Rath v. City of Sutton

The City of Sutton, Nebraska (City), sought to make improvements to its wastewater treatment facility. The City received bids from a number of construction companies, including JJ Westhoff Construction Company, Inc. (Westhoff), and Van Kirk Sand & *268 Gravel, Inc. (Van Kirk). The Sutton City Council (City Council) awarded the contract for the project to Van Kirk, a local contractor, despite the fact that Westhoff’s bid was $16,000 lower. The question presented on appeal is whether the City impermissibly awarded the contract to someone other than the lowest responsible bidder in contravention of Neb. Rev. Stat. §§ 17-918 and 18-507 (Reissue 1997).

FACTUAL AND PROCEDURAL BACKGROUND

In September 2001, the City advertised an invitation for bids for the construction of certain improvements to its wastewater treatment facility. The City’s invitation for bids stated that the City would receive bids until October 3, 2001, at 1:30 p.m., at which time all bids would be publicly opened and read aloud. The invitation stated that each prospective bidder would be required to certify, by submitting “EPA Form 5700-49,” that it was not presently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from covered transactions by any federal department or agency. Additionally, the bidders were notified they would have to comply with certain rules regarding nondiscrimination in employment and the U.S. Environmental Protection Agency’s Disadvantaged Business Enterprise (DBE) requirements.

The invitation for bids also stated that the City reserved “the right to reject any and all bids and to waive informalities in bids submitted and to accept whichever bid that is in the best interest of the City, at its sole discretion.” Likewise, article 19 of the “Instructions to Bidders” purported to give the City, as the “Owner,” nearly unbounded discretion in the bidding process.

OWNER reserves the right to reject any or all Bids, including without limitation, nonconforming, nonresponsive, unbalanced, or conditional Bids. OWNER further reserves the right to reject the Bid of any Bidder whom it finds, after reasonable inquiry and evaluation, to be non-responsible. OWNER may also reject the Bid of any Bidder if OWNER believes that it would not be in the best interest of the Project to make an award to that Bidder. OWNER also reserves the right to waive all informalities not involving price, time, or changes in the Work and to negotiate contract terms with the Successful Bidder.

*269 Van Kirk, a contractor located in Sutton, and Westhoff, a contractor located in Lincoln, Nebraska, submitted bids on the project. On October 3, 2001, the bids were opened and Westhoff’s bid ($1,274,000) was lower than Van Kirk’s bid ($1,290,000) by $16,000. Per the bid specifications, both Westhoff and Van Kirk listed August 15, 2002, as the substantial completion date and September 15 for the project’s final completion date. Van Kirk’s bid did not include the DBE requirements or form 5700-49. A public meeting to award the project was scheduled for October 9, 2001.

After the bids were unsealed, but before the October 9, 2001, meeting of the City Council, the president of Van Kirk sent a letter to the City urging the City Council to award the project to Van Kirk. The letter noted the amount of personal property taxes Van Kirk had paid in 2000 and the amount Van Kirk estimated it would pay in 2001. In addition, the letter stated the amount of money Van Kirk spent annually within the City and estimated the amount Van Kirk contributed to the City’s economy each year. Van Kirk recognized that it was not the low bidder, but argued that the $16,000 difference in bids would be more than made up in overall economic benefits to the City if the project were awarded to a local contractor.

During the public meeting on October 9, 2001, the City Council noted the $16,000 difference in bids. The minutes of the meeting show that one council member stated that the difference in bids was not substantial and that by choosing Van Kirk, the wages would stay in the City. All four members of the City Council voted in favor of awarding the contract to Van Kirk, and the motion carried.

Westhoff protested this decision through a letter to the clerk of the City. In the letter, dated October 11, 2001, Westhoff argued that it was the lowest responsible bidder and threatened to pursue legal action if it were not awarded the contract. On October 23, Marlowe Rath, a taxpayer and resident of the City, instituted this action, at the request and with the funding of Westhoff, against the City, the City Council, the mayor, and Van Kirk (collectively the appellees). Essentially, Rath’s petition claimed that the City failed to award the contract to the lowest responsible bidder.

