Grimes owns small stake in company facing legal action over unpaid fees, fines

Democratic U.S. Senate candidate Alison Lundergan Grimes has a small ownership stake in a vacant Lexington property that city officials have repeatedly cited for code violations and threatened legal action against for nonpayment of more than $20,000 in storm-sewer fees and fines.

Grimes, the Kentucky secretary of state who is running against U.S. Senate Minority Leader Mitch McConnell, has reported on Senate financial disclosure forms that she holds stock worth between $15,001 and $50,000 in Glenncase LLC, which owns the former Continental Inn property at the corner of Winchester Road and New Circle Road.

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Glenncase bought the property in 2005. Grimes' father, Jerry Lundergan, called it a "drug-infested haven." He promptly demolished the hotel, beginning an almost decade-long battle with neighbors over the property's appearance and purpose, and with city officials over code violations and unpaid fees.

Neighbors view the property "with a great deal of disappointment," said Loys Mather, president of the Eastland Parkway Neighborhood Association.

"It's not something that's an asset for the neighborhood and east Lexington," Mather said.

In a statement, Lundergan said he has tried to be a "courteous neighbor," allowing yard sales on the property, building a fence and keeping grass mowed as he attempts to sell or lease the 10.6-acre tract.

Documents obtained by the Herald-Leader from the Lexington-Fayette Urban County Government reveal that Lundergan refused to pay storm-sewer bills for more than four years and that neighbors have complained repeatedly about the appearance of the property, peaking in summer 2013 as the neighborhood fought successfully to reverse the city's decision to sign a lease with Glenncase to put a temporary salt storage center on the property.

General disrepair — soiled mattresses and tires, potholes and graffiti — has led to numerous code violations and fines by the city and at least two liens against the property.

Most recently, Lundergan wrote two checks to the city in June 2014 for more than $20,000 in unpaid water quality management fees, late fees and fines. The first payment of $10,000 came on June 11, six months after the city informed Lundergan's attorney they would take legal action to collect the money. The second payment of $12,369.81 was made June 25, one day after the conservative research group America Rising LLC filed a request for the city's records about the Continental Inn parcel.

America Rising, based in Beverly, Mass., is paid by McConnell and other Republican candidates across the nation to research Democrats. The McConnell campaign provided the results of America Rising's open-records request to the Herald-Leader, which then obtained similar documents from the city in its own open-records requests.

Glenncase first caused minor headaches for Grimes last year when the Herald-Leader reported that it was one of two businesses connected to the secretary of state that failed to meet an annual reporting deadline and were held in "bad standing" by her own office. The problems were corrected on the same day the story was published.

Neither the Grimes campaign nor her secretary of state's office responded to a lengthy list of questions submitted to them by email, but Lundergan said his daughter, like her four sisters, owns a 1 percent stake in Glenncase.

He said Grimes has played no role in day-to-day management of the company and "to my knowledge, Alison was not aware of the fees/penalties regarding our issue with LFUCG. Nor was or is she involved in Glenncase's decision to pay the fees/penalties."

Lundergan said the newspaper's line of questioning "is nothing more than a witch hunt to disgrace and discredit her run for U.S. Senate."

"If I truly believed your intent was to create a story about me and the former Continental Inn property, this would be a non-issue; however, I know that the outlying intent is to try to embarrass or link Alison Grimes to a piece of property in which she only has a 1 percent stake in and does not participate in the daily operations of," Lundergan wrote.

Last weekend, the Herald-Leader asked Grimes at an event in Northern Kentucky if she was concerned that some of her business ventures with her father could hinder her campaign.

"I'm going to stay focused on the issues in this campaign," Grimes said. "If Mitch McConnell were half as concerned about creating jobs as he is about attacking my family, we might be better off."

'Unprecedented' discounts

In December 2005, just days before Glenncase bought the Continental Inn property for more than $3.5 million, Grimes, then named Alison Lundergan, drew up and signed the articles of organization for Glenncase while working as an attorney with Stoll, Keenon & Ogden LLP.

According to the Fayette County property valuation administrator, the parcel is now worth about $2.8 million.

While the condition of the Continental Inn property has been a hot-button community issue for years, Lundergan's dispute with the city over storm-sewer fees has not previously been reported.

The dispute revolves around the formula used by the city's Division of Water Quality to calculate the property's water quality management fee. The fee, implemented in January 2010 to finance storm-sewer improvements required by the U.S. Environmental Protection Agency, is based on how much impervious surface — roofs, parking lots, driveways and similar surfaces that block rain water from entering the soil — covers a parcel of property.

