A Bonney Lake couple has been sued by the state of Washington for their roles in four multi-state charities that raised money using misleading or untrue statements.

Attorney General Bob Ferguson filed the lawsuit December 2017, alleging Brandon Haueter and Nancy Kerr Haueter, as well as their extended family, used inaccurate or false language in their solicitations to trick donors into believing money they donated to the Children’s Hunger Relief Aid, Children’s Safety Society, the Emergency Relief Network, and Search and Rescue Charities would be used in one way, but ended up being used in other ways.

The “defendants have engaged in a pattern of deceptive, unfair, and misleading charitable solicitation activity that has financially enriched the Haueter family at the expense of Washington,” Oregon, Idaho, Montana, California, and Alaska consumers, the Dec. 26, 2017 complaint stated.

The Haueters — which include Roy Bronsin and Billee Kae Haueter of Leavenworth, their daughter Tracee Haueter of Redmond, son Brandon, and daughter-in-law Nancy — have consistently denied the state’s allegations.

Ferguson tries “to paint a picture of a family that has devised a scheme to deceive the public for personal gain for more than 30 years with the patriarch as the family’s mastermind,” read court documents submitted by the family’s attorney, Kevin Steinacker of Puyallup-based Steinacker Law. “This could not be further from the truth. Defendants have made a few minor mistakes, but they have not engaged in deception and their solicitations are not misleading.”

But King County Superior Court Judge Julie Spector didn’t buy the Haueter’s defense, and in a sweeping Nov. 30, 2018 ruling, approved the state’s motion for partial summary judgement on eight of the 10 charges brought to court. The judge also ordered the charities to dissolve.

Granting summary judgement means Judge Spector came to her decision without the case going to full trial.

With the help of these deceptive solicitations, the state alleges, the Haueters raised more than $3.6 million between 2011 and 2017, with only $720,000 going to charitable causes. The Haueters themselves were paid $1.4 million through various operating agreements with the charities.

The Haueters argued they were legally compensated for their charity and fundraising work, which “hardly made them rich,” Steinacker wrote. “They are largely indebted with no appreciable assets.”

Though the King County Superior Court has found the Haueters in violation of state law, financial penalties, if any, have not been determined.

That may be determined when the case goes to trial in March 2019, although Steinacker said in a phone interview that he is “optimistic both parties can come to an agreement,” and settle before trial.

King County Superior Court ruling granting partial summary judgement by Ray Still on Scribd

A CONDENSED HISTORY

The history of this case stems back to 1980, when Roy created the for-profit Family Entertainment Corporation (FEC) in order to “put on live entertainment shows and produce entertainment events for nonprofit organizations and independent charities,” Steinacker wrote in his clients’ answer to the state’s motion for partial summary judgement. “He also produced publications for those events through FEC’s dba (doing business as) Universal Publishing.”

The first charity, eventually known as the Emergency Relief Network, was incorporated in 1982 by a man named John Young.

Two more charities were created in 1988: one eventually known as the Children’s Safety Society, founded by David Tingey; the other was Search and Rescue Charities, founded by Harvey Hawken.

The last charity was formed in 1996 by Tracee’s then-husband, Travis Waldref, which eventually became known as Children’s Hunger Relief.

With the exception of Waldref, none of the charities’ founders knew Roy before eventually partnering with Family Entertainment Corporation, one of several corporations these charities worked with to fundraise.

In 2000, Brandon Haueter and his brother Troy (who is no longer a defendant in this lawsuit) formed A Growing Concern Ltd., a commercial fundraiser. By 2009, all four charities were contracted with the call center.

Between 2000 and 2011, charity leadership shifted.

By 2011, Roy was named executive director of Children’s Safety Society, Search and Rescue, and Emergency Relief Network.

Along the way, his daughter Tracee was named secretary at one charity and president of another. Roy’s wife Billee also served as secretary at two charities, one of which she was also treasurer. Nancy, Brandon’s wife, was a secretary at a third charity.

Steinacker argued it was “only natural” that Roy’s family would become involved in these charities, since they often went with Roy to charity entertainment events over the years.

However, the state felt this was the beginnings of “an interrelated network of charitable organizations designed to broadly appeal to consumers’ charitable interests” that were in actuality “part of a single deceptive charitable solicitation scam.”

That deception was partly made possible because of Tracee, Billee, and Nancy’s positions at the charities, where they either actively participated in or were willfully ignorant of the wrongful conduct happening at the charities, the state argued.

“Although she was a [charity board member] for its entire existence, Tracee could not provide even the most basic information about the nonprofit during investigative deposition,” the state wrote, adding that other former presidents said they “relied heavily” on Roy’s hands-on management.

Judge Spector sided with the state in her summary judgement.

