In addressing the Town of Front Royal’s amendment to its lawsuit upping its estimate of lost assets due to financial fraud in the workings of the local Economic Development Authority from $3 million to $15 million, Town Attorney Doug Napier commented on what he perceived as a somewhat surprising degree of sophistication in how alleged embezzlement and misdirection of EDA, and consequently Town, assets was accomplished.
In its July 12 filing to amend the amount being sought for recovery from the EDA, the Town legal department notes that the “Financial Study” it had unsuccessfully been seeking a copy of from Warren County and the EDA over several months of FOIA requests had been “voluntarily” sent to it by County-contracted investigative accounting firm Cherry Bekaert. Information from that 2900-page report on signs of fraud within the EDA in hand, Town staff amended its original complaint upward by $12 million.
Asked about the additional loss estimate Napier told Royal Examiner, “During our review of the Cherry Bekaert financial study of the EDA, including the interviews of the EDA Board of Director and staff members some new facts and circumstances were brought to light which caused me to think that the Town’s consequential damages in particular, and even direct damages, might be larger than the Town had originally thought. So I thought the Town would be well served by getting out in front of this.”
Asked to elaborate, Napier added, “There are some indirect losses – we can’t blame it all, or say she took it all herself. But there are consequential damages or peripheral losses, a sort of ripple effect. And we wanted to be careful and aim higher, rather than lower in estimating our total losses.”
“She” is former EDA Executive Director Jennifer McDonald, jailed since May 24 on financial fraud charges. Related to some of the Cherry Bekaert information Napier observed, “In ways it is really complicated – her ability to figure out how to alter the books, forge documents – if what is in the report is what happened, if the (EDA) board is telling the truth about not signing those documents, it is really sophisticated. It makes you wonder if she had an advisor or she’s just really smart, or both. I really don’t know – but it took somebody who really knew what they were doing, to pull off.”
In the Town’s initial June 21st filing of a nine-page civil action against the EDA there was scathing criticism of a lack of oversight of McDonald through 2018, even after the May 2018 Town staff discovery of years of debt service overpayments to the EDA totaling over $291,000; and an apparently volatile August 23 confrontation between town officials and auditors with McDonald in the presence of then-EDA Board Chairman Greg Drescher and EDA Attorney Dan Whitten.
“It was Town employees and agents who, on August 23, 2018, caused McDonald to admit, in person and while in the presence of the EDA/County Attorney and in the presence of the Chairman of the Board of Directors of the EDA, that McDonald had personally submitted false, and thereby knowingly and fraudulently, billing invoices to the Town for payment … Notwithstanding the events of August 23, 2018, the EDA Board of Directors, inexplicably, allowed McDonald to retain her position as Executive Director of the EDA with all of her rights, privileges and duties as before, with no known restrictions as such,” paragraphs 18-B and 18-D on page seven of the nine page complaint states.
As Royal Examiner reported at the time “inexplicably” was the operative word in the Town suit’s description of EDA board and staff behavior over the following four months preceding McDonald’s resignation under mounting evidence from the EDA and County’s own investigation by contracted accounting firm Cherry Bekaert.
“The EDA Board of Directors inexplicably did not immediately fire or otherwise discipline McDonald … inexplicably did not restrict McDonald’s access to the EDA offices or her duties … inexplicably did not immediately call law enforcement to investigate McDonald or her activities … not withstanding that the Town’s auditor on that date rightfully and appropriately personally called out McDonald for committing fraud upon the Town in the presence of McDonald … the EDA’s Chairman of its Board of Directors and in the presence of the EDA’s attorney,” paragraph 18-D of the initial Town complaint reads.
But if the EDA and County Boards remained “inexplicably” oblivious to possible financial misdeeds by McDonald post-August 23, the Town did not.
“It was the Town …who almost immediately after August 23, 2018 contacted the Virginia State Police (VSP) and requested a complete law enforcement investigation of the EDA and McDonald, which the Virginia State Police immediately began, and continue to investigate to this date,” the Town complaint of June 21, 2019 reads.
The June 21st Town Complaint was served on two of those involved in that August 23, 2018 meeting: Whitten at his County Office as EDA attorney and McDonald at the Fairfax Adult Detention Center to which she was transferred from RSW Jail on June 11. The third recipient was new EDA Executive Director Doug Parsons, served at his Kendrick Lane EDA office. Parsons told Royal Examiner on July 17 that he hopes an accurate assessment of any money owed to either municipality by the EDA can be agreed upon and that the EDA will eventually be able to make right on its legally-verified debt to both the Town and County.
McDonald was arrested by VSP on May 24, after the first four of what now stands at 12 felony embezzlement and fraudulent movement of EDA assets indictments were handed down by the Warren County Special Grand Jury empanelled on April 1, 2019.
