PROVIDENCE — In August 2004, Department of Transportation Director James Capaldi fired the chief of his agency’s real estate division, Ann M. Hollands, for “insubordination” and “misconduct” that had allegedly placed millions of federal highway dollars at risk.

Said her lawyer: “She was one day, with no warning, escorted from the building after she made complaints concerning the handling of some federal money.”

By this spring, however, Capaldi was gone and Hollands had been reinstated to her $88,982 job with back pay after years of hearings by the state’s Personnel Appeal Board and $124,281 in DOT-paid legal bills. What happened here?

Hearing transcripts that have just recently come to light reveal a flurry of charges and countercharges in a case that ended when Capaldi left the DOT and his successor agreed to the settlement that restored Hollands to her job.

The transcripts provide a rare inside view of the decision-making behind more than $30 million in DOT real estate acquisitions, and the infighting and second-guessing that, at one point, led Capaldi to ask the state police to investigate Hollands and her husband, William McGovern, a real estate appraiser. No criminal charges resulted.

The records also describe alleged overpayments by the DOT for the privately owned property it acquired for several major road projects, including the Route 195 relocation, the new highway ramps built to carry traffic to and from the Providence Place mall and the new four-lane highway that connects Route 4 in East Greenwich to the Quonset Point industrial park.

They disclose Capaldi’s efforts to get the state police to investigate Hollands’ role in the DOT’s acquisition of a former cement-mixing plant in East Greenwich for twice what two private appraisers had said it was worth.

And they reveal the efforts of an unidentified tipster within the DOT to get the FBI, the U.S. Attorney’s office and the inspector general at the U.S. Department of Transportation to investigate allegations that Hollands “coerced” coworkers into inflating real estate valuations.

The documents also raise questions about the extent to which office politics — including the fact that Hollands had at one point beaten out Capaldi’s wife, Lori, for a promotion — played a role in her firing.

At one point during the hearings, former DOT legal counsel Harris Weiner recalled a conversation he had with Capaldi years before Hollands’ firing when Capaldi was still the department’s chief engineer. Weiner said, Capaldi told him: “He didn’t like her because she had, in his view, interfered with his wife’s career and that he had to listen to his wife every night complain about it and he said: I can’t be fair about her.”

Weiner’s own assessment of Hollands as one of her former supervisors: “She was professional at all times. She was unflappable. She was poised, fair and patient … in her management of a very — a very difficult staff.”

“We had, ah, people not willing to put in their 35 hours, people with alcohol on their breath, people not following instructions, people not being where they were supposed to be,” Weiner testified.

WHERE DID personal animus between Capaldi and Hollands end, and other problems between Hollands and her DOT superiors begin?

In his opening statement to the state’s Personnel Appeal Board, the DOT’s $295-an-hour lawyer Andrew Prescott, said: “The [administrator’s] role that was held by Ms. Hollands involves managing … the sale and acquisition of property and interest[s] in property that are worth millions of dollars annually. The stakes are very high here.”

He said “Hollands’ insubordination, poor management of her section, her failure to make sure that RIDOT and the taxpayers of this state did not overpay for property … caused director Jim Capaldi to lose confidence in her.”

The target of those harsh words was a woman fired at age 56, one year and a few months short of the 10 years she needed to qualify for a state pension.

On her lawyer’s advice, Hollands has declined to discuss her case with The Journal. But on the stand, she described herself as a general certified appraiser with years of experience in the Rhode Island real estate industry. She owned the East Bay Associates real estate company in Bristol; co-owned Northeast Consulting and Appraisal with her husband; ran seminars for new homeowners; led a nonprofit group’s effort to buy and convert a vacant convent into temporary housing for abused women and was a one-time GOP chairwoman in Bristol who waged an unsuccessful Republican run for a state House seat in 1982.

Placed on paid leave on Jan. 23, 2004, she was fired 6 1/2 months later after DOT efforts to arrange a new job for her at T.F. Green Airport collapsed. Her Aug. 6, 2004 termination letter said, in part: “The department has concluded its internal investigation, audit and review regarding certain allegations of administrative impropriety, misconduct, mismanagement and insubordination committed in the performance of your official duties.”

“The evidence reviewed by the department supports the finding that you engaged in a pattern of inappropriate conduct that violated established internal and external regulations and procedures. Such actions jeopardize program activities and federal funding…. Your credibility with the department, the State Properties Committee and the Federal Highway Administration has been compromised.”

