Gloversville sues for control of loan fund

PHOTOGRAPHER: Michael Lamendola

Gloversville filed a lawsuit Thursday against the Fulton County Economic Development Corp., seeking to recover a $1.5 million economic development revolving loan fund; and it may file a second suit to recover a $750,000 loan the EDC made that helped create Estee Commons.

City Attorney Tony Casale said the first lawsuit asks state Supreme Court in Fulton County to require the EDC to transfer the loan’s assets to Gloversville without further negotiations.

“We have exhausted all attempts at negotiation here, and litigation is the last option,” he said.

In 1993, the city obtained a $1.5 million urban development action grant from the federal Department of Housing and Urban Development.

That year, it contracted with the EDC to administer the grant, which later became a revolving loan fund for economic development projects in Gloversville. The city renewed the contract with the EDC periodically, with the final agreement running from January 2005 to Dec. 31, 2010.

Casale said the city asked the EDC to turn over the fund’s assets when the contract expired and the EDC refused.

“The city is looking to be made whole,” he said.

Part of being made whole, he said, is for the city to recover some or all of a $750,000 loan the EDC made from the fund to its sister corporation, the Crossroads Incubator Corp., in 2006. The CIC used the loan to convert the former Estee Middle School on Main Street into an apartment complex with 39 units.

According to published reports, the renovation cost $3.1 million, which included a $250,000 grant engineered by state Sen. Hugh Farley, R-Niskayuna. This project was called phase one and used 82,000 square feet of the 170,000-square-foot building. Phase two, a conversion of the remainder of the building, is stalled, and the EDC is seeking to sell the entire property.

Casale said the CIC never made any payments on the loan to the EDC and the EDC has never exercised any attempt to collect on the loan, which he said is in default.

“Not one cent of it has been paid back since January 2006. I would love to sign up for a loan like that,” he said.

EDC officials said they will start paying back the loan when the project shows a profit.

The second proposed lawsuit would address the EDC-CIC loan issue, Casale said, without providing further details. This second lawsuit could include the CIC, the EDC and their parent corporation, the Fulton County Center for Regional Growth.

Casale said he and the city are seeking additional information from the EDC about the process leading to the loan and events after the loan was made.

On Friday, he filed a discovery motion in state Supreme Court in Fulton County seeking records from the EDC and CIC, going back to their creation in 1988. The information will help the city prepare the second lawsuit, he said.

In the motion, Casale said the EDC should not have made the $750,000 loan to the CIC, calling it a conflict of interest, and this conflict of interest constituted a breach of contract between the EDC and the city.

Further, Casale said in court papers that in approving the loan between the EDC and CIC, the boards of directors of both corporations may have violated the nonprofit corporation laws.

He also said in his motion that the CRG “has either been unjustly enriched through its acquisition of CIC or the CRG will soon be unjustly enriched with its imminent acquisition of the CIC.”

Casale said the EDC and CIC are trying to walk away from the loan by asking to city to hold them harmless. This a condition of the EDC’s proposed agreement with the city to transfer the loan fund, he said.

Casale said a possible remedy the city may seek in the second lawsuit is that it replace the EDC in the collection of rents from Estee Commons.

He said the city has no idea how much rent is being collecting from tenants in the apartment complex. He said he hopes to learn this through the discovery process.

The city also wants to recover any management fees the EDC collected over the years to administer the revolving loan fund. EDC officials said they used the grant loan to cover personnel costs.

CRG President Michael Reese had no comment on the city’s lawsuit or discovery motion.