INDIAN LAND, S.C. — Mick Mulvaney was a young businessman and budding politician 11 years ago when he became co-owner of a company that wanted to build a strip mall near a busy intersection in this upscale bedroom community outside Charlotte.
All that was needed was money.
The company cobbled together the financing — which included borrowing $1.4 million from a family firm owned by a prominent local businessman named Charles Fonville Sr., according to court records and interviews.
Eventually, the project fell apart. The mall never got built. And Mulvaney moved on, building a political career as a firebrand fiscal hawk and tea party pioneer in Congress who railed against out-of-control government deficits — eventually rising a few weeks ago to be President Trump’s acting chief of staff.
Fonville, however, said his company has not received the $2.5 million with interest that he said it is owed. In explaining the debt to a Senate committee during his 2017 confirmation hearing, Mulvaney cast it as a casualty of a bad real estate deal, saying the sum “will go unpaid.”
Today, their dispute is at the center of a legal battle playing out behind the scenes in South Carolina as Mulvaney guides Trump through a high-stakes budget showdown with congressional Democrats.
The fight threatens to tarnish Mulvaney’s image as fiscally responsible, just as he has reached the most influential position of his career.
Fonville’s company has filed a claim in a South Carolina court against two companies in which Mulvaney has an ownership stake, accusing them of “intent to deceive,” “fraudulent acts” and “breach of contract” to avoid repayment. The heart of Fonville’s allegation: When a new Mulvaney-linked company was formed and sought to foreclose on the first company Mulvaney co-owned, it was a maneuver to avoid paying the debt owed to Fonville.
In court filings, the Mulvaney-connected companies denied the allegations and asked that Fonville & Co.’s claim be dismissed. But a judge said the case should go forward. No trial date has been set.
Mulvaney was not sued individually, but late last year — while he was running the Office of Management and Budget and carrying out his duties as acting director of the Consumer Financial Protection Bureau — he traveled to Charlotte to be deposed in the case, his attorney said.
“I can’t believe he treated me the way he did,” Fonville said during interviews about the case, including one last month as he visited the property that kicked off the dispute. “It is not a small piece of money. You are talking about a couple of million dollars.”
“I have tried to call him,” said Fonville, 83, who said he is a Republican who voted for Trump. “He never called me back. I had thought Mick was an ethical person.”
Mulvaney declined to comment. The White House referred questions to Mulvaney’s lawyer, John R. Buric, who said Mulvaney has done nothing wrong.
According to Buric, Fonville & Co. might not be repaid because it is a secondary lender in a project that is worth less than anticipated. In such cases, if the property goes into foreclosure, the primary lender has first right of repayment.
While Fonville & Co. had a lien on the property to secure its secondary mortgage, that “lien is wiped out” in a foreclosure, Buric said.
In that case, Fonville would receive little or nothing, although Buric held out the possibility that Fonville could receive some or all of the $2.5 million if the property eventually is sold for a high enough price.
Fonville’s court claim, however, presents a far more complicated picture, laying out a series of transactions by the Mulvaney-linked companies that he alleges were designed to avoid repayment.
Fonville said he first met Mulvaney in 2005, when Mulvaney was in the real estate business and Fonville ran a regional auto parts distribution center for Ford Motor Co.
Fonville said Mulvaney visited his office once or twice and discussed a real estate proposal. Fonville, who used some of the profits from his business to invest in real estate, said he invested in the project and made a profit.
Shortly after, Fonville said, he learned that Mulvaney held a 25 percent interest in a new company, established to buy 17 acres of land along a business highway in Indian Land, S.C., for a shopping center development. Mulvaney had just won election to the South Carolina House of Representatives. While there were a number of partners in the deal, Fonville said in an interview, a major reason he invested was Mulvaney’s participation.
Mulvaney told the Senate Budget Committee during his 2017 confirmation hearing to be OMB director that while he did not manage the new company, he helped pick out the property.