Prescott cited a number of specific reasons for the firing, including the findings of DOT auditors and a review team from the Federal Highway Administration of overpayments for some properties, “incomplete negotiator reports” and “minimal or missing records to support value increases.”

But the apparent tipping point was a memo Hollands sent Sandra Winslow in the governor’s constituent affairs office on June 23, 2003 that Capaldi viewed as “an act of insubordination.”

Winslow had inquired about the status of the DOT’s on-again, off-again plan to buy all or part of the West Bay Christian Academy’s 10.23-acre campus on School Street in North Kingstown for the new Quonset Point access road. The school’s lawyers argued that lopping off half the site would kill expansion plans, spoil the pastoral campus, subject the students to distracting highway noise and possibly even cost the school its accreditation.

Hollands favored total acquisition despite a projected $6 million to $8 million asking price; Capaldi wanted to buy only the 4 to 5-acre slice the DOT needed.

Hollands sent a draft of her memo to Winslow up the chain of command to Capaldi for review. Capaldi said he objected to wording that made it sound like “it made sense to buy the academy” and told her to take it out.

“She said that I didn’t know what I was talking about … and I said, ‘I don’t want to hear. I don’t care about that. I want the language taken out.’ ”

Hollands was not alone. A July 2002 report from DOT appraiser Paul Vincent said a carved up campus would have “no value to the owners.” The school’s own appraiser pegged the cost of relocating to a new site at $5.7 million.

Capaldi said he didn’t learn until soon after the discussion with Hollands — when he was called to a meeting in the governor’s office with school officials— what Hollands had actually written Winslow: “Considering the need for expansion, the taking of approximately 50 percent of their property would clearly cause significant damage to the remaining parcel and, in effect, be tantamount to a full taking of the property.” He said he feared the memo would land in the hands of the school officials.

Capaldi ordered two new appraisals. In October 2004, the DOT took 4.2 acres of the 10.23-acre school site by eminent domain for the new roadway, paying $856,917. That included an initial $520,330 and then an additional $336,587 after the school’s owners went to court in a successful bid for more.

“It’s Rhode Island, the way things happen here,” said headmaster Richard Clarkson in a recent interview. But, “we’ve settled with them. We’re staying here. We’re not pleased with the situation, but there’s really not anything we can do … we’re here for the long haul and we think we’ve got a great school.” Said Capaldi: “They never had to move. They haven’t move[d] even today.”

“Now what harm did this letter cause?” Hollands’ lawyer Robert Goldberg asked Capaldi at the appeal board hearing.

Said Capaldi: “Once it was intercepted, none,” but “she was insubordinate in sending the letter to Sandra Winslow the way I didn’t want it and when I saw these three separate expert appraisers say that my position was more correct than hers, then I started to lose confidence in Ann, her ability to run and manage the section.”

BEFORE ANY OF THIS erupted, however, one of Capaldi’s top lieutenants, David Sasso, ordered DOT auditors to review other real estate deals that predated Capaldi’s promotion to DOT chief in January 2003.

In a March 17, 2003, memo to chief auditor James Choquette, Sasso requested a “complete audit” of a half-dozen acquisition and sale files “for my review and information ASAP.” Before long, the state police, the U.S. Department of Transportation’s Office of Inspector General, the U.S. Attorney’s office and the FBI were examining Hollands’ desk, e-mails, personal finances and project files with names like: “Pawtucket Ready Mix”and “Newport Mall” and “Farmer’s Market.”

The first federal agency to question these same real estate deals was the Federal Highway Administration, the main source of Rhode Island road money.

In a September 2002 report, the FHWA remarked, for example, on the “very poor documentation” for some high-priced acquisitions, such as the $14.1 million the DOT paid Amtrak to acquire the former Farmer’s Market in Providence for the construction of new highway ramps leading to and from the Providence Place mall, which opened in 1998.

“And she didn’t do a good job on that?” Goldberg asked. “It’s what she didn’t do,” replied Capaldi, suggesting the DOT could have paid a fraction of the $14.1 million — “somewhere between $4 million and $6 million” — if it had only purchased that portion of the property needed for the ramps.

Goldberg produced a March 1, 1999, memo to Hollands from Capaldi, who was then chief engineer. Titled “I-95 improved ramp access,” it began: “I would like to express my sincere appreciation to you and the staff who made it one of the most successful large scale efforts ever accomplished during my tenure.”

When asked about this, Capaldi said: “When I wrote this letter, it’s exactly how I felt, but it’s not what I found out later.” He said he wasn’t “privy” until he became director to appraisals and other documents “that showed we could’ve paid a lot less money.”

