Intentional Interference: A Remedy for a Losing Bidder?

An interesting case came down last month in the Second Appellate District concerning intentional interference with prospective economic advantage. In a case of first impression, the Court of Appeals found that a losing bidder can state a cause of action for intentional interference if it alleges it was the second lowest bidder and would have been awarded the contract but for the winning bidder’s submission of a bid that was lower solely due to that bidder’s failure to pay its workers the prevailing wage. Roy Allen Slurry Seal, Inc. v. American Asphalt South, Inc. (Cal. Ct. App. – Feb. 20, 2015).

For three long years, Appellants Roy Allan Slurry Seal and Doug Martin Contracting submitted 23 bids for public works contracts to apply slurry seal protective coatings[i] on various Southern California roadways. Each time they lost the bid to one particular competitor, American Asphalt South, Inc. Traditionally, disappointed bidders have few remedies.  They can seek writs of mandate to challenge a public agency’s actions and to void a contract awarded to a competitor. While this may give the disappointed bidder some satisfaction of forcing a rebid or denying the award to a competitor, at most the challenger can expect is to recoup their bidding costs.

Instead of taking the usual path, Appellants decided to sue their competition in five counties (eventually consolidated) for intentional interference with prospective economic advantage and other torts. The complaint alleged that American had only been able to submit the lowest bid by paying its workers less than the statutorily prevailing wage, and that plaintiffs would have won the contracts because the material costs were effectively the same and that the only substantial difference in their bids came from the unlawfully deflated labor costs.

At the trial level, American demurred to their complaints contending, among other things, that the plaintiffs did not have the required existing relationship and reasonable probability of being awarded the contracts that was required to show intentional interference with prospective economic advantage.

In order to state a cause of action for intentional interference with prospective economic advantage, a plaintiff must allege five elements:

1. the existence of an economic relationship with some third party that makes it reasonably probable the plaintiff will gain some future economic benefit;
2. That the defendant must have knowledge of the plaintiff’s economic relationship;
3. The defendant must have engaged in wrongful acts designed to disrupt the plaintiff’s relationship;
4. Plaintiffs’ economic relationship was actually disrupted; and,
5. Plaintiff suffered economic harm that was proximately caused by defendant’s interference. See, Korea Supply Co. v. Lockheed (2003) 29 Cal.4th 1134, 1165.

American contended that losing bidders are barred from suing their successful competitors for intentional interference because there was no existing relationship with which to interfere, and that there was no reasonable probability that any contract would ever have been awarded. Finding no case on point, the Court of Appeal nevertheless, found that because public entities are required to award the contract to the lowest bidder, that plaintiffs had a tangible expectancy the contracts would be theirs, an expectation that was thwarted only by American’s violation of its statutory obligation to pay its workers the prevailing wage.

The gist of this case is that now a disappointed bidder with the goods on the competition can sue the successful bidder of a public works contract in hopes of recovering its lost profits, a far more lucrative claim instead of just recouping its bidding costs.

For more information, contact commerical collections attorney Ron Slates.