DeKalb school board, law firm reach new deal that erases $30 million in costs

February 2007: Heery/Mitchell sues for $478,000 and damages.

March 2007: DeKalb counterclaims for $17 million, eventually seeking more than $100 million.

December 2008: Lewis tells school lawyers that Reid tried to blackmail him, recommended firing Heery/Mitchell and wanted to hire her friends to work on projects funded by a special sales tax for school construction.

July 2009: DeKalb's law firm, King & Spalding, agrees to work on contingency, retroactive to June 1, 2008. It had

been paid $6.5 million.

May 2010: Lewis, Reid, her then-husband, Tony Pope, and Reid's assistant indicted. (The assistant is later

dismissed from the case.) Lewis had been fired a month earlier.

October 2010: Heery/Mitchell files second amended complaint, claiming criminal fraud drove its termination.

June 2012: School board approves settlement with E.R. Mitchell & Co.

February 2013: Civil trial date with DeKalb Superior Court Judge Clarence Seeliger, since postponed.

May 3, 2013: A pair of DeKalb residents, one a Heery executive named as a defendant in DeKalb's lawsuit, file a legal challenge to the district's contract with King & Spalding, alleging it puts the district illegally in debt to the lawyers.

June 3, 2013: DeKalb County school board authorizes a new contract with King & Spalding that eliminates millions of dollars in legal costs.

Responding to public pressure to reduce legal bills, the DeKalb County school board on Monday authorized a new contract with its lawyers in a long-running lawsuit that has cost taxpayers millions of dollars, with no end in sight.

DeKalb has been battling its former construction manager Heery International Inc. since 2007. The district has been seeking more than $100 million over allegations of billing fraud and mismanagement, but so far taxpayers have been the ones paying. Legal fees and court expenses have cost $18 million, while the district’s law firm, King & Spalding, has piled up another $30 million in unbilled lawyers’ time that would come out of any settlement or judgment.

Signaling his firm’s willingness to strike a new deal that wipes the billing slate clean, Robert Khayat Jr., a lawyer with King & Spalding, emerged from a private meeting with the school board on Monday to say publicly that his firm would write off the $30 million, while also assuming all other costs associated with the case.

“King & Spalding will see the case through to the end without any additional expense to the school system,” Khayat said. He said the firm still believes the case can be won but that politics might have forced a premature, and unfavorable, end. DeKalb, he said, “should not have to walk away from a meritorious case because of financial pressure.”

That pressure has amounted to nearly $100,000 a month, according to interim Superintendent Michael Thurmond.

Since 2008, when the district inked the current contingency agreement with King & Spalding, DeKalb has not directly paid for lawyers’ time. However, that contract forced the district to pay all other costs, such as fees for expert witnesses, consultants and court filings.

That bill so far has come to $12 million. That’s atop the $6 million DeKalb paid its lawyers prior to the contingency arrangement. Under the new contract, DeKalb can recoup the $6 million but not the $12 million.

That’s money “already out the door,” said board member Marshall Orson. But he said the new contract will “remove the pressure of the ongoing expense” of the suit, with King & Spalding agreeing to pay all costs beginning this month. “This change in the agreement allows the system to move forward based on the merits of the case,” Orson said.

It also allows the district to end the case without fear of financial repercussions. Under the 2008 agreement, DeKalb would have had to pay all of King & Spalding’s unbilled legal fees if it settled against the firm’s wishes. Under the new contract, that threat is gone, raising the possibility of a settlement for a smaller amount than might have been possible.

The high sums involved, especially the unpaid lawyers’ hours, observers say, drove up the cost of a negotiated settlement beyond reason, making any agreement with Heery difficult. Last month, a Heery executive and another DeKalb resident sued the school district over the mounting legal bills, alleging the contract with King & Spalding amounted to unconstitutional debt.

The school board voted 9-0 Monday to authorize Thurmond to sign the new agreement with King & Spalding.

The new contract draws other concessions from DeKalb beyond the unreimbursable $12 million. Under the 2008 plan, DeKalb would have gotten the majority of any winnings after all fees and costs, but under the new contract it would basically split the first $86 million with the lawyers after their expenses, and then take a majority share of any additional proceeds. However, the size of the pot will be considerably larger with King & Spalding forgoing its accrued legal fees.

Thurmond, who took office in February vowing to reduce legal expenses, called the new contract “a win for taxpayers and a win for our children.”

Kirk Lunde, a parent who has been critical of the district for its non-classroom expenses such as legal fees, said it sounded like a good thing for students and taxpayers. He said he was “ecstatic” when he heard the new agreement discussed.

DeKalb in recent years has been cutting teachers and other crucial educational costs while spending evermore on lawyers.

“Mr. Thurmond just earned his salary,” Lunde said. “It’s all about eliminating costs outside of the classroom.”

A spokesman for Heery, David Rubinger, said the firm and its lawyers could not comment on a contract they hadn’t seen. “But that said, we look forward to a successful conclusion of the case,” he said. He would not say whether his client’s definition of “successful” included a settlement.