EDA Cites County and Town Refusal to Pay Agreed Upon Amounts in Authorizing 2 Loan Defaults to United Bank

In a motion out of a two-hour Closed/Executive Session at the end of its Friday, October 25th meeting (the Open portion of which lasted 43 minutes), by a 4-0 vote the Front Royal-Warren County Economic Development Authority Board of Directors authorized a Resolution approving acceptance of a submitted Consent Judgment of default on two loans totaling over $3.6 million dollars to United Bank. In the referenced motion and Consent Judgment in the civil litigation brought by United Bank those loans are described as “the Leach Run Loan” and “the Avtex Infrastructure Loan”.

As elaborated on below, the motion authorizing the Consent Judgment explained the EDA is “financially incapable” of making ordered “accelerated payments” on the loans in the wake of its founding municipalities both now refusing to pay their shares of those payments.

Present for the Closed Session were EDA Board Chairman Rob MacDougall, and board members JD Walter, Robert Cullers, and David McDermott. Vice-Chairman Bruce Townshend was absent out of town on business. The seven-member EDA Board still has two vacancies in the wake of recent retirements of former members, yet to be replaced by the county supervisors. Also present for the Closed Session was former County Director of Economic Development Joe Petty, and by remote connection EDA legal counsel J. Rodney Young of the Timberlake-Smith firm out of Staunton.

What do you think, we’ll be in Closed Session about two hours, former EDA Board Chair JD Walter may be predicting in his last meeting prior to an out-of-state move. And he nailed it, as former County Director of Economic Development Joe Petty, seated by the door, waits to be invited into that closed meeting. Petty was the primary County staff link to the FR-WC EDA prior to his resignation from the County to move to directorship of The Warren Heritage Society. Royal Examiner Photos Roger Bianchini

As to the defaulted loans, the Leach Run Loan total as of October 25th is cited at $702,192.70. As noted in the Consent Judgment that includes principal ($684,808.04), interest ($9,528.94), late charges ($990.65), attorney’s fees ($6,865.07), and interest at a rate of $57.07 per day “after October 15, 2024 until this judgment is satisfied in full.” It is our understanding that principal amount covers cost runovers above what the community received in state, and perhaps federal, grants for the construction of Leach Run Parkway.

The larger defaulted Avtex Infrastructure Loan is cited at a total of $2,954,770.41, including principal ($2,884,072.58), interest ($40,132.72), late charges ($3,505.45), the bank’s attorneys’ fees ($27,059.66), and Interest at a rate of $240.34 per day “after October 15, 2024 until this judgment is satisfied in full”. That principal amount is believed to include construction of an on-site water purification system, and initial road infrastructure, the latter developed in anticipation of the now aborted ITFederal project’s development on the Avtex/Royal Phoenix Business Park site.

And if those numbers aren’t bad enough, the final line of the Consent Judgment noted the potential addition of “any costs imposed by the Court or the Clerk of the Court” regarding the United Bank civil litigation regarding the two loans.

One’s initial reaction might be that the EDA is in even worse financial trouble than we thought in the wake of its “financial scandal” surrounding the unauthorized movement of EDA assets between 2014 and 2018 during the tenure of now-imprisoned former EDA Executive Director Jennifer McDonald. However, a closer look at the motion authorizing acceptance of the default judgment tied to the submitted Consent Judgment may tell a different story. That story is the involvement of the FR-WC EDA’s two founding municipalities, as reflected in its still legal name of Front Royal-Warren County Economic (or Industrial) Development Authority.

From left, EDA Board members JD Walter, Chair Rob MacDougall, Robert Cullers, and David McDermott, ponder their meeting agenda that would culminate with a blockbuster motion out of a 2-hour closed session. That motion explained the board’s decision, with independent legal counsel advice, to default on two loans to United Bank totaling over $3.6 million in the wake of both the County and Town now refusing to pay their agreed-upon shares of the loan payments.

