Litigious Inver Grove Heights strip club owner faces IRS

Larry Kladek owns an Inver Grove Heights home valued at nearly $6 million. Yet he once sued a former employee over $44.31. He sued a one-time housemate for, among other things, not returning some pillows and a coat rack. Once, he cursed out a sheriff's deputy trying to seize a woman's car and threw the keys onto the roof of his strip club.

Now, the embattled and often combative owner of the King of Diamonds is in court again, charged in federal court with evading income taxes through an ATM machine allegedly rigged to pump about $2 million into a secret bank account over several years. IRS investigators say Kladek used the money to buy investments and help build his expensive home.

It should come as no surprise to people who know him that Kladek is fighting this, too. Kladek, 65, has developed a reputation over his 40-plus years owning the strip club as someone almost eager for confrontation, no matter how big the battle -- or how small.

Kladek hasn't responded to several requests for interviews since he was indicted Sept. 23 on charges of tax evasion and filing false tax returns.

He has pleaded not guilty to the charges, which stem from 2000 through 2003. A "change of plea" hearing was scheduled for Kladek in federal court in St. Paul on Friday -- raising the possibility that he would plead guilty in the case. But Kladek cancelled the hearing.

But, on Monday, the reason became clear. The government has a better chance of getting its money if Kladek's club stays in business.

The Inver Grove Heights City Council is scheduled to review the King of Diamonds liquor license -- as well as the licenses of all city liquor-serving establishments -- at a Dec. 8 meeting. According to papers filed in federal court, the city "has indicated that it will not renew the liquor license for an additional one-year period if defendant Kladek pleads guilty prior to Dec. 8."

So the U.S. Attorney's office and Kladek's attorney agreed to push off Kladek's plea hearing until Dec. 11 -- after the city council decides the fate of his liquor license.

"The United States believes that requiring Mr. Kladek to plead guilty prior to Dec. 8, 2008, would unnecessarily damage defendant Kladek's capacity to continue to earn a living and, derivatively, to pay to the United States back taxes which are due and owing," read a joint motion filed by attorneys in the case.

U.S. District Judge Patrick Schiltz agreed to the delay Monday.

A combative history

Owner of the King of Diamonds since 1965 -- perhaps the oldest strip club in the Twin Cities -- Kladek appears to have won few friends in the business community.

Tom Stanton, an Inver Grove Heights business owner who has known Kladek for years, recalled a time when friends of his were trying to close on a property sale with Kladek. But the closing bogged down. Kladek, he said, held it up for nearly a half-hour -- over a $2 difference in price. "Frankly, a woman had a $2 bill and she put it in just so they could move ahead," Stanton said.

"I could talk for an hour and a half about him, and not much of it would be good," he said. "So I really don't want to. There is no upside to me."

Stanton was one of the few willing to say anything, publicly, about Kladek. Several former employees declined to comment. So did Inver Grove Heights city officials.

The King of Diamonds is not considered a nuisance by local police. "Our calls there are no different than any other liquor establishment that we have in town," said Lt. Jerry Salmey of the Inver Grove Heights Police Department. There were 124 police calls to the club in 2007; in 2008, there have been 115, Salmey said.

On a recent Wednesday, more than a dozen customers entered the club within minutes of its 3:30 p.m. opening. The only illumination inside the club as dancers worked for tips on two stages came from a couple of big screen TVs and about 60 neon beer and beverage signs on the walls.

It was $1 beer time, and several men had trays with a half-dozen small cups of beer in front of them.

Kladek can be kind of gruff, said Felix Guadalajara, who worked as a bouncer at the King of Diamonds in the late 1990s.

"He's kind of a hard guy," Guadalajara said.

The former bouncer said he was fired after he testified against Kladek in a lawsuit brought by another employee.

"A week later, I went in there to meet up with some friends for $1 beers. They wouldn't let me in the door," he said.

Kladek has had numerous run-ins with former employees and associates, and most would rather avoid conflict with Kladek now, Guadalajara said.

"I'm not afraid to talk," Guadalajara said. "But some are."

A former King of Diamonds dancer, Mari Wedeking, sued Kladek in 2000 for discrimination against black dancers. The case was later dismissed, after she and Kladek reportedly reached a settlement.

Tamara Boone, a former manager at the club who testified against Kladek in the Wedeking lawsuit, was sued at about the same time for $44.31 -- interest Kladek said she still owed him after she repaid a $7,900 loan.

The court ruled in favor of Kladek, and Boone repaid all but $4.55 of the interest. But Kladek continued to press his case, prompting Leslie Metzen, chief judge of Dakota County District Court, to write a May 2000 letter:

"I am unwilling to change the decision I reached in your case. The Minnesota courts handle several hundred thousand cases annually, many of them involving complex issues, the welfare of children, victims of crime, and other matters of great import," the judge wrote. "Your unwillingness to dismiss an action in small claims court after all but $4.55 was paid was the most frivolous claim I have encountered in fourteen years as a judge."

Kladek sued Margaret Rydeen in January 2001. He and Rydeen had once lived together, and Kladek wanted her to repay him more than $6,200 for bills that he had paid on her behalf. He also wanted his stuff back. Among the items -- valued at nearly $4,000 -- were two "feather fresh" pillows, two "body molding" type pillows, a queen-size electric blanket, a coat rack by the basement stairs and a blender on the basement bar.

Wedeking, when reached at her St. Paul home, said she could not talk about Kladek or her case. Boone and Rydeen could not be reached for comment.

Resisted cops, too

Kladek wound up in jail after a confrontation with Dakota County authorities.

On Aug. 13, 2002, Sgt. John Grant of the Dakota County Drug Task Force went to the King of Diamonds' parking lot to seize a car that had been forfeited. While Grant waited for other officers to arrive, the car's owner, an employee of Kladek's, came out and got into the car.

Grant was telling the owner that he was taking her car when, according to police reports, Kladek approached and told the officer to "[expletive] off."

Kladek then took the car key from his employee and walked toward the club. Police reports say that Kladek threatened to throw the keys on the King of Diamonds roof. "Just seconds later, the defendant did throw the keys on the roof of the nightclub."

Police took Kladek and his employee to jail. Kladek later was found guilty of disorderly conduct.

A fight to come

Kladek faces four counts of income tax evasion, three counts of filing false individual income tax returns and two counts of filing false corporate tax returns. He faces up to five years in prison on each of the tax evasion counts and three years on each of the false tax return counts. According to the joint motion filed by attorneys in the case, Kladek has agreed to plead guilty to filing a false tax return in 2000, in exchange for a dismissal of the multiple count indictment against him.

But the biggest hit to Kladek could be the potential loss of his liquor license.

According to an affidavit filed by IRS investigator Steven Kunstman, Kladek had an adjusted gross income of $564,000 in 2003 and has spent $13 million building a massive home on 77 acres of land with a private lake. Much of the club's money comes from liquor sales.

The King of Diamonds advertises itself as the Twin Cities' only club that features totally nude dancers and a full bar. The loss of its liquor license could conceivably have an effect on the $50,000 to $180,000 Kladek is able to deposit into his business bank account each month.

City officials would not comment on the case so it is unclear is whether the Inver Grove Heights City Council will pull his liquor license on Dec. 8 anyway.

Bill Ashton, owner of Jersey's Bar and Grill across Concord from the King of Diamonds, refused to speculate on Kladek's fate and declined to talk about his relationship with him. But Ashton did offer a rare bit of vocal concern for his neighbor.

Said Ashton: "All I can say is, I hope things work out well for him."

James Walsh • 612-673-7428