Daifuku v. City of Phoenix

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DAIFUKU SERVICES AMERICA CORPORATION,
Plaintiff/Appellee/Appellant,

v.

CITY OF PHOENIX, et al., Defendants/Appellants/Appellees.

No. 1 CA-CV 25-0886
FILED 08-31-2026

Appeal from the Superior Court in Maricopa County
No. CV2025-017493
The Honorable Frank W. Moskowitz, Judge

AFFIRMED IN PART; VACATED IN PART; REMANDED

COUNSEL

Dickinson Wright PLLC, Phoenix, AZ
By Joshua Grabel and Alexander J. Daniel
Co-Counsel for Plaintiff/Appellee/Appellant

Barnes & Thornburg LLP, Chicago, IL
By Kevin B. Dreher, Mary Catherine Pachciarz, and Mariana Renke
Co-Counsel for Plaintiff/Appellee/Appellant

Sanders & Parks, P.C., Phoenix, AZ
By Shanks Leonhardt and Brittni A. Calaway
Counsel for Defendants/Appellants/Appellees

DAIFUKU v. CITY OF PHOENIX
Decision of the Court

MEMORANDUM DECISION

Judge Veronika Fabian delivered the decision of the Court, in which
Presiding Judge Michael J. Brown and Vice Chief Judge David D.
Weinzweig joined.

F A B I A N, Judge:

¶1 This case arises out of a dispute over the City of Phoenix’s
recommendation to award a contract for baggage handling services at Sky
Harbor Airport to third party JSM Airport Services instead of Daifuku
Services America Corporation. In its final judgment, the superior court set
aside the award to JSM but also found the City properly disqualified
Daifuku from the bidding process. Both parties appeal. We affirm in part,
vacate in part with respect to the relief granted by the superior court, and
remand with instructions.

FACTUAL AND PROCEDURAL BACKGROUND

Request for Proposal

¶2 In 2024, the City of Phoenix Aviation Department (“Aviation
Department”), an agency of the City of Phoenix, (collectively “the City”)
issued a Request for Proposal seeking bidders for a five-year contract to
provide baggage handling systems operations and services at Phoenix Sky
Harbor International Airport (“the RFP”). The RFP stated: “Unless
otherwise indicated, award(s) will be made to the most responsive,
responsible Offeror(s) who are regularly established in the service, or
providing the goods, contained in this solicitation and who have
demonstrated the ability to perform in an acceptable manner.” The City
received two responsive offers, one from Daifuku and one from JSM.

¶3 After interviewing both companies, the City’s evaluation
panel scored the offers. JSM received an evaluation score of 850 and
Daifuku received an evaluation score of 781, with JSM’s bid around
$300,000 cheaper than Daifuku’s. One of the four criteria was the
qualifications and experience of the companies’ proposed site manager.
Daifuku scored 122.5 on this criterion. JSM, whose proposed site manager
was Andy Neil, scored 157.5. The evaluation panel recommended awarding

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the contract to JSM and the City issued public notice of the
recommendation.

¶4 The City later issued a notice to Daifuku that it had violated
the City’s Solicitation Transparency Policy (“the Policy”) set forth in the city
code and the RFP:

Commencing on the date and time a solicitation is published,
potential or actual Offerors or respondents (including their
representatives) shall only discuss matters associated with the
solicitation with [designated City officials and their staff] at a
public meeting, posted under Arizona Statutes, until the
resulting contract(s) are awarded to all offers or responses are
rejected and the solicitation is cancelled without any
announcement by the Procurement Officer of the City’s intent
to reissue the same or similar solicitation. . . .

This policy is intended to create a level playing field for all
Offerors, assure that contracts are awarded in public, and
protect the integrity of the selection process. OFFERORS
THAT VIOLATE THIS POLICY SHALL BE DISQUALIFIED.

¶5 In its notice, the City stated it had learned “a representative
from Daifuku initiated discussions with [Aviation Department] staff about
the award recommendation and Daifuku’s intent to protest.” The City
provided further detail:

[Aviation Department] staff provided written statements
stating that on August 15, 2024 Daifuku’s On-site Manager,
Jeff Triphahn, initiated discussions with them about the
solicitation shortly after the Public Notice of Award
Recommendation was posted recommending JSM be
awarded the contract. Mr. Triphahn questioned the award to
JSM by stating “there is no way [JSM] will be able to operate
this system” and “we have been doing it since 2007 and why
would they bring in someone new.” Mr. Triphahn further
stated that “corporate will be protesting it and that they have
evidence that things were done wrong.”

