Heard Communications, Inc., d/b/a Gateway Outdoor Advertising, a New Jersey corporation, Appellant, vs. Metropolitan Council, Respondent, Transportation Displays, Inc., a Delaware corporation, Respondent.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480 A. 08, subd. 3 (1996).

STATE OF MINNESOTA
IN COURT OF APPEALS
C7-97-2160

Heard Communications, Inc.,
d/b/a Gateway Outdoor Advertising,
a New Jersey corporation,
Appellant,

vs.

Metropolitan Council,
Respondent,

Transportation Displays, Inc.,
a Delaware corporation,
Respondent.

Filed September 22, 1998
Affirmed
Amundson, Judge

Hennepin County District Court
File No. 9616336

Linda S. Jensen, Elizabeth L. Plitzuweit, Messerli & Kramer P.A., 1800 Fifth Street Towers, 150 South Fifth Street, Minneapolis, MN 55402 (for appellant)

Bruce A. Peterson, Hinshaw & Culbertson, 222 South Ninth Street, 3200 Piper Jaffray Tower, Minneapolis, MN 55402 (for respondent Metropolitan Council)

Thomas B. Heffelfinger, C. Paul Carver, Bowman & Brooke L.L.P., 150 South Fifth Street, Suite 2600, Minneapolis, MN 55402 (for respondent Transportation Displays Inc.)

Considered and decided by Amundson, Presiding Judge, Norton, Judge,* and Holtan, Judge.**

U N P U B L I S H E D   O P I N I O N

AMUNDSON, Judge

Appellant Gateway Outdoor Advertising (Gateway) challenges the district court's grant of summary judgment in favor of respondents, contending that respondent Metropolitan Council failed to follow competitive bidding procedures when extending a contract to provide advertising on buses to respondent Transportation Displays Inc. (TDI). We affirm.

FACTS

In July 1991, after publicly requesting proposals, the Metropolitan Transit Council (predecessor of respondent Metropolitan Council's Transit Operations Division) (hereinafter MCTO) entered into a contract with Transportation Displays Inc. (TDI), granting it the exclusive right to sell advertising space on the outside of MCTO buses. TDI agreed to pay MCTO a minimum annual guarantee starting at $650,000 and escalating to $800,000 in the fifth year of the contract, for the right to sell advertising to place on the buses. TDI agreed to pay MCTO 55% of TDI's net revenues from the sale of the advertising space if revenue exceeded the minimum annual guarantee. The contract extended through July 1993 with an option for renewal through July 1996. The renewal option was exercised in August 1993, and at that time both the minimum annual guarantee and net revenue percentage were increased.

In 1995, MCTO manager Tom Sather recommended that the Metropolitan Council extend its bus-advertising contract with TDI through July 31, 2001. Sather also recommended that the contract with TDI be amended to include the advertising of beer and wine, to obtain additional revenues. In September 1995, the Metropolitan Council voted to extend the contract as proposed but did not make a public request for proposals before renewing TDI's contract. The beer and wine amendment applied to the 1995-96 contract year, and to the contract extension through 2001. That retroactively amended the existing contract effective August 1, 1995. The minimum annual guarantee was increased to $1,100,000 for the 1995-96 contract year and to $1,262,800 for the remaining years of the contract; and the percentage of net revenue was increased to 57%. In November 1995, appellant Gateway learned of the contract renewal. In November 1996, Gateway filed suit against MCTO and TDI, claiming MCTO failed to comply with the competitive bidding statute and had no authority to retroactively modify TDI's existing contract. The district court granted summary judgment in favor of MCTO and TDI, finding that the income-generating contract was not the type of contract that required competitive bidding and that the issue of MCTO's retroactive modification of the contract was moot. This appeal followed.

D E C I S I O N

I. Applicability of Competitive Bidding Requirements

On an appeal from summary judgment, this court must determine whether there are any genuine issues of material fact and whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). The parties in this case agree that there are no genuine issues of material fact. Where material facts are not in dispute, we need not defer to the district court's application of law. Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989). The construction of a statute is a question of law that this court reviews de novo. Hibbing Educ. Ass'n v. Public Employment Relations Bd., 369 N.W.2d 527, 529 (Minn. 1985).

Gateway argues that the district court erred in determining that the contract between MCTO and TDI was not governed by the public bidding statute. For purposes of the public bidding statute, a contract is

an agreement entered into by a municipality for the sale or purchase of supplies, materials, equipment or the rental thereof, or the construction, alteration, repair or maintenance of real or personal property.

Minn. Stat. § 471.345, subd. 2 (1994). A contract, as defined in subdivision 2, must be publicly bid if in excess of $25,000. Minn. Stat. § 471.345, subd. 3 (1994).

Gateway contends that the bus-advertising contract falls within the meaning of subdivision two as a "construction, alteration, repair or maintenance" or a "rental" of personal property. Gateway characterizes the contract as one primarily involving the alteration and maintenance of MCTO buses to transform them into advertising displays.

Gateway argues that even though the contract includes a services component, because it also includes an alteration and maintenance component, the contract falls under the dictates of the public bidding statute. Gateway cites to W.V. Nelson Constr. v. City of Lindstrom, 565 N.W.2d 434, 436 (Minn. App. 1997), where this court held that a mixed design services and building construction contract was subject to the competitive bidding statutes even though part of the contract (for design services) fell outside the statute's requirements. But in W.V. Nelson, the design portion of the contract was less than 5% of the total estimated cost of the project. Id. Here, only a small part--less than 1%--of the contract falls within the statute's requirements (alteration, maintenance of frames), whereas most of the contract falls outside of its purview (providing advertising services). The overwhelming advertising-services character of the contract places it outside of the bidding statute.

