FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 1
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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Hon. Robert S. Lasnik
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WASHINGTON AT SEATTLE
CHARLES E. ORTEGO and ANNA S.
PONOMAREVA and the marital community
composed thereof; JOHN S. APOLIS and
MARCIA APOLIS, and the marital community
composed thereof; VICTOR D. ARMFIELD, an
individual; CHARLENE BALDRIDGE AS
TRUSTEE FOR COKD TRUST; LA PRIEL C.
BARNES, an individual; BOYD BARRY, an
individual; MIDANA BILIK-FRANKLIN, an
individual; GRANT P. BOWERY, an individual;
ANDREW CHALMERS, an individual;
JENNIFER L. DUBROW, an individual; EDSON
A. ENGEL and PATRICIA G. ENGEL and the
marital community composed thereof; LINDA
FENGLER, an individual; FISCHER
TRUCKING, LLC, a Washington for profit
corporation; STEPHAN R. FREELAN, an
individual; RUTH GROSS, an individual; JOY
KRELL, an individual; EDWARD EARL
LAWSOM, an individual; LUMMI ISLAND
LAND COMPANY, a Washington for profit
corporation; MARK MECH, an individual; LEE
G. MUNDSTOCK, an individual; RICHARD
OWEN, an individual; GERALD G.
SCHROEDER, an individual; HUGH B. SMITH
and TERRIE L. SMITH, and the marital
community composed thereof; THOMAS L.
WAGGONER and ROSALEE WAGGONER,
and the marital community composed thereof, and
LOUISE WEBER and JOHN M. WEBER, and the
marital community composed thereof,
Plaintiffs,
No. 2:14-cv-01840 RSL
FIRST AMENDED COMPLAINT
FOR RICO VIOLATIONS,
CORPORATE DISSOLUTION,
TREBLE DAMAGES AND
OTHER RELIEF
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 1 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 2
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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v.
LUMMI ISLAND SCENIC ESTATES
COMMUNITY CLUB, INC. , a Washington non-
profit corporation; MARK R. SEXTON and
JANE DOE SEXTON and the marital community
composed thereof; DOUGLAS CASH and JANE
DOE CASH and the marital community
composed thereof; RONALD C. BAIN and JANE
DOE BAIN and the marital community composed
thereof; LESLIE M. DEMPSEY and PAUL C.
DEMPSEY and the marital community composed
thereof; BRIDGED LOTT and JOHN DOE
LOTT and the marital community composed
thereof; MEREDITH MOENCH, an individual;
KENT C. NIELSEN and JANE DOE NIELSEN
and the marital community composed thereof; J.
TIMOTHY SLATER and JANE DOE SLATER
and the marital community composed thereof; and
KENNETH SWANSON and JANE DOE
SWANSON and the marital community
composed thereof,
Defendants.
Plaintiffs, through counsel, allege as follows:
I. INTRODUCTION
1.1 This is a complaint against defendant Lummi Island Scenic Estates Community
Club (LISECC), a Washington nonprofit corporation, which purports to be a homeowner
association, and against individuals on its board of directors who operate(d) it as a racketeering
enterprise. LISECC fraudulently and illegally asserts that hundreds of landowners in an area on
the Lummi Island, Whatcom County, Washington, called “Lummi Island Scenic Estates” (LISE),
are members in LISECC by virtue of owning lots in LISE; and are obligated to pay dues and
potentially assessments. These claims are false, because the plat restrictive covenants requiring
owners to be a LISECC member (and thus pay dues) expired by 1990. Using a series of frauds,
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 2 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 3
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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and using the U.S. mails and wires extensively, the defendants operate LISECC as a racketeering
enterprise to deceive LISE owners into paying over a million dollars in “dues” in the last few
years when no “dues” were due. The claim dues are due, is a mail and wire fraud. Moreover,
defendants also operate LISECC as a racketeering enterprise to take the dues revenue and put it
to personal gain, using most of the revenue to pay for their (and their friends’ and relatives’)
water costs for the water supplied by LISECC, benefitting a minority of LISE owners including
most defendants whilst oppressing and financially harming the 85% majority of some 400 LISE
owners. In other words, the dues bills are frauds because dues are not due, but they are also
frauds because the money collected is principally water costs, not homeowner association dues.
1.2 More recently certain individual defendants also operated LISECC to commit four
related acts of obstruction of justice/witness tampering, and extortion, in furtherance of this
ongoing Ponzi-racketeering scheme, by physically attacking the property of plaintiff Charles
Ortego. One such attack was the day after this RICO complaint was first served on LISECC.
1.3 The scheme involves mails and wires extensively because the fraudulent so called
“dues” notices are sent through the mails, amounts are paid to LISECC through the mails, and/or
electronically, and LISECC’s website is used extensively to further the fraud with false
statements that LISECC has dues authority in perpetuity or that it did something in court in 1990
to take care of potentially expiring dues authority; and other false statements. The “dues”
notices are mailed at the end of each year to the roughly 400 persons paying dues. Exhibit A
hereto is a true and correct copy of the dues notice sent at the end of 2014.
1.4 This suit is filed to stop this classic RICO mail and wire fraud and stop the
ongoing, mounting injury to pocketbooks and property of plaintiffs and other LISE owners. The
injury to property from the RICO activity is estimated as some $4 million or over $12 million
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 3 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 4
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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after trebling. Because defendants intend to operate LISECC to continue to deceive and defraud
some 340 LISE owners harmed by the scheme to pay the “dues” that are mainly used for water
costs of 60 other LISE owners living there full time, including most defendants, this suit is also
to prevent massive future injury to property. By asserting LISE owners are members in
LISECC, defendants also intend to operate LISECC in the near future to commit additional
frauds including imposing large “member assessments” on each LISE lot owner, to pay the likely
future replacement and repair costs of the LISECC water system that exists mainly to benefit the
60 full time residents in LISE, by harming the 340 who are part time residents at most, using no
water, or very little water. The resulting injury to property and money damages suffered by
plaintiffs from this ongoing racketeering scheme is not just the thousands of dollars every year
extracted as dues, but also much more to be extracted in the future in the form of ever-increasing
assessments as the 80% beyond-useful-life water pipes collapse and need replacement in the near
future, as well as property injury in other forms such as depressed real estate values from being
subjected to LISECC member obligations, dues and assessments.
1.5 This suit seeks to shut down this growing Ponzi scheme. Plaintiffs also seek
treble damages and fees under RICO and the Washington Consumer Protection Act, RCW 19.86
et seq.; damages and dissolution of LISECC under State law (e.g., RCW 24.03.266); and
declaratory and injunctive relief. The LISECC water system that exists mainly to serve the 8
defendants and some 52 of their friends and relatives who are full time residents, can continue
with water users only, paying costs of water, according to use. This is whether the system
remains in a LISECC or is transferred to a public utility. Either way, the water system will be
operated fairly and legally, no longer be used as part of RICO schemes to take millions of
dollars of other people’s money, including plaintiffs’, for personal benefit to defendants.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 4 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 5
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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II. PARTIES, JURISDICTION, VENUE, INTERSTATE COMMERCE, STANDING
2.1 Jurisdiction and venue are proper in this State, district and court. LISECC does
business in, “resides” in, and is headquartered in the Western District of the State of Washington.
Defendants Sexton, Cash, the Dempseys, Lott, Moench, Nielsen, Slater, and Swanson reside in
this State and district. Bain resides in Vancouver, Canada. The individual defendants are sued
individually and as marital communities and each individual sued owns land with a home in
LISE; has served on the LISECC board of directors since 2011 (Sexton, Cash, Swanson, Lott and
Slater currently are on the board), and have acted in jointly, in concert and in conspiracy to
operate LISECC in a pattern of racketeering activity. Alternatively Nielsen resides in Florida.
Nielsen and Bain have visited this district and State repeatedly to stay in their homes in LISE or
attend board and annual meetings at LISECC’s clubhouse in LISE or extensively communicated
with other directors in this State and District about issues in this suit. Each defendant resides in
this district and State; or transacts his or her affairs here including doing business related to
LISECC and this suit. The wrongs complained of took place in and arose in this district.
2.2 The RICO enterprises here (LISECC and the association in fact of individual
defendants), affect and operate extensively in interstate commerce. About 25% of the owners of
LISE lots reside outside Washington State (29 in Canada, 19 in California, two each in Nevada,
Arizona, and Oregon and one each in Germany, Australia, Alaska, Montana, Ohio, Iowa, New
Hampshire, Maryland, Virginia, North Carolina, Georgia and Florida) and defendants operate
LISECC to collect about a quarter of its revenue from outside Washington State. It mails dues
notices, other bills, and newsletters, to LISE owners across State lines, and takes payment in the
mail crossing state lines, and communicates with the LISECC “members” across State lines
using the website to publish minutes, budgets, resolutions, and false statements such as false
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 5 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 6
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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statements that dues are due, that LISECC has perpetual dues authority and somehow took care
of or rectified expiring dues authority back in 1990, and false assurances that LISECC reserves
are healthy, to deceive LISE owners to keep on paying dues, and to think they are LISECC
members for the day when the looming assessments will be sent, based on fraudulent claims
LISE owners must pay assessments as “members” thus shifting massive costs of replacing the
aging water pipes onto the non-full time residents, the 85% majority who use no or little water.
2.3 This Court has federal question jurisdiction under 28 USC § 1331, as this case
includes RICO claims under 18 USC §1962(c), (d); §1964. This Court has jurisdiction over
State claims asserted herein under 28 USC § 1367(a) as they are so related to the RICO claims
that they form part of the same case or controversy under Article III of the U.S. Constitution.
Venue and jurisdiction are proper in this district under 18 USC §1965(a); each defendant resides,
is found or transacts his affairs in this district. Each individual defendant except Bain and
possibly Nielsen, reside in this District and Bain and Nielsen do business in Washington State
and this district, have availed themselves of the laws here (owning property/serving as LISECC
directors) and/or have multiple contacts here (owning property, visiting, directing LISECC)
making the exercise of jurisdiction comply with due process. Venue and process over them is
also proper under 18 USC §1965(b) and (d); there is no better district and justice requires those
non-resident defendants be subjected to process here in one action with other defendants.
2.4 Plaintiff Charles E. Ortego, Victor D. Armfield, La Priel C. Barnes, Boyd Barry,
Grant P. Bowery, Steve Crisp, Jennifer L. Dubrow, Stephan R. Freelan, Edward Earl Lawson,
Lummi Island Land Company, Lee G. Mundstock, Richard Owen, Anna S. Ponomareva, Gerald
G. Schroeder, Hugh B. and Terrie L. Smith, Marcia Smith, and Louise and John Weber, reside in
this district in Washington. Other plaintiffs reside in other parts of this State, other States or
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 6 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 7
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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Canada. Each plaintiff owns one or more lots in LISE and has paid LISECC pursuant to
fraudulent “dues” bills, in the last four years and for years before that. Such payments are injury
to property under RICO and the Washington CPA. All plaintiffs suffered other injury to
property (in lost real estate values, or having land made subject to claims of fraudulent member
obligations, or attacks on Ortego’s property) due to the RICO activity.
2.6 RCW 24.03.266 standing requirements are fulfilled; this section allows a State
law claim to dissolve a nonprofit corporation, if members who exceed “five percent of the voting
power” join the action. There are 266 voting members in LISECC. (This is less than the 400
dues paying members; LISECC limits a person owning 2 or more lots to one vote.) Five percent
of 266 is 13.3 and plaintiffs exceed this number, approaching 10% of the voting power.
III. FACTS
A. LISE Covenants Requiring Membership in LISECC Expired in 1990. LISECC
Collected Millions in “Dues” Thereafter Illegally. Defendants Operated LISECC
Since 2011 to Collect Over $1 Million in “Dues” Illegally and Fraudulently.
3.1 LISE is a subdivision on Lummi Island, with some 447 lots, created in nine
instruments recorded from 1959 through 1965. Some 400 persons own the 447 LISE lots.
LISECC falsely claims these LISE owners are “members” in LISECC, that LISECC is a
homeowners’ association with jurisdiction over them; and each must pay “dues” by virtue of
such “membership” and ownership, but these claims are false because the original plat covenants
created an obligation for an LISE lot owner to be member in LISECC only for twenty-five
years after the last instrument was filed. The covenants requiring membership expired along
with all other restrictive covenants in the plats, by 1990. LISECC’s claims LISE owners are
members, and its dues collection, has been illegal since 1990.
3.2 All dues collection since about 1990 has been illegal, and defendants know this
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 7 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 8
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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based on the original plats, the original bylaws and the deceptive false statements of fact
defendants have made LISECC put forth to continue to deceive, lull and gull the LISE owners
into paying hundreds of thousands of dollars a year in “dues.” These deceptions included
specific claims that LISECC somehow overcame the “potentially expiring” membership
obligation.
3.3 The original plats made all restrictive covenants in ¶¶ 1-8 last only 25-years,
including the membership obligation in ¶ 8 of the restrictive covenants in ¶¶1-8:
All lots, tracts, or parcels of land embraced within this plat shall be subject to
the following restrictions for a period of twenty-five years from the date of the
recording of this plat, and all sales or transfers of ownership of the lots, tracts, or parcels
shall be subject to these RESTRICTIONS as follows:
1. No lot . . . shall be subdivided . . . whereby [it shall be] less than 7500 sq.
ft. or less than 50 ft. in width at the building setback line.
2. No structure or building shall be constructed on any lot, tract, or parcel of
this plat closer than 20 ft. to the front property line [etc.].
3. Construction of any lot shall require a building permit . . .
4. . . . Construction and use of private sewage disposal systems shall be in
accordance with the requirements of the County . . .
5. No building shall be placed or maintained on any lot except a private
dwelling, . . the sole use of the owner or occupant . . . .
6. Exterior work on any building shall be completed within one year from the
start of construction. . . . Exterior finish shall be of wood, stone, brick, glass, concrete,
or like material. . . .
7. Each lot is entitled to one hookup to the private water system. . .
8. Ownership of those areas marked “Reserve” and Secondary Tidelands
owned will be conveyed to a private, non-profit corp. to be known as LUMMI ISLAND
SCENIC EST. HOLDINGS INC. Ownership in any lot carries the ownership of one
membership in said corp. subj. to the Articles and By-Laws thereof. Ownership of any lot
in this plat shall convey to the owner thereof rights to areas marked “Reserve” on past
and future plats known as Div. 1, 2, 3, 4, etc. Lummi Is Scenic Est., also owners of lots in
said subdivs. shall acquire proportionate in areas marked “Reserve”. Ownership by
volunt. conveyance or contract is rest. to one individual or marriage community. [Italic
and bold emphases added.]
The above language is from Division 3. Each of the seven later-filed instruments (i.e., for Div 3
et seq.) has the same or similar language with the express limit on all restrictive covenants to 25
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 8 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 9
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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years. These amended and superseded the instruments for Div. 1 and 2 filed earlier. The later
filed instruments starting with Div. 3 are in harmony, and govern all LISE lots.