That empanelment followed a March 26 request to do so by Warren County Commonwealth Attorney Brian Madden. Madden’s request came the same day the EDA’s $17.6 million civil suit was filed. That suit is now amended up to $21.1 million the EDA is seeking recovery of from McDonald, her two real estate companies and five other surviving defendants: ITFederal and its CEO Truc “Curt” Tran; Earth Right Energy LLC and its principals Donald Poe and Justin Appleton.
A ninth defendant, former Warren County Sheriff Daniel McEathron, died on May 28 from what VSP described as “an unattended death with a firearm nearby”. McEathron was named in the suit due to his involvement in McDonald’s two real estate businesses and financial questions surrounding development of the criminal justice police training academy the EDA was involved in.
Recent motions filing in that EDA civil action will be the subject of coming Royal Examiner stories. In fact, a motions hearing on the EDA civil suit scheduled for today (Wednesday, July 17) was continued to an as-yet-undetermined date due to the judicial shuffling occurring in the wake of Judge William W. Sharpe’s July 12 recusal from all EDA matters.
At the time of the special grand jury empanelment request Madden said, “Since August of last year we have been working with the Virginia State Police as they investigated suspicious financial activities. Yesterday’s lawsuit filed by the EDA’s attorneys raises issues that are not presently being addressed by the VSP.
“In reviewing the bill of complaint most of the allegations arise from an outside investigation conducted at the EDA’s request. To date this office has not been able to review any report generated by the outside investigation,” Madden observed.
In the wake of Judge Athey’s May 22 order that EDA civil counsel produce the evidence upon which its now $21.1-million civil action is based, that is no longer true – even for the Town of Front Royal which had initially been blocked by EDA and County officials in its efforts to acquire information on the EDA fraud investigation.
EDA civil case judge considers more defense motions to remove defendants
Several more Economic Development Authority civil defendants were in court Thursday morning, July 30, to hear their attorneys echo past EDA defendant counsel arguments on dismissal of their clients from one or the other of the EDA’s two civil litigations now totaling at least $26 million.
Present from the nine-defendant list of people and companies named in the April 14, 2020, filing of a civil action seeking “not less than $4.45-million” in actual damages and $350,000 in punitive damages were William T. Vaught Jr. and Rappawan Inc. principal Stuart R. Vaught and Walter and Jeannette Campbell of Century 21 Realty. Dismissal motions were also argued for Tracy L. Bowers of TLC Settlements LLC, though she did not appear to be present for those arguments. Not having motions before the court were Service Title of Front Royal LLC and agent Victoria L. Williams.
Chief 26th Judicial Circuit Court Judge Bruce D. Albertson of Harrisonburg presided over the 8:30 a.m. hearing that ended a 11 a.m. with the judge taking the various defense motions under consideration.
Those motions began with Robert Light and Joseph Silek Jr. representing William T. Vaught Jr. and Rappawan Inc. Other than Silek and Light, the latter who presented the Vaught-Rappawan motions case, and EDA attorneys Vivian Giles and Sean Hutson of Sands Anderson who countered the defense motions, all other attorneys were present by remote telephone connections to the courtroom. Those remotely connected attorneys generally cited agreement with Light’s initial presentation for Vaught/Rappawan, adding specifics of the allegations against their clients, to call for their removal from the civil suit list of defendants.
At issue for all defense attorneys was an alleged lack of specific actions in the EDA complaints against their clients that proved they were aware of being part of an alleged conspiracy to defraud and misdirect EDA assets in conjunction with central civil suit defendant, former EDA Executive Director Jennifer McDonald. Also contended for all defendants were arguments that the nature of those allegations indicated that Statute of Limitations timelines on bringing charges had expired by the time the EDA civil litigation against their clients was filed.
Plaintiff attorneys Giles and Hutson countered that there was, indeed, detail of the participation of the defendants in alleged schemes utilizing real estate transactions to move EDA funds through McDonald companies in order to “launder” stolen EDA money and give it the appearance of legitimacy through those real estate transactions from which all involved parties allegedly saw profit from.
According to the EDA Complaint, the Vaught-Rappawan case utilized TLC Settlements to move $2-million of EDA money into McDonald’s DaBoyz real estate company to purchase several parcels from Rappawan with that money, which was then sold back from DaBoyz to Rappawan at a $600,000 loss a month later.
“Through these transactions over just a month’s time, Defendant Rappawan and Jennifer McDonald effectively laundered stolen money from the EDA. McDonald put $650,000 of the EDA’s cash in her pocket; Rappawan got back all the land originally sold and put $250,000 in stolen EDA cash in its pocket. The EDA, of course, got neither land nor its money back,” paragraph 75 on page 15 of the 30-page complaint states.
