Council wants paper company to reimburse legal fees paid on its behalf

The attorneys representing the city of Brainerd in Missota's financing are being advised to stop further work until the paper company reimburses the city for legal fees.

The Brainerd City Council Monday unanimously approved having City Administrator Dan Vogt request Kennedy and Graven, the law firm representing the city in the Missota project, to forgo any further expenditures for Missota until the city council advises the attorneys otherwise.

Vogt said the November and December legal fees of $1,780 paid by the city on behalf of Missota haven't been reimbursed to the city. That total doesn't include a December special meeting held of the Brainerd Economic Development Authority concerning a loan from another organization to Missota.

Before November, Missota and the city agreed to split the cost of legal fees, which amounted to $27,657. Half of those fees were paid by Missota.

Dan Alexander, Missota president and chief executive officer, said in an interview today his company intends to pay the outstanding legal fees incurred by the city. He also said the council's action Monday, of which he was unaware before being informed about it in an interview, could be moot as no legal work is currently being done for Missota.

"There's nothing to review, no work to be done, so it's not like their (the council's) action has a detrimental effect one way or another," Alexander said.

Though no city money was invested in Missota for the purchase of the mill, the city and the EDA acted as a conduit for $500,000 in loans from the state, of which repayments by Missota would be made to the city -- up to $400,000 -- into a revolving loan fund.

In October, Missota defaulted on several loans and in November announced an extended shutdown. In a December emergency meeting, the EDA learned Missota, which operates in the former Potlatch paper mill, has been losing about $1 million a month for the past 10 months. At that meeting the EDA approved signing subordination and forbearance agreements that would allow Missota to receive a $750,000 loan from another organization in order to stay Missota to meet its payroll and stay open, though idle, for two months. It is from that loan that the city's legal fees will be paid, said Alexander.

Council member Mary Koep, who made the motion to ask the city's attorneys to stop work on the Missota project, said Missota should pay its bills before the city does any more work.

"We need to tell them it's time to fish or cut bait," said Koep, comparing the legal fees the city is paying on behalf of Missota to the $1.25 million the city lost 15 years ago in the Brainerd International Trade Centre scandal in which the city guaranteed loans to British-native Colin Hall to start Trailer Systems 2000 Inc., a bus manufacturing company, at the Northern Pacific Center.

Added council member Bob Olson: "I don't think there's going to be any money coming back, so what are we protecting? I have a hard time going along with more legal fees."

Later in Monday's city council meeting, council member Lucy Nesheim defended the city's assistance to Missota. She said all parties involved, including the state, Brainerd Lakes Area Development Corp. and the Brainerd Lakes Area Chambers of Commerce acted properly.

"We tried to help them in very way that we could and everything has been done in proper order, as far as I know, to reopen this plant in working order," said Nesheim. "I'm pleased that we did it. The main goal was to put people back to work. They have been working. The comany has not given up."

At the December emergency meeting of the EDA the future for Missota was described as bleak and in need of a miracle by a representative of Bremer Bank, who along with the city and three other organizations is an investment partner in Missota. Alexander said while his company is in a challenging time, it won't need a miracle to survive.

"It's going to take a lot of hard work and that's what we're doing in trying to put this thing together," said Alexander. "What we know is it's an outstanding mill in terms of its physical attributes, it produces an outstanding product and we have outstanding employees. Those are the three key ingredients." He added that the recent economic recovery has not filtered down to paper marketplace, but his company is in the process of establishing strategic alliances other companies and he hopes that within the next couple of months they can resume production.