The price for fighting: Schools may owe millions

By Emily Richmond

Thursday, May 22, 2008 | 2 a.m.

The Clark County School District could end up paying a hefty price for its stubbornness.

The district has racked up a bill of more than $360,000 contesting a lawsuit for which the other side expects to ultimately collect a judgment of more than $5 million. In a first go-round, a jury ruled against the district to the tune of $1.7 million — five and a half years ago — but that award has been set aside.

All this over a case the district could have settled for $175,000 in 1997.

Tonight, the School Board will be asked to approve offering $350,000 to settle the case, but the plaintiff’s attorney told the Sun that’s way too little, way too late. His client expects to get a lot more than that from the next jury.

It started as a dispute over a $1.2 million remodeling of the district’s central kitchen. The job was awarded to Richardson Construction, but the district was dissatisfied with the quality of the work and withheld payment. Richardson Construction sued, not only for the balance of the contract but for harm it says was done to its business opportunities as a result of the dispute.

In a bit of irony, the lawsuit has survived the building. The food services division moved to a different location last fall.

Las Vegas attorney Theodore Parker, who has represented the construction company since the claim was first filed, said the company is entitled to nearly $1 million just for breach of contract. Adding damages, interest and attorney fees tacks on $4 million to $5 million, Parker said.

Considering the district has “thrown hundreds of thousands of dollars at this ... certainly the public should be a little upset how their money is being used,” Parker said.

Bill Hoffman, senior counsel for the district, said the legal fees associated with the case, paid to the firm of Lewis & Roca, are substantial. But the district made the decision not to settle in 1997 because it did not think it was liable, Hoffman said. Other contractors had to be hired for the central kitchen remodeling, which meant if the case were settled, “we would be paying twice for the same work,” Hoffman said.

When it took the fight to court, however, the district lost. A jury awarded Richardson Construction $1.7 million in November 2002.

The Nevada Supreme Court overturned the verdict in October, on the grounds that District Court Judge Michelle Leavitt had erred in her instructions to the jury.

During trial, it was revealed the district had failed to turn over all relevant files to the plaintiff, even though food services director Dan McPartlin had signed an affidavit stating otherwise. McPartlin retired from the district last year.

To punish the district, Leavitt told jurors not to consider the bulk of the defense’s evidence.

The Supreme Court found Leavitt had been correct to sanction the district for withholding files, but had gone too far in limiting the evidence that could be presented. A new trial was ordered.

Rather than heading directly back to court, the two sides were told to try mediation, which is why the School Board is being asked to approve a settlement offer.

Hoffman said the Supreme Court’s ruling validates the School District’s decision to incur the additional expense of the appeal.

“The judge erroneously prevented us from presenting evidence,” Hoffman said. “We’re happy to go to a hearing before a fact-finder, get our day in court and prove our side.”

Hoffman said the Richardson Construction suit has been part of the quarterly litigation status reports he prepares for the School Board. Because of attorney-client privilege, the reports are not made public, Hoffman said.

School Board President Mary Beth Scow, who was first elected in 1996, said she has kept tabs on the court case. The district’s legal staff “has had good judgment on when a case needs to go to court and when it needs to be settled,” Scow said.

As for whether the case should have been settled in 1997, “hindsight is always 20-20,” Scow said.

Larry Mason, also a veteran School Board member, said he supported Hoffman’s decision not to settle the case early on.

“We should fight to the very end,” Mason said. “It does cost money but if we bend, then everybody else is going to think we’re an easy target. We don’t want to open that door.”

However, given that the district is facing massive budget cuts because of the state’s revenue shortfall, it may be time to give up this particular battle, Mason said.

“We may not be able to afford the risk,” Mason said. “If Bill Hoffman says we should cut our losses, I respect that decision.”

At one time, the district had 25 to 30 construction-related lawsuits pending, either as plaintiff or as defendant. That number now stands at two, including Richardson Construction’s claim.

The majority of the suits stemmed from the mid-1990s, before the district took over management of its own building program instead of relying on an outside construction company.

Since then, “we have really refined the process,” Hoffman said. “We’ve gotten much better at handling construction disputes and resolving them early on.”

By the end of the current 10-year bond program, the district will have spent nearly $5 billion on capital improvements, including building more than 100 schools. The construction program has consistently earned high marks from independent auditors.

Carole Vilardo, president of the Nevada Taxpayers Association, said she would be reluctant to second-guess the district’s decision to fight the lawsuit, given the intricacies of such cases and that every situation deserves individual consideration. But she said greater transparency is needed when it comes to such litigation. She suggested Hoffman find a way to present the quarterly updates in a public forum, rather than as private memos to the School Board.

At the very least, the public is entitled to know that the cost of the litigation is being evaluated periodically, beyond asking board members to approve hourly rates for outside counsel, Vilardo said. In 2003, the School Board approved spending $1.1 million to settle three long-standing construction lawsuits, including one that was eight years old. At the time, Hoffman told the board that settling would likely save hundreds of thousands of dollars in continued legal costs.