Steven W. Cheifetz (011824) James J. Belanger (011393) Melanie C. McKeddie (022942) CHEIFETZ IANNITELLI MARCOLINI 1850 North Central Avenue, 19'~ Floor Phoenix, Arizona 85004 (602) 952-6000, P. C. RED PINAL COUK~Y SUPERIOR COURT Q\rUTSEQ t3ut.z GLERIB. ms?l ( Attorneys for Plaintiffs IN THE SUPERIOR COURT OF THE STATE OF ARIZONA IN AND FOR THE COUNTY OF PINAL JOSEPH BRASLAWSCE and ELLEN BRASLAWCSE, as TRUSTEES of the BRASLAWSCE FAMILY TRUST DATED JUNE 25, 2004; JOHN T. BURROUGHS, a single man; JORGE CUEVAS and ELIZABETH CUEVAS, husband and wife; DOUGLAS MILTON CURRIE and LINDA D. CURRIE, husband and wife; JOE DELAVEGA aka JOSE N. DELAVEGA, a married man dealing with his sole and separate property; SALVATORE GATT0 PARTNERS, L.P., an Arizona limited partnership; PETER B. GRAY, a married man dealing with his sole and separate property; GARY L. HURBAN and JOAN A. HURBAN, husband and wife; CYNTHIA R. JONES, a married woman dealing with her sole and separate property; THOMAS J. MANDARINO, a married man dealing with his sole and separate property; THOMAS D. MAPLE, a married man dealing with his sole and separate property; GERALD LLOYD MAUST and MARGO DENISE MAUST, husband and wife; MICHAEL MESSER and NANCY ANN MESSER, husband and wife; MARGARET L. NEISENT, a single woman; THOMAS E. O'BRIEN, a single man; DANA MARIE OLDANI, a married woman dealing with her sole and separate property; ALMA X. ORTEGA fka ALMA X. MERCADO, a married woman dealing with her sole and separate property; BRUCE SPROULL as SOLE HEIR and PERSONAL REPRESENTATIVE of the Case No. CV2007-026 17 SECOND AMENDED COMPLAINT (Breach of Fiduciary Duty; Breach of Contract; Racketeering; Receivership; Accounting)
ESTATE OF GEORGE B. READE and 1 MARY E. READE; DENNIS L. RAUSCH, an unmarried man; PATSY FLOREZ REZAC, an unmarried woman; GARY L. STONE, an individual; CLARENCE L. STONE, an individual; EDWARD E. VINES and 4 PATRICIA K. VINES, husband and wife; BETTY L. BILLINGS, as EXECUTRIX of the 5 ESTATE OF LOUISE EVA WALCOTT; ROSEMARIE ZAFFINA aka ROSEMARY 6 ZAFFINA, as PERSONAL REPRESENTATIVE of the ESTATE OF 7 YOLANDA M. ZAFFINA; THOMAS C. ROSE and PAMELA K. ROSE, husband and wife; ASHOK K. SINGH and JOHANNA SINGH, husband and wife; DONALD F. COONAN and CAROLINE E. COONAN, lo husband and wife; JAN L. GRAVINO, as EXECUTRIX of the ESTATE OF GEORGE 11 W. CARTER and MARJORIE A. CARTER; HOWARD H. WEST, JR. and MARILYN A. 12 WEST, husband and wife; GEORGE CAMILLERI and ROSE MARIE 13 CAMILLERI, husband and wife; LOYAL L. MEFFERD, a single man; JERRY D. 14 LARSON and DOROTHY M. LARSON, husband and wife; ROBERT L. VALEU and l5 MARJORIE A. VALEU, husband and wife; DENNIS N. KANNENBERG and CAROLYN A. KANNENBERG, husband and wife; and 17 JOSEPH M. MORSE, a married man as his sole and separate property; INTERNATIONAL 18 CHURCH OF THE FOURSQUARE GOSPEL, a California non-profit corporation; JOHN H. 19 DAVIDSON, a married man as his sole and separate property; NANCY SUE BONEWITZ, 20 as SUCCESSOR TRUSTEE of the FULTON JOINT REVOCABLE TRUST DATED 21 AUGUST 13, 1986, ANN MARIE SIMMS, an individual; SECUNDINO JOSE COCA and 22 ROSA R. COCA. husband and wife. ARLINE I1 H. ZIENTARA, an individual, 23 Plaintiffs,
I I 1 2 3 4 ti 7 8 9 10 1 1 l2 14 15 16 17 DC LOT OWNERS ASSOCIATION, a nonprofit Arizona corporation; ROBERT L. BEALMEAR and JANE DOE BEALMEAR, husband and wife; SHAWN LAMPMAN and JANE DOE LAMPMAN, husband and wife; BRUCE ISAACSON and JANE DOE ISAACSON, husband and wife; LARRY SWIEBODA and JANE DOE SWIEBODA, husband and wife; THOMAS LOZZI and JANE DOE LOZZI, husband and wife; CRAIG RANCH GOLF COURSE, L.L.C., a Nevada Iimited liability company; C. A.K. LIMITED PARTNERSHIP, a Nevada limited partnership; DESERT CARMEL, L.L.C., an Arizona limited liability company; BLS 1 ARIZONA, L.L.C., an Arizona limited liability company; AMERICAN LAND HOLDINGS, L.L.C., a Nevada limited liability company; AMERICAN LAND, L. L. C., a Nevada limited liability company; CASA GRANDE WEST 11, L.L.C., a Nevada limited liability company; THE LAND SPECIALIST GROUP, L.L.C., a Nevada limited liability company; LAS VEGAS GAMING INVESTMENTS, L.L.C., a Nevada limited liability company; JOHN DOES and JANE DOES 1-100; ABC ENTITIES 1-100, Defendants. Plaintiffs are the lawful owners of homes and/or real estate lots within the Desert Carmel /(Community located in Casa Grande, Arizona. Plaintiffs allege, in significant detail below, that l9 11 the named Defendants have conspired to take over their homeowners association, the DC Lot / 20 11 Owners Association (hereinafter referred to as the "Association"), for improper purposes. The I 21 1 /evidence that Plaintiffs have discovered to date reveals that Defendants have utilized the / 22 /I Association to gain control of as much property in the community as possible, through improper 23 1 / means such as threatening, intimidating and otherwise victimizing the homeowners and lot owners 24 //in the Association, so as to cause them to lose their property through foreclosure or sell their / 25 2 6 property to Defendants at discounted rates. This same body of evidence further reveals that
