CHICAGO -- A Michigan judge late Wednesday devised a formula for calculating damages suffered by the Pontiac School District in a case of legal malpractice against the district's bond counsel on a 1991 issue.
The Oakland County, Mich., judge set parameters for calculating the damage award for the school district, which in late May successfully sued its bond counsel, Miller, Canfield, Paddock & Stone.
In his order, Oakland County Circuit Court Judge John J. McDonald devised a formula for calculating some of the damages and rejected the school district's request for rewarding prejudgment interest on future damages.
Neil Goodman, an attorney representing the school district, said that initial calculations using the judge's order show the award at roughly $25.6 million.
Thomas Linn, a partner at Miller Canfield, said that was the initial number also reached by his law firm.
McDonald's order requires the two sides to submit their proposed award amount by Wednesday. At that time the judge may enter the award or decide between the two if there is a dispute between the proposed amounts, Goodman said.
Once the award is entered and other legal motions related to the case are resolved, Linn said Miller Canfield will appeal the circuit court decision to the Michigan Court of Appeals.
In late May, a jury found Miller Canfield, the school district's bond counsel for a 1991 bond issue, liable on three counts of legal malpractice, including conflict of interest, and awarded the school district damages of $22 million to $28 million.
The suit involved the district's 1991 issuance of $54.6 million of bonds, including about $35 million of capital appreciation bonds. The district charged that the law firm served as bond counsel on the deal at the same time that it represented Kemper Securities Inc., the senior manager, without the district's consent.
The district also charged that Miller Canfield had omitted language in the ballot proposal for the bond issue that would have allowed the district to use bond proceeds to buy land for a bus service and storage facility site as the district had intended. In addition, the district claimed the law firm misinterpreted to the detriment of the district the Michigan State School Act of 1979 when it helped structure the bond issue. Linn said his law firm "looks forward to vindication on appeal."
"This is a case that involved complicated financial issues, difficult even for experts to understand," Linn said in a written statement. "We believe that the verdict is an injustice that will be corrected on appeal."
Officials at Miller Canfield have said that insurance will cover most of the award.
The jury's verdict and award for damages -- the highest ever awarded in Oakland County -- sent shock waves through the bond counsel community. Some lawyers said that a decision by a higher state court to uphold or reverse the lower court decision could become binding on attorney conduct.
As a result of the Pontiac case, the Michigan legislature last month passed legislation that would require the boards of school districts to obtain disclosure from prospective bond attorneys as to whether they are also representing an underwriter or any other party involved in the districts' debt issues.
If such representation exists, a majority vote of the school board would be required to approve a contract with a bond attorney. The amendment also calls for bond counsel to submit monthly itemized billings to a school district for services and also any payments made to third parties in connection with the bond counsel's work for the district.
Another provision to the bill that is related to the Pontiac case would ban the use of capital appreciation bonds by school districts starting next May. A state official said Gov. John Engler could sign the bills into law as early as today.