LORAIN — The city of Lorain will receive $3 million as part of a settlement with the law firm of Vorys, Sater, Seymour & Pease, the latest development in a long-running corruption investigation by city and Lorain County officials.
That investigation was spawned by the federal Cuyahoga County corruption probe, which spilled into Lorain with criminal charges being leveled against former Lorain Community Development Director Sandy Prudoff and Anthony Calabrese III, a former Vorys attorney who did extensive work for the city.
According to paperwork provided Monday by Lorain Law Director Pat Riley, the city paid Vorys more than $2.3 million between 2001 and 2010, including a $329,653 negotiated payment in 2010 to settle outstanding legal fees. That payment was excluded from the settlement.
The $3 million breaks down to just more than $2 million in legal fees paid to Vorys that the law firm is reimbursing to the city. It also includes $39,661 to cover investigative costs and $206,205 to cover claims dealing with the controversial community reinvestment area program.
The law firm of Jeffries, Kube, Forrest & Monteleone, which was paid a $30,000 retainer when hired last year to examine if the city should take civil action dealing with corruption, will receive the remaining $750,000.
Lorain Mayor Chase Ritenauer said although Riley’s office is still examining what it can do with its share of the settlement, the money will likely go into the city’s general fund.
Although Riley said the investigation is ongoing, the settlement, approved Monday by City Council, resolves the city’s claims against Vorys. Despite the settlement, reached after months of mediation, the law firm didn’t acknowledge wrongdoing, Riley said.
Riley said the foundation for the civil lawsuit the city had been contemplating against Vorys would have been built on the allegations against Calabrese, who is serving a nine-year prison term after pleading guilty to state and federal corruption charges.
“The available evidence indicates that a pattern of unfortunate and financially injurious corrupt activity permeated the representation of the City prior to the formal inception of the legal relationship and continuing through 2009,” two Jeffries attorneys wrote in a December 2012 letter to Vorys. “A partner in your firm appears to have been the engineer of and willing participant in this continuing enterprise and the Vorys partnership profited as a result. The conspiracy included clear breaches of fiduciary duty and was also intended to defraud the citizens of the City.”
Calabrese had served as one of the main points of contact between Vorys and Lorain. He also represented Alternatives Agency, a Cleveland halfway house, where Prudoff was paid to do consulting work.
According to both the federal charges he pleaded guilty to last year and an indictment handed down by a Cuyahoga County grand jury in July, Prudoff did little to no work to justify the fees he was paid by Alternatives. Prudoff has pleaded not guilty to the state charges.
Instead, the Cuyahoga County indictment contends, Calabrese arranged payments to Prudoff totaling $164,000 and, in exchange, Prudoff used his influence with former Lorain Mayor Craig Foltin to get legal work for Vorys. City officials have said Vorys served as the city’s bond counsel as well as doing significant legal work for the Community Development Department.
Among the Community Development projects that Vorys worked on was the community reinvestment area, also known as the CRA, program. In 2006, City Council approved changes to the program that allowed homeowners to receive 15-year, 100-percent property tax abatements. The 2006 changes also made the program retroactive to homes built in 2000 or later.
That touched off a dispute involving former Lorain County Auditor Mark Stewart, the city and homeowners. A 2010 settlement resolved most of those issues by allowing owners of homes built in CRAs after April 18, 2006, to keep their abatements while those who owned homes built before that date lost all but one year of their retroactive abatements.
In its December 2012 letter, the Jeffries attorneys wrote that the CRA “debacle” was “enabled by a suspect Vorys opinion letter.” The city’s attorney wrote that the city might also pursue claims against Vorys because of a
$13 million lawsuit brought by homeowners unhappy with the 2010 settlement. That lawsuit is still pending, Riley said.
The city’s lawyers also wrote in December that Vorys could be on the hook if investigators discover any further instances in which the city misspent federal funds because of corruption.
The city agreed to pay the federal government $235,000 in January to resolve allegations raised by the U.S. Department of Justice that the city had improperly awarded 11 demolition contracts, valued at $164,675, to Lorain contractor Don E. Buchs between April 2005 and March 2008 without going out for bid.
Federal regulations had required that those contracts, funded through Community Development Block Grants and Home Grant funds, be put out for bid.
Buchs has not been charged in the case, but Howard Goldberg resigned from his job as the city’s community development renewal administrator last December while his role in the contracts was being investigated.
Documents released Monday by Riley also provided some insight into the local investigation of corruption charges.
According to a timeline prepared by Riley, the city first became aware that it could be pulled into the federal corruption probe in June 2009, when Vorys notified him that it had been served with a subpoena for documents concerning the law firm’s dealings with Lorain.
In August 2009, Prudoff informed Riley that he had been questioned by the FBI and that spurred Riley to call a meeting with Lorain Police Chief Cel Rivera in which the city officials discussed whether they should launch their own corruption investigation.
Rivera wrote in an Aug. 27, 2009, memo that he talked with Frank Figliuzzi, the FBI agent in charge of the Cleveland field office.
“He advised that he believes that the FBI is capable of addressing any and all allegations related to this case, and that any parallel investigation would be redundant and counter-productive,” Rivera wrote.
Less than a month later, the FBI informed Lorain officials that Prudoff was a target in the corruption investigation, prompting the city to suspend Prudoff on Sept. 10, 2009. Prudoff retired just a few weeks later.
The city maintained its commitment not to launch its own investigation until October 2011 when Rivera, Riley and Lorain County Prosecutor Dennis Will met and decided to “commence bilateral investigation.”
The timeline said that Bud Cunningham, an investigator for Will, Lorain police Detective Buddy Sivert and Vermilion police Officer Dennis Terry, a former FBI agent contracted to work for Lorain, were assigned to conduct that investigation.
Riley said he couldn’t discuss what other matters are being investigated.
“What else may flow from the investigation remains to be seen,” Riley said. “But the investigation is not concluded.”