Of moving money through a bank into a real estate deal for someone other than the source of the money (in this case the EDA), Giles told the court, “Transactions like this just don’t happen when you pocket $600,000 in one month. Money in the bank makes it clean? – It’s a drug dealer’s dream – but it doesn’t work like that. Were they unjustly enriched? – Absolutely. If we’re wrong let a jury decide,” Giles told the court.
She told Judge Albertson that the defendants were essentially trying to make evidentiary arguments best suited for trial, during pre-trial motions. – “This is Discovery,” she said of defense arguments seeking additional clarity on the plaintiff’s case against their clients.
The statute of limitations arguments largely revolved around a debate on the nature of the charges and when the EDA actually became award of the alleged theft, embezzlement, and misdirection of their assets.
Of the defendant counsel assertion then EDA Board of Directors Chairman Greg Drescher had signed off on one of the enabling transactions, legitimizing it as EDA business, Giles told the court, “Mr. Drescher was duped, like the EDA was. What was happening was not discovered till much, much later.” – Which is essentially what defense attorneys are arguing for their clients.
How much later we will find out the result of Thursday morning’s legal arguments is unknown. Judge Albertson did not give a hint as to a timeframe for his ruling. To this reporter’s knowledge, thus far no EDA civil case defendant removal motion has been successful.
EDA monthly meeting report; solar panels gone; Afton Inn sale moving forward
The Board of Directors held their regular monthly board meeting today. Two motions were passed:
-Finance Committee Chair Jorie Martin made a motion, seconded by Tom Patteson, to award a $2,500 bonus to Administrative Assistant Gretchen Henderson for exemplary performance. The Board also will also pursue a reclassification of her job position based on new duties and responsibilities. The board voted unanimously in favor.
-Ms. Martin also made a motion, seconded again by Dr. Patteson, to approve United Sprinkler to provide the annual inspection for 426 Baugh Dr. for a fee not to exceed $600. This inspection is required for the insurance policy. The board voted unanimously in favor.
Finance Chair Jorie Martin reported that the EDA will be modifying its budget. The EDA had issued bonds for Christendom College and Royal Arms housing complex renovations. Once per year, they owe the EDA administrative fees. Those fees were not previously invoiced. Current EDA staff has resumed that task so the budget will be updated to reflect these two new sources of revenue.
Sunlight Properties, LLC has paid in full and removed the solar panels from the roof of the EDA office building at 400 Kendrick Lane. Executive Director Doug Parsons proposed that the Board of Directors work on a plan for repairing the roof. He noted that he’s been in contact with individuals looking to lease commercial office space and that the revenue it would generate would support making the commitment to the repair project.
Finally, Doug Parsons reported that the FY 2018 and 2019 audits by Brown Edwards continues to move forward. Auditors completed their preliminary fieldwork in early July. He projects completion by August/September.
Asset Management Committee
Royal Lane “Workforce Housing” property-Committee Chair Harold and EDA Chair Ed Daley met with Front Royal Mayor Tewalt and Vice-Mayor Sealock on the EDA’s plans for the property. He reported a positive and constructive meeting and appreciated their input. Multi-family housing will be a welcomed addition to the Front Royal area.
Afton Inn-Mr. Harold was pleased to report that the sale of Afton Inn continues to move forward and projects closing this Fall. The EDA will be glad to see this property in the hands of private developers. The goal of the buyers/developers, 2 East Main, LLC will be to bring this downtown Front Royal landmark back to life. The EDA is looking forward to finalizing this sale.
Finally, the EDA will undertake signage projects for the Kelly Drive Industrial Park and the LFCC Tractor Trailer Training facility in the Avtex parking lot.
EDA staff and the Board of Directors welcomed Doug Stanley as he gave his final report as County Administrator. He has been an invaluable asset to the EDA and the Front Royal Warren County community. He will surely be missed. The Board recognized that EDA Chair Ed Daley will be stepping down to become Interim County Administrator. Vice-Chair Jeff Browne will assume the duties of Chair.
Two supervisors questioned about ‘back channel’ dealings with Town on EDA issues
On Tuesday, July 21, Happy Creek Supervisor Tony Carter’s call to add board discussion and a vote of “formal approval” of an informally negotiated “Reservation of Rights Agreement” with the Front Royal Town Council led to the evening’s most surprising and most contentious discussion.
During that discussion, Carter asked if informal County “Reservation of Rights” negotiators Delores Oates and Cheryl Cullers should be made an official board committee. When County Administrator Doug Stanley noted that once formed as a formal municipal committee, further meetings would require public notice of, and minutes to be taken at future meetings.
