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'Where did our money go?' Parents have questions after Gig Harbor preschool's closure

News Tribune - 10/25/2022

Oct. 25—At the end of the first week of school last fall, parents of students at the nonprofit Rainy Dayz Preschool in Gig Harbor received an unexpected notice that classes immediately would relocate to a new location.

The school's landlord had for too long neglected important upkeep on the Jahn Avenue building that Rainy Dayz had called home for seven years, families were told, and moving was in the school's best interest even if the timing was inopportune.

A temporary site on 56th Street was found and used for five months, but the school was forced to "pause" operations in March after attempts to secure a permanent home failed to pan out.

For some, the school's collapse represented more than a letdown. In recent interviews and emails, more than a dozen parents who made payments in advance said they were promised refunds they have yet to receive several months later, collectively totaling at least $19,000. The figure does not account for debts potentially owed to other families unidentified or not reached by The News Tribune.

Rainy Dayz's closure prompted constant questions from parents about the status of refunds and quick turnarounds to find new programs for their children. Unbeknownst to families, the decision to uproot classes in September 2021 had come as the school was legally barred from holding classes anymore in its long-time building.

Rainy Dayz had been evicted from the site at 2709 Jahn Ave. the previous month for failing to pay nearly $85,000 in rent, Pierce County Superior Court records show. As the school prepared to move, its leaders made no mention to parents of its rent troubles or a $105,000 default judgment rendered against it in August 2021.

Instead school leaders assured parents the departure was unrelated to financial reasons and blamed its leasing company for "unethical business practices," according to one of more than 30 emails provided by a parent to The News Tribune that detailed communications to families over several months from the school's board president, director or spokesperson.

Roughly 50 families had children from ages 2 to 5 registered at Rainy Dayz heading into that school year, according to figures cited by parents and the school. The school had pledged to return money to those who paid enrollment through June and gave deposits to reserve their children's spot or paid in full for the then-upcoming 2022-23 school year, parents said.

It is unclear how many new families signed up and paid in advance for the current school year.

"I'm just disheartened that this happened in the first place and I really hope that we get an answer," said Colleen Grotzky, who's seeking to recoup just over $500, which was paid on behalf of her daughter for June classes this year that never occurred. "I think that's what a lot of us just want — an answer. Where did our money go?"

After unfulfilled assurances that the refunds were coming, parents claim the school's representatives went dark and emails stopped working. Some parents threatened to sue Rainy Dayz or disputed the charges as fraud, which the school said delayed processing returned payments.

One parent reported the school for fraud to the Pierce County Sheriff's Department late last month, but the department's system showed that the matter was closed for "lack of solvability," according to Sheriff's Department spokesperson Sgt. Darren Moss, who said the term meant there was not enough information to solve it.

In emails to The News Tribune, Judy Pagni, the nonprofit school's founder and board president, broadly asserted that she was being subjected to false accusations, harassment and threats from parents, and defended herself against any suggestions of wrongdoing.

"I did not misuse or misappropriate funds from the organization and claiming I did, based on rumor and innuendo, is false and libelous," she said in a statement.

Pagni did not directly address the families' contention that promised refunds were withheld, and she claimed to be unaware of the eviction proceeding against the school, although court records show she had submitted a letter in response to it.

Pagni declined a phone interview due to concerns over whether her comments would be reflected accurately, but she said in written correspondence she had done everything in her power to save the school and make it thrive. On Oct. 17, Pagni said she had conferred with her attorney and decided it was in her best interest not to engage a reporter any further, because others who she said "were largely responsible" for the school's failure had not stepped up and assumed accountability.

The situation at Rainy Dayz, first reported by Gig Harbor Now, is more intricate than a dispute over unpaid refunds and an undisclosed eviction. Records and emails reviewed by The News Tribune, and interviews with parents and others, raise questions about the school's operations, including previously unreported claims of questionable financial practices and seemingly misleading communications to parents regarding the search for a new, permanent home.

While some parents, like Jonathan Novotney, were able to weather the financial toll and find alternative child care, others had to alter schedules and scramble to find new accommodations for their kids at a time when openings would have been hard to find, he said.

Novotney, who claimed to be owed roughly $5,000, said his 3-year-old daughter expressed confusion about why she could no longer see her friends or teachers. He believed she had been robbed of a community.

"I don't want this to happen again," he said.

Financial struggles become apparent

By all accounts, parents were fond of Rainy Dayz and the teaching staff. The school launched as privately owned in 2004 before it was granted nonprofit status in 2014, with Pagni listed as the incorporator, registered agent and one of two founding board of directors, according to the school's initial filing with the Washington Secretary of State's office.