Daifuku’s Protest

¶6 Daifuku protested the award to JSM. Daifuku argued JSM’s
bid was nonresponsive to the RFP because JSM had falsely identified Andy
Neil as its site manager, even though JSM had no site manager in place.

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Daifuku attached evidence that JSM was recruiting for a site manager at
Sky Harbor and that JSM had contacted Daifuku employee Heather Brown
for an interview for the Phoenix site manager position. Daifuku asserted
that without the points JSM earned by listing Neil as the proposed site
manager, Daifuku would have a higher evaluation score than JSM and
would have been awarded the contract.

¶7 Daifuku also protested the City’s disqualification notice,
arguing that the City was arbitrarily enforcing the Policy and that Triphahn,
the employee referenced in the notice, was not a “representative” of
Daifuku or involved in the solicitation process, and his comments did not
involve details of the solicitation process.

¶8 The City denied Daifuku’s first protest. It based its decision
on the following reasons: 1) JSM had not informed the City of a change of
the proposed site manager, 2) Daifuku had not shown JSM acted in bad
faith, and 3) the City could consent to a change in site manager under the
RFP if requested by JSM. The City also denied Daifuku’s second protest,
stating that Triphahn attended the City’s RFP interviews as a Daifuku
representative. Daifuku appealed both decisions with the City, requesting
a hearing in both appeals. The City denied both appeals without a hearing.

Special Action

¶9 Daifuku then filed a special action in superior court seeking
review of the City’s decisions. Daifuku argued the City had abused its
discretion in recommending JSM be awarded the contract and in
disqualifying Daifuku. It sought to vacate the City’s recommendation and
subsequent decisions.

¶10 Daifuku applied for a temporary restraining order enjoining
the City from acting on awarding the contract under the RFP. After a
hearing, the superior court granted the temporary order enjoining the City
from placing the contract award on the Phoenix City Council agenda or
approving the contract.

¶11 The superior court held a three-day hearing and issued a final
judgment thereafter. The court held that the City “acted arbitrarily and
capriciously and/or abused its discretion by choosing not to investigate
whether Andy Neil would be the site manager for JSM” under the RFP, but
“did not act arbitrarily and capriciously and/or abuse its discretion by
disqualifying [Daifuku] for violating the [Policy].” The court also ordered
“the City’s procurement process and decision under the RFP [was] set aside

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as null and void,” and the temporary restraining order “vacated as moot as
there is no longer a contract for the City to award under the RFP.”

¶12 The City timely appealed the judgment and Daifuku timely
cross-appealed. We have jurisdiction under Article VI, Section 9 of the
Arizona Constitution and A.R.S. §§ 12-120.21(A)(1) and 2101(A)(1).

DISCUSSION

¶13 We review the superior court’s grant or denial of relief in a
non-statutory special action for an abuse of discretion. Files v. Bernal, 200
Ariz. 64, 65 ¶ 2 (App. 2001). We review the superior court’s interpretation
of the law, including city codes, de novo but defer to the superior court’s
findings of fact. See Neptune Swimming Found. v. City of Scottsdale, 256 Ariz.
551, 559 ¶ 23 (2024); W. Valley View, Inc. v. Maricopa Cnty. Sheriff’s Office, 216
Ariz. 225, 227 ¶ 7 (App. 2007). The superior court abuses its discretion
“where the record fails to provide substantial support for its decision or the
court commits an error of law in reaching the decision.” Files, 200 Ariz. at
65 ¶ 2.

I. The Superior Court Did Not Err in Finding that the City Acted
Arbitrarily and Capriciously.

¶14 The City argues that the superior court applied an improper,
less deferential standard of review when the court determined that the City
abused its discretion by failing to investigate whether Neil would be JSM’s
site manager.

¶15 An administrative decision by city officials is reviewed by the
superior court for whether it is arbitrary or capricious. Richard E. Lambert,
Ltd. v. City of Tucson Dep’t of Procurement, 223 Ariz. 184, 187 ¶ 9 (App. 2009);
Ariz. R.P. Spec. Act. 4(c). A decision is arbitrary and capricious if city
officials fail to conduct a “due investigation of the facts” underlying their
decision. Brown v. City of Phoenix, 77 Ariz. 368, 375 (1954); see Osborn v.
Mitten, 39 Ariz. 372, 377 (1932) (without an investigation into all required
elements of a bid, “an award must necessarily be arbitrary and capricious”).
The superior court properly analyzed the City’s decision under this
standard.

