PHOTO: San Juan Water Conservancy District President Fred Schmidt points to the dead oak which marks the fill level for a proposed 35,000 acre-foot reservoir — which could serve an Archuleta County population of at least 160,000.
This is not a laughing matter, but my interest in it started with laughter.
Three months ago, the Pagosa Springs Town Council held a work session on the declining economic prospects of the Town. After two contentious hours, then Town Manager Mark Garcia sought to lighten the mood.
Garcia announced that he had ended negotiations with San Juan Motel owner Fred Schmidt over a proposed trade of Schmidt’s unpaid $30,000 sewer bill — for an easement which would have permitted the Town to construct a pedestrian bridge from the forested end of Hermosa Street to Schmidt’s property west of the motel.
Schmidt had also requested Town pre-approval of a 60-foot high indoor water park project on the site of his motel, in exchange for this easement.
Garcia grimaced sheepishly, and explained why he had ended negotiations. Schmidt was not the owner of the property upon which he was offering a right of way. Everyone around the work table laughed, not whole-heartedly, but with an ironic, almost fatalistic, release of mock disbelief.
I didn’t laugh. I felt a harder, more worrisome, disbelief.
Schmidt is the president of the San Juan Water Conservancy District. Schmidt has been the lead, and sometimes the sole, negotiator for the SJWCD and Pagosa Area Water and Sanitation District (PAWSD) as they attempt to purchase $10 million of land one mile north of Town for their planned 35,000 acre-foot Dry Gulch Reservoir Project (Please note that present day water demand is 2,000 acre-feet.)
Schmidt has already demonstrated the drive to accomplish impressive water projects, having won gold and bronze medals in the pool at the 1964 Tokyo Olympics.
And don’t be misled by claims that the reservoir’s size is still open for discussion — Schmidt’s goal is to build and fill a 35,000 acre-foot pool at Dry Gulch. Two weeks ago, Schmidt led regional officials on a tour of the Dry Gulch site. He pointed to the dead oak which marks the 35,000 acre fill-line. (When asked where the 12,500 acre-foot fill-line would be, Schmidt had no clue.)
At last Tuesday’s PAWSD meeting, Schmidt confidently asserted that the district need not be limited by any court decision, even a Colorado Supreme Court decision, about water rights and planning periods when deciding on the size of the reservoir at Dry Gulch.
But outside of the pool, with its clearly marked lanes and watchful officials, does Schmidt know how to get what he wants within the rules? There are many questions about Schmidt’s past business practices — especially his role, as president, in the collapse and liquidation of the Doerring Group, the last $150 million project Schmidt directed.
More important than past questions, however, is the recent verdict on Schmidt’s business ethics made by District Court Judge Gregory Lyman last year when assessing $1.3 million in damages against Schmidt: a “disposition to act fraudulently and with a willful and wanton disregard for the rights of others.”
Schmidt, it turns out, forfeited the property he was attempting to trade to the Town for his unpaid sewer bills — because he had used those same 2.7 riverside acres to defraud a friend, according to District Court Judge Greg Lyman.
The manipulations detailed in the Hummer v. Schmidt case, quoted below, resemble professional wrestling more than the Olympic ideal. The question that Archuleta County taxpayers need to ask is: Can Schmidt be trusted to oversee the closed-door negotiations and contracts for a $150 million reservoir — if he can’t borrow $300,000 from a friend without resorting to willful and wanton fraud?
Thomas J. Hummer v. Fred W. Schmidt (Case Number 06 CV 86 Division 1)
ORDER
THIS MATTER came before the Court for hearing on May 21, 2007, to determine the damages on Plaintiff Thomas J. Hummer’s Motion for Default Judgment on the First and Third through Seventh Claims for Relief.
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Findings of Fact and Law
Defendant Fred Schmidt, individually and as the trustee of the Schmidt Family Trust, during or about October, 2004 requested that Plaintiff make a loan in the total amount of $300,000.00 to be secured by a deed of trust on real property commonly referred to as the “Pasture Property.”
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Plaintiff made the loan in the total amount of $300.000.00 on October 15, 2004. The loan was evidenced by two promissory notes. … Each promissory note was made in the name of SJP Investment, LLC, a Colorado limited liability company, and signed by Fred W. Schmidt, Trustee, as Manager. Each promissory note was convertible to equity ownership in SJP Investment, LLC at the option of Plaintiff.
