Title: Cementech, Inc. v. Fairlawn

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Cementech, Inc. v. Fairlawn, 109 Ohio St.3d 475, 2006-Ohio-2991.] 
 
 
CEMENTECH, INC., APPELLEE v. CITY OF FAIRLAWN, APPELLANT. 
[Cite as Cementech, Inc. v. Fairlawn, 109 Ohio St.3d 475, 2006-Ohio-2991.] 
When a municipality violates competitive-bidding laws in awarding a 
competitively bid project, the rejected bidder cannot recover its lost profits 
as damages. 
(Nos. 2005-0970 and 2005-0971 — Submitted February 22, 2006 — Decided  
June 28, 2006.) 
APPEAL from and CERTIFIED by the Court of Appeals for Summit County, 
No. 22309, 160 Ohio App.3d 450, 2005-Ohio-1709. 
__________________ 
SYLLABUS OF THE COURT 
When a municipality violates competitive-bidding laws in awarding a 
competitively bid project, the rejected bidder cannot recover its lost profits 
as damages. 
__________________ 
 
ALICE ROBIE RESNICK, J. 
{¶ 1} On December 1 and 8, 2001, the appellant, the city of Fairlawn, 
publicly advertised that it was accepting bids for a service-road project.  The 
appellant later issued an addendum on December 10, 2001, to include planting 
pear trees as part of the project. 
{¶ 2} On December 17, 2001, the bids were opened, and the appellant’s 
law director notified the appellee, Cementech, Inc., that its bid had been rejected 
for failure to include the addendum in the bid.  A few days later, the Fairlawn City 
Board of Audit and Review held a meeting in which it reviewed the submitted 
bids, as well as correspondence from the appellee regarding its bid and the 
SUPREME COURT OF OHIO 
2 
bidding process.  The board agreed to disqualify the appellee’s bid and recognize 
another bid as the lowest and most responsive. 
{¶ 3} Appellee filed suit against the appellant and requested that the 
court enjoin the appellant from taking any action or awarding the contract to any 
other bidder.  The trial court denied the appellee’s request for injunctive relief, 
and the appellee did not appeal the denial.  The trial court later granted the 
appellant’s motion for summary judgment. 
{¶ 4} The appellee appealed the summary judgment to the Ninth District 
Court of Appeals.  The appellate court reversed the summary judgment after 
holding that the appellant had failed to produce evidence that the city’s law 
director had the authority to make the decision to remove the appellee’s bid from 
consideration.  Cementech, Inc. v. Fairlawn, Summit App. No. 21344, 2003-
Ohio-3145, ¶ 14.  The appellate court remanded the cause to the trial court for a 
hearing on the merits.  Id. at ¶ 17. 
{¶ 5} On remand, the trial court ruled that the appellee could recover its 
cost of bid preparations, but nothing more, should it prevail on its claims for 
alleged violations of the competitive-bidding process.  In reaching this conclusion, 
the court reasoned that it was not in the public’s interest to allow a rejected bidder 
to recover lost profits, because the public had already paid for performance by the 
successful bidder (including its profits) and should not be required to pay profits a 
second time.  The trial court further found that the prospect of liability for bid 
preparations would serve as a reasonable and necessary deterrent to a 
municipality’s noncompliance with competitive-bidding laws. 
{¶ 6} A trial ensued, and a jury found in favor of the appellee and 
awarded it damages in the amount of the cost of its bid preparations.  Following 
the verdict, the appellee appealed the trial court’s order limiting damages to the 
cost of bid preparations.  The appellate court reversed the trial court’s judgment 
January Term, 2006 
3 
that lost profits could not be recovered.  The court determined that the project had 
been completed because injunctive relief had been denied and that if the appellee 
could not recover its lost profits, it was left with inadequate relief.  Further, the 
appellate court held that precluding recovery of lost profits would undermine the 
integrity of the competitive-bidding process because other relief would not 
adequately discourage government entities from violating bidding procedures. 
{¶ 7} The appellate court recognized that its decision rejected the public-
policy argument that other appellate courts had found persuasive.  Specifically, 
the court held that the interest of protecting the integrity of the bidding process 
and ensuring that wronged parties receive meaningful relief outweighs the risk of 
taxpayers’ paying profits twice for the same project.  However, the appellate court 
also noted that the way to avoid awarding lost profits was by granting an 
injunction pending the outcome on the merits. 
{¶ 8} The court of appeals determined that its judgment conflicted with 
the judgment of the Eighth District Court of Appeals in Cavanaugh Bldg. Corp. v. 
Cuyahoga Cty. Bd. of Commrs. (Jan. 27, 2000), 8th Dist. No. 75607, 2000 WL 
86554, and the judgment of the Eleventh District Court of Appeals in Hardrives 
Paving & Constr., Inc. v. Niles (1994), 99 Ohio App.3d 243, 650 N.E.2d 482, on 
the following issue: “Does the availability of injunctive relief if timely filed but 
denied preclude an award of lost profits in a municipal contract case?”  The cause 
is now before this court upon our determination that a conflict exists (case No. 
2005-0971), as well as pursuant to our acceptance of a discretionary appeal (case 
No. 2005-0970). 
{¶ 9} The intent of competitive bidding is to protect the taxpayer, 
prevent excessive costs and corrupt practices, and provide open and honest 
competition in bidding for public contracts.  Danis Clarkco Landfill Co. v. Clark 
Cty. Solid Waste Mgt. Dist. (1995), 73 Ohio St.3d 590, 602, 653 N.E.2d 646.  
SUPREME COURT OF OHIO 
4 
While allowing lost-profit damages in municipal-contract cases would protect 
bidders from corrupt practices, it also would harm the taxpayers by forcing them 
to bear the extra cost of lost profits to rejected bidders.  Thus, the purposes of 
competitive bidding clearly militate against allowing lost-profit damages to 
rejected bidders. 
{¶ 10} Rather, a rejected bidder is limited to injunctive relief.  An 
injunction is an extraordinary remedy in equity where there is no adequate remedy 
at law.  Garono v. State (1988), 37 Ohio St.3d 171, 173, 524 N.E.2d 496.  The 
grant or denial of an injunction depends largely on the character of the case, the 
particular facts involved, and factors relating to public policy and convenience.  
Perkins v. Quaker City (1956), 165 Ohio St. 120, 125, 59 O.O. 151, 133 N.E.2d 
595.  Further, the granting of an injunction should be done with caution, “ 
‘especially in cases affecting a public interest where the court is asked to interfere 
with or suspend the operation of important works or control the action of another 
department of government.’ ”  Danis, 73 Ohio St.3d at 604, 653 N.E.2d 646, 
quoting Leaseway Distrib. Ctrs, Inc. v. Dept. of Adm. Servs. (1988), 49 Ohio 
App.3d 99, 106, 550 N.E.2d 955. 
{¶ 11} It is clear that in the context of competitive bidding for public 
contracts, injunctive relief provides a remedy that prevents excessive costs and 
corrupt practices, as well as protects the integrity of the bidding process, the 
public, and the bidders.  Moreover, the injunctive process and the resulting delays 
serve as a sufficient deterrent to a municipality’s violation of competitive-bidding 
laws. 
{¶ 12} In this case, the appellate court justified its decision to award the 
appellee lost profits by finding that precluding damages would “allow government 
entities to go unpunished for ignoring Ohio and municipal laws.”  Cementech, 
Inc., 160 Ohio App.3d 450, 2005-Ohio-1709, 827 N.E.2d 819, ¶ 17.  However, 
January Term, 2006 
5 
punishing government entities through lost-profit damages to rejected bidders in 
effect punishes the very persons competitive bidding is intended to protect – the 
taxpayers.  This court has long prohibited the assessment of punitive damages 
against a municipal corporation, except when specifically permitted by statute, for 
that very reason.  Ranells v. Cleveland (1975), 41 Ohio St.2d 1, 6-7, 70 O.O.2d 1, 
321 N.E.2d 885. 
{¶ 13} Unfortunately, the appellee did not appeal the trial court’s denial of 
its motion for injunctive relief.  Consequently, the propriety of the denial of the 
appellee’s motion for an injunction was not an issue before the court.  The 
service-road project proceeded and was completed by another bidder.  Although it 
is true that the appellee lost profits due to the appellant’s wrongly awarding the 
project to another bidder, we believe it would be unfair to hold the taxpayers 
liable for the appellee’s loss. 
{¶ 14} Therefore, we hold that when a municipality violates competitive-
bidding laws in awarding a competitively bid project, the rejected bidder cannot 
recover its lost profits as damages. 
{¶ 15} Accordingly, we reverse the judgment of the court of appeals. 
Judgment reversed. 
 
