A debris removal contractor’s lawsuit against Livingston Parish threatens to turn parish politics on its head in the wake of an arbitration ruling denying the parish’s $59 million claim for Hurricane Gustav cleanup costs.

But whether the bank that is holding the contractor’s debt will force the dormant lawsuit forward is a question parish officials say they can’t answer.

The suit seeks $52 million plus interest for unpaid cleanup work and could pit the parish president against his former employer, Alvin Fairburn & Associates. The company was one of the monitoring firms hired to ensure only eligible cleanup work was submitted to the Federal Emergency Management Agency for reimbursement.

Defending against the lawsuit also could force the parish to rely on evidence gathered by a former contractor, Corey Delahoussaye, who is facing 81 counts of public records fraud and theft, or the testimony of the former parish president who traveled to Washington, D.C., to testify for FEMA at the arbitration hearing.

Parish President Layton Ricks and several Parish Council members have said questions about how the parish will defend the lawsuit are premature until International Equipment Distributors — or its bank — decides whether to push forward with the case.

The debris contractor nearly bankrupted itself fronting money for the cleanup operations following the 2008 storm, without much reimbursement from the parish or FEMA.

Testimony from the May 19-23 arbitration hearing indicates FEMA agreed to pay about $11 million for the parish’s cleanup. However, less than half of that amount has passed through the Governor’s Office of Homeland Security and Emergency Preparedness to the parish and its contractors.

Court records and financial filings show International Equipment, or IED, still owes its bank about $26 million, a sum large enough to prompt the bank to finance the parish’s pricey Washington, D.C., arbitration attorneys.

Now that the gamble on arbitration has failed to pay off, parish officials are questioning whether the bank will double-down on the contractor’s suit in an effort to recoup at least its legal fees.

The Parish Council is slated to hold an executive session during Thursday night’s council meeting to discuss the case. The parish’s lead arbitration attorney, Hilary S. Cairnie, of Baker Hostetler, also will be on-hand to discuss the arbitration ruling, Ricks said.

In rejecting Livingston’s claims, a three-judge panel of the U.S. Civilian Board of Contract Appeals in Washington, D.C., ruled June 30 that the parish failed to provide enough documentation to prove eligibility for any of the $59 million it claimed FEMA owed for the work.

The panel also found that the parish’s debris removal work exceeded the bounds of FEMA regulations, particularly in the parish’s waterways, which were cleared from bank to bank.

The decision stopped short of stating any fraud or illegal conduct had occurred — a point Ricks noted when the ruling came down, but which could prove prickly if the parish is forced to defend itself against the contractor’s lawsuit.

IED claims in its petition — filed in state district court in 2011 but put on hold pending a resolution of the FEMA dispute — that the parish owes for the work regardless of whether FEMA deemed the costs eligible for reimbursement.

The parish has not yet answered the complaint, but former Parish President Mike Grimmer suggested as early as August 2009, after he stopped the work over cost concerns, that IED violated its contract with the parish by failing to secure required wetlands permits.

The U.S. Army Corps of Engineers says the parish and its contractors committed numerous violations of the federal Clean Water Act during the post-Gustav cleanup without securing a single permit for the work.

The Corps’ chief of surveillance and enforcement in New Orleans, Robert Heffner, testified at arbitration that Livingston Parish’s case was “the biggest violation” he had witnessed.

“It continues to require more of our resources than any single project or violation that I have worked on in my 16 years” with the Corps, he told the arbitration judges May 23, according to a transcript of the hearing.

IED’s contract required it “to procure all permits” required under state and federal law, but David Green, who served as the contractor’s general counsel, told the arbitration panel that language was simply a “boilerplate” provision inserted into all the company’s contracts.

“In a project like this with multiple engineering firms, that is typically the project owner, which would be the parish government and/or their representative or agent, which would be the monitors, that would perform that,” Green testified May 20.

A second addendum to IED’s contract, which former Parish Councilman Jimmie McCoy signed to authorize higher “wetlands” fees for debris removal from the parish’s ditches and canals, required the project monitor to determine which areas were wetlands under the Clean Water Act.

Green pointed to that provision as evidence that the parish’s monitoring firms — Professional Engineering Consultants, Alvin Fairburn & Associates and their subconsultants — and, ultimately, the parish bore the responsibility of securing permits.

IED’s attorneys also have argued that the debris contractor and its subcontractors only removed the debris they were ordered to remove, placing the blame for any ineligible work on the parish and its monitors.

Grimmer said the blame belongs squarely with the monitoring firms.

