Morgan County and Lexington company battling over $1 million bill for equipment used after tornado leveled town

WEST LIBERTY — Cash-strapped Morgan County is being sued for nearly $1 million by Emergency Disaster Services, a Lexington company from which it rented trailers, generators, all-terrain vehicles and other equipment after a March 2012 tornado leveled this place and killed a half-dozen people.

In its response, Morgan County accuses EDS — owned by Jerry Lundergan, a past chairman of the Kentucky Democratic Party and father of Secretary of State Alison Lundergan Grimes — of "price-gouging."

The county says Lundergan entered into a questionable deal with Tim Conley, then the county's judge-executive, who is now serving seven years in federal prison for an unrelated bribery scheme. All records related to the EDS deal have been seized by FBI agents and are being held as evidence in their investigation of Conley's tenure, the county says in court filings.

Morgan County officials — most of them installed after Conley's downfall — agree they owe EDS something for the rental equipment. But the bill should be less than the $954,935 EDS is demanding, based on competitive market rates and how long the county actually used the equipment, they said.

"We don't think that one Port-A-Potty is worth $32,000," said Morgan County Attorney Myles Holbrook.

"Unfortunately, when this was originally done, there was no contract. There was only an oral agreement between Tim Conley and EDS, and nobody here really knows what it was," Holbrook said. "The only guy on our end of this handshake deal is in a federal pen. And he's not talking to us. His lawyers won't let him."

Conley was convicted last year of taking more than $120,000 in kickbacks to rig bids on local construction projects, including tornado repairs. That prosecution did not involve EDS. Conley reported to prison in March and did not respond to a request by the Herald-Leader seeking comment.

Last week, Lundergan said his company provided the help that Conley requested when West Liberty was in ruins, and now it deserves to be paid. EDS' lawsuit is proceeding in Morgan Circuit Court.

"We built them a temporary courthouse on the edge of town that housed the sheriff, the PVA and the county clerk for over six months, and we cleared that site and hooked it up with water, sewer, electricity — everything," Lundergan said.

"To be fair," Lundergan added, "I don't think the people currently in office, like their current judge-executive, even really knows what went on."

Conley awarded EDS two projects in Morgan County. For the first, the county paid $381,267 for tornado debris removal.

EDS itself was sued for nonpayment of $297,414 last year by its subcontractor on the debris removal, Phillips & Jordan Inc. of Knoxville. EDS settled that suit in January.

The second project — rental equipment — is the source of the current controversy.

The tornado badly damaged or destroyed local government offices in West Liberty, the county seat. There was no place for officials to plan the recovery. So Conley told EDS to build an "Emergency Operational Command," to be used until the government offices could reopen several months later, according to insurance claims, correspondence and other court filings. For additional temporary office space, Conley spent $1.65 million to buy the vacant headquarters of Rifle Coal Co. just outside of town, which had been assessed for tax purposes at $315,000.

EDS trucked in and set up an assortment of trailers, portable bathrooms, storage units, light towers, four-wheel ATVs, electrical generators, tables and chairs.

Then it started submitting bills in the tens of thousands of dollars, and then the hundreds of thousands of dollars.

Morgan County's insurance company — Underwriters Safety & Claims of Louisville — disputed the costs. After Conley's initial hope that the Federal Emergency Management Agency would pay EDS fell through, the county forwarded the equipment rental bills to its insurer.

"A number of questions remain regarding these charges," Underwriters claims manager Lee Money wrote to EDS on May 8, 2012.

In separate letters to Conley, Money called some of EDS' charges "exorbitant" and said he found far cheaper prices at other Central Kentucky rental companies. For example, he wrote, Kentucky Portable Toilets rented a bathroom trailer with separate men's and women's sections for $5,000 a month, plus $500 for delivery and set-up. EDS billed Morgan County $25,500 per month for two bathroom trailers, more than twice as much.

