On May 2, the attorney for ITFederal and its CEO Truc “Curt” Tran followed attorneys for the other seven defendants in the EDA civil suit of March 26 in filing defense motions attacking the style and substance of the case against their clients.
In the demurrer seeking dismissal of five of the six counts (1-4 and 6) in the EDA Civil Complaint it is asserted that the filing by attorney Cullen Seltzer of the Richmond law firm of Sand-Anderson lacks the legally-required specificity and factual basis to support its oft-stated conclusion that the defendants have acted to improperly divert EDA assets based “on information and belief”.
“And many of the Plaintiff’s allegations being made solely ‘on information and belief’ is fatal under the heightened pleading requirement for fraud,” Tran/ITFederal attorney Brandon H. Elledge writes citing case history, adding of such wording, “and thus to avoid dismissal, a fraud plaintiff must supplement such allegations with ‘a statement of facts on which the belief is founded’ and also ‘must delineate at least the nature and scope of plaintiff’s efforts to obtain, before filing the complaint, the information needed to plead with particularity’.”
As to the sixth count omitted from the Tran/ITFederal request for dismissal, Count 5 – “Breach of Fiduciary Duty of Loyalty” – the demurrer notes that it “does not purport to state a claim against Mr. Tran and ITFederal” but rather asserts actual claims “only against Defendant McDonald” – which does appear to be the case as it would impact all defendants other than McDonald. See Related Story:
“As an employee of the Warren EDA, Defendant McDonald owed the Warren EDA a fiduciary loyalty,” Count 5 begins in recounting the obligations of McDonald’s role as the executive director of the EDA.
And it is in the absence of the detail of the preceding 160 paragraphs leading to the $17.6 million-plus civil suit’s call for compensation in six counts against all nine defendants upon which defense attorneys have focused their arguments for dismissal.
The six counts seeking a judgment of “not less than $17,640,446.16” against “the Defendants jointly and severally” are: 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.
And other than that one mention of the minimum of $17.6-million-and-change of allegedly misdirected or embezzled EDA assets there is no other reference to specific amounts of money tied to any defendant in the plaintiff presentation of the resultant civil “Counts” against those defendants. In fact, only “Defendant McDonald” and “Defendant Earthright Energy LLC” are cited in the six counts – McDonald in the aforementioned Count 5 “Breach of Fiduciary Loyalty” that does appear focused on her alone; and Earthright Energy LLC in Count 6 “Ultra Vires Transactions and Agreements” related to work arrangements or contracts engaged in with Earthright Energy through McDonald without approval of the EDA Board of Directors “in the manner required by law.”
However as alluded to above and noted in previous stories on the EDA complaint and defense motions against it, there is detail concerning specific amounts of money involved in specific transactions involving specific defendants throughout the first 160 paragraphs of the complaint. Those 160 graphs appear to present the basis of fact and finance leading to the final 39 paragraphs stating of the more generalized summary of offenses described in Counts 1 through 6 of the EDA civil suit. See Related Story:
However for Tran/ITFederal attorney Elledge that detail too, is lacking.
“While the Complaint is long on allegations as to McDonald’s misconduct, it offers very little as to Defendants … Tran … and ITFederal except for conclusory recitations or vague statements made only ‘on information and belief’,” Elledge asserts, adding, “Mr. Tran and ITFederal expressly deny the meritless claims asserted against them and any alleged wrongdoing in this matter.”
Of the summary nature of the stating of the Counts against the defendants, the Tran/ITFederal defense memorandum of support of the demurrer for dismissal states, “… the group pleading method employed by the Warren EDA in its Complaint is improper and fails to fairly inform Mr. Tran and ITFederal of the nature of the claims levied against them …”
However, is that true of the first 160 paragraphs of the 199-graph complaint – well 209-graphs if you include the 10 paragraph “Prayer for Relief” seeking return of EDA assets, attorneys fees and “punitive damages (of at least one million dollars) jointly and severally against the Defendants”?
