Equitable Shipyards, Inc. v. State

Citations: 611 P.2d 396; 93 Wash. 2d 465; 1980 Wash. LEXIS 1294Docket: 46330

Court: Washington Supreme Court; May 8, 1980; Washington; State Supreme Court

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Equitable Shipyards, Inc. (Equitable) appeals a decision by the Washington State Transportation Commission (Commission) to award a ferry construction contract to Marine Power, Equipment Co. (MP&E), claiming the Commission acted arbitrarily and capriciously. Equitable also contests the constitutionality of a statute limiting judicial review of the Commission's decisions, a bidding preference statute favoring Washington firms, and the interpretation of that statute, specifically RCW 47.60.650-.670. The trial court upheld the Commission's decision, leading to this appeal. 

In 1977, the Washington legislature authorized the construction of ferries, mandating a competitive bidding process for shipbuilders, which required prequalification under RCW 47.60.660. By November 1977, both Equitable and MP&E had prequalified among seven shipyards. The Commission issued a request for proposals (RFP) for six vessels, requiring detailed design submissions and a delivery schedule from November 1979 to May 1982. Proposals were submitted by both companies by December 30, 1977, and remained open for 90 days as per RCW 47.60.650(9). The Commission evaluated the proposals based on compliance with RFP requirements and projected operation and maintenance costs, aiming to select the most advantageous offer while considering an in-state preference outlined in RCW 47.60.670, which allows local firms a price advantage of up to six percent compared to out-of-state bids. The trial court's affirmation of the Commission's decision stands.

The Department engaged a naval architect to assess shipbuilder proposals, with evaluation meetings held on January 25, 1978. The architect provided a life cycle cost report on January 30, ranking six proposals: 1) MP&E Alternate A, 2) Equitable Alternate A, 3) MP&E Alternate B, 4) Equitable Alternate B, 5) MP&E Base proposal, and 6) Equitable Base proposal (non-compliant with the RFP). The rankings included a 6 percent out-of-state preference. These recommendations were presented to the Commission on February 3, 1978. By that date, all proposals except the Equitable Base were compliant, which was rectified by February 17. The Commission heard from the naval architect and both shipyards, allowing them to submit further information. Equitable raised objections regarding the 6 percent preference and requested access to MP&E's plans, which was denied. After reevaluation on February 17, the proposals were repriced and ranked again. On February 21, the Commission selected MP&E Alternate A as the most advantageous proposal. 

Equitable appealed the Commission's decision to Thurston County Superior Court on February 27, claiming the Commission acted arbitrarily in applying the 6 percent preference, violating the Open Public Meetings Act, and the Public Records Act. At a March 3 hearing, it was agreed that no contract would be signed with MP&E until motions were resolved. Equitable sought access to MP&E's plans and prequalification documents, which were under escrow. The court permitted inspection of the plans under supervision, ruling that prequalification issues were not currently reviewable, although all parties involved were deemed prequalified under RCW 47.60.660.

The trial court determined that the firms could rely on a prior decision and prepare proposals accordingly. Equitable raised concerns about MP&E's financial ability, essential for prequalification, deeming relevant the file related to this evaluation. The court decided to review financial data submitted after prequalification in camera but maintained that prequalification was not contested. On March 21, Equitable was allowed to review MP&E's prequalification file, but a broad request for all documents was dismissed as vague. Despite the court and parties acknowledging potential time constraints for trial preparation, the court scheduled the trial for March 23, later postponed to March 27, under the summary appeal provision of RCW 47.60.650(6)(b). Equitable's motion for expert testimony to clarify the administrative record was denied, and the court refrained from addressing constitutional issues, which could be pursued in a declaratory judgment action. 

