Plaintiffs Lose Round in Burlington Telecom Lawsuit

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Here's the latest on the citizen lawsuit aimed at recouping $17 million in taxpayer money from Burlington Telecom.

Superior Court Judge Helen Toor has ruled that Burlington Telecom was permitted to use general fund money — i.e. city taxpayer dollars — to pay a consultant hired to restructure the debt-laden municipal telecom. The ruling deals a setback to the two Burlington residents who brought the lawsuit, former city councilors Fred Osier and Gene Shaver, who had argued that spending  taxpayer money violated a 2010 court order.

Before we go further, some background: Burlington officials are under fire for loaning $17 million from the city's cash pool to Burlington Telecom and failing to pay it back within 60 days, a violation of its state license. In February 2010, a Blue Ribbon Commission assembled to address the violations concluded BT was a "valuable asset" and recommended the city hire a specialist in business restructuring to rescue the municipal cable, telephone and Internet provider. Without a major fix, the commission said, the city risked never recapturing $15 million to $20 million invested in BT's fiber network.

In response, the city hired financial advisory firm Dorman & Fawcett to renegotiate BT's equipment lease with its creditor, CitiCapital, and to find a way to enable BT to repay the $17 million it owed. Later, after BT's manager resigned, Dorman & Fawcett was also tasked with interim management of BT.

In total, Dorman & Fawcett billed Burlington Telecom $219,705 for "operational oversight" and billed the city $275,066 for "CitiCapital negotiations." Terry Dorman, a principal of the firm, considered all work related to restructuring BT, including renegotiation of its equipment lease, as work on behalf of the city and its taxpayers — and therefore billable to the city.

When Osier and Shaver found out about the payments, they cried foul, citing a court order by Toor that prohibited the city from diverting tax dollars to BT unless the money was paid back within 60 days. Any sum paid to the consultants should come from BT, the plaintiffs argued, not from city taxpayers.

In a ruling dated August 19, Toor disagreed, writing that the expenses paid to Dorman & Fawcett were "essentially for services aimed at preserving an asset that the Blue Ribbon Commission had decided was valuable to the city.

"This case is complicated by the fact that the City and BT are intertwined, as are their finances," the judge wrote. "As a result, drawing a clear line between what was done to benefit BT and what was done to benefit the City is impossible. A spouse purchasing flowers for the other spouse from the couple's joint checking account may be buying the flowers for the benefit of the recipient, but there is no question that the purchase also benefits the giver.

"Surely the City would have been remiss in its duties to the taxpayers if it had not made efforts to address BT's financial woes," Toor wrote. "The expenses that were paid to D&F by the city (from the General Fund) were intended to support the recommendations of the Blue Ribbon Commission, were not day-to-day operational expenses, and were not payments to CitiCapital."

The plaintiffs' lawyer, Norm Williams of Gravel & Shea, said he is disappointed with the ruling and "respectfully disagrees" with the judge.

"We are investigating our options," Williams said, and added that an appeal of the ruling may be possible.

*Updated 5:27 p.m.*

Osier and Shaver did succeed in another request to the court, however.

Judge Toor granted their request for a "protective order" that prohibits the defendants from asking at depositions about who is funding their lawsuit and how much money they've spent. Toor said that information was not relevant, adding, "There may well be political reasons or personal agendas for the claims asserted here, but Plaintiffs are entitled to have such motives. The court can conceive of no reason why they are relevant to the legal issues before the court."

Comments

[dale tillotson]

Bottom line. Still out 16.9 million from the start and the ticker keeps on adding up.
Shame on Leopold and Kiss for their misbehaving ways.
I urge my neighbors in Colchester to question their leaders on the purchase of the Church property, and the towns plans for the property. I urge my Colchester neighbors to ask the tough questions, and not let a similar situation occur with the property that has happened to BT.
Of course sometimes it does not matter when you ask the tough questions because your leaders such as mine, Mayor Kiss just lower themselves to calling hardworking taxpayers, either naysayers or demagogues.
Great work Kiss and Leopold you have made us all proud with your spending of 16.9 million and counting of our tax dollars.

[Pin]

oh, my, he called you a naysayer? Why, he's another Rush Limbaugh! Who could imagine someone questioning the good sense of completely rational people like you?! He must resign!

