City council never approved building a new clubhouse.
WARREN -- Avalon South Management gets six more years of a contract with Warren to make up for losses created when various city officials took bribes for clubhouse construction at the city's public golf course.
Warren ends up with a guaranteed annual payment of $55,000 during the contract in a decision issued by Magistrate Patrick F. McCarthy to Judge Andrew D. Logan of Trumbull County Common Pleas Court.
Avalon South, though, has assigned its interest in operating the course to a new management company headed by the group that owns Avalon Inn, across from the course on East Market Street.
Avalon South Management had filed a lawsuit against Warren city in 2002. The parties have 14 days to object in writing.
"As in most decisions like this, not everybody gets everything they wanted. But I believe it's a decision that will ultimately benefit the city and the future of the golf course," said Greg Hicks, Warren's law director.
Richard Schwartz, lawyer for Avalon South's Tony Joy, could not be reached.
McCarthy found that Avalon South and the city intended to make a management agreement, not a lease for the golf course. Because of this distinction, the course was not subject to taxation and Avalon South wasn't liable for real estate taxes on the public course.
"There is no doubt that certain city officials benefited by taking bribes during the construction phase of the new clubhouse," the magistrate noted. Avalon South's cash flow was "materially affected" by the costs of a new clubhouse, rather than remodeling the old one, his decision says.
There is "no evidence" that Avalon South participated in or ratified the bribes, it adds.
Warren's claims for 1996-2004 rent, 1989-2004 taxes and payoff of a bank loan for course improvements totaled $1,002,588.
Avalon South management made claims of overpayment on the new clubhouse, "bribes paid to public officials resulting in inflated cost of demolition and construction," misrepresented tax status, and loss of business "as a result of fraudulent conduct by city officials."
Ordinarily a municipality isn't liable for the intentional misdeeds of its employees, but these officials' acts affected performance under an agreement between the city, Avalon South and its lender, the decision says. McCarthy also extended the term of the management agreement for an additional six years "in fairness to the parties ... to make up for past improprieties."
Warren and Avalon South have been negotiating terms of a new management contract.
McCarthy also ordered:
UThe management contract shall be assigned to Old Avalon Golf LLC and the city shall consent to this. The management change was announced in March and the company's president is John Kouvas. The Avalon Inn and its indoor resort amenities were sold in December for $2 million to A.I.R. Management Group LLC, also headed by Kouvas.
UThe golf course shall be operated for municipal purposes with substantial discounts on green fees to city residents.
UThe course operator shall be entitled to the first $600,000 of gross revenue from golf operations to cover its fixed costs. Warren shall receive 12 percent of the revenue in excess of $600,000.
UIn settling all claims of the city, Avalon South shall pay $100,000 and agrees to not less than $300,000 of capital improvements within 18 months.
From the beginning
Warren acquired title to the 133 acres in 1917. The chamber of commerce ran the course from 1926 to 1988 under lease from the city, and was exempt from taxes as a nonprofit entity.
After the chamber got out of the golf course business, the city kept control of the property. Warren drew up bid specifications spelling out that whoever wound up managing the course would pay the taxes. Avalon South Management was the successful bidder in 1988.
In November 1988, Howland Township asked the Trumbull County Auditor's office to remove the property from the tax exempt rolls. In 1992, Warren city applied for and was denied an application for tax exemption, "primarily because the agreement was styled as a lease rather than a management contract." An appeal the city then filed with the state tax commissioner was dismissed.
In 1993 the city entered an agreement with Avalon South Management to exercise two five-year options. As part of this, Avalon South agreed to make certain improvements. In October 1994, then-city Engineer David Robison received preliminary estimates from Thomas Fok & amp; Associates showing $193,550 to renovate the clubhouse and $196,102 to build a new 3,800-square-foot one. By January 1995 Robison had put together a memo showing it would cost $450,000 for work including replacing the clubhouse, a new restroom facility, replacing the storage building roof, installing asphalt cart paths and for architectural fees.
Second National Bank of Warren required the city to guarantee the loan and pledge real property as security. Thomas Fok, in an inspection report to Robison that month, gave his opinion that it would be more economical to replace the structure. By March an agreement shows Warren and T & amp;J Construction agreeing to build a new $230,000 clubhouse.
"It should be noted that this agreement was never authorized by city council and is signed only by then-Mayor Daniel Sferra. The agreement is not signed by Tony Joy [the operator] or any other officer of Avalon South Management Co.," the magistrate states.
Disbursements were made on the bank loan through August 1995, the amount paid to construction being $248,821, with T & amp;J Construction getting $233,180.
From 1988 until late 1996 or early 1997, Avalon South and the city had a good relationship: revenue was up. But then Avalon South failed to make its 1996 rental payment due the city, by then under the administration of ex-Mayor Henry Angelo. The city in March 1998 served a notice of default and intent to terminate Avalon South Management.
By September 1998, though, the parties modified the note agreement and lowered the interest rate. About a year later, high winds blew over or destroyed trees at the course. Avalon South defaulted on its Second National loan and in February 2002, the state auditor made a finding for recovery against Joy for $189,700 in real estate taxes and $142,821 in unpaid rents.
The city paid the Second National note in full Feb. 14, 2002: $335,287 in principal and $9,739 in interest. Shortly thereafter Avalon South sued the city.
By June 2002 the city had entered a payment plan for delinquent taxes on behalf of the golf course. The next month, James Nicolaus of T & amp;J Construction pleaded guilty in U.S. District Court to bribing various city officials in order to get work from the city, "including the construction of the Avalon clubhouse," the court document states. He was sentenced to prison for a year and a day.
James Lapmardo, former Warren building official, pleaded guilty in that court April 22, 2004, to racketeering acts, including extortion, and was sentenced to 41 months in prison. "Lapmardo's criminal conduct relates, in part, to the construction of Avalon South Golf Course," the decision states.
On Jan. 14, Robison was indicted on 23 counts under the Hobbs act, mail fraud and RICO statutes.