Business

Unpaid 'newbo evolve' vendors face few legal options

State and local authorities say no criminal complaints made

A booth at the June 23 BBQ Roundup at McGrath Amphitheatre seeks to promote the “newbo evolve” festival that then was only a few weeks away. Organizers later said the musical and cultural festival lost $2.3 million. (The Gazette)
A booth at the June 23 BBQ Roundup at McGrath Amphitheatre seeks to promote the “newbo evolve” festival that then was only a few weeks away. Organizers later said the musical and cultural festival lost $2.3 million. (The Gazette)
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CEDAR RAPIDS — Dozens of Cedar Rapids police officers worked “newbo evolve,” a three-day festival in early August, on foot or bike patrol while others served as marksmen to guard against the unthinkable.

They did their job, but like an untold number of other vendors they didn’t get paid by the festival. Now that GO Cedar Rapids, the tourism organization that put on the event, has folded, they may never. Owed $31,790, their check bounced.

“We received a check that was deposited and then returned,” said Sgt. Dale Moyle, who oversees the Cedar Rapids Police Protective Association, which organizes extra police work for special events.

After indicating for weeks it would make good on $800,000 owed to vendors, the nonprofit GO Cedar Rapids closed saying it had no money.

Vendors weren’t notified and no plan was publicly offered to pay those who helped pull off the ill-fated festival, several vendors said last week, including filmmaker John Waters, who was one of the top acts. Many of the vendors are much smaller operators.

Questions linger as to how those responsible could just walk away and what recourse vendors may have. Several members of the executive committee of the 18 member board of directors of GO Cedar Rapids have not returned messages from The Gazette.

Henry Nathanson, a lawyer who specializes in bankruptcy with Nazette Marner Nathanson & Shea LLP of Cedar Rapids, said bankruptcy is a process to rid yourself of debt, and so the organization wouldn’t need to file if it didn’t have any assets to protect.

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“Organizations like this don’t have any assets probably, and if you don’t have assets all they have to do is close the door and there is nothing for creditors to get,” Nathanson said.

Board members or officers could be sued individually, and if they made promises they could be held responsible. But individual assets likely would be limited.

Plus, there are other legal hurdles to successfully suing directors.

Nathanson said the city of Cedar Rapids — though it’s a separate entity — could face claims since the city gave GO Cedar Rapids $1 million a year in public money and relied on it for marketing and tourism.

“The only hope for creditors may be if they can loop in the city because they do have assets,” he said.

Former GO Cedar Rapids President Aaron McCreight and director of community events Scott Tallman were fired after the festival posted a $2.3 million loss. The board accused them of providing false information, leading to the severe losses.

Some vendors have decided to move on, considering the loss a cost of doing business. But others are exploring civil or criminal processes.

“I feel like I need to investigate the bad check law and what my recourse is,” said Cathy Garcia, of CG Activation of San Diego. “I mean they sent it and it bounced, and while the $12 bank fee I was charged is a drop in the bucket from what they owe me it’s still another out-of-pocket fee they aren’t covering. This event had such a great outcome for the attendees. I just can’t believe I may never see a dime of my hard work.”

Garcia said she is owed nearly $43,000 in fees and travel expenses after producing speaker sessions, including talent organization, briefing moderators and coordinating audiovisual.

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GO Cedar Rapids acknowledged it canceled at least $300,000 worth of checks made out after the event because there wasn’t enough money in the bank account.

Jen Neumann, of de Novo Marketing, said her company is owed a “significant sum” and sees little pathway to repayment. While it is a risk of doing business, the firm has never experienced this in 12 years as a business, she said.

“It is really unfortunate that small businesses are taking the brunt of the poor decisions that were made, and that we have not been notified that payment will not be made,” Neumann said in an email. “We also have not had any communication from the leadership (board or interim) about the news of the dissolution or the intent not to fulfill debts.”

The city of Cedar Rapids is owed $6,750 for trash pickup and street sweeping and the city-owned DoubleTree Hotel where most of the event’s speaker series was held is owed $36,931.

Not included among the vendors are people like Gae Richardson, owner of The Chocolate Shop in Marion. She’s been a member of the tourism bureau over a dozen years and considered her money well spent with it.

She paid her $475 annual membership at the end of September, and GO Cedar Rapids deposited the check Oct. 2. She also paid $750 in August for an ad in the 2019 GO Cedar Rapids directory. That was also deposited by GO Cedar Rapids.

“We are a local mom and pop business (and) we aren’t the only GO CR members this happened to. I think the city — who are taking over the marketing and promotion of Cedar Rapids — needs to address this issue. How are we going to (be) compensated? And no one has apologized to us.”

Bob Teig, who was an assistant U.S. Attorney for the Northern District of Iowa for 32 years, said federal statutes possibly could apply to fraudulent schemes carried out through interstate exchanges.

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Mail fraud, which would be investigated by postal inspectors, and wire fraud, which would involve phone calls or emails and would be investigated by the FBI, would require both a scheme to defraud and the medium — mail, email, phone — being used to further that or conceal it, he said.

“You would have to establish that there was an intent to defraud and not just that someone sent checks that bounced,” he said.

Bank fraud, which would be investigated by the FBI and possibly the IRS, could apply to a case where false statements were provided to a bank to get a loan, he said.

“One thing about filing civil cases, you have to see if there’s blood in the stone,” he said. “As far as criminal cases, people can make complaints to either the federal or state authorities, and it would be up to them whether to file charges.”

Tony Morfitt, a spokesman for the U.S. Attorney’s Office in Cedar Rapids, would not confirm nor deny an investigation, but noted people could file a complaint through local law enforcement or to an appropriate federal agency, such as the FBI.

Bad checks can be considered theft under Iowa Code Chapter 714, but it is not clear if that would apply in this case, said Nick Maybanks, assistant attorney with the Linn County Attorney’s Office, adding no complaints had been filed with the office.

The bad check law requires the check to not cash due to insufficient funds or because the account is closed and also that the person who wrote the check knew it would not be honored, according to a description on the Sioux County Attorney’s website. Depending on the amount, it could be a felony.

Greg Buelow, a Cedar Rapids public safety spokesman, said the police department has not received any complaints. If it does, the complaint would be forwarded to an outside agency such as the Iowa Division of Criminal Investigation or Iowa Attorney General’s Office to avoid any appearance of a conflict.

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Lynn Hicks, a spokesman for the Iowa Attorney General’s Office, said if a “vendor believes a theft has occurred, they should file a police report,” or a civil action through a lawyer. He said the agency is not currently investigating anything involving GO Cedar Rapids.

Paul Thelen, director of the Larned A. Waterman Iowa Nonprofit Resource Center, said Iowa like many states has strong legal protections for board members.

Board members are protected from legal claims if a director acted in good faith; believed his or her conduct was in support of the organization or at least not opposed to it; did not believe the conduct was illegal; and the conduct was permissible under the organization bylaws.

“You have that veil of protection for people willing to serve in this role,” he said. “If it weren’t for these protections, you’d have a very tough time to get people to volunteer on these boards. ... That bar is pretty high, that veil of protection, but people can still file suits and you have to respond to it.”

Thelen said many organizations have director and officer insurance as added protection in the event of litigation.

GO Cedar Rapids has not said whether it has such insurance. While GO Cedar Rapids has folded, the board remains active.

Thelen said nonprofit boards have a “winding up” before dissolving and cannot complete the process if claims are known to exist.

l Comments: (319) 398-8310; brian.morelli@thegazette.com

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