VV Water District Vindicated in Civil Lawsuits

By Barbara Ellestad

(Author’s note: As Editor/Publisher of the Mesquite Citizen Journal, I wrote numerous articles about the Virgin Valley Water District civil lawsuit from its beginning in 2011. It’s only fitting to write one more article detailing its conclusion. All information in this article comes from public documents without any disclosure of attorney/client privileged information I may have received since my election to the VVWD Board of Directors. I write this article as a private citizen and not in any official capacity with VVWD.)

In 2011 the Virgin Valley Water District filed a civil lawsuit against its former General Manager Mike Winters, former Chief Hydrologist Michael Johnson, then-Deputy State Water Engineer Robert Coache, and wealthy businessman and landowner John Lonetti, Jr. The lawsuit alleged the District lost almost $8 million dollars in two separate water share sale transactions in 2005 and 2008 because of an alleged conspiracy among the men.

After investigations by VVWD and the Las Vegas Metropolitan Police Department, Johnson admitted that he accepted $1.3 million from Lonetti as payment for his part in both transactions. Facing certain termination, Johnson resigned from his position in August 2010. Subsequent investigations showed that Johnson split the $1.3 million with Coache and “loaned” Winters $15,000 from the payoff.

Coache retired from his State job in May 2010.Winters was fired from his position in February 2010. In June 2010 the Clark County District Attorney (DA) charged him with criminal Misconduct of a Public Officer for his role in a separate land purchase. The DA also filed criminal charges against Johnson and Coache in May 2011, later adding Winters to the indictment.

Lonetti agreed to a “proffer” from the DA which kept him from being charged in criminal proceedings if he cooperated with the investigation and prosecution of the others.

In an unusual move by District Court Judges Abbey Silver and Michael Villani who were appointed to adjudicate the criminal trials, those proceedings were stayed until after the civil case was completed. Criminal trials usually precede civil trials.

Over the next three years numerous court document filings, hearings, and depositions took place as the District struggled to prove its case against the four men in front of Clark County District Court Judge Rob Bare. In all the District spent close to one million dollars on attorney fees, expert witnesses, investigative costs, depositions, and court fees.

Shortly before a scheduled April 2014 jury trial began, Judge Bare ruled that Winters and Johnson indeed owed VVWD fiduciary duties as employees. All four men agreed to settle with the District thereby canceling a potential six-week trial.

Below is a synopsis and current status of those settlements.

John Lonetti, Jr – Still no money

Lonetti agreed to ‘buy back’ 1,200 acre feet of non-potable Virgin River water from VVWD for $3.240 million that he had sold to the District in the 2008 transaction. The water had very little value to the District and Lonetti is restricted to using it only for irrigation on his Meadowland Farm south of Bunkerville. Lonetti also purchased 100 acre feet of ground water rights from the District for $1.5 million that was part of the 2005 transaction. Because Winters and Johnson failed to file necessary paperwork with the Nevada State Water Engineer, the water lost its valuable pre-1929 priority date, rendering it virtually worthless.

After depositing $50,000 in earnest money Lonetti was required to pay $3.240 million by October 2014 and $1.5 million by December 2014 but failed to do so. In January 2015, the VVWD Board of Directors granted an extension of the due dates until April. According to Lonetti’s attorneys, he is seeking a bank loan for the money and payment is “imminent.” Lonetti agreed to pay interest on the overdue money but the interest rate is still being negotiated.

Winters – All criminal charges dropped

Winters has paid the District $15,000 that he allegedly received as part of the $1.3 million bribe for the 2008 water transaction. He did not admit guilt in the civil or criminal actions against him.

In connection with Winters agreeing to pay the District, all criminal charges against him were dropped by the DA after the Water District expressed approval of the action.

Winters filed a claim with the District’s insurance company for payment of the $15,000 and his attorney fees and legal costs associated with the civil lawsuit and criminal charges. The insurance company has refused to release any information regarding his claim or payment thereof.

However, the District received a $500 bill from the insurance company as payment of the deductible towards Winters’ claim and PoolPact wrote the check for $15,000 to the District.

Johnson – Violated his fiduciary responsibility

Johnson reached a settlement with the District in May 2014 which he was required to sign by Sep. 2, 2014. Based on his failure to do so, Judge Bare signed a judgment against him in February enforcing the settlement. Johnson is required to pay the District’s additional attorney fees totaling $11,444 stemming from that court action.

While Johnson’s settlement requires him to pay $100,000 cash to the District, if he pays by May 1, 2015 he only has to hand over $80,000. If he pays by May 1, 2015, it’s only $90,000. It goes up to $100,000 if paid by May 1, 2019 or $200,000 if paid after May 1, 2019. The agreement does not allow him to discharge the debt in any future bankruptcy action.

Johnson must also sign over the first $100,000 he receives from his mineral (oil) rights.

In addition, the District will receive his interests in assets seized by Metro Police which include two houses and proceeds from the sale of a third house, all located in Las Vegas.

The DA intends to pursue its criminal charges against Johnson and Coache with a trial set to begin in July. It’s unlikely that date will hold since a new Judge was recently assigned to the case.

Coache – Seized assets could go to Water District

The Water District holds first position to accept assets which Coache allegedly purchased with his share of the $1.3 million payoff should he be convicted (or enter into a plea agreement) in the criminal proceedings stemming from the 2008 water transaction. That includes the same three houses Johnson’s agreement refers to.

Southern Nevada Water Authority (SNWA)

Even though SNWA was not named as a defendant in any civil or criminal proceedings involving the 2008 water share transaction, it has agreed to lease irrigation water shares from VVWD for a total of $4 million over 20 years. It has already given the District $200,000 towards that sum and is currently leasing 14 water shares at inflated prices towards reaching the total amount.

Insurance Claims – Up in the air

The District’s insurance policy with Nevada Public Agency Insurance Pool (PoolPact) expressly states it is covered up to $500,000 per transaction for breaches of fiduciary duty by employees. When Judge Bare found Johnson guilty of breaching his fiduciary duty as Chief Hydrologist in both the 2005 and 2008 transactions, that met the requirements of the District’s insurance policy. The District filed two claims for $500,000 related to each breach Johnson was found guilty of.

So far PoolPact has held out on paying the District’s claims.

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