By KEVIN NEVERS

Former Lake Erie Land Company (LEL) president Jerry Mobley was aware, prior to the $10 million sale of 55 acres at Coffee Creek Center to the Northwest Indiana Regional Council of Carpenters Pension Fund Trust (PFT), that $200,000 of the $600,000 commission paid to Sand Creek Sales & Development (SCDC) brokers Kevin Pastrick and C. Paul Ihle Jr. was going to attorney Peter Manous as a “finder’s fee.” So alleges a document filed by the PFT in response to LEL’s September 2006 motion for summary judgment in its favor of the claims made by the PFT in its lawsuit against LEL.

On Dec. 22 U.S. District Court Judge Robert Miller in Hammond denied LEL’s motion and confirmed the trial date of June 4, on the grounds that summary judgment would be inappropriate given the mass of disputed and disputable facts adduced during discovery by LEL and the PFT. “The court has read and considered the parties‚ memoranda and much of the 9,000 supporting pages that were submitted,” Miller ruled. “Genuine issues of material fact abound. . . . The record poses so many factual issues that the court is not in a position to designate facts that appear without substantial controversy.”

The basic goal of the PFT’s original lawsuit against LEL—filed in August 2004—is to demonstrate the NiSource Inc. subsidiary’s liability in the kickback and coverup scandal which sent Pastrick, Ihle, Manous, and PFT trustee Gerry Nannenga to federal prison.

The scandal in a nutshell: soon after the closure of the deal, on March 1, 1999, Pastrick gave Manous $200,000 of the $600,000 commission which LEL paid SCSD and, through a dummy corporation, funneled $30,000 to Nannenga. Manous paid Nannenga a further $15,000 from his share.

Following an investigation by the U.S. Department of Labor, Pastrick and Manous pleaded guilty to a number of counts including conspiracy, making payments to a union official to influence the operation of a pension plan, and obstructing justice. Nannenga pleaded guilty to conspiracy and fraud. Ihle was convicted of falsifying records and making false statements to investigators as part of the coverup after the fact. All four served or are serving prison terms.

The PFT’s lawsuit against LEL has essentially two premises: that LEL principals had knowledge before closure of Pastrick’s intended kickback to Manous; and that LEL defrauded the PFT by knowingly selling it significantly overvalued property. In its original lawsuit the PFT named no names and only speculated on the likelihood that LEL principals must have been aware of the kickback before the fact: LEL principals could hardly not have been aware, the lawsuit contends, and in any case the relationship between LEL and SCSD was sufficiently close to make the former “vicariously liable” for Pastrick’s criminal acts.

In its response to LEL’s motion for summary judgment, however, the PFT—citing Pastrick’s deposition in February 2006 and Ihle’s in June 2006—specifically maintains that “Prior to the March 1, 1999, sale, Mobley was advised that Manous would receive a payment in connection with the sale.”

Citing Mobley’s own deposition in October 2005, the PFT does note that Mobley “could not recall whether he was told of a payment before or after the sale, nor could he recall whether he was told that the person to whom such a fee was going to be paid was Manous.” But then, citing Mobley’s interview with the Department of Labor in December 2002—long before the indictments against Pastrick and the others were unsealed in September 2003—the PFT contends that “Mobley indicated that he was aware that Manous had received part of SCSD’s commission.”

The PFT also quotes Nannenga, from his September 2005 deposition, to the effect that Mobley suggested to Nannenga that Pastrick and Manous should buy Nannenga a golf membership. “(A)t some point in time Mr. Mobley had said to me something about that Those boys should buy you a golf membership or something,” the PFT quotes Nannenga. “And I said, Why is that? And he said something like, They made a lot of money or whatever on this deal. . . . And then it was after that when Peter (Manous) gave me the $15,000 check that he said, Here, you can play golf wherever you want to play golf or whatever.”

For the PFT the significance of Mobley’s alleged prior knowledge of the kickback is that in the government mandated HUD-1 settlement statement—filed as part of the closure and “expressly requir(ing) the disclosure of all commissions paid in connection with the transaction,” including those paid outside of the settlement—LEL disclosed only the $600,000 commission to SCSD and not the $200,000 payment to Manous.

