Neptune Swimming Found. v. City of Scottsdale

542 P.3d 241

NEPTUNE SWIMMING FOUNDATION, Plaintiff/Appellant,

v.CITY OF SCOTTSDALE, Defendant/Appellee.

No. CV-23-0076-PR

Supreme Court of Arizona.

Filed February 6, 2024

Appeal from the Superior Court in Maricopa County, The Honorable Joseph P. Mikitish, Judge, No. CV2019-007172. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED

Memorandum Decision of the Court of Appeals, Division One, 1 CA-CV 21-0053 Filed March 9, 2023. VACATED

Timothy Sandefur, Jonathan Riches (argued), Scott Day Freeman, Scharf-Norton Center for Constitutional Litigation at the Goldwater Institute, Phoenix; Dennis L. Hall, Dennis L. Hall, Attorney PLLC, Scottsdale, Attorneys for Neptune Swimming Foundation

Scot L. Claus (argued), Vail C. Cloar, Holly M. Zoe, Alexandra Crandall, Dickinson Wright PLLC, Phoenix; Eric C. Anderson, Scottsdale City Attorney’s Office, Scottsdale, Attorneys for City of Scottsdale

Kory Langhofer, Thomas Basile, Statecraft PLLC, Phoenix, Attorneys for Amicus Curiae Arizona Free Enterprise Club and Grand Canyon Legal Center

Joshua Bendor, Alexander W. Samuels, Luci D. Davis, Office of the Attorney General, Attorneys for Amicus Curiae State of Arizona

Linley Wilson, Arizona House of Representatives; Rusty Crandell, Arizona State Senate, Phoenix, Attorneys for Amici Curiae Speaker of the Arizona House of Representatives Ben Toma and President of the Arizona State Senate Warren Petersen on Behalf of the 56th Arizona Legislature

VICE CHIEF JUSTICE TIMMER authored the Opinion of the Court, in which CHIEF JUSTICE BRUTINEL and JUSTICES BOLICK, LOPEZ, BEENE, MONTGOMERY, and KING joined.

VICE CHIEF JUSTICE TIMMER, Opinion of the Court:

¶1 This case involves private swim clubs vying for exclusive rights to use the City of Scottsdale’s (the "City") four public aquatic centers to operate competitive youth swimming programs. To decide whether Scottsdale Aquatic Club ("SAC") or Neptune Swimming Foundation ("Neptune") should receive an operating license commencing in 2019, the City used a request-for-proposal ("RFP") process outlined in its procurement code. It later canceled the RFP after evaluating the clubs’ proposals and declined to award a license to Neptune, which had submitted the proposal most financially lucrative to the City. Instead, the City exercised an option to extend an existing license agreement with SAC, which had operated programs at the centers for over fifty years.

¶2 We are asked two questions. First, did the court of appeals err in holding that a qualified bid from the higher bidder should not be considered when deciding whether the City violated article 9, section 7 of the Arizona Constitution (the "Gift Clause")? Second, did the City fail to follow its own rules by canceling the RFP and therefore abuse its discretion in deciding which club should be awarded the license? As to the first question, we answer that the higher bid in the RFP process was relevant, but not conclusive, in determining the fair market value of the license. A public entity does not necessarily violate the Gift Clause by choosing the less profitable arrangement. As to the second question, we find that an issue of material fact exists about whether the City violated its own procurement process, thereby precluding summary judgment for the City on that issue.

BACKGROUND

¶3 The City provides recreational facilities and programs "believing that the provision of leisure … is necessary to meet significant social, physical, informational and mental health needs of the community." Scottsdale Revised Code, ch. 20, art. IV, div. 1, § 20-51(a). To that end, the City allows open public swimming at its aquatic centers, provides recreational and learn-to-swim programs for all ages, and rents remaining pool time to outside groups, charging fees to offset costs rather than to maximize profit. The Scottsdale City Council (the "City Council") establishes fees and rental rates for using its parks and recreational facilities, including the aquatic centers. Scottsdale Revised Code, ch. 20, art. IV, div. 1, § 20-52(a).

¶4 From 1966 until 2016, the City and SAC, a non-profit corporation, entered into annual agreements, which granted SAC exclusive rights to conduct a competitive youth swimming program at the City’s aquatic centers. From at least 2006, Neptune unsuccessfully sought to replace SAC in operating this program.

