News

NC attorney general looking into Opportunity House

By Bill Moss, Published: June 15, 2019

In addition to efforts by the area’s largest charity to find out what’s happening with the Opportunity House, the state attorney general is also looking into the agency that once provided a robust buffet of services for seniors and is now struggling financially.

The attorney general’s office confirmed the inquiry, which has been under way since March, as did the attorney for the Opportunity House, Jake A. Snider. After a public records request from the Hendersonville Lightning, the Department of Justice provided the letter it had sent to the Opportunity House and the nonprofit organization’s response.
The state’s review of the Opp House is not unusual and is within the attorney general’s power. On a much smaller scale, parts of the inquiry are similar to the review Attorney General Josh Stein made before the sale of Mission Health, the sprawling Asheville-based non-profit health care provider, to HCA, a for-profit hospital chain.
The Henderson County Community Foundation had been trying since February 2018 to ascertain whether the Opportunity House was still operating as a nonprofit. Founded in 1958, the Opp House provided arts, recreation and education and other programming for decades; as recently as 10 years ago it had $258,405 in revenue from grants and membership dues, according to its IRS form 990. Over the past three years or longer, it has offered few services and has attempted to stay afloat by renting space and trying to sell the property.
In December, the foundation filed a lawsuit in Superior Court asking a judge to rule on whether the Opportunity House is lawfully acting as a tax-exempt charity and to authorize a protective trust in the event the Opp House sells its property, which is thought to be worth between $1.5 million and $2 million.
Foundation President McCray Benson says that the foundation’s intent was, first, to ensure that any organization it distributes money to is fulfilling its mission and acting lawfully as a nonprofit and, second, to protect the foundation’s interest as the potential receiver of the assets if the organization dissolved, as the Opp House charter called for.
In other developments in the Opportunity House case:
• Superior Court Judge Peter Knight on June 7 denied Snider’s motion to dismiss the Community Foundation’s lawsuit. After the ruling, Snider agreed that his client would answer questions the Community Foundation has posed.
• Knight denied Snider’s motion to lift a lis pendens — a notice of pending litigation — on the deed of the agency’s real property. Snider said the notice has effectively blocked efforts to sell the property.
• Ken Rhoads, president of the Opportunity House since June 2016, submitted a 28-paragraph affidavit to the court reporting that the organization — after reducing the size of its board to as few as three members — had severed ties with the Community Foundation and removed the reference in its charter that gave the foundation the Opp House assets if the nonprofit dissolved.
• Rhoads also implied that the Opportunity House needs to borrow money “to defend itself in court against the Community Foundation’s aggressive lawsuit” and that the lis pendens blocks that from happening. The notice of pending litigation, he said, “has chilled all discussions surrounding the sale of the building.”

Jennifer T. Harrod, special deputy attorney general, notified the Opportunity House on March 19 that the Community Foundation had sent the Justice Department a copy of its lawsuit and “asked us to treat it as a complaint” about the Opportunity House. Harrod asked questions about the nonprofit’s use of charitable funds, the possible use of assets to benefit private individuals and its failure “to follow corporate formalities” in adding board members or officers.
In a five-page response on April 23, Opportunity House attorney Zachary Kester said that the nonprofit continues to operate according to its charter and bylaws, that it leases space to other entities as allowed by law and that it “had steadily started to turn around” before the foundation’s lawsuit. “There is no state or federal law or regulation starting that a nonprofit corporation or public charity ceases to operate and function as such simply because it is struggling financially,” said Kester, who has since withdrawn as the Opp House attorney. Kester also disputed former board member Jerry Liedl’s recollection of the board meeting at which Rhoads was elected president, which the Hendersonville Lightning reported on Feb. 27. Liedl must have been mistaken, Kester said, because he was not present at that meeting, which Kester said occurred on June 2, 2016. Rhoads was elected president “using the appropriate corporate formalities,” Kester added.

