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Coffman Specialties, Inc. v. Dep't of Transportation

August 19, 2009

COFFMAN SPECIALTIES, INC., PLAINTIFF AND APPELLANT,
v.
DEPARTMENT OF TRANSPORTATION, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of San Diego County, Ronald S. Prager, Judge. Affirmed. (Super. Ct. No. 37-2007-00081224 CU-MC-CTL).

The opinion of the court was delivered by: Haller, Acting P. J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

Coffman Specialties, Inc. (Coffman), an engineering contractor, brought an action against the California Department of Transportation (Caltrans) seeking a declaratory judgment that arbitration provisions in the State Contract Act are unconstitutional. (Pub. Contract Code,*fn2 § 10240 et seq.) Coffman contends these provisions, on their face and as applied, violate its constitutional rights to a neutral arbitrator, petition the government, and equal protection of the law. The trial court sustained Caltrans's demurrer without leave to amend, and entered judgment in Caltrans's favor. Coffman appeals. We affirm.

STATUTORY OVERVIEW

The State Contract Act governs specified public works projects that exceed a certain cost, and requires competitive bidding for covered projects. (§ 10105.) The Act mandates that once a bid is accepted and the parties enter into a contract, the "remedy for the resolution of claims" arising from the contract "shall be arbitration" under the statutory provisions. (§ 10240.) This arbitration process is administered by the Office of Administrative Hearings (OAH), and by a committee composed of industry and governmental representatives, known as the Public Works Contract Arbitration Committee (Public Works Arbitration Committee). (§§ 10245, 10245.2; Cal. Code Regs., tit. 1, § 1310.)*fn3

The Public Works Arbitration Committee certifies arbitrators with experience in large-scale public construction matters to preside over statutory public works arbitration hearings, and maintains a list of those certified arbitrators (the "Certified Panel"). (§§ 10240.3, 10245, 10245.3; Regs., § 1395(d).) The State Contract Act and the implementing regulations provide a detailed procedure to assist the parties in mutually selecting an arbitrator from the Certified Panel, and allow the parties to petition the superior court if this process does not result in the selection of a mutually agreeable arbitrator. (§ 10240.3; Regs., § 1321.) Once the arbitrator is selected, the arbitrator is subject to numerous disclosure obligations, and either party may disqualify the arbitrator based on a required disclosure. (Regs., § 1322.) An arbitrator's failure to disclose is a basis for vacating the arbitration award after it is issued. (§ 10240.12; Code Civ. Proc., § 1286.2, subd. (a)(6); Guseinov v. Burns (2006) 145 Cal.App.4th 944, 957.)

FACTUAL AND PROCEDURAL BACKGROUND

Coffman's Public Works Contracts

Coffman successfully bid on three road construction projects governed by the State Contract Act, and entered into three separate contracts with Caltrans. The parties later had disputes on each project, and Coffman sought arbitration, or planned to seek arbitration, with respect to these disputes. The following summarizes the facts alleged pertaining to each of these construction projects.

Route 7 Project

Coffman entered into a contract requiring Coffman to construct Highway 7 between Highway 98 and Interstate 8. The stated contract price was $32,345,000. During the construction, numerous disputes arose between Caltrans and Coffman concerning issues such as the scope of the work and differing site conditions. In July 2005, Coffman substantially completed the work. In June 2006, Caltrans issued a final denial of Coffman's claims for additional payments.

In September 2006, Coffman filed an arbitration complaint against Caltrans for $5,793,846. Coffman requested that Caltrans stipulate to an experienced and qualified arbitrator from outside the Certified Panel. Caltrans refused to agree to this request. Coffman and Caltrans then participated in, and exhausted, the arbitrator selection process under the applicable regulations.

In July 2007, Coffman filed a petition with the superior court seeking an order declaring the statutory arbitration requirement to be facially unconstitutional and unenforceable. In response, Caltrans filed its own petition for the appointment of an arbitrator from the Certified Panel. The court denied Coffman's petition, but stated the denial was without prejudice to raise the constitutional challenge in an alternate forum. The court then granted Caltrans's request for the appointment of an arbitrator. In October 2007, the court issued a minute order appointing David Robison from the Certified Panel as an arbitrator on the Route 7 project arbitration.

