Wednesday, August 1, 2012

McKinstry and district split in first court battle

Judge dismisses racketeering claim, allows fraud allegation to remain

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By TERRY SMITH
Express Staff Writer

Judge Robert J. Elgee on Monday dismissed a Blaine County School District claim of racketeering against its energy contractor McKinstry Essention. However, Elgee ruled that the district's allegation of fraud and a lesser claim of violation of the Idaho Consumer Protection Act can remain in litigation between the two parties.

Elgee's ruling came at the end of an hour-long hearing wherein McKinstry was seeking dismissal of all three of the district's claims.

The School District was represented by Boise attorney Robert L. Bilow, while McKinstry was represented by Seattle attorney Paul R. Cressman Jr.

McKinstry is suing the School District in Blaine County 5th District Court for what it has claimed is about $7 million in unpaid balance. Contracted by the district in 2010 for energy savings work at eight Blaine County schools and facilities, McKinstry is claiming that it performed work worth $25.8 million. The district claims that it only authorized work worth $18.6 million and in a counterclaim is seeking damages against McKinstry of at least that amount.

Monday's court arguments concerned the nature of the contract, the nature of the lawsuit and whether the district had provided sufficient information in its legal filings to substantiate further litigation on the fraud and racketeering claims.

For the fraud allegation, Elgee ruled that the school district had provided sufficient evidence to pursue a claim, but noted that "whether these allegations are true or not will be tested at another time."

In its court filings, the School District has alleged that McKinstry officials committed fraud by promising to guarantee specified energy savings and then failing to put that guarantee in writing as required by the contract.

However, for the racketeering allegation, Elgee ruled that district had failed in its court filings to identify a crime to be tied to the racketeering allegation. The judge explained that laws governing racketeering allegations must state that a crime, such as grand theft or extortion, was committed. A racketeering claim can be applied to a civil or criminal case if the party accused of racketeering can be shown to have engaged in a series of the same crimes against two or more parties.

The district had argued in court filings that McKinstry committed similar "misrepresentations" about energy savings to other school districts in Idaho.

For both the fraud and racketeering claims, Cressman argued that the School District had provided insufficient information for McKinstry to defend itself against the allegations.

In rebuttal, Bilow argued that there was sufficient information.

"I think McKinstry's just saying 'how much do you know about our misrepresentations so we can come up with a story to go with it,'" Bilow said.

Bilow and Cressman also argued about the nature of the lawsuit, with Cressman characterizing the litigation as a "payment dispute" and Bilow arguing that "it is not a simple contract case as Mr. Cressman suggests."

Regarding the contract itself, Cressman argued that any representations by McKinstry officials regarding energy savings were made before the contract was approved by the district.

"If the district didn't like what was in the contract, why did they sign it?" Cressman asked.

Bilow countered that the district signed the contract because of McKinstry "misrepresentations" regarding energy savings and the contract price.

Terry Smith: tsmith@mtexpress.com

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