LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB INC.1211 Island Drive Lummi Island, WA 98262-8684 (360) 758-2699

LISECC Board of Directors’ Meeting – July 17, 2011Minutes Recorded and Prepared by Penni Idol

MINUTES OF THE BOARD OF DIRECTORS’ MEETING JULY 17, 2011

MEMBER CONCERNS: Norma Bohl would like to ask the board to conduct meetings in politeconversation. Victor Armfield is concerned about silt in the reservoir. Michael Wardell is concerned thatAdministration/Bylaws committee has not yet had a meeting.

CALLED TO ORDER: by President Mark Sexton at 9:35 a.m.

PRESENT: All six Board members are present and in good standing.

STAFF PRESENT: John Graham & Penni Idol

6/26/2011 Minutes: Ken made a motion to approve the minutes from the previous Board meeting andLee seconded. The motion passed unanimously.

COMMUNICATIONS: Craig Abrahamson wrote a letter to the Board regarding his account. His issuewas resolved prior to the Board meeting.

NOMINATION OF BOARD MEMBER: Mark nominates Leslie Dempsey, seconded by Lee.

Michael Maguire nominates himself for the open Board position.

The Board voted by secret ballot and the result is unanimous for Leslie.

The Board voted by secret ballot for Vice-President. The first vote was a tie between Mitch and Leslie. In asecond vote by secret ballot for Vice-President Mitch Nimon was elected Vice-President.

There was then some discussion about chair appointment. Meredith happily agrees to move to theAdministration chair and Leslie was appointed to co-chair the Finance chair with Mitch Nimon.

COMMITTEE REPORTS:ADMINISTRATION – Meredith Moench - None

FINANCE REPORT – Meredith Moench – The finance committee is continuing to monitor at expensesand looking for where they can be reduced. Att Lilyroth, who is a professional bookkeeper, has been veryhelpful in the last 2 months preparing a very detailed profit and loss spreadsheet. The Board is hoping tohave a special meeting in the fall to approve a 2012 Budget and possibly changing the annual general meetingdate. Mark wants Administration committee to look into having a mail in ballot for the budget.

OPERATIONS – Lee McCollum report that the Operations committee is also trying to cut expenses. Theyhave been analyzing the utilities and have determined that the gas and propane tanks are not secure enough.He is recommending there to be a lock on the tanks and for there to be records maintained for use andaccountability. Mark states in John’s report that there is one member using excessive water and wantsrecommendations for how to address this. Ken states maybe we need place a statement in the bylaws toaddress these leaks. It came to Lee’s attention that the employees were harassed verbally by one of themembers in a voice mail. Lee states that no employee should be abused in this manner. Ricardo statesmembers should be notified if employees need to go on their property. Roof on the clubhouse has a leakand needs special paint approximately $500 cost. The Board agreed to buy the paint for the Clubhouse roof.Also, there are carpenter ants in the clubhouse. Mitch states he can do this treatment.

Plaintiffs 2064

LISECC Board of Directors’ Meeting – July 17, 2011 Page 2Minutes Recorded and Prepared by Penni Idol

PLANNING – Ken Swanson states the Planning Committee has had 2 more meeting since the last boardmeeting. They have divided LISECC expenses into 2 categories: 1. base expense – expenses that benefitseverybody and 2. water users expense. They have taken budget numbers to come up with a master plan thatis fair for everyone. As information becomes available this plan will need to be tweaked. The committeewants to do this right and not be on a deadline.

WATER – Mitch Nimon says the Water committee has met a few times. They are currently working on asbuilt drawings. He states there is some inconsistency in pipe reports and they are showing different types ofpipes were placed. Mitch claims the as built is not final and he is unclear as to what has gone to the state.Mitch states a maintenance program needs to be implemented. Mark advocates for community involvementin needed maintenance because of the club’s limited resources.

COMMUNICATIONS – Ricardo Camarillo reports that the Communications committee met on July 5and divided the community into nine areas which will be called MYNs (Map Your Neighborhood) for thedisaster preparedness plan. They have found there are 59 full time residents in LISECC. The committee isworking on a handout to give to all community members that will give instructions as for what to do in caseof emergency. The next committee meeting is scheduled for September 19th. Ricardo states communicationis transparency and he thinks the committees need to prepare minutes from their meetings to post on thewebsite.

UNFINISHED BUSINESS: Mitch Nimon wants to make sure any major expenses are moderated by theboard. He wants to know what happens when we are out of budget and if we are going to project out adeficit in our budget. Mark states we don’t know yet and we are in the process, through committees, figuringthis out. Discussion followed.

Mark wants to send out a newsletter for the fall, all board members are requested to submit a report.

Mark met with Rich Davis with CS&D. Mark and Rich are in agreement that if there is a lack of confidencein our attorney then a new attorney needs to be hired to represent LISECC. Mark states that Rich Davisthinks mediation of LILCO suit will not be a very fruitful venture. Mitch made a motion for new attorneyand it was seconded Meredith. In favor were Ken, Ricardo, Lee, Meredith, Leslie & Mitch. The motionpassed.

Lee wants to move the agenda topic of personnel committee to executive session. Mark would like to refereveryone to the language of what an executive session and the reason why you call one. He sites the Bylaw4.4.4.4. Mark recommends that the 3 Board members on the Personnel Committee be himself, Lee andLeslie. Mark has spoken to one of LISECC’s community members who is a professional consultant in thisarea and would be willing to sit down with the Personnel committee to help set up a format for employeereviews and job descriptions. There was some discussion that followed regarding who the members of thePersonnel committee are and as how the process of employee reviews will be handled. Lee moves that theBoard have an executive session to consider personnel matters that relate directly to operations and budget,seconded by Meredith. In favor are Ken, Ricardo, Lee, Meredith Leslie and Mitch.

NEW BUSINESS: Ken received a phone call from a community member asking that the Board pursue theidea of a handicap accessible ramp to the clubhouse. The idea is to use a fund raiser to collect the funds forthis project instead of using budget money. Ken is going to meet with the member who suggested this andthe engineer she knows to get numbers and ideas. He will then bring their recommendations to the board.

Mitch makes the motion to use a detailed wall size map of the water system to include locations for valves,flush stand pipes and the as built of record drawing map should be a comprehensive and ongoing document,showing all repairs and alterations that are known. The motion was seconded by Ricardo. Discussionfollowed. In favor were Ken, Ricardo, Lee, Meredith, Leslie, Mitch. The motion passed.

Mark states he needs to get some more clarification of the meeting with employees in executive session. Inthis closed session, the suggestion is that the Board needs to bring Kevin and John in to apprise them of thebudgetary concerns. There was much discussion regarding this issue. The majority of the Board decides tomeet with the employees to advise them of budget concerns.

Plaintiffs 2065

LISECC Board of Directors’ Meeting – July 17, 2011 Page 3Minutes Recorded and Prepared by Penni Idol

Mitch moves to retain Peter Chopelis to review the record drawings for up to $1000.00, this money wouldcome from the loan, Ken seconded. Discussion followed. In favor were Ken, Ricardo, Lee, Meredith, Leslie& Mitch. The motion passed.

Leslie submitted for the board to review a proposed water loan fee repayment schedule. Discussionfollowed.

Leslie states that is has been identified that some accounting assistance is needed in setting up QuickBookswith the accounts primarily relating to the balance sheet so there is a better assessment of the reserves,depreciation and equity accounts. Don Lamb has been contacted about possibly coming back to do somewith work and also Susie Thompson and her associate, Julie Harkness. A proposal of engagement letter hasbeen received. Leslie is proposing that a subgroup of Board members get together to look at this letter andmake recommendations to the Board.

INVOICE APPROVAL: Wilson invoice Mark called Dave Carpenter and this is the final billing unlessthey hear from us about more. Mark made motion to pay, seconded Meredith. In favor were Ken, Ricardo,Lee, Meredith, Leslie and with Mitch abstaining.

The Board agrees to pay the CS&D invoice except the $8,478.00 that is being contested.

The next Board meeting is scheduled for August 28, 2011.

Meeting is adjourned to executive session at 12:29 p.m.

Executive Session: No action was taken.

Plaintiffs 2066

LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB INC.1211 Island Drive Lummi Island, WA 98262-8684 (360) 758-2699

LISE Board of Directors’ Meeting – October 2, 2011Minutes Recorded and Prepared by Penni Idol

MINUTES OF THE BOARD OF DIRECTORS’ MEETING October 2, 2011

MEMBER CONCERNS: Victor Armfield read from a letter he presented to the board that includednumerous issues. Neva Buechner gave an update on the Ramp It Up project. She stated that to date $410.00has been collected and deposited into the bank account that was opened for this purpose. She asked that theboard approve clearing of trees and brush that will need to be removed for the ramp. Norma Bohl hasquestion about sudden change of meetings times and is concerned that nothing has been done about scotchbroom. Norma also reminded the board that according to the LISECC bylaws private roads should becleared 5 feet back and she is concerned that members are not being notified to keep the private roads clear.Ola Bergsholm responded by stating that he was on the board when the road were changed from “privateroads” to “community road” and it was determined at that time that the club would take care of thecommunity roads. Jim Dickensen addressed the board and stated he wants to work with LISECC to resolvethe suit against LILCO.

CALLED TO ORDER: by President Mark Sexton at 10:08 a.m.

PRESENT: All 7 board members are present

EXCUSED: None

STAFF PRESENT: John Graham & Penni Idol

VOTING STATUS: All board members present are in good standing. Quorum

August 28, 2011 Minutes: Leslie moved to approve the 8-28-11 Board of Directors Minutes. This motionwas seconded by Ricardo. The motion was approved unanimously.

COMMUNICATIONS: Joy Krell submitted a letter to the board requesting the barbeque pit be movedfrom under the conifers and also for the board to ban outdoor smoking in Scenic Estates. Louise Webersubmitted an email volunteering to be the LISECC treasurer. Jeff Otis submitted a letter requesting theScenic Estates become involved in the Quarry expansion issue. Louise Weber submitted a second emailrequesting the July 2011 recording be provided to her.

COMMITTEE REPORTS:ADMINISTRATION – Meredith Moench stated that the administration committee will have their firstmeeting in October and she requested other members volunteer. She will post the date and time of themeeting when it is scheduled. Mark requested that the committee put on their agenda to propose a bylawchange for mail in voting.

FINANCE REPORT – Leslie Dempsey reported that our CPA, Julie Harkness, has prepared the P&L andBalance sheet for August based on her corrections from January 1st going forward. Julie is still fine tuningthese reports and has separated out 2011 dues from what is owed in 2010 and prior years. Another big thingJulie has done is break out the payroll expenses into categories of wages, federal taxes, state taxes, L&I andemployee benefits. Regarding the DWSRF loan, Leslie stated that she has been doing quarterly reports to thestate through the PWEB system. Cathy Brockman from the Department of Commerce sent out an emailadvising that DWSRF loan close out process has changed and as a result of this change LISECC will nolonger be required to use a CPA to close out the loan. According to this new information the Chief FinancialOfficer of the associations will be able do the financial review of the loan and sign the closeout.

The first amortizing principal and interest payment of $34,256.42 for the year of 2011 has been paid. Leslieadvised Cathy Brockman that the membership will be voting on the loan payment process at the November

Plaintiffs 2080

LISE Board of Directors’ Meeting – October 2, 2011 Page 2Minutes Recorded and Prepared by Penni Idol

5th special meeting and depending on the outcome of this voting the board would be putting together anupdated resolution to be submitted to the state about the repayment of the loan that would replace the priorresolution by the Bill Boulton board and be part of the close out process. One of the key differences is thatmembers will pay their prorata share of the annual payment due each year so members would have thebenefit of a declining payment as the years go on.

