Wednesday, April 24, 2013

Fraud claim still in McKinstry suit

Judge dismisses all fraud allegations except one

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By TERRY SMITH
Express Staff Writer

    A single Blaine County School District fraud allegation remains in its lawsuit against energy contractor McKinstry Essention, but Judge Robert J. Elgee on Monday struck several other fraud allegations from the lawsuit, ruling that the district had not proven fraudulent intent on the part of the company.
    Elgee made his ruling in Blaine County 5th District Court following a two-hour hearing when attorneys for the litigants argued about what commitments McKinstry had or hadn’t made when entering into a contract in 2010 for energy savings work and other improvements at eight district schools and facilities.
    McKinstry called for the hearing, hoping to have all fraud claims against it removed from the lawsuit. Company attorneys had previously written or said that the School District was engaging in a “smear campaign” that was damaging Seattle-based McKinstry’s reputation.
    What was not considered at the hearing were new fraud allegations made by the district against McKinstry in court documents filed on April 1. The district claims in those fraud allegations that McKinstry engaged in a systematic scheme of fraudulent billings to increase company profits.
    Elgee has not yet allowed the district to bring those new fraud allegations into the lawsuit, but will hear arguments on the district motion to amend its fraud claims at 3 p.m. on May 20.
    At the conclusion of Monday’s arguments, Elgee ruled that a district fraud allegation that McKinstry had promised but failed to provide a technical energy audit could remain in the lawsuit because the district had provided enough evidence that McKinstry intentionally misled the district about preparing the document.

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“If somebody brings back new evidence, it can be brought back open.”
Judge Robert J. Elgee
Fifth District Court

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    McKinstry attorneys claimed Monday that the company had prepared and submitted the document to the district. However, the document the attorneys claim was a technical energy audit was prepared in 2009 as a facilities needs assessment for a 10-year $59.8 million plant facilities levy approved by Blaine County voters later that year.
    Ordered removed from the lawsuit was a district fraud allegation regarding guaranteed energy savings by McKinstry, wherein the company is alleged to have claimed it would reimburse the district if savings were not met. Also removed was an allegation that McKinstry had misled the district into entering into the contract.
    In dismissing most of the fraud allegations, Elgee told the litigants his ruling does not mean that the allegations cannot be brought back into the lawsuit.
    “If somebody brings back new evidence, it can be brought back open,” the judge said.
    McKinstry and the district have been in litigation since May 2012. McKinstry has claimed that it performed work worth about $26 million and that the district still owes the company about $7 million. The district has claimed that it authorized work worth only about $18.6 million and is claiming damages against the company for at least that amount.
    A jury trial, expected to last about 25 days, is scheduled to begin on Oct. 15.
    Much of the argument at Monday’s hearing concerned whether or not either McKinstry or the district knew before the contract was signed if the energy savings realized from the work would pay for the projects.
    “They had a contractual obligation to tell the district if there were not going to be sufficient energy savings,” said district attorney Kyle D. Kring. “They represented instead that there would be a 25-year payback or less on energy savings work.”
    McKinstry attorney Paul R. Cressman argued that the district was never misinformed about energy savings.
    “The district came to its own conclusions for energy savings,” Cressman said. “They relied upon their own advice.
    “They knew it wasn’t going to pay for itself,” he said. “Everybody knew the same thing. If there’s a levy that pays for it, if there’s a bond that pays for it, it doesn’t have to pay for itself. They knew that.”
    Kring countered: “The district would never have entered into this had it known that. McKinstry is now saying that it didn’t have to guarantee anything. They misrepresented that the energy savings would be guaranteed.”

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Terry Smith: tsmith@mtexpress.com

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