July 7, 2014 at 1:07 pm

Appeals court reinstates DPS whistle-blower lawsuit

A federal appeals court said Monday that a whistle-blower lawsuit filed by a fired chief financial officer of Detroit Public Schools should be reinstated.

Joan McCray, who served in Detroit as CFO from 2007 to 2008, filed the suit in 2009 after she was fired. Connie Calloway became DPS superintendent after working for a school district near St. Louis and then recommended McCray, her CFO in Missouri, join her in Detroit.

McCray argued that her decision to tell the school board in June 2008 that the district had a $400 million shortfall — not a surplus — was a motivating factor in the board’s decision to fire her without cause. “Board members who threatened (McCray) when she informed them of DPS’ financial difficulties later followed through and voted to terminate (her,)” according to the opinion by U.S. Appeals Judge Eric Clay.

It came after McCray had asked the school board for funding for an outside audit, which the board rejected. In December 2008, the state of Michigan declared a financial emergency and seized control of the district.

The appeals court upheld the refusal of U.S. District Judge Gerald Rosen to allow McCray to amend her lawsuit to include a breach of contract claim.

Michael Stefani, a lawyer for McCray, praised the ruling. “We’re very pleased. We think the lady deserves her day in court and we’re looking forward to it,” he said Monday.

Detroit Public Schools officials didn’t immediately respond to a request for comment.

Calloway said in a deposition that she couldn’t “give the job away.”

At the time she was hired, the FBI was investigating the DPS’ finances. The district then had 16,000 employees, more than 200 schools and a budget of $1.2 billion annually. The current budget is about $1 billion with 7,300 employees — including 620 part-time employees.

McCray also claimed she was fired for reporting to law enforcement authorities her discovery of nepotism, misuse of funds and failure by the district to follow accepted accounting practices, as well as improper controls on bid processes that may have benefited those in authority.

McCray is living in the Chicago area and has a couple of part-time jobs, Stefani said. She is also battling cancer, he said.

Calloway filed her own whistle-blower lawsuit in Wayne Circuit Court. The district settled a whistle-blower lawsuit with the last ousted superintendent, William Coleman III, for an undisclosed amount, but state documents suggested he received $215,000.

Coleman had alleged the Board of Education fired him in March 2007 because he launched an internal investigation of financial irregularities.

DShepardson@detroitnews.com