- Walter Novak
- Maureen Nightingale has a baby due -- and dozens of medical bills past due, thanks to her former boss.
John Chiappetta enjoyed hors d'oeuvres with Rudy Giuliani and golf with Eastlake Mayor Dan DiLiberto. Congressman Steven LaTourette considered him a personal friend. He was a Cuyahoga Community College board member, on the executive committee of the Cuyahoga County Republican Party, an appointee to the party's slate in the Electoral College.
But sometimes, even the best political connections aren't enough. Six months after Chiappetta proudly cast his electoral ballot for George W. Bush, he laid off the remaining workers at E&W Services and closed the doors of its year-old headquarters. The state put his building up for sale.
Today, the Eastlake industrial park Chiappetta hoped to develop lies fallow, its promise of new jobs discarded to memory. The damage at E&W is worse. One hundred six employees not only lost their jobs; they lost their health insurance and 401(k)s as well, leaving bills for doctor visits and surgeries long past due and investigators searching for missing payroll deductions.
But this story is about more than one company's pathos, for E&W didn't just crash on Chiappetta's dime. When it went down in May, it took $8 million in low-interest loans and bonds from state agencies with it -- $2 million of which may have to be repaid by Eastlake taxpayers. And though Chiappetta's company showed clear signs of trouble long before the collapse, the state didn't hesitate to throw money E&W's way.
The saga began in 1996, when Chiappetta announced he was moving the company out of Mentor. Formed in 1964, the precision sheet-metal manufacturer had outgrown its quarters and spread to four buildings. Chiappetta wanted operations under one roof. He bought 40 acres in Eastlake and made plans for a new headquarters and an industrial park. Eastlake officials boasted that the park would mean 800 jobs.
Mentor wasn't happy. "We considered [E&W] to be an integral part of our community," says Community Development Director Ronald M. Traub. The city was even more upset to learn that Eastlake was offering Chiappetta a 10-year tax break. "We thought it was inappropriate," Traub says. After all, the deal seemed to reward E&W for abandoning its longtime home.
But Lake County, home to both cities, needed to approve the plan. Mentor argued against it. Even after Chiappetta threatened to move E&W to New Mexico or California, the tax break lacked county support. Chiappetta applied for state money instead. (He did not return repeated calls for comment.)
Ohio was more than willing to help. In 1998 and 1999, the state issued three low-interest loans totaling $8.365 million -- nearly the entire cost of the new building and the industrial park's roadway. Even then, E&W was on shaky ground, as the state's own records make clear.
Back in 1996, the Ohio Attorney General's Office filed a lien against the company, saying E&W owed $229,977 to the workers' compensation fund, according to spokeswoman Stephanie Beougher. The lien wasn't lifted until July 1998, one month after Eastlake guaranteed a $2.4 million Ohio Department of Transportation loan.
Workers say E&W was always on the brink. Chiappetta would refuse to pay one contractor and then switch to another, they contend. Companies like Area Temps and Singer Steel sued after E&W failed to honor promises of payment. Invariably, the cases were settled out of court. Though workers believed the company treaded perilously close to bankruptcy, Chiappetta seemed to have "the ability to pull a rabbit out of his hat," says employee Kelly Grimes.
In October 1999, Grimes learned that Chiappetta was three months behind on workers' health-care premiums -- though he was still deducting their share from paychecks. When she raised the issue, the boss assured employees it was a minor problem stemming from a change in insurance providers. Besides, by the time Grimes started asking questions, Chiappetta had already secured another loan to cover the debt, she says.
In August of the same year, the attorney general again sued Chiappetta over late workers' comp payments. This time, he owed $311,999.48. But other state agencies didn't seem to know or care. Two days after the second lien was filed, ODOT approved a $615,000 loan to E&W. A week later, the Ohio Department of Development issued $5.325 million in construction bonds. Chiappetta still hasn't paid the workers' comp lien, Beougher says.
