TCWW Memorandum
A memorandum filed by the Utah Attorney General's Office asking for a receiver to oversee Twin City Water Works in Hildale, Utah and Colorado City, Ariz.
Content
JONI J. JONES (7562)
DAVID N. WOLF (6688)
Assistant Utah Attorneys General
SEAN D. REYES (7969)
Utah Attorney General
160 East 300 South, Sixth Floor
P.O. Box 140856
Salt Lake City, Utah 84114-0856
Telephone: (801) 366-0100
Facsimile: (801) 366-0101
E-mail: [email protected]
E-mail: [email protected]
IN THE FIFTH JUDICIAL DISTRICT COURT – ST. GEORGE DISTRICT
IN AND FOR WASHINGTON COUNTY, STATE OF UTAH
The State of Utah, ex rel Sean D. Reyes, the
Attorney General,
Plaintiff/Petitioner,
MEMORANDUM IN SUPPORT OF
MOTION FOR APPOINTMENT OF
RECEIVER OVER TWIN CITY WATER
WORKS, INC.
v.
Twin City Water Works, Inc. a Utah non-profit
Corporation,
Defendant/Respondent.
(Expedited Briefing Schedule, Expedited
Hearing, and Expedited Ruling Requested)
Case No. 150500133
Judge: G. Michael Westfall
The State of Utah, by and through its Attorney General, Sean D. Reyes, and Assistant
Attorneys General Joni J. Jones and David N. Wolf, submits this memorandum in support of its
motion for the appointment of a receiver over Twin City Water Works, Inc. (“TCWW”), to take
possession of, operate, and preserve the assets of TCWW during the pendency of this action.
INTRODUCTION
Defendant TCWW is a Utah, non-profit corporation, organized in 1972 for the purpose of
supplying the residents of Colorado City, Arizona, and Hildale, Utah (the “Twin Cities”) with
water for a fee. TCWW’s Articles of Incorporation dictate that no profits may be used for the
benefit of any individual, or for the officers of TCWW. And any profits must be used only to
maintain, improve, and expand TCWW’s operation and services. But recent evidence shows that
TCWW has used its profits to make payments to its employees and to the Fundamentalist Church
of Jesus Christ of Latter-Day Saints (FLDS).
From January 2002 to October, 2009, TCWW earned over $4 million from the sale of
water, over half of which was funnelled to the FLDS or used to pay personal bills of those in
charge of the non-profit corporation. And, as the recent depositions of two officers of TCWW
show, TCWW has made no efforts to ensure these improper payments do not continue. In
addition to the officers’ testimony that they know TCWW has a history of improper payments
but have done nothing to stop it, evidence shows TCWW does not have any competent
accounting practices in place. According to testimony from TCWW officers and company
records obtained by the United States in a civil rights lawsuit against the Twin Cities, TCWW
does not have any accounting system to allow the company to identify fraudulent payments.
TCWW’s failure to use basic accounting practice not only allows improper payments to go
undetected, but also violates Utah laws governing non-profits. And even more evidence of
TCWW’s illegal conduct has become known in recent days: TCWW pleaded guilty on June 10,
2015 to tax evasion in a criminal proceeding in Arizona.
All of this evidence demonstrates that TCWW has operated contrary to Utah law
governing non-profits and corporations and continues to do so, either deliberately or because its
officers are incompetent. Pursuant to Utah law, immediate appointment of a receiver to oversee
2
all of TCWW’s finances and to handle the basic operation of the non-profit is necessary to
prevent further unlawful and potentially criminal activity.
STATEMENT OF FACTS
Deposition Testimony by TWCC Officers
1.
TCWW is a non-profit corporation organized in 1972 under the laws of the State
of Utah. (Articles of Incorporation, a copy of which is attached as Exhibit A.)
2.
On February 14, 1996, TCWW entered into written agreements for the Sale of
Certain Franchise Water System Assets and Supply of Bulk Water with Colorado City, Arizona,
and Hildale, Utah (“Agreements”).
3.
Pursuant to its Articles of Incorporation, TCWW may not pay any profits to its
employees; such profits must be used “for the operation, maintenance, development and
expansion in size and quality [of] the facilities, systems and services available for use as
designated by the Board of Trustees.” (Articles of Incorporation at 2.)
4.
On December 3, 2014, the United Effort Plan Trust (“UEP” or “the Trust”) took
the depositions of two representatives of TCWW pursuant to Rule 30(b)(6) of the Utah Rules of
Civil Procedure, which required TCWW to identify officers knowledgeable on specified topics,
including the financial affairs of TCWW. (Notices of deposition, Exhibit B.)
5.
During the depositions, neither representative designated by TCWW as most
knowledgeable about these subjects could answer the most basic questions about TCWW’s
operations. (Deposition of Sylmar Barlow, 12-3-14, relevant portions of which are attached as
Exhibit C [referred to as 12-3-14 Barlow Depo]; Deposition of Scott Jessup, relevant portions of
which are attached as Exhibit D.)
6.
Barlow was at the time of the deposition and is currently the president of TCWW
and the chairman of its board of directors. (12-3-14 Barlow Depo at 12-13.)
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7.
During his deposition, Barlow could not explain why TCWW funds were paid to
the FLDS church and used for the personal expenses of those who managed the company. (Id. at
58-60.)
8.
Barlow confirmed that, despite his title, he really doesn’t do anything. (Id. at 14-
9.
Barlow confirmed that he really doesn’t know anything about TCWW. (Id. at 15-
17.)
16, 23-24.)
10.
