Questions surround former AB town manager, lawsuit over loan

Amid its well-known financial woes, Atlantic Beach's single largest debt is a $300,000 lawsuit related to a six-year-old loan orchestrated by a controversial former town manager, and its fate is now entangled with her own divorce proceedings.

Like so many other of its chances, the loan was originally seen as an opportunity for the town to shore up its perennially ailing finances, but Atlantic Beach politics consumed it, and it has become one more weight dragging the town down.

Carolyn Montgomery was a member of the landowners' association when she volunteered to become town manager in 2001, working for free her first several years. Despite legal warnings about a potential conflict of interest, she secured a $190,000 loan in 2002 from Tyson Beach Group, a landholding company involving her husband and named for Atlantic Beach founder George Tyson.

A subsequent ethics investigation deemed the loan a probable violation, but the ethics board cleared Montgomery on a technicality state officials now say is a weakness in the ethics law.

Montgomery left the town in 2005 after a contested council election, but is now suing the town to recover the original $190,000 plus more than $100,000 in interest. The town is fighting back by reopening old questions about her role in the deal, but exactly how much the cash-strapped town must repay may ultimately depend on the resolution of her divorce case in Florida.

'A financial interest'

In late 2001, caught short between the summertime business license fees and the end-of-year property tax payments, Atlantic Beach was running low on operating money and saddled with old debts. Without any audited financial statements from previous years, traditional banks were unwilling to give the town a tax-anticipation loan, so Montgomery turned to her husband, Gerald, and his company, the Tyson Beach Group.

The conflict of interest inherent in a town manager's securing a loan from her husband was immediately questioned, but she assured the town that she had no stake in the company.

"My husband has a financial interest in the Tyson Beach Group," Carolyn Montgomery wrote in a Dec. 7, 2001, letter obtained from the town. "I do not have such an interest."

Under state ethics law, however, her marriage constituted an interest in the company unto itself. On Jan. 21, 2002, town attorney Wilbur Johnson of Charleston sent Montgomery a letter saying that while the loan was legal, Montgomery should "not participate in any negotiations, decisions or execution of documents related to the loan transaction."

"My interpretation was that because of that relationship, she would be best served under the ethics provisions to recuse herself from the transaction," Johnson said when contacted by The Sun News.

In an interview in late 2008, Montgomery said Tyson Beach Group had three owners - herself, her husband and a 91-year-old N.C. woman named Catherine Aldridge. In February of 2001, the only person who had contributed money to the company was Aldridge, but the Montgomerys were supposed to begin contributing money in 2005 to eventually bring the partnership to a 50-50 stake.

Because that had yet to happen, Carolyn Montgomery said Tyson's loan was appropriate.

"We had no development deal on the table with the town," Montgomery said.

Public records indicate Montgomery may have played a stronger role in Tyson Beach Group than she led the town to believe.

Several documents bear the name Gerald Montgomery, but are written in Carolyn's hand. Carolyn Montgomery acknowledged that her husband's signature may appear in her writing on some documents, but said it was a routine part of married life.

"My husband told me to sign the checks. This was not unusual," Montgomery said. "You do it all the time and you don't even think about it."

Gerald Montgomery - who is now in the midst of a prolonged divorce from Carolyn - said his involvement with Tyson Beach Group at the time was only nominal. He was aware that his wife was planning a loan to the town, but does not remember signing checks related to the loan, or the loan document itself, he said.

"I know I didn't sign that," Gerald Montgomery said. "I don't know if I told her to sign it."

Montgomery said he knows so little about where the money he later contributed to the Tyson Beach Group went that he has issued subpoenas to Carolyn Montgomery for those records as part of their divorce proceedings.

"I'm supposed to be the owner of it, and I don't even know who gets paid from Tyson Beach Group every month," Gerald Montgomery said.

The investigation

The circumstances of the loan eventually brought Carolyn Montgomery before the State Ethics Commission, where an investigation found it to be a probable violation.

"It is clear that the Respondent [Montgomery] initiated action to obtain a loan for the Town from Tyson Beach Group, a company owned by her husband and, therefore, a business with which the Respondent is associated. Even though she did not participate in the actual negotiations concerning the terms of the loan, the Respondent, nevertheless, was a participant in the process," commission investigator Don Lundgren wrote. The conclusion: "It is recommended that the Commission find probable cause [of an ethics violation] in the matter of the Tyson Beach Group loan."

At her hearing on Jan. 21, 2004, however, former Supreme Court Chief Justice Ernest Finney Jr. argued that Montgomery was not technically a town employee because she was not being paid for her work at the time. As a volunteer, her actions were "not covered by the Ethics Reform Act's rules," the order concludes.

"Everyone just sat there, shocked," said Herbert Hayden, executive director of the state Ethics Commission, of Montgomery's defense. "It totally surprised us."

In a law written to keep people from using public office for personal gain, that distinction amounts to a weakness, Hayden said.

"I don't know if, when the law passed, anybody ever conceived how a person could be in that kind of capacity with those types of decision-making authority without being paid," Hayden said.

The lawsuit

In March of 2008, Tyson Beach Group sued Atlantic Beach for the principal plus interest, a total that stood then at $291,446 but reached well over $300,000 by the end of the year.

At the direction of the Municipal Association of South Carolina, attorneys are now asking the suit to be reopened. Their position, said association employee and Atlantic Beach's former town manager, Charles Williams, is that Carolyn Montgomery has no right to sue the town because she was never an official part of Tyson Beach Group.

"It was such a conflict of interest - only one person wrote checks to the town and received the money," Williams said. "Only her husband, Gerald, has the right to sue the town, and he knew nothing about the lawsuit."

Carolyn Montgomery said the Tyson Beach Group and the money it is owed are "a marital asset," and a matter to be decided in the divorce court - but none of the town's business.

"Who owns Tyson Beach Group is not their issue," she said. "That's for us partners to battle out in the court system."

She characterized her husband's cooperation with the town now as the acts of "a vindictive husband" and said, "At the end of the day, did the money go into Atlantic Beach, and did you use it?"

Controversy on the Town Council led the Municipal Association to withdraw its leadership from the town, but Williams said they will continue fighting the Tyson case on the town's behalf.

"We're trying to get somebody, even the ethics commission, to take a second look at this case," Williams said. "We've never seen such a blatant disregard for segregating duties."