The complaint devotes many paragraphs to the securing of a $10-million bank loan for Tran/ITFederal through the EDA, citing the involvement of McDonald and then-U.S. Congressman Robert Goodlatte, R-6th, along with Tran. It is noted that loan was made at Goodlatte’s request despite repeated assertions by “Tran and Defendant McDonald …that Tran did not need the financial support of the Town and Warren EDA”.
However that “unnecessary” $10 million dollars of financial support was acquired, along with the gift of a 30-acre parcel at the Royal Phoenix site publicly valued by the EDA at $2 million for a one dollar price. Conditions were attached to that gift, including completion of the project by an eventually extended completion date of mid-2020; and a reduction of the scope of the project from an approximate 40,000 s.f. in a three-building complex alleged by Goodlatte to produce over 600 high-paying tech jobs through ITFederal to the community, to a 10,000 square-foot building producing at least 10 jobs of indeterminate wage.
And while the complaint notes that far less than $10 million appears to have been spent to date on the ITFederal Project here, the Tran/ITFederal motion for dismissal asserts Tran did nothing wrong and has worked within the parameters of his agreement with the EDA, both on the loan and a Memorandum of Understanding (MOU) regarding nearly $1.5 million in what is described as “Subsequent Payments to ITFederal” alleged to have been unauthorized by the EDA.
Regarding the Count of “Conversion” of EDA assets to Tran’s personal benefit, Elledge writes on behalf of his clients, “The only Warren EDA funds allegedly retained by ITFederal are a $10 million loan pursuant to a promissory note and a deed of trust and some $1.5 million pursuant to a Memorandum of Understanding. Thus, ITFederal received those funds in accordance with such agreements. Plaintiff does not – and cannot – allege a breach of such agreements, and it, therefore, alleges no right to immediate possession of the funds. Rather, it lawfully controls them subject to the terms of the loan documents and the MOU …
“The only payments due to Plaintiff is the repayment terms of the promissory note, and it has not – and cannot – allege that ITFederal has breached or defaulted on any of its contractual obligations,” the Tran/ITFederal filing in support of its motion for dismissal states.
But at issue for the EDA as plaintiff is an alleged fraud perpetrated by Tran in conjunction with McDonald in her role as EDA executive director and possibly others, to acquire the loan, gift of property and “Subsequent Payments to ITFederal”. That fraud is alleged to involve a $140 million in purported ITFederal government contract the plaintiff found no evidence exists – though Elledge asserts it does – as well as websites said to create a false impression of financial viability of Tran companies the plaintiff asserts there is no discovered substantive support of, and false representations of Tran’s personal worth and intentions of investment in this community.
“Plaintiff does not allege any cohesive fraudulent scheme here, but rather a series of independent transactions connected only by the involvement of Defendant McDonald … In the portions of the Complaint referencing Mr. Tran and ITFederal, Plaintiff obscures who actually made what representations at issue by repeating the phrase ‘Tran and Defendant McDonald represented, through McDonald (emphasis in context) … Such vague construction fails to establish Mr. Tran’s connection to the alleged misrepresentations by omitting how Mr. Tran managed to represent anything ‘through McDonald’,” the Tran/ITF filing states, adding, “By lumping Mr. Tran together with Defendant McDonald and referencing ‘multiple occasions,’ Plaintiff unsuccessfully tries to create an impression of wrongdoing without articulating who made what statement to whom on which occasion.”
From a different angle, Tran/ITFederal attorney Elledge echoes Jennifer McDonald attorney Lee Berlik’s argument that his client is being villainized for the alleged actions of other defendants and/or bad decisions by past EDA boards.
“Plaintiff suggests every statement by every counterparty it now regrets crediting was a false statement by Ms. McDonald … instead of a false statement to Ms. McDonald (emphasis in context),” Berlik wrote in his April 16 filing on his client’s behalf, adding, “The Warren EDA is looking for someone to blame for every decision it now regrets since new leadership has taken over – and Ms. McDonald is it.”