Defendants have utilized their majority ownership interests to control the Association, pay themselves wages and otherwise self-deal for their personal benefit. Defendants' apparent ultimate goal is to utilize their improper and illegal control of the Association to change the use of the property from that specified in the CC&Rs to a redevelopment, which would allow Defendants to sell their significant interests in the property at a substantial profit, and to use their position of power to otherwise avoid their obligations to the Association, including the obligation to pay assessments. THE PARTIES, JURISDICTION AND VENUE 1. Defendant, DC Lot Owners Association, is an Arizona non-profit corporation, with its principal place of business in Pinal County, Arizona. The Association is the homeowners association established to manage and maintain the Desert Carmel community in Casa Grande, Arizona. 2. Defendant, Robert L. Bealmear ("Bealmear"), is a disbarred attorney and convicted felon who has held various positions in the Association since as early as 2001, including Director, Secretary and President. Defendant Bealmear is a resident of Pinal County, Arizona engaged in a business relationship concerning property in the Desert Carmel community with the other Defendants herein. Defendant Bealmear has an ownership interest and/or controls entities owning property in Desert Carmel, including but not limited to, Defendant BLS 1 Arizona, L.L.C. and Defendant Desert Carmel, L.L.C. Defendant Bealmear resigned his Director position after a lawsuit was filed against him in a related action, Mandarino v. DC Lot Owners Association. Defendant Bealmear continues to live in the community and continues to significantly control the pera at ions of the Association. 3. Defendant, Shawn Lampman ("Lampman"), is the President of the Association. Defendant Lampman controis and/or has an ownership interest in several entities owning property in the Desert Carmel community, including but not limited to: Defendant Craig Ranch Golf
Course, LLC, Defendant C. A.K. Limited Partnership, Defendant BLS 1 Arizona, LLC, Defendant American Land Holdings, LLC, Defendant Casa Grande West 11, L.L.C., Defendant The Land Specialist Group, L. L. C., and Defendant Las Vegas Gaming Investments, L. L. C. Defendant Lampman is a resident of Clark County, Nevada, transacting business and owning property in Pinal County, Arizona. 4. Defendant, Bruce Isaacson ("Isaacson"), was the President of the Association during 2006. Defendant Isaacson is engaged in the real estate business with the other Defendants herein, and in such capacity, has an ownership interest and/or controls entities owning property in the Desert Carmel community. Defendant Isaacson is a principal for Defendant The Land Specialist Group, L.L.C. Defendant Isaacson is a resident of Clark County, Nevada, transacting business and owning property in Pinal County, Arizona. 5. Defendant, Larry Sweiboda ("Sweiboda"), was a Director for the Association, is 13 14 15 the owner of several lots in the Desert Carmel community and collects a salary from the Association for work performed in furtherance of the business relationship with the other Defendants herein. Defendant Sweiboda is a resident of Pinal County, Arizona. 16 6. Defendant, Thomas Lozzi ("Lozzi"), is a Director for the Association engaged in 17 the real estate business with the other Defendants herein. Defendant Lozzi has an ownership interest and/or controls entities owning property in the Desert Carmel community, including but not limited to Defendant The Land Specialist Group. L.L.C. Defendant Lozzi is resident of Clark County, Nevada, transacting business and owning property in Pinal County, Arizona. 7. Defendant, Craig Ranch Golf Course, L.L.C. ("Craig Ranch"), is the owner of approximately 2,499 lots in the Desert Carmel community. Through his ownership interest in I I Defendant Craig Ranch, Defendant Lampman became a Director for the Association. Defendant 24 Craig Ranch is a Nevada limited liability company transacting business and owning property in 25 1 1 Pinal County, Arizona. 1
8. Defendant, C.A.K. Limited Partnership ("CAK"), is the owner of over 100 lots in the Desert Carmel community. Defendant CAK is an Arizona limited partnership transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 9. Defendant, Desert Carmel, L.L.C. ("Desert Carmel"), at one time was the owner of a majority of lots in the Desert Carmel community. Defendant Desert Carmel is now owned and controlled by Defendant Bealmear. Defendant Desert CarmeI is an Arizona limited liability company transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 10. Defendant, BLS 1 Arizona, L.L.C. ("BLS"), is the owner of several lots in the Desert Carmel community. Defendant BLS 1 is owned and/or controlled by Defendants Bealmear, Lampman, and Sweiboda. Defendant BLS 1 is an Arizona limited liability company transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 11. Defendant, American Land Holdings, L.L.C., has an ownership interest in approximately 2,499 lots in the Desert Carmel community. Defendant American Land Holdings is owned and/or controlled by Defendants Lampman, Lozzi, and CAK Limited Partnership. Defendant American Land Holdings is an Arizona limited liability company transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 12. Defendant, American Land, L.L.C., is upon information and belief, a company formed by other Defendants herein to facilitate land transfers in the Desert Carmel community. Defendant American Land is a Nevada limited liability company transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendant herein.
