A woman in a three-year court fight with the St. Paul School District over the loss of her job alleges that one of the reasons the district wanted to fire her was because she blew the whistle on its misuse of a $3.3 million federal grant designed to improve teacher quality.

Betty Holz-Bergmann, who was the district's assistant director of human resources for six years, said that after she complained about how grant money was used, district employees "started a campaign of retaliation," said her husband, Daryl Bergmann, who is one of her attorneys. "She's still traumatized by the whole experience."

In January 2007, three days after she told the U.S. Department of Education and the Office of the Inspector General that she was being pressured to approve inappropriate spending, the grant funding was suspended.

"If there was misappropriation of funds, it's my butt that was on the line," said Holz-Bergmann, who was the grant manager. "And I'm not willing to take that risk for any job."

An audit showed that some of the money was misspent. Less than a month after complaining, she lost her job, according to court documents.

The district told the Court of Appeals that it accepted her resignation in 2007. But Daryl Bergmann said the district reported to one government agency that she retired and told two others that she was terminated.

This month, she won a partial victory when the Minnesota Court of Appeals ruled she didn't have to sign a settlement agreement mediated between her and the district and can pursue her claims against it.

However, the court dismissed her counterclaim that the district has in some respects acted in bad faith.

Spokesman Howie Padilla said the district has no comment on the ongoing case.

'Unallowable costs'

According to court documents, the U.S. Department of Education awarded the district a Teacher Quality Enhancement matching grant in August 2005. Holz-Bergmann, as the grant's project director, certified the district's use of the money.

The grant was intended to help the district recruit and train special education teachers and teachers for English Language Learners, according to Shirley Heitzman, director of the district's Office of Innovation and Development.

Once federal funding was suspended, the district continued to pay for the program because "we really believed ... that the project was just really good," Heitzman said.

In court documents, Holz-Bergmann said the director of human resources tried to get her to approve inappropriate expenditures such as computers for the department and dues for the Human Resources Society.

The audit, conducted by the Office of Inspector General, found that:

• During the 2005-06 school year, the district had proper documentation for $163,193 in matching funds, $159,827 less than required.

• The district charged "unallowable costs" of almost $20,000 to the grant, including computers and printers auditors found in their original boxes, and $1,268 for costs "in violation of the cost principles."

• The district did not have an adequate "property control system" for equipment purchased with the grant.

The district's response to the audit attributes some errors to staff turnover and a misunderstanding of the documentation required. It also says that Holz-Bergmann "retired from the district in June 2007."

The district "instituted new accountability and documentation procedures for grant management and development work," Heitzman said.

It hired a trainer for employees who manage grants and adopted a new reporting system to make sure certain federal forms are properly filled out.

The district receives about $6 million a year from corporate and philanthropic partners and about $10 million in federal and state education grants.

Heitzman said that the U.S. Education Department reinstated the grant money after the audit was completed in May 2008 and reimbursed the district for money it had withheld during the process.

'Emotional distress'

The court fight between Holz-Bergmann and the district has been long and complicated, but it boils down to this:

She thinks the district treated her unfairly after she raised concerns about the grant money. The district wants her to sign a settlement agreement protecting it and its employees from future liability.

According to Lisa Lamm, an attorney for Holz-Bergmann, during settlement negotiations, Holz-Bergmann was allowed to raise only those issues considered "grievable" under her union contract.

But the district, Lamm said, wanted Holz-Bergmann to release it from any liability it might have under state laws that protect whistleblowers or bias victims. Those are matters the district told Holz-Bergmann she couldn't raise.

That's a double standard, Lamm argued. "They want to get something they didn't pay for," she said.

When the district sued to try to force Holz-Bergmann to sign the settlement, which included a $75,000 payment to her, she filed counterclaims alleging that the district mistreated her in a number of ways.

She said that after she questioned the spending, employees defamed her by saying things like she "had a nervous breakdown and couldn't handle working during the busy time of year." She also claims the district retaliated against her for using medical leave to deal with "embarrassment, humiliation [and] mental and emotional distress."

In court documents, the district denied it broke the law. All its actions "were done for a legitimate business reason, in good faith," the district claims.

"I would like an apology," Holz-Bergmann said. "I would like closure, I would like to be vindicated, and I'd like to have my professional reputation restored."

Emily Johns • 612-673-7460