Kennewick company’s mounting lawsuits total $1.8M

Once named the U.S. Department of Energy’s Protégé of the Year, a Kennewick business and its founder are now facing three lawsuits and a tax warrant totaling nearly $2 million.

Kristopher Lapp, i-3 Global president, is being sued in Benton County Superior Court for:

  • $515,000 for a breach of contract by E2 Consulting Engineers Inc. and violating the state’s Consumer Protection Act by “certifying to government contractors that i-3’s subcontractors have been paid in full, when they have not.”
  • $883,000 by Columbia State Bank for failing to pay back cash borrowed through a line of credit.
  • $446,000 by Integrated Global Staffing for failing to make good on contracts and alleging Lapp “fraudulently spent, misappropriated, and/or diverted money from i-3 Global’s general contractor, (Mission Support Alliance), for his own personal benefit rather than on Integrated Global’s invoices.”

The lawsuits add to a growing list of debts already established, with a $44,000 tax warrant filed by the Washington state Department of Revenue in early April for unpaid taxes.

The company, founded by Lapp in 2013, offers technology, multimedia and staffing services to federal and commercial customers.

The latest lawsuit, filed May 13 by a Seattle-based law firm, represents five employees who worked for E2 including a safety specialist, health physicist, work activity planner, mechanical engineer and electrical planner.

The complaint alleges i-3 entered into five different subcontracts between September 2017 and July 2018 to complete work that i-3 had contracted to perform for CH2M Hill Plateau Remediation Co. and MSA.

The lawsuit from E2, a California-based company, alleges i-3 “falsely certified” to CH2M Hill that it had paid its subcontractors in full for work performed between July 2018 and at least February 2019.

It states Lapp “misappropriated funds” intended for the plaintiffs and details numerous attempts made to seek payment and alleges “negligent misrepresentations” and false explanations for the non-payments, bounced checks and promises of payments that never came.

The E2 lawsuit alleges that i-3 Global and Lapp knew by at least April 11 that it would no longer be able to pay its subcontractors. This is the same day i-3 staff was notified of layoffs affecting the majority of its employees.

E2 court documents allege Lapp “encouraged the plaintiff to provide services after this date, and continued to knowingly make false promises regarding payment of the outstanding balance.” E2 said it terminated its contracts with i-3 on April 30 and is seeking three times the actual damages, as well as attorneys’ fees and court costs.

The Seattle attorney representing the company had no comment on the legal action.

The lawsuit filed May 2 by Columbia State Bank alleges Lapp executed a promissory note in October 2017 for an original principal of $700,000 that was increased to $1.2 million and set to mature in November 2018. This deadline was extended to February 2019, about the same time former employees first noticed an issue with their paychecks. Five former employees reported being told by i-3 leadership that a lag in pay was a result of a changeover in bank financing, resulting in the need for paper checks instead of direct deposit. Employees said the paychecks cleared, but this was the first of future payroll issues that cropped up.

The Portland attorney representing Columbia State Bank did not return calls for comment.

Integrated Global Staffing, a company governed by former i-3 Global intern and employee, President Jessica Holloway, filed its lawsuit April 26 and alleges i-3 received the money necessary to pay IGS but did not. Court documents include up to 10 unnamed defendants who are members of the board of directors and cites Derek Johnson of Gravis Law as i-3’s contract specialist.

Lapp emailed a response about the allegations to the Tri-Cities Area Journal of Business after multiple requests for comment after the first lawsuit was filed: “It has been a chaotic few weeks. At this time, since there is a formal lawsuit filed against me … I have been advised to not issue any formal statements discussing the matter outside of legal proceedings.”

At least four former i-3 Global employees said it was their understanding IGS was created by Lapp and Holloway to be a pass-through company for Lapp to keep his HUBZone status compliant with the Small Business Administration, which allowed i-3 to compete for specific contracts that require this qualification. The classification is given to businesses based in historically-underutilized business zones and requires a certain percentage of employees to also live within the HUBZone to maintain certification.

Former i-3 project manager JR Campos said, “As we started winning contracts, we had too many bodies that were putting i-3 at risk of losing their HUBZone status, so Kris and Jessica created IGS, with Jessica as the majority owner so they could benefit from her status as a small, woman-owned, service-disabled veteran business.”

Holloway directed all questions to her attorney Brian Davis, who also declined to comment and indicated IGS’ position was included in the civil complaint filed April 26.

Since the lawsuits by E2 and IGS are connected to federal contracts, the proper use of taxpayer money could be reviewed by the Office of the Inspector General. The OIG could not confirm an investigation of i-3 Global was underway.

Doors shuttered, staff layoffs

In late April, a Department of Revenue agent based in Richland visited i-3 Global and left business cards taped to the door of i-3’s headquarters at 3180 W. Clearwater Ave., in a strip mall tucked behind Sterling’s Restaurant.