OPERATIONS – Lee McCollum stated employee evaluations were done in September and job descriptionshave been updated. Lee read from the operations report prepared by John Graham. Lee would likesuggestions as to how to handle the dogs at the lake and the non-members using the boat docks. John, in hisoperations report, is proposing a toilet replacement program where LISECC pays for parts to repair leakingtoilets for members who do not have the mechanical skills to make these repairs themselves and forvolunteers go in to member’s homes to replace the toilet hardware. Discussion followed.

Mark made a motion requesting board authorization to spend up to $3000.00 for a water main repair up nearthe storage tanks. The motion is seconded by Meredith Moench. Discussion followed. The motion wasapproved unanimously.

PLANNNING – Ken Swanson states the planning committee has not met since they submitted theirproposal. He would, however, like to be kept in the loop on the water data that is being provided by John tothe water committee. The committee is currently awaiting new tasks.

WATER – Mitch Nimon states the water committee continues to work on the record drawings but statesthey really need the information from John’s computer. Mitch made a motion for the board to authorize$2300.00 to engineer Peter Chopelas for fully blown report and it will be taken as a draw from the loan. Themotion was seconded by Leslie Dempsey. Discussion followed. The motion was approved unanimously.

COMMUNICATIONS – Ricardo Camarillo stated he attended the last Island wide disaster meeting.LISECC will be divided into 8 areas on the map your neighborhood program. They are trying to make themap your neighborhood program as simple as possible.

UNFINISHED BUSINESS: Proposed 2012 Budget – Leslie went over the proposed 2012 budget –$496.00 in dues and a $228.00 water “ready to serve” fee per year for a typical member. Leslie stated this isthe board’s last opportunity to look at this budget and make any changes before it goes out to the member inthe special meeting packet. Meredith stated this budget is the result of an incredible amount of hours put inby the finance committee and this budget was put together very carefully. There was much discussionregarding the budget specifically the 900 section (the water section) of the budget. Mitch was concerned thatthe amount requested by John for the 900 section of the budget was $75,000.00 but the proposed budget isonly allowing for $25,000.00 for this section. John stated that this additional $50,000.00 he requested wasdeferred maintenance from the last 5 years. Leslie suggested the board come up with a 5 year plan for repair,replacement and improvement rather than trying to complete everything in one year.

Leslie made the motion to approve the 2012 proposed budget. This motion was seconded by Meredith.Michael Wardell would like to make a friendly amendment that a line be added to the 2012 proposed budgetthat states the budget as prepared does not reflect the deferred maintenance that continues to need to bedone. Friendly amendment seconded by Lee. The friendly amendment was accepted by Leslie. The boardvote on the friendly amendment was approved by Ricardo, Lee, Meredith & Leslie and disapproved by Mitch& Ken. The 2012 budget was approved by Ken, Ricardo, Lee, Mitch & Leslie with Mitch voting against.The motion passes.

Leslie made a motion that was seconded by Meredith for the board to vote to approve the following itemsgoing out in the November 5th Special Meeting packet:

1. Call to meeting approved unanimously2. Absentee ballot approved unanimously3. Ballot Instruction approved unanimously4. Plan A approved unanimously

Plaintiffs 2081

LISE Board of Directors’ Meeting – October 2, 2011 Page 3Minutes Recorded and Prepared by Penni Idol

5. Plan B approved unanimously with friendly amendment by Michael Wardell of “a portion of thereadiness to serve fee will be allocated to the water reserve fund to be dedicated to a water meterfund for the purpose of providing replacement meters and new meters for future connections.”

6. Plan A / Plan B Comparison approved unanimously with a friendly amendment from Meredith thatwas seconded by Ricardo stating “once the meters are installed they are property of the club and theclub will be responsible for maintenance and replacement.”

Leslie gave an update on member accounts delinquent by over 60 days. Letters have been sent to memberswith accounts over 60 days delinquent requesting payment of past due fees by October 31 and in return forpayment in full LISECC will waive any 2011 interest and late charges added to their account. If payments arenot received by October 31st on these accounts the Board will proceed to the next steps as prescribed inPolicy Statement #7 of water turn off and lien filing.

Ken gave an update on the Ramp It Up project. They are currently looking for volunteers to canvas LISECCasking for donations and Ricardo is checking into a grant for this project.

Leslie moved to rescind the earlier action regarding hiring a CPA to close out the DWSRF loan and insteadLISECC will review and close out the loan internally. This motion was seconded by Lee. The motion waspassed unanimously.

NEW BUSINESS: Mitch made the motion to accept Louise Weber as Treasurer and seconded by Ricardo.Discussion followed. The motion was passed unanimously.

Mark wanted to reaffirm the board’s dedication to make sure all meetings are open to all members.

Leslie addressed the Quarry issue with regards to the application for water rights in Aisten creek and possiblyset up a meeting with Tim Slater. Mitch recommends that Meredith provide from her records the waterrights information to the other board members so they can all view it, put together a report and give it to thelawyer if needed.

Leslie made a motion in light of Jeff Otis’ letter urging the LISECC Board to take a stand on the Quarryexpansion issues that a letter be drafted to the Whatcom Planning Department and copying other relevantdepartments expressing LISECC concerns about the Quarry expansion. The motion was seconded by Lee.The motion passed unanimous.

Regarding the letter from Marc & JoAnn Mullen, Leslie stated refunding to bound lot members will have asignificant effect of LISECC’s finances, if refunds are made to one member then refunds should be made toall bound lot owners. Discussion followed. Meredith moved to approve the Mullen refund. The motionwas seconded by Ken. Discussion followed. Leslie made a friendly amendment that a letter be drafted forboard review and approval to go out to all bound lot members to invite them to donate the funds to theassociation, receive a credit or receive a refund. The friendly amendment was accepted by Meredith andseconded by Lee. Discussion followed. The friendly amendment was approved by Ken, Ricardo, Lee,Meredith and Leslie with Mitch abstaining. The motion passes unanimously.

Leslie requests board permission to replace the old Aisten Creek signs with new reflective signs at her ownexpense as long as she can keep the old ones for her collection. Board approved unanimously.

Next board meeting scheduled for November 20, 2011.

Meeting Adjourned: 2:27 p.m.

Plaintiffs 2082

PLTF 28098

�enturyL� Webmail file:///C:/Documents and Settings/T400-User/Desktop/CenturyLink We ..

1 .,..,c A

Centurylink Webmail islandpug@q.com

± Font Size:

Fwd: Monthly Income and Expenses {P and L) / correction needed

From : islandpug@q.com Mon, Nov 07, 2011 01:23 PM

Subject : Fwd: Monthly Income and Expenses (P and L) / correction needed

To : islandpug@q.com, L W <selafcochair@q.com>

From: 'MARK SEXTON" <lummimark@msn.com>

To: juliebal@msn.com, islandpug@q.com Cc: business@lisecc.com, board@lisecc.com Sent: Friday, November 4, 2011 6:42:31 AM Subject: RE: Monthly Income � Expenses (P and L) / correction needed

Louise, I am not in any way suggesting the board will or should ignore any bylaw, I am saying that we should refer to this fee as a water fee. This is accurate, and has no power to change the use of this money nor how it is collected. Unfortunately, we have a compressed time frame to publish this for tomorrows meeting and don't have time to bring this to a board vote. Shortening the name from water reserve fee or water connection fee seems to me to be an entirely reasonable compromise. The treasurer position is an important part of USE, but is not an elected board position, and policy decisions are the responsibility of the board members.

Julie, Please publish this with water fee as discussed above.

Thanks, Mark

> From: juliehal@msn.com > To: islandpug@q.com; lummimark@rnsn.com > CC: business@lisecc.com; board@lisecc.com > Date: Fri, 4 Nov 2011 01:14:54 +0000 > Subject: Re: Monthly Income and Expenses (P and L) / correction needed > > It sounds to me like this is something the board needs to agree on. I have not sat down and read the bylaws and am not comfortable make the determination. I will be in the office Friday morning and can make the necessary change. >

> Julie > Sent from my BlackBerry® smartphone with Nextel Direct Connect > > --OrigiO<!I Message-­> From: islandpug@q.com > Date: Fri, 4 Nov 2011 01:08:47 > To: <lummimark@msn.com> > Cc: <business@lisecc.com>; <julieha1@rnsn.com>; <boarcl@lisecc.com> > Subject: Re: Monthly Income and Expenses (P and L) / correction needed > > Mark, > > In response to your email, I understand you to be saying that the Board will be ignoring the current published bylaws, which includes the rules and regulations. > > Thank you,

n,....,,., /""t/\1 A o . ..,.., n"

PLTF 28099

> Louise > > >----

> From: 0MARK SEXTON° <lummimark@mSn.com> > To: board@lisecc.com

file:///C:/Docmnents and Settingc;/T4UU-u""'"�--- •

> c.c:business@lisecc.com, juliehal@msn.com, islarxtpug@Q.com > Sent: Thursday, November 3, 2011 5:38:55 PM > Subject: RE: Monthly Income arxt Expenses (P arxt L) / correction needed > > > There are conflicts between the board motion that established this fee, various communications to the membership, and the resolution Louise quotes. The board will address this issue when the wte has been courted and we-� a ne� �I.ti�- � light of this confusion, please refer to this as the "Water Fee" until the BOD has had a chance to weigh m, I think this m1nim1zes any potential prejudicial impacts. > > Mark > > > >----> Date: Thu, 3 Nov 2011 18:32:28 -0400 > From: islarxtpug@q.com > To: L.eslie@LimpidArts.com > CC: business@lisecc.com; lummimark@msn.com; twogreyhills@yahoo.com; juliehal@msn.com > Subject: Re: Monthly Income arxt Expenses (P arxt L) / correction needed > > > Leslie, > > Please review USE article 5.4.2.9, which dearly states that the water connection fee creates a reserve fund to pay for future updates arxt eventual replacement. Until the board chooses to amerxt this rule arxt regulation, I feel that is what we need to use in our financial reports. > > Thanks, > Louise > > >----

> From: "Leslie Martin Dempsey'' <Leslie@LimpidArts.com> > To: "Julie Harkness" <julieha1@msn.com> > C.C: business@lisecc.com, "Mark Sexton" <lummimark@msn.com>, islandpug@Q.com, "Mitch Nimon" <twogreyhills@yahoo.com> > Sent: Thursday, November 3, 2011 2:31:43 PM > Subject: FW: Monttiy Income arxt Expenses (P and L) / correction needed >

> > > Julie, > Please revise the September 2011 P&L to use the correct terminology for the water correction fee per the highlighted section of my 9/21/11 email below. We will be distritxting the P&L at the Special Meeting this Saturday and it's important that we don't perpetuate the incorrect terminology. > > Thank you! >

> - Leslie Dempsey > USEC:C Board Member > 206.818.9500 > >

> From: Leslie Martin Dempsey [mailto:L.eslie@LimpidArts.com] > Sent: Wednesday, September 21, 2011 10:36 AM > To: 'Julie Harkness' > C.C: 'Mark Sexton'

PLTF 28100

:.enturyL� Webmail

> Subject: RE: Monthly Income and Expenses (P and L) > > Julie please see my comments below. >�Leslie > > > From: Julie Harkness [mailto:juliehal@msn.com] > Sent: Wednesday, September 21, 2011 9:55 AM > To: leslie@limpidarts.com > Subject: RE: Monthly Income and Expenses (P and L) >

> > Leslie, >

file:// /C:/Documeots and Setting5/T400-User/Desktop/CenturyLink We ..