“I know, that was my intent,” Carter replied, indicating he thought a formal committee a better path than the undocumented, unsupervised way those unofficial meetings between Cullers and Oates and Lori Cockrell and Chis Holloway on the Town side were being conducted. Carter called the meetings similar to the Town-County Liaison Committee meetings, which are formal and documented. Perhaps oddly or not, the Reservation of Rights Agreement discussion was NOT part of last week’s Liaison Committee meeting agenda.
“I think everybody wants to be transparent. And it seems like that would be the best way to be transparent – notify the media, notify the public about having these discussions,” Carter said of formalizing such an important matter involving the County, Town, and EDA.
However, Cullers and Oates countered that their un-monitored meetings with the Town representatives were being made in good faith to move a stagnated process forward.
“I would like to disagree with that,” Culler said of Carter’s formalized committee idea, adding, “simply because I feel like we’re making some headway – not that I’m trying not to be transparent. But at some point, you have to sit down with people in a room, shut the door and get down to business without too many people in the room. I think the Reservation of Rights that we came to here is a step in that direction. I don’t know if we would have got there if we had more people in the room.”
“I understand what you’re saying, that you prefer to conduct public business without the public,” Carter retorted of Cullers’ rationale for continuing her and Oates meetings as they have thus far been conducted without public and media scrutiny.
As previously reported, the original “Reservation of Rights Agreement” was a late June, Town-drafted quasi-legal document agreeing to a one-time, recoverable $10,528.95 payment covering half the $21,102 interest-only July payment on the new Front Royal Police Headquarters debt service. The agreement was first revealed during a June 30 Town Special Meeting called to approve the initial draft. However, due to excessive conditional language included in that document, first EDA officials who were being asked to sign off on the agreement they had no previous knowledge of, and then apparently County officials as well, rejected moving forward with it.
Last week a revised and severely paired back, one paragraph “Reservation of Rights Agreement” was brought forward by North River District Supervisor Oates and Board Vice-Chair Cullers for reconsideration by the supervisors. While the intent remained the same, a one-month, recoverable half-interest Town payment on the July FRPD debt service that the Town was admitting no obligation to make, virtually all the excessive verbiage that would have had the EDA and County signing a document stating the Town has “no legal or moral obligation” to pay for its EDA-financed police station and preventing any future EDA or County use of the payment and its documentation in court or “any forum” was gone.
It was replaced with the Town’s acknowledgment that the payment was being made “with no admission of obligation and reserving all rights to continue to contest this and other matters in pending litigation between the Town and EDA. The EDA accepts this payment acknowledging this reservation of rights.” See Royal Examiner’s coverage of evolution of the draft proposals in previous stories “Legal questions surround Town offer of one-time, recoverable FRPD payment” and “Pared back FRPD payment ‘Reservation of Rights Agreement’ revealed by County”.
As for the asserted “good faith” aspect of the secretive Reservation of Rights Agreement discussion, Carter said, as EDA Board Chairman Daley would soon agree to during his comments on the matter, “Wouldn’t it be good faith if the Town paid their obligations? Wouldn’t it be good faith if the Town, County, and EDA worked together, instead of against each other in legal procedures?”
Both Cullers and Oates responded that was their ultimate goal, adding that the non-publicly acknowledged meetings allowed the conversation to be undertaken “without the undermining going on”. Contacted later, Cullers said that was not a reference to any media coverage of Town-County issues.
Carter continued his “show of good faith” questions, asking, “Is it a show of good faith that the Town is starting its own EDA, thus duplicating costs to the town taxpayers, instead of working together? After all, most of the EDA projects are located in the town.”
Carter also questioned the advisability of the supervisors as the county’s governing body, signing off on a document that Oates admitted had not been what she and Cullers had hoped to achieve on behalf of the County and EDA, which was the full July payment acknowledging the bank-financed 3% interest rate on the FRPD debt service.
Part of the Town of Front Royal’s $20-million-plus civil litigation against the EDA is the claim it was promised a 1.5%, 30-year debt service interest rate on the FRPD project by former EDA Executive Director Jennifer McDonald.
Called to the podium to comment for the EDA Tuesday night, still EDA Board Chairman Daley told the supervisors the EDA has documentation dating to 2017 and 2018 indicating the Town knew the FRPD project interest rate would be no lower than 3%.
Daley also was fairly pointed in indicating to the supervisors that he believed the Town was not dealing in good faith with the EDA regarding any financial issues. He observed that Town legal attacks or refusals to meet financial obligations with the EDA were also attacks on the County since the County has taken on sole financial responsibility in support of the EDA.
Following the 35-minute far-ranging, sometimes pointed conversation, on a motion by Carter, seconded by Fox, the board voted 4-1 to table action on the Reservation of Rights Agreement. Oates cast the lone negative vote. After a long pause when her name was called for the roll call vote, Cullers voted with the majority to table.
