provided by the defendants in support of their motion for summary
judgment. Since the allegations in the plaintiff's complaint were
assumed to be true by the District Court for purposes of its
decision, we will assume them to be true for purposes of this
opinion.
On July 26, 1990, pursuant to the Montana Procurement Act
found at §§ 18-4-101 to -407, MCA, the Montana Department of
Administration (Department) issued a Request for Proposal for
Microcomputer Term Contracts (RFP). It originally established a
deadline of August 29, 1990, for responses, however later extended
that deadline to September 12, 1990, by "Addendum #l." IX
prepared a proposal and submitted it prior to the September 12,
1990, deadline.
ISC was not awarded a contract by the Department. In its
complaint, it alleged that, contrary to the express provisions in
the RFP, the defendants issued a second addendum on September 14,
1990, extending the deadline to October 9, 1990; accepted proposals
from persons who failed to meet the September 12, 1990, deadline;
and eventually awarded the contract to one or more of those
persons.
ISC alleged that the RFP provided for contract awards to the
first and second best applicant in two categories: (1) a category
3
in which cost was to be the most heavily weighted factor; and (2) a
category in which qualifications were to be the most heavily
weighted factor. It alleged that based on the applicable criteria,
it was either firs,t or second in each category but that it was not
awarded a contract because the defendants: (1) based their awards
on criteria not included in the original RFP; (2) disclosed
contents of plaintiff's proposal to competing offerors; (3) failed
to give the plaintiff fair and equal treatment with respect to
discussion and revision of its proposals; and (4) applied
evaluation criteria in an arbitrary and capricious manner.
Based on these allegations, ISC claimed a right to recover
damages pursuant to 42 U.S.C. 5 1983 for deprivation of its
property right without due process, and for violation of its right
to equal protection of the law in violation of the Fifth and
Fourteenth Amendments to the United States Constitution. It also
asserted claims for damages based on the alleged negligence and bad
faith of the defendants during their administration of the Montana
Procurement Act.
The defendants moved to dismiss the original complaint
pursuant to Rule 12(b) (6), M.R.Civ.P. Although that motion was
briefed by both parties, it was not ruled upon by the District
Court. The defendants submitted additional information, including
an affidavit to which relevant portions of the RFP were attached,
and moved for summary judgment. After considering briefs and
arguments from both parties, the District Court granted the
4
defendants' motion for summary judgment and entered judgment for
the defendants.
The District Court concluded that ISC had not stated a claim
based on denial of its right to due process in violation of
42 U.S.C. 5 1983 because under Montana law it had no property right
which was protected. It concluded that ISC had not been denied
equal protection in violation of § 1983 because, at most, it
alleged a violation of the law, rather than an unfair or
discriminatory classification under the law. Finally, the District
Court concluded that ISC could not state a claim for damages based
on the defendants' alleged negligent or improper administration of
the Montana Procurement Act because § 18-4-242, MCA, provides the
exclusive remedy for violations of the Act, and claims for damages
are not included.
ISSUE 1
Did the District Court err when it held that ISC had an
insufficient property interest upon which to base a claim that it
was denied due process of law in violation of 42 U.S.C. § 1983?
Defendants originally moved to dismiss the complaint pursuant
to Rule 12(b) (61, M.R.Civ.P., for failure to state a claim for
which relief may be granted. Although the motion was briefed by
both parties, the District Court did not rule upon the defendants'
motion. In response to ISC's amended complaint, defendants moved
for summary judgment pursuant to Rule 56, M.R.Civ.P. The District
Court granted that motion, but during the course of its opinion
5
intermittently used language which suggested that its opinion was
based on Rule 12(b) (6). A Rule 12(b) (6) order would assume all
facts in the complaint to be true, but conclude that based on those
facts, no legally cognizable claim has been stated. In this case,
a resolution of ISC's due process claim requires consideration of
facts beyond those alleged in its complaint. It is necessary to
consider the criteria set forth in the Departmentls RFP 112-B.
Therefore, we will treat the District Court's decision as an order
granting defendants' motion for summary judgment.
We review a district court order granting summary judgment
based on the same factors considered by the district court. Cooper
V. SistersofChurify (1994), 265 Mont. 205, 207, 875 P.2d 352, 353.
Summary judgment is not appropriate unless there are no issues of
material fact and the moving party is entitled to judgment as a
matter of law. Rule 56, M.R.Civ.P.
ISC contends that because its proposal satisfied the statutory
criteria for the contracts which were ultimately awarded by the
defendants, it had a property interest in those contracts which was
denied arbitrarily and unfairly by the State in violation of ISC's
right to due process, and therefore, in violation of 42 U.S.C.
§ 1983.
42 U.S.C. § 1983 states:
Every person who, under the color of any statute,
ordinance, regulation, custom, or usage, of any State
. . subjects, or causes to be subjected, any citizen of
the United States or other person within the jurisdiction
thereof to the deprivation of any rights, privileges, or
immunities secured by the Constitution and laws, shall be
6
liable to the party injured in an action at law, suit in
equity, or other proper proceeding for redress.