> I will put together the August financials and send them to you via email. I will have a reconciliation of how the reports were previously compiled to my recommended format. Please feel free to get the boards input on the revised format as we can tailor that to your needs. Wonderful! > > Some of the items I would like to change or show in more detail: > > Accounts Receivable - I would like to show the current year receivables as its own line item so this will be dues for 2011. When the 2011 dues are broken out we will be left with prior years dues and prepaid dues which I will also break au: as separate line items. Perfect! This is exactly what I have been wanting to see. > > On the Profit and Loss statement I would like to do a similar breakout for income based on prior years, current year and prepaid. Yes! > > The other item I would like to see more detail in is payroll - showing the wages, payroll taxes, and benefits separately. Yes! This will really help with subsequent year budget forcasting. > > Other items that I have questions on: > > 1. Does the organization have the following policies in writing: Personnel, whistleblowe� conflict of interest, investment Yes, I believe that our Personal Policy Manual covers all those things >

> 2. Something I noticed as I was reviewing the financial records on the website: The Annual 2009 Balance Sheet does not add up correctly and is out of balarx:e, this has impact on the equity section d the balarx:e sheet in addition it does not agree to the December 2009 ending balances. Do you know if the preparer of the annual report provided adjusting journal entries? I believe that it was Nicole cl Don Lamb Accounting, or perhaps Don Lamb himself. > > If there are any specific items you would like me to address prior to the board meeting please let me know. Not that I can think of. Penni probably mentioned that we are no longer using the tenn "Water Reserve Fee" as that is an incorrect usage promulgated by the prior Board President (and it caused much problem as the community thought that it was only for reserves and not to be used for water related operating costs). In the 2012 budget we'll use the new tenn "Water, Ready to Serve Fee". In the meantime, I have been using the tenn "Water Connection Fee· to distinglish it from the DWSRF Water Loan Fee. > > Julie > >

>

>-----

> > From: L.eslie@LimpidArts.com > To: samesmall@hotrnail.com > CC: business@lisecc.com; lummimark@msn.com; juliehal@msn.com > Date: Tue, 20 Sep 2011 18:56:50 -0700 > Subject: RE: Monthly Income and Expenses (P and L) > > Att, > > I talked with Penni about the August month encl P&L and Balance Sheet - the CPA Julie has been making many changes and reposting things - so whatever is prepared for August is not going to line up with July. > Penni has a meeting scheduled with Julie on Monday, and they will talk about the August financials - Penni's not sure if Julie will be preparing them or if she will have Penni do so from QuickBooks. Regardless of who prepares them we will need some

PLTF 28101

::::�ntury� Webmail file:/ //C:/DoclDllents and Setting,5/T 400-User/Desktop/CenturyLink: We ..

report to accompany them showing the correcting entries, so that we can follow along. > > Penni will get back to you and me after she meets with Julie on Monday. > Thank you so much for your help, we really appreciate you! >

>�Leslie > >

> >

> > > From: sam small [mailto:samesmall@hotmail.com] > Sent: Monday, September 19, 2011 5:41 PM > To: Penni Idol > Cc: Leslie Dumpsey; Meredith Moench > Subject: Monthly Income and Expenses (P and L) > > > Hi Penni, > > Have you closed out Financial Income and Expenses Statement (P and L) for the month of Aug 2011 yet? If you have, please forward P&L to me so I can put the numbers on spreadsheet for you. Thank you. > > Att

n,....,.,,,.,n1A o . ..,,.,n.._,

PLTF 28102

CenturyLink Webmail http://webmail.q.com/zimbra/h/printmessage?id=4463

1 nf1

Centurylink Webmail islandpug@q,eom

+ Font Size -

Re: Monthly Income and Expenses (P and L) / correction needed

From : islandpug@q.com Thu, Nov 03, 2011 09:08 PM

Subject: Re: Monthly Income and Expenses (P and L) / correction needed

To : MARK SEXTON <lummimark@msn.com>

Cc : business@lisecc.com, julieha1@msn.com, board@lisecc.com

Bee: twogreyhills@yahoo.com, barry allison <joelballison@gmail.com>, islandpug@q.com

Mark,

In response to your email, I understand you to be saying that the Board will be ignoring the current published bylaws, \Mlicb includes the rules and regulations.

Thank you, Louise

From: 'MARK SEXION"<lummimark@msn.com> To: board@lisecc.com Cc: business@lisecc.com, juliebal@msn.com, islandpug@q.com Sent: Thursday, November 3, 2011 5:38:55 PM Subject: RE: Monthly Income and Expenses (P and L) / correction needed

There are conflicts between the board motion that established this fee, various communications to the membership, and the resolution Louise quotes. The board will address this issue when the vote has been counted and we need a new resolution. In light of this confusion, please refer to this as the "Water Fee" until the BOD has had a chance to weigh in, I think this minimizes any potential prejudicial impacts.

Mark

Date: Thu, 3 Nov 2011 18:32:28 -0400 From: islandpug@q.com To: Leslie@LimpidArts.com CC: business@lisecc.com; lummimark@msn.com; t.vogreyhills@yahoo.com; juliehal@msn.com Subject: Re: Monthly Income and Expenses (P and L) / correction needed

Lesiie,

Please re,iew l lSf article 5.4.2.9. \.\hich clearly states that the wnter connection fee creates a reserve fund to pay for future updates and i:venlual n:pli:11.:emeul. U11lil U1e board choo�es lo ami:nd U1is rule and regulalion, I li::d lhal is whal wo.:: ni:t:d lo u:,t: in our financial reporb.

Thank; '

Louise

From: ''Leslie Martin Demp ey" <Leslie@LimpidArts.com> To: "Julie Harkness" <juliehal@msn.com> Cc: busioess@lisecc.com, 'Mark Sexton" <lwnmimark @msn.com>, islandpug@q.com, 'Mitch Nimon" <rnogreyhills@yahoo.com> Sent: Thursday, November 3, 2011 2:31 :43 PM Subject: FW: Monilily Jacome and Expenses (P and L) / correction m:eded

Julie, Please revise the September 2011 P&L to use the correct terminology for the water correction fee per the highlighted section of my

9/16/2014 8:34 AM

PLTF 28103

CenturyLink Webmail http://webmail.q.com/zimbra/b/printmessage?id=4463

? nn

9/21/11 email below. We will be distributing the P&L at the Special Meeting this Saturday and it's important that we don't perpetuate

the incorrect terminology.

Thank you!

- Leslie Dempsey

LISECC Board Member

206.818.9500

From: Leslie Martin Dempsey [mailto:Leslie@LimpidArts.com] Sent: Wednesday, September 21, 2011 10:36 AM To: 'Julie Harkness' Cc: 'Mark Sexton' Subject: RE: Monthly Income and Expenses (P and L)

Julie please see my comments below.

- Leslie

From: Julie Harkness [mailto:ju1ieha1@msn.com] Sent: Wednesday, September 21, 2011 9:55 AM To: leslie@limpidarts.com Subject: RE: Monthly Income and Expenses (P and L)

Leslie,

I will put together the August financials and send them to you via email. I will have a reconciliation of how the reports were previously compiled to my recommended format. Please feel free to get the boards input on the revised format as we can tailor that to your needs. Wonderful'

Some of the items I would like to change or show in more detail:

Accounts Receivable - I would like to show the current year receivables as its own line item so this will be dues for 2011. When the 2011 dues are broken out we will be left: with prior years dues and prepaid dues which I will also break out as separate line items. Perfecti This is exactly what I have been wanting to see.

On the Profit and Loss Statement I would like to do a similar breakout for income based on prior years, current year and prepaid. Yes!

The other item I would like to see more detail in is payroll - showing the wages, payroll taxes, and benefits separately. Yes! This will really help with subsequent year budget forcasting.

Other items that I have questions on:

1. Does the organization have the following policies in writing: Personnel, whistleblower, conflict of interest, investment Yes, I believe that our Personal Policy Manual covers all those things

2. Something I noticed as I was reviewing the financial records on the website: The Annual 2009 Balance Sheet does not add up correctly and is out of balance, this has impact on the equity section of the balance sheet in addition it does not agree to the December 2009 ending balances. Do you know if the preparer of the annual report provided adjusting journal entries? I believe that it was Nicole of Don Lamb Accounting, or perhaps Don Lamb himself.

If there are any specific items you would like me to address prior to the board meeting please let me know. Not that I can think of. Penni probably mentioned that we are no longer using the term "Water Reserve Fee" as that is an incorrect usage promulgated by the prior Board President (and it caused much problem as the community thought that it was only for reserves and not to be used for water related operating costs). In the 2012 budget we'll use the new term "Water, Ready to Serve Fee" In the meantime, I have been using the term "Water Connection Fee" to distinguish it from the DWSRF Water Loan Fee.

Julie

From: Leslie@LimpidArts.com To: samesmall@hotmail.com CC: business@lisecc.com; lummimark@msn.com; julieha1@msn.com Date: Tue, 20 Sep 2011 18:56:50 -0700 Subject: RE: Monthly Income and Expenses (P and L)

9/16/2014 8:34 AM

PLTF 28104

CenturyLink Webmail http://webmail.q.com/zimbra/h/printmessage?id=4463

1 on

Att,

I talked with Penni about the August month end P&L and Balance Sheet - the CPA Julie has been making many changes and reposting

things - so whatever is prepared for August 1s not going to l ine up with July.

Penni has a meeting scheduled with Julie on Monday, and they will talk about the August financials - Penn i's not sure if Julie will be

preparing them or if she wil l have Penni do so from QuickBooks. Regardless of who prepares them we wil l need some report to

accompany them showing the correcting entries, so that we can follow along.

Penni will get back to you and me after she meets with Julie on Monday.

Thank you so much for your help, we really appreciate you!

- Leslie

From: sam small [mailto:samesmall@hotmail.com] Sent: Monday, September 19, 2011 5:41 PM To: Penni Idol Cc: Leslie Dumpsey; Meredith Moench Subject: Monthly Income and Expenses (P and L)

Hi Penni,

Have you closed out Financial Income and Expenses Statement (P and L) for the month of Aug 2011 yet? If you have, please forward P&l to me so I can put the numbers on spreadsheet for you. Thank you.

Att

9/16/2014 8:34 AM

Plaintiffs 2083

LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB INC.

1211 Island Drive • Lummi Island, WA 98262-8684 • (360) 758-2699

MINUTES OF THE SPECIAL MEETING November 5, 2011 Subject to approval and correction at the AGM on April 14. 2012)

CALLED TO ORDER: by President Mark Sexton at 10:00 a.m.

Mark Sexton introduced the Board Members: Leslie Dempsey, Meredith Moench, Lee McCollum, Ken Swanson, Ricardo Camarillo and Mitch Nimon

STAFF PRESENT: Penni Idol

VOTING STATUS: 42 members checked in, 32 absentee ballots. Quorum

Vic Armfield made a point of order regarding whether the $19.00 per month was a fee or an assessment. Discussion followed. This point of order was tabled by a floor vote of the membership until the appropriate time in the agenda.

Mark Sexton states the board of directors has been working very hard the last 6 months to make sure they are following the will of the community and that information is being communicated to the membership. He explains the board has been on very tight campaign to save money and keep on budget. They are continuing to look for ways to shrink LISECC's expenses.

