MN Court of Appeals Affirms Contract Award in Rochester Transit Dispute

Minnesota case law summary by Attorney Richard Clem: public contracts.

Rochester City Lines, Co. v. City of Rochester. MN public contracts

Rochester City Lines (RCL) has provided bus service in Rochester, MN, since 1966. In 1975, the company began receiving subsidies from the City of Rochester. In 1977, the city began receiving federal transit assistance. Some of those federal funds were used for capital improvements, included buses which were then leased to RCL.

In 1979, the city granted RCL a franchise to operate transit within the city. This was renewed over the years until December 31, 2011. But in 2010, the Federal Transit Administration determined that the contract had to be put out for competitive bids. The city extended the contract to June 30, 2012, and solicited bids for the period through 2016.

Bids were received from RCL, First Transit, Inc., and two other bidders. The city determined that the First Transit bid was the "best value" and awarded the contract to First Transit. The city allowed RCL to operate on an unsubsidized basis, but RCL ceased its fixed-route operations.

Dissatisfied with losing the lucrative contract, RCL commenced a lawsuit in Olmsted County District Court. It alleged that it was the "owner" of the transit system and that the request for proposals was unlawful. Its request for an injunction was denied, and it amended the complaint to style the case as a contract bid protest appeal. It also sued Rochester council member Michael Wojcik for defamation, and added various federal claims. It once again asked for an injunction, and the request was denied. The district court then granted summary judgment, dismissing all of RCL's claims. RCL continued the fight by appealing to the Minnesota Court of Appeals.

The bus company's first argument was that the city's actions amounted to a taking of its private property, and that it was entitled to compensation under the Fifth Amendment and Article I, Section 13, of the Minnesota Constitution. The court noted that the city already owned most of the transit system's tangible property, such as the buses, radio systems, security cameras, bus-stop benches, etc. But the company claimed that it was entitled to compensation for its intangible property, such as routes, schedules, and its "going concern" value."

The appeals court was quick to point out that the only thing that was really taken away was the hope of any public subsidy. RCL was still allowed to operate buses without public subsidy, as it had done from 1966-75. Thus, the court held that there had been no taking of any preoprty.

RCL next argued that the bidding process was unfair, prejudicially biased, and infected with organizational conflicts of interest.

The court did note that the "best value" award did involve some subjective factors. But even though there is a potential for unfairness, this does not render the process illegal. Most of the earlier bid protest cases the court examined involved the lowest responsible bidder approach, in which there is no discretion involved. The court held that those same general principles applied, but that the inherent discretion must be taken into consideration. And in this case, the court examined the record and concluded that RCL had not introduced any evidence tending to show any impremissible considerations. In particular, while it conceded that there might have been some general unfairness in the bid process, RCL didn't present any hard facts of an organizational conflict of interest.

For these reasons, the Court of Appeals affirmed the decision regarding the contract process. Next, it examined the defamation claim against council member Wojcik. RCL pointed to statements on Wojcik's website and Twitter account such as that "RCL Stole $140,000 from taxpayers" and that "extortion" had taken place. The court first held that words such as hostage, ransom, extortion, robbery and stole, read in context, were hyperbole and matters of opinion. For these reasons, the court also affirmed the dismissal of the defamation claim.

No. A13-1477 (Minn. Ct. App. April 7, 2014).

Please see the original opinion for the court's exact language.


Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).

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