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DePaul Industries v. City of Eugene

United States District Court, D. Oregon

August 23, 2018

DEPAUL INDUSTRIES, an Oregon non-profit corporation, Plaintiff,
v.
CITY OF EUGENE, at al, Defendants.

          OPINION AND ORDER

          Michael McShane, United States District Judge

         Plaintiff DePaul Industries is an Oregon non-profit corporation and a “Qualified Non-Profit Agency for Individuals with disabilities” (“QRF”) as defined under Oregon statute ORS 279.835(5). Local governments and agencies are mandated to contract with QRFs that provide certain available services before considering a for-profit entity.

         DePaul Industries is the only QRF listed in Lane County to provide unarmed security services. The City of Eugene had two contracts with DePaul Industries for unarmed security services that had renewed annually over a twelve year period. The contracts were not renewed in May of 2016.

         Plaintiff alleges that Defendants created a pretext of wanting armed security services so that the City could cancel the contracts with DePaul Industries in order to retaliate and punish DePaul Industries for the conduct of one of its employees. This employee, in his capacity as a private citizen, was a vocal critic of the City Council. As alleged, had the City placed a bid for unarmed security services, then the City would have been obligated by law to award the bid to DePaul Industries. As a result of the City's deceptive conduct, DePaul Industries lost their contracts. The complaint alleges eight claims:

(1) Violation of Oregon's QRF statute, ORS 279.850 - against the City;
(2) Violation of Oregon's Public Contracting Code, ORS 279A - against the City;
(3) Violation of Substantive Due Process - against all defendants;
(4) Violation of Procedural Due Process - against all defendants;
(5) First Amendment Retaliation - against all defendants;
(6) In the alternative, breach of contract - covenant of good faith and fair dealing - against the City;
(7) Fraud - against the City; and
(8) Negligence - against the City.

         Defendants move to dismiss the complaint for failure to state claims upon which relief can be granted. Defendants' position is that (1) the City lawfully followed public contracting procedures and (2) there were no QRFs in Lane County for armed security services.

         The overriding issue in this case is whether, as alleged, Defendants acted under a scheme of deception or fraud. The legal arguments in Defendants' motion to dismiss assume implicitly that the Defendants were acting in good faith. At this stage however, in accepting the allegations of material fact as true and construing them in the light most favorable to the non-movant, Plaintiffs have stated claims upon which relief can be granted (with one exception).

         Defendants' motion to dismiss (ECF No. 9) is DENIED in part. Plaintiff's negligence claim against the City is dismissed with leave to amend.

         FACTUAL BACKGROUND

         A. Two renewable contracts

         This case involves two separate and renewable contracts between DePaul Industries and the City of Eugene. Under the first contract (the parking contract), DePaul Industries provided unarmed security services at eleven City-owned parking garages. Under the second contract (the library contract), DePaul Industries provided unarmed security services at the Downtown Eugene public library. Am. Compl. Exs. 1 & 2. Each 12-month contract had historically been renewed.

         The parking contract covered eleven City parking garages to include the garages at the Library and the Hult Center for the Performing Arts. A different contractor provided security services at the Hult Center itself. Am. Compl. Ex. 1 at 12, 41. The agreement and extensions on the parking contract started on July 1 and ended on June 30 of each year. Id. at 19-21; Stilwell Decl. ¶ 9, Ex. 4. The library contract ran from November 30 to November 29 for some years, but most recently ran from July 1 to June 30. Am. Compl. Ex. 2, 49, 51, 59; Stilwell Decl. ¶ 9, Ex. 6.

         B. City seeks new security vendor

         In 2016, the City used the competitive bidding process purporting to seek a vendor that could provide both armed and unarmed security services at certain facilities. Stilwell Decl. ¶ 3, Ex. 1 at 12, 14. On May 27, 2016 the City published a RFP through its “ebid” system. Stilwell Decl. ¶ 4, Ex. 2. The RFP explicitly covered: (1) the Hult Center, (2) the Library, and (3) the parking facilities for those two locations, as well as “other facilities as may be covered by a resulting contract.” Stilwell Decl. ¶ 3, Ex. 1 at 2, 12, 14. There was no indication in the RFP that the “other facilities” were the remaining parking facilities that were covered by DePaul Industries parking contract.

         DePaul Industries was not in a position to bid on the RFP because it did not provide armed security services. DePaul Industries' contracts were set to expire on June 30, 2016. The Library contract was extended for one month to July 31, 2016 and the parking contract was extended for two months to August 31, 2016. Stilwell Decl. ¶ 9, Ex. 4 at 1, Ex. 6 at 15.

         On June 1, 2016, a City employee e-mailed DePaul Industries' security supervisor directly in response to DePaul Industries' request for “the open RFP for security services.” Pallanch Decl. ¶ 3, Ex. 2. DePaul Industries' President and CEO, Travis Pearson, received the RFP information “soon after.” Pallanch Decl. ¶ 4, Ex. 3. DePaul Industries did not attend the mandatory pre-closing meeting on June 2, 2016, and did not submit a proposal. Silwell Decl. ¶¶ 3, 6-7, Ex. 1 at 2; Pallanch Decl. ¶ 4, Ex. 3. DePaul Industries did not submit a protest to the RFP, although the RFP provided a procedure for protesting the “[p]rocurement process or the Solicitation Document” and notified RFP recipients that protest exhaustion is required prior to seeking judicial review. Stilwell Decl. ¶¶ 3, 6, Ex. 1 at 3-4.

         On August 1, 2016, the RFP was awarded to Advanced Security Inc., which provides both armed and unarmed security services. Stilwell Decl. ¶ 8, Ex. 3 at 12-14. The contract was later amended to include the remaining eight parking lots covered in DePaul Industries' parking contract, in addition to the Library, the Hult Center, and their respective parking lots. Stilwell Decl. ¶ 8, Ex. 3 at 19. DePaul Industries' final parking contract extension expired on August 31, 2016. Stilwell Decl. ¶ 9, Ex. 4 at 1.

         C. Mark Cosby

         Separate from the City's contracting process, the City of Eugene found itself defending a civil suit (now resolved) brought by Mark Cosby, an employee of DePaul Industries. Mr. Cosby, as a private citizen, sued the City in February 2016, alleging that the City retaliated against him for exercising his First Amendment rights. Am. Compl. ¶ 13. Mr. Cosby spoke critically of Eugene's mayor at multiple City Council meetings, attended protests, and reached out to a criminal defense attorney in a case the City was investigating. Am. Compl. ¶¶ 30-32. The City attempted to tender defense of the Cosby suit to DePaul Industries in May 2017, before issuing the RFP. The City relied on the indemnification provision in the parking ...


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