Foundation funds affluent lifestyle

Tennessee, Mississippi locked in legal battle over charity's move

By Trevor Aaronson
Contact
November 5, 2006

Since moving from Nashville to the Mid-South in 1999, Costa has satisfied those appetites -- sports, parties, sex -- by devouring some of the assets of the $100 million foundation she controls.

Earning $450,000 as president and chief executive of the Hernando-based Maddox Foundation and one of its subsidiaries, Costa is at the center of a two-year, two-state legal battle over whether she illegally moved the Maddox Foundation and its assets from Nashville to DeSoto County.

Lawyers representing the state of Tennessee allege that Costa has wasted more than $12 million on failed investments that do not adhere to the foundation's charitable mission to promote the arts, education and conservation -- specifically, her purchase of two Memphis-area sports franchises.

They contend she has squandered hundreds of thousands more to pay for, among other personal expenses, private jet charters, parties, housekeeping services, babysitting for her two children and attorney fees to defend a sexual harassment claim.

The legal battle has so far produced dueling decisions. A Tennessee judge ruled that the Maddox Foundation was moved illegally, while a Mississippi chancellor decided the opposite.

The dispute, while still unresolved, has produced rich detail about Costa's use of the foundation as a personal plaything.

Depositions, affidavits, memos and audits portray a reckless nonprofit executive who has spent millions to own and operate the Memphis RiverKings and Memphis Xplorers -- minor-league sports franchises that have never been profitable -- while using foundation assets to fund a lavish lifestyle of private jets, opulent vacations and sexual relationships with employees.

Costa, 40, declined to comment for this article, which is based on depositions and court records.

"What we hope for is our day in court," said Carol Ayers, a spokeswoman for the Maddox Foundation. "The truth will come out, and the good guys will prevail."

Allegations of mismanagement aside, the Maddox Foundation has given generously to communities in Tennessee and Mississippi.

"I have nothing but good things to say about Robin and everyone associated with the Maddox Foundation," said Danny Phillips, a Hernando businessman and volunteer for area youth sports. "They've been instrumental in making this a better community."

From 2000 to 2003, the foundation donated $76,000 to the University of Tennessee. It partnered with the state of Mississippi for the "Computers in the Classroom" initiative, which put an Internet-ready PC in every public classroom in Mississippi.

In 2002, the foundation helped start the Community Foundation of Northwest Mississippi, a nonprofit established to support charities and nonprofits in DeSoto County.

In August, for the fourth year in a row, the Maddox Foundation donated $10,000 to DeSoto Sunrise Homes in Southaven, which operates a group home for girls and an emergency shelter for children.

In all, the Maddox Foundation made $1.5 million in contributions to charitable and educational organizations in 2005. That same year, the foundation spent more than twice that amount, $3.5 million, to cover losses from the RiverKings and Xplorers.

Costa -- who owns homes in Hernando and Sanibel Island, Fla. -- could face a probate trial next year in Nashville to determine whether she illegally moved the Maddox Foundation's assets out of the Volunteer State. Lawyers representing the state of Tennessee and one of Maddox's heirs will focus on Costa's alleged abuses.

The Maddox Foundation is valued at $111 million, according to its most recent public disclosure, down $7 million from a year earlier.

"What Robin Costa has exhibited is a pattern of excess and abuse and personal aggrandizement," said Joseph A. Woodruff, a Nashville attorney who is representing the state in its effort to return the foundation's assets to Tennessee.

"It's just awful. It has to stop."

A child of the South whose family cotton farm in Alabama was destroyed by the boll weevil in 1918, Dan Maddox worked hard for every dime.

In 1930, at 20 years old, he landed a job as a bank manager in Nashville and quickly ascended the ranks. Maddox married a young woman from Birmingham and had three children. By middle age, he'd become a well-to-do banker, managing branches throughout the South and establishing trusts for his children and young grandchildren.

He was a savvy investor but a frugal man. After buying land in Stuart, Fla., Maddox asked his son Pete to develop the properties. In addition to the land, Maddox gave his son $15,000 to purchase a fishing boat. But he discovered his children didn't value money as he did.

