Oregon Justice Dept. Examines Ways Money Moved Among Evergreen Aviation's For-profit, Nonprofit Operations
March 2, 2013
  • Share
  • By Mike Francis

    McMINNVILLE — Evergreen International’s public face is its Aviation & Space Museum, water park and IMAX theater, which are represented by a collection of buildings and parked aircraft on the north side of Oregon Highway 18 in Yamhill County, east of the town center.

    Across the highway from the museum stands the working side of the Evergreen empire — the Evergreen International headquarters buildings, which back onto the runways of the McMinnville Municipal Airport. These represent the activities that made Evergreen a busy provider of aviation services to the U.S. government and helped founder Delford M. Smith sponsor the nonprofit activities on the other side of the highway.

    Now the Oregon Department of Justice has opened an investigation into the relationships among Evergreen’s for-profit and nonprofit activities, asking whether the entities improperly transferred money from one side of the house to the other.

    “We’re in discussions with them,” said Elizabeth Grant, head of the Justice Department’s Charitable Activities section. She described the state’s interest in Evergreen as centering on governance and the relationship between the nonprofit and for-profit sides of the business empire.

    The lawyer representing the Evergreen Aviation and Space Museum, Rosemary Fei of San Francisco’s Adler & Colvin law firm, said the museum is cooperating with the state.

    “The museum has and will cooperate fully with the DOJ, providing access to Museum personnel and documents in order to facilitate the DOJ’s investigation,” she said in an email. “Given the ongoing nature of the investigation, and out of deference to the DOJ, the Museum will not speculate about the ultimate resolution or timing of the investigation.”

    The state has no particular timetable for the investigation and its outcome is impossible to predict. State investigations into the financial activities of nonprofits sometimes end with all parties satisfied and no penalties paid, and sometimes they end with the state taking the case to court.

    Evergreen’s nonprofit side was established in 2001 as a private, not public charitable foundation — a structure intended to “reflect and sustain Mr. Smith’s vision,” according to documents Evergreen filed in 2005 in a lawsuit brought against Evergreen by Portland lawyer William Schaub.

    Schaub, who was president, executive director and general counsel to the aviation museum from 2000 to 2003, sued the company and the museum saying he was wrongfully fired for, among other things, questioning the financial transactions among the for-profit and nonprofit entities.

    Ultimately, a Yamhill County judge dismissed Schaub’s lawsuit, but the dismissal was based on his status as an at-will employee, not on his assertions about the financial activities of his former employer. The case settled in the appeals process.

    People who testified in the Schaub case spoke of the interconnectedness of the Evergreen companies, both for-profit and nonprofit.

    Former museum chief financial officer Kent Puntenney, who said he left the company after he was “publicly humiliated” by Smith for not preparing a report on the museum, said it was made clear by Evergreen officers that the affiliated for-profit and nonprofit entities were to lean on each other.

    He said in his deposition that Smith explained that “We are an Evergreen family and all the companies need to be team players and help each other out.” He told Schaub’s lawyers there were times when museum officials’ plans for the museum were stymied by directives that they must write checks to another Evergreen company.

    In 2001, soon after it opened, the museum wrote checks totaling more than $622,000 to Evergreen International or to construction companies that were owed money, according to documents generated by the lawsuit.

    In a deposition for the Schaub case, Smith, who is the chairman of the board of trustees for the museum and founder-owner of the for-profit company, said he arranged for Schaub’s salary to be paid by Evergreen’s holding company and an affiliated venture company. And he acknowledged that money flowed between the for-profit and nonprofit wings of the organization.

    “We had paid many, many bills for the museum and there was an obligation on the part of the museum to the holding company. They had cash,” Smith testified. “So somebody said ‘Just offset it.’ You can’t make that into a crime or conflict of interest unless you’re a phony.”

    Smith also said he had contributed $80 million worth of assets to the nonprofit.

    Schaub said he was asked to evaluate the value of the museum’s lease north of Highway 18 and so he contacted a McMinnville real estate broker, who pegged its value at “about $4,000 a month.”

    Schaub said Evergreen officers responded by saying the number was too low, and said they wanted the museum to begin paying $17,500 a month to Evergreen.

    “Accountants were not held in high esteem by Evergreen management,” said Puntenney, the former chief financial officer. “If I went against the grain of Evergreen management, yeah, there’s a good chance I would be gone.”

    Larry Wood, director of the Aviation and Space Museum, told Aero-TV in 2009 that Del Smith “continues to build” the museum and its operations.

    “It’s a separate thing from the company, don’t forget that,” he said. “But … the big driving force is Delford Smith.”