The legal foundation for such a claim is best summarized as
fol.lows:
To prevail. on its due process claim Curtis must
prove that it had a definite liberty or property interest
and that such interest was, under color of state law,
abridged without appropriate process. See Board of Regents v.
Roth < 4 0 8 U . S . 5 6 4 , 5 6 9 - 7 0 , 92 S.Ct. 2701, 2705, 33
L.Ed.2d 548 (1972); Casiasv. CityofRaton, 738 F.2d 392, 394
(10th Cir. 1984) ; vinyardv. King, 728 F.2d 428, 430 (10th
Cir. 1984). The process requirement necessary to satisfy
fourteenth amendment procedural due process comes into
play only after plaintiff has shown that it has a
property or liberty interest. Yinyard, 728 F.2d at 430
n. 5 (citing Roth, 408 U.S. at 569-70, 32 S.Ct. at 2705).
To establish a property interest in a particular benefit,
one must have a "legitimate claim of entitlement" to it.
Roth, 408 U.S. at 571, 92 S.Ct. at 2709. n [Aln abstract
need or desire for it" or a "unilateral expectation" is
insufficient. Id.; see also Logan v. Zimmerman Brush Co. , 4 55 u s .
422, 102 S.Ct. 1148, 71 L.Ed.Zd 265 (1982). Whether such
claim of entitlement exists, and the sufficiency thereof,
is determined "by reference to state law." Bishop v. Wood,
426 U.S. 341, 344, 96 S.Ct. 2074, 2077, 48 L.Ed.2d 684
(1976). However, while the typical claim of entitlement
is based upon "specific statutory or contractual
provisions," it need not be. Casias , 738 F.2d at 394.
Rather, "[a] person's interest in a benefit is a
'property' interest for due process purposes if there are
. . . rules or mutually explicit understandings that
support his claim of entitlement to the benefit and that
he may invoke at a hearing." Perry v. Sindermann , 4 0 8 U. S .
593, 6 0 1 , 9 2 s.ct. 2 6 9 4 , 2699, 33 L.Ed.2d 570 (1972).
Curtis Ambulance v. Shawnee County Board of COW+ Commissioners ( 10th Cir . 1987 ) ,
811 F.2d 1371, 1375-76.
ISC relies on a decision from the U.S. District Court for the
Western District of Pennsylvania to SUppOrt its contention that it
ha~ a property interest in the contract award that it sought
7
pursuant to the Montana Procurement Act. Three Rivers Cablevision, Inc. v. City
ofPittsburgh (W.D. Pa. 1980), 502 F. Supp. 1118. In Three Rivers, the
plaintiffs filed suit pursuant to 5 1983 for denial of its right to
due process and equal protection when the City of Pittsburgh
awarded a cable television contract in what that plaintiff
contended was a violation of the city's procurement and awards
process.
That court noted that consideration of whether due process had
been denied required a determination of: (1) whether the
deprivation complained of constituted a liberty or property
interest; and (2) the nature of the process due the complainant.
Three Rivers, 502 F. Supp. at 1128. It concluded that a party cannot
establish a proper.ty interest in a procedure itself. Therefore, a
protected interest must be found in the benefit that the
complainant seeks to have regulated by that procedure, i.e., the
award of the contract. Three Rivers, 502 F. Supp. at 1128-29. To
determine whether the plaintiff established a property interest in
that contract award, that court considered the local city code,
which provided that the city had the right to reject all bids, but
also that if a contract was awarded, it would be awarded to the
lowest responsible bidder. That court concluded that a narrow-
dimension property interest existed which was the right of the
lowest responsible bidder who complied with the relevant
specifications to receive the contract, once the city decided to
award a contract pursuant to the proposal process. The court held
8
that the plaintiff satisfied the requisite criteria, and was the
lowest responsible bidder. Therefore, that plaintiff had a
property interest in the contract award. Three Rivers, 502 F. Supp.
at 1130-32.
Based on the rationale set forth in ThreeRivers, ISC contends
that Montana's Procurement Act confers the requisite property
interest to state a claim for denial of due process in violation of
42 U.S.C. § 1983. It contends that pursuant to § 18-4-304(7), MCA,
the defendants' discretion for awarding the contracts in question
was limited to the criteria set forth therein; that because IX
satisfied those criteria, it had a property interest in the
contract award; and that because the defendants awarded contracts
to others in arbitrary disregard for those criteria they violated
ISC's right to due process of law.
The defendants respond that the decision in ThreeRivers is a
minority view; that the result in ThreeRivers is inconsistent with
prior Montana case law which held that unsuccessful bidders lacked
standing to challenge the award of a government contract; and that
even if this Court was to follow the ThreeRivers rationale, it is
inapplicable to the facts in this case because there was no
statutory requirement that a contract be awarded to the lowest
bidder.