¶16 The City argues that under The Ravens Group, Inc. v. United
States, 78 Fed. Cl. 390 (2007), it had no affirmative duty to investigate a
losing bidder’s allegations of misconduct against the winning bidder.
However, Arizona courts only look to the Federal Court of Claims for
guidance in “the absence of controlling state authority.” New Pueblo

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Constructors, Inc. v. State, 144 Ariz. 95, 101 (1985). Here, not only is there
controlling state authority that requires due investigation into the
underlying facts of bid offers, see Brown, 77 Ariz. at 375; Osborn, 39 Ariz. at
377, but the RFP itself states: “Award of the Contract resulting from the
solicitation will not be made until any necessary investigation, which each
Offeror agrees to permit by submitting its Offer, is made by the City as it
deems necessary.”

¶17 The City did not learn there was a question about whether
Neil would serve as JSM’s site manager until after the evaluation process
and recommendation was complete. However, it was aware of that issue
before the award was made. Nevertheless, the City did not investigate the
issue beyond reviewing the protest. Therefore, the record contains
substantial support for the superior court’s determination that the City
abused its discretion by “choosing not to investigate whether Andy Neil
would be the site manager for JSM.” See Files, 200 Ariz. at 65 ¶ 2.

¶18 The City argues that its decision was supported by the
binding contractual agreement, and Neil’s confirmation at JSM’s RFP
interview, that he would be site manager. However, once Daifuku provided
evidence that Neil may not be JSM’s site manager, the City had an
obligation to make a due investigation into the issue. See Brown, 77 Ariz. at
375; Osborn, 39 Ariz. at 377. Neil’s personal confirmation at his interview
was no longer sufficient as JSM’s recruitment efforts post-dated the
interview and directly contradicted it. The City could not simply rely on
JSM’s or Neil’s prior promises and representations when later confronted
with contrary information without further investigation. See Neptune
Swimming Found., 256 Ariz. at 564 ¶ 51.

¶19 The City asserts that Brown v. City of Phoenix and Osborn v.
Mitten are inapplicable because they involved awards to bidders who had
less favorably priced bids, whereas here, JSM was the more favorably
priced bidder. True, in both cases the supreme court held it was an abuse
of discretion to award a contract to a less favorably priced bidder on
responsibility grounds, without due investigation of whether the more
favorably priced bidder was equally responsible. See Brown, 77 Ariz. at 375-
76; Osborn, 39 Ariz. at 380-81. However, the supreme court has emphasized
the importance of investigation to make sure that all bidders are responsible
bidders. Osborn, 39 Ariz. at 377 (“[T]here exists a duty upon the members
of the board to make an investigation of all bidders before they can form an
intelligent and sound opinion as to their fitness and qualifications to do the
work. Without such investigation an award must necessarily be arbitrary
and capricious.”). Even though JSM was the more favorably priced bidder,

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it still had to be a “responsible bidder” under the RFP and Arizona law. See
id. And the City had a responsibility to investigate to ensure that it was.
This result is reinforced by the RFP’s mandate that the award will be made
to the most responsive and responsible bidder.

¶20 The City also argues that JSM has never indicated Neil would
not be site manager, and even if it did, the City has the discretion to approve
that change. Even though the City had discretion to approve changes to site
managers, that discretion cannot be exercised in an arbitrary or capricious
manner. See Brown, 77 Ariz. at 375 (even when it was within “discretionary
power of the [city] council to award the lease to the less favorable bidder,”
if the city decides to award to less favorable bidder without due
investigation of facts, it acts arbitrarily and abuses its discretion); City of
Phoenix v. Wittman Contracting Co., 20 Ariz. App. 1, 5 (1973) (where the city
has the “right to reject any or all bids” the city must still not “act arbitrarily
or capriciously” in doing so). Thus, to approve a change to the site manager,
the City would still have to conduct a due investigation. Without that
investigation there is no way to know whether the change would have been
approved.

¶21 The superior court did not err in finding the City acted
arbitrarily and capriciously in failing to investigate whether Neil would be
site manager.

II. The Superior Court Did Not Err in Finding that the City Properly
Disqualified Daifuku from the Contract Procurement Process for
Violating the Policy.

