A strongly worded letter to Wrangell Medical Center CEO Noel Selle-Rea from Borough Manager Tim Rooney could be a sign of things to come between the borough and the beleaguered hospital replacement project.
The letter from Rooney’s office, dated Sept. 28, laid the groundwork for an Oct. 4 filing in the First Judicial District court seeking declaratory relief to sever the borough from a contract entered into by Selle-Rea and InnoVative Capital.
Innovative, a banking and financial advisory firm, was hired by the hospital in 2009 to seek out funding for the WMC replacement project.
An arbitration proceeding regarding that contract is currently underway in Pennsylvania and set to be heard before a three-person panel of the American Arbitration Association.
Rooney’s letter, which was also delivered to Mayor Jeremy Maxand, members of the Borough Assembly, and WMC board members, alleges Selle-Rea acted “unilaterally” and has flaunted Wrangell’s charter, borough code and state law in his previous attempts to fund the hospital project.
“In my view, your disregard for the Wrangell Charter, Wrangell Borough Code, state law, and Assembly have resulted in an incredible waste of Borough time and resources,” the letter states. “…You have fought the vote requirement, attempting to persuade the Borough it should not allow the people to vote on the project as required by the Charter… in my view, your actions delayed the project by at least a year.”
Selle-Rea and InnoVative have repeatedly declined to comment on the allegations made by Rooney.
The letter was delivered to Selle-Rea and his attorney just days prior to the filing in Wrangell’s First Judicial District court seeking to have the borough severed from any liability in the contract with InnoVative. In the suit the borough also asks for attorney fees, court costs, and any additional relief the court feels is appropriate.
The contract in question included a payment clause detailing that InnoVative would receive a percentage of the total project cost – and also included a confidentiality requirement.
According to Rooney, the borough would never have agreed to such a contract due to what he considers its illegal nature.
“The city did not enter into the agreement because of the confidentially clause,” Rooney said. “We’re not permitted to do that without it being a public document.”
Maxand said he is struggling to reconcile why Selle-Rea would commit taxpayer money in what he considers a secretive contractual agreement.
“I don’t understand how there can be a check written, with taxpayer money, and there is no accountability for how that money is spent,” Maxand said. “We were told that InnoVative would be paid out of contingency funds for the WMC replacement budget. It should have been a direct line item so we could know where that money is going. Our attorney has also told us to make a distinction that the confidentiality requirement is not consistent with state law and we should not be a part of it.”
The contract, signed by Selle-Rea on Aug. 8, 2009 called for a $25,000 retainer fee to be paid to InnoVative in the first phase of the financing process. An additional $40,000 fee in the second phase of applications to HUD was to follow.
Another clause in the payment schedule states, “In the event Innovative Capital is unable to submit the FHA application to HUD within 180 days after notification of HUD’s invitation to submit an FHA 242 application, Wrangell shall pay Innovative Capital an additional Application Stage Fee of $40,000 every 180 days thereafter, until such time as the FHA 242 application has been submitted by Innovative Capital, or the FHA 242 application process has been terminated, or suspended after consultation between InnoVative Capital and Wrangell.”
Additionally, a percentage-based fee InnoVative cites in the contract equals 2.25 percent of the total project budget of $29.3 million – or approximately $660,000.
The contract also stated that if the Wrangell Medical Center or Rea were to pull out of the deal, or turn to another source for funding, the entire fee owed to InnoVative would come due.
“Further, if Wrangell fails to comply with any of the provisions of this section, or, consummates a transaction of similar kind with anyone other than Innovative Capital (including, but not limited to: a mortgage loan, commercial loan, a municipal revenue bond, a general obligation financing, or lease), or merges or sells itself prior to the loan closing, Wrangell agrees to immediately reimburse InnoVative Capital for any expenses then outstanding and immediately pay to Innovative Capital liquidated damages in an amount equal to its financing and placement fee as calculated by multiplying the fees specified herein times the greater of the target loan.”
The Borough Assembly informed Selle-Rea and the WMC board to cease all dealings with InnoVative at their Jan. 11 meeting.
“As a result of the State of Alaska’s decision saying no grant money could be spent until the Certificate of Need was resolved, the borough told everyone involved in the project, including InnoVative, to cease work at that time,” Rooney added.
The Borough Assembly has approved three contracts involving the WMC replacement project in the past month – David E. Johnson Architects, Layton Construction and American Health Facilities Development.
A special election will be held Nov. 15 for a proposed ordinance that would authorize the borough to pledge 29 acres of property at the site of the new hospital, and the buildings to be raised there, as collateral on a $24.7 million U.S.D.A. loan.
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