2012 BUDGET: Leslie Dempsey went over the highlights of the budget and answered questions. The board has rolled back the half dues on bound lots and that is reflected in this proposed budget. $10,000 has been budgeted for doubtful accounts for members who do not pay their dues. LISECC has hired a new attorney and are anticipating a much lower level of expenses. The board has made changes to how employees are compensated and made a reduction in employee benefits in order to reduce costs. Leslie indicated that the board did not unanimously approve the budget and there was much discussion amongst the board regarding this budget. Leslie states this is a really tight budget that results in lower dues and the incorporation of the water fee into operating expenses. It also allocates approximately $22,000 into reserves. Discussion followed.

Ola Bergsholm states he does not like this budget because it cuts the employee's salaries and benefits. Several members agreed with him. Discussion followed.

WATER READY TO SERVE FEE: Ken Swanson states the planning committee hit the ground running after the AGM, spending hours debating on their task to come up with a tiered water rate that encouraged conservation. The planning committee came up with a plan that is a work in progress that will evolve as more information is received. Several members commented that they did not feel that this tiered plan presented by the planning committee encouraged conservation. Ken encouraged these members to join a committee so they will have input. Discussion followed.

Mark states we need to address Victor Armfield's Point of Order issue from the beginning of the meeting. Mitch states the motion was as to whether the $19 per month for water is an assessment or a fee. Mark has ruled that this is not an assessment; that it is a fee for service. The members voted overwhelmingly from the floor that the $19 water charge is a fee and not an assessment.

DWSRF Loan Update: Mark states the loan is not yet closed out. We ran into substantial difficulties trying to get a CPA to do the review required by the state to close out the loan. The state has now modified their process and no longer requires a review by a CPA. We now can do our own review internally and sign off that the funds were appropriately managed to certify our own loan. Discussion followed. DWSRF Loan Repayment:

LISE Special Meeting - November 5. 2011 Minutes Recorded and Prepared by Penni Idol

Plaintiffs 2084

Plan A: Leslie Dempsey explains that our land covenants state that all members will pay for their own meters in the course of hooking up to the water system. Since the loan did cover the costs of the meters that were installed; Plan A separates out the part of the loan that paid for the meters, including the installation cost, and has the members who received those meters pay their portion out over the course 2012 using their credits from loan fees already paid to LISECC to pay towards their meters. The credits nearly cover the cost of the meters with just a small amount remaining to be paid in 2012. Members who want to hook up to the water system in the future will be required to pay for their meters just as the members who are currently connected. The ongoing loan fee is $61.35 per year. The community owns the meters and will pay for repair and replacement of the meters in the future. Drafts of the language of both of tl1e plans were presented to the state and they have indicated they both will be fine. Discussion followed.

Plan B: Louise Weber states that in both plans if members want to pay extra on their portion of the loan this will be paid to the state in the year that it is paid and not held in an account. This will effectively reduce the balance of the loan and the interest each year. Plan B has the club taking the cost of the meters because they are owned by the club as a capitol expense and will remain with the property when it is sold. Basically, that is the only difference between Plan A and Plan B. Also as part of Plan B, the board is to take a part of the reserves for water and put that just for the meter fund so in the future any meter that is hooked up or replaced is covered by the reserve. Discussion followed.

Meeting adjourned 12:05 p.m. for voting and vote counting.

USE Board of Directors' Meeting- November 5, 2011 Minutes Recorded and Prepared by Penni Idol

Page 2

Plaintiffs 2085

Yes

LUMM! ISLAND SCENIC ESTATES COMMUNITY CLUB INC.

1211 Island Drive • Lummi Island, WA 98262-8684 • (360) 758-2699

Plan A

Special Meeting

November 5, 2011

Tally Sheet

2012 Proposed Budget

No

Plan B:

Number of votes

Plaintiffs 2086

Lummi Island Scenic Estates

Acct No Income: Notes:

400 405 408

Dues for 447 lots at $496 Subtract 5 lots owned by LISE (no dues collected)

Subtotal Subtract 43 bound lots

Club Dues Water Fees (214 water connections)

410 (water loan excluded here since not a income item)

412 430 440/450 450 460 470 480

1000 1010 1020 1030 1040 1050

500 510 530 540 550 560

Penalty & Legal Fees Other Income Transfer Fees Doubtful accounts Interest Income NSF Check Charge

Total Income

Expenses:

Operations Vehicle Maintenance Maintenance-Buildings Maintenance-Marina Maintenance-Grounds/Roads Supplies

Total 1000 Operations

Utilities:

Telephone (Cell & Internet) Electricity Garbage Propane Gasoline/Diesel

Total 500 Utilities

600 Administration:

61 O Accounting/Bookkeeping Fees 620 Bank Charges 630 Homeowners Assoc Insurance 640 Legal Fees 660 *** Web DevelopmenU Hosting *** · 670 *** Postage, Mailing Service 680 *** Administrative Supplies & Serv ***

Total 600 Administration

2012 Proposed Budget

R 12012

BUDGET

221,712 (2,480)

219,232 (21 328)

197,904 48,792

1,500 550 500

(10,000) 0 0

239 246

3,000 500

3,000 1,900

600

9 000

1,750 6,000

251 3,000 2 000

13 001

4,800 400

10,000 2,500

200 1,800 2,500

22,200

Page 1 of 2

Plaintiffs 2087

Lummi Island Scenic Estates

66000 *** Payroll Expenses *** 111 030

700 Employees 710 Employee Training 500 720 Employee Ferry Fees 2,000 740 *** Payroll Taxes*** 13,500 750 Employee Travel Reimb 0 760 *** Employee Benefits / HealthCare 11,892 761 Employee Benefits/ 401k Contribution 3,606

Total 700 Employees 31 498

800 License & Taxes 810 Income Taxes 3,216 820 License 100 830 Property Taxes 2 400

Total 800 License & Taxes 5 716

900 Water 910 Treatment Plant Management 8,950 920 Reservoir Mgmt (Water Ops) 1,400 930 Storage Tanks 1,000 940 Distribution System 4,000 950 Engineering Fees 3,000 960 Chemicals 1,340 970 Water Testing 3,000 980 Permits & Fees 2 100

Total 900 Water 24 790 Sub Total Expenses 217,235

Total Expenses 217,235

Transfer to LISECC Reserve Account 22 011

239,246 Net Profit (Lossl 0

Proposal for 2012 Budget Cycle:

399 lots pay annual dues of $496

214 water users pay annual water "ready to serve" fee of $19/month ($228 annual)

Example of typical member costs per dues paying lot:

2012 Proposed Budget

Member with water connection pays

dues 496

water "ready to serve" fee 228

Member without water connection pays

water loan to be determined

724

dues 496 water "ready to serve" fee O

water loan to be determined

496

Page 2 of2

Plaintiffs 2088

DWSRF Loan Repayment/ Plan A

**All calculations based on loan balance are estimates until final close-out of DWSRF loan construction period ** Key Features:

* Water users (currently 214) pay for own water meters/ this means the total cost of water meter & installation $103,610 would be separated out of total loan balance

• All dues paying members to share equally the cost of capital improvements (non-meter portion) portion of loan $446,138.85 (549,748.85-103,610}

2010 interest paid 2,283.84 <--meters were not purchased until early 2011, so this expense should be shared by all dues paying members

total loan balance 6/28/11

total cost of meters

balance of loan

2010 interest only payment

2011 payment due on balance

549,748.85

103,610.00 /214 services

446,138.85

2,283.84 /399 dues payers

24,478.14 /399 dues payers

26,761.98

484.16 cost per water user to retire this portion of debt

5. 72 per year 2010

61.35 per year 2011 399.00 dues paying lots

LISECC RETIREMENT OF WATER METER PORTION OF DEBT IN FULL BY 12/31/2012: 2010 amount paid by water users 288.00 (5.72) =

2011 amount paid by water users 144.00 (61.35) =

282.28

82.65

364.93 <· credit balance to be applied to meter purchase

484.16 cost of meter

447 total· 5 owned by LISE· 43 bound

(364.93) water user credit balance· assumes fully paid up (2010 + 1/2 year 2011)

119.23 <-amount due to fully retire meter expense for each of 214 users

Member Payment Options: 1

2

3

Pay in full by 1/30/12

Pay in 2 installments (Jan/Jun)

Pay monthly during 2012

119.23

60.21 < includes interest@ 1%

10.04 < includes interest@ 1%

Page 1 of 2

Plaintiffs 2089

DWSRF Loan Repayment / Plan A

**All calculations based on loan balance are estimates until final close-out of DWSRF loan construction period**

"CATCH UP" PAYMENTS OF (NON-WATER USER) DUES PAYERS: 2010 amount due 5.72 2011 amount due 61.35

67.07

Member Payment Options: Pay in full by 1/30/12 67.07

!399-214 = 185

1 2 3

Pay in 2 installments (Jan/Jun) Pay monthly during 2012

33.87 < includes interest @ 1 % 5.65 < includes interest@ 1%

ALL DUES PAVING MEMBERS PAV 2012 (through loan pay-off date):

Member Payment Options: Balance in full 1,118.14 <-one-time payment (plus 'catch up' payment if applicable) 1 2 3

Annual amount due 1/30/2012 Pay monthly during 2012

61.35 <- 2013 through 2030, decreasing year by year as the interest is is based 5.11 <- on a declining principal balance.

Example: Total amount due in 2012 for typical water user:

Total amount due in 2012 for (non-water user) dues payer:

Annual Payment

proposed 2012 dues meter pay off (2012 only) 2012 annual water loan fee proposed water "ready to serve" fee

proposed 2012 dues water loan "catch-up" payment (2012 only) 2012 water loan fee

2013 dues (assuming same as 2012) 2013 water loan fee (assume same as 2013)

Page 2 of 2

496.00 119.23

61.35 228.00 904.58

496.00 67.07 61.35

624.42

496.00 61.35

557.35

Monthly Payment

41.33 9.94 5.11

19.00 75.38

41.33 5.59 5.11 52.04

$41.33 $5.11

$46.45

PLT

F 28

328

DWSRF Loan Repayment/ Plan B

**All calculations based on loan balance are estimates until final close-out of DWSRF loan construction period** Kev Features:

• All dues paying members to share equally the cost of capital improvements accomplished by DWSRF loan including meters. Meters are owned and depreciated as club assets as promised I by the Board at the 2009 AGM to entice members to vote yes on accepting the DWSRF loan. A portion of the Water Read To Serve fee (see 2012 proposed budget) will be allocated to water reserve funds to be dedicated to a water meter fund for purposes of repairing and replacing meters.

2010 interest only payment 2011 amortizing payment

2,283.84 /399 dues payers= 34,256.42 /399 dues payers= 36,540.26

Prorata payment

5.72 per year 2010 85.86 per year 2011 399.00 dues paying lots 447 total - 5 owned by LISE - 43 bound

total loan balance 10/1/11 520,814.70 (549,748.85 minus 28,934.15 principal portion of 2011 payment)

Calculation of amount previously paid by 214 lots to date:

2010 amount paid by water users 288.00 2011 amount paid by water users

Total paid through 12/31/2011

2010 prorata payment on loan 2011 prorata payment on loan

Credit Balance / applied to future payments

ALL DUES PAYING MEMBERS PAY 2012:

Member Payment Options: 1 2 3

144.00

432.00

5,72 85.86

340.42

Balance in full Annual amount due 1/30/2012 Pay monthly during 2012

2012 catch up payments for lots not previously billed:

2010 amount due 5.72 2011 amount due 85.86

total due through 12/31/2011 91.58

This catch up payment must be paid in full by the end of 2012.

