LABORATORY CORPORATION OF AMERICA HOLDINGS v. HON. ROBBIE RUDOLPH, NOT INDIVIDUALLY, BUT AS SECRETARY, COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET; COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET; COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES, AS SUCCESSOR TO THE CABINET FOR FAMILIES AND CHILDREN; AND PATERNITY TESTING CORPORATION
Annotate this Case
Download PDF
RENDERED:
JULY 29, 2005; 2:00 p.m.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001025-MR
LABORATORY CORPORATION OF AMERICA
HOLDINGS
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 03-CI-01641
HON. ROBBIE RUDOLPH, NOT INDIVIDUALLY,
BUT AS SECRETARY, COMMONWEALTH OF
KENTUCKY, FINANCE AND ADMINISTRATION
CABINET; COMMONWEALTH OF KENTUCKY, FINANCE
AND ADMINISTRATION CABINET; COMMONWEALTH OF
KENTUCKY, CABINET FOR HEALTH AND FAMILY
SERVICES, AS SUCCESSOR TO THE CABINET FOR
FAMILIES AND CHILDREN; AND
PATERNITY TESTING CORPORATION
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
GUIDUGLI, McANULTY, AND MINTON, JUDGES.
McANULTY, JUDGE:
In this case, Laboratory Corporation of
America (LabCorp) seeks review under the Kentucky Model
Procurement Code (KMPC) of the former Cabinet for Families and
Children’s decision to award the contract for statewide genetic
testing services for the 2004 fiscal year to Paternity Testing
Corporation (PTC).
As characterized by LabCorp, this case is
about the arbitrary and capricious award to a non-responsive,
non-responsible bidder that sought to cover its inexperience by
misrepresenting its qualifications in its bid.
LabCorp
presented evidence in support of its claim in a bid protest
before the state agency charged with deciding such protests;
however, the agency denied any relief under the protest.
Upon
review, the trial court concluded that LabCorp did not have
standing to seek judicial review because it had not alleged
fraud, collusion, dishonesty or political patronage.
While we
disagree with the trial court’s conclusion as to standing, we
nonetheless affirm the result for reasons discussed below.
The Commonwealth of Kentucky, by and through the
Cabinet for Health and Family Services (the Health Cabinet,
formerly known as the Cabinet for Families and Children),
contracts with third-party vendors for genetic testing to
establish paternity.
Commonwealth.
The KMPC governs purchasing by the
See Kentucky Revised Statutes (KRS) Chapter 45A.
So the KMPC is applicable to the Health Cabinet’s solicitation
for bidders for the genetic testing contract (the contract) at
issue in this case.
In April of 2003, in accordance with KRS 45A.695, the
Health Cabinet issued a Request for Proposals (RFP) for the
-2-
contract, which was to begin July 1, 2003, and continue one
fiscal year through June, 2004.
The 25-page RFP detailed the
description of services required; the information and data
required; the relative importance of the particular
qualifications; the deadline and proper form of response; and
all necessary attachments.
As part of the description of
services required, the Health Cabinet established ten vendor
requirements.
The following statement prefaced the ten
enumerated requirements:
“To be eligible to submit a bid,
Vendor shall meet the following criteria.”
Vendor Requirement
10, the primary source of contention in LabCorp’s appeal,
states:
“Must have tested a minimum of 15,000 cases in
paternity within the last calendar year.”
The vendor was also
to provide supporting documentation that it met this vendor
requirement.
Once the vendors submitted their bid proposals, a
review committee was to evaluate each proposal using a consensus
evaluation methodology.
The evaluators were to assign a
possible score for ten specified criteria, and the bid would be
awarded to the vendor achieving the highest score.
LabCorp, PTC, and two other bidders submitted bid
packages in response to the RFP.
The Health Cabinet awarded the
contract to PTC and notified the other bidders that they had not
been selected.
Less than two weeks after receiving the
-3-
notification that it had not been selected, LabCorp filed a bid
protest under KRS 45A.285.
While the protest was pending, LabCorp made an open
records request under KRS 61.872 to the Health Cabinet and the
Finance and Administration Cabinet (the Finance Cabinet) seeking
the evaluation of bids and the bid documents submitted by the
other bidders.
Four months after LabCorp filed its protest, the
secretary of the Finance Cabinet issued a letter denying
LabCorp’s protest.
