Alexandria Real Estate Equities, Inc. v. Univ. of Wash.

539 P.3d 54

ALEXANDRIA REAL ESTATE EQUITIES, INC., a Washington State Taxpayer, John Joseph Cox, a Washington State Taxpayer, and Dean A. Takko, a Washington State Taxpayer, Appellants,

v.UNIVERSITY OF WASHINGTON, a Public Institution of Higher Education and Agency of the State of Washington. Respondent.

No. 57985-5-II

Court of Appeals of Washington, Division 2.

Filed December 5, 2023

Andrew Ramiro Escobar, Adam Kamlot Lasky, Seyfarth Shaw LLP, 999 3rd Ave., Ste. 4700, Seattle, WA, 98104-4041, for Appellants.

Zachary Tomlinson, Paul J. Lawrence, Pacifica Law Group LLP, 1191 2nd Ave., Ste. 2000, Seattle, WA, 98101-3404, for Respondent.

PUBLISHED OPINION

Price, J.

¶ 1 This case arises from a selection process used by the University of Washington (UW) to retain a real estate developer for a new building on its campus. The development plan involved a variation of a leaseback arrangement. UW proposed to enter an 80-year ground lease with a developer for the property. The developer, in turn, would demolish an existing building and construct the new one, incurring all of the costs. The developer would own the building for the 80-year duration of the ground lease, but UW would agree in advance to lease back a portion of the building space from the developer. At the end of the ground lease, the building's ownership would return to UW.

¶ 2 Alexandria Real Equities, Inc. (ARE) was one of the two finalists to negotiate for the development contract, but UW ultimately selected ARE's competitor.

¶ 3 Litigation resulted. At the superior court, ARE and two individual taxpayers asserted three claims against the university—(1) UW lacked authority to enter into this particular type of agreement, (2) UW failed to use a required competitive bidding procedure to select a developer, and (3) UW's selection process was arbitrary and capricious because it did not follow the selection process described in a request for developers’ proposals. The superior court granted UW summary judgment on the first and second claims, and the third claim proceeded to a bench trial. Following the trial, the superior court dismissed ARE's third claim for lack of standing and because it concluded UW's selection process was not arbitrary and capricious. ARE appeals.

¶ 4 We affirm the superior court's summary judgment order because UW had authority to enter into the contracts with ARE's competitor and UW was not required to strictly adhere to a specific competitive bidding process. We also affirm the dismissal of ARE's third claim because ARE lacked standing for the claim.

FACTS

I. BACKGROUND

A. UW's DEVELOPMENT PLANS

¶ 5 UW is a state university with a campus in Seattle and is governed by a "Board of Regents." In 2019, UW began its process to redevelop its West Campus (a 70-acre portion of its Seattle campus) to create an "innovation district." Clerk's Papers (CP) at 1458. UW wanted the new West Campus to serve as a central location for students and faculty in multiple fields to partner with businesses, government, nonprofit organizations, and the Seattle community to solve critical problems. UW created a 30-year plan to redevelop West Campus, with 19 locations identified for reconstruction.

¶ 6 The first site selected for reconstruction was site W27. The site is a 1.5-acre property, and its redevelopment is focused on clean energy science and technologies. The new building will "house UW faculty, students, classrooms[,] and research facilities, along with public and private sector tenants with compatible research and technologies." CP at 96. UW intends for the building to "[f]acilitate[ ] multidisciplinary academic and professional exploration," "[p]rovide[ ] students with immersive and experiential learning environments," and "enhance[ ] strong connections between UW faculty, staff[,] and students with external partners to expand the impact of UW research, teaching/learning[,] and public service activities." CP at 98. The construction of the new building will utilize a "ground lease development structure" that UW had previously used for other projects outside of West Campus. CP at 161.

¶ 7 Under the ground lease development structure, UW executes a long-term, 80-year ground lease to the developer. The developer then demolishes the existing building and designs, finances, and constructs the new building. The developer owns the building for the term of the ground lease, bearing full responsibility for project risks and costs. Throughout the duration of the ground lease, UW agrees to lease approximately 30,000 square feet (about 9 percent) of the new building at a fixed rate. UW also has the option to lease an additional 70,000 square feet, which would bring its total usage of the building to about 30 percent. The remainder of the building is leased to non-UW tenants, but with certain restrictions—the tenants must be "private and public tenants that have activities, research[,] and/or products focused on sustainable solutions and [that] are complementary with the UW's education and research mission." CP at 107. At the end of the 80-year duration, the developer returns ownership of the building to UW.