"[Pete] charged my company (which he was working for) the cost of putting in an expensive hydraulic system in the harbor to handle his boat," Maddox wrote in a letter about his life.

The investments Maddox made for his family appreciated enough to allow them to live comfortably without working. But Maddox felt unappreciated. One grandchild never thanked Maddox after he gave her a trust worth $250,000.

Maddox told his attorney that he didn't want his money to benefit unthankful heirs. Instead, he wanted to help his adopted home, Nashville.

Establishing the Maddox Foundation Trust in 1968, the Tennessee businessman -- a supporter of higher education, a patron of the arts and a lover of wildlife -- wanted to aid educational institutions and benefit arts programs and conservation efforts.

In 1994, Maddox named three trustees in addition to himself: his wife, Margaret; Tommye Maddox Working, a stepgranddaughter he was particularly fond of; and Costa, a loyal employee.

Costa had worked for Maddox since 1985 and put herself through the Nashville School of Law at night. She was smart and ambitious, but her hotheadedness often tried Maddox's patience, according to Wallace Rasmussen, a businessman and friend of Maddox's.

Rasmussen remembered in a deposition: "Every so often Robin would get in a lot of trouble with him, with things that she tried to do, and then she would call me and say, 'I'm in trouble with Dan, and now he's going to fire me.' "

On Christmas 1997, Maddox expressed concerns to Rasmussen about Costa's trusteeship.

"The one thing Dan was constantly worried about: had he made the right decision with Robin?" Rasmussen said.

Two weeks after that conversation, Dan and Margaret Maddox were killed in a boating accident in Louisiana.

Costa and Working gained control of the trust, then worth about $40 million. After Dan and Margaret Maddox's personal estates were settled, the Maddox Foundation ballooned to more than $100 million.

Maddox did not leave instructions on how to operate the trust after his death. As a result, Costa became the dominant force and gave herself a six-figure salary. Working received a similarly hefty compensation package.

The spending concerned Maddox's stepgranddaughter.

"I grew up with my grandparents," Working said in her deposition. "I knew them; I worked for them... I felt that was an excessive amount of money to be making for the job that we were doing."

Tennessee law requires that trusts have at least three trustees. In 1999, after an aborted attempt to find a third trustee, Costa persuaded Working to move the trust to Mississippi, which has more lax laws governing trusts and nonprofits.

That's when the expenses, including private jet charters, ballooned. Feeling helpless, Working resigned from the foundation, moved back to Nashville and signed over her authority to Costa in June 1999.

Costa became the foundation's lone executive.

"I didn't feel there was anything I could do or anywhere to go to express the misconduct I thought was going on," Working said.

Those who knew Maddox suspect he wouldn't have endorsed Costa's high-profile investments in two area sports franchises, the Memphis RiverKings and the Memphis Xplorers.

"I think Dan would have disapproved," said Suzanne Browning, Maddox's former accountant.

Costa's infatuation with minor-league sports began innocently enough. In 2002, the Maddox Foundation sponsored RiverKings games at the DeSoto Civic Center in Southaven. The foundation provided skates for children to use after the games.

Kevin Brooks, the RiverKings' former assistant general manager, remembered Costa as a hands-on philanthropist.

"She came down and helped check out skates," Brooks recalled in a deposition.

At the time, Chicago businessman Horn Chen owned the RiverKings, which compete in the Central Hockey League, and the Memphis Xplorers, an arenafootball2 team.

Chen was open about his aspiration to sell the teams, which at the time were losing about $1.5 million annually.

Costa was equally open about her aspiration to be a local sports mogul.

"Robin made no bones about the fact that she wanted to own a hockey team," Brooks remembered, explaining that the Maddox Foundation president often boasted "about the amount of money she had access to."

In April 2002, during a CHL playoff game at the DeSoto Civic Center, Brooks played matchmaker, introducing Costa to the owner's son.