During the trial starting March 27, arguments focused on whether the state's actions were arbitrary or capricious, with statutory interpretation regarding a 6 percent preference discussed the following day. On March 30, the court issued conclusions of law stating: it could not address constitutional questions due to jurisdictional limits, could not adjudicate violations of the Open Public Meetings Act, could not accept expert testimony outside the administrative record, Equitable had not been denied due process, the state had correctly applied the 6 percent preference statute, and MP&E's selection was not arbitrary or capricious based on the administrative record. The primary goal of public bidding is to provide taxpayers with the best value, while a secondary goal is to ensure fair competition among bidders. The ferry procurement act outlines a negotiated contract process based on competitive design proposals, emphasizing factors like price and lifecycle costs, and allows for expedited judicial review. Equitable's main objections revolve around the constitutionality and application of the preference statute, RCW 47.60.670.

The trial court determined it lacked jurisdiction to hear constitutional claims in a statutory review proceeding regarding a ferry contract. RCW 47.60.650(6)(b) allows the court to either affirm or reverse the Commission's decision if deemed arbitrary or capricious. Equitable contended that this standard encompasses constitutional review and does not limit the court's authority to adjudicate constitutional issues, but the court disagreed with the first point and agreed with the second. The court emphasized the need for a prompt resolution due to the short lifespan of submitted offers and the urgency of ferry needs. The definition of arbitrary and capricious, described as willful and unreasoning action disregarding relevant facts, was reiterated through case law. The court also noted that the arbitrary or capricious standard does not allow a reviewing court to replace an agency's judgment, provided the agency's decision reflects honest consideration. In this instance, the discretion in awarding contracts could be broader when terms are meant to serve the state's best interests. Additionally, the court pointed out that the legislative framework distinguishes between arbitrary or capricious actions and constitutional violations. It concluded that the legislature did not intend to prevent judicial review of constitutional issues and acknowledged that the Declaratory Judgment Act, RCW 7.24, was available for such claims. Equitable, aware of the preference provision, could have initiated a declaratory action earlier but chose to submit a proposal instead. After not being selected, it filed a federal declaratory judgment action but initially did not raise constitutional issues in its appeal to Thurston County Superior Court. Ultimately, the court decided to consider the constitutional preference complaint due to its significance, despite the procedural missteps by Equitable.

Equitable's amended notice of appeal in the Superior Court focused on state constitutional provisions, but it now raises an equal protection claim under the Fourteenth Amendment. The court notes that the federal equal protection clause and the state privileges and immunities clause are similar, as established in Olsen v. Delmore. Despite the State's objection to this claim being raised at the appellate level, the court deems it necessary to address. It references U.S. Supreme Court precedents which affirm the government's right to manage its own procurement processes, suggesting that equal protection guarantees may not apply when the state acts in a proprietary capacity.

Citing various state court decisions, the court explains that statutory in-state purchasing preferences have been upheld against equal protection and commerce clause challenges. The proprietary rationale, while sometimes questioned, remains relevant. A 1972 Supreme Court affirmation distinguished state purchases in a proprietary capacity from other state functions, supporting the legitimacy of in-state purchasing mandates.

Equitable argues that its out-of-state status classifies it as an "alien," warranting strict scrutiny of the preference statute based on alienage as a suspect class. However, the court clarifies that while Equitable is a foreign corporation, it does not qualify as an alien in the equal protection context, which pertains specifically to non-U.S. citizenship. Additionally, classifications based on nonresidency or out-of-state citizenship are not recognized as suspect categories for equal protection analysis, thus negating Equitable's argument for heightened scrutiny.

The preference statute is determined to align with economic legislation and is subject to rational basis scrutiny, involving a three-part test: 1) uniform application of the classification to all members within the designated class, 2) a rational distinction between those included and excluded from the class, and 3) a rational relationship between the classification and the statute's purpose. There is a strong presumption of constitutionality for economic acts by the legislature, placing the burden of proof on challengers. The statute's primary purpose is to facilitate the procurement of ferries using public funds, emphasizing public interest and granting preference to in-state construction activities that support the economy. Exemptions from sales and use tax for ferry construction aim to offset lost tax revenue while promoting local economic activity. The law is deemed to have a rational relationship to its classifications, and no equal protection violation is found.

