Suit outlines alleged effort to appropriate tax dollars

Clinton(from left), Chris and Ed Mills pose for a photograph June 21, 2012, on the downtown parking garage.

With a federal judge handing the city of Bowling Green a defeat in its conflict with Mills Family Realty and Rick Kelley over initial development of the downtown commercial wrap, city officials will consider whether to continue pursuing legal action.

U.S. Chief District Judge Joseph McKinley dismissed the city’s lawsuit against MFR and Kelley on Wednesday, saying in a 10-page ruling that the city failed to establish how it had been damaged by the alleged use by MFR and Kelley of bond proceeds, which were meant for construction of the project, to develop their own businesses in the wrap.

“We’re pleased with the court’s ruling,” attorney Brad Keeton, representing MFR, said in an email to the Daily News. “We have always believed that the city’s claims have no merit, and we’re glad that Judge McKinley agreed with us. The Mills’ look forward to moving on and putting all issues related to the wrap behind them.”

Keeton had moved on behalf of MFR in October to dismiss the lawsuit on the grounds the city had failed to state a claim.

Kelley was not involved in the motion, but McKinley dismissed the allegations against him as well, since Kelley also alleged the city failed to state a claim against him for damages.

Bowling Green City Attorney Gene Harmon said the Bowling Green City Commission will likely discuss the federal ruling with the northern Kentucky law firm of Keating Muething & Klekamp, which was hired to file the civil action, early next month.

“We’ll get some direction and advice from them,” Harmon said. “I think it’s safe to say that nobody expects (this ruling) will end this.”

Should the city continue to pursue damages, it can appeal McKinley’s ruling to the U.S. Court of Appeals for the 6th Circuit or refile its claims in Warren Circuit Court.

Attorney Alan Simpson, representing Kelley, said he reviewed the order dismissing the case Wednesday morning with his client.

“It’s consistent exactly with what we have stated all along, which is that the city has not suffered any damages whatsoever, and that’s essentially the basis of dismissing (the lawsuit),” Simpson said. “Whether (the city) will try to still pursue a claim is something the city commission will have to decide, and I’m hoping now with a federal judge explaining very carefully to them that they don’t have any damages that they would not waste the taxpayers’ money to pursue a frivolous lawsuit.”

The city filed its lawsuit in U.S. District Court in September, alleging that the defendants violated federal racketeering laws, engaged in fraud, breach of contract and civil conspiracy.

MFR, comprised of Ed Mills and his sons, Clinton and Chris Mills, was chosen in 2012 as the developer of the project, which was financed by about $22 million in county bonds.

The Millses are also affiliated with Hitcents technology firm, and the wrap was known initially as Hitcents Park Plaza.

Kelley, the former owner of Mariah’s restaurant, was hired by MFR as a consultant for the development, and the restaurant was moved into the wrap, which is now known as Stadium Park Plaza and has a new developer.

The city claimed in its lawsuit that the defendants improperly commingled various revenue in the project, altered an operating agreement without the city’s knowledge to operate their own businesses and overspent Tax Increment Financing District revenue on working capital.

According to the suit, Bowling Green Mayor Bruce Wilkerson sought assurances from the Mills family that “the bond funds are not a ‘Rick Kelley Bankruptcy Bailout Fund,’ ” when he asked the Millses in 2013 whether Kelley was involved in the restaurants in the development.

McKinley found that the city failed to allege how it was harmed by the investment of the bond funds or the TIF revenue, noting in his ruling that the city was never entitled to receive the industrial revenue bond proceeds, which had been approved by Warren County, though the city was partially responsible for helping to repay debt associated with the bond proceeds.

“While the city was responsible in part for paying off the bonds, its liability on the bonds did not rise and fall based upon how the bond proceeds were spent by the defendants,” McKinley wrote. “Its liability was only dependent on whether there was sufficient money from TIF revenue and sublease payments to cover the debt payments, which had nothing to do with whether the bond proceeds were spent in accordance with the relevant agreements or put towards some other unauthorized purpose, such as into the defendants’ personal businesses.”

The judge determined the city “failed to provide much detail as to what its actual damages were or how they arose,” stating in its complaint that it suffered “several million dollars of damages” but providing no context for that allegation.

Issues related to the development of the wrap became public in February 2015 when the project was nearly complete.

Contractors at that time filed more than $2 million in liens on the project, saying they were not being paid for their work.

Restaurants in the building were closed and a number of lawsuits followed.

The county ultimately issued a new $30 million bond to pay contractors and finish the project with the new developer.

The city commission in August approved by a 4-1 vote hiring a law firm to file a lawsuit.

Commissioner Brian “Slim” Nash was the only dissenting vote, saying at the time he did not believe the city could recoup any money through the suit and that it would put a damper on continuing downtown development.

– Follow courts reporter Justin Story on Twitter @jstorydailynews or visit bgdailynews.com.

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