The district court found that Hubbard Broad., Inc. v. Metropolitan Sports Facilities Comm'n, 381 N.W.2d 842 (Minn. 1986), was directly applicable. In Hubbard, the Metropolitan Sports Facilities Commission contracted with a vendor to supply a scoreboard system for the Metrodome. In exchange, the commission agreed that the vendor would retain the right to sell advertising exhibited on the scoreboard and split the revenue with the commission. Id. at 845. Even though the contract included "equipment" (the scoreboard), the court found the public bidding statutes inapplicable because the nature of the contract made it more than simply a contract for "materials, supplies and equipment."1 Id. at 846. The court provided that "public bidding provisions are to be construed narrowly." Id. The court then held that the public bidding statute applies only if a contract falls unambiguously into a statutory category. Id. at 847. The court found that the commission's contract was outside the scope of the public bidding statute because, under the contract,

the Commission grants more rights and takes on more responsibilities than those required in typical contracts for materials or equipment. The agreement gives [vendor] "the right to sell and contract for advertising which is to be exhibited on the Scoreboard System." In the agreement the Commission specifically retains the right to review the advertising and to control the dates and times it is displayed. [Vendor] has title to the system itself for 15 years and is responsible, for 10 years, for all the maintenance and the electricity the system uses. * * * The allocation of the revenue generated from the advertisements appearing on the scoreboard system is also determined with specificity in the agreement. Many of the features of the agreement are simply beyond any fair meaning of "contracts for materials, supplies and equipment" within the statute.

Id. at 846. Similar factors are found in the contract between MCTO and TDI: TDI has the right to sell advertising that will be displayed on the buses; MCTO retains the right to review and approve of the advertising; and the allocation of revenue generated from the advertisements appearing on the buses is determined with specificity. These factors make this more than simply a contract for the alteration or maintenance of buses.

Gateway also contends that the contract involves TDI's rental of MCTO's equipment, thus placing the contract within the scope of the public bidding statute. See Minn. Stat. § 471.345, subd. 2 ("contract" includes agreement for sale or purchase of equipment "or the rental thereof"). The district court found that the contract was not for the rental of supplies, materials or equipment, but was for advertising services. We agree. Where the overwhelming purpose of this contract is to provide advertising services, and not to rent the buses for use as transportation, we find that this contract does not unambiguously fall within the rental category of the public bidding statute.

Under Hubbard, we must narrowly construe the public bidding statute. The district court did not err in determining that the bus-advertising contract did not fall within the scope of public bidding statute, where this income-generating contract does not fall unambiguously within any statutory category.

We note that it may nonetheless be beneficial to the public for the MCTO to follow statutory public bidding procedures when entering into this type of income-generating contract. Even though MCTO's extension of TDI's contract increased revenues and was therefore beneficial to the public, when MCTO failed to publicly request proposals, it was prevented from learning about other, potentially more favorable, proposals. However, it is for the legislature, in its discretion, to clarify the public bidding statute to include this type of income-generating contract.

II. MCTO's Contract Policies

Gateway next claims that MCTO violated its own procedures by entering into the contract without requesting public bids. The MCTO's procurement policy, adopted in 1985, provides that it "applies to every expenditure of public funds." However, this policy applies only to procurements. MCTO adopted in 1995 an income contract policy that does not require a public bidding procedure. The district court found that the income contract policy, not the procurement policy, applied to the bus-advertising contract. Because the amount expended by MCTO on any "procurement" was so minimal in the contract, it cannot accurately be characterized as a procurement.

We note that MCTO's initial conduct is somewhat suspect in publicly requesting proposals and then abandoning that procedure. But MCTO was free to contract as it did because its procurement policy and the public bidding statute do not clearly apply to this income-generating contract.

The district court did not err in finding that MCTO's income contract policy, which does not require public bidding, applies to this contract.

III. Power to Retroactively Modify Contract

Gateway argues that the beer and wine amendment to the initial contract was void as an ultra vires act. A Metropolitan Council resolution dated September 14, 1995, amended the original contract and the future contract to include advertising of beer and wine. MCTO staff retroactively applied the beer and wine provision beginning August 1, 1995. Gateway contends that MCTO staff had no authority to retroactively amend this contract.

The district court lacks jurisdiction to consider the merits of an ultra vires claim where no prejudice has resulted. Thuma v. Kroschel, 506 N.W.2d 14, 21 (Minn. App. 1993), review denied (Minn. Dec. 14, 1993). Gateway has shown no injury or prejudice to itself from the modification of the original contract. Therefore, it has no standing to contest MCTO's retroactive modification, and the district court lacked jurisdiction to determine the merits.

In addition, the contract modification, if an ultra vires act, was ultra vires in the secondary sense due to a procedural defect, and Metropolitan Council effectively ratified the retroactive application by approving it. See Ketterer v. Independent Sch. Dist. No. 1, 248 Minn. 212, 222, 79 N.W.2d 428, 436 (1956) (providing that acts ultra vires in secondary sense may be effectively ratified, whereas acts beyond the scope of governmental body could not be effectively ratified).

The district court did not err in granting summary judgment to MCTO and TDI regarding a potentially ultra vires act by MCTO staff.

Affirmed.

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

** Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

1. The Metropolitan Sports Facilities Commission is not subject to all of the requirements of the public bidding statute. Therefore, Hubbard is applicable here only with regard to the meaning of a "contract for supplies, materials or equipment."