The defendants correctly note that other jurisdictions
disagree whether the District Court for the Western District of
Pennsylvania was correct when it held that an unsuccessful bidder
9
can establish a property interest in a contract award which is
protected by the due process clause. Compare f’ataulu Electric Membership
f&p. v. Whitworth (11th Cir . 1992), 951 F.2d 1238, 1242-43; Anderson-Myers
C!o.,Inc. v.Roach (D. Kan. 1987), 660 F. Supp. 106, 111; with Szabo Food
Service, Inc. Y. Canteen Corp. (7th Cir. 1987), 823 F.2d 1073 , lOB1; Sowell's
MeotsandSevvices,Inc. v.Mc&vain (4th Cir. 1986), 799 F.2d 226, 22s; ARA
Services, Inc. v. School Dist. ofPhiiade@hia (E. D . Pa. 1984 ) , 5 go F . Supp. 622
629.
other courts have held that a government agency's reservation
of the right to reject any and all bids provides sufficient
discretion to preclude a constitutionally protected property
interest in a contract award. Kim Construction Co., Inc. v. Board of Trustees
(7th Cir. 1994), 14 F . 3 d 12 4 3 , 12 4 6 - 4 7 ; Teton PIunzbing and Heating CO., ~nc.
v.SchoolDist.No.1 (Wyo. 19891, 763 P.2d 843, 849-50.
However, based on the procurement statute with which we are
concerned in this case, it is not necessary that we choose between
the ThreeRivers decision and its detractors. We have previously held
in Akhtar v. Van De W&rifIg (1982), 197 Mont. 205, 218, 642 p.2d 149,
'-56, that a public official's discretion may prevent the creation
f a property right sufficient to support a claim that due process
as denied in viol.ation of 5 1983. In that case we recognized
lat:
TO have a property interest in a benefit a person
clearly must have more than an abstract need or desire
for it. He must have more than a unilateral expectation
10
of it. He must, instead, have a legitimate claim of
entitlement to it.
Akhtar , 642 P.2d at 153 (quoting Roth, 408 U.S. at 577).
Other courts have also held that a constitutionally protected
property right cannot be established based on a statutory scheme in
which the governmental agency has considerable discretion to award
or withhold a benefit. Szabo, 823 F.2d at 1080-81; Sowd’sMeats, 788
F.2d at 228-29. Absent a property interest, courts will not review
the merits of a due process claim. Kim Construch’on , 14 F.3d at 1246.
Here, ISC bases its claim on Montana's procedure for receiving
and considering "competitive sealed proposals" which is set forth
at § 18-4-304, MCA. Subsection (7) of that statute provides:
The award must be made to the responsible offeror
whose proposal is determined in writing to be the most
advantageous to the state, taking into consideration
price, including the preference in 18-l-102, and the
evaluation factors set forth in the request for
proposals. No other factors or criteria may be used in
the evaluation.
Advantageous is defined by Administrative Rule as "a judgmental
assessment of what is in the state's best interest." Rule 2.5.201,
The request for proposals in this case provided that contracts
would be awarded based upon the applicant's qualifications, a
technical evaluation, and a cost analysis. However, the RFP also
stated that the Department reserved the right to reject any
proposal based on what it concluded were the State's "best
interests."
11
While 5 18-l-102, MCA, provides a preference to residents,
that is only one factor that must be considered, and there is no
record in this case which would indicate that that preference was
misapplied.
Therefore, we conclude that unlike the procurement laws on
which the ThveeRivers decision was based, the defendants in this case
were not required to award a contract to the "lowest bidder," nor
were they absolutely required to award a contract based on any
other sufficiently objective basis that a property interest was
created which would support a due process claim pursuant to
42 U.S.C. § 1983. The defendants were simply required to award
contracts based on what they subjectively concluded was in the
State's best interest after taking into consideration various
factors, including quality, expense, and technical adequacy.
Neither the statutory nor regulatory criteria, nor the RFP, limited
the defendants' discretion to a sufficient extent to create a
property right pursuant to the ThreeRivers decision, or any of its
progeny. For that reason, and based on our prior conclusion that
a property right will not exist where there is broad discretion
involved in the award of a benefit, we affirm the District Court's
order dismissing IX's claim that it was denied due process of law
in violation of 42 U.S.C. § 1983.
ISSUE 2
Did the District Court err when it held that ISC's
complaint of arbitrary and unfair treatment was insufficient to
12
form the basis for a claim that it was denied equal protection of
the law in violation of 42 U.S.C. § 1983?
ISC contends that because it alleged that the defendants
applied the Montana Procurement Act unfairly and in a
discriminatory fashion, the District Court erred when it held that
it had not stated a claim that it was denied equal protection in
violation of 42 U.S.C. 5 1983. ISC relied on the ThreeRivers decision
to support its claim.
The State responds that violations of state law, or arbitrary
application of state law, do not give rise to a claim that the
Equal Protection Clause of the Fourteenth Amendment to the United
States Constitution has been violated. The defendants contend that
the substance of ISC's claim is that the defendants have misapplied
state law and that pursuant to the U.S. Supreme Court's decision in
Beck v. Washington ( 19 62 ) , 369 U.S. 541, 554-55, 82. S. Ct. 955, 962-63,
8 L. Ed. 2d 98, 110, misapplication of state law is not an equal
protection violation.
