Latest lease-leaseback decision: Court says Fresno Unified violated education code
A panel of justices for a California appeals court issued an opinion Tuesday finding Fresno Unified School District’s use of the lease-leaseback contract to build Gaston Middle School violated state education code and conflict of interest codes, reversing a previous judgment by a trial court.
Contractor Stephen Davis alleged in his 2012 lawsuit that the school district wrongfully used the “lease-leaseback” financing system, which allows districts to circumvent the traditional competitive bidding process, in order to ensure a pricey Gaston Middle School project was awarded to Harris Construction. Davis also claimed the district broke conflict of interest laws by allowing Harris Construction to perform consulting work on the same project before bidding on it.
The issue hung over the head of former Fresno Unified Superintendent Michael Hanson and was subject to investigation by the U.S. Attorney’s Office.
Justice Donald Franson Jr. wrote in his opinion for the Fifth District Court of Appeal that three of Davis’ allegations about the contracts were correct. Justices Jennifer Detjen and Rosendo Peña Jr. also signed on to the opinion.
Franson wrote that the contracts functioned as a traditional construction contract and were not genuine leases; the contract did not include a financing component; and the contract didn’t provide for Fresno Unified’s use of the new facilities during the term of the lease.
Kevin Carlin of the Carlin Law Group out of San Diego, who represented Davis, argues that Harris owes Fresno Unified $37 million. That’s a point he made in oral arguments in the Fifth District Court of Appeal.
“We are relieved that the Court of Appeal agreed with our public policy arguments and clarified longstanding and noble public policy and laws designed to protect public monies from improper disbursement under illegal contracts,” Carlin said in an interview with The Bee.
Harris Construction reaction
Michael R. Spencer, president of Harris Construction Co. Inc., told The Bee the company disagrees with the appellate court’s opinion and will continue to explore legal options, including a California Supreme Court hearing.
“Gaston Middle School – completed in 2014 – is a beautiful school and community center that we very proudly built for the Fresno Unified School District to serve the children and community of southwest Fresno,” Spencer said in a statement to The Bee. “We believe Harris Construction and Fresno Unified followed the law in every way in building the project.
“We respectfully disagree with the appellate court’s reversal of the trial court’s decision, which is at odds with other appellate court decisions throughout the state as well as the California state legislature,” Spencer said. “Consequently, we must continue on this path and explore all legal options until the issue is resolved. This will include the option of seeking a review of this decision by the California Supreme Court. In the meantime, our company remains focused on being a premier builder of educational and civic facilities throughout California.”
The Bee sent emails to a number of Fresno Unified spokespeople for comment.
This story was originally published November 24, 2020 at 3:27 PM.