Barlow confirmed that he has no qualifications for the job. (Id. at 29-33.)
11.
Barlow does not know anything about finances. (Id. at 31-33.)
12.
Barlow has never reviewed financial reports for TCWW, although he assumes he
is the person responsible for them. (Id.)
13.
Barlow has no idea what profits or losses TCWW has made historically or is
making in 2014. (Id.)
14.
Other than the meeting where he was appointed, (either in June 2012 or June
2013), Barlow has never held or attended another board meeting of TCWW. (Id. at 38.)
15.
Despite being aware of allegations of theft from TCWW by Joseph Allred,
Barlow has done nothing to investigate those allegations. (Id. at 50-52.)
16.
Barlow has never read the Articles of Incorporation of TCWW. (Id. at 41.)
17.
Barlow admitted that others “are bleeding this company dry by using the money
for illegal and unauthorized purposes” but he has done nothing about it because he is in a
“sensitive position.” (Id. at 59.)
18.
Barlow has no idea what the assets of TCWW are. (Id. at 61.)
19.
Barlow has no idea what the value of the company is. (Id. at 60-61.)
20.
Barlow testified that TCWW had no records on whether or not taxes or social
security are withheld from its employees’ paychecks. (Id. at 25.)
4
21.
Barlow testified that TCWW had no records of filing any tax returns for the years
of 2008-2014. (Id. at 78-79.)
22.
TCWW’s second 30(b)(6) witness, Scott Jessop, the manager of TCWW, could
not name the employees of TCWW. (Jessop Depo. at 24.)
23.
Jessop does not know whether it is legal for a nonprofit corporation to use its
assets to pay for the home expenses of an officer. (Id. at 29-30.)
24.
Despite being designated to testify on the gross income of TCWW, Jessop was
unable to provide any such testimony. (Id. at 37.)
25.
Despite being designated to testify on the net income of TCWW, Jessop was
unable to provide any such testimony. (Id. at 38.)
26.
Despite being designated to testify on the salaries of TCWW’s employees, Jessop
was unable to provide any such testimony. (Id. at 38-39.)
Bank Records for 2002 through 2009 Subpoenaed from TCWW
27.
Pursuant to the Trust’s investigative and subpoena powers, it obtained certain
bank records for TCWW. Attached hereto as Exhibit E is a summary of disbursements made by
TCWW over a period of seven (7) years (January 2002 to October 2009).
28.
In that seven year period, TCWW received virtually all of its income from the
Cities and TCWW disbursed $4,308,811.00.
29.
A large number of payments from TCWW and a significant amount of money
paid to TCWW by the Twin Cities has been used to pay personal expenses of those persons who
have access to the money and other unauthorized uses.
30.
For example, according to bank records, TCWW has issued to the Bishop’s
Storehouse, an FLDS entity, twenty-seven (27) checks in the amount of $145,103.82. Attached
hereto as Exhibit F is a copy of those twenty-seven (27) checks.
5
31.
Pursuant to the Trust’s subpoena and investigative process, it discovered a copy
of a letter dated April 23, 2006, which Joseph Allred, while president and chairman of the board
of TCWW, sent to Prophet Warren Jeffs of the FLDS Church, while Jeffs was a fugitive from
state and federal charges, seeking counsel on how to spend the TCWW funds:
April 23, 2006 My Dear Holy Prophet Uncle Warren . . . In relation to the family
expenses, the home utility bills and the cell phone bills for the mothers have been
paid by Twin City Water Works. I will digress a little and tell you about the
company. Twin City Water Works, Inc. was started as a non-profit corporation in
1972 to be the community culinary water system. It operated as a community
water system until 1996 when it sold the distribution system to the Cities, but
maintained the ownership of the wells and the water rights. It now sells bulk
water to the towns (Hildale and Colorado City) and maintains the wells. The
Towns operate and maintain the water system through individual customer
revenues and buy bulk water from Twin City Water Works. The revenue to this
company has been about $400,000 per year. Upon seeking counsel from Uncle
Lyle, he directed me to continue the water company record keeping which Father
was doing. In looking back over the expenses, about half of them have been for
RJA home expenses. After counseling with Uncle Lyle, I have continued to pay
some home expenses from the Twin City Water Works account such as home
utilities (almost $4000 per month for the few months I have been here),
mother’s cell phones (about $200-300/month), car insurance (one policy
contains about half home and half company vehicles, about $500 per month
total), and a new van payment of $900 per month. Several home vehicles are
owned and were paid for by the company. Father had told me, and Uncle Lyle
had confirmed it, that Father did the payments from company funds with Uncle
Fred’s approval, and he had also checked with Uncle William. There were a lot
of other purchases before which were made by the company, especially home
improvements on the old RJA home. If we choose to not pay home expenses
with company funds, the company has enough income through bulk water sales
that we would need to find a way to somehow get the extra revenue funds
forwarded to the storehouse. In addition, the Storehouse would need to help the
household here at least on the Utilities portion. The company has never been
audited. Up to this time, especially with the company covering some expenses,
the family needs have been met financially, and I have been able to occasionally
turn in to the storehouse a surplus from the income made by the working family
members. I am seeking counsel on whether or not to continue paying some home
bills from the company funds. . . . Ever seeking to be an instrument in the Lord’s
hands through you. Joseph Allred
(Joseph Allred Letter, Exhibit G.)
6
32.
