The City of Warren has filed a lawsuit against two local economic development organizations, the woman who served as their executive director, and her husband, charging that they mismanaged a $500,000 grant that the city must now repay into a revolving loan fund to satisfy the state agency that provided the money.
The civil suit, filed Thursday in Warren County Court of Common Pleas, lists the city, five members of Warren City Council Maurice Cashman, Samuel Harvey, John D. Lewis, Christopher Park and James Zavinski and the city’s Redevelopment Authority as plaintiffs.
Listed as defendants are the Warren Business District Coalition Inc., GRO-Warren Inc., Christine Cheronis and James G. Cheronis.
Telephone messages left with Cheronis and former GRO-Warren Secretary Harvey Stone for comment on Thursday afternoon were not returned.
The suit is the result of the failure of the Allegheny Center for the Arts building project, which was the subject of a $500,000 Anchor Building Grant provided by the state Department of Community and Economic Development in May, 2009. While the money was given to the city, it was to be provided, in turn, to GRO-Warren as a loan.
GRO-Warren was to use the money to rehabilitate and develop properties on Liberty Street in downtown Warren as an arts center, repaying the city from rents generated by the building after its completion. The city would then use those repayments to create a revolving loan fund that could be used for subsequent economic development projects.
“The Contract…expressly restricted the use of the grant money to specific purposes, namely building renovations,” according to the complaint. “GRO-Warren had a obligation to ensure that the grant funds were expended in accordance with the contract. Despite these obligations, GRO-Warren did not ensure that the grant funds were expended in a manner consistent with the contract.”
The suit alleges that very little of the grant money was used in accordance with the contracts between the city and the state, and the city and GRO-Warren. Of the $500,000, the complaint identifies $417,057 as “impermissible expenditures.”
While the grant money was awarded to GRO-Warren, Warren Business District Coalition, Inc. was also listed as a defendant. The complaint claims, “Although GRO-Warren and WBDC are separate corporate entities, at all times relevant to this action, they shared a physical location; they shared staff; and, at various times, they had significantly, if not completely, identical board of directors. At times GRO-Warren and WBDC held joint board meetings and executive sessions.”
The action lists six specific counts on which the city seeks payment.
The first count alleges, “GRO-Warren and WBDC did not spend the grant funds in a manner permitted by the terms of the contract” and seeks an award of the full $500,000, including interest.
Count two seeks payment of interest from a $75,000 loan from the city to GRO-Warren in January, 2008. The principal was paid but $6,000 in interest is allegedly still owed.
Count three pits the Redevelopment Authority against GRO-Warren and WBDC for payment of principal and interest on an $80,000 loan on which no payments were made that was issued in June 2011.
The fourth count calls for “a full account of public monies” requested by the plaintiff members of city council.
Counts five and six contain the allegations directed against Christine and James Chernois.
Count five alleges that the Cheronises donated $30,000 to WBDC “to assist with the purchase of the Anchor Building.” The suit alleges that the funding was not considered a loan. “It is believed…that Christine Cheronis and, through her, James Cheronis were both aware that neither WBDC nor GRO-Warren had funds generally available to repay them their $30,000, if their contribution were considered a loan. Christine Cheronis was aware that the grant funds were restricted, and could not properly be used for building acquisition costs. Despite this knowledge, Christine Cheronis caused GRO-Warren and WBDC to remit to her, and she and James Cheronis accepted…the sum of at least $5,000 in repayment for their contribution towards the acquisition price of the Anchor Building.”
The complaint also claims that “building and land acquisition repayments, including repayments to Christine Cheronis and James Cheronis, totaling $115,434.00” were derived from grant funding.
Count six claims that “if Christine Cheronis and James Cheronis were permitted to retain funds improperly diverted to them, they would be unjustly enriched.”
At a special city council meeting last June, five members unanimously authorized the appointment of special counsel “to proceed with litigation involving the anchor building project.” The law firm Quinn, Buseck, Leemhus, Toohey & Kroto, Inc. of Erie was the law firm that filed the complaint of behalf of the city.