KELSEYVILLE — The matter of a casino at Konocti Harbor Resort & Spa may be the central issue to whether or not the sale goes through.
During the Feb. 6 Lake County Board of Supervisors meeting, Brad Welch of Kenwood Investments spoke to the audience and outlined some of the firm”s plans for Konocti.
District 4 Supervisor Anthony Farrington disclosed at that meeting a conversation where Welch indicated to him that the casino development was a contingency of the sale.
He said one of the biggest challenges was winter and off-season months, and that the resort has been running in the red, losing approximately $3.5 million per year.
“Through our preliminary due diligence and visioning, it”s critical we consider all aspects that could make this project a success, and so therefore, yes we have considered tribal gaming as an option to add to the success of the project. This option is on the table, and the current owners have requested that we pursue this as a possibility,” said Welch. He indicated that the request was made in response to the DOL proceedings.
Brown pressed Welch on the issue, asking, “If we offer this resolution and it passes, then what is the plumbers union going to say, forget it, we”re not selling it”?”
Welch replied, “Potentially, yes.”The matter of Konocti Harbor Resort & Spa operating in a way that produces profit instead of deficit is central mainly because of pending litigation between the Department of Labor and trustees in charge of administering trust fund monies to Local UA 38 pension plan beneficiaries.
Secretary of Labor Elaine Chao of the Department of Labor filed a law suit in 2004 alleging that Larry Mazzola Sr. and other trustees in charge of the Local UA 83 plumber”s union trust fund accounts wrongfully diverted over $50.5 million between 1993 and 2004 from Employee Retirement Income Security Act (ERISA) accounts into the Convalescent Trust Fund to run the resort.
The trust fund is the entity with which Anderson said he was in negotiations over the details of the purchase last year.
In a motion for partial summary judgment filed Jan. 31, Chao”s lawyers indicated that the funds were diverted without a guarantee of payback to the individual pension accounts from which they came, and were not a “prudent investment” as the resort has run in the red for several years.
In a court document filed Jan. 19 of this year refuting the competence of an expert retained by the DOL to assess the value of the resort both with and without a casino, Mazzola”s lawyer states that Kenwood Investments purchased the resort “for the express purpose of developing it into an Indian gaming facility.”
The same court document states Kenwood Investments finalized a contract to purchase the resort in November of 2006. The value of the resort, while not disclosed, is stated to be “substantially higher” than the DOL”s expert estimated at $11 million with a casino.
That value includes an amount to be paid when escrow closes, states the document, and an additional figure due when certain contingencies are met. Those payments are to be used to offset any damages the DOL may show they are liable for.
In a Jan. 22 letter to members of the Local 38, Mazzola Sr. said, “When Indian gambling is in full operation at Konocti our pension fund will be guaranteed an excellent return on its investment.”
James Baker, attorney for the Mazzolas and the Local UA 38, said Monday he had no comment on the case as litigation is still pending.
Larry Mazzola Sr. did not return several calls, but wrote in his Jan. 22 letter that DOL representatives “showed a real desire to settle this matter” in a recent meeting. Mazzola states he will meet with DOL representatives again, along with his lawyers and the resort”s investment counselors on Feb. 16.
That pricked the ears of Stand Up for California director Cheryl Schmit because, she said, through the settlement, it is possible they could get a stipulated judgment to aid in getting the land into trust as part of a settlement.
Stand Up California is an advocacy group that studies the effects of gaming and its proliferation in California.
The court may not do any independent finding,” said Schmit of what a settlement could bring about. “It could allow these two to make an agreement to put in an Indian casino there. A stipulated judgment then becomes a political tool to get a congressional act to take the land into trust for gaming, for whoever the tribe is,” she said.
A hearing is set for March 14 before United States District Court Judge Phyllis J. Hamilton.
Exactly what San Francisco developer and well-connected lobbyist Darius Anderson plans to do with the resort once escrow closes has been the object of speculation since it was learned he was in contract to buy the resort last September.
Contact Tiffany Revelle at trevelle@record-bee.com.
