Schools Win Lawsuit Appeal

BERLIN – The Worcester County Board of Education is claiming victory this week after the Maryland Court of Special Appeals ruled favorably on its appeal to reverse a $1.1 million judgment, which was awarded to a private contractor replaced mid-way through the construction of the new Ocean City Elementary School (OCES).

Last Friday, the state’s Court of Special Appeals issued an opinion essentially ruling in favor of the county’s Board of Education in its ongoing battle with Beka Industries, a private contractor hired to do site work during the construction of the new school in 2004. In August 2005, the school board allegedly became unsatisfied with the pace of the work being done by Beka and replaced the company with another contractor to finish certain components within the scope of the $1.8 million contract.

In October 2007, Beka filed a breach of contract lawsuit against the school board, seeking repayment of the entire amount estimated it was due for its work on OCES. According to court documents, the amount of the original contract was $1.8 million and the school board had paid the contractor around $1.4 million.

However, because of a string of contested change orders within the scope of the project, Beka was seeking around $1.3 million in the lawsuit. In October 2008, Circuit Court Judge Robert Karwacki awarded Beka a judgment of $1.1 million, a seemingly arbitrary figure considered a “compromise” judgment by the school board. The Board of Education quickly appealed the Circuit Court decision, and the Court of Special Appeals last week ruled in its favor on three of four pillars of the appeal, remanding the case back to the Circuit Court level for a new trial.

Attorney James Almand this week said the Board of Education was “vindicated” by the higher court’s ruling in the case, pointing out a favorable opinion on a majority of the appeal’s most salient points.

“We’re very pleased with the outcome,” he said. “The appeal was based on four very important issues, and the appeals court agreed with us on about three and a half of them.”

Meanwhile, Beka attorney David Gilliss this week hinted his client might decide to ask the higher Court of Appeals to review the decision by the Court of Special Appeals before the case is remanded to the lower court for a new trial. Beka can apply for a writ of certiorari, essentially asking the state’s highest court to review the merits of the case.

“We’re obviously disappointed,” he said. “They won this round, but we haven’t given up the fight. What we’re doing now is considering an appeal to the higher court, the Court of Appeals. At first glance, it appears the Court of Special Appeals has at least left open that possibility with the ruling it made last week.”

The school board’s appeal was based on four basic issues, not the least of which was the Circuit Court judge’s seemingly random award amount. In the end, the Court of Special Appeals agreed, basing its decision to reverse the judgment in part on the arbitrariness of the settlement amount.

“The Court of Special Appeals agreed Judge Karwacki did not issue a reasoned decision,” said Almand. “It was like he awarded Beka $1.1 million and walked off the bench without ever giving any basis for that decision. The judge is required by rules to give reasons for a decision, and it was disappointing to go through a three-and-a-half day trial and have it end so arbitrarily.”

Another pillar of the school board’s appeal related to Beka seeking damages for delays in the project unrelated to the work it was doing under the contract. However, the appeals court ruled the contractor was not entitled to compensation caused by delays, lending credence to the perception of the Circuit Court’s arbitrary award amount.

“A no-damages-for-delay clause in a contract will be enforced, in the absence of intentional wrongdoing, gross negligence, or fraud or misrepresentation,” the opinion reads. “A trial court, consistent with the requirement of Maryland rule, must provide the reason for its decision regarding an award of damages for claims alleged to be seeking damages for delay.”

Perhaps the school board’s most important issue in the appeal was the doctrine of sovereign immunity, which protects governmental agencies somewhat against lawsuits and settlement awards. The school board argued because it is a government agency without the ability to raise funds, it should be insulated from civil suits seeking financial settlements. Beka can and did seek a waiver from sovereign immunity in the case, but the higher court disagreed.

“A legislative waiver of the defense of sovereign immunity, however, is an effective waiver only if there are funds available for the satisfaction of the judgment, or the agency has been given the power to raise funds,” the opinion reads. “The party seeking the waiver of the defense of immunity has the burden to show that funds are available. BEKA’s three arguments to make this showing are unavailing.”

In the weeks following the Circuit Court ruling, there was considerable debate about how to pay the judgment should the appeal fail. Ultimately, the County Commissioners sold a bond for the $1.1 million award amount, which is being held until the appeal ran its course of the lower court’s decision was reversed. Now that the Court of Special Appeals has ruled favorably on the school board’s appeal, those funds could be freed up.

“Because the judgment is reversed on the basis of other issues raised on appeal, the money deposited by the County Commissioners to stay enforcement of the judgment pending appeal will be returned,” the opinion reads. “Therefore, it does not qualify automatically as funds available if judgment is rendered against the board after another trial.”

It remains to be seen if Beka attempts to get the case in front of the higher Court of Appeals, but Gilliss suggested this week that is certainly a possibility. Otherwise, the case could be headed back to the Circuit Court level for another trial. In either case, both sides agree the sovereign immunity issue will remain in the forefront.

“Obviously, we were hoping for a positive outcome on all aspects of their appeal,” said Gilliss. “I think at the end of the day, if anything goes back to the Circuit Court, it will be the issue of sovereign immunity.”

Almand said regardless of a further debate on the sovereign immunity issue, the amount the school board should be responsible for is about a tenth of the original award at the Circuit Court level.

“The only issue worthy of a review is the issue of sovereign immunity, but the Board of Education generally can’t be sued unless a waiver from sovereign immunity is granted,” he said. “Even if a waiver is granted, it doesn’t allow an award any more than $100,000. That is the limit of the waiver.”

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