It was a who’s who of the controversy swirling around the audit and investigation into EDA finances and its aftermath on Wednesday morning, May 22, on the second floor of the Warren County Courthouse.
A motions hearing on the EDA civil litigation filed on March 26 was slated for the 9 a.m. Circuit Court docket before Judge Clifford L. Athey Jr., while the Special Grand Jury empanelled by Athey on March 27 to investigate potential criminality tied to the EDA financial investigation and civil litigation was beginning three days of witness testimony across the hall.
It appeared that all people named as civil defendants, save Truc “Curt” Tran who was represented by counsel, were present along with relatives, attorneys, former EDA co-workers and Front Royal Police investigators who worked the EDA office break-in case. The interesting mix created a standing room only crowd in the second-floor hallway, as well as some confusion as to which circuit courtroom was whose ultimate destination.
In opening the motions hearing Judge Athey noted that he would be leaving the circuit court bench in September for a seat on the Virginia Court of Appeals, so would not be the judge who would ultimately hear this civil case. He surmised the 26th District’s Chief Judge would assume that role.
But it was Athey who would hear and rule on a bevy of motions before him on Wednesday.
The judge agreed with defense attorney calls for more detail in the six-counts tied to the EDA civil complaints seeking a minimum total of $17.6 million from nine defendants, five people and four Limited Liability Corporations (LLC’s) tied to those five people – Jennifer McDonald, Donald Poe, Justin Appleton, Truc “Curt” Tran and Daniel McEathron.
Attorneys for the Sands-Anderson law firm that filed the suit on the EDA’s behalf have drawn heavy defense counsel criticism for listing all defendants together in one lawsuit seeking a lump-sum amount from all – “implausible conspiracies” was the term used by Jennifer McDonald attorney Lee Berlik in his motions filing.
And while there is a great deal of specificity as to acts and amounts of money in the 160 paragraphs preceding the 39-paragraphs comprising the six counts, such detail is absent in the listing of those counts of: 1/ Fraud and Fraud in the Inducement; 2/ Conversion; 3/ Conspiracy; 4/ Unjust Enrichment; 5/ Breach of Fiduciary Duty of Loyalty; and 6/ Ultra Vires (improper) Transactions and Agreements.
While not an attorney, for this long-time court observer it is surprising that the EDA civil action wasn’t broken into separate suits involving the various acts, entities and amounts of money cited in the first 160 paragraphs of the civil complaint. And while I would have asked Sands-Anderson and EDA civil case attorney Cullen Seltzer about that strategy, he was not speaking on the record following the approximate half-hour hearing.
Athey gave defense attorneys 21 days to file memos in support of their Demurrers and Motions for Bills of Particulars on the cases against their clients; and the plaintiff counsel 21 days to file Briefs in opposition to the defense assertions; and an additional seven days for defense responses to the plaintiff Briefs.
Those defense and plaintiff filings will be argued at the end of the Motions Day of July 17.
As to a motion to Quash the complaint against Earth Right Energy and its principals Donald Poe and Justin Appleton, Athey set a hearing for next Wednesday, May 29, at 9 a.m.
There was an interesting revelation by plaintiff attorneys in the wake of Jennifer McDonald’s co-attorney Jay McDannell’s request for the now seven-month, three-quarters of million dollar “forensic audit” of EDA finances the County has fronted the EDA money for. McDannell sought that detail so as to better understand and prepare a defense for his client on the financial misappropriation allegations against the former EDA executive director.
Noting the EDA and County retention of the accounting firm of Cherry Bekaert, out of its Richmond office, Seltzer said there could be a problem with the 10-day time period Athey ordered for provision of the McDonald attorney-requested audit materials.
“We’ve been hearing this for six months – it’s time to put up or shut up,” Athey told the plaintiff attorney.
Seltzer then appeared to indicate that Cherry Bekaert had not done a “forensic audit” as it has previously been referenced in County and EDA discussion, but rather what was later termed an intrinsic fact-finding. He also said a “final audit gap complaint” was not yet prepared or available for submission to discovery motions. Previously EDA officials have indicated that after the EDA board and staff have reviewed the most recent draft of the Cherry Bekaert financial investigation in closed session, the hard copy has been shredded.
“Whatever they’ve prepared – file it,” the judge instructed plaintiff counsel.
McDonald attorney McDannell also addressed the potential of criminal prosecutions against his client from the Special Grand Jury investigation going on across the hall on Wednesday. McDonald’s counsel, as well as other case defense attorneys, have pointed to the potential of Fifth Amendment assurances (the right not to self-incriminate) from testimony in the civil case were criminal indictments handed down by the special grand jury’s related investigation into their client’s actions.
Athey noted that no indictments have yet been filed and observed that similar arguments were put forth “in every divorce case where adultery is alleged”. The judge appeared to side with the plaintiff in this argument, noting that the issue could be revisited were criminal indictments, in fact, handed down against defendants in the civil case.
McDonald’s counsel also argued to quash a portion of plaintiff subpoenas on his client’s finances related to her legal representation. In explaining the request Seltzer noted that the former EDA chief executive is accused of “defrauding a significant amount of money from the EDA” and wondered if some of that money was being used to fund her defense.
“Is she using stolen money to pay her attorneys,” Seltzer asked.
However, Athey granted the defense motion to quash that portion of the plaintiff subpoena for financial records.
