CEDRONI ASSOCIATES, INC v TOMBLINSON, HARBURN ASSOCIATES, ARCHITECTS & PLANNERS, INC
Docket No. 142339
Supreme Court of Michigan
Decided July 27, 2012
492 MICH 40
Argued March 6, 2012.
In an opinion by Justice MARKMAN, joined by Chief Justice YOUNG and Justices MARY BETH KELLY and ZAHRA, the Supreme Court held:
As the lowest bidder on a public contract, plaintiff had no valid business expectancy for the purpose of sustaining a claim of tortious interference with a business expectancy. A disappointed low bidder on a public contract has no standing to sue in order to challenge the award of a contract to another bidder.
1. The elements of tortious interference with a business expectancy are (1) the existence of a valid business relationship or expectancy, (2) the defendant‘s knowledge of the relationship or expectancy, (3) an intentional interference by the defendant induc
2. A disappointed low bidder on a public contract has no standing to sue the public entity because its bid was rejected even when the public entity was required to let the contract to the lowest responsible bidder because such requirements are enacted for the protection of property holders and taxpayers, not for the benefit of bidders.
3. A plaintiff‘s expectations are the same regardless of whether the plaintiff alleges that the government wrongfully denied it the contract or that a third party interfered and caused a denial of the contract. Awarding governmental contracts is a highly discretionary process, and under
4. Courts may only interfere with the public entity‘s exercise of discretion to accept or reject bids for public contracts when necessary to prevent fraud, injustice, or the violation of a trust. No evidence was presented that intervention was necessary to prevent fraud, injustice, or the violation of a trust in this case.
Reversed; order granting summary disposition in favor of defendant reinstated.
Justice CAVANAGH, joined by Justices MARILYN KELLY and HATHAWAY, dissenting, would have affirmed the judgment of the Court of Appeals. To avoid summary disposition, plaintiff had to assert a specific and reasonable prospective economic advantage that was interfered with, not a guaranteed relationship. Plaintiff presented evidence establishing that it had a realistic expectation that it would qualify as a responsible bidder. This conclusion, in turn, gave rise to a question of material fact about whether
1. TORTS - INTERFERENCE WITH A BUSINESS EXPECTANCY - ELEMENTS.
The elements of tortious interference with a business expectancy are (1) the existence of a valid business relationship or expectancy, (2) the defendant‘s knowledge of the relationship or expectancy, (3) an intentional interference by the defendant inducing or causing a breach or termination of the relationship or expectancy, and (4) resultant damage to the plaintiff; in order to establish a valid business expectancy, the expectancy must be a reasonable likelihood or probability, not mere wishful thinking.
2. PARTIES - STANDING - PUBLIC CONTRACTS - LOW BIDDERS.
A disappointed low bidder on a public contract has no standing to sue the public entity because its bid was rejected even when the public entity was required to let the contract to the lowest responsible bidder because such requirements are enacted for the protection of property holders and taxpayers, not for the benefit of bidders.
3. SCHOOLS - CONSTRUCTION CONTRACTS - REJECTION OR ACCEPTANCE OF BIDS - DISCRETIONARY DECISIONS - LOW BIDDERS - VALID BUSINESS EXPECTANCY.
The low bidder on a school construction project does not have a valid business expectancy in the award of the contract; the award of
4. CONTRACTS - PUBLIC CONTRACTS - REJECTION OR ACCEPTANCE OF BIDS - DISCRETIONARY DECISIONS - FRAUD, INJUSTICE, OR VIOLATION OF A TRUST.
Courts may only interfere with a public entity‘s exercise of discretion to accept or reject bids for public contracts when necessary to prevent fraud, injustice, or the violation of a trust.
McAlpine & Associates, P.C. (by Mark L. McAlpine and Ryan W. Jezdimir), for plaintiff.
Sullivan, Ward, Asher & Patton, P.C. (by Ronald S. Lederman and Kevin J. Gleeson) for defendant.
Amicus Curiae:
Frederick F. Butters, PLLC (by Frederick F. Butters), for the American Institute of Architects - Michigan.
MARKMAN, J. The issue here is whether plaintiff, the disappointed lowest bidder on a public contract, had a valid business expectancy for the purpose of sustaining a claim of tortious interference with a business expectancy. The trial court held that plaintiff did not have such an expectancy, but a divided Court of Appeals panel held that a genuine issue of material fact exists in this regard. Because we agree with the trial court and the Court of Appeals dissent that plaintiff did not have a valid business expectancy, we reverse the judgment of the Court of Appeals and reinstate the trial court‘s order granting defendant‘s motion for summary disposition.
I. FACTS AND HISTORY
Davison Community Schools, a public school district, entered into a contract with defendant for architectural services with regard to a construction project. As part of the contract, defendant agreed to assist the school district
The trial court granted defendant‘s motion for summary disposition, concluding that plaintiff did not have a valid business expectancy. In a split decision, the Court of Appeals reversed, holding that a genuine issue of material fact existed in this regard. Cedroni Assoc, Inc v Tomblinson, Harburn Assoc, Architects & Planners, Inc, 290 Mich App 577; 802 NW2d 682 (2010). Judge KIRSTEN FRANK KELLY dissented, agreeing with the trial court that plaintiff did not have a valid business expectancy. We ordered and heard oral argument on whether to grant defendant‘s application for leave to appeal and specifically asked the parties to address whether the Court of Appeals erred when it determined that there are genuine issues of material fact as to (1) whether the plaintiff, a disappointed low bidder on a public contract, had a valid business expectancy and (2) whether the defendant architectural firm‘s communications, made pursuant to an agreement with the contracting
II. STANDARD OF REVIEW
We review de novo a trial court‘s decision on a motion for summary disposition. Driver v Naini, 490 Mich 239, 246; 802 NW2d 311 (2011).
III. ANALYSIS
The elements of tortious interference with a business relationship or expectancy are “the existence of a valid business relationship or expectancy, knowledge of the relationship or expectancy on the part of the defendant, an intentional interference by the defendant inducing or causing a breach or termination of the relationship or expectancy, and resultant damage to the plaintiff.” Dalley v Dykema Gossett PLLC, 287 Mich App 296, 323; 788 NW2d 679 (2010), quoting BPS Clinical Laboratories v Blue Cross & Blue Shield of Mich (On Remand), 217 Mich App 687, 698-699; 552 NW2d 919 (1996). The issue here is whether plaintiff, as the lowest bidder on a public contract, had a valid business expectancy. In order to establish this, “[t]he expectancy must be a reasonable likelihood or probability, not mere wishful thinking.” Trepel v Pontiac Osteopathic Hosp, 135 Mich App 361, 377; 354 NW2d 341 (1984). We agree with the trial court and the Court of Appeals dissent that plaintiff did not have a valid business expectancy because plaintiff had no reasonable expectation of being awarded the contract, only “wishful thinking.”
Given that a contractor that submits the lowest bid cannot bring a cause of action against the municipality when its bid is rejected, even when the municipality has adopted a charter provision that requires it to accept the “lowest responsible bidder,” it is difficult to fathom how plaintiff‘s submission of the lowest bid could have created a valid business expectancy in light of the highly discretionary process of awarding governmental con
In the instant case, not only should the common-law rule and
We are the apparent low bidders on the Additions and Renovations at Hill and Siple Elementary. I look forward to working with the Davison Schools on this project and I expect you will be more than pleased with my company‘s performance and professionalism, if awarded. [Emphasis added.]
The Court of Appeals recognized that “the submission of the lowest bid, in and of itself, was inadequate to sustain plaintiff‘s suit” and “reject[ed] any rule per se that would allow litigation to proceed simply on the basis of proof of the lowest bid” because submission of the lowest bid does not, by itself, create a valid business expectancy. Cedroni, 290 Mich App at 582.4 However, the Court concluded that the school district‘s fiscal management policy, coupled with plaintiff‘s submission of the lowest bid, did create a valid business expectancy because the former stated that “[b]ids shall be awarded in compliance with applicable bidding obligations imposed by law to the ‘lowest responsible bidder. ‘”
“Lowest responsible bidder” is defined in the policy as a “responsible contractor,” and “responsible contrac-
In Mago Constr Co v Anderson, Eckstein & Westrick, Inc, unpublished opinion per curiam of the Court of Appeals, issued November 8, 1996 (Docket No. 183479), a case involving facts similar to the instant case, the Court of Appeals affirmed the trial court‘s order granting the defendant‘s motion for summary disposition. The defendant was a corporation of professional consulting engineers and the plaintiff was the disappointed lowest bidder. The plaintiff sued the defendant for, among other things, tortious interference with a business expectancy. The Court of Appeals explained, “Where the ultimate decision to enter into a business relationship is a highly discretionary decision reposed within the structure of a governmental entity, it be-
the award of the contract was a highly discretionary governmental activity in which “too many factors [were] in play to be able to reasonably infer that... plaintiff would have obtained the desired [contract].” Moreover, the bidding instructions clearly informed plaintiff that the lowest bidder was not guaranteed to receive the water main improvement contract. [Id. (citation omitted; first alteration in the original).]
Although Mago is an unpublished and therefore nonbinding opinion of the Court of Appeals,5 and, as the dissent points out, the facts in Mago are not identical to those in the instant case, we nevertheless find its reasoning persuasive.
In the instant case, although the school district‘s fiscal management policy provided that the contract would be awarded to the “lowest responsible bidder,” the school district itself retained the right to choose the “lowest responsible bidder.” The policy provided a non-exhaustive list of factors for the school district to consider, including its architect‘s input. Therefore, just as in Mago, “the award of the contract was a highly discretionary governmental activity in which ‘too many factors [were] in play to be able to reasonably infer that... plaintiff [by virtue alone of being the lowest bidder] would have obtained the desired [contract].’ ” Id. (citation omitted; first alteration in the original). In addition, “the bidding instructions clearly informed plaintiff that the lowest bidder was not guaranteed to
We agree with the Court of Appeals dissent that the school district‘s fiscal management policy did not afford plaintiff a valid business expectancy. The school district determined that plaintiff was not a “responsible contractor” in this specific circumstance, and it is not our
“The exercise of discretion to accept or reject bids [involving public contracts] will only be controlled by the courts when necessary to prevent fraud, injustice or the violation of a trust.” Leavy, 247 Mich at 450, quoting 3 McQuillin, § 1340. In this case, there is no evidence that this Court‘s intervention is “necessary to prevent fraud, injustice or the violation of a trust.” Rather, as the Court of Appeals dissent explained, plaintiff “is simply attempting to substitute [its] own judgment for that of the school district,” and “[w]hile plaintiff may believe its... judgment to be superior to that of the school board, the statute endows the school board, not plaintiff, with the discretion to award contracts in the school board‘s best interest.” Cedroni, 290 Mich App at 625 (K. F. KELLY, J., dissenting).7 Because plaintiff had no valid business expectancy, and because there is no evidence that this Court‘s involvement is
IV. CONCLUSION
For these reasons, we reverse the judgment of the Court of Appeals and reinstate the trial court‘s order granting defendant‘s motion for summary disposition. As the trial court and the Court of Appeals dissent concluded, plaintiff had no valid business expectancy for the purposes of sustaining a claim of tortious interference with a business expectancy.
YOUNG, C.J., and MARY BETH KELLY and ZAHRA, JJ., concurred with MARKMAN, J.
CAVANAGH, J. (dissenting). The issue presented in this case is whether plaintiff has produced sufficient evidence to create a genuine issue of material fact regarding whether defendant tortiously interfered with plaintiff‘s valid business expectancy. I respectfully dissent from the majority‘s decision to disregard Joba Constr Co, Inc v Burns & Roe Inc, 121 Mich App 615; 329 NW2d 760 (1982). Instead, I would apply Joba and affirm the judgment of the Court of Appeals because I
I. FACTS AND PROCEDURAL HISTORY
In 2003, Davison Community Schools decided to renovate two elementary schools and contracted with defendant for architectural and engineering services. Under the contract, defendant was to assist the school district during the competitive bidding process “by reviewing and evaluating bid applications, investigating competing contractors and their references, expressing opinions and views on contractor competence and workmanship, and making recommendations regarding which contractor should be awarded the project.” Cedroni Assoc, Inc v Tomblinson, Harburn Assoc, Architects & Planners, Inc, 290 Mich App 577, 583; 802 NW2d 682 (2010). Jackie Hoist was defendant‘s designated representative for the project.
The school district advertised for bids. With respect to the bidding process, the school district‘s fiscal management policy (FMP) provided that the school district reserved the right to reject any or all bids. The FMP also stated that “[b]ids shall be awarded in compliance with applicable bidding obligations imposed by law to the ‘lowest responsible bidder.’ ” The FMP defined “lowest responsible bidder” as
[t]he Responsible Contractor that has submitted a fully complete and responsive bid that provides the lowest net dollar cost for all labor and materials required for the complete performance of the work of the Construction Project let for bid. Such bid must satisfy the requirements of all applicable local, state, and federal laws, this Policy, any administrative rules associated with this Policy developed by the Superintendent at the Board‘s direction, and bid documents used to solicit bids, and any other guidelines and specifications required for the Construction Project.
The FMP defines the “Responsible Contractor” as
[a] contractor determined by the Board to be sufficiently qualified to satisfactorily perform the Construction Project, in accordance with all applicable contractual and legal requirements. The Board‘s determination shall be based upon: (1) an overall review of the Responsibility Criteria listed below and the contractor‘s responses, or failure to respond, to same; (2) the contractor‘s compliance with this Policy and all applicable local, state and federal laws; (3) the input of the District‘s architect(s) [here defendant] and/or construction manager(s), if any; (4) review of the contractor‘s proposed subcontractors; and (5) other relevant factors particular to the Construction Project.
It is undisputed that plaintiff was the lowest bidder, having submitted a bid that was $50,000 less than the next-lowest bid, and plaintiff was aware that it had provided the lowest bid. However, Hoist sent a letter to the school district recommending that the district not accept plaintiff‘s bid and instead accept the bid of the next-lowest bidder, US Construction and Design Services, LLC. Hoist‘s notes indicated that while several references provided positive reviews of plaintiff‘s work, other references provided negative feedback and that Hoist had had personal negative experiences with plaintiff on a previous project. Plaintiff alleges that Hoist‘s notes regarding various references’ comments were untrue. Additionally, plaintiff alleges that defendant‘s recommendation that the school district reject plaintiff‘s bid was born out of a desire to punish plaintiff for a dispute between defendant and plaintiff on the previous “Holly Academy project” that resulted in defendant‘s discharge from that project. The record also
The school board‘s review committee endorsed defendant‘s recommendation to reject plaintiff‘s bid, and the school district awarded the project to US Construction, explaining that its decision was made in reliance on defendant‘s recommendation.
Plaintiff filed a complaint against defendant alleging tortious interference with prospective economic relations, arguing that it had “a legitimate expectancy in obtaining a contract to complete work for the [school] Project,” that defendant had “wrongfully persuaded the School District” to reject plaintiff‘s bid, and that defendant had “intentionally interfered with the expectant business relationship... by wrongfully claiming that [plaintiff] was unqualified to perform” the necessary work. Defendant moved for summary disposition, which was eventually granted under MCR 2.116(C)(10).
II. STANDARD OF REVIEW
This Court reviews de novo a trial court‘s decision on a motion for summary disposition de novo. Shepherd Montessori Ctr Milan v Ann Arbor Charter Twp, 486 Mich 311, 317; 783 NW2d 695 (2010). A motion brought under MCR 2.116(C)(10) tests the factual support for a party‘s cause of action. Skinner v Square D Co, 445 Mich 153, 161; 516 NW2d 475 (1994). A trial court may grant a motion for summary disposition under MCR 2.116(C)(10) if the pleadings, affidavits, and other documentary evidence, when viewed in a light most favorable to the nonmoving party, show that there is no genuine issue with respect to any material fact. Quinto v Cross & Peters Co, 451 Mich 358, 362; 547 NW2d 314 (1996). The trial court‘s task in reviewing the motion entails consideration of the record evidence and all reasonable inferences arising from that evidence. Skinner, 445 Mich at 161.
III. ANALYSIS
The elements for a claim of tortious interference with advantageous business relationships or prospective economic relations are
(1) the existence of a valid business relationship or expectancy; (2) knowledge of the relationship or expectancy on the part of the interferer; (3) an intentional interference causing a breach or termination of the relationship or expectancy; and (4) resulting damage to the party whose relationship or expectancy has been disrupted. [Joba, 121 Mich App at 634.]
At issue in this case is whether plaintiff had a “valid business expectancy.” To avoid summary disposition, a plaintiff must assert “a specific and reasonable prospective economic advantage that was interfered with.” Id. The business expectation must be proved “with some degree of specificity” so that it is a “realistic expectation and not merely wishful thinking,” “mere hope,” or “the innate optimism of the salesman.” Id. at 634-635 (quotation marks and citations omitted). However, a plaintiff “need not demonstrate a guaranteed relationship” given the prospective nature of the expectation at issue. Id. at 635 (quotation marks and citations omitted); see, also, Trepel v Pontiac Osteopathic Hosp, 135 Mich App 361, 377; 354 NW2d 341 (1984).
Although it is generally difficult to claim that a bid - which, at its heart is an offer to perform the work for a specified price - can generate a realistic expectation in the bidder that it will be awarded the project,
Accordingly, given that plaintiff was aware of its status as the lowest bidder, and keeping in mind that plaintiff “need not demonstrate a guaranteed relationship,” id. (quotation marks and citations omitted), I believe that plaintiff might have had a valid business expectation as long as plaintiff was able to establish a genuine issue of material fact regarding whether it was a responsible bidder.
Although defendant‘s investigation and opinion of plaintiff‘s qualifications are certainly valid considerations in determining whether plaintiff was a responsible bidder, the parties presented conflicting evidence regarding plaintiff‘s qualifications. While I do not think that the mere fact that plaintiff believed that it was qualified is sufficient to avoid summary disposition on this issue, plaintiff presented evidence that defendant‘s opinion and recommendation regarding plaintiff‘s qualifications might have been improperly influenced by misplaced or unsupported animosity toward plaintiff related to problems between plaintiff and defendant on a previous project. Plaintiff‘s evidence included Hoist‘s
As the majority notes, however, a specific line of cases beginning with Talbot Paving Co v Detroit, 109 Mich 657; 67 NW 979 (1896), generally hold that a disappointed bidder on a public contract does not have a cause of action regardless of the bidder‘s qualifications or the value of the bid offered. See, also, Kundinger v City of Saginaw, 132 Mich 395, 405; 93 NW 914 (1903) (stating that courts cannot “substitute their judgment for the honest judgment of the [governmental entity]“). Generally, the theory supporting this rule is that competitive bidding is designed to benefit the taxpayers rather than the bidders. See Lasky v City of Bad Axe, 352 Mich 272, 276; 89 NW2d 520 (1958).
Notably, however, the “disappointed bidder” rule developed by this line of cases has generally been applied only when the plaintiff files suit against the contracting governmental entity rather than another private entity. Indeed, in Joba, 121 Mich App 615, the Court of Appeals did not apply the disappointed-bidder
In Joba, the plaintiff was the lowest bidder for a contract with the city of Detroit. The defendant had been retained by the city to evaluate bids and make recommendations regarding which bidders to select for certain contracts, including the contract on which the plaintiff was the lowest bidder. The defendant recommended that the city not accept the plaintiff‘s bid because, in the defendant‘s opinion, the plaintiff was unqualified to perform the contract. However, just as in this case, there was also evidence presented that animosity existed between the defendant and the plaintiff, partially resulting from past interaction on a different project. The case went to trial, the jury returned a verdict in favor of the plaintiff, and the defendant sought a directed verdict, which the trial court denied. Accordingly, the Joba Court considered the defendant‘s appeal of the trial court‘s denial of a directed verdict in the light most favorable to the plaintiff as the nonmoving party, and it concluded that the “plaintiff presented sufficient evidence to create a question of fact as to whether it was the lowest qualified bidder and thus had a legitimate expectancy in obtaining the contracts....” Id. at 635. As previously stated, Joba did not apply the disappointed-bidder rule to the dispute between the two private entities.
The majority, however, summarily discards Joba as not “particularly helpful,” ante at 52 n 6, and instead relies on Mago Constr Co v Anderson, Eckstein & Westrick, Inc, unpublished opinion per curiam of the Court of Appeals, issued November 8, 1996 (Docket No. 183479), to support its argument that the disappointed-bidder rule should apply in this case. Mago, however, is unpersuasive for a variety of reasons. First, to the
Likewise, the majority‘s reliance on an unpublished opinion of the United States Court of Appeals for the Sixth Circuit, EBI-Detroit, Inc v Detroit, 279 Fed Appx 340 (CA 6, 2008), in support of its extension of the disappointed-bidder rule to a dispute between two private entities is misplaced. Specifically, EBI-Detroit, 279 Fed Appx at 352-353, cited Timmons v Bone, unpublished opinion per curiam of the Court of Appeals, issued April 23, 2002 (Docket No. 228942), p 2, which had rejected a tortious-interference claim because the
Furthermore, unlike the majority‘s holding in this case, Joba‘s decision to limit the disappointed-bidder rule to suits against governmental entities is consistent with the purpose of that rule. Specifically, by declining to provide private entities with the same protection from suit granted to governmental entities, Joba ensures that taxpayers obtain the best price possible for public contracts, free of improper interference by private entities. As evidenced by the facts of Joba and, potentially, the facts of this case, private entities may be motivated to make contracting decisions for reasons that are not consistent with the purpose of competitive bidding for government contracts. Because these potential motivations may not result in the selection of the “lowest responsible bidder,” they are contrary to the purpose of the disappointed-bidder rule: to protect taxpayers.2
Finally, this Court‘s opinions establishing the disappointed-bidder rule do not mandate the majority‘s result. To begin with, the rule should not apply to protect private entities for the reasons previously discussed. Moreover, in Kundinger, 132 Mich at 405, this Court explained that courts cannot “substitute their judgment for the honest judgment of the [governmental entity].” (Emphasis added.) Similarly, in Leavy v City of Jackson, 247 Mich 447, 450; 226 NW 214 (1929), quoting 3 McQuillin, Municipal Corporations (2d ed), § 1340, this Court stated that ” ‘[t]he court will indulge the presumption that the authorities acted in good faith in awarding the contract.’ ” (Emphasis added.) Accordingly, the disappointed-bidder rule is premised on a governmental entity‘s ability to exercise “honest” and “good faith” discretion.3
However, when a private entity intentionally provides inaccurate or misleading information to a governmental entity and the governmental entity in turn relies on that information in making a contracting
Accordingly, although a governmental entity is entitled to deference regarding its discretionary selection of a bidder under this Court‘s jurisprudence, that caselaw does not protect a private entity that dishonestly influences the governmental entity. All the various documents and statutes that the majority cites to establish the fact that the school district in this case had the authority to reject any and all bids are rooted in deference to the school district‘s discretion in making contracting decisions. However, this case raises the
MARILYN KELLY and HATHAWAY, JJ., concurred with CAVANAGH, J.