In Three Rivers, the Federal District Court held that unequal
application of an otherwise facially neutral bidding provision
clearly states a § 1983 claim for denial of equal protection. Three
Rivers, 502 F. Supp. at 1133.
However, we agree with the ,District Court for the Eastern
District of Pennsylvania when it held in ARA Services, Inc., that:
The function of the equa~l protection clause ‘is to
measure the validity of classifications created by state
13
laws. ’ Parham v. Hughes, 441 U.S. 347, 358, 99 S.Ct. 1742,
1749, 60 L. Ed. 2d 269 (1979). . . .
I .
An equal protection claim fails when it 'at most
amounts to an allegation that state law was misapplied in
[anI individual case.' Shortv. Garrison, 678 F.2d 364, 368
(4th Cir. 1982). The Supreme Court has made clear that
the misapplication of state law alone does not constitute
invidious discrimination in violation of the equal
protection clause; I[wlere it otherwise, every alleged
misapplication of state law would constitute a federal
constitutional question.' Beckv. Washington, 369 U.S. 541,
554, 555, 82 S.Ct. 955, 962-63, 8 L.Ed.Zd 98 (1962).
Although the plaintiffs have attempted to couch their
claim in equal protection language, it is clear that they
are, in essence, asserting that state law was misapplied
in their case. This Court does not find in the equal
protection clause the authority to review for
constitutional error a decision of a local or state
governmental body merely because the decision is alleged
to be arbitrary or unlawful. The contention that the
plaintiffs are members of a class of everyone who has had
the law misapplied in particular cases, even assuming it
were supported by some allegation in the complaint,
merely suggests that others might have state law, but not
federal constitutional, claims. The plaintiffs have
failed to state a claim for violation of the equal
protection clause of the Fourteenth Amendment.
ARA Services, 590 F. Supp. at 629-30.
We conclude that the plaintiff has, at most, alleged that
state law was misapplied to it as an individual in an isolated
incident. It does not allege that it has been discriminated
against as a member of any definable class, nor that state law has
been misapplied based on class distinction. For these reasons, we
conclude that as a matter of law, ISC has not stated a claim for
denial of its federal right to equal protection in violation of
42 U.S.C. § 1983, and we affirm the District Court's order granting
14
summary judgment to the defendant which dismissed ISCIS claim which
was based on the Equal Protection Clause.
ISSUE 3
Did the District Court err when it held that ISC could not
state a claim for damages based on its aIlegation that the
defendants acted negligently or in bad faith in their
administration of the Montana Procurement Act'?
The District Court held, and the defendants ask that we
affirm, that ISC cannot recover damages based on its allegation
that the defendants administered the Montana Procurement Act in bad
faith and negligently because the exclusive remedy for
misapplication of the Act's provisions is § 1 8 - 4 - 2 4 2 , MCA.
However, to do so would require that we ignore the plain language
of the Act,
Although 5 18-4-242, MCA,is entitled "Remedies Prior to and
After Award,' we have held that the title of a statute is
subordinate to its text in determining its effect. Manufacturing
Acceptance Corp. v. Krsul ( 19 6 8 ) , 151 Mont. 28, 35, 438 P.2d 667, 671. The
text of 5 -242 does not, in fact, provide any remedy to ISC.
Instead, it provides in relevant part that:
(1) If a solicitation or award of a contract is in
violation,of law, the decartment may apply the remedies
provided in subsections (2) and (3).
!2) ,If Prior to award it is determined that a
solicitatron or proposed award of a contract is in
violation of law, the solicitation or proposed award must
be:
(a) canceled; or
(b) revised to comply with the law.
15
_.i______
(3) (a) If after an award it is determined that a
solicitation or award of a contract is in violation of
law and the person awarded the contract has not acted
fraudulently or in bad faith, the contract may be:
(i) ratified and affirmed, provided it
determined that doing so is in the best interests of tkz
state; or
(ii) terminated, and the person awarded the contract
must be compensated for the actual expenses reasonably
incurred under the contract, plus a reasonable profit,
prior to the termination.
(b) If after an award it is determined that a
solicitation or award of a contract is in violation of
law and the person awarded the contract has acted
fraudulently or in bad faith, the contract may be:
(i) declared void; or
(ii) ratified and affirmed if such action is in the
best interests of the state, without prejudice to the
state's rights to appropriate damages.
(Emphasis added.)
Section 18-4-122, MCA, which lists the purposes of the Montana
Procurement Act states, on the other hand, that:
The underlying purposes and policies of this chapter are
to:
i5j 'ensure the fair and equitable treatment of all
persons who deal with the procurement system of the
state;
. . . .
(8) provide safeguards for the maintenance of a
procurement system of quality and integrity.
Toward that end, the Legislature has provided in 5 18-4-131,
MCA, that:
(I) Unless displaced by the particular provisions of this
chapter, the principles of law and equity, including the
Uniform Commercial Code, the law merchant, and law
relative to capacity to contract, agency, fraud,
misrepresenta,tion, duress, coercion, mistake, or
bankruptcy, supplement the provisions of this chapter,
except that writs of mandamus and prohibition issued
pursuant to Title 27, chapters 26 and 27, may not be used
as a remedy for violations of this chapter.
