Arrow-right Camera
The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Developer accused of fraud

Lawsuit says Harley Douglass made false claims in seeking settlement

Houses are going up in the Hunter’s Pointe subdivision in Mead two years after Spokane County paid $685,000 to the developer for a foul-up in the building department that delayed final platting. (Colin Mulvany)

Spokane County commissioners paid $685,000 in an out-of-court settlement two years ago to a prominent local business family, but some members of that family are alleging in a lawsuit that part of the claim may have involved fraud.

The allegations against developer Harley Douglass were brought to the county’s attention nearly eight months ago by his brother, Lancze Douglass.

Although documents outlining the potential fraud, including sworn depositions detailing alleged check tampering, have been turned over to law enforcement, Spokane County commissioners say they’re worried that seeking repayment could unravel the whole settlement and end up costing the county even more. For that reason, they’ve decided not to explore whether taxpayer money might be recoverable.

The fraud allegations stem from business losses claimed by Harley Douglass when the county in 2008 shut down a Mead-area housing project because of an administrative foul-up.

The county paid $685,000 on Douglass’ $2.3 million claim. Then Douglass sued family partners to take control of the settlement.

Brother and business partner Lancze Douglass said he wants to clear up any possible wrongdoing and protect the business reputations of himself and his sister, Stacey Douglass, partners in the development.

“This type of thing doesn’t happen in our family,” he said. “It needs to be made right.”

A separate criminal investigation is under way by the Spokane County Sheriff’s Office.

But Lancze Douglass believes county officials are dragging their feet until the statute of limitations on possible criminal charges expires next month.

Douglass also says that when he met with County Commissioner Todd Mielke to discuss the alleged fraud, Mielke asked for a campaign contribution.

Mielke acknowledges the request – which took place in Lancze Douglass’ office – but said he has been “asking a lot of people for support this year.” He said he explained to Douglass that his solicitation was not linked to Douglass’ concerns.

One brother believed he was owed entire settlement

The problems arose from the development of a 40-lot subdivision known as Hunter’s Pointe just north of the Mead Airport.

Harley Douglass won approval of a preliminary plat in 1997 under a business known as Ace Investments LLC.

Partners in Ace Investments are Harley, Lancze and Stacey Douglass, the children of Harlan Douglass, a wealthy developer and property owner.

Harley Douglass obtained an extension to his preliminary plat and then sought to finalize the plat as early as 2006. Instead he was denied in 2008 despite having paid for construction of streets, sidewalks and other infrastructure. The county building department failed to approve his 2006 final plat application.

Harley Douglass appealed to the hearing examiner, who found that the county overstepped its legal authority in denying the final plat.

Harley Douglass then sued for damages.

The county paid $500,000 of the Hunter’s Pointe claim as its deductible, while the Washington Counties Risk Pool picked up the remaining $185,000.

The Douglass siblings had a practice of allowing one another to handle individual developments from start to finish.

According to court records, Harley Douglass believed that he was owed the county settlement money because he had done the work that went into the Hunter’s Pointe project, including the costs of bringing the appeal and subsequent lawsuit against the county.

In 2010, he sued his brother and sister and Ace Investments for all of the proceeds from the county settlement.

That set off an investigation by Lancze Douglass and his attorney, which Lancze Douglass said uncovered evidence of alleged fraud. In a counterclaim against Harley Douglass, Lancze and Stacey Douglass allege that Harley Douglass submitted false invoices and checks to substantiate his losses.

Harley Douglass did not return a phone call seeking comment.

Chief Criminal Deputy Prosecuting Attorney Jack Driscoll confirmed that the fraud investigation is under way but said no recommendation has been received from the Sheriff’s Office.

Engineer says he was asked for new invoices

Evidence of alleged fraud comes from a sworn declaration by Todd Whipple, a civil engineer working for Harley Douglass. He said Douglass asked him to submit new invoices that matched checks paid for work on a different job.

The checks were altered, according to Lancze and Stacey Douglass’ counterclaim against their brother.

“Harley Douglass provided me with the dollar amount that I should use for each invoice and the date that he wanted to appear on each invoice,” the sworn declaration says.

The engineer said he was not told the reason for submitting new invoices, “and I did not question Harley about his purposes,” the declaration says.

Copies of checks that were submitted to bolster the claim against the county were obtained by Lancze Douglass. They show that the invoices were written to match the checks, but the checks had been used to pay expenses on another project.

“Until my deposition on Nov. 18, 2011, I did not know that Harley Douglass had used checks paid to my firm on other invoices for services actually performed,” Whipple said in his deposition.

The invoices that totaled $68,000 had been submitted to a consultant hired by the county to examine the Hunter’s Pointe claim against the county.

Lancze Douglass said the county could recover three times the invoices amount, plus a $250,000 penalty, if the claim were reopened. Documents filed by the attorney for Lancze and Stacey Douglass say that Harley Douglass could be liable under the state’s criminal profiteering act and federal racketeering law.

Mielke said the settlement over Hunter’s Pointe was reasonable considering the amount of the original claim, and that the payment was made for total losses, not individual invoices.

The civil case brought by Harley Douglass and the counterclaim by his brother and sister and Ace Investments have been put on hold by Superior Court Judge Jerome Leveque pending completion of the criminal investigation.

But the statute of limitations in the criminal investigation expires in November, Lancze Douglass said, and he believes the county is dragging its feet until then.

Douglass went to Roskelley

Lancze Douglass said he met Mielke on Feb. 22 and Commissioner Al French a few days later to tell them about the alleged fraud. He also met with a county assistant prosecuting attorney on March 7.

Douglass said that during the Feb. 22 meeting, Mielke asked him for a campaign contribution.

Mielke, a Republican, is running against former Democratic County Commissioner John Roskelley this fall.

State law limits contributions from an individual or corporation to $900 for the primary election and $900 for the general election, but larger amounts can be given to political parties, which have higher contribution caps.

Mielke suggested that Douglass write a check to the state Republican Party and put Mielke’s name on it so the party could send the money back to Mielke, Douglass said.

Even so, individual limits would still apply.

“He gave me two envelopes to contribute in,” Douglass said.

Douglass said he did not donate to Mielke.

Mielke acknowledged that he asked for a campaign contribution.

Frustrated by the county’s failure to address the alleged fraud, Lancze Douglass contacted Roskelley.

“Where our frustration lies (is that) nothing has happened,” Douglass said. “All of the public entities, it’s just pass the buck.”

He added, “It just encourages this type of activity.”