Two months later, LabCorp received the
records it had requested in its open records request.
After
reviewing the bid documents and the evaluators’ score sheets,
LabCorp filed another protest through its attorneys.
In support of its second protest, LabCorp alleged that
PTC did not meet Vendor Requirement 10.
Additionally, LabCorp
did not believe that PTC’s proposal justified the contract award
because the proposal demonstrated that, in addition to the
minimum case requirement, PTC was not qualified for a number of
other reasons.
PTC’s response that it met Vendor Requirement 10 was
as follows:
“PTC performed approximately 39,844 tests in the
calendar year of 2002.”
As to the supporting documentation that
it met this requirement, PTC stated, “PTC performed testing on
approximately 40,000 individuals in 2002.
-4-
PTC can provide a
printout of all cases and case numbers for further verification
upon request.
Additional information is also available upon
request.”
Two weeks after LabCorp filed its second protest, the
secretary of the Finance Cabinet issued a letter denying the
protest.
LabCorp then filed a Verified Complaint and Request
for Injunctive Relief in the Franklin Circuit Court.
The trial
court conducted a hearing the following day and denied LabCorp’s
motion for injunctive relief.
In its complaint, LabCorp alleged that PTC’s bid was
inadequate and was non-responsive to the RFP.
In particular,
PTC did not meet Vendor Requirement 10 based on the paternity
industry standard that a “case” customarily includes three
individuals to determine paternity -- one test of the child, one
test of the mother, and one test of the putative father.
Based
on PTC’s response, PTC was ineligible to make a bid.
In addition to PTC’s ineligibility, LabCorp asserted
in its complaint that the award to PTC was not supported by
substantial evidence, and PTC’s bid response contained false and
misleading information.
LabCorp claimed that the consideration
of the PTC proposal by the Health Cabinet and/or the Finance
Cabinet and the contract award to PTC violated KRS 45A.695, KRS
45A.285 and KRS 45A.290.
The consideration and award
constituted arbitrary and capricious action under the procedural
-5-
and substantive due process clauses of the Kentucky Constitution
(Section 2) and the United States Constitution.
Less than one month after LabCorp filed its complaint,
the Finance Cabinet filed a motion for judgment on the pleadings
partially on the grounds that LabCorp lacked standing.
Two
months later, the trial court granted the motion and cited
Pendleton Bros. Vending, Inc. v. Com. Finance and Admin.
Cabinet, 758 S.W.2d 24 (Ky. 1988), in support of its ruling that
LabCorp’s allegations did not rise to the level necessary to
establish standing for judicial review.
On the same day that the clerk entered the trial
court’s order and judgment, LabCorp filed a motion for leave to
file an amended complaint.
In support of its motion, LabCorp
argued that the RFP defined “case” to include the mother, child
and father.
This is consistent with the industry standard
definition of “case.”
In addition, LabCorp sought to assert the
legal position that the actions of the Cabinet in awarding the
contract to PTC was “in violation of statute,” and was
“arbitrary and capricious” under the Kentucky Constitution.
Finally, LabCorp believed that PTC’s bid proposal contained
intentional and knowingly misleading statements that were
intended to cause the Health Cabinet to overlook the fact that
PTC was unqualified under the Health Cabinet’s vendor
requirements.
-6-
The day after LabCorp filed the motion to amend its
complaint, LabCorp responded to the trial court’s order with its
first motion to alter, amend or vacate.
The trial court denied
the motion and affirmed its earlier opinion and order.
In so
doing, the trial court held that LabCorp’s new allegation of
dishonesty did not confer standing on LabCorp.
And even if the
allegation were valid, the contract would be voidable by the
Finance Cabinet against PTC, but not void.
After the trial court ruled on LabCorp’s first motion
to alter, amend or vacate, LabCorp filed another motion to
alter, amend or vacate that ruling on the grounds that the trial
court misconstrued the holding and import of Pendleton Bros..
The trial court stated that “[t]he disagreement between the
parties regarding the RFP’s technical terms does not confer
judicial review” and denied LabCorp’s second motion to alter,
amend or vacate.
LabCorp appeals from this series of opinions
and orders.
LabCorp raises a number of arguments for our review.
First, LabCorp addresses the facts that PTC has fulfilled its
contractual obligations for the fiscal year 2004, and the
genetic testing contract for the 2005 fiscal year was awarded to
a different vendor -- not LabCorp or PTC.