EDA – Do we want something different? Now is the time to say
“Do we want something different? Now is the time to say, ” said Councilman Jacob Meza.
At the Front Royal Town Council work session on September 16, 2019, Councilman Meza gave an update from the recent EDA Reform Committee meeting. During this discussion, Mayor Matt Tederick brought up the probability of the Town to create its own Economic Development Authority. He said that it would not be uncommon as other communities in Virginia have established such entities.
The discussion continued concerning the “double” draws from the Towns line of credit. Mayor Tederick said, “As soon as the Town was aware of the transaction, Town officials reported to the proper authorities of what gave the appearance of something inappropriate.” He went on and said, “We’re not paying for it. Town citizens are not paying for that money.”
Councilman Chris Holloway ask Town Attorney Doug Napier, “If the bank mistakenly puts a million dollars in my bank account and I spend it, is it criminal?”
Vice-Mayor Sealock informed Councilman Meza to watch his words concerning the Police Department project, “The Police Department is not finished. There is a major punch list.” Councilman Meza clarified his words.
Town Council members went into a closed meeting to consult with legal counsel and staff regarding “probable litigation,” as well as to discuss and consider “performance, demotion, salaries, disciplining, or resignation of specific public officers, appointees, or employees of Town Council,” according to the agenda.
Watch the discussion on this Royal Examiner video:
High drama on day two of Sayre defamation suit against McDonald
As Royal Examiner reported on September 11, that day Shenandoah District Supervisor Tom Sayre was awarded $20,000 of $25,000 in damages he was seeking in a General District Court defamation civil suit against former Front Royal-Warren County Economic Development Authority Executive Director Jennifer McDonald.
While an overview of the case and Judge Ian Williams’ decision and damages ruling was presented in that linked story, there was quite a bit of courtroom drama that led up to that decision that went unreported due to time constraints. We will endeavor to fill in some of that detail now. And with neither side in the case requesting a court reporter for day two of the trial, this is the best you’re going to get.
As Sayre took the stand to open day two of his defamation lawsuit against McDonald there soon were tears from the plaintiff upon recalling the moment he discovered he had been implicated in a series of alleged criminal incidents targeting McDonald and the EDA headquarters.
Sayre based his $25,000 General District Court claim of defamation of character upon the presence of his office cell phone number and the instruction “Do not call Tom during business hours” on a crumpled note McDonald pointed out to Warren County Sheriff’s Office responders to her June 15, 2017 report of an act of vandalism at her home.
Sayre contended that the typed note, as well as the alleged criminal incidents to which it appeared linked, was fabricated either by McDonald or at her direction as a means to deflect attention from her activities as the EDA’s chief executive that led to her December 2018 resignation and current civil and criminal legal problems. Those problems include being a primary defendant in civil suits brought by the EDA and Town of Front Royal seeking recovery of as much as $20 million and $15 million, respectively; as well as 28 felony criminal indictments stemming from the EDA financial fraud investigation launched in September 2018.
Though you might think it would be the defendant crying in this circumstance, it was the plaintiff’s tears that began shortly into direct examination by his attorney Tim Bosson. Asked how he found out he had been implicated in criminal activity targeting McDonald and the EDA, Sayre began to recall an August 2017 phone call from former Royal Examiner Editor Norma Jean Shaw telling him he needed “to protect” himself due to the above-cited references in the vandalism scene note.
“I was in the kitchen,” Sayre began haltingly, as he glanced over his shoulder from the witness chair toward his wife seated behind press row. Sayre’s testimony halted for several minutes as he tried to regain control of his emotions, sobbing gently at times.
Those tears eventually evolved into sometimes confrontational cross examination exchanges with McDonald attorney Lee Berlik that led to admonitions from the bench to Sayre not to critique Berlik’s questions to him: “These are yes and no answers – you were doing real well there for about eight seconds,” Judge Williams told Sayre at one point during the plaintiff’s nearly two-and-a-half hours on the stand.
The eight seconds of court-approved exchange between Berlik and Sayre referenced by Williams was Sayre’s reply to the question, “Did you ever tell the police that Mr. Bianchini (yes, this one) was suspected of cutting the brake wires on your car?”
After a slight pause Sayre replied, “I’m going to answer no,” elaborating that he had three suspects to what he testified was discovered to be sliced brake wires causing warning lights to come on and the vehicle not to start as his wife attempted to leave their property in their Chevy Traverse several years ago.
It would not be the only reference to your humble reporter during the day’s testimony and closing arguments. That is due to Bianchini’s (I hate referring to myself in the third person) day one testimony that McDonald told him details of the vandalism the afternoon of June 15, 2017, during a lengthy meeting at her office. It turned out that conversation came five to six hours before McDonald reported the stone-throwing vandalism of her home at 9:02 p.m. that evening. Also drawing attention to this reporter were the plaintiff’s day one introduction of a series of texts and emails between him and McDonald regarding the vandalism event at her home and her private investigator’s research into the incident.
They were messages largely concerning a potential suspect supposedly connected to Sayre as a past criminal client, who was approached about wearing a wire to draw an admission from Sayre to his involvement. McDonald’s Private Investigator Ken Pullen testified there was neither an ID’ed suspect nor any plan for wiring a suspect during his day one testimony on August 2.
