Nonprofit caught up in suit

CHARLESTON -- Little remains of Charleston Affordable Housing, a nonprofit builder of low-income apartments, but the organization still has cash and assets, and an Upstate contractor says most of that money should be his.

It's a roughly $2 million dispute, and the latest wrinkle in a lengthy, costly and complicated legal saga that grew from a well-intentioned effort to build affordable homes for unemployed mill workers.

The two main players in the case are building contractor D.C. Development and Charleston Affordable Housing, which is based in Mount Pleasant. In between them is Glenwood Falls LP, the company created for the apartment construction program, and the question of whether Charleston Affordable Housing is liable for a judgment awarded to D.C. Development.

D.C. Development has been attempting to collect on the more than five-year-old court award against Glenwood Falls, arguing that as general partner, Charleston Affordable Housing is responsible for the debt.

The judgment, originally for $1.3 million, was awarded when no one representing Glenwood Falls showed up in court to dispute the contractor's claims about unpaid bills at the end of 2004.

While D.C. Development has been trying to collect payment on the judgment, court documents show that Glenwood Falls and Charleston Affordable Housing received in 2006 and 2007 payments totaling $575,000 from the law firm Nelson Mullins Riley & Scarborough, to settle - without admitting fault - potential legal malpractice claims related to the judgment being awarded.

Lawyers for D.C. Development did not learn of the settlement until last year, when what remained of those payments was recorded as Charleston Affordable Housing assets in the bankruptcy case. The contractor argues the money should have been held in trust for Glenwood Falls' debts.

"That was concealed from everybody until they filed for bankruptcy," said William E. Booth III, a Columbia attorney representing D.C. Development.

"They used that money to pay their other creditors before they filed [for bankruptcy]."

Charleston Affordable Housing has a very different point of view.

Cathy Kleiman, a founder of the nonprofit, said she believes that through no fault of her own or Charleston Affordable Housing, D.C. Development was unfairly awarded money that wasn't owed, creating a situation that forced the organization to shut down and file for bankruptcy protection.

"Of course, there's been tremendous damage to the nonprofit and its ability to help the community," she said.

The case stems from a Fort Mill construction project that went bad in 2003.

Problems with weather and site conditions led to delays and cost increases, and as a completion date approached, D.C. Development walked off the job, saying its bills had not been paid.

The project was foreclosed on in 2004 after the completion date was missed, voiding federal tax credits that would have largely financed the work.

Contractors and investors sued Glenwood Falls, and D.C. Development was awarded the $1.3 million judgment in early 2005, an award that's since grown to nearly $2 million.

Charleston Affordable Housing, in the meantime, ceased operations and began selling off assets, including four properties originally developed as affordable housing in downtown Charleston.

In bankruptcy court, the nonprofit has claimed that fraud and invoice-padding by D.C. Development played a role in the foreclosure of the apartment construction project at the heart of the whole mess.

"We believe, and we would like the opportunity to show the court, that the whole reason this went down in the first place was due to D.C. Development's fraud," said Rick Detwiller, an attorney for Charleston Affordable Housing.

"I have to tell you, Cathy Kleiman is a saint, and Charleston Affordable Housing has done nothing but good for the people of South Carolina."

Last fall, a former bookkeeper for D.C. Development testified in bankruptcy court that the contractor had, among other things, billed Charleston Affordable Housing for appliances that went to a different construction project. Booth said D.C. Development can refute any accusation of fraud but has not had an opportunity.

Meanwhile, Booth said, Charleston Affordable Housing has found ways to keep paying Kleiman and its lawyers, while refusing to pay what is owed to the people who actually built the affordable housing project in Fort Mill.

"Of the $575,000 [settlement], not a penny went to us, and not a penny went to affordable housing," Booth said.