LabCorp asserts that
the issue is not moot in spite of these facts because an actual
case or controversy exists and this issue is likely to recur.
-7-
Second, LabCorp argues that this Court’s standard of
review is de novo because the trial court issued a judgment on
the pleadings.
Third, LabCorp argues that Pendleton Bros. does not
limit standing for disappointed bidders to allegations
tantamount to fraud.
Pendleton Bros. acknowledges that the KMPC
“changed the rules of the game” of state purchasing by
“providing access not previously available to challenge and
investigate the propriety of government purchasing contracts.”
Id. at 24.
Accordingly, judicial review in this case furthers
the policies of the KMPC, which are set out in KRS 45A.010 and
include (1) providing safeguards for the maintenance of a
procurement system of quality and integrity and (2) ensuring
fair and equitable treatment of all people who deal with the
system.
And in administrative proceedings such as this one,
“[t]he supremacy of law demands that there shall be opportunity
to have some court decide whether an erroneous rule of law was
applied and whether the proceedings in which the facts were
adjudicated was conducted regularly.”
Humana of Kentucky, Inc.
v. NKC Hospitals, Inc., 751 S.W.2d 369, 374 (Ky.
1988).
LabCorp argues that judicial review for disappointed bidders
maintains the supremacy of the law.
Fourth, LabCorp asserts that it has raised justiciable
claims that the award to PTC and the denial of LabCorp’s
-8-
protests were arbitrary and capricious and contrary to law.
In
particular, LabCorp contends that PTC should have been
disqualified and not even evaluated because it failed to meet
the mandatory criteria of Vendor Requirement 10.
requirement was not a mere technicality.
This
And the dismissive
approach taken by the Health Cabinet, the Finance Cabinet and
the trial court was contrary to law.
According to LabCorp, the
trial court relied on one line in Pendleton Bros.:
“On the
other hand, every purchasing decision or alleged omission is not
subject to judicial oversight.”
Id. at 30.
LabCorp asserts
that such reliance, however, swallowed the rule of the case.
Further, LabCorp’s fourth argument asserts that it was
improper and contrary to law for the Finance Cabinet to rely on
its ex parte discussions with the contract’s purchasing officer
in denying LabCorp’s bid protest.
Finally, LabCorp contends
that KRS 45A.695(3) specifies that the RFP was to have provided
adequate notice of the type of information and data required of
each bidder.
And any corrections or changes to the RFP were to
be made by a modification.
No such modification of Vendor
Requirement 10 was ever issued in this case.
Fifth, LabCorp argues that the trial court erred in
holding that only the Commonwealth, and not LabCorp, could
assert a claim against PTC based on misrepresentation and on
being a non-responsive bidder.
LabCorp alleges that PTC
-9-
misrepresented its experience to give a false impression in
order to mislead the Health Cabinet and obtain an advantage over
other bidders.
Such misrepresentations subvert the purposes of
the KMPC.
Based on the above arguments, LabCorp desires this
Court to enforce the holding of Pendleton Bros. by remanding
this case to the trial court for LabCorp to proceed for its bid
preparation costs.
In response, PTC argues that LabCorp’s cause of action
is moot, at least as to PTC.
It is moot because PTC has
fulfilled its contractual obligations.
In addition, LabCorp has
never demanded any relief from PTC in either its original or its
amended complaint.
None of the exceptions to the mootness
doctrine apply in this case, and PTC should be dismissed as a
party.
Notwithstanding this argument, PTC argues that (1) the
trial court correctly applied the legal standard for judgment on
the pleadings; and (2) LabCorp has no standing to contest the
bid award on the basis of a disputed definition of a bid term.
Robbie Rudolph (as Secretary for the Finance Cabinet)
and the Finance Cabinet filed a combined response, which mirrors
the fundamental arguments of PTC.
They argue that the trial
court was correct in its determination that LabCorp did not have
standing.
Alternatively, they argue that the issue is moot
-10-
because the underlying case no longer exists due to the
contract’s expiration on June 30, 2004.
Consistent with the arguments of the three other
appellees, the Health Cabinet contends that LabCorp’s cause of
action is moot.
In addition, the Health Cabinet addresses
several perceived inconsistencies in LabCorp’s arguments on
appeal and reiterates that the Health Cabinet’s contract award
was not arbitrary, capricious or contrary to law.
