Bus company, school district trade suits shutdown payments

A bus company that sued the San Francisco School District for payment of maintenance costs while it waited for schools to reopen must face a countersuit accusing it of filing false claims, Superior Court Judge Ethan P. Schulman ruled Monday.

The bus company, First Student Inc., initially sued for the costs of maintaining its fleet of school buses in ready condition during the shutdowns.

The school district filed a crossclaim against First Student for breach of contract and filing a false claim. First Student objected to the cross-complaint but Schulman denied the motion Monday, finding the district had sufficient grounds for its claim to go forward. First Student Inc. v San Francisco Unified School District, CGC21592925, (S.F. Super. Ct., filed June 24, 2021).

The main dispute is whether the school district was contractually obligated to pay First Student for the 2020-2021 school year even though no students were transported during that time due to COVID. In light of COVID, the five-year contract between the parties, which was slated to end in June 2020, was extended by one school year in February 2020 with its seventh amendment.

According to the district's cross-complaint, when schools closed due to the lockdown in March 2020, First Student decided to not furlough or lay off its dedicated San Francisco drivers. This led to the eighth amendment to the contract in April 2020, in which the district agreed to pay First Student for its modified services from March 2020 to July 2020. Notably, the eighth amendment to the contract did not state it would extend to the 2020-2021 school year.

"Unfortunately, First Student felt forced to file its complaint against the district because after COVID had impacted the return to school process in the fall of 2020, First Student had stood ready, ensured its buses were operationally ready and safe and drivers were available to transport people in the district as a pending request by SFUSD," said Jesse L. Miller of Reed Smith LLP in San Francisco, attorney for First Student. "Unfortunately, because of COVID, there were a number of delays in school closures that really extended into the spring of '21. But in the meantime, First Student had incurred a number of fixed costs related to maintaining fleet readiness so it could be ready to go and the district had stated in no uncertain terms that First Student needed to be ready to go and perform when instructed by the district."

"How do we ensure we're ready to get kids to school at a moment's notice?" Miller continued. "That obviously requires money and elbow grease to be ready. It just doesn't happen on its own. And First Student was frankly disappointed that the district wouldn't meet us halfway during that challenging time period to ensure our readiness. First Student did it on its own believing that they would pay eventually, just like it had done during the spring of 2020."

The district's stance is that First Student is only entitled to compensation when the company transports students. According to its opposition to the demurrer, the district stated, "First Student -- a subsidiary of a global conglomerate with annual revenues of more than $7 billion dollars -- directed its employees to certify and submit falsified bus route data to the district. Further, the evidence will show that First Student demanded that the district pay nearly $5.5 million for First Student's buses to sit idle in a parking lot, after First Student laid off its entire workforce of dedicated San Francisco drivers and staff."

Attorney for the school district Nancy E. Harris of Meyers Nave Riback Silver & Wilson in Oakland said via email: "The district is pleased that the judge agreed that the district's claims for breach of contract and its claim for violations of the California False Claims Act against First Student should proceed. First Student's submission of false invoices from August 2020 to March 2021, when it was not providing any services to district students, is exactly the type of conduct that is prohibited by the False Claims Act. The district intends to pursue all of its remedies under both the contract and the False Claims Act and looks forward to the trial in this case."