¶5 The events culminating in this lawsuit started on July 1, 2016, when the City and SAC entered into a revocable license agreement (the "2016 License") for three years with two, one-year options to extend the license term. Under that agreement, SAC agreed to (1) "support, promote, operate and administer" a competitive youth swimming team for City youth and provide swimming competitions sanctioned by USA Swimming, Inc.; (2) pay hourly rates unilaterally set by the City Council to use pool lap lanes ($3.00 per hour for short-course lanes and $7.00 per hour for long-course lanes), as adjusted from time to time by the City Council; (3) pay other fees, including rental fees for office and storage space; and (4) assist the City with its summer recreational swimming programs. In return, the City gave SAC access to the aquatic centers when pool space was not being used for other City programs. The City could unilaterally increase or decrease SAC’s usage hours and schedule other public activities during the same hours.

¶6 The City provided the 2016 License because it wanted to offer a competitive youth swimming team "for the benefit of City residents, in the most economical and efficient manner," and SAC could achieve that goal by operating a team "sponsored by the City" and by providing competitions. Because the City desired "to provide recreational opportunities for residents," it required SAC to primarily train and coach City residents and encourage their participation by implementing tactics like reducing participation fees. The 2016 License acknowledged that SAC’s operation would "foster the development of the youth of the City, promote the development of competitive swimming skills and bring national and international visitors to the City for multiple day periods when attending competitions, which encourages shopping, eating and staying in the City."

¶7 More than one year later, on August 8, 2017, Neptune objected to the 2016 License. Neptune complained that the 2016 License was granted "at significantly below market rates and without compliance with open bidding" in violation of the Gift Clause.¹ Conse- quently, Neptune demanded that the City rescind the 2016 License and use an open bidding process to determine which club should be granted the exclusive right to use the aquatic centers to conduct a competitive youth swimming program.

¶8 The City defended its decision to grant SAC the 2016 License. Nevertheless, to give other groups like Neptune an opportunity to obtain access when the 2016 License’s initial term expired in 2019, the City initiated a procurement process.

¶9 In early 2018, the City issued the RFP, inviting non-profit organizations to submit sealed proposals "for an Established Aquatic Youth Competitive Swim Team." The RFP sought proposals for a three-year contract with two, one-year extension options; set out proposal specifications; and provided that the procurement process would comply with the ordinances, rules, and procedures described in the Scottsdale Procurement Code (the "Code").² Like the 2016 License, the RFP required the winning club to favor City residents and assist the City with recreational swimming events. The Code required the City to award the license to "the responsible offeror whose proposal is … the most advantageous to the [C]ity[,] taking into consideration the evaluation factors set forth in the [RFP]." See City of Scottsdale Procurement Code § 2-188(c)(5) (eff. Feb. 1, 2016) [hereinafter Code].

¶10 The RFP set out proposal components, each of which was assigned a weight for evaluation purposes: firm/organization qualifications (20%); key personnel qualifications (10%); team and facility use/tentative project schedule exceptions (20%); revenue/lap lane hours (30%); membership-residency requirements plan (20%). For the revenue/lap lane hours component, the RFP required clubs to propose "lap lane fees" of at least $4.00 per hour for short-course-lane use and $8.00 per hour for long-course-lane use and provide the anticipated number of lane hours to be used annually. The City required the winning club to use at least 25,000 lane hours per year.

¶11 The RFP also required the winning club to maintain between 300 and 550 team members, mostly comprised of City residents or students attending schools within the City’s public school system (collectively, "Residents"). The club was required to charge discounted club fees for Residents and pay the City at least $60 per non-Resident swimmer. The City would deposit all fees into a fund used to maintain and repair aquatic facilities.

¶12 Only Neptune and SAC submitted proposals. As relevant here, Neptune offered to pay $12 per hour for 32,000 hours of short-course-lane use and 3,000 hours for long-course-lane use. It also offered to pay $120 per non-Resident participant and estimated 150 such participants. Neptune’s proposal would have netted the City $438,000 in annual revenue. SAC offered to pay the RFP minimum rates of $4.00 per hour for 33,100 hours of short-course-lane use and $8 per hour for 1,120 hours of long-course-lane use. It also offered to pay the RFP minimum of $60 per non-Resident participant and estimated 200 such participants. SAC’s proposal would have netted the City $153,360 in annual revenue. Together with other fixed fees, Neptune offered to pay $284,640 more per year than SAC in the revenue component of the RFP.

¶13 The City established a committee comprised of three City employees (the "Committee") to evaluate and score the proposals on all components, except expected revenue. The City’s purchasing department separately evaluated and scored...