Last updated: March 16. 2013 11:01PM - 778 Views
By - mguydish@timesleader.com - (570) 991-6112

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It looks like the state Supreme Court will get the last say in a lengthy lawsuit worth up to almost $8 million that has pitted two school districts against the Northeast Pennsylvania School District Health Trust.

The trust – a consortium of area school districts and agencies formed in 2009 – got good news Wednesday when a Commonwealth Court appellate panel of five judges overturned a December 2011 ruling by Luzerne County Judge Lewis Wetzel favoring the two districts.

But the panel's ruling had scarcely been public a few hours before attorney Howard Levinson, representing the two districts throughout the four-year legal battle, said the ruling will be appealed to the state's top court.

Pittston Area and Dallas school districts withdrew from the trust at the end of June 2007, after complaining about the trust's large surplus – which topped $20 million at one point and was, they contended, $18.3 million when they pulled out of the consortium.

The districts argued the high surplus was proof the trust was charging more than it was paying out, and left in search of cheaper alternatives. They repeatedly asked for an accounting of the surplus and insisted they were entitled to their share of it.

But the trust argued that the agreement signed by all members was clear: Any money paid into the trust stays with it unless it dissolves.

Agreement language

As the decision issued Wednesday notes, the complex argument ultimately boils down to one point: whether the trust is a pooled trust in which all payments go into one account for the benefit of all members, or an aggregate trust of segregated plans for each member.

Trust attorneys have argued from the start that the language of the trust agreement clearly shows it is a pooled trust. Attorneys for the districts countered that actions and accounting methods by the trust made it clear it is an aggregated trust of segregated accounts.

Specifically, the districts point to the fact that each district negotiates its own coverage in teacher and support staff contracts, and that the trust in turn calculates premiums separately for each district.

School district attorneys say testimony from trust representatives during the Luzerne County trial – admitting the trust keeps track separately of each district's payments and costs – bolsters that argument.

And the districts pointed to two other events: When Crestwood School District withdrew from the trust during its first year, the trust required Crestwood to pay its share of what was then a deficit; and in 2002 the trust approved a resolution requiring districts to pay their share of any deficit if one should arise again.

Wetzel agreed with the districts. The appeals panel sided with the trust, repeatedly citing the language of the trust agreement and saying that keeping separate records for each district doesn't matter as long as all the money goes into and is paid from a single account.

Next court decision

The ruling sets the stage for what amounts to a legal tiebreaker in the state Supreme Court.

Levinson said Wetzel's decision was supported by the records, and there was no reason for the Commonwealth Court to ignore that factual finding, and it was in error.

Levinson also cited a footnote in the ruling dismissing the districts' request that the courts order the trust to pay $112,628 spent by the two districts to hire an accounting firm to look at trust books and determine their share of the surplus. The panel decided we will not require the trust to pay for an accounting that the School Districts commissioned to support an unsuccessful claim. Levinson said the district – and taxpayers – should be entitled to such accounting from the trust without having to hire a separate firm to look at the books.

One of the attorneys for the trust, Scott Gartley, said the appeals panel was correct in reversing the lower-court decision, noting that the trust's decision to track each district's payments and insurance claims was irrelevant.

The question is does the trust do anything with that information? Gartley said. Is there a reconciliation where we go to the districts and say you paid in less than you used, you owe us, or you used less than you paid, we owe you? That has never occurred since the trust was formed in 1999. It's always been a pooled trust.

Districts pulling out

The decision comes as the trust faces an existential threat: Nine of the remaining 11 members gave notice they may withdraw from the trust this July, believing they may find better deals elsewhere. The move came after Lake-Lehman School District found alternate coverage that administrators say is saving the district at least $1 million this year. Lake-Lehman remained in the trust, but only for dental and vision coverage.

Dallas Business Manager Grant Palfey said Wednesday his district's withdrawal has saved money. He noted Dallas paid almost $3.5 million in premiums during its last year in the trust, and has never hit that amount since. For 2012-13, we're paying $3,040,000. Palfey said.

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