See all the drama of your local government in action, including discussion with County Attorney Jason Ham on the advisability of formal versus informal meetings of this magnitude, Chairman Mabe’s observations in the middle of the debate, and Daley’s full observation from the EDA perspective in this Royal Examiner video segment:
Pared back FRPD payment ‘Reservation of Rights Agreement’ revealed by County
In an unexpected and somewhat stunning development in an added agenda item to conclude Tuesday’s Warren County Board of Supervisors Work Session, it was revealed that a revised “Reservation of Rights Agreement” has been negotiated between members of the county board and the Front Royal Town Council. Following the discussion about the new agreement on making the July FRPD construction debt service payment, a board consensus was reached to place a vote on approval of the revised agreement on the board’s July 21st meeting agenda.
The new agreement is a radically pared-back version of the one the town council unanimously approved at a June 30 Special Meeting to cover half the July FRPD headquarters debt service payment, as will be explored in detail below.
Board Vice-Chairman Cheryl Cullers made the motion to add the item to Tuesday’s work session. Delores Oates then noted she and Cullers “met, I think you guys know, with Ms. Cockrell and Chris (Holloway)” on the matter, observing that the supervisors had not appropriated funding to continue covering the EDA FRPD debt service payments into the new fiscal year.
It seems the County and Town are on the verge of taking a high-stakes gamble on whose credit rating will suffer the worst if the EDA’s FRPD debt service payments are not covered this fiscal year.
The pared-back Reservation of Rights Agreement appears to be a compromise to avoid that gamble being played into the commercial banking community as of July 16.
It was revealed during the subsequent discussion that today, Wednesday, July 15, is the last day before the $21,102 interest-only payment to United Bank goes overdue. If the agreement to keep the loan current is realized before either elected body votes to sign off on the method by which it will be done, at least for July, the Town will still only pay half of the monthly amount due, or $10,529.
That half interest-only payment is based on council’s contention that verbal assurances by former EDA Executive Director Jennifer McDonald of a New Market Tax Credit-based 30-year, 1.5% interest rate on the FRPD construction project that it did not even qualify for, is somehow legally binding. The EDA is paying United Bank 3% interest on the debt service.
And while it is the EDA’s loan, supported by the County’s operational funding, both municipalities have traditionally and continue to be responsible for covering the debt service on their capital improvement projects funded through the EDA. It seems clear outside of Town Hall that precedent indicates the intent was for the town government to assume the Town Police Station construction debt service upon completion of the project, dating to October 2018.
But that was before the previous EDA administration financial scandal began unraveling in 2018. That unraveling led to the EDA’s initial March 2019 $21.3 million civil litigation against former EDA Executive Director Jennifer McDonald and 14 co-defendants alleged to have conspired with her to misdirect or embezzle EDA assets to their own benefit. It was followed by the Town’s filing of escalating litigation against the EDA, now seeking recovery of “at least $20 million” of allegedly misdirected or promised Town assets.
But on Tuesday, Oates asserted that the new agreement, which removes the conditional legal language that would have had the County and EDA signing a document that stated the Town had “no moral or legal obligation” to pay for its police station, indicates ongoing “good faith” negotiations between the two municipalities to resolve the FRPD debt service impasse; and perhaps other issues related to the Town’s $20-million-plus civil litigation against the half-century-old joint County-Town EDA. That litigation relates to the previous EDA administration’s financial scandal, details of which were revealed by a 2018 forensic audit commissioned by the EDA and County.
That audit was commissioned in the wake of Town Finance Director B. J. Wilson and Town auditors discovery of financial irregularities in some of the Town’s debt service arrangements with the EDA, though the police station project was not one of those.
It is against this legal backdrop our community financial drama is unfolding.
Pared-back legal verbiage
As opposed to the convoluted legalese we described in our story “Legal questions surround Town offer of one-time, recoverable FRPD payment”, the new, one-paragraph draft “Reservation of Rights Agreement” is brief and to the point, at least comparatively.
It reads: “The Town of Front Royal (‘Town’) tenders $10,528.95 to the Industrial Development Authority of the Town of Front Royal and County of Warren, Virginia a/k/a Economic Development Authority of the County of Warren (‘EDA’) for the July 2020 payment on the loan by United Bank for the Town Police Department with no admission of obligation and reserving all rights to continue to contest this and other matters in pending litigation between the Town and EDA. The EDA accepts this payment acknowledging this reservation of rights.”
Gone are the “Conditions” that led EDA attorney Sharon Pandak to tell Royal Examiner upon our reading them to her over the phone, that she would be reluctant to advise the EDA to sign off on the initial agreement. Those deleted passages include:
“The Town denies that it owes any moral or legal obligation to repay the Loan”;
“The County and the EDA acknowledge that this payment shall not be construed as, considered to be, or argued to be, in any forum, an admission for any purpose, including but not limited to of liability of the Town for the Loan or the Costs”; and,
“All parties agree that payment hereunder shall be inadmissible for any purpose except by the Town to recover this payment as damages in the Litigation,” among other legally qualifying passages.
