Civil Suit Alleges Misappropriation Of Sewer Funds

A class-action complaint filed last week in Washington County Circuit Court alleges that the former commissioners with Washington County Property Owners Improvement District No. 5 engaged in an "unlawful and deceptive scheme" to use funds paid for sewer service to benefit themselves.

The improvement district operates a community waste disposal facility that serves Valley View Estates subdivision and other subdivisions in the area.

The 25-page complaint names six individuals who reside in or own property within the improvements district as plaintiffs representing the class: Ashley and Darin Kapella, Shawn and Lauren Wilson, William Stephenson and Jeffrey Dehnhardt.

Named as defendants are Joe Stewart, Jennifer Stewart, John Lipsmeyer and Valley View Golf LLC.

According to the complaint, the Stewarts and Lipsmeyer are principals of Valley View Golf, which owns and operates an 18-hole golf course located in the Farmington and Prairie Grove city limits. Many of the homes in the property owners improvement district are built around the golf course. The three defendants also served as commissioners for the property owners improvement district from fall 2004 until they resigned in April 2016.

The complaint was filed Feb. 7 on behalf of plaintiffs by attorneys with Danielson Law Firm and Odom Law Firm, both of Fayetteville.

It alleges that funds paid for the maintenance, operation, upkeep and repair of the community sewer system were not used as intended.

"Our goal is to find out what happened to the money if it was not used to make sure the system operated properly," said Matthew Lindsay with Odom Law Firm on Friday, noting the litigation is very early in the process. "We want to find out what happened for these folks."

On Thursday, Don Kendall of Rogers, one of the defendants' attorneys, said he had just seen the complaint.

"There will be quite a bit of files," Kendall said. "There will be some developments."

The complaint lists as factual allegations that Improvement District No. 5 was created in February 1998, for the construction, permitting, operation and maintenance of a sewer system. Arkansas Department of Environmental Quality approved the system and issued a nondischarge wastewater permit in January 2001.

Joe Stewart and John Lipsmeyer took the oath of office as commissioners in October 2004, and Jennifer Stewart took the oath of office as a commissioner a month later.

The complaint states that the oath of office taken by commissioners includes the following: "I ...hereby swear...not to be interested, directly or indirectly, in any contract let by the board except upon approval of all the owners of real property located in the district."

According to the complaint, the defendants entered into multiple contracts on behalf of the improvement district without the approval of all property owners in the district.

In October 2004, the improvement district and golf club entered into a management contract for the golf club to manage the sewer system for an unspecified fee. Joe Stewart and Jennifer Stewart signed the contracts on behalf of the improvement district and on behalf of the golf club.

In January 2005, the defendants, as commissioners for the district, entered into a management and use contract with Valley View Golf for the golf club to monitor, evaluate and repair the sewer system for $10,000 per month.

In another instance in January 2005, according to the complaint, Joe Stewart and the improvement district entered into an administrative contract where Stewart would handle all after-hours business for the improvement district for emergency problems for $2,500 per month.

In January 2010, the lawsuit states, Joe Stewart and the improvement district entered into a Memorandum of Understanding where the improvement district "purportedly" agreed to divert all tap fees directly to Joe Stewart's personal bank account to compensate for all nonpaid fees.

The defendants later entered into renewal contracts for land use with the improvement district. These were signed by Stewart on behalf of the Valley View Golf and by the three defendants on behalf of the improvement district.

The contracts signed between the improvement district and defendants are attached to the Circuit Court file. In all, the file has 96 pages, including the complaint and attached documents. The complaint alleges the contracts are "self-dealing contracts in that they benefit directly or indirectly, defendants Joe Stewart, Jennifer Stewart and John K. Lipsmeyer."

The complaint also states the contracts are in "direct violation of the oaths of office" entered into by the defendants because they did not gain approval from all property owners in the improvement district.

The lawsuit points to at least 12 complaints made to ADEQ about the operation of the sewer system since Feb. 1, 2011. ADEQ has conducted numerous field inspections of the system and found it to be non-operational, "spilling raw sewage" onto the golf course.

On Aug. 14, 2015, ADEQ filed a lawsuit against the improvement district in Washington County Circuit Court, seeking $420,000 in penalties and asking the court to compel the improvement district to meet ongoing problems.

The system's ADEQ permit expired Jan. 30, 2016, and has yet to be renewed. The system now is in receivership under Communities Unlimited and that organization is in the process of obtaining a new permit and preparing plans to provide a long-term solution for the customers served by the sewer system.

Plaintiffs assert the improvement district has about 492 active taps or customers that pay $40 per month, providing a monthly income of about $20,000.

The complaint alleges the monthly income was not used to maintain the sewer system and was paid directly to the defendants for management fees, labor for unspecified work performed and other expenditures unrelated to the sewer system.

The complaint requests a jury trial, asks the court to certify the filing as a class-action lawsuit and asks the court to declare the defendants' conduct to be unlawful. It also requests damages in an amount to be determined at trial, punitive damages and restitution and/or disgorgement.

General News on 02/15/2017