Judge dismisses major claims by both sides in Heery lawsuit


TIMELINE

October 2004: Crawford Lewis becomes superintendent of the DeKalb County School District and later hires Pat Reid to oversee Heery International Inc. and E.R. Mitchell & Co., which jointly manage construction projects.

April 2006: Heery/Mitchell suspended, then fired 10 months later.

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.

April 2, 2013: DeKalb “special master” Judge Stanley Birch signs an order dismissing the bulk of Heery’s financial claims against the school district.

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 school board votes to authorize an amended contract in which King & Spalding agrees to waive $30 million in legal fees and to pay ongoing court costs.

DeKalb County taxpayers stand to win tens of millions of dollars less than originally hoped in their school system’s long-running lawsuit against an international construction company.

At the same time, though, the risk of an expensive judgment against the DeKalb County School District has all but been erased.

A major chapter in the long-running legal battle between the district and the company that once managed its construction, Heery International Inc., is coming to a close now that a judge has sorted through myriad claims by both sides.

Though no trial date is set — nor will be until the appeals run their course — the real scope of the case is coming into focus. DeKalb sought more than $100 million from Heery, alleging billing fraud and mismanagement. Now, the potential damages have been reduced to well under half that.

Judge Stanley Birch Jr., a “special master” assigned to wade through all the opposing claims for DeKalb Superior Court Judge Clarence Seeliger, recently told lawyers he will dismiss a major element of DeKalb’s contract breach allegation against Heery. Meanwhile, Birch had already dismissed Heery’s allegation that it was a victim of fraud by DeKalb, eliminating the bulk of the company’s financial claims against the district.

Heery tried to connect its case to a criminal trial pending against Crawford Lewis, a former DeKalb superintendent. Lewis and two others — a former DeKalb official and her ex-husband, an architect — face charges of fraud involving the school district’s construction fund.

Heery contended Lewis helped engineer the corporation’s ouster as part of a conspiracy to steal money from the fund. But Judge Birch determined in an order dated April 2 that there was “no evidence that the school district suspended or terminated” its construction manager in bad faith.

Heery had sought about $12 million on that false termination claim, said Robert Khayat Jr., one of DeKalb’s lawyers. The company’s only remaining claims are for unpaid bills for service amounting to less than half a million dollars. DeKalb’s exposure there is mitigated by another ruling in which Birch determined that Heery double-billed DeKalb and must repay nearly $300,000.

Birch’s decision against DeKalb is the far more costly one. DeKalb claimed Heery breached its duty to the school system by failing to save money through bulk purchases. Khayat said Birch announced in court that he will soon issue a written order dismissing those claims, which DeKalb estimated were worth $45 million to $81 million, according to an analysis by the school district’s financial expert. The school district’s remaining claims are worth $33.5 million at most, according to the analysis.

The combined effect of all the rulings may have been costlier for DeKalb “in terms of dollars,” Khayat said. But, he said, Heery has little to win now, and is mostly on the defensive: “We still have a whole lot more left than they do.”

David Rubinger, a spokesman for Heery, said the company will appeal the adverse rulings.

The court developments come amid a renegotiation of the contract between DeKalb and Khayat’s firm, King & Spalding. Interim Superintendent Michael Thurmond said DeKalb was paying nearly $100,000 a month in court costs while the lawyers had amassed $30 million in unbilled fees for their time — money that was to come out of any settlement or judgment and limit DeKalb’s potential winnings.

King & Spalding agreed to write off those accrued fees and to also assume the ongoing court costs. In exchange, DeKalb had to give up the right to recoup the $12 million it has paid so far in court costs.

DeKalb was under public pressure to get out of the lawsuit, and Thurmond said the new contract removes the district’s financial risk. He and Khayat said DeKalb can now pursue the lawsuit as far as is merited rather than hesitating over the cost.

Both said the recent and pending court orders played no role in their contract renegotiation.

Khayat said the judge’s ruling against Heery’s claim that the school district fired the company in bad faith won’t buttress the school district’s remaining claims against Heery. But, he said, it’s an important ruling because it “does away with a smoke screen that Heery created, and will allow the school district to focus on the merits of the case, which is whether Heery committed fraud, waste and abuse to the detriment of the DeKalb taxpayers.”

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