2/8/2018 2:17 PM 1 8CVO4754 IN THE CIRCUIT COURT OF THE STATE OF OREGON FOR THE COUNTY OF MARION LARRY E. TOKARSKI and TERRY J. KELLY, Plaintiffs, V. DONALD WILDFANG, BEN C. FETHERSTON, JR., JAMES WEST, JOSHUA MORROW, AUDREY KONOLD, RICHARD FRY and CREEKSIDE HOMEOWERS ASSOCIATION, INC, Defendants. Case No. 18CVO4754 COMPLAINT FOR DECLARATORY RELIEF, ACCOUNTING, INJUNCTION, BREACH OF FIDUCIARY DUTY, MISAPPROPRIATION OF FUNDS, BREACH OF CONTRACT, AND APPOINTMENT OF RECEIVER FILING FEE: $265.00 ORs 21.135 (1), (2x1) (CLAIM NOT SUBJECT TO MANDATORY ARBITRATION) Plaintiffs allege: PARTIES and ENTITIES At all times material herein, Creekside Homeowners Association, Inc. (hereinafter ?the Association?) was a duly organized non-pro?t corporation. The Association is a homeowners association whose members are the lot owners (hereinafter ?members? ?lot owners? or ?homeowners?) who reside in the residential development generally known as Golf Course Estates at Creekside (the ?subdivision?). Page 1 COMPLAINT TOKARSKI V. WILDFANG VICK 81 GLANTZ, LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503) 581-5333 - FAX1503) 581-1244 all times herein material, the Association was controlled by an elected board of directors. Defendants Donald Wildfang, Ben C. Fetherston, Jr., James West, Joshua Morrow, Audrey Konold, and Richard Fry are or were the Board of Directors of the Association at material times herein. 3. Plaintiffs Lawrence Tokarski and Terry Kelly are owners of lots Within the Golf Course Estates at Creekside, and therefore, members of the Association. SUBSTANTIVE FACTS 4. By declaration made August 17, 1992, declarant Hawaii Northwest Ventures Limited Partnership, an Oregon limited partnership ?led The Declaration of Covenants, Conditions, and Restrictions of Golf Course Estates at Creekside (hereinafter The initial governing the subdivision were recorded on August 26, 1992, modified on February 8, 1994, and remain in effect to the present. 5. The subdivision is located adjacent to the Creekside Golf Club, but is not part of the Creekside Golf Club (hereinafter 6. The lot owners in the subdivision are required by the referenced above, to pay assessments provided for in ?Article XI, Section 2: Purpose of Annual Assessments. Part of the annual assessment is required to be placed in a reserve account. Page 2 COMPLAINT TOKARSKI V. WILDFANG VICK 8: GLANTZ, LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PH ONE (503} 581-6333 - FAX (503) 581-1244 The provide that the annual assessments levied by the association shall be used exclusively to promote the health, safety and Welfare of the owners and occupants, and to enhance the livability of Golf Course Estates at Creekside and the value of lots and living units therein, and to pay the common expenses of the association. Common expenses listed in Section 2 do not include litigation. 8. Oregon law requires that a reserve account be established by the Association. 100.175 states a reserve account shall be established to fund major maintenance, repair or replacement of those common elements all or part of which will normally require major maintenance, repair or replacement in more than one and less than 30 years 9. Consistent with Oregon law, and even more restrictive, are the subdivision that state: ?Article X1, Section 3: Reserve Accounts for Maj or Repair and Replacement of Improvements: association shall maintain a reserve account. . .for repair or replacement of those structures or improvements, including streets, on the common property which will naturally require replacement The reserve account or accounts will be funded out of the annual assessments each year. The initial budget of the association shall provide for not less than ?ve percent of the amounts of each annual assessment to be paid into the reserve account. That initial amount shall not be decreased nor shall the funds be used for any purpose other than defraying all or part of the costs of maj or repair or replacement as provided herein. . Page 3 COMPLAINT TOKARSKI V. WILDFANG VICK LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503) 581-6333 - FAX (503) 581-1244 February, 2016, the owners of the Creekside Golf Club (hereinafter sent a letter to all homeowners within the association informing the homeowners that because of ?nancial situation, CGC might have to cease operations as a golf course. In that same letter, the owners of CGC presented the homeowners with options for continued operation of CGC. 1 1. The Association rejected the CGC owners offer and subsequently filed suit in the Marion County Circuit Court, Case Number 16CV13722 (?the suit?) naming the golf course owners and operator as defendants. The Association sought a declaratory judgment that the prohibited closure of the golf course, and that an equitable servitude existed. The Association sought injunctive relief, among other remedies, that would essentially require the owners to continue golf course operations inde?nitely. 