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FOX FUEL v. DELAWARE CTY. SCHS. JOINT PURCHASING B

June 8, 1994

FOX FUEL, A DIVISION OF KEROSCENE, INC.
v.
DELAWARE COUNTY SCHOOLS JOINT PURCHASING BOARD, et al.



The opinion of the court was delivered by: JAMES T. GILES

 GILES, J.

 Defendants move pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted. For the reasons stated below, the motions will be granted in part and denied in part.

 I. STANDARD FOR A MOTION TO DISMISS

 The purpose of a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) is to test the legal sufficiency of the complaint. Accordingly, all factual allegations made in the complaint are assumed to be true and all reasonable inferences that may be drawn from the complaint are viewed in the light most favorable to the plaintiff. Jenkins v. McKeithen, 395 U.S. 411, 421, 23 L. Ed. 2d 404, 89 S. Ct. 1843 (1969); D.P. Enterprises, Inc. v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir. 1984). The complaint should be dismissed "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984).

 II. THE COMPLAINT

 The Amended Complaint alleges facts as follows:

 Fox Fuel ("Fox") is a Pennsylvania corporation in the business of distributing petroleum products. A substantial portion of Fox's revenue comes from the supply of petroleum products to public entities and agencies pursuant to public competitive bidding procedures. In 1991, the Delaware County Schools Joint Purchasing Board ("DCSJPB") *fn1" awarded Fox the exclusive right to supply diesel fuel and gasoline to various entities, including several Delaware County school districts, who were members of the DCSJPB and/or who participated in the joint purchasing of fuel and gasoline. Fox performed its supply duties in an exemplary manner. Although the fuel and gasoline supply bid documents requested that successful bidders provide acceptable performance security, DCSJPB never requested that Fox provide it with such security at any time during the 1991-92 supply period.

 In 1992, DCSJPB again awarded Fox the exclusive right for one year to supply diesel fuel and gasoline. Again, Fox performed in an exemplary manner. As before, the bid documents requested that the successful bidder provide acceptable performance security, but at no time during the 1992-93 period did DCSJPB request Fox provide such security.

 On March 4, 1993, DCSJPB again awarded Fox the exclusive right for one year to supply diesel fuel and gasoline for the 1993-94 supply period. Fox continued to perform in an exemplary manner. On August 25, 1993, Fox received a letter from Susan C. Owens ("Owens") *fn2" on behalf of the Delaware County Intermediate Unit ("DCIU") and the other defendants, indicating that no performance bond had been received from Fox for the 1993-94 supply period. Thereafter, a series of communications occurred between representatives of Fox and the defendants regarding what would constitute acceptable performance security.

 On November 9, 1993, in an attempt to tender acceptable performance security, Fox sent a specimen letter of credit to the DCIU. On November 15, Owens sent a letter to Fox stating that the specimen letter of credit would be acceptable provided that two minor changes were made to it. Fox made the requested changes and on November 30, in accordance with the representations made by defendants, it placed over $ 300,000 in a pledged collateral account naming the DCSJPB as the sole payee in the event of default. A copy of this account agreement was faxed to Owens on the same date.

 Despite the fact that Fox was ready, willing and able to provide a collateral account agreement demonstrating acceptable performance security, and although Fox was performing in an exemplary manner, the DCSJPB, through the individual defendants and on behalf of the DCIU and the school district defendants, informed Fox, in a letter dated December 3, 1993, that it was terminating Fox's exclusive right to supply fuel. The reason given for this termination was Fox's alleged failure to provide acceptable performance security.

 III. DISCUSSION

 The Amended Complaint names 28 defendants: DCSJPB; DCSJPB's Chairperson and Solicitor; DCIU; DCIU's Executive Director; twelve school districts; the Business Administrators of ten of those twelve districts; and Delaware County Community College. Count I of the Amended Complaint attempts to state a claim under 42 U.S.C. ยง 1983, alleging that the defendants' actions deprived Fox of property and liberty without due process of law. Count II attempts to state a claim for breach of contract. Count III alleges that defendants made fraudulent misrepresentations to Fox about what would constitute "acceptable performance security." Defendants have moved to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted.

 A. Count I (Due Process)

 Fox asserts that the defendants' actions deprived it of liberty and property without due process of law.

 
The fourteenth amendment prohibits state deprivations of life, liberty, or property without due process of law. Application of this prohibition requires a familiar two stage analysis: we first must ask whether the asserted individual interests are encompassed within the fourteenth amendment's protection of "life, liberty, or property"; if protected interests are implicated, we then must decide what procedures constitute "due process of law."

 Unger v. National Residents Matching Program, 928 F.2d 1392, 1395 (3d Cir. 1991) (quoting Robb v. City of Philadelphia, 733 F.2d 286, 292 (3d Cir. 1984)).

 As explained below, the Amended Complaint fails to allege facts sufficient for a finding that defendants' actions infringed upon a protected property interest. However, the facts alleged do support a claim that Fox's liberty interest was infringed without due process of law. Therefore, defendants' motions to dismiss Count I will be denied.

 1. Property

 "Property interests are not generally created by the Constitution. Instead, . . . property interests are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law." Unger, 928 F.2d at 1396 (internal quotation marks omitted) (quoting Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972); Robb, 733 F.2d at 292). Although a property interest is created and defined by state law, "federal constitutional law determines whether that interest rises to the level of a 'legitimate claim of entitlement' protected by the Due Process Clause." Berlanti v. Bodman, 780 F.2d 296, 299 (3d Cir. 1985) (quoting Memphis Light, Gas & Water Division v. Craft, 436 U.S. 1, 9, 98 S. Ct. 1554, 1560, 56 L. Ed. 2d 30 (1978)).

 Fox alleges that its exclusive right to supply diesel fuel and gasoline constituted a property interest that could not be infringed without due process.

 
It is beyond dispute that a contract with a state entity can give rise to a property right protected under the Fourteenth Amendment. See, e.g., Perry v. Sindermann, 408 U.S. 593, 599-601, 92 S. Ct. 2694, 2698-2700, 33 L. Ed. 2d 570 (1972) (holding that contract of employment providing that professor could be terminated only for cause constituted property right protected by Fourteenth Amendment). Nevertheless, the Supreme Court has never held that every state contract gives rise to a property interest protected under the Fourteenth Amendment. See ...

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