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LovelandPolitics
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Loveland - September 26, 2012

Devin R. Odell, District Court Judge, decided last May that Bill Beierwaltes was guilty of an anticipatory breach of
contract therefore owes the City of Loveland $500,000 as part of a civil lawsuit filed by the City pf Loveland against
Beierwaltes, his wife and assorted companies in 2010.

In September of 2008, Beierwaltes signed an agreement with the City of Loveland stating that if he didn't have at
least 250 people employed at vNet in Loveland by December 31, 2012 he would repay the City of Loveland a business
incentive he received commensurate with the number of positions employed at his company.  The City of Loveland
provided Beierwaltes and his company vNet a $900,000 cash "business incentive" to consolidate vNet operations in
Loveland and boost the total number of vNet employees working in Loveland by the end of 2012.

"The Court concludes that Loveland is entitled to summary judgment on its claim for damages in the amount of
$500,000 based on the anticipatory breach of the Nonpayment Payback Provision
."

The court sided with Loveland on two of its five claims for relief in a motion for summary judgement.  Describing the
legal standard for a Summary Judgment as "
a drastic remedy that is appropriate only where there is a clear
showing that no genuine issue of material fact exists
" the judge found such merit exists in two of the city's five
claims against vNet and Beierwaltes.  The court determined Beierwaltes had no right under the agreement to assign
his contract obligations to a third party without the city's consent nor did he have the unilateral right to determine
whether Russound employing people in Loveland satisfies the city's original intent of the agreement.

However, the Judge did not enter his judgement at that time (
official order to pay) instead waiting for the City of
Loveland to submit attorney fees and other claims not yet adjudicated in the court's May 2012 order since other
claims of the city were still pending and not decided.  Judge Odell wrote,

"....the Court does not enter judgment at this time. Loveland may move for entry of judgment, providing a
proposed form of judgment, as it deems appropriate in light of the claims, counterclaims, cross-claims and third
party claims remaining in the action. The Court will address this issues of costs and attorney fees following
entry of judgment pursuant to C.R.C.P. 121 § 1-22."


Background

In January of 2008 Colorado vNet, a Loveland company, asked the Loveland City Council for help moving its existing
employees from downtown plus 14 more then in Longmont to a new location closer to the owner's home in south
Loveland.   vNet was seeking what it called a "business incentive" to cover the company's cost of moving locations in
town and paying for lease-holder improvements at their new location.

A little more than two weeks following this request, Loveland's City Council voted to direct staff to draw-up a
resolution that would give Colorado vNet $900,000 as a result of moving 14 employees to Loveland with the
expectation that more jobs would follow as the company grows in the future.  

In exchange for receiving $900,000, vNet owner and founder Bill Beierwaltes made a personal guarantee to the City
of Loveland he would repay $2,000 for each position less the 250 promised that isn't filled by December of 2012.  
Within 8 months of signing the agreement and receiving the city's money, Beierwaltes began laying-off employees
and even shuttered his failing start-up for a short period of time.  

After reopening vNet again in early 2009 on a skeleton staff to mostly liquidate existing inventory, Beierwaltes found
a buyer for his faltering business in a competitor named Russound.  Instead of actually selling vNet, Beierwaltes
instead sold only the company's assets keeping the corporate entity that received the $900,000 City of Loveland
business incentive open but only as a shell with no real assets.

Beierwaltes would later argue he didn't violate his agreement with the city requiring prior notification and approval
before selling the company they just invested $1 million of taxpayer money into because technically Beierwaltes only
sold the assets (like furniture and equipment) he acquired with the city's money and not the company itself to
Russound.

As part of the acquisition agreement between the old vNet and Russound, Bill Beierwaltes assumed responsibility for
$500,000 of the $900,000 paid to his former company by the City of Loveland should the new entity, vNet Corp.,
become liable for not meeting the terms of the agreement with the city.   For their part, the new vNet Corp. and its
parent company Russound believe Loveland isn’t owed any money until December of 2012 which is consistent with
Beierwaltes' arguments.