¶22 Daifuku argues the record lacked substantial evidence to
support the superior court’s finding that Daifuku was properly
disqualified, as the only evidence presented was unreliable and
contradictory. We disagree. The record contains substantial evidence to
support the superior court’s determination that the City properly
disqualified Daifuku. Triphahn communicated with City employees that he
did not believe that JSM would be able to perform the services and that
Daifuku intended to protest. Triphahn, as Daifuku’s site manager, was a
representative of Daifuku. The City based its decision to disqualify Daifuku
on these communications.

¶23 Daifuku’s primary argument is that the City improperly
relied on emails from two employees both stating that these
communications occurred on August 15, when the records show that the
only communication that occurred on August 15 was prior to issuance of

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the recommendation that JSM be awarded the contract. Therefore, Daifuku
asserts that the substance of the call could not have been, as the City claims,
to complain about the recommendation and indicate an intent to protest.
However, the phone records also reflect that Triphahn communicated with
both employees after the recommendation of the award on August 15. That
the employees’ initial account identified the incorrect date or time of the
calls does not establish that the conversations never occurred or that their
content was fabricated. The substance of what Triphahn said—questioning
JSM’s ability to perform and announcing Daifuku’s intent to protest—is
equally violative of the Policy whether the calls occurred on the 15th or
some day thereafter. The Policy prohibits discussion of the solicitation with
City staff “until the resulting contract(s) are awarded.” Similarly, the fact
that one of the employees had to amend his statement to reflect that the call
was an incoming as opposed to an outgoing call does not affect whether the
substance of the call violated the solicitation policy.

¶24 Daifuku argues that the superior court should have allowed
it to depose and call as witnesses the two City employees that Triphahn
talked to resulting in Daifuku’s disqualification. Daifuku argues that the
superior court’s limitation of depositions and witnesses prevented it from
challenging the credibility of the employees’ statements.

¶25 “A trial court has broad discretion in matters of discovery,
and its decision will not be disturbed absent a showing of an abuse of that
discretion.” Lewis v. Ariz. Dep’t of Econ. Sec., 186 Ariz. 610, 616 (App. 1996).
Discovery is only permitted in a special action if it raises a “material issue
of fact.” Ariz. R.P. Spec. Act. 7(g). Daifuku cites no authority that allows
expanding the record in a special action beyond the information presented
to the decision-maker where there is no material issue of fact. Cf. Robertson
v. Superior Court (Bonanno), 136 Ariz. 440, 441 (App. 1983) (in a special action
reviewing the decision of a state board, “only the evidence presented to the
board could be considered in reviewing its order”). The special action only
determined a legal question, whether the City’s decision-making was
arbitrary or capricious. The record and testimony was replete with the
evidence the City had before it when making its decision.

¶26 Daifuku further complains that the administrative record was
incomplete because the City denied Daifuku’s requests for a hearing where
it could cross-examine the employees in question. But Daifuku never
directly disputed, either in its protest or appeal, that Triphahn had made
the statements. Instead, Daifuku made similar challenges to the reliability
of the City employee statements as it does in this appeal. Under these

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circumstances, it was not an abuse of discretion for the City to deny
Daifuku’s request for hearings.

¶27 Finally, Daifuku argues that Triphahn’s communications did
not affect the Policy’s stated purpose—the integrity of the selection
process—because JSM had already been recommended by the City,
evidencing the City’s arbitrary enforcement of the Policy. However, the
solicitation policy does not require that the communications affect the
policy’s stated purpose or the integrity of the selection process. Thus, we
find Daifuku’s argument unpersuasive.

III. The Superior Court Erred in Setting Aside the City’s Procurement
Process as Null and Void.

¶28 The City argues that the superior court erred in voiding the
City’s procurement process under the RFP because the RFP was lawful and
JSM had not been disqualified. Whether the superior court erred in voiding
the City’s procurement process under the RFP is an issue of law we review
de novo. See Neptune Swimming Found., 256 Ariz. at 559 ¶ 23.

¶29 Although the superior court did not err in determining the
City acted arbitrarily and capriciously in failing to investigate whether Neil
would be JSM’s site manager, it does not necessarily follow that the
“procurement process and decision under the RFP” is “null and void” or
that “there is no longer a contract for the City to award under the RFP.”

¶30 Daifuku argues that superior courts have the broad ability to
void procurement processes for statutory violations. However, of the cases
Daifuku cites, one, Western Sun Contractors Co. v. Superior Court (City of
Peoria), 159 Ariz. 223, 229 (App. 1988), did not void the procurement process
and the other, Neil B. McGinnis Equipment Co. v. Riggs, 4 Ariz. App. 556, 558
(1967), only voided the call for bids because the terms of the contract itself
violated Arizona law. Here, the lawfulness of the RFP has not been
challenged.

