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LovelandPolitics
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Loveland - May 14, 2013
The City of Loveland is near the end of negotiations with Loveland resident and self-proclaimed millionaire
who along with his wife continue to refuse to repay the City of Loveland $900,000 given to them as a
business incentive in March of 2008.
As part of the city’s agreement with Colorado vNet, which was owned by William and Lynda Beierwaltes, the
couple signed a personal guarantee to make the city whole should their little company fail to meet its
obligations under a business incentive agreement with the city. As part of that agreement, the Beierwaltes
promised to create some 172 new jobs (in addition to 78 others being consolidated for a total of 250) in their
company vNet by the end of 2012.
On October 15, 2009 the Beierwaltes sold most of their company’s assets (many obtained using Loveland tax
dollars) claiming the economic downturn and lack of credit forced their hand. The problem is they failed to
obtain written consent required by their agreement with the city which clearly states,
“Colorado vNet and the Beierwaltes shall not assign or transfer any or all of their interests, rights or
obligations under this Agreement without the prior written consent of the City.”
The City of Loveland negotiated with the new owners of Colorado vNet, New Hampshire-based Russound
LLC for an entire year. Russound was unwilling to sign a similar agreement or be obligated to retain jobs in
Loveland so the City of Loveland ultimately refused to approve Beierwaltes’ sale of Colorado vNet city
financed assets to Russound. As predicted, Russound eventually closed operations in Loveland leaving no
jobs as a result of the city's $900,000 investment.
Bill Beierwaltes assured the Loveland Reporter-Herald he would repay the funds and even supported
friends to run for Loveland City Council who continued defending the "investment" before vNet was out of
business completely. Confident he could turn the city’s position in time, Beierwaltes continued fighting the
city even after negotiations broke down and the city was forced to litigate to enforce the terms of the
agreement. Beierwaltes had once closed the doors on the company before selling its assets but according to
city officials neglected to disclose this information to the city.
According to Beierwaltes, he never reneged on the city agreement because his corporate entity, Colorado
vNet, was not sold only its major assets were sold. In accounting, this trick is often referred to as “form over
substance” transaction. In other words, Beierwaltes claims as long as the hollow shell of a corporate entity is
maintained as a legal entity in Colorado owned by he and his wife, the company was never sold just its assets
which wasn't specifically prohibited in the agreement. However, form over substance arguments like
Beierwaltes and those employed by the former Enron Corp. have been largely unsuccessful in courts seeking
equity over technicalities when enforcing civil agreements.
In October 2012, a trial court rejected Beierwaltes’ argument and entered a verdict for the City of Loveland
of $500,000 plus interest of $107,358 and attorney fees (now calculated to $53,000 along with court fees to
be later arbitrated by the trial court.) However, Beierwaltes appealed to the Colorado Court of Appeals last
November and is hoping to settle with the city before going again to court.
Loveland’s City Council engaged in spirited debate last Tuesday during a 1 ½ hour closed session. The
council than decided to offer a settlement of $599,000 (allowing Beierwaltes to keep $300,000 of the money
he received in 2008 from the city) and apparently waiving his obligation to pay the city's attorney fees to
enforce the agreement. The vote was significant as it puts Mayor Cecil Gutierrez on record breaking a clear
campaign promise to fully enforce the city's rights under the agreement and not settle for a lesser amount.
The primary point of contention now is interest paid on the money as Beierwaltes refuses to pay the 8%
interest rate he agreed to with the city for monies owing under the agreement. While the city has already
ceded Beierwaltes' argument that he didn’t breach the agreement and does not owe the full amount, they
are asking for the 8% interest (as prescribed in the agreement) beginning from the time the city filed its
lawsuit in 2009. Beierwaltes' attorney is arguing he owes only the “clawback” of $500,000 plus any business
interest beginning January of this year.
Jobs Incentives – Claw Back Argument
Loveland’s Council did place a “claw-back” feature in its agreement with Beierwaltes back in 2008 but it
contemplated a situation where the company might fail to reach the promised number of 250 employees
earning over $65,000 a year while working in the city by December of 2012. The purpose of the "claw-back"
provision was to determine how much of the incentive would need to be repaid if vNet fell short of the
target. Therefore, an arbitrary figure of $2,000 per job was assigned creating a maximum liability less than
the total subsidy. Then Councilman Kent Solt offered an amendment raising to $5,000 per employee not
working at vNet by end of 2012 but the amendment was defeated (see picture and resolution below). Had
the amendment passed, Beierwaltes would not been able to take refuge in his argument that he only owes
the claw-back since it would have totaled the same as the complete subsidy.
On April 19, 2013, Beierwaltes’ attorney, Tracy Ashmore, sent the city a proposed settlement offer of
$560,000 by continuing to claim Beierwaltes owes the city only the original claw-back of $500,000 plus a
modest amount of interest. In what some with the city have described as an “inane” argument, Ashmore
contends her client never breached his agreement with the city but owes only the incentive claw-back due in
January 2013 because Beierwaltes still owns the worthless shell company vNet.
