State claims process gets court challenge

Constitutional issue valid, judge says

An Oklahoma construction company’s lawsuit accusing Arkansas lawmakers of favoring in-state contractors over out-of-state contractors in resolving financial claims narrowly survived a judge’s scrutiny Monday.

Duit Construction Co.’s lawsuit began in April as an appeal of the General Assembly’s decision to reject the company’s breach-of-contract claim that the state Highway and Transportation Department owes the company $6.5 million for costs related to a construction contract. A legislative subcommittee rejected Duit’s claim on an appeal from the state Claims Commission, which first turned down the company’s request.

Sovereign immunity, established by the Arkansas Constitution, strictly limits lawsuits seeking financial damages from the state. State lawmakers established the Claims Commission to give complainants who say they’ve been wronged by a state agency an opportunity to seek compensation for property damage, personal injury, breach of contract, refunds and other claims. The five-member commission can recommend to the Legislature whether to award money to compensate the claimants, and lawmakers decide which claims are paid.

State lawyers say sovereign immunity also shields Arkansas from a court appeal since the only appeal avenue for state claims cases is through the legislative subcommittee.

The company has since withdrawn its appeal request to the court and now asserts that the process by which the state resolves financial disputes is so flawed that it’s unconstitutional, Duit attorney Jack East told Pulaski County Circuit Judge Tim Fox. A court appeal of the commission’s decision is untenable, East said. The company’s only remaining remedy is to seek a declaration from the judge that the Legislature’s appeal process is illegal.

East said the legislative process allows lawmakers to take into consideration “irrelevant and unjust” factors, such as the impact of an award on the agency’s budget and how that payout might affect the agency’s ability to hire more workers, among other issues. The U.S. Constitution requires a fair and impartial procedure to resolve such disputes, East said. Also, the contract Duit entered into with the Highway Department carries an “implied promise” that the dispute resolution allowed by the agreement would be fair.

The judge said there’s no evidence that the laws establishing the appeal process are unconstitutional, but ruled that Duit has met the threshold test to proceed to trial by showing that the way those laws are applied might be unconstitutional. The judge said Duit has shown just enough evidence to allow that claim to survive in its lawsuit, which will allow the company to challenge the process at trial, although a victory might not guarantee any kind of damages award for Duit.

Assistant Attorney General Dennis Hansen and attorney Michelle Davenport, representing the Highway Department, said the lawsuit should be thrown out.

They argued that sovereign immunity prevents the courts from forcing the state to pay financial damages and prohibits any order to make the Legislature take action. Duit agreed to a contract that “explicitly” stated the appeal process, Hansen told the judge.

Hansen said the Arkansas Supreme Court has set a high bar for the the type of declaratory judgment Duit is seeking, and the company has not met that standard. Davenport said the company is really trying to bring Fox into a dispute in which he has no authority, one that the Legislature had already resolved when lawmakers rejected Duit’s $6.5 million claim.

“The exact same procedure applies [to everyone]. There is no distinction between in-state and out-of-state contractors. They simply don’t like the statute,” she said. “This is a contractual matter and a contract dispute.”

The lawsuit is the latest step by Duit, of Edmond, Okla., since it won a 2002 bid on $68.7 million in highway contracts for work on Interstate 30 in Saline and Pulaski counties.

Duit sought the additional compensation on one of its contracts, complaining that the Highway Department didn’t warn the company of “bad” soil at some construction sites.

Replacing and chemically treating the soil added months of delays and raised job costs by about $3.5 million, Duit claimed.

Duit sought reimbursement at almost twice its costs, claiming that the state should have informed bidders of the poor quality of the site soil, and the department should have let the company use certain chemicals to treat the dirt to deal with the quality issue.

The department refused and accused Duit of trying to renegotiate its bid when work was complete. The department said the construction company should have examined the work site before bidding. Duit’s subsequent appeal to the Claims Commission and legislative subcommittee took about two years.

Arkansas, Pages 7 on 08/13/2013

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