13. Defendant, Casa Grande West 11, L.L.C., has an ownership interest in approximately 2,499 lots in the Desert Carmel community. Defendant Casa Grande West is owned and/or controlled by Defendants Lampman and Lozzi. Defendant Casa Grande West is an Arizona limited liability company transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 14. Defendant, The Land Specialist Group, L.L.C. ("Land Specialist Group"), is the owner of property in the Desert Carmel community. Through his ownership interest in Defendant Land Specialist Group, Defendant Isaacson became a Director for the Association. Defendant Land Specialist Group is owned and/or controlled by Defendants Lampman, Isaacson, and Lozzi. Defendant Land Specialist Group is a Nevada limited liability company transacting business and awning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 15. Defendant, Las Vegas Gaming Investments, L.L.C., has an ownership interest in numerous lots in the Desert Carmel community. Defendant Las Vegas Gaming Investments is ~wned and/or controlled by Defendant Lampman. Defendant Las Vegas Gaming Investments is a Nevada limited liability company transacting business and owning property in Pinal County, Arizona, actively involved in a business relationship relating to the Desert Carmel community with the other Defendants herein. 16. All of the above individual Defendants were acting for and on behalf of their respective marital communities at all times relevant hereto and were acting in concert both with :ach other and with the other above-named non-individual Defendants, such that all Defendants Ire jointly and severally liable to Plaintiffs for the damages they have inflicted, and continue to inflict, upon Plaintiffs in Pinal County, Arizona. 17. The amount in controversy is within the jurisdiction of this Court.
18. All acts and matters alleged herein occurred in Pinal County, Arizona and venue is proper in this Court. GENERAL ALLEGATIONS 19. The Desert Carmel community is governed by the Association and is subject to the Covenants, Conditions and Restrictions as amended in 1985, and by the Bylaws of the community (hereinafter "CC&Rs" and "Bylaws"). The community was originally subdivided in the 1960s and contains approximately 3,500 lots, upon which approximately 100 lots currently have a home. 20. As evidenced by the small portion of homes to vacant lots, the original developers of the Desert Carmel Community, also known as the "Declarant", never assisted with or caused to be built a sufficient number of homes for the Desert Carmel Community. Although the Desert Carmel community was marketed as a future residential community with abundant amenities, the Declarant's financial difficulties and eventual bankruptcy created a community in distress, which easily fell victim to individuals seeking to exploit it for their own gain. 21. While numerous individuals with genuine interests in the community have purchased property in Desert Carmel, developers and land speculators have always owned the majority of the land. As such, the community to a large part remains vacant land with pockets of homes disbursed throughout. 22. Nevertheless, the Desert Carmel community has retained a semblance of a homeowners7 association throughout the years, pursuant to which it collected assessments, maintained the property, maintained the two separate clubhouses built by the Declarant, maintained the pools built by the Declarant, maintained the tennis court built by the Declarant, maintained the roads in the Association, and otherwise sought to maintain the common areas, as was intended and required by the applicable CC&Rs and Bylaws. 23. As a result, the Desert Carmel community functioned as intended for its residents and owners. While development was slow, owners did enjoy the amenities available and paid
their assessments to the Association. The community dramatically changed, however, when Defendants took control. 24. Defendants' rise to power began in 2001, when Defendant Bealmear became a Director of the Association. Defendant Bealmear did not own any property in Desert Carmel at that time, did not reside in Desert Carmel, but rather simply appeared in the community as a chairman for the Association meeting, where he was "elected" to the Board by the majority landholder at the time, Defendant Desert Carmel. At this 2001 meeting, the Association and Defendant Bealmear declared Defendant Desert Carmel the Declarant of Desert Carmel, because pursuant to the CC&Rs, the Declarant is not obligated to pay assessments. However, the CC&Rs also provide that the Declarant is DC Properties, Inc., the original developer, and that the Declarant is required to give up control of the property once 95 % of the lots have been sold by the DecIarant, which upon information and belief, occurred in or around 1994. The CC&Rs further provide that upon the sale of 95 % of the lots by the Declarant, the Declarant can no longer claim exemption from assessment obligations. Defendant Desert Carmel is not a successor-in-interest of the Declarant, and has wrongfully declared itself the "Declarant" in an effort to avoid its obligation of paying assessments. 25. Although Defendant Desert Carmel has not paid its assessments and therefore was not entitled to vote, based upon its ruse that it was the Declarant, Defendant Desert Carmel voted anyway and elected Defendant Bealmear as the President of the Association. 26. Thereafter, Defendants Bealmear, Lampman, Isaacson, Sweiboda, and Lozzi (hereinafter collectively the "Director Defendants"), through the numerous entities named as Defendants herein, purchased a significant number of lots within the Association until Defendants as a group controlled approximately 3,000 of the 3,500 lots in the Association. Each of these Defendants has been "elected" as a Director for the Association. Working together, Defendants have precluded anyone outside of their business group from serving on the Association's Board.
