Waiting drags on for $10 million life insurance payouts linked to HOA scheme

At the time of Nancy Quon’s suicide in March 2012, she had $10 million in life insurance that was supposed to go to beneficiaries, including her two daughters.

But more than two years later, those beneficiaries have yet to see the money, which has been tied up in hard-fought civil litigation in federal court.

And the wait is getting longer.

Late last month U.S. Magistrate Judge Nancy Koppe put the litigation on hold until January 2015 — after the high-profile criminal trial of Leon Benzer, the former construction company boss federal prosecutors say was the mastermind of a scheme to take over homeowners associations across the Las Vegas Valley.

Prosecutors considered Quon, a successful construction defect lawyer, at the top of the massive scheme with Benzer, but she was not charged because she killed herself in the middle of the long-running investigation.

Several months after her death, MetLife, which held an $8 million policy for Quon, and American General Life, which had a $2 million policy, both went to federal court to resolve competing claims for the money.

Quon’s sister Patricia Arnott, the trustee of a life insurance trust Quon set up for her daughters, was vying for the $10 million and so was the Vistana homeowners association, one of 11 HOAs federal prosecutors alleged were defrauded in the takeover scheme between 2003 and 2009.

Vistana claimed it was scammed out of a $19 million construction defect judgment Quon had won in 2007 and deserved the insurance proceeds because Quon used profits from the scheme to pay her insurance premiums. Benzer’s company was paid $8 million to do construction defect work at Vistana that either was subpar or not done at all.

The delay in the insurance litigation was sought by Vistana lawyers so they could sort through an additional 2.4 million pages of documents in the criminal case federal prosecutors provided under a strict protective order keeping the documents secret.

The lawyers also argued in their court papers that the nearly three dozen cooperating defendants waiting to be sentenced would be more willing to give sworn depositions in the insurance litigation after they fulfilled their obligations to testify for prosecutors in the criminal case. Their sentencings have been put off until January.

“Vistana can safely assume that each of these witnesses will invoke his/her Fifth Amendment privilege and refuse to answer questions until the conclusion of the criminal action and after each is sentenced, whereby the jeopardy of self-incrimination no longer exists,” Attorney Richard Haskin wrote.

The privilege was asserted by two of the defendants who pleaded guilty, former HOA board member Ed Lugo and attorney Brian Jones, during their depositions in the insurance case, Haskin said.

An attorney for another criminal defendant, Denise Keser, a former community management employee, informed Vistana lawyers that she would take the Fifth if forced to give a deposition. And Marcella Triana, a close Benzer associate now cooperating with prosecutors, didn’t even bother to show up for her deposition, Haskin said.

Thomas Hall, a Washington-based Justice Department prosecutor in the criminal case, provided Haskin with a sworn affidavit supporting his push for a delay.

Hall said the government did not instruct its witnesses to take the Fifth in the civil case, but that he, too, believed defendants would continue to do it “until their obligation to cooperate is satisfied later this year.”

Attorneys Mark Hutchinson and Richard Wade, who represent Arnott and Quon’s daughters Stephanie Lingle and Jessica Quon, opposed the delay, arguing Vistana’s allegations of a “far-reaching conspiracy” have nothing to do with the insurance trust.

The lawyers contended the Vistana lawyers won’t find any evidence against the trust in the mass of FBI documents.

Hutchinson and Wade accused Vistana of using the federal case to improperly obtain evidence in a parallel state case in which Vistana is suing Benzer, Quon’s estate and most of the other players in the conspiracy to take over the Vistana homeowners association.

But Koppe in her May 27 order found that the Quon insurance trust’s arguments were “not persuasive” and that Vistana had “shown good cause” for the need for additional time to review the FBI documents.

Benzer and five other defendants who have pleaded not guilty are to stand trial in the takeover scheme Oct. 14 before U.S. District Judge James Mahan.

Hall estimated in his affidavit that the trial would be completed by the end of November, giving all of the cooperating defendants a chance to complete their end of the bargain with the government.

In court earlier this month, Charles La Bella, the Justice Department’s lead prosecutor in the case, said Benzer’s approach to the scheme at each of the 11 HOAs was always the same: Find straw buyers to purchase condominiums and rig elections to get them on the boards, hire friendly lawyers and community management companies to manipulate the boards, and then get the board members in his pocket to vote his way.

The goal was to get the boards to approve construction defect litigation, obtain lucrative court judgments and award contracts to Benzer’s company, Silver Lining Construction, to do the defect work, La Bella said.

But according to the prosecutor, a construction defect judgment was only obtained at Vistana. Search warrants, served by FBI agents and Las Vegas police in September 2008, thwarted takeover efforts at the other HOAs, he said.

Contact Jeff German at jgerman@reviewjournal.com or 702-380-8135. Find him on Twitter: @JGermanRJ.