Below is a snippet of a February 12, 2011 article in the Daily Report written by R. Robin McDonald. This is a very expensive, subscription-only news source for the legal field. Not long ago, we quoted from a past report in the Daily called, "School Case has a Civil Side". (Click here to read our post on it.)
OF ALL THE LEGAL QUESTIONS currently dogging the DeKalb County School District, one about a fee arrangement with a law firm would appear to be among the least of its concerns.
After all, the district's construction contracts have spawned criminal charges against former top school officials and a civil suit against the school district by its former construction management companies that has already cost it more than $20 million to defend.
But the fee deal with King & Spalding, which is representing the district in the civil case, has taken center stage as it has become entangled in the criminal case.
The fee contract, inked in June 2008, allows King & Spalding to collect both its standard hourly rates and a contingency share of whatever damages the school district may collect-should it win its $100 million counterclaim.
If the case settles in a way the firm does not like, it can convert its contingency payment to hourly fees.
Lawyers for the district's former construction managers claim that those terms give King & Spalding so much power over its client that the firm could effectively veto an attempt by the school district to settle the case.
The opposing lawyers say that King & Spalding's resulting financial stake in the case prompted it to try to delay the criminal investigation of its star witness until after the civil case went to trial.
For these reasons, the former school construction managers — Heery International Inc., E.R. Mitchell & Co., and Heery/Mitchell Joint Venture — have asked a DeKalb judge to disqualify King & Spalding as the school district's counsel in the civil case.
King & Spalding lawyers have countered in court pleadings that the allegations against the firm are "complete and utter fiction" and "reminiscent of a John Grisham novel.
The firm dismissed the attacks as a tactic intended to delay a trial at any cost, distract from Heery/Mitchell's alleged misconduct while overseeing $500 million in school construction projects, and "to punish the school district and denigrate its lawyers for holding Heery/Mitchell accountable for its near decade-long reign of fraud, waste and abuse."
There's more. Much more. But you'll have to find a hard copy of the Report to read all about it. Ask the lawyers you know — the ones in the big firms, as this news report is very pricey and small firms don't usually subscribe. Read on for just a bit more:
According to Heery/Mitchell's pleadings, from February 2007 when it filed suit in DeKalb County Superior Court to June 2008, King & Spalding ran up a $20.5 million bill to defend the district and assert what was then a $17 million counterclaim. The total included $8.7 million for attorney fees at what King & Spalding attorneys have said was a discounted hourly rate and more than $11 million for experts and consultants the firm had hired, all of which the district has paid.Below are some interesting facts I pulled from the article as well as from our archives and include here as bulleted text:
King & Spalding's running tab occurred at a particularly inopportune time, Heery/Mitchell said, as the school district was preparing to furlough teachers and close schools to save money.
- Heery/Mitchell served as DCSS construction manager for DCSS for nine years.
- The system terminated HM's contract in 2006, about a year after replacing long-time manager Stan Pritchett with Pat Pope.
- Heery/Mitchell then sued the school system in February, 2007 for $478,000 in outstanding invoices plus $1 million in damages, interest on the outstanding debt and attorney fees.
- DCSS countersued for $17 million — alleging fraud among other claims.
- After paying $8.7 million to King & Spalding, $3.6 million for a study conducted by Neilsen-Wurster/Marsh, and millions more for other experts, the school system ratcheted up their countersuit to include racketeering and boosting damages to $100 million.
- In a big twist, last May a DeKalb County grand jury charged Lewis, Pat (Pope) Reid and her secretary Cointa Moody along with Pope's then husband Tony Pope with racketeering and public corruption associated with school construction contracts.
- The new "break even sum" is a formula that includes three elements: Recovering the $8.7 million K&S billed and DCSS paid for defending the original $17 million counterclaim, plus more than $11 million K&S contracted for experts and consultants, also already paid by DCSS, and all attorney fees that the firm has incurred since June 1, 2008 through the end of the case.
- King & Spalding then stands to collect an additional 25% of the first $30 million collection, 20% of the second $30 million and 15% of any amount over $60 million.