Defendants have utilized their majority ownership interest to vote against any legitimate owner running for a position on the Association's Board. 27. On or about February 11, 2006, during the Association's annual meeting, Defendants Isaacson and Lampman voted themselves onto the Board of Directors, despite the fact that they had failed to properly pay assessments due on their properties, and despite the fact that they were co-owners of certain properties. The CC&Rs specifically prohibited any owner or group of owners from having more than one person on the Association's Board of Directors, namely to prevent the very type of takeover that these Defendants implemented in direct violation of the CC&Rs. 28. Although the CC&Rs specifically provide that the purpose of the Association is to maintain a community for "residential living" for all present and future owners, Defendants, upon their takeover of the community, sought to act in the interest of themselves, as lot owners, with the intent of purchasing additional properties at discount rates, intending to thereafter subject the community to redevelopment. Defendants utilized their positions of majority landholders and Directors to control the community, with the intent of destroying the community so it could be redeveloped, rather than maintaining the community as required by the applicable CC&Rs. 29. Although the actions of these Defendants are specifically precluded by the CC&Rs and Bylaws, these Defendants, as they did when allegedly electing themselves to the Board of Directors, continued to ignore or otherwise amend and alter the applicable CC&Rs and Bylaws, in an effort to justify and support their illegal and improper takeover of the Association. Such votes and amendments were undertaken without providing proper notice to the community, without allowing members of the community to participate in any elections or votes, and in direct contravention of the applicable CC&Rs, Bylaws and Arizona law, all for the improper purpose of gutting the CC&Rs and avoiding the intent to maintain a residential community. 30. The CC&Rs and Arizona law specifically provide that no Director of the Association shall receive compensation for any services rendered to the Association. Defendants,
as one of their first actions upon becoming Directors of the Association, resolved and authorized on February 24, 2006, "That the President of the Association is authorized to enter into an agreement with Robert L. Bealmear, a Director of the Association, for his continued work on behalf of the Association, at the current rate of $75.OO per hour plus costs and expenses incurred by Mr. Bealmear in the furtherance of that work. The President is authorized to issue a retainer to Mr. Bealmear pursuant to that agreement in the amount of $5,000.00, which may be credited against detailed monthly invoices. " 31. Upon information and belief, Defendant Bealmear has been receiving a salary since approximately 2003. Although the prohibition against salaries was specifically intended to prohibit self-dealing and allowing a member of the Board of Directors to pay himself with the funds of the Association, Defendant Bealmear did exactly that, with a vengeance upon the socalled resolution of February 24,2006, wherein Defendants allegedly authorized such payments to Defendant Bealmear. 32. Immediately upon the involvement of Defendants Bealmear, Lampman and Isaacson, the Association began utilizing those sums collected from homeowners for the purpose of maintaining the property to pay the disbarred attorney and convicted felon, Robert Bealmear. Defendants did not utilize Association funds for the purpose of operating the Association, but instead for the purpose of promoting Defendants' intent to redevelop the property and sell the property at a significant profit. 33. A review of the Association's records reveals that Defendant Bealmear, since February of 2006, has received in excess of $100,000.00 per year from the Association in alleged salary. Defendant Bealmear also has a cell phone that is paid for by the Association, and Defendant Bealmear has enjoyed hotel rooms, airfare and general travel and entertainment, all paid for by the Association. At the same time, the services provided by the Association to the owners have significantly deteriorated to the point of non-existence.
34. Defendant Lampman's daughter, Ashley Lampman, also has a cell phone paid for PY the Association. Defendant Isaacson has collected unexplained sums from the Association, and Defendant Sweiboda has received at least $36,000 per year to "consult" with the Association. Defendants' attorneys, Maxwell & Morgan, have received approximately $140,000.00 per year in legal fees. 35. Defendants hired individuals to engage in efforts to purchase property from the :xisting owners in the community. Defendants paid these individuals with Association funds. rhese individuals, such as non-party Sean Margulis, contacted owners repeatedly, claiming that :heir lots are "worthless" and will never be able to be built upon due to limitations placed upon :he lots by the Association. Margulis held himself out as an independent third party separate and ipart from the Association and Defendants, however the Association's records reveal the 4ssociation paid for Margulis' efforts. 36. Defendants moved the Association's principal place of business to Las Vegas, Vevada, where the majority of Defendants reside. The address of the Association has been stated :o be the same as the address of Defendant Land Specialist Group, L.L.C., which Plaintiffs ~elieve has also had its bills paid for by the Association. 37. The books and records of the Association have at times only been available in Las Vegas, Nevada, and generally a phone call to the "Association" requires that a homeowner :ontact a representative in Las Vegas, Nevada. 38. Defendants held a meeting on April 30, 2007 without providing notice to the lomeowners. During this meeting, the Director Defendants deleted provisions of the CC&Rs - eequiring members to be in good standing with the payment of their assessments in order to vote, ;o as to further solidify Defendants' ability to allegedly vote, without concern as to whether Iefendants had actually been paying their own assessments. At that time, the Director Defendants also deleted provisions in the CC&Rs prohibiting joint owners from serving on the 3oard of Directors at the same time, and the Director Defendants otherwise sought to justify their
