Hon. Robert S. Lasniklise-owners-for-justice.weebly.com/uploads/5/8/6/7/58674957/2015_… · ANDREW CHALMERS, an individual; JENNIFER L. DUBROW, an individual; EDSON A. ENGEL and

FIRST AMENDED COMPLAINT FOR RICO

VIOLATIONS, CORPORATE DISSOLUTION,

TREBLE DAMAGES AND OTHER RELIEF - 1

Cleveland Stockmeyer PLLC 8056 Sunnyside Ave. N.

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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





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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,






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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






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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.






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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






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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






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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






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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






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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






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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.






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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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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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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






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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






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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






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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






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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






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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






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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






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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.






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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






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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






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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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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






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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






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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






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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






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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






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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






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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






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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






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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






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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






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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.






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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.






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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.






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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.






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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






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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






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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






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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



1254 Island Drive 67,392

1250 Island Drive 69,368

1226 Beach Avenue 94,640






Average $57,102

Waterfront, unimproved, comparables’

assessed values outside LISE

2852 N. Nugent Road $197,600

2844 N. Nugent Road 197,600



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






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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






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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






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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






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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






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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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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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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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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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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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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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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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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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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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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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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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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)


14.2 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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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)


15.2 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)


16.2 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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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)


17.2 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)


18.2 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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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)


19.2 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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20.2 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






Seattle, WA 98103

(206) 419-4385

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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


Documents

Hon. Robert S. Lasniklise-owners-for-justice.weebly.com/uploads/5/8/6/7/58674957/2015_… · ANDREW CHALMERS, an individual; JENNIFER L. DUBROW, an individual; EDSON A. ENGEL and