Lundergan and his attorney argued that the property should be exempt from the storm-sewer fee because of its topography and because it is vacant. After the city rejected those arguments, he and the city haggled over which parts of the dilapidated asphalt on the property should be considered impervious.

Through his attorney, Jason Kinser, Lundergan repeatedly disputed the fees, asking for rate reviews, inspections and reinspections of the property. He won three deductions, which a city attorney described as "unprecedented."

After the last review, in August 2013, Charles Martin, director of the Division of Water Quality, informed Kinser of a rate reduction, amounting to $1,501 taken off the balance owed and setting a new rate.

Martin wrote that as of that date, the company owed $18,520 in unpaid fees, noting that "records show that no payments have ever been made on this account."

Lundergan indicated that the new arrangement was unacceptable and that he planned to continue his appeal. Kinser offered a proposed settlement in November 2013, which included a further reduction of $4,500. Under the proposal, Lundergan would pay about $15,000 in three installments, with the first installment to be paid immediately. Kinser also proposed that Lundergan get an additional reduction of about $5,000 if he could pay in one lump sum.

"In other words, if my client could pay $10,000 all at once, would LFUCG consider writing off the rest of the balance?" Kinser wrote.

The city accepted Kinser's proposal to pay the bill in three installments, but city attorney Edward Gardner rejected the lump-sum payment discount, saying that "an even further 'discounted' amount (from LFUCG's perspective) would be a very hard sell."

"As I know you understand, we are proposing unprecedented adjustments here already, to the benefit of your client," Gardner wrote.

Ahead of a scheduled meeting to address the ongoing appeal in November 2013, Kinser responded in an email to Gardner that "settlement as drafted is accepted, no need for the hearing tomorrow."

Beginning just before Christmas 2013, city officials began to inquire about the first installment Glenncase agreed to pay, warning that immediate payment was necessary to avoid late fees and penalties.

After follow-up emails from Gardner to Kinser asking about the check, Kinser wrote on Jan. 6 that he was "not anticipating this being a problem." An employee of Lundergan's company said she would mail a check promptly, he said.

Beginning in January, the city began adding late fees to the amount Glenncase owed, and on Jan. 21, Gardner wrote Kinser informing him that LFUCG would seek payment through legal action.

"Since Mr. Lundergan has refused to honor the settlement he made, LFUCG has no choice but to pursue collection of the amount owed through legal action," Gardner wrote.

There are no records of another appeal from Lundergan, and the balance remained unpaid and growing each month by $558 for the storm-sewer fee, plus interest and late fees.

According to the minutes of an April meeting of the city's Water Quality Fees Board, an attorney for the city, Michael Cravens, told the board that Lundergan "refused to sign the settlement agreement or make payment toward the Water Quality Management Fee owed and has not taken action to continue the appeal."

"By failing to do so, the appeal is abandoned," the board determined.

Lundergan said in his statement that he paid the outstanding bill in June at the direction of his attorneys. He said he had no knowledge of the open-records request made by America Rising.

"Never did we refuse to pay; however we did go through the proper channels to question the charges," Lundergan said. "I believe it is the right of all citizens of Lexington to question how the fees are calculated. It would not be prudent to idly stand by and not question such inflated rates."

While there are no records of further appeals beyond the email that Kinser sent saying the settlement had been accepted, Lundergan said in his statement that he would "continue to fight for what we believe is fair and just."

'Positive partner'

Mather, the neighborhood association president, said it's unfortunate that the property remains undeveloped, although he said its appearance has improved recently.

Despite increased efforts to remove graffiti and construction waste that Lundergan said is illegally dumped by others, the property remains a sore spot for the neighborhood.

"We still get people expressing concerns about it," Mather said.

Ultimately, he said, "it's never going to look good until somebody comes along and develops it."

Lundergan said in his statement that he and his wife, Charlotte, have lived in the area for 15 years and have "great affection" for the neighborhood.

"We have done our best to be courteous neighbors, including the Eastland Parkway Neighborhood Association in our plans and intentions with the property," Lundergan said. "We have allowed the neighborhood churches to hold yard sales, we have built a four-plank fence around the perimeter as requested by neighbors and continue to maintain and manicure the green space."

Lundergan said Glenncase pays more than $35,000 a year in property taxes, adding that "we would like to think we are a positive partner in our community."

He said Glenncase continues to offer the land for sale or lease.

"Bottom line is had we left the existing dilapidated motel, we would be criticized," Lundergan said. "We have tried to be a good neighbor within reason."

This story was originally published September 20, 2014 at 11:40 PM with the headline "Grimes owns small stake in company facing legal action over unpaid fees, fines."