"hijacking" of the Association by after-the-fact efforts to amend the applicable provisions of the CC&Rs and Bylaws so as to delete and otherwise avoid prohibitions against their very actions. 39. The CC&Rs and Bylaws of the community provide for an annual assessment of $160.00 from each lot owner. If Defendants had paid their annual assessments on the approximately 3,000 lots they owned, then the Association would receive approximately $480,000.00 each year from them alone. 40. Defendants have repeatedly failed and/or refused to pay their respective annual assessments, leaving the Association with a huge deficit and inability to maintain the Association's swimming pools, clubhouses, tennis court, landscape and other common elements. 41. To the extent that Defendants actually deposited the funds for their assessments, a point that is in dispute because Defendants have unlawfully withheld access to the Association's records from owners, then they have failed and refused to actually spend such funds for the purpose of maintaining the Association, as required by the applicable CC&Rs and Bylaws. For years now, Defendants have spent hundreds of thousands of dollars on themselves, lavishing each other with substantial salaries and other perks, all while the Association continues to sink into further debt, and while the facilities of the Association further deteriorate. (See pictures of the Desert Carmel community, attached hereto as Exhibit "A"). 42. A limited portion of the financial records of the Association that Defendants recently spirited away to Las Vegas were only begrudgingly revealed to certain Plaintiffs in a related lawsuit, reveal a conflicting morass of accounting irregularities. For instance, the Association reports an income of over $800,000.00 in 2006, and expenses of over $500,000.00, most of which was admittedly spent on Defendants, thereby leaving a balance of over $300,000. However, nothing has been spent to maintain or improve the Association's common elements. Similarly, the corporate filings for the year 2005 also report over $300,000.00 remaining in the Association's bank account, but again nothing was spent on the common areas to actually maintain the property, and moreover, the Association's own accountant's calculations show a loss of over
$55,000 for the same time period. Plaintiffs have received yet another set of records for the year 2005 that show a loss of over $78,000. (See Exhibit "B" attached hereto). 43. The numerous unlawful actions of Defendants, including their actions while they served on the Association's Board, demonstrate that Defendants are attempting to take over the Desert Carmel community so that they can redevelop the property. On February 24, 2006, the Director Defendants voted, resolved and authorized the President of the Association "to engage an engineering firm to make an initial assessment of the infrastructure of the Desert Carmel subdivision and make the appropriate recommendations for further work, if deemed necessary. " Despite the fact that the CC&Rs specifically provide that "no lot shall be further subdivided, and no portion less than a full lot shall be conveyed by any owner, except as provided by Pinal County's zoning plan," and despite the fact that the CC&Rs specifically state that the purpose of the CC&Rs is to maintain the current property and not to allow for its redevelopment, the Association authorized the engineering firm to conduct a report upon what it would take to redevelop the property. 44, The study undertaken for Defendants repeatedly discusses the negative impact septic tanks would have on redeveloping the subdivision. Unfortunately, because of the lack of efforts by the Association to obtain additional hook-ups on the Casa Grande sewer system, there are no additional sewer hook-ups available. While more hook-ups would be available if the Association sought to pursue them, the Association has failed and refused to pursue additional sewer hookups, thereby necessitating that homeowners install septic systems on their existing lots. However, due to the engineer's redevelopment report indicating the negative impact septic tanks would have on redeveloping the subdivisions, Defendants have precluded owners from installing additional septic tanks, thereby precluding them from building on their property. 45. Despite the fact that Defendants are utilizing Association funds for their own purposes, contrary to the interests of the Association, and despite the fact that as a result of Defendants' actions the Association's two clubhouses were shut down, the pools were filled in
with dirt, the tennis court was abandoned and allowed to deteriorate, the roads were not maintained, and the community otherwise deteriorated and decayed, Plaintiffs have been precluded from building on their lots to improve the community due to prohibitions put in place by Defendants. Defendants have also insisted upon vigorously collecting assessments not only currently due, but also those assessments allegedly past due from previous lot owners through the current owners, even though these Defendants never paid such assessments themselves. 46. Paragraph 7.1 of the CC&Rs provides, among other things, that each lot owner is obligated to pay annual assessments or charges, together with interest, costs and reasonable attorneys' fees, and that such charges shall be a continuing lien upon the property against which each such assessment is made. Paragraph 7.1 of the CC&Rs provides, among other things, that the purpose of the annual assessments was "exclusively to promote the recreation, health, safety and welfare of the residents in the properties and for the improvement and maintenance of the common areas. " 47. Although the assessments are supposed to be utilized to promote the "recreation, health, safety and welfare of the residents in the properties and for the improvement and maintenance of the common areas", these Defendants have failed and refused to spend such money in the required manner, and instead have spent such money for their own personal gain, while at the same time these Defendants have vigorously utilized their position of power to pursue claims against other homeowners and lot owners for the collection of such assessments. 48. In a related litigation in Cause No. CV2006-01224, in Pinal County Superior Court, Defendants alleged that Paragraph 7.7 of the CC&Rs and A.R.S. $ 33-1807(A)(B)(E) required Plaintiff Thomas Mandarino to pay, among other things, annual assessments all the way back to 1994, plus interest, costs, attorneys' fees and late fees. 49. Defendants have sought to foreclose against Plaintiff Thomas Mandarino's property, as well as many other Plaintiffs' properties and other non-participating homeowners9 and