“They knew, or claimed they did, the FEMA rules and regulations from prior storms,” Grimmer said in a recent interview. “They were supposed to be watching the parish’s back, doing the documentation and making sure only eligible debris was removed.”

FEMA alleged that the monitors — primarily the many local hires trained in only a day or two to identify, oversee and document work that would meet FEMA guidelines — were taught to document ineligible debris and submit fraudulent claims for reimbursement.

Several monitoring firm representatives who testified at arbitration denied those claims but did acknowledge the difficulties involved with ensuring each monitor could handle the demands and, in a few cases, could be cajoled out of their vehicles or away from their cellphones to view the work they were supposed to be overseeing.

“Nobody has, you know, 50 to 100 people just waiting around for monitor jobs. So we hired quickly,” Al Jirovec, formerly of Barowka & Bonura Engineers and Consultants, a subcontractor of Professional Engineering Consultants during the Gustav cleanup, testified May 19.

“The job is not rocket science, but you have to pay attention,” he said.

Jirovec also testified about the inherent conflict between the jobs of a debris crew and its monitor.

“You never truly trust the contractor,” Jirovec told the judges panel. “They are out there to make money as fast as possible. And our job is to make sure they do it within the boundaries and do it correctly and safely.”

Jirovec gave an example of a tree cutter bringing him a limb to measure and photograph and then, while Jirovec was completing the paperwork for the limb, “I see him walk and make a loop and bring me the same limb again.”

Jirovec said those cases were the exception rather than the rule, but “the biggest problem we had with a few crews was them trying to get ahead of our monitors to where our monitor was having trouble keeping up with his paperwork.”

FEMA argued, and the judges panel agreed, that the monitors’ paperwork failed to show how the debris was an immediate threat to public safety or property, resulted from the storm or otherwise met the agency’s guidelines.

Grimmer said if IED moves forward with its lawsuit against the parish, the parish should sue the monitors to bring them into the case.

“Everyone might want to back away from the table and get away from it, but if I were parish president, I wouldn’t back up,” Grimmer said.

Ricks, who worked for monitoring firm Alvin Fairburn & Associates during the cleanup, said whatever decisions parish officials make regarding the lawsuit should be based on their attorneys’ advice rather than politics.

“I certainly would not want to be in a position to have to sue either monitoring firm,” Ricks said Friday. “Neither one has the money to pay the parish, and I don’t want to be faced with putting either one out of business, knowing we’re not going to gain anything by it.”

But Ricks said he “would rely on the direction of our attorney.”

Councilman Jim Norred said one option might be for the parish to assign any legal claims it might have against the monitors to IED, which would allow the contractor to proceed directly against the other firms.

“If they’re bent on suing somebody, that might be one way to go,” Norred said. “But at this point, we’re just waiting and seeing.”

While the arbitration panel did not weigh in on FEMA’s allegations of fraud, a special agent with the U.S. Department of Homeland Security’s Office of Inspector General testified he was in the process of opening an investigation in the case.

Delahoussaye, the former parish contractor facing criminal charges for allegedly falsifying timesheets and invoices to the parish, said the parish could use a lot of the same evidence to defend itself if IED’s lawsuit presses forward.

The parish hired Delahoussaye and his firm, C-Del Inc., in October 2009 to help resolve the wetlands permit and mitigation issues lingering from the cleanup.

C-Del billed the parish for about $2 million, but the then-outgoing Parish Council terminated its contract with the company in August 2011 after council members raised questions about Delahoussaye’s invoices.

Delahoussaye, who was identified as an FBI informant during the arbitration hearing, has said his termination was in retaliation for reporting alleged improper and illegal cleanup work by the parish’s contractors. He has filed a federal whistleblower suit and also is seeking recusal of the district attorney’s office in his criminal case.

Delahoussaye said he has all the evidence the parish would need to defend itself.

“I know who did it, when they did it and where they did it,” he said in a recent interview. “I just don’t know why they did it, except for money.”

Delahoussaye said the case has done more to divide the parish than any other political issue in recent memory.

“In the big scheme of things, it’s not really about IED versus the parish,” he said. “This is about a political divide, good versus evil, us versus them. And it’s destroying the parish.”

Councilwoman Joan Landry said the cleanup effort was “a fiasco from day one.”

“I think if the suit moves forward, we’ll do whatever our attorneys tell us to do, but nobody’s going to win in this,” Landry said. “We lost, they lost, everybody lost, but everybody worked together to try to get it resolved for everyone’s benefit. And I think IED knows that. Or at least I hope they do.”

Follow Heidi R. Kinchen on Twitter, @HeidiRKinchen.