AAIS CORP. v. DEPARTMENT OF ADMINISTRATIVE SERVICES ET AL.

2004 Ct. Sup. 15375, 38 CLR 125
No. CV 04 0834566 SConnecticut Superior Court, Judicial District of Hartford at Hartford
October 13, 2004

[EDITOR’S NOTE: This case is unpublished as indicated by the issuing court.]

MEMORANDUM OF DECISION
BEACH, JUDGE.

This is an action brought by the plaintiff AAIS Corp. (“AAIS”), whose response to a request for proposal (“RFP”) by the defendant Department of Administrative Services (“DAS”), a Connecticut state agency, was rejected by the agency. AAIS alleges in its verified complaint that the state’s negative response violated its own regulations, among other alleged infirmities, and seeks injunctive relief “enjoining the Defendants from excluding Plaintiff from the award of the contract under the RFP and ordering the Defendants to make an award of the contract to AAIS as an additional party awarded the Contract.” The defendants have moved to dismiss on the ground that AAIS lacks standing to bring the action and that the action is barred by application of sovereign immunity. In deciding the motion to dismiss, I of course assume the facts alleged in the complaint and reasonable inferences from the facts to be true, but the assumption does not necessarily extend to the conclusions alleged or the application of law to the facts. For the purpose of the motion to dismiss, I also consider the documentary material submitted by both sides in relation to the motion.

The scenario alleged in the complaint and stated in the supporting materials is reasonably straightforward. The plaintiff company allegedly has overall been a fine company engaged for a number of years in the business of asbestos removal and related activities. An officer and substantial shareholder of the company was involved in a Bridgeport corruption scandal and pleaded guilty to mail fraud in 1991. Some steps were taken by the plaintiff to isolate the wrongdoer and his stock was transferred to his wife. Other agencies of the state had investigated the worthiness of the plaintiff as a contractor and, with some restrictions, had cleared it.

In any event, DAS issued a Request for Proposal in August 2003, CT Page 15376 for the provision of asbestos, lead and mold remediation services. The contractors whose responses were chosen would be eligible to perform substantial long-term work. For purposes of this decision, it will be assumed that the plaintiff’s response was adequate in every way, met the criteria set forth in the RFP, and was the most competitive in terms of price. It is assumed, in other words, that the response of AAIS met the objectively
stated terms of the RFP as well as or better than its competitors in the process.

The defendant, however, rejected the response. The plaintiff and DAS exchanged correspondence on the issue and they sat down at a meeting in order to offer explanations and information. At the conclusion of the process, which had included well-articulated explanations by AAIS, DAS confirmed its rejection of the plaintiff’s response to the RFP. In a letter dated May 14, 2004, a procurement manager for DAS stated first that the agency was not satisfied that the safeguards of removing Brian Bannon, the son of the company’s founder and the one who had been convicted, from the position of secretary of the corporation and transferring stock to his wife were not especially likely to ensure that wrongdoing would not happen again. He noted that Mr. Bannon was still an employee of the plaintiff and working in essentially the same capacity, and that the policy changes established by AAIS were only verbal. AAIS expressly did not “guarantee” that Mr. Bannon would not work on jobs resulting from the RFP.

Further, the manager indicated that denial of AAIS’s proposal did not result in a violation of procurement standards. Pursuant to § 4a-59 of the General Statutes, DAS had the discretion to determine which proposals were in the best interest of the state, and price, past performance and integrity were factors appropriately considered. Past pricing which involved kickbacks to government officials were appropriate items to consider, in the opinion of the agency.

The decision not to include AAIS as an approved contractor under the RFP became the subject matter of this action. AAIS has alleged that the action of DAS was “unlawful” because criteria not generally applicable were applied to its response and thus resulted in favoritism toward the other proposers. Correlatively, it claims that non-objective criteria other than those which were published were applied in this instance. It concludes that the agency acted in excess of its statutory powers and deprived AAIS CT Page 15377 of its constitutionally protected rights to equal protection and due process. DAS has moved to dismiss the action on the ground of standing and sovereign immunity. I agree with DAS and grant the motion to dismiss.

I. Standing
An action brought by a party who lacks standing to pursue the action will be dismissed for lack of subject matter jurisdiction. The concept of standing has been significantly refined in the context of government contracting. As a general rule, an unsuccessful bidder lacks standing to pursue a judicial challenge. Ardmare Construction Co. v. Freedman, 191 Conn. 497, 501 (1991).

