Court ruling dismisses most of lawsuit alleging…
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Court ruling dismisses most of lawsuit alleging improper Torrance Unified construction bidding
By Larry Altman | laltman@scng.com | Daily Breeze
PUBLISHED: May 6, 2016 at 11:37 pm | UPDATED: September 6, 2017 at 5:24 am
A state appellate court has upheld a lower court's dismissal of most of a taxpayer advocate's lawsuit that claimed the Torrance Unified School District circumvented a law requiring government entities to hire the lowest bidder on construction projects.
The ruling by the California Second District Court of Appeal, published this week, might "significantly affect school districts throughout California" that use so-called lease-leaseback agreements with contractors, Torrance district officials said in a statement.
"Crucially, the Court of Appeal ruled that (the California Education Code) does not require competitive bidding," the district said. "This is an important ruling not only for the Torrance Unified School District, but for many other school districts, contractors and taxpayers across the state."
Kevin Carlin, a San Diego attorney who filed the appeal on behalf of the plaintiff, local resident James McGee, said the issue of competitive bidding and lease-leaseback deals might continue. Another appeal of a similar case against the Mount Diablo Unified School District in Concord remains before the Court of Appeal's First District.
"I don't think its a done deal," Carlin said. "I am not saying I'm going to continue challenging. I don't think this completely disposes of the issue. … The game is not over."
The Torrance case stemmed from a 2013 lawsuit filed by McGee and the California Taxpayers Action Network, an organization fronted by anti-tax activist G. Rick Marshall, against Balfour Beatty Construction, a multinational construction firm that TUSD and many other districts use for school renovations.
The lawsuit charged that the lease-leaseback construction agreements between TUSD and Balfour Beatty for the modernization of Riviera and Towers elementary schools "were a sham to avoid the competitive bid process," an appellate court document said.
In lease-leaseback agreements, public agencies get around the process requiring them to award contracts to low bidders by temporarily leasing property to a preferred general contractor. That contractor, in turn, hires the subcontractors it believes will do the best job, regardless of whether those subcontractors offered the lowest price. When the work is completed, the district leases back the property, and eventually regains ownership.
Districts believe lease-leaseback agreements guarantee higher quality work that will be done on time, even if it costs more.
Opponents of lease-leaseback have filed a series of lawsuits since 2012 — including two against Torrance Unified — challenging the legality of the agreements.
In 2013, Los Angeles County Superior Court Judge Stuart Rice ruled TUSD did nothing wrong by using the lease-leaseback process. Projects continued at Madrona Middle School, Hickory Elementary School and North High School.
Carlin and McGee appealed the ruling, and challenged contracts for construction at Riviera and Towers. The contracts had been awarded to Balfour Beatty, which paid $1 a year for the lease of the sites. The sublease provided they lease the property back to the district.
McGee and Carlin alleged the transactions were not "real leases" and were a subterfuge to avoid the competitive bidding process, the court document said.
Last year, Balfour Beatty stopped bond-funded work at six Torrance schools because of litigation accusing the company of a conflict of interest.
If Carlin's and McGee's cases had prevailed, Balfour would have been required to refund money for work already performed.
In its decision, the Court of Appeal rejected a recent ruling by its counterpart, the Fifth District Court of Appeal, which found that lease-leaseback agreements required a genuine lease and contractor financing to be exempt from the bidding requirements, Torrance Unified said.
The appellate court ruled that TUSD complied with the Education Code's lease-leaseback rules and suggested that if the Legislature shared Carlin's and McGee's views, it should change the code.
Carlin said he knew of no one trying to do that currently, but said legislation already has been proposed to clean up the process of competitive bidding.
"The problem is their attempt to clean it up is premised on language that was proposed by the same contractors who are currently profiting from the process," Carlin said.
Although the court dismissed six of seven causes of action in the lawsuit, a conflict of interest allegation against Balfour Beatty still must be resolved. McGee and Carlin contend Balfour Beatty had a conflict of interest with the district because the company was involved in budgeting, plan development and specifications before obtaining the modernization contract.
Martin Hom, an attorney for Torrance Unified, said in a statement, "We hope to defeat the remaining claim swiftly."
"School districts shouldn't have to spend their limited resources defending against these baseless lawsuits," Hom said. "We've won a significant victory for our client and for many other California school districts that utilize the lease-leaseback delivery method."
Torrance Unified School District
Larry Altman
Larry Altman has covered crime and court proceedings in Southern California since 1987. A graduate of Cal State Northridge, where he served as editor of the college newspaper, Altman has worked for the Daily Breeze since 1990. The Society of Professional Journalists named him a "Distinguished Journalist" in Los Angeles in 2006. Altman's work was featured twice on CBS' "48 Hours" and he appeared eight times with "Nancy Grace," who called him "dear." He has covered hundreds of homicides and many trials. Altman has crawled through a mausoleum to open a coffin, confronted husbands who killed their wives, wives who killed their husbands, and his coverage helped put a child molester and a murderer in prison. In his spare time, Altman is an avid Los Angeles Lakers and Dodgers fan, is the commissioner of a Fantasy Baseball league with several other current and former newspapermen, runs a real estate empire and likes to watch old movies on TCM.
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