16
(2) This chapter requires all parties involved in
the negotiation, performance, or administration of state
contracts to act in good faith.
The District Court held that 5 18-4-242, MCA, displaced the
remedies provided for in 5 18-4-131, MCA. However, when
interpreting statutes, courts may not insert what has been omitted
or omit what has been inserted. Section l-2-101, MCA. Likewise,
courts must construe a statute based on its plain meaning. State ex
rel. Woodahl v. District Court (1973) , 162 Mont. 283, 292, 511 P.2d 318, 323.
The plain language of § 18-4-242, MCA, does not suggest that
it was intended to displace other remedies for abuse of the
procurement process which may be available based on principles of
law and equity. In fact, the plain language of § -242 suggests the
contrary. It limits remedies to those which may be taken by "the
department.l' It provides no remedy for irregularities which may
have been engaged in by "the department." Furthermore, the
remedies provided for in § -131 are much more expansive than those
provided for in § -242. It makes no sense that the Legislature
would wipe them out several sections later without ever expressly
stating that it had done so. Finally, because § -242 provides no
method of enforcement by individuals who have been adversely
affected by misapplication of Montana's Procurement Act, it does
nothing to further the purposes of the Act which are set forth in
5 18-4-122(5) and (8), MCA. It would be impossible to "ensure the
fair and equitable treatment of all persons who deal with the
procurement system" if the only party capable oft enforcing the
17
system’s requirements was the party accused of abusing those
requirements.
The defendants argue, and the District Court agreed, that
because of our prior decisions in Bakerv.State (19851, 218 Mont. 235,
707 P.2d 20, and Stateexrel.Stuewev.Hindson (1912), 44 Mont. 429, 120 P.
485, ISC lacks standing to sue for damages under the Montana
Procurement Act. However, neither case is applicable. Stuewe did
not involve a claim for damages; both cases involved claims for
mandamus, which are specifically barred by 5 18-4-131, MCA; and
neither involved a claim under Chapter 4 of the Montana Procurement
Act, which specifically preserves "legal and equitable remedies."
Stuewe involved a bid submitted to the Lewis and Clark County
Commissioners to provide services for care of the poor, sick, and
infirm. William Stuewe was an unsuccessful bidder and brought an
action in mandamus to compel the Board to rescind its award to
another bidder and award the contract to him. We held that because
the County had the authority to reject all bids, or any bid, there
was no absolute duty on the part of the Board to accept any bid,
and therefore, that mandamus will not lie to compel the County to
act. We based that holding on our conclusion that mandamus is only
available to enforce a well-defined right for which there is no
other specific legal remedy.
In Baker, the State Division of Architecture and Engineering
invited bids for the construction of the National Guard Armoxy in
Harlowton pursuant to Title 18, Chapter 2, of the Montana Code
18
Annotated. Baker was an unsuccessful bidder and brought an action
to have the award to another set aside and the contract awarded to
him. He also sought damages for misapplication of the construction
contract statutes. We held, based on our prior decision in Sletten
ConshwctionCo. v. CityofGreatFalls (1973), 163 Mont. 307, 516 P.2d 1149,
that "the discretion of the agency to award public work contracts
to the lowest bidder is not subject to judicial review under normal
circumstances" absent "bad faith, fraud, or corruption of the
department . . . .'I Baker, 707 P.2d at 24.
S&ten stood only for the broad general principle that an
unsuccessful bidder has no standing in mandamus or otherwise to
control the exercise of discretion by a governmental agency for
awarding contracts to one of several bidders. Baker is
distinguishable from this case for several reasons: (1) Chapter 2
of Title 18 pertains to construction contracts, rather than the
Montana Procurement Act, and includes no provision comparable to
§ 18-4-131, MCA, which preserves legal and equitable remedies;
(2) mandamus is specifically precluded by 5 18-4-131, MCA, and
therefore, not sought by ISC; (3) ISC's claim is based on an
alleged failure to act in good faith, which is specifically
required by § 18-4-131(Z), MCA. As noted by the Court, bad faith
was not alleged in Baker.
Section 18-4-131(l), MCA, provides that "the principles of law
. . . supplement the provisions" of the Montana Procurement Act,
and subsection (2) requires that all parties involved in the
19
,
administration of the Act "act in good faith." ISC'S claim for
damages based on its allegation of negligence is founded in
principles of law; and its claim based upon failure to act in good
faith is based on an alleged violation of the obligation
specifically imposed on the defendants by statute. We conclude
that these provisions of the Montana Procurement Act are not
displaced by the later provision in 5 18-4-242, MCA, which
authorizes the Department to pursue rescission-like remedies where
it concludes that a solicitation has been submitted or a contract
awarded in violation of law. Neither are these remedies precluded
by our prior decisions in S&ewe and Baker. For these reasons, the
judgment of the District Court which dismissed ISC's claims based
on negligence and bad faith is reversed, and this case is remanded
to the District Court for further proceedings consistent with this
opinion.
