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$31M judgment against DPS over unpaid bills disputed

Jennifer Chambers
The Detroit News

Detroit — A $31 million court judgment against Detroit Public Schools over unpaid contractor bills remains in dispute in federal court nearly two years after an arbitrator ordered it be paid.

The judgment, which according to attorneys for Sodexo Management is growing by $10,000 a day, should be placed on the city of Detroit’s tax rolls and paid, Sodexo attorney Timothy Fazio said on Thursday in U.S. District Court during a motion hearing in the case.

U.S. District Judge Mark Goldsmith confirmed the arbitrator’s award in August 2016 and denied attempts by DPS to vacate the debt. The district entered into a five-year $43.5 million contract with Sodexo for physical plant operations in 2011. By late 2011, the district had already fallen behind on payments, court records show.

Fazio told Goldsmith after he got “silence” from DPS on paying the judgment he got the court to certify the judgment and “took it to the city tax assessor.”

“They simply sat on it and did nothing,” Fazio said of the judge’s final judgment order.

DPS owes $23 million in outstanding invoices to Sodexo and $8 million in contractual interest, officials said. The lawsuit is against DPS and does not involve the new Detroit Public Schools Community District.

On Thursday, DPS attorney Hans J. Massaquoi countered that Sodexo failed to follow a state law that says it must provide written notice that it was going to stop providing services to the school district.

“That prevents them from going to the tax rolls,” Massaquoi argued to Goldsmith. “They do business across the nation...they are obligated to know the law.”

Massaquoi said taxpayers could challenge the judgment if the judge rules that Sodexo violated the statute and that Goldsmith had the option of leaving the judgment intact.

“If you can’t enforce it, it’s a worthless piece of paper, isn’t it,” Goldsmith said.

Massaquoi responded that the company would be entitled to enforcement, just not through city taxpayers.

Attorney Dennis M. Haffey, who represented Detroit and the city’s chief assessor as interested parties in the case, said he agreed that Sodexo did not comply with state law requiring notices to be mailed before work is stopped.

In a statement Thursday evening, Deputy Corporation Counsel Chuck Raimi added: “The city’s position is that the judgment should not go on the city tax rolls because Sodexo did not comply with the notice provisions of the applicable statute, compliance with which is a prerequisite for putting the judgment on the tax roll.”

Fazio said they did send the notices in a timely manner under the law and that DPS never raised the timely notice issue during arbitration or when a final order was entered.

“DPS has millions in legal fees but never raised the issue to your honor. They lost and now they say ‘Sorry. We aren’t going to pay,’ ” Fazio said.

Goldsmith said he would make a decision at a later date.

The district hired Sodexo in January 2011 to provide custodial, building repair, maintenance, engineering and grounds services through seven subcontractors.

At the time, officials in the deficit-plagued district said the largest outsourcing taken to restructure DPS would save DPS $75 million in the move to Sodexo.

Sodexo says DPS delayed and missed payments, leading to a payment agreement in July 2013 that called for arbitration to settle any disputes.

Sodexo says the district paid the majority of balances owed under the payment agreement but “quickly became delinquent once again.” It did not make any payments after October 2013 despite receiving services through June 28, 2014.

DPS officials say they fell behind in and withheld monthly payments from Sodexo due the company’s “poor performance and DPS’s continuing financial difficulties.”

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 alloted time period and therefore had waived its right to dispute the invoices. Payment was owed and past due, he said.

In October, attorneys for Sodexo filed an emergency motion asking Goldsmith to force then Emergency Manager Steven Rhodes and DPS to levy the taxes to satisfy the judgment.

Chrystal Wilson, a spokeswoman for the DPSCD, said Thursday the district “does not comment on pending litigation.”

JChambers@detroitnews.com