The neighborhood economic development group University Park Alliance — struggling to reorganize after losing its major funding — is now facing legal trouble.
The nonprofit working on redevelopment of 50 city blocks around the University of Akron is being sued for not completing a purchase of six homes near the college.
It is the second lawsuit filed against UPA. A previous suit filed in July from a consultant also claims breach of contract.
This week’s lawsuit, filed on behalf of Roger and Deborah Emerson of Bath Township, was filed Tuesday in Summit County Common Pleas Court. The Emersons said UPA agreed to buy six homes on Wheeler and Allyn streets on Dec. 28 of last year for $485,000.
UPA agreed to pay what was called an extension fee of $20,000, which would not be applied toward the purchase price, and a separate amount of $20,000, both on Dec. 28. UPA did pay the $40,000 on Dec. 28.
UPA has not, according to the complaint, paid the remaining $465,000, which was due on March 31.
Summit County Auditor property records show the Emersons purchased the homes between 2006 and 2007 for $68,000 to $80,000 each. Records show current appraised values for tax purposes between $39,000 to $60,000. The total cost the Emersons paid to purchase the houses in 2006 and 2007 was $293,000. Their 2013 county appraised values total $204,300.
UPA is trying to reorganize after former executive director Eric Anthony Johnson resigned in April.
In August, UPA lost $7.8 million in funding from its major source, the John S. and James L. Knight Foundation. The foundation did award UPA $500,000 for operational costs until January and has already sent that amount.
The organization’s board of directors includes CEOs and heads of major companies, government entities and institutions such as the University of Akron, Summit County, the Greater Akron Chamber, the Akron Beacon Journal and the city’s three hospitals.
Officials have said the funding cuts were related to incorrect planning of developments linked to the Knight grant.
UPA’s original project for the Exchange and Brown street area included a mixed-use development with a student-housing component. That was changed when it became clear that other private developers had moved into the market to meet a need for off-campus housing.
Asked about the lawsuits, officials and attorneys declined comment.
UPA Chairman David James, who is also superintendent of Akron Public Schools, said the organization does not comment on pending litigation.
When the lawsuit was filed, Emerson, the managing partner of patent law firm Emerson, Thomson & Bennett LLC, was returning from a three-day business trip to Omaha. He went on the visit through ties with the Greater Akron Chamber along with 57 other business and community leaders. The group included many leaders who serve on the board of UPA, including James and Mayor Don Plusquellic.
Plusquellic, learning of the suit from a reporter, said he was shocked and disappointed it had been filed.
Plusquellic said he had told Emerson during conversations that he believed UPA was still willing to fulfill the purchase, but the organization has no money at this time.
The mayor said Emerson indicated he was still netting a profit from rentals.
Asked whether lawsuits could affect the viability of UPA, Plusquellic said, “That’s what we’re trying to deal with. We all knew when someone jumps the gun and sues, you’re in a different ball game.
“Once the first [lawsuit] is filed, everyone feels the need to hurry to file. It makes it difficult for us to deal with. It’s now in a court of law,” he said.
Plusquellic said it’s unfortunate that if money is awarded in the lawsuits, that could mean other unpaid debts might remain. Or organizations would get paid proportionately or have to wait until UPA has funds.
Collection on judgments could be challenging, said Matthew Rossman, a Case Western Reserve law professor who specializes in nonprofit organizations and economic development.
Legal costs could also make it difficult for UPA to get funding, said Rossman, who is not familiar with UPA and was discussing the situation in nonprofit generalities.
Rossman said nonprofits can file for bankruptcy or fold but nothing prohibits an organization from continuing its operations.
“Nonprofits are less apt to file for bankruptcies than for-profits are. Oftentimes you’ll see a nonprofit close its doors when it decides to go out of business because it is no longer sustainable,” he said.
UPA officials say they still believe the goals of the organization are needed.
“It’s not so exciting to go to donors and say, ‘Can you give us money to get out of bankruptcy?’ ” Rossman said.
Asked whether the lawsuits against UPA could have an effect on future Knight Foundation funding, Jennifer Thomas, Akron program director for the foundation, said: “If and when Knight receives a proposal in the future from UPA, we will evaluate all aspects of the request, including mission fit and budget.”
In the earlier lawsuit, a Cleveland-based firm called LNE Group LLC said UPA has not paid it $18,000 for services.
The contract with LNE was to provide fundraising services to UPA.
LNE’s attorney also declined to comment.
UPA is holding a meeting Sept. 24.