DeKalb County Schools’ lawyers insist they will win back the $15.5 million taxpayers have spent in legal fees preparing for a trial against the giant construction firm Heery International, along with millions of dollars more.
In the four years since the school system filed the $100 million lawsuit, the $15.5 million in attorney fees would have paid the salaries of about 300 teachers for a year or 221,400 textbooks.
The Atlanta Journal-Constitution and Channel 2 Action News found that several public bodies across the country, including school systems and local governments in Arizona, Massachusetts, Texas and Maryland, have made similar claims against Heery, but none of those governments won in court. Some entered into secret settlements and some simply lost. DeKalb school leaders say their case will be different.
DeKalb hopes to be first government to win a fraud case against Atlanta-based Heery. Heery, if found liable for fraud, could be excluded from federal contracts, said Robert C. Khayat Jr., a partner with King & Spalding. Federal regulations bar companies from working on federal projects if they have a history of fraud, theft and other serious violations.
While Heery acknowledges that it would lose business if it loses this case, the company is confident it will prevail in the suit.
"This is nothing new, as they've been threatening Heery with public embarrassment and debarment from the moment they showed up on the case," said Martha Abbott Pacini, Heery's vice president of communications. "There is no risk of debarment because there is no fraud. This is a contract interpretation issue -- we believe we had one contract with one not-to-exceed amount. And, we didn't exceed it."
State Sen. Emanuel Jones (D-Decatur) says DeKalb shouldn't be trying to take on Heery.
“In cases like that, no one wins,” said Jones, who heads the DeKalb Senate delegation. “I think they should go to mediation instead of spending another $10-15 million. In the days when every dollar is scrutinized and every dollar is crucial, we are not in a position to be fighting contractors and insurance companies with deeper pockets.”
Heery is a major player in construction. With its home office on Peachtree Street in Atlanta, it operates 26 offices across the country and lists the Georgia World Congress Center, Georgia Dome and Georgia Aquarium among its accomplishments. In its 60-year history, Heery has done $22 billion in K-12 school projects and worked on 400 universities.
“We do a lot of schools in a lot of places and you’re not going to satisfy everyone 100 percent of the time,” Heery’s in-house counsel, Richard Nikonovich-Kahn, said of litigation filed against the company.
DeKalb schools' suit was scheduled to go to trial in February. But motions, new evidence, moves between federal and state court and other extensions have delayed the trial for at least a year. On Friday, DeKalb schools filed a new motion against Heery, naming another 12 individual employees from Heery and its parent company as defendants in the suit.
“We’re ready to go to trial today,” said Ray Persons, a member of the district’s legal team for King & Spalding. “We have no incentive and every disincentive for delay. ... The best interests of our clients are served by getting this case in front of a jury so that we can get a resolution.”
This is the first time the district’s lawyers have talked publicly about the case since Heery first sued DeKalb in 2007 for failure to pay an outstanding invoice. In response, the district counter-sued, alleging fraud and mismanagement.
Similar allegations have been raised at school board meetings, in complaint letters and audits by governments in other states, but none have fully taken on Heery to the scale that DeKalb has.
Arizona case
“If Heery … treated DeKalb as they treated Catalina Foothills, give the magnitude of that project, it certainly sounds justifiable that the district could take a stand that ended up being what I understand to be a very difficult and contentious piece of litigation,” said Spencer Smith, attorney for the Catalina Foothills School District in Tucson, Ariz. “I certainly wouldn’t criticize them [the school board] for taking that piece of litigation to the point they have.”
Nevertheless, Smith said, Catalina Foothills schools decided against going to trial, as DeKalb schools intends to do. The Catalina Hills district awarded Heery a $3.9 million contract in 2007 to build an early childhood education center. The project ended up taking a year longer than promised and ran $1.6 million over budget, Smith said. In the ensuing dispute, Heery sued the school district, which settled the case out of court with a $500,000 payment to Heery.
“The district wasn’t happy about that settlement, but it was considered to be a better alternative then litigating and spending a lot of attorneys’ fees,” he said. “It was a painful experience for the Catalina Foothills district, but they’re thankful it’s over and they don’t have to deal with Heery any more.”
Heery’s lawyers say all contractors face lawsuits and the occasional disgruntled client, but they emphasize that none of the suits has resulted in a judgment against Heery. They also point out that the Arizona case was different from DeKalb's because, in Arizona, Heery was working as a contractor and program manager for one school. In DeKalb, Heery’s contracts were for program management of many schools.
“We’re very proud of the Catalina Foothills job,” Nikonovich-Kahn said. “There were problems, but not of our making and it was settled to everyone’s satisfaction. … Well, it was settled to our satisfaction.”
Maryland case
Montgomery County, Md., accused Heery of mismanagement involving the construction of a $90 million jail. Several contractors sued the county and the county filed a counter-claim against Heery in 2004, according to court records.
“Our position is they [Heery] had not properly maintained the schedule for the project and allowed a number of contractors to fall behind schedule,” said Montgomery County attorney John Fisher said. “When we looked into it, it was our conclusion there was liability on the part of Heery as well as the designers. The suit went on for three years and was finally settled.”
Heery’s lawyers declined to talk about the settlement.
“It was all resolved amicably,” Nikonovich-Kahn said. “It was a multi-party settlement agreement and we can’t talk about who paid whom.”
Massachusetts case
In Lawrence, Mass., school board members accused Heery of charging 700 percent more than nearby districts for managing the construction of a $110 million high school in 2004. The board asked lawyers for a legal opinion to consider firing Heery, City Solicitor Charles Boddy Jr. said, but decided not to do so after Heery improved its performance.
Heery dismisses those complaints, saying there was never a lawsuit.
“I’m not aware of any complaints on this and they didn’t terminate us,” Nikonovich-Kahn said. “It’s a non-issue if they asked for a legal opinion to fire Heery. It was inconsequential.”
Heery says 90 percent of all litigation is settled outside court, and these settlements are not surprising. “There’s litigation in all companies. It’s a fact of life, and that’s how I make my money,” said Mark Grantham, a lawyer for Heery.
And in governments, there are typically complainers because there are so many bosses – superintendents, board members, principals and taxpayers, Heery officials said.
“Clearly we continue to do business and that’s because we continue to secure contracts. We have a lot of repeat happy clients,” Pacini said. “Is everyone going to be happy all the time?”
Heery and DeKalb had a mediation meeting in 2009 for a possible settlement, but it didn’t go anywhere, Nikonovich-Kahn said. Heery lawyers say they are willing to accept any “reasonable” offer DeKalb puts on the table. By "reasonable," they mean the school system paying them.
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