Also of concern to the FHWA — and other investigators — was the DOT’s handling of the 1998 sale of a chunk of DOT-owned property to the new owners of a mall along Admiral Kalbfus Road in Newport.

The DOT had purchased the land in the mid-1960s for the planned relocation of Route 138. The mall’s new owners, R.K. Management, wanted it for parking and landscaping. The FHWA reviewers wrote: “Negotiators log sparse.” In this case, they questioned Hollands by name.

Capaldi told the appeal board that Hollands “defied three of her senior staff in recommending selling property to the owner of the Newport Mall for half its value…. She went so far as to perform her own appraisal, review it herself and negotiate it, all after she knew what the property owner wanted to pay….”

“It sold for $250,000. There was a letter in the file signed by three [DOT] employees that didn’t want to change the value. They thought it should be $600,000.” In their March 20, 1998 letter, appraisers James O’Connor Jr., John P. Ryan and Paul Vincent said they could not “envision a change in the market value determination of any significant magnitude.”

If the FHWA reviewers were aware of this, they didn’t say so in their report. They said: “Ann Hollands’ appraisal was adequate but it is unusual to have a real estate section head performing acquisition appraisal and subsequently negotiation on same property,” and “we have questions about the appraisal methodology … On balance, file needs more documentation of discussions between RIDOT staff as to negotiation to lower value of parcel.”

In their own Jan. 20, 2004 report of what happened in 1998, DOT auditors James Choquette and Joseph Murphy said the $600,000 was what an in-house appraiser thought the property was worth, but Hollands rejected the opinion on grounds it had failed to take into account items such as road and drainage work that were all “developer expense — benefit motoring public!” Hollands’ placed a $287,000 value on the property. Her appraisal is not in the DOT’s file. But the day it came out, the auditors said, the mall owners made a $250,000 offer that Hollands accepted, subject to the approval of others.

The DOT auditors said Hollands’ “insistence” on reducing the appraised value by 50 percent “over the strong objections of the senior appraisal staff raises concerns as to the appraisal and the method used by the administrator. Additionally, by personally performing the entire process without in-house review, coupled with the strong staff objections, the administrator of real estate displayed poor management skills over her professional staff.”

In her defense at her own deposition, Hollands said she was aware at the time how important this land sale was to Newport’s development plans for this corner of the city, not far from Newport Grand. Of the letter from the employees, she said: “They came back to me and said they would not change their opinion … They’re within their right to do that. On the other hand, we had a higher goal that had to be met.”

In a separate case, the auditors reviewed the business relocation expenses the DOT paid companies on Allens Avenue that were displaced by the massive Route 195 construction along the Providence waterfront.

After finding $110,474 in overpayments to Gregory Cooney Belt, F & D Realty and a half-dozen other Allens Avenue companies displaced by the road and bridge work, the auditors said: “There appears to be a lack of administrative oversight. Many of the files reviewed have numerous errors in calculations … which lead to thousands of dollars in excess payments.” Even “where mistakes were highlighted by correspondence to the administrator … it appears no actions were taken to correct the problems or recoup monies incorrectly paid.”

Capaldi would later acknowledge under questioning that he was unaware of Hollands’ efforts to withhold final payments to Cinnabar Service Co., the Oklahoma-based contractor that handled the relocation payments, until some of these same questions were cleared up.

When Murphy was asked during the appeals board hearings if he was “aware of any factual basis whatsoever” for Hollands’ discharge, he said: “No.”

Nonetheless, three days after the audit came out, Capaldi placed Hollands on a paid administrative leave that ended with her firing seven months later.

CAPALDI’S REQUEST for a state police investigation of Hollands, however, was sparked by yet another case she dealt with as the DOT’s head of real estate: the 1998 payment by the DOT of $5.4 million for 63 acres in East Greenwich along the route of a new connecting road to the Quonset Point industrial park.

The DOT needed only 7 acres of the property, once occupied by Pawtucket Ready Mix, for the right-of-way, according to spokesman Charles St. Martin, but bought the entire parcel because the rest of the land would be landlocked by the new highway. One of the two appraisers hired by the state valued the property, including the company’s equipment, at $2,610,000. The other valued it at $2,765,000, which was summarily rejected by the then-principals in the Pawtucket-based sand, gravel and concrete-mixing company: Thomas, Joseph, William and James McHale, Thomas Massey and Angelo Saccoccia. Questions were raised about the much-higher price the DOT agreed to pay at a January 1998 meeting of the State Properties Committee. Explaining why the DOT was willing to pay almost double what its appraisers said the property was worth, James O’Connor, then chief of the DOT’s appraisal review division, said the appraisers failed to fully take into account the business value to the owners of having access to unlimited supplies of water from a pond on the property.