Asked by Berlik during cross examination if he had feared for his safety or that he might be murdered, Sayre explained that he feared McDonald or associates might kill him for crossing the then EDA executive director concerning the Workforce Housing Project. During a June 2017 county board-EDA work session Sayre and fellow county supervisor Archie Fox had questioned McDonald and EDA board Chairman Greg Drescher about the process of that project.
It was a project that bore questioning, as it evolved from a reported 2014 $10 “gift” from McDonald’s aunt and uncle for whom the EDA executive director maintained a real estate broker’s license and job, to a $445,000 “moral obligation” purchase of 3-1/2 acres by the EDA upon disclosure a previously unmentioned federal tax credit deadline had not been met in 2017. Of course Sayre and Fox weren’t the first to question that and other recent EDA projects. Councilwoman Bébhinn Egger and Royal Examiner had begun asking questions, particularly about Workforce Housing and the ITFederal project over the previous year.
“There are people who get knocked off if they know too much,” Sayre explained, referencing the 1983 murder of Front Royal Police Sgt. Dennis Smedley, and another apparently fatal incident involving a local physician he identified as “Doctor Lind”.
“She talked about killing me … that she missed an opportunity to ‘take me out’,” Sayre told Berlik, adding of the still unsolved Smedley murder, “There is a theory he knew too much about drugs in the community.”
The give and take between McDonald’s attorney and Sayre led to Berlik’s closing argument that because the plaintiff believed something in his mind did not mean it was true, or that his client had caused those beliefs to formulate.
Berlik argued that Sayre’s fears were stoked more by Shaw’s phrasing of her warning phone call to him, the recollection of which led to Sayre’ initial battle with his emotions on the stand, more so than the actual presence of his number and the instruction “don’t call Tom during business hours” on the typed note pointed out by McDonald to first responders at the home vandalism scene.
Berlik also questioned whether Sayre had suffered any actual damage from the note and its contents. While Sayre testified he had gone from full-time legal practice to part-time in the wake of the note’s discovery, Berlik elicited the information that his salary at job he took upon cutting back his legal practice, as Human Resources Director at Seton Home School, paid him $93,000 to $95,000 with subsequent Cost Of Living (COLA) increases. However Sayre insisted he had taken about a $10,000 loss of income hit due to his employment shift.
Berlik also referenced previous testimony from witnesses who all indicated they did not believe Sayre’s reputation had been impacted in the community by the alleged conspiracy note.
Sayre countered that he had run into a woman during his current campaign for re-election who said she would not vote for him because of a belief he had been involved in the alleged incidents targeting McDonald. Asked her name by Berlik, Sayre could say only that she lived “up on Freezeland Road”.
Sayre also testified that he had a perhaps unexpected opponent in his run for re-election to the Shenandoah District Supervisors seat. Berlik asked if that opponent, identified as Walter Mabe, was running against him because he believed Sayre had been involved in a criminal targeting of McDonald.
“Where is he? … Where is the woman on Freezeland Road?” Berlik asked during closing arguments. His point to the court was that if either could provide evidence of the plaintiff’s assertion of damage to his reputation, why hadn’t they been produced as plaintiff witnesses.
“I don’t believe it happened,” Berlik said of the Freezeland Road encounter.
Berlik also questioned Sayre’s claim of emotional damage. The plaintiff said he suffered a great deal of stress and anxiety about his personal, professional and political future in the wake of information about the note circulating in the community. Sayre said he had talked to a priest, among others, though not in professional clinical treatment settings.
Defense counsel also cited a number of examples involving personal disputes with a variety of people to illustrate that the plaintiff was exceptionally thin-skinned and might take offense where others wouldn’t. Berlik pointed out that others implicated in the note, including Shaw and Michael Graham, had not filed defamation actions as a result.
Sayre attorney Bosson countered by saying the defense “eggshell” ego argument didn’t matter – that if his client was negatively impacted, as he asserted the plaintiff had illustrated he was, that was the bottom line in a defamation case.
“She was trying to destroy me – I called the BAR about it,” Sayre told Bosson on direct examination about fears for his professional future.
Noting his client has never been proved to have been the author of the vandalism scene conspiracy note, defense counsel Berlik pointed to others in the community who might have motive to attempt to set Sayre up for criminal acts out of various personal or professional conflicts with him.
Wait, what – WHO?!?
“We’re not saying Mr. Bianchini threw the rock – but they have a negative history. He had as much motive as anyone,” Berlik told the judge of testimony of past conflicts between the reporter and plaintiff including Sayre’s brake wire cutting suspicion of Bianchini and Bianchini’s filing of a 2011 stalking report involving Sayre around the time of the multi-million dollar SolAVerde tortious interference in a business contract lawsuit against Sayre and then fellow councilmen Chris Holloway and Carson Lauder.
However in his closing argument Sayre attorney Bosson pointed to the past tensions between the reporter and his client brought out by the defense as a positive for the plaintiff’s case. “In a way Mr. Berlik is our best witness – he’s gone out of his way to show Mr. Bianchini doesn’t like Mr. Sayre; so his (Bianchini’s) bias is in the opposite direction.”
Defense counsel Berlik argued that it was Sayre himself, upon being informed of the note and its contents by Shaw in August 2017, who had done the most to spread the information he was implicated throughout the community.