Equitable's claim that the statute violates the constitutional prohibition against special laws is addressed by stating that the law does not arbitrarily exclude entities that should be included; instead, it is a general enactment based on legitimate classifications. The classification pertains to groups of bidders rather than individual entities, thus not violating the cited constitutional provision. Additionally, Equitable argues that the Commission's refusal to disclose certain plans and specifications violated public records laws, which they claim was arbitrary and capricious.

The Commission's refusal to disclose one competitor's plans and specifications to another in a design/bid competition is upheld as neither arbitrary nor capricious. On January 11, 1978, both firms' plans were placed in escrow, and following an appeal, the trial court ordered the plans to be available for inspection, later allowing unrestricted access. Equitable had full access to the plans and did not claim any prejudice from the Commission's earlier refusal to disclose them. The only legal authority cited by Equitable, RCW 42.17.270, does not necessitate the Commission's actions to be scrutinized.

Equitable also contended that the Commission acted arbitrarily regarding prequalification files, but no significant prejudice was shown as the concerns related to another competitor’s financial responsibility. After gaining access to the files, Equitable did not identify any inaccuracies.

Regarding the expedited hearing, Equitable argued that the 10-day provision for a hearing on appeal violated due process and separation of powers, claiming it hindered adequate preparation. However, the trial court interpreted the statute as directory, allowing the hearing to occur one month post-appeal, thus maintaining due process standards. Equitable's comparison to a past case, In re Petrie, was deemed unconvincing as it involved different circumstances. The court's approach aimed to balance timely resolution with adequate preparation for Equitable, ultimately finding no violations of due process or separation of powers, as the situation was managed to benefit all parties involved.

The Open Public Meetings Act (OPMA) of 1971 emphasizes transparency in public meetings, as highlighted in RCW 42.30.010. The trial court determined it lacked jurisdiction to assess whether the Commission violated the OPMA, and Equitable failed to prove it was denied access to meetings or deliberations. Specifically, Equitable did not demonstrate that a secret meeting occurred or that the Commission improperly met in executive session. Although Equitable claimed that the denial of access to certain documents constituted an OPMA violation, the court found that independent examination of those documents did not constitute a meeting or action under the act, as the Commission's decisions were made in open public sessions.

Regarding the application of the preference statute, the trial court rejected Equitable's interpretation, which argued that the statute mandated awarding contracts solely based on comparing in-state and out-of-state bids with a 6 percent preference for in-state proposals. Equitable contended that life cycle costs should only be considered for in-state proposals and not in comparisons with out-of-state bids. Conversely, the State interpreted the relevant statutes to aggregate bid prices, life cycle costs, and the preference for determining the most advantageous proposal. The court sided with the State, affirming that the evaluation process must consider all relevant factors without distinguishing between in-state and out-of-state proposals. The ruling reinforces the legislative intent behind the statutes, ensuring comprehensive evaluation criteria in contract awards.

The powers and responsibilities of the toll bridge authority and highway department have been transferred to the Department of Transportation, as outlined in RCW 47.01.031. Equitable Shipyards, Inc. filed a notice of appeal in Thurston County Superior Court, indicating a prior declaratory judgment action initiated on February 24, 1978, in the Western District of Washington (Equitable Shipyards, Inc. v. Bulley, No. C78-128). Equitable has reserved the right to have its constitutional and federal statutory claims adjudicated in federal court, which include violations of the commerce clause, due process and equal protection under the Fourteenth Amendment, civil rights infringements, and the granting of unequal privileges and immunities. While the federal complaint is not included in the appeal record, it reportedly alleges both state and federal constitutional violations, with the federal case currently pending.

RCW 47.60.660 establishes an independent appeal process for "aggrieved parties" to review prequalification decisions, though it remains undetermined if Equitable can challenge another bidder's prequalification under this statute. The prequalification requirements include adequate financial resources, relevant experience and qualifications, ability to meet performance schedules, integrity and skills, and compliance with applicable laws. Additionally, various public bidding statutes permit contracts to be awarded to the "lowest responsible bidder," with certain statutes allowing awards to the "best bidder" who submits their own plans and specifications.