Newport City Manager's Law Firm Paid by Company Being Sued by City for Defaulted $1.8m Loan, Complaint Alleges

A former City Councilor has filed a complaint with the state Ethics Commission alleging conflict of interest on the part of Newport’s acting city manager.

The complaint, filed by Newport lawyer Mike Farley last week, alleges that Joseph Nicholson, the city’s acting manager and longtime City Solicitor, did not disclose a business relationship with a company that owns the former Clarke School on Mary Street — now an elderly housing complex — at the same time the city was taking the company to court in 2013 over a defaulted $1.3 million loan the city granted in the 1990s and is still trying to recoup.

The city is owed a total of $1.8 million after factoring in interest. Its purpose was to facilitate the purchase and renovation of the former Clarke School and in 1994, the city borrowed $1.35 million from a bank and loaned it to Clarke School LP with a generous 2.2 percent annual interest rate.

According to the terms of the loan, the entire balance was to be paid in full in 2012, but citing cash constraints, Clarke School LP asked for an extension to 2025 and got a one year-extension after a City Council vote. The next year, they asked for another extension but the City Council pressured the city administration to go after the money and seek recourse in the courts.

Farley’s complaint alleges that Nicholson, who was acting as the City Solicitor, was representing the city’s interest in the matter. At the same time, the complaint alleges that Nicholson’s private law firm was representing Clarke School Apartments’ owners in several eviction proceedings in the fall of 2013.

Court records show that Nicholson’s firm, Nicholson & Sampson did represent Clarke School in two eviction proceedings in District Court, one in September, another in November.

In one, Clarke School v. Deborah Ward, the property manager, Gatehouse Management, sought to evict a woman who was in arrears on on her rent by about $825. Ward reportedly had paid small $100 and $200 dollar increments but couldn’t catch up. The file includes a Nov. 4 email from Betsy Green, Community Director of Clarke School Apartments, who wrote to Nicholson’s partner, Craig Sampson, telling him to move forward with the eviction filing.

“I wish we could find her more help to catch up but she took such a long time to follow through with Housing Hotline,” the email stated. “She is a good tenant otherwise.”

That December, when the City Council directed Nicholson to try to recover the debt, he never disclosed the business relationship which constitutes a “substantial conflict with the proper discharge of his duties,” the complaint alleges.

In an interview, Nicholson said he could not respond in detail to the complaint, but said it’s no secret there is no love lost between himself and Farley. He said he would not comment on pending matters before the Ethics Commission.

He suggested that Farley, who filed a wage complaint against the city, has a personal vendetta and is hoping to harm him professionally and politically.

“Government suffers from this stuff,” Nicholson said.

In terms of the defaulted loan, Nicholson said the city is still taking active steps to recover the outstanding loan balance.

The actual bank loan the city took out to finance the Clarke School LP loan was repaid by 2005.

The city’s motion in Superior Court against Clarke School LP was dismissed in July of 2014 because the loan is a non-recourse loan, which means the city can only collect it through foreclosure, Nicholson said. And it was originally granted at a time before he was engaged in city government in an official capacity.

“It’s still intact. The money is still owed. We’re trying to come up with some solutions to close out the issue,” he said.

One solution might be facilitating the sale to a new private developer, which could mean the end of the affordable status at Clarke School Apartments. In December of last year, Nicholson told the City Council that he has had discussions with a local group interested in buying the school. He did not name the company, but said they were “reputable local hoteliers.”

They were interested in buying the building or of the city’s note or interest in the building if foreclosed on for no less than $1.3 million. In the end, the city would not get any interest on the original Clarke School LP loan, but the city would be out of the mortgage business.

If that happened, it is likely the property’s affordability restriction, which is set to expire in 2026, might end as soon as 2016 “at which time in all likelihood the building would be converted to some other commercial form, either condos or a hotel, most likely,” Nicholson said in an email message to City Council Members.

Nicholson said Friday that he understands that the fact his law firm represented Clarke School LP at the same time the city was taking them to court ”could raise eyebrows.”

“I’m not happy it occurred,” he said.

Farley, in an interview, said that he is not trying to harm anyone politically. Instead, he said, he’s trying to shed light on what he said is an example of a conflict of interest.

“Attorneys cannot represent adverse parties. At the very least, Joe has had a foot in both camps,” Farley said. “He is now caught red-handed.”

And he said City Council members should be alarmed that they never were informed that the lawsuit the city filed against Clarke School LP was dismissed last July.

Mayor Jeanne Marie-Napolitano said that she would not publicly comment on the complaint. She said that over his years of service to the city, Nicholson has proven to have the best interest of Newport in mind and has worked hard to recover the money.

Farley’s complaint was filed on April 2.