Among the arguments Ashmore attempts in her letter is the claim the city’s incentive was largely used for
the purpose intended because Russound continued operations in Loveland after taking over Beierwaltes’
company. The problem with this argument is you cannot have it both ways. Either Beierwaltes never sold
the original company (as he claimed in court) and therefore never defaulted on his agreement with the city
or Russound did, indeed, buy Colorado vNet thus continuing the jobs in the city contemplated in the
agreement.
Despite winning the battle in court, the city appears fearful enough to seek a settlement before the final
judgement is made on a number of appeals. Especially appalling to some local residents who have followed
this case from its inception is the insistence by Beierwaltes that he does not owe the true costs of the city's
enforcement (attorney fees included).
4. Remedies upon Default
Default by Colorado vNet shall be deemed to have occurred under this Agreement upon the occurrence of
any one of the following events:
(a) Application for appointment of a receiver for any of Colorado vNet's assets; (b) Commencement of
any proceeding under any bankruptcy or insolvency laws by or against Colorado vNet; or (c) the failure
of Colorado vNet to timely make any payment required in Section 2. above.
In his lastest offer Beierwaltes asked for a total settlement of $560,000 while the city responded with an
offer to settle at $599,000. It is likely they will settle in the $590,000 range. This means approximately $1
million was spent ($320,000 Beierwaltes keeps, city outside legal counsel and staff time) for the city losing
over 130 jobs that are now no longer in the city.
Beierwaltes has stated to both Berthoud and Larimer County officials he will not do business within City of
Loveland limits again. Instead, he is pitching other local governments to subsidize one way or another his
next big idea.
The City of Loveland is near the end of negotiations with Loveland resident and self-proclaimed millionaire
who along with his wife continue to refuse to repay the City of Loveland $900,000 given to them as a
business incentive in March of 2008.
As part of the city’s agreement with Colorado vNet, which was owned by William and Lynda Beierwaltes, the
couple signed a personal guarantee to make the city whole should their little company fail to meet its
obligations under a business incentive agreement with the city. As part of that agreement, the Beierwaltes
promised to create some 172 new jobs (in addition to 78 others being consolidated for a total of 250) in their
company vNet by the end of 2012.
On October 15, 2009 the Beierwaltes sold most of their company’s assets (many obtained using Loveland tax
dollars) claiming the economic downturn and lack of credit forced their hand. The problem is they failed to
obtain written consent required by their agreement with the city which clearly states,
“Colorado vNet and the Beierwaltes shall not assign or transfer any or all of their interests, rights or
obligations under this Agreement without the prior written consent of the City.”
The City of Loveland negotiated with the new owners of Colorado vNet, New Hampshire-based Russound
LLC for an entire year. Russound was unwilling to sign a similar agreement or be obligated to retain jobs in
Loveland so the City of Loveland ultimately refused to approve Beierwaltes’ sale of Colorado vNet city
financed assets to Russound. As predicted, Russound eventually closed operations in Loveland leaving no
jobs as a result of the city's $900,000 investment.
Bill Beierwaltes assured the Loveland Reporter-Herald he would repay the funds and even supported
friends to run for Loveland City Council who continued defending the "investment" before vNet was out of
business completely. Confident he could turn the city’s position in time, Beierwaltes continued fighting the
city even after negotiations broke down and the city was forced to litigate to enforce the terms of the
agreement. Beierwaltes had once closed the doors on the company before selling its assets but according to
city officials neglected to disclose this information to the city.
According to Beierwaltes, he never reneged on the city agreement because his corporate entity, Colorado
vNet, was not sold only its major assets were sold. In accounting, this trick is often referred to as “form over
substance” transaction. In other words, Beierwaltes claims as long as the hollow shell of a corporate entity is
maintained as a legal entity in Colorado owned by he and his wife, the company was never sold just its assets
which wasn't specifically prohibited in the agreement. However, form over substance arguments like
Beierwaltes and those employed by the former Enron Corp. have been largely unsuccessful in courts seeking
equity over technicalities when enforcing civil agreements.
In October 2012, a trial court rejected Beierwaltes’ argument and entered a verdict for the City of Loveland
of $500,000 plus interest of $107,358 and attorney fees (now calculated to $53,000 along with court fees to
be later arbitrated by the trial court.) However, Beierwaltes appealed to the Colorado Court of Appeals last
November and is hoping to settle with the city before going again to court.
Loveland’s City Council engaged in spirited debate last Tuesday during a 1 ½ hour closed session. The
council than decided to offer a settlement of $599,000 (allowing Beierwaltes to keep $300,000 of the money
he received in 2008 from the city) and apparently waiving his obligation to pay the city's attorney fees to
enforce the agreement. The vote was significant as it puts Mayor Cecil Gutierrez on record breaking a clear
campaign promise to fully enforce the city's rights under the agreement and not settle for a lesser amount.
