Fore-close! Elk River seeks mulligan on golf course deal

  • Article by: PAUL LEVY , Star Tribune
  • Updated: May 17, 2014 - 5:21 AM

The former Vikings star Paul Krause was thrown for a loss when Elk River failed to make the final payment on course he had sold to the city.

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Former Vikings great Paul Krause did some maintenance work on the Pinewood Golf Course in Elk River in 1998.

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Years after he thought he had sold a golf course to the city of Elk River, former Vikings great Paul Krause finds himself trapped between the course’s nine holes and a legal loophole.

The city agreed to buy Pinewood Golf Course from Krause and his wife, Pamela, for $1.8 million in 2006. But when Elk River missed a final payment of $1.5 million a year ago, the city told Krause that state law prohibits it from maintaining a contract for deed for more than five years — and, thus, the course has to be returned to the Krauses. The city affirmed that the Krauses were legally entitled to keep about $900,000 in previous payments that included interest. An attorney representing Elk River likens the situation to a foreclosure.

Now Krause awaits a court decision to see whether he will be awarded damages. At 72, he says he’s too old to manage Pinewood. Nor does he want to have to resell a golf course that, he says, lost value when the city voted two months ago to close what had become a money-losing proposition.

“All I want them to do is live up to the contract,” said Krause, a Pro Football Hall of Famer who is still the NFL’s all-time interception leader. “A million-five is a lot of money. I can’t just let that go.”

Nor can a group of nearly four dozen seniors, who say they love the mostly flat course and have asked to formally make their case before the City Council.

“The city has a legal obligation to Paul Krause, but it has the ethical obligation of keeping its word to its citizens,” said Pete Kimball, 69, of Elk River.

“As taxpayers, we didn’t want to see the city lose money,” said Kimball, a golf instructor who calls the course’s senior supporters the Pinewood Orphans. “But, sorry. A deal’s a deal. The city made a deal and should live up to it.”

Sherburne County Judge Sheridan Hawley ruled in December that the city committed a breach of the representation and warranties clause in the purchase agreement with the Krauses. She will decide within the next couple of months whether the Krauses should be awarded damages. In her legal conclusion, the judge said the Krauses could receive a maximum of $1,494,600 (for the final payment they never received) minus the current fair market value of the property. If Hawley finds that damages are warranted, a hearing on that issue would take place in September.

Tale of the deal

After managing the course himself for 20 years, Krause obtained approval to develop the property. But the city wanted to preserve the course and prevent housing development, according to court documents. Negotiations between the city and Krause began in October of 2005.

Two months later, a memo from then-interim City Administrator Lori Johnson to the City Council hinted at financial challenges to come.

“The purchase of Pinewood will significantly reduce the funds available to the council for other city projects,” Johnson wrote.

But in April 2006, Elk River agreed to buy Pinewood. The city would lease the course for two years. At the end of the period, the parties would enter into a five-year contract for deed, with the purchase price at $1.8 million.

Some $390,000 was paid to Krause in earnest money; the $1.5 million balance would be paid by contract for deed. Krause also received the two years of lease payments totaling $180,000 and four annual interest payments coming to $338,000.

Before April 6 of last year, all the payments were made on time — even though Elk River lost an average of $82,000 operating the course in each of the last three years, said City Administrator Cal Portner.

When the economy went into a downward spiral, municipal courses across the state suffered. Inver Grove Heights lost $576,000 on its municipal course in 2011 and Buffalo lost $560,000 the same year, according to the state auditor’s office.

But unlike other cities that have owned courses for decades, Elk River was a relatively new player, with a legal out: the contract for deed statute.

“It’s very much like a foreclosure,” said attorney Tom Scott, who was assigned by the League of Minnesota Cities to handle Elk River’s case. “When the city elected not to make the payment, Mr. Krause’s remedy is to keep the money we paid him, plus the golf course.”

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