BANGOR — A federal bankruptcy judge ruled Friday that the Clary Lake dam can be sold to the Clary Lake Association.

Delivering an oral decision, Judge Michael Fagone also stripped the restrictive covenants from the dam property and allowed its transfer to go forward unburdened by a mortgage, pending a 14-day appeal period.

The judge did not wipe away the tax liens the town of Whitefield holds on the property, the water level order imposed by the state Department of Environmental Protection or easements that allow access to the mill house on top of the dam.

This decision marks a significant step in the long-running dispute about the fieldstone-and-granite dam in North Whitefield that impounds Clary Lake and the water level in that lake, but it leaves other questions unanswered.

The dissolution manager for Pleasant Pond Mill LLC, which held title to the dam, had filed for bankruptcy protection on his behalf and on behalf of the company.

“Pleasant Pond Mill is bankrupt, and that bankruptcy is closed,” Paul Kelley said Friday after the ruling was announced. “It’s still involved in litigation in Lincoln County Superior Court, which is bizarre on its face. There’s ongoing litigation, and I think the general rule is probably not to say much.”


Kelley did say that “I do know that parties are generally unhappy.”

One condition of the sale is that the dam property be transferred from Pleasant Pond Mill’s bankruptcy estate to Kelley’s bankruptcy estate.

“I don’t know what’s going to happen. For the last two years, on principle, I thought I should stand up to things and did until I was unable any more,” Kelley said. “I still can’t seem to extricate the company, even though it’s been dead for over three years now.”

The picture is clearer for the Clary Lake Association.

The association counts among its members many of the owners of property that borders Clary Lake, which straddles the Whitefield-Jefferson town line. Several association members traveled to the Margaret Chase Smith Federal Building in Bangor to hear the decision being read.

“In 14 days, we’ll own the dam,” George Fergusson, secretary of the association board, said after the hearing, which lasted less than an hour.


Between now and then, he said, the association will talk to the construction company it has chosen to repair the dam to see whether the work can be scheduled for this year.

With ownership of the dam comes the responsibility to comply with the water level order that the state Department of Environmental Protection issued in 2014, as well as with other administrative tasks that come with the transfer of ownership.

“We have to submit a water-level management plan,” Fergusson said, “and we have to put a staff gauge on the dam so that people can see what the water level is.”

The cost of the dam is $32,500 and the estimated cost of repairs is $35,500.

To date, the association has raised about $123,000, but Fergusson said the association has spent more on legal fees than was anticipated, so members are trying to raise about $15,000 more.

This decision comes two months after oral arguments on the final sale motion of the dam took place at the U.S. Bankruptcy Court in Portland.


In June, Richard Smith and AquaFortis Associates LLC filed an objection to the motion calling for the sale of the dam, saying they were creditors to the bankruptcy estates of Kelley and Pleasant Pond Mill.

AquaFortis Associates owns the mill building across Route 218 associated with the dam, as well as the mill house that sits on top of the dam.

However, in his findings of fact, Fagone noted that Kelley and Pleasant Pond Mill, and Smith and AquaFortis Associates have been linked through their business interests, at times by sharing a common address and by being represented by the same counsel in litigation with the DEP. He also noted that Smith had been a member of Pleasant Pond Mill, and that Kelley had in the past identified himself as a member of AquaFortis Associates and its registered agent. They also are jointly liable on a vehicle loan.

The covenants that were put in place in 2013 would restrict the flow of water through or over the Clary Lake dam to no more than 50 cubic feet per second. The intent of the covenants was to protect the mill building downstream from the dam from being damaged by the water flow.

The order setting the water level has been the subject of a lawsuit Robert Rubin and Cheryl Ayer filed several years ago in Lincoln County Superior Court against Kelley, Smith, AquaFortis Associates LLC and Pleasant Pond Mill LLC seeking damages for the harm they say has been done to their property by the lowered level of Clary Lake.

In March, Justice Daniel Billings affirmed the order setting the water level in the lake.


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