CROOKSTON-The city of East Grand Forks and a downtown building owner will meet in a mediation session next week over a $510,000 flood-era loan for which city officials say the owner is responsible.

City Attorney Ron Galstad said Wednesday the mediation over the Boardwalk Enterprises loan is scheduled for Feb. 12. He was unsure of its location.

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An attorney for Boardwalk Enterprises, Jon Brakke, did not return a message left by the Herald Wednesday.

Read more about Boardwalk Enterprises here.

City Administrator David Murphy said Karen Klein, a retired U.S. magistrate judge, will mediate the dispute. Three City Council members-Mark Olstad, Chad Grassel and Clarence Vetter-will participate, Murphy said.

The Boardwalk Enterprises loan controversy also reached the Minnesota Court of Appeals Wednesday, where attorneys for the city and the Boardwalk Bar and Grill, a restaurant inside the building owned by Boardwalk Enterprises, argued whether the city had the legal standing to renew the bar's liquor license on the condition the loan be resolved.

The loan, first agreed to in 1999, was revealed as unpaid in an Economic Development Authority meeting in April 2014. Several meetings since then, including one behind closed doors with Boardwalk representatives Dan Stauss, Scott Stauss and Jane Moss, haven't resulted in a resolution.

The loan was used to help construct the Boardwalk building in East Grand Forks after the 1997 Red River flood. The city did not file mortgage documents until 2014, which Galstad attributed Wednesday to a "slip-up" in documentation.

Boardwalk Enterprises officials have argued the city is responsible for more than $700,000 in construction and other costs under the original agreement.

In court

Wednesday's court hearing was prompted by the East Grand Forks City Council's June vote to renew Boardwalk Bar and Grill's liquor license with the condition that the $510,000 Boardwalk Enterprises loan be resolved within a year. The resolution passed by the council notes that if the obligation isn't resolved within one year, "renewal of the license can be denied."

The hearing took place via teleconference, with Galstad in Crookston, Boardwalk Bar and Grill attorney Drew Hushka in Moorhead and the three judges in the Twin Cities.

Galstad cited the similar ownership of Boardwalk Enterprises and the bar in arguing the city could impose the liquor license conditions. His original brief states Dan Stauss, Scott Stauss and Jane Moss own interests in both Boardwalk Enterprises as well as the restaurant, but attorneys for the business replied that Moss has no ownership interest in Boardwalk Enterprises.

Dan and Scott Stauss are Mayor Lynn Stauss' brother and son, respectively. The mayor has said he was unaware of the outstanding loan.

Hushka argued Wednesday the city was improperly holding the restaurant responsible for the debt of a separate entity. He said Boardwalk Enterprises, the entity the city says owes it money, doesn't have an interest in the bar.

"While Scott and Danny Stauss may own at least a 50 percent interest in (Boardwalk Bar and Grill), the legally significant inquiry is whether (Boardwalk Enterprises) owns such an interest," attorneys for Boardwalk wrote in an earlier brief. "(Boardwalk Enterprises) owns no such interest."

The three-judge panel took the matter under consideration. Galstad said he wasn't sure when a decision may be reached.