To buy the land, the Mulvaney-connected company, called Lancaster Collins Road LLC, borrowed $3.7 million from Paragon Bank, a financial institution based in North Carolina, as well as $1.4 million from Fonville & Co., according to a foreclosure suit filed in South Carolina court. Fonville & Co. became what is known as the “mezzanine” lender, meaning it held a secondary mortgage, while Paragon held the primary note.
Two people who were identified by Fonville as other owners of Lancaster Collins did not respond to requests for comment. Paragon declined to comment.
Over the next decade, efforts to build a shopping center on the land never materialized. Fonville said in an interview that Lancaster Collins paid him only $200,000 in interest during that time to release two acres that were developed for a Quik Trip gas station. Fonville said he was content to let interest payments accrue because he always believed he would be repaid.
Lancaster Collins had been making regular payments to Paragon, according to the foreclosure suit. But by October 2016, as Mulvaney was running for his fourth congressional term, Lancaster Collins still owed the bank $2.1 million — and faced the prospect of missing a payment and being subject to foreclosure, according to the suit.
The possibility that Mulvaney would be involved in a foreclosure — an act that might muddy his public image — alarmed him. As he later told Congress: “I did not want a company in which I was an owner to default on a bank loan.”
Thus began the complicated series of maneuvers through which the Mulvaney-connected company avoided foreclosure — and left Fonville frozen out of repayment, he now claims.
Mulvaney and two relatives became part of a new company called Indian Land Ventures, according to Buric. Mulvaney then borrowed between $1 million and $5 million to fund this company, personally guaranteeing a loan from Southern First Bank, according to his federal financial disclosure form. The new company, in which Mulvaney was a manager, used the funds that he borrowed, along with other assets, to buy the mortgage held by Paragon Bank.
As a result, the threat that Mulvaney said he feared — that a company he co-owned would be in default to a bank — was avoided.
But the plan didn’t end there.
Mulvaney’s new company, Indian Land Ventures, was now in effect the lender to the company he co-owned, Lancaster Collins.
Within days, Indian Land accused Lancaster Collins in a November 2016 court filing of failing to meet its debt obligations. “Demand has been made upon Lancaster to pay the outstanding balance but Lancaster has refused, and said refusal is continuing, all to Plaintiff’s injury,” said the filing. Indian Land filed a notice with a South Carolina court that it would commence foreclosure against Lancaster.
In other words, one Mulvaney-connected company sued another, alleging “refusal” to pay on time. As Mulvaney explained to Congress: “A company in which I am a minority owner filed a foreclosure action against another company in which I am a minority.”
The foreclosure had another effect, as Mulvaney also acknowledged in his written statement to the Senate Budget Committee: “As a result of that foreclosure, the mezzanine financing provided by the Fonville & Co. will go unpaid.”
The reason the debt to Fonville would go unpaid, Mulvaney’s lawyer Buric said, is that the value of the property had decreased as a result of the financial crisis that began in late 2007. While there was enough value in the deal to pay off the primary lender, there was nothing left to pay Fonville, the secondary lender.
Fonville said in the interview that he had agreed to take a secondary position because the company was supposed to be paid a higher-than-usual 10 percent interest rate and get a share of profits in the deal.
Fonville said that after learning Indian Land’s effort to foreclose could mean that Fonville & Co. would receive nothing, he called Mulvaney’s office in late 2016 — while Mulvaney was still a member of the U.S. House representing a South Carolina district — but never received a return call.
Fonville said he felt blindsided by the foreclosure action — and said he believes that the Mulvaney-connected companies were trying to avoid paying him the $2.5 million he was owed.
“I’m disappointed in Mick for not contacting me,” Fonville said. “That would have been the ethical thing to do. I’ve been a successful businessman, and I did so by dealing with people I thought were honest. And I trusted people. And it never occurred to me that I would have to have any question about trusting Mick Mulvaney.”
On Feb. 13, 2017, three days before Mulvaney was confirmed as OMB director, Fonville & Co.’s attorney filed the counterclaim seeking to halt the foreclosure and get repayment for the loan.