3.4 LISECC admits all lots in LISE have the same obligations this by never having
distinguished lots in Div. 1-2 from lots in Div. 3 and later filed instruments, in terms of dues,
obligations, covenants, etc. Whatever obligations came with lots after all the instruments were
filed, they were the same obligations, covenants and restrictions, including a uniform 25-year set
of restrictive covenants as set forth in ¶¶1-8 in the instrument for Div. 3 and later filed ones.
3.5 LISECC has collected over $ 4.5 million as “dues” since 1990 and some $1.2
million since 2011, using mails and wires. The 2015 budget published on the website states
annual dues will be some $350,000. The amount of “dues” in the next three years will be over
$1,000,000. Such “dues” collections are all illegal, fraudulent and oppressive, part of
defendants’ racketeering scheme; no dues were, are or will be “due,” because the member
obligation ended by 1990.
3.6 Each individual defendant has known that “dues” notices mailed to all LISE
owners are fraudulent, there is no legal basis for dues collection and has acted in bad faith in
seeking and approving dues collection, and operating LISECC to collect this money fraudulently,
using the U.S. mails and wires, through board votes or other action further fraudulent dues
collection, such as asserting the member obligation, setting dues rates, approving budgets,
approving enforcement and collection, approving or authorizing the sending of false bills for
dues through the US mails, publishing newsletters or minutes recounting that LISECC still has
dues authority and sending them through the mails and posting them on the electronic website
(as detailed below). Such actions were done in concert and are unlawful, oppressive, fraudulent
and unreasonable on the part of each defendant from the time each joined the board. Jointly
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 9 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 10
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Seattle, WA 98103
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operating LISECC since 2011, each defendant has harmed LISE owners by over one million
dollars and this is financial abuse under RCW 24.03.266, justifying dissolution of LISECC.
3.7 Defendants each knew this “dues” collection was illegal and each of the dues
statements mailed to the 400 LISE owners for years has been fraudulent as no dues are due.
3.8 Each defendant knew this from the plats; each knows all the ¶¶1-8 restrictions
have not been enforced since, and expired as of about 1990 including the member obligation.
3.9 Each also knew this from LISECC bylaws adopted in 1970 and published on the
website since 2001, stating the member obligation expired after 25 years. Bylaws Art. 1.2.3.1.
Part 2, describes the “LAND COVENANTS,” in force in LISE. Section §2.1.1.1 states “the
following dedication and its eight restrictions [¶¶1-8] are a part of the plats of [LISE] and cannot
be changed, altered, voided, or otherwise revised by any individual or group such as Lummi
Island Scenic Estates Community Club.” This reference to a group included defendants and their
association in fact and their operation of LISECC as an enterprise. The bylaws state in § 2.1.1.3
that, “All lots, tracts or parcels of land embraced within this plat shall be subject to the following
restrictions for a period of twenty-five (25) years from the date of recording of this plat,” then
quotes the terms of plat ¶¶ 1-8 including the membership obligation (in §§ 2.1.2.1-.8).
Individual defendants know their dues collection is illegal under the governing documents,
including the plat and bylaws.
3.10 The original plan of the LISE developers was all restrictions in ¶¶1-8 in the plats
expire by 1990, including the membership/HOA obligation, allowing LISECC to dissolve or
operate the water system as a utility or convey it to a utility. Dissolution of LISSEC does not
require ending the water system. The bylaws stated on dissolution recreational assets of LISECC
(a small lake, clubhouse and dock, each ageing and decrepit today) would go to the County.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 10 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 11
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
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B. Defendants Divert “Dues” Revenue for Water Costs, for Personal Gain.
4.1 Defendants operate LISECC to illegally collect “dues” when no “dues” are due;
each dues notice mailed is a fraud for this reason. Defendants then operate LISECC to take the
dues revenue and mainly use it for paying costs of the LISECC water system when this produces
tens of thousands of dollars of personal gain to defendants. This is an illegal diversion of so
called dues revenue (dues are supposed to be charged in an HOA for facilities used in common,
not services such as water that are used in different amounts by different “members”). The
defendants operate LISECC to divert the “dues” revenue because it produces a personal financial
gain to them, their friends and associates in the full time resident group in the form of vastly
lower water bills such defendants and persons pay.
4.2 This diversion makes each “dues” notice fraudulent because the money collected
as “dues” is not dues because it is largely put to costs of water, i.e., “dues” notices mailed, are
fraudulent, because in reality they are water bills (and more, they are excessive for most owners).
4.3 Among the 400 “dues” paying members in LISE, some 60 reside in LISE full
time. Each of these has a home in LISE with a LISECC water hookup. This group of 60 is 15%
of the 400 dues paying members. The 15% full timer group uses 90% of the water produced by
LISECC. The other 340 dues paying members -- those not living at LISE full time, including
those who never visit or who visit for a vacation or limited time – are 85% of LISE dues paying
members. Most lots in LISE have no home on the lot. Some of these are the 180 lots without a
water hookup. The lots without homes or a hookup are in the 85% group. Their owners just
visit for short stays, vacations, or a limited time. The ones with no water use no water from
LISECC’s piping system. Others in the 85%/340 use very little water as they are there only on a
limited basis. Some visit their LISE lot only a week a year, or do not go for years. This group of
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FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 12
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
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340, the absent or part-time occupants, are 85% of the dues paying members and this 85% uses
10% of the water coming from the LISECC water system. Because most of the “dues” revenue
is taken and used to pay water costs, this means the 85% majority using no water, or little water,
is subsidizing the 15% minority using 90% of the water. Defendants in controlling LISECC
have operated it to misapply and misappropriate the “dues” money, illegally, in this fashion, at
all times since each has been on the board. This is mail fraud and wire fraud because the money
collected via mails and wires, is not in fact “dues” but is used mainly for water costs. The
defendants intend this fraud and operate LISECC to commit it because 8 defendants reside at
LISE full time and are in the 15%, which consists mainly of defendants’ friends and relatives..
4.4 Since 1990, LISECC collected well over $3 million as “dues” from the 85% and
used that to pay for water costs for producing and delivering water for the 15%. The LISECC
water system cost is over $230,000 a year. Most of this cost is paid by the so called dues
revenue. LISECC revenues today are some $297,000 a year including dues of $236,000 (as per
2014 budget; this excludes withdrawals from reserves and certain income dedicated to a loan
repayment fund). The amounts charged as water costs, called water fees, are only some $50,000
a year; far less than the water cost of over $230,000 a year. Deducting the $50,000 from the
$230,000 a year water cost means $180,000 a year in water cost is paid from “dues” revenue and
the vast majority of moneys collected as “dues” are not really dues but are water charges. The
15% group pays dues revenue, too. Subtracting their dues from the $180,000 (they should pay
that part of their water cost) leaves some $138,000 a year as the amount of dues from the 85%, y
diverted to paying for water for the 15%.
4.5 Each defendant while on the board, has supported this diversion of most dues
revenue to water costs, approving the system of operating LISECC to collect “dues” illegally, in
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FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 13
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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order to divert the money to subsidize water costs; in order to financially benefit the 8 full time
resident defendants personally along with others in the 15%; and intending maliciously and
fraudulently to financially harm and take money illegally from the 85% of LISE owners who use
only 10% of the water. This practice is illegal because no dues are due, and also any “dues”
collected must be used, under fiduciary and HOA requirements, only for common facility use,
not measurable variable services such as water use. Each defendant acted unlawfully,
oppressively and unreasonably, also with extreme intentional favoritism to themselves and the
15%, in operating LISECC to use money from all, to pay water costs for the few (the 15%) and
charging all water costs to water users based on use. Misusing dues is not prudent, violates
fiduciary duties to treat members equally and fairly, and not for personal gain, or with favoritism.
In operating LISECC to illegally collect dues then mis-apply the dues revenue for personal and
15% group gain, each defendant conspired to commit mail/wire fraud because each dues notice
mailed was mislabeled as “dues” when in reality most of the sum collected are water charges.
4.6 Starting in 2009 and in years afterwards, including in 2011, each defendant was
aware of the case, Fawn Lake Maint. Com’n v. Abers, 149 Wn.App. 318, 324-326, 202 P.3d
1019 (Div. II, 2009). This case banned an HOA from giving dues exemption for bound lots, i.e.,
contiguous lots owned by the same person in an HOA. The case stated the general principle that
an HOA may not favor some members by increasing financial burdens on the majority of
members. Each defendant has known of this case, since serving on the board, and has known
this principal makes the oppression of the 85% majority to favor the 15% small minority, illegal.
4.7 Each defendant has approved increases in dues each year while on the board; each
intends to operate LISECC to continue, and increase, the fraudulent collection of dues to divert
the money to water costs, acting in concert; and this joint action and conspiracy threatens to
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 13 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 14
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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inflict millions of dollars in more harm to the 85% in the next years.
4.8 Counting dues diversion plus other diversions of money from the 85% (i.e., illegal
bound lots dues exemptions, of $25,000 a year, discussed below plus other charges not based on
water use such as a monthly ready to serve fee charged to nonusers of some $12,000 a year, and
some $13,000 a year in a $71 per lot fee for a state water loan repayment), each year defendants
have operated LISECC to divert the 85%’s money to the 15% in an amount approximating some
$186,000 a year. This annual subsidy of $186,000 a year will increase dramatically as repair
bills mount, water pipe replacement begins, and/or operating costs rise, forcing dramatic
increases in dues or assessments. Defendants are each acting in concert to impose and enforce
the membership obligation on all LISE owners in order to ensure they can impose these rising
costs on the 85%, to benefit themselves and the 15% using 90% of the water. Each defendant
has acted in concert with the others to operate LISECC as a racketeering enterprise using mail
fraud and wire fraud to send dues notices, collect the money and misappropriate it this way, for
the 8 resident defendants’ personal gain. Over the years, such gain to each full time resident
defendant is personal benefit of tens of thousands of dollars; and likely more in the future years.
C. Defendants Operate LISECC for Other Personal Gain via
Bound Lots Exemptions and Charging Water Loan Fees to Non-Users
5.1 There are some 43 “bound lots” in LISE, i.e., where one owner has contiguous
lots. All bound lots have homes most of which are used full time; nearly all bound lots owners
are in the 15% group; most bound lot owners have been on the board or are related to board
members by blood or friendship. Sexton, Bain, Moench, and Nielsen own bound lots. Cash
lives in his father-in-law (Sexton’s) home on a bound lot. Swanson seeks a bound lot exemption.
5.2 For years LISECC exempted bound lots from dues, but in October, 2008 the
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 14 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 15
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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board took action to incrementally revoke dues exemption for bound lots.
5.3 On May 15, 2011, Sexton, Moench, Swanson, and Paul Dempsey, voted on the
board to end the program to end bounds lots dues exemption and reinstate full dues exemptions
for bound lots and told owners via the website. On October 2 and December 4, 2011 Sexton,
Leslie Dempsey, Moench, and Swanson voted for or supported a retroactive refund of some
$30,000 in bound lot dues collected previously; and from 2011 to the present, each defendant
supported and voted for actions maintaining and ratifying the dues exemption for bound lots. On
October 21, 2012, Sexton, Cash, Nielsen and Moench voted to approve a bound lots dues
exemption. Swanson has supported the bound lots dues exemption by seeking one for his lot(s).
these board actions were all communicated to owners via the website.
5.4 Each defendant has supported the bound lots dues exemption while knowing it is
illegal for reasons stated above, including the 2009 case, Fawn Lake Maint. Com’n v. Abers, 149
Wn.App. 318, 202 P.3d 1019 (Div. II, 2009), which was discussed by each defendant on the
board or known to each. This case stated and held that bound lots dues exemptions are illegal.
5.5 The dues notices each defendant has approved sending through the mail, are
fraudulent in overstating “member dues” because even if dues were due, the amounts are
overstated because of the bound lots dues exemptions.
5.6 Since 2011, dues exemptions for bound lots have totaled some $117,000. The
retroactive refund of dues for bound lots granted in 2011 is another $30,000. From 2011 to the
present LISECC has exempted or rebated some $147,000 for bound lots. This amount was
fraudulently collected from the 85% including plaintiffs via the mailed dues notices.
5.7 The present amount of dues exempted for bound lots is some $31,218 (43 x $726)
annually. This exemption amount will increase in the future because dues will increase. The
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 15 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 16
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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total for bound lots exemptions from dues will be some $125,000+ in the next four years.
5.8 Exempting bound lots from dues is further unfair, oppressive, fraudulent and
illegal operation of LISECC by defendants as each knows this is illegal; it is also favoritism
imposing on the 85% financial burdens with benefit to the 15%. It is illegal, as each defendant
knew, under the plat covenant requiring any member obligation to be one lot/one membership,
and by-laws Article 4.5.1.1 stating “annual dues levied upon a member shall (be) per lot as
originally platted.” Sexton, Bain, Cash, Moench and Nielsen own or benefit from the exemption,
Swanson desires to, so their actions approving refunds or exemptions are for personal benefit.
5.9 There are some 185 non-water users at LISE and 215 water users.
5.10 Since November 5, 2011, Sexton, Leslie Dempsey, Swanson, Moench, Bain,
Cash, Nielsen, Lot, and Slater approved, and caused all LISE owners to pay LISECC equal sums
of $71 a year to be used to repay a loan from the State of Washington Drinking Water State
Revolving Fund. The loan provided funds for the replacement of 20% of the distribution pipes
in the water system in about 2010; the other 80% needed replacement then, and still need
replacement now. The gross revenue from this fee is $28,400 a year ($71 times 400). The full
timer group of 60/15% pays $4,260 annually for this fee, but should pay $25,560 (i.e., some 90%
of the total fees each year of $28,400). The full-time group benefits from this by some $21,300 a
year or about over some $213,000 by 2021. This is harm to the 85%. The loan period is thirty
years. Over thirty years the benefit to the full timers/loss to the 85% is some $639,000.
5.11 This cost should be in proportion to water use. Charging “members” including
those using no water is unreasonable, unlawful, unfair, oppressive, self-interested and favoritism-
based operation of LISECC by defendants, harming the 85% to help defendants and the 15%.
5.12 The water charge items on the annual notices are fraudulent as such amounts are
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 16 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 17
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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not due, largely. Defendants know this is unlawful, oppressive, self-interested and favoritism
and if fraudulent operation of LISECC, yet each since 2011 has supported this practice in board
votes or budget approvals. Each defendant intends this to continue for decades, to obtain the
$639,000 benefit to the 15% group entailing thousands of dollars of benefit to each defendant.
D. Defendants Commit Waste of the Water System, Took Reserves For Personal Gain,
and Jointly Plan to Impose Massive Illegal Assessments On All LISE Owners.
5.13 Defendants each took action to intentionally commit waste or allow waste of the
LISECC water system, including taking and depleting reserves, for personal gain. Knowing the
system needs some $8 million to replace overly aged pipes, each defendant plans, and they are
acting in concert and conspiracy to operate LISECC to bring about, massive assessments to be
mailed to all LISE owners so that these costs are shifted illegally onto the 85%, including those
using no water at all, to benefit the 15% and defendants personally.
