Marchionda Fights Subpoenas for Records of City Grants

YOUNGSTOWN, Ohio – The state of Ohio says downtown developer Dominic Marchionda and three affiliated companies are trying to “avoid accountability” by seeking to quash subpoenas for financial records related to how they spent more than $1.7 million in water and wastewater grants funds provided by the city of Youngstown.

Marchionda’s attorney counters not so, denies the legal complaint he filed to quash the subpoena is a stall tactic, questions whether the office of Ohio Auditor is a “policing agency” and argues the subpoenas violate his client’s 5th Amendment right against self-incrimination.

The back-and-forth is related to an ongoing audit of the city for the year 2014 that resulted in the deputy chief legal counsel for the Ohio Auditor’s Public Integrity Assurance Team, Robert F. Smith, issuing subpoenas Nov. 16 for “invoices from all contractors supporting the expenditures of all the grant monies awarded by the city of Youngstown.”

On behalf of Marchionda and three corporate entities that received the grant funds – Erie Terminal Place LLC, US Campus Suites LLC, and Wick Properties LLC – attorney Michael J. McGee filed a complaint for declaratory judgment and a temporary and permanent restraining order Nov. 30 in Mahoning Common Pleas Court.

McGee contends the state is being vague in its subpoenas. He denies that the court filing is a stall tactic and instead argues that complying with the subpoenas would force Marchionda’s employees to spend an unreasonable amount of man hours searching for records that date back six years.

“Dominic Marchionda is an honest businessman,” McGee told The Business Journal Wednesday. “He does what he thinks is best for the city of Youngstown and the community and he’s entitled to honest answers if people are asking for a ton of documents.”

Brittany Halpin, press secretary for state Auditor David Yost, said she could not discuss why the office was seeking the records related to Marchionda’s projects.

“We do have an ongoing financial audit of the city of Youngstown. When the audits are ongoing, we can’t discuss any details,” she said.

On behalf of Ohio Auditor David Yost, two attorneys from the attorney general’s office, Renata Y. Staff and Nicole M. Koppitch, filed a motion Dec. 31 to dismiss Marchionda’s complaint to quash the subpoenas.

McGee says he will respond to that motion “in a few days” and expects a hearing will be held before Judge Lou D’Apolito in about four weeks.

When asked by The Business Journal if it is logical to assume state auditors found city records lacking before seeking documentation of grant expenditures from Marchionda, McGee agreed.

“It’s probably a logical conclusion they found them incomplete or found some irregularity but they wouldn’t even tell me that,” he said.

“If the auditor’s office would be more forthcoming and upfront about what they’re interested in and why, this whole process would go much more smoothly.”

In 2009, Marchionda’s US Campus Suites LLC began developing the Flats at Wick, a student housing development along Elm Street near the campus of Youngstown State University. The city awarded the project $1.2 million in water and wastewater funds, according to Business Journal records.

That deal was “a little different” because the developer also agreed to purchase an old firehouse from the city for $1 million, said T. Sharon Woodberry, the city’s director of community planning and economic development. “They got roughly $200,000 in water and wastewater costs,” she said.

Marchionda and affiliate NYO Property Group were also awarded grant monies toward the redevelopment of the vacant Erie Building – now Erie Terminal Place, a downtown apartment complex along Commerce Street. That project received $220,000 in water and wastewater funds, Woodberry said. The Wick Towers project – also an apartment complex in downtown – received $500,000 in wastewater and water funds.

The subpoenas seek “any and all documentation for the listed projects,” including invoices from all contractors supporting the expenditures of all of the grant monies awarded to the three developments, court papers say.

According to the subpoenas, the grants for the US Campus and Erie Terminal projects stipulate that the grants be used by the developer for improvement to the waterline serving the property and “related installations, improvements, enhancements, and/or upgrades to the plumbing and/or wastewater system that may be necessary for developer to complete the project as planned.”

Under the provisions of the Wick Properties grant, the funds would be paid to the developer when the city received paid invoices submitted by Marchionda or Wick Towers, court papers say. The grant language stipulates that “funds shall be made on a reimbursement basis after the city receives appropriate documentation of the expenditure of funds by the developer for sanitary and storm water service expenses to the project.” Another option is that the city would provide funds through a check issued jointly to the developer and the contractor that provided the water, sanitary sewer and storm sewer improvements to the property.

The city annually receives a request from the state auditor’s office to review the water/wastewater enterprise fund files, Woodberry said. She said the city has documentation that the developer complied with the agreements for the projects.

The Business Journal has requested copies of the documentation. In response, city officials say they need time to comply.

“We get the invoicing from the contractors that details the scope of work and what the cost was for the work. We pay based on that so we don’t give a grant up front. It’s after the fact,” Woodberry said.

From 2012 to 2014, the city awarded $1.9 million in water and wastewater grants, she added.

In his filing to fight the subpoena, attorney McGee argues that the state auditor has “no jurisdiction” to subpoena the documents. He cites sections of the Ohio Revised Code that charge the auditor with auditing “all public offices” as provided in the chapter and “the accounts of private institutions, associations, boards, and corporations receiving public money for their use.”

Marchionda and his companies, he wrote, are “private corporations, they are not public entities nor are they private institutions in possession of public money.” Additionally, the filing cited the plaintiffs’ Fifth Amendment rights.

“If they want voluntary cooperation they have to be reasonable, especially when they ask for things 6 or 7 years old,” McGee said. “I think there’s a reasonable question to ask, ‘Why.’ ”

When asking the auditor’s representatives for clarification, Marchionda’ lawyer says their response is that they’re conducting an audit and “entitled to documentation in response to disbursements from the city.” They don’t give a reason or say whether they’ve made requests of other entities, he adds.

In its response to Marchionda’s complaint, the state’s attorneys say the auditor “carefully limited its subpoenas to records demonstrating whether [Marchionda and his companies] complied with grant agreements.” Now that they are being asked “to document whether they performed those tasks, they seek to avoid accountability and stop the auditor from carrying out its statutory duty.”

The state cites cases affirming that the auditor’s office has “clear authority to issues subpoenas to private entities that are third party to the entity being audited, especially for the purpose of ensuring compliance with grant agreements.” Additionally, the state disputes that Marchionda and the companies have any Fifth Amendment right to refuse to produce the requested documents.

Representatives of other downtown projects that also have received water and wastewater grants funds say they have not received any requests for documentation from Yost’s office.

“Not to date,” reported Barb Ewing, chief operating officer of the Youngstown Business Incubator.

YBI received a $230,000 grant to support renovations to its main building on West Federal Street and its Boardman Street property in 2012, where America Makes is located, Woodberry said. The city also approved a $500,000 grant last year for YBI’s fifth building.

Dominic L. Gatta III, president of the Gatta Co., also said he has not been approached by the auditor for documents related to a similar grant from the city. Gatta redeveloped the Federal Building, which now houses a restaurant and several apartments.

Gregg Strollo, partner for Strollo Architects, said the state has not sought documents related to his company’s renovation of the Wells Building, which it moved into recently.

The project was awarded $520,000 in water and wastewater funds, only some of which Strollo has drawn on, Woodberry said.

“We would not have been able to move forward without it,” Strollo said.

Editor’s Note: Dan O’Brien and Andrea Wood contributed to this story.

Pictured: The Wick Tower, one of three residential developments that received city grants from municipal water and wastewater funds.

Copyright 2024 The Business Journal, Youngstown, Ohio.