A Fresno County Superior Court judge this week issued a tentative decision finding that Fresno Unified and Harris Construction did not break the law in 2012 when the district awarded a lease-leaseback contract to Harris to build Rutherford P. Gaston Middle School.

The $37.6 million construction contract was the subject of a lawsuit by a rival contractor, Stephen Davis, owner of Davis Moreno Construction. Davis, who filed the lawsuit challenging the contract award as a private taxpayer and district resident, claimed the contract was illegal because of the financing method and also because Harris had acted as a consultant to the district on building the middle school.

Superior Court Judge Jeffrey Hamilton’s proposed decision finds no conflict of interest or undue influence in the contract to build the southwest Fresno school, which opened in 2014.

“The Court specifically finds that the contract was negotiated at arms-length and in good faith. The court finds that as actually applied, ‘rent’ was paid as defined by the contract and. that the property was occupied by FUSD with school in session prior to the end of the lease. The Court finds that PLAINTIFFS take nothing by way of their complaint,” Hamilton wrote in his proposed decision, which was issued Monday.

Both sides have 20 days to file objections to the proposed decision with the court.

It appears likely that Davis’ attorney, Kevin Carlin, will object to the decision. In an email Thursday to GV Wire, Carlin wrote: “I don’t know why you would be doing a story on a tentative decision that is subject to change based upon each party’s right to submit additional briefing and request for final statement of decision. Based on the foregoing, plaintiff is confident that the court in its final statement of decision will rule in plaintiff’s favor.

“Notwithstanding this most recent Super Bowl, the media does not declare the winner based on the score at halftime.”

Fresno Unified and Michael Spencer, president of Harris Construction, did not immediately provide a response to GV Wire.

Thursday afternoon Fresno Unified provided the following statement: “Fresno Unified is very pleased with Judge Hamilton’s decision. We have firmly held the belief since the start of this litigation that the lease-leaseback contracting methodology was beneficial to the district and our community, and that our implementation was completely legal. Our only regret is that this vindication in court has cost the taxpayers of Fresno $1,723,343.87 in legal fees and thousands of hours of staff time, resources that would be better spent in the service of improving student outcomes.”

Spencer later provided the following statement: “This case was originally filed in November 2012. For almost 13 years now, we have maintained that we did nothing wrong and that the agreements in question were legal. After many appeals, we finally got our day in court — a trial over a two-week period with hundreds of exhibits being put into evidence. We are gratified that the court agreed with what we have been saying for all these years: Harris Construction did nothing wrong and the agreements, prepared by Fresno Unified’s attorneys, were legal. We also agree with Fresno Unified that this case has wasted millions in taxpayer dollars that would have been better spent on
educating students.”

Proposed Decision Cites Lack of Evidence

Hamilton’s proposed decision finds that Harris Construction was not involved in the district’s issuance of the request for quote (RFQ), did not violate the provisions of Education Code outlining the requirements for a lease-leaseback agreement, and did not commit a conflict of interest when it provided pre-construction services on the project as well as winning the bid to be the prime contractor.

“Plaintiff presented no evidence that Harris participated and/or influenced the RFQ process in any respect. This is fatal as the California Supreme Court has indicated that it is the participation in the planning of a project that gives rise to a conflict of interest,” Hamilton’s proposed decision says.

Davis’ original lawsuit, which has sought to force Harris to repay construction costs to the district as well as legal costs, was upheld by the Fifth District Court of Appeal and California Supreme Court after it was initially rejected by the Fresno County Superior Court.

In April 2023 the California Supreme Court unanimously ruled against the school district and Harris, upholding a November 2020 Fifth District Court of Appeal opinion that the district’s agreement with Harris Construction could not be validated under California law because the district financed the construction with voter-approved bonds. The Supreme Court’s ruling returned the lawsuit to Fresno County Superior Court.

The lease-leaseback construction model was intended to help districts build new facilities relying at least in part on financing provided by the contractor. The state’s intention in approving this method was to enable districts short on funds to build needed facilities.

Hamilton’s proposed decision found that FUSD had occupied Gaston for nearly two years before final payment was made, and that Harris paid subcontractors prior to being paid by the district during that time.

Gaston’s Was One of 25 Lease-Leaseback Contracts

The judge’s tentative decision notes that the Gaston project was one of 25 lease-leasebacks for which the district employed 14 contractors who also provided pre-construction services.

Last year, Carlin told School Board members that the cost of repaying the original contract plus 7% compounded interest over the intervening decade would total nearly $63 million — and that’s not including legal fees.

In February 2024, Carlin filed a separate civil lawsuit in February 2024 seeking to stop Fresno Unified from covering Harris’ legal fees.

Related Story: New Lawsuit Filed by Fresno Contractor Over Gaston ...

That lawsuit is on hold pending the outcome of the 2012 lawsuit.

Proposed Decision