In a response filed Thursday, the city of Bowling Green maintains that its lawsuit against defendants involved in the development of the commercial wrap around the downtown parking garage will withstand attempts to have it dismissed.
The city is suing former wrap developer Mills Family Realty, MR Group, the officers of that group, Ed Mills, Chris Mills and Clinton Mills and Bowling Green businessman Rick Kelley.
A lawsuit filed on behalf of the city in U.S. District Court alleges that the defendants “engaged in – and conspired to engage in – a pattern of racketeering activity intended to defraud the plaintiff out of millions of dollars.”
The civil action also accuses the defendants of fraud, breach of contract, breach of fiduciary duty, civil conspiracy and conversion.
Mills Family Realty was chosen in 2012 as developer of the project, which was financed by about $22 million in county bonds.
Mills Family Realty hired Kelley, the former owner of Mariah’s restaurant, as a consultant for the development, which was originally known as Hitcents Park Plaza and now goes by Stadium Park Plaza.
At the heart of the lawsuit are allegations the defendants improperly commingled various revenue in the project, altered an operating agreement without the city’s knowledge to operate their own businesses and used and overspent Tax Increment Financing District revenue on their own businesses.
Brad Keeton, the Louisville-based attorney representing the Millses and their associated businesses, moved to have the lawsuit dismissed, characterizing the legal action as an effort by the city “to settle old scores arising from the personal animosity of certain city officials toward the Mills defendants by bringing a meritless complaint that fails to state even a single claim on which relief may be granted.”
A 40-page response filed Thursday on the city’s behalf by Cincinnati-based attorney Steven Coffaro asserts that the arguments from the defense supporting its motion to dismiss lack merit.
Coffaro argues that the project “ran out of money as a direct result of the defendants’ long-running scheme to grossly misuse at least $2 million (and possibly up to $6-$12 million) of an available $27 million in public funds.
“The defendants purposefully misappropriated (the city’s) tax increment financing revenues and other payments made by (the city) to enrich themselves and to unlawfully finance their own private businesses, when they were required to use these funds exclusively to pay debt service on the public bonds and the project’s capital construction costs ... their misuse of funds has been confirmed by an independent auditor,” Coffaro states.
Issues related to the development of the wrap became public in 2015 when contractors filed more than $2 million in liens on the almost-complete project, saying they were not being paid for their work.
Restaurants in the building also closed and several lawsuits followed, with the county issuing a new $30 million bond to pay contractors and finish the project with a new developer.
Then-state Auditor Adam Edelen reviewed the project, finding in December 2015 that there was overspending on the project of $9.7 million, resulting in a $4.5 million deficit; poor oversight on the project by elected officials; and numerous, often contradictory, agreements guiding the project.
Attorney Alan Simpson, who represents Kelley in the civil matter, has said that any losses the city incurred were “self-inflicted,” citing the city’s approval of an interlocal agreement in 2015 calling for the county to issue $30 million in industrial revenue bonds to pay off debts and complete development of the wrap as one such loss.
Coffaro’s response to the motion to dismiss addresses each of the arguments put forth by Keeton.
The defense argued that the city is not entitled to relief on the grounds of racketeering because the city brought its allegations after the four-year statute of limitations on bringing the claim expired.
Coffaro argues that the defense bases its argument on an erroneous interpretation of a 2013 email from city chief financial officer Jeff Meisel to Bowling Green Mayor Bruce Wilkerson in which Meisel recounted telling Clinton Mills that he disliked the mixing “of all the money into one pot” and that the revenue streams needed to stay segregated so the city would know “what each source was generating and how much was being used towards debt.”
Coffaro responded that the city’s racketeering allegation is timely and that Meisel could not have suspected wrongdoing on the Millses’ part in his email to the mayor.
“The (Millses) mistakenly equate Mr. Meisel’s dislike for commingling the revenue sources with knowledge that (the Millses) were misappropriating – or would misappropriate – millions of dollars in bond funds for their own personal benefit,” Coffaro said. “This is a logical leap that the court cannot and should not make ... nothing about Mr. Meisel’s email suggests that he knew or should have known that (the Millses) were engaging in this unlawful behavior at that time.”
Coffaro also asserts that the city specified its fraud claims “in sufficient and ample detail” in its original lawsuit, countering an argument from Keeton that the fraud allegations are too vague to warrant damages awarded to the city.
To support the fraud claims, Coffaro cites correspondence among the Millses, Kelley and city officials that includes a 2013 email exchange between Clinton Mills and city attorney Gene Harmon in which Harmon asked whether Mills Family Realty was requesting total access to the bond funds.
In response, Mills said, “If you mean by total access that we would want to keep that money and spend it however we please, then no we are not asking for total access. We would just want to use the money for renovations and taxes just like all other money.”
Coffaro said this response was a falsehood showing that Mills Family Realty wanted to continue using the money to operate their private businesses, including the restaurants in the wrap.
The city also was able to establish a pattern of racketeering activity in its lawsuit, Coffaro states in his response.
“This case is about more than a mere one-time, commercial dispute,” Coffaro said in the response. “Plaintiff’s complaint alleges over 25+ racketeering acts – of which 21 are both wire and bank fraud – occurring over the course of several years, constituting a closed-ended pattern of racketeering. This activity all furthered (the Millses’) single goal: to fraudulently obtain and illegally use the bond funds for their own personal business use.”
The city estimates that it has “incurred several million dollars in damages,” including the loss of TIF and lease revenues alleged to have been misspent, an additional $645,000 since 2014 in base money used to finance a “near $5 million forced bailout of the project, which is estimated to cost the city approximately $6.3 million by 2038” and the forfeiture of state TIF revenues to cover the project’s new debt.