5.14 The LISECC water system consists of a lake, a reservoir, a pump house with
filtration system, and water distribution pipes and valves. There are 26,000 feet of pipes and
most are transite, i.e., asbestos cement. The system was originally built by volunteers, in the late
1960’s, very poorly. The system today has a peak 25-30% leakage rate, where state law sets the
maximum allowed rate at 10%. In about 2010 some 20% of the distribution system was
replaced. The other 80% or some 20,800 feet of pipe has never been replaced.
5.15 This 80% reached the end of useful life by about 2000, is leaky and far beyond
useful life, needs replacement and is imminent danger of collapse. This 80% also will need ever-
mounting repair costs to continue to operate with illegally high leakage rates.
5.16 These components and others in the water system requiring replacement would
cost some $6-8 million to replace. In this complaint the figure of $8 million is used. Defendants
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 17 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 18
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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plan to inflict most of this cost on LISE owners in the 85% group, using the false claims each
owner is a member, as a basis for imposing large future assessments.
5.17 The present reserve fund is some $275,000, some $7.75 million short or roughly
just 2-4% of the amount needed. Reserves for the water system are unfunded by some 96% or
more. LISECC has no adequate reserves and each defendant violated duties in knowingly
failing to build reserves and or since 2011, knowingly depleting reserves; and not replacing
components. This waste is illegal and also oppressive and favoritism under state law.
Defendants operate LISECC to deceive LISE owners into accepting member obligations in part
so that they can make all LISE owners, 85% of whom use 10% of the water, pay the expected
increases in repair costs and or huge capital assessments that are likely.
5.18 Each defendant knows of the waste and future assessments, including from:
(a) A September 12, 2000 memo from Jackie Grainger to the board concerning a
proposed State loan stated that “Standard life expectancy for asbestos concrete pipe, which is
installed in approximately 80% of the LISE system, is 40 years. The remaining 20% consists of
steel pipe which has a similar life…There are other elements of the system that are aging also:
pressure reducing valves, shutoffs, etc.”
(b) An April 10, 2003 “Draft Position Paper for Water Distribution System
Replacement, sent to the Board, by Laura Mork, an engineer, board member and water chair,
stated that “The LISECC water system was constructed in phases during the 1960’s” and that
“The only replacement in the ‘transite’ (asbestos cement) water distribution system have
been…when leaks occurred. The pipe has reached the end of its predicted life and could fail
at any time.” (Emphasis added.) The memo then noted only 2,000 of some 23,000 feet of
piping had been replaced by 2000 and if replacement was continued at that rate would take 131
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 18 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 19
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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years to replace the entire water distribution system.
(c) A Summer 2003 Newsletter column by president Bob Bowman, stated that “Our
distribution system, the antiquated and now inadequate pipes that bring water to our lots, is
nearly forty years old and breaks and repairs are a weekly problem.”
(d) The Winter 2003 Newsletter reported a Water Committee Report by Mork stating:
“As you know from the April 2003 AGM and previous newsletter articles, we are very
concerned about the condition of the water distribution system. It is falling apart. . . this
problem will continue to worsen until we replace the pipes…(in past) we have repaired leaks
when they occur…. . we push the ever-increasing costs into the future. . . . Since the rate that the
distribution system is being replaced is slower than the rate of failure, the cost to repair leaks
will continue to increase” (emphases added.)
(e) A Spring 2007 Newsletter Water Report by President Mark Buford, Engineer and
Deputy Director of the NorthWest Clear Air Agency in Skagit County, stated that “Our water
system is old and it seems to me that we have underinvested in maintenance and improvements.
Our goal (it seems to me) has been to spend as little as possible to keep it running…That
management philosophy works while equipment is new, but things are beginning to break. At
some point we will start losing components faster than we can afford to repair them. The
problem is that for decades we didn’t save money for the inevitable moment when our water
system started to need replacement. The dues were barely enough (to cover) operations, and
weren’t sufficient to build up necessary capital reserves.”
(f) A March 28, 2009 reserve study by Mork, Martha Patterson and others, states the
water system has a replacement value of $8.8 million, $8 million of which is the distribution
system. The study showed a total of $9.5 million in assets, most fully depreciated -- that is
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 19 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 20
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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requiring replacement -- with less than $300,000 in reserves (3.1% funding).
(g) The Spring 2009 Newsletter Water System Report by John Graham (LISECC
Water Plant Superintendent) said that he used management software and “put in every valve,
pump, meter, etc.” also “when it was purchased, its expected life, cost, etc. I can then see we
need to replace everything yesterday.” (Emphasis added.) He wrote, “The way we have done
in the past is when something breaks we go fix it. That’s not much of an operations management
schedule.” In fact, that “schedule” is not even a plan to not replace the ageing pipes.
(h) In the Spring 2010 Newsletter then-President Boulton stated that “A 2009 asset
update suggests that reserves amount to less than 2.4% of our assets. [Emphasis added.]
Under today’s laws this requires that LISECC reveal to all future members the risks inherent in
having to pay for unforeseen assessments to cover the replacement of unreserved assets. For
example, we expect that our remaining water mains will need replacement within the next 10
years. LISECC currently has no reserves for such replacements.”
(i) In the Spring 2011 Newsletter Boulton stated that “LISECC has been operating
with deficits for so many years that its retained earnings were a negative $159,878.53 in March
2008. That was nearly equal to the total reserves that are being held for the replacement of
LISECC assets in the future. This points out that our annual dues only cover our annual costs of
operation, without any depreciation or reserves to pay for future capital expenditures.”
5.19 Since 2009 standards affecting replacement of pipe have been increased, and there
has been inflation so the actual pipe replacement cost is nearly $9 million.
5.20 In early 2011 there was some $141,000 in a special water system reserve fund
apart from other reserves. This special fund was required by a State loan and bylaws. In early
2011, the board depleted this special reserve fund account and ended the program establishing it.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 20 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 21
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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5.21 The special water system reserve money was used to provide some $30,000 in
bound lot dues refunds, benefitting the 15% and certain defendants. On October 2, 2011 Sexton,
Leslie Dempsey, Moench, and Swanson caused the board to take approved taking about $30,000
out of reserves to refund dues paid by owners of “bound lots.” supported this. On December 4,
2011 Sexton, Leslie Dempsey, and Moench approved board action to implement this.
5.22 The rest was shifted to operations, benefitting the 15%, and most defendants. On
April 3 and 9, 2011 the Board took $41,377.56 from reserves to balance the previous year’s
budgetary operating loss. Sexton, Paul and Leslie Dempsey, Swanson, supported the board
action on April 3, 2011; they plus Moench supported the board action on April 9, 2011.
5.23 In November 2011 Sexton on information and belief took some $31,000 out of the
reserve fund and put it to operations.
5.24 Depletion of reserves continued in 2013. In a November 9, 2013 budget meeting,
and then vote approving the budget, Sexton, Bain, Cash, Leslie Dempsey, Lott, Nielsen, and
Slater approved taking some $20,000 out of reserves for legal fees knowing this was improper;
legal fees are not part of replacing or repairing capital assets which is the purpose of reserves.
5.25 The actions in depleting reserves for personal gain described above were waste
and further operation of LISECC by defendants for personal gain.
5.26 Defendants were and are and intend to continue, acting in concert and in a
conspiracy, to illegally and fraudulently use mails and wires to deceive all LISE owners into
accepting they are LISECC members, and must pay dues, in order to later subject them to
millions in capital costs thereby personally gaining by shifting more sums from defendants/the
15% to the 85% majority of LISE owners. The plan and conspiracy is to keep this illegal
membership claim and dues/assessment going in order to shift ever-mounting repair or
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 21 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 22
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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replacement costs from the 15%, including most defendants, to the 85%, until the entire Ponzi
scheme using mails and wires, collapses when LISE owners rebel, stop paying dues, or refuse to
accept massive assessments.
5.27 In the meantime, defendants benefit personally and along the way certain
defendants benefit more because some LISE owners are pressured to flee and sell out and certain
defendants profit from such distress sales.
5.28 The personal benefit since 2011 accruing to each of the full time defendants, from
shifting water costs, is thousands of dollars. Collectively they benefit by tens of thousands of
dollars. This benefit will increase as dues and repair costs increase or when the large
assessments hit owners through the mails. Operating LISECC in this manner is abusive,
oppressive and illegal.
E. Defendants Plan to Waste More Labor Costs & Depleted Reserves Again in 2015
6.1 The water system has 60 full-time users and 215 hookups the vast majority of
which are only used part time. There are only a few hundred dues paying members. This
operation could be run with one regular part time employee using outside help or contractors as
needed. Since 2011 each defendant has committed waste in supporting budgets and other actions
requiring or allowing LISECC to have excess labor costs by operating LISECC with three full
time employees (30 hours a week) with full benefits (maintenance superintendent, one
maintenance worker, and one secretary). This is waste.
6.2 On September 22, 2013, and March 16, July 13, August 23, and September 21,
2014, the defendants on the board approved a 2015 budget calling for a fourth employee called a
“General Manager.” Owners were told via the mails and web. The purpose of this employee is
to do Sexton’s administrative work as board president, where this normally unpaid board work
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 22 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 23
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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for a small nonprofit with just 215 water users. This is intentional waste.
6.3 The excess labor cost since 2011 has been some $392,000 most of which is born
unfairly by the 85% who are not full time residents.
6.4 On information and belief, without proper notice or disclosure to “members” the
board took some $20,000 more out of reserves in 2015, to pay legal fees which are part of
operations. This is intentional waste, breach of fiduciary duty and additional diversion of
amounts paid by all owners to benefit the 15% and defendants personally. On information and
belief, Sexton and other defendants also recently allowed spending the $35,000 for the new
employee on legal fees for their personal benefit also.
F. Defendants Further Their RICO Scheme, With False Statements About Reserves
Sent to LISE Owners Through Mail and Wires
7.1 Each defendant has made or adopted and approved false statements from LISECC
to LISE owners that LISECC reserves are well funded, or other false statements about reserves,
to operate LISECC to defraud the owners by getting them to continue dues and other payments.
7.2 Sexton said in the 2009 Annual General Meeting on April 11, 2009 that the
reserve fee was lawful being “a fee for a service.” This was true. At the April 3 and April 9,
2011 Board and general meetings, Sexton contradicting this, saying the reserve contribution
being paid was an “illegal assessment” and further, there were no board resolutions or motions
earmarking a $25 “water connection fee” for reserves. These were false and contradicted the
2009 statement the fee was lawful. Sexton and Paul and Leslie Dempsey, Moench, and
Swanson, were involved being on the board at this time and approved sending these false
statements out through the mails and website. On February 24 and March 17, 2013, Sexton,
Cash, Moench and Nielsen stated they were not sure what LISECC funds are reserves and voted
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FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 24
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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to have “the community” (i.e., the full timers) vote on what amount should be called reserves,
informing owners through the web. The statement that reserves were not clear, was false. In the
Spring 2013 Newsletter Sexton stated “accounting and documentation has been so lax in the past
that we can’t absolutely say what funds were meant for reserves.” The above quoted statements
were publicized to owners by mail and wire, were known false by defendants on the board; they
intended to rationalize raiding the reserves for personal gain as described above.
7.3 Starting in 2013, Sexton, Bain, Cash, Lott, Moench, Nielsen, Slater and Swanson,
have falsely stated LISECC’s reserves are well funded, or 80-88% funded, when each defendant
knows reserves are some $7.75 million short, or more, and at most, only 4% funded. These
deceptions were to deceive LISE owners into continuing to pay dues; and accept membership as
a fact; if they knew of the looming huge assessments in coming years, they would or might stop
paying dues. Like Mr. Ponzi, defendants must hide and keep secret the growing liabilities or else
the victims will not keep sending money to the racketeering scheme. The particular false
statements of fact referred to above about reserves, sent through mails and wires since 2013, are:
(a) At the April 13, 2013 AGM Moench stated that a “preliminary report” of a
reserve study being done (discussed below) “indicated that LISECC is currently 88% funded,
this is considered exceptional.” At this time Sexton, Cash, Nielsen, Bain, Moench, were on the
board and knew this was false. They approved dissemination of this on the LISECC website.
(b) In the Fall 2013 Newsletter, Nielsen noted what a proper reserve study is under
RCW 64.38.070 and the purpose that reserves serve is to prevent sudden large assessments. But
he then falsely said, “The good news is that our reserve is 80% funded.” (Emphasis added.)
At this time Sexton, Cash, Nielsen, Bain, Slater and Lott were on the board; they and Nielsen
knew Nielsen’s statement was false and fraudulent, and adopted it allowing it to go out in the
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 24 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 25
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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newsletter, via mail, then on the website.
(c) In the Fall 2013 Newsletter Sexton stated that reserves were “well-funded.” He
knew this was false as did others on the board (Bain, Cash, Lott, Nielsen, Slater). Each adopted
this allowing it to be sent by mail then on the website.
(d) At the July 13, 2014 board meeting President Nielsen stated that, “a reserve goal
of $335,000 is considered fully funded for LISECC. In 2013 we were evaluated as 80% funded
and assuming that the 2015 budget is approved we will be near 87% funded at the end of the
year.” At the August 2014 annual meeting Nielsen stated that “reserve funds appear to be in
healthy shape at 80% funded, provided that LISECC continues to make contributions in a timely
fashion.” In the Summer 2014 newsletter Nielsen stated “we have clarified our reserve position
and were informed that we are operating at 80% funded level (a particularly strong position for a
small community)”; that a 2013 reserve study “showed that we were 80% funded, which they felt
was very good. We are now 82% funded, and at the completion of the 2015 budget cycle we are
projecting an increase to 87% of our funding goal.” These statements were false. Nielsen and
other board directors at the time (Sexton, Bain, Cash, Lott, Slater, and Swanson), knew they
were false; each adopted them approving or allowing them to be sent by mail or electronically to
all LISE owners (July 2014 Board Meeting Minutes were put on the website, the newsletters and
August 2014 Annual Meeting minutes were sent by mail then put on the site).
7.4 Each such defendant knew the system was 80% beyond useful life by 2000,
replacing this 80% would cost some $8 million, peak leakage rates were 25-30% signaling
potential imminent collapse; and reserves on hand were less than 4% funded for those needs.
7.5 Each such defendants also knew reserves were grossly inadequate from a study
LISECC had, entitled “Lummi Island Scenic Estates Full Reserve Study – May, 2013.” LISECC
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 25 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 26
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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and defendants have kept portions of this secret and have used it to falsely portray LISECC
reserves. At page 4 the study says LISECC is “Well Funded” with reserves 80% funded; it states
that the fully funded balance is $335,443; but page 6 states that “The Fully Funded Balance is
neither the present replacement cost of all of the Association’s reserve components, nor does it
have a mathematical relationship to the recommended reserve contribution funding plans.” Each
defendant read this and knew it correctly stated this study is not a proper reserve study. Each
knew telling LISE owners the study shows reserves are well funded or are 80 or 88% funded, is a
gross falsehood and fraud -- because the study itself says it does not cover all components.
7.6 The study also states that some $480,000 is needed in the first 14 years then for
reserve needs, plus over $3 million in the next 16 years. Each defendant read this and
understood it to mean LISECC needs millions in reserves, and will have millions in assessments,
making claims reserves are well-funded today, false.
