The city of Bend will have to settle an expensive sewer plant lawsuit out of court, a Deschutes County judge ruled Monday.

Apollo Inc., the Washington-based contractor the city hired in 2013 to expand the plant, has been pushing to arbitrate its $8 million lawsuit, while the city’s been fighting to have its day in court. Deschutes County Circuit Judge Walter Miller agreed with Apollo, saying an “ambiguous” clause in Apollo’s contract didn’t negate another paragraph stipulating that any conflict should be ultimately handled in arbitration, not in a courtroom.

Miller also agreed that Apollo’s attorney, John Spencer Stewart of Portland-based Stewart Sokol and Larkin, proved the city, its construction manager and Apollo all acted as though any conflict would be arbitrated.

“By a preponderance of evidence, the intentions of the parties have been consistent with arbitration,” Miller said.

Apollo received a $32 million contract to expand the sewage treatment plant and double its capacity, but the city paid Apollo just $24 million and removed the contractor from the job after the project fell nearly a year behind schedule. The plant, which was originally intended to be fully operational in the summer of 2015, is still only 85 percent finished.

Apollo sued the city last fall, while city representatives were in the same building attempting mediation.

A portion of Apollo’s contract with the city stipulated that any disputes over the contract needed to be addressed first by executive negotiation, then by mediation, then by binding arbitration.

Another portion of the contract said any legal action “must be brought in the appropriate court of the state of Oregon,” which the city argued means any disputes should be settled in Deschutes County court.

“Before the current law firm representing the city came on board, everybody understood there would be executive conferral, mediation and then arbitration,” Stewart said.

Budgets for the city’s law firm, Portland-based Stoel Rives, also showed that lawyers were anticipating arbitration in the Portland metro area and not a jury trial in Bend, he said.

“Every one of their budgets is based on arbitrating this case, not litigating it at all,” Stewart said.

Andrew Gibson, a Stoel Rives attorney representing Bend, said no one at the city saw a conflict in the dispute process until Apollo tried to force arbitration. Executive conferral and mediation were fine, he said, but arbitration conflicted with the other clause.

“Nobody raised the conflict and nobody raised the issue until Apollo filed for arbitration in this case,” he said.

The sewage treatment plant project and the associated lawsuit has cost Bend nearly $38 million thus far, and it may cost more by the time the case ends. In August, the Bend City Council approved paying its law firm an additional $2.2 million for the Apollo suit, bringing the total budgeted on attorney fees to $2.89 million. Any unused money will return to the city.

—  Reporter: 541-633-2160; jshumway@bendbulletin.com

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