[Ward 2 Resident]

Early on it was very much about illegal activity and now we're just left with crying about the money. The early accusations don't seem they will pan out, and resolving the second has been befuddled by the first. A witch hunt can't have it both ways. If the point of the law suit is to repay city funds, well, then it has done pretty poorly since it has hamstrung the city with injunctions and court orders. This lawsuit doesn't represent me very well, even though it says it does.

The witch hunt is all quite sad because financing all the debt of BT, including the city's portion, was available in 2009 but city council members and this lawsuit created fear, uncertainty and doubt that scared away a bond company. Karen Paul famously called a VP at Piper Jaffray and spooked them enough that soon after they reneged.

City council needs to get moving on this. They've been hoping an angel will come down and buy the problem away from them. That's pollyanna in my opinion. Fix the CPG problems with the PSB, smooth some tail feathers and get this lawsuit wrapped up, have the legislature expand BTs service area beyond Burlington and get new financing. If that sounds hard, it also needs to be done at the same time. There's a 17 million dollar problem, but what has city council done about it?

[Pin]

Ward 2 Resident: There's a narrative and you're just not following it. How dare you?

[Reserved]

This lawsuit - clearly funded by Republicans - is a political distraction. Nothing more. In the end, it will be difficult to argue that the city's CAO was not allowed to direct funds to support a city entity. To claim it was grossly negligent ignores the responsibilities entrusted with the CAO and mayor by the City Council.

Stepping back from it all, city voters overwhelmingly approved a municipally owned telecom company. The CAO saved said telecom company with a routine maneuver. Now some residents are appalled that it was saved. City Council - dominated by Democrats - rejected outside financing, apparently too busy banning smoking from Church Street. Council Republicans are busy telling businesses to put signs in English and French (and funding frivolous lawsuits).

Is anyone seeking to expand the parameters of the CPG beyond Burlington? How about privately financing the debt? This is standard business practice. Maybe the real question is: Do Burlington residents want a municipal telecom or not?

[Jimmy]

"In the end, it will be difficult to argue that the city's CAO was not allowed to direct funds to support a city entity."

In violation of state law, the City charter and the CPG? I don't think that sounds particularly difficult at all.

"The CAO saved said telecom company with a routine maneuver."

Blatantly illegal acts are "routine maneuvers" here? That explains a lot, actually.

"City Council - dominated by Democrats - rejected outside financing"

They rejected taking on debt that BT - hence, the City - would never be able to pay back. They gave BT the chance to present a business plan showing how they would pay the money back, and they didn't have one. I don't mean they didn't have a business plan with sensible numbers - I mean they didn't have a business plan. In the real world, that is a company that gets shut down, or more realistically, not funded in the first place.

To the point of the article, the motion was completely parallel to Osier and Shaver's primary suit. Calling it a "round" in that suit is a real stretch.

[Buster]

Toor Actually said this WTF? "A spouse purchasing flowers for the other spouse from the couple's joint checking account may be buying the flowers for the benefit of the recipient, but there is no question that the purchase also benefits the giver."
Right and when the couple is bankrupt buying the flowers beggars both parties judge Toor. Her analogy is flawed.

Look the city treasurer has a fiduciary responsibility to the Citizens to protect the citys assets.

A better plan would have be the usual arrangement a business broker and put Dorman and Fawcet on a commissioned contract. A stipend to run the operation and a commission on the positive resolution ie the sale and renegotiation with Citi none of which happened. If the standard contract was executed Dorman and Fawcet would have taken a pass or been confident that a solution would be made in our mutual best interests.

As The City council and the Mayor negotiated the contract we are all left with dead worthless flowers with no value the taxpayers are left broke an joyless judge.

It is ridiculous that Toor thinks Dorman and Fawcet gilding the lily is an acceptable outcome. they have done nothing but hire more consultants and have no results her than a larger debt to show the taxpayers.

[Ward 2 Resident]

Managing costs are externalized to the city's budget by way of this contract with Dorman and Fawcet rather than being itemized as a BT expense. Keep that in mind whenever this contractor receives praises for keeping the books in order, yet keeping itself "off the books".