From Tran’s legal perspective he has simply taken advantage of a series of sweetheart deals offered by the EDA Board of Directors at the urging of friends in high places, including Congressman Goodlatte and the EDA’s then executive director.
What could possibly be wrong with that?
At issue in the wake of the filing of the series of defense demurrers for dismissal of the cases against their clients is will that question in regard to all defendants ever be argued in front of a jury in a Warren County or any other courtroom?
EDA settles civil claim against McEathron estate for $90,000
Following an hour-and-thirty-five-minute closed session on a variety of topics that opened its monthly meeting of October 23, the Front Royal-Warren County Economic Development Authority Board of Directors approved a motion agreeing to a settlement with the estate of late Warren County Sheriff Daniel McEathron.
The settlement amount agreed upon between the EDA and McEathron’s widow and two adult children is $90,000. McEathron was linked to the EDA financial scandal due to his partnership in former EDA Executive Director Jennifer McDonald’s DaBoyz LLC real estate company. In the EDA’s civil litigation initially filed in March 2019, McDonald is accused, among other things, of unauthorized moving of EDA assets to her own benefit through her real estate companies DaBoyz and MoveOn8. Still Sheriff at the time, McEathron along with McDonald and the two real estate companies, were on the initial list of civil case defendants.
After taking early retirement effective May 1, 2019, just over a month after being named a co-defendant in the EDA civil litigation, the county’s long-time sheriff was found dead on his Bentonville property 28 days later, May 28, from an apparent suicide. Some questions about the death arose after Sheriff’s Office personnel, ostensibly alerted by McEathron to his planned suicide by phone, removed the body from the scene where it was discovered in proximity to an expended firearm before the Virginia State Police, the EDA criminal case investigating agency, was notified of the death.
On Friday, EDA Asset Committee Chairman Greg Harold, who made the motion to approve, addressed the McEathron Estate settlement prior to the vote.
“Mr. Chairman, I want the community to know that the EDA has negotiated in good faith for this settlement for a long time. This is something that we’ve taken very seriously; this is something that we have called back and forth with, with our attorneys and the estate’s attorneys. While we feel there are certain risks and rewards with these situations, I think the EDA is comfortable at this time that we have done the best that we can for the community and that it’s time to put this matter behind us as the motion is written,” Harold said.
Thank you for that,” Board Chairman Jeff Browne responded. There was no other comment prior to the vote on Harold’s motion, seconded by James Wolfe, which then passed by a 4-0 margin of the members remaining after the closed session, the above three and Tom Pattison. Jorie Martin and Melissa Gordon were present for the 8 a.m. convening of the meeting into closed session but had left to other commitments prior to the closed session’s 9:45 a.m. conclusion.
The motion on approval of the settlement read into the record by EDA Administrative Assistant Gretchen Henderson states in part, “Whereas the Front Royal-Warren County EDA has certain claims against Daniel McEathron; Whereas the EDA and McEathron’s heirs desire to resolve any claims that may exist between them; Now therefore be it resolved the chairman and the secretary of the Front Royal-Warren County EDA Board are authorized to enter into an agreement … (with those heirs) for the purposes set forth in this resolution which agreement shall provide for the payment of $90,000 dollars to the EDA …”
The motion adds that if any FOIA request are received by the EDA related to the settlement, McEathron’s widow or her attorneys will receive notice of those requests having been made.
As initially reported by former Royal Examiner Editor Norma Jean Shaw, McEathron and McDonald’s first transaction in DaBoyz dated to October 2016 and the pair purchased a total of $2.8 million of real estate between then and 2019. The LLC was involved in a number of transactions cited in the EDA civil litigation filed to recover allegedly misdirected assets, including a mysterious one in which a property was bought and sold back to the owner a month later at a loss of $600,000.
