Rick Finlan has cost DISD millions, and the district has only itself to blame.
Rick Finlan has cost DISD millions, and the district has only itself to blame.
Mark Graham

The legal commode

When people get mad at the Dallas school board, they often talk about how dumb the members are. But the dumbest thing Dallas school boards have ever done over the years is accept the advice of their own well-educated, high-dollar, ought-to-know-better lawyers.

The absolutely most egregious example of all is the well-known Finlan-Venable litigation that started more than eight years ago when two public-citizen gadflies sued the district for misappropriation of bond money. They didn't sue to make money; they didn't even ask for damages. They sued to make a point.

A series of external audits by accounting firms and various state agencies seemed to prove the gadflies right. But the district has never stopped fighting them in court. Estimates of what you and I have paid by now to fight Don Venable and Rick Finlan in those lawsuits vary from $3 million to $8 million, with the more authoritative guesses coming in around $3 million to $4 million.

And that clock is still running. The Finlan-Venable litigation is going strong today. The main case is about to get booted out of state district court, whence it will go back to an appeals court, where it has already been once (DISD lost), and then maybe back to the Texas Supreme Court, where it has already been once (DISD lost), and then probably back home again, where it has already been twice.

Years of litigation lie ahead. Every little two-bit hearing along the way, every piece of paper, every phone call is chick-chick-chick rrrrring on that legal cash register.

That bell rings for you and for me.

Former school board member Dan Peavy, who knows the ins and outs of school district litigation all too well, talked to me last week about the law firms representing DISD:

"These are high-dollar sons of bitches," Peavy said. "Every time they go to a hearing, they carry everybody down there. They've got a $300 man and a $200 man and a $100 secretary. By the time they sit there for a couple hours, you know what happens."

What makes the Finlan-Venable case especially galling is some new evidence that is about to surface -- a very enlightening, totally depressing peek behind the curtain of secrecy that normally shrouds the relationship between the Dallas school board and its lawyers.

The school board in question is the 1992 board, of which only one member, Hollis Brashear, still sits. But every board since then has opted to keep pushing this litigation instead of settling with the gadflies.

Last week, Superintendent Waldemar Rojas was served with a subpoena in yet another brand-new lawsuit that has grown out of this mess.

What the new evidence will show is that the whole thing -- the original lawsuit against Finlan and Venable in which the district went after them for $280 million in damages -- was a nasty little legal ruse set up by the board and its lawyers. In this scenario, the board fakes an injury to itself in order to sue Finlan and Venable, like a con man carrying a banana peel into a grocery store so he can fall on it.

The school board sued Finlan, a builder, and Venable, a paralegal, claiming they had damaged the district's relationship and credibility with a New York financial firm that sets up loans to local governments. The claim was that, at a time when the district was trying to get Goldman Sachs & Company to underwrite a $60 million loan, Finlan wrote Goldman Sachs and told them he and Venable were suing the school district.

So upset was Goldman Sachs at DISD, according to the district's lawsuit, that they sent a testy letter down to Dallas demanding an explanation. Only through adroit diplomacy was the district able to chill out those nervous bond underwriters up in New York City.

But that's a bunch of crap. It's not at all what happened.

According to a previously secret audiotape of the September 24, 1992, meeting of the Dallas school board, this is how we got talked into throwing millions of dollars in tax money -- your dollars and mine, money that was supposed to educate children -- into the legal toilet:

Finlan and Venable were suing the school district -- not seeking a penny in damages, asking only for injunctions, totally on principle -- because they felt they had caught the district using capital-improvement bond money for the day-to-day operating budget. That's a big financial and legal no-no.

It's early September 1992. DISD is going to Goldman Sachs, trying to set up a $60 million loan in something called tax-anticipation notes. Finlan notices that the prospectus for the notes doesn't include any legal warning that Finlan and Venable are suing the district.

So Finlan starts calling around, trying to find out whether the district shouldn't warn investors that its finances are under a fairly major cloud.

One of the people he calls is the district's banker -- a guy at the old NationsBank. The banker gets the idea that Finlan may also call Goldman Sachs in New York.

That very evening, the banker shows up at a school board meeting with Leonard Schwartz, one of the main lawyers representing the district against Finlan and Venable. There's a big debate about whether Finlan is right. Most of the board members and even the NationsBank guy say he is. They agree the warning should be included in the prospectus to protect the district from lawsuits by investors

But then, according to a transcript of the official tape of the meeting, Schwartz lays out a little side-plot. (Picture everybody rubbing their hands and cackling.)