7.7 Each defendant is acting in concert to operating LISECC as a RICO enterprise
engaged in a pattern of mail and wire fraud to extract as many dollars from LISE owners as long
as possible, hiding and falsifying the true state of reserves to keep the owners continuing to pay
dues before the system, or the scheme, crashes.
7.8 Each defendant is defrauding LISE owners by hiding part of the study stating,
“Water mains. Need a plan for regular replacement.” Also it states “8,000 feet were
replaced three years ago. [This refers to the 20% replacement in about 2011] At this time there
is no plan to make any further replacements of the mains.” (Emphases added.) Each
defendant knew of these statements and facts, knows they make claims reserves are well funded
false. Each defendant has acted in concert and conspiracy to actively coordinated keeping this
part secret, using the other statements out of context to deceive LISE owners into continuing to
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 26 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 27
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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pay dues and other charges before the system fails.
7.9 In 2014, LISECC failed to provide an annual update to their reserve study as
required under RCW 64.38.065.3. This was to further the joint plan to hide the state of reserves,
maintain the fiction sent through mails and wires that reserves are well funded, and operate
LISECC as an enterprise engaged in a pattern of mail and wire fraud, extracting dues and other
monies and using them for personal gain.
F. Defendants Further Their RICO Mail Frauds With False Statements
That LISECC Rectified its Expiring Dues Authority Back in 1990.
8.1 Prior to 2011, and as the 1990 expiration of the restrictive covenants approached,
LISECC and its then directors plotted how to keep LISE owners to continue to pay dues. They
did achieve continued dues payment by false statements and claims. Defendants here continued
and amplified this approach, making additional false statements and claims in 2011 and to the
present, to overcome any doubts, and deceive LISE owners into thinking that the expiring dues
authority that was to expire as of 1990 was somehow extended or rectified with something filed
in court. Defendants have done this despite being told by LISECC’s attorney Rich Davis that
LISECC had no dues authority as of early 2011.
8.2 In 1990, board president Wally Croy wrote in the annual meeting minutes mailed
to owners, that “any court would rule that the covenants being enforced for such a length of time
have become perpetual.” Also in 1990, Croy and LISECC’s attorney Wally Carpenter filed with
the county a “Notice of Right to Impose Lien” (the “Notice”) asserting LISECC had perpetual
dues authority over any lot owner in LISE. Notice was signed only by LISECC, not any other
LISE owner and stated that ownership of a lot in LISE carries with it membership in LISECC
and LISECC will collect dues and enforce dues obligations. As Croy, Carpenter and all directors
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 27 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 28
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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at the time knew, the Notice was fraudulent boot strapping, violating the plat, and the bylaws, by
unilaterally changing the 25-year obligation, to a perpetual one without consent of affected
owners. The Notice is a sham. Every director at LISECC knows this and knows LISECC cannot
gain the benefit of a restrictive covenant by unilaterally imposing it without consent of burdened
owners. They also know past practice for 25 years, during the term of the obligation, does not
make it permanent or unlimited in duration. They now a 99 year lease is not made permanent fee
ownership, because the lease was in effect for 99 years. These frauds have succeeded in
deceiving the majority of LISE owners into continuing to pay dues, from 1990 to the present,
along with LISECC’s simply continuing to bill for dues fraudulently plus defendants’ frauds in
2011 and later about how LISECC took care of expiring dues authority by some court document.
8.3 LISECC referred to the Notice as rectifying, correcting or extending the expiring
dues authority. In the April 1999 general meeting, as per the mailed minutes, president Small
answered questions about LISECC being defunct, saying, “as soon as this oversight was
discovered it was rectified and that by law there are three years in which to do this.” This mailed
fraud deceived owners into continuing to pay dues.
8.4 In about 2001 Ortego bought land in LISE and began paying dues, relying on the
“dues” notices which falsely stated dues were due. Other LISE owners also paid dues at this
time thinking the mailed dues notices were true, when they were in fact false.
8.5 In about 2008, Ortego, a full time resident in LISE, was elected to the LISECC
Board. At this time, the board president was Bill Boulton. Boulton and Ortego instigated a 2010
State loan that replaced 20% of the pipes and also moved LISECC to end bound lots discounts,
build reserves and take other appropriate actions toward charging water by use. This caused
conflict with other Board directors who wanted the full time group to keep the benefit of bound
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 28 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 29
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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lots and other charges imposed on the 85% who were not heavy water users.
8.6 In February 2011 attorney Rich Davis was the lawyer for LISECC and dealt with
a suit against LISECC, where the plaintiff asserted LISE owners’ membership obligations
expired in 25 years i.e., as of 1990. This was the first time Ortego heard of this fact.
8.7 Boulton, Ortego and Davis discussed the issue and Davis was asked to do a title
search and review the facts.
8.8 He saw the plats, and the 1990 Notice and discussed these with board members.
8.9 He wrote to the LISECC board March 9, 2011 concerning the 25 year plat
restriction expiration. He wrote that “We conducted title research in hopes of finding a recorded
document which extends the 25 year plat restriction expiration. Unfortunately we have not
located any recorded document with that effect.” His letter then referred again to “not finding
any recorded documents extending the plat restriction.” The letter then mentions case law
holding that if a recorded covenant expires, it expires, unless the affected and burdened owners
desire to renew or recreate it by proper means involving consent of all burdened owners.
8.10. This told the board that LISECC’s dues claims were false and fraudulent as there
was in fact no recorded document which extended the 25-year term of the membership
obligation. At this time the Dempseys, and Swanson were on the board; Sexton and Moench
joined it several days later. Since then they have known that all dues collection is illegal and
there is in fact no recorded document extending the 25-year plat restriction. Since then ever
individual defendant sued herein has known of this letter and that all dues collection is illegal.
8.11 In his letter Davis advised LISECC through its board that a judge could hold no
dues are due; LISECC could be ruled insolvent, and put into bankruptcy; and LISE owners could
take legal action to seek refunds, etc. This told the Dempseys, Swanson, Sexton and Moench
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 29 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 30
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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then other defendants who later saw this letter that continued operation of LISECC was illegal as
most of the revenue rests on dues illegally obtained.
8.12 Davis told the same things to LISECC Board President Bolton. Davis said
LISECC’s dues authority expired, there was in fact no document extending it. President Bolton
told these things to the Board on March 18, 2011. All directors present, including Boulton,
Ortego, Paul and Leslie Dempsey, and Swanson agreed with these positions and facts; agreed on
the action to be taken, to wit, that the “members” had to be told that LISECC’s membership
restrictive covenant expired in 1990, that dues authority had expired, and the action to be taken
was to dissolve, file for bankruptcy and seek a receiver. Sexton and Moench were not at this
meeting, though they were to join the board a few days later.
8.13 At about this time, Sexton, Paul and Leslie Dempsey, Swanson, and Moench were
trying to get Boulton and Ortego removed from the board (because they had taken actions inter
alia to question bound lots discounts and diverting dues for water costs harming most owners;
and lay off maintenance employee John Graham). Davis, Boulton and Ortego stopped the
others’ removal attempt by noting it was illegal, because the bylaws require any removal of a
board member to be at an Annual Meeting. Boulton and Ortego proposed a deal in view of the
fact that dissolution was imminent: if the others would wind up LISECC, disclose the Davis
letter to members and explain the situation to members, they would step down from the Board.
Defendants the Dempseys and Swanson agreed; Sexton and Moench implicitly agreed or agreed
by their conduct not speaking up, and each in effect promised to wind up LISECC based on the
fact that there was no document of record, extending dues authority.
8.14 Ortego and Boulton thought this would put all right, and stepped down. Boulton
later passed away. Meanwhile, said defendants broke their commitment, did not wind up
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 30 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 31
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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LISECC, and continued to operate it to collect dues – knowing that there was no document of
record that extended its dues authority beyond the 1990 expiration of the restrictive covenant.
They did this for personal gain, knowing that LISECC dues benefitted themselves and the 15%.
8.15 At the April 9, 2011 annual meeting LISECC board president Sexton stated
“Another big issue…is the question of the legitimacy of …the plat restrictions that every lot in
Scenic Estates has to pay dues and be a member.” Sexton then stated “Fortunately Tim
Carpenter and Wally Croy were on top of this in 1990 and filed court documents that extended
those potentially expiring plat restrictions for perpetuity.” (Emphasis added.) This was false;
there were no documents filed in any court extending the expiring plat restrictions in perpetuity.
This false statement about court documents saying a court had ruled, and had ruled that the
member obligation was made permanent, and there were court documents doing that, all of
which were knowing falsehoods by Sexton to defraud LISE owners. Swanson, Paul Dempsey
and Moench, with Sexton, approved putting Sexton’s fraudulent statements in the minutes out
through the mails and website to all LISE owners to knowingly deceive them into thinking they
were LISECC “members” obligated to pay dues. They knew there was in fact no court filing, or
ruling, nor “court documents” that extended the expiring dues authority or made it perpetual.
They knew the unilateral 1990 Notice filed in the County did not make dues authority perpetual,
as it was not signed by all ~400 LISE owners; and counsel Davis had told them it had no effect.
They knew there was nothing making the expiring dues authority permanent, yet defrauded LISE
owners into thinking there was, using the mails and wires to do so.
8.16 At this time Sexton and other defendants kept the Davis letter secret from LISE
members when it should have been disclosed and this omission was also fraudulent.
8.17 At a May 20, 2012 board meeting, Sexton stated that “there is a renewal of
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 31 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 32
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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(LISECC’s) covenants that was recorded in 1990.” Defendants Sexton, Cash, Bain and Moench
knowingly approved putting this fraudulent statement on the website to deceive LISE owners.
8.18 In this period Ortego often wrote asking for the “court documents” Sexton cited.
Sexton never produced any. Rather, in July 2012 Sexton, Bain, Cash, Moench and Nielsen
acting as the board responded to Ortego’s demands by publishing the 1990 Notice on the
LISECC website. This too was fraud as they knew it (a) was not a court document, or
documents, as it was filed in the County recorder office, and (b) in any event did not operate to
make the member obligation permanent. They knowingly used the wires to defraud owners.
They operated LISECC through its board, to publish the Notice on the website again, on April 8,
2013. They knew then this Notice is false and by publishing it in this manner made the fact
claim again, that LISECC had taken care of expiring dues authority in 1990 by filing a document
renewing or rectifying expiring dues authority.
8.19 Continuous republication of the Notice on the website given Sexton’s comments
quoted above, is an ongoing false representation through the wires that something was done in
1990 to take care of expiring dues authority, renewing it, rectifying it or extending it into
perpetuity. Each defendant knows this is false yet has supported this ongoing fraudulent scheme
aimed at deceiving LISE owners into paying dues as if they were LISECC members.
8.20 Later in 2012-the present, defendants have tried a new fraud, claiming through the
website that the LISE plats gave LISECC perpetual dues authority from the time they were filed.
These statements contradict the ones admitting dues authority would expire if not extended, and
contradict Sexton’s and other’s statements that the 1990 Notice took care of expiring dues
authority. These statements are also false but deceive owners into continuing to pay dues.
8.21 In late 2014, Sexton, Bain, Cash, Lott, Nielsen, Slate and Swanson voted to
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 32 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 33
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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increase the dues, so that the 2015 dues income will be $350,000. Each supported LISECC’s
sending out the 2015 notices in late 2014, including one copied in Exhibit A. These notices
deceived hundreds of LISE owners into paying dues, when no dues are due. Defendants are
engaged in this mail/wire fraud, racketeering and financial abuse of the owners for personal gain,
and to benefit themselves, their friends and relatives in the 15% full timer group. These frauds
harm the 85% whose dues payments and other payments are misused to benefit the 15%
including defendants. The harm from “dues” collection alone, will be over $1 million more, in
the next three years, exclusive of likely assessments for increasing operating costs, repairs or
replacement of leaky pipes. This harm to the 85% majority is converted to personal gain to most
defendants and the 15% group because the defendants operate LISECC so as to take dues money
and use it for water costs. They even are taking reserves funded by water charges and using that
money for operating costs, too. This financial Ponzi scheme of racketeering fraud will only end
when stopped by a court or when it collapses.
G. Injury to Property in the Form of Improper Charges Exceeds $419,000.
9.1 Defendants’ RICO activity and other wrongdoing has caused and plaintiffs and all
LISE owners to suffer injury to property or damages including (a) subjecting LISE lots to claims
of obligatory perpetual membership in LISECC (injury to such real estate, burdening it, and
distressing it gravely); (b) collecting dues not due (injury to property includes money losses); (c)
diverting dues and other charges to benefit the 15%/defendants; (d) exempting bound lots and
depleting special reserves is injury to plaintiffs and LISE owners as this increases the exactions
on them or burden of the member obligation; and (e) diminished real estate values resulting
directly from these RICO activities and wrongs under state law are also injury to property and
damages. Certain plaintiffs such as Ortego have suffered other injury to property such as
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 33 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 34
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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physical attacks or cut off of water and or liens pursuant to the asserted dues obligation.
9.2 The pocketbook injuries including dues and other amounts collected not based on
water use (State loan fees, and a “Ready to Serve” baseline monthly water fee) total some
$139,918.79 in the last six years alone as follows:
Apolis $7,262.00 two lots w/o water
Armfield $4,061.00 full-time water
Barnes $4,061.00 f/t home
Barry $7,692.00 f/t home+1 extra (no water) lot
Bilik-Franklin $8,600.00 p/t home + extra lot (no water)
Bowery $4,969.00 p/t holiday home
Chalmers & Moon $4,969.00 p/t holiday home
COKD Trust $2,241.79
full-time water (2009, 2010, 50% 2011,
$204.29 pre-paid water disconnected)
Dubrow $1,757.00 lot w/o water through 2011
Engel $7,262.00 two lots w/o water
Fengler $3,631.00 lot w/o water
Fischer Trucking LLC $3,631.00 lot w/o water
Freelan $8,600.00 one lot w/ water; one lot w/o water
Gross $3,631.00 lot w/o water
Krell $7,692.00 f/t home+1 extra (no water) lot
Lawson $7,262.00 two lots w/o water
Mech $4,969.00 lot w/water
Mundstock $4,061.00 f/t home
Ortego $1,454.00 no water (2009, 2010, 50% 2011)
Owen $4,061.00 f/t home
Ponomareva $1,454.00 no water (2009, 2010, 50% 2011)
Schroeder $4,061.00 f/t home
Smith $4,969.00 p/t holiday home
Smith 0 included in Apolis
Waggoner $3,631.00 lot w/o water
Webers $23,937.00
four lots w/ part time water hook-up; one
f/t home with water
Total for six years $139,918.79
RICO trebling $419,796.37
Plaintiffs claim under RICO, CPA and other causes for prior years beyond the otherwise
applicable limitations period given the ongoing fraud/inequitable conduct of defendants.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 34 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 35
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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Trebling, for just the last part of the injury and damage in the chart above, exceeds $419,000.
Such injuries were proximately caused by the RICO activity and other wrongs.
H. Injury in the Form of Depressed Real Estate Values Exceeds $ 3.8 Million
10.1 The RICO violations and other wrongful actions described herein are depressing
real estate values some $3.8 million for plaintiffs, and some $47 million for all LISE owners.