landowners' property, for past due assessments, all the way back to at least 1994, despite the fact that these very Defendants have failed to pay such assessments themselves. 50. While the extent of non-payment of assessments of Defendants remains unknown due to Defendants' conflicting accounting records and due to Defendants' refusal to otherwise provide access to the Association's books and records, with Defendants9 3,000 lots, Defendants' unpaid assessments would exceed $7.4 million for the assessments owed from 2001 forward, and would exceed $14.7 million if these Defendants were obligated to pay assessments from 1994, as they are requiring other lot owners and homeowners to do. 5 1. Numerous homeowners and lot owners have already been sued and served with foreclosure actions, whereby the Association has sought to take over their properties for alleged non-payment of such assessments, despite the fact that Defendants failed and refused to provide adequate disclosure of facts and records substantiating that such assessments are due in the first place, and despite the fact that Defendants themselves were not paying such assessments and the services for which the assessments were paid were not being provided by the Association. Defendants aggressively pursue these foreclosure claims even though Defendants have no authority to even collect assessments because they were not duly elected to the Board, and because they have been pursuing collection of assessments for improper purposes, as part of a fraudulent scheme, as set forth above. 52. The majority of homeowners and lot owners are of limited means or otherwise reluctant to incur significant sums in attorneys' fees, and numerous lot owners and homeowners nave already paid sums to the Association, which they significantly disputed, and which they 3elieve were not owed in the first place, simply to avoid the risk and expense of litigation and/or iosing their property through foreclosure. 53. Unfortunately, such sums paid by the Association members are simply utilized by :hese Defendants to finance additional frivolous lawsuits against additional homeowners and lot 3wners to continue their campaign of harassment and intimidation, to continue their efforts to
unreasonably foreclose against properties to collect assessments that were not properly due, or to cause homeowners to sell their properties at discounted prices. 54. When homeowners have dared to seek legal counsel or otherwise challenge Defendants, Defendants have sought to describe those homeowners or lot owners in a false light, to challenge and reasonably criticize those attorneys with whom they communicated, and to threaten any homeowners or lot owners that if they have the courage to challenge the Association, the Association will bring additional claims against them and they will be obligated to the Association for additional attorneys7 fees and costs. 55. Defendants' efforts have to date successfully resulted in Defendants' collection of assessments that are not due, avoiding payment of assessments of their own, causing owners to be intimidated into selling their lots at a substantial discount, Plaintiffs9 inability to continue to build on their lots or otherwise utilize their lots for their intended purpose, deterioration and destruction of the common areas, and filing of frivolous and baseless lawsuits, all thereby resulting in the significant decrease in the value of the lots of all homeowners and lot owners, infringement upon their way of life in their community, and has caused many of them to live in fear with the constant threat of being wrongfully sued or otherwise harassed by Defendants. 56. Paragraph 8 of the CC&Rs provides, among other things, that any owner "shall have each and all of the right to remedies provided for in this Declaration which may be available at law or in equity and may prosecute any action or other proceeding against such owner or other person for enforcement of such provisions or damages and that the successful party shall be entitled to collect all his expenses in connection with such proceedings, including court costs and reasonable attorneys' fees and other fees and expenses and all damages, together with interest thereon at the rate of twelve percent (12%) per annum until paid." 57. As such, Plaintiffs bring this action in an effort to rescue themselves and other similarly situated homeowners and lot owners from the ongoing tyranny exerted by Defendants. Plaintiffs, as part of this action, ask the Court to immediately appoint an independent third party,
1 a "receiver", who acts neither on behalf of Plaintiffs nor on behalf of Defendants, but on behalf 2 of the Court, in an effort to determine what is true and just, so that in the event the receiver 3 corroborates Plaintiffs' serious allegations, both the Court and the receiver will be able to 4 undertake immediate efforts to investigate the Defendants' illegal actions, to evaluate the books 5 and records, to evaluate compliance with the CC&Rs and governing documents, to prevent and 6 avoid self-dealing, to ensure that the Association is properly collecting assessments in an 7 equitable manner, and to prevent these Defendants from continuing to profit at the cost of these 8 Plaintiffs and the Association as a whole. 9 58. Plaintiffs bring this action in an effort to ensure that the homeowners association is 10 operating in a proper and efficient manner, that it is only collecting assessments that are 11 appropriately due and no more and no less, to ensure that there is no self-dealing and/or 12 favoritism provided to those that currently control the Association, and that Defendants are 13 paying their equal share of assessments as required by the CC&Rs and applicable law; to ensure 14 that lawsuits brought by the Association are for legitimate purposes for the benefit of the 15 homeowners association as a whole and not for one particular group of individuals; to ensure that 16 the homeowners association acts to ensure that the common areas of the Association are properly 17 maintained, including the clubhouses, pools, vegetation, roads and other infrastructures of the 18 Association that are the obligation of the Association; to ensure that all homeowners are treated in 19 a fair, equitable and respectful manner; to ensure that those homeowners that wish to build onto 20 their homes or on their lots are entitled to do so in a fair and reasonable manner as allowed by 21 Arizona law and pursuant to the CC&Rs; to ensure that homeowners are not unreasonably 22 scrutinized, harassed, or otherwise victimized by the Association over the condition of their 23 property unless such so-called violations are a material violation of the CC&Rs or other applicable 24 guidelines, and such violations are equitably enforced in a reasonable manner with the goal 25 benefiting the Association as a whole, and not with the goal of driving homeowners away from 26 Desert Carmel or creating an excuse to foreclose upon homeowners' lots; and overall, to ensure