*270 After the lawsuit was filed, the City Council called a “special meeting” for October 31, 2001, to reconsider their decision. At the beginning of the special meeting, the mayor of the City, Virgil Ulmer, disclosed that he was a salaried employee of Van Kirk. He also stated that in the event the vote on awarding the contract resulted in a tie, he would not vote to break the tie. The record shows that Ulmer worked sporadically for Van Kirk between 1991 and 1996, when he became a permanent employee of Van Kirk. He was elected as the City’s mayor in 1998. We note that Ulmer did not vote at the prior meeting, held on October 9, nor did he disclose his potential conflict of interest.

Westhoff presented no supporting evidence at the special meeting. Rather, it merely reminded the City Council that a lawsuit had been filed over the matter and restated its position that the award to Van Kirk was inappropriate and contrary to law. In response, the president of Van Kirk reiterated Van Kirk’s status as a local contractor and argued that by selecting Van Kirk, the City would reap a variety of savings and economic benefits. Additionally, various persons presented oral testimony in favor of awarding the bid to Van Kirk, specifically emphasizing the positive economic impact its selection would have on the community.

The City Council then voted in favor of reconsidering the original award of the contract. During the subsequent discussion, each of the three present members of the City Council stated their support for awarding the contract to a local business. Generally speaking, they argued that awarding the contract to a local business would offset the $16,000 difference in bids and contribute positive economic benefits to the community. The City Council then voted 3 to 0 to award the contract to Van Kirk.

Rath’s operative amended petition, filed December 3, 2001, sought to temporarily and permanently enjoin the City from (1) awarding the project to Van Kirk and (2) spending any public funds on the project until it was awarded to the lowest responsible bidder. In addition, the amended petition sought an order declaring the contract between Van Kirk and the City null and void.

On February 7, 2002, the district court issued an order on Rath’s motion for a temporary injunction. The court found, inter *271 alia, that (1) both Westhoff and Van Kirk were deemed to be responsible bidders by the City, (2) Westhoff was the low bidder by $16,000, and (3) the only reason Westhoff did not receive the contract was that the City thought it would be best to award the project to a local bidder. Nonetheless, the court denied Rath’s motion because it determined that Rath failed to show he would suffer irreparable injury if the injunction were not granted.

The parties submitted the case on a stipulated record. The court issued its order on October 2, 2002, and made findings nearly identical to those in its order of February 7. Specifically, the court determined that the evidence failed to show Rath would suffer irreparable injury if injunctive relief were not granted. The court denied Rath’s request for permanent injunctive and declaratory relief on this basis.

Rath filed a timely notice of appeal, but did not request a stay or supersedeas bond. Therefore, because there was no court order prohibiting Van Kirk from proceeding with construction, Van Kirk began the work and, on September 30, 2003, completed the improvements to the wastewater treatment facility. The City remitted final payment to Van Kirk on July 23. On October 6, 1 day prior to oral argument in this court, the appellees, by way of separate motions, moved to dismiss Rath’s appeal as moot. Rath opposed these motions, and we granted the parties additional time to brief the issue of mootness.

ASSIGNMENTS OF ERROR

Rath claims, renumbered and restated, that the district court erred in (1) finding that a resident taxpayer claiming the illegal expenditure of public funds is required to prove more than the illegality of the expenditure in order to show irreparable harm; (2) construing the bidding statutes, §§ 17-918 and 18-507, to allow a city of the second class to have discretion in awarding a contract for the construction of a wastewater treatment facility or the improvement thereof; and (3) finding that Van Kirk’s initial bid, which did not include the DBE requirements or form 5700-49, was responsive.

STANDARD OF REVIEW

A jurisdictional question that does not involve a factual dispute is determined by an appellate court as a matter of law, *272 which requires the appellate court to reach a conclusion independent of the lower court’s decision. Stoetzel & Sons v. City of Hastings, 265 Neb. 637, 658 N.W.2d 636 (2003).

