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A top official of the Florida Department of Transportation said the department authorized a contractor building highway noise-barrier walls in Miami to use a patented technology despite a federal court order prohibiting its use — and despite a $9.5 million verdict against four other state contractors for violating the same patents. The attorney for the patent-holder said he and his co-counsel in the next few days will ask the federal judge who issued the injunction to hold the department in contempt of court for violating it. In an unusual move reported by the Miami Daily Business Review last month, the department of transportation is paying the defense costs for a number of state highway contractors accused of violating the patents, has posted a $10.2 million cash appeals bond and has promised to pay any final judgments against the contractors. Assistant Transportation Secretary Kenneth M. Morefield, in a March 3 deposition, said under oath that he knew of the injunction issued by U.S. District Judge William P. Dimitrouleas in Fort Lauderdale — but ordered Omaha, Neb.-based Gilbert Southern Corp. to proceed with construction anyway. The work involved the installation of about 140 concrete posts manufactured before the Feb. 6, 2002, injunction. “I believe we said we’d just look at the risk of what the issue was, whether it was cost-effective to scrap them or use them or whatever,” Morefield said in the deposition. “As I recall it, it was based on the recommendations of the folks involved at the time in the project and what was going on in the manufacture, what would be lost, what would be gained.” Stefan V. Stein, a Holland & Knight partner who is defending Gilbert Southern in a second patent infringement lawsuit filed by patent-holder State Contracting and Engineering of Hollywood against nine state contractors, said his client did not violate Judge Dimitrouleas’ injunction because the posts were altered before they were installed “to make them noninfringing.” But State Contracting’s attorney Richard S. Ross, a Davie, Fla., solo practitioner, said he and his co-counsel, Miami solo attorney John H. Faro, disagree with that interpretation, and will ask Dimitrouleas to hold the department in contempt. “The law says you can’t even take them and render them noninfringing,” Ross said. “Use alone is an infringement.” Morefield didn’t identify the others involved in the decision to allow Gilbert Southern to use the patented technology. But the project was under the supervision of Jose Abreu, the Transportation Department’s Miami district director. Earlier this month, Florida Gov. Jeb Bush selected Abreu as the state’s new secretary of transportation, to replace Thomas Barry who resigned effective Feb. 28. Correspondence in the case shows that Abreu was personally notified of the court injunction. $9.5 MILLION VERDICT Dimitrouleas issued the injunction in February 2002 after four other state highway contractors were hit with a $9.5 million verdict for infringing on the same patents. The patents are for devices and methods for erecting anti-noise walls. The walls were built along I-95 and Florida’s Turnpike in Miami-Dade, Broward and Palm Beach counties. The Daily Business Review reported last month that even though the state Transportation Department is not a party to the federal lawsuit against the road-building contractors, the department has paid hundreds of thousands of dollars to Holland & Knight to defend them in court. Department officials also have pledged to cover the $9.5 million verdict against the contractors should they ultimately lose the appeal the state also is bankrolling. Those four companies hit with the verdict are Hubbard Construction Co. of Winter Park, Murphy Construction Co. of West Palm Beach, Condotte America Inc. of Miami and Community Asphalt Corp. of Hialeah, Fla. State election records show that Hubbard Construction contributed $76,500 to the Florida Republican Party and Gov. Bush during last year’s campaign. Community Asphalt contributed $2,500 to Florida’s GOP, plus $1,000 to Republican candidates. There is no provision in state law for state government to pay legal fees for contractors. And government departments and agencies in Florida, including the Department of Transportation, have no legal authority to indemnify private parties. “Not without express legislative authority,” the Transportation Department’s attorney, E. Clay McGonagill, said in trial testimony last year. McGonagill said the agency’s power to pay these legal costs flows from its general contracting authority. Top officials in the Transportation Department have juggled state highway construction funds to come up with $10.2 million in cash needed by the four contractors to post a bond with the court. The bond was required to allow an appeal of the jury’s verdict. State Sen. Ron Klein, D-Boca Raton, vice chair of the Senate Transportation Committee, questioned the Transportation Department’s actions. He said that he plans to inquire about it, possibly at Jose Abreu’s confirmation hearing. The hearing has not yet been scheduled. Judge Dimitrouleas’ injunction specifically enjoined the defendant companies, and those “acting in concert or participation” with them, from “making, using, selling, offering to sell or importing any method or device that infringes” on State Contracting’s patents. Transportation Department spokesman Dick Cain referred calls to Stein, a partner in Holland & Knight’s Tampa, Fla., office who represents the contractors in both lawsuits, but is being paid by the state. “There was full compliance with the injunction,” Stein said. But State Contracting co-counsel Ross disagreed. “They violated the injunction, and they did so knowingly,” he said. $2.3 MILLION TO END PROJECT Department rules normally require contractors using patented designs to obtain the rights in advance and to include the cost in their bids. But in the case of State Contracting’s cost-saving construction techniques for noise barriers, a “special provision” was added to department contracts that instructed contractors not to obtain those rights. The provision included a promise that the state would pay any royalties if required. In 1997, State Contracting