In early 2014, while he was the sitting mayor of Colorado City, Joseph
Allred appeared as a witness in the trial of Cooke, et al. v. Colorado City, et al., Case
NO. 3:10-CV-08105-JAT (D. Ariz.), where Trust beneficiaries Ron and Jinjer Cooke
alleged that they were being denied a water hookup on the basis of their religion (nonFLDS).
33.
Allred was questioned (among other things) about his letter to Warren Jeffs, the
contents of that letter, and the fact that TCWW was using funds from its ratepayers to fund the
FLDS. He pled the Fifth. (See Transcript of J. Allred Testimony, Cooke v. Colorado City,
attached as Exhibit H, at 3285-3294.) In the course of his testimony, Allred invoked the 5th
Amendment of the U.S. Constitution over 90 times. (See generally Allred Testimony, Exhibit H
(invoking Fifth on virtually every page of testimony.)
Bank Records from TCWW for 2004 to 2013
34.
In its civil rights lawsuit pending against the Twin Cities in federal district court
in Arizona, United States v. Colorado City, et. al., 3:12cv8123, the United States obtained bank
records for TCWW from 2004 to 2013. (See LoManto Report, a copy of which is attached as
Exhibit I, at 1 & appendix I.)
35.
The United States’ expert, Mark LoManto, reviewed those records and determined that
from 2004 to 2013, TCWW diverted $1,729,987.29 to “individuals and service providers for
activities unrelated to TCWW’s operational and business purposes.” (LoManto Report at 6.)
36.
In addition, LoManto determined that TCWW did not follow basic accounting
principles that would enable the non-profit to track and determine the validity of outgoing
payments. Specifically, TCWW was not able to provide any “source documents.” (LoManto
Report at 3 and Exhibit A.)
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37.
“Source documents” include customer and vendor agreements, which show that
expenses are “valid, complete and accurate” and in accordance with the customer and vendor
agreements. ( LoManto Report at 3.)
38.
Without source documents, “entities cannot substantiate the validity of their financial
statements.” (LoManto Report at 3.)
39.
When deposed in the United States v. Colorado City case on June 10, 2014, Barlow
testified that he had no idea whether TCWW kept source documents or other basic financial
documents. (LoManto Report at 3; Deposition of Sylmar Barlow, 6-10-14, at 77-78, attached as
Exhibit J [referred to as 6-10-14 Barlow Depo].)
40.
Barlow also testified that he was the person responsible for maintaining financial
records for TCWW, but had not been doing so. (LoManto Report at 3; 6-10-14 Barlow Depo at
77-78.)
41.
During the period of 2004 to 2013, TCWW’s financial records produced in response to
subpoena did not include any documents demonstrating that TCWW was exempt from paying
taxes and did not include records of having paid taxes. (LoManto Report at 5.)
42.
When asked during his deposition whether he knew if TCWW was exempt from
federal or state taxes, Barlow testified he did not know. (LoManto Report at 5.)
Guilty Plea To Knowing Tax Evasion
43.
On June 10, 2015, TCWW pleaded guilty to knowingly attempting to evade payment
of taxes, from April 2010 to April 2011. (A copy of the plea agreement is attached as Exhibit
K.)
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LEGAL ARGUMENT
I.
PURSUANT TO SECTION 16-6A-1415, A RECEIVER SHOULD BE
IMMEDIATELY APPOINTED TO MANAGE THE AFFAIRS OF TCWW
Because testimony from TCWW’s officers, its financial records for the past 9 years, and
TCWW’s pleading guilty to knowing tax evasion demonstrate that TCWW’s officers are not
competent to manage TCWW, a receiver should be immediately appointed.
Section 16-6a-1415 authorizes this Court to appoint a receiver “pendente lite with all
powers and duties the court directs.” Utah Code § 16-61-1415(3)(b). Such an appointment may
be made “until a full hearing can be held.” Id. at § 16-6a-1415(c). The facts in this case justify
appointing a receiver immediately, before a full hearing is held on the State’s claim for
dissolution of TCWW, because TCWW’s officers have demonstrated they have no ability to
manage the finances of the company and cannot demonstrate that they are complying with basic
laws.
For example, TCWW cannot demonstrate the non-profit is tax-exempt or that it has paid
Federal or State taxes in the last 9 years. (LoManto Report at 4-5, citing to 80-82 of 6-10-14
Barlow deposition; 12-3-14 Barlow Depo at 25, 78-79 (stating he did not know if the company
had paid taxes). Indeed, TCWW pleaded guilty on June 10th to knowing failure to pay taxes in
Arizona. (Plea Agreement, Exhibit I.)
Moreover, TCWW has no basic accounting measures in place, so that the officers cannot
determine whether illegal payments continue. (LoManto Report at 6, citing to 77-78 of 6-10-14
Barlow Depo.)
In addition, TCWW’s failure to maintain proper accounting of its finances is in
9
violation of Utah law. See Utah Code Ann. § 16-6a-1601(2) (“nonprofit shall maintain
appropriate accounting records”).
Testimony from TCWW’s president and manager make it plain that they do not have the
training, experience, knowledge, or skill to operate TCWW so as to ensure the company does not
continue to make illegal payments, does not continue to violate tax laws, and does not continue
to violate Utah law governing non-profits. As set out in detail in the fact section, above, the
President testified that he really doesn’t know anything about TCWW (12-3-14 Barlow Depo at
15-16; 31-33; 60-61); doesn’t know anything about finances (id. at 31-33); has no idea what the
assets of the company are or what its value is, (id. at 60-61), and is aware of but has done
nothing about allegations of theft from TCWW by Joseph Allred. (Id. at 43, 50.)
