Supreme Court: Idaho Education Network contract void

The Idaho Supreme Court sided with a district judge Tuesday, voiding the contract for the Idaho Education Network broadband project.

The court’s unanimous ruling could have $25 million worth of implications for the state — and its taxpayers. Idaho could be forced to write off or give back federally administered fees that were supposed to offset the costs of the high school Internet system.

Idaho’s loss on appeal should not have any immediate impact on schools, however. The state mothballed the Idaho Education Network in early 2015, after Ada County District Judge Patrick Owen tossed the $60 million project contract. Since then, Idaho schools have purchased high-speed Internet service locally, often at greatly reduced prices.

Tuesday’s ruling was the latest chapter in a seven-year legal battle involving the state’s hired attorneys; broadband network vendors Education Networks of America and Qwest Communications; and Syringa Networks, an Internet vendor that sued over the project’s contract. Syringa argued that the state had illegally rewritten the network contract in February 2009 — making ENA and Qwest into partners, and effectively cutting out the competition.

Writing on behalf of the court, Chief Justice Jim Jones sharply criticized Mike Gwartney — the former head of the state Department of Administration, and a longtime confidante of Gov. Butch Otter. He also criticized the state for continuing to pursue the case.

“Rather than recognizing that the actions of former director Gwartney corrupted the procurement process, DOA doggedly defended that process to the bitter end,” Jones wrote in a 27-page opinion.

Otter’s office is reviewing Tuesday’s ruling and had no comment, spokesman Jon Hanian said.

The e-Rate issue

Merlyn Clark, the state’s lead outside attorney, declined comment on Tuesday’s ruling.

But in legal documents — and in Feb. 18 oral arguments before the Supreme Court — the state has argued that it had a multimillion dollar stake in appealing Owen’s ruling.

At issue are “e-Rate” payments, collected from monthly cell phone and landline bills. The payments were supposed to offset about three-fourths of the Idaho Education Network’s costs — and, for a while, they did. But as the network lawsuit unfolded in state courts, a Federal Communications Commission contractor cut off the flow of e-rate dollars to Idaho.

Ultimately, the feds put $11.9 million in e-Rate payments on hold — and have indicated that they may force the state to pay back $13.3 million in past e-Rate payments.

Will state seek repayment?

The Supreme Court’s ruling leaves another big-money issue unresolved: the $29.7 million the state has already paid to ENA and Qwest.

Syringa’s attorneys have argued that state law compels Idaho to collect money advanced under an illegal contract. The state has not pursued repayment, and Owen’s ruling did not require the state to demand its money back.

The Supreme Court sided with Owen, saying it wasn’t the judge’s job to order the state to seek repayment. But the state has no alternative but to demand its money back.

“If the appropriate state officer fails to perform this statutory obligation, the state’s chief legal officer can step forward to make the state whole for these unfortunate violations of state law,” Jones wrote.

ENA and Qwest, the vendors who stand to lose money after Tuesday’s ruling, did not immediately respond to requests for comment.

Nor did the state officials who could wind up with the task of collecting the state’s money.

Robert Geddes, the current director of the Department of Administration, referred inquiries to Attorney General Lawrence Wasden’s office. Wasden is reviewing the ruling; spokesman Todd Dvorak declined additional comment.

A costly legal loss

The Supreme Court’s 5-0 ruling — delivered just 13 days after oral arguments — represents another high-profile and costly courtroom loss for the state.

The state is already on the hook for well in excess of $2 million in legal fees.

Hawley Troxell, the Boise firm hired to defend the Idaho Education Network contract, has been paid more than $1 million. And that doesn’t count the additional $229,000 the state will pay to keep their lawyers on the job through June 30. Lawmakers approved this supplemental payment and Otter signed the spending bill into law last week.

On top of that, Owen’s ruling awarded Syringa some $950,000 in legal fees. The Supreme Court upheld this decision.