Antitrust Law Daily Wrap Up, ANTITRUST—IndCtApp: School Corporation May Have Violated Indiana Antitrust Act Through Scheme to Evade Public Bidding Laws, (Mar 8, 2013)

By Tobias J. Gillett, J.D., LLM.

An Indiana public school corporation and an affiliated private non-profit entity may have violated Indiana’s Antitrust Act through an arrangement under which the corporation transferred a property to the private entity and the entity hired a contractor to perform renovations on it—an arrangement found to violate Indiana’s public bidding laws, an Indiana Court of Appeals has ruled (Alva Electric, Inc. v. Evansville Vanderburgh School Corporation, March 6, 2013, Kirsch, J.).

Evansville Vanderburgh School Corporation (“School Corporation”) is the public school corporation in Evansville, Vanderburgh County, Indiana, existing pursuant to Indiana statute. EVSC Foundation, Inc. (“Foundation”) is a private, non-profit public school endowment corporation established to provide educational resources to the School Corporation.

In 2010, the School Corporation arranged with an architectural firm to draw up plans for a renovation of an administrative building. However, the School Corporation realized that it did not have sufficient funds to pay for the renovation in its capital projects funds and that using the debt service fund to finance the project, which would require issuing bonds and raising taxes to repay the bonds, was an undesirable option.

Instead, the School Corporation negotiated an arrangement with Industrial Contractors, Inc. (ICI), under which the School Corporation would convey the building to the Foundation and the Foundation would then contract with ICI to renovate it. ICI would finance the renovation and the Foundation would pay ICI for the renovations over time, with payments guaranteed by a rent/lease agreement with School Corporation. The School Corporation believed that, as a private organization, the Foundation would not be subject to Indiana’s public bidding laws.

The School Corporation did not solicit bids from any other contractor, or disclose its decision to select ICI at any public meeting. ICI sent the School Corporation a formal proposal outlining costs and finance charges, and the School Corporation agreed without negotiation. The School Corporation transferred the building to the Foundation, and the Foundation entered into a construction contract with ICI. ICI agreed to finance the work, and Foundation executed a promissory note, secured by a mortgage on the property in favor of ICI, for the cost of construction plus interest, to be paid in installments. The School Corporation then entered into an installment contract with Foundation to repurchase the property for installment amounts identical to Foundation’s obligations to ICI under the promissory note. Foundation also collaterally assigned to ICI its right to receive payments from the School Corporation in the event the Foundation defaulted on its payments to ICI.

Eight other contractors filed suit against the School Corporation and the Foundation on behalf of themselves and taxpayers similarly situated, alleging that the renovation should have been subject to public bidding under Indiana law and that the School Corporation and the Foundation violated the Indiana Antitrust Act by engaging in a scheme to restrict the bidding for the renovation project to just ICI. The contractors sought a declaration that the agreements used to further the scheme were void, an injunction against further expenditure of public funds on the transaction, an order that the School Corporation and the Foundation must comply with a public records request, and costs and attorneys’ fees.

The trial court granted the School Corporation’s and the Foundation’s motions for summary judgment, concluding that the renovation was not a public work subject to competitive budding requirements. The court also granted summary judgment to the School Corporation and the Foundation on the alleged antitrust violation, concluding that, since the project did not violate the public bidding laws, it could not “find a scheme, contract or combination to restrain or restrict bidding, as the series of transactions at issue herein were ‘powers, rights, or privileges now existing or conferred by law upon a person’ to-wit the Foundation and the School Corporation.” Indiana’s Antitrust Act provides that it “may not be construed to apply to or repeal, modify or limit, or make unlawful any of the powers, rights or privileges now existing or conferred by law upon any person.”

The appeals court initially addressed the Foundation’s argument that the claims were moot because the renovation had been completed and effective relief could not be granted due to the contractors’ failure to join ICI as a defendant. The court decided it would address the case regardless of whether it was technically moot, because Indiana courts could review moot cases under an exception for cases raising public interest questions of “great public importance.”

The court also determined that the School Corporation’s scheme violated Indiana’s public bidding laws. Whether or not each individual transaction involved in the plan was legal, the court concluded that the scheme did not follow the overarching statutory scheme. The court held that the School Corporation’s course of conduct had not been “authorized by our General Assembly and, indeed, violates the public bidding laws that it has enacted.”

Having reversed the trial court’s decision on the alleged violation of the public bidding laws, the appeals court also reversed its decision regarding the violation of Indiana’s Antitrust Act. Since the trial court based its grant of summary judgment to the School Corporation and the Foundation on its previous conclusion that the arrangement did not violate the public bidding laws, and since the appeals court had found it did violate the public budding laws, the appeals court vacated the trial court’s opinion and remanded for further proceedings.

The case is No. 82A01-1201-PL-2.

Attorneys: Jon Bosworth Laramore (Faegre Baker Daniels LLP) for Alva Electric, Inc. Patrick Alan Shoulders (Ziemer, Stayman, Weitzel & Shoulders, LLP) for Evansville Vanderburgh School Corporation. Richard Thomas Mullineaux (Kightlinger & Gray, LLP) for EVSC Foundation, Inc.

Companies: Alva Electric, Inc.; Evansville Vanderburgh School Corporation; EVSC Foundation, Inc.; Industrial Contractors, Inc.

Cases: Antitrust IndianaNews