Halloween Story: The Port, the Mayor and the $2 Million

WC offers a scary story for Halloween:

Anchorage’s Mayor Dan Sullivan proposes to pay up to $2 million to hot shot law firm Seyfarth Shaw to prosecute the Port of Anchorage design and breach of construction contract claims. Now ordinarily WC has no objection to spending lots of money on lawyers, although it’s annoying that Mayor Sullivan thinks Alaska law firms are incapable of doing the work. And it’s a little annoying that Mayor Sullivan thinks that the budget for litigation is a subject for executive session under Alaska’s Open Meetings Act.

It’s a scary situation. But WC will attempt to help out here – pro bono – by reminding Mayor Sullivan of a bit of Alaska history.

The City of Fairbanks used to operate the municipal water and sewer system. When the City upgraded sewer mains on the south side of town, it used a reinforced plastic sewer pipe manufactured by Amoco Reinforced Plastics Company (”ARPCO”), a subsidiary of Amoco Chemical Corporation (“Amoco”). The pipe failed. The City hired an Alaska law firm to represent it. Because the City had failed to timely act, most of the legal theories that were easy to prove were time-barred. All the City had left was a claim for fraud. And fraud is notoriously hard to prove.

That didn’t stop the City and its Alaska law firm from trying. WC has never seen a final accounting, but the City something like $2 million on its Alaska law firm. And the City’s case was thrown out by the trial court on the first day of trial. WC could have lost that case in less than a day for a lot less than $2 million.

Sure, the trial court decisions were largely reversed on appeal, but the appeals court also reversed the City’s right to go after Amoco. And by that point, ARPCO was the target of dozens of defective Techite pipe cases.

The City eventually settled for $4 million. Well, the claim is $4 million but it’s actually $200,000 a year over 20 years. The present value of that cash stream is more like $3.7 million at a modest 10% discount rate. The cost of replacing the defective sewer pipe along 23rd Avenue alone was $2 million.

So the City spent about $2 million in legal fees to recover something less than $4 million. And the net recovery was insufficient to pay the cost of replacing a tiny portion of the total stretches of defective pipe.

Again, WC has no objection to paying lots and lots of money to lawyers. In fact, it’s a fine idea. Just don’t expect it to solve any real world problems. Whether the problem is collapsing sewer mains or badly designed or constructed mud water ports.

Oh, and Mayor Sullivan, when you said “the Port will be paying the fees”? Either you are incredibly naive or you are lying. Everyone who buys goods passing through the Port of Anchorage will pay, win, lose or draw. Not to mention the $50 million for the Port in the bond package on the November 6 ballot. Or the U.S. Marine Administration-sponsored study on defects in the Port design that the voters don’t get to see until after the general election and the vote on the bond issue.

Would it be too obscure to call this Techite II? Or is that too scary?

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