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HomeMy WebLinkAbout2016-12-08 Special Town Meeting - Litigation MinutesSPECIAL TOWN MEETING LITIGATION Reading Memorial High School Preforming Arts Center December 8, 2016 The meeting was called to order by the Moderator, Alan E. Foulds, at 7:35 PM, there being a quorum present. ARTICLE 1: Motion made by John Halsey, Board of Selectmen and Article 1 was tabled Motion Carried ARTICLE 2: Motion made by John Halsey, Board of Selectmen and Article 2 was tabled Motion Carried ARTICLE 3: Motion made by the Board of Selectmen - Whereas, The deferred operation of this vote would tend to defeat its purpose, which is to amend forthwith the FY 2017-27 Capital Improvements Program in order to allow for necessary funding for the Reading Memorial High School project, I move that it be declared to be an emergency measure, necessary for the immediate preservation of the peace, health, safety or convenience of the Town; and I further move that the Town vote to amend the FY 2017-27 Capital Improvements Program, as provided for in Section 7.7 of the Reading Home Rule Charter, and as previously amended, by making this change: rPnPral Fund FY17: +$6 million + $6 million added to RMHS construction project Background: This Article is included in every Town Meeting Warrant. The Reading General Bylaw (section 6.1.3) states "... No funds may be appropriated for any capital item unless such item is included in the Capital Improvements Program (CIP), and is scheduled for funding in the Fiscal Year in which the appropriation is to be made." Bond ratings agencies also want to ensure that changes to a long-term CIP are adequately described. Presentation given by: • Bob LeLacheur - See Attached Finance Committee Report: Bylaw Committee Report: Motion Carried No Report No report 2/3rds Vote Required 103 Voted in the affirmative 3 Voted in the negative 122 Town Meeting Members in Attendance SPECIAL TOWN MEETING LITIGATION Reading Memorial High School Preforming Arts Center December 8, 2016 ARTICLE 4: Motion made by the Board of Selectmen as a courtesy to the School Committee - Whereas, The deferred operation of this vote would tend to defeat its purpose, which is to provide forthwith the necessary funding for the Reading Memorial High School project, I move that it be declared to be an emergency measure, necessary for the immediate preservation of the peace, health, safety or convenience of the Town; and I further move that the Town vote to amend the vote take under Article 5 of the January 13, 2003 Special Town Meeting, as amended by the vote taken under Article 10 of the November 13, 2006 Subsequent Town Meeting, to transfer an additional sum of $2,196,604.94 million from Free Cash in the Treasury and to raise and appropriate an additional sum of $3.0 million, for a total of $5,196,604.94, for the purpose of making extraordinary repairs and additions to the Reading Memorial High School at 62 Oakland Road, including the costs of engineering and architectural fees, plans, documents, cost estimates, interest and related expenses incidental thereto and necessary in connection therewith, said sum to be expended by and under the direction of the School Committee; and, for the purpose of meeting such appropriation, to authorize the Town Treasurer, with the approval of the Board of Selectmen, to borrow $3.0 million in accordance with Chapter 44, Section 7(1), of the Massachusetts General Laws, or any other enabling authority; to authorize any agency of the Town to file applications for grants, loans, exclusions, or other sources of additional funding to be used to defray the cost of all or any part of the cost of the project; to authorize the School Committee to enter into all contracts and agreements as may be necessary to carry out the purposes of this Article; provided, however, that any premium received by the Town upon the sale of any bonds or notes approved by this vote, less any such premium applied to the payment of the costs of issuance of such bonds or notes, may be applied to the payment of costs approved by this vote in accordance with Chapter 44, Section 20 of the Massachusetts General Laws, thereby reducing the amount authorized to be borrowed to pay such costs by a like amount; or take any other action with respect thereto. Background: The Reading Memorial High School construction project began in 2004, and TLT Construction Corporation was the general contractor for the project. In the fall of 2007, TLT filed a lawsuit in Middlesex Superior Court against the Town of Reading, claiming that the Town owed additional money for work performed under the contract. In response, the Town filed a counterclaim, alleging