A number of McDonald and her two LLC’s existing properties were frozen by the court early in the civil case process. However, civil claims against McDonald assets have been complicated by her recent filing of bankruptcy, which put her assets under control of the Harrisonburg-based bankruptcy court.
The EDA civil litigation has grown to 24 human and business entity co-defendants, with total claims, actual and punitive, of about $25 million dollars. And as previously reported, the Harrisonburg Special Prosecutor’s Office has turned the criminal investigation into the EDA financial scandal over to the U.S. Western District of Virginia federal prosecutor’s office.
EDA approves short-term lease on Baugh Drive during Strategic Planning weekend meeting
The EDA Board of Directors met, via Zoom, Friday, and Saturday, October 9-10. There was one item of new business before the board. On a motion by Jorie Martin and seconded by Greg Harold, the Board of Directors unanimously approved a short-term storage lease with ECOMNET for use of 426 Baugh Drive warehouse building.
The remainder of the evening, as well as the full-day Saturday, was devoted to the process of updating the EDA Strategic Plan. The board, along with EDA staff, invited members of the community and Board of Supervisors to share their insights on the role the EDA can play in improving the economic health of and shaping the economic direction of the Front Royal Warren County community.
Attendees included Walt Mabe and Delores Oates, Warren County Board of Supervisors; Ed Daley, Interim County Administrator; Melissa Chapman, President, Ninth Way Solutions; Jeanian Clark, Vice President of Workforce Solutions and Continuing Education, Lord Fairfax Community College; Scott Jenkins, owner of Mountain Home B&B; Chris Laurence, Realtor; Dee Sparger, Outreach Coordinator, Front Royal Presbyterian Church; and Kelly Sprague, owner/manager Blue Wing Frog restaurant.
EDA Board Director Jim Wolfe facilitated the program. The goals of this event were to begin to articulate a vision and mission statement for the EDA, plus develop a list of objectives that the EDA can accomplish within the next five years. While the EDA Board, staff, and participants represented diverse professional backgrounds, all involved share a common passion for this community and a hopeful outlook for the future.
Chair Jeff Browne stated, “A lot of good ideas came out of the sessions that give us terrific ideas to consider as we move forward. There was a strong consensus on important ideas, like Town-County cooperation on a common vision for our community.”
The Board of Directors is proud to have begun this community conversation and look forward to fine-tuning the plan in the coming weeks.
‘This is BIG’ – EDA Chairman reacts to news feds handling EDA criminal investigations
At 12:03 p.m., Thursday, October 8, Front Royal-Warren County Economic Development Authority Administrative Assistant Gretchen Henderson forwarded a press release from Rockingham County Commonwealth’s Attorney Marsha Garst to the media regarding the status of her office’s investigation of potential criminal charges related to the EDA financial scandal and resultant civil litigation.
As stated in that release posted on the Royal Examiner website earlier this afternoon, Garst and her appointed EDA prosecutor Michael Parker, a specialist in white-collar crime, came to a decision to hand their investigation over to the Western District of Virginia U.S. Attorney’s office in Harrisonburg in late February of this year.
“Our primary goal with the prosecution is to assure a just outcome. Mr. Parker did an excellent job of assessing the case and putting the evidence together. In doing so, it became apparent that federal prosecutors would be able to gain the best outcome,” Garst wrote in her release dated October 7, continuing to note the late February turnover of the case to the federal prosecutor’s office in Harrisonburg.
“It was explained that my office cannot comment on the case further or jeopardize any potential federal prosecution. I want to assure the citizens of Warren County that my office is dedicated to seeing justice done. In light of an ongoing criminal action, I cannot provide any further information,” Garst concluded, referencing further inquiries to Western District U.S. Attorney’s Office Public Affairs Specialist Brian McGinn.
