If you recall, on October 19, 2010, I discussed what I believed to be a very poor decision rendered by the Louisiana First Circuit, concluding that when a bidder on a public project defrauds the State, the State is refused any remedies.
Well, apparently the Louisiana Supreme Court agreed with me (for once), because it just reversed the First Circuit’s decision!
On May 10, 2011, the Louisiana Supreme Court decided that the decision rendered by the First Circuit in State of Louisiana v. Infinity Surety Agency, LLC, et al, 2010 CA 0123, Louisiana First Circuit Court of Appeal (Rendered September 10, 2010) was wrong and the case was remanded for trial. This decision by the La. Supreme Court definitely changes things for the better.
Before this decision was rendered, the First Circuit decided that a successful bidder to a public works project in Louisiana could defraud the State by providing an unauthorized surety and, despite the misrepresentation and failing to perform the contract in a specified time, the State would not be entitled to liquidated damages. The reasoning behind the line of thought was that State should have known that the surety was unauthorized thereby making the bidder unresponsive. The First Circuit placed an affirmative duty upon the State alone that was unfair and certainly unduly burdensome.
Now, the Supreme Court has decided that an appeals court does not have the power to make such a determination.
Whether Joint Venture breached the contract; whether Joint Venture’s bid was responsive; whether Joint Venture was the lowest responsible and responsive bidder; whether the State, as opposed to the bidder, had the sole and affirmative duty to determine if Infinity Surety was an authorized surety under the bid form; whether the State could instead reasonably rely on the representations of the bidder and the surety in the bid form; whether the State should have or could have rejected the bid as defective; whether the insurance codes precludes Infinity Surety as an unauthorized insurer from asserting its surety contract is void; and whether the State could have waived any purported defects in the bid bond, are all issues that should be resolved at trial…
These were all factual determinations that were not for the appeals court to decide and should be decided at trial. The La. Supreme Court here very smartly narrowed in on the particular issue that was to be resolved, namely whether the State alleged enough facts to assert a legitimate cause of action against the defendants, rather than allowing the decision of the court below extend its power beyond that which is lawful.
The unnecessary burden placed on the State in public works projects to investigate a surety that is being represented as authorized and fit for the purpose of the contract has been lifted. In public works projects, the State should be allowed to rely on representations made by the other party that should be made in good faith, a notion that is fundamental to the law of contracts, and this decision properly reflects that.