Agency sues state over alleged fraud, breach of contract

Montana Peaks, a Flathead Valley-based human services agency, is suing the Montana Department of Public Health and Human Services over allegations of fraud, breach of contract and negligence in the state’s dealings with the agency.

A lawsuit filed Monday in Lewis and Clark County District Court said the state health department notified Montana Peaks in 2010 that after 17 years of doing business with the agency, the state was not renewing its contracts with Montana Peaks because of results from an audit. The complaint alleges the contracts were prematurely pulled before the audit was fully completed in 2012.

As a result, Montana Peaks was left with no funds to pay bills it already had incurred in the process of providing services on the state’s behalf, according to the lawsuit.

A parallel lawsuit filed by Montana Peaks Executive Director Mary Danford in 2011 was settled in Danford’s favor in December 2016. During the discovery phase of that lawsuit state health officials admitted there was not any fraud or misappropriation of funds by Danford.

Based on information uncovered during Danford’s lawsuit against the state, it was discovered by Montana Peaks that the Department of Public Health and Human Services “improperly withheld funding to Montana Peaks based on false suspicions, poor auditing, lack of understanding of the parties’ contract services and strife within DPHHS,” Montana Peaks’ complaint asserts.

The lawsuit alleges the state’s audit of Montana Peaks was “arduous and malicious,” and details how the state health department confiscated Montana Peaks’ equipment from its Havre job-training site and gave it to another contractor.

When the state withheld funds from Montana Peaks, the agency was unable to pay contractors it had hired as trainers for construction job training, according to the complaint. As a result, the federal Internal Revenue Service placed liens against Montana Peaks’ board members and Danford for failure to pay taxes on Native American trainees’ on-the-job training wages.

Danford told the Daily Inter Lake she loaned the Montana Peaks’ board $16,000 of her personal savings to pay the on-the-job training wages of nine tribal participants.

Since 1993 Montana Peaks had contracted with the state to deliver Temporary Assistance to Needy Families services “with exemplary success,” the complaint states. The agency provided a number of job training programs and flourished for a number of years with Danford’s ability to write successful grants and network with leaders in the construction trades, heavy equipment, computer and small business owners to provide job training in more than a dozen Montana counties and four Indian reservations. A key focus for Danford was providing non-traditional job training for women.

When the state abruptly pulled its contracts “we were out of business in less than 30 days,” Danford said.

Because the state cut off its contracts with Montana Peaks, “millions of dollars of funds for education and job training have been awarded without mandated tribal government consultations, without proof of services to Native Americans and without financial reports as requested by the state Tribal Economic Development Council, starting in 2011,” Danford maintained.

The discovery documents provided by the state in Danford’s lawsuit showed the state was federally audited and then punished for paying Montana Peaks in 2012, because those costs were accrued in fiscal year 2010 and the state delayed payment, Montana Peaks’ complaint maintains. “DPHHS defended its payment to Montana Peaks by saying [the agency] had provided sufficient documentation and there was not fraud.”

The complaint further points out that DPHHS was “chastised” by the Legislative Audit Committee because it didn’t follow its contract and should have had a fiscal manual.

Specifically, Montana Peaks’ lawsuit, which asks for a jury trial, alleges breach of contract, negligence, breach of the obligation of good faith and fair dealing and constructive fraud. It further alleges civil conspiracy, stating the state health department “conspired to destroy or otherwise harm Montana Peaks’ lawful interests.

“DPHHS, through its employees and agents, reached a meeting of the minds among themselves to isolate Montana Peaks, to fraudulently conduct an audit, to cut off Montana Peaks from communications, and then to allow Montana Peaks’ very existence to fall apart,” the complaint alleges.

The complaint also alleges actual malice/punitive damages and defamation that constituted libel and/or slander.

Features editor Lynnette Hintze may be reached at 758-4421 or by email at lhintze@dailyinterlake.com.