Lawsuit muddles new vote on Sen. Lucas' hotel project

PORTSMOUTH

A $97.7 million lawsuit that companies created by state Sen. Louise Lucas filed against the city this week may inadvertently derail a crucial vote on her proposed hotel and conference center.

Attorneys are reviewing whether the lawsuit creates a conflict of interest for City Council members faced next month with voting on whether to give those companies access to federal and state bonds for the project.

The federal lawsuit claims the City Council in July rejected her initial request for low-cost financing because it wanted to control all conference center business in Portsmouth. It names as defendants the three council members - Bill Moody Jr., Elizabeth Psimas and Doug Smith - who formed the majority in the 3-2 vote.

Since then, Lucas has again petitioned the city, seeking access to $32 million in federal Empowerment Zone bonds and $6 million in state bonds. The matter is tentatively scheduled to come up before the council in January.

That raises the question of whether council members can vote on an issue that they're being sued over, City Attorney Tim Oksman said.

"We'll be taking a close look at the Conflict of Interests Act," he said. "And we'll be doing the same analysis for the council members presently not defendants on the case who could become defendants if they vote against the bonds."

On Thursday, Lucas' attorney said the council shouldn't have problems voting, because Lucas' new request isn't exactly the same as the July issue. Lucas has scaled back the size of the hotel.

"It should be viewed as separate," Attorney Verbena Askew said. "It's a different proposal that's being presented to council."

Lucas has created two companies - Victory Conference Center LLC and Victory Conference Center Hotel LLC - to build a $67 million project that includes a proposed conference center, hotel and office building on 7 acres in Victory Village business park.

The Portsmouth Democrat has raised roughly $700,000 from investors, most of whom are African American.

The lawsuit claims that the City Council rejected the financing because it wanted to protect its financial investment in the Portsmouth Renaissance Hotel and Waterfront Conference Center. It also argues that the council denied the money because the proposed project was led mostly by blacks.

State conflict-of-interest laws deem that a legislator has a personal interest in an official transaction when their financial gain or liability is over $10,000.

Normally, lawsuits that name legislators in their official capacity aren't taken into consideration, said Dan Siegel, chair of the local government practice for Sands Anderson Marks & Miller, a Richmond law firm.

"Being sued generally wouldn't come under that Conflict of Interests Act, but there are exceptions," he said.

Lucas' lawsuit names the council members in their official capacity, but it also is against them personally. It asks a jury to reward more than $12 million from Smith and asks for an additional $36 million in damages from Smith, Psimas and Moody.

Mark Flynn, director of legal services for the Virginia Municipal League, said that because the suit named council members individually, they could have a conflict in considering Lucas' second request.

"It's a gray area. However, there is an argument that the participation would be a conflict," Flynn said. "That's something that would need to be evaluated."

Because Oksman also is named as a defendant, Portsmouth on Friday had to hire private attorneys to represent the city, Oksman said. Bill Broaddus, the Richmond-based attorney hired by Portsmouth, declined to comment on the conflict-of-interest question because he hadn't fully reviewed the lawsuit.

Meghan Hoyer, (757) 446-2293, meghan.hoyer@pilotonline.com