State-Level Tort Action Against the Private Company

The Grand Rapids Educational Support Personnel Association, an affiliate of the MEA, consists of nonteaching, nonclerical employees, including about 168 “bus drivers, mechanics, and ‘dispatch/route planners.’ ”[156] According to court records, GRESPA entered into a collective bargaining agreement with the Grand Rapids school district from July 1, 2004 to June 30, 2006.[157]

In April 2004, two months before the collective bargaining agreement took effect, Dean Management Services obtained a management contract for the district’s bus services.[158] GRESPA subsequently claimed that Dean Management induced the school district to privatize the management services by not disclosing all key cost-cutting strategies during its management term and saving those strategies for its later transportation proposal.[159] The union further alleged that on April 15, 2005, Dean Management secretly met with the Grand Rapids school board in violation of the Open Meetings Act and proposed that Dean Transportation, a sister firm, should be hired to provide all transportation services, not merely management, for the Grand Rapids schools.[160] The board, without seeking other bids, informally approved the deal on April 18, 2005.

Almost immediately, the MEA filed suit against Dean Transportation (but not the school district) in state circuit court and alleged “tortious interference” with contract and “tortious interference” with business expectations. Dean, in turn, sought to have the complaint dismissed under the provisions of Public Act 112.

The court denied Dean’s motion to dismiss, holding that if Dean Transportation solicited the district while the collective bargaining agreement was in force, the company could be held liable.[161] The court also stipulated, however, that if the company merely accepted the district’s offer, no liability would follow.[162]

Following this ruling, Dean Transportation and the district both presented evidence that privatization was the district’s idea. Dean then filed a second motion to dismiss, but the court allowed the case to proceed on grounds that sufficient circumstantial evidence existed to the contrary. In particular, the trial court noted, “When preparing its proposal for a management contract, Dean asked for, and got, detailed information pertinent only to a full assumption of transportation services, and Dean’s eventual bid for a management contract discussed ‘future services’ it could also provide.”[163] In other words, Dean Management allegedly improperly received information in the course of negotiating a contract for management services that would have unfairly advantaged Dean Transportation in seeking a contract for actual transportation operations.

The parties settled out of court before trial. According to the Mackinac Center’s Michigan Education Report, the MEA had requested $30 million, and Dean Transportation agreed to pay $600,000, calling the settlement a “business decision.”[164]

In sum, this case appears to have been highly dependent on unique facts. In most cases, no suit against the private company will be possible, since the district will have clearly and publicly initiated the contact with any potential vendors. In the Dean lawsuit, the trial judge appears to have relied on the unique facts related to Dean’s previous management contract to allow the suit to proceed.

Dean might have had some strong issues on appeal, but given the risk of a large jury award and the cost of litigation, Dean’s decision to settle was probably pragmatic. In any event, the case demonstrates that whatever the risk to the private company in a privatization, the fear of a tort suit against the school district itself should probably not be a factor in a district’s decision to privatize.