Lake Shastina clinic building at center of lawsuit

Skye Kinkade

A Weed construction company is suing the Lake Shastina Community Services District, its board members, and its general manager for conspiring to defraud them during meetings they claim violated the Brown Act.

DECO Industries, owned by Bill and Harold Duchi, allege the LSCSD ceased making monthly rent payments for Mercy’s Lake Shastina medical clinic after upgrades to the building were completed in the spring of last year.

In the complaint, filed with the Siskiyou County Superior Court April 12, DECO’s attorney Walter McNeill also alleges that the LSCSD violated the Brown Act by not accurately agendizing closed session items related to their contract with DECO.

Sacramento attorney Dan Smith, who is representing the LSCSD, called DECO’s allegations “specious and absolutely unfounded” during a telephone interview Friday. He said the District “vigorously disputes” them.

DECO is asking for the court to award damages totaling the amount of rent they would have collected, as well as a $500,000 balloon payment they say was part of the original agreement. They’re also asking a judge to compel the district to disclose records of closed sessions during which the issue was discussed.

Named as defendants are the LSCSD; the LSCSD board of directors, including Carol Cupp, Corrine Moller, Errol Murphy, Beverly Roths and Tom Wetter (both individually and as board members); and district general manager John McCarthy, both individually and in his capacity as GM.

Attorney Smith said the LSCSD’s first and foremost duty has always been to serve the public and they feel they have always done that in good faith.

McNeill said he has requested meetings with the board and McCarthy several times in an attempt to settle the dispute without going to court, and each time they were refused.

The filing of the case is the first step in litigation, McNeill said. The first required court appearance will be Sept. 3. McNeill stressed that regardless of the way DECO and the district resolve the dispute, whether in court or through a settlement, operation of the medical clinic should not be interrupted.

Smith said this is a dispute between LSCSD and DECO regarding the terms in the agreement for the construction of the clinic and has nothing to do with Dignity Health.

Case history

The LSCSD owns the property where the clinic is located. In 2003, DECO began construction on the clinic for Catholic Healthcare West (now Dignity Health), according to the complaint. The clinic opened for business Sept. 1, 2005.

In the agreement between DECO and the Community Services District, which was drafted by LSCSD attorney Bob Winston and signed in September 2005, it was agreed that for 10 years, DECO was to receive $4,200 ($1.75 per square foot) per month as rent from the district. This money would come from Mercy and be passed through the LSCSD to DECO.

If, at any time, Mercy wanted to occupy an additional 1,000 square feet inside the building, DECO would, at its own expense, do improvements and then receive an additional $1.75 per square foot monthly for the space, according to the contract.

After 10 years, the original contract included a balloon payment of $500,000 from the LSCSD to DECO or a 15-year amortized buyout with monthly payments of about $4,500.

McNeill pointed out the Duchis were assuming “considerable risk” by constructing the building, and if a medical clinic didn’t work out in Lake Shastina, they would have been out their costs.

“They were taking a risk for public benefit,” said McNeill. “Everyone was happy and the district paid like clockwork for seven years. All was good, and then out of the blue, (the district) changed their minds.”

“The district does not feel this agreement is best for the public,” Smith said, referring to the contract as “vague and ambiguous.”

In December 2011, DECO agreed to expand the clinic under the conditions stated in the 2005 agreement and finished that work in April of last year, the complaint states. The cost of the improvements was $36,000.

In May, DECO received a letter from Smith, stating, “effective immediately, the district shall withhold all future payment to DECO” until issues broached in a January letter are resolved.

McNeill said in the complaint that his clients were confused by the letter, but assured it was a formality and that the agreement would continue as it always had.

McNeill said there was no formal public disclosure of Smith’s hire and based on “circumstantial evidence,” he and his clients believe Smith was retained in an unlawful closed session meeting on Dec. 21, 2011.

Because the board would have had to make a collective decision to stop paying DECO, and because there is no record of such a discussion during any meeting, McNeill said it must have been discussed during a closed session that was improperly labeled on the district’s agenda and minutes as “conference with Real Property Negotiator” to discuss the parcel of land where the clinic is located.

The complaint alleges the conference does not fall within the “Real Property Negotiation” exception in Brown Act because the agreement with DECO “doesn’t involve acquisition or transfer of any real property rights – it is a contract for the installment sale of personal property – the clinic building.”

McNeill described that description as “a sham,” used to “conceal an unlawful closed session meeting and to facilitate... fraud.”

The complaint says McCarthy and the board “conspired to try to force DECO to renegotiate the buy-out price in the agreement by withholding monthly payments... but to do so only after DECO had unknowingly made the improvements to the additional 1,000 square feet of the clinic building.”

DECO alleges the district made an agreement to “fraudulently induce DECO to construct improvements” by misrepresenting that they intended to fulfill its obligations and then stop payment after those improvements were completed.

Smith said those allegations have “no foundation whatsoever.” He said the district will continue to “vigorously defend” itself from these accusations and predicted they would “ultimately prevail.”