Judge Robert J. Elgee ruled on Monday that the Blaine County School District can amend its counterclaim against energy contractor McKinstry Essention to include additional claims of fraud by the company in work it did for the School District.
The ruling came in Blaine County 5th District Court when School District attorneys argued that they had found additional evidence through discovery and depositions to substantiate their claims. Attorneys for McKinstry Essention were present at the hearing via telephone hookup.
In earlier court proceedings regarding the district’s fraud claims, Elgee told the litigants that claims of fraud needed to be backed up by evidence before he would allow the claims into the lawsuit.
Ultimately, unless a settlement is reached in the case, a determination of whether or not McKinstry employees committed fraud will be made by a jury. The case is set to go to trial on April 8, 2014.
The lawsuit, filed in May 2012, stems from a contract the parties entered into in 2010 for energy savings performance work at eight district schools or facilities. McKinstry has claimed that it performed work worth $25 million and that the district still owes the company about $7 million. The School District contends that it authorized work for only $18.6 million and is claiming damages against McKinstry for at least that amount.
The district’s latest fraud claims, accepted by the court now as part of the lawsuit, are found in documents filed with the court on June 17.
In a document signed by School District attorney Robert L. Bilow, of the Boise law firm Greener Burke Shoemaker Oberrecht, Bilow contends that: “The evidence of McKinstry’s fraud in this matter is overwhelming.”
McKinstry spokeswoman Heidi De Laubenfels did not respond to a request by the Idaho Mountain Express for comment by press deadline Wednesday.
Bilow wrote that the district’s fraud claims are “based on facts discovered through the discovery process, including multiple depositions of McKinstry employees and the production of tens of thousands of internal documents by McKinstry.”
Bilow further accuses McKinstry of a “comprehensive plan of fraudulent billings,” in an attempt to “overbill the district millions of dollars.”
He contends that McKinstry employees committed fraud by intentionally promising “guaranteed savings sufficient to pay for the cost of the work” and noted that McKinstry employees are now saying that no such guarantees were ever intended.
“McKinstry’s internal documents revealing the deception reach the highest executive levels of McKinstry,” Bilow wrote. “The documents show employees brazenly describing how to ‘try and hide money’ through ‘funny math’ including ‘buried margin’ and keeping two sets of books which include ‘a number to show the customer and then a different number to which would actually appear as cost.’”
Bilow accuses McKinstry’s Chief Financial Officer Bill Teplicky of authorizing a “document entitled ‘Disruption Strategy’ wherein the district is identified as the ‘enemy.’” Bilow wrote that the document focuses on “squeezing the district for even more funds by claiming additional work.”
He accuses McKinstry of overbilling for equipment as well as for labor.
Funding for the work under the McKinstry project came mainly from a 10-year, $59.8 million plant facilities levy approved by Blaine County voters in 2009.
However, $5 million in funding came from a U.S. Department of Energy grant.
Bilow contends in the court filings that McKinstry even committed fraud in helping the School District obtain the DOE grant.
“The Department of Energy specifically indicated one of the strengths in providing the grant was that McKinstry agreed to guarantee the savings,” Bilow wrote. “McKinstry represented to the district and the U.S. government that there would be energy savings sufficient to pay for the total cost of improvements while knowing that there would be insufficient energy savings for the project.”
Also at Monday’s court hearing, Elgee ordered that McKinstry, as part of discovery, turn additional documents over to the School District that had been requested but not provided.