The threshold question is whether the controversy over
the contract award in this case is moot.
Considering LabCorp’s
argument that it is entitled to judicial review because the
Health Cabinet’s decision to award a contract to an unqualified
bidder was arbitrary, capricious and contrary to law, we believe
that an actual case or controversy exists in spite of the
underlying contract’s expiration.
The KMPC allows for bid
protests, and Kentucky law affords judicial review of
administrative actions if an award is arbitrary, capricious or
made in violation of the KMPC, as LabCorp alleges.
See KRS
45A.285(2) and Pendleton Bros., 758 S.W.2d at 25, 28-29.
The
matter is not moot.
We now turn to the issue of the proper standard of
review.
As mentioned above, we must decide whether the contract
award to PTC by the Health Cabinet and as upheld by the Finance
Cabinet was arbitrary, capricious or contrary to the provisions
-11-
of the KMPC.
See id.
See generally American Beauty Homes Corp.
v. Louisville and Jefferson County Planning and Zoning Comm’n,
379 S.W.2d 450, 456 (Ky. 1964) (“Basically, judicial review of
administrative action is concerned with the question of
arbitrariness.”)
Under KRS 45A.285, the KMPC allows for an aggrieved
prospective bidder to file a protest with the secretary of the
Finance Cabinet.
(1)
(2)
(3)
In its entirety, KRS 45A.285 is as follows:
The secretary of the Finance and
Administration Cabinet, or his
designee, shall have authority to
determine protests and other
controversies of actual or prospective
bidders or offerors in connection with
the solicitation or selection for award
of a contract.
Any actual or prospective bidder,
offeror, or contractor who is aggrieved
in connection with the solicitation or
selection for award of a contract may
file a protest with the secretary of
the Finance and Administration Cabinet.
A protest or notice of other
controversy must be filed promptly and
in any event within two (2) calendar
weeks after such aggrieved person knows
or should have known of the facts
giving rise thereto. All protests or
notices of other controversies must be
in writing.
The secretary of the Finance and
Administration Cabinet shall promptly
issue a decision in writing. A copy of
that decision shall be mailed or
otherwise furnished to the aggrieved
party and shall state the reasons for
the action taken.
-12-
(4)
The decision by the secretary of the
Finance and Administration Cabinet
shall be final and conclusive.
Under the KMPC, any decision of any official or board
“appointed by the Commonwealth concerning any controversy
arising under, or in connection with, the solicitation or award
of a contract, shall be entitled to a presumption of correctness
and shall not be disturbed unless the decision was procured by
fraud or the findings of fact by such official . . . do not
support the decision.”
KRS 45A.280.
In Pendleton Bros., Kentucky’s highest court
determined that the KMPC provided “access not previously
available to challenge and investigate the propriety of
government purchasing contracts.”
Specifically, the Pendleton
Bros. court held that the KMPC had effected a statutory change
so that procurement is now a regulated administrative procedure
subject to court challenge if the decision is contrary to law,
or arbitrary and capricious.
See id. at 25.
To aid in the
application of the court’s holding, however, it cautioned that
“every purchasing decision or alleged omission is not subject to
judicial oversight.”
Id. at 30.
LabCorp alleged in its complaint that the Health
Cabinet acted contrary to various provisions of the KMPC in
considering PTC’s bid and in ultimately awarding the contract to
PTC.
In addition, LabCorp asserted that the Health Cabinet and
-13-
the Finance Cabinet acted arbitrarily in denying its protest and
in failing to grant relief.
As pleaded -- a procurement
decision that was both contrary to law and arbitrary -- LabCorp
had standing to judicially challenge the award of the contract
to PTC.
But our analysis does not stop here as we now consider
the evidence in support of LabCorp’s claim.
Turning to the facts of this case, LabCorp filed two
bid protests.
It filed the first after its initial notification
that the Health Cabinet had awarded the contract to another
bidder.
Once LabCorp received PTC’s bid proposal, it filed
another protest in which it alleged that PTC was unqualified
under the RFP’s Vendor Requirement 10.
The secretary of the Finance Cabinet determined the
merits of LabCorp’s protests and denied both of them.
In the
secretary’s final determination, as to Vendor Requirement 10, it
reasoned that the solicitation did not define the terms, “case”
or “test.”
