Construction of the foundation of FM Global’s new $60-million headquarters in Johnston continued last week, despite a messy legal fight going on behind the scenes affecting the commercial property insurer and its current landlord, CapLease Inc.

FM Global plans to move into its new four-story, 340,000-square-foot headquarters, near the building it currently leases, by the summer of next year.

But CapLease has appealed the decisions of Johnston planning and building officials who approved the plans under an expedited permitting process.

Edward D. Pare, a lawyer for CapLease, said his client did not have enough time to review the plans, and there are questions about possible traffic congestion, storm-water runoff and flooding that could affect the value of CapLease’s building. Further, he said that under state law, the appeal should stay the construction until the legal issues are resolved.

“No work should be going on on that site,” he said.

But Steven Zenofsky, a spokesman for FM Global, said there is a safety provision in state law that allows the work to continue. And Johnston building officials recently inspected the site.

“Any interruption in the completion of the foundation could have a substantial adverse impact on the foundation and the overall structural integrity,” he said.

So the work continues.

Pare also said CapLease has never been formally notified of FM Global’s plans to vacate its current offices. Zenofsky said both parties met last May and June to discuss FM Global’s tenancy and FM Global made its plans clear. He said FM Global only has to legally notify CapLease if it wants to extend its current lease, which expires on July 31, 2009.

In April 2007, CapLease purchased the 346,000-square-foot building and property with a $54.9-million investment, according to a federal regulatory filing. The property represents 2.6 percent of CapLease’s current portfolio. FM Global is the only tenant.

If FM Gobal leaves, as planned, CapLease will have to find a new tenant as the economy slows and more companies are contracting, not expanding.

CapLease (LSE:NYSE) is a real estate investment trust based in New York that invests primarily in single tenant commercial real estate leased to investment grade corporate and government tenants. The company posted sales of $172 million in 2007.

At the groundbreaking for FM Global’s new building on April 9, state, local and company officials celebrated the project. They explained how FM Global had considered moving to Massachusetts. But their cooperation kept the 175-year-old company in its home state. They said it was an example of how economic development can get done in Rhode Island and the expedited permitting process could be a model for other projects.

Now, the legal fight mars all that. The issue is far from resolved.

Paragon owes Sovereign millions

Sovereign Bank is the largest creditor in the receivership of The Paragon Gifts Inc., the mail-order and catalog company that last month abruptly closed its Westerly and North Kingstown offices, putting hundreds out of work.

Sovereign, based in Pennsylvania, loaned $10 million to the company in 2006 and has claimed in court that the principal and interest now owed totals $11.4 million.

Stephen F. DelSesto, the court-appointed receiver, is compiling an inventory of creditors and marshaling the assets to figure out how much on a dollar each creditor may get. He said there are about 450 creditors, including many unsecured vendors, printers and photographers, who have unpaid bills.

The company’s key assets include some office equipment and inventory, but there is no land as an asset and the buildings were leased.

DelSesto, a lawyer at Shechtman, Halperin, Savage LLP, in Pawtucket, said Sovereign is the largest secured creditor, whose collateral includes the assets of The Paragon Gifts, and its parent company, Blue Sky Brands, based in West Virginia.

John McCormick and his wife, Karin, founded The Paragon years ago and sold the company in 1997 to Wand Partners, a New York private-equity firm. Wand sold the company two years ago to Chicago private-equity firm Reliant Equity Investors, which also owned Blue Sky Brands.

The receivership in Washington County Superior Court was triggered when a photographer who did work for the company’s catalog did not get paid $20,000 and filed a court suit seeking payment.

Challenges ahead for R.I. Labor Dept.

Sandra M. Powell, the newly confirmed director of the state Department of Labor and Training, has had firsthand experience with jobless workers, and she’ll need it. Last week’s jobs report showed Rhode Island lost 3,100 more jobs in March and the unemployment rate leaped to 6.1 percent, with 35,100 residents out of work. By comparison, Massachusetts’ jobless rate was 4.4 percent and the U.S. rate was 5.1 percent.

Powell has a 19-year career at the department. One of her early jobs was as an employment counselor.

“I met face to face with all types of job seekers, looking for job opportunities that would change and shape their lives,” she testified during her Senate confirmation hearing.

“I met with young men who had dropped out of school a few years earlier, only to find they couldn’t get a job that paid them enough to be self-supporting. I counseled disabled workers who had worked years at a particular company, thought they had achieved part of the American Dream — a steady job — only to find that they had lost their jobs through no fault of their own. … It reminds me that everything we do in the department impacts the Rhode Island community, from employers to job seekers to businesses large and small.”