that TLT did not complete the contract work on time and that the Town had to correct various parts of the project work TLT did perform. In 2013, after several years of the litigation discovery process and attempts at reaching a settlement with TLT, the court referred the case to a Special Master, a retired judge, who conducted a hearing process in lieu of a trial in the Superior Court. The hearings began in December of 2013 and concluded in March of 2015. Closing arguments were presented in July of 2015. Since that time, the Master has been preparing, and issuing to the parties, draft decisions on the various issues that make up the matters in dispute. These issues included payment to TLT for asbestos abatement work, the Town's replacement of the outdoor track, compensation to TLT for additional work outside the scope of the contract, correction of site work, and liquidated damages for failure to complete the work on time. The first draft ruling was issued in January of 2016, and the most recent ruling, which left only a small portion of the claims still to be decided, was issued in September of 2016. The net result of the rulings to date is approximately 3 million dollars, in TLT's favor. If the process continued, each party would have the opportunity to respond to the draft rulings with proposed revisions, and the Special Master would then prepare a final report to the Superior Court. Under the applicable legal procedure, the court would review the Master's final report and may adopt it, reject it in whole or in part, or send it back to the Master with instructions for additional action. Ultimately, the Superior Court would enter a judgement in the case, whether on its first receipt of the Special Master's report or after such additional action by the Master as it may order. On account of the volume of material to be reviewed, a Superior Court judgment would not be expected until sometime well into 2017. By SPECIAL TOWN MEETING LITIGATION Reading Memorial High School Preforming Arts Center December 8, 2016 Massachusetts statute, a court judgment is subject to 12% annual interest, and interest would apply from the date the complaint was filed in November, 2007. As a result, the amount of the judgment would now more than double. If the final court judgment were issued in late 2017, it is expected that the total amount could be close to $7,000,000 in TLTs favor. Given these circumstances, the School Committee and TLT have reached a tentative settlement agreement in the amount of $6.0 million, subject to Town Meeting approval. A draft settlement agreement has been developed and is currently being reviewed by Town Counsel. If approved by Town Meeting, the settlement would be paid through three sources of funding: remaining funds from the RMHS building project (approximately $800,000), certified free cash, and borrowing - with the debt being paid off over a period of several years. No operating budget funds would be utilized. As a result of the settlement, it is expected that capital projects currently on the 10 -year capital plan (i.e. roof replacements, field replacements, and capital equipment) would be pushed out additional years into the future. Town officials are also exploring the possibility of additional MSBA reimbursement funding for the High School project. Although litigation has taken years, it was a process that legal counsel at the time believed was the best course of action. After almost a decade-long process, however, the School Committee supports moving forward on a settlement in order to bring the litigation process to a necessary close and to best position our Town and schools for the future. Presentation given by: • John Doherty, School Superintendent - See Attached • Jeanne Borawski, School Committee Chair- See Attached • David J Doneski, Counsel to School Committee - See Attached • Bob LeLacheur, Town Manager - See Attached Finance Committee Report - given by Paula Perry: was taken with 5-0-0 in support of the subject matter. Bylaw Committee Report: No report Motion made by Bill Brown, Precinct 8 to amend as follows: At the December 8, 2016 meeting a vote Funds to come from: $400,000 Permit Revolving Fund and $600,000 Sale of Real Estate Motion Does Not Carry Motion made by Ben Tafoya, Precinct 4 to amend as follows: to authorize the School Committee to enter into all contracts, legal settlements and agreements as may be necessary to carry out the purposes of this Article; provided, however, that any premium received by the Town upon the sale of any bonds or notes approved by this vote, less any such premium applied to the payment of the costs of issuance of such bonds or notes, may be applied to the payment