Friday, June 22, 2012

District accuses McKinstry of criminal conduct

Contractor strongly denies allegation of ‘racketeering’

Express Staff Writer

In a new court filing, the Blaine County School District is accusing Seattle-based McKinstry Essention of racketeering, a felony under Idaho law.

The allegation is included in a response and counterclaim to McKinstry's civil complaint filed against the district in May in Blaine County 5th District Court. The new district document, filed with the court on June 15, accuses McKinstry of engaging in a pattern of misleading conduct regarding energy savings contracts, not only with the Blaine County School District, but also with numerous other governmental entities in Idaho.

McKinstry strongly denied the accusation in a written statement to the Idaho Mountain Express, contending that "it's outrageous for the district to accuse McKinstry of any criminal act—let alone racketeering."

"Such allegations are completely inflammatory and baseless," the McKinstry statement continues. "We fully expect that these claims will be dismissed and found to be invalid."

The Idaho Racketeering Act provides that an individual convicted of racketeering can be sentenced to up to 14 years in prison and fined up to $25,000. The law defines racketeering as engaging in a pattern of unlawful acts and further states that the law can be applied both to individuals and to entities.

The law does not describe how an entity might be imprisoned, but provides that a victim of racketeering can be eligible for triple damages as awarded by a court.

In its response and counterclaim to the McKinstry civil complaint, the School District is alleging damages at least equal to the $18.9 million that it has already paid McKinstry for energy conservation work and other improvements at eight district schools or facilities.

McKinstry is claiming that it has performed work worth $25.8 million and that the district still owes it almost $7 million.

Both parties filed lawsuits against each other in May. The district is arguing that it did not authorize work beyond what has already been paid for.

In a related matter, the two cases have now been consolidated into one case in Blaine County 5th District Court. Both parties agreed to the consolidation in an agreement filed with the court on June 14. Since the McKinstry complaint was filed first, the School District lawsuit was dismissed and instead the district is now listed as the defendant in the McKinstry lawsuit.

Racketeering allegation

Litigation between the School District and McKinstry is a civil action. No criminal charges have been filed. Such charges would have to be filed, based upon probable-cause evidence, by the Idaho Attorney General's Office or by a county prosecuting attorney.

Nonetheless, the School District cites the Idaho Racketeering Act in the new court filing and alleges that McKinstry misled the district into entering into an energy savings performance contract that the district now claims is illegal.

Specifically, district Business Manager Mike Chatterton said Thursday that the contract is illegal because McKinstry failed to perform a financial energy audit, as required, to demonstrate to the district that energy savings would be equal or greater than the contract amount. The original contract, signed in 2010, was for $15.1 million. The district added about $3.6 million in change orders after the contract was in place.

In the new court document, the district further alleges that McKinstry engaged in racketeering by making similar misleading statements regarding energy savings to other governmental entities in Idaho, inducing, or attempting to induce them, into entering into similar contracts. Specifically, the district alleges that similar "misleading" proposals were made to the Idaho Office of Energy Resources, the Garden Valley School District, the Blaine County Energy Efficiency Conservation Block Grant Partnership, Blaine County, Camas County and the cities of Fairfield, Bellevue, Ketchum, Hailey and Sun Valley.

According to the McKinstry website, the company has had recent energy savings contracts in place with the University of Idaho and with the Garden City, Salmon and Caldwell school districts.

McKinstry denial

McKinstry's denial of the racketeering allegation was through a written statement delivered to the Express by company spokeswoman Heidi De Laubenfels.

"It is unfortunate that the Blaine County School District leadership has resorted to this kind of tactic, and that it's saddling taxpayers with the bill for this unnecessary and avoidable legal action," De Laubenfels wrote. "The reality is that this is a dispute over payment for work that McKinstry, along with local subcontractors, was directed to perform by school district personnel.

"Sadly, our efforts to resolve the conflict directly failed. We continue to call upon the district to work through these issues professionally.

"McKinstry strongly denies any contention that it has engaged in improper conduct. We stand by our record of exemplary performance of projects, including those for Idaho public entities. We have a solid track record in Idaho, as well as across the country."

A review of Idaho court records shows, except for the Blaine County School District litigation, that there are no other court cases, either civil or criminal, pending against McKinstry in the state.

Terry Smith:

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