The Belmont Curse
Photo by Slobodan Dimitrov
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Those who follow the news know at least this much: Construction of the Belmont Learning Complex, which stands abandoned and half-finished, unraveled because developers brazenly ignored safety hazards as they built the nations most expensive high school atop a dangerous oil field.
Its a narrative right out of Erin Brockovich, but like many Hollywood screenplays, the Belmont saga is suffering a rewrite, this one courtesy of Pan Pacific Plumbing, Queen City Glass, Van Nuys Sheet Metal, et al. These are the 49 subcontractors who got snared in the Belmont mesh when the L.A. Unified School District halted construction in 1999 and also stopped paying its Belmont-related bills.
The developers and contractors took the school district to arbitration last year, and last week, L.A. Unified took a $20 million hit. Belmont sure didnt sound like an outlaw project in the rendition of Philadelphia-based arbitrator Steven A. Arbittier. In his view, it was district representatives who donned the black hats, insisting, for example, that project materials be delivered to the Belmont site prior to a work slowdown, and then refusing to pay for these goods. Indefensible, concluded Arbittier.
The arbitration ruling also is a blow to the credibility of school-district Inspector General Don Mullinax, who dug up dirt and named names on Belmont, only to find that other arbiters have begged to differ.
Of course, this arbitration is hardly the last word on either Mullinaxs findings or Belmont itself. The ruling didnt even address many major questions, a number of which are the subject of a criminal probe by the District Attorneys Office. But the decision is a clear setback to the districts cost recovery strategy, the idea that money spent on Belmont can be recaptured through legal proceedings and by selling the land.
Superintendent Roy Romer, who inherited this quagmire, thinks hes got a better idea: Limit the losses, move on and finish that school: Im sorry this thing was screwed up, but lets now find a practical solution. In a school system that needs a dozen new high schools just about now and which has neither the land nor the money to build them the 3,500 gleaming Belmont seats look darn attractive. In January, Romer pushed a reluctant school board to let him invite bidders to submit plans for finishing the project. And this months city elections have shifted the school board slightly in Romers direction, with challenger Marlene Canter defeating incumbent Valerie Fields, who was virulently anti-Belmont. (A 5-2 tilt of board members against Belmont now looks more like 4-3.)
If anything, the arbitration outcome is likely to help Romer. Its ending should cut loose the projects architectural drawings, making them available to potential contractors. Once they get the drawings, bidders have 90 days to submit proposals. It doesnt hurt Romers cause that an arbitrator found nothing untoward in the construction process to date. From his perspective, thats all the more justification for finishing the star-crossed campus.
Still, this partial resolution comes at significant cost. First, the arbitrator verified claims of $12.9 million from the developers and contractors. This milestone could have been achieved without litigation, said Mark Barnhill, a senior executive at the public-relations firm of Fleishman-Hillard, which represents Temple Beaudry Partners, a development team anchored by Kajima Urban Development, Turner Construction, and McLarand, Vasquez & Partners, the architect. The fact of the matter is: Had the school district offered this result when it sought to abandon the project, the development team would have accepted that offer in a heartbeat.
Now the district also is stuck with $1.7 million in interest and with paying attorney fees for both sides about $5.4 million and arbitration costs totaling about $300,000. In addition, the districts cost for expert witnesses, consultants and accountants easily exceeded $1 million, judging by a cursory review of district accounting ledgers.
Nonetheless, LAUSD General Counsel Hal Kwalwasser told assembled reporters that the school district, through the arbitration, had saved money, reducing the arbitration demands by $8 million, or 40 percent. But his computation is fatuously selective. For one thing, Kwalwasser is ignoring the interest and attorney charges. And then, too, he is comparing the final award to an original claim from last year that was merely an estimate.
Moreover, the district was not merely trying to limit its payout; it was trying to get money back. District lawyers contended that L.A. Unified was owed more than $80 million in damages, reimbursements and penalties. Of which it got not a penny.
In its pleadings, the district tried to put responsibility for the sites oil-field-related environmental problems on the developers. But Arbittier would not hear it: In sum, there were serious environmental concerns about the construction of the project and . . . LAUSD assumed the environmental risks. And representatives of LAUSD were kept fully apprised of the detailed progress of the work at the project.
The arbitrator turned down only $1.9 million in claims, according to the text of the decision. What he disallowed were attempts to assert vague damage claims. But he sided with the contractors, almost without exception, when they simply claimed that payment was due for work performed.