2. Although Article XI, Section 3 requires that the funds shall not be used .. for any purpose other than defraying all or part of the costs of maj or repair or replacement as provided herein (streets and common area) and is to be kept separate from other ?mds, on information and belief, the board of directors authorized the suit to be financed in whole or in part through the use of reserve account funds and reserve account funds were in fact used to fund the suit. FIRST CLAIM FOR DECLARATORY RELIEF (Individual Defendants) 1 3 . Plaintiffs reallege and incorporate the allegations of paragraph 1 through 12 herein. Page 4 COMPLAINT TOKARSKI V. WILDFANG VICK GLANTZ 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503} 581-6333 - FAX (503) 581-1244 actual justiciable controversy exists regarding the use of reserve account funds by the board of directors. Plaintiffs contend that the board has exceeded its authority, violated the and Oregon law by using dedicated reserve account funds to finance litigation. BaSed upon its actions, the board of directors believes that their use of reserve funds is permitted. 1 5. Plaintiffs seek a declaration from the Court as follows: The use of reserve account funds to pay attorney fees and ?nance the suit was not a permitted use of funds pursuant to Article Xl, Section 3 of the The provide no other basis for the expenditure of reserve account funds for litigation nor has the board of directors sought or obtained approval of all members of the Association to make this expenditure; (0) That the use of funds to ?nance the suit was an ultra vires action, beyond the authority of the board of directors, and done in a reckless disregard for their clear obligations under the associations That the use of reserve funds to finance the suit was a clear, knowing, and intentional action by the board of directors; The use of reserve funds to pay for legal expenses was a breach of defendants ?duciary duty of loyalty by failing to act in a manner that they reasonably believe is in the best interest of the corporation; that is, violating the corporate restriction on the use of reserve funds; That the formed a contract between the homeowners and the Association, and that the board of directors? action caused an intentional breach of that contract for which the directors should be found liable; Page 5 COMPLAINT TOKARSKI V. WILDFANG VICK LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503) 5816333 - FAX (503) 581-1244 reserve funds to pay legal expenses of litigation violated ORS 100.175; (11) The defendants were grossly negligent in violation of ORS 65.369 by purposely using reserve funds in near total disregard or indifference to the rights of unit owner and the restrictions of the That the existing board of directors are personally liable for their grossly negligent or intentional use of reserve funds to ?nance the suit; (D That a judgment be entered in favor of the Association and against the board of directors in the amount of the reserve funds used to ?nance the litigation; That defendants who controlled the Association, by their actions, caused the. Association to breach its contract with the association members; and (1) That new or replacement members of the board of directors (present directors not on the board at the time of the initiation of the suit) be held liable for affirming and continuing the previous actions of board in authorizing payment of litigation costs and attorney fees out of reserve account funds. 16. Plaintiffs and other lot owners have suffered damage by intentional actions of the board of directors, in that funds for maintenance of the physical assets of the subdivision are depleted, future assessments will be increased to fill this deficit, and lot values are reduced because of the increased future assessments. 1'7. Plaintiffs are entitled to their reasonable attorney fees pursuant to Article XV, Section 2 of the Creekside Covenant. Plaintiffs are additionally entitled to supplemental relief pursuant to ORS 28.080. Page 6 COWLAINT TOKARSKI V. VICK 8r GLANTZ, LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503) 581-6333- FAX (503) 581?1244 SECOND CLAIM FOR ACCOUNTING (Individual Defendants) 1 8. Plaintiffs reallege and incorporate the allegations of paragraph 1 through 17 herein. 1 9. Plaintiffs seek an accounting of all reserve funds in thereserve account or accounts from December, 2015, through the present, and speci?cally, the source of any funds expended on attorney fees and costs in the litigation of the suit and the appeal from the decision and judgment. 20. Plaintiffs seek a judgment in favor of the Association and against the defendants and each of them for any sums converted from the reserve account or accounts and expended on the suit or the appeal from the suit. THIRD CLAIM FOR INJUNCTION (Individual Defendants and the Association) 21. Plaintiffs reallege and incorporate the allegations of paragraph 1 through 20 herein. 22. The board of directors has ?led a Notice of Appeal with the Oregon Court of Appeals from the judgment in the suit mentioned above. The board of directors may continue the unlawful and unauthorized use of funds from the reserve account or accounts to fund the appeal from the Circuit Court judgment to the Court of Appeals. COMPLAINT TOKARSKI V. WILDFANG -- - Page 7 VICK 8w. GLANTZ, LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503} 58143333 - FAX (503) 581-1244 23. Defendants should be permanently enjoined from use of reserve funds to ?nance any further legal fees or costs and any fees or cost as part of an appeal from the Circuit Court suit. FOURTH CLAIM FOR RELIEF- APPOINTMENT OF A RECEIVER (Individual Defendants and the Association) 24. Plaintiffs reallege and incorporate the allegations of paragraph 1 through 23 herein. 25. The present board of directors has mismanaged the Association and breached their ?duciary duty to the association and should therefore be replaced. 