Map of Pennsylvania highlighting Lackawanna County (Photo credit: Wikipedia)
Landmark Community Bank on Friday sued Scranton, its parking authority and the authority’s court-appointed receiver over a $2.6 million loan default.
Landmark loaned the Scranton Parking Authority $2.9 million in September 2011, but the SPA has not paid on the loan since the authority was stripped last year of most of its functions, funding and power.
The lawsuit was not unexpected because Landmark’s attorney, Robert Gownley, last year threatened to sue if Scranton City Council terminated a 1995 cooperation agreement between the city and SPA that was used as the basis for collateral and security of the 2011 loan. The Landmark loan was secured by the 10 percent of parking meter revenue that SPA receives under the 1995 cooperation agreement.
The lawsuit claims that city administration solicitor Paul Kelly, who at the time the loan was made in 2011 was solicitor for both the city and SPA, had told Landmark that the city could not unilaterally cancel the cooperation agreement between the city and authority.
The city executed a note on Oct. 27 promising to pay Blue Cross $2 million in unpaid bills by Jan. 5, the lawsuit states. But the city failed to pay and that constituted a default, the lawsuit states.
As of Wednesday, no payment had yet been made and the lawsuit seeks the principal amount of $2 million as well as 5 percent interest that accrued to $58,904 from Jan. 6 to Wednesday, for a total amount sought of $2,058,904, according to the complaint.
Blue Cross has been one of the city’s largest vendors with bills that have gone unpaid under the city’s financial crisis. As such, the lawsuit was not necessarily unexpected, said Mayor Chris Doherty, adding that he is in contact regularly with Blue Cross about the situation and the firm is continuing to provide health care coverage for the city’s employees.
The effect of Scranton City Council allowing the Scranton Parking Authority to default on a debt was immediate on Friday, officials said.
The bank that the city had been hoping to get financing from to be able to keep the city afloat this year, M&T Bank, backed out first thing Friday morning because of the default, said Mayor Chris Doherty and city Business Administrator Ryan McGowan.
On Thursday night, council voted against covering a $940,000 SPA debt that was due Friday, thus allowing the authority to default even though the city had backed the debt.
“The city defaulted on the guarantee. This default has left us with nowhere to go,” Mr. McGowan said of the city’s hopes for getting loans.