The cash infusion, however, couldn't stanch E&W's bleeding. By the time Chiappetta cast his electoral ballot in December 2000, he had again fallen behind on employees' health premiums, says James Massie, Cleveland CEO of United Healthcare. When Massie tried to contact the company, he got no response.
In the spring, Chiappetta began laying off workers. As the final staffers were dismissed in May, United canceled the company's coverage -- retroactive to December 2000.
Workers were devastated. Some had labored three weeks without pay. Almost all were left with mounting health bills, though Chiappetta deducted payments from their checks for the six months in question. Even child-support deductions failed to make their destination. And though the bank froze workers' 401(k) accounts, the few who managed to check their balances believe they were short 14 weeks of contributions.
Maureen Nightingale and her husband both lost their jobs. Pregnant, Nightingale was forced to apply for Medicaid to cover future bills, and those from earlier this year -- like her son's $4,000 surgery and medication for autism -- continue to mount.
"There's a few I've tried to pay, but the bigger ones I can't," she says. "There's nothing I can do if it affects our credit. I just hope any prospective creditors would understand."
Workers called Congressman LaTourette, Governor Bob Taft, and the White House. All promised to call the U.S. Department of Labor. Labor spokeswoman Sharon Morrissey refused to comment on an investigation, but workers say the department has contacted them. If Chiappetta used payroll deductions to cover other bills, he could face hefty fines or criminal charges, Morrissey says.
LaTourette says he's doing everything possible to help workers, yet he stands by his friend. E&W counted on a contract with Honeywell for the lion's share of its business, he says. When Honeywell pulled out, Chiappetta was left with major liabilities, and creditors stepped in.
"It was just a sad thing," LaTourette says. "He's taking money out of his own 401(k) plan and giving it to the trustees to distribute to employees. He's doing what he can." Chiappetta assured LaTourette he didn't steal from his workers, the congressman says.
Chiappetta's former employees are less magnanimous. They acknowledge the Honeywell failure, but it doesn't explain E&W's problems long before that. And he certainly should not have diverted their benefits, they say. "I don't care if he has to sell his Mercedes or the dentures out of his mouth," Nightingale says. "What he did to us was wrong."
Adds Grimes: "I don't understand how one man can steal money from 100 people like that and he's still walking the streets . . . We're not just battling a company; we're battling the entire Republican Party."
Indeed, Chiappetta has been a benevolent figure in GOP circles. In the last decade, Chiappetta and wife Patricia contributed more than $62,000 to the Republican Party and its members. Governor Taft received $14,750; Attorney General Betty Montgomery and Auditor Jim Petro collected a combined $15,000. LaTourette got $9,500.
Even Democrats shared in the largesse. Every year, Chiappetta or his son-in-law, E&W Director of Operations Juan Antunez, dropped $1,000 at Mayor DiLiberto's golf fund-raiser -- a healthy sum for an event that typically nets about $10,000.
State officials insist there is no connection between the donations and the loan packages. "Your friends can get you in the door, but you still have to meet requirements," says Marlo Tannous, chief legal counsel for the Ohio Department of Development.
They also claim no fear of default. ODOT Communications Director Brian Cunningham says his department's money is covered, since Eastlake and Chiappetta guaranteed its two loans. The Department of Development, which had no such guarantees, is trying to sell the building it helped construct.
As for Eastlake, it counted on E&W's expansion to replace tax revenue lost in electric deregulation. Instead, the city is now liable for $2 million -- a hefty chunk, considering its annual budget is only $14 million.
Neither DiLiberto nor the city's Finance Department returned calls for comment. But city council members say the mayor enthusiastically supported the deal. "We literally didn't even have any information, and he wanted us to vote on it," says Ted Daly, a former councilman.
Daly and another councilman delayed the vote, but they went along in the end. Now Daly considers it a mistake. He remembers an E&W employee quietly urging caution, calling the company's finances precarious. Unfortunately for Eastlake, the clamor of friends in high places may have drowned out the warning.