K&S will remain on schools case: More on the story

Reprinted with permission from Daily Report online

Civil case over DeKalb construction contracts will go to trial after criminal matters have been tried
By Kathleen Baydala Joyner, Staff Reporter

A DeKalb County Judge ruled Wednesday that King & Spalding can remain the counsel for the county school system in a multimillion-dollar case, despite his view that the firm's lawyers negotiated an unfair fee agreement, stonewalled discovery and potentially witnessed discussion of criminal activity.

Judge Clarence Seeliger:
The case "has probably infuriated
me more than any other."

Superior Court Judge Clarence F. Seeliger said the fee agreement was an issue between the school board and the firm—and the school board and the voters. The discovery battles have been resolved, he added, and allegations that K&S lawyers witnessed discussion of criminal activity could be verified by non-attorneys who may have seen the same events.

Seeliger said he thought of ordering mediation for the school system and the construction companies with whom it has been locked in litigation for four years. But he decided there is no way the two sides can resolve the case without a trial, which will take place after the criminal matters have been tried.

"I've had lots of cases, but this has probably infuriated me more than any other," said Seeliger.

His decision came after several hours of heated arguments between King & Spalding lawyers and lawyers from DLA Piper, representing the construction management companies whose firing by the school district in 2006 prompted the litigation.

The hearing was the latest chapter in a saga involving DeKalb's former school district superintendent and chief operating officer, who are facing criminal indictments for corruption; three major construction management companies accused of civil racketeering; and big-name Atlanta attorneys.

DLA Piper is representing Heery International Inc., E.R. Mitchell & Co. and Heery/Mitchell Joint Venture, which did construction work for the school district. They wanted Seeliger to kick K&S off the case because, they claimed, K&S essentially controls the litigation—possibly against the best interests of the school district—due to its contingency fee agreement with the DeKalb schools.

DLA Piper also asserted that K&S concealed or blocked evidence, including the suspect status of a top-ranking school district official who oversaw construction projects, and that K&S attorneys may be called as material witnesses in the civil trial and a separate criminal case.

DLA Piper's lead attorneys are Atlanta managing partner Mark E. Grantham and Paul N. Monnin. K&S's lead attorneys are partners W. Ray Persons and Robert C. Khayat Jr., but K&S partner L. Joseph Loveland Jr. represented his colleagues during the hearing.

Heery/Mitchell and the other companies filed suit against the school district in 2007 for breach of contract, seeking roughly $1.5 million. The district filed a countersuit seeking $100 million, charging the companies with racketeering. In May 2010, former school district superintendent Crawford Lewis and chief operating officer Pat Reid (she then went by Pat Pope) were indicted on corruption charges.

DLA Piper claimed that as early as November 2008, Lewis notified K&S about a criminal investigation into the chief operating officer, a matter K&S concealed or misrepresented to the court and DLA Piper.

"Roughly three years ago [when the DeKalb County District Attorney began its criminal investigation], the school district trial counsel was confronted by a fork in the road and they shifted from merely acting as advocates for their client to key participants," Grantham said during his opening statement.

Grantham said K&S wanted the civil case to go to trial without evidence of criminal conduct by school district officials being revealed.

"It seems there is a question of fraud on this court by refusing to disclose to the court or us that a criminal investigation was under way and may have a serious impact on the civil litigation."

Grantham said K&S has unfairly painted his firm's discovery and deposition attempts as harassment, mischaracterized whether K&S's star witness Reid was a suspect in a criminal investigation and advised Lewis to try to convince the DeKalb DA to delay his investigation until after the civil trial to preserve K&S's case against Heery/Mitchell.

Grantham added that K&S's financial stake in the form of a contingency agreement forged in 2008 means the firm may veto attempts by the school district to settle the matter at a lesser amount than the firm's break-even sum of about $35 million, which is calculated as the firm's post-June 2008 fees and payments for expert witnesses.

Grantham posed a scenario to the court that if the school district were to win its case and receive an award of $35 million, it would not actually net any money because all of it would go to either reimburse the district for costs already incurred or to finish paying K&S.

"Disqualification would remove the proverbial Sword of Damocles hanging over their heads in the form of their unconscionable fee agreement, where counsel's financial interest is paramount," Grantham said.

Loveland, speaking for K&S, told Seeliger, "These unproven attacks are simply legion, and no evidence supports any of them."

Loveland accused DLA Piper of kicking up dust to conceal its clients' deceit of the school district and county taxpayers through its mishandling of $500 million in school construction projects.

"This case has been pending for four years. There have been three separate motions to disqualify [K&S]," Loveland said. "There is no claim here that King & Spalding has a conflict of interest with Heery/Mitchell. Instead, as Mr. Grantham says, Heery/Mitchell takes the remarkable position that it, not the school board or the school board's independent counsel, should stand as the guardian for the school board's interest. That is simply not the law in Georgia or anywhere."

Loveland accused DLA Piper of filing its latest motion to disqualify to pressure the district to drop its suit or at the very least further delay a trial to cause the district to rack up more expenses.

"This is a phenomenal motion to bring to this court with no affidavit or any legal experts on ethics with any facts that [King & Spalding's] contract constitutes any violation of ethical rule[s]," Loveland said.

Loveland then argued that ousting K&S would prevent the school district from having its day in court because no other firm could pick up where it left off and successfully litigate the complicated case.

"Our firm has spent hundreds of hours going through documents because the fraud [by Heery/Mitchell] is in the documents," he said. "The conflict would be if our firm did not put time and energy in the case to zealously represent our client."

Monnin said one reason that DLA Piper did not move the judge for disqualification of opposing counsel sooner is because K&S dragged its feet on handing over evidence during discovery.

DLA Piper served discovery in March 2009 but didn't receive some evidence until two years later, including calendars and notes that showed meetings between school district officials, internal affairs investigators and attorneys for K&S and other outside counsel, he told the judge. That evidence further shows that K&S had knowledge of a criminal investigation but did not disclose it to the court or DLA Piper, he said.

After the ruling, Tom Bowen, chairman of the DeKalb County Board of Education, said he was relieved.

"Had the judge gone the other way, there would have been pretty serious hardships for the district because the case is so complex to start with it would have cost millions just for a new firm to get up to speed," he said.

Bowen acknowledged that the district's fee contract with K&S would obviously be part of any settlement discussion, but he defended the agreement by saying paying the firm on a contingency basis avoided up-front costs from the schools' already-strained operating budgets.