26. Additionally, because the present board of directors has made unauthorized use of Association funds from the reserve account or accounts, the Association has a claim against each board member personally, and therefore, the board of directors has a non-waivable con?ict of interest with the Association. 27. Mismanagement alleged in paragraph 25 above, includes rendering the Association bankrupt. With the depletion of the reserve account and with the liability for the adverse parties? attorney fees in the suit, the Association may be insolvent, that is, the Association?s liabilities exceed the assets of the Association. Page 3 COWLAINT TOKARSKI V. VICK GLANTZ, LLP 1491 COMMERCEAL STREET SE SALEM, OR 97302 PHONE (503) 5816333 - FAX (503) 581-1244 28. Mismanagement as alleged in paragraph 25, above, also includes failure to conduct annual reserve studies to determine the proper amount to be placed in reserve. ORS 100.175 (3) further requires that the board of directors of the association annually conduct a reserve study or review and update an existing study to determine the reserve account requirements, adjust the amount of payments in accordance with the study or review, and prepare a maintenance plan for the maintenance, repair and replacement of all property for which the association has maintenance, repair or replacement responsibility. 29. On information and belief the board of directors has failed to conduct an annual reserve study or review and update an existing study to determine the reserve account requirements. 30. Due to the board of directors? con?ict of interest and failure to determine and fund an adequate reserve account, the present board of directors of the Association should be replaced with a receiver or a new board of directors. FIFTH CLAIM FOR RELIEF- ADDITIONAL BREACH OF FIDUCIARY DUTY (Individual Defendants) 3 . Plaintiffs reallege and incorporate the allegations of paragraph 1 through 30 herein. I 32. The value of lots bordering the golf course and lots with golf course views are signi?cantly affected if the golf course does not remain in operation, whereas interior lots not Page 9 COMPLAINT TOKARSKI V. WILDFANG LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503) 58143333 - FAX (503) 581-1244 bordering the golf course or with no golf course views (non?golf course lots) will have little or no change in value if the golf course ceases operation. 33. The board of directors initiated the suit referenced above without a vote of all lot owners/members of the Association. The outcome of the litigation has no effect and will continue to have no signi?cant bene?t or effect on the value of non? golf course lots; yet non?golf course lot owners are subject to assessment for the expense of the suit with no bene?t to these lots. 34. On information and belief, the majority of the board of directors are owners of lots whose value will be affected by closure of the golf course. The board of directors and each of them I have breached their ?duciary duty to non-golf course lot owners by putting their own interests ahead of the interests of the non-golf course lot owners and burdening these lot owners with the expense of the litigation but without any bene?t to these lot owners. WHEREF ORE, plaintiff prays for judgment against defendant board of directors, and each of them as follows: A ?nding that the board of directors, and each of them, has breached their fiduciary duty to the Association by misappropriating reserve account funds for unauthorized purposes; A ?nding that the board of directors, and each of them, has breached their ?duciary duty to non-golf course lot owners by commencing litigation without the consent of these lot owners and subj ecting them to assessment Page 10 COMPLAINT TOKARSKI V. WILDFANG VICK GLANTZ, LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503) 581?6333 - FAX (503) 581?1244 Page 11 - COMPLAINT TOKARSKI V. WILDFANG (C) (6) for costs and attorney fees from the suit with no signi?cant bene?t to these lot owners; Replacing current board members and appointment of a receiver; An order prohibiting further use of restricted account funds for unauthorized purpose including the payment of attorneys to conduct litigation, appeals, and other legal matters; A judgment against the board of directors, and each of them, in the amount of the funds misdirected from the reserve account for the payment of attorney fees and cost in the suit; and, An award of plaintiffs? attorney fees and costs herein. VICK GLANTZ, LLP 1491 COMMERCIAL STREET SE SALEM, OR 97302 PHONE (503} 581-6333 - FAX (503) 581-1244 WHEREFORE, plaintiffs pray for a judgment against the Association as follows: (0) Page 12 COWLAINT TOKARSKI V. WILDFANG Determining that the Association has breached its contract with the unit owners by misappropriatin reserve funds for unauthorized purposes; Requiring the Association to restore all funds misappropriated to the reserve account; Prohibiting the board of directors or the Association from assessing the costs and attorney fees incurred in suit against non?golf course lots; Enjoining the Association from future use of reserve funds to ?nance litigation; and, Awarding plaintiffs? attorney fees and costs. DATED this 8th day of Februaiy, 2018. Clo??\K Mai Sting/70 fierce I James D. Vick, oss No. 722737 cBB-W?iwer VICK GLANTZ, LLP 698 12"? Street SE, Suite 230 Salem, Oregon 97301 Telephone: (503) 581?6333 Email: jvick@vickandglantz.com Of Attorneys for Plaintiff VICK GLANTZ, LLP 1491 COMMERCIAL STREET SE i SALEM, OR 97302 PHONE (503) 581-6333 FAX (503) 581?1244