2012 payment on loan

10/1/2012 34,142.30

1,305.30 <-one-time payment (plus 'catch up' payment if applicable) 85.57 <- 2013 through 2030, decreasing year by year as the interest is is based

7.13 <- on a declining principal balance.

Page 1 of 2

PLT

F 28

329

Example:

DWSRF Loan Repayment/ Plan B

**All calculations based on loan balance are estimates until final close-out of DWSRF loan construction period **

Annual Payment

Total amount due in 2012 for typical water user: Proposed 2012 dues 2012 annual water loan fee proposed 2012 water use fee

Total amount due in 2012 for (non-water user) dues payer: Proposed 2012 dues water loan "catch-up" payment (2012 only) 2012 annual water loan fee

2013 dues (assuming same as 2012) 2013 water loan fee (assume same as 2012)

Page 2 of 2

496.00 85.57

228.00 809.57

496.00 91.58 85.57

673.15

496.00 85.57

581.57

Monthly Payment

41.33 7.13

19.00 67.46

41.33 7.63 7.13

56.10

41.33 7.13

48.46

2011 comparison dues 545.08 loan water

288.00 300.00

1,133.08

2011 comparison dues 545.08

Plaintiffs 2090

LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB INC.

1211 Island Drive • Lummi Island, WA 98262-8684 • (360) 758-2699

MINUTES OF THE BOARD OF DIRECTORS' MEETING December 4, 2011

CALLED TO ORDER: by President Mark Sexton at 9:36 a.m.

PRESENT: Lee McCollum, Mark Sexton, Meredith Moench, Mitch Nimon, Leslie Dempsey

EXCUSED: Ken Swanson, Ricardo Camarillo

STAFF PRESENT: John Graham & Penni Idol

VOTING STATUS: All board members present are in good standing. Quorum

Approval oft0/2/2011 Minutes: Lee moved to approve the October 2, 2011 Minutes. The motion was seconded by Meredith. Discussion followed. Mitch requests to have his meeting notes attached to October 2nd meeting minutes. Meredith makes a motion to table Mitch's request to have his notes added to the October 2nd Minutes and to reconsider it at today's meeting as part of his committee report. Leslie seconded Meredith's motion to table. The motion to table was approved Lee, Meredith & Leslie while Mitch voted against. The motion to table passes. The motion to approve the minutes was approved by Lee, Meredith and Leslie while Mitch voted against approving the minutes. The motion to approve the October 2nd minutes passes.

COMMUNICATIONS: An email was received from Kevin Wolfe expressing concern about number water hook-ups, Jim Dickenson's visit to the October 2nd board meeting and dogs running loose in LISECC. Mark states he will compose a letter to Mr. Wolfe. Three letters were received from Joy Krell concerning bound lot issues and receiving board meeting minutes and other LISECC information. A letter was received from John & Charlotte Morganti concerning proposed plan for water charges and repayment of water loan. An email was received from Karen McFadden regarding water usage rates. A letter was received from Jerry & Rebecca McRorie concerning binding their lots. The McRorie letter was forwarded to the Administration Committee to address the application for dues relief.

COMMITTEE REPORTS:

ADMINISTRATION - Meredith Moench states policy Statement #7 needs to be updated and requests that Mitch and Louise forward their notes from the finance committee meeting to her so the Administration Committee can work on the update. December 16 is the deadline for members to submit by-law changes to the Administration Committee to be presented at the AGM. Submissions do not need to be completely polished; the administration committee will review them and help the member to formalize them.

FINANCE REPORT - Leslie Dempsey states the P&L is not correctly reflecting the DWSRF loan; it is showing as an expense but should not be reflected in this way on the P&L. Mitch is concerned about members still continuing to pay the water and loan fees. Leslie states these overpayments by members are reflecting as a credit on those individual accounts and will be used to cover water and loan charges in 2012. Mark requests that a column with the percent of budget used be added back to the P&L report. Leslie states that when the CD at the Bank of the Pacific matured it was cashed in and a savings account was opened at Key Bank to hold these funds.

Leslie made a motion for the board to agree to transfer from reserves the appropriate portion of funds to cover the bound lot refunds for 2009 and 2010. The motion was seconded by Meredith. The motion passed unanimously. Meredith proposed a motion to amend this motion so as to state these funds are coming from unallocated reserves. The motion was seconded by Leslie and was unanimously approved.

Leslie made a motion for the board to approve the resolution presented regarding the DWSRF loan and water "ready to serve" (Resolution is attached). The motion was seconded by Lee. Discussion followed.

LISE Board of Directors' Meeting- December 4,201 l Minutes Recorded and Prepared by Penni Idol

Plaintiffs 2091

Mitch is concerned that the terminology "water ready to serve" will incur taxes whereas the flat rate was not taxable. Meredith states she talked to the Department of Revenue and did some other research and she found that it didn't really matter what terminology was used that anything that was used to produce water would likely be taxable. Mitch does not feel like he has enough information to make an educated vote on this. In favor of the resolution was Lee, Meredith & Leslie while Mitch was opposing. The motion passes.

Operations petty cash drawer - Leslie questions whether LISECC needs a cash drawer and asks for discussion. Discussion followed. Leslie stated that she, Mitch and Louise would come up with a policy for petty cash and present it to the board at the next meeting.

Checks have been ordered for the KeyBank dues account and Leslie states that there needs to be a policy in place for who signs checks and how many signatures are needed. Louise, Mitch and Leslie will work on a check writing policy and present it at the next board meeting.

Identify reserves and uses -Julie (CPA) is looking for more specific feed back from the board for specific allocations. Discussion followed. Mark expresses that he would like more information about this and how to do the research. Leslie suggested possible contacting one of the members who is an accountant for help with this and asked Lee to contact this member about possibly providing the Board information about how to proceed with this research.

Mitch discusses 900 section of the 2012 Budget Gohn's wish list). Mark states a listed budget should be put together for a special assessment in April, specifically for the engineering costs. Mitch proposes that he, Mark, Lee and John sit down and put together their lists together and have it ready for the next board meeting. Mitch asks that as John buys parts for projects or for inventory that he write on the invoice what project it is for or if it is going into inventory. Mark is looking for suggestions how this information can be retained long term.

OPERATIONS - Lee McCollum is concerned about in John's the unaccounted for water of 102,740 gallons. John explains this is less than 3 gallons per minute loss and that this is a pretty tight system. Mitch asks John for consistency in the data that he puts in his report and for some clarification of the information provided in his report.

PLANNNING - Ken Swanson - not present

WATER- Mitch Nimon submitted a copy of the water committee minutes from November 8 (attached). Several motion were made during this meeting including a motion to include the 2003 Capalini report, the 2011 observation reports of the sanitary survey by Meredith and John Weber in the clubs records. Mitch states he will put together a packet for board members including all the reports he has collected in chronological order. Mark recommends that Mitch and the water committee put together a water chair notebook of all these reports that Mitch has been collecting that includes a check list of the duties that need to be performed by the personnel and the frequency. This notebook could then be passed from one water chair to another so each new water chair has the information they need and does not have to start from scratch.

After this board meeting the clubhouse will be winterized to cut expenses. According the bylaws the clubhouse is only available December 1 through March 1 upon approval by the directors.

Mitch states the water committee is recommending to modify the like overflow assembly by place all 3 boards in to restrict the outflow. Mark states placing all 3 boards in during the winter can cause a safety hazard. In the event of a heavy rain or snow, the lake level can rise quickly and a portion of the dam could easily be lost as a result of water overflow. Discussion followed The board determined to continue with the current practice of the operations department to put the board in during the summer to raise the level of the lake for the sununer months.

Mitch states the water committee is requesting a monthly audit of operations. Discussion followed as to who would be responsible to providing a monthly report of the operations actions. Lee explains that this is not in

LISE Board of Directors' Meeting - December 4, 2011 Minutes Recorded and Prepared by Penni Idol

Page2

Plaintiffs 2092

place yet, but will hopefully be within the year and a check list will be set up to evaluate the operations department's actions on a monthly basis.

COMMUNICATIONS - Ricardo Camarillo - not present - Leslie addressed the fact the LISECC website was hacked last week, however Leslie states that there is no longer any critical information on the website since the billing system has been removed. Paul Dempsey made some changes to tighten up the security.

QUARRY - Meredith Moench states the Lummi Island Conservancy has appealed the initial environment review for the expansion request based on the county coming back with a determination that there are no significant environmental impacts. The Lummi Island Conservancy does not agree with this determination and has appealed. The hearing will be January 11th•

Meredith moves that the board submit a letter supporting the Lummi Island Conservancy's appeal of the county's determination of non-significance on the SEPA for the :MRL expansion request from Lummi Rock. Motion was seconded by Lee. Discussion followed. Meredith will email to the board a copy of the appeal for their review. Meredith will draft the letter and circulate that to the board also. The motion passes unanimously subject to review of the appeal document and the draft letter.

Meredith explains the owners of the Quarry were issued 4 violations last September regarding excavation outside of their boundaries. The owners of the quarry were told to stop all surface mining activity along the road next to government lot 2 and they were ordered to reclaim and restore all disturbance. The quarry appealed this and the appeal was supposed to be heard in October, but they withdrew their appeal and because of this they had 45 days to comply with the order which they have not done. Leslie contacted Doug Goldthorp, the county geologist issued the violation, and he asked for LISECC support in keeping the pressure on this process. Leslie asked that the board submit a complaint regarding the non-action of Lummi Rock to complete the reclaim and restore order. Mark stated he would like to talk to Dave Grainger to hear bis side of it prior to filing a complaint. He will then report back to the board and they will then determine if they will then file a complaint.

UNFINISHED BUSINESS: Leslie states that water disconnection and lien notices are being sent out to members who are 90 days past delinquent. If there is no response from those members, then action will be taken to turn of water and file liens. Mitch requests current contact information and balances for these members so he make courtesy calls to them regarding their past due amounts.

Water billing frequency was discussed and it was decided that more information was needed.

NEW BUSINESS: Mitch is concerned about club record keeping and offsite backup. The board decides to contact Paul Dempsey to help with setting up a system to backup the data in John's computer.

Next Board Meeting: January 15, 2011

Mitch made a motion for executive session for discussion of employee and personnel committee reports.

Meeting Adjourned: 1:06 p.m.

EXECUTIVE SESSION: During executive session the board approved the personnel committee reports regarding 2011 employee evaluations and new job descriptions. The board also decided on an action plan to address a personnel issue.

LISE Board of Directors' Meeting- December 4, 2011

Minutes Recorded and Prepared by Penni Idol

Page3

Plaintiffs 2093

1

LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB, INC.

Resolution Article 5.4.2.8

WHEREAS, the Lummi Island Scenic Estates Community Club, Inc. (the "Association"), as a result of a vote of the Membership at a Special Meeting held on November 5, 2011, has determined that the Drinking Water State Revolving Fund (DWSRF) loan shall be repaid by all dues-paying members LISECC;

WHEREAS, the Association completed the DWRSF Loan scope of work at a lower cost than projected, and the resulting outstanding loan principal balance as of November 5, 2011 is $520,814.70;

WHEREAS, the member payment terminology used in the prior Resolution Article 5.4.2.8 has created confusion as to the intent and usage of monies collected;

WHEREAS, fees need to be set at an amount adequate to provide for such loan repayment until the end of the repayment period stated in the DWSRF loan contract between LISECC and the Washington State Department of Commerce, Trade and Development (CTED);

NOW, THEREFORE, BE IT HEREBY RESOLVED:

An annual Water Loan repayment fee shall be assessed for all LISECC dues paying members, on a prorata basis, in an amount sufficient to pay the annual DWSRF loan fee effective January, 2012 through December 2028. The annual water loan repayment fee shall be deposited to the dedicated account for loan repayment per Section 1.10. Dedicated Account for Loan Repayment of the Contract. A monthly Water Ready to Serve Fee will be assessed for all LISECC members with a water connection. This will be a base rate with a tiered increase based on volume to motivate conservation. This fee is for operations to produce water, not for loan repayment.

