WILLIAMSPORT, Pa. (CN) – Some of Harrisburg’s best and brightest failed epically in a transaction centered on the infamous Harrisburg Incinerator Project, a federal judge said in entering a $19 million judgment against The Harrisburg Authority.
The Authority, which helps handle Harrisburg’s sewage and trash services, wanted a federal judge to declare null and void several agreements the agency entered into with a contractor and a funder in connection with a ruinous attempt to upgrade a trash incinerator.
Finances for the Keystone State’s capital are being managed by a state-appointed receiver, as the 50,000-person central Pennsylvania city struggles with roughly $300 million in debt, much of it tied to the botched incinerator project.
A bankruptcy filing could be in the cards, but a state-issued ban currently prohibits the city from filing until November 30.
The Authority said in a lawsuit that the companies responsible for the incinerator upgrade, Barlow Projects Inc. and its related entities, failed to deliver a properly retrofitted facility, and that Barlow was responsible for design flaws and “neglectful project management.”
In late fall of 2005, Barlow- not a party to the lawsuit- was behind schedule and out of money, despite having been paid by the Authority, according to the complaint.
So, the Authority says, in December of that year, a convoluted series of agreements was drafted that, essentially, amounted to a veiled attempt at having the Authority guaranty a $25 million loan Barlow had received from CIT Capital USA Inc.
According to a court filing, that arrangement entailed a Barlow entity licensing certain combustion technology connected to the incinerator to the Authority for $25 million in fees. Then Barlow assigned its right to the Authority’s payment to a new Barlow entity called Aireal Technologies of Harrisburg LLC, according
to the filing. Then CIT purchased Barlow’s interest in Aireal for $25 million, which Barlow used to continue working on the project, the filing says.
But, the Authority says, it had already fully paid Barlow for the license fee, to the tune of about $2.7 million, months before the new financing arrangement was drafted.
In its lawsuit against CIT, filed in January 2008, the Authority said that the new arrangement purported to require it “to pay for the same thing twice, and at more than 10 times the price which was originally contracted as the sublicense payment for the right to use the combustion technology.”
Calling the arrangement a “sham transaction,” the Authority said it was not authorized, under its charter or under the state Municipal Authorities Act, “to guarantee debts of others, and particularly those of a private party, its contractor, from whom it is owed more than $40 million in damages.”
The Authority told U.S. District Judge John Jones III that certain deals it entered into with Barlow, CIT and Aireal “are unjust, ill-considered and extortionate contracts from which the citizens and taxpayers of Harrisburg and Dauphin County must be protected.”
Last week, Judge Jones found otherwise.
“There was no fraud in this deal, nor can we find deceit in any measure. Rather, we are asked to disrupt a fully vetted agreement that plaintiffs now regret having entered. We decline the invitation,” he wrote in a 66-page opinion.
Facts revealed at a January bench trial show that “numerous experienced professionals touched all aspects of the transaction we have been asked to reverse, and before its formation several expressed their concerns about its structure quietly and in some cases privately,” he wrote.
“Yet, until the deal failed, not one had the courage to strongly and publicly flash the red light that might have altered the perilous course that had been charted.”
“The cascading series of failures surrounding this project were not the result of a few rogue government officials, but were very clearly the fruit of carefully considered but calculated risks gone terribly awry. That consideration was undertaken by some of the most intelligent and sophisticated professionals in the Harrisburg region, who despite their apprehension signed off on the transaction as what was in their view the best, or indeed the only way to complete the upgrade of the incinerator,” the judge wrote.