Barlow’s sworn testimony, Jessop’s sworn testimony, TCWW’s bank records, and its
recent guilty plea all show that TCWW is not being managed in even a remotely competent
fashion. A receiver should be appointed immediately to ensure that TCWW complies with laws
governing non-profits; that TCWW maintains proper financial records, and that TCWW
complies with State and Federal tax requirements. A receiver is warranted immediately,
pendente lite, while the litigation continues, and the State pursues its remedy of dissolving
TCWW.
The immediate duties and responsibilities that the court-appointed receiver should
assume are set out below. Pursuant to Section 16-6a-1416, the powers and duties of the receiver
may be amended as the litigation progresses. § 16-6a-1416(2). The State anticipates requesting
the Court to modify the powers and duties of the receiver so that the receiver may “wind up and
liquidate the affairs of the nonprofit corporation.” § 16-6a-1416(1)(a)(i).
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II.
THE PROPOSED SCOPE OF THE RECEIVER’S DUTIES
The duties and responsibilities of the Receiver will initially be limited as follows:
A. Operational Duties.
Upon order of the Court, the Receiver will assume responsibility for the operation of the
groundwater wells that are used to supply water to the Twin Cities. In addition to pumping
water, the Receiver shall operate all facilities associated with the delivery of such water from the
groundwater wells to the Twin Cities, including but not limited to any storage facilities, water
lines, booster pumps, electrical boxes and other equipment necessary for the supply and delivery
of water to the treatment plant operated by the Twin Cities (“the Delivery Point”) (the
groundwater wells and related facilities and equipment, which terminate at the Delivery Point,
collectively referred to as “the Water System”).
1.
Maintenance and Repair of the Water System. The Receiver shall be
responsible for the periodic inspection of the Water System and its components to ensure that
they are in good working order. The Receiver shall also be responsible for any needed routine
maintenance and repair work on the Water System and its components. This maintenance and
repair work shall be consistent with industry standards. No capital expenditures exceeding Ten
Thousand and 00/100 Dollars ($10,000.00) shall be made for repair work without the Court’s
approval (“the Capital Expense Limitation”).
2.
Employees and Contractors. The Receiver may select and pay contractors
or employees to perform the operation, maintenance and repair work associated with the Water
System.
3.
Designated Water Service Representative. All communications with the
Twin Cities specifically concerning water supply and delivery shall be with the Receiver, which
shall serve as the Twin Cities’ designated water service representative.
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4.
Reporting. The Receiver shall provide reports to the Court, the UEP Trust
and TCWW regarding the operation, maintenance and repair of the Water System and regarding
its communications with the Twin Cities.
5.
Limitations. The Water System terminates at the Delivery Point. The
Receiver shall assume all responsibilities associated with the delivery of water pumped from the
groundwater wells to the Delivery Point but shall not be responsible or liable for the quality of
such water or how such water is delivered and served to residents of the Twin Cities. The Twin
Cities shall continue to be responsible for the treatment of the water that they receive from the
Water System and shall continue to be responsible for supplying potable water to their respective
customers in accordance with all local, state and federal laws.
B. Financial Matters Associated with the Water System and Water Delivery.
The Receiver shall administer all revenue and operating costs associated with the Water
System and delivery of water to the Twin Cities in a manner that is consistent with industry
standards. Upon order of the Court, the Receiver shall take possession of all of the TCWW bank
accounts and all existing paper and digital versions of books, records, invoices, receipts, tax
statements, reports and any other data associated with the financial activities of TCWW. Subject
to the terms of the Court’s order, the Receiver shall have the authority to sign and issue checks
from TCWW’s bank accounts.
1.
Revenue.
The Receiver shall collect from the Twin Cities the water
service and other fees due and payable under the February 14, 1996 Agreements for the Sale of
Certain Franchise Water System Assets and Supply of Bulk Water with the Twin Cities and any
amendments thereto as described in the Complaint.
2.
Operating Costs. Subject to the Capital Expense Limitation, the Receiver
may disburse revenues to cover its operating costs associated with the Water System and water
deliveries. These operating costs shall include (a) contractor or employee fees; (b) electrical
12
service fees for the operation of the groundwater pumps and other components of the Water
System; (c) maintenance and repair costs, including replacement of equipment as necessary; (d)
insurance costs; (e) tax and regulatory fees such as payroll taxes specifically associated with the
Water System and its operation; and (f) such other operating costs as are reasonable and
customary for the operation of a water supplier service.
3.
Books and Records. The Receiver shall be responsible for the financial
accounting of revenue and operating costs associated with the Water System and water supplying. Books and records shall be maintained at the Receiver’s office.
4.
Financial Reporting.
On a regular basis, the Receiver shall submit
accounting statements and financial reports about the Water System and its operations to the
Court.
CONCLUSION
For all of the foregoing reasons, the State respectfully requests that the Court appoint a
receiver over TCWW, to ensure that TCWW does not continue to operate in violation of the law,
for the duration of this litigation and to ensure that TCWW continues to provide water to the
Twin Cities.
DATED this 18th day of June 2015.
SEAN D. REYES
Utah Attorney General
/s/ Joni J. Jones
JONI J. JONES
DAVID N. WOLF
Assistant Utah Attorneys General
13
CERTIFICATE OF SERVICE
I hereby certify that on this 18th day of, 2015, a true and correct copy of the foregoing
MEMORANDUM IN SUPPORT OF MOTION FOR APPOINTMENT OF RECEIVER
OVER TWIN CITY WATER WORKS, INC. was served via the Court’s electronic filing
notification system to e-filers as indicated on the Court Service List Report.