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Defendant Fred Schmidt, individually and as the trustee of the Schmidt Family Trust, represented to Plaintiff during May, 2005 that the Pasture Property had a value of $22.50 a square foot. … Plaintiff made additional investments in SJP Investment, LLC in total sum of $75,300.00. …
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Plaintiff’s investments and convertible loans to SJP Investment, LLC totaled $375,300.00, or an equity interest of 35.21% in SJP Investment, LLC, which was represented to Plaintiff by Defendant Schmidt to be the sole owner of the Pasture Property. Plaintiff had an expectation that his equity interest had a value of $938,645.60.
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Fraud
Plaintiff learned during a conference call between his attorney, Defendant Fred Schmidt, and Mr. Schmidt’s attorney in or about April, 2006 that SJP Investment, LLC was never formed as an entity, and that SJP Investment never held title to the Pasture Property. Defendant Fred Schmidt, individually and as the trustee of the Schmidt Family Trust, made the representations to Plaintiff that SJP Investment, LLC was a duly formed limited liability company that held sole title to the Pasture Property to induce him to make the loans and invest in SJP Investment. LLC.
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The Court finds that Plaintiff has thus proved beyond a reasonable doubt that conduct of Defendant Fred Schmidt, acting individually and as the trustee of the Schmidt Family Trust, in making the representations to Plaintiff that SJP Investment, LLC was a duly formed limited liability company that held sole title to the Pasture Property, was attended by circumstances of fraud, and Defendant Fred Schmidt engaged in willful and wonton conduct in these representations, without regard to Plaintiff’s rights.
Defendant’s Other Acts of Willful and Wanton Conduct
Plaintiff presented evidence that Defendant Schmidt has engaged in other acts which showed his disposition to act fraudulently and with a willful and wanton disregard for the rights of others. Tom Lennon, who served as the trustee appointed on behalf of the Security and Exchange Commission, testified that Defendant Schmidt as the CEO of Doerring & Associates, Inc. supervised the misappropriation of funds invested in the Doerring Investment Reserve Trust (DIRT account). A permanent injunction was issued against Defendant Schmidt in the United States District Court for the Southern District of California as a result of the misappropriations from the DIRT account.
Marcie Leeper testified that she had purchased a lot in the Loma Linda subdivision from Defendant Schmidt. Defendant Schmidt represented that the net proceeds from the sale of the property to Mrs. Leeper would be placed in escrow for the construction of the road and the installation of the utilities to the property. The check was made payable to an escrow account at closing, but the road and utilities were not installed. Mrs. Leeper contact[ed] the Norwest Bank and was advised that the funds had been taken. She then confronted Defendant Schmidt, and he admitted that he took the funds.
The Court also took judicial notice that Case No. 2007 CV 15 has been filed against Defendant Schmidt, which includes allegations that he misappropriated homeowners’ dues paid to an association. [Note: Schmidt has been found guilty of this misappropriation as well and the damages hearing will be held this Wednesday in Durango before Judge Lyman.]
Exemplary Damages
The Court of Appeals has held that exemplary damages were not appropriate on a default judgment when no evidentiary hearing was held to establish justification for the exemplary damages. Johnston v. S.W. Devanney & Co. Inc., 719 P2d 735 (Colo. App. 1986). However, in the present case, the Court held an evidentiary hearing on May 21, 2007, to determine damages. The Court finds there is evidence beyond a reasonable doubt to support exemplary damages.
IT IS HEREBY ORDERED that judgment is entered in favor of Plaintiff and against Defendant Fred W. Schmidt, individually and as the Trustee of the Schmidt Family Trust, and Defendant Schmidt Family Trust, as a separate entity and doing business as SJP Investment, LLC, jointly and severally, as follows:
1. Damages for amounts owed on the promissory notes for $300,000.00
2 Damages for the loss of the benefit of the bargain for $638,645.60
3. Exemplary damages pursuant to C.R.S. § 13-21-102 in the sum of $300,000.00
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TOTAL JUDGMENT: $1,310,566.97
District Court Judge Gregory Lyman