Time and again, the arbitrator chided L.A. Unified, faulting the school district in one instance for refusing to pay for the cost of delays caused by district decisions that had nothing to do with contractors, and also for alleging overbilling without any legitimate basis. None of the contractors intentionally overbilled for work performed on the project, ruled Arbittier.
The districts Kwalwasser took exception to this tone and also noted that the district retained the option of challenging elements of the arbitrators decision and his jurisdiction in court even though the contract specifies that the results of arbitration are binding on both parties.
For now, chalk up another $20 million in Belmont-related costs this time, ironically, in the service of abandoning the project and recouping funds. This cost-recovery strategy was meant to answer critics who questioned why the school board would ditch Belmont and thus throw away some $200 million of public investment in a badly needed school that experts say could be safely completed, despite the oil field. The district provoked the arbitration by stopping payments and also pursued a civil lawsuit against the developers and subcontractors.
This action, authorized by the Board of Education, is consistent with the districts goal of recovering all funds that may have been improperly submitted on billings and recovering all taxpayer money that was lost as part of building the Belmont Learning Center, said Chief Operating Officer Howard Miller at the time. (Shortly thereafter, Miller left district employment to resume his private-sector law practice. He then assisted with the arbitration case on an hourly basis, earning $111,000 over a nine-month period, according to district records.)
Kwalwasser acknowledged late last week that the arbitrators decision casts doubt on the civil lawsuit, which covers essentially the same legal ground. Two major elements of cost recovery remain: the potential sale of the Belmont land and a malpractice suit against OMelveny & Myers, the firm that used to represent L.A. Unified on Belmont.
The state, however, has a claim on any profit realized from the sale of the land, because state funds, not local money, were used to buy the Belmont property in the first place.
As far as the OMelveny lawsuit goes, the school-district strategy is rather inscrutable, even to some school-board members. The districts highly regarded contingency-fee attorneys (some of whom represented the real-life Erin Brockovich) have played mostly defense so far, even though the school district initiated the lawsuit. OMelveny and its powerhouse defense team from Gibson, Dunn & Crutcher, meanwhile, have been the aggressors, pursuing a scorched-earth discovery process that involves deposing scores of witnesses and demanding libraries worth of documents. OMelveny is racking up million of dollars in litigation costs.
One board member commented that she is confident that attorneys on the OMelveny case will protect the districts financial interests because they get paid only if the school system collects money. But thats not the entire picture. Taking on the OMelveny case put these same attorneys in position to handle the arbitration matter, for which they were paid as much as $350 an hour.
OMelveny representatives declined to comment on the arbitration result, and the districts Kwalwasser asserted that the ruling would probably have no material impact on the OMelveny litigation.
The arbitration decision, however, is another Belmont bust for school-district Inspector General Don Mullinax. The drubbing began when the law-enforcement arms of the city, county and state all declined to pursue criminal investigations related to Belmont after Mullinax referred his findings to them. Then, the school district was obliged to reinstate employees after a year of paid leave that Mullinax had fingered for Belmont-related blame and discipline. Now, an arbitrator has ruled that the district could not prove the missteps and legal violations that Mullinax thought his investigators had amply documented.
Following the O.J. Theory, losing such big ones is more than enough to get a high-profile prosecutor/investigator fired. But school-board member Victoria Castro said it would be unjust to scapegoat Mullinax, who shares responsibility for these Belmont-related events with many other district officials and attorneys. Even if his star turn on Belmont has been tarnished, Mullinaxs lower-profile investigations and audits are helping the district save money and function better, added Castro. (And Mullinaxs investigation prompted some contractors to lower their billing claims even before the arbitration began.)
But Castro is hardly sanguine about the arbitration effort. We were given the legal advice that we had all these winning points, she said. Its unconscionable. My hope would be that we look freshly at all the issues surrounding Belmont.
For now, Castro who retires from the board at the end of June is in the minority as a Belmont-project advocate. But shes in harmony with Superintendent Romer. I view this decision as finishing up a dispute of the past, he said. It now opens up a rational opportunity of deciding what to do to finish Belmont. He added, Weve got to pay whether we stop Belmont today or not. Now it frees us up to go forward.
And to wait for the next interpretation of Belmont history. One is in the wings right now, from the quadrant of new District Attorney Steve Cooley. Unlike former District Attorney Gil Garcetti, Cooley has embraced the work of Mullinax, setting up a Belmont task force. There were documents that were not looked at, said Anthony G. Patchett, a prosecutor who came out of retirement to head the probe. Gil Garcetti chose not to look at anything and chose not to find anything. The people that Mullinax hired are former FBI agents and other federal agents. He hired the cream of the crop to do his 7,000 hours of investigation.
In other words, stay tuned.
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