“They made a mistake,” agreed Dennis Lynch, the former Pawtucket mayor — and father of Attorney General Patrick C. Lynch — who chaired the properties committee at the time and after initial resistance, backed the DOT’s bid to include a $500,000 “administrative settlement” payment to the concrete plant owners in the purchase price. Hollands explained the rationale in a deposition: “The department does not like to get into protracted legal battles. That’s costly. It takes time and Federal Highway encourages us to sit down with the property owners and talk to them and negotiate administrative settlements, if possible … over and above and outside of the realm of appraisals.”

But Choquette and Murphy questioned the selection of an appraisal method that resulted in “a significant increase” in the value of the equipment.

In a letter to Hollands shortly after she was placed on leave, DOT personnel administrator Paul Pysz cited another reason entirely for accusing her of “misconduct” — the fact that Hollands’ husband’s company, Northeast Consulting and Appraisal Services, had done an appraisal of the property for the DOT three months before she was hired.

Pysz chided her for immersing herself in the negotiations and approval of the $500,000 settlement payment to the owners of the concrete company “despite the existence of an initial appraisal conducted by your husband.” DOT lawyer John B. Affleck accused Hollands in a subsequent letter of “failing to disclose the prior appraisal.”Speaking recently through her lawyer, Hollands said her relationship to McGovern was “known to everybody” including the FHWA right-of-way officers with whom she worked on the project. None saw an issue, she said, because DOT higher-ups decided long before the negotiations got under way to “start from scratch” by hiring other appraisers to look at the property from a different point of view.

Capaldi nonetheless asked the state police “to review the PRM file with regard to Ann’s involvement … and whether there was any issue involved, breaking any ethics law.”

“We wanted their opinion,” he testified. “From that, evidently this agency [the U.S. DOT Office of Inspector General] was contacted or got involved.”

ON FEB. 5, 2005, the inspector general’s office issued a letter saying the U.S. Attorney’s office found “insufficient evidence” to prosecute.

The letter was not in Hollands’ personnel file, according to Goldberg, who said he obtained a copy by filing a federal records request. While heavily edited with a thick black marking pen, the letter contained a series of anonymous allegations that Hollands “pressured RIDOT appraisal personnel to increase the monetary value of appraisals without proper documentation,” and that her “actions had inflated the value of the properties in questions by millions of dollars.”

Names were crossed out, along with whole phrases, but the insinuation remained that Hollands had involved herself with properties that had been appraised by companies with which Hollands or her husband, William McGovern, had at some point had “a business relationship.”

In his hearing and deposition testimony, Capaldi denied knowing the source of the allegations.

But federal authorities clearly took the allegations seriously as evidenced by this sentence in the letter: “Contact with the FBI Providence, Rhode Island office was established and a joint investigation was initiated. The matter was presented to the U.S. attorney’s office for the District of Rhode Island and was provisionally accepted for prosecution.”

Nothing much came of it.

“An extensive background and financial investigation was conducted to potentially identify any financial anomalies regarding Hollands or her husband … No such anomalies were noted.”

While she was on paid leave, her computer, e-mail files, desk and office were searched. It remains unclear who did the search, but the letter says: there was “no evidence to sustain the allegations that Hollands received anything of value or compensation for allegedly improperly manipulating the value of any RIDOT land conveyances or acquisitions.”

Finally — and most importantly — the letter said: “insufficient evidence to prosecute.”

Said Hollands’ lawyer, Robert Goldberg: “Notwithstanding all of the serious allegations … she completely withstood extensive background and financial investigations … The government brought in the best they had and examined from one end to the other and found nothing wrong in any of her actions. Anybody reviewing her discharge needs to be made aware of that. That also speaks to the credibility of those testifying against her.”

Reached recently, Capaldi, now working for the Louis Berger Group, a DOT contractor, declined comment, citing a more current state police inquiry into DOT activities.

When asked by Goldberg, however, during one of the appeal board hearings what relevance his wife’s disappointment at losing a DOT job to Hollands had on his actions, he said none.

“You wanted your wife to become the director of real estate instead of Ms. Hollands, correct?” Goldberg asked. Capaldi: “No, no I did not.”

