Legal fights rack up expenses for Massachusetts Broadband Institute
As it spars in two federal courts, the Massachusetts Broadband Institute is not out of the woods on an earlier legal battle over its main asset, the $90 million fiber-optic middle mile.
In a new financial accounting, the MBI lists an expense of more than $3.8 million to fight a lawsuit brought against it by the company that designed and built the 1,200-mile MassBroadband 123 network.
Though the MBI successfully defended the $14 million lawsuit brought by the firm G4S Technology, the case is under appeal and accruing legal expenses, even as the state agency presses to safeguard the middle mile following a bankruptcy filing.
The network provides broadband internet connections to hundreds of public institutions in Central and Western Massachusetts, including dozens in Berkshire County. It also provides fiber-optic connections for public and private entities across the state.
On April 24, a federal judge cited the network's importance as he ordered the middle-mile operator, KCST USA Inc., and its corporate parent to preserve the network's functioning at least through May 8. That move came as the company, better known as Axia, proceeds through bankruptcy court on another floor of the same Worcester courthouse.
An official with MassTech told The Eagle the agency is confident the older legal dispute — which was not previously reported — is largely resolved and that the MBI and its parent, MassTech, will prevail in the appeal.
Nonetheless, the organization will continue to pay for a legal team to track the matter through that process.
MassTech defended the G4S lawsuit for more than two years.
In addition to $3,785,120 in legal expenses listed under "dispute resolution," MBI billed for $37,665 in staff time costs related to the lawsuit, plus $29,932 in shared services and support with MassTech.
Those figures are accurate as of Jan. 31. The money was financed through proceeds from the $50 million state bond that is paying for last-mile broadband connections.
Janet L. Sanders, a Suffolk Superior Court judge, dismissed the case against MassTech in March 2016. She found that G4S had erred by submitting false statements to MassTech. Though the company claimed it was promptly paying its subcontractors, that assertion was found to be false — and that repeated conduct cost the company its standing to bring a claim against MassTech, the judge found.
Even G4S employees knew something was wrong. In a Sept. 25, 2012, email that Sanders cites in her decision, a project manager criticized his own company's practice of delaying payments to subcontractors. "How can we tell subs that they aren't getting paid so our books look better? There's something wrong with that," employee Scott Mailman wrote.
G4S had sued on the grounds that it had been wrongly denied a $10.1 million "request for adjustment" for its work for MassTech on the middle mile, along with another $4.1 million the agency held back in payments. The 2011 contract between MassTech and G4S allowed the state agency to charge "liquidated damages" for work that was completed late.
The state had withheld the $4.1 million because it says G4S did not finish on time and was responsible for "deficient work on the Project that had to be corrected," according to a recent financial statement by the agency.
MassTech put forth a counter claim in court that G4S was guilty of fraud. It sought several million dollars in damages over and above the $4.1 million — but Sanders denied that request.
Attorneys for G4S argued in court that depriving the company of its ability to bring a claim because of its billing errors was "disproportionate" to its missteps. The company's attorneys argued that all subcontractors were fully paid, but Judge Sanders detailed the many ways the company appeared to disregard its duties to pay promptly, a condition laid out as a requirement in the $45.4 million federal share of the project.
As a stimulus grant, the federal money was designed to kickstart regional economic activity.
At the same time, the judge's ruling did flag that MassTech may not have been materially disadvantaged by G4S's work on the middle mile.
The judge notes "the absence of any clear evidence in the record that [the Massachusetts Technology Park Corporation] suffered any concrete loss of money or property."
Brian Noyes, a spokesman for MassTech, said that the $4.1 million held back in payments to G4S related both to late completion of the network "plus work that needed to be redone/repaired by MBI."
And on that issue, MassTech's past and current legal struggles find common ground.
Axia, the operator of the middle mile, claims in its bankruptcy filing and in other federal court documents that delays in finishing the MassBroadband 123 system caused it financial harm.
Noyes notes that while the cost of defending the G4S lawsuit roughly equals the sum of money held back in payments, the victory spared the state exposure to what could have been a $14 million civil judgment.
Reach staff writer Larry Parnass at 413-496-6214 or @larryparnass.
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