¶ 8 To begin the construction process, UW hired Jones Lang LaSalle Americas, Inc. (JLL), a firm that helps public entities with development solutions, to provide real estate services for the site W27 development. JLL created a general procedure for the site W27 development, involving a two-step process for selecting a developer. First, a "Request for Qualifications" (RFQ) would solicit potential developers. Second, the responding developers with the best overall proposals would be invited to participate further with a "Request for Proposals" (RFP).

¶ 9 In January 2020, UW posted the RFQ for development of site W27, including the details about the proposed ground lease development structure. UW received responses from 11 developers. UW selected four of the developers to participate in the next-step RFP process, two of which were ARE and Wexford Science & Technology, LLC (Wexford).

¶ 10 The RFP provided to the selected developers described UW's intent to negotiate the ground lease development structure. The RFP stated that UW "may elect to work directly with [the] Developer on other similar projects in the future without further competitive requests for proposals." CP at 109. Additionally, the RFP explained that the developers’ proposals would be evaluated and scored by UW's evaluators, called the "Slating Committee," "based on the criteria identified in [the] RFP." CP at 126.

¶ 11 UW received proposals from three developers, including ARE and Wexford. The developers were able to submit questions to UW as part of the negotiation process; one developer asked UW to "describe any associated scoring, ranking, or numerical weights assigned to the criteria." Ex. 66, at 3. In response, UW issued an addendum to the RFP, stating it would evaluate the proposals for specified criteria in the RFP, but would not at that time indicate weight or importance of the items. UW's Slating Committee reviewed the proposals and conducted interviews but did not use actual scorecards for the different developers. Ultimately, UW selected Wexford as the developer for site W27.

B. UW/ WEXFORD LEASES

¶ 12 UW began negotiating the leases for the development with Wexford. Wexford won the bid to be the developer, leading UW to execute the contracts with Wexford's related entity, LS W27 JV, LLC (LS W27)¹ . The parties signed an initial agreement to lease in March 2022. The subsequent ground and building leases were signed in May 2022.

¶ 13 The ground lease required Wexford to design, finance, construct, and maintain the facility. The companion building lease then required Wexford to lease 100,000 square feet of building space back to UW. The ground lease self-executes upon "closing," which is dependent on certain conditions precedent. The only relevant condition precedent is the absence of litigation that would prevent UW or Wexford from performing under the leases. The building lease self-executes when the building is substantially completed.

C. ARE's SUBSEQUENT ACTIONS

¶ 14 When ARE learned Wexford had been selected as the site W27 developer, its lawyer wrote to UW's President questioning the "methodology and objectivity of the RFP process." CP at 153. The letter requested that UW reconsider and select ARE instead. UW declined.

¶ 15 ARE and its Senior Vice President, John Cox, then sent letters to the Washington State Attorney General asserting that the RFP selection process was illegal and requesting the attorney general "enjoin the execution/performance of the illegal [c]ontracts." CP at 769. The attorney general declined to respond.

II. ARE's COMPLAINTS AND UW's MOTION FOR SUMMARY JUDGMENT

¶ 16 In June 2021, ARE, together with two individual taxpayers, Cox (in his individual capacity) and former state legislator Dean Takko, filed a lawsuit against UW, asserting two claims.² ARE's first claim (Claim 1) contended UW lacked authority to enter into the leases for site W27. ARE's second claim (Claim 2) alleged UW failed to use competitive bidding procedures required under public works law.

¶ 17 UW moved for summary judgment on both of ARE's claims in August 2021. UW asserted it had general authority to enter into the leases through several different statutes, including RCWs 28B.20.130, 28B.140.010, and 28B.10.300. UW also argued the building's construction was not a public work because UW was not incurring construction costs and, therefore, the statutory competitive bidding process did not apply.

¶ 18 While UW's summary judgment motion was pending, ARE filed an amended complaint adding a third claim (Claim 3). ARE's Claim 3 asserted that UW's developer selection process was arbitrary and capricious.

¶ 19 The superior court granted UW's summary judgment motion and dismissed Claims 1 and 2.³ Claim 3 remained.

III. BENCH TRIAL

¶ 20 ARE and UW proceeded to a bench trial on Claim 3.⁴ After hearing testimony from numerous...