These amounts for plaintiff trebled when added to the injuries to property described above put
the RICO injuries at over $12 million.
10.2 Since 2011 several lots in LISE sold for prices under $5,000. Recently LISECC
could not sell lots it had for years; some were sold for a few thousand dollars each. On or about
November 21, 2014, a LISE lot sold for a price of $3,700. The same lot sold some ten years ago
for $16,000. This is the lot at 1068 Dana Circle. These prices are low, and are due to the RICO
frauds and other wrongdoing.
10.3 On January 17, 2014 an LISE lot was sold for zero dollars by Donald and Beverly
Glick, who tired of paying dues after Lott told them the $700 a year dues would continue
forever. The buyer was Lott, who knew collecting dues was illegal and her statement of high
dues forever, was oppressive and self-interested and intended to cause the sale.
10.4 In July 2014 owner Helen Little called LISECC’s Corporate Secretary Penni
Idol to complain about onerous dues and that she had been liened, so Swanson, a real estate
agent and board member, listed the property for $20,000, and presented an offer for $10,000
from Leslie Dempsey (then Treasurer) then removed the property from the market without
Little’s consent. He gave her an updated offer for $12,500. Little netted just $8,148, from this
property she got from her parents in 1966 for $6,000. These low prices are due to the RICO acts
and other wrongs described herein. Swanson and the Dempseys benefitted personally.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 35 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 36
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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10.5 Recent prices such as $0.00 to $5,000 or $12,500 for a lot, are far below true and
proper market value, and were proximately caused by the RICO and wrongful acts. On
information and belief, Swanson and other defendants also are or have benefitted from their
wrongs by obtaining lots sold in distress.
10.6 Comparable sales and assessed values in and outside of LISE in the last three
years, for similar type lots (waterfront, water view or other (here called “Wooded Lots”) (all on
or within walking distance to salt water, like LISE lots, but smaller in size than most lots to
match the typical LISE lot size which is ¼-1/3 acre lot) show, for every type of property, that
values outside LISE are much higher than those inside LISE. These inside/outside LISE
differentials whether in sales or assessed value are due to the RICO and other wrongs. Buyers do
not want to buy into LISE, or its high dues, or obligatory membership or potential large, or
unknown assessments on purported members.
11.7 Wooded Lots, unimproved. Plaintiffs hold 8 lots of this kind and each is
undervalued by some $70,000 due to defendant’s wrongful acts. Recent LISE sales of
comparable lots in 2013-2014 averaged $5,400 in sales price (2911 Rosewood Terrace sold for
$0 on 1/17/14; 1068 Dana Circle sold for $3,700 on 11/21/14, and 2855 Aiston Creek Road sold
for $12,500 on 9/26/14; these were ~1/3 acre each and assessed values were $5,250, $16,065 and
$12,495, respectively, an average of $11,270). Comparable sales outside LISE averaged $64,875
(4797 G Loop Road, Bow, WA, 0.36 acre, sold for $54,750 on 11/15/13 (assessed value
$112,500 ); and 78 Grove Street, Orcas Island 0.2 acre is pending for $75,000 (assessed value
$75,210)). Their average assessed value was $93,855. These were the only comparables in
Whatcom and Skagit Counties in 2013-2014. The sales price differential for comparable lots of
this kind, inside versus outside LISE, is $59,475 and assessed value differential is $82,585.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 36 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 37
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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LISE lots sold for 38 cents per square foot while the comparables outside LISE sold for $5.33
per square foot. Average LISE assessed value of these sold lots was $0.80 per SF and outside
LISE it was $7.71 per SF. Wooded Lots in LISE that are unimproved, are injured and diminished
in value by some $70,000 eachdue to defendants’ wrongful and RICO acts.
11.8 Wooded lots, improved. Plaintiffs hold 6 lots of this type including two that are
500-850 SF houses, one that is in the range 850-1100 SF and 3 over 1100 SF. The comparable
sales outside LISE are divided by size of house:
(A) Home size 500-850 SF: In 2013-2014 there was one sale in LISE of this kind of
home: 1163 Island Drive, 2 BR 1BA, 672 SF 0.32 acres sold 1/23/14 for $60,000 (assessed value
of land $42,300). There were six comparable sales outside LISE averaging $128,220 in 2013-
2014 i.e., some $68,500 higher (5085 Fern Street, Birch Bay, 0.15 acre, 496 SF, 1 BR 1BA sold
9/19/14 for $100,000 (assessed value land $96,050); 7681 Pine Drive Birch Bay 0.16 acre 684
SF 1 BR 1 BA sold 9/17/14 for $110,000 (assessed value land, $76,840); 7305 Jackson Road
Birch Bay 0.17 acre 600 SF 1 BR 1 BA sold 10/28/14 for $130,000 (assessed value land
$38,420); 8150 Cowichan Rd Birch Bay 0.19 acres 672 SF 2 BR 1 BA sold 12/8/14 for
$131,322 (assessed value land $96,050); 4974 Morgan Rd, Birch Bay, 0.15 acre 838 SF 2 BR 1
BA sold 12/30/14 for $153,000 (assessed value land $50,907); and 16786 Third Ave La Conner
0.23 acre 548 SF 2 BR 1 BA sold on 12/19/14 for $145,000 (assessed value land, $87,500)).
There were no other comparable sales in Whatcom or Skagit County in this period. The land
assessment differential averaged $32,000 (greater if corrected on a per SF basis). Land assessed
value per SF inside LISE averaged $3.04 per SF and outside LISE $9.76 per SF. LISE lots of
this kind suffer injury due to defendants’ wrongful RICO acts, of some $69,000 each lot.
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 37 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 38
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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(B) Home size 850-1100 SF. In 2013-2014 the one sale in LISE in this size range
was 2905 Cedar Avenue, a 2 BR 2 BA 960 SF 0.3 acre sold 7/1/14 for $116,000 (land value
assessed $45,000). There were 8 comparable sales outside LISE, averaging $168,121, some
$52,121 higher (746 E. Maple St. , La Conner, 2 BR 1 BA 1076 SF 0.16 acre sold 5/10/13 for
$150,000 (land assessed at $68,300); 5882 Bow St Bow, 2 BR 1 BA 956 SF 0.23 acre sold
10/14/14 for $164,000 (land assessed at $82,700); 5811 Main St. Bow 2 BR 1 BA 1096 SF 0.16
acre sold 6/20/14 for $170,000 (land assessed at $78,500); 5851 Inez St. Bow 2 BR 1 BA 972 SF
.25 acre sold 6/20/14 for $188,986 (land assessed at $81,300); 8393 Pheasant Dr. Birch Bay 2
BR 1 BA 928 SF 0.20 acre sold 10/24/14 for $153,500 (land assessed at $53,308); 8290 Beach
Way Dr. Birch Bay 2 BR 1 BA 1056 SF 0.27 acre sold 10/24/14 for $155,000 (land assessed at
$57,630); 7412 Sunset Dr. Birch Bay 2 BR 2 BA 897 SF 0.11 acre sold 10/23/14 for $180,000
(land assessed at $52,250); and 3715 Commercial Ave Fidalgo Island 2br-1ba 1008 Sf 0.23 acre
sold 2/27/14 for $183,480 (land assessed at $98,200)). These comparables were the only ones in
Skagit and Whatcom in this period. Though the LISE lots averaged 50% larger, the outside
LISE sales in this group averaged $52,121 more. The comparables’ assessed land values
averaged $71,524 some $26,524 higher but assessed land value per SF was $8.18/SF outside
LISE in the comparables and $3.45/SF in the LISE property. This kind of lot in LISE is injured,
and diminished in value by some $52,000 due to defendants wrongful acts.
(C) Home size over 1100 SF (minimum 3 BR 2 BA): In LISE, 2877 Cedar Ave (3
BR 2 BA 1500 SF on 0.22 acres) sold 4/22/14 for $149,500 (land value assessed at $45,900). In
this period there were 8 comparable sales averaging $225,000, some $75,500 higher (these
included 3902 Broadview Dr. Fidalgo Island 3 BR 2 BA 1300 SF 0.16 acre sold 9/5/13 for
$239,000 (land assessed at $89,000); 4019 Astrea Pl. Fidalgo Island 3 BR 2 BA 1512 SF 0.25
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 38 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 39
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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acre sold on 8/19/13 for $250,000 (land assessed at $106,000); 1108 Longview Ave. Fidalgo
Island 3 BR 2 BA 1592 SF 0.21 acre sold 5/7/14 for $250,000 (land assessed at $106,000); 702
41st Pl. Fidalgo Island 3 BR 2 BA 1250 SF 0.24 acre sold 6/19/14 for $268,000 (land assessed at
$106,000); 8451 Morningside Dr. Birch Bay 3 BR 2 BA 1263 SF 0.18 acre sold on 10/24/14 for
$188,000 (land assessed at $57,630); 7901 W. Golf Course Dr. Birch Bay 3 BR 2 BA 1184 SF
0.28 acre sold 11/14/14 for $195,000 (land assessed at $91,248); 4836 Willow Dr. Birch Bay 3
BR 2 BA 1064 SF .07 acre sold 11/17/14 for $215,000 (land assessed at $48,025); 4413 Carstan
Loop Blaine 3 BR 2 BA 1443 SF 0.13 acre sold 8/29/14 for $195,000 (land assessed at
$57,630)). These comparables were the only ones with 3 BR 2 BA in Skagit and Whatcom in
this period; their average assessed land value of $82,692 was $36,792 greater than that in LISE;
it was $4.45/SF inside LISE and averaged $10.01/SF outside LISE. This size home is injured
and diminished in value by some $76,000 due to defendants’ wrongful RICO acts.
11.9 Water view, unimproved. Twenty three plaintiffs have this kind of lot. In LISE
in 2013-2014, two lots of this kind sold: 1144 Island Dr. at 0.22 acres sold on 6/21/13 for
$37,500 (land assessed at $32,130) and 1291 Island Dr. at 0.39 acres sold on 11/29/12 for
$48,708 (land assessed at $33,360), averaging $43,104 in sales price, and $32,895 in assessed
land value. The only comparable sales in Whatcom and Skagit in 2013-2014 averaged $101,500
in sales price (5406 Ocean Mist Loop Birch Bay 0.18 acre, sold 9/3/14 for $75,000 (land only
assessed at $59,360); 4840 Sunset Dr. Blaine 0.19 acre sold 8/8/14 for $128,000 (land assessed
at $80,750). Two others without water views but with golf course views could be considered
nearly comparable, 5391 Quail Run Birch Bay 0.35 acre sold 8/15/14 for $108,500 (land
assessed at $101,700) and 8624 Ashbury Ct. Birch Bay 0.24 acres sold on 9/30/14 for $124,000
(land assessed at $127,200). The average sales price outside LISE was $58,396 higher and
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 39 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 40
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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assessed land value outside LISE was $37,160 higher. The average sales price per SF of the lot
was $12.61 outside LISE and $3.25 inside LISE. The two LISE lots being 65% larger, the per SF
differential is much higher. LISE lots of this kind are diminished in value by some $58,000 each.
11.10 Water view, improved. There are 6 plaintiffs with this kind of lot in LISE. Four
LISE lots of this kind sold in 2013-214 averaging $240,700 (1228 Island Dr. 2 BR 1.5 BA 1125
SF 0.25 acre sold on 3/1/13 for $204,800 (land value assessed at $63,750); 3005 Hummingbird
Pl. 2 BR 1 BA 1012 SF 0.19 acre sold on 6/4/14 for $234,000 (land assessed at $58,395); 1116
Island Dr. 2 BR 2 BA 1072 SF 0.41acre sold on 8/20/14 for $240,000 (land assessed at $63,750);
and 1152 Island Dr. 2 BR 1.75 BA 1630 SF 0.42 acre sold on 12/31/14 for $284,000 (land
assessed at $53,040)). There were three comparable sales in Skagit and Whatcom 2013-2014
(including two with water views in La Connor, but if these were excluded the facts of damage
would not change significantly), averaging a price of $407,000 or some $166,300 more than the
LISE water view homes (17022 Island View Ln. La Conner 3 BR 1.75 BA 1310 SF 0.23 acre
sold for $346,000 on 10/23/13 (land assessed at $170,400); 9606 McGlinn Dr. La Conner 3 BR 2
BA 1588 SF 0.34 acre sold on 8/2/13 for $475,000 (land assessed at $163,300); and 7732 Birch
Bay Dr. Birch Bay 3 BR 2 BA 950 SF 0.10 acre sold on 9/11/14 for $400,000 (land assessed at
$161,364)). These three comparables’ land assessments averaged $165,021 some $105,288
more than the average in LISE; their land value was assessed at an average of $16.98/SF far
higher than $4.32/SF average in LISE. These types of lots are diminished in value by some
$170,000 due to defendants’ wrongful RICO acts.
11.11 Waterfront, unimproved. There is one plaintiff with a lot of this kind.
(A) Assessed values. There are 13 lots of this kind in LISE with average assessed land
value of $57,102. There are four comparable lots on Lummi Island about 4 miles north on the
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 40 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 41
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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east side (which is more comparable than the west side, having similar views) and they have
assessed values averaging $198,900, which is $141,798 higher. These are on North Nugent
Road and are listed in the chart below.
Waterfront, unimproved, Assessed values inside LISE
2996 Cove Avenue $62,500
2986 Cove Avenue 69,368
1292 Baker Avenue 75,816
1286 Baker Avenue 75,816
1280 Baker Avenue 17,690
1254 Island Drive 67,392
1250 Island Drive 69,368
1226 Beach Avenue 94,640
1214 Beach Avenue 33,048
1206 Beach Avenue 33,696
1178 Beach Avenue 41,310
1176 Beach Avenue 77,112
1112 Beach Avenue 24,570
Average $57,102
Waterfront, unimproved, comparables’
assessed values outside LISE
2852 N. Nugent Road $197,600
2844 N. Nugent Road 197,600
2836 N. Nugent Road 192,400
2257 N. Nugent Road 208,000
Average $198,900
Difference inside/outside LISE $141,798
(B) Sales. In 2013-2014 in LISE there were two sales of this kind of property (1280
Baker Ave. 0.39 acres with land assessed at $17,690, sold on 1/31/13 for $48,708; and 1226
Beach Ave. took 3 years to sell, had assessed land value of $94,640 and sold 11/21/14 for
$45,000). Another lot in LISE of this kind was just listed at $48,000. Comparable sales outside
LISE averaged $323,625, which is $276,771 higher than the average sales price in LISE of
$46,854. These were Lot 3 Pointe Road N. Blaine 0.55 acre, assessed at $346,000 sold on
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 41 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 42
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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9/29/14 for $300,000; 207 Mansfield Ct. Fidalgo Island 0.24 acre, (one block from beach)
assessed at $131,700 sold on 8/10/12 for $331,500; 209 Mansfield Ct. Fidalgo Island, 0.17 acre a
block from the beach, assessed at $118,500 sold on 8/10/12 for $331,500; and 211 Mansfield Ct.
Fidalgo Island, 0.33 acre a block from the beach assessed at $131,700 sold for $331,500 on
8/10/12. These are the only comparable sales in Whatcom and Skagit in this period. The LISE
sales had slightly larger lots and of the four comparables three on Mansfield court were a block
from the beach.