ADOPTED by the Board of Directors of the Lum mi Island Scenic Estates Community Club, Inc. at a board meeting held on Noveffibcr 20, 2011, the following Directors being present and voting. �c-e�b-ev �

By:��� By: �� s;; By:

�� /4: /Jt/ ,f ,._a_t:41 /\ By:-1---........4--"-=----

;; �-

By: ____________ _

By: ____________ _

By: __________ _

PLTF 17970

December 26, 20 I I

,. : '

Charles E. ·Ortego . , Anna Ponomareva 3051 Hales Passage Drive Lum.mi Island WA 98262

.. ; .

.• •'

, .

(360) 758-9932· chucbirtego@gmail.com ... ,'

,,

RE: Yon should.know!• LISECC has NO law[uhntbority.to assess .or collect,dues!

Dear Fellow LISECC Members: �' •• � .• ' 0 J • I f . : : •,, .

Before you pay your 2012 dues, you·should. be ,aware that LISECC fla&,no legal authority tp. cplleci those dues. Thi� entire yearl have waited for. the current LISECC boU"d·t�admit to the ppm,nunity thjlt qsECC received legal advice from� co.rpo,rate attorney that, as stated in the covenants,.all le.gal�utb.ority to impose_an�.coll� du�s terminated in ·1986 (25 years after its fotmati'o�). :The course of !Jdion sugges�<J·by,LlSECC's attorney was .to

liguida� LlS . .ECC's assets, arid either s.ell_the wa_��ys.te.Dl to,..llf!J�>r�g!,!lated�wmpao)' Qr,.aea�l\.)Vater �-�-� association, and then tcYdistnlmte the.proceeds·together with USECC's reserves to the.members ofLI�_ECC, and close USECC. You will find the relevant.portions e�rpted from the le�.from.L.ISECC's leg;u counsel (to,

L1SECC) attached, as well as excerpts.from a·privatel:y-funded second epinion (sorry, the QtiginalJettets �e long and it would have been very costly to send copies of both letters in their entirety).

USECC is currentl:y.:fuced with a court0action by.a (multi-lot) membe1;/pwn1,.r whq has.not:J:>een paying $Jes. Their legal brief argues that· LlSECC' s covenants granted only a 25-year charter to fo.on a .management company caJl�d Lummi Island HQ].ding, 'Inc, {LIH). Lili w.as .given the right to assess and colle<j: dues in-�cordanc� with its bylaws. However, the charter provides no mechanism for transferring eights tQ any othe,r company, iie. LlSECC, Qr renewing the management rights beyond the ·25 .years. , In fact, t:r.msfer or. extension of the �uthority :was explicitly forbidden. ·" .. ' l r '., • ',, ··:

Nonetheless after LIH's bankruptcy, Lummi Island Scenic Estates Commwiity Club, lnc. {LISECC) was. incorporated and assumed the rights to assess and collect dues in violation of the covenants. Legally the authority to assess and collect,dues died at the time·bfLJH's bankruptcy. However LISECC has cQntiQ.l\e<J to assess-�d collect . dues. Even should there have been any legal support for the formation,ofLISECC:and tile transfer o,: authority, all authority to assess and collect dues.;e.Xpired in ,1986, :25· years after the covenants were filed.

:•·

lfyou check your deed, or check.the Plat Map for S-cenic Estates, you will find the origjnal.1961 recorded covenaJ}ts and restrictions . .You,willraJso find these covenantsidn USECC's :web sue under Section 2-ofthe byl_aws. You.cl,lll.. also note-thatnari:Je•ofLIH was changed to.L1SECC, wttich v.iolates,the actual cov.e�ts-attached with yot!f deed. . In spite of the unlawful transfer of authority from ,LIH .to USECC, all legal authority pf a managell;l.ent organization to assess and collect dues still expired in 1986. Quite simply, after 25 years the primary justification for a homeowner' s assbeiation ("clubbing" togetheti to �y ifor the creation· of community imp.r::<;>YemeDp, such as st:reeU! and the water system) simply no longer,existed., . . . ,

i ' I , . •, +'it:

If in 1986 the com,;nunity wished to establish a new homeowner's association, it would have taken a unanimous yote on the part of owners to maintain such authority: However;-.the authorizy originally. granted LIH was non-renewable and non-transferable. When these facts were presented in court, LlSECC/s own attorney agreed that LTSECC had no legal authority. At that time, the LISECC board discussed the liquidation ofLISECC.

,, • I•

The primary-concern ,of cours-e is water. There are two possible altematives, Om;: is to selHhe water plant and distribution system to a private,water operator;. wh0 would charge those households ustng w�r a rate.for-water usage approved by the PUC. Before,somoone panics, l ·w&uld ·emphasize that the PUC regulates such rates, jllld would allow for a stipulated return on investment LISECC water users would most likely pay rates similar to those in Bellingham, since current LISECC rates are greatly subsidized by dues payments. A board member previously contacted a company in Washington State which owns and operates numerous small water systems that was willing to consider the purchase ofLISECC's water system.

PLTF 17971

The second option would be to form a water association, wherein those residents who used water would receive a stock ownership interest in the water association, and, with it, the right to have water service. It's important to note, those who do not use water would not pay for water. Those who do not use water would no longer be saddled with the onerous burden of paying any dues to anyone. They'd merely pay their property taxes annually to Whatcom County.

As you all know, I am no longer on LISECC's Board. Nonetheless� regardless of who is or is not on LISECC's Boatd, there exists a legal, fiduciary obligation for the board to infonn the community regarding critical issues such as the present lawsuit, which challenges USECC's legal authorit y to'as.sess and collect dues. The community is legally entitled to know that its members have refused to pay dues until such authority is resolved in a court of law. When I left the board, I was promised that this would occur.

In reality however, rather than addressing these legal issues and informing the community of these critical issues, it was easier to fire LISECC's legal,counsel (talk about "shooting the messenger''). Inasmuch as LISECC's expert leglll advice was simply ignored, tlie legal case remains pending. LISECC is reduced to simply hoping it goes away,· whlle the member continues to refuse to pay dues to LISECC. Ultimately USECC will be faced with a summary judgment the next time it attempb to file a lien on members for non-payment of dues. In the meanwhile, however, LISECC is powerless·to c'olll�c ·over $30,000 in past dues. In Anderson v. Lake ArroWff!ad Civic Association (1997) a homeowner's association, like LISECC, continuing levying and .collecting dues after its charter had expired. The court ruled that a·homeowner•s association cannot continue assessing and collecting dues beyond the expiration ofits authority.

Nonetheless, LISECC continues to unlawfully, and without authority, assess and collect dues ... because the presumption is that the general community does not know that as revealed in the law suit, that USECC's authority to assess and collect dues expired in 1986. Thtre"'-as a letter found, written by a past LISECC board president, stating LISECC intended to continue assessing and collecting dues even though their authority to do so had expired. That letter was recorded in 1986, and it has been suggested that this letter gives authority to assess and collect dues. It does NOT. LISECC cannot contravene its covenants, which limited LIH's authority to 25 years, and gives no option for renewal, Even LISECC's bylaws explicitly state that no one has the authority to change those covenants; not a board, not its President.

There's a belief within LISECC that doing what is popular, or what is believed by some to be majority opinion, substitutes for diligence in ensuring LISECC's acts·are lawful. In blatant disregard of. Washington State case law, LISECC is giving 100% dues relief to owners with bound lots. In Fawn Lake v, ·Abers (2009), the Washington State Appellate Court ruled quite explicitly that in Washington, the law of the land was ''one lot, one dues". This decision involved a homeowner's association very much like LISECC, in which a homeownet argued that their bound adjoining lots entitled them to pay only one set of dues, not two. The court ruled ,against bound lot dues relief, stating that it was unlawful and inequitable, as it imposed upon aU of the other property owners the obligation to pay higher dues as a result of the discount given the member with bound lots.

�un ·rutingwas ·q·tlite explicit·, andttSECCh�n-gi��ons severa1 ,timesxliat granting dues relief to members for bound lots is unlawful. Despite this warning, the practice is continued. I've heard it said that LISECC's discounts are "grandfathered in". No such legal exemption exists. Board members have a fiduciary responsibility to ensure that LISECC's acts are lawful. Just repeating an unqualified and incorrect opinion about "grandfathering" is not due diligence. Grandfathering is fiction. The same argument was used in Fawn Lake v. Abers and the court held it to be an invalid argument.

Despite warnings from a number of legal sources, l 00% dues discounts for botmd lots were unlawfully and inequitably restored. It should be a cause for concern that every 'single board member except one owns bound lots and benefits from the unlawful dues waiver.· the fact that those.board members abstained from voting to approve the unlawful dues waiver (it passed l-0) does NOT make that decision equitable or Jawful!

PLTF 17972

Last, you should be aware that between 70% and 90% of the dues collected by LISECC go to pay for the operation of the water system. For those ofus who use water, it's a wonderful subsidy by the half ofLISECC's membership that does NOT have water. It means that water users (including myself) are paying less than HALF of what they should pay, because the dues paid by LISECC members who have no water see most of their dues go toward subsidizing water bills. With an independent water system, those who use water would pay for water. Non water users would pay nothing at all, and those who do NOT use water would no longer pay for someone else's water.

The board of which 1 was a member introduced new water fees which began shifting a higher proportion of the cost of the water system away from those who do not use water, onto those who do use water, as it should be, as is lawful and equitable. Unfortunately LISECC has a culture of ignoring what's lawful and what's equitable in its governing considerations. Rather, we respond to those who scream the loudest, who are most obnoxious, who are most intimidating. The focus becomes doing what is most "popular" with that loud minority, and not on what is lawful or equitable for the "silent majority''.

Thus it should come as no surprise that the 20 12 water usage fee for LISECC water users is only $ 19 a month, shifting_ th.e_ burden of paying for water back onto those who have.no watei:. What a gift to LlSECC' s water \ISers ! Again, it should be very worrisome that the first to benefit from this largesse are the very same people who determined the policy, all of whom have water connections. Non-water uses are saddled the burden of subsidizing an increased proportion of everyone else's water bills. In the effort to placate and remain popular with the community's "rabble rousers", not only have we granted unlawful 100% dues waivers for bound lot holders, but have also unlawfully and inequitably burdened non-water users with even a higher proportion of the cost of providing water to full-time residents ofLISECC. The fact that these inequitable and unlawful decisions are made by those who are first to benefit from them is a strong argument against having a homeowners association.

LISECC is headed toward a financial disaster that will cost ALL of us a lot of money. The sooner we ''pull the plug" on this illegal organization, and the unlawful imposition of inequitable dues and fees, the better off all ofus will be. I'm writing you because contrary to promises made to me when I left the board have not been kept The legal fiduciary responsibilities to inform the community of these critical legal issues have not been met. I'm informed by legal counsel that even as a past board member, I could potentially be found liable for withholding such information from the community. I too had a fiduciary duty to inform the community, and to make sure that LISECC's actions were lawful and equitable. In fact, LISECC's actions were not, and are not, either lawful or equitable.