So, good-faith negotiations perhaps – just in small steps, VERY small steps with a very large credit rating gamble looming in the balance that could impact this community’s financial future on both sides of the Town-County boundary.
Thus far the EDA, with County support has been making what have been interest-only payments on the $9-million FRPD project. That will change on November 1, when the United Bank loan moves to principal and interest payments. EDA Executive Director Doug Parsons estimated that would take the monthly payments to about $50,000 from the $21,000 interest-only range.
According to Parsons the balance on the United Bank FRPD headquarters loan as of June 1, when the EDA submitted an invoice to the Town for slightly over $441,300 paid thus far by the EDA, is $8.44 million.
How not only this month’s payment but also coming ones will be handled by both municipalities appears to be hinted at by the new one-paragraph Reservation of Rights Agreement spitting the FRPD debt service down the middle with minimal additional legal verbiage. Letting the EDA’s FRPD debt service go delinquent may not be a gamble in either involved municipality’s best interest.
At issue now appears to be will July’s $21,102 payment be made by somebody, somehow before the end of the July 15th banking day; and will majorities of both the Town and County’s elected bodies to agree to this arrangement on an ongoing basis to prevent that rather large credit-rating gamble being played on the municipal-banking poker table??
Stay tuned for the next thrilling episode of “As the FRPD Debt Service – and EDA, Town and County Credit Ratings – Turn”. But while you wait for that next episode, see Tuesday night’s episode unfold over the last 10 minutes or so of Tuesday’s meeting in this Royal Examiner video:
Town authorizes new EDA; Chamber as CARES administrator; and FRPD equipment upgrades
On Monday, July 13, the Front Royal Town Council took several actions, for better or worse, that will shape several key future functions in coming months and years. At the top of the list was second and final reading approval – 4-1, Thompson dissenting as she did at the June 22 first reading – of creation of a new Economic Development Authority solely overseen and funded by the town government and its taxpayers.
The Town will become the first municipality in Virginia to concurrently be a part of two EDA’s. In an unprecedented example of attempting to “have your cake and sue it too”, the Town has maintained its half-century-plus, co-founding membership in the half-century-old joint County-Town EDA while civil litigating for virtually all the money the EDA is trying to recover in its initial $21.3 million civil action against its former executive director and 14 co-defendants accused of conspiring to misdirect or embezzle EDA assets.
But at least the Town does not have to fund operational costs of the old EDA, as in EDA legal fees to fight the Town litigation, while figuring out where its operational costs for it new unilateral EDA will come from, if not a successful civil litigation against its old EDA. For as previously reported, the County took over the Town’s share of joint EDA operational funding several years ago as part of ongoing negotiations about the double taxation of town citizens. So, while the town government doesn’t have to fund the EDA’s legal defense against it, its citizens do as county taxpayers.
Alright, enough of that dizzying legal scenario.
Also approved Monday were a Fiscal Year-2021 budget amendment authorizing receipt of $1,276,558 of the County’s $3.5 million in CARES (Coronavirus Assistance, Relief Equities and Securities) Act federal funding for COVID-19 relief for private-sector economic losses incurred due to the Coronavirus pandemic emergency management response restrictions; as well as an agreement with the Front Royal-Warren County Chamber of Commerce to manage distribution of the Town’s CARES Act funds.
The amount of money authorized to be put under the Chamber’s control was $1,176,558, $100,000 less than the total amount being transferred to Town control. According to the staff summary, that $100,000 is being put into the General Fund Contingency account to cover “COVID-19 expenses”.
Questioned about those expenses by Councilwoman Lori Athey Cockrell, Interim Town Manager Matt Tederick said those costs were an “unknown” at this time, so no amount was being cited at this point in the process.
However, Tederick said he was “confident” those costs would be “minimal”.
Also approved in a series of 5-0 votes, Holloway absent, as were the CARES Act related items, were three appropriations totaling $256,981.72 for equipment upgrade purchases for the Front Royal Police Department. FRPD Chief Kahle Magalis made a detailed presentation on the need for the equipment upgrades at council’s previous work session.
Those equipment purchase authorizations were:
- $82,159.72 for a VESTA 911 phone system;
- $162,000 for replacement of 10 WatchGuard 4Re In-car WIFI camera systems, and 24 VISTA body cameras, and;
- $12,822 for Avtec-Motorola radio console equipment to replace existing equipment termed at its “end of life” stage of service.