(C) Diminished value. This kind of property has value diminished by defendants’
wrongful acts by some $277,000.
(D) The average land value assessment in LISE for this group was $56,165 per 0.345
acre or $3.74/SF; while the comparable sales outside LISE had land value assessed at an average
of $12.94/SF ($181,975 in average land value assessed, per average size 0.323 acres). The sales
value per SF averaged $3.12 for the two LISE properties, and $23.07 for the four comparable
sales outside LISE.
11.12 Waterfront, improved. There is one plaintiff with this kind of property. There
were no sales of this kind in LISE recently, due to the stagnating effect of the RICO/wrongful
acts. The average assessed land values for 15 high bank single properties in LISE of this kind
(excluding bound or oversize lots or those not high bank) was $93,658 in 2015 as follows:
Waterfront, Improved -- Values Inside LISE
Address Assessed Land Assessed Total
2982 Cove Ave. $94,640 $235,405
1290 Baker Ave. 94,640 194,377
1288 Baker Ave. 84,558 234,491
1258 Island Dr. 82,900 134,732
1246 Island Dr. 92,820 125,390
Beach Ave. homes
1222 94,640 273,786
1218 84,558 215,309
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 42 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 43
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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1210 94,640 225,780
1180 84,558 191,643
1174 89,024 97,106
1172 124,124 228,805
1170 94,940 346,012
1168 94,640 211,786
1120 129,740 360,431
1116 64,454 141,822
Average Inside $93,658 $214,458
11.13 The 2015 average assessed land value for 37 comparable properties outside LISE
but on Lummi Island, on North Nugent Road, some 4 miles north of LISE, with similar
exclusions was $226,011, some $132,353 higher, as follows:
Waterfront improved -- on Lummi Island -- outside LISE
N. Nugent Rd.
Address
Assessed
Land
Assessed Total Sales Price
(all sales in
1/14)
2850 228,800 322,658
2846 208,000 485,771
2840 234,000 463,332
2832 220,000 250,216
2818 244,400 314,663
2798 229,320 491,620
2778 239,200 600,430
2776 224,796 483,668
2772 212,420 506,923
2752 227,240 344,243 520,000
2744 227,240 430,450
2746 253,240 373,424
2700 205,114 255,371
2732 238,680 283,860
2201 252,200 411,750
2211 204,000 340,668 550,000
2217 212,160 251,897
2219 210,080 278,996
2225 212,160 241,131
2227 218,400 266,111
2229 247,520 332,097
2231 218,400 528,130
2243 231,400 259,516
2247 218,400 229,871
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 43 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 44
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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2254 218,400 245,254
2259 231,400 326,711
2263 218,400 297,262
2267 249,600 361,430
2271 226,200 348,682
2275 243,360 376,866
2363 239,200 323,098 414,500
2367 223,600 360,628
2372 223,600 293,498
2398 214,200 374,245
2315 223,600 305,939
2319 202,280 252,591
2343 231,400 360,758
Average Outside $226,011 $350,642 $494,833
Difference $132,353
Actual sales on North Nugent Road in 2013-2014 on comparable properties were at $550,000;
$520,000 and $414,000 and averaged $494,833, as shown, some 42% higher than average
assessed values for homes and land, as shown; the diminishment in value for this kind of
property due to the RICO and other wrongs is some $188,000 ($132,000 x 1.42 = $187,500).
11.14 Total real estate injuries. The total estimated injury to property due to
defendants’ RICO/other wrongs is $3.8 million for plaintiffs and $47 million for all owners:
Plaintiffs’ Real Estate Damages
C. Ortego 1206 Scenic Ave. Wooded Lot Unimproved $70,000
A. Ponomareva 3059 Hales Pass. Dr. “ 70,000
Linda Fengler 2901 Cedar Ave. “ 70,000
Jennifer Dubrow 1297 Island Dr. “ 70,000
Mark Mech 2894 Cedar Ave. “ 70,000
Midiana Bilik-
Franklin
1190 Scenic Ave. Wooded Lot Impr. 500-850 SF 69,000
1186 Scenic Ave. Wooded Lot Unimproved 70,000
Boyd Barry
1201 Scenic Ave. Wooded Lot Impr. 1100+ SF 76,000
1205 Scenic Ave. Wooded Lot Unimproved 70,000
1209 Scenic Ave. “ 70,000
Richard Owen 2885 Cedar Ave. Wooded Lot Improved 500-
850 SF 69,000
LaPriel Barnes 1217 Scenic Ave. Wooded Lot Improved 850-
1100 SF 52,000
COKD Trust 3051 Hales Pass. Dr. Wooded Lot Impr. 1100+ SF 76,000
Victor Armfield 1210 Scenic Ave. Wooded Lot Impr. 1100+ SF 76,000
Louise and 1288 Baker Ave. Waterfront Improved 188,000
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 44 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 45
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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John Weber 3071 Hales Pass. Dr. Waterview Unimproved 58,000
3073 Hales Pass. Dr. “ 58,000
1283 Baker Ave. “ 58,000
1280 Island Dr. “ 58,000
LILCO
2929 2933 2937 2959
Carol Ln.
Waterview Unimproved 4 @$
58K
236,000
2915 Dogwood Ter. Waterview Unimproved 58,000
2917 Dogwood Ter. “ 58,000
2921 Dogwood Ter. “ 58,000
J. & M. Apolis 3060 Mt. Vista Dr. “ 58,000
3068 Mt. Vista Dr. “ 58,000
Edward Earl
Lawson
1229 Jamison St. “ 58,000
1233 Jamison St. “ 58,000
E. & P. Engel
2982 Hales Passage Dr. “ 58,000
2944 Cedar Ave. “ 58,000
Stephan Freelan
3042 Dogwood Ter. “ 58,000
3046 Dogwood Ter. “ 58,000
Ruth Gross 1203 Beach Ave. “ 58,000
Fischer Trucking 3007 Hummingbird Pl. “ 58,000
Joy Krell
1078 Island Dr. “ 58,000
1078 Island Dr. Waterview Improved 170,000
Chalmers Moon 1160 Island Dr Waterview Improved 170,000
1158 Island Dr. Waterview Unimproved 58,000
Gerald
Schroeder
1178 Scenic Ave. Waterview Improved
170,000
Grant Bowery 2965 Dogwood Ter. “ 170,000
Lee Mundstock 1122 Island Dr. “ 170,000
H.& T. Smith 1060 Dana Circle “ 170,000
T. R. Waggoner 1065 Island Dr. Waterfront Unimproved 277,000
Total for plaintiffs $3,801,000
All LISE Landowners’ Real Estate Damages
Type of property and number of lots Diminishment/lot Extension
Wooded Lot, unimproved: 119 $70,000 $8,330,000
Wooded Lot, Improved: 39 Average $66,000 2,574,000
Water view, unimproved: 129 $58,000 7,482,000
Water view, improved 113 $170,000 19,210,000
Waterfront, unimproved 16 $277,000 4,432,000
Waterfront, improved 26 $188,000 4,888,000
Total for all LISE 442 $46,916,000
Case 2:14-cv-01840-RSL Document 13 Filed 05/01/15 Page 45 of 67
FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 46
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
(206) 419-4385
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11.15 The RICO/other wrongful acts are depressing LISE values to below-trailer park
levels. The average Wooded Lot in LISE averaging .323 acre sold for an average of $5,400 in
2013-2014, but in the Latitude 49 trailer park in Birch Bay (4751 Birch Bay Lynden Road, a half
mile to the water), unimproved gravel lots nos. 238 and 251, each about 0.06 acre, sold on
8/21/14 and 8/6/14 for $55,000 and $81,250, respectively some 10-15 times more. In this trailer
park community half-year occupancy lots sold recently for $40,000 (nos. 37 (8/15/14), 102
(12/31/14), and 123 (on 9/13/14)). Even these were some 8 times more than lots in LISE
averaging $5,400 which are larger, and full year owned.
11.16 The LISE area is as beautiful and scenic as the San Juan Islands; its views are oft
more dramatic; its lots should have and would have value like those in the best parts of San Juan
Islands, but have values less than found in a trailer park due to the onerous claims of membership
in LISECC and the RICO acts of mail fraud imposing huge costs on LISE owners which distress
and injure them in their real estate.
I. Defendants Operated LISECC Cut Off Ortego’s Water, And Sabotage
His Home Water System Repeatedly, Committing Extortion and Witness
Tampering As Part of the Pattern of Racketeering Activity.
12.1 In January-March 2011, to retaliate against Ortego for his actions opposing bound
lots exemptions and other improper LISECC conduct, Sexton, Paul and Leslie Dempsey,
Swanson, and Moench acted in concert and conspired to illegally remove then President Boulton
and Ortego from the board, using a single ballot at a special meeting when this was illegal and
there were no grounds for removal.
12.2 As noted, Ortego backed Davis’ claims in early 2011 that owners could sue
LISECC for its illegal collections of dues. Certain Defendants misled Ortego into stepping down
from the board, promising to wind up LISECC and end illegal dues collection, then broke those
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promises. Sexton later claimed expiring dues authority was made permanent with court filings.
12.3 Ortego wrote to LISE owners in December 26, 2011 explaining that LISECC had
no authority to require membership dues, citing Rich Davis’ letter, saying he would only pay
water charges and not dues, and suggesting LISECC should file in court to liquidate, or
alternately, suit could be filed against LISECC.
12.4 Fearing suit, and Ortego’s giving evidence in a suit, and to hinder such evidence,
or threat of suit, Sexton, Bain, Cash, and Moench committed witness tampering under Federal
and State law when on June 24, 2012 in a board meeting they operated LISECC to cut off
Ortego’s and his wife Ponomareva’s LISECC water supply. At this time his water charges were
prepaid and he owed nothing to LISECC. There was no basis for cutting off his water. Said
defendants also caused LISECC to not give him proper notice.
12.5 The cut off of water directly injured the property owned by Ortego, his wife and a
related trust and caused great economic damages forcing Ortego and Ponomareva to become
haulers of water from Costco and other stores. It also caused them severe emotional distress, as
it cut off their running water. Even today they lack running water much of the year. Ortego
mitigated these injuries and losses by spending hours and great cost building a home water
system. It is seasonal only, and provides no running water during the dry half of the year,
forcing him and his wife to haul water constantly. This activity and the lack of running water
would, as defendants knew, make his life stressful, less healthy, and greatly inconvenient. Each
defendant acting, that is, Sexton, Bain, Cash, and Moench, intended Ortego and his spouse to
suffer severe emotional distress and humiliation and discrediting in the small Lummi Island
community -- making them live like people without running water. Such defendants continued
intentionally to inflict such severe emotional distress and humiliation knowing it was aggravated
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VIOLATIONS, CORPORATE DISSOLUTION,
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Seattle, WA 98103
(206) 419-4385
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by Ponomareva became pregnant in 2013, and made worse still after her and Ortego’s infant
daughter was born in 2014. Making the family live without proper running water when they
have a small infant is deliberate ongoing cruelty. Defendants on the board today (Sexton, Cash,
Lott, Slater, and Swanson), and Bain and Nielsen through August 2014), caused or maintained
the cut off to inflict severe emotional distress, and threaten Ortego. They also approved liening
the lots, further injury to property. From June 2012 to the present, half the time the home has not
had proper running water, causing severe emotional distress, discomfort and economic damage.
12.6 The intended purpose was to threaten Ortego into not pursuing his legal rights to
go to court, and to ensure he did not inform the LISE community of the facts which might lead to
legal action. This made the water cut off damage to property that was also witness tampering, a
felony under State and Federal law.
12.7 The home water system includes reservoirs and pipes connecting to an uphill lot
he owns which serves in effect as a watershed/collector area for the system to gather runoff.
12.8 On November 22, 2013, Sexton took unusual interest in a lot next to Ortego’s
home. When Ortego bid on the lot at a tax sale Sexton maliciously outbid him offering four
times the minimum to block Ortego from getting the lot. Sexton thereafter did nothing to develop
or use the lot he had bought. His purpose was malicious and retaliatory. He sought to establish a
base next to Ortego’s house from which to harass him. The next day, on November 23, 2013,
Ortego woke up and discovered the home water system did not work. He investigated and found
someone had pulled a collector water hose out of the coiled-pipes reservoir and poked holes in
the 4” corrugated pipe on his property. Ortego saw the stick that was used and pulled it out of its
unnatural position. The pipe would not be punctured by a falling branch, there are no trees
above; and it would take human force to effect the puncture. On information and belief,
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 49
Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.
Seattle, WA 98103
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supported by the coincidence in time, and Sexton’s action in locating himself next to Ortego’s
home, this sabotage and trespass was by Sexton and or John Graham or other LISECC staff
employee at Sexton’s direction, or at the direction of all defendants named herein on the board at
the time in conspiracy or in concert, including Sexton, Bain, Cash, Lott, Moench, Nielsen, Slater,
and or Swanson, each acting with malice to hinder and threaten Ortego against pursuing legal
action or giving evidence in support of any legal action brought to challenge the dues collection.
12.9 On October 8, 2014 Ortego expected to see Sexton in a state court on a matter
related to LISECC’s dues authority and in which both provided evidence via declarations.
On October 7, 2014, the day before the hearing, the Ortego water system was attacked again with
someone again pulling the hose out of the pipe. On information and belief, this was done by
Sexton, Graham or another staff employee at Sexton’s direction, or at the direction of all
defendants named herein on the board in conspiracy or acting in concert including Sexton, Cash,
Lott, Slater, and or Swanson, each acting to suppress legal action or evidence given by Ortego.
This and the prior incident were witness tampering under RCW 9A.72.120, as the intent was to
induce Ortego to absent himself or not provide his evidence in the hearing set for the next day.
12.10 On March 23, 2015, plaintiffs caused the complaint in this RICO action to be
served on LISECC and on information and belief LISECC’s agent informed Sexton and the other
defendants that day. At this time, Ortego was to be deposed in the state court proceeding the
next day (March 24, 2015). On the afternoon of March 23, 2015, the Ortego water system was
sabotaged a third time, with someone disconnecting a pipe joint. On information and belief, this
was by Sexton, Graham or another employee at Sexton’s direction, or at the direction of all
defendants named herein on the board at the time acting in conspiracy or acting in concert
including Sexton, Cash, Lott, Slater, and/or Swanson, each acting with malice to threaten Ortego
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 50
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into not giving evidence in either suit. This was witness tampering under RCW 9A.72.120 and
or obstruction of justice/witness tampering under 18 U.S. Code § 1512 (witness tampering is
obstructing, influencing or impeding an official proceeding or attempting to do so; knowingly
using intimidation, or threats or attempting same to influence or delay or prevent testimony in an
official proceeding; hindering or delaying or preventing communication to a federal judge of
information related to a federal offense regarding the federal complaint). Said defendants on
information and belief conspired to commit such crimes or operated LISECC to commit such
crimes as part of the pattern of racketeering activity.
