Law Firm Disputes Inspector General’s Claim of Contract Violations in South Shore Litigations

A legal firm contracted by the V.I. government over the course of a decade to pursue claims of environmental damages from heavy industry on St. Croix’s south shore is strongly contesting an Inspector General’s report claiming it overcharged for its services and broke the contract.

The Law Offices of John Dema, the firm hired for the litigations, is involved in a civil arbitration with the government regarding its contract, which was signed in 2004. Andrew Capdeville, an attorney representing the firm in that arbitration said Thursday that he finds the timing of the release of the IG report revealing.

“The release of the Inspector General’s report and its use by this administration as a litigation tool comes as no surprise given that the administration chose to release it at the same time its response to the Dema firm’s arbitration claim was due,” Capdeville said.

At issue is whether the $21.3 million in legal fees charged to the government by Dema are appropriate to the contingency-based contract under which it was hired.

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The government argued at the time of the contract that the contingency arrangement, in which it would be obligated to pay Dema only in the event of a favorable outcome of the lawsuits, was necessary since it wouldn’t otherwise have the resources to challenge the cases’ deep-pocketed defendants: The Virgin Islands Alumina Company, St. Croix Alumina, Lockheed Martin, Alcoa World Alumina, St. Croix Renaissance Group, Hovensa and Hess Oil V.I. Corporation.

Dema was ultimately successful in negotiating settlements valued at between $126 million and $144 million in four cases involving those seven defendants. 

But the IG’s report claims that Dema miscalculated the legal fees it was owed under the contingency contract by including the non-cash aspects of the defendants’ settlements, their commitments to pay for environmental restoration and cleanup efforts, in the totals from which it charged its percentage.

Also alleged in the report is that Dema exceeded a cap on allowable expenses to be billed to the government and that it inappropriately withheld settlement monies as they were paid in order to cover its own legal fees instead of waiting for the end of all related litigations as per its contract.

Capdeville said he and his client stand by a letter he sent to the Inspector General’s Office in April after reviewing a draft of its report, a letter the IG’s final report called “inflammatory and derogatory.”

The letter alleges that the IG’s office was “directed” by Gov. Kenneth Mapp to conduct its investigation “using legal analysis supplied by” Attorney General Claude Walker, and shaped its conclusions to support the government in the preexisting arbitration between the government and Dema.

“I believe the position of the Dema law firm is adequately set forth in our response to the draft Inspector General’s report,” Capdeville said Thursday. “We will let the arbitration process resolve the dispute and we welcome the opinion of an impartial arbitrator.”

That letter was accompanied by two affidavits signed by former V.I. attorney generals who oversaw the cases on which Dema worked, although the IG claims that the contents of those affidavits contradict interviews with the same individuals conducted during its own investigation.

“The “waffling” positions taken reinforce our conclusions reached in the report, especially our opinion that the Department of Justice did not provide sufficient administration of the contract,” The IG’s report reads.

In his affidavit, former Attorney General Vincent Frazer said he doesn’t believe the allegations made in the IG’s report are “supported by the facts or have legal support.”

Frazer contested an allegation in the report that Dema was allowed to take control of the litigation process acting as the “lead attorney” without necessary direction and monitoring from the Department of Justice. He also stated that claims by Mapp administration officials that Dema was paid too much or too soon are based on misinterpretations of a contract involving years of complicated litigations involving multiple cases.

By the calculations of the inspector general, the contingency-based fees owed to Dema has been overstated by the firm by $5.1 million. The report also claims that Dema billed the government for $4.1 million more in expenses than a capped amount set in its contract.

The IG report also claims that the awarding of the contract to Dema was “questionable in its inception” since there was no competitive bidding process.

Dema was described by the commissioner of the Department of Planning and Natural Resources in 2003 as “the only firm in the Virgin Islands, or elsewhere, with more than 10 years of intensive environmental litigation experience directly related to the recovery of natural resource damages in the territory of the United States Virgin Islands.”

The IG’s report states, “At a minimum, proposals from other legal firms should have been obtained.”

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