As Chief Magalis told council at his work session presentation, these equipment upgrades are the cost of doing law enforcement work at an optimum of communications efficiency; and self-monitoring standards that protect both the public and the department’s personnel legally.
The agenda summary noted that the Town will pay for the car and body cameras at $32,440 annually over a five-year period. Funding for all three purchases were cited as available through existing FY-2021 FRPD budget line items.
A scheduled Closed Session to discuss unspecified “Personnel” matters was deleted from the agenda at Councilman Meza’s suggestion, due to the absence of one member, Chris Holloway.
Lori Cockrell’s request to then add a Closed Session to discuss the Town’s litigation against the County-Town Economic Development Authority was rejected for not receiving the required unanimous vote to alter the advertised agenda. Councilwoman Letasha Thompson explained she would oppose the addition on the same grounds council had agreed to remove the scheduled Closed Session, Holloway’s absence preventing consideration by the full council.
The final agenda item was unanimous approval of a Resolution of support for a Town “Employee Appreciation Day” to be this Wednesday, July 15. The resolution cited the ongoing contributions of the Town’s remaining 168 part and full-time employees, particularly during upheavals in normal service resulting from the COVID-19 Coronavirus pandemic emergency management response. Staff will be honored with a Town-hosted luncheon tomorrow to mark Employee Appreciation Day.
See the staff summaries, discussion and votes on these matters, as well as Stars of the Month Employee recognitions to the Solid Waste Department’s EJ Swindell and Jorge Guerrero for work “above and beyond”; and the departmental “pinning” by his wife, of FRPD’s newest Officer Scott Baker; and public presentations on town road infrastructure/pothole issues (Mike McCool), trash accumulation and overflow at the County Dog Park in town (Betty Showers), and another 2nd Amendment Sanctuary initiative seeking to shield citizens from State-enacted gun laws presented to council (Paul Aldridge) in this Royal Examiner video:
Legal questions surround Town offer of one-time, recoverable FRPD payment
Without accepting any responsibility for the nearly $9-million cost of its new police headquarters building, at a hastily called Tuesday evening Special Meeting to accommodate the turn of the fiscal year today, Wednesday, July 1st, the Front Royal Town Council unanimously approved a “Reservation of Rights Agreement” allowing the Town to pay a portion of the first debt service payment of Fiscal Year 2021 on that Town/EDA capital improvement project. The project was completed in October 2018 and the Town has yet to compensate the EDA for any of its costs in financing the project as will be elaborated on below.
Also approved during the eight-minute meeting prior to an adjournment to closed session for personnel matters believed to be the first of two town managers interviews scheduled this week, was an extension past June 30, and alteration to the contract payment terms of Interim Town Manager Matt Tederick. That will be covered in a separate Royal Examiner story.
As to the Reservation of Rights Agreement with Warren County, the authorized one-time payment of $10,528.95 covers half of the Front Royal-Warren County Economic Development Authority’s interest-only payment of approximately $21,102 due at the July 1st start of FY-2021.
Contacted Wednesday morning, EDA Executive Director Doug Parson explained the EDA’s loan to facilitate construction of the Town Police headquarters have thus far been interest-only payments based on a 30-day month. That will change on November 1, when the United Bank loan moves to principal and interest payments. Parsons estimated that would take the monthly payments to about $50,000 from the $21,000 interest-only range.
The United Bank’s interest rate on the loan is 3%. However, the town council has taken the legal stance that it should only have to pay a 30-year, 1.5% interest rate it asserts was verbally promised to it by former EDA Executive Director Jennifer McDonald. As previously reported by Royal Examiner, that 1.5% rate was tied to the construction project qualifying for a 30-year New Market Tax Credit Program (NMTC) loan with a nine-year waiver of interest payments. However, the NMTC program loans are for municipal capital improvement projects that create new jobs, which the FRPD project did not.
Councilwoman Lori Athey Cockrell took the opportunity of council’s passage of the agreement facilitating a one-time, half monthly payment on the FRPD debt service as an indicator that the council and its staff are working proactively with the Warren County government to resolve outstanding legal and financial issues surrounding the EDA.
Prominent among those Town-County/EDA issues is what EDA officials have called “an undisputed” $8.4 million Town “moral obligation” debt on principal to the EDA on the police headquarters construction project. With interest, the balance on that debt is $8.8 million, EDA Director Parsons told Royal Examiner Wednesday.
EDA Board of Directors Chairman Ed Daley was present to watch Tuesday’s council action unfold. Asked for a reaction prior to having a chance to read the Reservation of Rights Agreement, Daley said, “Anything that moves it forward is positive.”
However, after a closer read, exactly how far forward Tuesday’s council action takes the Town-County-EDA discussion, remains a question.