12.11 On March 24, 2015, Ortego’s attorney told LISECC’s attorney about the sabotage
and suspicious timing asking him to ask Sexton and LISECC if Sexton or any LISECC employee
was involved; and noting this was potential obstruction of justice to intimidate Ortego; and
requesting a response promptly. To date, neither LISECC nor its counsel have responded or
denied the charge that Sexton or one acting at his request for LISECC committed the sabotage.
12.12 On April 1, 2015, most individual defendants were served in this case excluding
Bain and Swanson. On April 19, 2015, someone again sabotaged Ortego’s home water system
pulling apart the pipe joint. On information and belief, this was trespass/property damage to
prevent or hinder Ortego giving evidence in this suit by Sexton and or a LISECC staff employee
at Sexton’s direction, or at the direction of all defendants named herein on the board at the time
acting in conspiracy or acting in concert including Sexton, Cash, Lott, Slater, and/or Swanson,
each acting with malice to tamper with his evidence in violation of federal law.
12.13 Ortego’s home is remote, far from likely random vandalism; four acts of sabotage
at this water system he built following up on the threat of legal action and refusal to pay the
illegal dues were acts of the defendants named above to desist from legal action and hinder or
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VIOLATIONS, CORPORATE DISSOLUTION,
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Seattle, WA 98103
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tamper with his evidence. These acts of property damage via physical force and intimidation are
mob-like activity to make a potential witness back off. They are related to the dues, to diversion
of dues money for water, and are part of the pattern of racketeering activity.
12.14 Attached hereto as Exhibit B are true and correct copies of three photos taken by
Ortego which fairly and accurately depict the sabotage on November 23, 2013 and on March 23,
2015. The March 2015 photo shows the pipes pulled apart. The December 2013 photos show the
stick puncturing the pipe, and the pulled out hose causing water to spurt out of the pipe system,
depriving the system of water. (The picture dated 12/6/13 was taken that date, when Ortego
discovered the cause of the water’s stopping flowing on 11/23/14, was the sabotage shown).
12.15 On July 29, 2014, Ortego sought a member list from LISECC and defendants on
the board, Sexton, Lott, Slater, Swanson, Bain, Cash and Nielsen, made LISECC refuse it. This
violated RCW 24.03.135 and 64.38.045 requiring the list be made available. This is to further
hinder and prevent any legal action, including this RICO claim.
12.16 The water cut off, and sabotage, are injury to property of Ortego and
Ponomareva estimated to be some $100,000 including time, labor and materials also diminished
rental value of a home cut off from a water system and burdened with an unsightly home water
system that does not provide running water seasonally or due to attacks. Trebled the amount is
estimated at $300,000 making the entire RICO damages exceed $12.5 million.
IV. LEGAL CLAIMS
A. RICO Claims Against Individual Defendants Singly & in Conspiracy
13.1 All allegations of this complaint are incorporated under this section.
13.2 Summary. Each individual defendant is liable under the Racketeer Influenced
Corrupt Organizations (RICO) Act, 18 USC § 1964(c) providing that “Any person injured in his
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business or property by reason of a violation of section 1962 of this chapter may . . . recover
threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee . .
. .” RICO at 18 USC § 1962(c)) proscribes a person from conducting the affairs of an enterprise
affecting interstate or foreign commerce through a pattern of racketeering activity which includes
acts of mail and wire fraud, obstruction of justice and extortion. RICO at 18 USC § 1962(d)
provides for conspiracy liability if one agrees with a defendant who is the operator or manager to
conduct the affairs of the enterprise through a pattern of racketeering activity. Each individual is
liable as conspirator, and individually. The RICO enterprise is LISECC and or individual
defendants’ association in fact. Both affect interstate commerce, through a pattern of
racketeering activity, including thousands of acts of mail fraud and wire fraud, plus five acts of
extortion or obstruction of justice/witness tampering. The mail fraud concerns false dues notices
(because dues are not due, notices for dues are really mainly for water charges, and bound lots
discounts make the amounts wrong for that reason too). The frauds include dues notices sent
through the mails; false and misleading statements about dues and dues authority and reserves
sent through the mails or wires. There was a pattern due to the continuous years long operation
of this scheme and the common goal to benefit the 15% group which includes most defendants.
The RICO acts proximately caused injury to plaintiffs in their business or property by causing
them to part with money, subjecting their lots to a claim of automatic LISECC membership, dues
and possible assessments, diminished real estate values, plus for Ortego and Ponomareva the
additional property damage related to the cut off and sabotage. All said RICO acts are related in
a pattern having common singular intent and effect: take money from the 85%, get it into
LISECC, then divert it to the 15% which includes most defendants; then tamper with Ortego and
extort him from giving evidence against this scheme, by cutting off his water, then attacking his
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Seattle, WA 98103
(206) 419-4385
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home system, directly related to his potential evidence against the flow of money going into
defendants’ pockets from dues, for water costs. The attacks are to send a message about dues
and water -- don’t challenge this RICO scheme to take dues money used for water costs.
13.3 Mail & Wire Fraud. Sexton, Bain, Cash, the Dempseys, Lott, Moench, Nielsen,
Slater, and Swanson acting singly and in concert and conspiracy engaged in a scheme to unlawfully
impose dues and other charges on plaintiffs and LISE owners and knowingly devised or participated
in a scheme or artifice to defraud plaintiffs/LISE owners, or to obtain the money or property of
them, by means of false or fraudulent pretenses, representations, or promises.
13.4 Each said individual defendant acting singly and in concert and conspiracy could
foresee that the U.S. Postal Service and interstate wires would be used “for the purpose of”
advancing, furthering, executing, concealing, conducting, participating in or carrying out the
scheme, within the meaning of 18 USC §§ 1341, 1343. Each acting singly and in concert and in
conspiracy knew or could foresee that the U.S. Postal Service and interstate wires would be used to
receive and/or deliver, inter alia, communications between LISECC and LISE owners, including
thousands of dues notices, also newsletters, meeting minutes, website postings about dues and
budgets, or LISECC’s claimed dues authority, such as the 1990 Notice, plus enforcement papers
such as collection notices, pleadings and court-related documents, also meeting notices and
payments sent via mails or through electronic payment systems.
13.5 Said individual defendants acting singly and in concert, personally or through their
agents, used the U.S. Postal Service and interstate wires or caused them to be used “for the purpose
of” advancing, furthering, executing, concealing, conducting, participating in, or carrying out a
scheme to defraud the LISE property owners, including Plaintiffs, within the meaning of 18 U.S.C.
§§ 1341 and 1343. Plaintiffs have pleaded many instances of mail and wire fraud that advanced,
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 54
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Seattle, WA 98103
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furthered, executed, and concealed the scheme with particularity but other instances are unknown
being because the exclusive control and knowledge of said defendants. Said defendants used the
U.S. Postal Service or interstate wires or caused them to be used to deliver each and every dues
notice, payment collection, email, and or letter or website posting described in this Complaint for
the purpose of advancing, furthering, executing, and concealing the scheme to defraud the plaintiffs
and LISE owners including the following:
Type Date From and to Purpose
Dues notices
see Exhibit A
Mailed end of
every year to
hundreds.
LISECC to LISE
owners of which
25% out of state.
Defraud owners into paying, to
benefit 15% group and
defendants.
Payments Most thru mail
and some
electronically
every year,
hundreds of times.
Owners to
LISECC.
Fruits of the fraudulent scheme.
Newsletters Twice a year
mailed and on
website.
LISECC to
owners
Informs owners they must pay
dues, LISECC has dues
authority.
Annual
meeting
minutes
Yearly on
website.
“ Same, includes statements about
dues and reserves.
Board meeting
minutes
Frequently on
website.
“ Same, includes statements about
dues and reserves.
The use of U.S. mails and wires are noted above passim, including at ¶¶ 1.3, 2.2, 2.4, 3.2, 3.5, 3.6,
3.7, 3.9, 4.1, 4.2, 4.8, 5.3, 5.5, 5.6, 5.12, 5.13, 5.26, 5.28, 6.2, 7.2, 7.3, 8.2, 8.3, 8.4, 8.9, 8.15, 8.17,
8.18, 8.19, 8.20, 8.21, 12.3, 13.2, 13.4, 13.5, 13.6. All such wire communications were within and
without Washington as they crossed interstate borders due to technology. With 25% of owners
outside the State, most all important communication was interstate.
13.6 Each and every use of the U.S. Postal Service or interstate wires described above
was committed by said defendants singly and in concert and as co-conspirators with the specific
intent to defraud plaintiffs and all LISE owners or for obtaining their money or property by means
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 55
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of false or fraudulent pretenses, representations, or promises. These acts of mail and wire fraud
violated 18 USC. §§ 1341 and 1343, and are racketeering activity under 18 USC § 1961(1)(B).
13.7 Plaintiffs and LISE owners justifiably relied on said defendants’ fraudulent
representations and omissions made pursuant to the above-described scheme in that, among other
things, plaintiffs and owners (a) believed LISECC had dues authority and ownership in LISE
carried with it the obligation to be a member, (b) plaintiffs continued to pay dues and other charges
not based on water use; (c) plaintiffs believed amounts on the bills were proper, or were dues, when
they were not; (d) they believed LISECC’s assurances that potentially expiring authority was taken
care of/rectified back in 1990; and/or that (e) the LISECC reserves were well funded i.e., going
along with claims of dues would not lead to large or devastating future assessments.
13.8 Obstruction of Justice/witness tampering. As alleged in ¶¶ 12.1-12.16,
defendants Sexton, Bain, Cash, Lott, Moench, Nielsen, Slater, and Swanson singly or acting in
concert or as conspirators and or the Dempseys acting with one or more of them in concert or as
conspirators knowingly attempted to intimidate, threaten, or corruptly persuade Ortego, with
intent to influence, delay, or prevent Ortego’s (and others’) testimony in a pending or reasonably
foreseeable official proceeding in federal court or state court or with intent to cause or induce
Ortego (and others) to withhold testimony, or withhold a record, document, or other object, from
a pending or reasonably foreseeable official proceeding in violation of 18 USC § 1512(b),
through (a) cutting off his water, (b) maintaining the cut off, and (c) four times causing attacks
on and sabotage of his home water system including once the day after LISECC was served in
this federal case and once several days after many other individual defendants were served. This
was federal obstruction of justice for witness tampering, a predicate felony under RICO.
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VIOLATIONS, CORPORATE DISSOLUTION,
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13.9 18 USC § 1951 extortion. Said defendants Sexton, Bain Lott, Moench, Nielsen,
Slater, and Swanson obstructed, delayed, or affected commerce and/or the movement of articles
or commodities in commerce, by extortion or attempted extortion, or conspired to do so, in
violation of 18 USC § 1951. Said commerce included the interstate payment of dues to LISECC
which would be affected by Ortego’s opposition to LISECC’s and defendants’ unlawful conduct.
The extortion was by actual physical violence to property, actual or threatened continued or
repeated force, violence, or fear, in the water cut off and repeat sabotages including just when legal
action moved forward. Such acts also were attempts to obtain money or property by Ortego with
his consent (i.e., getting him to pay dues he refused to pay) induced by wrongful use of actual or
threatened fear. The acts repeatedly and continuously inflicted fear, and made the implicit wrongful
threat to Ortego that unless he terminated efforts to expose LISECC unlawful conduct and exercise
of authority, or unless he resumed payment of dues and acquiescence in the defendants’ claims
owners must be members, said defendants would continually or repeatedly disrupt Ortego and his
family and deprive them of quiet enjoyment of property by forcing him, his wife and child to fear
living on run off and hauled water with disruption of his home water system a continual threat.
13.10 RCW 9A.56.110 extortion. RCW 9A.56.110 defines “Extortion” as “knowingly
to obtain or attempt to obtain by threat property or services of the owner” thereof.
RCW 9A.04.110(25) defines “threat” as to communicate directly or indirectly intent “(a) To
cause bodily injury in the future to the person threatened or to any other person”; or “(b) To
cause physical damage to the property of a person other than the actor.” The five acts against
Ortego’s water supply (cutting off service, then four sabotages) were state law extortion under
RCW 9A.56.110 being knowing attempts to get Ortego to pay dues by threat to cause bodily
injury in loss of healthy or clean or running water to him or his child or wife; or physical damage
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 57
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Seattle, WA 98103
(206) 419-4385
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to his home or home water system cutting off water and sabotage to his home water system.
RCW 9A.04.110(25)(j) defines threat as “any other act which is intended to harm substantially
the person threatened or another with respect to his or her health, safety, business, financial
condition, or personal relationships.” Cutting off water service and four sabotages threatening
more, were intended to harm substantially Ortego or his wife or infant child, with respect to
health or safety or harm a business he ran at home, or his financial condition and/or personal
relationships: as it is difficult to maintain his home business or family with no running water or
using runoff seasonally. This extortion is directly related to the RICO mail fraud, as it is spurred
by and intended to prevent Ortego’ opposition and exposing the lack of legal basis of the dues.
13.12. RICO enterprise. LISECC constitute an “enterprise” within the meaning of RICO,
18 USC §§ 1961(4) and 1962(c). Sexton, Bain, Cash, the Dempseys, Lott, Moench, Nielsen, Slater,
and Swanson, are a RICO enterprise also in that they are “a group of individuals associated in fact”
(the “AIF Enterprise”). (a) Each shared the common purpose of (among other things) defrauding
the LISE owners of money and collecting “dues” not due, and other charges not based on use, to
make the 85% part time occupants who used 10% of the water, pay most of the cost of the water
to benefit defendants and the 15% group. (b) Each individual defendant is related through
owning land, board service, common actions on the board, over years, and fending off or fighting
the Ortego/Boulton faction also they are friends, relatives and associates of most members of the
15% group. (c) The AIF Enterprise possessed sufficient longevity for the members to carry out
their purpose(s) even lay the foundation for upcoming large assessments. (d) The AIF Enterprise
has existed since 2011 efforts to remove Boulton and Ortego from the board and reverse actions
they led. The AIF Enterprise continues to this day.
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 58
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13.13 RICO persons operating enterprise. Sexton, Bain, Cash, each Dempsey, Lott,
Moench, Nielsen, Slater, and Swanson are each a “person” under 18 USC §§ 1961(3), 1962(c),
who individually conducted, participated in, engaged in, and operated and managed the affairs of
LISECC and or the AIF Enterprise, through a pattern of racketeering activity within the meaning
of 18 USC §§ 1961(1), 1961(5) and 1962(c). Said pattern of racketeering activity consisted of,
but was not limited to, the acts of mail and wire fraud (see ¶¶ 1.1-1.5, 2.2, 3.1-5.12, 5.13-5.26,
7.1-7.9, 8.1-8.21), and obstruction of justice and extortion (¶¶ 12.1-12.16) described above.
13.14 At all relevant times, the LISECC enterprise and AIF Enterprise were engaged in,
and their activities affected, interstate commerce and foreign commerce. A quarter of LISECC
members live outside of Washington State, many live in Canada and LISECC is engaged in
interstate and foreign billing and receipts, continually.
13.15 Pattern of racketeering. All of the acts of mail and wire fraud, obstruction of
justice and extortion described herein were related so as to establish a pattern of racketeering
activity under 18 USC § 1962(c). Their common purpose was to defraud plaintiffs and all LISE
owners of dues payments and other improper charges; their common result was to defraud plaintiffs
and other owners of dues payments and other charges; and to benefit the defendants and 15% group.
