Neptune v. Scottsdale

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
NEPTUNE SWIMMING FOUNDATION, Plaintiff/Appellant,
v.
CITY OF SCOTTSDALE, Defendant/Appellee.
No. 1 CA-CV 21-0053
FILED 3-9-2023
Appeal from the Superior Court in Maricopa County
No. CV2019-007172
The Honorable Joseph P. Mikitish, Judge
AFFIRMED
COUNSEL
Goldwater Institute, Phoenix
By Jonathan Matthew Riches, Timothy Sandefur
Co-Counsel for Plaintiff/Appellant
DL Hall Attorney PLLC, Scottsdale
By Dennis L. Hall
Co-Counsel for Plaintiff/Appellant
Scottsdale City Attorney’s Office, Scottsdale
By Eric C. Anderson
Counsel for Defendant/Appellee
NEPTUNE v. SCOTTSDALE
Decision of the Court
MEMORANDUM DECISION
Judge Jennifer M. Perkins delivered the decision of the Court, in which
Presiding Judge Cynthia J. Bailey and Judge Maria Elena Cruz joined.
P E R K I N S, Judge:
¶1 Neptune Swimming Foundation (“Neptune”) sought
mandamus, declaratory, and monetary relief stemming from Scottsdale’s
failure to award Neptune a license to operate a youth competitive
swimming program in Scottsdale’s facilities. Neptune now challenges the
superior court’s entry of judgment for Scottsdale. For the following reasons,
we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Scottsdale’s Parks and Recreation Department maintains
various recreational facilities, including four aquatic centers. Scottsdale
opens its aquatic centers for public swimming, swim lessons, and youth
competitive swimming. Youth competitive swim teams can use the aquatic
centers only after the team’s sponsor obtains a revocable license from
Scottsdale.
¶3 Scottsdale Aquatic Center (“SAC”) and Neptune operate
comparable youth competitive swimming programs. SAC is the only
competitive swim team Scottsdale has allowed to use its aquatic centers for
over 50 years. Scottsdale and SAC entered the most recent iteration of this
arrangement in 2016 when SAC received a revocable license (“2016
License”). The 2016 License contained an initial three-year term with two
consecutive one-year options. The 2016 License required SAC to pay: $3 per
hour for short course lap lanes, $7 per hour for long course lap lanes; $3,150
per year for office space; $1,400 per year for storage space; and additional
operating fees. Scottsdale’s City Council set the lap lane fee rates and
increased those rates in May 2019.
¶4 In August 2017, Neptune’s counsel sent Scottsdale’s mayor a
letter objecting to the 2016 License. Neptune asserted that the 2016 License
violated the Scottsdale Charter and Arizona Constitution because “[t]he
grant was made at significantly below market rates and without compliance
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with open bidding.” Scottsdale disagreed with Neptune’s assertions but
developed a procurement process for the next available license.
¶5 In January 2018, Scottsdale published its Request for Proposal
(“RFP”), explaining the procurement process and presenting the license
terms. The RFP included a provision stating “all procurement
activities . . . are in conformance with the rules and regulations of the
Scottsdale Procurement Code” (“Code”). The Code directs procurement
awards be made to the most advantageous bidder. Code § 2-188(c)(5). The
RFP provided Scottsdale’s five weighted evaluation criteria and other
factors the scoring committee could consider, which included: revenue; the
bidder’s experience; the bidder’s ability and willingness to meet the listed
specifications and standards; and the quality of the bidder’s proposal and
other presentation materials. The RFP’s bidding process description
included notice that “[b]idders may be invited to make a presentation on
their proposals.”
¶6 Scottsdale selected three disinterested city employees to serve
on the scoring committee. Only SAC and Neptune submitted bids and the
scoring committee selected SAC as the most advantageous bidder; SAC
received 31.75 more points than Neptune. Scottsdale provided its Notice of
Intent to Award the license to SAC in March 2018. Neptune formally
protested the RFP results, but Scottsdale dismissed that protest because it
believed “the recommended award to [SAC] as the most advantageous
Contractor . . . met all Procurement Code rules and procedures.”
