Grimsby files $18 million civil suit

By Mike Williscraft

NewsNow

The Town of Grimsby et al have filed an $18 million civil suit against three former members of its energy companies’ boards of directors.

In the suit filed last week in Ontario Superior Court by the Town of Grimsby, Niagara Power Inc. (NPI), Grimsby Energy Inc. (GEI), Grimsby Hydro Inc. (GHI), and 1938427 Ontario Inc. (HoldCo. 2), three claims are made citing former mayor Bob Bentley, James Detenbeck and Joe Panetta as defendants.

The claims, in part, allege Bentley, Detenbeck and Panetta were negligent, breached their duty of care and breached their fiduciary duty through their dealings regarding a “failed waste-to-energy project”.

Grimsby, HoldCo. 2 and GEI claim $18 million in damages from the trio. Parts of that claim include:

• GHI seeks $7 million in damages from Detenbeck, and;

• NPI seeks $3 million in damages from the trio.

The defendants have 20 days in which to file a defence, states the court document, but have not yet done so. None responded to repeated attempts to contact them for comment.

The heart of the issue is the long-troubled biodigester project, which started out in 2008 with an estimated cost of $3.5 million. Today the project has incurred about $18.5 million in cost, while continuing to operate at a rate which would complete its fiscal year with a deficit exceeding $4 million in operating losses.

While many of the setbacks involved with the biodigester have been outlined as they unfolded in NewsNow, the civil suit outlines more of internal details it is alleged have caused the breaches in question.

The allegations in the suit have not be proven in a court of law.

The “Summary” of the case, as outlined in the court document states:

“The defendant Robert Bentley served as mayor of the Town of Grimsby from 2003 to December 3, 2018, when his term officially ended following his decision to not run in the election of October 22, 2018.”

“After the results of the October 22, 2018 election, information about the project that had been suppressed by the defendants began to come to light, including, most importantly, the information that the project was not producing any profits, let alone enough to justify the investment in the project, the capital cost of which had become more than 300% greater than originally budgeted.”

“In January of 2019, the agricultural waste-to-energy project, which had become known as the Bio-Digester project, was referred to by local media as a “bio-disaster”.”

“The Bio-Digester project became a financial disaster as a result of the defendants’ complete failure to ensure effective corporate governance and to ensure that corporate decisions were made in the best interests of the plaintiff companies. The plaintiff companies’ best interests were made subservient to the interests of the defendants James Detenbeck and Joseph Panetta who, with the support of the defendant Robert Bentley, appointed themselves as contractors and project managers and received hundreds of thousands of dollars for service provided in those capacities while they continued to serve as directors of the plaintiff companies, ostensibly responsible for the work done by themselves as contractors and project managers. In short, the defendants preferred their own financial interests to the best interests of the plaintiff companies, of which they were at all material times directors and officers, and to which they owed fiduciary duties.”

Detenbeck and Bentley became directors of GEI in 2007 and were joined on that board by Panetta in 2009.

Detenbeck was a director of GHI from 2007 until the end of 2018. The claim alleges that, “At some point in 2017 James Detenbeck quit and ceased attending board meetings for any of the boards of the plaintiff companies. However, he did not properly resign as a director and therefore continued to be liable as a director until his successor was appointed at the end of 2018.”

What allegedly binds the group, in terms of liability is their control over all the boards of directors of the companies in the hydro group, as outlined in the statement of claim.

“All three defendants became directors of NPI in 2009 and continued in that capacity to the end of 2018. When HoldCo 2 was formed on January 1, 2016, all three defendants were appointed to the board of directors of that corporation which was the sole shareholder of GEI and GHI, and they continued in that capacity until their successors were appointed at the end of 2018. As a result of their various directorships held, in the period 2015 through 2017, when the vast majority of the Bio-Digester project costs were incurred, the three defendants were in control of the plaintiff companies.”

The number of issues which convinced Grimsby council to agree on pursuing a legal claim is lengthy. Legal counsel and forensic accounting experts were part of multiple and lengthy closed session discussions before council voted to proceed with a civil claim at a special meeting of council on July 8.

Aside from the sheer economic impact of the cost overruns of the project, a key sub-issue with the project revolved around a decision to sell off GHI’s 25 per cent stake in Niagara Regional Broadband Network.

While this was one of several stories which NewsNow broke and hydro officials were asked at many points if proceeds from the sale went into paying biodigester cost overruns, it was repeatedly denied that sale proceeds were used to prop up the project.

According to the filing, this was not the case.

“So, in 2016, the defendant Detenbeck, then the sole director of GHI, caused GHI to sell its 25% interest in Niagara Regional Broadband Network. That sale yielded a significant capital gain. When the sale process was completed GHI, which had already loaned $500,000 to GEI, was authorized by its sole director, James Detenbeck to loan an additional $6,500,000 to GEI, which continued to pay James Detenbeck for management services, and of which James Detenbeck continued to be a director. The plaintiffs have not been able to locate any documentation showing the terms of the loan of $6,500,000.”

This type of alleged conflict was not limited to this occasion according to the filing.

“As directors of NPI and GHI, they approved the transfer of these funds (GHI’s $500,000 and NPI’s $3,154,789) to GEI without obtaining any security from GEI or in the project itself and without any proper documentation of the transfers which were booked as loans, save for one promissory note for $500,000. Some of the money transferred to GEI with their approval was used by GEI, again with their approval, to make payments to themselves the full particulars of which are known to the defendants but which the Plaintiffs believe to be in the approximate sum of $1,000,000, most of which was paid to Panetta and Detenbeck. Other directors, who are not named as defendants to these claims, were not invited by the defendants to independently assess the payments made to the defendants and the value for money received by the plaintiff companies in exchange for the services provided by the defendants James Detenbeck and Joseph Panetta. Messrs. Panetta and Detenbeck were allowed, with the approval of the defendant Robert Bentley, to oversee and make payments to themselves as the project proceeded. Likewise, they were allowed to vote on and approve the transfer of money from NPI and GHI to GEI, despite their roles as the project leads on the project which would spend the money transferred.”

It has been mentioned in several NewsNow stories since last Fall’s municipal election, which proved to be a day of reckoning for many on the previous council, that meeting minutes for the hydro boards are scarce. Council has been told during updates there are some minutes going back about a year, but beyond that there is next to nothing. It would appear minutes is not the only thing current officials cannot access.

“In early 2019, as the new board of GEI took over, it became apparent that the email records of GEI prior to the date of the election, were not on the server used by GEI and had become unavailable,” states the claim.

In summarizing the claim, the filing states, “GEI, the Town of Grimsby and HoldCo 2 all suffered the full extent of the losses which total $18,000,000, the full particulars of which will be provided to the defendants prior to trial.”

“NPI is left with a $3,00,000  loan receivable and no prospect of recovery. GHI lost its only asset when it was sold at the direction of the defendant James Detenbeck, and the cash obtained from that transaction was transferred to GEI and used on the project. The $7,000,000 in net proceeds of the sale of the 25% interest in NRBN, are gone.”