Cleveland Constr., Inc. v. Cincinnati

864 N.E.2d 116

169 Ohio App.3d 627

2006-Ohio-6452

CLEVELAND CONSTRUCTION, INC., Appellant and Cross-Appellee, v. CITY OF CINCINNATI, Appellee and Cross-Appellant Riordan et al., Appellees.

No. C-050749.

No. C-050779.

No. C-050888.

Court of Appeals of Ohio, First District, Hamilton County.

Decided December 8, 2006.

Manley Burke L.P.A., W. Kelly Lundrigan, Gary E. Powell, and Robert E. Manley, Cincinnati, for appellant and cross-appellee.

Julia L. McNeil, Cincinnati City Solicitor, and Julie F. Bissinger, Assistant City Solicitor, for appellee and cross-appellant, city of Cincinnati, and for appellees Timothy Riordan, Bernardine Franklin, Nate Mullaney, Alicia Townsend, and Kathi Ranford.

Cors & Bassett, L.L.C., David L. Barth, Cincinnati, and Kelly A. Armstrong, for appellee Valley Interior Systems, Inc.

SYLVIA SIEVE HENDON, Judge.

{¶ 1} This case arose from the city of Cincinnati's rejection of a bid by Cleveland Construction Company for drywall work on the expansion and renovation of the Cincinnati Convention Center. At the heart of the dispute was the city's implementation of its small business enterprise ("SBE") program.

{¶ 2} Cincinnati Municipal Code ("CMC") 321-37 required the city to award a construction contract to the lowest and best bidder. The ordinance set forth a nonexhaustive list of factors that the city purchasing agent could consider in determining the lowest and best bid. One of the factors that could be considered was a contractor's compliance with the rules and regulations of the city's SBE Subcontracting Outreach Program.¹

{¶ 3} Where a lowest-and-best determination was based primarily on the contractor's subcontracting-outreach compliance, the ordinance had a built-in cap. The contract award could be made "subject to the following limitation: the bid could not exceed an otherwise qualified bid by ten (10%) percent or Fifty Thousand Dollars ($50,000.00), whichever is lower."² The cap was apparently intended to strike a balance between the city's efforts to include small businesses in public contracts and the city's interest in protecting its taxpayers from excessive costs.

{¶ 4} On December 23, 2003, the city issued an invitation to bid on the Cincinnati Convention Center Expansion and Renovation Project, entitled "Bid Package C / TC — 09A Drywall." The city required bidders to show that they had made a good-faith effort to obtain the participation of SBEs on the project. For the drywall-contract bids, the city established a mandatory SBE-participation goal of 35 percent. Bidders were notified that their failure to meet the SBE participation goal could cause a bid to be rejected as nonresponsive. The city received bids until February 5, 2004.

{¶ 5} On February 11, 2004, Kathi Ranford, a contract-compliance officer, reported to Bernadine Franklin, the city's purchasing agent, that none of the three bidders for the project's drywall contract had complied with the 35 percent SBE-participation requirement. According to Ranford, Cleveland had submitted a bid with three percent SBE participation, Valley Interior Systems had submitted a bid with 34 percent SBE participation, and Kite, Inc., had submitted a bid with no SBE participation. In that round of bidding, Cleveland's bid had been the lowest dollar bid.

{¶ 6} Because none of the bidders had achieved the full 35 percent SBE-participation goal, the city conducted an emergency rebidding for the drywall contract. On February 24, 2004, Ranford notified Franklin that Cleveland had submitted a rebid for $8,889,000, with ten percent SBE participation and that Valley had submitted a rebid for $10,135,022, with 40 percent SBE participation.

{¶ 7} The city's office of contract compliance deemed Cleveland's bid to be unacceptable due to its failure to achieve 35 percent SBE participation. In all other respects, however, Cleveland's bid had been found acceptable according to the city's purchasing division.

{¶ 8} Following a review of the acceptability of the bids, Franklin issued a recommendation to Timothy Riordan, an assistant city manager, that the drywall contract be awarded to Valley. Franklin's recommendation stated, "Pursuant to Section 321-37 of the Municipal Code, the bid submitted by [Valley] has been determined to be the lowest and best bid."

{¶ 9} Valley's new bid exceeded Cleveland's new bid by $1,246,022, well over the $50,000 or ten percent cap in CMC 321-37. Nonetheless, on March 3, 2004, the city awarded the drywall contract to Valley and instructed Valley to commence work under the terms of the contract.