LISECC lacks lawful authority to levy or collect dues. LISECC's practice of granting discounts to members with bound lots is both inequitable and unlawful. LISECC's water/dues fees structure is forcing dues-paying members to subsidize the cost for those who have water, also inequitable and unlawful. What's worse is that we have knowledge that these policies are unlawful and inequitable, but we continue so doing, making the actions deliberately so, not merely unintentionally so. I am discharging my fiduciary responsibility to inform you, LISECC has no legal authority to collect dues, and its methods of assessing and waiving dues also discriminate against part­time residents, smaller property owners, and those without water service. The fact that these dues waivers and subsidized water fees principally benefit the same small minority who set these policies (and their families and friends), should also raise red flags as to why such unlawful and inequitable policies continue.

We need to force the issue. There's simply no justification for LISECC, and no justification for you and I to continue paying to support these unlawful inequities. LISECC does nothing for us, EXCEPT to provide water. So first, let's either sell the water system to a private water company, or form a water association in which the people who actually use the water have ownership and pay for the water they use. Otherwise the vocal minority who are full-time residents will continue forcing small and part-time property owners to subsidize them with dues waivers and water subsidies. Ultimately LISECC will be sued for its inequitable and unlawful practices. You and I will have to pay for the cost of defending and settling those suits. It's better to resolve this now, rather than waiting for more suits to be filed. It's clear that we cannot win the single lawsuit now pending. Let's not wait until there are a dozen lawsuits pending. Let's close down LISECC now before the situation gets out of control.

PLTF 17973

Second, LISECC can sell the clubhouse/marina that most do not use. The club house is clearly intended for everyone ' s benefit, whether everyone uses it or not. However the marina is by definition only for the benefit of those with boats, and simply an albatross for everyone else. Someone will buy the marina, and of course, they ' ll charge fees for launching and/or storing boats. But those who want a marina should pay for it. And there's every possibility that it might be properly developed. Perhaps those who want a marina and are motivated by a common interest boat ownership could form an membership association to purchase and operate the marina properly and fund it adequately. However, most members neither want to pay for or have any need for a marina and clubhouse. Under LISECC ' s neglect, the club house and marina will continue to languish and deteriorate since LISECC has no reserves of any significance to deal with renovating the property - and absolutely no consensus or ability to raise the necessary funds. Let's sell it now before a costly major renovation becomes imperative.

After the bills are paid and the assets sold, a payout would be made to each property owner on some equitable (court-determined) basis. A new organization would manage the water system. Those who have water will have to pay what it costs to provide that water. No one will be paying dues or subsidizing water users. Those who have no water connection will simply pay their county taxes. The marina and clubhouse will be sold to a private or commercial interest. The swim and cabana facilities up at the lake would fall under the authority of the water management company. Most important, the unlawful, unnecessary, and expensive burden ofLISECC will be gone.

What's most important to understand is that we have no other choice. The next time that LISECC files a lien for non-payment of dues, a judge is going to rule that LISECC has no legal authority to assess or collect dues. It does not matter whether we want it to happen or not, it will happen. LISECC will be forced to liquidate, with a court­appointed trustee overseeing the liquidation and the payment of the high legal fees associated with a forced liquidation and the resulting settlement(s). We need to avoid expensive litigation which will reduce the payout to the community.

Join me in NOT paying your 2012 dues. I am paying for my water. Whether LISECC has the legal authority to charge me for water or not (and they do not), I still believe I have a moral obligation to pay my water bill, as I am using water. But LISECC has no legal or moral authority to charge dues. I'm not paying. Neither should you. If enough people do NOT pay their 2012 dues, perhaps the message will get through and the expert legal advice we have already received will be heeded. LISECC should voluntarily go to court, explain our predicament to a Judge, have a trustee appointed by the court, and liquidate LISECC in an orderly manner. This will minimize legal costs, avoid legal settlements forced by losing court cases, and maximize the distribution of proceeds to LISECC membership. It will also transfer ownership of the water system and marina/clubhouse so as to minimize costs and maximize sale proceeds to benefit the members.

Alternatively a class-action suit could be filed against LISECC. LISECC will ultimately have to pay legal expenses to defend against the suit, and will have to pay the prevailing party's legal fees as well. We 're hoping that this is not necessary, as it is senseless and will cost us aJJ. For now, let's NOT pay our 2012 dues assessments and ask that we meet the fiduciary responsibility to ensure that LISECC's actions are lawful. Let's do what 's right. Let's liquidate LISECC while we can "Sti J I �do-so of our own volition and avoid settlements and legal.fees arising out of multiple law suits.

Respectfully,

Charles E. Ortego ("Chuck'') Ex-Board Member, LISECC

P.S. You are welcome to write me at cbuck.ortego@gmail .com or telephone me at (360) 758-9932. However please spare me from pointless arguments or nuisance calls. However strongly I believe that everyone has a right to be informed about these issues, I have no desire to debate these facts either. They're simply the facts of the matter. As is likely the case with you, I have my work and a family to attend to, and I have limited time to spend elsewhere.

PLTF 17974

•

A D E LST E I N , S H A R P E & S E R K A L L P • , T T O R � E \' S , T L .\ W •

March 28, 201 1

Re: Lummi Island Scenic Estates

STEVEN P ADELSTEIN

PHILIP E SHARPE. JR

PHILIP A SERKA

JEFFREY P FAIRCHILD

MITCHELL G FABER

MARIE N GALLAGHER

IVAN M STQl'IEfl

I t is my understanding the plat of Lummi Island Scenic Estates was formed in 1 96 1 . The dedication and covenants state that "the restrictions shall be in effect for 25 years from the date of recording of the Plat." ( 1 986)

Article 2. 1 .2 list the restrictions. One of the restrictions states that "ownership in any lot carries the ownership of one membership in said corporation." (referring to Lummi Island Holding, I nc.)

Section 2 . 1 .2.8 - This section also states that ownership in the reserve areas and secondary tidelands are to be owned by the community club.

Apparently, the Lum mi Island Scenic Estates is the name of the non-profit association not Lummi Island Holding Inc. For purposes of this memo, it is my understanding that various common properties established through the recording of the plat have been dedicated or conveyed to the Lummi Is land Scenic Estates Community Club.

The Articles of Incorporation for the Lummi Island Scenic Estates Community Club (established in 1 962) states that the purpose of the club includes maintaining roads, enforcing liens, assessing properties, and owning common area properties. The articles state that membership in the Lummi Island Scenic Estates Community Club are appurtenant to lots owned within the plat. This conforms with the restrictions. Furthermore, the bylaws define a member as being a lot owner in the plat. The original bylaws were adopted in 1 970 and have been revised a number of times thereafter. The Association attorney has advised that conditions in Restrictive Covenants that terminate the covenants upon a specific date are enforceable and can operate to invalidate Restrictive Covenants. If invalidated, there would be no authority to impose annual dues. I have been able to confirm that there is a strongly likelihood that the Restrictive Covenants have terminated by the very terms of the covenant.

Anderson v. Lake Arrowhead Civic Association states that sunset clauses that terminate Restrictive Covenants within a declaration are enforceable, meaning that the covenants no longer exist as of the termination date.

R£t L tS<:<:C 7 � . \ Arguably, the right to be a member of the Association terminated in 1 986. Thus, it could be argued that the owners of lots before 1 986 may be the only members of the Association. the Superior Court the f II t r .

2} RCW 24.06.300 does grant the dissolution of the co�p!�;:�.

o ,qu1date a non-profit Association's assets and provide for

� Thus, under the circumstances, a member could raise, in respect to the Lummi Island Scenic Estates Association ( 1 ) the actions of the directors or those in control of the corporation are illegal, oppressive or fraudulent or (2) the corporation is unable to carry out its purposes. The argument would be that the covenants have expired and because the covenants have expired, the Association has no authority to carry on its business.

the authority to assess generally come from the corporation's '9authority to exi�t pursuant to the covenants. If the covenants are terminated, then it may not

�ave the authority to assess. � -·-- · .

�-.--, -+l'r/1

Philin A

PLTF 17975

C H M E L I K S I T K I N & D A V I S P ,

March 9, 201 1

Argument Regarding Validity of Plat Restrictions

Yesterday you had a conversation with Seth Woolson regarding �rgument that the plat restrictions requiring owners of property in Lummi Island Scenic Estates to comply with the LISECC bylaws expired 25 years after Division 1 0 was platted, i.e. in or about 1 990. -raised this argument for the first time as part of its responsive pleading to our summary Judgment motion.

We conducted title research in hopes of finding a recorded document which extends the 25 year plat restriction expiration. Unfortunately we have not located any recorded document with that effect. Not finding any recorded documents extending the plat restrictions, we began researching case law on this issue. Washington case law appears to be silent on the effect of a plat restriction's automatic termination provision in a community association similar to L ISE. We were able to locate some case law from out of state jurisdictions which, while not binding, could influence a Washington court addressing this issue.

The primary case we have located on this issue is Anderson v. Lake Arrowhead Civic Association, Inc. , 253 Va. 264 ( 1 997) ("Anderson"). The Anderson plat subjected the homes to restrictive covenants which expired in 1 970 unless extended by 2/3 of the homeowners. The Lake Arrowhead Civic Association ("LACA ") charged homeowners approximately $100 in annual dues and assessments since at least 1 986. When LACA attempted to foreclose on property owners who refused to pay their dues and assessments in 1992 a lawsuit arose. The court found that the required 2/3 of property owners failed to renew the covenants in 1 970, and therefore had no authority to impose the $1 00 annual dues.

In the event this issue is litigated, whether in this lawsuit or another action, it could have widespread and pervasive negative impacts on LISE. This issue was recently raised, and therefore we have not �ad time to fully analyze the potential impacts. That said, the following is a small sample of potential rssues that could stem from a judicial determination that the plat restrictions are no longer in effect:

• The LISECC would lose authority to impose annual dues and assessments to cover its operating expenses;

• LISECC could potentially become insolvent and lose its abil ity to maintain the common facilities, provide water, maintain roads, etc. ;

• Property owners could seek refunds of dues and assessments paid to LISECC over the last three (3) to potentially six (6) years; and

• Votes taken by L ISECC members could be invalidated.

Given th� �idespread .and seri<:>us implications of LILCO's argument we deemed it prudent to advise you of this issue, and its potential effects, as soon as possible. Please contact us at your convenience to d iscuss this matter.

CHMELIK SITKIN & DAVIS P.S.

Charles E. Ortego3051 Hales Passage Drive, Lummi Island WA 98262 chuck@ancientgifts.com (360) 758-9932 .

April 22, 2011

Lummi Island Scenic Estates Community Club, Inc. 1211 Island DriveLummi Island WA 98262-8684

To: Penni Idol, Secretary Board of Directors

As you may know, it recently came to my attention that the charter granted to Lummi Island Scenic Estates Community Holdings, Inc. subsequently transferred to Lummi Island Scenic Estates Community Club, Inc., was for the limited duration of 25 years, and there were no provisions for renewal. This is duly recorded in the relevant plat map for LISECC, as well as in our bylaw (as posted to LISECC’s web site).

Recently I was informed that one or members of the board researching the issue came across document(s) which indicated that the charter granted to LISER/or LISECC had been renewed.

