High legal costs put MassTech in rare company
The Massachusetts Technology Corp. spent more on legal services in the past fiscal year than any other quasi-public agency except the behemoth Massachusetts Bay Transportation Authority.
And as a percentage of its budget, MassTech stood alone. It paid more to lawyers than any such agency in Massachusetts, including the MBTA, with its budget last year of $3.2 billion.
MassTech transferred $12.92 million to lawyers over the past nine years, according to a review of state expenses by The Eagle.
That legal bill represents 4 percent of the $317 million MassTech received from 2010 to 2018, according to figures provided through the comptroller's CTHRU financial transparency database. The MBTA spent 0.36 of its $19.3 billion budget in that time on legal services.
Legal fees are still stacking up for MassTech, which oversees, among other projects, MassBroadband 123, the fiber-optic network that runs through Western and Central Massachusetts and was designed to accelerate the reach of broadband internet into rural areas.
MassTech says legal challenges — and expenses — came with its assigned territory, when it took on a "massive undertaking" to design and see to construction of the fiber network known as the middle mile.
When asked about its legal costs, the agency said the size of the MassBroadband 123 project led to disputes with companies hired to build and operate the network, "ultimately requiring legal action."
Outside lawyers helped protect the network's ongoing function as well as state taxpayers, the agency said in a statement provided by Jennifer Saubermann, MassTech's associate general counsel and director of intragovernmental affairs.
"MassTech retained outside legal counsel to protect the interests of MassTech and of Massachusetts taxpayers in the ensuing dispute resolution processes, including obtaining injunctions to ensure continued operation of the network while these disputes are resolved," the statement said.
Some of the legal payments covered work that lawyers with the Boston firm Holland & Knight did to secure an injunction that required Axia NetMedia and a business affiliate to preserve the network's operations, even after a bankruptcy filing in March 2017.
Nearly four weeks after losing an arbitration case that is expected to cost the agency $12.2 million, its lawyers continue to spar with operators of the fiber network in U.S. District Court in Worcester.
In early October, arbitrator Philip D. O'Neill Jr. concluded six months of hearings and legal motions with a call for MassTech to pay $12.2 million to Axia NetMedia and KCST USA, an affiliated company. The Holland & Knight lawyers are seeking to have that decision adjusted, citing errors in the arbitrator's financial calculations. The legal team had been pressing a claim that MassTech should be paid tens of millions of dollars. Instead, cash is to flow out from the state treasury, not in.
While the number of dollars MassTech must pay two entities involved in managing the middle mile network might drop, its legal bill will increase.
More than peers
Compared with other small quasi-public agencies with budgets less than $100 million a year, MassTech spent a significantly higher percentage of its funding on legal help in the past three years — 17.4 percent in the fiscal year that ended in June, 11.7 in 2017 and 19.8 in 2016.
In some of those years, MassTech was fighting in court with G4S Technology LLC, the company that built the middle mile, and then with Axia NetMedia, the Canadian company the agency hired in 2011 to operate it.
Mass Development, with a $76 million budget in 2018, allocated 0.76 percent of its funding to lawyers that year. MassTech's 2018 budget was $17.6 million, less than a quarter of Mass Development's allocation.
None of the single-year legal services fees for other quasi-public agencies reviewed by The Eagle cracked the 1 percent mark.
Because of MassTech's relatively small budget, it takes less spending on outside legal services to increase the percentage those allocations represent, complicating direct comparisons.
Also, significant legal costs for MassTech stemmed from the need to prepare commercial contracts and procurement bidding documents. The breadth of those MassTech projects, as well as the different legal issues faced by other quasi-public agencies, also makes it difficult to compare expenses shouldered by such groups.
Nonetheless, even in straight dollar terms, MassTech's legal bite appears oversize. The $12.92 million it has paid for legal help since 2010 is nearly four times as much as the $3.29 million the Massachusetts School Building Authority spent in that category in the same nine years, when it operated on an $11.5 billion budget and legal work constituted 0.03 percent of its allocation.
The Massachusetts Port Authority, which runs three airports, including Logan International, spent $5.48 million on lawyers from 2010 to 2018, based on combined budgets of $5 billion — less than half the total outlay by MassTech, whose 2018 budget came to less than 3 percent of Mass Port's spending.
One firm's billing
The lion's share of MassTech's legal payments have gone to Holland & Knight, which represented the agency in serial litigation that began even before the middle mile went into operation.
The firm was paid $2.92 million in 2018, $2.14 million in 2017, $2.69 million in 2016 and $1.63 million in 2015, according to figures from the comptroller's office, plus nearly $750,000 in earlier years.
The agency also has had a long-term relationship with the firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, paying it for legal work from 2010 to 2016 that totaled $1,264,363.
Another payment in 2018 went to the American Arbitration Association, which provided support for the process designed to wind down the yearslong legal dispute with Axia and its business partner over operation of the middle mile, which was financed with $90 million in federal and state grants.
That group received $142,350 in the last fiscal year.
Unless it is changed, the financial settlement required in the arbitration decision — $12.2 million — comes in at roughly the same amount that MassTech paid in legal fees since 2010.
Larry Parnass can be reached at email@example.com, at @larryparnass on Twitter and 413-496-6214.
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