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California Supreme Court Holds Competing Proposals Submitted To A Public Agency Do Not Become Public Records Until The Completion Of Negotiations

By: Lloyd W. Pellman

On June 22, 2006, the California Supreme Court overturned a split decision of the Court of Appeal in Michaelis, Montanari & Johnson v. Superior Court, 2006 Cal. Lexis 7502 (No. S133464). The plaintiff in the matter sought to obtain proposals submitted to Los Angeles World Airports ("LAWA") for the lease of land at the Van Nuys airport before negotiations with the proposers had been completed. Plaintiffs sought the records under the California Public Records Act (Gov. Code § 6250 et seq. the "Public Records Act"). Section 6255 of the Public Records Act permits a public agency to withhold documents where the "the public interest in non-disclosure ‘clearly outweighs’ the public interest in disclosure."

The city attorney, acting for LAWA, declined to disclose anything other than the names of the proposers. The city attorney justified withholding the proposals opining that disclosing them before negotiations were complete "would irretrievably corrupt the process and harm not only the respondents (LAWA), but also city taxpayers who may not receive the best value in return for the expenditure of their tax dollar" because the successful proposer could gain a negotiating advantage if it knew the details of unsuccessful proposals. The trial court ruled against plaintiffs concluding that LAWA could withhold the proposals "because the public interest in nondisclosure clearly outweighs the public interest in disclosure." In a split decision, the Court of Appeal overturned the trial court. The Court of Appeal concluded that the public had a strong interest in knowing whether LAWA had acted properly prior to completion of the negotiating process. The Court of Appeal also concluded that the city’s strong negotiating position in being able to reject any proposals it felt were unsuitable could not be hurt by permitting proposers to know that other competitive proposals had been made. The Court of Appeal concluded that the public interest in knowing facts during the negotiating process outweighed the city’s concern about early disclosure.

The Supreme Court overturned the Court of Appeal, holding that LAWA could withhold the proposals until the negotiation process was complete. The Court summarily rejected the plaintiff’s argument that LAWA’s failure to comply with the time deadlines of the Public Records Act waived its rights to withhold the documents.

The Supreme Court concluded that the plaintiff had offered "no compelling reason why public scrutiny of [the competitive bidding] process cannot as effectively take place after LAWA’s negotiations are completed, but before the Board and the city finally approve the lease." The Court relied heavily upon the reasoning of the Court of Appeal dissent that the public scrutiny of the process would actually be better served by evaluating the decisions the city actually makes after they are made. The Court indicated that "we need not decide in this case the precise point in time appropriate for such disclosure, as long as a reasonable time remains for public input before the Board’s final award is made."

The Court justified non-disclosure in part on the structure of the process that allowed the city to negotiate with more than one proposer. The Court noted that releasing all of the proposals before the negotiation process was complete in such a case would allow the bidders to see each other’s positions and adjust their bids accordingly, possibly to the detriment of the city. The Court also noted that once a finalist was selected, the finalist’s knowledge of the contents of other proposals could allow it to successfully resist additional concessions sought by the city in negotiations if it knew that the other proposers had not offered favorable terms.

The Supreme Court’s unanimous decision appears to allow public agencies conducting a competitive bid process that includes negotiations with proposers to withhold the proposals from disclosure under the Public Records Act until negotiations are completed, as long as a sufficient period of time is provided after negotiations are completed to view and comment on the proposal that the agency has selected before the agency grants final approval. Although the Court of Appeal dissent by Justice Mosk, upon which the unanimous Supreme Court decision drew heavily, might allow the public agencies to withhold proposals in such a case until after a final approval, the Supreme Court did not go so far.

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