Pagni and another parent had taken over in order to save the school when the prior owner announced eight years ago that its doors would close, Pagni wrote in a March email to parents, providing details of the school's history. As a "safe community," she wrote, Rainy Dayz welcomed all children.

"They seemed to have a good reputation in the community," said Ashley Mase, who searched the school on Google and knew someone who had left a positive online review. Mase, who enrolled her 2-year-old daughter, claims to be owed $400.

The pandemic had reportedly struck the school hard, forcing its closure for several months in March 2020. The school's leadership essentially dwindled to Pagni and school director Amanda Delaire, according to emails reviewed by The News Tribune.

In a court filing responding to eviction proceedings, submitted a week after the eviction had been issued in August 2021, Pagni wrote that the majority of past due rent was connected to the school's shutdown between March and September 2020.

The school received a significant portion of its revenue from tuition payments and fees, according to past federal Form 990 filings, which are required by nonprofits to detail financial operations. But ascertaining Rainy Dayz's recent financial situation is difficult because the school has not filed a Form 990 beyond 2018.

As a result of failing to file the form for three-straight years, the school's federal tax-exempt status was revoked in May, according to the IRS.

Filings from its start as a nonprofit in 2014 show Rainy Dayz's finances had significantly improved by the last filing on record, when it maintained $126,000 in assets in 2018. That year, the school reported income of $435,000 — including $358,000 in tuition and fees — against expenses of $419,000, which was far above its roughly $200,000 operating budget from 2015, the IRS filings show.

Its financial problems became apparent to some sooner than others.

Bounced checks and personal payments

Ella Christiansen, a former teacher at the school, said that there were regular issues getting paid when she was hired in late 2020, but the school's explanations seemed convincing to her. The doubts crept in, she said, once Pagni began to use personal checks that bounced or the payment app, Venmo, from her personal account to pay teachers.

Christiansen also said Pagni drastically under-reported her income for 2020 and 2021 to the IRS, causing discrepancies with her W-2 Form. After Christiansen sought to collect unemployment in April upon leaving the school, she said she learned she was ineligible because tax records erroneously showed she had not worked the prerequisite 680 annual hours. Christiansen found a new job shortly afterward.

"I'm dumbfounded by how somebody could take a preschool that children are dependent on and just twist it up in a knot like she did," Christiansen said.

Pagni acknowledged to The News Tribune that the school had run short on funds and that she had personally donated money to help cover payroll.

"I did not want the teachers or the children to suffer," she said.

Pagni did not address Christiansen's claims about under-reported earnings. To broadly explain issues with filing tax forms, she pointed to the school's paid certified public accountant, Linda Shiraiwa, who she said was "always running behind." Pagni shared email correspondence with The News Tribune that show her and Delaire seeking updates from Shiraiwa last year on filing tax extensions and completing W-2 forms.

When reached by phone, Shiraiwa disputed that she was at fault for any lax filings. She said it was Pagni's responsibility to maintain records and file paperwork on time. She said that Pagni had yet to pay or sign for Form 990s prepared after 2018.

Shiraiwa said she was paid by the school for several years to handle certain tax matters, primarily filing Form 990s, but she did not manage day-to-day activities, such as QuickBooks or bank statement reconciliation. She quit working on behalf of Rainy Dayz a few years ago when she sold her private practice to a corporate tax-preparation company, she said, adding that she tried to assist Pagni last year with catching up on overdue tax and Secretary of State nonprofit filings.

The school, whose nonprofit status went inactive in April for failing to file required paperwork with the Washington Secretary of State's Office, also faced other troubles. It was dinged more than $2,100 by the state Department of Labor & Industries for failing to pay workers' compensation taxes during the first three quarters of 2021, court records show.

An imminent eviction

There was a sign that Rainy Dayz's financial woes predated the pandemic. RH Gateway Pointe Associates LLC, the school's landlord on Jahn Avenue, had brought suit against the school in March 2020. The school was accused of owing nearly $18,000 after failing to pay rent timely or fully since September 2019, court records show. That case was dismissed by the landlord for unknown reasons.

When the landlord sued the school again in August 2021, for a much greater amount, Pagni objected to how much the school was reported to owe and requested that proceedings be ended because she said court papers were served at her home when she was away undergoing treatment for cancer — an ailment she said she was still battling today.

A letter from Delaire attached to a subsequent legal filing noted "rough times" during the public health crisis and financial and logistical obstacles faced by the school.

Delaire accused Rainy Dayz's landlord of not addressing flooding and HVAC issues that had affected classes. They were the same issues that Delaire, who could not be reached at an email or phone number believed to belong to her, solely attributed for the school's sudden need to move when she notified parents of plans to depart the Jahn Avenue address several days later.

An attorney representing RH Gateway Pointe Associates declined to comment.

