Facility Group pays Miss. $3.9M for beef plant boo-boos
By JIM WALLS
April 17, 2012 — A Smyrna construction firm whose top executives served time in connection with illegal campaign payments settled a related $3.9 million damage claim Monday with the state of Mississippi.
The Facility Group paid $3,965,000 — the maximum allowed by its insurance — under the deal announced Monday. The damages resulted from defects in the company’s design and construction of an Oakland, Miss., beef processing plant opened in 2004.
Company chairman Robert L. Moultrie and president Nixon E. Cawood Jr. pleaded guilty in 2008 to a federal charge that they’d paid an illegal gratuity several years earlier to then-Gov. Ronnie Musgrove. Executive vice president Charles K. Morehead also went to prison for withholding information from investigators.
Moultrie and Cawood admitted giving Musgrove’s campaign $25,000 in case they needed his influence as work on the project encountered cost overruns and other problems. The lawsuit settled Monday had alleged the Facility Group inflated bills to charge the state for work that was never done, in part to defray the cost of the donation to Musgrove.
The plant closed three months after it opened, leaving its owner unable to pay off $55 million in state-guaranteed loans.
Musgrove, who lost the 2004 governor’s race to Republican Haley Barbour, was not indicted.
Here’s the full news release from Mississippi Attorney General Jim Hood:
Jackson, MS—Mississippi has settled its lawsuit against the Facility Group for negligence regarding the design and completion of the failed beef plant project, announced Attorney General Jim Hood today.
The Attorney General’s Office has recovered for the State $3,965,000, which is the maximum possible recovery available under the Facility Group’s errors and omissions policy for its numerous design and construction defects. This was a $5 million diminishing policy that had already dropped to $3.9 million from the defendants legal defense, including attorneys and expert fees.
“A settlement was in the State’s best interest because the maximum recovery available would have continued to diminish while awaiting trial and likely appeal. Moreover, had the state been successful in proving the fraud claims against the cash-strapped individual owners of the company, the insurance company would have used its fraud exclusion clause to take the insurance policy money off of the table,” said Attorney General Hood.
The beef plant project listed a “Guaranteed Maximum Price” of $43,395,134. Of this amount, Facility Group was paid its contractual maximum of $3,547,974 from the Land, Water & Timber Board and $3,021,418 from Mississippi Beef Processors for a total compensation of $6,569,392.
The state previously recovered $550,000 from the federal case, but only $250,000 came from the Facility Group. The rest came from individual defendants Sean Carothers and Richard Hall. The State of Mississippi received the full settlement check from the Facility Group today. The State ‘s lawsuit had previously helped to settle $695,000 of claims owed by the Facility Group to Mississippi contractors. The $65,000 of the current settlement includes compensation to a subcontractor still unpaid by Facility Group. The rest will be deposited to the State’s General Fund.
The beef plant was scheduled to be completed April 1, 2004 but did not begin operations until about five months later. From the first date of operations, the plant experienced significant mechanical problems which resulted in a production rate well below the established “break even” point. The plant closed permanently on November 29, 2004.
Attorney General Hood concluded, “The lawyers in our Civil Litigation Division, who are presently handling over 3,400 active cases, did not have construction law expertise or five years to litigate one case. These 10 state lawyers primarily defend the state against short-notice emergency type actions, instead of filing suits where the state is a plaintiff. Since the case involved intricate issues of construction law, I tried to get the Land, Water and Timber Board to provide funding to hire an experienced construction law firm to prosecute this lawsuit, but the Board refused. No law firm wanted to take the case on a straight contingency fee basis. In July 2007, the Jackson construction law firm of Burr & Forman agreed to handle the case on an hourly basis contingent upon the Legislature providing funding in a deficit appropriation each year. In order to give back to the state, these lawyers agreed to an hourly fee that was about half of their normal hourly rate. This resulted in a savings of about $460,000 to the state. I appreciate their service to the state for five years of complex construction litigation.”