Although not defined in the solicitation, the
secretary found that the purchasing officer responsible for the
procurement and for drafting the specifications intended that a
vendor must have performed a minimum of 15,000 tests, rather
than 15,000 cases.
And the secretary found that the purchasing
officer discussed and clarified this issue at the mandatory prebid conference attended by all bidders, including LabCorp.
-14-
On the issue of information ascertained and provided
at the mandatory pre-bid conference, the secretary found that
the purchasing officer stated, in response to a bidder question,
that 19,039 tests were completed for the 2002 fiscal year.
From
this number, the secretary reasoned as follows:
[A] requirement that a vendor must have
completed 15,000 tests, rather than 15,000
cases, would be in keeping with the agency’s
prior experience and requirements. Since
the solicitation did not define “case” or
“test,” and particularly since the agency’s
intent was clarified at the aforementioned
mandatory pre-bid conference, the agency
reasonably and justifiably relied on the
statement that PTC had performed
approximately 40,000 tests as meeting the
requirements of the RFP.
LabCorp seizes on the latter statement that the term
was clarified at the pre-bid conference as evidence that a
modification was warranted under administrative regulations
promulgated to carry out the KMPC.
See 200 KAR 5:311.
We do
not believe, however, that the failure to issue a modification
was arbitrary, capricious or contrary to the law.
It was not
unreasonable for the secretary to conclude that the purchasing
officer clarified a bid term and such clarification was in
keeping with the General Information Section of the RFP and did
not rise to the level of a modification.
See Section IV,
General Information 10 (“Any information supplied by the Cabinet
-15-
in response to a prospective applicant’s questions must be
supplied to all identified prospective applicants;”).
On appeal, LabCorp takes issue with the secretary’s
alleged reliance on ex parte communications with the purchasing
officer.
The record does not reflect that LabCorp ever
requested an administrative hearing, which would have afforded
it an opportunity to call witnesses and, perhaps more
importantly, cross-examine witnesses.
As no party requested a
hearing and no hearing was conducted, LabCorp will not be
permitted in this appeal to take issue with the secretary’s
reliance on the purchasing officer’s statements of intent with
regard to terms in Vendor Requirement 10.
In summary, based on LabCorp’s arguments and evidence
in support of its bid protest, the award in this case was not
made in violation of the provisions of the KMPC.
But LabCorp
was entitled to judicial review based on that which it pleaded
in its complaint.
The substance of LabCorp’s claim, however,
concerns an alternative interpretation of a bid term.
A large
measure of discretion is to be afforded to a contracting officer
in a negotiated procurement, and this Court, like the lower
court and the secretary of the Finance Cabinet, is unwilling to
accept LabCorp’s interpretation over that of the contracting
officer absent a valid reason for doing so.
provided no such reason.
LabCorp has
Thus, while we disagree with the trial
-16-
court’s conclusion as to standing, we affirm as to the result
reached by the trial court that this case was no more than a
disagreement over a bid term that was adequately addressed at
the administrative level.
GUIDUGLI, JUDGE, CONCURS IN RESULT.
MINTON, JUDGE, CONCURS.
BRIEF FOR APPELLANT:
Bruce F. Clark
Mark W. Leach
Stites & Harbison PLLC
Louisville, Kentucky
ORAL ARGUMENT FOR APPELLANT:
Mark W. Leach
Louisville, Kentucky
BRIEF AND ORAL ARGUMENT FOR
APPELLEE CABINET FOR HEALTH
AND FAMILY SERVICES:
Nora K. McCormick
Assistant General Counsel of
Cabinet for Health and Family
Services
Frankfort, Kentucky
BRIEF FOR APPELLEES ROBBIE
RUDOLPH AND FINANCE AND
ADMINISTRATION CABINET:
Gregory D. Stumbo
Attorney General of Kentucky
Raymond F. DeBolt, Jr.
Assistant Attorney General
Frankfort, Kentucky
ORAL ARGUMENT FOR APPELLEES
ROBBIE RUDOLPH AND FINANCE AND
ADMINISTRATIVE CABINET:
Raymond F. DeBolt, Jr.
Frankfort, Kentucky
BRIEF AND ORAL ARGUMENT FOR
APPELLEE PATERNITY TESTING
CORPORATION:
Donald P. Cetrulo
Lexington, Kentucky
-17-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.