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Town sues developers, alleging $2.8m fraud

There was a time when the town celebrated Boxborough Meadows, its first development built under the state's affordable housing law. It was hailed as a model of cooperation between a town and developers.

But last week, the Town of Boxborough filed a nine-count lawsuit against the project's developers, alleging an elaborate scheme to defraud the town of $2.8 million in profits on the work, money the town wants back.

The town's lawsuit charges developers Michael J. Jeanson and James D. Fenton, their wives, and their business associates with fraud, civil conspiracy, and unfair and deceptive trade practices. The lawsuit alleges that Fenton and Jeanson hired their own companies and companies in which their wives had interest and then overpaid the companies for work on the project.

And, even though the developers signed an agreement with the town that they'd reap a 20 percent profit on the job, they took home a 45 percent profit, according to the lawsuit.

The lawsuit also charges that Jeanson has failed to honor a covenant that requires him to deed 10 to 14 acres of land off Massachusetts Avenue to the town for development as a town common.

Right now, neither side is saying much. The town's Housing Board issued a brief written statement saying that it wants the profits owed to the town. Jeanson could not be reached for comment. Fenton referred questions about the dispute to the developers' attorney, Louis Levine of Acton. Levine did not return phone calls from the Boston Globe.

Lawsuits to recover alleged excess profits from affordable housing projects have been rare, said Aaron Gornstein, the executive director of the nonprofit Citizens Housing and Planning Association, which monitors such projects. But Gorenstein said towns are scrutinizing these developments more closely.

"Profit limitations have become part of the [local] hearing process, much more than they have been in the past," he said.

The Boxborough lawsuit was filed Friday in Middlesex Superior Court just a few weeks after Fenton and Jeanson filed their own lawsuit, charging the town violated the public records law when it refused to release an auditor's report on the profits made at Boxborough Meadows. The development is nearly complete and most of the units are sold.

Boxborough -- a town of about 5,000 residents -- had no experience with the state's controversial Chapter 40B law before Boxborough Meadows. The law allows developers to bypass local zoning rules if the developer sets aside 25 percent of the units for sale at below-market rates. State officials see the law as necessary to increase affordable housing, but in communities where bitter 40B battles have been fought, residents say the law benefits developers more than communities.

People in Boxborough seemed to know that it was just a matter of time before such a proposal landed there.

So three years ago, when Fenton and Jeanson proposed Boxborough Meadows, a 48-unit cluster development on 18 acres off of Massachusetts Avenue, just down the road from Town Hall, the town was ready. Residents already were in the process of figuring out how to welcome a range of housing, without giving away their rights to developers.

In October 2000 they formed the Boxborough Housing Board, designed to oversee the town's affordable housing.

And in February 2001, Jeanson and Fenton -- who had formed a limited liability corporation to build Boxborough Meadows -- received the town's permission to build. But the permission came with a strict caveat: They had to keep their new corporation's profits limited to 20 percent. Any profits above and beyond that were to go to the town, which would use the money to create more affordable housing.

Soon work got under way, and the units started selling. Fenton said last week that about 90 percent of the project is built and most of the units have been sold.

In January, the developers filed certified cost and income statements with the town's housing board for phase one, which covered 12 units. They showed a 13 percent profit, according to the lawsuit.

But the Housing Board turned that document over to an outside auditing firm, which reported in August that Fenton and Jeanson made a 45.5 percent profit, by paying themselves more than originally proposed for the project. That excess profit amounted to $701,264 for phase one alone, the lawsuit states. The auditor reported that the alleged excess profit, extrapolated over all four phases of the project, would amount to $2.8 million.

According to the town's lawsuit, Jeanson sold the development's 18 acres to Boxborough Meadows LLC -- which he partly owned -- for $800,000. That's double what Jeanson had paid for the land three years earlier, and $80,000 more than what Boxborough Meadows indicated it would pay in its purchase and sales agreement.

The auditors also reported the nine market-rate units sold in phase one garnered an average price of $406,438, more than the average of $319,900 the developers said they were going to seek.

Auditors found added costs that weren't part of the original proposal, such as a "construction management fee," for $37,950 for each of the 48 units. That job went to Distinctive Acton Homes, which Fenton and Jeanson own. Then there was the individual site work, at $23,583 per unit. James Fenton & Sons Contracting got that job, and was paid well above the industry average of $15,000, the auditor reported.

Colonial Homes Real Estate Inc., owned by Jeanson's wife, Debra, sold all the homes, and earned a 6 percent commission for each one, according to the lawsuit. The developers had included a 5 percent commission in original cost estimates. The commission was even tacked on to the affordable units, even though no sales commission was supposed to be charged, according to the auditor's report.

Fenton's wife, Carol, is listed as a defendant in the lawsuit because she is a board member of her husband's construction firm, which is also a defendant.

Last month, Jeanson and Fenton sued the Housing Board, charging that the board violated the public records law when it refused to give them a copy of the auditor's report. The developers alleged that the town told them it wouldn't hand over the report until they paid the $701,624 that the town says it is owed in excess profit for phase one of the Boxborough Meadows project.

Meanwhile, the town, in its lawsuit, also has charged that Jeanson failed to live up to a requirement that he deed 10 acres of land to the town for a town common.

At a 1989 Town Meeting, voters agreed to rezone a parcel of land off of Massachusetts Avenue, into a town center district, but in exchange, the town was to be sold the proposed town common land for $1. The town charges that the landowner, John J. Lyons, sold the land to Town Center Limited Partnership, which included businessman Thomas R. Goulet. Both Lyons and Goulet are named in the suit.

Ultimately, Boxborough Town Center LLC, one of Jeanson's companies, bought the land, according to the suit. The town says in the lawsuit that all the parties knew of the prior promise to grant the land to the town, which now wants to collect.

Lyons declined to comment and Goulet could not be reached. The town is also charging that Jeanson and Fenton owe the town five units of affordable housing from another project. When Boxborough Town Center LLC applied for permission to build Tisbury Meadows, an eight-unit development for the elderly, the Planning Board stipulated that Jeanson create five affordable units on land he owned, according to the lawsuit.

The lawsuit alleges Jeanson wanted to count affordable units at Boxborough Meadows against the Tisbury Meadows requirement, but the Planning Board rejected that proposal and the five units still have not been built.

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