As a member of LISECC, I would ask that you provide me with a copy of any such document(s). I believe that such a request would fall within the rights of a member. I would also suggest that it might be a wise idea to post any such documentation to the LISECC web site, as the bylaws of LISECC as they are now found on the web site, clearly state that LISECC’s charter expired after 25 years.

Kind Regards

Charles E. Ortego

PLTF 14771

----- Original Message ----- From: Chuck Ortego To: LISECC Sent: Tuesday, May 03, 2011 11:47 AMSubject: Fw: Renewal of Charter

Penni,

Would you be so kind as to acknowledge receipt of the letter which I sent to LISECC via both email and first class mail, and let me know when I may expect a response and the documents I requested?

Kind Regards

Chuck Ortego

.----- Original Message ----- From: Chuck Ortego To: LISECC Sent: Friday, April 22, 2011 2:25 AMSubject: Renewal of Charter

[Attachment 2011_04_22 Ortego Letter to LISECC Plat Limitations Records Request]

PLTF 14774

Charles E. Ortego3051 Hales Passage Drive, Lummi Island WA 98262 chuck@ancientgifts.com (360) 758-9932 .

May 10, 2011

Lummi Island Scenic Estates Community Club, Inc. 1211 Island DriveLummi Island WA 98262-8684

To: Penni Idol, Secretary Board of Directors

This is my third request for information I should not have had to ask for more than once. There is serious doubt as to whether LISECC has the legal authority to levy dues, as all indications are that LISECC’s charter, which was neither renewable or transferable, expired in 1990. I enclose a copy of a letter from LISECC’s legal counsel so stating. For the last time, I am asking for copies of the alleged documentation you claim to possess which extended LISECC’s charter, as there are no known documents of public record.

Kind Regards

Charles E. Ortego

PLTF 14775

PLTF 14776

2..olf_DS-,D

Charles E. Ortego 3051 Hales Passage Drive, Lummi lsland WA 98262 chuck@ancientgifts.com (360) 758-9932

May 10. 2011

Lummi Island Scenic Estates Community Club, Inc. 1211 Island Drive Lummi Island WA 98262-8684

To: Penni Idol, Secretary Board of Directors

rhis is my third request for information I should not have had to ask for more than once. There is serious doubt as to whether LISECC has the legal authority to levy dues, as all indications are that LISECC's charter. which was neither renewable or transferable, expired in 1990. I enclose a copy of a letter from LISECC's legal counsel so stating. For the last time, I am asking for copies of tht.: alleged documentation you clrum to possess which extended LJSECC's charter, as there are no knmvn documents of public record.

Kind Regards

Charles E. Ortego

'

SENDER: COMPLETE THIS SECTION

• Complete items 1, 2, and 3. Also complete item 4 if Restricted Delivery is desired.

• Print your name and address on the reverse so that we can return the card to you.

• Attach this card to the back of the mailpiece, or on the front if space permits.

1. Article Addressed to:

COMPLETE THIS SECTION ON DELIVERY

0Agent D Addressee

D. Is delivery address different from item 1? If YES, enter delivery address below:

3. Service Type D �rtifledMall IYAeglstered D Insured Mall

D Express Mall D Return Receipt for Merchandise DC.O.D.

4. Restricted Delivery? (Extra Fee) D Yes

RE 438 279 625 US

PLTF 34968

December 7, 2011

Charles E. Ortego Anna Ponomareva COKD Trust 3051 Hales Passage Drive Lummi Island WA 98262

RE: Alleged Dues Delinquency Lots #40059, #40063, #40065

Dear Mark and LISECC Board Members:

RECEIVED

DEC 14 2011

BY:

I'm surprised that you have not yet addressed the issue of LISECC's legal status and the fact that for decades now LlSECC has lacked the authority to assess and collect dues. In LISECC v. LILCO, the respondent's attorney brought up the fact that LISE, Inc. was given a 25 year charter to assess and collect dues. There is no stipulation for the extension of this 25-year limit. The illegal change of the last covenant, as posted in section 2 of LISE's bylaws, has changed the legal entity from LISE Holding, Inc. to LISECC. There is no legal way that this change could have been made, since the covenants fail to provide and mechanism for change of the covenants.

The charter was, therefore, unlawfully transferred from LISE Holding, Inc. to LISECC which negates LISECC's authority to levy dues. Even if LISE Holding, Inc. had continued, the 25 year charter expired in 1986. In LISECC v. LILCO, the counter suit argues that LISECC lacks the authority to assess dues. LISECC's attorney concurred with LILCO's argument, providing case law to support the respondent's position, and suggested that LISECC's best route was to declare bankruptcy, liquidate, and distribute the liquidated assets amongst LISECC property owners.

The prior board had discussed this recommendation. It had identified a prospective purchaser of the water system to ensure that LISECC property owners continued receiving water. The prior board recognized the fiduciary as well as a personal responsibility to present such significant and material findings to the community. In fact, it is clear that the current board remains aware of these issues, even though the board's strategy is to hide or ignore these critical facts.

Even though this board produced a memorandum written by a previous board president ("Wally Croy") indicating that contrary to LISE's 25 year limitation, LISECC was established to continue levying dues as recorded by the Whatcom County Recorder. The current board referenced this document as its legal authority to continue levying dues. However, until the LILCO challenge to this authority is resolved, the board cannot justify its legal right to continue running LISECC.

Unfortunately burying one's head in the sand does not protect one from the consequences of unlawful actions, nor does it provide an excuse for conducting business in an unlawful

PLTF 34969

DEC 1 4 2011

manner. The memorandum written by Wally Croy, whether written in his c -=-� LISECC Board President, or merely as an individual, cannot contravene Federal, State, or Local Laws; nor can it contravene covenants of record as amended in LISECC's bylaws. The covenants recorded in 1961 are non-transferrable and limited to 25 years. The fact that Wally Croy's letter was recorded cannot create the authority to contravene covenants. Neither Wally Croy nor LISECC possess the authority to contravene LISE's covenants.

The board's failure to collect dues from LILCO as charged in LISECC v. LILCO for non­payment reinforces the fact that LISECC has no legal authority to collect dues, and that LISECC is unlikely to prevail in the case. The present board has chosen to ignore the question of LISECC's legal authority to collect dues. While suspending its effort to collect dues from one property owner, you now threaten other property owners not familiar with LISECC's legal insufficiencies. I can assure you that my response to your

-actions will be to follow-bIL-£01.s challenge-to--yeur autherity;-

With four legal opinions that LISECC does not have the lawful authority to levy or collect dues, the present board's practice of ignoring the issue cannot be justified. There being no option in the covenants to legalize LISECC. The only lawful course of action for LISECC is to find a buyer/operator for the water system, and to dissolve LISECC. As this issue becomes more public, LISE will increasingly fmd itself in legal and financial jeopardy.

Furthermore, even lacking the legal authority to collect dues, LISECC has been operating in an unlawful and inequitable manner. For instance, the Washington Appellate Court rulings specifically state that granting discounts for bound lots is unlawful and inherently inequitable and discriminatory against property owners without bound lots, LISECC has granted 100% dues relief for certain property owners with bound lots. This is in spite of the fact that LISECC's board is aware that its actions are unlawful and contrary to clearly

- established case law which states unequivocally that dues waivers for bound lots are inherently inequitable and unlawful.

Furthermore, LISECC also subsidizes resident water users by illegally charging dues to non-users. Rather than charging an equitable fee for water commensurate with what water districts charge elsewhere in the state, LISECC charges its resident water users only a few hundred dollars a year for water, forcing non-users to subsidize resident water users who otherwise would have to pay several thousand dollars a year for water. This action too is clearly discriminatory and unlawful.

While I will continue to pay for water, LISECC has no legal authority to levy or collect dues. If the LISECC v. LILCO or a similar case from me were brought to its legal conclusion, LISECC's authority or lack thereof would become clear. This returns us to the issue of whether the LISECC board is fulfilling its fiduciary duty to relate these facts to the community they represent.

PLTF 34970

If the board takes this unlawful action against me, I will have to take legal action against LISECC. I'd urge you to invest in competent legal counsel in this regard. Having ignored the legal advice of LISECC's counsel, instead choosing to change legal counsel, is not a sufficient alternative to fulfilling your :fiduciary responsibilities to the community you are charged to represent, and informing them of LISECC's legal insufficiencies. LISECC's pretense to possessing the legal authority to act as an HOA, and to levy and collect dues, is unlawful.

Kind Regards

Charles rtego Anna Ponomareva -e0Iill-'frust

--··�

....-RE--=-

-=c::-=ErVED

DEC 14 20\1

PLTF 34971

D

CJ

CJ

c-'

CJ

-.._J

ru CJ

I.J'1

� � u,

Charles E. Ortego3051 Hales Passage Drive, Lummi Island WA 98262 chuck@ancientgifts.com (360) 758-9932

June 29, 2012

Lummi Island Scenic Estates Community Club, Inc. 1211 Island DriveLummi Island WA 98262-8684

To: Penni Idol, Secretary Board of Directors

As you know, LISECC’s own legal counsel gave the LISECC Board of Directors the opinion that LISECC’s charter and authority to levy dues expired in 1986. There were no provisions to review that authority, it was finite in duration. The bylaws and covenants clearly state that the authority granted to Lummi Island Holdings, Inc. was non-transferable (it was subsequently transferred to LISECC), and that no-one had the authority to change or modify that authority, explicitly adding that even the President or Board of LISECC did not have the power to modify that authority.

I have asked you five times to provide myself and the balance of the community any evidence you possess that LISECC still has lawful authority to levy dues. You have failed to respond to my request, or even to acknowledge the requests. This is a serious breach of the fiduciary responsibilities you have to the community as a whole. You did post a letter signed by an ex-President of LISECC which had been recorded in Whatcom County, however the letter clearly lacks any legal authority (it is the community which must grant the authority, not the President), and the bylaws and covenants explicitly state that the President had no such authority.

In an open letter to the community you made vague references to “additional documentation” which you allege to establish legal authority for LISECC’s insistence on billing residents for dues. Under both case law as well as the laws pertaining to HOA’s in the State of Washington, you have the legal obligation to share with the community any such documents establishing LISECC’s legitimacy and their legal authority to levy dues.

For the sixth and final time, I am asking that you publicly share with the community, and respond to me individually, with any and all documentation which you allege to establish LISECC’s legitimacy and any accompanying lawful authority to levy dues.

Charles E. OrtegoCOKD Trust

Anya Ponomareva

PLTF 15056

PLTF 16016

LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB INC.

1211 Island Drive • Lummi Island, WA 98262-8684 • (360) 758-2699

July 6, 2012 Charles Ortego 3051 Hales Passage Drive Lummi Island, WA 98262

Dear Mr. Ortego, I will see that your request for documentation is presented at the next Board meeting. The Board previously felt that because we (LISE) are actively involved in a lawsuit based on a similar theory that we should not publish legal opinions pertaining to these issues.

s11J:J_ L Mark' Sexton� President, LISECC

PLTF 16018

LUMMI ISLAND SCENIC ESTATES COMMUNITY CLUB INC.

1211 Island Drive • Lummi Island, WA 98262-8684 • (360) 758-2699

July 18, 2012

Charles E. Ortego 3051 Hales Passage Drive Lummi Island, WA 98262

Dear Mr. Ortego, At the July 15, 2012 LISECC Board of Directors meeting your request for documentation was considered and approved. These documents will also be posted on the LISECC website for all members' reference. I hope this will help your understanding of these issues and facilitate bringing your account up to date.

Sincerely, Mark.Sexton President, LISECC