While anticipating a similar reply to Garst’s “no further information” qualifier, Royal Examiner did reach out to the federal prosecutor’s office to see if there were any clues on timelines on decisions that might be made public. And in a very quick reply to our emailed query, McGinn noted as we predicted, “As per DOJ policy, we cannot confirm or deny the existence of an ongoing investigation.”
Garst’s release acknowledging the change in prosecutors from the state to the federal level in the EDA financial scandal criminal investigation over seven months ago comes just nine days after the Front Royal Town Council’s aggressively worded September 28th Resolution “demanding justice” condemning the lack of action on the EDA criminal prosecution front by the Rockingham prosecutor’s office, and Parker in particular.
We contacted the author of that Resolution, Interim Town Manager Matt Tederick who coming out of a meeting had not seen the Garst press release. Informed of its content, Tederick said, “Good news – mission accomplished,” in that a response containing some new information on the EDA criminal investigation’s status had been received.
“I’m sure there’s a rationale and a reason,” he added of the previous silence from the state special prosecutor’s office. “But when the public trust has been violated to this degree, the public deserves some assurance that they are still pursuing the case.”
Tederick noted that confidential information was not being sought in the Town resolution approved by a 5-1 vote, Thompson dissenting, on September 28, just that the case had not gone cold and been abandoned.
But as noted in our story “Town targets Special Prosecutor’s Office over EDA prosecution delays” it appears the Town pursued its Resolution initiative without any prior communications with the Rockingham prosecutor’s office.
That apparently was not the case with an inquiry launched by the EDA, according to Front Royal-Warren County Economic Development Authority Board of Directors Chairman Jeff Browne.
Having received Garst’s press release through the EDA, we contacted Browne about it. Browne indicated an EDA inquiry about the criminal case status through the EDA’s civil litigation attorneys was begun about a week before the Town resolution was publicly approved.
Browne said he believed local attorney and “B.E.E.R. Party” principal David Downes launched a separate inquiry to Garst’s office as well. Downes publicly criticized the Town Resolution’s message and tone in public comments at the September 28 council meeting prior to the vote on its approval.
Contacted about the County’s knowledge of the origins of Garst’s press release, Interim County Administrator Ed Daley said the County had inquired about the status of the Rockingham prosecutor’s EDA investigation through State Senator Mark Obenshain’s office. It was through Obenshain’s office Daley indicated County officials became aware yesterday of Garst’s press release that may have first been circulated locally in the Harrisonburg-Rockingham County area.
Regardless of who, how, or why – the consensus is that the information that the case is active and in federal prosecutors’ hands is welcome.
“This is big – from our standpoint, it is really good news,” EDA Board Chair Browne enthused. “This shows that it is still on prosecutors’ radar. The people of Warren County deserve justice. And we want to see anyone there is evidence of involvement prosecuted for it.”
Of the EDA inquiry, Brown observed that he kept hearing that nothing was going to be done regarding criminal accountability for the at-this-point still alleged criminal misdirection of EDA, County and Town assets – “It made me mad and I wanted to let people know we’re still interested in achieving justice,” Browne said of the impetus for the EDA’s inquiry through its legal counsel to the Rockingham prosecutor’s office.
And while the nature of the inquiries may have been different, Browne said he looked at it as a positive that both involved municipalities and the EDA were on the same page in seeking assurances that criminal accountability was still on the legal table at this point.
“We’re in this together, we should be working together,” he said of the Town, County, and EDA.
Perhaps another small step toward increased cooperation, as opposed to increased hostility and litigation, as this community moves forward toward an outcome, if slowly in a complex legal setting.
Rockingham Prosecutor’s Office turned EDA criminal investigation over to U.S. Attorney’s Office
The Front Royal Warren County EDA and Warren County officials, through the EDA’s attorney in the civil case, approached the Rockingham attorney two weeks ago to urge that office to reinstate the criminal charges in the EDA embezzlement case. The attached response is a press release from Commonwealth’s Attorney Marsha Garst.
