Pennstar Bank is suing the Scranton Parking Authority and its court-appointed receiver over a loan default.
Such a lawsuit was suggested in October by the authority's solicitor as the only way that the bank would be able to collect on the loan.
That's because the SPA, after being stripped of most of its power, functions and funds, has no way to repay the loan, and the court-ordered receiver has no authority or obligation to pay SPA debts, unless ordered to do so by a court, SPA solicitor Joseph O'Brien had said during an SPA board meeting on Oct. 17.
On March 25, 2009, the authority received an $800,000 commercial loan from Pennstar Bank, under which the authority was to make monthly principal and interest payments of $12,031 from May 1, 2010, until the final payment of April 1, 2017, according to the lawsuit filed Friday in Lackawanna County Court.
Under the loan, the authority's failure to make a monthly loan payment and the appointment of a receiver each constitute a default, the lawsuit states.
On Aug. 14, Mike Washo was appointed receiver of the authority's estate and formally took control of SPA on Sept. 11, and the authority has not made any payment on the Pennstar loan since Sept. 1, according to the lawsuit. The outstanding principal is $565,322 and outstanding interest is $9,545, and it's accruing at the default rate of $169 per day.
The lawsuit claims breach of contract and seeks a court order requiring Mr. Washo as receiver to pay the loan.
Among the lawsuit's exhibits is an Oct. 18 article in The Times-Tribune that quoted Mr. O'Brien's comments about the authority's inability to pay debts that he made during the Oct. 17 SPA meeting.
At that meeting, Mr. O'Brien said the stripped-down authority has no means to pay back two loans, from Pennstar Bank and Landmark Community Bank, or to pay back-pay of employees who were furloughed by the authority under the transition to a receiver. The SPA's bondholders are the first lienholders of SPA and likely won't be paying prior SPA debts unless ordered to by a court, Mr. O'Brien had said.
"There's a real legal question of whether those are the obligations of the receiver," Mr. O'Brien said on Oct. 17. "People are going to have to go to court (to ask a judge to release SPA funds to satisfy prior obligations). A judge will have to decide."
Reached by phone Tuesday, Mr. Washo said, "I don't think it's appropriate for me to have anything to say (about the Pennstar lawsuit) at this time."
Efforts to reach Mr. O'Brien Tuesday were unsuccessful.
SPA's dismantling began with city council allowing SPA to default on a SPA bond payment that was due June 1. Council's aim is to reduce the amount of debt the city must pay back if SPA cannot fully make its bond payments. After the June 1 default, Wells Fargo, the trustee representing SPA bondholders, sought a receiver to take control of the authority. Mr. Washo, a former Lackawanna County commissioner was appointed and in September hired Central Parking, an outside management firm, to operate the garages.
Contact the writer: jlockwood@timesshamrock.com