Recently, in Spiniello Construction Co. v. Manchester, 189 Conn. 539, 456 A.2d 1199 (1983), we held that only “where fraud, corruption or favoritism has influenced the conduct of the bidding officials or when the very object and integrity of the competitive bidding process is defeated by the conduct of municipal officials,” does an unsuccessful bidder have standing to challenge the award. Id.,
544.

Ardmare Construction Co., Inc. v. Freedman, supra,
501.

Ardmare and Spiniello stress that the exceptions allowing unsuccessful bidders to proceed judicially have been carved for the purpose of promoting integrity in the contracting process, and that the unsuccessful bidder, in narrow situations, acts in effect as a private attorney general. Ardmare, supra, 504-05 Spiniello, supra,

It is instructive to review the cases to determine what sorts of actions have and have not been deemed to undermine public confidence in the integrity of the procurement process, and thus confer standing. In Spiniello, supra, standing existed where the successful bidder was unilaterally afforded the chance to offer a combined bid on several projects, and that opportunity was unknown to the other bidders. In that situation the successful bidder thus had “inside information” not generally available and used the information to its advantage. Thus, the integrity of the process was implicated. CT Page 15378

In Unisys Corporation v. Department of Labor, 220 Conn. 689
(1991), the Supreme Court held that an evidentiary hearing was required to determine whether standing existed in a situation where one provider of computer technology, IBM, apparently designed the criteria for the bid in question and in essence became the only bidder. Because the integrity of the process arguably was implicated, the plaintiff was entitled at least to the opportunity to establish standing.

The plaintiff especially argues the applicability o California Microwave, a Superior Court case. There, however, the plaintiff claimed that the successful bidder was afforded all sorts of competitive advantages and thus fraud and corruption were alleged:

The defendants also argue that the plaintiff lacks standing to bring this action because its bid was deemed nonresponsive.” Courts will intervene to prevent the exercise of [the] discretion to deny a bid . . . only where fraud, corruption or favoritism has influenced the conduct of the bidding officials or when the very object and integrity of the competitive process is defeated by the conduct of municipal officials.” Spinello Construction Co. v. Manchester, 189 Conn. 539, 544 (1983). The plaintiff has alleged that fraud and favoritism existed in the bidding process and that the very object and integrity of the bidding process was defeated by, inter alia, allowing MFS to correct and alter its bid, improperly scoring the MFS bid, assisting only MFS to bring its bid into compliance with specifications, and ex parte communications with MFS. Therefore, the reasoning of Sniniello applies here and the plaintiff has standing to bring this action. See Id.

California Microwave-telecom Transmissions Systems, Inc. v. State, 1995 Ct.Sup. 13182 (Langenbach, J.) (Nov. 27, 1995).

Where there are alleged infirmities that do not implicate fraud, corruption or the integrity of the process, however, an unsuccessful bidder does not have standing to pursue a judicial CT Page 15379 challenge. An example is Ardmare, in which the low bidder, the plaintiff in that action, was disqualified by the state agency because the signature on the bid was stamped rather than handwritten. This requirement was not published in any regulation and was not stated in the bid information, but it had been consistently applied by the agency. The trial court had found standing, but the Supreme Court reversed, because there was no indication of the sort of behavior which would tend to undermine the public’s confidence in the integrity of the process:

Noticeably absent in this case are elements traditionally thought to undermine the competitive bidding process. The commissioner did not apply its requirement inconsistently or in a discriminatory fashion. Nor was there any proof that the commissioner was acting in bad faith. In short, the commissioner made a good faith interpretation of the competitive bidding statute requirements, and applied it in a consistent fashion. The plaintiff was therefore without standing to challenge the award of the contract.

Ardmare Construction Co., Inc. v. Freedman, supra, 506.

The facts here are far more like those in Ardmare than those in Spiniello and Unisys. There is no suggestion that any illicit advantage was afforded those who were chosen. The advantage which is claimed to have resulted is that by applying unpublished criteria only to AAIS, favoritism was extended indirectly to the others. This sort of negative “favoritism” is, however, inevitable whenever a proposer is ruled out, and does not raise the specter of fraud or corruption. It is significant that in the instances where standing was found, there was a substantial allegation of fraud, corruption or favoritism with respect to the winning bid. There is no suggestion that DAS was acting in other than good faith; indeed, it gave the opportunity to discuss the problems, explained its reasoning, and acted in a way which, at least arguably, augmented rather than diminished public confidence in the procurement process. I find, then, that as an unsuccessful proposer AAIS lacks standing to pursue the matter judicially, and the action is dismissed for lack of subject matter jurisdiction.