of costs approved by this vote in accordance with Chapter 44, Section 20 of the Massachusetts General Laws, thereby reducing the amount authorized to be borrowed to pay such costs by a like amount; Motion Carried SPECIAL TOWN MEETING LITIGATION Reading Memorial High School December 8, 2016 Preforming Arts Center Motion made by David Tuttle, Precinct 3 to move the question 2/3rds Vote Required 107 Voted in the affirmative 10 Voted in the negative 122 Town Meeting Members in Attendance Motion to Move the Ouestion Carried After some discussion a vote was taken: 2/3rds Vote Required 110 Voted in the affirmative 5 Voted in the negative 122 Town Meeting Members in Attendance Motion Carried as Amended John Halsey, Board of Selectmen moved to adjourn the 2016 Special Town Meeting sine die at 10:11 PM with 122 Town Meeting Members in attendance. Motion Carried A true copy Attest: Laura A Gemme, CMMC Town Clerk 4/13/2017 Special Town Meeting December 8, 2o16 RMHS Construction Litigation Presentation Topics • Description of Case • Chronology of Events • Master Judge Rulings • Legal Cost Breakdown • Lessons Learned • SettlementTerms • If there is no settlement approved • How litigation settlement will be funded if approved 1 4/13/2017 TLT v. Town of Reading • RMHS renovation and addition construction project began in 2004. • TLT Construction Corporation was the general contractor for the project. • Awarded project as the "lowest qualified" bidder. • Construction had multiple problems, including: • Larger than expected amounts of asbestos requiring special handling and disposal. • Project fully completed 22 months after agreed-upon deadline (April 2007 to January 2009). Major Issues in Dispute • Was amount of asbestos found foreseeable? • Remediation of foreseeable asbestos covered by original contract amount; • Extra cost for remediation of unforeseeable asbestos. • Was contractor responsible for delay in project completion? • Contract language in the project specified liquidated damages of $2,500 per day if TLT failed to complete the contract work on time. • Beginning in 2007, the Town withheld payments in the belief that amount of liquidated damages, rejected work, and punch list work would offset amounts owed. • Total amount of undisputed costs withheld: $2,366,473. • Total amount of liquidated damages claimed: s,,1,S9o,000. 2 Litigation Commences In the fall of 2007, TLT filed a lawsuit in Middlesex Superior Court seeking payment by the Town of the amounts owed. In response, the Town; filed a counterclaim alleging thatTLT did not complete the contract work on time and that the Town had to correct various parts of the project work that TLT did not perform, including: • Town's replacement of the outdoor track • Correction of site work In 2013, after the litigation discovery process was complete, the court referred the case to a Special Master, a retired judge, who conducted a hearing process — in lieu of a trial in the Superior Court. • December 2013: Hearings begin. Reading's Representation • January, 2014: Brackett and Lucas requests to be removed from the case. April 2014: Kopelman and Paige (now KP Law) takes over the case as counsel replacing Brackett and Lucas 4/13/2017 3 4/13/2017 Chronology of Case Chronology of Case March 201-1 Based on advice of counsel, first attempt at settlement through mediation. February 2013 Settlement executed with HVAC contractor, leaving dispute with TLT open. April, 2013 Town Meeting approves settlement with HVAC contractor for $5o,000. April 2014 School Committee authorizes counsel to pursue a settlement with TLT. June 2014 TLT indicates that it is not interested in settlement. Hearings continue. July 2014 Hearings suspended due toTLT's conflict with its bonding company, Western Surety. January 2015 Hearings resume. March 2015 Hearings conclude. September 2015 Settlement proposed to TLT again. TLT does not reply. Chronology of Case January 201-6 First ruling (Asbestos) issued by Master, in TLTs favor ($612,545)• March 2016 Second ruling (Track) issued by Master Judge, in Town's favor ($266,746). April zo16 Third ruling (Stadium Lights) issued by Master, in Town's favor ($2o,800). May 2016 Fourth ruling (Site Work) issued by Master, net in TLT's favor ($81,324). May 2016 Settlement proposed to TLT again. TLT rejects offer, does not counteroffer. September 2016 Fifth Ruling (Liquidated Damages, Schedule and Phasing Claims) issued by Master, awarded liquidated damages in Town's favor, but in an amount far less than claimed ($65,000). Master's Rulings The net result of the Master's rulings thus far is approximately $2.875 million in TLT's favor (including undisputed amounts withheld). Net Summary of Claims