.
/s/ Cecilia Lesmes
14
DAVID N. WOLF (6688)
Assistant Utah Attorneys General
SEAN D. REYES (7969)
Utah Attorney General
160 East 300 South, Sixth Floor
P.O. Box 140856
Salt Lake City, Utah 84114-0856
Telephone: (801) 366-0100
Facsimile: (801) 366-0101
E-mail: [email protected]
E-mail: [email protected]
IN THE FIFTH JUDICIAL DISTRICT COURT – ST. GEORGE DISTRICT
IN AND FOR WASHINGTON COUNTY, STATE OF UTAH
The State of Utah, ex rel Sean D. Reyes, the
Attorney General,
Plaintiff/Petitioner,
MEMORANDUM IN SUPPORT OF
MOTION FOR APPOINTMENT OF
RECEIVER OVER TWIN CITY WATER
WORKS, INC.
v.
Twin City Water Works, Inc. a Utah non-profit
Corporation,
Defendant/Respondent.
(Expedited Briefing Schedule, Expedited
Hearing, and Expedited Ruling Requested)
Case No. 150500133
Judge: G. Michael Westfall
The State of Utah, by and through its Attorney General, Sean D. Reyes, and Assistant
Attorneys General Joni J. Jones and David N. Wolf, submits this memorandum in support of its
motion for the appointment of a receiver over Twin City Water Works, Inc. (“TCWW”), to take
possession of, operate, and preserve the assets of TCWW during the pendency of this action.
INTRODUCTION
Defendant TCWW is a Utah, non-profit corporation, organized in 1972 for the purpose of
supplying the residents of Colorado City, Arizona, and Hildale, Utah (the “Twin Cities”) with
water for a fee. TCWW’s Articles of Incorporation dictate that no profits may be used for the
benefit of any individual, or for the officers of TCWW. And any profits must be used only to
maintain, improve, and expand TCWW’s operation and services. But recent evidence shows that
TCWW has used its profits to make payments to its employees and to the Fundamentalist Church
of Jesus Christ of Latter-Day Saints (FLDS).
From January 2002 to October, 2009, TCWW earned over $4 million from the sale of
water, over half of which was funnelled to the FLDS or used to pay personal bills of those in
charge of the non-profit corporation. And, as the recent depositions of two officers of TCWW
show, TCWW has made no efforts to ensure these improper payments do not continue. In
addition to the officers’ testimony that they know TCWW has a history of improper payments
but have done nothing to stop it, evidence shows TCWW does not have any competent
accounting practices in place. According to testimony from TCWW officers and company
records obtained by the United States in a civil rights lawsuit against the Twin Cities, TCWW
does not have any accounting system to allow the company to identify fraudulent payments.
TCWW’s failure to use basic accounting practice not only allows improper payments to go
undetected, but also violates Utah laws governing non-profits. And even more evidence of
TCWW’s illegal conduct has become known in recent days: TCWW pleaded guilty on June 10,
2015 to tax evasion in a criminal proceeding in Arizona.
All of this evidence demonstrates that TCWW has operated contrary to Utah law
governing non-profits and corporations and continues to do so, either deliberately or because its
officers are incompetent. Pursuant to Utah law, immediate appointment of a receiver to oversee
2
all of TCWW’s finances and to handle the basic operation of the non-profit is necessary to
prevent further unlawful and potentially criminal activity.
STATEMENT OF FACTS
Deposition Testimony by TWCC Officers
1.
TCWW is a non-profit corporation organized in 1972 under the laws of the State
of Utah. (Articles of Incorporation, a copy of which is attached as Exhibit A.)
2.
On February 14, 1996, TCWW entered into written agreements for the Sale of
Certain Franchise Water System Assets and Supply of Bulk Water with Colorado City, Arizona,
and Hildale, Utah (“Agreements”).
3.
Pursuant to its Articles of Incorporation, TCWW may not pay any profits to its
employees; such profits must be used “for the operation, maintenance, development and
expansion in size and quality [of] the facilities, systems and services available for use as
designated by the Board of Trustees.” (Articles of Incorporation at 2.)
4.
On December 3, 2014, the United Effort Plan Trust (“UEP” or “the Trust”) took
the depositions of two representatives of TCWW pursuant to Rule 30(b)(6) of the Utah Rules of
Civil Procedure, which required TCWW to identify officers knowledgeable on specified topics,
including the financial affairs of TCWW. (Notices of deposition, Exhibit B.)
5.
During the depositions, neither representative designated by TCWW as most
knowledgeable about these subjects could answer the most basic questions about TCWW’s
operations. (Deposition of Sylmar Barlow, 12-3-14, relevant portions of which are attached as
Exhibit C [referred to as 12-3-14 Barlow Depo]; Deposition of Scott Jessup, relevant portions of
which are attached as Exhibit D.)
6.
Barlow was at the time of the deposition and is currently the president of TCWW
and the chairman of its board of directors. (12-3-14 Barlow Depo at 12-13.)
3
7.
During his deposition, Barlow could not explain why TCWW funds were paid to
the FLDS church and used for the personal expenses of those who managed the company. (Id. at
58-60.)
8.
Barlow confirmed that, despite his title, he really doesn’t do anything. (Id. at 14-
9.
Barlow confirmed that he really doesn’t know anything about TCWW. (Id. at 15-
17.)
16, 23-24.)
10.
Barlow confirmed that he has no qualifications for the job. (Id. at 29-33.)
11.
