| Volume Number: 30
Category(s): VENDOR, none |
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| Opinion Issued July 3, 2013 | |
| JACK’S ENTERPRISES INC. | |
| VS. | |
| WEST VIRGINIA LOTTERY COMMISSION | |
| (CC-12-0080) | |
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Wendel B. Turner, Attorney at Law, for Claimant. Katherine A. Schultz, Senior Deputy Attorney General, for Respondent. |
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| Jack’s Enterprises Inc. (“Claimant”) brings the instant claim seeking reimbursement for video lottery permits purchased during the West Virginia Lottery Commission’s (“Respondent”) rebidding process in 2011 for limited video lottery (“LVL”) machine permits. Claimant contends that it paid $371,890.30 above what it could have paid for the same number of permits had Respondent not revoked Claimant’s original bid for its failure to comply with the irrevocable letter of credit directives. Claimant further alleges that it received disparate treatment because another bidder whose irrevocable letter of credit was also rejected received permits after litigation, and that a moral obligation exists on the part of the State to repay Claimant based on that prior settlement. After a review of the record, the Court is of the opinion to deny Claimant’s claim for the reasons more fully stated below.
In 2001, the State of West Virginia legalized and accepted bids for Limited Video Lottery machines and awarded permits to allow qualifying businesses to use these machines in their operations. See W. Va. Code § 29-22B-101 (2008) et seq. Initial permits were issued for a period of ten years from 2001to 2011 with subsequent bidding to take place during what is known as the “rebidding process” for the following ten year period from 2011 to 2021. The events surrounding this claim occurred during the rebidding process for the current ten year period. Jack Falbo, President of Claimant, has been in business for twenty-five years dealing primarily with video machines, pool tables, and lottery machines. Falbo is experienced with the Respondent’s bidding procedure, as he had bid on and did receive permits for the period between 2001 and 2011. Claimant, through Falbo, determined that during the next ten year period (2011-2021) it would need 170 permits to maintain its status quo and to honor Claimant’s existing obligations as an operator. Therefore, Claimant through Falbo had set a goal for Claimant to obtain 170 permits during the 2011 rebidding process. The 2011-2021 rebidding process included three rounds of bidding. Respondent had set the minimum bid for the first round at $5,000.00 per permit; the minimum bid for the second round was $6,000.00; and the minimum bid for the third round was $7,000.00. Falbo testified that he understood that Respondent was going to “bid out” fewer permits in this “rebidding process” than were currently issued. As a strategic move, Falbo decided that he should attempt to obtain as many permits as possible in the first round of bidding, because he believed he would be required to pay more in subsequent rounds should he not reach the desired number of permits in the first round. Although ten years before, the Claimant had posted a cash bond, in preparation for this bid, Falbo determined that security for Claimant’s bid would come in the form of an irrevocable letter of credit from a qualified financial institution. Respondent’s bidding rules stated that letters of credit were acceptable security; however, the Lottery Commission determined that letters of credit were to have an expiration date no earlier than August 31, 2011. Claimant’s first round bid of $8,823.53 per permit, despite being a high bid, was disqualified, because the irrevocable letter of credit did not comply with Respondent’s expiration date requirement. At hearing, Falbo admitted that he did not sue Respondent over Claimant’s disqualification “because [he] knew that [he] had made an error . . . .” Accepting the decision of Respondent to disqualify its first round bid, Claimant submitted a much higher second round bid hoping to obtain all 170 machine permits. Claimant’s second round bid was high enough that Claimant did successfully obtain all of the 170 permits it wanted. Claimant now seeks from this Court an award of damages in an amount reflecting its increased bidding cost per machine caused, according to Claimant, by Respondent’s improper, unauthorized and unannounced letter of credit cut-off date. Essentially, Claimant contends that there was no notice to First Round bidders that the August 31, 2011, cut-off for letters of credit was required. This Court has carefully reviewed the evidence and finds some merit in the Claimant’s argument on this point. Claimant asserts that the published notice for bidding did not require that bidders, “look beyond the face of the published notice as to what you need to do to do a bid.” In response, Respondent asserts that Claimant made no effort to investigate what was required for the letter of credit. Claimant made no attempt to review information the Lottery Commission made available on its website, nor did Claimant contact anyone at the Lottery Commission to obtain any bidding information. Moreover, the information provided by the Respondent to Claimant and the general public made no specific reference to a required cut-off date for letters of credit, but provided only a sample form on the internet for use by bidders. The sample form available on the internet for letters of credit for the First Round bidding indeed required a cut-off date of August 31, 2011. Respondent further asserts, however, that Claimant did not exercise due diligence in its preparation for the bidding process and, in particular, failed to obtain the appropriate directives relating to letters of credit. Claimant, through Falbo, acknowledged that it was aware that the Lottery Commission was a “stickler for details.” A review of the first bid notice suggests the Claimant is correct. The First Round bid notice did only suggest that additional information was available on the internet; there was no requirement that bidders utilize the internet information. In that sense, the Claimant’s position is valid. However, Claimant, through Falbo, admitted that he did not know the date to which the letter of credit was to extend as the form Claimant had was one given Falbo by someone in his office. He did testify that his reason for using July 1, 2011, was that his original permits were set to expire on June 30, 2011. The record does not reflect the source of this letter of credit form. The date of that letter of credit cut off, according to Falbo, was for September 19, 2005. Rather than exercise simple, and due diligence, Falbo guessed the date based on what he thought was reasonable, even though he acknowledged in his testimony that the Lottery Commission was a stickler for details. Falbo also testified that while a friend had provided him with a bid packet, “I really hadn’t even looked through it because I knew the process.” Falbo’s testimony solidifies his, and Claimant’s, reliance on the Lottery Commission’s practices in its 2001 bidding process as its sole guide for the 2011 bidding. Falbo and Claimant did so at their peril. The non sequitur in Claimant’s argument is it really doesn’t matter what the notices said or didn’t say as Claimant through Falbo never looked to the documents of which it now complains. This Court finds more merit in the Respondent’s argument. Due diligence in a broad sense refers to that level of judgment, care, prudence, determination and activity that a person would reasonably be expected to do under particular circumstances. Overlooking information, ignoring available information, and not paying close attention to pertinent information, means that due diligence was not performed. Claimant, through Falbo’s testimony, shows a lack of basic required diligence. This conclusion is highlighted because over 100 first round bidders used the correct ending date for their letters of credit. Due diligence in the instant matter would, at a minimum, include fully ascertaining and understanding all of the obligations and requirements for bidders, how the process might differ from the previous lottery bidding, what particular steps would be required to satisfy the Lottery Commission’s bid bond requirements, and certainly in this particular instance, the appropriate form for submitting a letter of credit. Claimant, through Falbo, admitted that in the letter of credit form used to formulate its letter of credit date, had a cut-off date of September 19, 2005, which Claimant knew was incorrect. However, rather than make inquiry about the required date, Claimant submitted what it thought was a reasonable expiration date. Claimant, by neglecting basic due diligence, created its own failure to comply with the Lottery Commission’s requirements, and in so doing was properly disqualified in the first bidding. Interestingly, in the second round of bidding, Claimant was successful in obtaining all of the permits it had planned to bid. Under these circumstances, the Court is of the opinion to, and does hereby DENY the claim. Claim disallowed. |
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