However plaintiff counsel countered that McDonald had played Bianchini with the “off the record” information about the note and investigation in order to get the information spread into the community.
Sayre was asked on the stand about Bianchini’s testimony that he only told four “close associates”, three professional and his long-time girlfriend, in confidence about the information he had gotten from McDonald about her PI’s investigation into the vandalism situation.
“I think he may have forgotten how many people he told,” Sayre replied. (Why is everybody picking on my memory?!? – What were we writing about?)
In the end the case revolved around two primary arguments – who was a likely author or architect of the note and the reported crimes against McDonald and the EDA offices; and were there actual damages involved, or just Mr. Sayre’s perception of damage where none actually existed.
In closing Bosson said the plaintiff didn’t have to prove McDonald herself wrote the note or threw the rock through her front door window.
“She told Mr. Bianchini that afternoon – how does she know about a crime that hasn’t happened? We are not saying she threw the brick or that she wrote the note. What we are saying is Ms. McDonald knows who threw the brick; what we are saying is Ms. McDonald knows what was in the draft note – she was the one behind it …
“This was all a scam by her to deflect attention off of herself – she may have thought it was for kicks to implicate Tom Sayre in a crime,” Bosson told the court, referencing both the home vandalism and McDonald’s report in May 2017 of a break in at the EDA headquarters.
On the stand Sayre expressed distress at being tied to racial slurs on one of the photos of McDonald and family members discovered at the EDA office after McDonald reported a break-in there on May 17, 2017, about a month before the reported vandalism at her home. The vandalism scene note referenced “Norma Jean” and “the Examiner” waiting for information supposedly taken from the EDA office that day.
At the time Shaw was exploring the large amounts of cash McDonald was using in her real estate business transactions, as well as the presence of the Sheriff as an agent on one of McDonald’s two real estate companies.
“This is far from a simple case,” Judge Williams said after a 10 minute recess to formulate his ruling. He cited four elements of defamation: 1/ publication, or perhaps in this case dissemination; 2/ an actionable statement; 3/ recklessness; 4/ false and defamatory information.
Noting that both parties were public figures constantly under public scrutiny, the judge observed, “They must be thick skinned about such things – but they don’t need to be thick skinned about malice.”
Williams said the evidence must be viewed in its totality, rather than compartmentalized.
“The plaintiff has evidence that the defendant had compelling reasons to use the plaintiff as a dupe in this,” the judge said referencing EDA/County Attorney Dan Whitten’s testimony that “things were falling apart” at the time and that “the defendant had reason to keep a lid on it … She had a reckless disregard for truth” and “reason to shift attention from herself to another public figure,” Judge Williams observed.
Judge Williams then referenced the different outcome he was about to render to the not guilty verdict in McDonald’s criminal misdemeanor false police report case last October 31. Judge W. Dale Houff dismissed the case against McDonald regarding her reported vandalism of June 15, 2017, at her home. That case was initially developed by FRPD investigators based on information supplied by this reporter during a police interview the morning of June 16, 2017. After nearly a year the warrant was brought forward by the Virginia State Police on June 13, 2018.
Judge Williams said it was unfortunate the outcomes were conflicting, adding of a key witness in both trials, “Mr. Bianchini’s memory seem to have been rehabilitated.”
The reference was to McDonald criminal attorney David Crump’s October 31, 2018 cross examination question to this witness about a notation on EDA Administrative Assistant Missy Henry’s 2017 calendar about an alleged meeting Bianchini had scheduled with McDonald at 9:30 a.m. Friday morning, June 16. It was then that McDonald and her attorney asserted Bianchini was told about the vandalism of the previous evening at her home, rather than the previous afternoon as he claimed.
Like McDonald, Henry has since been indicted on criminal felony charges related to the EDA financial fraud investigation, though in Henry’s case only two indictments related to disbursement of EDA assets related to the EDA-financed B&G Goods operation in the old Stokes Mart building.
But as Bianchini testified in this defamation trial, if he admitted to an “imperfect memory” and expressed confusion on the stand last October, it was confusion about whether he had scheduled a meeting with McDonald for that Friday morning 16 months earlier, rather than confusion about the Thursday meeting.
And Judge Williams noted that two witnesses called in this defamation trial corroborated key aspects of Bianchini’s testimony. Those witnesses were former EDA Marketing Director Marla Jones and FRPD Investigator Landin Waller. Neither was called as a witness by the prosecution in McDonald’s 2018 false police report trial.
On August 2, 2019, Jones testified that Bianchini was in McDonald’s EDA office for an extended period of time behind closed doors on Thursday afternoon, June 15, 2017, around 3 p.m. She also testified that she did not see Bianchini in the office the following morning. It was that Friday morning that Jones told FRPD investigators that McDonald had told her about the vandalism; and that the two talked for much of the morning.
Also on day one of the defamation trial last month Investigator Waller confirmed that Bianchini had informed him and Captain Crystal Cline in an interview the morning of June 16, 2017, between 10:40 a.m. and 11:30 a.m. about receiving the information about the vandalism from McDonald the previous afternoon.
And as Bianchini testified on day one of this defamation trial, had he been told about the vandalism at a meeting with McDonald within an hour of arriving for his interview at FRPD’s investigative headquarters, he would not have forgotten that – “I probably would have had to go straight from the EDA office to police headquarters,” Bianchini observed on the stand during his August 2 testimony.