We concur:
Chief Justice
Justices
&~.s&,-
~hf~ ,
District tiurt judge Marge Johnson
sitting for Justice James C. Nelson
21
Justice Fred J. Weber dissents as follows:
I concur in the opinion's resolution of Issues I and 2. I
dissent on Issue 3, in which the opinion concludes that the
District Court erred when it held that ISC could not state a claim
for damages based on its allegations that the defendants acted
negligently or in bad faith in their administration of the Montana
Procurement Act.
Under Issue 3, the opinion sets forth the text of § 18-4-242,
MCA, in "relevant part." Such relevant part does not include
subsection (4) which I believe to be critical to the decision.
Following is the complete text of 5 18-4-242, MCA:
18-4-242. Remedies prior to and after award. (1)
If a solicitation or award of a contract is in violation
of law, the department may apply the remedies provided in
subsection (2) and (3).
(2) If prior to award it is determined that a
solicitation or proposed award of a contract is in
violation of law, the solicitation or proposed award must
be:
(a) canceled; or
(b) revised to comply with the law.
(3) (a) If after an award it is determined that a
solicitation or award of a contract is in violation of
law and the person awarded the contract has not acted
fraudulently or in bad faith, the contract may be:
(i) ratified and affirmed, provided it is determined
that doing so is in the best interests of the state; or
(ii) terminated, and the person awarded the contract
must be compensated for the actual expenses reasonably
incurred under the contract, plus a reasonable profit,
prior to the termination.
(b) If after an award it is determined that a
solicitation or award of a contract is in violation of
law and the person awarded the contract has acted
fraudulently or in bad faith, the contract may be:
(i) declared void; or
(ii) ratified and affirmed if such action is in the
bet interests of the state, without prejudice to the
state's rights to appropriate damages.
(4) In the event the matter is reviewed bv a court,
the court may apply the same remedies provided in
subsections (2) and (3). (Emphasis supplied.)
22
In analyzing the foregoing statute, the opinion states that
the plain language of § -242 does not suggest that it was intended
to displace other remedies for abuse of the procurement process
which may be available based upon principles of law and equity. It
incorrectly states that § -242 limits remedies to those which may
be taken by "the department." Finally, it states that because the
section provides no method of enforcement by individuals who have
been adversely affected by the Act, it does nothing to further the
purposes of the Act. I disagree with those conclusions when the
entire Act, and in particular subsection (4) of 5 -242, is
considered. Subsection (4) provides that in the event the matter
is reviewed by a court, the court may apply the same remedies
provided in subsections (2) and (3). Clearly a remedy was provided
to the plaintiff in this case which could have sued under § -242 to
enforce the remedies therein provided. As a result, I disagree
with the conclusion that it is impossible to ensure a fair and
equitable treatment if the only party capable of enforcing the
requirements was the party accused of abusing those requirements-
that conclusion is negated by subsection (4).
I will analyze § 18-4-242, MCA, taking into consideration the
allegations on the part of the plaintiff. Under the negligence
count of the amended complaint, the plaintiff in substance alleged
that the defendants failed to exercise ordinary care in awarding a
contract under the RFP. In substance, plaintiff contended that
defendant Swick issued a second addendum on September 14, 1990, two
days after the date of the deadline for receipt of proposals which
"extended" the deadline for proposals to October 9, 1990.
23
Apparently that is a key part of the negligent conduct claim, In
addition, plaintiff pleaded that the defendants failed to award the
contract because of their conduct in using improper evaluation
criteria, failed to ensure nondisclosure of the contents of
plaintiff's proposal, intentionally discriminated against the
plaintiff and applied evaluation criteria to plaintiff's proposal
in an arbitrary and capricious manner. In a similar manner, in
count VI of its complaint, plaintiff alleged that the action of the
defendants in sending plaintiff the RFP gave rise to a justifiable
expectation on the part of the plaintiff that defendants would act
reasonably and negotiate in good faith, pursuant to and required by
§ 18-4-131, MCA. Defendants' conduct was unreasonable and a breach
of their duty to negotiate in good faith.
I will discuss the foregoing aspects of the complaint as
provided by the Act. In doing so, I will refer to the right of
both the department and the court to apply the remedies of § -242.
Subsection (l), (and by inference made in subsection (4)) of § -
242, provide that if an award of a contract is in violation of law,
the department or the court may apply the remedies in subsection
(2) or (3). Clearly the allegations of negligence and bad faith in
the plaintiff's complaint are in violation of the principles of law
and equity and the law relative to the capacity to contract as well
as the law of fraud, all referred to in § 18-4-131, MCA. As a
result, under subsection (2) of 5 -242, if prior to the award, the
plaintiff had objected, either the department or the court could
have determined that the proposed award was in violation of law at
24
which time the proposed award would have to have been cancelled or
revised to comply with law.
In a similar manner, under subsection (3)(a) of § -242, if
after an award was made, the plaintiff had made the same
complaints, then either the department or the court could have
determined that the award was in violation of law. At that point,
if the party awarded the contract had not acted either fraudulently
or in bad faith--none of which is alleged in the complaint--the
contract may be ratified and affirmed by either the department or
the court if it is determined that it is in the best interests of
the state; or, either the department or the court may terminate the
contract and the party awarded the contract would be entitled to
actual expenses as listed.