Following the acquisition by Russound the new entity had 45 employees and believed the City of Loveland would give
them 3 more years before making any determination regarding whether or not vNet (new or old) has lived-up to the
terms of the agreement.  Instead, the City of Loveland finally litigated after multiple directions from the council to
take Beierwaltes to court for breach of the agreement were not acted on by staff.  


Success of Failure?

Some will argue the city has prevailed but others are not so sure.  Beierwaltes ultimately got his way and was allowed
to run the clock out on the agreement as the end of 2012 (deadline for getting 250 jobs) is fast approaching.  Had the
city fully prevailed in court at the beginning, Beierwaltes would be required to repay the City of Loveland a refund of
the full $900,000 investment as a result of Beierwaltes breaching the agreement when he essentially sold the
company without city consent or knowledge.  

The court did grant summary judgement also on Loveland's claim that Beierwaltes breached the agreement when he
sold the company by stating the following,

"Accordingly, the Court grants Loveland’s motion for summary judgment with respect to the counterclaim for
breach of good faith and fair dealing and therefore determines that the Beierwaltes Parties breached the
Assignment Provision."

The City of Loveland came very close to a remedy in 2009 when an agreement was drafted to assign the city's jobs
incentive agreement to Russound while retaining Beierwaltes' personal guarantee.   In the last minute, Russound
refused to sign the new agreement which would have also created liability for Russound under the agreement if the
jobs goal was not met.  LovelandPolitics has been informed by one source close to Beierwaltes that he believes
Russound's last minute decision not to sign the amended incentive agreement was contrary to their arrangement
when Beierwaltes sold the company which contemplated Russound strapping on vNet's jobs creation obligations with
the city.


Beierwaltes Believes Russound Is Liable

Beierwaltes, according to a confidential source, will now likely litigate against Russound in a separate action to
recover the $500,000 he must pay the City of Loveland.  Whether Russound believes it may have to pay back
Beierwaltes or the city for an agreement they never signed is another matter.  LovelandPolitics does not have access
to the purchase agreement between Bill Beierwaltes and Russound for vNet so cannot represent whose obligated to
pay what under their confidential agreement.

One possibility is Russound agreed to make best efforts to take-over Beierwaltes' liability with the city or hire an
equivalent number of new employees thus satisfying Beierwaltes' concern he could be held liable by the city for selling
his heavily subsidized company without Loveland's permission.

In the meantime, Beierwaltes has brought to Larimer County his newest innovation to start a company
manufacturing clean coal power generation devices.  Unfortunately for Beierwaltes his contraption failed on the first
test for county officials billowing smoke and generally polluting the air of adjacent properties.  Beierwaltes has made
clear on a number of occasions his displeasure with the City of Loveland and determination never to locate another
business inside city limits again.  Given the potential of his newest invention to cause air pollution his threat may
actually be beneficial for city residents.

Maybe Beierwaltes' past friends on the City Council would have been wise to heed Shakespeare's advice,

"Neither a borrower nor a lender be, For loan oft loses both itself and friend,..."

                                                                                                                                                                    William Shakespeare
Beierwaltes Owes City at Least
$500,000 for vNet Debacle
Summary Judgement Partially In City's Favor

read Court Order

Promised number of jobs by 2012..................................250
Less the people already working for company.......................78
Actual total of new jobs in Loveland required by agreement.......172

Penalty for default - $2,000 per employee

Total liability.............................................$500,000

Amount Not Recoverable by Loveland in the event of default..$400,000
LovelandPolitics has the most
complete archive of vNet
stories having documented the
business development debacle
since its inception.

Below Are Those Stories
Criteria of VNet's Original
Agreement with City of Loveland

1.  A requirement that Colorado
VNet employ a minimum of 250
regular full time employees
(212 in Loveland) by the year
2012

2.  The average salary of the
250 employees must be
$65,000 a year

3.  The owners, Mr. and Mrs.
Beierwaltes, will sign a personal
guarantee for $500,000 of the
money in the event the
company is in default

4.  Failure to meet either the
number of employees or the
salary targets by 2012 will
result in the company having to
pay back the City of Loveland    
$2,000 per employee