City of Moline files lawsuit against Kaizen Co. of America

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(KWQC) - The City of Moline has filed a lawsuit against Kaizen Company of America to recover more than $800,000 in past due rent for the RiverStation at Bass Street Landing, 1601 River Drive.

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The one-count civil complaint filed Monday in Rock Island County Circuit Court alleges breach of contract by Kaizen.

The company in 2003 entered into a lease agreement with the City as part of a larger initiative to bring development to downtown Moline.

According to a media release, the City and Kaizen took on various obligations and Kaizen was given various incentives in exchange for its promise to pay base rent and deliver a project of a minimum equalized assessed value of $5.4 million.

In the next few years, the lease agreement was amended and the City agreed to take on additional obligations. Kaizen was relieved of some obligations and agreed to deliver a project with a higher equalized assessed value of $7.2 million, according to the media release.

Kaizen re-affirmed its promise to deliver a project with the equalized assessed value of $7.2 million in a second amendment to the lease, and The City did not impose specific design controls on Kaizen.
Instead, city leaders accepted Kaizen’s promise to achieve the promised equalized assessed value or make up the difference to the
City in the form of “additional rent” due under the lease.

The City alleges in the lawsuit that Kaizen was regularly late on payments of base rent and failed to pay the additional rent as outlined in the agreement. At that time, City staff did not take formal action to enforce all of the leasing terms.

The amount owed by Kaizen to the City continued to grow and funds that would have otherwise been available to the City for reinvestment were not available.

In July 2018, Kaizen proposed to exercise its rights under the lease to purchase the land form the City. At the time of the proposal, Kaizen owed more than $60,000 in base rent, plus late fees and interest, and more than $800,000 in additional rent plus interest.

Senior city staff, including then city administrator Doug Maxeiner, former development director Ray Forsythe and former city attorney Maureen Riggs, recommended a deal in which the City Council forgave all past due rent, all additional rent, all interest and all late fees and sell the land for $10.

In addition to the $10 purchase price, Kaizen would waive their utility building rent and agreed to pay current market rate of $45 per space per month to the City for the leasing of 80 prime parking spaces on a City parking lot.

Alderman expressed concerns and the recommendation was tabled. City staff continued not to pursue the collection of outstanding rent, additional rent, fees and interest.

All three later left their positions with the city.

A review in June of preliminary TIF reports by Mayor Stephanie Acri resulted in new staff and legal counsel revisiting the developments with the City of Moline’s TIFs.

They reviewed the Kaizen agreement and reported to the City Council that amounts outstanding and due from Kaizen was more than $1.5 million with interest and penalties at the time of the staff’s recommendation in 2018.

In August, the City made a formal default declaration against Kaizen.
The City has received $97,807.50 in payments from Kaizen since issuing the declaration of default, however other outstanding amounts have come due, according to the media release.

The City Council then authorized the filing of the lawsuit.

“As this matter illustrates, those holding elected office have a duty to ask questions of staff about all of the City’s development agreements and to have a clear understanding of how public funds are being used,” according to the media release. “They must ensure that the residents’ tax dollars are not being wasted. The public trust vested in the elected officials requires that they question and hold professional staff accountable – otherwise it is impossible for City government to be fair and efficient in accomplishing its mission. “

The lawsuit at this time does not seek to terminate the lease, evict Kaizen, or seek possession of the property.

Calls to Kaizen and their lawyers were not immediately returned.

You can read the full document below. App users: You can click on this link to read the documents filed by the city of Moline.