On the other hand, under subsection (3) (b), if after the award
was made, either the department or the court determined that the
award was in violation of law and that the party awarded the
contract had acted fraudulently or in bad faith, the department or
the court may declare the contract void or ratify or affirm the
contract if it is in the best interests of the state without
prejudice to the state's rights to appropriate damages. I here
emphasize that the only provision in § -242 with regard to damages
is in subsection (3) (b), where the State is given the right to
appropriate damages if the person awarded the contract has acted
fraudulently or in bad faith.
Clearly § -242 gave the plaintiff the right to seek to enforce
its terms by plaintiff's request made to the department, or in the
alternative, by its request made to the District Court. Plaintiff
25
I
chose not to do so. As a result, plaintiff has disregarded the
provisions of § -242.
The District Court pointed out that plaintiff's argument with
regard to its claim for damages is misplaced because the principles
of law and equity which supplement the Procurement Act do not
include damage remedies, and § 18-4-131(l), MCA, begins with the
phrase which states that the general provisions of law and equity
apply "unless disulaced by the particular provisions of this
chapter . . .'I The District Court correctly concluded that § 18-4-
242, MCA, provides such a displacement. Clearly the remedies set
forth in that section apply both prior to and after award of a
contract. The District Court pointed out that plaintiff contended
that Baker recognizes a damage award is allowed in cases in which
bad faith is alleged. First of all we point out that under Baker
v. State (1985), 218 Mont. 235, 239, 707 P.2d 20, 23, this Court
stated:
The policy behind the bidding statute also precludes
any finding of standing for Baker to bring the action.
The statute's primary function is to benefit the
citizens. This premise is stated in 72 C.J.S.,
suppplement, Public Contracts 5 8 (1975) :
"Competitive bidding statutes are primarily
intended for the benefit of the public rather
than for the benefit or enrichment of bidders,
and consideration of advantages or
disadvantages to bidders must be secondary to
the general welfare of the public . . .'I
Baker then quoted from Stuewe v. Hindson (1912), 44 Mont. 429, 437,
120 P. 485, 487, where this Court stated:
The provisions of law for lettinq contracts of this
character to the lowest bidder is for the benefit of the
public, and does not confer any right upon the lowest
bidder as such. (Emphasis in original.)
26
Finally, in Baker, this Court made the following additional
statements:
In addition, we have held that the discretion of the
agency to award public work contracts to the lowest
bidder is not subject to judicial review under normal
circumstances. Sletten Construction Co. . . . We will
not make a contract for the parties. Nor is this Court
prepared to venture that Baker would have been awarded
the contract if Edsall was not the successful bidder. In
the absence of any showing of bad faith, fraud, or
corruption of the Department, the exercise of discretion
will not be disturbed. (Emphasis supplied.)
Baker, 707 P.2d at 24. I do not find allegations in the
plaintiff's complaint sufficient to demonstrate that there was bad
faith, fraud or corruption by the Department which required that
the exercise of the Department's discretion should be disturbed.
In any event, even if there were such bad faith, fraud or
corruption, under the specific provisions of the Procurement Act
here applicable, the proper remedy was under 5 -242, as previously
discussed.
I further disagree with the opinion's conclusion that Baker is
distinguishable because Chapter 2 of Title 18, pertaining to
construction contracts, is not comparable to the Montana
Procurement Act. Under the quotation from Chapter 2, Title 18 in
Baker, it is clear that the contract must be awarded to the lowest
bidder, a much more restrictive provision than that applicable in
the Montana Procurement Act.
I would therefore affirm the conclusion of the District Court
that competitive bidding statutes are intended for the benefit of
the public rather than for the benefit or enrichment of bidders and
that to allow damage remedies would require that the public be
forced to pay twice for the same goods and services. The District
27
I
Court properly concluded that the appropriate remedies are the
rescission-like remedies contained in 5 18-4-242, MCA. I agree
with that conclusion of the District Court. I would therefore
affirm the order of the District Court which held that the amended
complaint failed to state a claim upon which relief could be
granted.
Chief Justice J.A. Turnage concurs i
District Court Judge Katherine R. Curtis, sitting for Justice W.
William Leaphart, concurs in the foregoing dissent.
28
I
DISTRICT JUDGE MARGE JOHNSON, specially concurring:
I specially concur in the opinion authored by Justice
Trieweiler in this matter. I agree with the reasoning in the
majority opinion, but wish to add the following points in response
to the dissenting opinion.
Sections 18-4-131, M.C.A., and 18-4-24.2, M.C.A., were enacted
into law in 1983 as part of the same Act of the Legislature. The
interpretation of S; 18-4-242 urged by the dissenters makes 9 18-4-
131(1) completely unnecessary and of no effect. The dissenters
argue that 5 18-4-242, M.C.A., affords the exclusive remedies for
violations of the Montana Procurement Act. Section 18-4-131(l)
provides:
Unless displaced by the particular provisions of this
chapter, the principles of law and equity, including the
Uniform Commercial Code, the Law Merchant, and law
relative to capacity to contract, agency, fraud,
misrepresentation, duress, coercion, mistake, or
bankruptcy, supplement the provisions of this chapter,
except that writs of mandamus and prohibition issued
pursuant to Title 21, Chapters 26 and 27, may not be used
as a remedy for violations of this chapter.
