February 16, 2017

Supreme Court limits suits against winners of public works contracts

Finding that “[t]he costs of recognizing a tort remedy . . . are simply too high,” the Supreme Court today holds in Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., that the second lowest bidders on 23 public works contracts valued at over $14,000,000 cannot sue the winning bidder for wrongful conduct during the bidding process.  The winner was allegedly able to underbid by not paying prevailing wage and overtime compensation to its workers.

The court’s unanimous opinion by Justice Carol Corrigan concludes that, in the “highly regulated circumstances” of public works contracts, which are “a unique species of commercial dealings,” there could be no action for intentional interference with prospective economic advantage because the runner-ups “had ‘at most a hope for an economic relationship and a desire for future benefit.'”  Warning that “[c]ourts must act prudently when fashioning damages remedies ‘in an area of law governed by an extensive statutory scheme'” like public contracts, the opinion states that an unsuccessful bidder can instead challenge the award of a contract by seeking injunctive relief by petitioning for a writ of mandate.

The court reverses a 2-1 decision by the Second District, Division Eight, Court of Appeal.

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