And as Bianchini told fellow reporter Josh Gully during a phone interview for his story on the defamation trial, “Anyone can write anything on a calendar at any time”; and that if a meeting had once been scheduled with McDonald for June 16, 2017, it had previously been cancelled.
But without the corroborating witness testimony and no redirect examination to explain his hesitancy in response to the June 16, 2017 morning meeting question posed by the McDonald defense on October 31, 2018, Judge Houff dismissed the criminal case against McDonald without the defense even having to present its case.
However 10-1/2 months later the civil litigation surrounding McDonald’s vandalism report would have a different outcome.
As previously reported, after hearing nearly 3-1/2 hours of testimony and arguments on day two of the trial, Judge Williams awarded Sayre $5,000 in damages, $15,000 in punitive damages, and $676 in court filing costs. McDonald has 10 days from the judgment to file an appeal to Circuit Court.
Settle down boys
In another ruling, Williams declined to impose sanctions on either attorney for their conduct in or out of court during this case.
“There has been some hostility in this case … at times moderate to heavy … about what a dog the opponent was,” Williams said of the attorneys, describing “braggadocio” from both sides on how tough they were going to be in seeking a successful resolution for their clients.
In fact as Bosson and Berlik argued a motions point during last Wednesday’s hearing, Judge Williams admonished them at one point, “Now both of you, sit down.”
Despite the theatrics and contentious nature of the case, Williams said, “I am not inclined to sanction either side in this case.”
Bosson argued for some sanction against Berlik for attempting to bury the plaintiff in motions filing in the case’s earlier days. In fact during a March hearing the number of motions filings and legal hours spent on the case led the judge to question how much money the two sides were spending in a case with a maximum recovery cap of $25,000.
“It’s very curious – but I’m giving you more time to arrange the deck chairs on the Titanic,” Williams famously observed of the hours and expense of the case on March 30 when he put a lid on further motions hearings.
In fact costs were a point of testimony during Sayre’s lengthy cross examination last week. Berlik asked the plaintiff if his legal costs had reached $77,000. Sayre replied, “No, they are much less than that,” estimating them at $6,000.
Following the trial’s adjournment outside the courthouse Bosson explained to the media that he had taken a flat up-front fee of $6,000, with a percentage of the award granted by the court. Typical percentage arrangements could add another $6,000 to Sayre’s legal fees.
While Bosson indicated he and his office had actually put $77,000 worth of legal time into the case, he said he had taken the reduced fee arrangement because he thought it was the right thing to do for his client in this particular legal circumstance.
EDA Reform Committee receives audit update; reviews properties
FRONT ROYAL — The Reform Committee of the Front Royal-Warren County Economic Development Authority (EDA) learned during its September 12 meeting that the Fiscal Year (FY) 2018 audit of the authority’s financials — which currently are at the center of a major fraud and embezzlement scandal — should be ready by year’s end.
EDA Executive Director Doug Parsons told committee members that in-house accountants are finished reviewing the proposed adjusted journal entries on the asset side of the balance sheet done by investigative public accounting firm Cherry Bekaert, and now are working to finish the adjusted entries for debt on the capital side of the balance sheet.
“It’s going to be their best effort to represent what has happened,” Parsons said. “We are hopeful by September 27 that they’ll have everything ready to go … for the audit,” which will be completed by the EDA’s auditing firm, Yount Hyde and Barbour (YHB).
The EDA Board of Directors first will need to sign off on what gets submitted by the accountants to YHB, which will conduct the audit and inform the EDA about its current financial standing.
Fork District Supervisor and EDA Reform Committee Chairman Archie Fox asked whether, at the end of the audit, the members would know if the EDA was solvent. “Is that a fair question?” he asked.
“We have cash,” answered EDA Board Chairman Ed Daley, “but we’re like the federal government. If somebody called the federal government and said, ‘We want you to pay all of your bills today,’ the federal government’s in trouble; they can’t do it. We’re in that type of a position where what we owe, our liabilities, exceed our assets, but we have cash.”
In fact, according to Parsons, the EDA is $41.9 million in debt with roughly $1.8 million in the bank.
Front Royal Town Councilman Jacob Meza, another reform committee member, asked what the plan is for getting the EDA back to a normal operating level.
Parsons said EDA properties will be sold in order to recover as much taxpayer money as possible, and funds should be recouped through lawsuits. He said most of the EDA’s debt is covered.
“The First Bank and Trust IT Federal Loan, for example, is covered by Mr. Tran’s payment. From cash flow we’re covered on that loan and that’s big; that’s a pretty good-sized loan and that’s a huge payment. Thank goodness he’s making his payments faithfully,” said Parsons.
Going forward, Daley said that one of the future conversations to be had by the EDA Reform Committee must regard the role the EDA should play in the acquisition of properties “and how speculative, if you will, we should be.”
He suggested that the EDA, Town Council and Warren County Board of Supervisors come up with a recommendation around that idea.
During his updates, Parsons also provided committee members the status of several EDA properties, including 404 Fairground Road.
“We’ve been marketing that property and we have a fully signed and executed letter of intent to sell that property and we’re working with the client on a sales contract,” Parsons said, adding that the buyer wishes to remain anonymous until the contract and subsequent sale are finalized.
