In Roy Allen Slurry Seal, Inc. v. American Asphalt South, Inc., (2017) 2 Cal.5th 505, the California Supreme Court recently ruled that disappointed bidders could not state a claim for the tort of intentional interference with prospective economic advantage against companies that obtain public contracts based on business practices that allegedly violate employment laws.
In this case, Roy Allen and another general contractor, Doug Martin Contracting, Inc., asserted the tort of intentional interference with prospective economic advantage in their lawsuit against American Asphalt, in which they alleged that they had lost a large number of public contracts to American Asphalt based on American Asphalt’s ability to submit deflated bids due to lower labor costs derived from not paying prevailing wages or overtime compensation to its workers. The trial court sustained American Asphalt’s demurrer without leave to amend, but the court of appeal reversed, holding that plaintiffs had stated a claim for intentional interference with prospective economic advantage. The California Supreme Court said no, plaintiffs did not state a claim.
Its reasoning was based on three main ideas: (1) plaintiffs could not plead an existing economic relationship with the public entity soliciting bids; (2) plaintiffs could not plead the probability of future economic benefit; and (3) potentially significant public policy disadvantages would occur if they allowed such an action.
The California Supreme Court put a lot of weight on the idea that the general contractors were not in an existing economic relationship with the public entity, due to the nature of public bidding in California, which is based only on objectively accepting the lowest bid from a responsive and responsible bidder. The Court then assigned great weight to the idea that there was insufficient probability of future economic benefit because public entities have the ability to reject all bids and because a bidder must first meet the statutory definition of being a “responsible” bidder in order to obtain a public contract. Finally, the Supreme Court ruled that public policy did not support allowing such a lawsuit to go forward in order to protect wage and hour laws, as that area was already heavily statutorily governed. Further, the Court expressed that the possibility of monetary gain could encourage frivolous litigation, which may deter responsible bidders, and possibly lead to voluminous public records requests that would potentially interfere with the public interest of having public contracts awarded and performed promptly.
Although there are still factual scenarios related to tortious interference in public contracts that may still be allowed to move forward, such as cases that more closely follow the fact pattern in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, this rarely used alternative approach to bid protests is for now laid to rest.