II. Sovereign Immunity
CT Page 15380

The defendant DAS also argues that the action is barred by sovereign immunity. In light of the holding on the standing issue, it is not necessary for me to reach this claim. It appears to me, however, that should the issue be reached in the future, it is unlikely that AAIS can prevail.

Briefly, of course, the state may be sued without the permission of the claims commissioner only where the state has expressly authorized the action, the state officer has exceeded statutory authority, or the plaintiff’s constitutional rights have been violated. In order to surmount the immunity bar, the claim must be substantial and based on specific facts. See, e.g. Barde v. Board of Trustees, 207 Conn. 59 (1988); Horton v. Meskill, 172 Conn. 615 (1977); Tamm v. Burns, 25 Conn.App. 468
(1991); Upson v. State, 190 Conn. 622 (1983).

AAIS does not claim that there is express authorization. AAIS does claim that statutory authority was exceeded and that its constitutional rights were violated. I do not find, on the factual materials presented in the verified pleadings and supporting materials, that substantial claims of statutory or constitutional violations are presented.

The gist of the plaintiff’s claim as to DAS’s exceeding its statutory authority is that statutes require adherence to objective criteria stated in the RFP. The procurement statutes are not, however, quite so narrowly written or construed. Section 4a-59(c)(3) of the General Statutes provides that contracts shall be awarded to . . . “the proposer whose proposal is deemed by the awarding authority to be the most advantageous to the state, in accordance with the criteria set forth in the request for proposals, including price and evaluation factors. In considering past performance of a bidder for the purpose of determining the “lowest responsible qualified bidder” or the “highest scoring bidder in a multiple criteria bid”, the commissioner shall evaluate the skill, ability and integrity of the bidder in terms of the bidder’s fulfillment of past contract obligations . . .” (Emphasis added). The May letter of DAS to AAIS clearly referenced concerns with the integrity of AAIS’s performance of past contracts. Also, § 4a-59(d) provides that the commissioner may reject any bid if “in the opinion of the commissioner, the best interest of the state will be served thereby.”[1] It is difficult to see how statutory authority was, on the basis of materials submitted in connection with the motion to dismiss, CT Page 15381 exceeded.[2]

Finally, the plaintiff has alleged that its constitutionally protected rights of equal protection and due process were violated. I find neither assertion to have merit on the substantial facts and supporting materials submitted. A denial of equal protection occurs, very generally, when classifications are made with no rational basis, or, where the basis is suspect, such as race, gender and such, when no compelling state interest justifies the classification. See generally State v. Matos, 240 Conn. 743, 760 (1997). Here, there is no claim that any categorization is based on a suspect classification such that heightened scrutiny is required. The plaintiff’s argument seems to be that a classification was made between bidders on the basis of criteria not stated in the RFP, statutes, or regulations. As noted above, the undisputed facts do not support this contention. Moreover, it seems to me that the equal protection analysis must include considerations of whether past lapses of integrity, combined with a finding that sufficient corrective measures have not been taken, provide a rational basis for distinction, and also of the definitions of the categories. If the class is defined as those bidders with recent mail fraud convictions, then no classification has been made at all.

The due process argument is equally unavailing. Again generally, a due process violation may occur, in this context, when a protected property right is compromised by government action without due process of law. It is highly dubious whether one has a protected inchoate property interest in putative acceptance of a tendered bid. See, e.g., Ardmare, supra, 501 Double I Limited Partnership v. Planning Zoning Commission, 218 Conn. 65 (1991); St. John v. State, 9 Conn.App. 514, 522-23
(1987); John J. Brennan Construction Corp. v. Shelton, 187 Conn. 695, 702 (1982). Further, the fundamentals of procedural due process, notice and an opportunity to be heard, were accorded. The plaintiff’s claim that its proposal was rejected on the basis of an undisclosed criterion has been discussed above. In sum, it would appear, should it be necessary to reach the issue, that there is not a substantial claim of violation of constitutional rights or of exceeding statutory authority.

The motion to dismiss is granted.

Beach, J. CT Page 15382

[1] It would seem to be incontrovertible that avoiding the appearance of impropriety is a permissible application of the rather generalized “best interest of the state” clause.
[2] It also may be significant that the RFP itself references past experience as an evaluation criterion. See RFP, p. 9.

CT Page 15383