A potential buyer also exists for the EDA’s warehouse at 426 Baugh Drive, where Parsons said, “We have a very interested party that we are in negotiations with at this time.”
It’s an entirely different situation for the EDA’s properties at 506 and 514 E. Main Street, which are the old Stokes Mart and nearby apartment building, which remain on the market.
“We thought we had a buyer, but they backed out,” said Parsons. “We will continue to market those two properties.”
Meza asked if there’s a strategy that the EDA has adopted to select certain properties for sale and for what reasons.
“If I had a magic wand,” Parsons said, “the ones I’d want to sell first and foremost would be Stokes Mart and the apartment building, which the EDA has no business owning, in my opinion.”
And while 404 Fairground Road is a fine property, Parsons explained it also isn’t in the realm “of what EDA should be owning and marketing in an effort to create new jobs and bring in a new tax base.”
Comparatively, Parsons said that the EDA’s 426 Baugh Drive is “exactly the kind of property the EDA should own and I’m glad that we do; of course the idea there is to bring in a major employer to make a significant contribution to the tax base so we’re actively marketing that property. We have the ability to be a little discerning about who we sell it to and make sure we get the most bang for our buck.”
Daley added that it’s very important to the EDA Board that the Baugh Drive property is bought for its intended use, which should be “some type that’s going to develop jobs and the tax base.”
Meza said it seems that the EDA has put its properties into two categories — to get rid of the ones that it shouldn’t hold on to and to identify the most strategic properties to market to companies. He also asked if there’s another category, like one that’s designed to maintain EDA solvency by just selling off properties and keeping the monies.
While that is part of the overall strategy, Parsons said “it’s not a desperate fire sale for all of the properties.” Instead, there’s a “sliding scale” of priorities or more of a willingness to be more discerning about who buys the properties. “You can only sell them once,” he said.
Other EDA Reform Committee members present Thursday were Town Attorney Doug Napier, County and EDA Attorney Dan Whitten, County Administrator Doug Stanley and Council Clerk Jennifer Berry.
Watch the Royal Examiner video to hear the discussion between Whitten and Meza about whether the EDA can be dissolved or file for bankruptcy. Hint: Bankruptcy for such an authority as the EDA isn’t legally permitted, according to Whitten.
Exploring Warren County’s EDA financial scandal – How did it happen?
As the final weeks of the summer of 2019 arrive in the northwestern Shenandoah Valley, one small-town, rural community remains conflicted, perhaps even collectively traumatized by a financial scandal that has carried the names Front Royal and Warren County across Virginia and occasionally beyond into major media markets across the country.
In September, less than six months after civil litigation was filed seeking recovery of millions of dollars of allegedly misdirected economic development assets there have been:
– forty-one criminal indictments served against five defendants related to alleged financial fraud within the local Economic Development Authority;
– four surviving EDA civil defendants and their companies have been sued for the return of up to $21 million dollars of those economic development assets;
– a long-time, generally well-thought-of sheriff is dead, possibly on the eve of himself being criminally indicted after being named one of the EDA civil suit defendants;
– the Town of Front Royal has filed a civil suit against the EDA and its former executive director that has climbed from an initial $3 million figure to as much as $15 million;
– a Special Grand Jury looking into potential criminality surrounding all of this has asked for a six-month extension to March 31, 2020, to continue its work begun in early April.
We must remember that everyone who has been charged civilly and/or criminally will have their day in court with an opportunity to give their side of the story and claim misunderstanding or innocence. But human nature being what it is, fingers have been pointed – sometimes rationally, sometimes not – and an ongoing, collective query remains on the lips of a community – whoever and however, how and why did it happen?
“We’re here tonight because there was a catastrophic failure that allowed criminal embezzlement and rampant mismanagement to flourish,” recently-elected EDA Board of Directors Vice-Chairman Jeff Browne said on behalf of the EDA to open the August 27 joint meeting of County, Town and EDA boards and staffs.
That is the short answer.
“None of us ever want to see that happen again. The failures can be grouped into two categories … failed procedures and failed oversight,” Browne added of the outline for a path forward.
What led to those catastrophic failures of people and processes will take a bit longer to unravel.
While ultimate legal responsibility will be the province of the civil and criminal court systems, likely even at the federal level on the criminal side, there can be little doubt that large amounts of money designated for public use related to economic development in Front Royal and Warren County were moved haphazardly with little, if any consideration to due diligence.
One can only wonder where the pertinent question that might have prevented it all was from a total of 19 elected and appointed board members from the Town, County and EDA over the past five-plus years. It wasn’t a difficult question – “Is what I’ve been told to justify a large investment of public funding, let’s say $10 million, verifiably true?”
Oh, that’s right – that question WAS asked three years ago.
However when first posed in mid-2016 by a lone municipal voice, Town Councilwoman Bébhinn Egger, as well as the Royal Examiner news staff, it was initially ignored and/or vilified by every other involved public official.
The vilification was that “negative press” was threatening the successful conduct of EDA business, particularly ITFederal business. It is a business now asserted in court filings as having fraudulently received the largest single chunk, $10 million, of EDA assets being sought for recovery in the EDA civil litigation.
But three years ago then Councilman Bret Hrbek, a recent if unsuccessful applicant for a seat on the EDA board of directors, seemed to speak for a distinct town council majority of five and the mayor when he suggested that the question about the truth of what was being presented to this community about ITFederal was counterproductive.
