In December 2014, Maine restaurateur Peter Powers was sued by the city of Gardiner for failure to repay a $40,000 business loan.

Eight months later, on the evening of Aug. 3, 2015, Powers and business partner Harold Royals were in handcuffs, sitting in the back of a squad car on their way to jail on charges of assault and disorderly conduct.

Last October, they embarked on a $125,000 spending spree courtesy of Biddeford-area taxpayers, court documents show. The money was from a business loan to Royals by a quasi-governmental organization established decades ago to help the local economy.

The Biddeford-Saco Area Economic Development Corp., or EDC, is refusing to discuss what due diligence process it undertook to determine the creditworthiness of Royals, whose name was on the loan application.

Documents filed as part of a court case aimed at recovering the money allege that Royals and Powers spent thousands of dollars on personal expenses, including a $10,000 check made out to Powers’ mother. Neither Powers nor Royals has responded to multiple requests for comment on the litigation.

The court case was initiated Feb. 12 in Cumberland County Superior Court. The EDC, which is partly funded by the municipalities of Biddeford, Sanford and Saco, seeks to recover more than $125,000 for three loans it issued to Royals in October 2015 to finance the opening of a Biddeford restaurant that was to be called Steer N Stein Pub N Grill. The restaurant never opened, and Royals never repaid the loans, according to the EDC.

A small fraction of the money has been recovered, including the $10,000 that Powers gave to his mother and $1,750 from the local pizzeria Portland Pie Co., which voluntarily returned all of the money that Royals and Powers spent on meals there.

Powers had been sued in December 2014 by the city of Gardiner for failure to repay a similar business loan of $40,000. Of that money, only about $3,000 was recovered. Powers declared personal bankruptcy in April 2015, relieving him of any further legal obligation to repay the Gardiner loan.

The lawsuit was reported in the Kennebec Journal, but the EDC never called the city of Gardiner to inquire about it, said City Manager Scott Morelli.

WARNING SIGNS FROM THE PAST

Adam Shub, a Portland attorney representing the EDC, has said that although Powers was the person sued by Gardiner, it was Royals who applied for the EDC loans. Therefore, Powers’ prior loan default and bankruptcy did not disqualify Royals as an applicant. Shub said via email last week that he has advised the EDC and its executive director, William Armitage II, not to speak to the news media.

“The Superior Court action is being brought by the EDC against Powers and Royals,” he wrote. “It is our legal advice to the EDC, as a party to the litigation, not to speak publicly on these matters until the litigation is resolved.”

In a December 2015 article in the Courier, a Biddeford-area newspaper, Royals said he had no involvement with Alex Parker’s Steakhouse, the failed business associated with the loan that went bad in Gardiner. He said previous media reports referring to him as a partner in the restaurant were inaccurate.

But Morelli said that if someone from the EDC had called him, he would have confirmed Powers’ and Royals’ joint participation in the restaurant.

“Absolutely,” Morelli said. “We dealt with Harold and Peter in tandem when we dealt with Alex Parker’s.”

Morelli noted that he didn’t even know Royals had received the EDC loan until it was reported in the media.

“When we heard about it, we were surprised that they were able to get another loan, because of what they had just done to the Gardiner taxpayers,” he said. “We would have wanted them (the EDC) to know what happened here before they made any decisions.”

Another potential warning sign for the EDC was the joint arrest of Powers and Royals in August 2015 in Scarborough on charges of assault, disorderly conduct and failure to give correct names and addresses. Powers also was charged with violating the conditions of his bail from a previous arrest.

Business lenders and loan guarantors such as the U.S. Small Business Administration base their lending decisions on a variety of information about applicants, including credit history, educational background and criminal record. Information about an applicant’s past behavior helps them determine the level of risk they would incur with that particular borrower.

In October, Powers pleaded guilty to a reduced charge of disorderly conduct only and was sentenced to 24 hours in jail.

Royals retained a lawyer and was offered a deal in which his case would be dismissed in January 2017 as long as he paid a $250 fine, had no contact with his alleged victims and refrained from excessive use of alcohol.

The arrests were reported in the police blotter section of the Forecaster newspaper. A link to the report appears among the top results of Google searches for “Harold Royals Maine” and “Peter Powers Maine.”

CLASH WITH RESTAURANT PATRONS

According to Scarborough Police Department records, Royals and Powers were arrested at Ken’s Place, a seafood restaurant in Scarborough. Witnesses said the incident began with Powers knocking loudly on the door of the restaurant’s only bathroom while a pregnant woman and her 3-year-old daughter were inside.

According to the police report, the child was having difficulty going to the bathroom and was upset about it. After Powers knocked repeatedly on the door, the woman opened it and he started yelling at her, it said.

“The male (Powers) was accusing her of abusing her daughter because (otherwise) she would not be crying like that,” the report says. “She began to explain to the man that her daughter has bowel issues and that was what she was crying about. The male seemed to be drunk, and he would not listen to her and continued to yell at her.”

At that point, the pregnant woman’s 75-year-old father walked over and tried to get between her and Powers, at which point Powers pushed him down the hall into the dining area, the report says. The family then prepared to leave the restaurant, with Powers and now Royals both shouting obscenities at them, it says.

“As her family began to walk to the door, Powers and Royals got up from the bar area and began to follow them,” the police report says. “She was parked right outside the front door and feared for what Powers and Royals were going to do.”

Some employees of Ken’s Place tried to stop Powers and Royals from following the frightened family outside, and the two men engaged them in a “scuffle,” the report states, noting that one employee was shoved to the ground.

“After this scuffle was broken up, Powers and Royals continued to verbally antagonize people and this is when the police showed up,” the report says.

The arresting officers stated that they were forced to handcuff Powers and Royals and take them to the Cumberland County Jail because the two men were being belligerent and uncooperative, shouting at the officers and refusing to show identification.

“I felt that based on my observations of Royals’ actions along with the fact that patrons in the parking lot were approaching, and his hostile manners, that the situation needed to be de-escalated, which is why he was arrested on various charges,” police Sgt. Timothy Barker stated in the report.

COMMITTEE AWARDS BUSINESS LOANS

Officials at the EDC aren’t saying whether they were aware of the arrests at the time when they issued Royals the loans. Biddeford Mayor Alan Casavant said that although he is on the EDC’s board of directors, he has never attended any meetings or received any information about the criteria it uses to select loan recipients.

“They don’t keep us in the loop on these things,” Casavant said.

The EDC’s website says there is a 10-member loan committee responsible for approving loan requests. It does not name the members, but says they are “citizens from York County with backgrounds in law, accounting, banking, finance and business.” The money that it loans comes from Biddeford, Sanford and Saco tax revenue, as well as federal grants.

Casavant said the loan program has been very successful overall and has created countless jobs over the years.

“They have awarded $25 million in loans over the past 20-odd years, and this is the only one that has turned into a nightmare like this,” he said.

Morelli, the Gardiner city manager, said the city’s encounter with Powers and Royals led to a complete overhaul of the way it provides financial assistance to local businesses. Instead of issuing loans, the city now has a revolving line of credit upon which qualifying businesses can draw when they need to pay for a particular expense. The businesses must show invoices and receipts to prove the funds were put to a legitimate use, Morelli said.

“You’re not going to be able to just go buy a Ferrari with the money,” he said.

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