SCRANTON - A lawyer for Honesdale Borough Council members is seeking the dismissal of a $2.5 million lawsuit against his clients in connection with a defunct renovation project at Sullum's Anchor Building.

A federal judge will consider the request and issue a ruling at a later date.

The lawsuit was filed in April in U.S. District Court by Smith & Morris Holdings LLC (SMH), whose address is listed in Beach Lake.

Named in the suit are current council members Scott J. Smith, James Brennan, Juanita Pisano, Bill Canfield, Robert Jennings and Harry DeVrieze, as well as former members Carolyn Lorent, Tiffany Kominski and F.J. Monaghan.

The suit says inaction by council resulted in the renovation project being delayed for more than a year and a half and is over-budget by hundreds of thousands of dollars.

The suit also accuses council of engaging in a conspiracy designed to defame, harass, embarrass and "put the plaintiff's in a false light within the community."

The plaintiffs are Michael C. Morris and Stephen G. Smith.

Council's lawyer, Anthony R. Sherr of Blue Bell, filed paperwork disputing the claims in the lawsuit while seeking the dismissal.

The lawyer said, in part, that SMH has not shown that it was deprived of a protected property interest without notice or a hearing.

Regarding the conspiracy claims, Sherr wrote, "unless coupled with a tangible injury such as the loss of employment or extinction of a vested right recognized by state law, defamation by state officials is not actionable" and the plaintiffs have failed to identify the alleged defamation.

According to the lawsuit, in May 2011, SMH and the borough entered into negotiations to seek a Keystone Communities Program Grant from the state Department of Community & Economic Development (DCED) pursuant to the Keystone Main Streets program for funding and technical assistance for the borough's downtown revitalization and the Keystone Communities Development project that provides grants and grants-to-loans for physical improvements to the community.

SMH invested substantial time, expertise and funds in assisting the borough in applying for the DCED grants and grants-to-loans for improvements to Sullum's Anchor Building. The building is owned by SMH.

The building's renovation project was approved by the DCED and a $255,076 grant was awarded to the borough because DCED determined the project would result in a "true and measurable" benefit to Honesdale and Wayne County.

SMH was to act as the contractor for the renovation project.

As part of the understanding between SMH and the borough, The Dime Bank of Honesdale was to provide "bridge loan" to commence the construction, based upon the commitment of the grant from DCED.

SMH submitted for payment "in a timely and professional manner" construction progress payment authorizations and qualified invoices, as well as other documents required by the DCED. The paperwork was given to Councilman Scott J. Smith, who is the borough's finance committee chairman.

Numerous requisitions for progress payments were presented by SMH to the borough and from the bank, but council failed to follow through in a "reasonably diligent manner" to complete the obligations to the DCED under the grant agreement.

SMH claims council's "unreasonable" procrastination totaled over 18 months of delays and associated carrying costs, additional costs to vendors that demanded up-front payment and inflated quotes to finish the work they started.

The result was increased project costs by an average of 30 percent above industry standards, the suit says.

The borough's lack of follow-through to complete its obligations to the DCED also resulted in The Dime Bank freezing and placing SMH's bank accounts into default.