Under the interpretation offered by the dissenters, 9 18-4-242
completely displaces other provisions of law itemized in 5 18-4-
131, and also renders the final clause of that provision
unnecessary, since g 18-4-242 clearly does not permit either the
writs of mandamus or prohibition to be used for violations of the
Montana Procurement Act.
It is a fundamental rule of statutory construction, which has
long been endorsed by this Court, that it is the duty of this Court
to interpret individual sections of an act in such a manner as to
ensure coordination with the other sections of the act. Howell v.
State, 263 Mont. 275, 286-287, 868 P.2d 568 (1994). This Court
29
must presume that the legislature would not pass meaningless
legislation, and must harmonize statutes relating to the same
subject, as much as possible, giving effect to each. Crist v.
Segna, 191 Mont. 210, 212, 622 P.2d 1028 (1981). This Court must
construe subsections of a statute in a manner that will give effect
to them all, reconciling conflicting or apparently conflicting
statutory provisions and making them all operative in accordance
with the legislative intent, insofar as it is possible to do so.
Schendel v. Board of Adjustment, 237 Mont. 278, 284, 774 P.2d 379
(1989).
TO hold that 8 18-4-242, M.C.A., provides the exclusive
remedies afforded by law under the Montana Procurement Act for
violation of that Act, renders § 18-4-131(l), M.C.A., completely
unnecessary. If the legislature intended to permit no other
remedies, the legislature could and should have omitted s 18-4-131,
M.C.A. It did not choose to do so, and this Court has no authority
to do so. By doing so, this Court would be substituting its own
judgment for that of the legislature.
Additionally, S 18-4-242, M.C.A., by its own terms permissive
rather than mandatory, and is not intended to provide exclusive
remedies. Section 18-4-242(4) states that: "In the event the
matter is reviewed by a court, the court may apply the same
remedies provided in (2) and (3)." If the legislature intended the
remedies of 6 18-4-242, M.C.A., to be exclusive, it could easily
have used the word "shall" or "must", which are interpreted to be
mandatory, rather than permissive. Gaustad v. City of Columbus,
265 Mont. 279, 381-382, 877 P.2d 470, 471 (1994) (The word "may" is
commonly understood to be permissive or discretionary; in contrast,
3 0
"shall" is understood to be compelling or mandatory.) The use of
the permissive language in this statute, coupled with the enactment
at the same time of § 18-4-131, M.c.A., which lists a number of
other possible remedies, refutes the dissent's claim that $ 18-4-
242, M.C.A., completely displaces those provisions listed in 5 18-
4-131(l), M.C.A.
Finally, the dissent also argues that the Plaintiffs have no
standing 218 Mont. 235, 707 P.2d 20 (1985). It is important to
note that the Baker decision was not decided under the Montana
Procurement Act, but rather under an act that does not include the
kinds of provisions found in 5 18-4-122, M.C.A., stating the
specific purposes of the Montana Procurement Act. Baker was
therefore decided ,under common law principles of longstanding in
this state which are appropriately applied absent any legislative
statement of purpose to the contrary. Under those common law
principles, an unsuccessful bidder, regardless of the reason for
the lack of success, lacks standing to bring an action challenging
the bidding process. Section 18-4-122, M.C.A., provides the
underlying purposes and policies of the Montana Procurement Act,
which include the purposes to:
(4) Provide for increased public confidence in the
procedures followed in public procurement;
(5) Ensure the fair and equitable treatment of all
persons who deal with the procurement system of the
state;
. . .
(8) Provide safeguards for the maintenance of a procurement
system of quality and integrity. [Emphasis added].
By enacting these specified purposes into law for bidding
procedures which occur under the Act, the legislature has adopted
31
purposes not consistent with the common law rule denying "persons
who deal with the procurement system of the state" any standing to
challenge violations of the Act. Section l-2-103, M.C.A., requires
that statutes which are in derogation of the common law must be
liberally construed with a view to effect their objects and to
promote justice. Where a conflict arises between the common law
and a statute, the common law must yield.. Hansen v. Utah State
Retirement Board, _ Utah -, 652 P.2d 1332, 1337 (1982). Given
the purposes enunciated in 8 18-4-122, M.C.A., there is no basis
for applying the common law rule applied in Baker, and denying this
plaintiff standing to proceed.
Marge tihnson, District Court Judge
We concur :
32
August 29, 1995
CERTIFICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid,
to the following named:
Michael E. Wheat, Esq.
Cok, Wheat & Brown
P.O. Box 1105
Bozeman, MT 59771-1106
Thane P. Johnson
Werner, Epstein & Johnson
P.O. Box 428
Cut Bank, MT 59427
John F. Sullivan, Esq.
Hughes, Kellner, Sullivan & Alke
P.O. Box 1166
Helena, MT 59624-1166
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA