Public Bidding: New Jurisdictional Hurdles for Minnesota Bid Protests

Category | Briefing Papers

Tom Vollbrecht is a shareholder in the firm’s Construction Law Department. Tom can be reached at 612.359.7659 or tvollbrecht@fwhtlaw.com

Public contracts are the life blood of many contractors and an important source of work for numerous others. Consequently, it is critically important that the procurement process for those contracts be open and fair to protect the rights and livelihoods of the bidding contractors. Ensuring the integrity of the public procurement process is equally important to the taxpayers who fund the projects and the general public for whom the work is performed. A recent decision by the Minnesota Supreme Court, Rochester City Lines, Co. v. City of Rochester, et al., A13-1477 (August 19, 2015), has for the first time recognized, or perhaps created, a significant jurisdictional hurdle to many judicial challenges to the public procurement process (i.e., bid protests) filed in Minnesota. Rochester City Lines greatly reduces the ability to file bid protests at the district court level, where they can be acted upon immediately. Instead, it mandates that many bid protests be filed with the Minnesota Court of Appeals, an appellate body that is not well-equipped to consider and decide the many factual, legal, and equitable issues involved in a bid protest in a sufficiently timely manner. Under Rochester City Lines, a protester may need to file an action with both courts. This newly-articulated requirement is a significant change to past practice and compels careful study by anyone who is contemplating the filing of a bid protest in Minnesota or who is otherwise interested in maintaining the integrity of the public procurement process.

‘Traditional’ Bid Protests

The Minnesota Legislature and Courts have long recognized the importance of setting and maintaining strong competitive bidding requirements and procedures to safeguard the fairness and impartiality of the public procurement process. The award of public contracts funded by taxpayer dollars must be open, fair, and free from even the appearance of impropriety. Public contracts awarded in violation of these requirements are unlawful; the expenditure of taxpayer dollars under such unlawful contracts can constitute per se irreparable harm; and the adverse consequences flowing to the public body, the ‘winning’ bidder, and the other bidders from a violation of competitive bidding requirements can be large. The public body may be party to an illegal contract and may be obligated to incur the expense and delay of re-advertising and re-letting the work. The “winning” bidder may risk forfeiting some, or even all, right to compensation for work performed under an illegal contract. The other bidders may lose the right to fairly compete for the work, as well as losing the time, money, and other resources sunk into preparing a bid for that work.

Judicial bid protests are a well-established and long-recognized method of policing and maintaining the integrity of the public procurement process in Minnesota (and elsewhere). Prior to the Rochester City Lines decision, the protester—usually a disappointed bidder or concerned taxpayer—would file an action in state district court and request an immediate hearing for a temporary restraining order (“TRO”) to enjoin the public owner and the ‘winning’ bidder from moving forward with the allegedly-wrongful contract. The protester would also request an expedited hearing on a motion for preliminary and permanent injunctive relief.

The need for speed during a judicial bid protest is undeniable. By the time a public body has formally advertised a project, solicited bids, opened proposals, and announced the apparent winning bidder, the time window to commence and complete the work may be small; moreover, the successful bidder and related design professionals, suppliers, and subcontractors will be moving forward quickly to order materials, commit resources, and proceed with the work. So any delay can have a materially adverse impact on the public body, the successful bidder, the taxpayers, and the general public. These adverse impacts, by themselves, can sometimes provide grounds to deny a bid protest. It is for this reason that bid protests are filed as quickly as possible and include requests for immediate injunctive relief.

The court in which the bid protest is filed must be ready and able to consider and rule on that request quickly. The Minnesota district courts are well equipped to handle that responsibility and have consistently fulfilled that role. The practice of filing bid protests with Minnesota district courts extends through the entire history of reported Minnesota decisions in the area. It appears that all of the seminal reported Minnesota bid protest cases prior to Rochester City Lines originated in the district courts and that no objection to district court jurisdiction was raised or ruled upon by the reviewing Minnesota appellate courts. The district courts have well-established rules, procedures, and safeguards for the expeditious filing, scheduling, hearing, and resolution of the requests for temporary restraining orders and injunctive relief that lie at the heart of judicial challenges to public procurements. As trial courts, they are also equipped and experienced in facilitating expedited “first impression” consideration of the multiple fact, legal, and equitable issued involved in a bid protest.

The same is not true of the Minnesota Court of Appeals—which is no criticism of that institution. As is clear from its name and the rules that govern it, the Minnesota Court of Appeals is an appellate court. It exists to review judicial orders and judgments, not to make them. It is not structured to schedule, hear, and resolve—as a court of first impression—factual, legal, and equitable issues on an expedited basis. Unfortunately, that is precisely the role that the Minnesota Court of Appeals has been thrust into by the Rochester City Lines decision.

The Rochester City Lines Decision

Rochester City Lines was a bid protest challenging the City of Rochester’s selection of a contractor to run its municipal bus service. The protester, Rochester City Lines (“RCL”), had operated the municipal bus service in Rochester for more than 30 years. In 2011, the Federal Transit Administration informed the City that it needed to competitively bid its next contract. The City selected a “best value” bidding process. RCL and three other companies submitted responsive bids. An evaluation committee determined that the bid of one of the other companies presented the best value to the City, and the City awarded the contract to that company.

RCL filed a bid protest with the City as required by the terms of the Request for Proposals (“RFP”). That protest was denied by the City Attorney. RCL also filed suit in Minnesota district court claiming, among other things, that the bidding process was unlawful and that the denial of its protest was improper. The district court disagreed and granted summary judgment against RCL dismissing its claims. The Minnesota Court of Appeals affirmed that dismissal. The Minnesota Supreme Court then granted review.[1]

The resulting Rochester City Lines decision addresses a number of issues that are beyond the scope of this Briefing Paper. The relevant portion for this discussion is the Minnesota Supreme Court’s analysis and disposition of the argument that the district court improperly dismissed RCL’s claim that the City wrongfully denied its bid protest. Rather than deciding that argument on the merits, the Court instead ruled that the district court never had jurisdiction to rule on it. The Court ruled that only the Minnesota Court of Appeals had jurisdiction and that RCL had waived the issue by not applying for a writ of certiorari from the Minnesota Court of Appeals within 60 days after the City denied its bid protest.

The Court based its ruling upon Minnesota municipal law that divides judicial review jurisdiction depending upon whether the decision being challenged is legislative (meaning that it affects the rights of the public generally) or quasi-judicial (meaning that it affects the rights of just a few on a disputed claim where the municipal body has weighed evidentiary facts and issued a binding decision). In the case of legislative decisions, the district courts have jurisdiction. In the case of quasi-judicial decisions, judicial review is limited to applications for writs of certiorari to the Minnesota Court of Appeals, and the application must be made within 60 days after conclusion of the proceeding for which review is sought.

As noted in the Rochester City Lines decision, RCL itself characterized the City’s denial of its bid protest as quasi-judicial. Consequently, the Court ruled that the district court never had jurisdiction to consider whether that denial was improper. RCL effectively waived its right to appeal from that denial by failing to apply directly to the Minnesota Court of Appeals. The Court did state in a footnote, however, that the City’s decision to award the contract was administrative, so that decision could be challenged in district court.

Based upon the law it cites, the Rochester City Lines decision may well be correct as a theoretical matter of municipal law. However, the author is aware of no prior reported Minnesota decision requiring that a bid protest—or any portion of a bid protest—be filed directly with the Court of Appeals through an application for a writ of certiorari. As a practical matter (as noted above), the Minnesota Court of Appeals is not well equipped to serve as the initial judicial decision-maker on the expedited requests for TROs and injunctions that lie at the heart of bid protests. In addition, having to determine whether a public body has acted legislatively or quasi-judicially—or both—adds a new, potentially dispositive, question that a bid protester must answer before filing its action. An incorrect answer may doom the protest before it is ever addressed on the merits.

What To Do After Rochester City Lines?

To make sure that a bid protest is filed in the proper court in compliance with Rochester City Lines, a determination must be made at the outset whether the challenged public body action is legislative or quasi-judicial. Sometimes the answer should be clear-cut. A bid protest challenging the terms or conditions contained in the Advertisement for Bids or RFP before bid opening or contract award is likely legislative, as those terms apply to all bidders and the challenge is not reliant upon an investigation by the public body. So that bid protest likely should be filed in the district court. Likewise, as in Rochester City Lines, a bid protest appealing from the public body’s denial of a protest that was originally filed with it likely is quasi-judicial, meaning that it will have to be filed directly with the Minnesota Court of Appeals through an application for a writ of certiorari.

But often there may be no clear line of demarcation. If the challenge to the RFP or Advertisement for Bids is first presented to the public body, does that convert it from legislative to quasi-judicial? Does it matter if the challenge is presented after bid opening and a presumptive successful bidder has been identified? What if a challenge is presented to the terms of the RFP and to a separate public body decision regarding the bid protester? Does it matter if that challenge is presented after award of the contract? Rochester City Lines states that award decisions can be filed in district court. Should a prudent bid protester file two separate legal actions whenever a protest is filed after contract award: an application for a writ of certiorari in the Minnesota Court of Appeals and a lawsuit in the district court where the contract was awarded? If so, in which court should injunctive relief be sought? Should one court defer to the other on whether to grant injunctive relief? These are only a few examples of how complicated the issues can be when attempting to bifurcate judicial jurisdiction over bid protests based on whether those protests are challenging legislative or quasi-judicial actions.

There are other issues and concerns. As a matter of public policy and judicial economy, it may well be best to first present all bid protests to the public body, regardless of whether that is an express requirement of the RFP or Advertisement for Bids. Doing so provides the public body and the protester an opportunity to resolve the matter without ever having to engage the courts. However, by taking that step, the bid protester is arguably locking itself into Minnesota Court of Appeals jurisdiction if it fails to reach an amicable resolution with the public body. If the protester wants to preserve its ability to go to the district court, because it believes that doing so provides the best opportunity for timely consideration and resolution of its protest, it may well feel obligated to eschew any non-mandatory contact with the public body that could later be construed as quasi-judicial.

One possible solution to the uncertainty, complications, and difficulties inherent in application of the Rochester City Lines decision to future bid protests is legislative. Rochester City Lines is now the law. However, the Legislature is empowered to restore the pre-existing practice of filing public procurement bid protests in the district courts, and it could do so by enacting a statute like the following:

 Original Jurisdiction Over Public Procurement Actions

Original jurisdiction is granted to the State of Minnesota District Courts over any action seeking legal, equitable, or declaratory relief arising under or based upon an alleged violation of any Minnesota statute, regulation, ordinance, or law governing or regarding public procurement requirements, public procurement procedures, or the award of any public contract. This grant of original jurisdiction shall apply regardless of whether any public entity involved or implicated in the action is alleged to have acted, or may be held to have acted, in a judicial or quasi-judicial capacity.

Conclusion

 The Rochester City Lines holding that bid protests responding to quasi-judicial public body actions can only be filed with the Minnesota Court of Appeals marks a significant change to previous bid protest practice and procedure. It will serve to shift a number of administrative bid protests to a forum that is not structured for, or conducive to, the expeditious decision-making that is an essential element to prompt, appropriate resolution of public procurement challenges. It may require duplicative litigation, and it may substantively impact how potential protesters interact with the public body responsible for the procurement in question. In short, unless and until addressed by new legislation or subsequent Court action, it is a New Day—albeit not a Better Day—for Minnesota bid protests, and anyone considering the filing of a bid protest needs to have a clear understanding of the new rules now in effect that govern that New Day.

[1]   Fabyanske, Westra, Hart & Thomson submitted an amicus brief to the Supreme Court in this appeal on behalf of the Minnesota AGC on a pro bono basis.

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This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2015 FWH&T.