BOZEMAN – Nearly a year after a Madison Valley resident filed a lawsuit against Ennis School Board members and superintendent Doug Walsh, the litigants had their first day in court Thursday.

The hearing was mostly procedural, but dealt with a primary issue – should the lawsuit continue or be dismissed?

Gallatin County Judge Mike Salvagni heard arguments from both sides concerning the school board’s motion to dismiss the case and will render a decision on the motion sometime in the future.

The lawsuit was filed last August by Madison Valley resident and Ennis High School volunteer debate coach David Kelley. Kelley, a retired lawyer from Vermont, represents himself in the lawsuit.

The suit has several charges, but primarily deals with two issues – Walsh’s employment contracts with the school district and the way the school board is funding the construction of the new school building.

Kelley alleges that Walsh’s contracts with the school district, beginning back in 2001, constitute fraud both against taxpayers and the Montana Teacher’s Retirement System.

He also alleges the district has illegally spent money toward the new school out of their adult education and transportation funds within their budget.

Thursday’s hearing was initially scheduled to hear arguments for both the motion to dismiss and a motion by Kelley for partial summary judgment on the fraud allegations pertaining to Walsh’s contracts with the district.

However, at the beginning of the hearing, Salvagni decided not to hear arguments for the summary judgment motion since it was filed on Kelley’s second amended complaint and he has since filed a third amended complaint.

“All of the allegations were mooted by the filing of the third amended complaint,” Salvagni told Kelley. “This case has kind of gotten off a procedural track here and I’m going to put it back on.”

The judge first heard arguments from the school district’s lawyer Elizabeth Kaleva on her motion to dismiss.

In her arguments Kaleva claimed that Kelley was premature in bringing the case to district court.

Under Montana law, people with complaints about school board decisions must first go to the county superintendent of schools to seek a resolution, Kaleva told the judge.

“There is a method for challenging these decisions,” she said. “Mr. Kelley has not taken advantage of that.”

Salvagni asked Kaleva if taking a complaint to the county superintendent was too limited. She didn’t think so.

“There’s an avenue for getting to district court, but you have to exhaust the administrative remedies first,” she said.

Kelley’s arguments that Walsh’s contracts with the school district defrauded the Montana Teachers Retirement System are also moot, because he doesn’t have standing to file a lawsuit on behalf of the TRS, Kaleva said. If the TRS has issue with Walsh’s contracts with the district, it’s up to their board to pursue the matter.

“To throw it into this format really usurps their ability to make that decision,” she said.

Also, Kelley is suing each school board member individually. (This is with the exception of new school board member Lisa Frye, who isn’t named in the lawsuit, but her predecessor Brett Owens is named.) The school board members can’t be sued individually for the actions they took as a board, Kaleva said.

“In this case there was no way for individual trustees to take actions that bind the board of trustees,” she said.

The school board as a whole approved all the contracts Kelley addresses in the complaints, yet he is suing the school board members and Walsh individually, Kaleva said. It doesn’t make sense.

“In this case, there is no allegation that they took action individually,” she said. “It’s a board as an entity that issued those contracts.”

Kelley’s lawsuit is confusing because it maintains the board members made fraudulent contracts with Walsh beginning in 2001, even though many of the board members weren’t on the board in 2001, Kaleva said.

When it was Kelley’s turn to make arguments he pointed out the county superintendent’s office wasn’t the place to go to make the case a school board had committed fraud. Fraud complaints should be heard by a district court.

“I have repeatedly said that the contracts created by Mr. Walsh and the Ennis School District are replete with fraud,” Kelley said.

For example, he referred to school board agendas for meetings, first in 2001 where Walsh was initially hired back as a contract consultant a month after he retired, and then in 2008 when Walsh was hired as the bus supervisor. None of the agendas notified the public the board would be making these decisions. One of the meetings was even held at 7 a.m.

Also, Walsh’s bus supervisor contract constitutes fraud because it’s a job he doesn’t actually do, Kelley said. Walsh has always acted as a superintendent for Ennis School District, despite his retiring from that job in 2001 and despite Walsh’s and the school board’s assertion that he functioned as a bus supervisor and contract consultant.

“It’s misleading. It’s concealing. It’s misrepresenting,” Kelley said. “We’ve alleged fraud … the board may be authorized to issue contracts; the board is not authorized to commit fraud and neither is Mr. Walsh.”

Salvagni asked him if the TRS was the one to look over the contracts and determine if they were fraudulent as it pertains to retirement benefits.

The TRS is investigating Walsh’s contracts with the Ennis School District dating back to 2001. It issued a preliminary finding in June saying that Walsh should not have collected retirement benefits starting in 2001 and as an employee of the school district; the district should have been paying into his retirement for the past decade.

Kaleva issued a response on behalf of the school to the TRS, which is slated to issue a final decision on the matter within the week.

Despite the TRS investigation, the matter of fraudulent contracts should be included in his lawsuit because ultimately it is a matter of taxpayer money, Kelley said.

“This is our money,” he said. “It comes out of our pockets.”

Also, as a taxpayer Kelley said he had a right to bring the matter before the court because the matters of fraud not only involve the TRS, but taxpayers of the Ennis School District.

“We taxpayers are akin to stockholders, when it comes to local government entities,” he said. “We have standing to bring litigation to stop (fraud) from continuing … I think it becomes incumbent on the court to do something.”

As to the matter of why Kelley was suing the individual school board members and not the school board as an entity, he told Salvagni that school board members in question acted fraudulently and “beyond their jurisdiction” when issuing Walsh’s contracts.

The point of the lawsuit was to try and recover money for the school district, so making it a party to the suit didn’t seem logical, Kelley said.

However, given that the board is the representative body of the school district, Salvagni questioned how the school board and the school district could be distinguishable for the purpose of the lawsuit.

“How do you separate the board from the district?” he asked.

Additionally, the lawsuit seeks to make the five board members liable for money paid to Walsh in the contracts in question, Salvagni said.

However, Kelley said he wasn’t sure if the individual school board members named would actually be liable for the money.

Walsh has misled the board in his capacity as superintendent and should the contracts be found fraudulent, Kelley believes the school board could sue Walsh.

“I’m not sure there would be liability (with the school board),” Kelley said. “I think the board might have cause of action against Mr. Walsh.”

However, since Kaleva represents both the school board and Walsh in the litigation, the possibility of the board suing Walsh seems unlikely, he said.

At the end of the hearing, Salvagni asked that both parties allow him to make a decision on the motion to dismiss prior to any further filings. It will keep the process cleaner.

“One thing I discourage is muddling the process because for us to try and straighten it out is a waste of time and resources,” Salvagni said.

After the hearing Kaleva felt like it went as expected.

“Both of us had good points to make,” she said. “Now we’re going to wait for him to make a decision.”

Kelley was reluctant to comment, but did say he wasn’t surprised by Salvagni’s decision not to hear arguments on his motion for summary judgment.