In 2010, A Growing Concern — which had contracts with many nonprofits, including the four in this lawsuit — closed its doors.

Brandon then opened Turnkey Leasing that same year, which was different from A Growing Concern in many ways: A Growing Concern had many employees, whereas Turnkey Leasing had one — Brandon; A Growing Concern had many clients, but Turnkey only operated with the four nonprofits named in the lawsuit; when A Growing Concern was in operation, Brandon “ran the fundraising office from A to Z” and its employees were the ones who tele-marketed for various charities, but under Turnkey, each charity’s employees or volunteers manned the call center, leasing the space and equipment from Brandon; and A Growing Concern received around 65 percent of gross revenue raised when it was in operation, whereas Brandon earned about $7,600 in leasing agreements per month when he ran Turnkey.

Steinacker said $2,000 of that was turned over to the commercial building owner for Turnkey’s space.

In comparison, A Growing Concern raised $4.14 million between 2001 and 2009, meaning the company earned roughly $2.7 million on commission.

Steinacker wrote Brandon closed the “successful commercial fundraiser” because it was difficult to raise money — and thus, difficult to earn commission — after the 2008 recession hit.

However, the state alleged Brandon opened Turnkey in order to “provide a steady, predictable income instead of unpredictable commission rate with A Growing Concern,” and to evade legal requirements, like registering with the Secretary of State and executing surety bonds.

Either way, the four charities wanted to continue their various missions, but found other commercial fundraisers were going out of business, too.

According Steinacker, the presidents of the various charities suggested to Roy and Brandon that the Family Entertainment Corporation, Turnkey Leasing, and the four nonprofits enter into several interconnecting operating agreements.

Roy and Brandon agreed, and the agreements were approved in 2010. Under those agreements, Roy and FEC would earn 20 percent of each of the nonprofit’s gross revenue in exchange for publishing and distributing charity relevant material, the state wrote.

Additionally, Brandon earned $7,600 in leasing fees for allowing the charities to use Turnkey office space and equipment. Over almost eight years, Brandon was paid roughly $700,000, or just over $515,000 after paying rent.

Finally, the charities themselves agreed to share expenses. “Sometimes it was appropriate for one charity to write a check to another to balance the cost charing,” Steinacker wrote.

However, the state alleged this cost sharing allowed the charities to fly under the IRS’s radar, as charities that raise less than $200,000 a year fill out less stringent tax returns.

“Operating four ostensibly separate nonprofits allowed the Haueters, generally, to remain under the $200,000 threshold and avoid the substantial reporting requirements placed on larger nonprofits,” the state wrote.

After these agreements were signed by Roy, Brandon, and the four charity presidents in December 2010, Roy became the executive director of Children’s Hunger Relief Aid a month later, making him executive director of all four nonprofits.

By 2015, Roy was named president of all four charities, though Steinacker wrote this was “due to situations completely outside Roy’s control,” giving the example that one president stepped down after his son was crippled in Afghanistan.

“Roy only accepted that role because no one stepped up to do it,” he continued. “As a result, Roy worked diligently to maintain the charities, spending countless uncompensated hours” keeping them running without getting additional compensation either through the charities or through FEC.

Ferguson opened an investigation into the Haueters in 2015. After depositions were given, Roy “realized that some of the charities’ practices and procedures could be improved,” and sent a list of those changes to Ferguson in April 2016, Steinacker wrote.

When several months passed and he received no response, Roy called up the A.G.’s office, and “was left with the impression they were closing the file,” Steinacker continued. Roy implemented those structural changes soon after, including Roy stepping down as president of Emergency Relief Network and Children’s Safety Society, and Brandon forming Universal Publishing LLC to take over FEC’s publishing duties.

Search and Rescue and Children’s Hunger Relief Aid voted Dec. 14 and 15 respectively and planned to dissolve the remaining funds, days before Ferguson filed a lawsuit.

“There was no way that Roy could have known that the Attorney General’s office would file a lawsuit a week later when he attested there were no pending lawsuits” when the charities were discussing dissolving, Steinacker wrote, countering the state’s claim that the charities did not give Ferguson’s office advance notice of the charities’ dissolution due to the ongoing investigation.

Even after the lawsuit was filed, however, the nonprofits continued soliciting until the court ruled in August 2018 they must temporarily stop, the state alleged.

THE CHARGES AND POTENTIAL PENALTIES

Eight of the 10 charges Ferguson brought against the Haueters were granted on summary judgement, including making false and misleading statements in solicitations and conducting unregistered commercial fundraising activities.

The two charges that were not granted by summary judgement include misrepresenting of the status of paid solicitors and failing to renew as a charitable organization with the state.

In regard to false and misleading statements in solicitation materials, the state provided physical examples of those materials to the court.