- If the school district decides to settle with Heery/Mitchell for less than the break-even sum, "contrary to K&S's explicit advice," the firm is entitled to collect either 30 percent of the proposed settlement amount or its actual attorney fees at standard hourly rates - whichever is higher.
- King & Spalding's published "Going Rate" ranges from $460 to $900 an hour.
- It was four months after signing this agreement, negotiated by Josie Alexander for DCSS, that King & Spalding amended the school district's counterclaim against Heery/Mitchell to include $100 million in damages for alleged racketeering, which also carries with it the possibility, if successful, of treble damages.
- Heery/Mitchell attorneys claim that K&S's interest in making sure the firm is eventually paid for what could be as much as an additional $10 million or more in unpaid fees gave it "an irresistible economic incentive" to tailor its legal advice to limit the scope of the criminal investigation or, at the very,least, keep it under wraps until after a trial in the civil case, which was originally scheduled to begin in March 2010.
- Heery/Mitchell attorneys claim that Dr Lewis alerted King & Spalding of a criminal investigation into Pat (Pope) Reid as early as November, 2008, 18 months before the indictments. King & Spalding partner Robert C. Khayat Jr. denies this claim, saying that they were not made aware of the investigation until as late as June, 2009.
- According to notes from an interview with Lewis by W.C. Nix, deputy investigator for the DA, Lewis stated that on the advice of K&S attorneys, he placed a call to the county's chief assistant district attorney seeking to "table" the investigation of Reid until the civil case was over. Lewis stated that K&S had made it perfectly clear that Pat (Pope) Reid was their best witness in the civil case and that Lewis and the board have not chosen to take actions against Pope due to the amount of money already invested in the civil case. This action by Lewis is what prompted a grand jury to charge Lewis with hindering the criminal investigation. King & Spalding attorneys Hinchey and Khayat emphatically deny advising Lewis to take any action to "table" the investigation.
This article in the Reporter comes on the heels of a recent report by Megan Matteucci entitled, "Ruling could cost DeKalb schools millions more in legal fees". In it, we learn that --
"DeKalb County taxpayers likely will have to pay millions of dollars more in legal fees in the school district's civil suit against a construction manager, which could include funding representation for ex-superintendent Crawford Lewis, because of a federal court ruling."
"On Tuesday, a federal judge granted the company’s request to send the case back to DeKalb County Superior Court, where it originated. In November, the school system had the case moved to federal court in an effort to circumvent DeKalb Superior Court Judge Clarence Seeliger's decision to enable Heery/Mitchell to sue 17 individuals, in addition to the school system.
As it stands, the district will have to pay for its own legal bills and provide lawyers for those 17 individuals, including Lewis, former chief operating officer Patricia Reid and members of the 2006 school board.
The school system already has spent more than $15.5 million in trial preparation for the suit. The judge's decision could cost several more million dollars, board chairman Tom Bowen said."
What about future SPLOST spending?
Faye Andresen laid out the necessary steps for the board to take in order to avoid future legal pitfalls in their continuation of SPLOST construction. Read her open letter to the board by clicking here.
Taking all of the above into account, the scene is overwhelming. Will the (partially new) board be able to hold the legal line? Will the school system continue to bleed money into the pockets of lawyers for the forseeable future? Will there ever be a trial? Is there a chance to settle, close this ugly chapter and move on? As taxpayers, we have no idea, yet we are beholden to pay for the process, both in civil and criminal court, both for defense and prosecution. There just doesn't seem to be a resolution in sight. We remain in limbo. Now SACS has expanded the scope of our limbo by deferring any kind of accreditation decision until October, when they will reevaluate. The system's timeline for a new superintendent includes a start date of August.
All of this begs the question: Who in their right mind would apply for the job as superintendent of DeKalb County Schools? Who will come to DeKalb and rescue the children from this tangled web of corruption, deceit and waste?
Hope is dwindling. Help does not appear to be on the horizon. How will we dig out from this deep hole?
Read Sunday's report on this subject in the AJC
Firm’s methods questioned
And a follow-up article in Monday's AJC
DeKalb's lawsuit tab: $15.5 million and climbing
And $100,000 for Pat (Pope) Reid's legal fees
DeKalb schools hire lawyer for ex-COO