East Side school district owes $2.57 million in lawsuit — and counting

The East Side Union High School District has been ordered to pay $601,000 in legal costs, bringing to $2.57 million the total it owes for a lawsuit over unpaid construction costs.

The dispute, between the district and Kinetics Mechanical Service of Livermore, stems from extra work that resulted from design flaws and unexpected circumstances that emerged in remodeling at Independence and Andrew Hill high schools.

The case started in 2008, when the district refused to pay the cost overruns. KMS sued, but also offered to settle the suit for $775,000 in May 2009, according to its attorney. The lawsuit proceeded, and in October, a jury ruled that the district broke its contract and failed to disclose information. East Side was ordered to pay KMS more than $1.72 million in damages. If the district ends up paying the contractor, the money will come from bond monies, used to remodel schools, rather than from operating funds.

KMS then petitioned for its legal fees, which were awarded last week.

In his ruling, Santa Clara County Superior Court Judge Franklin E. Bondonno praised the contractor.

“Despite the fact that the projects faced many problems, KMS performed the projects in an exemplary manner,” he wrote.

At its meeting Thursday, the East Side board is scheduled to discuss the lawsuit in closed session.

“We didn’t get a fair trial,” board President Lan Nguyen said Tuesday.

In November, the board had voted to appeal the verdict, accepting the recommendation of its attorney, Peter Rehon of San Jose.

Meanwhile, the costs are mounting. By refusing to pay the court award, the district is incurring interest at a rate of about $21,000 a month. And last month, after the Mercury News wrote about the verdict, the East Side board decided to hire another law firm to review the suit. The contract with the Hanson Bridgett firm of San Francisco will be capped at $50,000, Nguyen said.

The firm, which also investigated allegations against former East Side Superintendent Bob Nuñez, will be the third to get involved in the case.

The district was first represented by San Jose attorney Mark Davis, who was assigned by the district’s insurance group. Then about a year ago, the district assigned Rehon to review the case. He ended up handling the suit. Rehon is the partner of the district’s general counsel, Rogelio Ruiz.

“We don’t necessarily agree with everything the judge has done in the case,” he said Wednesday.

The jury, however, had little doubt about the allegations. Within 15 minutes of entering the jury room in October, “everybody thought the district had been wrong,” said juror Jim Schrempp of Saratoga. While the district got the repairs it sought, “East Side Union had a methodical approach to trying to get KMS to give up on its claims,” he said.

He pointed to the district’s countersuit seeking penalties for the work going beyond the contracted completion date of August 2009. But that wasn’t the fault of the contractor, the court found. “If the design doesn’t come out until mid-September, how could you finish six weeks early?” he said.

All 12 jurors agreed on all counts, except in awarding money, Schrempp said: One juror wanted to award KMS more money.

The district contends that state public-contract law limits what it can pay for change orders to 10 percent of the original contract. The extra work on both schools exceeded that limit. If the trial’s outcome stands, “the floodgates are opened for a raid on the public treasury,” Rehon said.

One of KMS’ attorneys, Richard Sipos of Walnut Creek, said the district exceeded the 10 percent limit when it built Evergreen Valley High School and that the limit does not apply to breaches of contract.

Schrempp, the vice president of a startup software firm, said he is angry at the district for wasting taxpayer money in taking the dispute to trial, which lasted a month.

“The district put all the people in the jury box through a lot of trouble for nothing. They really should have paid KMS upfront,” he said.

Sipos said he sent the district a letter last month offering again to settle. So far, that doesn’t appear to be happening. Told that the district is appealing, Schrempp said, “I don’t know why they are still fighting.”

Contact Sharon Noguchi at 408-271-3775.