from Rulings 4/13/2017 5 e v Contract Balance Owed $2,366,473 Asbestos Related Claims $61-2,545 Auditorium Work Area Claims $2.30,265 Secondary Auditorium Work Claims $23,303 Liquidated Damages $65,000 Site Work Related Claims $365,826 $284,502 Field Lights Related Claims $2o,800 Track Related Claims $34,600 $266,746 Total $3,513,012 $637,048 Net Balance (TILT Minus Town of Reading) $2,875,964 12% Interest (Dec. 2007 -Dec. 2016) $3,134,840 Total $6,010,804 4/13/2017 5 4/13/2017 Construction Fund Breakdown Since 2007 Legal Costs Associated 7MasterJudge (JAMS) with Lawsuit $142,413 Project Budget Available (2007) $2,673,841 Legal Counsel (2007-2015) $46o,990 General Contractor $324,792 Architect Fees $202,254 Reimbursables-Architect $6,915 Technology $53,438 Furnishings $24,247 Project Management $34,538 Other Construction Costs $763,258 Funds Remaining $803,395 Additional Legal Costs (Incurred by the Town: 2015 -current) $356,96o Legal Costs Associated 7MasterJudge (JAMS) with Lawsuit $142,413 Court Costs $33,187 Testimony $17,161 Attorney Fees $624,837 Miscellaneous $350.00 • 4/13/2017 Lessons Learned School Committee should not have served as the Building Town Meeting voted to have a Permanent Building Committee forthis project. (Note: Building Committee was Committee in 2015. Massachusetts School Building dissolved by Town Meeting in 2003) Authority (MSBA) adopted specific requirements regarding composition of the School Building Committee after this project commenced. Key project decisions should have been made by Building Permanent Building Committee has expertise and Committee, rather than relying on Architect and Owner's procedures for effective project oversight. Project Manager. Key project decisions should have been made with full Town Counsel is now better integrated into decision-making appreciation of applicable law, including statutes governing processes. public construction and 12% interest accrual. Building Committee and Superintendent needed to be more Building Committee will work with Town Counsel to craft aggressive in managing some stages of litigation and engagement terms for any special counsel services requiring settlement efforts. regular communication and reporting. Ongoing financial risk assessment should be conducted by Practice will begin in Winter 2017. School Committee, Superintendent, and School Director of Finance on a regular basis. Settlement October, 2o16- Agreement reached on s6,000,000 settlement amount. October, 2o3.6 -School Committee votes to move forward with settlement, requests Board of Selectmen to hold Special Town Meeting 7 4/13/2017 If No Settlement • Additional hearings for claims not yet ruled on, and each party would respond to the draft rulings with proposed revisions. (est. spring 2017) • When all of the rulings have been issued, the Special Master will prepare a final report to the Superior Court. (est. summer 2017) • The court will review the Master's final report and may adopt it, reject it in whole or in part, or send it back to the Master with instructions for additional action. • Ultimately, the Superior Court will enter a judgment (not expected until several months after report filed ). • By Massachusetts law, the court's judgment will be subject to 12% annual interest from the date of the complaint (November 2007). • If a final court Judgment is issued in late 2017, the final net result of the judgment could be close to $6,750,000 in TLT's favor. Potential Additional Damages If there is no settlement Current Net Balance (TILT Minus Town of Reading) $2,875,964 12% Interest (Dec. 2007 -Dec. 2016) $3,134,840 Current Total $6,010,804 Claims Not Yet Ruled by Special Master $200,000 Additional Interest ($30,000/month) x 12 months $36o,000 Additional Attorney Fees and Fees for Master Judge $50,000 Revised Total $6,62o,804 Settlement Terms • Agreement is between the Town and TLT Construction Company. • Upon payment by the Town of s6 million, Western and TLT release all claims against the Town. • The Town releases most claims against Western and TLT and TLT's surety. • The Town retains the right to assert claims against TLT or its surety for indemnification or contribution with respect to any future claims by subcontractors and suppliers. How to Pay for the Settlement Special Town Meeting — request debt authorization $-�t.omillion will be issued and repaid over so years capital plan will be rebalanced to accommodate the debt (recreation projects, facilities repairs, DPW equipment delayed) Balance to be paid by: $o.8 million from the remaining RMHS Construction fund $2.2 million Free Cash Town is pursuing reimbursement from MSBA Any recovery will replenish the Free Cash used 4/13/2017 9