¶7 Neptune then notified Scottsdale that the scoring committee
miscalculated the point totals. Per the corrected scores, Neptune received
.75 more points than SAC. Scottsdale agreed that it miscalculated the bid
totals and identified additional bid evaluation anomalies. Scottsdale then
invited both SAC and Neptune to give presentations on their proposals.
Neptune protested Scottsdale’s decision to reconvene the scoring
committee and invite the bidders to give presentations, arguing the Code
required Scottsdale to instead award Neptune the license.
¶8 Scottsdale responded that the Code did not bind the RFP
because it did not involve Scottsdale “purchasing materials, services, or
construction and this is not a City-mandated or City-sponsored program.”
Scottsdale then canceled the RFP on May 11, 2018, rescinding its Notice of
Intent to Award the license to SAC. Instead, Scottsdale exercised the first
one-year extension option under SAC’s 2016 License.
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¶9 To set the fees for the extension, the Scottsdale City Council
reviewed data for swim lane access in other Arizona municipalities such as
fees, quality, operating expenses, and how the city and licensee divide
expenses. The surveyed cities’ lane pricing ranged from $1 (in Marana) to
$15 (in Chandler) per lane per hour. Scottsdale set the new fee at $8 per lane
per hour for the long course and $4 for the short course.
¶10 In May 2019, Neptune filed a complaint seeking a writ of
mandamus compelling Scottsdale to award Neptune a license under the
RFP. Neptune alternatively alleged a violation of the Gift Clause, claiming
the 2016 License is not supported by adequate consideration given
Neptune’s bid for a higher rate per lane hour. Neptune’s remaining claims
asserted Scottsdale caused Neptune money damages by failing to follow
the bidding process.
¶11 Neptune and Scottsdale filed competing motions for
summary judgment. Neptune argued that Scottsdale abused its discretion
by abandoning the RFP, thus violating the Code, and that the 2016 License
violated the Gift Clause. Scottsdale argued it used the Code only as a guide,
as the Code did not otherwise apply to the RFP. Scottsdale nonetheless
contended that cancelling the RFP did not violate the Code. Scottsdale
asserted the statute of limitations barred Neptune’s Gift Clause claim and
alternatively claimed the 2016 License met the Gift Clause’s requirements.
¶12 The superior court granted summary judgment in
Scottsdale’s favor. The court found Scottsdale’s decision to cancel the RFP
did not violate the Code, nor was it arbitrary and capricious. The court
reasoned that because the RFP sought the “most advantageous” bid, not the
highest bidder, once a bidder raised concerns about the scoring committee’s
calculations, Scottsdale could request presentations and seek “a consensus
of committee members.” The court concluded that Neptune “failed to
continue with the process” by objecting to the presentation invitation, and
Scottsdale acted within its discretion to cancel the RFP.
¶13 The superior court found no Gift Clause violation but did not
address Scottsdale’s statute of limitation defense to that claim. The court
ruled that the recreational services provided under the 2016 License serve
a public benefit and that “[j]ust because Neptune agreed to pay more [per
swim lane] does not mean that the [2016 License] is so inequitable that it
amounts to a subsidy.”
¶14 Neptune timely appealed, and we have jurisdiction under
A.R.S. § 12-2101(A)(1).
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DISCUSSION
¶15 Neptune argues the superior court erred in granting
summary judgment to Scottsdale on the Gift Clause claim and upholding
the contract award to SAC. We review the court’s grant of summary
judgment de novo, “viewing the evidence and reasonable inferences in the
light most favorable to the party opposing the motion.” Zambrano v. M &
RC II LLC, 254 Ariz. 53, 55, ¶ 9 (2022).
I. Mootness and Statute of Limitations
¶16 Scottsdale argues that this appeal is moot because the license
pursued by the swim organizations would expire by the conclusion of the
appeal. Arizona courts may consider an appeal either of great public
importance or an issue “capable of repetition yet evading review.” Phoenix
Newspapers, Inc. v. Molera, 200 Ariz. 457, 460, ¶ 12 (App. 2001). Failure to
follow a city procurement code and applicability of the gift clause to
situations in which the city takes a less lucrative deal is capable of
repetition.
¶17 Scottsdale also argues that the statute of limitations bars
Neptune’s suit because Neptune had one year under A.R.S. § 12-821 to file
suit, Neptune was aware of the 2016 License no later than August 8, 2017,
and did not file until May 3, 2019. But Scottsdale ignores its own conduct
inducing Neptune to delay suit by offering the RFP process. See Nolde v.