In fact LEL’s motion for summary judgment and the PFT’s response to that motion make for interesting reading. In general LEL argues the law, while the PFT argues its version of the facts.

LEL maintains that the “heart” of the PFT’s lawsuit is the claim that the deal, which closed on March 1, 1999, “was somehow procured by fraud.” But under Indiana law, LEL contends, a plaintiff claiming fraud must prove, among other things, that the defendant made “a material representation of past or existing facts” which was “false.” A claim of fraud, that is, so LEL cites case law, may not be based on “promises to be performed in the future . . . nor, as a general rule, do expressions of opinion constitute fraud.” Therefore, LEL concludes, “Whatever representations may have been made concerning the value of the property are irrelevant—not only are they statements of opinion, but there is also no question that Plaintiffs had more than a reasonable opportunity to examine the property and judge its value.”

PFT responds to LEL’s argument by law with an argument by (alleged) fact:

•“LEL’s own internal analysis,” the PFT maintains, “showed average lot prices in the development that were approximately 24 percent lower than the average lot price of $35,000 that LEL provided to” appraiser Jack White, who conducted an appraisal of the property for the PFT prior to the sale.

•Mobley “understood that 20 years would be required to develop the property in the development,” the PFT contends, “not the eight to 12 years that LEL had provided to White” and appraiser Tim Harris, who also conducted an appraisal for the PFT prior to the sale.

•“LEL had no appraisal or other basis for its representations that before an additional five acres were added, an investment of 50 acres of the development was worth more than $11 million,” the PFT maintains, “and in fact LEL’s own analyses suggested that such an investment was worth no more than $5.7 million.”

•“LEL’s profit from the sale of the investment to the (PFT) would be three to four times greater than the average profit that (Mobley) sought to realize from the sale of property,” the PFT contends.

•In neither White’s nor Harris’ appraisal, the PFT contends, was the specific acreage being appraised actually identified, and both conducted an appraisal on a 100-acre purchase at a price of $20 million, not on a 55-acre purchase at $10 million.

•Subsequent appraisals of the property in question, the PFT maintains, put the fair market value of the acreage at substantially less than $10 million: on June 30, 2004, $4,779,000; and on June 30, 2005, $3.91 million.

•“The only appraisal of the investment fair market value as of March 1, 1999, was completed by the (PFT’s) appraisal expert in 2005,” the PFT contends, “and it indicates that the investment was worth no more than $4.48 million as of March 1, 1999.”

The Relationship between LEL and SCSD

Continuing its theme, established in the original lawsuit, of the close relationship between LEL and SCSD, the PTF maintains that, “SCSD’s separate incorporation nothwithstanding,” Pastrick and Ihle “were part of the LEL’s corporate organization.”

Among other things, the PFT alleges the following:

•The “organizational flow chart in the (LEL’s employee manual) identifies SCSD as one of the departments reporting to the director of operations” of LEL.

•“SCSD personnel received NIPSCO’s Code of Integrity and Business Ethics Program Administration Policy.”

•“Bills addressed to SCSD were often paid by LEL, instead of SCSD paying them and then obtaining reimbursement for the same from LEL.”

•“Ihle and Pastrick were given the power to sign closing documents on LEL’s behalf, pay money on LEL’s behalf, and receive money on LEL’s behalf.”

•“Pastrick publicly described himself as LEL’s agent, and his lawyer characterized him as effectively an employee of LEL in a sentencing memorandum presented to the court in criminal proceedings.”

Under common law, the PFT argues in the original lawsuit, the close relationship between the two entities makes LEL “vicariously liable for” the criminal acts perpetrated by Pastrick and Ihle, and “by proximate result of” LEL’s conduct the PFT and its Board of Trustees “have suffered injury to their business and property by an amount to be determined at trial but believed to exceed $5 million.”

The PFT defines that injury more explicitly in its response to LEL’s motion for summary judgement. “One component of (the PFT’s) losses arises from the initial overpayment of approximately $5.5 million for the investment,” the PFT argues. “A second discreet component . . . arises from the investment losses sustained by reason of the opportunities foregone to make other investments.”

Posted 1/5/2007