Goldberg: “And why was that?”

Capaldi: “One is — it reported to me…. Plus, I didn’t think that at that time it was a good time for her to try to jump to the top spot. I thought it was too early.”

ANN HOLLANDS no longer runs the DOT’s real estate division.

After three years of hearings, she is back at work in the new $88,982-a-year role that current DOT director Jerome F. Williams created for her after deciding, soon after his own arrival at the agency late last year, to stop paying a lawyer $295 an hour to defend the firing, strike a settlement and put Hollands back to work.

While Hollands’ former boss, David Sasso, now oversees the real estate division, Hollands is “completing a full inventory of state owned land to determine what land may be surplus and can be sold. This is the first time that DOT will have a full inventory and evaluation completed,” said DOT spokesman St. Martin.

On the advice of her lawyer, Hollands is not talking.

In a deposition, however, she described herself as the victim of a long-running campaign by Capaldi, Sasso and Choquette to root out anyone hired — as she was — by former Gov. Lincoln Almond’s first director of transportation, William Bundy.

She does not explain the animosity toward Bundy, who did not last long at the DOT. She also blamed Sasso for undercutting her efforts to discipline staff, hold them to deadlines and cut wasteful use of state-paid employee time.

She cited, as an example, her efforts to make the agency’s property management staff report what they worked on each week so she could show them “here is an assignment that should have taken you, at best, 40 hours. You have charged in excess of 120 hours against that project … did not receive satisfactory support from Mr. Sasso at all.”

She never fully explains her lawyer’s description of her as a whistleblower. But her deposition talks about finding $2 million in an “escrow account” that no one could easily explain. She said: “They had no idea where all that money was going … It took us better than a year … going through files upon files upon files to find out how all that money got put into an escrow account and why it was still sitting there.”

After it was “found,” the money went into “a massive resurfacing job,” she said.

She also attempted to “set the record straight” about her role in the Newport land sale, and why she over-ruled her appraisal staff, saying they didn’t take into account problems with the land that lessened its value and improvements that the purchasers were making that would benefit the public.

In response to the FHWA’s observation that it was “unusual” to have a real estate section chief personally appraising and then negotiating sale terms on the same property, she said an appraisal isn’t even required for the sale of surplus property, but she felt compelled to do one “in case anybody questioned where that number came from.” Of her husband’s role in the concrete-plant acquisition, she said: “At no time did I meet with my husband … relative to any real estate appraisal that was completed for the department.”

After she was hired, Hollands said McGovern’s “only involvement” with the DOT was “strictly limited” to discussions he had with FHWA realty officer Brad McMahon “and other members of my staff. I recused myself.” By the time serious negotiations got under way, the DOT had other appraisers. “At no time,” she said, “did William McGovern participate in any of those discussions and subsequent negotiations for the ultimate acquisition of PRM.”

She described going down to Capaldi’s office sometime in early January 2004 to ask why DOT auditors were still in and out of her office.

“I asked exactly what it was that he was looking for. This had been going on for well over a year, and we had just gone through the very same files with the FHWA.… I asked Mr. Capaldi, why now again? Why are we going through this? Is it something — is it your feelings of ill will towards me?”

And, “he said, Ann, I certainly know how you feel. Nobody wants to be known as the person who always has auditors in her office…. Jim Choquette came to me when I got named director and asked if he could look at these files and do an in-house audit. I told him yes, but…. Ann, you have my word, I am going to tell him immediately to wrap this up. It has taken far too long…. It’s nothing personal. We’ll take care of it.” Next she knew, she was out.

The April settlement of her case cut short her Personnel Appeal Board case after at least eight hearings stretching from March 31, 2004 to Feb.8, 2007. But based on what they heard up until that point, two of the three appeals board members had doubts about the state’s case. The chairman, Morris Weintraub, has refused to talk about the case — or even disclose when the hearings were held.

Lawyer Kevin Horan said “there were questions I was still looking to have answered by the defense,” but he felt Goldberg had “undercut enough of their arguments” that “if state had moved at the conclusion of their case, to rule in their favor, I wouldn’t have been in any position to do that.”

Like Horan, North Providence Mayor Charles Lombardi no longer sits on the appeal board. But Lombardi had this to say of the $124,000–plus the DOT paid a private-sector lawyer to defend Capaldi’s actions: “That is nauseating.”

“After the first two hearings, I was wondering why we weren’t settling this.”he said. “It was clear to me Ann Hollands seemed to have a pretty solid case.”

kgregg@projo.com