The NationsBank guy will call Goldman Sachs first thing in the morning and tell them all about the Finlan-Venable litigation. So the board will have tattled on itself, and it will be covered.

Then the NationsBank guy will tell Goldman Sachs that Finlan may call. He will ask Goldman Sachs to listen to Finlan but not let on that they already know all about it. (As in, "Oh, no kidding! This is sooooo terrible!") The banker asks Goldman Sachs to send the board a salty letter demanding an explanation. Then the board will use this basically fake letter as grounds to sue Finlan and Venable for making Goldman Sachs mad at them.

It's an ambush. Aren't they clever?

"Jerry [the banker] is going to call them [Goldman Sachs] tomorrow and explain to them that they might get this phone call and explain what it's about," Schwartz tells the board in the transcript. "He'll tell them not to act as if they knew anything about it.

"When the board decides they finally want to take the gloves off, I want to turn around and sue Mr. Finlan...I want to start making things expensive and get him to realize what he's getting into."

There it is, the macho lawyer thing. And the board falls for it. The lawyer has found the secret button that opens the vault: It isn't about teaching kids to read. It's about putting the board's critics in the financial hospital.

Schwartz confirms the details of the 1992 school board meeting but characterizes his advice to the board as good lawyering, not trickery. "That's just being a good lawyer, anticipating an adversary and knowing what he's capable of doing," Schwartz said Monday.

He contends that Finlan injured the district not merely by informing Goldman Sachs of his lawsuit but by also threatening to sue the company if it issued bonds.

A reading of Finlan's letter to Goldman Sachs doesn't bear that out. In his letter, Finlan tells the company exactly what Dan Peavy and even the NationsBank official had said to the school board: If they don't alert potential investors to the Finlan-Venable litigation, the investors could sue later.

There's a reason I called Dan Peavy about that meeting. Peavy is a political persona non grata today. When he was on the board, he was caught using racial slurs in wiretapped personal phone conversations. Later the feds accused him of bribery but lost their case.

But I noticed in my reading of the transcript that Dan Peavy was the one board member who did not get sucked one inch into the macho-lawyer stuff.

First, Peavy tells Schwartz, the lawyer, that he's full of it if he thinks the Finlan-Venable litigation is "frivolous."

Peavy tells Schwartz the gadflies have uncovered "management problems, possible bookkeeping problems, problems that aren't going to play out well in the public.

"There's nothing frivolous about that," he says in the transcript. "Let me tell you, that dog won't hunt. They're beginning to develop some credibility. We continue to sit here and say this is a frivolous matter and everything's going to be fine, but the track record of this case doesn't indicate that. They keep seeking higher ground, and they keep getting there somehow."

In the end, the board rolls right over Peavy's reservations as if he hadn't even spoken. Goldman Sachs sends the letter, as requested. Schwartz convinces the board to sue Finlan and Venable for what becomes $280 million in damages.

Eventually that suit gets thrown out. Finlan and Venable sue the district in return, this time demanding damages, for violating their civil right of free speech.

Neither of these guys is a lawyer. They always represent themselves. The district hires huge law firms to fight them. The estimates for what the district has paid to fight Finlan and Venable are all over the map but all in the millions. Last year, the district acknowledged it had paid the firm of Friedman and Associates $1.25 million to handle the Finlan-Venable litigation. But that's only one of several firms that have fed at this trough.

Finlan insists the district has spent upward of $8 million on the case. Peavy still sees much of the paperwork in the cases because he is still a defendant, and he believes he has a fairly good ballpark idea what it has cost. He thinks the Finlan estimate is way high, but he says, "I'd have to say it's $3 million to $4 million at a minimum."

The board itself has fought viciously against every attempt to discover these numbers. The one board member who has tried to force the numbers out, Lois Parrott, is now a pariah on the board largely for that reason.

Peavy says he asked the board to offer Finlan and Venable a settlement of $100,000 several years ago. "But the rest of the board said they wouldn't give them a nickel."

People talk as if the big thievery at DISD is going to be about some middle-management officials building castles in Spain with money from the coffers. But that's not the game at all. The real castles being built with our school tax dollars belong to the lawyers, and most of them are probably in Highland Park.


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