Motions to strike the recent lawsuit brought by Lake Shastina resident Corinne Moller on behalf of the Lake Shastina Neighborhood Alliance have been filed in Siskiyou County Superior Court by attorneys representing the defendants.

The motions to strike are based in part on the claims that Moller’s suit seeks to have a 2005 contract between DECO Industries and the Lake Shastina Community Services District declared invalid, and the suit impinges on Bill and Harold Duchi’s right to free speech as regards their contributions to an election campaign group that supported the election of district board members Roxanna Layne, Barbara Thomsson, and Yatang Hoke in November 2014.

Points at issue include:

• The agreement between DECO and the Lake Shastina CSD for the purchase of the Lake Shastina medical facility by the district from DECO, signed in 2005;

• The district’s decision in 2012 to challenge the agreement and then refuse to continue to “pass through” to DECO the agreed upon monthly rental amount the district had been receiving on behalf of DECO from Catholic Healthcare West (d.b.a Mercy Medical Center Mt. Shasta), which leases the facility;

• The agreement to settle the resulting DECO lawsuit, reached by a newly elected majority of district board members; and

• Claims that one of the newly elected board members ought to have been disqualified from voting on the agreement.

The LSCSD, DECO, Bill Duchi, Harold Duchi, Fred Duchi and directors Layne, Thomsson and Hoke are all named as defendants in Moller’s suit.

Original contract

That suit alleges in part that the LSCSD was not authorized to contract with DECO for the construction of a medical facility on district property; that, based on the cost of the facility, a competitive bidding process for construction was mandated; that no payment or other consideration was granted to the district for use of its property by DECO; and that DECO did not have the required contractor’s license to build the facility.

Dan Kim and Walter McNeil, attorneys for DECO and the Duchis, assert in their motion to strike that construction of the medical facility “was never considered a ‘public works’ project for the district” and that Moller “cannot prove that DECO constructed the building for the district.”

The motion to strike further contends that, in any event, the statute of limitations for challenging the 2005 contract expired in 2009.

Bill Duchi said in an interview that it is “simply not true” that DECO built the medical facility for the LSCSD.

“Our building permits were obtained as owner/builders and were approved by the county and the district. We were to own the building,” Duchi said, adding, “We put this together with our own money.”

He pointed out that DECO performed “all upkeep and all repairs” after the building was completed and occupied.

Harold Duchi said all buildings that have been constructed by DECO Industries have been owner/builder projects. “We have never contracted to build a building for someone else.”

Settlement vote

Moller’s suit contends that Yatang Hoke, one of the three district board members who approved the settlement agreement reached between DECO and the district in March 2015, had a financial conflict that disqualified her from voting on the matter.

Bill Duchi said he and his brother Harold found out that the financial company holding the deed of trust on the house in which Hoke lives with her family and on the Lake Shastina Bible Church, which owns the house, had decided not to renew the note on the house.

Hoke’s husband Justin is the pastor of the church.

“Harold and I bought the note and we’re charging six percent interest. But that was done three months after the settlement was reached,” Bill said.

According to his attorney’s motion to strike, the Duchis involvement in refinancing the house in which the Hokes live “was in no way made to influence or reward Ms. Hoke.”

The motion also asserts that the $550 donated to the election campaign group that supported the election of Layne, Thomsson, and Hoke for campaign lawn signs involved “no coordination of any kind” between the three candidates and the Duchi’s donations.

Sworn declarations by Layne, Thomsson, and Hoke to support the motion to strike Moller’s lawsuit also each state that Duchi “did not donate any money to me for my campaign or for any other purpose” and that at no time was support for settling the DECO lawsuit “contingent upon support of my candidacy or any other consideration from DECO or from William Duchi.”

The motion to strike further states that Moller’s suit is a “Strategic Lawsuit Against Public Participation” and as such would impede the Duchis’ right to free speech in connection with a public issue such as an election.

Moller’s lawsuit contends that the settlement agreement which ended the DECO lawsuit against the district was not valid because the company was not a licensed contractor and was therefore prohibited from filing any action in a California court to recover work costs.

By approving what it claims is an invalid settlement, Moller’s suit states, Hoke, Layne, and Thomsson, as the majority vote, made a gift of public funds to DECO.