An action for injunction sounds in equity. In an appeal of an equity action, an appellate court tries the factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court. Whipps Land & Cattle Co. v. Level 3 Communications, 265 Neb. 472, 658 N.W.2d 258 (2003). See State ex rel. City of Alma v. Furnas Cty. Farms, 266 Neb. 558, 667 N.W.2d 512 (2003).

ANALYSIS

Mootness

Essentially, the appellees argue that because construction of the wastewater treatment facility has been completed and Van Kirk has been paid in full, there is nothing left for this court to enjoin. Thus, according to the appellees, there is no live case or controversy, and an opinion passing on the propriety of the award to Van Kirk would be advisory. On the other hand, Rath argues that because he is seeking a declaration that the contract is null and void and because taxpayers have a right to recover all funds paid under an illegal contract, he is still entitled to a remedy, and that his appeal is not moot.

The contours of the doctrine of mootness are well established. A case becomes moot when the issues initially presented in litigation cease to exist or the litigants lack a legally cognizable interest in the outcome of litigation. Stoetzel & Sons, supra; Putnam v. Fortenberry, 256 Neb. 266, 589 N.W.2d 838 (1999). A moot case is one which seeks to determine a question which does not rest upon existing facts or rights, in which the issues presented are no longer alive. Stoetzel & Sons, supra.

Recently, we have addressed similar situations where the action a party was seeking to enjoin had been completed prior to our review of the lower court’s decision. See, generally, Stoetzel & Sons, supra; Prueba v. Kahlandt, 260 Neb. 366, 618 N.W.2d 399 (2000); Putnam, supra; Koenig v. Southeast Community College, 231 Neb. 923, 438 N.W.2d 791 (1989). In these cases, we have emphasized the nature of injunctive relief, stating that “injunctive relief is preventative, prohibitory, or protective, and *273 equity usually will not issue an injunction when the act complained of has been committed and the injury has been done.” See Putnam, 256 Neb. at 270, 589 N.W.2d at 842-43. Moreover,

“‘[sjince the purpose of an injunction is not to afford a remedy for what is past but to prevent future mischief, not being used for the purpose of punishment or to compel persons to do right but merely to prevent them from doing wrong, rights already lost and wrongs already perpetrated cannot be corrected by injunction.’ ”

Id. at 271, 589 N.W.2d at 843, quoting Conrad v. Kaup, 137 Neb. 900, 291 N.W. 687 (1940).

Much like the aforementioned cases, the actions that Rath is seeking to enjoin — the execution of the contract with Van Kirk and the expenditure of public funds for the project — have been completed. Thus, any opinion on the court’s denial of injunctive relief would be “worthless.” See Stoetzel & Sons v. City of Hastings, 265 Neb. 637, 646, 658 N.W.2d 636, 643 (2003). Simply put, we lack the power, “once a bell has been rung, to unring it.” See CMM Cable Rep. v. Ocean Coast Properties, Inc., 48 F.3d 618, 621 (1st Cir. 1995). See, also, Stoetzel & Sons, supra. Rath’s request for injunctive relief is moot.

We must, however, determine whether the declaratory judgment prayer has also been rendered moot, as the inability of the court to grant the injunction does not, by itself, render the declaratory action moot as well. See Koenig, supra.

A declaratory judgment action becomes moot when the issues initially presented in the proceedings no longer exist or the parties lack a legally cognizable interest in the outcome of the action. ... At the time that the declaration is sought, there must be an actual justiciable issue.... A justiciable issue requires a present, substantial controversy between parties having adverse legal interests susceptible to immediate resolution and capable of present judicial enforcement.

(Citations omitted.) Putnam, 256 Neb. at 272-73, 589 N.W.2d at 844. See, also, Greater Omaha Realty Co. v. City of Omaha, 258 Neb. 714, 605 N.W.2d 472 (2000); Koenig, supra.