Barlow does not know anything about finances. (Id. at 31-33.)
12.
Barlow has never reviewed financial reports for TCWW, although he assumes he
is the person responsible for them. (Id.)
13.
Barlow has no idea what profits or losses TCWW has made historically or is
making in 2014. (Id.)
14.
Other than the meeting where he was appointed, (either in June 2012 or June
2013), Barlow has never held or attended another board meeting of TCWW. (Id. at 38.)
15.
Despite being aware of allegations of theft from TCWW by Joseph Allred,
Barlow has done nothing to investigate those allegations. (Id. at 50-52.)
16.
Barlow has never read the Articles of Incorporation of TCWW. (Id. at 41.)
17.
Barlow admitted that others “are bleeding this company dry by using the money
for illegal and unauthorized purposes” but he has done nothing about it because he is in a
“sensitive position.” (Id. at 59.)
18.
Barlow has no idea what the assets of TCWW are. (Id. at 61.)
19.
Barlow has no idea what the value of the company is. (Id. at 60-61.)
20.
Barlow testified that TCWW had no records on whether or not taxes or social
security are withheld from its employees’ paychecks. (Id. at 25.)
4
21.
Barlow testified that TCWW had no records of filing any tax returns for the years
of 2008-2014. (Id. at 78-79.)
22.
TCWW’s second 30(b)(6) witness, Scott Jessop, the manager of TCWW, could
not name the employees of TCWW. (Jessop Depo. at 24.)
23.
Jessop does not know whether it is legal for a nonprofit corporation to use its
assets to pay for the home expenses of an officer. (Id. at 29-30.)
24.
Despite being designated to testify on the gross income of TCWW, Jessop was
unable to provide any such testimony. (Id. at 37.)
25.
Despite being designated to testify on the net income of TCWW, Jessop was
unable to provide any such testimony. (Id. at 38.)
26.
Despite being designated to testify on the salaries of TCWW’s employees, Jessop
was unable to provide any such testimony. (Id. at 38-39.)
Bank Records for 2002 through 2009 Subpoenaed from TCWW
27.
Pursuant to the Trust’s investigative and subpoena powers, it obtained certain
bank records for TCWW. Attached hereto as Exhibit E is a summary of disbursements made by
TCWW over a period of seven (7) years (January 2002 to October 2009).
28.
In that seven year period, TCWW received virtually all of its income from the
Cities and TCWW disbursed $4,308,811.00.
29.
A large number of payments from TCWW and a significant amount of money
paid to TCWW by the Twin Cities has been used to pay personal expenses of those persons who
have access to the money and other unauthorized uses.
30.
For example, according to bank records, TCWW has issued to the Bishop’s
Storehouse, an FLDS entity, twenty-seven (27) checks in the amount of $145,103.82. Attached
hereto as Exhibit F is a copy of those twenty-seven (27) checks.
5
31.
Pursuant to the Trust’s subpoena and investigative process, it discovered a copy
of a letter dated April 23, 2006, which Joseph Allred, while president and chairman of the board
of TCWW, sent to Prophet Warren Jeffs of the FLDS Church, while Jeffs was a fugitive from
state and federal charges, seeking counsel on how to spend the TCWW funds:
April 23, 2006 My Dear Holy Prophet Uncle Warren . . . In relation to the family
expenses, the home utility bills and the cell phone bills for the mothers have been
paid by Twin City Water Works. I will digress a little and tell you about the
company. Twin City Water Works, Inc. was started as a non-profit corporation in
1972 to be the community culinary water system. It operated as a community
water system until 1996 when it sold the distribution system to the Cities, but
maintained the ownership of the wells and the water rights. It now sells bulk
water to the towns (Hildale and Colorado City) and maintains the wells. The
Towns operate and maintain the water system through individual customer
revenues and buy bulk water from Twin City Water Works. The revenue to this
company has been about $400,000 per year. Upon seeking counsel from Uncle
Lyle, he directed me to continue the water company record keeping which Father
was doing. In looking back over the expenses, about half of them have been for
RJA home expenses. After counseling with Uncle Lyle, I have continued to pay
some home expenses from the Twin City Water Works account such as home
utilities (almost $4000 per month for the few months I have been here),
mother’s cell phones (about $200-300/month), car insurance (one policy
contains about half home and half company vehicles, about $500 per month
total), and a new van payment of $900 per month. Several home vehicles are
owned and were paid for by the company. Father had told me, and Uncle Lyle
had confirmed it, that Father did the payments from company funds with Uncle
Fred’s approval, and he had also checked with Uncle William. There were a lot
of other purchases before which were made by the company, especially home
improvements on the old RJA home. If we choose to not pay home expenses
with company funds, the company has enough income through bulk water sales
that we would need to find a way to somehow get the extra revenue funds
forwarded to the storehouse. In addition, the Storehouse would need to help the
household here at least on the Utilities portion. The company has never been
audited. Up to this time, especially with the company covering some expenses,
the family needs have been met financially, and I have been able to occasionally
turn in to the storehouse a surplus from the income made by the working family
members. I am seeking counsel on whether or not to continue paying some home
bills from the company funds. . . . Ever seeking to be an instrument in the Lord’s
hands through you. Joseph Allred
(Joseph Allred Letter, Exhibit G.)
6
32.
In early 2014, while he was the sitting mayor of Colorado City, Joseph
Allred appeared as a witness in the trial of Cooke, et al. v. Colorado City, et al., Case
NO. 3:10-CV-08105-JAT (D. Ariz.), where Trust beneficiaries Ron and Jinjer Cooke
alleged that they were being denied a water hookup on the basis of their religion (nonFLDS).