that the dream that was once Desert Carmel, a neighborhood of like-minded individuals seeking to act in unison for the betterment of their Association and the community as a whole, once again becomes the goal of the Association, as evidenced by the actions of its Board of Directors and its residents, all pursuant to the applicable CC&Rs and other guidelines, as well as Arizona law. COUNT ONE (Breach of Fiduciary Duty) 66. Plaintiffs incorporate by this reference all previous allegations as though fully set forth herein. 67. The Director Defendants, acting in concert with each other, owed and owe Plaintiffs a fiduciary duty of good faith and fair dealing to, among other things, pay their annual assessments and spend said funds on the Association's legitimate expenses, not on themselves or other illegitimate expenses, and maintain verifiable financial records for the Association. 68. The Director Defendants, acting in concert with each other, breached their fiduciary duties to Plaintiffs as set forth above, and continue to do so given their hijacking of the Association and ongoing selective enforcement of the CC&R's against Plaintiffs and other owners, thereby proximately inflicting damages upon Plaintiffs as individuals in an amount to be determined at trial, and proximately inflicting damages upon Plaintiffs as members of the Association, in lost assessment and late fee income of at least $7.4 Million going back to 2001 or at least $14.7 Million going back to 1994, exclusive of 12 % interest, costs and attorneys7 fees, as Defendants have sued some Plaintiffs and other owners already, alleging that the Association can legitimately collect assessments going back either to 1994 or 2001, and are jointly and severally liable to Plaintiffs and the Association for said damages. 69. The Director Defendants, acting in concert with each other, have inflicted these damages upon Plaintiffs with either an intent to harm Plaintiffs, out of spite or ill will toward Plaintiffs, or with a conscious disregard of a substantial risk of significant harm to Plaintiffs,
thereby entitling Plaintiffs to an award of punitive damages against the Director Defendants, jointly and severally. 70. As a proximate result of the past and ongoing breaches of fiduciary duty by Defendants, Plaintiffs are further entitled to (a) the immediate appointment of a receiver under Rule 66, Arizona Rules of Civil Procedure, (b) a comprehensive accounting of the Association's books and financial records by the receiver; (c) the immediate establishment of a constructive trust for the funds owed and owing by the Director Defendants to the Association; (d) the judicial declaration of the Director Defendants as involuntary trustees of said funds on behalf of Plaintiffs and the Association. 71. Plaintiffs are entitled to recover their costs and attorneys9 fees incurred in prosecuting this action, pursuant to Paragraph 8 of the CC&R's and A.R.S. $$ 12-341 and 12-341.01. COUNT TWO (Breach of Contract) 72. Plaintiffs incorporate by this reference all previous allegations as though fully set forth herein. 73. The governing documents for the Desert Carmel community require that the Association, and specifically its Directors, act so as to maintain the common areas of the community, along with any other property owned by the Association. 74. The CC&Rs, as described above, require each lot owner to pay annual assessments or charges, together with interest, costs and reasonable attorneys' fees. The CC&Rs require that such annual assessments be utiiized "exclusively to promote the recreation, health, safety and welfare of the residents in the properties and for the improvement and maintenance of the common areas. " 75. Pursuant to Paragraphs 8.0 and 9.0 of the CC&R's, Plaintiffs are entitled to the Court's Order requiring Defendants to remedy their breaches of the CC&R7s and specifically
perform each and every contractual and other duty owed to Plaintiffs and the Association, including, but not limited to, their duty to pay delinquent annual assessments and late fees in the amount of at least $7.4 Million going back to 2001, or in the amount of at least $14.7 Million going back to 1994, plus 12% interest, costs and attorneys7 fees, and the duty to maintain reasonably adequate books and financial records for the Association, pending the Court's further Orders pursuant to Title 13 of the Arizona Revised Statutes and/or Rule 66, Arizona Rules of Civil Procedure. 76. Defendants breached their duties under the governing documents for the Desert Carmel community by, among other things, failing to maintain the common areas, failing to pay annual assessments, and failing to utilize assessments collected in an appropriate manner. 77. Defendants' breach of the contractual duties owed to Plaintiffs has caused Plaintiffs to suffer damages in an amount to be proven at trial. 78. Defendants, acting in concert with each other, have breached these contracts and inflicted these damages upon Plaintiffs with either an intent to harm Plaintiffs, out of spite or ill will toward Plaintiffs, or with a conscious disregard of a substantial risk of significant harm to Plaintiffs, thereby entitling Plaintiffs to an award of punitive damages against Defendants, jointly and severally. 79. As this matter arises out of contract, Plaintiffs are entitled to recover their costs and attorneys' fees incurred in prosecuting this action, pursuant to Paragraph 8 of the CC&R's and/or A.R.S. $8 12-341 and 12-341.01. COUNT THREE (Racketeering) 80. Plaintiffs incorporate by this reference all previous allegations as though fully set forth herein.
