Alexander facing suit from Oklahoma bank

According to the Arkansas Democrat-Gazette the City of Alexander is being sued by an Oklahoma bank after the bank bought a loan from two Illinois leasing agents. 

In the October 8 article the lawsuit claims the First State Bank in Oklahoma, "was defrauded into thinking it would acquire a mortgage and lease-purchase agreement for improvements to an Alexander fire station that it says were never started."

Gill Ragon Owen, a Little Rock attorney, filed the lawsuit for the bank in Pulaski County Circuit Court last week.

The allegations stem from a 2007 lease-purchase agreement between Alexander and First Government Leasing Co., owned by Paul Anthony Graver of Chicago. In 2007 city officials wanted to combine several loans into a single loan to have one payment and a lower interest rate, saving the city money.

According to the Democrat-Gazette article the agreement between First Government Leasing Co. and First State Bank in Oklahoma, "stated that proceeds from refinancing a loan for the Fire and Police departments would be used to improve a fire station." However, "according to the bank’s complaint, the money was used to pay off debts on police vehicles and purchase a firetruck."

The Democrat-Gazette article goes on to quote court documents which claim, "the city took out a mortgage on the fire-station loan in First Government’s name. In May 2012, Lance Dominique of Chicago sent an offer letter to First State Bank to sell the lease-purchase agreement to the bank. The bank paid Graver $393,910.55 for the agreement."

The article continues;
Graver executed an assignment document giving the bank undivided interest in and to the lease-purchase agreement, but according to the bank’s complaint, neither the mortgage nor the purchase agreement were assigned to the bank as agreed upon.

The bank also found out that in 1992, Graver admitted to facilitating the purchase or sale of securities by means of “manipulative, deceptive, and other fraudulent devices” and that he consented to be barred from association with any broker, dealer or municipal securities dealer thereafter, according to the lawsuit.
Alexander still owes 100 payments of $4,970.83 each on the loan, but it quit paying First State Bank in March and has refused to pay since then because the city maintains that the lease-purchase agreement violates the Arkansas Constitution and is therefore void, according to the complaint.

The state's audit of Alexander's 2007 budget year shows the city entered into a 14-year loan in violation of the five year maximum. At the time the city entered into the loan agreement the state's Constitution had recently been changed to allow governmental bodies to take on debt but with a five-year maximum on all loans. Later, city officials learned the interest rate had been increased to above the state's legal maximum.

The Democrat-Gazette article continues;
“Graver has a pattern and practice of defrauding Arkansas cities and counties by enticing them to issue invalid lease purchase agreements,” according to the bank’s lawsuit.

“Graver intentionally structured the lease purchase agreement in a way that violates Arkansas law, and Graver and Dominique intentionally offered to sell and sold the lease purchase agreement to First State Bank as a duly authorized, valid and binding obligation of Alexander … when in fact Graver and Dominique knew the lease purchase agreement in no way complied with Arkansas law … contained numerous misrepresentations and omitted information necessary to make the representations that were made not misleading.”

According to a document accompanying the complaint, Graver and Dominique offered to sell First State Bank a number of other lease-purchase agreements from all over the country, including three in Arkansas in Caney township, Reed, and Saline County.

Article 16 of the Arkansas Constitution bars cities from lending credit for any purpose and issuing any interest-bearing evidences of indebtedness. Three amendments allow cities to incur debt, but Alexander’s lease agreement didn’t comply with any of them. First State Bank maintains that Graver and Dominique failed to disclose that when selling the agreement.

“If they had, First State Bank would never have acquired the lease purchase agreement,” according to the lawsuit. “The failure to disclose that the obligation was not valid makes the representation that the interest would be tax exempt misleading.”

The offer also didn’t disclose that the agreement included a nonappropriation clause that allowed Alexander to terminate the obligation in any year it failed to appropriate enough money to make payments, according to the complaint. First State Bank offered to sell the lease-purchase agreement back to Graver and Dominique for the amount it originally paid, minus payments it received from Alexander and plus $5,000 in attorney costs but hasn’t gotten a reply.

The bank is asking for a judgment on the validity of Graver’s assignment of the lease-purchase agreement to the bank, the validity of the agreement itself and at least $381,174.27 in relief from Graver and Dominique. From Alexander, the bank seeks the amount totaling the full payments required under the agreement plus attorney fees and costs.

Alexander Mayor Michelle Hobbs refused to speak to a reporter through an assistant Monday. City Attorney Carla Miller refused to comment on the lawsuit.