Route 15 Project

In 2003, Coffman and Caltrans entered into a written contract for construction work along Interstate 15. The stated contract price was $16,255,000. Coffman completed the work in about October 2005. During the project, various disputes arose between Coffman and Caltrans. In July 2007, Caltrans issued a final written decision denying Coffman's claims for additional payment. In October 2007, Coffman filed an arbitration complaint against Caltrans for $370,191.93. The arbitration proceeding is currently pending.

Interstate 15/Route 56 Project

In 2003, Coffman and Caltrans entered into a written contract for the construction of managed lanes on Interstate 15 at the Interstate 15/Route 56 separation. The stated contract amount was $51,544,999.50. Coffman began work in December 2003. The work has not yet been completed, but Coffman has calculated that it will be owed an additional $10 million based on the parties' existing disputes. Upon completion of the project, Coffman intends to submit a claim for payment, and if the claim is denied, it will be required to file a complaint in arbitration with the OAH.

Declaratory Relief Complaint

In November 2007, Coffman filed the declaratory relief complaint at issue in this appeal. Coffman alleged the facts summarized above pertaining to the three construction projects, and asserted two causes of action. In the first cause of action, Coffman alleged the arbitration rules in the State Contract Act and implementing regulations are facially unconstitutional because the rules: (1) "create an inherent financial bias in the arbitrator" to favor Caltrans because of Caltrans's status as a "repeat customer" in the arbitrations; (2) violate a contractor's First Amendment right to petition and due process rights by requiring contractors to pay one-half the costs of the arbitration; and (3) violate a public works contractor's equal protection rights by requiring claims against Caltrans to proceed under the arbitration scheme, while excluding contractor claims against other public agencies.

In the second cause of action, Coffman alleged the arbitration provisions are unconstitutional "as applied" because all arbitrators on the Certified Panel are biased in favor of Caltrans. Coffman did not allege any specific supporting facts, but instead asserted generally that Caltrans's substantial delay in the contract payment and arbitration process "effectively chills and abridges the contractor's ability to receive payment for work performed" and is intended to "punish and deter a contractor from pursuing his or her statutory rights."

Demurrer

Caltrans filed a demurrer, arguing that Coffman's complaint failed to state a cognizable cause of action. On the facial challenge, Caltrans argued the statutory scheme does not result in biased arbitrators or violate a contractor's First Amendment or equal protection rights. On the as-applied challenge, Caltrans argued that Coffman did not allege any facts about the manner in which the arbitration provisions were unconstitutional as applied to Coffman's case. Caltrans further asserted that the claim was not ripe because Coffman's concerns were hypothetical and Coffman has not suffered any harm.

In response, Coffman focused primarily on its argument that the Certified Panel arbitrators are necessarily biased in favor of Caltrans because Caltrans is a "repeat customer" at public works arbitrations. In support, Coffman discussed facts that were not alleged in the complaint. First, Coffman stated that Caltrans is a party in 72 percent of all public works arbitration hearings, citing statistical records posted on the OAH Web site. Second, Coffman asserted that 53 of the 61 Certified Panel arbitrators have previously worked (at unspecified times) as an arbitrator on a Caltrans arbitration, and therefore 87 percent of the arbitrators are "biased by statutory definition." Based on these facts, Coffman argued the entire statutory scheme "is set up in such a way that every arbitrator on the panel has an inherent financial incentive to rule in favor of the state and [Caltrans] because the state is always a party and [Caltrans] is the arbitrator's repeat customer 72 % of the time."

At the hearing on the demurrer, Coffman's counsel also discussed the status of the arbitration in the Route 7 project matter. He stated that Caltrans had objected to the original arbitrator selected by the court (Robison) on the basis that Robison had previously served as an arbitrator for Coffman. The court then appointed another arbitrator who had issued a large monetary award in favor of a different contractor, but Caltrans also successfully objected to this arbitrator. Coffman's counsel argued that Caltrans's objections to these Certified Panel arbitrators support Coffman's claims that the statutory scheme results in biased ...


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