33.
Allred was questioned (among other things) about his letter to Warren Jeffs, the
contents of that letter, and the fact that TCWW was using funds from its ratepayers to fund the
FLDS. He pled the Fifth. (See Transcript of J. Allred Testimony, Cooke v. Colorado City,
attached as Exhibit H, at 3285-3294.) In the course of his testimony, Allred invoked the 5th
Amendment of the U.S. Constitution over 90 times. (See generally Allred Testimony, Exhibit H
(invoking Fifth on virtually every page of testimony.)
Bank Records from TCWW for 2004 to 2013
34.
In its civil rights lawsuit pending against the Twin Cities in federal district court
in Arizona, United States v. Colorado City, et. al., 3:12cv8123, the United States obtained bank
records for TCWW from 2004 to 2013. (See LoManto Report, a copy of which is attached as
Exhibit I, at 1 & appendix I.)
35.
The United States’ expert, Mark LoManto, reviewed those records and determined that
from 2004 to 2013, TCWW diverted $1,729,987.29 to “individuals and service providers for
activities unrelated to TCWW’s operational and business purposes.” (LoManto Report at 6.)
36.
In addition, LoManto determined that TCWW did not follow basic accounting
principles that would enable the non-profit to track and determine the validity of outgoing
payments. Specifically, TCWW was not able to provide any “source documents.” (LoManto
Report at 3 and Exhibit A.)
7
37.
“Source documents” include customer and vendor agreements, which show that
expenses are “valid, complete and accurate” and in accordance with the customer and vendor
agreements. ( LoManto Report at 3.)
38.
Without source documents, “entities cannot substantiate the validity of their financial
statements.” (LoManto Report at 3.)
39.
When deposed in the United States v. Colorado City case on June 10, 2014, Barlow
testified that he had no idea whether TCWW kept source documents or other basic financial
documents. (LoManto Report at 3; Deposition of Sylmar Barlow, 6-10-14, at 77-78, attached as
Exhibit J [referred to as 6-10-14 Barlow Depo].)
40.
Barlow also testified that he was the person responsible for maintaining financial
records for TCWW, but had not been doing so. (LoManto Report at 3; 6-10-14 Barlow Depo at
77-78.)
41.
During the period of 2004 to 2013, TCWW’s financial records produced in response to
subpoena did not include any documents demonstrating that TCWW was exempt from paying
taxes and did not include records of having paid taxes. (LoManto Report at 5.)
42.
When asked during his deposition whether he knew if TCWW was exempt from
federal or state taxes, Barlow testified he did not know. (LoManto Report at 5.)
Guilty Plea To Knowing Tax Evasion
43.
On June 10, 2015, TCWW pleaded guilty to knowingly attempting to evade payment
of taxes, from April 2010 to April 2011. (A copy of the plea agreement is attached as Exhibit
K.)
8
LEGAL ARGUMENT
I.
PURSUANT TO SECTION 16-6A-1415, A RECEIVER SHOULD BE
IMMEDIATELY APPOINTED TO MANAGE THE AFFAIRS OF TCWW
Because testimony from TCWW’s officers, its financial records for the past 9 years, and
TCWW’s pleading guilty to knowing tax evasion demonstrate that TCWW’s officers are not
competent to manage TCWW, a receiver should be immediately appointed.
Section 16-6a-1415 authorizes this Court to appoint a receiver “pendente lite with all
powers and duties the court directs.” Utah Code § 16-61-1415(3)(b). Such an appointment may
be made “until a full hearing can be held.” Id. at § 16-6a-1415(c). The facts in this case justify
appointing a receiver immediately, before a full hearing is held on the State’s claim for
dissolution of TCWW, because TCWW’s officers have demonstrated they have no ability to
manage the finances of the company and cannot demonstrate that they are complying with basic
laws.
For example, TCWW cannot demonstrate the non-profit is tax-exempt or that it has paid
Federal or State taxes in the last 9 years. (LoManto Report at 4-5, citing to 80-82 of 6-10-14
Barlow deposition; 12-3-14 Barlow Depo at 25, 78-79 (stating he did not know if the company
had paid taxes). Indeed, TCWW pleaded guilty on June 10th to knowing failure to pay taxes in
Arizona. (Plea Agreement, Exhibit I.)
Moreover, TCWW has no basic accounting measures in place, so that the officers cannot
determine whether illegal payments continue. (LoManto Report at 6, citing to 77-78 of 6-10-14
Barlow Depo.)
In addition, TCWW’s failure to maintain proper accounting of its finances is in
9
violation of Utah law. See Utah Code Ann. § 16-6a-1601(2) (“nonprofit shall maintain
appropriate accounting records”).
Testimony from TCWW’s president and manager make it plain that they do not have the
training, experience, knowledge, or skill to operate TCWW so as to ensure the company does not
continue to make illegal payments, does not continue to violate tax laws, and does not continue
to violate Utah law governing non-profits. As set out in detail in the fact section, above, the
President testified that he really doesn’t know anything about TCWW (12-3-14 Barlow Depo at
15-16; 31-33; 60-61); doesn’t know anything about finances (id. at 31-33); has no idea what the
assets of the company are or what its value is, (id. at 60-61), and is aware of but has done
nothing about allegations of theft from TCWW by Joseph Allred. (Id. at 43, 50.)
