Lawsuit targets Stevensville
By SCOTT AIKEN - H-P Staff Writer
Published: Thursday, May 26, 2011 1:07 PM EDT
STEVENSVILLE - A South Bend bank has filed a federal lawsuit alleging that Stevensville and the village's Downtown Development Authority have defaulted on loans and owe $776,199.
Complaints filed in U.S. District Court in South Bend by 1st Source Bank contend that the village breached a loan agreement in 2010 by withdrawing deposits from the bank and failing to repay the money when due, though several extensions were granted.
In addition to a judgment for the amount owed on the loans, the bank seeks interest, costs and attorney fees.
Loans of about $1 million were obtained in 2006 under the tenure of then-village manager Todd Gardner, who last month began serving a 52-month federal prison term after being convicted of embezzling $272,758 in village funds.
The bank's court complaint alleges that the Village Council authorized Gardner to obtain two loans to finance property purchases.
One loan, for $700,000, was to acquire and improve land and buildings in the village. Gardner was also authorized by resolution to secure a $300,000 line of credit to "repair and maintain village property."
The line of credit was later converted to a term loan, according to the complaint.
Some buildings were purchased with an eye to redevelopment, including rundown houses on St. Joseph Avenue that were demolished. But when the economy fell into recession, the value of the village's real estate investments plummeted.
The bank alleges that Gardner borrowed the money pursuant to resolutions approved by the Village Council. The bank also contends that its approval of the loans was based on the representation of the village's legal counsel, David Peterson II, that it had the authority to borrow the money.
But after being granted several extensions and amendments to the loan agreements, the village in August withdrew its deposits from 1st Source, then failed to pay the loans when they came due on Sept. 27, the complaint said.
After Gardner was removed from office in 2009, the lawsuit claims, the bank complied with the Village Council's request to help reconstruct financial records "which were in shambles after Gardner departed."
At a special meeting Wednesday night, the Village Council voted 5-1 to hire South Bend attorney Brian Kubicki to file an answer to the 1st Source complaint. The action came after the council met in closed session with lawyer David Peterson Sr.
Peterson said Kubicki handles cases in federal court and that speedy action is necessary to file an answer by the June 6 deadline.
Trustee Pat Arter, who made the motion to hire, said the council may consider other lawyers as the case progresses, or stay with Kubicki.
Trustee Don Meyer, who cast the no vote, said the council should get further advice from lawyer John Axe.
The council in March consulted with Axe, a well-known bond attorney, who said the loans violated state law and that the bank acted improperly.
Apparently anticipating a lawsuit, the Village Council last month hired attorney Richard Wendt of the Dickinson Wright law firm to review the bank loans obtained by the DDA.
Wendt provided an opinion but officials Wednesday declined to release it, citing attorney-client confidentiality.
Peterson told the council that the two claims made by the bank, breach of the loan agreement and notes, and unjust enrichment, are excluded from the village's insurance coverage. Unjust enrichment means one party gets something of value at the expense of another.
Council members declined to comment about the merits of the bank's lawsuit. Peterson said it would be up to the attorney in the case to formulate a response.
saiken@TheH-P.com