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Rushford/F&L arbitration details still under wraps

By Kirsten Zoellner

Fri, Jan 17th, 2014
Posted in Rushford Government

A closed meeting was held January 13, just prior to the regular city council to meet with City Attorney Terry Chiglo and attorney Robert Aslop of Kennedy & Graven. Aslop represents F&L Management & Development and Guardian Inn of Rushford, LLC (Tom Serie). Demand for arbitration was filed by Serie in November of 2011, following four years of frustration for the city and the subsequent July 2011 abandonment of the community center project all together. A summons & complaint was filed in Fillmore County December 10, 2013 regarding a lease agreement with Guardian Inn of Rushford, LLC. Damage hearings are scheduled for early February. Until then, both parties are refraining from public comment.

The original agreement with F&L Development for the motel and community center projects were signed October 26, 2009. Less than a month later, four incumbents on the council that passed that measure were swept out of office in a tumultuous election. By March 2010, the new council, like many in the community, was already questioning the lack of a performance bond for Serie’s company and a series of outstanding judgments against him elsewhere. At that time, former City Administrator Windy Block suggested items that were still up in the air and potential cost savings. Then City Attorney Scott Springer noted the city was holding a substantial amount of funds which should have helped to enforce Serie’s payments. An auditor later indicated that the city should have had a performance bond.

Just three months later, the project slowed considerably, but came to a halt as Serie notified the council that he would put no more than the $593,000 of expected FEMA funding into the community center until he could secure funding for the motel portion of the project. Some interior work resumed by June 2010 after Public Works Director Jeff Copley worked to develop a labor deal cutting the costs of development using a Sentenced To Serve workforce for much of the labor.

February 2011 the city was dealt a hard blow. FEMA notified the city that no funding would be granted to the building because construction was begun prior to receiving approval. At that time, new City Attorney Terry Chiglo also updated the council on his investigation into the still unfinished community center and “significant issues.” Financing for the motel project must also be completed and Serie indicated he hope to have it within a two week time span.

March 14, 2011 is set as the date for all paperwork on investor ownership and the date comes and goes with nothing. A complete financing package is unknown, as Serie has been unable to sell all ownership shares and 23 percent remain. Attorney Chiglo had asked for a letter from Merchant’s Bank committing to a level of financing detailing the amount of non-Rushford funds, but the bank was unable to provide such information.

Six weeks later, April 25, a public hearing receives continuation due to F&L Development being unable to produce an expected letter of commitment from Merchant’s Bank. F&L asks for continuance and Serie indicates he could have the letter within two weeks, by May 9. That date also comes and goes. Serie is given another five weeks, until June 13, and is notified that the city will either have the letter or abandon the project.

The council is presented with letter June 13 from Merchant’s Bank. However, it is not a letter of commitment by the bank. The letter makes several assumptions including approval of a $160,000 low-interest loan from the Economic Development Authority (EDA) and an infusion of $100,000 in cash from the city to the project. The city opts to wait to get financing approval from Merchant’s Bank.

A month later, July 11, the bank indicated it would be a making a decision shortly, but there is no other news on financing for either the motel or the community center. Two weeks later there is still nothing from the bank or Serie and the council has no choice but to abandon the project.

The city submitted data, such as minutes and other documentation, to Serie’s legal counsel and was assigned a litigator by the League of Minnesota Cities to assist with the arbitration. “We’re all shaking our heads,” said Sarvi at the time. It is unclear what Serie is seeking as damages from the multi-faceted agreement.

The arbitrator will hear from both sides and decide on the dollar amount the city will have to pay out, with each side arguing for what they feel is in their best interest. The city is keenly aware that there could likely be a payout. However, despite the short timeframe, it is possible that a settlement can be reached before the damage hearing process.

Several interested parties have expressed an interest in leasing the partially-finished community center, but all have fallen through. “Our intention is to capture all costs to date, plus the new costs, over time,” said Sarvi. That has proved a difficult task, but an end to the arbitration will certainly pave the way.

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