Pagni told The News Tribune the school had been assured that the rent issue could be resolved in mediation with the landlord after working with pro-bono legal representation while she was absent from handling day-to-day operations.

"Why would we set up a school, only to have to turn around and move out?" she said in a statement.

Court records indicate Pagni should have been aware the school's time on Jahn Avenue was nearing an end.

In July 2021, a month before the most recent lawsuit was filed, Pagni signed a letter agreeing to surrender the premises to the landlord's agent by delivering the keys, according to a copy of the letter attached as a case exhibit. RH Gateway Point Associates' attorneys said Pagni had not followed through by Aug. 2, 2021.

Wanted: a new home

After Rainy Dayz's tenancy was terminated at its Jahn Avenue location in September 2021, there was a week-long interlude where school was held at two parks in Gig Harbor before it entered into the temporary site at 3413 56th Street.

One impromptu place, Sehmel Homestead Park, offered a large, open-area setting with several athletic fields. Some parents declined to send their kids or removed them from school entirely, according to Christiansen, the former teacher at the school.

Christiansen said she understood any parental reservations.

"How can you trust your children to stay safe?" she said. "Can you imagine 10 2-year-olds at a park? That's astronomically crazy."

The following week, Rainy Dayz started its five-month occupancy on 56th Street, ending in late February, when the school was supposed to begin classes at a new long-term home in a building on Soundview Drive.

Its issues persisted.

The 56th Street location was being sold at the time the school entered. Gary Gallinger, owner of Harbor Realty Advisors, said he represented the buyer and worked free of charge as the broker to get Rainy Dayz into the building.

"It got to be self-evident that there were very deep problems in that organization," Gallinger said.

Gallinger said he later discovered that the school did not pay two months of rent, which he noted had harmed his reputation with his client. He said that he also tried to help the school secure the Soundview Drive location — formerly Intrepid Christian Church — but walked away by the end of 2021 when he encountered too many red flags.

While he declined to specify with whom from Rainy Dayz he had worked, Gallinger said that it was one individual who provided several excuses for why things were not getting done. He said he was told that new members were supposedly joining the board; the school planned to use a U.S. Small Business Administration loan as its funding mechanism; and, then, that it would seek grants and donations.

"There was a lot of tall tales that were told," he said. "I've been in the business long enough to know it smelled like desperation."

All options exhausted

After mid-winter break, as parents were preparing to send their children to the school's new home at 5775 Soundview Drive beginning Feb. 28, a series of rollercoaster-like updates over three weeks detailed complications that were causing delays.

Rainy Dayz had secured a five-year lease, parents were told, but the school was facing issues outside its control: miscommunications; a keys-holding broker on vacation or being unresponsive; and unspecified problems with the school's leasing agent, prompting the school to get its lawyer involved.

There were further disputes with the building's owner, Donkey Creek Holdings LLC, including claims of a misplaced deposit, spurring the school to decide not to move forward, according to an apologetic March 1 email to parents from Delaire and Pagni.

The school's failed attempts to lease a building on Soundview Drive were due to the school not paying its deposit, according to Michael Perrow, a representative for Donkey Creek Holdings. Hence, he said, his company did not sign the lease.

"We've never had a business relationship with Rainy Dayz Preschool," Perrow said. "They've never been our tenant."

Unable to find its long-term location, Rainy Dayz essentially shut down. Repeated inquiries from parents about refunds soon followed.

Novotney said he believed parents would not have felt deceived if the school had been upfront with them about its financial situation. He said he has since learned to be more cautious when vetting schools, and he came forward with his experience to warn other families about doing business with Rainy Dayz and its leadership.

"There should be no reason in the future why people should not be able to find places to rent unless there's a red flag," he said. "So I think if I was smarter earlier, I would have said, 'That's weird you guys didn't get the building in this time. It sounds like the story's inconsistent.'"

Before Pagni responded to The News Tribune's inquiries for comment, a lawyer representing her, John Ryan, offered a statement on her behalf.

"Her efforts to get things back up and running and persuade others to continue with the RDP mission have failed," he wrote. "The stress involved in trying to resolve the RDP financial and operational challenges, in the face of personal attacks and harassment, as well as COVID setbacks, has taken a toll, compounding her ongoing cancer treatment."

Pagni, who lost an election in 2015 for the PenMet Parks board, said in an email to The News Tribune that her children had attended Rainy Dayz and she had hoped for the school to be a mainstay in Gig Harbor.

She said that a school built on relationships and community had "ended with such ugliness," referring to her claims that she has been unjustly targeted by parents. She encouraged others to step up.

"There is nothing stopping any of the RDP parents from doing what I did, convening a board, and re-building the school," she said. "It would truly be a shame for the school to close permanently."


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