Frankie, 192 Ariz. 276, 279–80, ¶¶ 13–14 (1998) (a defendant who induces
plaintiff to delay filing suit cannot then rely on a statute of limitations “as a
shield for inequity”). Scottsdale did not cancel the RFP process Neptune
participated in until May 11, 2018, and Neptune filed its complaint within
one year. This appeal is not moot or time barred.
II. Procurement Code
¶18 Scottsdale attempts to avoid Neptune’s procurement code
challenges by contending the Code applies only to purchases of materials,
services, and construction made with public funds. Even if we read the
Code as ordinarily inapplicable to the transactions contemplated by the
RFP here, Scottsdale explicitly held out the RFP as subject to the Code. But
assuming, without deciding, that the Code applies, Scottsdale abided by the
Code when it canceled the RFP.
¶19 Neptune raises two challenges to the superior court’s findings
implicating the Code. First, Neptune claims Scottsdale violated the Code by
requesting bidder presentations after the Notice of Intent to Award issued
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and it raised the scoring discrepancy. Once Scottsdale acknowledged its
miscalculation, Neptune argues, the Code required Scottsdale to award
Neptune the license. Second, Neptune disputes the superior court’s finding
that Neptune “failed to continue with the [procurement] process.”
¶20 The Code distinguishes between a Notice of Intent to Award
and an actual award. See, e.g., Code R2-188.23(B)(1) (“All Notices of intent
to Award shall be posted for at least 7 days prior to the award.”). Before the
city awards a contract, an aggrieved bidder may protest an alleged Code
violation, including whether the city correctly evaluated the bids. Code
§ 213(a). If the city manager or a designee sustains the protest, then “the
Director shall implement an appropriate remedy.” Code R2-213.2(A).
Acceptable remedies include reissuing the solicitation, issuing a new
solicitation, awarding a contract consistent with the Code, or “[s]uch other
relief as is determined necessary to ensure [Code] compliance.” Code R2-
213.2(C)(1)-(4). “After opening of bids or proposals, but before award, a
solicitation may be canceled if the Director determines that cancellation is
advantageous to the City.” Code R2-193.3(A).
¶21 After Scottsdale issued the Notice of Intent to Award to SAC,
Neptune timely protested whether Scottsdale correctly evaluated the
parties’ bids. In response to Neptune’s protest, Scottsdale corrected the
scores. Scottsdale’s director reconvened the scoring committee and invited
the parties to give presentations. Both SAC and Neptune sent Scottsdale
letters objecting to its plan. The director then canceled the RFP, stating,
“[a]fter further review of this matter, it has been determined that it is in the
best interest of the City to cancel the RFP.”
¶22 The Code provides the director with discretion to cancel a
solicitation if it is advantageous to Scottsdale, until it issues an award. Once
Scottsdale sustained Neptune’s protest for the miscalculation, the director
could “implement an appropriate remedy,” or cancel the RFP. Id. Here, the
director first invited the parties to give presentations to the scoring
committee. When both parties refused to participate, the director concluded
that Scottsdale would benefit from cancelling that process altogether and
reverting to the original license.
¶23 Neptune contends once Scottsdale accepted a bid it had to
move forward with the RFP because all subsequent actions were necessarily
ministerial. But Neptune’s reliance on City of Phoenix v. Wittman Contracting
Co. for that proposition is misplaced. In Wittman, Phoenix had to decide
between two bids for construction of a water line. 20 Ariz. App. 1, 2 (1973).
The court determined the city’s remaining actions were necessarily
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ministerial because Arizona law at the time required preference for parties
that successfully performed previous public contracts. Id. at 5 (relying on
A.R.S. § 34-241). In other words, the court’s analysis rested primarily on a
statute no longer in force. See Big D Constr. Corp. v. Ct. of Appeals, 163 Ariz.
560, 570 (1990) (A.R.S. § 34-241 violates the equal protection (art. 2, § 13) and
special privileges (art. 4, pt. 2, § 19) provisions of Arizona’s Constitution).