The primary point of contention now is interest paid on the money as Beierwaltes refuses to pay the 8%
interest rate he agreed to with the city for monies owing under the agreement. While the city has already
ceded Beierwaltes' argument that he didn’t breach the agreement and does not owe the full amount, they
are asking for the 8% interest (as prescribed in the agreement) beginning from the time the city filed its
lawsuit in 2009. Beierwaltes' attorney is arguing he owes only the “clawback” of $500,000 plus any business
interest beginning January of this year.
Jobs Incentives – Claw Back Argument
Loveland’s Council did place a “claw-back” feature in its agreement with Beierwaltes back in 2008 but it
contemplated a situation where the company might fail to reach the promised number of 250 employees
earning over $65,000 a year while working in the city by December of 2012. The purpose of the "claw-back"
provision was to determine how much of the incentive would need to be repaid if vNet fell short of the
target. Therefore, an arbitrary figure of $2,000 per job was assigned creating a maximum liability less than
the total subsidy. Then Councilman Kent Solt offered an amendment raising to $5,000 per employee not
working at vNet by end of 2012 but the amendment was defeated (see picture and resolution below). Had
the amendment passed, Beierwaltes would not been able to take refuge in his argument that he only owes
the claw-back since it would have totaled the same as the complete subsidy.
On April 19, 2013, Beierwaltes’ attorney, Tracy Ashmore, sent the city a proposed settlement offer of
$560,000 by continuing to claim Beierwaltes owes the city only the original claw-back of $500,000 plus a
modest amount of interest. In what some with the city have described as an “inane” argument, Ashmore
contends her client never breached his agreement with the city but owes only the incentive claw-back due in
January 2013 because Beierwaltes still owns the worthless shell company vNet.
Among the arguments Ashmore attempts in her letter is the claim the city’s incentive was largely used for
the purpose intended because Russound continued operations in Loveland after taking over Beierwaltes’
company. The problem with this argument is you cannot have it both ways. Either Beierwaltes never sold
the original company (as he claimed in court) and therefore never defaulted on his agreement with the city
or Russound did, indeed, buy Colorado vNet thus continuing the jobs in the city contemplated in the
agreement.
Despite winning the battle in court, the city appears fearful enough to seek a settlement before the final
judgement is made on a number of appeals. Especially appalling to some local residents who have followed
this case from its inception is the insistence by Beierwaltes that he does not owe the true costs of the city's
enforcement (attorney fees included).
4. Remedies upon Default
Default by Colorado vNet shall be deemed to have occurred under this Agreement upon the occurrence of
any one of the following events:
(a) Application for appointment of a receiver for any of Colorado vNet's assets; (b) Commencement of
any proceeding under any bankruptcy or insolvency laws by or against Colorado vNet; or (c) the failure
of Colorado vNet to timely make any payment required in Section 2. above.
In his lastest offer Beierwaltes asked for a total settlement of $560,000 while the city responded with an
offer to settle at $599,000. It is likely they will settle in the $590,000 range. This means approximately $1
million was spent ($320,000 Beierwaltes keeps, city outside legal counsel and staff time) for the city losing
over 130 jobs that are now no longer in the city.
Beierwaltes has stated to both Berthoud and Larimer County officials he will not do business within City of
Loveland limits again. Instead, he is pitching other local governments to subsidize one way or another his
next big idea.
| Council To Settle vNet For Less Mayor abandons commitment to enforce agreement by voting to settle for less than what the city is owed April 19, 2013 "Confidential Settlement Offer" from Beierwaltes for $560,000 |
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| LovelandPolitics has the most complete archive of vNet stories having documented the business development debacle since its inception. Below Are Those Stories |
| "Equity regards substance rather than form." Equity will not permit justice to be withheld just because of a technicality. Formalities that frustrate justice will be disregarded and a better approach found for each case. Equity enforces the spirit rather than the letter of a civil agreement alone. |
WHEREAS, Colorado vNet has requested from the City certain economic incentives to help defray some of Colorado vNet's costs to remodel and relocate to the New Facility in Loveland; and WHEREAS, Colorado vNet has therefore asked the City to pay to Colorado vNet, in accordance with the terms and conditions of this Agreement, up to nine hundred thousand dollars ($900,000.00) to be used by Colorado vNet to help pay for some of its estimated costs to remodel and to relocate to the New Facility; and WHEREAS, on March 4, 2008, the City Council approved this Agreement in Resolution #R-23-2008 on the condition that the Beierwaltes guarantee the full performance of Colorado vNet's obligations under this Agreement; and WHEREAS, the Beierwaltes, as the controlling principals of Colorado vNet, are willing to guarantee these obligations; |
| HOW THEY VOTED |
| William Beierwaltes in February 2008 requesting $900,000 for vNet |
| Loveland May 15 UPDATE: The City of Loveland accepted a settlement check by Bill Beierwaltes of $599,000 today. According to a court ruling last October, Beierwaltes was to pay the City of Loveland $500,000 for the agreement, $107,000 in interest and some $53,000 in attorney fees to be arbitrated later by the court. Beierwaltes appealed that decision of approximately $660,000 and the city settled the matter for $599,000. |