Clark County School District to pay $1.65M to settle lawsuit

The Clark County School District, already struggling to fill a $67 million budget deficit, will fork over $1.65 million to settle a lawsuit with a health insurance broker it sacked two years ago.

Reached late Thursday, the settlement effectively derailed a two-week jury trial set to start Monday that would have exposed private disclosures between school officials who knew a legal challenge could arise before they terminated the broker’s contract.

“We’re looking at possible damages and things like that if we did terminate,” Carlos McDade, general counsel for the district, warned trustees, according to transcripts of a closed-door meeting on Sept. 23, 2013.

Just three months later, Superintendent Pat Skorkowsky directed McDade to send a termination notice to Business Benefits Inc. and its president, Tom DeRosa, who had served as the exclusive health care negotiator for the district since 2011.

Business Benefits sued the district in May 2014 over claims that its contract was cut short and initially sought $3.5 million in damages. The smaller settlement amount covers commission payments that Business Benefits lost since the district canceled its contract in December 2013.

A provision of the contract tied its term to the health plans that Business Benefits negotiated and which don’t expire until December 2016.

The district declined to make an official available for interview on Friday, citing the settlement as pending until the school board grants its approval at a July 16 meeting.

Erin Cranor, trustee and former school board president who initially appeared as a defendant in the case over her role in the termination of the contract, also declined to comment until next week’s vote.

But Alan Lefebvre, a Kolesar & Leatham attorney representing the district, argued the length of the Business Benefits contract burdened the school board’s ability to renegotiate new terms with a contractor.

“The contract that was negotiated with (Business Benefits) is illegal per se because it’s perpetual, and there’s no end to it,” Lefebvre said on Wednesday. “That unduly restricts the discretion of the trustees to adopt changes to its agreements with (contractors).”

Court records show the district also argued that Business Benefits failed to disclose a higher commission that it would collect as health care premiums rose for district workers.

That commission hike, valued at about $2 million, would have started in 2014, but opposition to Business Benefits had already started growing in 2013.

DeRosa, the firm’s president, had conducted a $158,350 analysis on how the district could leverage its size as the state’s largest employer to place its 40,000 workers and their dependants on one big health plan.

The teachers union initially resisted that idea, but, as its own health trust started hemorrhaging money, union leaders lobbied to take Business Benefit’s place as broker for the new district-wide health plan.

“(DeRosa) was a vocal opponent to a self-funded plan that has union leadership taking control, because experience in the past shows it lacks stability,” said Erika Pike Turner, an attorney with Garman Turner Gordon who represents Business Benefits. “That’s when he started getting attacked.”

At the same time, Cranor — without the knowledge of other board members — started looking into Business Benefits.

According to a Las Vegas Review-Journal story published last October, Cranor accused the district’s chief labor negotiator of accepting kickbacks from DeRosa, an allegation she later dropped.

She also pressured the superintendent to more closely examine the stability of the support staff plan and, after details of the commission hike arose, sent Skorkowsky an email:

“It appears there may be intent to continue to the current contract with the broker (Business Benefits), even though the contract is now known to be unfavorable to the district,” Cranor wrote. “The reason this is a concern is that it would seem to limit both our ability to sever their existing unfavorable contract and to limit our options going forward with a plan that includes the (teachers union) employee group.”

Failure to act now, she wrote, would delay movement to a unified health plan for years.

That email served as the basis for Business Benefits filing its lawsuit against both the district and Cranor.

In August, the district offered $100,100 to drop Cranor as an individual defendant in the lawsuit. The settlement check, sent in September without informing board members, included Cranor’s signature as board president.

While Cranor declined an interview request on Friday, she defended her actions to the Review-Journal in October 2014.

“I can confirm that my actions last year were taken on the advice of the District Attorney’s office, upon which I relied for guidance and direction after discovering discrepancies in CCSD’s health benefits spending,” she wrote in a statement, referencing the lawyer the Clark County district attorney’s office provides to give the board legal advice.

“I look forward to the resolution of this issue when the facts will come to light, and I hope the facts will be reported as aggressively as has been the speculation and conjecture so far.”

In a statement sent Friday, the district said it will fund the $1.65 million settlement through a risk management fund that is budgeted for $10 million annually.

The settlement also severs the relationship between Business Benefits and the district, though it’s unclear whether the district has identified another health care broker and how the conclusion to this lawsuit will impact its quest for a unified health plan.

As for DeRosa, Turner said while he agreed to the settlement terms, he’s not elated.

“Anytime you avoid a trial and those expenditures, it’s good news,” Turner said. “Now we move forward.

“Hopefully (the district) will have good health services, and we’ll have a healthy business.”

Contact Neal Morton at nmorton@reviewjournal.com or 702-383-0279. Find him on Twitter: @nealtmorton.