Four months later, the foundation owned the RiverKings and the Xplorers. Costa paid $1.85 million for the teams, using foundation money, and has claimed the expenses to own and run the teams as charitable investments in the community, according to federal filings.

"I fell in love with hockey and with the RiverKings," Costa commented in a press release at the time.

As the anchor tenant at the publicly financed DeSoto Civic Center, Costa claims, the RiverKings alleviate tax burdens for residents.

It is not improper for a nonprofit organization to own a for-profit sports team. The Memphis Redbirds and Green Bay Packers, for example, are owned by nonprofits.

"It's not wrong to make money as long as the nonprofit is using the profit for charitable or religious purposes," said Cecile Champion Edwards, a law professor at Mississippi College and an expert on nonprofit regulations in the Magnolia State.

Instrumental in brokering the deal, Brooks began to spend time with Costa. On Aug. 25, 2002, they traveled to Scottsdale, Ariz., to attend a meeting for the football league.

Despite feeling pressured, Brooks said he consummated his relationship with Costa during the trip. And the bond grew. Soon, Brooks was spending nights at Costa's palatial home in Hernando, and while on a trip to Chicago, Brooks said the couple looked at engagement rings.

But October was approaching. The hockey players were returning. Brooks grew concerned. He knew Costa had feelings for some of the players.

One day in late September, as they were about to get into an elevator, Brooks confronted Costa.

"How is our relationship going to change once the players come into town?" Brooks asked.

"Kevin, our relationship will not change," Brooks remembered her answering.

But it did -- once the players hit the ice.

"Robin was acting like a 16-year-old girl, completely infatuated with the players," Brooks said.

When the hockey team would visit the office, Brooks explained, Costa would perch on top of her desk, legs curled and back arched like a fashion model, as beefy hockey players paraded by.

On Oct. 7, 2002, Brooks watched from a parking lot as Costa left a restaurant with two of the players. One followed the team owner to her Ford Expedition. They kissed.

"I'm assuming my relationship here is ending," Brooks remembered, "and Robin is truly going to do what many people had suspected, which was get involved with our players."

Indeed, the romance was over. Brooks stayed in his position as assistant general manager, but after a few weeks, he was demoted to managing only the football team -- "a slap in the face," he said.

He was fired on Dec. 30, 2003.

Costa admitted in a deposition to having a sexual relationship with Brooks and two RiverKings players but denied she pressured or harassed Brooks.

"Kevin knows what's right," Costa said. "In his heart, he knows I didn't sexually harass him."

Costa and the Maddox Foundation settled the claim out of court for an unspecified amount.

Nicole Boyd had never heard such a request.

A software specialist for New York-based MicroEdge, Boyd traveled to nonprofits nationwide to train people to use GIFTS, a software package that helps organizations track charitable giving.

In December 2003, she received a new client, the Maddox Foundation. Instead of conducting the training at the office in DeSoto County, a Maddox representative asked Boyd if she could do it at an all-inclusive resort in Cancun, Mexico, the five-star Ibereostar Paraiso Beach. The foundation would pay all expenses.

"This was supposedly a vacation for them, and all they needed to do is spend two or three days in training," Boyd said in a deposition.

Boyd agreed and asked Maddox employees to reserve a conference room at the resort and bring laptops and a projector.

It was the week before Christmas. On the first morning at 9:30 a.m., she waited in the lobby to begin training. They were late. Finally, the Maddox representatives -- Costa, foundation business manager and secretary Paul T. Morris, bookkeeper Tara Hermansen, and their families -- arrived. They had not arranged for a conference room, Boyd discovered, and did not bring laptops or a projector.

"And they were drunk, with the exception of one person," Boyd said, adding: "Drunk is an understatement for what they were, to be honest."

Drinking is a part of the culture at the Maddox Foundation. Morris is known as "Blender Boy" for his in-office liquor concoctions, according to Hermansen.

Undeterred, Boyd pulled a table and chairs into a small room. But the software trainer quickly realized she was lecturing to an unreceptive audience. Only Tara Hermansen, the one who wasn't drinking, paid attention. Costa and Morris were going in and out of the room, bringing in beverages, she said.