$440,000 invoice – $10,500 (recoverable) payment
The opening paragraph of the Reservation of Rights Agreement notes that the Town had received a June 2 invoice “ostensibly setting out all costs incurred by the EDA in constructing and financing the construction of the Town of Front Royal Police Department (‘Costs’), including the costs and expenses associated with the loan from United Bank obtained to finance construction (‘Loan’)” and continues to note those costs and loan “are currently the subject of dispute” in the Town’s civil action against the EDA.
It is a civil action in which the Town’s contracted Damiani & Damiani law firm appears to have mirrored much of the language in the EDA’s initial civil litigation against Jennifer McDonald and 14 civil co-defendants and which seeks essentially all ($20 million-plus) of the $21.3 million the EDA alleges was misdirected by its former executive director and her first group of co-defendants. In April the EDA filed a second civil action, adding nine defendants and “not less than” $4.45 million in recoverable assets to its litigation.
But as to that June 2 invoice from the EDA, an invoice implying a request for payment on a debt, according to numbers in that invoice what the EDA presented to the Town was a bill for slightly over $441,300 spent thus far on the $8.8 million FRPD headquarters construction loan balance.
What the County and EDA got in response was the above-cited agreement facilitating a recoverable $10,529 payment that on a closer examination appears to try and legally tie the County and EDA’s hands in future court proceedings.
Legal ties that bind?
That agreement references ongoing “discussions” between the Town and County “which may result in amending the Town’s claims in the Litigation (against the EDA)”.
Contacted Wednesday, County Administrator Doug Stanley said county staff had not been involved in those discussions. Attempts to reach Board of Supervisors Chairman Walt Mabe, Vice-Chair Cheryl Cullers, and County Attorney Jason Ham for information on the referenced discussions and council proposal were unsuccessful prior to publication.
So, referencing the “Reservation of Rights Agreement” passed 6-0 by council Monday, it states:
“WHEREAS, to facilitate the discussions, the County has asked the Town to make the disputed July 1, 2020, payment on the Loan and the Town has agreed, subject to the terms and conditions stated herein.” – As noted above, what was agreed to was a payment of $10,528.95, or half of the interest-only payment due for July, under the following conditions:
Condition 1 – “The Town denies that it owes any moral or legal obligation to repay the Loan” followed by Condition 2, noting that its payment is calculated on the unrealized New Market Tax Credit interest rate of 1.5%, rather than the actual 3% bank loan interest rate.
Condition 3 – “The County and the EDA acknowledge that this payment shall not be construed as, considered to be, or argued to be, in any forum, admission for any purpose, including but not limited to of liability of the Town for the Loan or the Costs.
Condition 4 – “The County and the EDA acknowledge that the Town’s payment is for a disputed debt, under a reservation of rights, and the Town reserves the right to continue to deny liability for the Loan or Costs and to recoup this payment should the discussions prove ultimately unsuccessful.
And drum roll, please, Condition 5 – “All parties agree that payment hereunder shall be inadmissible for any purpose except by the Town to recover this payment as damages in the Litigation.”
So, while Councilwoman Cockrell called the agreement a sign of good faith negotiations in the public interest by the Town, adding that news reports the Town is acting other than in good faith concerning the EDA as creating “a false narrative”, is she right?
Perhaps the EDA’s and County’s attorneys would be the best judge of that – hopefully prior to the signing of the “Reservation of Rights Agreement” by County and EDA officials. For at issue appears to be whose rights are being reserved, and in exactly what legal context regarding the Town’s civil litigation against the EDA and any related litigation over the Town’s responsibility to pay for its $9-million police station.
Because according to the document approved unanimously Tuesday night by the Front Royal Town Council, the Town has no “moral or legal” obligation to pay the EDA-undertaken $8.8-million loan that financed the construction of the Front Royal Police headquarters.
Is that something EDA and Warren County officials really want to sign off on in exchange for a one-time, recoverable, half monthly debt service payment?
Let’s see, a total of $20 million or more at stake versus a “recoverable” $10,500 payment – what do you think?
We asked EDA Board Chairman Daley his opinion on Wednesday after he had a chance to review the Reservation of Rights documents more closely.
“The first the EDA heard of this was last night, which seems odd in that we are asked to sign off on it. But we’ll need to consult with our attorney first,” Daley reasoned.
Of the contention on a lack of Town liability to pay for its police station included in the document, Daley observed, “The EDA was happy to facilitate a project like that. But it was their (the Town’s) contract, their design, we just helped finance it. I think they need to get their financing together and pay for their police station.”
After we read the conditions in the agreement to her over the phone, EDA Attorney Sharon Pandak lauded the opportunity for further communications on Town-EDA/County issues but was skeptical as to a recommendation on the EDA signing off on the Reservation of Rights Agreement as worded.