In its claim, Fonville & Co. alleged that an unidentified person who was connected to both companies — referred to only as “Member A” — engaged in a plan “with intent to deceive and constitute fraudulent acts and inequitable misconduct” in an effort to avoid paying the debt owed to Fonville.
Member A allegedly assured Fonville & Co. that it would eventually be repaid — even while designing a plan to avoid repayment, according to the suit. “By failing to disclose the scheme to purchase and foreclose on the Mortgage through Indian Land, Member A breached the fiduciary duties he owed to Fonville,” the counterclaim said.
An attorney for Fonville & Co. declined to comment.
Indian Land sought to go through with the foreclosure and dismiss the counterclaim from Fonville & Co., saying Fonville & Co. had willingly subordinated its secondary loan to the primary mortgage.
But South Carolina Circuit Court Judge John C. Hayes III denied the motion to dismiss the matter, ruling in June 2018 that Fonville & Co. had raised “novel legal questions” that should be addressed.
In explaining the matter to Congress, Mulvaney initially told the Senate Budget Committee in January 2017 that the loan from Fonville & Co. was “unsecured.” That could have left the impression with the committee, and the public, that Fonville had no recourse to seek payment because the loan was not secured by the property or other means.
In fact, public records show that Fonville had put a lien on the property that secured the mortgage.
Mulvaney subsequently sent a document to the committee acknowledging that he had “incorrectly described” the matter, saying that the property was, in fact, “secured by a second mortgage,” according to a copy obtained by The Washington Post. Mulvaney’s lawyer said Mulvaney meant to say the loan was not personally guaranteed by other assets.
In addition, Mulvaney had initially told the committee that the foreclosure was “uncontested” at that moment.
However, Fonville called that a disingenuous statement because he said he did not know about the foreclosure effort — and took action once he did. A month after Mulvaney’s statement to the Senate committee, Fonville’s company contested the foreclosure in South Carolina court.
Mulvaney’s congressional confirmation transcript does not show any evidence that he amended the record to reflect that the foreclosure had later been contested.
Virginia Canter, chief ethics counsel of Citizens for Responsibility and Ethics in Washington, a watchdog group that has sent letters to Congress and a federal oversight agency calling for an investigation into the deal, said it raises questions about Mulvaney’s financial skills, judgment and ethics.
“You have the guy running the OMB who presents himself as being very fiscally mindful,” said Canter, who served as an associate White House counsel in the Clinton and Obama administrations. “He is walking away from a significant amount of debt through a very unusual transaction, and he misrepresented this as an uncontested foreclosure.”
Sen. Jeff Merkley (D-Ore.), who posed a written query to Mulvaney about the loan during the confirmation hearing, said in an interview that “based on Mulvaney’s response in writing he delivered to me, I’m very concerned he didn’t give the complete story, that he implied that the transaction had been completely resolved, and it was not.”
Merkley said the matter “merits a lot closer examination.”
Fonville’s effort to be repaid is now winding its way through the South Carolina court system. The court in effect froze the foreclosure effort on June 17, 2018, saying Fonville & Co.’s allegations should be given a hearing.
The court ruled in August that Mulvaney could be deposed and questioned “regarding any statements that he has made to the United States Congress concerning the real estate transaction that are the subject of this lawsuit.” That deposition took place recently in North Carolina, Buric said.
Buric said a previous effort to resolve the matter failed. He said a manager of Lancaster Collins last year “approached Mr. Fonville and asked him to negotiate his debt so that both Fonville and Paragon could be paid, or that he purchase the Paragon debt.” He said Fonville refused.
Fonville denied there was a discussion to negotiate the debt. “Nobody ever came to me and tried to negotiate anything about the note,” he said. Buric stood by his assertion.
Fonville, meanwhile, said he is not deterred by the fact that Mulvaney now has such a powerful position in the White House.
He said he has spent $30,000 in legal fees and is willing to spend more. Standing by the edge of the disputed property, a peaceful stretch of greenery next to the Quik Trip gas station and surrounded by shopping centers, Fonville vowed: “I’m going to stay after it.”
Alice Crites contributed to this report.