Because that “negative press” being generated by Bébhinn Egger and Royal Examiner about the ability of Truc “Curt” Tran and his ITFederal LLC to live up to the promised $40 million investment creating 600 high-paying tech industry jobs in this community had led the ITFed CEO to consider taking his ball and going home – or rather to take his LLC trumpeted as the first commercial redevelopment client at the Avtex Brownfield site, and go elsewhere.
But would that have been such a tragedy – particularly before the Town offered its initial one-month, twice-extended $10-million “bridge loan” that enabled the EDA to finalize its $10-million
loan to ITFederal through First Bank & Trust?
According to documentation in the Cherry Bekaert EDA financial fraud investigation, Tran listed ITFederal assets of $2,020,000 as collateral for the $10-million bank loan facilitated through the EDA. But $2,000,000 of that amount was the value of the 30-acre property at the Avtex site/Royal Phoenix Business Park which the EDA “gifted” behind closed doors to Tran for $1 – yes, one dollar American – after public discussion of a $2-million dollar sale price.
Royal Examiner thought so in its first month of existence when it broke the news of that one-dollar, 30-acre gift to ITFederal leading to a year’s delay in approving the transaction by federal oversight authorities.
As noted in the linked October 27, 2016, Royal Examiner story, approval from the U.S. Justice Department to remove the ITFederal parcel from a bankruptcy court-ordered $2.06 million lien on the Royal Phoenix/Avtex property came on September 23, 2016. That was just over a year after the request to allow the one-dollar sale was sent out by then EDA/County Attorney Blair Mitchell on September 18, 2015. The stated rationale was that facilitating the ITFederal project with a give-away of land valued at $67,000 an acre would jump start other full-price purchases at the site.
“This 30 acres has been sold for $1.00 in order to get a developer to come in and begin the process of other buyers,” Mitchell wrote, adding, “The EDA already has a buyer for a 3-acre parcel to sell at $67,000 per acre, so selling this parcel as a way of breaking the ice will pay off in the long run. While the $1 will not be used to pay down the $2,060,000 lien, sales proceeds from future sales will be applied toward the paydown of the secured debt.”
Three years later we see how that plan worked out:
1/ no three-acre sale to CBM Mortgage at Royal Phoenix;
2/ no other land sales at Royal Phoenix;
3/ no $40 million investment or any jobs created by ITFed at the Royal Phoenix site.
In fact per the ongoing sweetheart agreements he was dealt by the EDA, it appears Tran may invest about $2 million to create an unoccupied 10,000 s.f. building at his “get the redevelopment ball rolling” gifted acreage with no further obligations other than that he have a certificate of occupancy issued by the middle of 2020 and continue to make monthly payments for the balance of 30 years on that $10 million bank loan through the EDA.
And the Cherry Bekaert investigation verifies what Royal Examiner and Bébhinn Egger were saying at the time – that there was no evidence the $140-million dollar federal government contract ballyhooed by Tran, his D.C. political sponsor Robert Goodlatte and EDA Executive Director Jennifer McDonald as the basis for ITFederal’s investment here ever existed.
How did it happen – not just the ITFederal and Workforce Housing debacles that first attracted this media outlet and Councilwoman Egger’s attention – but all of it, the 16 specific project allegations cited in the Cherry Bekaert working papers report and summary?
Those projects in order of their listing in the Cherry Bekaert summary are: Workforce Housing Project/Royal Lane Property; Afton Inn Property Improvements; Criminal Justice Training Academy; Bargain Land Sale and Issuance of $10,000,000 Loan to ITFederal; Payments to or on Behalf of ITFederal; Payments to Earth Right Energy; New Market Tax Credit Projects; Leach Run Parkway Easements; Wetland Credits; New Hope Bible Church; 999 Shenandoah Shores Road; Payments to (McDonald) Relatives; USDA Intermediary Relending Program; Stokes Mart/B&G Goods; Payments to Known and Suspected (McDonald) Business Partners; USDA Rural Business Enterprise Loans.
How could personal and procedural checks and balances collapse so catastrophically for such a length of time, in so many directions?
“I had no reason not to trust her,”
“I had no reason not to trust her,” is a comment offered by more than one EDA or municipal official in explanation of the lack of due diligence performed on project proposals and financing or the purchase and sale of properties through the EDA on the word of its former executive director.
Perhaps it is that personal comfort and familiarity – “I had no reason not to trust her” – born of long-time social, professional and organizational ties that gives us a clue at a root cause of that “catastrophic failure” of procedures and oversight cited at this story’s outset.
It is a familiarity born of business and legal transactions, organizational memberships, not to mention in many cases political party affiliations. In Warren County those political affiliations are almost exclusively on the Republican side of the political aisle, from local to state and federal levels. And that is not to point a finger at one party or the other, but rather just to acknowledge the local political landscape.
Were there to be only Democrats in electoral and judicial office here, the situation would be the same – “I know you; we have common interest and cause, why would I not trust you?”
It is such personal or professional familiarity that has forced the eventual recusal of all the county’s circuit court judges from hearing EDA legal matters at an evidentiary level. Chief 26th Judicial District Judge Bruce D. Albertson, now hearing EDA civil and criminal cases in place of Judge Clifford L. Athey Jr., has indicated he will soon appoint another judge from outside the county to take over the EDA Special Grand Jury bench as Athey heads to the Virginia State Appeals Court.
