More than 15 months after federal prosecutors dropped eight highly contentious charges against businessman John Stacks, the former Mountain Pure Bottling Co. magnate is suing the federal agency whose $526,000 disaster loan to him initiated the criminal case.
According to the lawsuit filed Tuesday in federal court in Little Rock, the U.S. Small Business Administration is still trying to extract loan payments from Stacks of Damascus, even though "the damages caused by [the agency] far exceed any balance claimed."
In July 2016, federal prosecutors offered to drop their case against Stacks, just weeks before he was to be retried on three charges that deadlocked a previous jury and five charges that had netted convictions but that a judge later deemed too tenuous to uphold. They asked only that Stacks waive his right to try to recoup attorneys' fees under the Hyde Act, which allows for reimbursement if defendants can prove a case was frivolous or brought in bad faith, and Stacks said he reluctantly agreed.
He said that a month later, while facing allegations of fraud and money laundering over the previous three years, he had spent about $700,000 on his defense and was forced to shutter his business, which operated in Little Rock; Magee, Miss.; and Palestine, Texas.
The criminal allegations stemmed from a Small Business Administration loan that Stacks applied for to replace company equipment that he said was damaged in a 2008 tornado that struck Damascus. In the lawsuit filed Tuesday, Stacks said agents from the Federal Emergency Management Agency advised him to seek the FEMA-backed Small Business Administration loan.
The lawsuit says that Stacks and the businesses were approved for a loan of $703,300, but that the agency only funded about $500,000 of the agreed-upon amount, which the suit says constitutes a breach of contract.
It argues that on "multiple occasions," the agency lost receipts Stacks sent to demonstrate that the items in question had been repaired or replaced, causing him to resend the receipts. The FBI then raided the Little Rock bottling plant. Meanwhile, he said, he continued to make timely payments on the loan.
In May 2016, the 8th U.S. Circuit Court of Appeals in St. Louis upheld U.S. District Judge Leon Holmes' rulings throwing out the two convictions stemming from Stacks' first jury trial in October 2014, each of which accused Stacks of making false statements that Holmes said weren't proven false. The 8th Circuit Court also upheld Holmes' ruling granting Stacks a new trial on the jury's five convictions.
"As a result of the investigation, raid and indictment, plaintiffs were financially ruined," the lawsuit alleges. "Plaintiffs lost millions of dollars in equity in the water bottling business."
It states that as a result of the damages caused by the federal agency, and Stacks' acquittal on charges related to the loan, Stacks and the businesses stopped making loan payments.
He is now seeking a judicial declaration that he no longer owes anything on the loan because of the agency's "negligent, or alternatively intentional, conduct," as well as damages for the breach of contract claim.
The agency, according to the suit, "has threatened to garnish plaintiffs' assets, including plaintiffs' tax refunds." It asks that the court issue an order "prohibiting any such collection activity."
Filed by attorney Danny Crabtree of Little Rock, the lawsuit asserts that Stacks has lost "significant equity" in his businesses "by losing the sale proceeds and profits." It asks that a jury be permitted to determine the actual amount of the loss.
The sole defendant in the case is Linda McMahon, in her capacity as the administrator of the Small Business Administration. She was sworn in to the office in February.
Metro on 11/01/2017