Cleveland Files Suit

{¶ 10} Three weeks later, on March 30, 2004, Cleveland brought an action for injunctive relief and damages against the city, several city employees, and Valley. Cleveland asked the court to restrain the city and Valley from proceeding on the drywall contract and to order the city to award the contract to Cleveland.

{¶ 11} In addition, Cleveland sought declarations by the court that (1) the city's award of the contract violated CMC 321-37; (2) the city's drywall contract with Valley was void; (3) the city's SBE program was unconstitutional and in violation of Section 1983, Title 42, U.S.Code; (4) the city had deprived Cleveland of a property interest; (5) Cleveland was the lowest and best bidder; and (6) the city's delegation of discretion to its purchasing agent under the SBE subcontracting-outreach program was void.

{¶ 12} Finally, Cleveland sought compensatory and punitive damages, as well as attorney fees and costs.

{¶ 13} The trial court denied Cleveland's motion for a temporary restraining order. Later, upon motion, the trial court dismissed the city employees from the action.

{¶ 14} In June 2005, the case proceeded to a jury trial. At the close of Cleveland's case, the trial court directed a verdict in favor of the city and Valley on Cleveland's claims for lost profits. Cleveland's remaining claims for injunctive and declaratory relief and attorney fees were tried to the bench by agreement of the parties.

{¶ 15} At the conclusion of the trial, the court found that the city had violated CMC 321-37 by awarding the drywall contract to Valley rather than to Cleveland. As a result, the court held, the city had abused its discretion in a manner that had denied Cleveland the contract in violation of its federally protected due-process rights and in violation of Section 1983.

{¶ 16} The court held that the city's SBE program rules and guidelines created race- and gender-based classifications that rendered the program facially unconstitutional. The court further found that the city had pressured and encouraged bidders, including Cleveland, to draw upon race- and gender-based classifications, in violation of Cleveland's rights under Section 1983. But the court held that Cleveland had failed to establish that the denial of the drywall contract was the result of the race- and gender-based classifications; rather, it held that the denial had been the result of the city's preference for small businesses.

{¶ 17} The court rendered a declaratory judgment that precludes the city from awarding future contracts to a bidder that exceeds the cap set forth in CMC 321-37 if the bid selection is based primarily on the bidders' compliance with the SBE subcontracting-outreach program.

{¶ 18} The court permanently enjoined the city from maintaining or applying race- or gender-based classifications in its SBE rules and guidelines, absent a formal determination that such race-based provisions were narrowly tailored and necessary to fulfill compelling governmental interests, or that such gender-based provisions were substantially related to genuine and important governmental objectives.

{¶ 19} Finally, the court entered judgment in favor of Cleveland as the prevailing party, and against the city, for Cleveland's reasonable attorney fees and costs pursuant to Section 1988, Title 42, U.S.Code. The court also entered judgment in favor of Valley.

{¶ 20} On appeal, Cleveland argues that the trial court erred by (1) directing a verdict in favor of the city on Cleveland's damage claims; (2) refusing to declare Valley's drywall contract to be void or to prohibit performance under the contract; (3) ruling that Cleveland could not elicit testimony from Valley's subcontractors with respect to postcontract events; (4) denying Cleveland's motion for a new trial; (5) granting the motions to dismiss individual city employees; and (6) making findings concerning causation of damages.

{¶ 21} In its cross-appeal, the city argues that the trial court (1) erred by applying CMC 321-37; (2) lacked jurisdiction over Cleveland's claims for injunctive relief; (3) erred by concluding that the city had deprived Cleveland of its right to procedural due process; (4) erred by ruling that portions of the city's SBE program created constitutionally impermissible race- and gender-based classifications; and (5) erred by awarding attorney fees to Cleveland. We first address the city's assignments of error.

The Application of CMC 321-37

{¶ 22} In its first assignment of error, the city argues that the trial court erred by applying CMC 321-37 in its analysis of Cleveland's claims. The city contends that Franklin had not applied the provisions of CMC 321-37 in her review of bids for the project because the ordinance had not been in place at the time the project's "procurement process" was planned.

{¶ 23} The record reflects that CMC 321-37 had been adopted in specific contemplation of the convention-center project. By its terms, the ordinance had been enacted as an emergency measure due to the city's "immediate need to proceed with the bidding of the Convention Center and major development projects." The ordinance specifically applied to the award of construction contracts that exceeded $100,000. And the ordinance had gone into effect before the project's bid solicitation and well before the award of the drywall contract. So Franklin's...