My office was appointed to prosecute potential crimes occurring in Warren County. I authorized one of my most skilled prosecutors who specializes in white collar crimes, Michael Parker, to assist with the case. Our primary goal with prosecution is to assure a just outcome. Mr. Parker did an excellent job assessing the case and putting the evidence together. In doing so, it became apparent that federal prosecutors would be able to gain the best outcome.
Accordingly, working with our federal partners, we referred the matter to the United States Attorney’s Office for the Western District of Virginia in late February of 2020. It was explained that my office cannot comment on the case further or jeopardize any potential federal prosecution. I want to assure the citizens of Warren County that my office is dedicated to seeing justice done. In light of an ongoing criminal action, I cannot provide any further information.
Any further questions in this case should be referred to Brian P. McGinn, Public Affairs Specialist, of the Western District United States Attorney’s Office at (434) 295-8672.
Marsha L. Garst
EDA unveils new logo featuring sunrise, logistical and transportation advantages
The Board of Directors and Executive Director Doug Parsons are pleased to introduce the new Front Royal Warren County EDA logo.
Chair Jeff Browne and EDA staff worked with Mike Shotton, of Shotton Design, for several months on the design. The sunrise on the horizon is a feature which reflects a positive belief in the future of the Front Royal and Warren County area. Included are three of the many industry sectors that are important components of our community’s economic engine. Additionally, Front Royal and Warren County are uniquely situated, geographically, to offer businesses and industries the advantage of the I-81 business gateway, the Virginia Inland Port, as well as the I-66/Northern Virginia/metro D.C. corridors.
This new look goes along with the new Board of Directors, new staff, and a new commitment to encouraging business and industry growth and development in the Front Royal Warren County area.
Update: County responds to Town announcement of FRPD financing
This story has been updated. Here is the complete release. Page 2 of the release was missed and left out of the original post.
Warren County released the following press release on Friday, September 25, 2020:
The press conference held on September 23, 2020, announcing that the Town of Front Royal has secured permanent financing for the Front Royal Police Department building is great news for the citizens of our community! It closes a chapter on one aspect of the lawsuit the Town of Front Royal filed against the Front Royal-Warren County Economic Development Authority (EDA) and ends months of dispute between the EDA, the Town, and the County. It should be viewed as a path forward to a working relationship between the Town of Front Royal, Warren County, and the EDA.
As Warren County citizens, we were brokenhearted by the EDA scandal. The breach by those who were entrusted with our tax dollars and economic development is one that will take years to restore. Efforts taken by the Warren County Board of Supervisors to restore faith and oversight of the new EDA Board of Directors are well documented. Both the Board of Supervisors and the EDA Board of Directors have worked diligently to clean up the mess and recover the stolen assets for taxpayers.
The portrayal by some Town leadership that the County was unwilling to work with the Town to resolve the EDA issues could not be farther from the truth. The County has had every incentive to work with the Town to resolve the Police Station debt owed by the Town and has repeatedly approached the Town to work together on economic development issues critical to the success of our community.
Town and County residents expect us to resolve our differences and focus on big issues affecting our community. Rampant drug overdoses and deaths in our community, families on the margins suffering from the economic effects of the COVID-19 pandemic, teachers struggling to educate our children remotely, first responders working double overtimes…these are the type of issues we should be working together to resolve.
Our government needs to DO BETTER. We need to stop blaming one another and start focusing on what will better the lives of our citizens. The residents of our community deserve leaders who spend their tax dollars wisely. That includes streamlining our efforts to reduce duplication of the same services and waste of resources. THE CITIZENS of the Town/County are footing the bill for these lawsuits that are equivalent to suing ourselves. And in the case of Town residents, they are paying for lawyers and court costs on both sides.
The citizens of this community want their leaders to find ways to work together. They deserve it. We encourage the Town leadership to work with the County and the EDA to secure a better community!