The actions Rath is seeking to enjoin are predicated on an alleged illegal expenditure of public funds. Rath argues that *274 notwithstanding completion of the project and payment of all funds, relief is still available because a taxpayer has a right to recover the funds expended under an illegal contract. See Cathers v. Moores, 78 Neb. 17, 113 N.W. 119 (1907). According to Rath, a declaration of the contract’s illegality maintains the action because he can then seek to recover the illegally expended funds. In other words, Rath is arguing that the City could not divest this court of jurisdiction by paying out the money on an illegal contract. See, Faden, Aplnt. v. Phila. Housing Auth., 424 Pa. 273, 227 A.2d 619 (1967); Egidi v. Town of Libertyville, 218 Ill. App. 3d 596, 578 N.E.2d 1300, 161 Ill. Dec. 654 (1991).

To a certain extent, Rath is correct. Obviously, petitions that seek restitution damages, refund damages, lost profits, or other types of monetary relief do not become moot upon completion of the project. As noted elsewhere, a “suit that seeks damages for harm caused by past practices is not rendered moot by the cessation of the challenged conduct.” CMM Cable Rep., 48 F.3d at 621. See, also, Curtis Indus., Inc. v. Livingston, 30 F.3d 96 (8th Cir. 1994).

Here, however, Rath did not seek to recover the funds that may have been illegally expended under the City’s contract with Van Kirk. His petition sought only injunctive and declaratory relief, plus such other relief that the court deemed proper. In order to be entitled to recoup the illegally expended funds, Rath was required to specifically request such relief in his petition. See, Alexander v. School Dist. No. 17, 197 Neb. 251, 248 N.W.2d 335 (1976); National Fire Ins. Co. v. Evertson, 153 Neb. 854, 46 N.W.2d 489 (1951). Therefore, a declaration by this court on the legality of the contract between Van Kirk and the City would be advisory because it would have no effect on the parties in this case. And, as we have said before, “ ‘declaratory relief cannot be used to obtain a judgment which is merely advisory.’ ” See Putnam v. Fortenberry, 256 Neb. 266, 273, 589 N.W.2d 838, 844 (1999), quoting Galyen v. Balka, 253 Neb. 270, 570 N.W.2d 519 (1997). Rath’s request for declaratory relief is also moot.

Public Interest Exception

As a general rule, a moot case is subject to summary dismissal. Stoetzel & Sons v. City of Hastings, 265 Neb. 637, *275 658 N.W.2d 636 (2003). Nebraska, however, recognizes a public interest exception to the mootness doctrine, and we must consider whether it is applicable in this case. The exception requires the consideration of (1) the public or private nature of the question presented, (2) the desirability of an authoritative adjudication for guidance of public officials, and (3) the likelihood of recurrence of the same or a similar problem. Id. Two questions presented in Rath’s appeal meet the aforementioned test and merit review.

First, Rath’s appeal raises the issue of what a party alleging the illegal expenditure of public funds needs to show in order to establish irreparable harm. Obviously, the proof required to enjoin an illegal expenditure of public funds is of paramount importance to the taxpayers in this state. Moreover, this issue, if adjudicated, will provide needed guidance because it is an issue of first impression in this state. Furthermore, the issue is likely to recur because taxpayer suits seeking to enjoin alleged illegal expenditures of public funds are frequently filed. The public interest exception is applicable.

Second, Rath’s appeal also raises the issue of the appropriate interpretation of an oft-used phrase in our statutes, “lowest responsible bidder,” and its proper application within the context of Nebraska’s competitive bidding statutes. Again, the public nature of this question is not in doubt. We have repeatedly held that competitive bidding statutes exist solely for the protection of the public, see Anderson v. Peterson, 221 Neb. 149, 375 N.W.2d 901 (1985), and Rath, as a taxpayer, instituted this action on the public’s behalf.