Billing disputes

Last week, Lundergan defended his company's prices. EDS delivers any equipment a client needs at any hour of the day or night, operating in chaotic disaster zones, he said.

"It's not like you're renting something on normal business terms," Lundergan said.

This isn't the first time EDS has been criticized for its billing.

In 2007, the U.S. Department of Homeland Security's Office of Inspector General challenged $1.2 million that EDS billed the government for "excess meals it claimed were served" in Mississippi after Hurricane Katrina. EDS charged $4.8 million on a food contract it was awarded for $3.6 million, but it could not produce documents to support the number of additional meals it claimed, C. David Kimble, a director in the Office of Inspector General, said last week.

This was a misunderstanding that's currently on appeal, Lundergan said. Ultimately, FEMA withheld "about $500,000" of what EDS charged, he said.

"They called here and said, 'We need a public service set-up in Poplarville, Miss., and Moss Point, Miss.," Lundergan said. "What we did, we set up a dining hall in each place that could serve, like, 1,000 people. And anyone could come in and eat. They had nobody down there watching to see who came in. People were homeless and hungry, and they came in for breakfast, lunch and dinner for weeks.

"Later, they came back to us and said, 'You couldn't possibly have fed that many people,'" he said.

Last summer, Special Agent Christina Nutt, in the Detroit field office of Homeland Security's inspector general, wrote to New Jersey municipal officials asking about any disaster-assistance payments they made to EDS following Hurricane Sandy. Nutt did not say in her email why she was asking about the company.

"I can't comment on an ongoing investigation," Nutt said by phone last week.

Lundergan said he had never heard of Nutt or her investigation. EDS did work in the Northeastern U.S. in response to Hurricane Sandy, but not in New Jersey, he said.

"That's Chris Christie's," Lundergan said, referring to the Republican governor of New Jersey.

'Exceeded his authority'

In other instances, Morgan County's insurance company challenged EDS for charging for six months of use on rental equipment that was on the ground for much less time. EDS acknowledged this problem in a May 18, 2012, email to Money from EDS vice president Abby Dobson, one of Lundergan's daughters.

"Attached are the revised copies of the invoices for services rendered by EDS to West Liberty and Morgan County," Dobson wrote, cutting some of the bills from six months to two months. "I apologize that the first set of invoices all reflected the six-month rental period."

On June 28, 2012, Money mailed Conley a check for $500,000, representing the limit of Morgan County's insurance coverage for "business income losses and extra expenses," and he wished Conley "the very best moving forward."

The county deposited the check July 19, 2012, at Commercial Bank in West Liberty, bank records show. But what became of the funds after that is unclear. Last week, Lundergan said his company didn't get any of it for payment owed on the rental equipment. Holbrook, the county attorney, and newly elected Judge-Executive Stanley Franklin said they didn't know the fate of the $500,000, either.

Morgan County faces two problems in defending itself from EDS' lawsuit, local officials say. The FBI still holds boxes of financial records and other documents related to the county's tornado recovery, which means the new administration has a hard time verifying what it owes. Also, Conley did not follow the customary procedure when he hired EDS, such as seeking bids, drawing up a contract and having the fiscal court publicly vote on it.

"I don't think anything ever was put in writing, and then Judge Conley and Mr. Lundergan never could come to terms," said Joleen Frederick Phipps, who was county attorney under Conley. "Judge Conley liked to keep everything very close to his vest."

In its response to the suit, filed in February, Morgan County said Conley's deal with EDS "exceeded his authority" under a state law that gives the governor and local chief executives certain emergency procurement powers following disasters. "The services provided (by EDS) lasted beyond the initial emergency, and all or a portion of those services should have been subject to bidding procedures," the county said in its response.

A deal's a deal, Lundergan said.

"We want to work with Morgan County because we know they're having financial problems," Lundergan said. "But we also felt a need to stake a claim."

This story was originally published May 23, 2015 at 9:23 PM with the headline "Morgan County and Lexington company battling over $1 million bill for equipment used after tornado leveled town."