Attacks on Ortego were to hinder his efforts to stop this ongoing scheme or make him acquiesce.
Each individual defendant personally or through their agent or agents, directly or indirectly,
participated in all of the acts and employed the same or similar methods of commission; plaintiffs
and all LISE property owners particularly the 85% group were the victims of the acts of
racketeering; and/or the acts of racketeering were otherwise interrelated by distinguishing
characteristics and were not isolated events. Relatedness is also shown by the use of LISECC as the
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FIRST AMENDED COMPLAINT FOR RICO
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enterprise; all victims are related by being LISE owners and all defendants are related through board
service and common votes and actions on the board, to further the scheme.
13.16 All of the acts of racketeering described were continuous so as to form a pattern of
racketeering activity in that Sexton, Bain, Cash, the Dempseys, Lott, Moench, Nielsen, Slater, and
Swanson engaged in the predicate acts over a substantial period of time and their acts of
racketeering threaten to continue indefinitely and have become the regular way in which they
operate LISECC and in which it does business. In particular, dues will rise, assessments of millions
of dollars are likely, and defendants must continue the scheme to shift those millions in costs onto
the 85% to avoid shouldering their share.
13.17 Proximate injury to property or business. As a direct and proximate result of,
and by reason of, the activities of Sexton, Bain, Cash, the Dempseys, Lott, Moench, Nielsen, Slater,
and Swanson, and their conduct in violation of 18 USC § 1962(c), Plaintiffs have been injured in
their business or property, as required in 18 USC § 1964(c). Among other things, Plaintiffs suffered
injury to property in loss of money, owning land burdened by claims of membership obligations in
LISECC that are perpetual; diminished real estate values; liens; and physical harm to Ortego’s and
Ponomareva’s property and water system, and diminution in their home’s use value. Plaintiffs are
entitled to treble the injury or damages sustained, estimated as exceeding $12 million, and costs,
reasonable attorneys’ fees and reasonable experts’ fees.
B. RICO Conspiracy, 18 USC § 1962(d) (All Individual Defendants)
14.1 All allegations of this complaint are incorporated under this section.
14.2 As set forth above, 18 USC § 1962(c) was violated by one or more of Sexton, Bain,
Cash, Leslie Dempsey, Paul Dempsey, Lott, Moench, Nielsen, Slater, or Swanson. Any defendant
or defendants found to have violated §1962(c) are referred to as “Primary Defendants.”
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FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 60
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14.3 Each of Sexton, Bain, Cash, Leslie Dempsey, Paul Dempsey, Lott, Moench,
Nielsen, Slater, or Swanson conspired with Primary Defendants to conduct or participate, directly
or indirectly, in the conduct of affairs of the LISECC or AIF Enterprise, through a pattern of
racketeering activity as alleged above, violating 18 USC § 1962(d). Sexton, Bain, Cash, each
Dempsey, Lott, Moench, Nielsen, Slater, or Swanson intended to further an endeavor of the
Primary Defendants which, if completed, would satisfy all elements of a substantive RICO criminal
offense (18 USC § 1962(c)) and adopted the goal of furthering or facilitating the criminal endeavor.
14.4 Plaintiffs were injured by Sexton’s, Cash’s, Bain’s, each Dempsey’s, Lott’s,
Moench’s, Nielsen’s, Slater’s, and or Swanson’s overt acts that are acts of racketeering or otherwise
unlawful under the RICO statute, which included (among other acts) acts of mail and wire fraud,
obstruction of justice or extortion as alleged above.
14.5 As a direct and proximate result of activities of said defendants’ conduct violating 18
USC § 1962(d), Plaintiffs were injured in their business or property, under 18 U.S.C. § 1964(c),
suffering the losses and injury alleged in ¶ 13.17 and may recover treble such damages, cost of the
suit, reasonable attorneys’ and experts’ fees.
C. Dissolution of LISECC (All Defendants)
15.1 All allegations of this complaint are incorporated under this section.
15.2 RCW 24.03.266 provides that the court may dissolve a Washington nonprofit
corporation such as LISECC if “members holding at least five percent of the voting power” or a
director shows that directors or those in control have acted, are acting, or will act in a manner
that is illegal, oppressive, or fraudulent corporate assets are being misapplied or wasted.
15.3 Plaintiffs exceed the 5%-of-voting-power standing standard in RCW 24.03.266.
In equity the Court should count Ortego as a director with standing under this section, where he
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and Boulton exposed wrongdoing, sought dissolution and were frustrated by the inequitable acts
of Swanson, and Paul and Leslie Dempsey who promised Ortego and Boulton if they stepped
down LISECC would be dissolved; then broke this promise. Had they not promised this and
broken the promise Ortego likely would have remained and sued under RCW 24.03.266
15.4 The acts and omissions described above show directors of LISECC or those in
control are acting in a manner that is illegal, oppressive, or fraudulent and corporate assets are
being misapplied (dues misapplied to water cost) or wasted, justifying dissolution. The financial
abuse committed in in the millions of dollars and threatens to continue and increase.
15.5 The water system may be conveyed o a public utility to become eligible for
federal grants or loans more easily. Changing to a public utility will help ensure charges or
assessments are properly based on use; and no longer imposed illegally by making the majority
(including those without water service) subsidize the 15% minority using 90% of the water.
Dissolution and putting the assets on a sounder replacement schedule will support repayment of
the State loan and ensure long term viability of the system presently headed for collapse.
15.6 Plaintiffs are entitled to a dissolution order, appointment of a receiver for that
purpose and their fees and costs.
C. Breach of Fiduciary Duties, Negligence (All Defendants)
16.1 All allegations of this complaint are incorporated under this section.
16.2 RCW 24.03.127 provides a non-profit corporate “director shall perform the duties
of a director, including the duties as a member of any committee of the board upon which the
director may serve, in good faith, in a manner such director believes to be in the best interests of
the corporation, and with such care, including reasonable inquiry, as an ordinarily prudent person
in a like position would use under similar circumstances.” RCW 64.38.025(1) provides that a
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homeowner association director must “act in all instances on behalf of the association. In the
performance of their duties, the officers and members of the board of directors shall exercise the
degree of care and loyalty required of an officer or director of a corporation organized under
chapter 24.03 RCW.” These duties apply to defendants.
16.3 Fiduciary duties also apply and include duties to not favor one group over
another, to treat members equally, which means to charge according to use for variable services
such as supplying water. Defendants also had duties to use care and diligence, and duties of
loyalty, to follow the plat covenants and obey the 25-year time limit and those requiring one lot,
one membership in charging dues. Defendants also had duties to learn, to act in good faith and
to not act self-interestedly, in bad faith or to favor a subgroup at the expense of the majority.
Bylaws Part 7: Policy Statement #11 required directors to act reasonably, follow established
management practices. Directors had duties to act for the interest of the whole, and were
directed in a LISECC letter that putting “interests of yourself, your friends, or your supporters
above those of the association or its members is a breach of your fiduciary duty to the
association. . . If board members made decisions based on favoritism, discrimination, or malice
– or make arbitrary decisions – they’re breaching their fiduciary duty.” Defendants had duties to
follow State law including Fawn Lake disallowing bound lots dues exemptions and disallowing
harm to the 85% to benefit the 15%. Defendants had a duty of care to plaintiffs to act as
reasonable directors and to not act negligently or with gross negligence.
16.4 The acts and omissions described above violated said duties. In committing said
violations, defendants each were personally involved, and each like LISECC did so intentionally,
maliciously, in bad faith, dishonestly, and acting in concert. The overall plan to subject LISE
owners to member obligation and purported dues, to extract money from the 85% to benefit the
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FIRST AMENDED COMPLAINT FOR RICO
VIOLATIONS, CORPORATE DISSOLUTION,
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15% including defendants, was “favoritism, discrimination and malice” and otherwise a reckless,
grossly negligent and or malicious and intentional breach of the defendant’ duties.
16.5 This caused and proximately caused harm to plaintiffs including wrongfully
extracted dues, other charges and other economic loss and emotional distress and property
damage, including severe emotional distress on the part of Ortego and Ponomareva.
D. Washington Consumer Protection Act Claims (All Defendants)
17.1 All allegations of this complaint are incorporated under this section.
17.2 The acts and omissions described above are unfair or deceptive acts or practices
in trade or commerce under RCW 19.86.020 having a public interest impact and proximately
causing injury to plaintiffs in their business or property.
17.3 LISECC is run by defendants as a business for their profit or profit to the 15%. It
sells goods such as water to many people. It conducts commerce including a water system and
services directly or indirectly affecting the people of the State of Washington. In operating a
water system classified as a “municipal water supplier” it is acting publicly and affecting the
public. The deceptive practices alleged herein were both intended to deceive or at a minimum
had the capacity to deceive a substantial portion of the public.
17.4 The above transactions are consumer transactions because LISECC markets to the
public; new owners buy land in LISE in part based on LISECC’s relationship to lots in LISE.
The acts complained of herein were in the course of business of LISECC, and are part of a
pattern and generalized course of conduct: to run LISECC for defendant’s personal benefit and
that of the 15% full time owners. Defendants and LISECC committed repeated acts of illegal
dues extraction and misuse for years. There is a real and substantial potential for repetition of
the conduct in the future, also, new exactions of large assessments to be imposed on the 85%
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including those not hooked up to water. Certain defendants deceptively promised to dissolve
LISECC then broke that promise, then refunded themselves money falsely claiming confusion
about what reserves were. Many consumers of water and others in LISE are likely to be affected
as the intent is to increase charges based on ownership of land in LISE, and not use.
17.5 If the above transactions are deemed private, there is likelihood that additional
plaintiffs have been or will be injured in the same fashion affecting the public interest.
Additional plaintiffs would be persons buying land in LISE. All LISE owners not in the 15%
have been harmed, not just plaintiffs herein. LISECC advertises its services to the public via its
website. LISE owners are in an unequal bargaining position vis-a-vis LISECC and defendants;
the dues of $660 a year plus other charges mean that no LISE owner has a sufficient economic
interest to stop the abuse, while LISECC garners hundreds of thousands of dollars unlawfully
every year, funding lawyers who enforce the purported dues obligation.
17.6 The injury to plaintiff’s business or property includes all amounts of dues
collected from plaintiffs, or any money unlawfully charged other than according to use, plus
injury to property from diminution in value or enjoyment of plaintiff’s lots or in the case of the
Ortego-Ponomareva lots, diminution in their use value and direct damage to water being cut off
and or value of their efforts in building personal water systems or getting water from stores.
17.7 Under RCW 19.86.090 all plaintiffs are entitled to actual damages (plus trebling
of actual damages not to exceed $25,000 each); fees and costs of suit.
E. Intentional or Reckless Infliction of Emotional Distress (Certain Defendants)
18.1 All allegations of this complaint are incorporated under this section.
18.2 The conduct of Sexton, Bain, Cash, Lott, Moench, Nielsen, Slater, and Swanson,
relating to cutting off water to the Ortego lots then sabotaging the home water system and
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VIOLATIONS, CORPORATE DISSOLUTION,
TREBLE DAMAGES AND OTHER RELIEF - 65
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maintaining the cut off, was malicious, intentional, extreme and outrageous or reckless. The
sabotage to the water system constituted crimes under State law not only regarding witness
tampering but also, damage to property, trespass and also federal extortion and obstruction.
18.3 These acts and the cut off of water was atrocious and utterly intolerable in
civilized society as it sought to endanger health and sanitation for Ortego and Ponomareva, and
force Ortego to give up legal claims or giving evidence, through fear and violence and directly
threatening his health and that of his wife and their infant daughter. This is not fair litigation
conduct or appropriate HOA conduct. This is mob like conduct. Harming a home’s water and
threatening good health of a baby is intolerable and atrocious.
18.4 Such conduct proximately has caused Ortego and Ponomareva and their child, to
suffer severe injury to property (a home without running water or with a home collection system
is worth less) and emotional distress, loss of water, health effects, general damages and
economic loss. The sabotage to pipes and continued cut off also were torts arising from crimes.
This tort was intentional on the part of LISECC and Sexton, including Sexton and Bain, Cash,
Lott, Moench, Nielsen, Slater, and or Swanson. Ortego and Ponomareva may recover against all
said defendants and LISECC for Intentional or Reckless Infliction of Emotional Distress and
Property Damage and the torts arising out of said crimes.
F. Unjust Enrichment and Disgorgement (All Defendants)
19.1 All allegations of this complaint are incorporated under this section.
19.2 Through the acts and omissions described above, individual defendants and
LISECC have been unjustly enriched and are bound to disgorge to plaintiffs all amounts by
which they have been unjustly enriched or obtained from plaintiffs.
G. Conspiracy and Acting in Concert and Intentionality (All Individual Deft.)
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20.1 All allegations of this complaint are incorporated under this section.
20.2 All claims alleged above against individual defendants are asserted jointly and
severally as they have acted in concert or jointly and or have conspired to commit the wrongs
alleged herein. Each individual defendant combined to accomplish an unlawful purpose, or to
accomplish a lawful purpose by unlawful means; and entered into an agreement to accomplish
the conspiracy. Each conspired with respect to using LISECC to make LISE owners pay dues
and other charges, and all but the Dempseys conspired to commit the tort of intentional infliction
of emotional distress against Ortego and Ponomareva.
PRAYER FOR RELIEF
1. For a judgment in an amount for damages as proven in trial; and awarding treble
damages, costs and fees as per RICO or the Washington CPA or otherwise;
2. For an order and judgment dissolving LISECC and providing whatever
supplementary relief is deemed advisable for orderly winding up, such as appointment of a
receiver with power to sell or transfer the water system to a public utility entity; and other
equitable relief including declarations that authority to collect dues and assert mandatory
membership ended in 1990, and that acts complained of constitute violations of RICO and the
duties cited; ordering disgorgement and restitution; and enjoining any of the wrongful acts
described herein including any assertion of membership or collection of dues or other charges
not based on use, and ordering LISECC to inform LISE and revoke the 1990 Notice; and
6. For such other relief as the Court may deem just, equitable and proper.
DATED this 1st Day of May 2015.
CLEVELAND STOCKMEYER PLLC
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By:____/S/__________________________
Cleveland Stockmeyer, WSBA #21636
8056 Sunnyside Ave. N.
Seattle, Washington 98103
(206) 419-4385
Attorney for Plaintiffs
CERTIFICATE OF SERVICE
I hereby certify that on May 1, 2015, I electronically filed the foregoing with the Clerk of
the Court using the CM/ECF system which will send notification of such filing to the following:
Mark J. Dynan and Matthew T. Wood
Dynan & Associates, P.S.
999 Third Avenue Suite 2525
Seattle, WA 98104
Email: [email protected]; [email protected]
W. Scott Clement
Clement & Drotz, PLLC
100 West Harrison Street, North Tower, # N350
Seattle, WA 98121
Email: [email protected]
I declare under penalty of perjury that the foregoing is true and correct.
Executed at Seattle, WA this 1st day of May 2015.
__/s/ _____________________
Lisa Lou Gogal, Paralegal
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