A payment plan to resolve a $31 million court judgment owed by Detroit Public Schools to a contractor will be considered by the board of education on Tuesday.
A federal judge in Detroit and an arbitrator have both ordered DPS to pay Sodexo Management, a company hired in 2011 for physical plant operations, but the district has fought making the payment since August 2016.
The district hired Sodexo in January 2011 on a five-year, $43.5 million contract to provide custodial, building repair, maintenance, engineering and grounds services through seven subcontractors. By late 2011, the district had fallen behind on payments, court records show.
DPS originally owed $23 million in outstanding invoices to Sodexo, and now owes an additional $8 million in contractual interest.
In 2015 an arbitrator ordered the district to pay Sodexo. The delay in the case is costing taxpayers more than $7,500 per day in interest while the district fails to clear the debt.
According to a proposal by DPS general counsel Phyllis Hurks-Hill, the district would make payments to Sodexo of $16 million in August, $2 million in February and in April and $8 million in August 2018, for a total of $28 million.
According to board documents, the settlement will eliminate more than $3 million in interest in the case, which stands as a $31 million judgment.
Hurks-Hill is recommending approval of the settlement and the payment plan to the board because the company has a federal court judgment against the district and the fact that DPS did receive $22 million in services from the company.
The proposed settlement also says by “asserting our defenses, the financially distressed district was able to utilize those funds for school related purposes” for such building repair, school supplies and materials, payroll expenditures.
“The payment of $28 million to resolve this matter seems reasonable, prudent and in the best interest of the district,” the proposed settlement says.
Sodexo attorney Timothy J. Fazio was not immediately available for comment Monday.
Attorneys for the district and Sodexo have been in settlement talks in recent weeks over the matter. The case is before U.S. District Judge Mark Goldsmith on Thursday for a status conference.
According to attorneys for Sodexo, DPS was supposed to spend $24 million authorized and earmarked by Michigan lawmakers on the court debt, but instead used it to pay other bills.
Attorneys for Sodexo, said in court Aug. 2 that Michigan Department of Treasury emails show that at least $24 million of the $150 million emergency loan authorized by Michigan lawmakers for Detroit’s school district in 2016 was specifically allocated to satisfy the court judgment.
In an email, state Treasurer Nick Khouri said former DPS emergency manager Steven Rhodes “was convinced the district didn’t legally owe the money and wanted to keep fighting in court. That’s their decision, as long as the district doesn’t come back now and try to hit taxpayers for the $30m twice by agreeing to a judgment levy. I’ll reach out to the city and the school today to reinforce that message.”
DPS attorney Hans J. Massaquoi said in court Aug. 2 the district has spent the entire $150 million on transitional costs from when the district changed to the Detroit Public Schools Community District. DPS remains to pay off the district’s debt.
Massaquoi denied that the legislation specifically required DPS to pay Sodexo.
Attorneys for Sodexo asked Goldsmith to enforce the judgment for a second time in August. The first was in January.
The lawsuit is against DPS and does not involve DPSCD.
Sodexo said DPS has delayed and missed payments, leading to a payment agreement in July 2013 that called for arbitration to settle any disputes.
The arbitrator, retired Judge Valdemar Washington of Genesee County Circuit Court, entered an interim partial award in 2015 ordering DPS to pay $25.1 million.
Washington ruled DPS had failed to dispute and pay the invoices at issue within the allotted time and therefore had waived its right to dispute the invoices. Payment was owed and past due, he said.
Goldsmith confirmed the arbitrator’s award in August 2016 and denied attempts by DPS to vacate the debt.