Update: At an Oct. 30 case management conference, the judge presiding over this case refused Taisei's condition that it would only agree to mediation if she set a trial date. She instructed both parties to meet and confer with regard to finalizing discovery and a deposition schedule and to return back on Dec. 23.
Taisei Operations Risk Manager Jaysen Van said the construction company's attorneys will again push for a trial date in December.
"In my opinion, without a looming trial date, mediation will be a sheer waste of time," he wrote in an email to the Weekly.
"Every time the process is delayed, Taisei and PAUSD costs increase, and Taisei becomes more entrenched in its position.
"It will take time, and cost hundreds of thousands more, however, eventually we will get a trial date."
While Palo Alto High School students were finally able to make full use of a new classroom building and just-completed Media Arts Center at the start of this school year, the school district continues to be embroiled in a $3.5 million lawsuit filed by the construction company that built both facilities.
Taisei Construction Company, contracted by the district in 2011 for the Media Arts Center and a two-story math and social studies building, is accusing the district of employing a range of "bad-faith tactics" that delayed the buildings' openings by nearly a year. Taisei has sued Palo Alto Unified for $3.5 million to compensate for additional costs and expenses incurred as the district "substantially changed and increased the scope of the work to be performed" throughout construction, according to the lawsuit.
Palo Alto Unified's conflict with the Santa Clara-based construction company reaches back to April 2013, when Taisei filed a claim against the district demanding to be paid $1.6 million based on change orders it had submitted in connection with added or altered work the district directed Taisei and its contractors to perform.
The district rejected this claim, and Taisei filed a lawsuit in June 2013 -- the original completion date for the work. Taisei amended the suit three times as it continued with construction of the two buildings, which were completed in May. The district did not become aware of the lawsuit until July, officials said, alleging that Taisei did not notify or serve the district.
In addition to suing the district for breach of contract, Taisei is suing construction manager Gilbane Building Company and architecture firm Deems Lewis McKinley for negligence and "tortuous interferences with contract relations."
Taisei claims incomplete plans, unbuildable design elements and uncoordinated sections of the plans required the company and its subcontractors to repeatedly slow or stop work and, in some cases, remove and replace completed work, according to the lawsuit. Taisei alleges the district also failed to respond in a timely manner to requests for information.
"Taisei's position is that the plans for the project were at best defective," said Taisei Operations Risk Manager Jaysen Van. "We already have several experts who have come forth to say that not only the architect failed to meet his standard of care, the district also failed to meet their standard of care."
Van said a large portion of the delays were due to hydronic piping, which provides both heating and air conditioning and was installed at the beginning of the project but had to be "completely rerouted," causing more than $1 million in change orders. The district paid for the direct cost but hasn't compensated Taisei or any of its six subcontractors for the consequent delay of nearly a year.
The district has denied Taisei's claims, alleging in court documents that Taisei has failed to state sufficient facts to constitute a cause of action against the district and to exhaust its administrative remedies for its claim against the district. Further, the district states its conduct relating to the project was justified.
Attorneys for the district have also rejected Taisei's causes of action through the doctrine of "unclean hands," which argues that a plaintiff (Taisei) is not entitled to compensation because the plaintiff itself has committed some sort of wrongdoing.
James Lucier, attorney for construction manager Gilbane, also rejected the allegations made against its client, writing in court documents that Taisei's causes of action for negligence and interference with contract "constitute nothing more than a superficial attempt to classify the normal contractual duties of a construction manager, as torts, solely on the basis that such services may have had an adverse effect on Taisei's bottom line."
Lucier also wrote that the contract between the two companies did not create a "duty of care" under which Gilbane would be obligated to protect Taisei from economic loss. Under tort law, in order to hold a defendant liable for negligence, the defendant must owe a reasonable duty of care to the plaintiff. (A defendant responsible for duty of care is also required to exercise a professional standard of care, which is determined by the standard that would be exercised by a reasonably prudent professional in any industry.)
In court documents, Lucier cites a 2001 case over a Berkeley Unified School District construction project in which an architect made similar claims against a construction manager. The First Appellate District Court determined the construction manager "owed no duty of care to a third-party architect."
"In conclusion, one can only imagine the chaos that would ensue in the construction industry, if suddenly construction managers become saddled with a duty to protect the general contractor from economic harm on a construction project," Lucier wrote. "The legal, contractual, and economic repercussions would be drastic, and would turn the traditional role on a construction manger on its ear."
Van said that Taisei has been trying to mediate with the district for some time, with no success.
The district's attorneys, from law firm Dannis Woliver Kelley (DWK), delayed mediation after the initial claim was filed. Van said one of the line items in Taisei's claim was a $400,000 projection for additional delays -- submitted before the project was not complete. DWK attorneys requested "back-up" information for this amount, which Taisei promptly provided -- and updated the figure to $700,000, Van said.
The district asked for 90 days to study the revision and delayed mediation.
Van said he made a "last ditch effort" to schedule a mediation for Oct. 2. The district's attorneys again refused to participate, saying they need more time to study the complaint, he said.
Bob Golton, the district's bond program manager, said Taisei's attorneys made "material changes to their claim that had whole different theories involved" about a month before the October mediation, so the attorneys requested more time to complete a full analysis.
Golton would not comment since the case is still under litigation, but said, "This is a very common statement by parties to a lawsuit. In other words, it's commonplace for one party to say that it's the other party that's a problem in settling it."
Van wrote in an email to the Weekly, "This is not a matter of 'if' the District will pay, but rather 'how much.'"
And with more than a year of litigation under its belt, the district has already spent more than $300,00 in legal fees on this case. In the first eight months of this year, DWK billed the district $229,827.
"If I decide to take this to trial, they'll spend another million through trial," Van said. "They'll spend more defending this than it would have taken to settle."
Taisei has recently engaged in similar litigation with other California school districts. In September 2013, the construction company filed a $25 million lawsuit against Delta College in Stockton over the construction of a new math and science building, alleging the school and its building manager withheld construction information, provided non-buildable designs and increased the scope of work after construction began, according to news reports.
Similar conflict arose at El Camino College in Torrance over the delayed opening of a math, business and health complex, with Taisei criticizing the district's management of the project and the district blaming Taisei's failure to properly coordinate its subcontractors, according to student news site El Camino College Union.
A case management conference in Santa Clara County Superior Court is set for this Thursday, Oct. 30. Van said he has instructed his attorney to tell the judge Thursday that Taisei is no longer interested in mediation and to seek the earliest trial date possible.
"I fully expect that when the judge learns that mediation has failed as a result of PAUSD's bad faith, that she will set a trial date for mid-2015," Van said.
Golton said this week that the district's attorneys are now working with Taisei's counsel to reschedule mediation in December or early January.
"The district remains hopeful that the parties will continue their dialogue and resolve the dispute," he said. "We are doing everything possible to reach that objective."