District 88 approves $2.85 million settlement agreement

Lawsuit involves problems related

to 1997, 1998

construction projects

By KREMENA TODOROVA

Journal Staff Writer

NEW ULM -- The District 88 Board of Education on Thursday approved a $2.85 million mediated settlement agreement with five defendants in a lawsuit related to 1997 and 1998 school construction projects.

The district launched its lawsuit in December 2002, after the discovery of extensive mold growth in facilities built by the defendants.

The district sued the contractors involved in the projects, arguing that defective designs, defective construction, failure to report problems and other related issues caused the mold growth.

Design professionals Wold and BKBM offered to settle their liability for $1.6 million. Minnetonka Plumbing, Paape Energy Services and Diamond Energy jointly offered to settle their liability for $1.25 million.

Several contractors involved in the suit, either directly or indirectly (as subcontractors), are not part of a settlement.

According to the district's lawyers, two contractors, Heymann Construction and Feder Plumbing and Heating, did not present offers sufficient to support a recommendation for acceptance.

Two others, Gag Sheet Metal and United Electric Company/Magic Aire, did not present any offer.

The litigation against the contractors that did not settle is scheduled to continue, with a trial date set for next April.

The settlement agreement does not represent an admission of guilt by the contractors, stressed an attorney for the school district, Shamus O'Mear.

Urging the board's approval of the settlement agreement, O'Mear described it as "reasonable" and "appropriate."

It caps many months of investigations, expert testimony and other legal proceedings, he said.

The agreement was reached after a mediation session on Dec. 7 and 8.

No more mediation sessions are expected to take place, said the attorney. However, "active negotiation" with some defendants may continue in the run-up to the trial.

With holidays intervening, the settlement agreement is expected to be "locked in" by mid-January, said the attorney. Checks could start being sent to the school district within two or three weeks after that, he said.

O'Mear also re-assured board members concerned about how binding the settlement agreement would be.

He stressed that it is, indeed, a binding contract enforceable in court.

Although board members re-affirmed their intention to reduce the eligible portion of next year's local tax levy in light of the settlement, they refrained from doing so Thursday night.

The board chose to take up that matter again next Monday.

It asked administrators to provide more information on what the school district has paid for air quality projects so far, how much of those funds has been recouped by levies, and what the district expects to spend on related projects in the future.

According to information provided at the meeting -- which board members deemed partial -- the district spent $1.25 million on indoor air projects in the past two fiscal years, 2003 and 2004.

During those years, it levied a total of about $470,000 for "health and safety" projects -- and is running a negative balance in that fund category of roughly $945,000.

District officials did not provide numbers for the current fiscal year at the meeting.

Business Manager Donna Luhring estimates that in the end, the air quality litigation will cost the school system between $530,000 and $790,000, depending on future developments.

That amount will be subtracted from the sum total of the settlement.

* In other business, the board agreed by consensus to instruct administrators to make suggestions for $1.5 million to $1.6 million worth of cuts to next year's budget.

These cuts would to maintain the budget's fund balance at roughly $1.25 million.

At this time, Luhring estimates next year's spending at $20.6 million and the revenues at roughly $19.3 million.