The doors were locked, since most employees were laid off April 11 via email memo from Lapp.

“We are all laid off until further notice due to actions being taken at the federal level with our current contracts,” Lapp wrote in the memo. Lapp requested that no one report to work going forward or they might risk non-payment for duties performed. Calling it a “formal layoff,” Lapp told employees they were “encouraged to file for unemployment immediately” and said he did not have any further information on the company’s ability to operate.

“I’ve been the guy yelling, ‘Iceberg! Iceberg! Iceberg!’ for a while,” said Campos, who submitted his resignation a week before the layoffs.

More than one former i-3 Global employee confirmed Campos had voluntarily resigned as project manager on April 4 and was transitioning his work to colleagues when the layoffs were announced.

Campos said he was motivated to seek employment elsewhere after raising concerns about i-3’s business operations, including at least two instances where Campos said he wasn’t paid on time following unsubstantiated issues with payroll.

Six former i-3 employees said they are still owed for a final four days’ pay, plus banked paid time off. A part-time subcontractor reported being owed 60 hours of pay and not receiving notice to stop working when the layoffs were announced.

Financial difficulties

i-3 was the recipient of an award from the Department of Energy as its Fiscal Year 2016 Protégé of the Year, following a mentor-protégé partnership with Mission Support Alliance. The award “recognizes the significant development of a DOE Protégé that has enhanced their ability to successfully compete for federal contracts.”

i-3 initially provided staff augmentation contracts to MSA, but eventually began supplying informational technology services to the Hanford contractor. MSA confirmed the company still had ongoing contracts with i-3 for staff augmentation and multi-media work at the time of the layoffs.

“We’re working through some of the details,” said Rae Moss, MSA’s director of communications and external affairs. “We are assuming some of it as direct work.”

Campos said i-3 received a delinquency notice from MSA for failure to complete contracted work, but MSA could not confirm this allegation, citing “legal conversations with i-3 Global.”

During an interview with the Tri-Cities Area Journal of Business in 2017, Lapp told a reporter that his company had seen 400 percent growth in the past year and had exceeded the previous year’s revenue in the first quarter.

It’s not clear what led to the financial challenges two years later, but Campos believes some of the payment issues may have come from a simple failure to systematically invoice companies for work performed. At least one company represented in i-3 Global’s promotional materials said it hadn’t received an invoice in a year for work performed by i-3 on its behalf and had only been billed days before the layoffs were announced.

Calling himself i-3’s “employee No. 1” as the first person hired by Lapp, Campos said he had growing concerns in recent months about Lapp’s leadership. He provided a copy of a formal complaint Campos said was hand-delivered to Lapp on March 22, citing the concerns about the company’s management. Campos cited what he saw as “gross misuse of company property, funds and authority” and requested an “action plan” be provided to all employees by April 1. He said a plan was never presented.

Besides claims of being owed for their remaining days of work, at least three employees contributing to 401(k)s through i-3 said their accounts have not been funded since the start of 2019.

Campos said a payment to the state that should have come out of his paycheck directly was flagged for non-payment and a company check written by Lapp to cover the money owed also was returned for insufficient funds earlier this year.

Another employee, who did not wish to be named, admitted “waiting too long” to cash a final paycheck picked up April 19 and it was returned for insufficient funds. A subcontractor had a similar experience with his final payment from i-3, saying he wasn’t notified until the end of the month that he should stop working. There had been a previous issue with his direct deposit in February 2019 that resulted in eventual payment for work performed.

While some employees said they had seen the writing on the wall, others cited their “shock” and reported being “so disappointed” at what they saw as a sudden turn of events. An employee who did not want to be named, said, “We were all so excited about what we were doing. We were kicking (butt).”

Most i-3 employees worked as multimedia designers, directors or managers.

A portion of this multimedia work was done for the Tri-Cities Water Follies Association through a trade agreement, said event director Kathy Powell.

She called news of the lawsuits “a blow” and said she hopes, “all the employees can find work and put this behind them as soon as possible.” Powell said the work she needed from i-3 had already been completed for the 2019 Follies, and that the impact to the organization will be more apparent next year.

Powell said her group partnered with i-3 because many of its employees once worked for Lockheed Martin, which had previously contracted with Water Follies and made it an easy transition for graphic artists to continue the current relationship.

i-3 was the recipient of the 2018 Business on a Roll award from the Tri-City Regional Chamber of Commerce in the category of 51+ employees. The chamber awards recognize “members that achieved significant success over the previous year.” Awardees could self-nominated.

Lapp also is a co-owner of Solar Spirits Distillery and positioned himself as a local social media influencer to review Tri-City restaurants.

Lapp placed his newly built 4,200-square-foot Kennewick home featuring Columbia River views on the market in early May for $850,000. The home was completed in November 2018.

Trial dates for the three lawsuits are expected to be in spring 2020.

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