State

Company wrongly collecting profits from building KY taxpayers funded, lawsuit alleges

Carroll Engineering in Harlan County is housed in an old furniture factory at the center of a lawsuit between the Harlan County Industrial Development Authority and a group called Harlan Countians for Progress.
Carroll Engineering in Harlan County is housed in an old furniture factory at the center of a lawsuit between the Harlan County Industrial Development Authority and a group called Harlan Countians for Progress.

After a four-year court battle, a judge could decide as early as Friday who should own an old Harlan County furniture factory once promised as a business incubator.

The case centers around the T.L. Bayne Building, a county-owned industrial site aimed at boosting jobs in this remote corner of south-eastern Kentucky. It now houses the headquarters of Carroll Engineering Co., a mining services company.

The Harlan County Industrial Development Authority has accused two local businessmen of conspiring to transfer the publicly-owned building into private hands through an illegitimate lease agreement, which included an option to purchase the property. But those businessmen claim they were cheated out of a deal agreed to by the county’s then-judge-executive, the development authority and the state Department for Local Government.

The businessmen, Don Parsons and the late C.V. Bennett, founders of Harlan Countians for Progress, sued the development authority in 2014 after the authority blocked their attempt to purchase the building.

The authority later filed a counter-suit, which alleges that Harlan Countians for Progress lied to the Kentucky Department for Local Government in 2009 in order to secure a lease for the building. It also alleges the group failed to live up to the requirements of the lease by not producing proof of insurance on the building, and by failing to bring promised businesses to the property.

“Under a cloud of secrecy, fraud and misrepresentations, (Harlan Countians for Progress), and thus Donald G. Parsons, was able to acquire the rights to lease the building for what we now know was significant private economic gain,” according to a motion filed by the development authority.

Parsons and Bennett first approached the county in 2009 about acquiring a lease on the building. According to court records, Parsons and Bennett pitched Harlan Countians for Progress as a non-profit that would “function as a business incubator” for the property.

The group’s business development plan, a copy of which is included in the court record, lays out how the property would be divided between tenants. Those included a day care center, a workforce development center, a space to encourage “the development of local crafts and arts,” and a manufacturing facility.

According to a deposition by Parsons, none of those businesses came to fruition.

Former development authority board member Chris Lewis said he believes Parsons “never even attempted” to fulfill the economic development aspects of the lease agreement.

“Personally, I think it’s extremely unethical, to the bare minimum,” Lewis said. “This is a county that needs help, that needs job creation, that needs job training.”

Though Kentucky’s Department for Local Government received that business plan in November 2009 — which said the group’s mission was to become a non-profit — court records show that Parsons told the development authority in July of that year that the group was already in the process of becoming a for-profit corporation.

According to Parsons’ deposition, the group did not file any updated business development plan with the Department for Local Government. The department sent a letter in December 2009 giving the county the go-ahead to approve the lease.

Both parties signed the lease in August 2010. It required Harlan Countians for Progress to pay the authority about $230,000 over a four year period. At the end of the lease, the company could pay a $120,000 lump sum to purchase the property.

An attorney for James Howard, who was chairman of the development authority at the time the lease was signed and is now a magistrate in Harlan County, said the decision to grant the lease was voted on by the full development authority board, and at the behest of the then-County Judge-Executive Joseph Grieshop.

According to a statement from the group’s attorney, Harlan Countians for Progress has invested $886,000 into the building since 2010, turning an “abandoned factory into space suitable to house the national headquarters of Carroll Engineering Company.”

Carroll Engineering now houses 84 employees at the property, with total annual wages of more than $2.5 million, according to the statement.

“The building went from a financial drain on Harlan County to a revenue source,” said the statement.

When the lease held by Harlan Countians for Progress expired in 2014, the group attempted to purchase the property, but the then-chairman of the development authority, Harry Gibson, denied their application.

In a letter to Harlan Countians for Progress, Gibson said the company had executed a mortgage on the property in the amount of $500,000, which was prohibited by the terms of the lease and by the restrictions put on the property by the state.

The property was developed using state and federal funds, allowing the state to put certain “covenants and restrictions” on the property. Among other things, the building can only be used for certain purposes, including manufacturing, processing and assembling, and worker training and education.

Gibson also said the company never proved it had insurance on the property. He asked the company to reimburse the county for $26,000, the amount the county spent on insurance during the term of the lease.

At the end of the letter, Gibson asked the group to correct the breaches in the contract or vacate the premises.

Four years later, Harlan Countians for Progress still occupies the property and collects rent from its tenants. They have not paid any rent to the county since their last payment in 2014, Gibson said.

Both Lewis, the former development authority board member, and Gibson claim they were not re-appointed to the board by Harlan County Judge-Executive Dan Mosley because they refused to sign the deed for the property.

“What’s happened here is very, very serious,” Lewis said. “The problem that Harlan County has suffered for 100 years, and for the foreseeable future, is that the wealth and control of property, and to a large degree, political power, is wielded by just a handful of people.”

Mosley said Lewis and Gibson were not reappointed to the development authority because the authority was out of compliance with state guidelines provided by the Secretary of State’s Office and the Department for Local Government.

The development authority had also failed to pay a debt owed to the fiscal court, Mosley said.

“It had nothing to do with the lawsuit,” Mosley said. “You have to comply with state guidelines, and when people aren’t complying with state guidelines, you have to replace them.”

The current chairman of the development authority board, Geoff Marietta, who was appointed last month, declined to comment on whether he would support signing the property over to Harlan Countians for Progress.

He said the development authority has struggled in recent years to perform its duties, in part because of the lawsuit.

The development authority’s lease with Harlan Countians for Progress wasn’t its first controversial real estate deal.

James Howard, who was chairman of the development authority at the time the lease was signed and is now a magistrate in Harlan County, also owns an adjacent property that he acquired from the development authority in July 2011 through a similar lease agreement that was signed in 2005.

Howard was the chairman of the development board when it signed the lease with his company, Specialty Products Distributors, LLC, according to filings with the Kentucky Secretary of State’s office.

An audit published in 2011 by the state auditor included multiple criticisms of the deal, including that the property was not advertised for bids, “disallowing the right of purchase to anyone else interested.”

In addition, Howard was able to purchase the property — about three acres — for $325,000, well below its appraised value of $561,000, according to the audit. During the lease, Howard did not pay insurance on the property, which was required in the lease agreement, according to the audit.

Howard had subleased the property to two businesses, earning $1,600 in rent per month, according to the audit.

The audit contains other criticisms, including that Howard’s company did not pay property taxes after entering into the lease.

Will Wright is a corps member with Report For America, an initiative of The GroundTruth Project. Reach him at 859-270-9760, @HLWright

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