In one case, a Cancer Exam Network (which would be renamed Children’s Hunger Relief Aid) letter from 2015 stated the charity “dedicates the net proceeds to saving lives through research and education help,” and implied many women “are without access to health insurance and cannot afford lifesaving diagnostic tests such as mammograms,” leading consumers to believe their donations would go financially support those who need these exams, the state argued.

Between 2012 and 2015, the charity spent no money on cancer research or financially supporting cancer exams, according to IRS documents. Instead, of the $310,000 raised those four years, almost $219,000 went toward educational material promoting the importance of early exams and promoting the charity’s purpose.

In depositions, a previous president said she was “unaware of anything Cancer Exam Network had done to support cancer research,” and even Roy, in his deposition, said the charity “did not regularly fund exams or research,” the state wrote.

Steinacker pointed out the charity did spend almost $2,000 on cancer research in 2011, “although subsequent campaigns were unsuccessful.” Roughly $28,000 was spent on education material and self-promotion that year.

Cancer Exam Network changed its name in 2015 to the Children’s Hospital Emergency Fund.

In a 2015 solicitation letter, the charity claimed to work on “keeping families together during times of crisis” and “takes care of basic expenses low income patients incur, allowing the family to focus on the health of their child,” court documents show.

However, according to IRS documents, the charity spent no money to support a family’s basic expenses, while more than $58,000 of the raised $93,000 went to educational materials, health guides, and self-promotion.

The charity changed its name for the final time, to Children’s Hunger Relief Aid, in 2016.

In a 2017 solicitation letter, the charity claimed “we provide ‘emergency food vouchers’ for children going hungry and needing to eat.”

The state claimed this is misleading, because in 2016 and 2017, roughly $18,000 were spent on gift cards, and not emergency food vouchers.

Steinacker countered that the charity was not being misleading, and that a gift card counts as a voucher.

In his deposition, Roy said much of the same.

“I do not think it misleading to refer to a gift card as a vouchers,” he explained, adding that the gift cards were given to Head Start programs (a U.S. Department of Health and Human Services program for overseeing the health and school readiness of young children in low income families) with instructions that “the gift card is to be used for groceries only.”

The state alleged the other three charities had similar issues with deceptive claims.

For example, in a Emergency Relief Network solicitation letter, the charity claimed to help “foster children” start a new school year “with dignity and confidence” by helping them purchase school materials and clothes.

The state alleged the money again went toward gift cards, given to Head Start programs. However, because foster families already receive a set amount of money from the state and provides clothing vouchers for foster kids, “the gift cards ERS purportedly provides are unlikely to reach foster children, even if they do help support impoverished ones.”

Steinacker wrote “foster children are specifically eligible for enrollment in Head Start regardless of income,” and asserted “Roy worked with the various Head Starts to identify the foster children who would benefit from the gift cards.”

The state also alleged the charities mislead donors into believing they were donating to local causes.

According to court documents, Roy managed 46 post office boxes around Washington, and several more in five other states, in order to “appear to be operating locally to various communities,” the state added.

Although Turnkey Leasing operated out of Tacoma, many solicitation letters would make claims like “Your donation will benefit local children in dire need” or “Will you help feed a hungry child today here in our community?” and bare return addresses from around the state like East Wenatchee, Mount Vernon, or Kennewick, Washington.

Steinacker explained Roy managed those drop boxes in order to “keep track of where donations were made… the charities then carried out their charitable activities in an area proportionate to the donations received there.”

Although Brandon Haueter never had a formal role in any of the four charities, he was brought into this lawsuit because the state alleged he was operating a commercial fundraiser that was unregistered with the state.

Turnkey Leasing, the state argued, “was a commercial fund-raiser because the business received compensation for directly or indirectly soliciting charitable contributions on the nonprofit defendant’s behalf and directed the fund-raising activities of the nonprofit,” the state wrote, referring to state law.

Brandon, both in court documents and in an in-person interview, denied being involved in any way with helping the charities fundraise when Turnkey was in operation.

“Brandon’s job was to set up the daily calling and run the equipment year-round,” Steinacker wrote. “Anything that did not involve the computer equipment, office equipment, or database management, was not his responsibility.”

However, in his deposition, Brandon said he also generated the invoices for everyone who was going to receive a pledge kit before those kits were sent out, “set up sessions every day for who’s going to be working and load the dialer with numbers for them to be calling throughout the day,” and occasionally used a charity checkbook “to take payroll down and give it to the employees that week,” all work that the state alleges means Turnkey Leasing was a commercial fundraiser, not just leasing out call center equipment and space.

Steinacker argued this work is more like that of a paid consultant than a commercial fundraiser, since Brandon couldn’t control the hiring or firing charity employees, nor decide the content of solicitations.

Additional information, plus access to court documents, can be found with the online version of this story at www.courierherald.com