Rhoads hired to ‘turn things around’

In court on Friday, Snider described Rhoads’s actions leading the Opportunity House over the past three years.
The organization was “struggling financially and going in a downward direction in 2016 when Ken Rhoads was invited to come in and consult and see what changes needed to be made,” Snider said.
Rhoads’s plan was to sign up tenants and eventually sell the property “so the Opportunity House could use the assets in a more effective manner,” Snider said. “Up until 2018 it looked like this plan was working … and the organization has been saved as a result.”
The Community Foundation’s complaint, he said, raises questions but makes no allegations of wrongdoing.
“They’re non-specific,” he said of the claims. “Many of them don’t rise to the level of wrongful conduct or misconduct.”
“If you look at the law as to what a nonprofit is permitted to do, they have the power to sell, convey, or otherwise dispose of any of their property,” he said. “There are nonprofits all over the state that lease out space (to businesses) to make ends meet.”
The law spells out a remedy for complaints about a nonprofit, he said.
“Take it up with the attorney general or report it to the IRS if they think it’s such a problem,” he said. “Having a question doesn’t make a lawsuit. Allegations do. … They want the court to determine if the Opportunity House is still a nonprofit corporation. They don’t have the standing to come in here and ask for that.”

‘Clear reason for us to be here’

Stephen J. Grabenstein, the Community Foundation’s attorney, said the law clearly supports a lawsuit like the foundation’s to resolve uncertainties.
“There’s a very clear reason for us to be here, contrary to counsel’s argument,” he said. “In fact the state specifically references one of the purposes of a declaratory judgment is to eliminate such uncertainties.”
The Community Foundation’s right to seek relief in court, he said, is proved by the fact that it makes a distribution to the Opportunity House and by the fact that the foundation is “bound by law to examine all organizations that receive distributions.”
Before it disburses money, the foundation routinely seeks information on an agency’s charitable status, program services and financial stability. “Not only is that a legal requirement,” he said. “That’s just common sense. They’ve got an obligation to ensure that the recipients of the distributions are in fact viable ongoing organizations. We have an obligation to ensure that the Opportunity House like any other nonprofit that receives a distribution from the Community Foundation is in fact continuing to carry on as a nonprofit organization.”
Snider had argued that the foundation’s standing would start only if and when the Opportunity House shut down.
“True they’ve not been dissolved,” Grabenstein said. “But the fundamental assumption counsel is making is that ‘we’re operating as a good and viable nonprofit.’ That’s very much a question in this case. … It’s worth noting that we’re only here because the Opportunity House refused to answer what continues to strike my client and myself as some pretty basic, simple questions.”
“Is there a controversy between the two parties? I respectfully submit that there is,” he said. The Community Foundation questions whether the Opportunity House is operating as a tax-exempt charity, whether it has a “lawfully constituted board” and whether proceeds from a sale of the property would be used to serve its stated mission. The position of the Opportunity House, Grabenstein said, is: “‘Everybody move along. There’s nothing to see here. … It’s none of your business.’ That is the essence of a controversy,” he said.
Judge Knight agreed, denying Snider’s motion to dismiss the lawsuit. With the lawsuit surviving, Snider agreed that his client would respond to the foundation’s pretrial discovery request — which includes 22 questions and 10 requests for documents such as minutes, a list of board members, staff salaries and an accounting of revenue and expenses. Knight agreed to Snider’s request to seal the discovery material.
“The North Carolina Statutes motion to dismiss standard is favorable to plaintiffs in our state,” Snider said outside the courtroom. “Although I’m disappointed by it, I’m not surprised. We intend to comply with whatever the court rules in its order. The argument on the lis pendens was contingent upon our winning the motion to dismiss the claims for resulting and constructive trust.” After Knight denied the motion to dismiss, Snider asked the judge to also dismiss his motion to drop the lis pendens notice.
His client has submitted answers the Justice Department’s questions, including “minutes, who are the board members, things like that.”
In his affidavit, Rhoads said while the Community Foundation “has no business acting as the local nonprofit self-appointed ‘watchdog’ … we are happy to continue complying with the Attorney General’s inquiry in all respects.”
Grabenstein, the foundation attorney, said he looked forward to the Opportunity House’s cooperation in pretrial discovery.
“Obviously (we’re) pleased with the court’s decision today and we hope now that the court made these decisions that Opportunity House would get more forthcoming in exchanging information with us,” he said. The foundation notified the attorney general back in January that it had sued the Opportunity House.
“I’m aware that they made a request for information and I believe some information has been sent to the attorney general,” he said. He added that he assumes the probe remains active until he hears otherwise from Jennifer Harrod, the deputy A.G.
“I’ve not been called by the attorney general and told to stand down,” he said. Why would that happen? “Well, suppose they answered all the questions they were raising. I suppose she would pick up the phone and say, ‘All your questions have been answered.’ I’ve not received that phone call.”