sued to enforce its patents. The Transportation Department sent letters to the contractors reiterating that promise to pay royalties, and offering to pay to defend the contractors in court. At the time Dimitrouleas signed the injunction last year, Gilbert Southern was erecting noise barriers in Miami-Dade using State Contracting’s patented techniques. Following the verdict, State Contracting offered to allow work to continue for a license fee of $850,000, said Ross But the Transportation Department chose not to pay for those rights. Instead, the department paid approximately $2.3 million in compensation to Gilbert Southern for the costs of shutting down the job, Ross said. Gilbert Southern is one of nine private contractor-defendants in a second, nearly identical patent infringement suit brought by State Contracting. The suit, filed last year, is pending before Dimitrouleas. Again, the FDOT is picking up the tab for Holland & Knight to represent those contractors, and “intends to be responsible for any judgment, after exhaustion of any appeals,” said one letter last March to a contractor from department General Counsel Pamela S. Leslie. Leslie’s letter does not set any cap on the state’s exposure. The nine contractor-defendants are: Gilbert Southern; Bergeron Land Development Inc. of Fort Lauderdale; the DeMoya Group of Miami; Atlantic Underground Construction Corp. of West Palm Beach; Soundcore Inc. of Lake Worth; Cement Industries Inc. of Fort Myers; Impressions of Florida Inc. and PCL Civil Constructors Inc. of Tampa; and Modern Continental South Inc. of Pelzer, S.C. A third lawsuit by State Contracting in Broward Circuit Court accuses the Transportation Department of wrongly taking its patent without permission and converting it to the department’s use. It filed that suit in 1998 after Dimitrouleas ruled that the doctrine of sovereign immunity barred suits against the state Department of Transportation in federal court. The lawsuit is stayed, pending a final resolution in the original federal case. State Contracting’s attorneys said the department’s actions have sent the company’s business into a prolonged tailspin. State Contracting, they said, has lost out on more than $230 million in construction contracts it should have been entitled to because of its ownership of the patents. And during that time, they said, the number of employees at State Contracting has shrunk from 175 to 12. Ross said State Contracting is seeking more than $100 million in lost profits and lost business value. PAYROLL PROBLEMS Last July, in the wake of the verdict in the first case against the four contractors, the Department of Transportation posted the $10.2 million cash appeal bond on behalf of those contractors, court records show. Three top state transportation administrators, including then-Secretary Barry, approved the payment on behalf of the contractor-defendants, Transportation Department attorney McGonagill said under oath last month in the second lawsuit filed by State Contracting. The posting of the appeal bond means that State Contracting can’t collect those money damages until the case is resolved on appeal. The appeal is before the U.S. Court of Appeals for the Federal Circuit, which hears all patent appeal cases. “We’re very optimistic about our chances on appeal and are pursuing that very aggressively,” Stein, who heads Holland & Knight’s national intellectual property practice, told the Review last month. In his deposition this month, Morefield, an engineer who’s been with the department for more than 30 years, said he received briefings and reports on the status of litigation involving the department. He said the State Contracting case is apparently the only case in which the department has paid lawyers to represent private contractors. “I don’t know of any others,” said Morefield, who is one of two assistant secretaries immediately under the secretary of transportation. Morefield also acknowledged that nothing in the language in the “special provision” of the original construction contract to build the anti-noise walls obligated the department to put up the $10.2 million cash appeal bond. The idea arose, he said, after a defendant-contractor called the department to say that a lien had been slapped on their bank account and “that they were having a problem with meeting their payroll or were going to have a problem with meeting their payroll.” The assistant secretary did not identify the contractor. But he said the phone call prompted the department to consider its options. Putting up the $10.2 million for the bond was the best option for the state, Morefield said. “It was a logical extension of our offer to them to defend and, through the appeals, and to pay any judgment.” To come up with the cash for the bond, state records show, Transportation Department officials in Tallahassee created and funded a new “financial project”, which was inserted with unusual speed into the state’s five-year highway construction work program under the description “Patent Infringement Claim for Noise Wall Supports.” According to state records, at least $21.2 million was deposited into the project’s account last year. It came from the Florida Intrastate Highway System and the Intrastate Construction Budget. The other $11 million of the $21.2 million project fund was put there in that account in case it’s needed to pay off a judgment in State Contracting’s second lawsuit, said McGonagill and Stein. McGonagill told the Review last month that the department has no policy governing the use of public funds to defend and indemnify private entities. “This is a very unique circumstance, and the department looked at that unique circumstance, just like it does often in specific project issues as well as specific litigation,” he said. Dominic M. Calabro, president of Florida TaxWatch, a nonprofit government watchdog group in Tallahassee, called it “extraordinarily rare if not unprecedented” for the state to intervene on behalf of a private road contractor and assume such large potential liabilities. “It’s especially difficult to understand why the state would do that when we are facing such a significant multibillion-dollar fiscal challenge,” he said.

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