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San Francisco Unified Faces $5.4 Million Legal Battle Over Bus Bills During School Closures

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A school bus parked on a street next to a sign that reads "school bus loading zone."
A school bus is parked outside Buena Vista Horace Mann K–8, part of the San Francisco Unified School District, in San Francisco on March 2, 2023. (Beth LaBerge/KQED)

The San Francisco Unified School District’s former school bus provider is suing the district for $5.4 million for payments it claims the district failed to make during the 2020–21 school year when students were participating in distance learning.

The latest dispute, which is not the first between the private transportation company First Student Inc. and SFUSD, comes as both businesses and school districts across the country are scrambling to recover from losses during the pandemic.

“This case is a corporate shakedown of our public school district by the largest bus company in the United States,” said Nancy Harris, attorney representing SFUSD, during opening statements for the jury trial. “The terms of the contract provide that the school district agreed to pay First Student only when drivers employed by First Student drove students in buses owned by First Student to and from schools and other points.”

Ohio-based First Student is the country’s largest school bus transportation service provider and worked with San Francisco Unified for 40 years before the two organizations cut ties during the pandemic.

While there’s no disagreement that buses weren’t running their usual routes during the 2020–21 school year, representatives for First Student allege that the district owes them money for non-transportation services, such as bus maintenance and vehicle insurance. The company invoiced SFUSD for $5.4 million for those additional costs in the fall of 2021.

In response to First Student's lawsuit, SFUSD filed a cross-complaint for breach of contract, bad faith and violations of the California False Claims Act.

The school district maintains that under the 2020–21 school year contract, they were not obligated to pay for services because buses were not transporting students during the city’s shelter-in-place order.

In an email sent to KQED, the district also alleged that the company “submitted false invoices claiming that hundreds of buses and drivers were deployed on the road in August and September 2020, at a time when students were learning remotely,” according to Laura Dudnick, spokesperson for SFUSD.

“When that did not work, [First Student] demanded that the school district cover its overhead costs. This strategy was part of its nationwide pressure campaign against school districts to increase its revenue, when school districts like SFUSD struggled with budget deficits and were focused on students,” Dudnick wrote.

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In court testimony Thursday, Paul Osland, who was president of First Student during the pandemic, denied pressuring any district into payments during the pandemic, and suggested his company was simply upholding its end of a contract that started in 2015.

Osland asserts that First Student charges for a full program, meaning not only transportation services, but also the operating expenses such as vehicle insurance, bus technology and regular maintenance that is required by California Highway Patrol to keep the buses in operation.

COVID “impacted all of us, but it sure as heck impacted our business,” said Osland in court on Thursday. Osland, who is now retired, previously ran transportation services for Chicago Public Schools. “Of course this is not a shakedown. It was an initiative in everyone’s interest.”

Harris, the attorney for SFUSD, underscored a section of the contract that anticipated school closures.

“The district shall not be obligated to accept or pay for services, herein to be furnished by the contractor, on those days when by the direction of the Superintendent, the district schools are closed to ensure the health and safety of the pupils or for any other lawful reason. The district agrees to notify the contractor, not later than 5:30 a.m., on days of such school closures,” the contract reads.

Osland, however, said he thinks that portion of the contract would only apply to short-term closures like snow days or fire days, not months-long disruptions. No such distinction is made either way in the contract.

First Student works with around 1,000 districts across the U.S. and Canada. The company provides yellow school bus transportation to and from schools for general education, students with disabilities and individualized education plans, field trip services and charter bus services.

In a statement to KQED, the company said it filed the lawsuit “because of bad faith and broken promises by SFUSD.”

“SFUSD made a choice to stop paying for the many services that SFUSD required under the bus contract, including the more than 230 yellow school buses dedicated to SFUSD that First Student kept in position throughout the pandemic,” the statement read.

“First Student stood by its business partner, fulfilling its obligations to maintain operational readiness to ensure it was ready to transport students as soon as schools reopened. And when they did, First Student was ready when SFUSD called. Over an eight-month period, First Student submitted discounted invoices, but SFUSD paid nothing. SFUSD had encumbered funds available, and even issued a purchase order, but it made a choice not to pay. That is not just or fair, and for that reason, we expect to prevail in court.”

After 40 years of service, SFUSD cut ties with First Student during the pandemic, and the district in July 2021 awarded school transportation to app-based start-up Zūm in a $150 million five-year contract.

At the time of the deal, the district estimated the new provider would save the district about $3 million annually, according to a report from TechCrunch.

In 2021, First Student sued Zūm, whose consultant had recently left a high position with First Student. First Student alleged the employee downloaded the competing bid from its company while joining Zūm. That case is set to begin trial August 14.

First Student also filed an appeal against SFUSD’s process and decision to contract with Zūm. The court denied that appeal from First Student in 2022.

Editor's note: This story has been updated to include a statement from First Student. This story also has been corrected, to accurately reflect the status of First Student's lawsuit against Zūm, which is scheduled to begin trial Aug. 14.

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