MOYER, C.J., LUNDBERG STRATTON, O’CONNOR, O’DONNELL and 
LANZINGER, JJ., concur. 
 
PFEIFER, J., concurs in judgment only. 
__________________ 
 
David M. Leneghan, for appellee. 
Amer Cunningham Co., L.P.A., Jack Morrison Jr., and Thomas R. 
Houlihan; Edward J. Riegler, city of Fairlawn Law Director, for appellant. 
 
Jim Petro, Attorney General, Douglas R. Cole, State Solicitor, Diane 
Richards Brey, Deputy Solicitor, and William C. Becker, Holly Hunt, and Erik J. 
SUPREME COURT OF OHIO 
6 
Clark, Assistant Attorneys General, urging reversal on behalf of amicus curiae 
Ohio Attorney General Jim Petro. 
 
Barry M. Byron, Stephen L. Byron, and John Gotherman, urging reversal 
on behalf of amicus curiae the Ohio Municipal League. 
 
Schottenstein, Zox & Dunn and Roger L. Sabo, urging affirmance on 
behalf of amicus curiae Associated General Contractors of Ohio and Ohio 
Contractors Association. 
 
McFadden, Winner & Savage and James S. Savage, urging affirmance on 
behalf of amicus curiae National Electrical Contractors Association, Ohio 
Conference. 
______________________