¶31 In cases where Arizona appellate courts have reversed a city’s
procurement award, they did not order the procurement process to begin
anew but instead identified the superior alternative bidder on the record.
See, e.g., City of Phoenix v. Wittman Contracting Co., 20 Ariz. App. 1, 2-6 (1973)
(city enjoined from contracting with defendant on city project and ordered
to enter into contract with plaintiff where application of preference statute
was mandatory, preference statute directed award to lowest bidder, and if
“the City had allowed the preference, [plaintiff] would have been the lowest
bidder”); Schrey v. Allison Steel Mfg. Co., 75 Ariz. 282, 284-90 (1953) (city

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directed to award contract to plaintiff where plaintiff was eligible under
same mandatory preference statute and would have been lowest eligible
bidder); Osborn, 39 Ariz. at 374-84 (county board enjoined from entering
contract with plaintiff when contract was required to be awarded to “lowest
responsible bidder” and record showed there were lower responsible
bidders); Brown, 77 Ariz. at 371-77 (city’s award of contract to defendant
reversed when city abused its discretion to determine the highest
responsible bidder and defendant’s bid was “unquestionably [financially]
inferior” to plaintiff’s).

¶32 Here, unlike those cases, there is not a more qualified
alternative bidder for the contract under the relevant standard because
Daifuku was disqualified. The RFP states: “Unless otherwise indicated,
award(s) will be made to the most responsive, responsible Offeror(s) who
are regularly established in the service, or providing the goods, contained
in this solicitation and who have demonstrated the ability to perform in an
acceptable manner.” Although the City has abused its discretion in failing
to investigate the accuracy of JSM’s proposed site manager, after a proper
investigation, JSM may still be the most responsive, responsible bidder,
especially considering that the evaluation panel’s determination on the
other relevant factors are unchallenged. If the City determines, after due
investigation, that JSM’s offer is still responsive and responsible, as the only
remaining eligible bidder, JSM could properly be awarded the contract
under the RFP.

¶33 Therefore, on remand, the superior court is instructed to enter
an amended judgment granting Daifuku special action relief in the form of
an order vacating the City’s award recommendation to JSM and compelling
the City to investigate the accuracy of JSM’s offer as to its proposed site
manager and then determine if JSM is the most responsive, responsible
offeror under the RFP.

IV. The Parties’ Remaining Arguments are Waived or Moot.

¶34 Daifuku also argues the City’s procurement process does not
have sufficiently independent review with respect to its appeal process and
the Policy was impermissibly vague and arbitrarily applied to Daifuku.

¶35 Because Daifuku makes these arguments for the first time on
appeal, they are waived. See Odom v. Farmers Ins. Co. of Arizona, 216 Ariz.
530, 535 ¶ 18 (App. 2007). Although Daifuku claims it challenged the
propriety of the City’s appeal process in the superior court, Daifuku only
challenged the denial of an administrative hearing and whether the city

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manager addressed the merits of Daifuku’s protest appeal. It did not argue,
as it does now, that when “a municipality retains final authority at both
tiers, through its own agents and employees” it “provides only a single
substantive level of administrative review and lacks the independence
required by Arizona’s state procurement code.”

¶36 The City also argues that the superior court lacked authority
to enjoin the City from placing the RFP contract award on the Phoenix City
Council’s agenda or approving the contract award, because these were
legislative actions by a municipal corporation under A.R.S. § 12-1802(7).
However, this issue is moot as the superior court vacated the temporary
restraining order in connection with the final judgment. See Vinson v.
Marton & Assocs., 159 Ariz. 1, 4 (App. 1988) (“A decision becomes moot for
purposes of appeal where as a result of a change of circumstances before
the appellate decision, action by the reviewing court would have no effect
on the parties.”).

V. Attorney Fees and Costs.

¶37 Both parties request their attorney fees under A.R.S.
§ 12-341.01 as the action arises out of contract. Daifuku also seeks their costs
incurred on appeal. Both parties achieved partial success and neither is the
successful party on appeal. Therefore, we deny both parties their attorney
fees and deny Daifuku its costs as it is not the successful party on appeal.
See A.R.S. §§ 12-341, 341.01.

CONCLUSION

¶38 We affirm in part and vacate in part and remand with
instructions.

MATTHEW J. MARTIN • Clerk of the Court
FILED: JR

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