It is that small town “everyone knows everyone” personally, organizationally, professionally and politically that can contribute to that apathy toward fundamental organizational due diligence, if not worse.
Why would anyone in local elected or appointed office here not trust then-U.S. Sixth District of Virginia Republican Congressman Robert Goodlatte’s 2014-15 assertion that ITFederal would invest $40 million dollars and create 600-plus high-paying jobs here based on a $140-million federal government contract there was no evidence existed?
Town vs. EDA civil case motions arguments pushed to October 9
Town of Front Royal Attorney Doug Napier and legal counsel for the Front Royal-Warren County Economic Development Authority were in Warren County Circuit Court Thursday morning to argue motions filings in the Town’s civil suit against the EDA. The Town initially filed for recovery $3 million in Town assets on June 21 and amended that amount up to as much as $15 million on July 12.
Former EDA Executive Director Jennifer McDonald is also named as a defendant in the Town litigation; however, she was not present and not represented by counsel at Tuesday’s hearing.
The fluidity of the litigation due to a constantly changing legal landscape impacting both civil and criminal sides of the equation were a primary point of discussion between the town attorney and Rosalie Fessier of the TimberlakeSmith law firm of Staunton, representing the EDA.
“This case is a very fluid one – players are added almost weekly as to who did what. We’ve put together a bare-boned complaint …that we’re going to continue to amend,” Napier told Judge Bruce D. Albertson.
Fessier countered that her client was the EDA, not individuals tied to the EDA. So, she told the court, the fluidity Napier addressed was irrelevant to the defense claim of sovereign immunity for the EDA as a public body created by legislative order for specific public functions.
“The issue is not how individual actors functioned or performed, the public body is still immune – though individuals could still be on the hook,” Fessier told the court in seeking a ruling on the defense’s sovereign immunity claim.
“I am concerned about ruling on a moving target … I find it premature to rule on the Demurrer … though I feel I have a handle on where everyone is going on this,” Albertson told the attorneys of the EDA’s claim of sovereign immunity. And well he might have that handle as both sides’ written arguments spell their positions out.
The EDA Demurrer states that as a legislatively-created entity that carries out a public governmental function, specifically facilitating the financing of land development for involved municipalities, the EDA itself carries that sovereign immunity designation.
“Plaintiff argues … that the EDA is not entitled to sovereign immunity because it vested the management of the EDA to the executive director,” Fessier wrote in response to Napier’s opposition filing to the EDA sovereign immunity claim. The EDA attorney then added, “However, a determination of whether an entity is a municipal corporation is governed by the enabling statutes, not on the actions of the entity in a particular case,” citing a “Richmond vs. Richmond Metropolitan Authority case from 1970.
After checking with his Harrisonburg Court Clerk’s Office by phone for his schedule about 30 days out to give attorneys time to submit further briefs on their motions or amendments to those motions, Judge Albertson set arguments for October 9, at 2 p.m. Both counsels said they were comfortable filing additional briefs by email to facilitate preparation for that hearing.
So sports fans, mark the afternoon of Wednesday, October 9, on your calendars as attorneys for both sides will come out “punching” for a favorable court determination on exactly where the legal liability for whatever happened to who knows how much Town managed, EDA handled, public funding lies.
Sayre awarded $20,000 in defamation suit against former EDA director
After three and a half hours of sometimes contention testimony Wednesday afternoon, shortly after 5 p.m. Judge Ian Williams awarded Shenandoah District Supervisor Tom Sayre a total of $20,000 in damages in his civil defamation lawsuit against former Front Royal-Warren County Economic Development Executive Director Jennifer McDonald. Sayre was seeking the General District Court civil litigation cap of $25,000.
In addition to damages of $5,000 and punitive damages of $15,000, the judge also awarded Sayre $676 in court filing costs.
In making his ruling the Winchester-based judge accepted the plaintiff’s argument that McDonald had orchestrated a series of alleged criminal acts in 2017 targeting the EDA offices and her home property in order to deflect attention from rising suspicions about her conduct of EDA business.
McDonald resigned the EDA directorship on December 20, 2018 under increased scrutiny by her EDA Board of Directors. She is the primary defendant in a $17-million EDA civil suit filed on March 26; and has been charged with 28 felony criminal indictments related to the EDA financial fraud investigation and consequent civil litigation.
McDonald attorney Lee Berlik argued that Sayre attorney Tim Bosson had failed to prove McDonald had written the note found at the scene of a June 15, 2017, rock throwing vandalism at her home. That note included the instruction “don’t call Tom” and Sayre’s work cell phone number.
The note indicated an apparent conspiracy to harass or terrorize McDonald involving Sayre, former Town Manager Michael Graham and former Royal Examiner Editor Norma Jean Shaw. All testified during the trial’s first day last month that they knew nothing of any such conspiracy.
Berlik also argued that the plaintiff had failed to show any real damage to either his reputation or income from the note’s discovery at the scene of the June 2017 vandalism.
Berlik said he and his client would discuss their right to appeal the General District Court decision to the circuit court level. They have 10 days to file an appeal. Judge Williams posted a $20,000 cash appeal bond for the defendant.
This story will be updated with additional detail in the near future.