Barlow’s sworn testimony, Jessop’s sworn testimony, TCWW’s bank records, and its
recent guilty plea all show that TCWW is not being managed in even a remotely competent
fashion. A receiver should be appointed immediately to ensure that TCWW complies with laws
governing non-profits; that TCWW maintains proper financial records, and that TCWW
complies with State and Federal tax requirements. A receiver is warranted immediately,
pendente lite, while the litigation continues, and the State pursues its remedy of dissolving
TCWW.
The immediate duties and responsibilities that the court-appointed receiver should
assume are set out below. Pursuant to Section 16-6a-1416, the powers and duties of the receiver
may be amended as the litigation progresses. § 16-6a-1416(2). The State anticipates requesting
the Court to modify the powers and duties of the receiver so that the receiver may “wind up and
liquidate the affairs of the nonprofit corporation.” § 16-6a-1416(1)(a)(i).
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II.
THE PROPOSED SCOPE OF THE RECEIVER’S DUTIES
The duties and responsibilities of the Receiver will initially be limited as follows:
A. Operational Duties.
Upon order of the Court, the Receiver will assume responsibility for the operation of the
groundwater wells that are used to supply water to the Twin Cities. In addition to pumping
water, the Receiver shall operate all facilities associated with the delivery of such water from the
groundwater wells to the Twin Cities, including but not limited to any storage facilities, water
lines, booster pumps, electrical boxes and other equipment necessary for the supply and delivery
of water to the treatment plant operated by the Twin Cities (“the Delivery Point”) (the
groundwater wells and related facilities and equipment, which terminate at the Delivery Point,
collectively referred to as “the Water System”).
1.
Maintenance and Repair of the Water System. The Receiver shall be
responsible for the periodic inspection of the Water System and its components to ensure that
they are in good working order. The Receiver shall also be responsible for any needed routine
maintenance and repair work on the Water System and its components. This maintenance and
repair work shall be consistent with industry standards. No capital expenditures exceeding Ten
Thousand and 00/100 Dollars ($10,000.00) shall be made for repair work without the Court’s
approval (“the Capital Expense Limitation”).
2.
Employees and Contractors. The Receiver may select and pay contractors
or employees to perform the operation, maintenance and repair work associated with the Water
System.
3.
Designated Water Service Representative. All communications with the
Twin Cities specifically concerning water supply and delivery shall be with the Receiver, which
shall serve as the Twin Cities’ designated water service representative.
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4.
Reporting. The Receiver shall provide reports to the Court, the UEP Trust
and TCWW regarding the operation, maintenance and repair of the Water System and regarding
its communications with the Twin Cities.
5.
Limitations. The Water System terminates at the Delivery Point. The
Receiver shall assume all responsibilities associated with the delivery of water pumped from the
groundwater wells to the Delivery Point but shall not be responsible or liable for the quality of
such water or how such water is delivered and served to residents of the Twin Cities. The Twin
Cities shall continue to be responsible for the treatment of the water that they receive from the
Water System and shall continue to be responsible for supplying potable water to their respective
customers in accordance with all local, state and federal laws.
B. Financial Matters Associated with the Water System and Water Delivery.
The Receiver shall administer all revenue and operating costs associated with the Water
System and delivery of water to the Twin Cities in a manner that is consistent with industry
standards. Upon order of the Court, the Receiver shall take possession of all of the TCWW bank
accounts and all existing paper and digital versions of books, records, invoices, receipts, tax
statements, reports and any other data associated with the financial activities of TCWW. Subject
to the terms of the Court’s order, the Receiver shall have the authority to sign and issue checks
from TCWW’s bank accounts.
1.
Revenue.
The Receiver shall collect from the Twin Cities the water
service and other fees due and payable under the February 14, 1996 Agreements for the Sale of
Certain Franchise Water System Assets and Supply of Bulk Water with the Twin Cities and any
amendments thereto as described in the Complaint.
2.
Operating Costs. Subject to the Capital Expense Limitation, the Receiver
may disburse revenues to cover its operating costs associated with the Water System and water
deliveries. These operating costs shall include (a) contractor or employee fees; (b) electrical
12
service fees for the operation of the groundwater pumps and other components of the Water
System; (c) maintenance and repair costs, including replacement of equipment as necessary; (d)
insurance costs; (e) tax and regulatory fees such as payroll taxes specifically associated with the
Water System and its operation; and (f) such other operating costs as are reasonable and
customary for the operation of a water supplier service.
3.
Books and Records. The Receiver shall be responsible for the financial
accounting of revenue and operating costs associated with the Water System and water supplying. Books and records shall be maintained at the Receiver’s office.
4.
Financial Reporting.
On a regular basis, the Receiver shall submit
accounting statements and financial reports about the Water System and its operations to the
Court.
CONCLUSION
For all of the foregoing reasons, the State respectfully requests that the Court appoint a
receiver over TCWW, to ensure that TCWW does not continue to operate in violation of the law,
for the duration of this litigation and to ensure that TCWW continues to provide water to the
Twin Cities.
DATED this 18th day of June 2015.
SEAN D. REYES
Utah Attorney General
/s/ Joni J. Jones
JONI J. JONES
DAVID N. WOLF
Assistant Utah Attorneys General
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CERTIFICATE OF SERVICE
I hereby certify that on this 18th day of, 2015, a true and correct copy of the foregoing
MEMORANDUM IN SUPPORT OF MOTION FOR APPOINTMENT OF RECEIVER
OVER TWIN CITY WATER WORKS, INC. was served via the Court’s electronic filing
notification system to e-filers as indicated on the Court Service List Report.
.
/s/ Cecilia Lesmes
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