¶24 The Wittman court’s additional authority—and Neptune’s
other primary authority for this argument—is similarly unpersuasive. In
Brown v. City of Phoenix, the city considered competing bids for car rental
businesses to lease space at the airport. 77 Ariz. 368, 371 (1954). The city
awarded the lease to the “less favorable bidder,” id. at 375, despite direction
in the city charter to make the award to the “highest responsible bidder,”
id. at 370. Our supreme court determined that the city officials abused their
discretion, and the court directed issuance of a writ of mandamus awarding
the lease to the other bidder. Id. at 377. Critical to the court’s conclusion, the
city in Brown conducted a one-sided evaluation—it failed to investigate the
reliability and capability of the competing bidder. Id. at 375. The city’s
exercise of discretion thus could not have been reasonable on a conclusion
“in the best interests of the city, its citizens and taxpayers.” Id. at 375.
¶25 Neptune suggests that, under Brown, Scottsdale necessarily
acted arbitrarily by failing to accept Neptune’s higher bid. But Scottsdale
did not reject Neptune’s higher bid and accept SAC’s lower one as the city
did in Brown. The Notice of Intent to Award the contract was not an
acceptance and did not bind Scottsdale. See Code R2-201.1(A). Ultimately,
the director decided to reconvene the scoring committee because the RFP
process involved the mathematical error Neptune identified and some
procedural anomalies. Specifically: the scoring evaluations failed to include
some of the criteria identified in the RFP; using revenue as the primary
factor undermined the fees already set by the city council; one response did
not “contain a realistic estimate of lane utilization based on historic
availability”; and the RFP did not make it clear whether the per hour fee
included charges for staff time.
¶26 The director’s decision to reconvene the scoring committee
and receive the parties’ presentations also falls squarely within the Code’s
broad, non-exhaustive list of available remedies. See Code R2-213.2(C).
Even after choosing this remedy, the director was under no obligation to
issue an award. See Code R2-193.3(A) (director may cancel a solicitation
before an award if cancelation is advantageous to Scottsdale). Faced with
objections by both parties to the proposed remedy, Scottsdale acted within
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its authority by cancelling the RFP and reverting to the 2016 License. The
superior court did not err in rejecting Neptune’s procurement challenge.
III. Gift Clause
¶27 An Arizona city may not “make any donation or grant, by
subsidy or otherwise, to any individual, association, or corporation.” Ariz.
Const. art. 9, § 7 (“Gift Clause”). “[T]he evil to be avoided [is] the depletion
of the public treasury or inflation of public debt by engagement in non-
public enterprises,” State v. Nw. Mut. Ins. Co., 86 Ariz. 50, 53 (1959), or “by
giving advantages to special interests,” Schires v. Carlat, 250 Ariz. 371, 374,
¶ 6 (2021) (quoting Wistuber v. Paradise Valley Unified Sch. Dist., 141 Ariz.
346, 349 (1984)).
¶28 We apply a two-part test in evaluating a Gift Clause
challenge. Schires, 250 Ariz. at 374, ¶ 7. First, we consider whether the
benefit at issue serves a public purpose. Id. If so, we evaluate whether the
public is paying far more in consideration than it receives in value. Id. at
375, ¶ 7. Our courts have applied this analysis even when cities receive
rather than dispense funds. See Kromko v. Ariz. Bd. of Regents, 149 Ariz. 319,
322 (1986). Neptune contends Scottsdale’s cancellation of the RFP lacked a
public purpose and the court erred in its public purpose analysis. Neptune
also argues the 2016 License lacked the requisite consideration and the
court failed to determine the fair market value of the public’s benefit.
A. Public Purpose
¶29 Government expenditures or benefits must be in pursuit of a
public purpose. Wistuber, 141 Ariz. at 349. “[A] public purpose promotes
the public welfare or enjoyment,”and can arise out of a direct or indirect
benefit. Schires, 250 Ariz. at 375, ¶ 8 (citation omitted). The political
branches of government are best suited to determine what purposes are
public, and we afford them deference. Turken v. Gordon, 223 Ariz. 342, 349,
¶ 28 (2010).
