$2 million building cost Lino Lakes VFW its charter

Charges, questions surround vacant building.

Lyle Carpenter was a Marine during World War II, but he doesn't remember a battle quite like the one he has waged to bring justice to his now-defunct VFW post in the northern suburbs.

Five years ago the VFW in Lino Lakes had a mortgage-free building, property appraised at more than $2 million and plans to construct a new building to host wedding receptions And other events in his fast-growing community.

Today, the spanking new VFW building stands empty, foreclosed by the bank. A former post member is facing criminal charges in connection with its construction. And the 40-year-old VFW post is bankrupt and stripped of its charter.

Carpenter and other veterans blame former VFW leadership, their construction contractors and a local bank for "ripping off'' their community institution, one of 256 VFWs across Minnesota.

"How can all this happen and no one is to blame?" asked Carpenter, 83, a spirited former businessman. "The VFW had worked, day after day, year after year, to help this community. We've paid for scholarships, the Scouts, equipment for the fire department, even half a police dog. ... We need to get to the bottom of this.''

The story begins almost a decade ago, when Circle-Lex VFW Post 6583 -- a veterans' club known for its chicken dinners, Friday Lent fish fries and generous charitable giving -- decided to expand in an attempt to boost its earnings. Carpenter, post commander during the 1990s, said "everything was set'' to build a roughly $800,000 addition to the VFW for a new dance hall and other improvements.

But when Carpenter became gravely ill in 1999, the post encouraged Dean Harvey Johnson, then of Circle Pines, to take over as post commander because of his background in real estate, post members said.

The project eventually morphed into something bigger. In July 2004, Johnson and post quartermaster Bob Turner signed a loan agreement for $1.6 million with Community National Bank in Lino Lakes to build a new VFW and demolish the existing one. The VFW's monthly loan payments would be $12,400 -- starting the next month.

Absent signatures

Tom Rachel, an investigator for the Anoka County attorney's office, questioned the loan agreement. First, VFW bylaws require the commander, quartermaster and two trustees to sign legal documents, said Rachel, who looked into the project at the request of the VFW. Second, the post was about to be bulldozed, so no revenue would be coming in.

"Where was the VFW supposed to come up with $12,000-a-month payments?'' Rachel asked. "That's why it didn't look proper. The bank really had no risk because if the VFW defaulted, they'd get the building and the property it was on. Plus their other property. And that's eventually what happened.''

Officials at the bank would not comment for this story.

Southridge Construction, then based in Eden Prairie, was awarded the project contract, even though it was not bonded, and six companies offered lower bids, a county investigation showed. But the owner did know VFW member Gerald (Jerry) Russell Peterson of Roseville, reports said.

Peterson, in turn, ran a company that sold steel frames for buildings, and the new VFW became one of his clients.

During the months ahead, problems with the steel frame delivered to the site delayed construction and cranked up costs, a county investigation showed. There were more than 40 construction change orders by the time the project was finished. Meanwhile, more than a dozen subcontractors were not being paid for their work, so the post wound up with $528,000 in mechanic's liens against the VFW's property for unpaid labor or materials, according to the VFW's bankruptcy attorney.

Soon the goal of getting a new dance hall had a price tag of more than $2 million.

Missing documents

Several post members asked to see copies of the project's financial documents, but Johnson wouldn't provide them, they said. Turner says he never had them, and today claims that he didn't understand what he was signing.

"Something didn't smell right,'' said Carpenter, who reported the situation to the Department of Minnesota Veterans of Foreign Wars.

The VFW finally reopened in its spacious new building on Lake Drive in 2006, with the new dance hall, dining room and bar. But its cash-flow still couldn't meet the $12,000 loan payments. It declared bankruptcy by the end of the year, and Community National Bank foreclosed on the property in 2007. A former subcontractor purchased the property for $1.5 million in 2008. The new furniture and appliances -- even the sinks -- were stripped from the building and sold.

"It breaks my heart,'' said Carpenter, who has buried dozens of fellow post members but never expected to bury the post.

Peterson, the steel frame supplier, blames the VFW membership for its problems. He said infighting and incompetence among the VFW members is the real cause of the mess.

Peterson was charged in November with tax-related felonies in Ramsey County in connection with the project. Because of that, he did not want to comment further. Felony theft charges against him for failure to pay two subcontractors were dropped by Anoka County in October. It could not be proved that one of the subcontractors actually had a contract with Peterson, and Community National Bank resolved its civil lawsuit with the other one, according to court files.

Carpenter and a group of other veterans are not about to hoist a white flag. They point a finger at former commander Johnson, now living in Wisconsin, for "getting us in this mess.'' Johnson declined to comment for this story.

They want to know more about loan practices at Community National Bank, whose branch bank in Ramsey is the subject of a 2007 federal investigation for bank fraud in connection with the ill-fated Ramsey Town Center. Several bank officials now under federal investigation had worked at the Lino Lakes bank, according to court documents.

The veterans also want to know why Southridge Construction, which is no longer in business, overspent its original bid by so much.

"Where is everyone?'' Carpenter wonders. "They leave us with a white elephant.''

"It's absolutely a nightmare,'' added Rachel. "Was this by design? There's no way to say that for sure. You need to have proof beyond reasonable doubt. But there are a lot of unanswered questions.''

Jean Hopfensperger • 651-298-1553

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