In addition, an authoritative decision on this issue will provide guidance to every municipality and state official entrusted with procuring products and services. The term “lowest responsible bidder” is found in numerous statutory provisions, and to the extent we can bring clarity to its proper scope, interpretation, and interplay within the competitive bidding framework, tax-paying citizens of this state will benefit. See, e.g., Neb. Rev. Stat. §§ 13-1414, 14-361, 14-363, 14-365.08, 14-3,111, 14-1710, 14-2121, 15-228, 15-734, 15-753, 16-249, 16-649, 16-672.05, 17-533, 17-918, 18-507, 23-342, 23-366, 23-3615 (Reissue 1997); Neb. Rev. Stat. §§ 31-118, 31-120, 31-355, 31-512, *276 31-748, 31-912, 39-810, 39-1407, 39-1620, 46-145 (Reissue 1998); Neb. Rev. Stat. §§31-741, 39-1349, and 81-161 (Cum. Supp. 2002); Neb. Rev. Stat. §§72-803, 73-101.01, 73-103 (Reissue 1996); Neb. Rev. Stat. §§81-1108.55, 81-1201.13, 83-134, 83-916 (Reissue 1999).

Lastly, this issue is likely to recur because of the frequency of public contracting and the corresponding disputes over the fairness of those contracts. A short review of our case law shows that we have been faced with a number of cases challenging awards to the lowest responsible bidder. See, generally, Day v. City of Beatrice, 169 Neb. 858, 101 N.W.2d 481 (1960); Philson v. City of Omaha, 167 Neb. 360, 93 N.W.2d 13 (1958); Niklaus v. Miller, 159 Neb. 301, 66 N.W.2d 824 (1954); Best v. City of Omaha, 138 Neb. 325, 293 N.W. 116 (1940). However, we have not had the opportunity to properly determine the procedural framework of competitive bidding.

The appellees suggest that our analysis of the public interest exception should be controlled by Stoetzel & Sons v. City of Hastings, 265 Neb. 637, 658 N.W.2d 636 (2003); Greater Omaha Realty Co. v. City of Omaha, 258 Neb. 714, 605 N.W.2d 472 (2000); and Putnam v. Fortenberry, 256 Neb. 266, 589 N.W.2d 838 (1999), where we concluded that the public interest exception was inapplicable. By and large, the appellees are correct in asserting that, much like the aforementioned cases, the current posture of Rath’s appeal is due to the relief sought and the procedural and strategic choices made along the way. However, this is not enough, by itself, to preclude review. For if, as the appellees suggest, Rath forfeited any chance of review under the public interest exception because of past strategic or procedural choices, a party advancing mootness would need only to point a court’s attention to the mistake that caused the appeal to be moot and review would be precluded. Such a rule would nearly eviscerate the public interest exception.

Additionally, unlike the cases cited by the appellees, the issue facing this court is not unique to the factual situation of the parties. Instead of an inquiry into specific bidding proposals, contracts, or bequests, the overarching issues in this case are generic and statutorily based. In sum, this issue is susceptible to and proper for review under the public interest exception.

*277 The final issue on appeal, whether Van Kirk’s bid was responsive, does not meet the public interest exception. Much like Stoetzel & Sons, supra; Greater Omaha Realty Co., supra; and Putnam, supra, it entails a detailed examination into the specific factual circumstances of the case. Specifically, we would be required to examine the bid requirements, the authority retained by the City to waive informalities in the bidding process, and the specific bid submissions of the parties. Furthermore, paramount concern over this issue resides wholly with the parties, and no guidance is needed on an issue that, due to its unique facts, is unlikely to recur.

Thus, prior case law, including Stoetzel & Sons, supra; Greater Omaha Realty Co., supra', Putnam, supra; and Koenig v. Southeast Community College, 231 Neb. 923, 438 N.W.2d 791 (1989), compels a finding that Rath’s appeal is moot. However, two of the aforementioned issues presented by Rath’s appeal meet the public interest exception to the mootness doctrine and, although moot, merit review to provide guidance to public officials and future litigants in the competitive bidding arena.

Irreparable Harm

Rath’s amended petition requested temporary and permanent injunctive relief to prevent the City from (1) awarding the project to Van Kirk and (2) spending any public funds on the project until it was awarded to the lowest responsible bidder. In its order, the district court quoted Central Neb. Broadcasting v. Heartland Radio, 251 Neb. 929, 931, 560 N.W.2d 770, 771-72 (1997), for the standard for granting an injunction.