"They were making fun of Tara because she wouldn't drink and making fun of me because I was not drinking," Boyd recalled. Costa and Morris were calling Hermansen a "fuddy-duddy."

Boyd ended class for the day and gave a private lesson to Hermansen.

She tried again the next day with Costa and Morris, and while they were in better condition, they continued to drink heavily and not pay attention. Boyd cut off the second session after lunch and gave Hermansen another private lesson.

"All I can do is just say I'm sorry," Hermansen said to Boyd. "You know, I'm learning, I'm listening to you, but I just apologize for their behavior."

"My first concern was seeing the money that was being spent on inappropriate trips," Hermansen explained in a deposition. Among the expenses that concerned Hermansen, the foundation bookkeeper from 2000 to 2004, were $221,780 in private jet flights at Memphis-based Wilson Air Charter over a three-year period.

According to flight records:

• In January 2001, Costa chartered a round-trip flight to Baltimore to attend President George W. Bush's inauguration at a cost of $14,500.
• In 2002, Costa chartered flights throughout the nation, reportedly to perform due diligence in the purchase of the RiverKings and Xplorers, at a cost of $19,850.
• From 2000 to 2004, Costa chartered at least 22 flights to Jackson, Miss. -- 185 miles from Hernando -- at a cost of about $2,500 per roundtrip flight. Records list some trips as visits to former Gov. Ronnie Musgrove. According to Hermansen's deposition, Costa would often brag about her sexual relationship with Musgrove, once showing two employees the place in her bathroom where they once were "making out." Musgrove, now an attorney for the Maddox Foundation, has denied having a sexual relationship with Costa.
• From 2000 to 2002, Costa booked five round-trip charter flights from Memphis to Knoxville to watch University of Tennessee football games at a cost to the foundation of $19,213.
• In 2002, Costa chartered two round-trip flights for her and her staff and their families to take a vacation in the Florida Keys. The flights cost the foundation $37,694.

Costa would regularly charter flights to Nashville to bring her two children to see their father, Sam Costa, whom she divorced in August 1996. The cost billed to the foundation was about $2,400 per round-trip flight. These charters were so regular, according to Hermansen, that they had an in-office name: "Sam visits."

For a time, the Maddox Foundation was Wilson Air's best client.

But on Nov. 7, 2002, two months after the foundation purchased the RiverKings, Costa and Wilson Air had a falling out. Costa contracted Wilson Air to fly several people round-trip from Memphis to Shreveport, La., to attend a hockey game at a cost of $6,760. On the return leg, the passengers -- including several hockey players -- brought alcohol on board, recalled pilot Tom Lorentz.

When the aircraft landed in Tennessee, Lorentz witnessed the disaster. All of the passengers were drunk. Several had gotten sick. Bottles and trash were strewn through the cabin. Some of the other passengers were still holding open bottles.

"The airplane was a mess from one end to the other," Lorentz said.

Wilson Air charged the Maddox Foundation a $200 cleanup fee and told Costa she could not bring alcohol on future flights, Lorentz said.

Shortly after, Wilson Air's business with the foundation ceased. Records show that Costa began flying with Palm Air in Memphis. The Maddox Foundation paid the charter company $30,710 for 11 charter flights from December 2002 to April 2004, primarily to Nashville and Jackson, Miss., records show.

In an affidavit dated Sept. 24, 2005, Costa defended her use of charter flights.

"All use of charter airplanes charged as costs to the foundation is for business-related purposes, and such costs are reasonable," she said.

In all, from 2000 to 2004, the Maddox Foundation paid $311,826 for private charter flights.

Costa spent much more on her personal passion for sports. According to the deposition of a foundation accountant, the RiverKings lose $2 million per year and the Xplorers, which announced a hiatus for next season, operated in the red by $1.5 million annually. In all, Costa has spent more than $12 million on the teams using foundation money, according to a financial audit and depositions.

"I don't feel that (this spending is) what my grandparents would have wanted," Working said.

-- Trevor Aaronson: 529-2864