¶30 Neptune argues that the court’s public purpose review
applies to Scottsdale’s decision to cancel the RFP. But the RFP cancellation
simply closed the city’s procurement process and is not a “payment or
conveyance.” Wistuber, 141 Ariz. at 349. The “conveyance” is Scottsdale’s
pool facilities license to SAC. The license provides access to a venue for
competitive swimming activities. These swimming activities provide a
recreational service to members of the public. Neptune agrees that
recreational services are a public benefit. The superior court did not err in
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concluding that the 2016 License allowing SAC to offer its swimming
activities served a public purpose. See Schires, 250 Ariz. at 375, ¶ 11.
B. Consideration
¶31 The “primary check on government expenditures for gift
clause purposes” is whether the consideration for the transaction is
sufficient. Id. at 376, ¶ 13. Government expenditures must not far exceed
the consideration offered by the private entity. Wistuber, 141 Ariz. at 349.
“[P]aying far too much for something effectively creates a subsidy from the
public to the seller.” Turken, 223 Ariz. at 350, ¶ 32. “Our inquiry, therefore,
focuses on what the public is giving and getting from an arrangement and
then asks whether the ‘give’ so far exceeds the ‘get’ that the government is
subsidizing a private venture in violation of the Gift Clause.” Schires, 250
Ariz. at 376, ¶ 14.
¶32 Neptune argues its offer to pay a higher rate per lane hour
creates a subsidy to SAC of the difference between the two rates. But
Neptune fails to properly identify the “give” and the “get” for purposes of
our consideration analysis. As noted above, after the cancelled RFP process,
Scottsdale reverted to the 2016 License. We do not review the failed RFP
process resulting in no agreement; we instead evaluate the 2016 License—
as extended in 2019—for potential Gift Clause infirmity. We find none.
¶33 Through the 2016 License, SAC agreed to pay Scottsdale the
rates and fees established by the city council and subject to revision by the
council. Supra ¶ 3. To establish a violation, Neptune must demonstrate that
the “give” of the 2016 License to Scottsdale far exceeds any “get” the city
received. And in evaluating Neptune’s challenge, we do not defer to
Scottsdale’s “assessment of value but should instead identify the fair
market value of the benefit provided to [SAC] and then determine
proportionality.” Schires, 250 Ariz. at 378, ¶ 23.
¶34 Neptune contends its higher offer establishes the market
value of the license and it cites to cases defining fair market value in the
deficiency judgment context for the proposition that its higher bid controls
the consideration analysis at the fair market value stage. See TCC Enters. v.
Est. of Erny, 149 Ariz. 257, 258 (App. 1986); see also Honeywell Info. Sys., Inc.
v. Maricopa Cnty., 118 Ariz. 171, 174 (App. 1977). But a governmental
procurement process is unlike a judicial decision-making process. Each
process is governed by different statutes and controlled by different policy
rationales. Compare MidFirst Bank v. Chase, 230 Ariz. 366, 368, ¶ 7 (App. 2012)
(citation omitted) (the goal of the deficiency judgment statute is to prevent
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a “windfall” to a real property purchaser), with Schires, 250 Ariz. at 378, ¶
23 (goal of Gift Clause fair market value judgment is determining
“proportionality” of cost to benefit).
¶35 Neptune would have us hold that the monetary value of
unsuccessful bids on government contracts establishes the standard by
which we judge reasonable consideration. Schires tells us we must identify
the objective fair market value and in this case—unlike in Schires—the city
actually provided the evidence from which the superior court could
evaluate proportionality. See supra ¶ 9. Notably, the range of fees that the
city considered started well below its 2016 fee structure and continued to
above Neptune’s bid.
¶36 The 2016 License details the lane rate and extra costs SAC
must pay. Scottsdale then updated the license with new fees in 2019 based
on its assessment of other swim lane fee structures. The undisputed
material facts do not establish that the updated fees are unreasonably low,
or that the consideration SAC paid is disproportionate to Scottsdale’s cost
in providing the lanes. Instead, Scottsdale structured the payment to
account for additional staffing and mimic similar lane prices. The superior
court did not err in granting summary judgment on the Gift Clause claim.
IV. Attorneys’ Fees
¶37 Neptune requests attorneys’ fees and costs under A.R.S. §§ 12-
341, -348, and the private attorney general doctrine. Because Scottsdale is
the prevailing party on appeal, we deny Neptune’s request.
CONCLUSION
¶38 We affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
10