Town, County liability …

For while as noted in the post-Closed Session motion’s second paragraph, “WHEREAS, the EDA is the borrower, and United Bank is the lender” it is noted that both the Town of Front Royal and Warren County have agreed-upon funding responsibilities on those two loans undertaken for economic development projects within one, the other, or both their boundaries:

“WHEREAS, the Town of Front Royal has for some time refused to fund its agreed upon share of the EDA’s debt obligations on the Loans; and

“WHEREAS, the County of Warren thereafter continued to fund its agreed upon share and the Town of Front Royal’s agreed upon share of the EDA’s debt obligations on the Loans through May 2024, at which time it too discontinued the funding of the EDA’s debt obligations on the Loans; and

“WHEREAS, the County of Warren has indicated to United Bank it would resume payment on the Loans if the Town of Front Royal would resume making payments on the Loans as it had done in the past; and

“WHEREAS, because the Town of Front Royal has refused to resume its share of payments on the Loans, and the County of Warren is not making its share and the Town of Front Royal’s share of payments on the Loans, the EDA has defaulted on the Loans and United Bank has accelerated payment of all indebtedness owed to it on the Loans; and

“WHEREAS, the EDA is financially incapable of making the accelerated payments on the Loans and curing the Loan defaults; and

“NOW THEREFORE, BE IT RESOLVED THAT:

“1. The EDA Board of Directors does hereby agree to the Consent Judgment attached hereto (sighting the above defaulted loan numbers); and

“2. The EDA Board of Directors authorizes its Counsel to endorse the Consent Judgment for entry in the Action,” the motion, adopted October 25, 2024 concludes.

We reached out to EDA Board Chairman Robert  MacDougall for the numbers of the agreed upon payment shares of the EDA loan payments cited in the above motion. MacDougall replied that Leach Run loan was done by a 66% County contribution, with the remaining 34% paid by the Town. The larger “Avtex infrastructure loan” was paid by an equally divided one-third each paid by the Town, County, and EDA.

Chairman MacDougall may be ready to close the meeting room doors to the media around 8:43 a.m. We’d be invited back in at 10:45 a.m. But what’s two hours when you’re having fun?!?

Under these circumstances one might wonder what kind of impact this Consent Judgment and agreed upon EDA default on over $3.6 million in two loans largely funded by the EDA’s founding municipalities might impact those municipalities credit rating and ability to acquire loans for future projects.

And if that isn’t enough, there were two other topics approved for discussion and legal advice in the October 25 Closed/Executive Session on which there was no open meeting action, at least not yet. Those were:

1. VDOT Interchange Grant

Motion to convene in closed session pursuant to Virginia Code § 2.2-3711(A)(8) to consult with legal counsel regarding the matters associated with the VDOT Interchange Grant requiring the provision of legal advice by Board counsel.

1. Tran, et al. (IT Federal) Litigation

Motion to convene in closed session pursuant to Virginia Code § 2.2-3711(A)(7) to consult with legal counsel pertaining to the Tran et al. (IT Federal) litigation where such consultation in open meeting would adversely affect the negotiating or litigating posture of the EDA.

And with the Tran/ITFederal appeal of the civil court ruling of approximately $14 million of liability in the EDA “financial scandal” having been rejected at the State Appeals Court level, one might wonder what kind of claim the EDA Board of Directors might initiate on that money if Tran doesn’t appeal it any further.

This reporter reached out to Town Mayor Lori Cockrell and County Board of Supervisors Chairman Cheryl Cullers for reactions to the EDA Board action of October 25, particularly as it might apply to each municipalities future credit rating and loan acquisition ability, as well as both municipalities decision to cease paying their agreed-upon EDA loan shares. But as of publication Royal Examiner had not received a response to those phone messages.

In seeking additional information on its default decision from the EDA Board, we were informed the board would likely be issuing a press release on the matter this week. Royal Examiner will post and LINK here the release when it is issued.