As an injunction is an extraordinary remedy, it ordinarily should not be granted except in a clear case where there is actual and substantial injury. . . . Stated otherwise, injunctive relief should not be granted unless the right is clear, the damage is irreparable, and the remedy at law is inadequate to prevent a failure of justice. ... As an injunction is an extraordinary remedy, it is available in the absence of an adequate remedy at law and where there is a real and imminent danger of irreparable injury.

(Citations omitted.) Initially, the court determined that Rath “failed to produce any evidence of substantial or irreparable *278 injury” and denied his request for a temporary injunction. Nearly 8 months later, the court made the same determination and denied Rath’s request for permanent injunctive relief. The court explained:

The evidence to date is that money to pay off the debt on this project will come from rate payers. There was no additional evidence presented at final hearing as to whether the rates would increase or if so how much, by a $16,000.00 difference in bid price. The evidence could conceivably be that it will not increase rates due to certain economies of having a local contractor. There was no showing of irreparable injury to rate pay[e]rs or Mr. Rath as a taxpayer. The request for permanent injunction and other relief should therefore be denied.

On appeal, Rath argues the district court erred in holding that a taxpayer has to prove more than an illegal expenditure of public funds in order to establish irreparable injury. According to Rath, taxpayers have the right to enjoin the government’s illegal expenditure of funds without any showing of individual financial loss. Rath relies exclusively on the following oft-cited rules of standing:

“ ‘ “[A] person seeking to restrain the act of a public board or officer must show special injury peculiar to himself or herself aside from and independent of the general injury to the public unless it involves an illegal expenditure of public funds or an increase in the burden of taxation.” ’” ...

... A resident taxpayer, without showing any interest or injury peculiar to itself, may bring an action to enjoin the illegal expenditure of public funds raised for governmental purposes.

(Emphasis supplied.) Chambers v. Lautenbaugh, 263 Neb. 920, 928, 644 N.W.2d 540, 547-48 (2002). See, also, Wasikowski v. Nebraska Quality Jobs Bd., 264 Neb. 403, 648 N.W.2d 756 (2002); State ex rel. Steinke v. Lautenbaugh, 263 Neb. 652, 642 N.W.2d 132 (2002); Hagan v. Upper Republican NRD, 261 Neb. 312, 622 N.W.2d 627 (2001); Ritchhart v. Daub, 256 Neb. 801, 594 N.W.2d 288 (1999); Fitzke v. City of Hastings, 255 Neb. 46, 582 N.W.2d 301 (1998); Professional Firefighters of Omaha v. City of Omaha, 243 Neb. 166, 498 N.W.2d 325 (1993); Rexroad, *279 Inc. v. S.I.D. No. 66, 222 Neb. 618, 386 N.W.2d 433 (1986); Nebraska Sch. Dist. No. 148 v. Lincoln Airport Auth., 220 Neb. 504, 371 N.W.2d 258 (1985); Haschke v. School Dist. of Humphrey, 184 Neb. 298, 167 N.W.2d 79 (1969); Martin v. City of Lincoln, 155 Neb. 845, 53 N.W.2d 923 (1952). Essentially, Rath argues that his right to injunctive relief is established by proof that (1) he is a resident taxpayer and (2) taxpayer funds are being expended contrary to law.

The appellees agree that the rule quoted in Chambers, supra, gives Rath standing. However, the appellees argue that the district court’s ruling was based on Rath’s failure to meet the standard for granting a permanent injunction in Central Neb. Broadcasting v. Heartland Radio, 251 Neb. 929, 560 N.W.2d 770 (1997), and that Rath’s standing is not relevant to this determination. According to the appellees, the aforementioned cases are confined to the issue of standing and are irrelevant to the propriety of granting an injunction. The appellees argue that in addition to satisfying the standing requirement, Rath had to make a separate showing of irreparable harm. On that account, the appellees argue that the court correctly found that Rath offered no evidence of irreparable harm and that therefore, Rath’s petition was properly dismissed.

It is clear, and no one argues otherwise, that Rath has standing to maintain the action. See, Wasikowski, supra; Chambers, supra. Likewise, it is clear that taxpayers have