Powell, a Providence native and Classical High School graduate, holds a bachelor of arts degree from the Woodrow Wilson School of Public and International Affairs at Princeton University. She replaces Adelita Orefice, who took a newly created position as deputy secretary of the state Office of Health and Human Services.

Powell, 46, has a base salary of $108,460, plus $16,269 in longevity pay.

Fed issues N.E. forecast

The Beige Book, the report put out by the Federal Reserve, said economic activity slowed in 9 of its 12 districts and was “mixed” in 3, including the Boston area. Here’s the analysis of the Northeast region, including Rhode Island: Price pressures are an issue and only a slice of the businesses say they are able to pass some of the higher costs on to clients. Many businesses are worried about credit market turmoil. Retailers said “big ticket” items, including home-related items, are not moving well. Apparel, shoes, accessories, televisions and sporting goods are stronger. Many manufacturers have been helped by robust foreign sales, but some warn that the outlook might not be favorable moving ahead. Many worry about “high, rising or volatile materials costs.”

Gabelli joins Media General dissidents

Mario Gabelli, the Wall Street financier and generous benefactor of Roger Williams University, joined the opposition to managers of Media General, the Virginia-based publisher and broadcaster that owns Channel 10 (WJAR), and said he would vote to elect three directors nominated by dissident investor Harbinger Capital Partners.

Others who have joined Harbinger’s campaign are ISS Governance Services and Glass Lewis & Co. The insurgents claim Media General (MEG:NYSE) has consistently underperformed its peers.

Gabelli’s Gamco Investors owns 22 percent of the Class A stock of Media General. The shareholders’ vote is scheduled for Thursday.

Gabelli, 64, a colleague of Rhode Island business mogul Ralph Papitto, has had the business school at Roger Williams named for him. He is also one of the 13 new trustees added to the university’s board after Papitto stepped down last July after using a racial epithet during a discussion about the makeup of the board of trustees.

Chamber opposes bill to hike taxes

The Greater Providence Chamber of Commerce, the state’s biggest business lobbying group, launched a radio blitz of 60-second commercials last week on six local stations that explained the danger to Rhode Island’s business climate if legislators roll back any of the tax cuts that were approved in prior sessions of the General Assembly.

The ad, produced by RDW Group, opens with the words, “That’s it, I’m out of here,” followed by others talking about fleeing Rhode Island because of the tax burden. The ad explains the gains that have been made and cautions against passage of pending legislation that would roll back reductions in various state taxes.

“The tax legislation turns back the clock,” the ad says, “and will plunge us into an economic death spiral.”

After the bell…

•Willis H. Riccio, chairman of the securities group at Adler Pollock & Sheehan P.C., of Providence, has won national recognition with his selection by Lawdragon as one of the “100 Lawyers You Need to Know in Securities Litigation.” Lawdragon is a legal-services information company that does independent research to compile the lists of the best lawyers and judges, as ranked by clients and peers.

•Tyco International’s ADT security business last week agreed to acquire FirstService Security for about $187 million. ADT, based in Boca Raton, Fla., has offices in Rhode Island that employ 35 workers.

•U.S. Securities and Exchange Commission Chairman Christopher Cox answered concerns from U.S. Sen. Jack Reed, head of the Senate Subcommittee on Securities, Insurance and Investment, about whether the agency had enough money to police the industry, especially after the collapse of Bear Stearns Cos. Cox said his agents can “aggressively” regulate the markets in turmoil because of the subprime mess and the credit crisis with a budget increase of less than 1 percent. The SEC would get $913 million for the year starting Oct. 1, under the request from President Bush.

•Illegal immigration, the talk of Rhode Island after Governor Carcieri’s executive order to crack down on undocumented people, didn’t get a mention in the final debate between Hillary Rodham Clinton and Barack Obama last week before Tuesday’s primary in Pennsylvania.

By the way, Clinton, Obama and John McCain are trying to connect with average, working-class people who are struggling to make ends meet. But the Institute for Public Accuracy set the range of their 2006 net incomes as: McCain, $27.8 million to $45 million; Clinton, $10.4 million to $51 million; and Obama, $456,000 to $1.1 million.

John Kostrzewa is the Journal’s business editor. Share an anecdote from the world of business by sending it to pjbiz@projo.com.