McNeill and Kim argue that the DECO lawsuit was litigated for two years and was scheduled for a jury trial, even after a number of appeals by the district were rejected by the court, making it impossible for Moller to prove that the lawsuit was invalid.

History

Bill Duchi said that, from the beginning, the agreement to build a medical facility in Lake Shastina was between DECO and Catholic Healthcare West (now called Dignity Health), dba Mercy Medical Center Mount Shasta, with the district simply holding the master ground lease for the district property on which the building was to be constructed.

In his sworn declaration to support the motion to strike Moller’s suit, Duchi stated that the closest medical clinic to Lake Shastina in 2003 was in Mount Shasta; that both Mercy and DECO Industries felt that the well-being and health of the Lake Shastina community “would be greatly improved by the addition of a medical clinic to the community” and that the Lake Shastina CSD also recognized the potential benefits.

Letters of intent signed in May 2004 by Chuck Gersdorf, then-president of Mercy Medical Center Mt. Shasta, and sent to both DECO and the LSCSD describe the agreements reached as follows:

• Catholic Healthcare West would enter into a ground lease with the LSCSD for unimproved district property;

• CHW would then sub-lease the ground to DECO for $1.00 per year;

• The district would allow, and CHW would require, that DECO build a 3,400 square foot building on the property designed according to plans and specifications and construction pre-approved by DECO and the LSCSD;

• CHW would then lease approximately 2,400 square feet of the building from DECO and sublease approximately 1,400 square feet of the leased premises to physician tenants;

• CHW would pay the district rent for the district property on which the facility was built at a rate of $100/year for the first three years and $650/month for the balance of the 10 year lease, with the option to extend the lease by an additional 10 years with the rental fee adjusted to a “fair market” amount;

• The district would install water and sewer utilities at the property, pave the existing roadway in front of the property and maintain the road;

• Under the ground sub-lease, DECO would be responsible to obtain and pay for all building permits or other approvals needed and pay all real and personal property taxes and maintain extended coverage property insurance on the building;

• The district, as holder of the master ground lease, would be responsible to pay all real property taxes and assessments on the property itself.

Before the building was three quarters completed, Bill said, “The district board and district general manager Jamie Lea had the vision that it would be a great deal for the district to own the facility.”

An agreement was reached whereby DECO would continue to own the building for the duration of its 10 year lease to Mercy, after which time the company would agree to sell it to the district for $500,000.

Further discussion, according to Lea, determined that the district would receive Mercy’s monthly lease payments and “pass them through” to DECO for the duration of the original 10 year lease

Lea said the LSCSD wanted the CHW lease payments to DECO to “pass through” the district so it would know the arrangement was secure and going forward as planned. “We would know DECO was getting their payments because it would be going through us.”

The payment arrangement as described in the 2005 contract between DECO and the district has this wording: “In consideration of DECO having constructed the building and made other improvements to the property, the district shall compensate DECO as follows…” and goes on to state that the district would pay to DECO the $4,200 it received monthly from CHW for rental of the medical facility during the initial 10 year lease between DECO and CHW, beginning in September 2004.

At the end of that 10 years, the contract further states, “the District shall commence to pay to DECO the additional sum of $500,000” either in cash or in monthly installments that would include interest on the unpaid balance.

Because the installment payment amount would roughly correlate with the rate of the Mercy lease payments for its occupancy of the building, “Eventually the district would own it by using Mercy’s rent money to pay DECO. It was a win-win,” Lea said.

Richard Negro, who was vice president of the CSD board at the time of the agreement, says now, “In hindsight the language could have been cleaner. We were a board of laymen. We used our counsel and their counsel to draw it up. We took 10 months to agree on it. We acted with all the fiduciary responsibility we had available. We did what we felt was our responsibility. We were bending over backwards to do the best thing for the community. I still feel we did.”

John McCarthy was the LSCSD general manager when the CSD board members serving in 2012 challenged aspects of the contract with DECO and suspended monthly payments to the company when the dispute went unresolved.

The resulting lawsuit brought by DECO against the district included an allegation of breach of contract.

That suit was settled in 2015 shortly after the newly elected district board members were seated. DECO was paid in full for the medical facility building.

• Steve Gerace contributed to this report.