81. Defendants, acting in concert with each other, committed, and continue to commit, racketeering as defined in A.R.S. 9 13-2301(D)(4)(b)(v)(xv)(xvi)(xvii)(xx) and A.R.S. 5 13-23 10 as set forth herein. 82. Defendants, acting in concert with each other, committed, and continue to commit, racketeering as defined in A.R.S. 8 13-2312(A)(B) by engaging in a pattern of unlawful activity by illegally controlling the Association, illegally conducting the Association, and illegally utilizing the Association as set forth herein. 83. Defendants, acting in concert with each other, have utilized the Association in furtherance of an external enterprise, which they have maintained with the proceeds of their unlawful activity, as described above. 84. Defendants, acting in concert with each other, have engaged in the unlawful racketeering acts described herein for illicit financial gain, and their racketeering activities have been related to each other on a continuous basis. 85. Defendants, acting in concert with each other, are liable to Plaintiffs, jointly and severally, for treble damages and the costs of this lawsuit, including reasonable attorneys' fees for trial and appellate representation, pursuant to A.R. S. $ 13-2314.04(A). 86. Plaintiffs are further entitled, pursuant to A.R.S. $ 13-2314.04(B)(C)(D), to the Court's protection via Orders (a) immediately creating a receivership and appointing a receiver for the Association to investigate and otherwise conduct a forensic accounting of the Association's finances and business records, in addition to Plaintiffs' independent entitlement to the appointment 3f a receiver under Rule 66, Arizona Rules of Civil Procedure; (b) immediately creating a :onstructive trust of all funds owed and owing by Defendants to the Association; (c) ordering Defendants to divest themselves of any interest, direct or indirect, in the Association; (d) imposing reasonable restrictions on the future activities or investments of Defendants with regard to the Association; (e) ordering the re-organization of the Association to comply with the divesture of Defendants from the Association; (f) declaring Defendants to be involuntary trustees of all - 22 -
property, funds and other things of value owed and owing by them to Plaintiffs and the Association to be held in constructive trust for the benefit of Plaintiffs and the Association. 87. Pursuant to A.R.S. 5 13-2314.04(L), Defendants, acting in concert with each other and the other known non-individual associates, are jointly and severally liable to Plaintiffs based on the conduct of the other known individual and non-individual associates because they authorized, requested, commanded, ratified or recklessly tolerated the unlawful conduct of the other individual and non-individual associates. 88. Pursuant to A.R.S. 5 13-2314.04(L), Defendants, acting in concert with each other and the other known individual associates, are jointly and severally liable to Plaintiffs based on the conduct of the other known individual and non-individual associates because they, via a director or high managerial agent, performed, authorized, requested, commanded, ratified or recklessly tolerated the unlawful conduct of the other individual and non-individual associates. 89. Plaintiffs are entitled to recover their costs and attorneys' fees incurred in prosecuting this action, pursuant to Paragraph 8 of the CC&R's and A.R.S. $5 12-341 and 12-341.01. COUNT FOUR (Receiver and Accounting ) 90. Plaintiffs incorporate by this reference all previous allegations as though fully set forth herein. 91. The ongoing nature of Defendants' illegal financial self-dealing and other misconduct in illegally controlling and operating the Association entitles Plaintiffs to the immediate appointment of a receiver to protect Plaintiffs' homes and land, to conduct a forensic accounting of the Association's books and records, to determine and collect all amounts due and owing from Defendants pursuant to the CC&R7s and hold said amounts in trust for Plaintiffs and the Association, and to otherwise operate the Association in a fair, equitable and legal manner pending further Order of the Court, pursuant to Rule 66, Arizona Rules of Civil Procedure, and
A.R.S. 5 13-2314.04(B)(C)(D). By analogy, in similar situations involving consumer fraud, Plaintiffs would also be entitled to the immediate appointment of a receiver pursuant to A.R.S. 5 44-1528(A)(2). 92. Plaintiffs are entitled to recover their costs and attorneys' fees incurred in prosecuting this action, pursuant to Paragraph 8 of the CC&R's and A.R.S. $5 12-341 and 12-341.01. WHEREFORE, Plaintiffs request Judgment against Defendants, jointly and severally, as follows: A. For the immediate appointment of a receiver for the Association to conduct a comprehensive forensic accounting of the Association's books and financial records; B. For the Court's Order directing Defendants to forthwith pay to the Association all past due assessments and late fees, in the amount of at least $7.4 Million going back to 2001, or at least $14.7 Million going back to 1994, plus 12% interest, costs and attorneys' fees; C. For all of Plaintiffs' consequential, contractual, tort and equitable damages; D. For racketeering treble damages due to Plaintiffs and the Association; E. For the immediate judicial creation of a constructive trust of all funds owed and owing by Defendants to Plaintiffs and the Association; F. For the immediate judicial declaration that Defendants are involuntary trustees of all property, funds and other things of value owed and owing by them to Plaintiffs and the Association to be held in constructive trust for the benefit of Plaintiffs and the Association; G, For the Court's Order requiring Defendants to divest themselves of any interest, direct or indirect, in the Association; H. For the Court's Order imposing reasonable restrictions on the future activities or investments of Defendants with regard to the Association; I. For the Court's Order requiring the re-organization of the Association to comply with the divesture of Defendants from the Association;
J. For punitive damages; K. For Plaintiffs' costs and attorneys' fees incurred herein; L. For such further relief the Court deems just and proper under the circumstances. DATED this $(%ay of August, 2008. CHEIFETZ IANNITELLI MARCO-P. C. James J. Belanger Melanie C. McKeddie Attorneys for Plaintiffs 3RIGINAL of the foregoing hand-delivered,his a2 day of August, 2008 to: PINAL COUNTY SUPERIOR COURT Pinal County Criminal Justice Complex 97 1 Jason Lopez Circle, Bldg. A/ Hwy. 79 Florence, Arizona 85232 COPY of the foregoing mailed this 2-! day of August, 2008 to: Charles E. Maxwell, Esq. Jeffrey B. Corben, Esq. Maxwell & Morgan, P.C. 2500 S. Power Road, #I03 Mesa, Arizona 85209 Attorneys for Defendant Association Timothy J. Thomason, Esq. Mariscal, Weeks, McIntyre & Friedlander, P. A. 2901 North Central Avenue, Suite 200 Phoenix, Arizona 8501 2 Attorneys for Defendants Association, Lampman, Isaacson, Lozzi and Sweiboda